·Ferrovials profit was up 30%. Without the extraordinary expenses from the merger of the construction businesses, net profit would have increased by 68%
·Businesses other than construction accounted for 60% of operating profit. Concessions represented 36% of this
·Since 1996, net profit has risen at an annual rate of 31%
·The growth of telecommunications and services will be boosted
·The company is already the leader in construction in Spain, in transport infrastructure concessions on a world scale and in the domestic residential real estate market
The Ferrovial Groups Ordinary General Shareholders Meeting, the first since the company went public, has approved the accounts for business year 1999. Net profit amounted to Ptas 18.505 billion (111.2 mE) in 1999, up 30% on the previous years figure, while sales revenues rose by 11%, to Ptas 440.118 billion (2,645.2 mE). Without the extraordinary expenses deriving from the merger of the construction businesses, net profit would have increased by 68%.
In his speech to shareholders, the Chairman of the Ferrovial Group, Rafael del Pino, emphasized that 1999 was a key year for the company which, apart from increasing its shareholders base and strengthening its financial structure, successfully completed the process of integrating Ferrovial and Agrománs construction businesses. Meanwhile, the Executive Deputy Chairman of the Ferrovial Group underlined that the flotation of the group was the incentive to effect major changes in organization, structure and regulations” and that one of the companys greatest objectives is “to be one of the most diversified construction groups in Europe and the leader in profitability. The Ferrovial Groups Managing Director, Santiago Bergareche, said that the contribution to operating profit made by the Groups businesses other than construction already accounts for 60% of the total as against the 47% of 1998, which means that the target established when the company went public has been reached four years ahead of schedule.
In his speech, Ferrovials Chairman, Rafael del Pino, underscored the fact that Ferrovials profits increased very significantly for the fourth year in succession and have grown at an average annual rate of 31% since 1996. Moreover, at the Ordinary General Meeting, he referred to Ferrovials stock market performance since the Public Offering: We believe that our strategy to grow and to boost profitability will be recognized by the markets and will have a positive effect on the companys valuation. In Del Pinos opinion, the decision taken in January to acquire treasury stock up to a maximum of 5% of the companys capital is an example of this confidence in the companys future prospects.
Ferrovials Chairman commented that the results obtained, together with the rights issue linked to the flotation and a prudent dividend policy, contributed to boosting the Groups shareholders equity, which was in excess of Ptas 154.406 billion (928 mE) at the year end. He also underlined the groups strong rate of investment, a total of Ptas 116 billion (697.9 mE) in gross investment, 16% more than in 1998.
Ferrovial is the leader in the sector in terms of the construction backlog, which amounted to Ptas 669.235 billion (4,022.2 mE). In the concession business, in 1999 Ferrovial became the leader in the world ranking for private transport infrastructure development and won the contract for the ETR 407 motorway in Toronto in Canada, a project that will require an investment of Ptas 400 billion (2,400 mE).
Del Pino also commented that in the real estate division, Ferrovial has consolidated its position in the sector, with a 45% increase in total sales. At the end of the year, sales commitments amounted to Ptas 71.523 billion (? 430 m), making it the leader in the residential segment.
Ferrovials Chairman referred to the reforms to the by-laws and to the approval of the Regulation of the Board of Directors, and other internal regulations, with a view to adjusting the organization, functioning and conduct of the members of the Board of Directors to the Code of Good Government recommended by the Comisión Nacional del Mercado de Valores (Spanish SEC). In this respect, the number of independent managers increased and three committees were created: Operations, Auditing and Control and Appointments and Payments.
Strategic objectives
Ferrovials Deputy Chairman, Rafael del Pino y Calvo-Sotelo, emphasized the fact that the flotation of the Group “was the incentive to effect major changes in the organization, structure and regulations with a view to achieving more efficient functioning of the governing bodies, and this has led to a simpler more agile corporate structure“.
Ferrovials Deputy Chairman referred to the culmination of the process of integrating Ferrovial and Agrománs construction businesses. This process involved an extraordinary cost of Ptas 5.3 billion (32 mE), while the recurrent annual cost saving is estimated at some Ptas 5 billion (30 mE).
For Del Pino y Calvo-Sotelo, the companys priority objectives are: to be one of the major diversified construction groups in Europe, to be the leader amongst European construction firms in terms of profitability and to be one of the twenty most attractive industrial groups for professional advancement.
In order to meet the objectives established, the company has defined a growth strategy based on seven key points: to maintain its leading position in terms of profitability in the construction sector in Spain “Our target for construction he remarked- is principally to be the leader in profitability and not to pursue volume for volumes sake“;to selectively extend its international construction business; to maintain its position as world leader in infrastructure concessions; to achieve diversified growth, both in the sector and geographically, in the real estate market; to become a key firm in the services market; to boost the telecommunications business; and to continue to be open to growth through acquisitions, both at the level of the Group and by business divisions.
Rafael del Pino y Calvo-Sotelo underlined the awarding of the largest transport infrastructure concession project tendered on an international scale: the extension and running, for 99 years, of the ETR-407 motorway in Toronto, in the province of Ontario (Canada), which involves an investment of some Ptas 400 billion (2,404 mE), with Ferrovial contributing 62% of capital. According to the Deputy Chairmans words to the shareholders, this contract “has put Ferrovial at the head of the world ranking in the field of transport concessions in terms of the size of the investment. Canada is a springboard for Ferrovials future developments in North America“.
Del Pino y Calvo-Sotelo emphasized the leadership achieved in the residential real estate industry in Spain. Ferrovial is currently working on 131 developments, with over 14,500 houses under management, and has a franchise in Spain, Chile and Portugal.
According to Ferrovials Deputy Chairman, the construction business will benefit from the continuation of the expansionary cycle and from the increase in public and private investment this will bring. The outlook for the real estate market, infrastructure concessions, urban services and telecommunications is also favorable. In respect of telecommunications -where Ferrovial already plays an active role through the companies in the sector Cableuropa (Ono) and Lince (Uni2)- Del Pino y Calvo-Sotelo pointed out that “technological progress is being made and enormous changes will take place in society and business which will undoubtedly lead to very interesting investment opportunities“.
At the Ordinary General Shareholders Meeting, Ferrovials Deputy Chairman defined Ferrovial as “a dynamic flexible company with strong growth potential; qualities to be added to the traditional management capacity it has shown for so many years“. In his opinion, size, flexibility, total decentralization and the synergies and generation of business are Ferrovials unquestionable strengths for the future.
The weight of diversification
In his speech to shareholders, the Ferrovial Groups Managing Director, Santiago Bergareche said that 1999 “was another year of progress in the main figures and in all the Groups divisions. The increases he stressed- are particularly large in the real estate business and, above all, in the concessions division“.
Bergareche ran through the Groups results in the different business divisions. Consolidated sales revenues amounted to Ptas 440.118 billion (2,645.2 mE), up 11%. All the business divisions contributed to this growth with notable increases in their business volumes. Thus, construction obtained Ptas 368.047 billion (2,212 mE). The real estate business obtained revenues amounting to Ptas 40.690 billion (244.5 mE), 45% more than in the preceding year. In the concessions division, turnover more than doubled the 1998 figure, at Ptas 29.822 billion (179.2 mE). Lastly, the Managing Director referred to the services division, where revenues totaled Ptas 15.192 billion (91.3mE), a 30% increase.
Santiago Bergareche explained to Ferrovials shareholders the increasing weight that businesses other than construction are acquiring; they now account for 60% of operating profit, as against the 47% of 1998.
He emphasized the contribution of the concessions divisions, especially the contract for the Toronto ETR-407 motorway, “the largest transport infrastructure concession project tendered on an international scale, which has put Ferrovial at the head of the world ranking for transport concessions in terms of volume of investment“; the progress made in the real estate business and the interest in telecommunications.
Bergareche said that “Ferrovial continues to back the telecommunications industry and has its sights firmly set on its growth potential and its capacity to create value, which is why further investment opportunities are being studied, especially those that might arise with respect to the Internet“.
For the Groups Managing Director, the increase in shareholders equity was particularly notable in 1999, since the large volume of results obtained is accompanied by the rights issue linked to flotation on the stock market, which implied an entry of funds in excess of Ptas 32.445 billion (Euros 195m) “in order to meet the growing volume of investments required by the companys growth strategy. Not considering the effect of the dilution, deriving from the rights issue conducted in 1999, the return on equity measured as net profit to average equity (ROE), which was of 14.7% this year, would have been in excess of 17%“, he said. Given the high level of equity, the net debt to equity ratio, which was of 37% as of 31 December, still leaves room for an improvement in gearing.
In his speech Bergareche said that “Ferrovials bid is long-term and its strategy based on sound foundations aims at leadership in growth and profitability on an international scale in the main sectors in which it operates“.
