Rafael del Pino, company Chairman, highlighted Cintra´s distinctive features compared with other options in the sector, based on its focus on growth in a low-risk business.
He also highlighted the company´s global reach: national borders should not be a barrier to its expansion.
Since its foundation in 1998, Cintra has tripled its portfolio of toll road concessions and it now operates in six countries. Momentum is being maintained by bidding for new projects in OECD countries.
Juan Béjar, CEO of Cintra, announced that the company has bid in five tenders that are awaiting a decision, which represent an investment of close to 3 billion euro, and it is working in different phases of a total of 54 projects in various countries.
The company´s indicative valuation of its assets is over 5 billion euro: the valuation only includes eight concessions that have been operational for some time and have a significant weighting in the portfolio; the others are included at book value.
In 2004, the company attained 143.7 million euro of consolidated net profit and 483.9 million euro in revenues (23.7% more); EBITDA increased by 24.6% to 336.6 million euro.
Main events of 2004: entry into the infrastructure business in the United States, favourable court ruling in Canada, and opening of toll roads in Spain and Portugal
Cintra´s shareholders today approved the company´s earnings and its strategy as a listed company after the IPO in October 2004 (a combined primary and secondary offering in which approximately 38% of capital was placed).
In his address, Rafael del Pino, Chairman of Cintra, stated that "Cintra arose from our conviction that it is possible to attain substantial growth in value by investing in what is a stable, relatively unvolatile sector: transport infrastructure concessions". He also highlighted Cintra´s distinctive features "based on the bid for growth in a low-risk business".
Growth and internationalisation
Cintra´s strategy of growth in such a narrow segment must necessarily go beyond the bounds of a single national market. "Cintra has a global vision of the toll road business", he stated, "since it understands that, while the countries where it operates maintain a stable, reliable political, economic and legislative climate, national borders should not pose a barrier to growth".
Cintra currently has seventeen toll road projects in its portfolio: eight toll roads in Spain; four sections of Ruta 5 in Chile; 407 Express Toll Route in Canada; two toll roads in Portugal; the N4/N6 project in Ireland; and the Chicago Skyway in the United States.
"Since its foundation in 1998, Cintra has tripled its portfolio of toll road concessions and it now operates in six countries. Momentum is being maintained by bidding for new projects in OECD countries."
In the car park sector, Cintra is focused on the domestic market and its strategy is to develop a presence simultaneously in all segments: off-street, private and on-street car parks. Cintra has maintained a strong pace of growth in car parks, practically doubling the number of parking spaces under management, from close to 120,000 in 1999 to nearly 210,000 at present, making it the leader in this segment in Spain. The number of parking spaces has increased by an annual average rate of 12.1% in the interim.
Key financial figures
In the last five years, Cintra has practically doubled its consolidated revenues, from over 250 million euro in 2000 to nearly 500 million euro in 2004, i.e. 17% average annual growth.
Consolidated EBITDA has multiplied 2.7-fold in the last five years (127 million euro in 2000, to 337 million euro in 2004), i.e. 21.7% compound annual growth. EBITDA has outstripped revenues as a result of growth in the EBITDA margin, from 49% in 2000 to nearly 70% in 2004.
Consolidated net profit, adjusted for extraordinary provisions and the capital gain on the IPO, increased from 54 million euro in 2000 to 125 million euro in 2004, i.e. 130% more. Without adjustments, 2004 net profit was 143.7 million euro, 3.8 times the 2000 figure.
This growth strategy is based on a policy of investing in new concession projects. Investment in concessions totalled 1.7 billion euro in 2004, up from nearly 1.1 billion euro in 2000, which implies 12.5% average annual growth.
In its short history as a listed company, Cintra´s share has undergone three distinct trends: an initial decline due to rapid turnover by investors and, possibly, to Cintra"s distinctive approach within the sector; a subsequent gain, possibly assisted by good newsflow that confirmed the company´s growth strategy; and a third phase of decline that started in mid-January as a result of the markets´ negative perception of interest rate performance, even though the real impact of this rise on Cintra will not be very significant as 83% of its debt is fixed rate.
Key events in the year
The main events in 2004 were as follows:
- The company´s flotation on the stock market, when 38% of the company was placed in a combined primary and secondary offering. In the operation, Cintra raised 500 million euro in cash with which to undertake future projects.
- During 2004, it was awarded three new projects: Autopista Madrid Levante (the Ocaña-La Roda toll road) and Chicago Skyway, and it was appointed strategic partner of the State of Texas for the development of the Trans Texas Corridor. The latter two projects place Cintra in a leading position in the growing market for privately-developed infrastructure in the United States. In car parks, Cintra increased the number of managed spaces by 14%.
- Cintra also acquired two major equity interests: 10% of Ausol (bringing its stake to 85%) and 57% of Eguisa, thus attaining 100% of one of Spain´s leading operators of off-street car parks.
- During the year, two new toll roads, in Spain and Portugal, became operational: the Radial R-4 and Scut Algarve, respectively.
Cintra is working on a total of 54 projects
Juan Béjar, CEO of Cintra, commenced his address to the shareholders by noting that Cintra´s weighted holding in its concessions is 60% "which gives us control over management" and that the residual life of the concessions, also weighted by valuation, is over 70 years.
Cintra manages 17 toll road concessions in Spain, Portugal, Ireland, Chile, Canada and the US. "As for new projects, at the end of February we had five bids awaiting a decision, representing a total investment of approximately 3 billion euro, in Poland, Italy, Portugal and Ireland. We are also working on a total of 54 projects at various phases."
In 2004, Cintra attained 143.7 million euro in consolidated net profit. Excluding the extraordinary results associated with the Cintra IPO in 2004 and the reversal of provisions in 2003, net profit increased by 3.8% to 124.6 million euro. EBITDA increased by 24.6% to 336.6 million euro. The EBITDA margin reached 69.6%. EBIT increased by 22.4% to 263.7 million euro in 2004.
Net revenues totalled 483.9 million euro, 23.7% more than in 2003. Gross investment in concession parent companies (i.e. contributions to concession equity) and car parks totalled 128 million euro. Gross investment in concession company assets, basically construction work, totalled 604 million euro, a 30% increase.
"When analysing the company´s value", stated Béjar, "we should consider that:
- if we accept that the company´s worth should be calculated by discounting cash flow, then new concessions will always provide accounting losses in the early years, no matter how much value they create;
- our constant practice of releveraging concession companies so as to accelerate cash flow to shareholders and increase the discounted value also has the effect of increasing book losses, despite enhancing the company´s value."
Initiatives to optimise EBITDA
"We believe," he continued, "that EBITDA is the best measure of the performance of our portfolio of businesses. Analysing our main assets, we observe that 407 ETR (51% of the total) increased EBITDA by 15.7%, while Ausol attained 14% growth, Autema 12% and Chile 15%. The car park business increased EBITDA by 19% if we compare full years in 2004 and 2003, although it should be borne in mind that Cintra only acquired the car park business in October 2004."
Initiatives that Cintra has implemented at concession companies to increase EBITDA include:
- centralising management of the Spanish toll roads, which has saved 1 million euro per year;
- centralising management of the Chilean toll roads, which has saved 2.5 million euro per year;
- 15 initiatives to optimise management of the 407 ETR in Canada, related to increasing the billing rate of transits, reducing the number of calls to the call centre and enhancing process efficiency. Budgeted operating expenses for 2005 are lower, even in nominal terms, than the 2004 figure, representing a saving of over 7 million euro per year.
Future sources of value for Cintra
EBITDA contributed by the other concessions increased by 42%. "This is one of Cintra"s main value generators: concessions that have recently become operational and will become major contributors to the company´s EBITDA and value in the coming years."
Traffic also performed well:
- the 407 ETR registered a 7.5% increase in traffic despite raising tolls by 7.7%;
- Ausol I (Málaga-Estepona) registered a 6.3% gain, and Ausol II (Estepona-Guadiaro) an 11.1% increase.
- Autema saw traffic increase by 8%.
The car park division increased the number of managed parking spaces by 14.5%.
Juan Béjar emphasised the importance of this factor in understanding the business: the trend in the valuation of our main assets.
"I would like to highlight that we are only valuing seven assets by discounted cash flow, or market capitalisation in the case of Europistas. Another nine toll roads are still under construction or have just opened and, therefore, are counted at book cost. As we obtain firm revenue figures from them, we will discount their cash flows, and it is expected that all of them will enhance the company´s value."
"At 30 June 2004, we estimated that the value of our main assets, before the capital increase that was part of the IPO, was around 4.3 billion euro. Subsequently, we obtained the Chicago Skyway (equity contribution: 374 million euro). Rolling forward, i.e. discounting future flows at the same rate but six months later, increases the value by 91 million euro."
"We also applied discounted cash flow to two newly-opened assets which are already providing solid figures: the Algarve and M-45 toll roads. This leads to a 124 million euro increase with respect to their book value. Also, a number of changes in our valuation assumptions (basically in revenue expectations for 407 ETR) and discount rates mean that our main assets are now worth over 5 billion euro, in the opinion of the company´s management."
Framework agreement for relations between Ferrovial and Cintra
In the area of corporate governance, on the occasion of the IPO, Cintra approved a set of governance rules that are in line with best practices worldwide. All these rules came into force on 27 October 2004, coinciding with the Company´s debut on the stock market.
The main rules and initiatives are as follows:
- The Board of Directors Regulation establishes the proportion of independent directors: currently three out of a total of eight. That Regulation also created two committees chaired by independent directors: the Audit and Control Committee and the Related-Party Transactions Committee;
- The Shareholders´ Meeting Regulation, which incorporates a large number of the recommendations in the Aldama and Olivencia reports, and the Code of Conduct, which establishes strict rules to guarantee a high degree of transparency vis-à-vis the market;
- The Framework Contract with Grupo Ferrovial, which regulates relations between the two companies and their respective subsidiaries so as to ensure they are transparent and that any conflict of interest is resolved without any impairment of their respective shareholders´ interests. These relations are overseen by the Related-Party Transactions Committee, which consists mainly of independent external directors and to which the proprietary directors may not belong.
The main proposals on the Agenda for the Shareholders´ Meeting were:
- approval of a dividend amounting to 30 million euro, i.e. 6.1 euro cents per share, gross;
- re-appointment of Joaquín Ayuso as director of the company, and increase in the number of directors from eight (8) to nine (9). As a result, following a favourable report by the Related-Party Transactions Committee, the meeting appointed the Company Secretary, Lucas Osorio Iturmendi, as a director;
- approval of a stock remuneration plan for executive directors and executives of the Company, consisting of paying part of their variable remuneration in the form of shares of Cintra.