Ferrovial´s Board of Directors allocates 1 million euros to finance necessary adaptation works to homes of the victims of the March 11 attacks in Madrid who suffered permanent physical disability
The year 2003 was characterised by acquisitions in the services sector, creating a bigger, more international group with a greater weighing of less-cyclical businesses:
- For the first time, infrastructure and services represent more than 50% of EBITDA
- 33% of revenues and 42% of EBITDA were generated outside Spain
In 2003, Ferrovial posted net profit of 340.6 million euros and revenues of 6,025.9 million euros
Foundations for future growth: performance of operating variables, balanced international presence, track record in the worldwide infrastructure market, and investment capacity
Ferrovial had another good year of results and market performance in 2003 and continued to make progress in its growth strategy, based on the favourable performance of the markets in which it operates, the strength of its operating variables, its strong cash flow and a shrewd investment policy.
In 2003, net profit reached 340.6 million euros. Excluding the extraordinary gains on the sale of 40% of Cintra, net profit grew 15% in the year.
This morning, Rafael del Pino, Chairman of Ferrovial, presented the 2003 results to shareholders, summed up the company´s performance in the year, and outlined the main strategic lines of action which will enable Ferrovial to continue to grow and create value in the next few years.
Donation of 1 million euros
Before making his report to the meeting, Rafael del Pino asked for a minutes´ silence in honour of the victims of the March 11 terrorist attacks in Madrid.
He went on to communicate the Board of Directors´ decision, taken in a meeting immediately prior to the Shareholders´ Meeting, to allocate 1 million euros to finance any necessary adaptation works to the homes of those victims of the March 11 attacks who suffered permanent physical disabilities.
2003: sweeping transformation of the company
In 2003, Ferrovial underwent an extensive transformation with the acquisition of two large services companies, Amey in the UK and Cespa in Spain, which substantially altered the company´s sales and revenues sources, transforming Ferrovial into one of the main European companies in infrastructure maintenance and construction, urban services and urban and industrial waste management. He went on to explain that the integration of the two companies has created a Services division which will post revenues in excess of 2 billion euros in 2004, representing 30% of Ferrovial´s total revenues.
Dividend and share performance
Although the transformation undergone by Ferrovial has been highly significant, this should not detract from the progress made in the main financial variables, which enabled Ferrovial to propose a gross dividend of 0.60 euros per share to the Shareholders´ Meeting and maintain a shareholder remuneration policy consistent with that of previous years: the gross dividend has tripled since our flotation in 1999.
Mr Del Pino added that these results and the greater weighting of services have been well received by the market. For the third consecutive year, Ferrovial´s share price has risen, registering a 15% increase in the year. Since flotation, the share has risen 33%, compared with a 23% drop in the Ibex-35.
Investment of 2.7 billion euros in the last five years
This performance, stated Mr Del Pino, is partly due to the fact that Ferrovial has invested 2.7 billion euros in the last five years, in addition to land acquired for the Real Estate business. In 2003, 93% of the total investment of 862 million was spent on infrastructure and services and this was made possible due to the sizeable cash flow from construction.
The investment strategy, geared towards infrastructure and services, has enabled us to: achieve a more stable bottom line in the long term; make efficient use of construction cash flow; and diversify our geographic presence in politically stable countries, meaning that for the first time, in 2003, more than 50% of EBITDA came from the Infrastructure and Services divisions.
Expansion outside Spain
Ferrovial´s presence outside Spain was strengthened in the year with the acquisition of Amey. In 2003, foreign sales represented 33% of revenues and 42% of EBITDA. Ferrovial currently operates in Europe (Poland, the UK, Portugal, Ireland and Italy); Canada; Australia; and Latin America, mainly managing toll roads and airports in Chile and Mexico and executing projects with multilateral financing.
Considerable cash flow
Mr Del Pino stated that Ferrovial´s gross investment in 2003 amounted to 862 million euros and that despite this, we closed 2003 with 590 million euros in debt with recourse, representing around 34% leverage. This was possible due to the considerable cash flow generated in 2003 (516 million euros), with significant contributions from Construction (380 million euros) and Infrastructure (152 million euros) and, for the first time, from Real Estate.
Foundations for future growth
The year 2003, he commented, was characterised by lethargy in the international markets and M&A activity in the domestic market. We continued our development abroad with the acquisition of Amey and other infrastructure projects, while remaining on the sidelines in Spain. We believe that our investment capacity, financial muscle and business structure are sufficient to ensure success in our activities, without having to rely on link-ups. Nevertheless, we remain alert to any opportunity which would enable us to create shareholder value.
In the immediate future, Ferrovial´s main challenge is to integrate and improve management of recent acquisitions in services. The combination of a record backlog in construction, services and real estate, our balanced international presence, excellent track record in infrastructure, and our ongoing investment capacity enable us to face the future with optimism and to look forward to further consolidation and growth.
Corporate governance and transparency
With regard to Corporate Governance, Ferrovial undertook numerous actions in 2003 as part of a significant effort to adapt and update its regulations, and apply best practices.
The Shareholders´ Meeting held on 21 March 2003 approved the amendment to the Bylaws to regulate the Audit Committee (in existence since 1999), in accordance with the Finance Law. On 25 July 2003, the Board of Directors´ Regulation and the Internal Code of Conduct regarding the Securities Market were approved. Both of these regulations are now mandatory legal requirements, although Ferrovial had already voluntarily adopted both.
The Board of Directors´ regulation includes new features introduced by the Transparency Law and numerous recommendations regarding corporate governance in order to ensure a high level of transparency vis-a-vis the market and establish a code of conduct to avoid interference with the Company´s share performance.
Finally, Ferrovial has produced a Corporate Governance report providing detailed information on the company´s ownership structure, the Board of Directors and its executive and advisory committees, the compensation received by Board members and senior management, related-party and intragroup transactions, risk control systems, the operation of the Shareholders´ Meeting and, finally, the level of compliance with corporate governance recommendations.
One of Europe´s leading construction groups
Joaquín Ayuso, Ferrovial´s CEO, centred his presentation on an analysis of the 2003 results and the contribution from the different business areas, which have placed us once again among the main European construction groups in terms of profitability and market capitalisation, now over 4.3 billion euros.
Ferrovial operates in four business lines: construction, infrastructure, real estate and services. Investments in the telecommunications market are purely financial and consist of a stake in Ono, one of the main cable operators in Spain.
Construction: boost from civil engineering and focus on Eastern Europe
In 2003, despite the strong pace of production in Spain, construction business volume fell 5% to 3.601 billion euros. This performance can be explained by a decline in international activity, due mainly to the strength of the euro.
EBITDA rose 8.2% on 2002 to 168 million euros and the EBITDA margin increased from 4.1% (2002) to 4.7%. The improved profitability reflects both the quality of new contracts and the ongoing effort to optimise and contain costs, explained Mr Ayuso. The construction backlog grew over 3% to 6.106 billion euros, representing 20 months of activity.
In Poland, construction subsidiary Budimex posted revenues of 478 million euros, down around 23%, impacted by the market recession in recent years and the depreciation of the zloty against the euro. Nevertheless, noted Mr Ayuso, and for the second consecutive year since its incorporation into Ferrovial, Budimex has posted positive EBITDA. We are currently making an enormous effort to improve management at Budimex in order to transform it into an important source of growth and earnings in the medium term, with the accession of Poland to the European Union. The restructuring process at Budimex is currently nearing completion in anticipation of the expected recovery in the market in 2004, which will be consolidated from 2005 onwards.
Heavy investment in the domestic market to bring Spain´s infrastructure into line with that of neighbouring countries, our strategic positioning in Eastern Europe, and selective international expansion, mainly in infrastructure, give us an optimistic outlook on the future of one of our most important activities.
Infrastructure: growth engine
Ferrovial is one of the world´s largest private-sector developers of transport infrastructure, with committed investments of over 1.8 billion euros in 16 toll roads (1,600 km), 13 airports (handling 42 million passengers per year) and more than 180,000 parking spaces. By segment, 72% of total investment is concentrated in toll roads, of which 40% is in Europe, 28% in Canada, 12% in Australia and 20% in Chile and Mexico.
In 2003, infrastructure revenues rose 16% to 524 million euros and EBITDA also rose 16% to 245 million euros. The EBITDA margin was 46.9%.
Among the highlights of the year were: the establishment of a revenue distribution mechanism for three of the four toll roads managed by Ferrovial in Chile, basically eliminating the traffic risk; the acquisition of Belfast City Airport, which increased our presence in the UK airport market, where we currently manage Bristol airport; the signature of the N4/N6 toll road concession, the first privately-financed toll road in the Republic of Ireland; and the application of the first unrestricted toll increase on the 407 Express Toll Route in Canada. Ferrovial also increased its stake in Sydney airport. In car parks, Ferrovial manages a total of 182,000 parking spaces, with an average annual growth rate of 12% in the last five years. In January 2004, the company was awarded the Ocaña-La Roda toll road concession.
Considerable progress was made in the Real Estate division, with significant increases in all financial and operating variables. Revenues grew 18% to 729 million euros and EBITDA rose 28% to 133 million euros. The EBITDA margin increased from 16.8% in 2002 to 18.2%, due to delivery of some high-margin developments and, principally, to the significant effort to contain structural costs.
The backlog also performed well, reaching 1.036 million euros in the year, i.e. up 8.5%. These figures enable us to guarantee 2004 sales and a proportion of 2005 sales, as well as ensuring the stability of the division´s bottom line in the future. In 2003, the real estate division sold 3,013 homes, delivered 2,763, and brokered 5,100 units through Don Piso.
The division continues to concentrate on the first homes market, explained Mr Ayuso, and we are committed to our industrial approach and to increasing the number of efficient marketing channels, enabling rapid asset rotation.
2003: the year of Services
In 2003, Ferrovial´s Services division underwent an extensive transformation, with immediate effects on 2003 results: revenues quadrupled to 1.358 billion euros and EBITDA reached 71 million euros. At year-end, the backlog had increased six-fold to 5.177 billion euros.
This transformation was as a result of the acquisitions of Amey and Cespa, gearing Ferrovial´s business profile towards less cyclical activities with recurring revenues and long-term contracts. Amey specialises in infrastructure maintenance (urban infrastructure, roads and railways) and facility management. The bulk of these activities are performed as private finance initiatives, with good growth prospects in the UK and the developed countries in general. Among the most significant of Amey´s contracts is the 30-year concession to maintain and modernise three lines of the London Underground-involving 100 stations and 335 km of track-which are used by 1.7 million passengers per day.
The acquisition of Cespa and 50% of its subsidiary Ecocat make us one of the key players in the urban services market (gardening, streetcleaning and municipal solid waste collection and treatment) and market leader in the management and treatment of industrial waste. The urban services unit operates in over 600 Spanish municipalities, serving over 5 million people, and manages more than 30 landfill sites.
In the telecommunications business, in 2003 Ferrovial held a 10% stake in ONO, one of Spain´s main cable operators. This stake was reduced to 9.3% in 2004 following the acquisition by ONO of 61% of Retecal, a cable operator in Castilla y Leon. Ferrovial´s total investment in ONO stands at 95 million euros, of which 12 million were paid out in 2003 as part of the company´s capital increase.
Creation of value thorough profitable growth
Ferrovial has spent many years creating a business model geared towards sustained value creation through profitable growth. The favourable situation of the Spanish economy and the investments we have made in recent years have transformed Ferrovial into a diversified company with a significant international component and this forms a solid base from which to tackle the future.
Ferrovial´s position among the top international companies is a result of constant measures to improve productivity and efficiency through continued innovation and good management, and our solid commitment to transparency, as part of our pledge to create value.