Woes at Home Drive More Spanish Contractors Abroad
Spanish construction giants are facing a brutal reality.
The 2008 economic collapse and resulting ripples have caused massive losses and bankruptcies. Drastic cuts in Spanish government spending have all but dried up domestic infrastructure work and dug-in European competitors block entry into lucrative projects in European Union markets on the rebound.
And corruption allegations surfacing now in media reports involving some key industry executives have not made it any easier on the home front. Firms named deny the allegations of payoffs to political officials.
The performance of Spain’s leading construction firms since 2008 has been all over the spectrum: Fomento de Construcciones y Contratas’ (FCC) has been steadily dropping in profitability, from a $991 million in net profit in 2007 to $145.4 million in 2011, and $54 million in the first nine months of 2012.
Ferrovial has reversed its losses of about $1.07 billion in 2008, making a net profit of $2.9 billion in 2010 and sliding back to about $1.75 billion in 2011. Then there is Grupo ACS, whose profits rose 8% at the start of the crash to $2.4 billion in 2008, then to about $2.7 billion in 2009. For the first nine months of 2012, however, it posted a nearly $1.5 billion net loss.
OHL has gradually grown more profitable, from a net profit of $189 million in 2007 to more than $300 million in 2011 and $249 million in first nine months of 2012.
Going Abroad
The large companies still standing share one thing in common: They now make the bulk of their money outside of Spain.
Luis García-Linares, OHL’s corporate general manager, says his company’s success since 2008 came as a result of a strategy devised back in 2002. Getting away from housing construction while expanding into concessions and projects abroad. The contractor’s work in Spain now only accounts for 26% of its total business, compared to 55% in 2007.
Ferrovial’s sales abroad now represent 63% of its total—a 20% increase since 2008. COMSA EMTE’s share of international projects went from 25% in 2008 to 55% in 2012. Acciona’s Spanish projects accounted for 76% of its backlog in 2008 and just 49% by September 2012. Most strikingly, ACS has generated 84% of its 2007 revenue in Spain; in 2012, it will be 17%.
Going abroad after a global recession also means facing successful and hungry rivals from other markets.
“It’s not only Spanish companies that are going outside of Europe–we are facing stiff competition,” says Gerardo Mochales, Acciona Infrastructure’s director of communications and marketing. “There are great players around and lot of companies searching for work.”
Spanish firms are involved in several European ventures outside the home country. Ferrovial and ACS have contracts in England and Scotland worth more than $1 billion each. ACS, Acciona, and COMSA EMTE are both active in Poland, while FCC is working in Romania. But Europe is not a growth market.
“Europe is a very mature continent in terms of infrastructures, which means that no big tenders can be expected for 2013, with the exception of Eastern Europe, where the sector has some margin for growth,” says Jaime Mulet, COMSA EMTE CEO of infrastructures and engineering.
The ACS spokesman adds there are more opportunities in Europe, in energy distribution lines in Germany, waste treatment, high-speed rail in the UK and in Central Europe, and in transport infrastructure in the Mediterranean corridor, but overall the European market is “well developed and very competitive.”
South America has become a key growth market. COMSA EMTE is expanding its work in Brazil, Chile and Mexico. FCC has won projects in Panama, Costa Rica, and Colombia, while ACS is growing its presence in Mexico and Central America, Chile, Argentina, and Brazil. Sacyr Vallehermoso has projects in Chile and Brazil as well, including a multi-billion Panama Canal job; and Acciona recently landed a $538-million port project in Brazil. The Spanish firms are frequently bidding against each other in Latin America, while sometimes working together in North America.
In December, a partnership of Acciona and ACS won a $1.65-billion concession for a ring road around Montreal, while OHL is on a $2.1-billion hospital project in the city.
Ferrovial landed two $1.4-billion road projects in the U.S. in 2012 and is bidding on a railway job in California, where FCC got a $650-million bridge project. In March last year, FCC had $9 billion worth of bids in the U.S. ACS is working on a solar plant in Nevada, a tunnel in Alaska and the New York City subway.
New Inroads
OHL is making inroads, quite literally, into Asia, with a stake in the first underwater rail link under the Bosphorus Strait in Turkey. It is on a railway job in Russia’s Ural Mountains, and on a high-speed rail job between Mecca and Medina. COMSA EMTE is working on the expansion of the Ankara metro in Turkey.
In Australia, Acciona is the lead on a $1.3-billion tunnel project in Brisbane, while ACS is on $1.9-billion hospital job in Adelaide.
Acciona is constructing a 160-mW concentrating solar power plant in Ouarzazate, Morocco. The company has built 250 mW of solar thermal power plants in Spain, and Spanish companies are picking up renewable energy projects in the U.S. as well–but Acciona’s Mochales says it’s not only the R&D capacity of the firm that wins bids.
“We went abroad 50 to 60 years ago,” he says. “Out of those Spanish companies that went abroad in the last three or four years, without having been abroad before, almost all of them are failing in getting new business.”
Meanwhile, in a Jan. 30 report,"> El País, Spain's highest-circulation daily newspaper in Spain, claims that top executives at Sacyr Vallehermoso, OHL and FCC have allegedly made hundreds of thousands of euros in contributions to Partido Popular through a secret Swiss bank account.
The contributions, dating back to 1997, which marked the start of Spain's construction boom, are thought to have won the firms billions of euros worth of concessions from the ruling party, according to the newspaper.
Spain's anti-corruption prosecutor questioned former the country's former treasurer for three hours on Feb. 6 based on the El Pais report, and is deciding whether to question Prime Minister Mariano Rajoy and/or to conduct a formal investigation.
Rajoy has said the allegations are "completely false." He has issued tax returns for the last 10 years.
A spokesman for OHL has "categorically denied" that [Chairman] Juan Miguel Villar Mir had made contributions to Partido Popular. He adds that the El Pais report did not name OHL as one of the companies involved in the corruption allegations.
Regina López Tudanca, a spokeswoman for Sacyr Vallehermoso says in an email statement, that Luis del Rivero, an executive cited by El País, "left the company 15 months ago; however, he has denied the information to the newspaper."
FCC "denies having made the contributions contained in the notebooks...that have been published by the newspaper El País," says spokesman Plácido Álvarez Holgado. "FCC has conducted an internal review into its accounting, which determines the falsehood of these payments attributed to the president of the construction subsidiary."
