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.
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.”