Large Spanish contractors faced a turbulent 2013 but ended the year with work portfolios they hope are positioned to take advantage of the projected turnaround in the global economy, including megaproject roles on the world’s largest wastewater treatment plant and subway system.
Faced with a lack of public works in Spain, the country’s heavyweight construction companies continue to expand operations in the UK and Poland, North America and Australia.
More projects are starting in Latin America and the Middle East, and some companies are looking to emerging markets in Asia. Northern Europe is as close to home as firms are getting in winning or eyeing major work.
Difficult Times At Home
“We expect the construction market to remain depressed in Spain in 2014, as the public sector continues to rein in spending to get its fiscal deficit under control,” says Luis Castilla, CEO of the recently regrouped infrastructure, water and services division at Acciona.
The government said Feb. 14 that unemployment rose to 24.4% in the first quarter, up from 22.9% in the fourth quarter of 2013, and that more than half of Spaniards under 25 are jobless. That followed by one day the downgrading of Spain's debt by ratings agency Standard & Poor's from A to BBB+.
Spain’s infrastructure development is decidedly on hold: spending on construction, both private and public, has plummeted to a record low, down 11% to $8.9 billion in the first nine months of 2013. The 2014 budget includes a further 9.4% cut in public investment in infrastructure, implying a drop of more than 80% since the crisis began, according to Castilla.
“The situation can be considered quite depressive,” says Juan José Díaz, communication director for contractor ACS. He expects improvement in the region supported by public-private partnerships to counteract public budget restrictions, but the Spanish market represents just 15% of the company’s backlog.
According to Castilla, the most important item in Spain’s reduced budget is the $5 billion earmarked primarily to its high-speed rail network. But the big national contractors are not waiting for that project to generate contracts.
Reversing Losses, Mostly
Interestingly, it was the worst performers of 2012 that have been able to climb out of the red, while contractors that were profitable a year ago were less profitable in 2013.
OHL posted a $202-million net profit for the first nine months of 2013, a 20% drop from the same period a year earlier.
The decrease was due to a 38.7% drop in activity in Spain, offset by overseas growth of 8.5%, according to a company spokesperson. International sales accounted for 74.4% of sales and 92.3% of earnings. The firm’s biggest contracts are in Russia, Canada, Turkey, and Saudi Arabia.
Acciona’s profit for the first nine months of 2013 was $102.6 million, a 34.3% drop compared to the same period in 2012. The company’s backlog at the end of last year stood at $21.9 billion, $2.7 billion less than in the previous 12 months, according to Castilla.
"Acciona has mitigated the fall in construction demand in its home market with its international business, which now makes up more than 50% of the construction backlog,” he adds.
FCC’s losses in 2013 were in large part due to the $3.4-billion insolvency of its Austrian Alpine unit, in which it acquired a controlling stake in 2006. The experience has changed the company’s strategy for 2014.
“FCC Construccion is determined to continue to pursue international expansion through our own experience, not through acquisition,” says Pedro Gómez Prad, the firm's contract and commercial strategy deputy corporate manager.
Unlike FCC, ACS Group has continued with acquisitions: in addition to its purchases of U.S. firms that started prior to the economic downturn, the Spanish company last year increased its stake in Hochtief, Germany’s largest contractor to 56%. That firm also is the parent of U.S.-based Turner Construction.
Sacyr says it has returned to the black, posting a $112.7-million net profit for the first nine months of 2013, compared to a $1.34-billion loss in 2012.
José Manuel Loureda, managing director of international development, says about 82% of its $52-billion backlog now is located abroad, with some of its largest projects in Italy, Africa, and Latin America. That includes a key role in the consortium building the $5-billion expansion of the Panama Canal.
In 2013, Sacyr ventured for the first time into Qatar, India and Peru, and it plans to start work soon in Mexico and additional areas in the Middle East.
Sacyr will release its fiscal 2013 results at the end of February, and it is unclear if and how an ongoing cost dispute on the $5-billion canal project will affect its bottom line.
Loureda declined to discuss the canal negotiations but he says the firm's accounts are "sound," evidenced by its $550-million operating profit in the first nine months of 2013. He says the firm is current on all its commitments: "Therefore, there is no financial problem."
He adds that "in the Panama Canal expansion, the consortium's financial problem is due to the lack of recognition of claims by [owner] Panama Canal Authority, which has resulted in a lack of liquidity in the project, to which all [consortium] members, including Sacyr, have contributed $280 million to move forward."
Contractor ACS says it has reversed its fortunes as well, posting a $750-million profit for the first nine months of 2013, compared to a $1.5-billion loss in the same period the year prior.
The company has offset its expected declines in the Spanish market with contracts in the Americas and Asia-Pacific regions. Its backlog is over $90 billion, similar to last year’s figures adjusted for foreign exchange effects, according to spokesman Juan José Díaz. The company is also considering opportunities in central and northern European countries, where it expects growing infrastructure demand in 2014.
Ferrovial has posted a $663-million profit for the first nine months of 2013, which was a 2% improvement year-on-year. Revenue outside of Spain accounted for 68% of the total in the third quarter of 2013, according to a company spokesman.