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  2. SCENARIO, STRATEGY AND OPPORTUNITIES

Ferrovial - Integrated Annual Report 2014 / SCENARIO, STRATEGY AND OPPORTUNITIES

Ferrovial is closely following developments in market trends, getting fully ready to respond to the challenges they pose and make the most of the opportunities that arise in the medium and long term.

Challenges and opportunities

Prevailing demographic trends, market globalization and the growing importance of environmental issues are all factors influencing the construction, management and operation of transport infrastructure and municipal services.

Population growth and aging is driving demand for social infrastructure and transport, as well as for new services. All the while, the lion’s share of global population growth is happening in emerging countries. Market globalization is conducive to expanding international trade and increasingly fierce competition, thus driving the development of new information technologies. Environmental concerns and the scarcity of natural resources are also accelerating the use of clean technologies. Energy efficiency and sustainable solutions are becoming increasingly prominent in the markets.

These issues have a direct impact on the infrastructure industry, including the following:

  • Cities as a growth hub: a gradual increase of population living in urban areas, as well as the number of megacities of more than 10 million inhabitants.
  • Increased interest in infrastructure development: new national infrastructure plans, new investors, support from financial institutions.
  • Driving project viability and improved selection, based on profitability and efficiency.
  • Increased competition among infrastructure companies in international markets.

This environment generates opportunities for companies engaged in infrastructure development, construction and services, including the following:

  • The concentration of the population around urban centers has led to the need to develop efficient infrastructures that address challenges such as saturation or sustainability. Ferrovial has contributed to the development of outstanding solutions in cities such as Madrid, London, Birmingham and Toronto.
  • The concern over the viability of infrastructure projects in an environment of selective liquidity has led local authorities to look for managers that provide experience in the selection of projects that make economic sense. In this context, Ferrovial provides infrastructure planning services, such as the contract with the Texas Department of Transportation in the U.S.
  • A growing demand for the development of environmentally sustainable solutions enables companies like Ferrovial to set themselves apart by expanding their catalog of products and services toward activities such as energy efficiency. Terminal T2A at Heathrow Airport, built by Ferrovial Agroman, the winner of the Sustainability Leaders Award in the Sustainable Building category, is an example in this respect.
  • Ferrovial focuses its innovation work on developing technologies applied to infrastructure construction, operation and services, to help manage complex operations and offer outstanding solutions to its clients. For example, dynamic toll projects (managed lanes) have enabled Ferrovial to position itself, through innovation, as a benchmark, in the U.S. highway market.

Ferrovial is closely following developments in market trends, getting fully ready to respond to the challenges they pose and make the most of the opportunities that arise in the medium and long term.

Strategy and organization

STRATEGY

Ferrovial’s strategy is based on four key pillars:

  1. Profitable growth through a combination of organic growth and selective acquisitions, aimed at bolstering the firm’s competitive position and increasing its capabilities.
  2. Ferrovial has established a significant and stable presence in five geographical areas: Spain, the United States, the United Kingdom, Canada and Poland. The aim is to continue driving operations in these countries while also developing new markets.
  3. Operational excellence and innovation are essential to improving complex operational management and developing outstanding solutions for clients. Fostering employee talent via centers of excellence and innovation will improve the company’s competitive position in each market, all governed by best practices in project management, sustainability, corporate responsibility and personnel safety.
  4. Ferrovial’s financial discipline, via the diversification of sources of finance and liquidity management, has allowed for improved credit risk ratings and greater solvency. Asset rotation has unlocked the value of investments, while also financing further growth.

Finally, one key element to optimizing value creation is the integrated approach adopted by business units, based on cross-selling. This supports Ferrovial’s involvement throughout the infrastructure cycle and allows the desing of outstanding solutions.

Services

Ferrovial Services is a leader in the efficient provision of urban and environmental services and infrastructure maintenance and operation. It offers an extensive catalog of innovative solutions for public and private customers in a number of sectors, based on the whole-life asset management model.

With a practical value proposition that is based on long-term collaboration with customers and service integration, Ferrovial Services provides high added-value solutions that contribute to more efficient management of public and private infrastructure. The Asset Management, Environment, Infrastructure Maintenance and Cities competence centers ensure that expertise and best practices can be shared efficiently within the organization, while also fostering service innovation by developing the kinds of capabilities that distinguish Ferrovial from its competitors.

As of year-end 2014, Ferrovial Services has a very significant presence in Spain and the UK, as well as a stable presence in Chile, Poland, Qatar, USA and Australia.

Ferrovial Services strategic priorities are threefold: driving growth in Spain and the UK, continued margins improvements and greater geographic diversification. A customer-centered strategy and the expansion of our service range are key to strengthening the firm’s presence in our key markets. Continued margins improvement will be achieved by focusing on operational excellence and greater addedvalue services.

In terms of regions, the aim is to consolidate the firm’s position in countries in which it currently operates and to develop business in new selected regions.

Toll Roads

Cintra is a world leader in terms of investment in and management of transport infrastructure. As of year-end 2014, it has a portfolio of 26 concessions in 7 countries: Canada, United States, Spain, United Kingdom, Portugal, Ireland and Greece, where it manages 2,185 kilometers of toll roads, with a managed investment totaling more than 23 billion euro, including the Serranopark parking garages in Madrid.

Cintra’s growth strategy is based on seeking out the best investment opportunities and optimal management efficiency; introducing innovative solutions that often become the sector standard. Once the projects have been incorporated into the portfolio, Cintra manages them actively throughout their life cycle. This means their value is increased by gradually reducing risks and introducing operating improvements to optimize efficiency, while guaranteeing quality service provision for users.

Cintra operates in countries where economic conditions are stable with demonstrated legal security. As well as developing projects in markets where it already operates, Cintra’s strategic priorities include expansion into new regions, both OECD countries and countries with similar political and economic environments.

By asset types, the main focus is on complex projects that require construction (greenfield projects). A good example of this strategy is offered by managed lanes concessions, which began operations in Dallas, Texas, in 2014. These are variable toll lanes on congested urban highways located in prosperous areas. The company also seeks out opportunities that are already operational (brownfield projects), low complexity concession projects such as “availability payment” schemes and “private initiatives”, as well as identifying opportunities in new concessionary sectors.

Financial risks are reduced by using local currency financing structures without recourse to shareholders. Construction risks are also minimized via contracts with fixed prices and set durations.

Construction

Ferrovial Agroman is internationally renowned for its design capabilities, for building exceptional projects of all kinds, and, primarily, for its major transport infrastructure. The company’s track record includes projects featuring more than 500 kilometers of tunnels, 19,500 kilometers of roads (including 4,100 kilometers of toll roads) and 4,900 kilometers of railroad track (including 700 kilometers of high-speed railroad).

Its outstanding commitment to safety and the environment was reflected in the numerous awards won by Heathrow’s Terminal T2A (Constructing Excellence, RoSPA, Green Apple), which, in 2013, broke the UK record for most consecutive accident-free hours.

Ferrovial Agroman’s strategic priorities are threefold: selective organic growth, operation optimization and efficiency, and analysis of international inorganic growth opportunities.

Its international geographic positioning is founded on stable strategic markets, including North America, United Kingdom, Poland and Latin America, and was boosted last year by contract awards in new markets in the Middle East and Australia. Regions are selected based on their macro-economic stability, legal security and the growth potential offered by their infrastructure market.

Airports

Ferrovial Airports is one of the biggest private airport operators in the world. This division offers experience and management expertise, as well as innovative solutions to improve service quality for passengers and airlines, while maximizing operational efficiency. Ferrovial Airports is the largest shareholder and main industrial partner for London’s Heathrow Airport, while it also holds 50% of capital in Glasgow, Aberdeen and Southampton airports in the UK.

In 2014, Heathrow Airport served 73.4 million passengers, representing an increase of 1.4% against the previous year. In 2014, the airport also become the top European hub in terms of passenger satisfaction – 78% rated their experience as “Very good” or “Excellent” in a prestigious survey conducted by the Airports Council International. Glasgow, Aberdeen, Edinburgh and Southampton airports served 13.3 million passengers in 2014.

In a market as competitive as the airport industry, continuously enhancing the passenger experience is essential for attracting more passengers and airlines. This is why excellence in service provision to customers is a hallmark of Ferrovial Airports and a cornerstone of its strategy.

Alongside the challenge of optimizing service quality, the airport infrastructure industry is seeing a number of privatizations. In this context, another strategic cornerstone of Ferrovial Airports is to expand and diversify businesses by actively seeking out opportunities, combined with sound asset rotation policies that aim to fund divisional growth.

The current strategic approach taken by Ferrovial Airports is consistent with the long-term investment required by airport infrastructure and the division’s commitment to managing its asset portfolio. All of which promises strong growth potential going forward.

ORGANIZATION

The functioning of the group’s managerial bodies and decision-making procedures are described in the Annual Corporate Governance Report (ACGR), which is part of this Management Report, with emphasis on the roles of the Annual General Meetings and the Board of Directors as the company’s most senior governing body (for more information see the Corporate Governance section).

In terms of Group management, the functioning and composition of the Management Committee is particularly vital. Overseen by the CEO, this Committee brings together the different business divisions, such as the General Secretary’s Office, Corporate IT and Innovation, Human Resources, Financial and Strategy Departments, thus ensuring an integrated approach to business and strategy.

Other key bodies include the Investment Committee, presided over by the Chairman and/or CEO. There are also procedures for new investment approval, featuring a number of authorization levels depending on the amount and operation type, with the most senior authorization granted by the Board of Directors.

A strategy procedure has also been established, involving the Chairman and members of the Management Committee, with all conclusions reported to and approved by the Board.