- MANAGEMENT REPORT
- ANTICIPATED BUSINESS PERFORMANCE IN 2015
Operating cash flow 1,076 M€, 85% international .
The global economy remains in recovery. According to the IMF, in 2014 global growth stood at 3.3%, the same level as in 2013. This forecast factors in a significant improvement from developed economies, where growth is expected to reach 1.8% in 2014 compared with 1.3% in 2013.
Additional impetus is anticipated in 2015, driving growth to 3.5%, although this forecast is subject to risks due to the fragility of certain advanced economies and prospects of low inflation rates.
The Eurozone has emerged from recession, posting growth of 0.8%, compared to the negative -0.5% growth seen in 2013.
Below are the latest growth estimates from the IMF for the main countries where Ferrovial currently operates:
|IMF growth forecasts 2015|
During 2015, the main uncertainties are set to concern stimulus measures from the European Central Bank and their impact on growth in the Eurozone, as well as accelerating growth in the United States and the effect of the gradual rolling back of Federal Reserve stimulus programs.
2015 is an electoral year in the United Kingdom, which will mean a slight downturn in the volume of contracts tendered in the year. However, the business success recorded in 2013 and more so in 2014 permits and optimism over the coming year. Furthermore, the merger of Amey and Enterprise is set to be completed, with all operations planned as part of the merger coming to an end and all forecast synergies being generated, just as has been the case since Enterprise was acquired in April 2013.
In Spain, the year will be shaped by municipal, regional and general elections. These elections should have a limited impact on both the backlog and order intake, as no significant contract renewals are due to be tendered. In terms of key operating variables, in line with the improving macro prospects for the country, a recovery is expected from both urban and industrial waste volumes.
The focus in 2015 will remain on further driving regional diversification: on the one hand, driving and consolidating short-term growth in countries where the group already has critical mass, such as Chile and Poland; on the other, boosting the firm’s presence in other regions, such as Australia and the USA, where the company is operating via road maintenance contracts and where work is ongoing to identify potential acquisitions.
Toll road traffic is expected to perform well in 2015, thanks to an improved macro-economic scenario and growth prospects in most regions where Cintra operates. This evolution would drive up the profitability of the various assets in operation.
Regarding the 407ETR (Cintra’s main asset), the company is working to sustain growth in terms of earnings, dividends and financial solvency. To this end, it will continue to concentrate its efforts on improving the foundations for such growth: the customer experience and perception of the toll road in the community that it serves, as well as enhancing the operational efficiency of the business.
The Managed Lanes projects in the United States will have a larger impact on Cintra results due to the first full-year of operations for the NTE toll road, and the launch of the LBJ toll road.
Progress is due to be made in 2015 to restructure the debt of the SH 130 toll road completion of the Indiana Toll Roads. In Spain, a definitive solution is still pending for the two Spanish toll road operators, R4 and Madrid Levante, which have been in bankruptcy since 2012. Cintra is currently evaluating the impact that said concession change might have.
In the short and medium terms, an uptick in development activity is expected in international target markets (North America, Europe, Australia and Latin America). During 2015, Cintra will bid for further projects in regions where it already operates, such as USA, Canada and Europe. Likewise, it will monitor any opportunities that may emerge in new markets such as Australia or specific Latin American countries (mainly Colombia, Peru, Mexico and Chile).
Looking at the Construction business, turnover is expected to hold stable in 2015, offsetting growth in the international business with a further decline from activity in Spain. The portfolio as of year-end 2014 was up to 8,091 million euro thanks to the international business, which represented 76% of the total, the highest percentage on record.
In Spain, activity levels are expected to decline in 2015, despite an economic recovery getting underway and an uptick from public tenders during 2014, as the market remains unstable. The company’s portfolio as of year-end 2014 had decreased, with the emphasis now being placed on selective order intake, prioritizing profitability over volume.
Internationally, expectations are good for the company’s strategic markets.
In North America, the third and final phase of construction for the LBJ toll road project in Texas is set be completed, following the successful inauguration of the NTE toll road, also in Texas, several months ahead of scheduled in 2014. In 2015, new projects awarded in 2014 are set to get underway, such as the I-77 toll road in North Carolina, and the 2nd phase of the 407 ETR East toll road in Canada, for which we were designated as preferred bidder in early 2015.
In Poland, the company’s turnover is set to grow thanks to good orders for roads in 2014, linked with the new European funds available in Poland in the 2014–2020 framework, and works on energy generation and industrial plants, which include the Turow power plant.
Activity levels are also set to grow in the United Kingdom, supported by projects as part of the new infrastructure plan, with the company’s portfolio growing as of year-end 2014 thanks to projects such as the extension of the London Underground’s Northern Line.
In Australia, toward the end of 2014, work began on the company’s first major contract, the Warrell Creek stretch to Nambucca Heads of the Pacific Highway, which should ensure good production levels in 2015.
In these and other markets where Ferrovial has a stable presence, such as Latin America (Chile, Colombia, Brazil, Peru and Mexico) and the Middle East, there is a significant pipeline of complex infrastructure projects that are set to be tendered in 2015. Ferrovial’s capabilities make it a strong candidate for such projects, in which the company may also benefit from partnership with investing divisions within the group, mainly Cintra and Ferrovial Airports.
The sector is seeing a number of airport infrastructure privatizations. Tender activity will continue in 2015.
The IATA’s latest forecast for world passenger traffic indicates a 31% increase between 2013 and 2017, continuing the positive performance seen in recent years.
Looking at Heathrow, the main challenges in 2015 will be:
In 2015, Ferrovial Airports will work on integrating the airports of Glasgow, Aberdeen and Southampton. Ferrovial now controls 50% of their capital directly via Heathrow Airport Holdings (HAH), having previously controlled 25% indirectly.