Business outlook

Business outlook

Macro-economic variables

2007 has been marked by the crisis in financial markets, as from the summer, which is when the sub-prime mortgage crisis hit the United States.

Following this turbulent year, 2008 is shadowed in uncertainty, with expectations of a deceleration in GDP at worldwide level, a possible lowering of interest rates but with the risk of an increase in debt margins in view of the current liquidity crisis in financial markets, and the uncertainty concerning developments in the main currencies.

Principal challenges facing Ferrovial in 2008

2008, for Ferrovial, will be a year profoundly marked by the milestone events to take place in BAA throughout the year. These include, most notably, the definitive approval of fees by the CAA (the Civil Aviation Authority, which is the British airports regulator), which is expected to be announced in March 2008, the decision of the UK's Competition Commission towards the end of the year with respect to the market position of BAA, and lastly, the process for the refinancing of its debt.

With respect to this latter event, although the acquisition debt is set to mature in 2011, once the definitive fees have been announced, the conclusion of the refinancing operation will be essential, making it possible to focus on the efficient management of the BAA project and remain on course with the Group's growth strategy.

Development of the various Ferrovial business areas

A slowdown is expected in the Construction sector in Spain. A deceleration abroad is also envisaged, primarily in the United States. Eastern countries and emerging economies such as India and Brazil, however, will provide the driving force behind this sector in view, primarily, of their existing transport infrastructure plans.

Ferrovial expects to maintain its domestic activity at levels similar to those of 2007, and to continue working on the growth of its business abroad, the foreign backlog having increased + 43.9% in 2007 with respect to the previous year, thanks to the business generated by toll roads and airports. Attention is also drawn in this connection to the major growth of the Budimex construction backlog in Poland (+33.1%).

Dynamic development is forecast for the various areas of the Services business, following the favorable performance reported in 2007.  

Ferrovial's objective is to continue maintaining significant rates of growth (in 2007, the organic growth in Revenues with respect to the previous year amounted to 7.4%, with 14.6% growth in EBITDA). These growth forecasts may nevertheless be undermined by the expected fall in the activity of Tubelines (Amey).

In the Toll roads business area, the reduced rates of growth of traffic figures which 2008 may bring due to the deceleration of the economy, may in some cases be either fully or partially offset by toll rate increases, owing both to the effects of inflation and the fact that Cintra's main assets include toll rate arrangements which allow for increases at rates higher than inflation which will foreseeably generate significant growth in revenues. In this respect, the Chicago Skyway toll road announced new toll rates for light vehicles, which came into force on 1 January 2008 and imply a 20% increase with respect to the rates previously in force. The 407 ETR toll road announced new toll rates applicable as from 1 February 2008. These imply increases of 9.4% for peak times in the "Regular Zone" (between the 401 and 404 motorways) and of 8.0% at peak times in the "Light zone" (the rest of the toll road). The increase at other times for the entire toll road is 7.1%.

In view of the current situation of the economy, the United States is expected to continue increasing tendering operations for infrastructure projects with private financing to avoid the impact on its deficit. There are some very important projects which may be put out to tender in the United States during 2008. We also expect to see an increase in tendering operations in new markets such as Mexico, Brazil and India; although we have not in the past viewed these countries as potential markets, they appear to be developing the mechanisms required for inclusion in our list of potential target markets.

In the case of the airports business, the IATA (International Air Transport Association) expects passengers numbers to increase by 4% worldwide in 2008, as compared with 5.9% growth in 2007; the exception is Asia, where vigorous growth of traffic figures is expected. One important event which is likely to affect passenger traffic is the "Open Skies" agreement between the E.U. and the United States. This comes into force in 2008 and will increase competition for transoceanic flights by enabling new airlines - including low-cost - to access this market niche.

Ferrovial's objective, once all the unknown factors have become known and the uncertainty in respect of key issues such as fee regulation, refinancing and competition has been put behind it, is to implement a business plan for each of its airports, focusing on asset management to obtain the expected returns.   

Finally, mention should be made of the real estate business in Poland. Average growth in housing of 6% per annum through to 2010  is expected in Eastern Europe. In Poland, house prices have increased on average in excess of 12% per annum in recent years. In certain cities, however, prices are thought to have peaked and are expected to increase in line with salaries (at around 8-10%). It is expected that the smaller and lower-priced homes will prove the easiest to market.

Ferrovial is expected, in this context, to continue reporting significant growth throughout the year.

1000 Images, one word: Ferrovial

1000 Images, one word: Ferrovial

Ferrovial is one of the leading infrastructure groups in the world employing 100,000 people in 43 counties worldwide. The company’s investment strategy is focused on 4 main business areas: construction, airports, toll roads and car parking, and services.