Brief Analysis to give a snapshot of the construction market in Spain at the beginning of 2017

1. Construction market analysis
Federico Fini
Madrid, Spain
13/01/2017

2. Table of content
• General analysis
• Focus on Spain
• Main players
• Project Management Companies
• Conclusion

3. General analysis
The construction market as a whole
1

4. Snapshot of the European market in the last 10 years
Y axis = index of production
X axis = time

5. Reducing costs and Increasing productivity are two main activities
◦ PwC report: Global CEO survey, January 2016
◦ 68% of them will implement cost-cutting activities in the coming 12 months
◦ 46% agree that there will be more threats than 3 years ago
◦ 74% believe technological advances is what’s changing the market in the
next 5 years
◦ Source
◦ McKinsey industry analysis
◦ Steady 4% annual growth rate in the next decade
◦ Main problems: Low-productivity trap and low margins
◦ Source
◦ McKinsey report: Imagining construction’s digital future
◦ Large projects typically take 20% longer to finish than scheduled and 80% over
budget
◦ Construction productivity declined since the 1990s financial returns for
contractors are often relatively low — and volatile.
◦ Source

6. It is one of the least digitized markets in the world
◦ 93% of construction industry
players agree that digitization will
affect every process.
◦ <6% of construction companies
make full use of digital planning
tools.
◦ 100% of building materials firms
believe they have not yet
exhausted their digital potential.
◦ Source: Digitization in the
construction industry by Roland
Berger

7. Focus on Spain
Preliminary in-depth analysis
2

8. Spain is looking abroad to speed up the recovery/growth
◦ Countries like Portugal, Italy and Spain are struggling with their economies.
◦ Spanish companies whose businesses relate to infrastructure have been keen
to secure projects abroad.
◦ They have had success, securing big projects from the Middle East like
building the railway lines in Saudi Arabia (worth €6.73bn), and another
underground railway line in Saudi Arabia (€6.03bn).
◦ Source
◦ Contracts at home made up such a large part of companies’ portfolios that it
will be difficult to recover pre-crisis levels through overseas contracts alone”
-JAVIER PARADA, DELOITTE
◦ Source

9. Euromonitor data on EU-28 countries 1/2

10. Euromonitor data on EU-28 countries 2/2
◦ Although the Spanish market may
not be the biggest one in terms of
volume, it is one of the most active
in recovering growth between the
countries targeted by 24onoff
17.5% Spain
2.7% Germany
6.5% UK
4.6% Norway
◦ Helped by the reduction of the
House prices which, in a recovering
economy, boosts the demand for
houses
◦ Source: Ministry of Development

11. Market monitor data
◦ Residential construction is expected to
grow by more than 4% in 2016 and 2017
due to increasing demand in big cities such
as Madrid and Barcelona.
◦ Commercial construction is expected to
grow 2.5% in 2016. The key to a real
improvement in this segment will be the
recovery of enough demand from the
commercial sector to justify the launch of
new projects.
◦ Public construction has experienced a
revival in 2015 as a result of the general
elections in December, with growth
estimated at 6%. However, a continuation
of the current political uncertainty with a
hung parliament could affect investments.
◦ Source
Key Takeaways
• Finally a rebound is
underway
• Still very long
payment terms
• Current political
uncertainty has a
dampening effect

12. Main players
Volumes and competitiveness of those who will become our
clients
3

13. Main construction companies
◦Abertis Infraestructuras (ABE)
◦Acciona (ANA)
◦ACS, Actividades de Construcción y Servicios (ACS)
◦Fomento de Construcciones y Contratas (FCC)
◦Ferrovial (FER)
◦OHL
◦Sacyr Vallehermoso (SYV)
◦Técnicas Reunidas (TRE)
◦Source

14. Abertis Infraestructuras (ABE)
◦ Specialty: Highways, telecommunications, airports
◦ Market Cap: €10.918 billion
◦ Revenue: €4.106 billion
◦ Stock Performance (YTD): 11.71%
◦ Revenue Growth: 7.01%
◦ The Action: Abertis is restructuring by selling off its massive,
non-traded subsidiary Saba Infraestructuras for 400 million
euros. 50% of its 2010 revenues came from outside Spain.

15. Acciona (ANA)
◦ Specialty: Infrastructure and renewable energy
◦ Market Cap: €4.377 billion
◦ Revenue: €6.263 billion
◦ Stock Performance: 37.57%
◦ Revenue Growth: -3.90%
◦ The Action: Acciona's management recently reorganized
control rights for the sake of liquidity and transparency. The
company will likely depend increasingly on government
subsidies as it expands its renewable energy business.

16. ACS, Actividades de Construcción y Servicios (ACS)
◦ Specialty: Construction, energy
◦ Market Cap: €9.060 billion
◦ Revenue: €35billion
◦ Stock Performance (YTD): -11.22%
◦ Revenue Growth: +0.1%
◦ The Action: ACS and its subsidiaries are selling off assets in
order to provide liquidity. Its construction company Hochitef
recently called itself "Europe's premier construction company,"
despite losing 169.5 million euros in the first quarter. The
President of the group is Florentino Perez, Politician and also
president of the Real Madrid football team.

17. Fomento de Construcciones y Contratas (FCC)
◦ Specialty: Construction, with a recent focus on energy
◦ Market Cap: €2.278 billion
◦ Revenue: €12.114 billion
◦ Stock Performance (YTD): 6.82%
◦ Revenue Growth: -4.6%
◦ The Action: FCC is seeking as much liquidity as it can get as
quickly as possible. Its leadership thinks that if it can
restructure, pay a dividend and obtain a credit rating, capital
markets will begin to see the company in a more favorable
light.

18. Ferrovial (FER)
◦ Specialty: Infrastructure and engineering (Airports)
◦ Market Cap: €6.316 billion
◦ Revenue: €12.169 billion
◦ Stock Performance (YTD): 16.61%
◦ Revenue Growth: 1%
◦ The Action: Ferrovial sold off quite a few of its assets in 2010.
The company does a majority of its business outside Spain,
and has benefited from a recovery in air traffic since May; BAA
reported a 9.2% increase in its airports' air traffic, in part
because of the royal wedding in the UK.

19. OHL
◦ Specialty: Maritime, Hospitals and Railways
◦ Market Cap: €1 billion
◦ Revenue: €4.4 billion
◦ Stock Performance (YTD): 2.09%
◦ Revenue Growth: 3%
◦ The Action: OHL is coming back to profitable growth thanks to
a series of projects in South America (Peru) and Mexico. There
is a strong commitment to reduce corporate debt and ensure
the feasibility of OHL industrial to broaden the range of projects
that they can participate to.

20. Sacyr Vallehermoso (SYV)
◦ Specialty: Real estate and construction
◦ Market Cap: €2.839 billion
◦ Revenue: €4.820 billion
◦ Stock Performance (YTD): 50.39%
◦ Revenue Growth: -17.7%
◦ The Action: Sacyr Vallehermoso is heavily in debt, although
its profits increased seven percent in the first quarter. It is also
trying to maintain a 20 percent equity stake in Repsol after the
loan it took out to do so expires at the end of this year.

21. Técnicas Reunidas (TRE)
◦ Specialty: General contractor for engineering, power, and
industrial plants
◦ Market Cap: €1.876 billion
◦ Revenue: €2.771 billion
◦ Stock Performance (YTD): -25.84%
◦ Revenue Growth: 5.2%
◦ The Action: Construction has crunched to a halt in Spain, and
doubts about whether many of its contracts will be fulfilled have
weighed heavily on Técnicas Reunidas's share price. The
company is intent on expanding internationally, but it is unlikely
that any major shift will happen quickly.

22. Project Management Companies
Ordered per importance for Key Players
4

23. Main Competitors: Project Management Softwares 1/5
It’s a German multinational software corporation that
makes enterprise software to manage business operations and
customer relations. SAP is headquartered in Walldorf, Baden-
Württemberg, with regional offices in 130 countries
Revenue €20.79 billion (2015)
[1]
Operating income €4.252 billion (2015)
[1]
Profit €3.056 billion (2015)
[1]
Total assets €41.39 billion (2015)
[1]
Total equity €23.3 billion (2015)
[1]
Number of employees 82,426 (Sep 2016)

24. Main Competitors: Project Management Softwares 2/5
It’s a French software start-up founded in 2012 that allows the
user, after taking pictures of the place, to draw and create
contextual tasks for the team, monitor and localise them and
creating a final report.
Focused on Building construction and internal restructuration
Financials not disclosed from now on since are all privately held
companies

25. Main Competitors: Project Management Softwares 3/5
BrickControl is a “cloud-based” application for project
management.
It helps in the four steps of the progress:
Study -> Management -> Execution -> Control
Fit for construction SMEs and Architects, they charge a low
(between €19 and €59) monthly fee for the usage
Financials not disclosed

26. Main Competitors: Project Management Softwares 4/5
TCQ is software for the construction formed by a set of computer
applications to support the activities of writing, contracting,
planning and control of projects and works. It is a methodology for
the definition and monitoring of the parameters of time, cost,
quality, and the formulation of safety, waste generation and
energy cost of materials.
Developed by ITeC, The Catalonian Institute of Construction
ITeC

27. Main Competitors: Project Management Softwares 5/5
Software for Architects, Engineers and Construction workers. Its
main function is more technical and less managerial but between
its features it shows Project Management features.

28. Other Softwares not “Spain focused” but present in Spain
Focused in time tracking

29. Conclusion
What does the data tell us plus further recommendation
5

30. The property business is turning a corner after one of the worst
busts in history (Financial Times)
◦ Excluding the cities on the coasts, there is a strong recovery in
the construction market, stronger than in other European
Countries
◦ The historical main challenges of the market are still present
(too costly, difficult to estimate project time…) but this is
creating a profitable sub market as the Project Management
Software industry as well as Real Estate Investors are
benefitting of the recovery
◦ 2017 is likely to be the year in which the spanish Financial
market, backed by a stronger Real Economy, will once again
go back to profitable growth as a consequence.
◦ Source

31. Final reflection
◦ Considering the Macro-Economic situation in
Europe, can the current “turmoil” slow down
the Spanish Real Economy?
◦ Will the Govern seek for a major political
stability to enhance the Industrial recovery?