DRAFT

Construction market analysisFederico Fini

Madrid, Spain13/01/2017

DRAFTTable of content

• General analysis

• Focus on Spain

• Main players

• Project Management Companies

• Conclusion

DRAFT

General analysis The construction market as a whole

1

DRAFTSnapshot of the European market in the last 10 years

Y axis = index of productionX axis = time

DRAFTReducing 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

DRAFTIt 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

DRAFT

Focus on SpainPreliminary in-depth analysis

2

DRAFTSpain 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

DRAFTEuromonitor data on EU-28 countries 1/2

DRAFTEuromonitor 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% Spain2.7% Germany6.5% UK4.6% Norway

◦ Helped by the reduction of the House prices which, in a recovering economy, boosts the demand for houses

◦ Source: Ministry of Development

DRAFTMarket 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

DRAFT

Main playersVolumes and competitiveness of those who will become our clients

3

DRAFTMain 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

DRAFTAbertis 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.

DRAFTAcciona (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.

DRAFTACS, 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.

DRAFTFomento 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.

DRAFTFerrovial (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.

DRAFTOHL

◦ 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.

DRAFTSacyr 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.

DRAFTTécnicas 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.

DRAFT

Project Management Companies Ordered per importance for Key Players

4

DRAFTMain 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 countriesRevenue  €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)

DRAFTMain 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

DRAFTMain 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 -> ControlFit for construction SMEs and Architects, they charge a low (between €19 and €59) monthly fee for the usage

Financials not disclosed

DRAFTMain 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

DRAFTMain 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.

DRAFTOther Softwares not “Spain focused” but present in Spain

Focused in time tracking

DRAFT

ConclusionWhat does the data tell us plus further recommendation

5

DRAFTThe 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

DRAFTFinal 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?