situation, prospects and challenges of spanish and eu construction sector - julián núñez

8/16/2019 Situation, Prospects and Challenges of Spanish and EU Construction Sector - Julián Núñez

1/47

“SITUATION, PROSPECTS AND CHALLENGES OF SPANISAND EU CONSTRUCTIONSECTOR”

EY – 13rd European Construction Engineering &Infrastructure Roundtable

Julián NúñezChairman of SEOPAN


2/47

I. Considerations on the Spanish infrastructure sectorII. Spanish infrastructure sector challengesIII. EU infrastructure sector challengesIV. International activity of Spanish main groupsV. International activity of European major groups


3/47

I. Considerations on the Spanish infrastructure sector


4/47

EU27 SurfaceKm2 (x103)

GDP 1995/2013(109€ cte 2013)

Population(x106)

Public Inv.1995/2013

(109 € cte 2012)

Investment ratio1995/2013(€ per Km 2 and

106inhab)

Italy 301 6.8% 31,143 13.4% 60 11.9% 892 12.5% 2,606

UK 249 5.6% 33,630 14.5% 64 12.6% 752 10.5% 2,500Germany 357 8.1% 48,402 20.8% 82 16.3% 1,058 14,8% 1,899

France 633 14.4% 36,249 15.6% 66 13.1% 1,483 20.8% 1,875

Spain 506 11.5% 18,285 7.9% 46 9.1% 677 9.5% 1,534

1.-Infrastructures are not the origin of Spanish crisis

In 1995/2013 (last 19 years) Spanish public investment ratio, in real terms of euroinvested per km 2 and million inhabitant, has been lower to those of Germany(-24%), France (-22%), and much lower than those of UK and Italy (-63% and -70%,respectively) .


5/47

2. But its companies are leading the fiscal adjustmentIn the public expense reduction

From 5,8 pp of GDP of expensereduction in 2010/2013, publicinvestment represents 55% of totaladjustment (3,2 pp ≈ - 32.000 M €)

In the increase of fiscal pressure

Revenues from Corporate taxes grewin 2012 in 4.824 million euro, 29%more (installments of major companiesgrew 53%)

21

2,5

0,6

-0,8

0,4

-3

-2

-1

0

1

2

3%

SALDO DE LAS AAPP:Detalle Ingresos

(Dif . 2013-2009 en pp del PIB)

Imp. indirectos Imp. directosCotiz. sociales Otros ingresos

-4

-2

0

2

4%

ResumenIngresos(Pp del PIB)

Ingr. aumentanIngr. reducen

3,3

-0,6

1,91,6

0,3

-0,7 -0,7-0,4 -0,2

-3,2

-0,6

-4

-3

-2

-1

0

1

2

3%

SALDO DE LAS AAPP:Detalle Gastos

(Dif. 2013-2009 en pp del PIB)

Prest. soc.InteresesOtros cons.

Prest.soc.

Inter.

Remsal

Transf.

cap.

Inv.públ.

Cons.pub.

Subvy otr

Transf.esp.

Otr.cons

-6

-4

-2

0

2

4%

ResumenGastos

(Pp del PIB)

Gast. aumentanGast. reducen

3,8

-5,8


6/47

3. Perspectives show a stabilization at a minimum levelIn public expenses reduction

In the period 2014/2015 a reductionof 1,4 pp of GDP is estimated. Publicinvestment will not change itscontribution (in 2015 it will be 2,1% ofGDP, similar to the starting year

In the increase of tax pressure

A greater fiscal pressure will be basedon an indirect tax (0,6 p) and directtax (0,3 p).

21

-0,3

0,1 0,1

-0,5

-0,2

-0,4

0,0 0,0 0,0

-2

-1

0

1

2%

SALDO DE LAS AAPP:Detalle Gastos


Prest. soc. InteresesSubv. y otros Rem. asal.Cons. Transf.esp.

Prest.soc.

Inter.

Rem.asal. Transf.

cap.

Inv.públ.

Cons

Subv

Transf.esp.

Otr.cons.

-5

-3

-1

1

3

5%

ResumenGastos

(Pp del PIB)

Gast. aumentanGast. reducen

0,2

-1,4

0,6

0,3

-0,1

0,1

-2

-1

0

1

2%

SALDO DE LAS AAPP:Detalle Ingresos


Imp. indirectos Imp. directosCotiz. sociales Otros ingresos

-3

-2

-1

0

1

2

3%

ResumenIngresos(Pp del PIB)

Ingr. aumentanIngr. reducen

1,0

-0,1


7/47

1.885

3.123

2.3611.957

979

0

500

1.000

1.500

2.000

2.500

3.000

3.500

Italia ReinoUnido

Alemania Francia España

Intensidad de la inversión públicaPromedio periodo 1995-2013 vs 2014-2016

(en términos de superficie y población)

Prom. 1995-2013 Prom. 2014-2016

4. After cutbacks suffered in 2014/2016 Spain will have the lowerinvestment ratio per surface and population of EU27

-60%

-40%

-20%

0%

20%

40%

60%

80%

Evolución de la inversión pública (en términos de supeficie y población)Variación promedio 1995-2013 / 2014-2016

Slump of investment trendreached in the last 19 years.

In 2014/2016 Spanish investmentexpectations will be:A 92% lower than Italian, a 100%lower than French , a 141% lowerthan German and a 219% lower

then the British


8/47

8266 64 60

46

0102030405060708090

100

Alemania Francia ReinoUnido

Italia España

Population (million inhabitants)633506

357301 249

0100200300400500600

700

Francia España Alemania Italia ReinoUnido

Surface (thousand km2

)

5. Singularities of Spanish territory and population require anInvestment/GDP ratio higher than that of EU average

An annual ratio of 1.500euro investment per km 2 and million population

implies that:

Investment(mM€)

GDP2013(mM€)

Inv.s/PIB

Additionaleffort.s/PIB

Germany 44 2.738 1,6% 1,8France 62 2.060 3,0% 0,4UK 24 1.613 1,5% 1,9Italy 27 1.560 1,7% 1,7Spain 35 1.023 3,4% -

Investment effort of Spain on GDP should be 1,9 times higher compared withUK; 1,8 p in the case of Germany; 1,7 p and 0,4 p in those of Italy and France.


9/47

6. Competitiveness of civil works sector (Public administrations &companies)

Following Eurostat , in real terms (€ of2013) Spain has invested 667.000 M € in the last 19 years (1995/2013) . In thesame period France invested

1.483.000 M € (122% more) , Germany1.058.000 M € (a 59% more) , Italy892.000 M € (a 33% more) and UK752.000 M € (a 13% more) .

We have spent less and have aninfrastructure development similar tothe EU27 leader countries, essentialfor our tourism.

667

1.483

752

1.058

892

(in billion €)


10/47

Directos Indirectos Total

Construcción de infraestructuras 101,270 43,900 145,170

Empleos generados

Creación de empleo

With an investment in civil works equivalent to 1% of GDP ≈ 10.000 M €

7. Fiscal return and job creation in civil works

Job Creation1

Fiscal return in GDP%2Recaudación directa: IVA 0,21%

Impuestos netos sobre consumos intermedios 0,03%IRPF sobre remuneración asalariados 0,03%Cotizaciones sociales 0,09%Impuesto sobre sociedades 0,03%Prestaciones por desempleo 0,10%

Total 0,49%

Aumentos de recaudación por producciones inducidas:


11/47

Employment has decreased to the level of the eighties

8. Employment: occupation – period 1970-2013


12/47

9. The sector in 2014

Type of work Variation 2014 / 2013

Building -1% / -3%

Residential -4% / -6%

Non residential -3% / -5% Rehabilitation&maintenance 0% / -2%

Civil works -12% / -16%

Total construction -4% / -6%

In 2014, total construction activity will fall around 4% and 6%,compared to that of 2013.


13/47

II. Spanish infrastructure sector challenges


14/47

1. To recover the investing coherence and competitiveness at EUlevel

Since the beginning of 2010, severalconsecutive fiscal consolidation plans have left Spain at the top end of EU 27in the investment ratio per KM2 andpopulation. in 2014/2016 the Spanishratio will be 979 € per Km 2 and million

inhabitants, half of that of the last butone of EU 27 Romania (1.273).

In absolute terms and following ECpredictions, Spanish public investment

in 2014/2016 (68,3 billion €) will be lessthan Italy (101,9), than UK (148,3),Germany (207,3), and France (244,4).

68,32,1%

244,43,8%

148,32,3%

207,32,4%

101,92,1%

billion € % on GDP


15/47

Considering ratios of public Investmentparticipation on GDP in the period1995/2013, the map on the right sideshows the resulting public investment in2014/2016.

Concerning Spain , we would obtain inthis scenario a public investment in2014/2016 of 120.3 billion euro – 52.2billion over public estimations –, which

is the corresponding value for ourcountry if we has maintained theinvestment effort of the last 19 years

120,33,7%

262,84,1%

189,02,2%

139,72,9%

miles de millones de € % S/PIB

1. To recover the investing coherence and competitiveness at EUlevel

143,12,2%


16/47

2. Key questions of infrastructure concessions

1) Leading private investment for future infrastructures:• Fall in Public Budget and regional budgets.

2) An interest on investors (funds) exists provided that:• A solution to the radiales legal soundness for future projects,• Changes in regulatory framework and bad practices• Fiscal law reform: fiscal supports to promote PPP’s .

3) Highlight the existing network new financial model and its sustainable management• Pay per use source of revenue and harmonization with European situation• Extension / re-tender of mature concessions• Highlight the duplicated road network with operation measures (130 km/h, comparison of

lapse of time, …)

4) Efficiency of private management:• Experience (national and international),• Cost savings and efficient measurement of necessary resources (specially number of

workers v/s civil servants)• Reduction of terms, risk assessment,• Fiscal return over 40%.


17/47

3. Update the Spanish concessions regulatory framework

• Risk transmission to private operator (expropriation risk, risk of financial closure,demand risk determination, effects on demand due to unilateral actions comingfrom Public Administrations and regulatory risk)

• Terms and conditions of contracts (required guarantees, contractual limits to theAdministration responsibility, documentary requirements, tender evaluationcriteria that incentivize the abnormally low tenders and procedures to solvelitigations) .

Following the report of the Concessions&Services Commission of CEOE, it isnecessary to solve the present problem of legal uncertainty, modifying thecontracts regulatory framework, in the following matters:

It is necessary to foster a competitive fiscal framework ( fiscaltreatment of financial expenses)


18/47

It would involve high capacity road network, with annual income of around6.000/7.000 million euro , with 1/3 applied to adoption of measures fortransport sector and 2/3 to maintenance and preservation of the existingnetwork.

4. Towards a new model of financing &management of the roadnetwork

As it is impossible to maintain the investment effort in road maintenance(Europe's largest network following Eurostat and where only 20% is guaranteed sincethey are toll-motorways) on the public side, it is necessary to search new financialalternatives as the “pay -per- use” system.

Besides obtaining funds for road network maintenance, there would be a betteruse of road capacity of the existing network, internalization of external costsassociated to transport, renovation of vehicles (less polluting cars and safer ones) ,there would be a tool to better regulate the traffic demand , aligning ourselveswith neighboring countries that already have the principle of “pay –per- use”, aswell as obtaining resources from foreign road users.


19/47

5. Towards a new model of financing&management of water lifecycle

Spanish investment deficit in sewage infrastructures reaches 5.000 M € . The non-compliance with Water Framework Directive (municipalities of more than 5.000inhabitants) is entailing important sanctions.

The private sector, if changes in regulation and tariffs harmonization take place, hasthe technical and financial capability to solve the present deficit without impact in

public deficit, through private co financing. Furthermore the Structural EuropeanFunds must be an important incentive to promote a new Sewage InfrastructureNational Plan.

European Commission is negotiating with members countries the program forEuropean Structural and Investment (EIE) 2014-2020. One of the main objectives of

the Multiregional operative plan for Spanish Sustainable Growth 2014-2020 is waterquality. 700 M € from ERDF will be managed by the General directorate of Watertowards sewage and water treatment. 350 M € for existing installations undersanctions, 200 M € to installations with an open procedure and 150 M € to newprojects


20/47

III. EU infrastructure sector challenges


21/47

$20bn

$1.434bn

$1.004bn

$1.171bn

$575bn

$1.020bn

$140bn

$1.000bn

More than $6 trillion infrastructure investment programmehas been announced by the emerging economies ...

… along with a USD 1 trillion by key developed economies for

a period of 5/10 years to strengthen its infrastructure

$40bn

$476bn

$105bn

$455bn

“Infrastructure to 2030 concluded that global infrastructure investment needsacross the land transport (road, rail), telecoms, electricity and water sectorswould amount to around USD 53 trillion over 2010/2030 ” (OECD 2006, 2007)

Trend of global infrastructure investment


22/47

* Source: Boeing (2010) Current market Outlook, Boeing, Seattle, WA, October

Billion air passenger traffic ( passengers x km) within regions in 2009 and 2030*

898 -> 1.566

135 -> 53636 -> 108

625 -> 1.409

49 -> 157

845 -> 3.349

+ 74%

+ 297%

+ 125%

+ 220%

+ 200%

+ 296%

Asia - Pacificwill represent

47% of theworld airregional

passengertraffic in 2030



23/47

* Source: OECD Global infrastructure needs for 2030

Rail infrastructure investment needs 2015/2030 (in USD billions)*

230967

962

1.193

152

251

28

30

71

China and Indiawill represent

47% of theworld rail

infrastructureinvestment in

2015/2030


T t l t b kd 1995/2013


24/47

0

200.000

400.000

600.000

800.000

1995 2000 2005 2010 2011 2012 2013

1995/2013 TOTAL TURNOVER

LATIN AMERICA ASIA EUROPE

NORTH AMERICA AUSTRALIA

757.084432.586214.815

36.90831.788

LATINAMERICA

2%

ASIA51%

0%0%

EUROPE29%

NORTHAMERICA

15%

AUSTRALIA3%

2013

+ 262,3%+ 199,1%

+ 1.907,0%

+ 157,1%

+ 199,1% Worldwide: 1.473.182+ 233,4%

LATINAMERICA

1%

ASIA47%

0%0%

EUROPE33%

NORTHAMERICA

19%

AUSTRALIA0%

1995

-4 pp + 4 pp-4 pp

+ 1 pp

+ 3 pp

2013 Turnover% Var 2013/1995pp Var World Share

Total turnover breakdown 1995/2013(ENR Top Global Contractors in US M$)

I t ti l t 1995/2013


25/47

13.864

+ 383,3%+ 445,4%

+ 1.490,0%

+ 298,4%

+ 937,8%

LATINAMERICA

2%

ASIA27%

0%0%EUROPE55%

NORTHAMERICA14%

AUSTRALIA2%

2013

0

100.000

200.000

300.000

1995 2000 2005 2010 2011 2012 2013

1995/2013 INTERNAT. TURNOVER

LATIN AMERICA ASIA

EUROPE NORTH AMERICA

AUSTRALIA

Worldwide: 517.633+ 414,9%

71.410 283.063 138.706

10.589

LATINAMERICA

1%

ASIA28%

0%0%EUROPE

52%

NORTHAMERICA18%

AUSTRALIA1%

1995

- 4 pp + 3 pp- 1 pp

+ 1 pp

+ 1 pp

International turnover 1995/2013(ENR Top Global Contractors in US M$)

N i f t t t t 1995/2013


26/47

33.554

+ 490,1%+ 221,9%

+ 1.316,2%

+ 98,6%

+ 810,8% Worldwide: 1.808.148+ 316,1%

203.094 464.793 1.072.773

33.932,7

0

200.000

400.000

600.000800.000

1.000.000

1.200.000

1995 2000 2005 2010 2011 2012 2013

NEW CONTRACTS

LATIN AMERICA ASIA

EUROPE NORTH AMERICA

AUSTRALIA

LATINAMERICA

2%

ASIA59%

0%0%

EUROPE26%

NORTH

AMERICA11%

AUSTRALIA2%

2013LATINAMERICA

1%

ASIA42%

0%0%

EUROPE33%

NORTHAMERICA23%

AUSTRALIA1%

1995

- 7 pp +17 pp

+ 1 pp

- 12 pp

+ 1 pp

New infrastructure contracts 1995/2013(ENR Top Global Contractors in US M$)

EU S h ll


27/47

Fostering international investment of European contractors is essential:

Fiscal return to EU countries of foreign activityMultiplying effect: employment, subcontracting, engineering, plant & equipmentInternationalization implies significant efforts on R&DAvoid lack of credentials requested in PQ processes abroad that have hinderedthe sector during the EU financial crisisThe weight of engineering activity within companies directly related to the totalturnover

The economic growth is moving fast from developed world to emerging markets

European contractors are losing current leadership and future opportunities due topublic privileged financial and guarantee schemes coming from emerging countries

Lack of harmonization of export credit conditions worldwide is hindering ourcompetitiveness

Europe should implement measures in order to match the gap and ensure the sameplaying field

EU Sector challenges


28/47


29/47

2. Enlargement of EIB scope and financing capacity

A recent enquiry among the 30 major multinationals at EU level regarding totheir activity in infrastructure investment outside EU , shows a fall in the globalmarket participation mainly due to the increasing competence of companiesfrom third countries namely Japan, Korea, China and USA – which benefit fromimportant co financing coming from their public financial institutions

The finance factor is essential when tendering a global project and Europeancompanies must search external financing instruments in order to co financelarge infrastructure projects, competing with a clear disadvantage facing nonEuropean companies which have co financing lines from their public institutions.

An interesting initiative is under evaluation that may take profit from the EIB

attraction capacity in order to obtain additional financing from the markets. Atthe present time co financing needs reach 30 billion euro/year, but EIB onlycovers 7 billion.


30/47


31/47

IV. International activity of Spanish main groups


32/47

Spanish companies are present in 88 countries

International activity of mayor Spanish companies 1989/2013


33/47

23%

20%

5%4%

26%22%

Total outside Spain 2013:79.8 billion $

International activity of mayor Spanish companies 1989/2013(ENR Top International Contractors in US M$)

360

[VALOR]South America

540

18.496North America

+ 3.325%

450

2.843Africa

990

17.553Europe

630

20.374

Asia

450

4.280Middle East

+ 4.429%

+ 531%+ 851%

+ 1.673%

+ 3.133%


34/47

Million € Amount Distrib. Amount Distrib. Amount %Total Sales 36,978 35,872 -1,106 -3.0%

National 10,683 28.9% 10,437 29.1% -246 -2.3%International 26,295 71.1% 25,435 70.9% -860 -3.3%

Construction 23,233 62.8% 21,763 60.7% -1,469 -6.3% Concessions 2,715 7.3% 2,602 7.3% -113 -4.2% Other activities 11,031 29.8% 11,507 32.1% 476 4.3%Construction sales 23,233 21,763 -1,469 -6.3%

National 3,783 16.3% 3,111 14.3% -672 -17.8%

International 19,450 83.7% 18,653 85.7% -797 -4.1%Other activities sales* 13,746 14,108 363 2.6%

National 6,900 50.2% 7,326 51.9% 426 6.2%International 6,845 49.8% 6,782 48.1% -63 -0.9%

Total EBITDA 4,948 4,842 -106 -2.1% Construction 1,378 27.9% 1,172 24.2% -207 -15.0% Concessions 1,830 37.0% 1,927 39.8% 97 5.3% Other activities 1,739 35.2% 1,743 36.0% 4 0.2%EBIT 1,845 1,809 -36 -1.9%

Portfolio 95,442 89,106 -6,336 -6.6%National 16,430 17.2% 14,932 16.8% -1,498 -9.1%International 79,012 82.8% 74,174 83.2% -4,838 -6.1%

Portfolio (Months) 24.6 24.6Workforce average 417,173 399,112 -18,061 -4.3%* including concessions.

MAIN ECONOMIC DATA OF SEOPAN MEMBER GROUPS.CONSOLIDATED STATEMENT. I SEMESTER 2014

IS 2013 IS 2014 Variation

E l i f i i l d ( l


35/47

Evolution of international turnover and contracts (onlyconstruction)


36/47

TurnoverContracts

Regional distribution of turnover and contracts

World top infrastructure PPP developers -2014


37/47

World top infrastructure PPP developers 2014

As per number ofcontracts under

construction/operation: 9

among 36 majortransport

infrastructureconcessionaires

are Spanish

operating or underconstruction *

sold orexpired

Bidtargets

1 ACS Group/Hochtief Spain 56 47 492 Macquarie Group Australia 43 16 143 Global Vía: FCC-Bankia Spain 43 5 24 Abertis Spain 38 16 na5 Vinci France 36 6 166 Hutchison Whampoa China 34 5 na7 Ferrovial/Cintra Spain 33 23 35

8 Bouygues France 27 3 119 NWS Holdings China 26 1 na

10 EGIS Projects France 25 1 1611 Sacyr Spain 22 20 912 OHL Spain 21 17 23

·

19 Acciona Spain 15 11 9·

··

30 Isolux Corsan Spain 9 1 8

36 Itínere Spain 6 0 na* ranked by number of road, bridge, tunnel, rail, port, airport concessions over $50m investment

No. ConcessionsRanking Company Country

Main PPP developers by capital invested- 2014


38/47

Main PPP developers by capital invested 2014

Ranking Company CountryTotal Invested

* ($ millions)

1 ACS (Hochtief + Iridium) Spain 75,200

2 Ferrovial - Cintra Spain 74,300

3 Vinci France 70,800

4 Macquarie Australia 48,200

5 Bouygues France 44,7006 John Laing UK 32,900

7 EGIS Projects France 24,100

8 Sacyr Spain 22,900

9 Global Vía - FCC-Bankia Spain 21,200

10 OHL Spain 19,900* aggregate value (in nominal dollars) of all of a firm's transportation P3 since 1985 for

Main Spanish concessionaires accumulate 213,500 M$ investment in287 concessions (49% of top ten PWF database)


39/47

V. International activity of European major groups

International activity of mayor European companies 1989/2013


40/47

19%

10%

10%8%

19%35%

7.600

25.779

Middle East

8.200

48.620Asia + Australia

6.900

20.031Africa

23.300

49.690North America

3.900

26.713

Latin America

+ 113%

+ 585%

+ 190%

+ 239%

+ 492%

Total outside UE 2013:

170.833 million $

y y p p(ENR Top International Contractors in US M$)


41/47

2013 & 1989/2013 turnover of foreign companies in Middle East


42/47

M.East

9%

44%

+ 375%

38%

17.700,0

84.129,0Total

7.600,0

32.071,2Europe

7.500,0 7.770,2

North America

1.200,0

36.339Asia

+ 322%+ 2.928%

+ 4%

g p(ENR Top International Contractors in US M$)

2013 & 1989/2013 turnover of foreign companies in Africa


43/47

2%

5%

55%36%

14.300

62.236

Total

2.949

6.900,0

22.154,2Europe

5.600,0

1.122,7

North America

400,0

34.242,9Asia

Africa

+ 221%- 80% + 8.460%

+ 335%

g p(ENR Top International Contractors in US M$)

2013 & 1989/2013 turnover of foreign companies in Latin America


44/47

16%

17%

16%47%

7.600

56.530

Total

3.900,0

26.834Europe

2.300,0

9.248,0

North America

700,0

8.899,1

Asia

Latam

+ 643%

+ 302%+ 588%

+ 1.171%

(ENR Top International Contractors in US M$)

2013 & 1989/2013 turnover of foreign companies in North America


45/47

29%

6%60%

22.700

82.607

Total

5%

23.300,0

49.752,4

Europe

+ 302%

3.000,0

5.645,1

Asia

3.630

3.987

Australia

NorthAmerica

+ 113%

+ 88%

+ 10%+ 263%


2013 & 1989/2013 turnover of foreign companies in Europe


46/47

7%

3%

89%

25.400

111.864

Total

11.400 7.295

,6

North America

800,0

3.395,3

Asia

Europe

-36%

+ 324%

+ 340%



47/47

SEOPAN Association of infrastructure contractors & concessionairesC/Diego de León 5028.006 Madrid, SPAIN+ 34 91 563 05 04

situation, prospects and challenges of spanish and eu construction sector - julián núñez

Documents