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Ferrovial Profit Falls 49% on Debt, Building Slowdown

Grupo Ferrovial SA, the Spanish builder that spent $20 billion buying U.K. airport operator BAA, said annual profit fell 49 percent as borrowing costs increased and growth stalled at its construction division.

Net income dropped to 733.7 million euros ($1.09 billion) from 1.43 billion euros a year earlier, Madrid-based Ferrovial said in a regulatory filing. Sales increased 18 percent to 14.63 billion euros. Analysts expected profit of 749 million euros on revenue of 14.6 billion euros, according to the median of seven estimates compiled by Bloomberg.

Ferrovial is burdened by $44 billion in debt after buying the operator of Gatwick and Heathrow airports. Refinancing plans last year were delayed by a U.K. review of the fees BAA can charge airlines, while an increase in borrowing costs amid tighter lending conditions has coincided with a slowdown in homebuilding in Spain.

``The group is in a precarious situation given the refinancing situation, the weakness in Spanish construction and the need to deliver on BAA,'' said Tobias Woerner, an analyst at MF Global in London.

Ferrovial, which built the Guggenheim museum in Bilbao, gained 49 cents, or 1.2 percent, to 41.90 euros as of 9:06 a.m. in Madrid. The stock has fallen 48 percent in the past year, compared with a 15 percent decline in the benchmark Dow Jones Stoxx 600 Index. That gives the construction company a market value of 5.80 billion euros.

Debt, Construction Slowdown

BAA's plans to sell at least 8 billion pounds ($15.8 billion) in debt, backed by its three London airports, fell through last year. The operator has pledged to spend 4 billion pounds in further investment by the time of the London Olympics in 2012.

The interest margin on as much as 4.7 billion pounds of the debt doubled last year to 212 basis points more than interbank rates, according to data compiled by JPMorgan Chase & Co.

Revenue at Ferrovial's construction division, which remains he company's biggest even after buying BAA, rose 1.1 percent to 5.2 billion euros. That compares with 17 percent growth a year ago. Operating profit fell 17 percent to 350.5 million euros, held back by the start of operations in the U.K., the statement said.

Labor costs increased by 21 percent to 3.79 billion euros as the total headcount rose to 102,447 from 88,902 a year earlier. Ferrovial's tax charge of 172 million euros compares with an equivalent tax credit in the previous year.

Road Operations

Cintra Concesiones de Infraestructuras de Transporte SA also affected earnings. The road operator controlled by Ferrovial last week posted a full-year loss. Payroll and operating costs increased as the company took on new highway leases.

Investors will be looking for details of Ferrovial's debt strategy and any asset sale plans when Chief Executive Officer Joaquin Ayuso Garcia presents earnings later today, analysts said.

Ferrovial is the second of Spain's builders to publish earnings. Actividades de Construccion y Servicios SA, its bigger rival, yesterday posted a 55 percent drop in fourth-quarter profit, weighed down by weaker office and shopping mall projects and a year-earlier disposal. The company said homebuilding orders slowed at the end of last year, adding to a withering non-residential building market.

Fomento de Construcciones y Contratas SA and Obrascon Huarte Lain SA publish numbers later in the week.

Ferrovial will host a teleconference at 9:30 a.m. in Madrid today. The presentation can be viewed at http://www.ferrovial.es

To contact the reporter on this story: Brian McGee in Madrid at bmcgee3@bloomberg.net

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYNc1RvSknk4
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