Obrascon Huarte Lain S.A. - Company Profile, Information, Business Description, History, Background Information on Obrascon Huarte Lain S.A.



C/Gobelas No. 35-37, El Plantio
Madrid
Spain

Company Perspectives:

The ultimate mission of the OHL Group is to create value in condition s of economic, social and environmental sustainability, catering to t he specific interests of its clients, of the human team comprising th e Group, of the investors and of all of the individuals and entities having a stake in the proper functioning of the company.

History of Obrascon Huarte Lain S.A.

Obrascon Huarte Lain S.A. (The OHL Group) is one of Spain's largest a nd most diversified construction groups. The company's primary area o f operations remains in the large-scale construction, public works an d infrastructure sectors, including road building and highway managem ent and maintenance, harbor and port construction and maintenance, an d the like. Since the early 2000s, however, OHL has been investing he avily in its diversification effort, boosting its operations in waste management and water treatment, urban and infrastructure services, a nd "social" construction, primarily of hotels and other tourism-marke t related structures, as well as shopping centers and retirement home s. OHL has coupled its diversification effort with an a geographic ex pansion effort. Although the company has long participated in foreign construction projects--the group's first contract, in fact, was for the construction of a port in Portugal in 1912--the company has been stepping up its international operations into the mid-2000s. Latin Am erica has been a primary focus of the group's efforts in this regard, especially in Brazil, Argentina, Chile and Mexico. The company also has operations in North Africa. The company has also targeted the Eas tern European market, acquiring Czech Republic construction leader ZS Brno as the springboard for further expansion in the region. OHL its elf is the result of the merger of three mid-sized Spanish constructi on groups, between Obrascon and Huarte in 1998, and with Lain in 2001 . The company's revenues of EUR 2.23 billion (US$ 2.82 billion) i n 2004 place it among the top five Spanish construction groups. OHL i s listed on the Madrid Stock Exchange. Chairman of the board Juan-Mig uel Villar Mir is also the group's major shareholder.

Iberian Infrastructure Specialist in the 1910s

Sociedad General de Obras y Construcciones Obrascón, S.A., was founded in Bilbao, Spain in 1911. Obrascon's original shareholders w ere the Banco de Bilbao and the Banco de Vizcaya, which had begun to take an interest in financing infrastructure projects in the Iberian peninsula, and elsewhere. The company first project came from Portuga l, when Obrascon won the contract to build two docks in the port of L isbon. The construction of seaport infrastructures became a company s pecialty over the following decades.

Obrascon also retained a strong international focus. By 1918, the com pany had completed its first projects in North Africa. And in the yea rs following World War II, Obrascon entered the American markets, and especially the Latin American region. The company's international ex pansion also encouraged the group to expand its focus, and in the 196 0s Obrascon developed into a general construction group, with an emph asis on large-scale public works and infrastructure projects.

The company meanwhile had changed owners. In 1953, the Banco de Bilba o acquired full control of the company, a holding it maintained until 1973. Obrascon's ownership was then transferred to Altos Hornos de V izcaya. But the company's growth effort quickly ran out of steam. By the mid-1980s, the company had begun to struggle amid falling profits . By 1987, Obrascon's losses had topped one billion pesetas--compared to the group's total capitalization value of just 900,000 pesetas.

Obrascon was rescued that year by Juan-Miguel Villar Mir. Born in Mad rid in 1931, Villar Mir had started his career as a civil servant in the late 1950s, rising to a number of high-level administrative posit ions in the 1960s. Villar Mir left the government to enter the privat e sector at the end of the decade, in order to take over a failing co mpany. The rescue of failed companies became something of a specialty for Villar Mir.

Villar Mir briefly returned to politics after the death of Franco--Vi llar Mir's political career included a stint as Spanish vice-presiden t between 1975 and 1976. Disagreement with the new Spanish government led Villar Mir to abandon politics for the private sectors. Villar M ir at first invest in real estate, until he spotted a new opportunity with the collapse of Obrascon.

Paying a symbolic price of just one peseta, Villar Mir took over Obra scon and set it on a new course. Among other features of the new Obra scon strategy was a commitment to strong profit margins. As such, Obr ascon began to shed its low-profit operations. Instead, the company f ocused its efforts on its building its infrastructure business. Into the 1990s, the company adopted a conservative approach to growth, bas ed on its insistence on maintaining strong profit margins for its ope rations. By 1991, the company was strong enough financially to be lis ted on the Madrid Stock Exchange. The company then made an attempt to enter a number of other, related high-margin areas, such as building its own real estate portfolio. In 1991, the company joined with the United Kingdom's Northumbrian Water to develop a water distribution b usiness for the Spanish market. Into the mid-1990s, the company remai ned a medium-sized business, posting annual revenues of the equivalen t of just EUR 135 million.

Consolidating to Survive in the 1990s

Spain's entry into the European Union and the requirements of the Maa stricht Treaty introduced a new era in the Spanish construction secto r. Among other requirements, the Spanish government was required to r educe its level of public works spending significantly. As a result, the Spanish government inaugurated a new policy of transferring an in creasing number of public works and infrastructure projects to the pr ivate sector. This decision, while opening the market for new project s to a variety of players, including banks and larger corporations, a s well the construction groups themselves, nevertheless presented a s ignificant hurdle to potential players. Companies were now expected t o finance the construction of new projects from their own treasuries. At the same time, regional governments, which took over the awarding of civil contracts, began demanding that potential candidates establ ish a permanent presence in the region.

The new industry situation meant that companies hoping to establish t hemselves as a major players in the national construction market had no choice but to expand. Not only were companies required to expand g eographically, in order to provide national coverage, they were also forced to build up the scale of their operations in order to develop the financing necessary to compete for and carry out new projects. Th e consolidation of the Spanish construction sector began in earnest i n the mid-1990s. By the end of the decade, the sector, which previous ly counted nearly 30 larger groups, had been reduced to just 11 major players.



Obrascon emerged as one of the leaders of the consolidation effort. A bandoning its commitment to the high-margin, short-term profit-driven strategy that had enabled the group to rebound into the 1990s, the c ompany launched a series of acquisitions, starting with the purchase of Elsan in 1996. That business posted revenues roughly equivalent to Obrascon's, although at lower profit levels. The addition of Elsan, however, added its specialty in asphalt-based construction, including roads, airports, parking lots and the like. Elsan also brought its s ubsidiary, Fernandez Constructor, which offered its specialty in brid ge and special structures.

After spending some ESP 1.5 billion acquiring Elsan, the company clos ed out 1996 with the ESP 1 billion purchase of SATO. That company spe cialized in ports and other maritime and coastal civil works projects . Also that year, Obrascon announced its intention to sell off its re al estate division and to exit the water distribution market. Instead , the company turned to the waste treatment sector, more closely rela ted to its construction operations, acquiring 60 percent of Cida Hidr oquimica. Also in 1996, Obrascon acquired a 40 percent stake in Ondag ua, a company specialized in urban services infrastructure and water treatment. The company bought full control of Ondagua in 1998.

International Player in the 2000s

Villar Mir, who had in the meantime had orchestrated the rescue of a number of the failing companies, brought that specialty to Obrascon's benefit in 1997, acquiring, at first on a personal basis, a major st ake in struggling construction rival Huarte. Established in 1927 by t wo Pamplona based families, Huarte had grown into one of the Spanish construction sectors major players. Into the mid-1990s, however, Huar te stumbled, and by 1995 the company had been forced to seek bankrupt cy protection. The following year, Huarte and Obrascon began developi ng a working relationship, leading to Villar Mir's acquisition of a m ajor stake in Huarte. As part of that purchase, Huarte's capitalizati on was reduced to zero, absorbing the group's debts.

The merger between Obrascon and the larger Huarte was carried out in 1998. The move reduced Villar Mir's stake in the newly renamed Obrasc on Huarte to below 50 percent. Yet the company now emerged as one of the top ten Spanish construction groups. Obrascon also continued to b uild out its regional coverage, acquiring Malvar in 1999, and adding that group's focus on the Galicia region.

Obrascon continued to seek scale amid the general Spanish consolidati on effort. The company found the next piece in its puzzle in 1999, wh en it agreed to merge with rival group Construcciones Lain, in a deal worth some $900 million. Lain had been founded in 1963 as the Sp anish arm of British construction group John Laing Construction. Lain g exited Spain in 1988, selling the Spanish subsidiary to a managemen t buyout, which renamed the company as Construcciones Lain, then took it public in 1991. Lain too had launched an effort to acquire scale in the mid-1990s, buying up railway construction specialist Guinovart in 1995, the moving into the Basque region with the purchase of Sobr ino in 1996. In 1998, Lain merged with Pacsa, a diversified group eng aged in general construction, road building and renovation.

The merged Obrascon Huarte Lain (OHL) became Spain's fifth-largest co nstruction group. OHL also established a clear strategy to become a d iversified construction group for the new century, and especially tar geting high-margin, high-growth areas such as urban services, and "so cial" construction--including hotel and tourism infrastructure projec ts, as well as shopping centers and retirement facilities and the lik e.

As it turned toward the new century, OHL also adopted a renewed strat egy of international growth. As part of this effort, the company espe cially targeted the Latin American and North African markets. OHL at first focused on building up its road-building and toll road manageme nt and maintenance business, acquiring Chile's Infrasestructura 2000 from Endesa Chile, and its operations of the highway between Santiago and San Antonio, and the construction of the highway linking Santiag o-Colina and Los Andes. The company also bought majority control of t he AEC consortium building the Ezeiza-Canuelas freeway. In that year, also, the company briefly entered talks to acquire troubled Mexican construction group Tribasa. Those talks fell through, however.

By 2001, OHL had also begun to roll out an ambitious diversification strategy, announcing that it had developed plans for some US $1 b illion in investments in Mexico alone for that year. The company also acquired parking lots operations in Santiago, and in 2002, the compa ny also announced its intention to expand its presence in that sector .

OHL took a break from its South American expansion in 2003 to turn it s sights on the promising Eastern European market. As a first step to ward a proposed regional expansion effort, the company acquired a 61. 1 percent stake in ZPSV Uhersky Ostroh, which owned ZS Brno, one of t he leading construction groups in the Czech Republic.

In 2004, OHL stepped up its fast-developing hotel construction operat ions, announcing a new US$ 1 billion investment program to build up to four luxury hotels. That effort came as part of a strategic all iance with Fairmont Hotels & Resorts, and the Rosewood and Starwo od hotel groups. Among the alliance's project was the construction of a two May Koba-branded hotels along the Mayan Riviera.

By 2005, OHL's Latin American operations included three highways, for a total of 909 kilometers, in Brazil as well. In that year, the comp any announced its plans to list its Brazilian subsidiary on the Sao P aulo exchange, as part of an effort to boost its operations in that c ountry. OHL had successfully transformed itself from a mid-sized comp any in the Spanish market to a fast-growing, diversified player on th e international construction market.

Principal Subsidiaries: Ambient Servi√ßos Ambientais De Riberao Preto S.A. (Ambient); Autopista Del Sol S.A.; Autopista De Lo s Libertadores S.A.; Autopista Los Andes S.A. (Chile); Autopista Eje Aeropuerto CESA; Autopista Ezeiza Ca√Īuelas S.A. (Aecsa) (Argen tina); Autovias S.A (Brazil); Avalora, Tecnolog√≠as De La Infor maci√≥n S.A.; Centrovias Sistemas Rodoviarios S.A. (Brazil); Co ncesionaria Mexiquense SA de CV (Mexico); Construcciones Adolfo Sobri no S.A.; Construcciones Enrique de Luis S.A. (Celsa); Desalant. S.A. (Chile); Desalinizadora Arica Ltda. (Desalari) (Chile); Electrificaci ones Y Montajes Guinovart S.A.; Elsan-Pacsa S.A.; Ingenieria De Los R ecursos Naturales S.A. (Irena); Inima Servicios Europeos De Medio Amb iente S.A.; Inima Usa Corporation; Jose Malvar Construcciones S.A.; M orkaitz S.A.; Muelles Y Espacios Portuarios S.A.; Ohl Central Europe, A.S. (Czech Republic); Ohl Concesiones, S.L.; Pabellon Cuauhtemoc SA de CV (Mexico); S.A. Trabajos Y Obras; Terminales Mar√≠timas D el Sureste S.A.; Zsbrno, A.S. (Czech Republic); Zspv Uhersk√Ĺ O stroh A.S. (Czech Republic).

Principal Competitors: ENCOL S.A.; Roggio E Hijos Benito S.A.; Fomento de Construcciones y Contratas S.A.; Construtora Lider Ltda.; CMB S.A.; El Corte Ingles S.A.; ACS Actividades de Construccion y Se rvicios S.A.; Sacyr Vallehermoso S.A; Acciona S.A.; Sociedad General de Aguas de Barcelona S.A.; Abengoa S.A.;

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