Salini Impregilo: faster than planned

A protracted battle between two of Italy’s largest contractors finally reached a conclusion in September 2013 when a merger was approved by both sets of shareholders and, from this, Salini Impregilo was formed.

Salini started building a stake in Impregilo back in 2011, and the battle was effectively seen to have started in January 2012 when Salini played down takeover rumours. However, Salini took control of its larger rival in the summer of 2012, having laid out its strategic plans for pursuing Impregilo, and continuing to build its stake.

Last month, Salini Impregilo reported total revenues of €3.09 billion for the first nine months of 2014 – an increase of 7.0% on the €2.89 billion reported by the pre-merger Salini Group for the same period last year.

According to CEO Pietro Salini, “It has gone better than we had foreseen – even smoother.”

He added that this was against a continuing background of world uncertainty. “The business model is working very well against all the difficulties that may be found around the world.

“I must be very happy because we saw a growth of 17% on our margin in the nine-month report. I think this is substantial by any standards. We’re getting the benefit of the synergies earlier than foreseen, and the savings and also the margins in our projects are becoming better, so I think that this is very important.”

Driving force

The merger, he admitted, had been a struggle. “The driving force was Salini,” he said. “This has not been a friendly merger.”

He said it had not been decided by people who had made an evaluation and had finally understood that there was value in a merger. He described it as a long battle, with people who opposed his company, not understanding the value to be achieved by the merger. In fact, they used “the utmost possible effort in order to resist this thing”.

But Salini’s company triumphed in its bid and has merged the two companies. He said, “We succeeded in doing it in a shorter time than anybody thought was possible. And we succeeded in selling all the non-core assets, which gave us the possibility of reducing the level of debt to a sustainable level.

“When you think that after nine months we are thinking for the end of the year to have a net debt position which is almost zero, after the entire cash out for the acquisition – well, this demonstrates that the idea was sound.”

Salini said, “We were growing fast and, in reality, Impregilo was shrinking. I don’t want to say that we were right and they were wrong, but certainly we had the power to buy Impregilo and the idea of making a larger company – they didn’t.”

Little uncertainty

Looking ahead, he said, “Of course, the market is always difficult but we have a very large chunk of the entire turnover that is foreseen in the plan in the actual backlog, so there is very little uncertainty about meeting the targets.”

He said that in terms of size, Africa was still a very important region with good opportunities for growth. He described the Middle East as booming, and the US as having “enormous demand for infrastructure”.

“We think that in northern Europe we will see important growth,” he said. “What is interesting to us are large projects that are going around in the next three years.

“The world is not worrying to me in terms of the dimension of the market. We have foreseen a market in the countries which we are in and want to be in.

“What is important is that in our business plan now, the percentage of revenues which comes from the backlog is going to be more than 70% of the total revenues in the future.”

He said work totalling around €500 billion had been identified for the next three years.

“We know more than 87% of the names of these projects. This means they are not figures based on assumption of GDP or other things, but are projects that are coming physically, at the stage of being tendered for, in which you have already made your decision about alliances, about sub-contracts, or strategic suppliers. It means the work in front of us is very clear.”

He said he did not see any uncertainty for the next three years, although he admitted that, for example, Italy might recover faster or slower than envisaged. “There is a booming market for large infrastructure in the world, and being one of the most, if not the most global contractor around the world gives us the opportunity to pursue the different options, making our choices before deciding in which activity or the other we would like to invest.”

New renaissance

Salini described the industry now as “the new renaissance” for builders.

“This is the time for knowledge, and for people who have the experience and capability, not for brokers. This is the time for people who know how to use the hammer, not the one who knows the telephone number for somebody else who knows how to use the hammer.

“I think that competence will be the most difficult thing, the most scarce thing to find in the next few years. A few companies which are knowledgeable will have a bright future.”

Asked if he was confident about the future of Salini Impregilo, he replied, “I am sure, not confident. We are growing, we are doing what we know and what we will be able to do – it’s as simple as that.”