2005 Management Report
Grupo Ferrovial, S.A. and subsidiaries

I. BUSINESS PERFORMANCE IN 2005

1. KEY AGGREGATES

Ferrovial’s net income amounted to 415.8 million euro, showing a 21.3% decrease with respect to 2004.

Excluding the result associated with the Cintra IPO in 2004, net income increased by 43.5%.

Operating income increased by 21.6%, up to 871.3 million euro.

Changes in key financial and operating variables are shown below:

2. ANALYSIS OF INCOME

2.1 Pro-forma income statement

Note: to avoid distortion and make the figures homogeneous and comparable between periods, the results of the Cintra IPO in 2004 have been deducted. Appendix II contains the comparative statutory income statement for the two years in which this elimination is not made.

2.2 Sales

Sales have increased during the year by 23.9%. Excluding the effect of the consolidation of Swissport and Webber and the additional 33% of Tubelines, the increase would have been 13.6%.

The individual business lines, in terms of sales, performed as follows:

The main reasons for the changes are as follows:

- Inclusion within the scope of the consolidation of the additional 33% of Tubelines (February) and of Webber (15 September) and Swissport (1 October).

- Major growth of the construction division, both at national level (13.9%) and internationally (49.5%). The inclusion of Webber has a resulted in an increase in billings of 89 million.

- In services, the division which has recorded the highest growth in sales, the loss of maintenance contracts with Network Rail is offset by significant organic growth and the broadening of the scope of the consolidation with the inclusion of an additional 33% of Tubelines and the inclusion of Swissport, which account, respectively, for billings of 396 and 261 million.

- In infrastructure, mention should be made of the favourable performance of traffic figures, the inclusion in the scope of the consolidation of the Chicago Skyway toll-roads and three further months of the R-4, as well as the change in the consolidation of Eguisa in parking lots1.

The geographical breakdown of sales is as follows:

International sales grew by 45.3% due mainly to the consolidation of additional revenues from London Underground, Webber and Swissport, which accounted for a combined total of 746.6 million euro in revenues. Excluding the main changes consolidation, sales would have grown 17.4%.

(1) Eguisa is now consolidated 100%, following the acquisition of 57.1% of the company in October 2004. Prior to this change, the results of Eguisa were accounted for by the equity method.

2.3 Gross operating income (EBITDA)

Gross operating income (EBITDA) grew 22.1% in line with the growth in turnover. Were it not for the principal changes to the scope of the consolidation, growth would have been 14.1%. The EBITDA over sales margin fell slightly (from 14.7% to 14.5%) owing to the inclusion of Webber and Swissport, whose activities report lower margins (9.9% and 5.6% respectively).

The individual business lines performed as follows:

Attention is drawn to the importance of recurrent business lines, which account for 63% of EBITDA, with 31% growth, as compared with the 9% growth in the EBITDA of business lines of a more cyclical nature (construction and real estate).

During 2005, the contribution to EBITDA of business activities outside Spain increased to 47%, with inter-annual growth of 30%, as compared with growth of approximately 16% in EBITDA from activities in the Spanish market.

The geographical distribution of EBITDA is as follows:

2.4 Depreciation, amortisation and provisions

Depreciation and amortisation increased by 36% with respect to the previous year while provisions fell slightly, mainly in Budimex.

2.5 Operating result (EBIT)

Operating result (EBIT) increased by 21.6% in line with the increase in net sales. The margins in construction, real estate and services have improved, despite the inclusion in the services division of Swissport, which reports an EBIT margin (1.7%) far lower than the average for the division. Were it not for the principal changes to the scope of the consolidation, growth would have been 14.9%.

The individual business lines performed as follows:

The contribution made by recurrent businesses (services and infrastructure concessions) amounts to 58% of operating income, with annual growth of 28%, as compared with 16% growth in business lines of a more cyclical nature (construction and real estate).

During 2005, the contribution to operating income of businesses outside Spain increased to 46%, with inter-annual growth of 35%, as compared with growth of approximately 12% corresponding to activities in the Spanish market.

The distribution of EBIT by geographical areas is as follows:

2.6 Financial result

Concession companies

The increase in financial expenses of Concession companies in relation to 2004 may be attributed to the following:
Positive impact:

• Non-recurring revenues owing to the elimination of the provision recorded (40 million euro) in relation to the Maipo toll road. This provision was set up for the purpose of covering future payments under the Exchange Hedge Mechanism (Spanish acronym MCC)). This mechanism established a fluctuation band of +/-10% with respect to the exchange rate established with the State. This fluctuation band has been eliminated with the signing, on May 17 last, of a new cross-currency swap, which also established the setting of an exchange rate more favourable to the concession company. The cancellation of the exchange hedge mechanism in respect of the Maipo toll road implies no additional cost for the concession company since there existed the option of eliminating it at any time and at no cost.

Negative impact:

• Increased indebtedness owing to the inclusion of debt corresponding to the new R-4 and Chicago Skyway toll roads and the releveraging of Bristol airport and the Chicago Skyway toll road, such toll road contributing financial expense of 56.6 million euro in 2005.

• Expenses deriving from the early repayment of the initial debt corresponding to the Chicago Skyway toll road, which amounted to 14 million euro. These financial costs are non-recurring.

Rest of Group

The Financing result decreased with respect to December 2004 owing to the improved net debt position maintained throughout the year.

The Other financial income heading includes items such as default interest collections, surety expenses, mortgages etc. The decrease in financial income in 2005 may be attributed primarily to the decrease in default interest collected in 2005 (17.4 million, as opposed to 23.2 million in 2004), owing to the exceptional collection of 7 million euro in respect of a single project in 2004.

2.7 Share of results of equity-consolidated companies

The income corresponding to companies consolidated by the equity method amounts to 7.6 million euro, as compared with a negative figure of 2.2 million in 2004. The difference is explained primarily by the improved result from Sydney airport, which has gone from contributing a loss in 2004 to generating income of 4.4 million euro in 2005.

2.8 Other profit and loss

Non-recurring income for the period amounts to 73 million euro, deriving to a great extent from the sale of the holding in Ono (45.7) and from the sale of 5% of Ausol (31.4).

2.9 Income Tax

The book expense for taxes amounts to 173.3 million euro, representing a tax rate of 30.9%, which is slightly lower than the 32.4% rate recorded in 2004.

2.10 Net income from discontinued operations

In accordance with international accounting standards, this heading records income from businesses in the process of disinvestment. The income of 31.8 million recorded for 2004 reflects the sale in September 2004 of the water business in the services division. This amount therefore includes the net capital gain generated on the sale and the net income received up to the sale date.

2.11 Income for the year attributed to parent company

Income for the year attributed to parent company for 2005 amounts to 415.8 million euro, up 43.5% on pro forma net income for 2004, which totalled 289.8 million euro.

Income for the year attributed to parent company per statutory accounts for 2004, including the income from the Cintra IPO, amounted to 528.6 million euro. For statutory purposes, income for 2005 was therefore down 21.3% with respect to 2004.

If for both years we exclude non-recurring income, the growth in net income would be 31.6%, as analysed below:

3. ANALYSIS BY BUSINESS AREAS

3.1 Construction

During 2005 there has been an major increase in billings, which are up 22.4% due to the favourable performance of this line of business both at national level, with 14% growth, and abroad, with 49.5% growth. The following have contributed to international growth:

The contribution of Budimex (+37%) owing to the increase in the backlog in 2004 (+51%)

The high rate of activity in Chile, Ireland and Portugal. It should be noted that this rate of execution made it possible to open the N4-N6 toll road in Ireland ten months ahead of schedule.

The inclusion of Webber, which contributed 89 million euro.

The distribution of sales by geographical areas and type of construction work may be analysed as follows:

Growth in gross operating income has been more limited than the growth in sales owing to the fact that less income has been obtained in Budimex. This also has an impact on the margin on sales, which has fallen by 100 base points. Excluding the impact of Budimex, the operating profitability would be similar to that recorded for 2004.

The operating margin is 4.8%, which is higher than the 4.7% margin recorded in 2004, despite the greater weight corresponding to Budimex in total sales, the increased depreciation of machinery and increased bidding expenses.

The backlog amounts to 7,500 million euro, up 11.6%. This represents 20 months´ activity. The backlog contributed by Webber amounts to 453 million euro. If we eliminate Webber, the backlog in terms comparable to 2004 has grown by 4.9%. This growth is particularly noteworthy in a year in which sales, excluding the contribution of Webber, have grown by 20%, which is the highest rate of organic growth since the IPO.

The distribution of the backlog by geographical areas and by type of construction work is as follows:

The figure for investment includes the purchase of Webber (179 million) and the acquisition of heavy machinery, mainly tunnel-boring machines.

Figures for construction excluding Budimex and Webber

Budimex figures

Webber figures (from 15 September 2005)

3.2 Real Estate

Total sales increased slightly, due primarily to the sale of land, which was 2.5 times greater than in 2004; this offset a slight fall in development sales and the reduced activity in the tertiary sector.

The growth in percentage terms of gross operating income was higher than the growth in sales, due mainly to the impact of income on the sale of land, which generates a margin higher than other activities.

Commercial data for pre-sales and backlog have increased by 13.5% and 8.6% respectively, overcoming the slight deceleration of last year, in which both of these figures fell by approximately 4%.

The high backlog figure guarantees that the level of activity shall be maintained for the forthcoming sixteen months.

Inflation in land prices has led to the company purchasing land with longer development periods. Gross purchases of land have increased significantly with respect to 2004 (+ 60%). If this figure is adjusted to reflect sales of land made in both years (154.6 as opposed to 61.7), net land purchases show an increase of only 34 million euro. Mention should be made of the commencement of investment in land in Poland, such investment amounting to 35.8 million euro.

The change in the rate of growth of this activity over the last three years and a change in land purchase and turnover policy have been reflected in the generation of flow of operations. In 2002, with a 65% increase in sales, the figure for flow of operations was a negative balance of 185 million euro. The figure for cash flow from operating activities for 2005 is a positive balance of 61 million euro.

An analysis by business lines is provided below:

3.3 Infraestructure

The main financial figures are set out below:

Billings increased by 23.8%. The inclusion of the Chicago toll road, the opening to traffic of the R-4 toll road as from April 2004, the favourable performance of traffic figures for toll roads and airports, and the growth in parking lots have made this growth possible.

Income before taxes includes the non-recurring income from the sale of 5% of Ausol (31.6 million) and the elimination of the provision (40 million euro) corresponding to the Maipo toll road covering future payments under the Exchange Hedge Mechanism.

The investment in project capital has increased significantly due to the disbursement of 375 million euro corresponding to the stake in the capital of the Chicago Skyway toll road.

Toll roads

Billings in respect of toll roads have increased by 27% due primarily to the contribution made by the Chicago Skyway toll road, which contributed sales of 40.7 million euro. If we eliminate this impact, growth would be 18%.

Attention is drawn to the favourable performance of traffic figures, especially on the 407-ETR toll road, where there has been an increase both in the number of vehicles and the average distance travelled. The 407 ETR toll road increased its rates as from 7 February 2005. The rates in force in 2005 were 7.2% higher at peak times (increase up to 14.95 cents Canadian dollar per kilometre). Despite this increase, a 5.3% increase in kilometres travelled was recorded between January and December 2005.

The rate approved for 2006, which came into force in February, represents a 8.7% increase for light vehicles at peak times.

Performance of the main toll roads:

Cintra recovered 44% of the initial investment made in the Chicago Skyway toll road following the closure of the operation for the refinancing of the concession, executed in August, for a sum of 1,550 million US dollars. Cintra obtained a total of 206 million US dollars (approximately 166 million euro) through a special distribution. The operation will make it possible to bring the IRR (Internal Rate of Return) for the shareholder up to above 150 base points.

The refinancing has included the placement of a bond issue on the US market for a sum of 1,400 million US dollars, the largest ever made in the country by a toll road concession company, and the obtaining of a subordinated loan of 150 million US dollars. The operation took place seven months after the acquisition of the Chicago Skyway toll road and five months after closure of the syndication of the senior non-recourse credit line of 1,190 US dollars arranged for the purposes of the acquisition.

The bonds are in two series: Series B, amounting to 961 million US dollars with a 21-year term, and Series A bullet, for 439 million US dollars with a 12-year term. The issue made is of FRNs (variable-rate bonds) which are to be converted to fixed rate (both series) and zero coupon (series B) through the contracting of swaps. This structure will also allow for greater flexibility in future refinancing. The bond issue has been rated Aaa by Moody´s and AAA by Standard & Poor´s (S&P). Payment of the coupon and principal of the bond issue is secured by the FSA monoline underwriter.

Airports

The accounts for this division result from the full consolidation of 100% of Belfast and Cerro Moreno airports, the proportional consolidation of 50% of Bristol airport and the consolidation by the equity method of Sydney Airport.

The most significant event of the year has been the refinancing of Bristol airport, in May, with a credit line of 515 million pounds sterling (770 million euro).

The airports business contributed positive net income of 7.4 million euro, compared with losses of 3.5 million in 2004. This is due primarily to the improvement in Sydney, accounted for by the equity method, which contributes income of 4.4 million as opposed to the 2 million in losses in the previous year.

The performance of the main airports is analysed as follows:

The high growth in revenues (+18.2%) is explained primarily by the improvement of the ORA service and the full consolidation of Eguisa. The number of parking spaces has increased significantly due primarily to the adjudication in October of the parking lot for the new Terminal 4 at Barajas airport, with 14,000 parking spaces under exploitation.

3.4. Services

Major events in 2005 have been the purchase of an additional 33% of Tubelines, the company entrusted with the management of three London underground lines, and the commencement of airport handling activities, with the purchase of Swissport. These companies were incorporated into the results of Ferrovial as from February and October 2005 respectively.

Ferrovial acquired 100% of the company Swissport, one of the leading airport handling operators worldwide, present in 40 countries and in over 170 airports. The business of Swissport was valued for the purposes of the operation at 1,002 million Swiss francs (641.6 million euro). Ferrovial paid 339 million euro for the shares of the Swiss company and assumed a debt amounting to 302.6 million euro.

Figures for 2005 do not include the Network Rail maintenance contracts which were included in 2004, the services in question being discontinued as from June 2004. Neither do they include the water business, which was sold in September 2004. If we exclude the main effects in relation to the scope of consolidation, the growth in sales is 7%.

The improvement in margins, which is greater than the improvement in sales, is attributable primarily to Tubelines, although the margins for Swissport are lower than the average for the division.

There has been a 44.3% increase in the backlog owing to the entry in 2005 of major contracts such as Cumbria, C-Vehicles and Bedford Shire. This figure does not include the backlog corresponding to the London underground which would contribute an increase of approximately 15,000 million.

The major increase in sales is attributable to a great extent to the inclusion of the additional 33% of Tubelines. Were we to exclude this effect and the loss in 2004 of Network Rail maintenance contracts, the growth in sales would have been 3%.

There has been a major increase in gross operating income, attributable to the greater contribution made by the London underground. In 2004, non-recurring income had been generated, amounting to 20 million euro, at gross income level, corresponding to earnings on the refinancing of the London underground and compensation received from Network Rail owing to the loss of rail maintenance contracts, following its decision to internalise these services.

The major growth in the backlog is attributable to the entry in 2005 of important contracts such as Cumbria (364 million), C-Vehicles (242 million), Bedforshires (168 million).

Post balance-sheet events in the division include, most notably, the following:

• The Amey contract in January for the construction, refurbishment, financing and operation or maintenance of schools in Bradford, Yorkshire, UK. The concession, valued at 586 million euro, is for a 30-year term.

• The acquisition of Owen Williams, a civil engineering company specialising in project design and management and the provision of consulting services in relation to the use of road and railway infrastructure, for 35.2 million euro.

Attention is drawn to the increase in sales combined with the increase in backlog.

4. CONSOLIDATED BALANCE SHEET AT 31-12-05 AND OTHER FINANCIAL AGGREGATES

4.1 Net cash position at 31-12-05

Analysed below are changes in net cash position by divisions:

Changes in cash during the year have been as follows:

The investment figure and figure for generation of cash flows from operating activities for 2005 are the highest since the IPO in 1999.

Despite this investment effort, net debt results in leverage of only 9%.

4.2 Cash flow by divisions (with concession companies consolidated by the equity method)

The cash flow from operating activities is net of taxes and includes payments made for land, which in 2005 amounted to 234 million euro.

The cash flow of infrastructure activity includes amounts received by way of dividends and reimbursements of capital.

Attention is drawn in 2005 to the cash flows obtained thanks to the re-leveraging of the Chicago Skyway toll road and Bristol airport, which have contributed amounts of 116.2 and 87.6 million euro to the flow of operations.

The rest of the cash flow for the infrastructure division corresponds primarily to the flow generated by the parking lot activity (approximately 47 million).

4.3 Gross investments for the period

In addition, the real estate division has made gross purchases of land amounting to 339.3 million.

In relation to disinvestments, mention should be made of the sale of the holding in the telecommunications operator ONO (145.0 million) and the sale of 5% of the holding in Ausol (39.7 million).

II. DEVELOPMENTS IN ENVIRONMENTAL ACTIVITIES

Environmental policy occupies a position of prominence among Ferrovial´s various corporate responsibility commitments.
The requirements and commitments established under this policy include the following:

• The steady improvement of the environmental aspects of its production activities, through studies – based on technical and economic criteria - of best practices applicable to its activity sectors.

• Optimisation in the use of natural resources and the introduction of criteria of maximum energy efficiency.

• Compliance with environmental legislation applicable to its activities.

• The putting in place of environmental management systems certified by recognised bodies, in those business areas which involve significant environmental risks.

• Active communication with the Public Administration, NGOs and social organisations, contributing solutions for the protection of the environment and to prevent pollution.

The operation of these policies is reflected, specifically, in the use of environmental management systems in Ferrovial´s business activities.

The extent to which targets in this area are met is defined by establishing objective indicators and monitoring factors in respect of environmental performance.

The annual report published by the company provides detailed information on developments in all these indicators in 2005.

III. DEVELOPMENTS IN HUMAN RESOURCE ACTIVITIES

Human resource policies, like environmental polices, are fundamental among Ferrovial´s corporate social responsibility commitments.

The Human Resource activities of Ferrovial are geared towards meeting two objectives: guaranteeing the sustained growth of the organisation and developing employees' potential so as to increase the company’s competitiveness in the market.

The annual report published by the company provides detailed information on developments in 2005 in Human Resource activities and in the principle indicators in this area.

IV. PRINCIPAL RISKS AND UNCERTAINTIES FACING THE COMPANY

The activities of Ferrovial take place in different countries, with different socio-economic environments and regulatory frameworks. The risks deriving from the businesses and sectors in which the company operates are therefore of a varied nature.

As a general rule, Ferrovial regards as significant those risks which may compromise the economic profitability of its activity, the financial solvency of the company involved or the Group, its corporate reputation and the integrity of its employees. The main risks are the following:

• Risks relating to deficiencies or delays in the execution of work or performance of services provided to customers and users.

• Environmental risks.

• Financial risks.

• Risks deriving from damages caused.

• Risks relating to workers’ health and safety.

• The risk of damage to group company property and assets.

The Company has in place control systems designed to identify, measure, assess and prioritise risks. These systems generate sufficient information of a reliable nature, enabling the various units and bodies with competence in the area of risk management to decide in each particular case whether the risk should be assumed in controlled conditions, reduced or avoided.

The Annual Corporate Governance Report sets out the information mentioned above in the section entitled "Risk Control Systems".

V. BUSINESS OUTLOOK

Ferrovial has maintained throughout 2005 its strategy of expansion and diversification in all the sectors to which its activities extend, beginning the new year well positioned to maintain its leadership, growth and profitability.

Construction activity in Spain is expected to continue growing in 2006, although at a slower rate than in 2005. Whereas the growth rate for 2005 was 5.9%, analysts´ estimates, on average, set growth for 2006 at 4.5%. This deceleration in growth is explained by a major decrease in building (2.2% as opposed to 3.5%), despite the maintaining in 2006 of growth in public works (5.5% as opposed to 5.4%). Against this backdrop, Ferrovial will attempt to maintain its market position, placing emphasis on the competitiveness of its bids, yet at the same time maintaining adequate levels of profitability.

In its Construction activity and at international level, Ferrovial will continue with its international diversification strategy, supported by the increasing global experience built up by Ferrovial Agromán and the Infrastructure business which can be contributed by the other Group Divisions, particularly in the developed markets of OECD countries and markets of difficult access, such as the United States. This is reflected in the increased weight, this year, of international activity, with billings accounting for 43.3% of the total turnover of Ferrovial, 46.4% of its operating income and 19.6% of net income (as opposed to 36.9%, 41.7% and 4.6% respectively in 2004).

During 2005, Ferrovial has consolidated its presence in the United States through the acquisition of the Webber construction company, active in public works infrastructure development sectors, the recycling of aggregates and the extraction and supply of sand in the State of Texas. For 2006, the State of Texas envisages a 22% increase in invitations to tender, from US$ 4.53 billion in 2005 to US$ 5.51 billion in 2006. We should recall that historically, the level of compliance with forecasts in respect of invitations to tender in Texas has been extremely high, (101% in 2005), and this reduces considerably the level of uncertainty.

In addition, Budimex continues to be a company of reference in the Polish construction market, where growth of 10% is forecast for 2006, as opposed to 8% last year, with increases in both public works (14.0% in 2006 as opposed to 12.0% in 2005) and in building (7.5% in 2006 as opposed to 4.5% in 2005). This has favoured the expansion of the real estate business, through the joint venture formed during this year by Budimex and Ferrovial Inmobiliaria for the purpose of exploiting the synergies between the two sectors.

In the Infrastructure division, the situation of many major projects, which are at the initial stages, and the favourable development of those more mature projects forming part of the division’s backlog, imply for Ferrovial major potential for the creation of value. Mention should be made, in relation to 2005, of the opening to traffic of the N4/N6 toll road in Ireland, and the consolidation of those toll roads opened to traffic in the previous year, such as the R4 Madrid radial road and the Euroscut Algarve in Portugal. The Ocaña-La Roda toll road in Spain and Euroscut North toll road in Portugal are expected to open in 2006.

In this sector, the most important breakthrough in terms of Transport Infrastructure projects worldwide has been in the United States. In response to this opportunity, Ferrovial has reaffirmed in 2005 its diversification strategy and presence in the US market through the consolidation of concession contracts acquired in 2004 (Chicago Skyway), and participation in new projects. Attention is drawn to its naming as `strategic partner` for a period of 50 years for the design and planning of an intermodal infrastructure corridor in Texas, the largest ever developed in the US.

Forecasts for 2006 in the US are highly favourable, as we see from the recent adjudication of the Indiana project (with a total investment of 3,173 million euro, of which 635 million euro correspond to capital pending disbursement). They are also favourable in Europe, where developments in 2005 include the adjudication of the Mantova-Cremona project (with an investment of 944 million euro).

Lastly, in the Parking Lots area, the number of parking spaces has increased in 2005 by 30,753 (+ 14.8% with respect to 2004). The outlook for 2006 is also favourable, with growth expected in the number of spaces, primarily in the off-street (rotación) and on-street controlled (zona azul) businesses.

On the other hand, the attractiveness of the airports business continues to increase, both in the public and in the private sectors. The recovery following the 11th September crisis, Asian pneumonia and the Iraq war, demonstrates the market’s capacity for regeneration and adaptation. Traffic forecasts, moreover, continue to grow. According to the IATA, average growth of 5.6% in the number of passengers and of 6.3% in flights is forecast for the period 2006-2010, with growth in all areas. In 2005, the growth in passenger numbers in the airports in which Ferrovial is present has exceeded these forecasts, with variances of 12.2% in Antofagasta (Chile), 11.9% in Bristol, 7.1% in Belfast and 4.1% in Sydney.

In the Services area, the process of absorption of the businesses acquired in 2003 (Grupo Cespa in Spain and Amey in the United Kingdom) has been completed, and these businesses are now full integrated in terms of the Group’s philosophy and strategy. Over these first few years of management, these businesses have made a major contribution both to income in these areas and to the generation of cash flows, and this contribution is expected to increase over the next few years. Attention is also drawn to the agreement reached with Jarvis in January 2005 for the acquisition of a further 33% of Tubelines, the company which manages the maintenance and upgrading of the London underground. This operation has permitted the control of Tubelines, bringing the ownership percentage up to 66%.

In the United Kingdom, the PFI/PPP sector - projects for the development and private financing of infrastructure and services - has matured and consolidated its position. Growth forecasts, which are still significant, and the natural process of improvement and selection of competitors - in which connection the favourable progress of the overhaul of Amey in comparison with the difficulties being encountered by other operators is highly indicative - point to a positive future for those businesses able to contribute value through their management. An example of Ferrovial´s focus on this market is the announcement made at the beginning of the year of the acquisition, by Amey, of the professional services company Owen Williams. This is strategic to the focus on long-term comprehensive service contracts, building up the capacity to offer comprehensive support services, from design through to management and maintenance/operation. The acquisition is the response to a growing trend in public tendering in the road, rail and local government sectors, which are demanding companies capable of providing a complete range of support services. With more than eighty years' experience, Owen Williams is the main supplier of professional support services to a wide range of public bodies. Attention is drawn to its participation in some of the most emblematic projects in the United Kingdom, such as the Wembley Stadium and the Daily Express offices in London, Manchester and Glasgow.

Forecasts for the urban services sector in the short- and medium- terms indicate that growth will be maintained, the total value of the market possibly reaching a 6.4% growth rate in 2006, bringing it up to 3,810 million euro. The entry of new companies is envisaged over the forthcoming years although at a slower rate than in the past given that new concessions are dwindling in number, and in view also of the solid position enjoyed by the three main groups following the mergers which have taken place over the last two years (Ferrovial Services, FCC and Urbaser). The five main companies in the sector (the three named above plus Tecmed and Lipasam) account for a market share at 2005 of 71.7%.

In the case of maintenance and cleaning, short- and medium-term forecasts indicate an annual average growth rate of 8%. Attention is also drawn to the trend towards replacement of the old facility management arrangements, with PPP and PFI contracts.

In the area of infrastructure maintenance, the presence of Ferrovial has been reinforced through the acquisition of 20% of the capital of Madrid Calle 30. This company’s corporate purpose is the management of services for the upgrading, maintenance and exploitation of the M-30 urban roadway, through the formation of a mixed finance (public-private association) company, for a period of 20 years. Growth in this market in 2006 may also be significant, the tendering of contracts for the maintenance and refurbishment of the network of dual carriage-ways in Spain being envisaged for this year.

In relation to its handling activity, Ferrovial has established itself as a company of reference for the sector through the acquisition of Swissport, a world leader in the independent management (associated with no airline or airport) of airport handling services. Swissport has two main lines of business: passenger and ramp services (ground handling) and cargo handling, and occupies a leading position in both. The company also provides other airport services such as fuelling, security, management of cargo containers for aviation, and executive aviation services.

Swissport has expanded rapidly into other countries since the late 1990s by setting up operations in new airports and acquiring local companies with leading market shares. The company currently operates at more than 170 airports in 40 countries, handling around 70 million passengers and servicing over 650 airlines worldwide. The passenger and cargo handling business, traditionally associated with the airlines and airports themselves, is estimated to be worth 26,000 million euro in annual revenues. The business is projected to expand rapidly, at over 5% per year in the coming years. Growth in air traffic (both passenger and cargo), worldwide liberalisation of airport management and the growing trend towards outsourcing of handling by airlines support this favourable forecast.

In relation to the real estate sector, 2005 has seen continued growth despite pessimistic reports of saturation in the sector and the debate with respect to the reasonableness of housing prices. Price levels have increased by up to 160% since 1997 and the number of homes on which work has commenced has reached 700,000 / year for each of the last two years.

The change in demographic and social model (increase in the number of second homes in Spain owned by foreigners, immigration, the number of divorces) would appear not to be significant enough to counteract this trend; the forecasts for homes commenced per year between 2006 and 2010 remain within the 550,000-600,000 range. Moreover, whereas in the first nine months of 2004 prices grew by 17%, in 2005 this rate has fallen to 13%. This situation may get worse, due to the slight increases in interest rate forecasts and limited growth of GDP / employment at around 3%. This deterioration may be nevertheless be lessened thanks to the facilities offered by the mortgage market (increases in the duration of mortgage loans and in the financing limit).

The strategy of Ferrovial, based on focusing its residential development activity under an industrial concept of the business, risk control and efficient selection of land, together with comprehensive commercial management and the diversification of marketing channels - in which context we find the extensive Don Piso sales network, through which it has continued to develop its brokerage activity - place Ferrovial Inmobiliaria in a highly favourable position from which to take on the new challenges and brave the less favourable climate which it may encounter in the coming year.

The backlog of committed sales at the 2005 year end, which exceeds 1 billion euro, continues to provide a solid base guaranteeing a favourable performance by this division in the short term.

Ferrovial´s strategy of international diversification is also clearly evident in this sector, in its penetration of the Polish market through Budimex. In the Polish market, the number of homes commenced between 2002 and 2005 has gone from 77,000 to 106,000, and this trend is likely to continue (growth over the last year has been over 8%).

The information provided with respect to the different businesses and markets in which Ferrovial is present, confirm its vocation as a multi-national, highly-diversified group, its strategy and management approach to date having been established as the correct routes, now to be explored in greater depth. Based on such information, the outlook for 2006 also appears favourable, with foreseeable results and quality of results which are to a great extent guaranteed by the major backlogs of contracts won and sales already made.

VI. TECHNOLOGICAL ACTIVITIES

Ferrovial has continued throughout 2005 to develop its technological activities in the different areas in which it operates:

In the infrastructure area, Cintra has positioned itself as a forerunner in the application of the most advanced technical solutions in the development of its activity. An example are the toll roads whose exploitation is based on free-flow, fully automatic tele-toll systems, such as that in use in the 407-ETR Toronto toll road, which is most advanced toll-paying system in the world. Cintra also participates actively in the main technological initiatives in its sector in those countries in which it is present, particularly projects of continental scope backed by the European Commission.

In 2005, the most important introduction of systems in the concessions area has been in the N4 (Kinnegad-Kilcock) toll road in Ireland, in which both conventional and tele-toll systems have been put in place. The transactions information system developed for the N4 is an upgraded version of the "Back office" system introduced in the Madrid Radial 4 roadway, adapted to the Irish legal and administrative context. Like the Radial 4 system, it is installed on standard hard- and software platforms which are not manufacturer-owned.

In the Chicago Skyway toll road, a concession won during the previous year and which was accepted in January 2005, improvements have been made to the toll system consisting of the adaptation of "back office” functions to increase internal control and reporting capacity, and inter-operable tele-toll equipment and antennae have been installed.

In Portugal, the control systems for the North Coast toll road, operated under a shadow toll system, started up during the period June to November of 2005. These systems include 36 traffic counters with capacity to transmit data and images, and detection systems in the two tunnels corresponding to the concession.

In terms of innovation projects, Cintra has been developing in 2005 a pilot project for the detection and management of queues in toll-paying areas, which will be operational in Ausol as from next Spring. The purpose of this system is to facilitate decision-making by concession companies to prevent the formation of queues.

In Parking Lots, in the aforementioned infrastructure area, the technological activity in 2005 has included, most notably, the "FREE" project. This is a centralised system integrated with the control equipment of various suppliers, which makes it possible to provide in real time via the Internet, data on free parking spaces in the central parking lots of Madrid. Such data can also be accessed using electronic organizers (PDAs).

In the area of Construction, the technical offices have continued work on the development of new construction techniques through Ferrovial Agromán, S.A., and on aspects relating to water treatment, specifically though the R&D area of Cadagua, S.A. The Ferrovial Agromán Group remains at the forefront in the application of the most advanced techniques in the construction sector, participating in research and development activities which further its progress towards this objective. Maintaining its commitment towards quality and the environment, it has continued to apply in its activity the production and management processes in respect of which the AENOR certification was awarded for compliance with standards ISO 9,001 and 14,001.

Finally, in the Services area, and in relation, specifically, to waste management and treatment, Cespa has been engaged in various projects involving new computer technologies for the management of contracts in its area of activity, the biological assessment of waste, and the reutilization of toxic waste.

VII. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Detailed information with respect to these policies is provided in the notes to the consolidated group financial statements.

 

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