BRISA Auto-estradas de Portugal S.A.

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BRISA Auto-estradas de Portugal S.A.

Edifício BRISA
Quinta da Torre da Aguilha
2785-599 Sao Domingos de Rana
Portugal
Telephone: ( +351) 21 444 85 00
Fax: ( +351) 21 444 91 93
Web site: http://www.brisa.pt

Public Company
Incorporated: 1972
Employees: 3,000
Sales: EUR 502 million (2003)
Stock Exchanges: Euronext Lisbon
Ticker Symbol: BRI
NAIC: 234110 Highway and Street Construction; 234120 Bridge and Tunnel Construction; 513330 Telecommunications Resellers; 541330 Engineering Services

BRISA Auto-estradas de Portugal S.A. has played a key role in bringing Portugal's once-neglected transportation infrastructure up to date. The company, which holds the largest road concession granted by the Portuguese government, constructs, maintains, and operates the country's main network of tolled expressways. Brisa's 1,100-kilometer highway network encompasses a major north-south expressway along the Atlantic coast, a circle of roads around Lisbon, and a highway that reaches east from Lisbon to the Spanish border. The company pioneered an innovative tolling system known as Via Verde that automatically deducts tolls from registered drivers without requiring autos to stop. Brisa first began constructing its network under a concession granted in the early 1970s and, three decades later, has nearly completed the planned 1,100 kilometers of express-ways. The company's fortunes have been closely tied to the Portuguese economy, which both created the pressure for a better transportation system and resulted in increased traffic and higher toll revenues to pay for it. Brisa's current concession for toll road maintenance and operation extends through 2032. The company also has small holdings in Brazilian and Spanish tollway operators. Brisa's other business activities aim to provide a full array of services for drivers, including roadside assistance, periodic car inspections, and automatic payment at gas stations. Other subsidiaries are active in engineering consulting and telecommunications services.

1970s Origins: Portugal's First Expressways

Brisa was first formed under Portugal's Salazar dictatorship in the early 1970s. At the time, the country's transportation system was inadequate to support a modern economy; some towns were linked by ancient dirt roads and there was no means for fast, efficient transport of goods. On September 28, 1972 a public deed established Brisa and granted the company a 30-year concession to design, build, manage, and maintain express motorways. In the initial stage of the plan, Brisa was to construct 390 kilometers of roadways by the end of 1981. The first priority was a highway designated as A1, a 300-kilometer stretch reaching from the capital of Lisbon north to Porto, Portugal's second-largest city. This highway would become a crucial link to the industrial activity in the north of the country and experience the highest traffic volumes in Brisa's network. Construction also began on the A2, which was projected to reach from Lisbon to resort areas on the southern coast.

Two years after the establishment of Brisa, the Salazar dictatorship was overthrown by a Marxist revolution. The new regime included Brisa in a program of nationalization, first taking control of 40 percent of the company and eventually gaining a 90 percent share. Road construction continued stretch by stretch under socialist control. As the first highway sections were completed on the A1 and A2, the government concession was expanded to include adjoining stretches. In addition, concessions were granted for expansions to the network: the A3 would extend the north-south highway from Porto up to the Spanish border, the A4 would reach east from Porto to the city of Amarante, and the A5 was to reach from Lisbon about 25 miles west to the coast. However, the combined length of the network never exceeded 300 kilometers through the 1980s.

International investment in Portugal increased in the mid-1980s as part of a program to prepare Portugal to join the European Economic Community in 1986. Financial aid was directed at the transportation system in an effort to speed up the completion of some much-needed highway links. In 1985, Portugal received a loan of PTE 20 million from the European Investment Bank in order to complete the stretch of the A1 between Porto and Coimbra, a university town midway to Lisbon. The completion of this stretch was expected to give a boost to private industry, which was located mostly in northern Portugal, and would also link Porto to a highway reaching from the coastal town of Aveiro east to the Spanish frontier. That road was opened in 1986, which allowed business to transport goods to Spain without navigating winding, poorly surfaced mountain roads.

Investing to Jump-Start Highway Construction:
1980s–90s

In 1987, a new government led by the center-right Social Democrats came to power in Portugal and began loosening the state's control over economic activity. After years of slow progress, the government began an extensive investment program to bring the transportation infrastructure up to date. While some funds were earmarked for railroad and subway companies, the largest share went to highways. Brisa received a direct capital injection of PTE 17.7 billion in 1990. The investment was urgently needed, since traffic volume in Portugal was growing at a faster rate than any other country in the European Union. Average daily traffic volume increased at a rate about 4.5 percent more than the gross domestic product each year between 1990 and 1996. The government kept up its intensive program of annual investments, allowing Brisa's network to grow from 300 kilometers in 1990 to 600 kilometers in 1995.

The Via Verde ("green lane") automatic tolling system was first implemented during this period as well. The first Via Verde machines were installed in 1991 in four toll plazas in the Lisbon area. They worked by detecting a box in the windshield of drivers who had subscribed to the program. Fees were then automatically deducted from the subscriber's account. The Via Verde system operated on a pilot basis for the next few years.

Portugal experienced an economic crisis in 1993 that hurt Brisa's performance. Nevertheless, the company began reporting steadily rising revenues in the subsequent years. Net profit in 1994 was PTE 6.7 billion on sales of PTE 34.7 billion, and revenues were climbing about 10 percent annually as the highway network was expanded. In 1995, Brisa's network was double what it had been five years earlier. That year, the Via Verde system, having proven its efficiency, was extended to all toll plazas in Portugal. Via Verde subscriptions were voluntary, but they accounted for about one third of revenues by the first half of 1997. A new concession agreement in the fall of 1997 provided for future highway development. Under the agreement, Brisa was to nearly double the length of its network to 1,114 kilometers by 2004. The company also received state subsidies for construction costs and was granted an income tax holiday through 2005. However, Brisa's network was reduced that year when the A7 and A8 highways were removed from the company's jurisdiction due to discontent over their progress. The state compensated Brisa for the two highways and put their maintenance contracts out to tender; they eventually went to a private operator, Auto-Estradas do Atlantico.

Privatization in the Late 1990s

Many of Portugal's state-owned firms were being privatized in the late 1990s. The electric utility and the telephone company had been partially privatized, and in 1997 Brisa was next in line. The company used the song "Somewhere Over the Rainbow" in numerous television and radio spots to advertise its upcoming stock sale. The initial public offering (IPO) occurred on November 24, 1997 on the Lisbon Stock Exchange. Brisa sold 21 million shares, or 35 percent of the company, to local and foreign investors and raised PTE 102 billion. The IPO was heavily oversubscribed; more than 5 percent of Portugal's adult population placed orders for shares. The company's shares were seen as a reliable investment promising steady revenue, since tolls and traffic were projected to increase. Brisa's net profit in 1997 was PTE 21.1 billion on sales of PTE 49.2 billion.

The second phase of privatization occurred in November 1998. The government sold another 16.6 million shares, raising PTE 136 billion and leaving it with a 36.8 percent stake in Brisa. The government went ahead with the second phase despite global economic turmoil. This second offering was also oversubscribed, even though shares were selling at almost double the price of the IPO, since Brisa was still perceived as a sound defensive investment. The company's road concession had just been extended to 2030 with a provision for toll rates to be increased in line with inflation. By the end of 1998, Brisa had completed 829 kilometers of its network. The company added 147 kilometers in 1998 alone, finishing stretches on the southern A2 and the A3 in the far north, as well as the A6 stretch, which led straight east from Portugal to the Spanish border. Sales in 1998 were up 28 percent to EUR 314 million.

Company Perspectives:

Brisa is a Portuguese company ranking by own merit among the largest private motorway operators in Europe. Brisa established high technical and managing standards regarding the construction, maintenance, and operation of the 11 motorways under its operation. Project management, the innovating Via Verde, and a growing network are three critical factors in Brisa's success joined by a fourth: corporate stability. The capacity to build motorways meeting both deadlines and budgets is a demonstration of the company's efficiency and a guarantee of return on investments. Via Verde is another instrument of Brisa's efficiency and an unquestionable demonstration of the high quality standards and innovating capacity achieved as far as road services are concerned.

The government sold a third stake in Brisa in May 1999. Another 12 million shares, a 20 percent stake, were sold to retail and institutional investors, raising about EUR 550 million. The state also extended Brisa's concession two more years until 2032. Meanwhile, competitors were starting to challenge Brisa's dominance of Portuguese highways. Besides the A7 and A8, which had been transferred to private operators, the government had launched about a dozen new road concessions. Many of the new highways would be shadow-tolled, which meant that drivers paid no direct fee; instead, the road operator received government compensation based on traffic volume. However, since traffic across Portugal continued to increase, Brisa predicted that the new highways would bring more traffic to its own network.

Restructuring and Diversification: 1999 and Beyond

Now that it was almost fully privatized, Brisa began looking for profitable ways to diversify and restructure its operations. In late 1999, the company made its first international investment when it joined a consortium led by Edizione Holding that was bidding for a 30 percent stake in the Italian road company Autostrade. Brisa ended up with a 0.15 percent stake in the Italian firm. The company was also looking into the telecommunications sector. Brisa already operated a communications network along its highway system, and the coming liberalization of the telecom market offered possibilities for turning the network into a profitable enterprise. Initially, Brisa made an agreement with the former state company Portugal Telecom to jointly operate a network along Brisa's highways. After Portugal Telecom's monopoly was abolished at the start of 2000, Brisa made plans to build a competing high-capacity telecom network together with the mobile phone operator Telecel and fixed-line operator Oni. Ultimately, however, the deal fell apart, so Brisa set up its own subsidiary as a holding company for future telecommunications activities.

In 2001, the Portuguese government sold its remaining holdings in Brisa. Early that year, the company expanded its international connections when it bought a 20 percent stake in Companhia de Concessoes Rodoviárias (CCR), a Brazilian company with 1,300 kilometers in road concessions. In addition, Brisa was in talks with the Spanish highway operator Acesa concerning possible future cooperation. In what was viewed as a prelude to a merger between the two companies, Brisa and Acesa acquired 5 to 10 percent stakes in each other during 2002 and also planned to bid jointly for a stake in Empresa Nacional de Autopistas, Spain's state-owned highway operator. In the end, however, Acesa merged with a Spanish competitor to form Abertis, and the two companies withdrew their bid for Ena.

Brisa was also implementing an internal restructuring during the first years of the new century, spinning off many departments into separate subsidiaries. The first such reorganization occurred in 2001, when Via Verde was set up as an independent company owned 75 percent by Brisa and 25 percent by a Portuguese interbank clearing company. Over the next few years, other subsidiaries were created, including Brisa Internacional, which handled international investments; Brisa Electrónica Rodoviária, responsible for installation and maintenance of electronic tolling systems; Brisa Engenharia e Gestao, created from the former engineering and construction management department; and Controlauto, which provided periodic car inspections for maintenance purposes. Brisa also began making the Via Verde payment system available for transactions at other businesses. In May 2002, Brisa Access was set up for this purpose; its first initiatives made it possible for consumers to pay electronically at gas stations and parking lots.

Road construction continued as the 2004 deadline for completion of the entire 1,110-kilometer network neared. In July 2002, the final stretches of the A2 southern highway were completed, allowing Portuguese vacationers to reach the holiday destination of Algarve. The A4, a short spur east from the northern town of Coimbra, was completed that year as well. By the end of 2002, Brisa had just over 1,000 kilometers of express-way open to traffic. Revenues had been rising as more highways entered the network. Toll revenues were EUR 452 million in 2002, with 56 percent of this amount paid through the Via Verde system. Brisa's net profit that year was EUR 213 million.

The only parts of the planned network not yet open to traffic in 2003 were parts of the A13 and most of the A10 motorway. Both were part of a knot of highways in the Lisbon area. Brisa's investment plan called for the entire network to be completed by the end of 2005. The company was also adding lanes to some existing motorways to handle larger traffic volumes. In early 2004, Brisa entered into an agreement that set the tone for the activities in which it could engage after completion of the originally planned network. The company announced it would partner with Teixeira Duarte SA, a construction firm, to compete for new concessions in the north of Portugal. The Portuguese government was planning a number of new toll road concessions there, but Brisa would have to compete or partner with other private operators to win them. However, even without carrying out major new construction, Brisa had a dependable source of income in the toll revenues from its existing network.

Principal Subsidiaries

Brisa Internacional; Brisa Servicos; Via Verde (75%); Brisa Access (70%); Controlauto (60%); MCall; Brisa Assistencia; Brisa Electronica; Brisa Engenharia; Brisa Conservacao; ONI SGPS (17%); Abertis (Spain, 4%); CCR (Brazil, 17%).

Principal Competitors

Lusoponte; Auto-estradas do Atlantico; AENOR—Autoestradas do Norte.

Key Dates:

1972:
Brisa is established under the Salazar dictatorship.: 1974:
Brisa is nationalized after a Marxist revolution.: 1985:
International investment is targeted at Portugal's lagging transportation sector.: 1990:
A new center-right government begins investing heavily in transportation.: 1995:
The Via Verde automatic toll booth system is installed at all toll plazas.: 1997:
Brisa is privatized in share offerings over the next three years.: 2002:
The length of Brisa's highway network exceeds 1,000 kilometers.: 2004:
Brisa begins competing for new road concessions in the northern Portugal.