MADRID Infrastructure firm ACS (ACS.MC) took a thumping 2.6 billion euro hit on its holding in power firm Iberdrola (IBE.MC) in the first half as Spain's unrelenting downturn laid waste to its strategy of diversifying away from property.
ACS spent more than 7 billion euros ($8.75 billion) building a stake in Iberdrola, according to Reuters calculations, beginning at the height of the construction boom, as it sought alternative sources of income in anticipation of an end to the property bubble.
The bubble duly burst, but Iberdrola shares have also tumbled, along with the wider market, as Spain has labored through recessions and scrambled to avoid a European bailout. Uncertainty over pending energy sector reforms has added to Iberdrola's problems.
ACS still owes 4 billion euros ($5 billion) on its 14.85 percent stake in Iberdrola, currently worth about 2.9 billion euros after a 32 percent share price decline so far this year.
In a reversal of its strategy, ACS sold some of the shares at a loss in April, wrote down the rest and incurred heavy refinancing costs for the debt, pushing it to a net loss of 1.23 billion euros in the six months to June, compared with a 604 million euro profit a year ago.
ACS Chairman Florentino Perez, who also runs world-known Real Madrid soccer club, said the company would cancel dividend payments until July 2013.
ACS said it was now carrying the Iberdrola shares on its books at 3.719 euros, down from 7 euros previously. With Iberdrola shares at 3.15 euros on Friday, that means ACS is still valuing them about half a billion euros above the market price.
Net debt for ACS fell 13 percent to 8.58 billion euros from a year ago, helped by the April sale of 3.7 percent of Iberdrola shares.
HOPE IN HOCHTIEF
ACS intends to keep its Iberdrola stake for the next three years and will focus its strategy in the meantime on German construction and industrial services provider Hochtief (HOTG.DE), where it wants to raise its majority stake.
"In the next three years we're going to devote ourselves to our core activity to continue as a global leader in infrastructure, with huge hope in our great project, Hochtief," Perez said on a conference call.
The consolidation of Hochtief, in which ACS won control in the middle of 2011, drove the Spanish company's first-half underlying earnings up 76 percent.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) reached 1.58 billion euros in the six months to June, beating the highest analyst forecast of 1.54 billion, thanks to the new contribution from Germany.
"The net loss reflects the Iberdrola impairment, which doesn't paint a pretty picture for the bottom line, but there's encouragement from progress at the operating level," said Juan Rodriguez Rey, strategist at Banco Sabadell.
The investment in Hochtief has not been un unalloyed positive, however. Hochtief reported a surprise second-quarter loss on August 14, hit by a troubled concert hall project in Hamburg, putting the company's full-year profit forecast in jeopardy.
ACS nevertheless raised its own full-year target for group underlying profit to between 2.7 billion and 3 billion euros on Friday, up from 2.7 billion previously.
By 0920 GMT ACS shares were trading 0.16 percent higher at 15.675 euros, recovering from earlier losses as investors took cheer from the company's confidence in Hochtief to drive future earnings.
($1 = 0.8001 euros)
(Additional reporting by Jose Elias Rodriguez and Andres Gonzalez; Editing by Will Waterman)