January December 2017 Financial Results Conference Call

Transcription

1 Madrid, February 28th, :00 Edited Transcript of the Ferrovial January-December 2017 Financial Results Conference Call. CORPORATE PARTICIPANTS Rafael del Pino Ferrovial S.A. Chairman Iñigo Meirás Ferrovial S.A. CEO Ernesto López Mozo Ferrovial S.A. CFO Enrique Díaz-Rato Jorge Gil Alejandro de la Joya Santiago Olivares Ricardo Jiménez Cintra CEO Ferrovial Airports CEO Ferrovial Agroman CEO Ferrovial Services CEO Ferrovial S.A. Investor Relations Director Q&A SESSION PARTICIPANTS Guy McKenzie Credit Suisse Analyst Guillermo Fernández Gao Deutsche Bank Analyst Thomas Van der Meij Kempen Analyst Bruno Silva Caixa Bank Analyst Stéphanie D Ath RBC Analyst Vittorio Carelli Santander Analyst Martin Wojtal Bank of America Analyst Victor Acitores Société Générale Analyst 1

2 PRESENTATION TRANSCRIPT Ricardo Jiménez, Ferrovial S.A. Investor Relations Director Good afternoon everybody, and welcome to Ferrovial s conference call to discuss 2017 s financial results. The results report and the presentation are available to you in our website and the Spanish Stock Exchange. If you have any questions you may ask them through the to ir@ferrovial.com, or at the Q&A session at the end of this call. With this I will hand over to Mr Rafael del Pino, Ferrovial s Chairman, who will be leading this conference call. Rafael del Pino, Ferrovial S.A. Chairman Thank you, Ricardo. Good afternoon and thank you for attending the 2017 full year results presentation. I am joined here today by Iñigo Meirás, our CEO, Ernesto López Mozo, CFO, and the CEOs and CFOs of each of our business divisions. So, we have four points in the highlights. One is Ferrovial has closed a year of excellent growth of our infrastructure assets. The second is that we have had solid cash generation and the financial position of the ex-infrastructure project level is good. Despite that, and the third one is that the share price has underperformed versus our peers. The fourth is that we are working on improving the relative performance of the share price looking forward. Talking about the growth on our infrastructure assets, traffic has increased across the board. EBITDA has reached double-digit growth in our main toll roads: in 407 ETR we are 12% over last year s, NTE has grown 32.6% and LBJ has grown 37.4%. We have also had higher dividend distribution from our main assets. We have received EUR553mn thanks to strong operating performance and inflation evolution. Of this, EUR262mn come from 407, that means an increase of 7.6%. as compared with EUR153mn comes from Heathrow, that means EUR57mn more than 2016, and the regional airports more than doubled their 2016 dividend, reaching EUR84mn in Talking about cash generation, we have closed 2017 with an excellent operating cash flow generation, EUR999mn before taxes. Activity cash flow has reached EUR781mn after EUR102mn of net investment and EUR115mn of tax payments, which has enabled a pay-out to shareholders of EUR520mn. Net cash position of EUR1,300mn, including EUR500mn of hybrid bond issuance, and excluding the hybrid bond, the net cash would have reached EUR841mn; still above the EUR697mn posted last year. Despite that, the share price has underperformed our peers. We are aware of this underperformance in the last two years and this evolution is mostly explained by weaker contracting business, mainly in UK Services and in Construction. Other factors affecting markets, such as high interest rates and inflation driven by economic growth should be welcome. Our main assets become even more valuable to clients, and as we have seen in 2017, they show higher cash flow generation from higher traffic and higher propensity to pay. As I said at the beginning, we are working on improving the relative performance of the share price, concentrating on of focus of mitigating risks in contracting: allocating most of our capital on new infrastructure projects, mainly in the US with a growing pipeline and leveraging on our strong footprint there; improving the value of our infrastructure assets; and because most of our value is equity consolidated, we are also providing some extra disclosure of the main assets reported in this line. So, after this brief overview, let me hand over the call to Iñigo Meirás, who will discuss the operating performance of our business units. Iñigo. Iñigo Meirás, Ferrovial CEO (04.35) Thank you, Rafael, and good evening to everyone. 2

3 Let s start with Toll Roads, the division showed solid financial results, LFL terms, revenue up by 15.7% and EBITDA by 23.8% on the back of the higher contribution from Managed Lanes in the US, traffic growth in the majority of assets and the collection of success fees, which arrived to EUR19mn in the year. Strong dividends, Ferrovial received EUR277mn, although lower than 2016, 290 mainly given to the subsidiary division was received from the Portuguese Toll Roads in In September 2017, Cintra acquired 6.3% in NTE and an extra 3.6% in LBJ and now holds almost 63% in NTE and almost 55% in LBJ. The total amount paid by Cintra for the stakes was USD107mn. Mature asset rotation, the sale of Norte Litoral was completed in April 2017 and Algarve road in September Both contributing to EBITDA with 4 and 9 months respectively. Since the date of the transaction completion, both assets began to be consolidated by equity method. Managed Lanes, the excellent EBITDA growth from both assets, NTE by almost 33% and LBJ by 37%, with 4Q 2017 showing the highest quarterly EBITDA for these assets. Strong traffic performance, NTE 10.6% and LBJ 10%, with heavy vehicles outperforming. Heavy vehicles on the NTE up by 16% and LBJ by 18.5%. There is significant room for higher tariff increases, mostly at NTE. On 407, traffic growth was 2.6% up in the year, much better than expected despite a difficult comparison in second half of 2017, and it is the second half of 2016, the 407 s first extension was toll-free tariffs for 407 ETR were announced, 9% up on average in January but will be applied from 1 st February. Finally, I would like to show you a slide from the latest customer satisfaction survey. This chart reflects the high value for the money perceived from 407 ETR drivers. Customer satisfaction remains very high and we feel that we have room for improvement in the coming years. Jumping now to the airports, we showed a very positive performance in At Heathrow, traffic was yet another record year in terms of passenger traffic, 3.1% up vs Passengers reached a record breaking of 78mn, intercontinental traffic was the key driver of growth increasing by 3.6%, with load factors improving significantly. The highest passenger growth came from DELTA airlines, almost 19% in the year, Turkish Airlines 11% and Emirates almost 10%. Strong financial performance with EBITDA up by 4.6%, reflecting greater cost control, which has helped to reduce operating costs per passenger by 3.1% and strong retail growth, up by 7.7%. Higher than expected dividends, operating performance and higher inflation have boosted dividend distribution in Total pay-out to shareholders of GBP525mn vs. GBP325mn in 2016, GBP150mn above expectations as an extraordinary payment at the end of the year. As for the non-regulated airports (AGS), traffic was up by 4.9% vs and a positive performance shows in all airports, highlighting Glasgow, the most relevant, whose traffic grew by 5.7%, Aberdeen increased by 1.9% and Southampton traffic went up by 6.1%. The strong EBITDA growth, primarily due to a 6.3% increase in revenue. EBITDA evolution, since acquisition, is up by 35%. AGS paid out GBP146mn at 100%, of which GBP75mn for an extraordinary dividend following the refinancing. In total, Ferrovial has received 257mn vs. 134mn in 2016 from our airport assets. Additionally, I would like to highlight that in August 2017 the Construction led by Ferrovial airports, signed a contract for the redesign and retail operation of the main terminal at Denver International Airport for 34 years. Denver Airport is the 6 th busiest airport in the US by passenger traffic, reaching in 2017 an all-time record for passenger traffic reaching 61mn passengers. Services. Higher revenues 16.3% following the integration of Broadspectrum. Twelve months contribution in 2017, EUR2,5bn vs. 7 months in 2016, offsetting the negative impact from the sterling evolution. EBITDA increased by 30%, 14% in comparable terms, with profitability at 6%, which implies an improvement vs. 2016, was 5.4%. Order book at almost EUR21bn, fell by 11% LFL vs. December Mainly given a more strict project selection process in the UK. An operating cash flow generation of EUR396mn in the year. Looking at the different geographies where our services division is present, the performance reflects the different dynamics of each market. In the UK, slightly decreasing revenues 2.7% LFL down and a significant improvement in profitability, EBITDA margins 3.5% vs 1.5% in 2016, in line with the guidance provided to the market, 3-4%, helped by the restructuring process undertaken in mid The environment remains tough, with clients under budgetary pressure and several competitors missing forecasts. For 2018, we expect the EBITDA margin, excluding any impact from Birmingham, to be between 2-3%, due to the completion of several contracts in consulting, a longer time to negotiate the exits of some non-performing contracts. 3

4 At the same time, the investment scope of the Birmingham contract has to be reassessed after the Birmingham city council won the appeal against the previous judicial decision that had ruled in Amey s favour. We will update the market in the coming months. Broadspectrum is consolidated since May months contribution in 2017 vs. 7 months in The contribution in 2017, excluding the activity in the Americas, have reached EUR2,2bn. Activities in the Americas, US and Chile have reported under International Services and have contributed EUR306mn in revenues. Following the conference call of Broadspectrum we held last Monday, we are not going to go into further detail for this activity in this call. In Spain show a solid performance. Revenues up by 7.7% helped by the acquisition of contracts with private clients, which contributed 5% of total sales, and EBITDA margin stood at 10.4%. Finally, as for the construction results, revenues were up by 11% LFL terms, with positive performance in all the areas. International revenue represented 83%, with relevant weight of our main markets: Poland (32%) and North America (30%). Lower profitability EBIT margin 3.5% vs. 7.5% in 2016 due to major projects in the initial phase, lower profitability in order book on the back of lower levels of complexity and losses incurred in 2017, mainly explained by two contracts in Scotland and in Colombia. Lower proportion of contracts with sisters companies is the last concept to mention here. Budimex shows a 17.7% EBITDA growth increase, due to the settlement of finalising infrastructure contracts. The construction of the book figure hit a new record, up by 26.7% in comparable terms, following the financial close of I66, Denver and Grand Parkway, all these three projects in the US. The last quarter of last year s performance is more than in line with expected performance in the coming quarters. Every development of big projects and tight margins of advanced production, will continue in the first quarters of Bad margins are expected to improve at the end of the year. EBIT margins should evolve from around 1% in the first quarter to 3.5% for the full year. With this review of the divisional and operational figures, I will hand the call over to Ernesto, our CFO, who will run through our financial results. Thank you. Ernesto López Mozo, Ferrovial CFO (15.36) Thank you Iñigo and now I will start reviewing on page 15 the lines below depreciation, starting with impairment and disposals. Here we have a positive line of EUR81mn and this comes from the divestments of Norte Litoral (EUR48mn) and Algarve (EUR42mn), mainly. In terms of financial expenses, we see that there is a lower expense this year and this is thanks to a perimeter that doesn t include Toll roads like Chicago Skyway, that was affecting last year s performance, so we have lower interest expense from that component. In terms of the equity accounted results, here is where we see the degree of performance that we are getting from the 407 and from Heathrow mainly, I mean they have excellent operational and financial performance, and Heathrow is helped as well by positive impact from derivatives. In terms of taxes, we have EUR71mn charges close to the statutory tax rate. It would have been a bit higher with the statutory tax rate, something like EUR88mn expense, we have a positive impact from changes in tax law that affected past taxes, in particular the effect of the lower tax rate in the US. So that s a positive of EUR17mn, that helps to get an expense of EUR71mn. In terms of minorities, we see a higher expense compared to other years. Well, this is based on the good performance of Budimex and also we had less minorities from divestments in All in all, we get a net profit that is EUR454mn, up from last year. Ok, we move to next slide, we can look into the cash flow generation, and here we see the operating cash flow ex infra reaching, as mentioned in the introduction, close to EUR1bn before tax and this is helped by higher dividends from Heathrow, I mean the increase was EUR153mn higher. The 407ETR was 7.6% higher, it reached EUR268mn, and AGS, EUR84mn, more than double the dividend we got in There was a balanced contribution, as you can see in the slide from the different divisions, dividends from the infrastructure, and also the cash flow from Services and Construction. Services generated 38% of total operating cash flow, reaching 396mn and this was helped by Spain with lower dates of collection and also Broadspectrum beating expectations of cash generation. The UK generated EUR49mn and this was above the number of last year. 4

5 Finally, construction contributed 13% of the total operating cash flow with EUR134mn. Ok, we move to the next slide, we can see the evolution of the net debt and in particular the working capital performance. As we discussed in previous meetings, the working capital improved dramatically in the last quarter of the year and therefore in the full-year it is only a reduction of EUR38mn in cash from working capital. Then we have, as I mentioned before, the dividends from Toll roads and projects, the EBITDA and we have the investment cash flow in recurring business, and then the divestments reaching EUR253mn. All in all, also if we take into account the hybrid bond we issued, we reached a position of EUR1,340mn at the end of the year. If we strip the impact of the hybrid bond that is consolidated as equity, even taking that out, we reach a net cash position of EUR864mn, that is higher than the closing number for So, a good performance on the back of a solid quarter and excellent dividends from infrastructure. Also, we have a line for the infrastructure project evolution and here we see the different investments that have been taking place. In the end, we have a similar number to last year, EUR4,800mn vs. EUR4,960mn, also helped by the debt denominated in Dollars in America, that is translated into euros at a lower rate. Ok, so moving to the next slide in the presentation, we touch on the IFRS15 impact. I mean, we decided to anticipate the application of this accounting policy and basically that has meant an adjustment of EUR272mn in our reserves. This comes mainly related to the UK, to business in the Services division and basically the concepts that are taken into account here, are different performance obligations and this is typical in a PFI, where you have an investment phase and then a maintenance phase, and basically you have to separate both instances now and that means that all the capex rates have to be adjusted and then you recognise revenue later on. Then of course, you have the requirement to have highly probable not to be reversed in terms of revenues regarding achieving milestones, so that is another of the components where we took some adjustments. That s the last part of what I wanted to share with you at this point in time, and I hand it back to Rafael for the concluding remarks. Rafael del Pino, Ferrovial Chairman (22:22) Thank you, Ernesto. As you probably have read in the results released, the Board today has approved to propose to the AGM a script dividend and share buyback very similar to last year s and, as I said before, also we are working to improve the relative performance of our share price, mainly through mitigating risks in contracting, optimising the value of our infrastructure assets, which keeps increasing, as do the dividends. NTE will pay its first dividend in 2019 and LBJ we expect to do so in 2020, and allocating our capital investment on infrastructure projects, mainly in the US, where the pipeline is growing and we have a strong base. Thank you very much for your time today, and we now open the floor for any questions you may have. Q&A SESSION PARTICIPANTS Guy McKenzie, Credit Suisse Analyst (23:46) Hi, good evening. Thanks for taking my questions. I have three of them. Firstly, maybe just to focus on the UK Services business. I mean, if I recall, in the 9 months, Amey s margins improved quite significantly compared with last year. Your current guidance is for some further deterioration relative to what you reported today in I m just wondering if you can give us a little bit more detail on what is happening there? I m wondering to what extent are you being impacted by the liquidation of Carillion and taking on some of those contracts for example? And maybe more towards the medium term in terms of the current competitive environment for new contracts that you are signing there, whether the liquidation of that asset has alleviated any of that competitive pressure at all? I guess I m just looking towards whether you are expecting much of a recovery in 2019? Secondly, in Construction, those contracts that you mentioned in Scotland and Colombia, which have had a bit of an impact, I m just wondering if you can say when those roll off? And how much confidence you have as well that for Construction, 2018 will be the trough? 5

6 Thirdly, on the infrastructure dividends. The 7.5% growth in dividends from 407ETR is sort of ahead of the 5% that you were guiding to and, and across the board, your dividends have grown by a little bit more than expected. With that in mind and with the fact that NTE and LBJ will start paying dividends as you said over the next couple of years, I m just wondering if you can give us a clearer picture on when the dividends paid to Ferrovial shareholders might be covered by those dividends received from your infrastructure assets? Thanks very much. Santiago Olivares Ferrovial Services CEO: This is Santiago Olivares, CEO of Ferrovial Services and I will take the first question, which has to do about the Services business in the UK and the medium-term prospects and also the guidance. Clearly the economic context in the UK remains challenging and although we are making good progress and I think that the company will keep improving, there are two main reasons that could affect the profitability in 2018, and therefore we are being more cautious. One of them is that there are some consulting contracts that normally attract higher margins that come to an end. Those revenues could be compensated by other rail business, but clearly lower margins, so there is a mix of elements here. The second reason is that there are a couple of loss-making contracts that we expected to exit in 2017, but are taking a little bit longer than we thought and those will be exited in 2018, but could have an impact on profitability. So, those are the reasons for the guidance that we gave. Then talking about your other comments, Carillion is not any particular reason that affects us in this element. There could be some additional business coming to us, but if we get any additional business from Carillion it is not going to deteriorate the profitability and we will only take those contracts that are beneficial for the company. In terms of your medium-term question, again the context is difficult but we are making progress, we are improving the control processes, we are being very selective, so as we move ahead, the profitability will keep improving over time, because clearly the competitive pressure I don t think is not going to increase, because some competitors are having difficult times and they will also be more cautious in bidding going forward. Alejandro de la Joya Ferrovial Agroman CEO: Good afternoon, this is Alejandro de la Joya from Ferrovial Agroman, the Construction division. Regarding these two projects that have been mentioned during the conference, the project in Scotland and the other project in Colombia, both of them have been already finished, Colombia finished in 2013, so already 5 years ago, and the M8 was handed over to the client last year. We do not expect any losses in 2018 or following years, so those two projects should be already finished. Regarding the margins in Construction, as Iñigo Meirás our CEO has already mentioned, the EBIT at the beginning of the year in the first quarter should be around 1%, but that margin should be increasing throughout the year, in the way that the full year will come out with 3%-3.5% EBIT. : Ok, hi Guy, this is Ernesto. The last question regarding whether dividends from infrastructure could cover our dividends to shareholders, the final ones in Ferrovial. Well in 2019, well, you know we are expecting the dividends from NTE, the first dividend from Managed Lanes. If we take into account that there is no remaining cash from the contracting business in 2019, with that it should be ok, but always we should bear in mind that if opportunities arise for investment we are going to look at them. All of these good opportunities that happen in the US or maybe expansion in airports, as well as in the UK should take place later on, but we always want to have the option if attractive investment comes to be there. But in terms of just the pure number, 2019 would be the year. Ok thanks very much. Can I just ask a very quick follow-up on UK Services? I mean, we ve seen a pretty sharp decline in the order book there, should we expect that to continue over the course of 2018? i.e. is that business shrinking a little bit, just given the nature of that market? You know, in which case it might have a smaller overall impact on results going forward, I m just wondering what the strategy is there? 6

7 Santiago Olivares Ferrovial Services CEO Clearly the decline in order book is something that has been expected, because we are being more selective in bidding opportunities and only taking those contracts that has the better profitability and have the right level of risk. That is not a surprise and is not a concern also. So, we will keep being selective, but it is also important to say that the normal evolution of the order book in the UK, especially in the utility sector, is that you get the contracts at the beginning of the regulatory cycle, then the order book declines until the new regulatory period starts, and then you have another spike in order book, and that will come in between 2019 and So, there are some cycles in the order book in our business, but in terms of the decrease, it is not something we are especially concerned about and we will keep being selective in the new bidding opportunities. Ok, that s clear. Thanks very much. Guillermo Fernández Gao, Deutsche Bank Analyst (31:50) Good evening everyone and thanks for taking my questions. Actually, I have just one and it is on the evolution of the working capital. If I remember correctly it has improved in 4Q by as much as EUR635mn or around that. If you, Ernesto probably, could provide some more colour on where it has come from and if it has to do mainly with advanced payments from the assigned contracts, the ones that you have just reached financial closing. Hi Guillermo. Well, basically that is one of the components but it is due to a balanced combination of the different things that we said could happen and have happened. One of them is, yes, advanced payments in these important contracts is around EUR140mn, but then you have additional dividends from Heathrow and you have a much better cash performance, the seasonal one that usually happens all across the board, in Poland and the UK. So, it is evenly distributed as I mentioned and advance payments is EUR142mn. Thank you Thomas Van der Meij, Kempen, Analyst (33:21) Good afternoon gentlemen. Thomas here. I have three questions from my side. Let s start with capital allocation, it would be great if you could give a bit more light and elaborate on the timing of your hybrid bond issue. Despite the fact that you ended the year net cash and also given that you got the higher dividends from your infrastructure assets, your dividends to shareholders declined y-o-y. Do you need to save that cash for acquisitions? Also given the fact that you highlighted in the call that you want to close the relative underperformance from your peers what I am trying to say is, are you considering to provide more clarity on your dividend policy and be a bit more transparent there? Secondly, could you decide going forward with the investment opportunities to, instead of take minority stakes, also take majority stakes in infrastructure assets to avoid the more complex accounting and basically have the assets on the balance sheet and dilute the movements in EBITDA and EBIT from your contracting divisions? Lastly, could you explain why your operating cash flow for your Construction division declined by more than EUR100mn y-o-y? Is the decline in dividends in other Toll roads only related to asset sales or is there another reason behind that? Could you say again the last part please, we missed that? 7

8 Sure. On the operating cash flow that you generated this year, the 999, your Construction division s operating cash flow declined by more than EUR100mn y-o-y, could you explain the reason behind that? And is the decline in dividends from other Toll roads, excluding 407ETR, is that only related to asset sales or is there another reason behind that? Ok, thanks. Let me address some of them. The first one regarding the timing of the hybrid; well, we thought that the market was changing, so from a timing perspective it was the right time to get this kind of product that deals and is kind of deeply subordinated, so it helps since we see a lot of opportunities that could materialise, in particular in the US and in Infrastructure, we see a lot of demand, maybe for more private initiatives to have a capital structure that could help to do that. Actually, if we were to issue now, we would be issuing at much worse terms, so I think that the timing was right and we are looking to prospects that are quite interesting. I will take the last question and the last one is regarding the operating cash flow generation, but for the second question regarding our level of participation in the different Infrastructure and Construction paths, I will pass that on to Iñigo that will address that. In terms of the operating cash flow, you were asking about Construction, why it s lower, well we have talked about some losses in some contracts, well actually they were cash out, right, so these contracts have implied on the tune of EUR100mn of cash out, so that affected the performance of the cash evolution in Construction. Regarding the dividend on Toll Roads that you were asking about the Portuguese Toll roads, well we sold them and prior to the sale, just we had a dividend, and now we have a lower participation and now we have divested them, so it has to do with that. Prospects for all the infrastructure asset growth and that we should see greater dividends going forward. Now let me hand over to Iñigo. Iñigo Meirás Ferrovial CEO Hi, regarding the second part of the first question, which is related to the dividend policy at the holding level. I have to say that, as with last year and the year before, the decision taken by the Board of Directors in terms of the dividend guidelines, for the time being is we don t provide that guidelines to the market. The only news today is that we already took a decision at the Board of Directors level for this year, to pay the same dividend as last year. Again though, we will not provide guidelines for the time being. In terms of our strategy regarding the capital allocation of our approach to the projects on a minority stake basis, as you know, last year we took advantage in two projects (LBJ and NTE) and we didn t have any problems to increase our exposure to these two assets (NTE and LBJ). In terms of the future, I think that considering the current pipeline, our idea is to bid for big projects, mostly in the US, on the basis to keep at least a 50% stake in all the projects. But it depends, project by project, we need to address and to discuss with other financial investors if at the end we are taking more than 50% or not. But which is clear is to take at least 50% stake. Bruno Silva, Caixa Bank Analyst (39:23) I have a few questions for clarification if you don t mind. The first one related with your guidance for 2018 in Construction. Those margins are they in any way affected or impacted by expected provision reversals, or is completely clean from that? And to take the opportunity to ask how much specific provisions in Construction are in the balance sheet? The second question is just to understand if IFRS 15 has any impact at all in guided margins that you offered us today? Then, if you don t mind another confirmation, in the net cash ex-infra, is it in any way impacted, aside from the hybrid, impacted by any transfer from the infra project scope? and I think that s all. Thank you very much. 8

9 Ok, Bruno, let me start with the last one, maybe we could ask you to rephrase some of them, but starting with the last one regarding the net cash ex-infrastructure. The transfer from the infrastructure perimeter is very easy, we get dividends, that helps, we invest, that diminishes the net cash position, there is nothing different from that and we covered basically both components in the slides and speech. Regarding the IFRS 15, if it affects the guidance for 2018, well clearly IFRS 15 slows any recognition of revenues and therefore you should see the whole sector in the UK having that sort of slower revenue recognition, that we think is fine. Again, in that regard, it is has some impact but we are not quantifying it. The other question was regarding provisions in Construction, could you rephrase that please? Yes. If the guidance you are providing for 2018 in terms of margins is impacted in any way by further provision reversals and how much specific provisions do you still have on the balance sheet associated with the construction unit? Ok, we don t provide the exact number of provisions we have, even though if you look at the accounts you have different parts with a lot of description on that. Regarding the timing, of course when works are finalised, you could see some reversals of provisions, but at the same time we are very prudent when we start works, so you should start seeing them. So, the net effect on that, we are not basically providing a way for that guidance. The guidance reflects, as Iñigo said, the fact that production is now in very early stages on the big projects and the rest that is under advanced production is less profitable. So that is why we see that evolution and why we expect at the end of the year to have a better performance, we ll start producing better margins. Thank you Stéphanie D Ath, RBC Analyst (43:16) Yes, hi, good evening. My first question is on your cash generation, it is currently about half from your infrastructure assets and half from your contracting assets. Could you please elaborate a little bit on where you see that mix going forward, especially given how focused you are in acquiring infrastructure assets in the US? Then regarding dividends from your main infrastructure assets, 407ETR and Heathrow, could you maybe give us a bit more insight on where you see the pay-out going for those? Thank you. Well Stéphanie, thanks for the questions. Basically, the main message we want to give is that there is of course this improvement from infrastructure, but we want to invest in opportunities that we see coming of the type of infrastructure we like. We want to keep that flexibility for opportunities arise, we will invest there. So, it s difficult to give the mix because maybe these dividends are already invested, with a focus of course on value creation, so we haven t provided that in the past, because we want to retain flexibility and that s the same situation now, I m sorry. 9

10 Vittorio Carelli, Santander Analyst (45:03) Good evening gentlemen, just a couple of questions from my side. The first one is related to the expected EBITDA margin in Services in Amey. You have 2-3% EBITDA margin guidance, Ex-Birmingham. I understood that there is something going on there, Amey lost the second stage of the courts process. So, which would be an eventual impact of Birmingham on this margin, if any in 2018? The second question is related to the Construction. You are guiding for 1% in 1Q and 3.5% for the full year. Assuming that Budimex should be above the rest, it means that Agroman International is really below the guidance still, or which is the mix of this EBIT margin for 2018? If I may, if you can give us some information about the Grand Parkway project in Texas, some financials that could impact in 2018 and going forwards? Thank you Santiago Olivares Ferrovial Services CEO Ok, I will take first the question about guidance in the UK Services and the impact of Birmingham. The reason we wanted to give that separated is to give more visibility and more clarity and this is what we will do this going forwards. Clearly Birmingham is a long running dispute. We won in the High court, but now the Court of Appeal has found in favour of Birmingham. In any case, we feel that the provision that we have in the balance sheet, should be enough to execute this resolution of the Court of Appeal, but in any case, we are analysing all of our options, including a potential appeal to the Supreme Court, so I think that that will continue. But in any case, as you know, we received the judgement just last week, so as part of that resolution, as part of that judgement, we have to discuss with Birmingham City Council the best way to execute that resolution, and we are in the process of doing that, so it is early to evaluate the impact and I think we will be in a better position to give you more colour in the 1Q results presentation. So, it means that the EBITDA margin maybe lower in 2018, in the worst-case scenario you would say? Santiago Olivares Ferrovial Services CEO As I said, the level of provisions that we have in the balance sheet is enough to cover the resolution in the long run, so the potential ups and downs in the timing in the short or medium term is something we cannot evaluate just now, so you will have to bear with us and wait to have more visibility on that element. Iñigo Meirás Ferrovial CEO This is Iñigo Meirás speaking. Regarding the second question on Ferrovial Agroman guidelines and more specifically on 1Q I think that the main reason for the margins in the first quarter is winter, and winter, as you can imagine, is worse in North of Europe than in the South of Texas. There are different combinations of different effect, but the most important is winter. The first quarter is always the worst in terms of margins in the construction sector, depending on where you are, and this is the case for Budimex. After winter, I think you will see that the EBIT margin will improve during the 2 nd, 3 rd and 4 th quarters of the year. 10

11 Marcin Wojtal, Bank of America, Analyst (49:37) Yes, good evening. The first question is on your exposure to Canada, obviously you have received substantial dividends, but considering the recent depreciation of the Canadian Dollar, can you remind us what is your FX hedging policy. i.e. are you protected in terms of the dividends for 2018 from that recent depreciation? Number two. Last year there was a Capital Markets day on the Toll Roads division, where you published your valuation of the assets, is there going to be an update of that valuation at some point in 2018? Hi Marcin, I ll take the first one. Yes, dividends for this year are hedged. Of course, the mark-to-market of those hedges was updated with the close of the year level, so from the close of the year level, we are protected as the valuation is hedged. Now I pass it on to Enrique for the update on the Cintra Capital Markets day. Enrique Díaz-Rato Cintra CEO This is Enrique Diaz Rato speaking. The answer is yes, we will be providing an update on our models by April. Victor Acitores, Société Générale, Analyst (50:55) Question: Hi good evening. I have two questions. One is on Slide 11. That is when you speak about the dividends from Heathrow, the underlying dividends 375, given that the statement for Heathrow is not so clear, could you provide us any potential guidance for growth for 2018? The second, if I may Ernesto, on Slide 16, on the operating cash flows of Construction, taken that you mentioned that Scotland and Colombia losses is behind us, can we expect operating cash flows to improve significantly in 2018, despite having the same proxy of EBIT margins? Thanks. Ok Victor. First, regarding Heathrow, we don t provide guidance other than what Heathrow provides, the only thing is that of course inflation keeps deleveraging the asset and that helps and the financial performance is very good, but that s all I can share with you at the moment and with Heathrow we will be seeing how we can show to the market how the dividend could evolve. Then, regarding the cash flow in Construction, it will be more reflective of the margins we are showing, so we cannot provide more detail now, but if there is any specific events like this year, when there were advanced payments, we will of course share that with you, but at the moment we are not providing any further information, sorry for that. Thanks Well, thank you very much everybody for your attention and see you in the next conference call for the first quarter results. Thank you. 11