Ferrovial SE

AEX:FER

Earnings Call Transcript 2022-Q2

[Silvia Ruiz, Investor Relations]

Good afternoon, everybody. This is Silvia Ruiz speaking. And I would like to welcome you to Ferrovial's conference call to discuss the financial results for the first half of 2022. Just as a reminder, both the results report and presentation are available to you on our website.

As in previous results, and although main restrictions to mobility have been lifted, we would like to highlight that the financial information included in our report is still impacted by the COVID-19 outbreak.

Given the uncertainty regarding the speed and the extent of the full resumption in activity, it is not possible to predict how the health crisis will affect Ferrovial's group information and performance in 2022. In addition, the uncertainty caused by the Ukraine-Russia crisis is affecting global markets. Ferrovial will continue to closely monitor trading conditions and further evidence of wider economic impacts.

I am joined here today by Ernesto Lopez Mozo, our CFO, and by the CFOs of the different business divisions. If you have any questions, you may ask them through the form included in the Webcast. During the Q&A session at the end of this call, we will be reading out your questions and who they are from.

With this, I will hand it over to Ernesto. Ernesto, the floor is yours.

[Ernesto Lopez Mozo, Chief Financial Officer]

Thank you, Sylvia, and hello, everybody. Starting with the highlights of this first six months of the year. The traffic in toll roads has been strong with good growth and a much stronger revenue growth, in particular in the U.S. assets, in the managed lanes. In the 407ETR, we saw a continuous recovery that is encouraging as well. Regarding airports, we've seen across the world, but also in our portfolio, strong traffic recovery. Regarding construction, the inflationary pressure has been mitigated by Active management. Also, we've been involved in M&A transactions. The first one is the financial close of the new Terminal 1 terminal, the terminal one at JFK Airport. And here it is remarkable that in a situation where you see a few deals going ahead, this one got successful financing with a lot of oversubscription. In the Dalaman International Airport, we also achieved the completion of this 60% acquisition. Services divestment is ongoing. I must remind you that this is pretty much complete. I mean we have Amey and a small Chilean business still for sale. These processes are ongoing.

In terms of the cash position, we have a solid €1.5 billion net cash position ex infrastructure projects. And this is based -- I mean, the consumption in the quarter has been based in some interesting and, I would say, value-creating opportunities like the I-66 equity injection and also by shareholder remuneration that has been accelerated. So we've done more buybacks, and we have had cash dividends. In terms of construction, we have cash out from U.S. construction projects as expected. From a [IUC] point of view, I mean, we remain with all the commitment to a full disclosure of the different KPIs. We measure probably more things than other companies in the sector. I mean, in particular, with the water footprint and impact. And of course, we measure our achievements in terms of CO2 reduction. I mean the most important thing is probably not been in these indices and awards, but also that the company is moving to deliver infrastructure that is needed and on the most sustainable way with design and also with traffic models that avoid traffic jams and congestion and also in airports with a focus led by Heathrow in terms of sustainable aviation fuel.

If we move on to the next slide to start reviewing the performance of the different businesses, we start with toll roads where we see strong growth in U.S. assets, as I mentioned in the introduction. I mean the road division is going -- is growing more than 30% in revenues and EBITDA vis-a-vis last year with solid EBITDA margins. But in particular, in the U.S., we're having a revenue growth close to 50% and also EBITDA growth just above that market. We saw dividends from the managed lanes, NTE and LBJ these first six months of the year. Regarding new investments, as I mentioned for value creation, the I-66 in the introduction, we're looking forward to opening this road, probably I must remind people or maybe someone did not even know of the configuration of this road. I mean, we are transforming the current three general purpose lanes into two general purpose lanes and two managed lanes, right? So the balance, I think, is probably more interesting than in other roads in terms of capacity addition.

In terms of the NTE35W was the segment 3C is also advancing at very fast speed. I mean, we are accelerating production. Now of course, these works are affecting the traffic because we are now connecting the additional managed lanes to the existing ones in the final part of the construction and this brings traffic jams, and we have some traffic that is now trying to avoid that hassle. That hassle will be temporary, and we're looking forward to opening another fantastic asset. If we move on to the 407ETR, here, we have growth visibility in 2021 of more than 50%. We also had higher revenue per trip versus the first half of 2021, and this was helped by the longer average trip length. In terms of our financial position, the 407 enjoys a lot of liquidity, it has cash and equivalents of more than CAD450 million and undrawn credit facilities of CAD800 million. There's no significant debt maturities ahead. And well, with the kind of performance we are seeing in this liquidity, it would be natural to see additional dividends in the coming months of the year. We already had at the July Board meeting CAD200 million dividend approved. So as I said, this performance and solid financial position should allow for some further dividends this year.

If we move on to the next slide, we can see a little bit more detail of the traffic evolution in the 407. We see that it has been progressively closing into the 2019 levels. Of course, probably the June level was flattered by calendar effects. I mean there were two more workdays in 2022 vis-a-vis 2019. That's the reason why we showed this minus 16%. In any case, all this improvement is done with still a lot of people working from home. I mean we see the low return to the office on the graph on the right-hand side of the slide. I mean, 27% is quite low. I mean we must remember that this is voluntary at the moment. And when you survey different employees in the region and probably around the world, employers are more in favor of being at the office for good interaction and really working from home is a little bit more of awkward. Of course, employees are on the other side of the spectrum. But a long time, we see one of this is certain, but clearly, from let's say, productive and culture point of view, employers prefer to have more presence in the office. As I said, this is voluntary at the moment.

Okay. So if we move on to the next slide, we always like to remind investors about the prospects of the regions we operate in because I mean the long-term performance of the asset is also based on the growth in the areas and the need for use of the infrastructure, right? So when we look into the different news regarding the NTTA, we see that, I mean, the expectation for real GDP growth and employment for 2022 are there and better than in other regions in the world. And in particular, around the 407, we have a very hard market in terms of industrial real estate, and it is growing. So the more businesses that are located along the 407 and the more we see our cities grow, the better performance that we'll see in the future from this asset, right? So it's good to remind everybody about the long-term drivers of value.

If we move on to the next slide, we can review the traffic and performance of the managed lease in Dallas Fort Worth. And here, we see that traffic has been very good in this quarter compared to the first quarter of the year. Of course, the first part of the quarter was very nice. Now it's a little bit softer in terms of catching up with our growing versus 2019. I mean probably we see the consumer confidence in the whole of the U.S. at a very low level. So people are kind of preparing for a slowdown. In any case, I mean, we see the country really as dynamic and probably recovering quickly on of any downturn that could affect the economy.

Okay. So in terms of the performance in revenues and EBITDA, we can see that there's solid growth, much higher in revenues than in transactions or traffic. This, of course, has been helped by inflation there that allowed to put the cap 7% higher, the soft cap. But of course, also, Paris management has allowed for further increases that bring higher revenues. Also, the proportion of heavies is a tailwind in the case of 35 West in particular. So I mean very impressive growth from these assets.

I mean if we go to the following slide, we see the graph in terms of traffic and revenues, we see that all revenues in all these assets, also the I-77 that I will cover in a moment, are growing a lot vis-a-vis, I mean, the start of the pandemic and prior to the pandemic. We see some sort of slowdown in traffic in 3C and to understand this probably is better to refer to the snapshot on the prior slide where you can see really the congestion on some of the lanes just because we are interacting now with the connections in this road. So if we move on to the next slide, again, the same as with Toronto, we like to highlight the growth prospects of the area. And then Dallas probably really stands out in the U.S. and other cities in Texas as well. So probably the state has kind of been a magnet for the growth investment quarters relocation. And that is in good shape and expected to continue to growth in population and unemployment along time. So we refer some of the indications from the labor statistics or the Bureau of economic analysis that can help you understand the drivers of the long-term growth here.

If we move into the next slide where I cover the I-77, this one is also growing. The region is growing. And probably here the best part of the slide is the snapshot where we see one of the toll rates. And clearly, this is below Dallas Fort Worth. I'm not implying that it can catch up with Dallas Fort Worth, but I mean, there's definitely room for growth here and size -- the area is also growing, population is growing, and employment is growing in the area. So also a very solid performance from this asset. Well, if we move into the airport space now, and we look at Heathrow, I mean, everybody is aware of the traffic recovery. I mean the passengers reached 26 million level. And well, Heathrow also released the investor report or they were forecasting north of 54 million passengers for the year. Heathrow has been preparing for these, let's say, return to full capacity, hiring security officers in advance that started in November, end of July is at the same capacity or number of employees in security that it had in 2019 before the pandemic, right? Of course, I mean, the bottleneck is now more in ground handling and ground handling is below the level that the current flow is required. That's the reason why Heathrow with airlines has agreed on a cap for 100,000 departing passengers per day compared to probably a capacity of 103,000 in the pandemic. And everybody is working to try and deliver more capacity. And as I said, Heathrow had warned of this and also of the curbs that are needed to deliver this, okay? So the priority remains to serve the consumers, have them flying and with their bags. So I mean at the end of September, probably they will be in a more complete situation. We have to see how airlines recover the current handling capacity.

In terms of regulation, I mean, I must be quite blunt here. I mean, we are disappointed with the H7 final proposal from the CAA. We believe they do not reflect the risk profile. So Heathrow now is going to, I mean, submit, I mean, the changes to their proposals. I mean, some of them are on assumptions that were unevidenced or inappropriate in terms of OpEx. And I mean that particular example is the OpEx needed for the current situation. Also, their service in financial modeling and commercial revenues forecasting. I mean some revenues are forecasted to happen when the law doesn't allow them to happen, right? So this kind of thing should be corrected and of course, review the approach to cost of equity and a market-based approach. I mean we should hope that the CAA corrects errors a big one that maybe hit on notice. But I mean, 'the CAA has acknowledged that there was more risk in the airport that was considered and prior regulatory materials, and they are proposing a traffic resharing mechanism to prevent that. And okay, we favor that kind of thing to the risk the asset and not, of course, that they come with an additional reduction on the allowed return on the risk with traffic resharing mechanism. So it's a little bit discouraging to see that they don't make up for errors of the past. And in the end, in the interest of consumers is to deliver all these terminals, Terminal 5, Terminal 2, the integrated baggage. I mean all this comes with very high investments and with the expectation of recovery of these investments, right? So changing the rules of the game and making them not recoverable is something that is quite tough.

As I said, I mean, the proposals came in the absolutely low range of the -- low part of the range and not close to the middle. And with no, let's say, a restatement or regulatory asset-based restatement. In the end, the asset has been depreciated without usage. This is equivalent to writing it up. And the airport would be given the opportunity. Maybe long term, it doesn't have to be right away of recovering that investment. So as I said, it's quite disappointing that regulator came to this point. In terms of other airports, we can move on to Aberdeen, Glasgow, and Southampton. And here, again, we see the strong traffic recovery. And the COVID-19 impact was quite strong at the beginning of the year, but it has been recovering and now it's in much better shape. If we look to other assets, I mean, we closed the Dalaman acquisition. And here, the revenue is very close to the 2019 levels, I mean, it's only 4% below with traffic still 15% below in the first half of 2019. And this revenue performance has been driven by retained and commercial income increases 13% up. This asset, I must remind you that we consolidate with the global consolidation.

The next slide goes to the new terminal one. As I said, this is a big project. I haven't seen this kind of big projects being the -- I mean, achieving financial loss, this one has. It's an asset that is really needed to deliver capacity for international traffic at JFK. We're providing this slide a little bit more detail into the uses of funds that are needed for Phase A and then B1 and B2 that are expected to happen because, I mean, Phase A has achieved pretty much with levels that are similar to pre-pandemic when there's demand to travel that is not catered for. Okay. So we have these users, and we have also the Phase A funding detail where you see the equity of USD2.3 billion, and we have a construction bank facility of USD6.6 billion. It's important to mention that we don't expect equity injections for Phase B. Just the operations will generate the cash flow through, I mean, those needed funds.

In terms of price indications, it has been quite successful, and we have the investment grade confirmed by Moody's, Fitch & Kroll. Construction is already progressing, right? So we see in the snapshot, the green garage construction that was close to start preparation for demolition works, okay? So looking forward to this project in the coming months and years.

I move on to construction, -- we had seen active inflation management while focusing on delivery. We really need to deliver the infrastructure as these big projects. And the margin in the end is very similar. It's pretty much the same as the first quarter, 0.8%. And here, the inflation impacts of supplies are being worked with different mitigating measures. One of them, of course, there's indexation or escalation formulas in Poland and Spain. This helped to preserve margins -- but from a cash flow perspective, I mean we are paying subcontractors or suppliers, but revenues come when you finalize their works, right? I mean all these price review formulas, right? So margins now are reflecting this recovery, but cash is not, right? So we are not getting this collection that will come in the future.

Then we also have claims because there have been disruptions or delays from COVID and price increases, these are in process. We normally don't recognize this unless they are signed off by the clients. So you don't have any benefit from the accounting impact or from the cash flow here, right? So again, it's remarkable that you get to the 0.8 without this benefit in margin and, of course, in cash. Also, we were doing more sales performance ahead of the expected social inflation and in construction in general in the U.S. in selective areas that is also helping to weather the impact on inflation in these works. And of course, in the recent bidding processes, we include inflation leeway, escalation and other types of measures to protect here. Okay. So as I said, probably we are looking at a point in time when the accounting and cash are reflecting the worst situation and we could have improvement in margins and cash going forward. And of course, for the remainder of 2022, as we said, been saying for months, we expect the U.S. works to consume cash. Okay.

If we move on to the next slide, where we review the accounting results. We basically have discussed the operating figures, and we can go into the financial results. I mean you see an important improvement in financial expenses. If we look into the different lines, the results from infrastructure probably we have more expense. Here is related to a particular asset that we have covered in the past, I mean it's [indiscernible], where we have a negative net worth. So is basically worthless in our accounting portfolio. And this one is reflecting the impact of the -- an inflation derivative that is not receiving accounting hedge, right? So it doesn't have an impact in cash flow, it does not have an impact in value really now in the -- in our equity assessment.

Regarding the financial resource from ex-infrastructure projects, we have big improvement there. The improvement is derived from two things. One of them is just the interest expense is better and you have better remuneration on cash and you have low cost on debt after repaying last year, one of the older bonds in the portfolio. And also you have the benefit of pre-hedging from bond issues that did not take place. We're doing bank financing and from an accounting point of view, it has to be reflected, is not hedge accounting, right? So in the end, we are having a better interest cost performance. Just looking at the equity accounted affiliates also, we've turned the corner here and we have a positive contribution, and therefore, we end up with a net income positive of €50 million.

If we go on to the next slide, here is where we see the evolution in the cash position in the net treasury position. It has been coming down, but for some good reasons, shareholder remuneration, north of €350 million, investments of €230 million. And then we have the working capital evolution of €248 million. It's important to remind everybody that we are not doing any factoring right now. Our balance is pretty much zero. I mean it doesn't make sense from a financial cost point of view at the moment. It's another tool that we have, but it's not the most efficient one, right? So we are not taking the flattering of any -- factoring in these numbers. Okay. So probably, that is for the net cash position, if we move on, clearly, the summary of these results is that we are seeing the post-pandemic traffic recovery. Of course, there's macro uncertainties, but our assets have been performing really well and they are located in growth areas where infrastructure is needed. I mean, they benefit from inflation. It's not only that you have a formula to pass it on. I mean you can have pricing power in many of them. In construction, I mean the breaker to accelerate products and deliver these infrastructure assets in the current environment is a challenge, but has been managed in a very active way and that has preserved their margins. As I said in the discussion is probably in the least flattering their position because we should have better margins going forward and cash collections going forward. And last but not least, we are looking into attractive investment opportunities. Complex infra projects in the U.S. is the priority and delivering them with a sustainable approach, and showing our capabilities there is going to be a key for the success in the future.

Okay. So thanks a lot for bearing with us, and we open the floor to the Q&A.

[Silvia Ruiz, Investor Relations]

Thank you very much, Ernesto. The Q&A session will begin shortly. Please stay tuned, So let's just start with the Q&A session. The first set of questions comes from Robert Crimes from Insight. First question, in terms of tariffs for JFK Terminal 1, Ferrovial's Airport's CEO mentioned it costs in plain passenger of $81 at Terminal 4 in its one issuance document. Does this provide a reasonable guide for tariffs at Terminal 1 in 2026 at open?

[Ignacio Gaston]

Thank you, Robert, for the question. This is Ignacio Gaston from the Ferrovial Airports team. With respect to your question, of course, any tariff of terminals that is a reference point for the NTO team. What I would like to remind you is that the goal of the NTO project is providing a new facility with best-in-class services for long-haul passengers. This attractiveness of this approach has been confirmed through agreements with four airlines already signed and committed with specific tariffs for the project. So we are very convinced that I will be able to deliver the [indiscernible] we are expected.

[Silvia Ruiz, Investor Relations]

Next question from Robert Crimes. Why did you initially use syndicated loans for new Terminal 1 at JFK and not issue private activity bonds as did the prior consortium at LaGuardia Terminal B? Any indication of the interest cost of the loans?

[Ignacio Gaston]

Thank you, Robert. This is Ignacio Gaston again. Basically, the main goals to use bank facilities at that moment in time was taking advantage of trying to avoid a high cost of the potential parts given the volatility in the market, the new potential issue premiums coming from a new transaction and also avoiding the widening of the spreads at the moment of financial flows. So that's why we use the flexibility of the bank financing in order to wait and see developments in the market. With respect to your second question, that's commercially sensitive, so I will not -- I cannot say at this moment in time. Thank you.

[Silvia Ruiz, Investor Relations]

The next set of questions is coming from Luis Prieto from Kepler Cheuvreux. First question. Although you already registered a very favorable revenue per transaction [seen] in your managed lanes in the first quarter, could you please remind us what the key in parts of this performance have been in the first half? In particular, I would be interested in your views on the sensitivity of revenue per transaction to a softening of traffic if we were to go into a recession.

[Jose Maria Velao, CFO Cintra]

Thank you, Luis, for your question. This is J.M. Velao from Cintra. In our assets in Texas, we are close enough to the soft cap, during peak hours, but we have some room in mid days and weekends in the younger asset that we got that is at 35 West. But it's important to note that we have -- even that we are in sub-cap, we have alternative mechanism to increase sales even in a softer situation, as I said, like a CP escalation that is very important in an inflationary environment that we are living right now, and the mandatory events that we -- as we know, is an important revenue inflow in the NT. We have revenue optimizations in all the assets that we're working on that with the algorithm. So we know that our assets are in Texas and Dallas that even though we have to keep an eye on the economic softening, we are in a very strong economy with very dynamic, as Mr. Ernesto said in the presentation, and showing a strong growth prospect, solid population with high cost income that will allow us to navigate better any potential economic downturn.

[Silvia Ruiz, Investor Relations]

Next question from Luis Prieto. Could you provide a rough idea of what is the cost inflation impact on the Construction division should be for the full year? What percentage of the damage do you think could be mitigated by price escalation clauses.

[Inaki Garcia Bilbao]

Thank you, Luis. This is Inaki Garcia Bilbao, CFO Ferrovial Construction. What we can say with you is the net impact that we are having as of today, as of June, and this is around €50 million. Of course, in the second half of the year, probably we are going to have an impact closer to that. I mean, due to the contracts that we still have in the backlog, unless there are some changes in the protection of formulas indexes, etcetera. You are also asking about what percentage. I mean you know that still there are a lot of uncertainties. We know that in Poland, the gap has been raised. I mean for road construction from 5% to 10% gap. Now they are thinking that in railways probably there could be another increase. Also, how this is going to be extended, I mean to other administrations. And in Spain, it is almost the same. I mean you know that there are some limitations. I mean there are gaps of the percentage that can be applied. Also, there are some, for example, [foreign language] that are still out of the -- in the exception formulas and energy is still out. I mean, so we are still fighting as construction companies, I mean, to resist [indiscernible]. But probably, I mean, I'm talking about net effects, but the broad effect is double than the number we have -- in any case, I mean, despite the inflation impact, we believe that the margin at the end of the year, the EBIT margin will be positive.

[Silvia Ruiz, Investor Relations]

Next set of questions coming from [Agustin Sandra] from Stifel. First question, the construction order book has fallen minus 4.1% year-on-year, like-for-like. How has the order intake evolved during the semester? Should we see this as a sign of a slowdown in activity?

[Inaki Garcia Bilbao]

This is Inaki Garcia again. Well, you know -- and we have sent you this information in the presentation that in the month of July, we have signed or we have won, I mean, contracts in the value of €1.8 billion. And this is mainly in the geographies we want to be, €1 billion in Poland, €400 million in Webber and the rest in Australia that is [indiscernible]. I mean -- so considering that we shouldn't see, I mean, that fall in the backlog. This is basically, I mean, because in Poland, we have increased our income, I mean, due to the climate, but also you know that we were about to sign certain contracts due to the doubts about the intersection formula they were not signed, and this is about €3 billion [foreign language]. And now that the contracts are including these formulas with the new gaps is when we are starting to sign. So in this moment, we don't see a recession in the contracting in the second half of the year. Thank you.

[Silvia Ruiz, Investor Relations]

Next question from [Augustin Sandra]. How much of the [indiscernible] performance is due to the unprecedented cost of the I-66 and I-285 contracts? Should we expect them to have a more negative impact on margins as it reaches completion?

[Ernesto Lopez Mozo, Chief Financial Officer]

I think I was -- no, the fact is that the -- in June as these are loss-making contracts, I mean all the losses of these contracts are already included in the profit and loss account. It's true that not all was provisioned. I mean so we have lost in this half year €60 million, more or less. I mean, it's through that we have the internal fees. And this is basically because of two things. I mean one is the inflation that we have suffered. These are contracts signed in that fixed price, and we suffered this inflation. And also, please bear in mind that due to the COVID and all the delays in the supply chain, I mean, we are trying to finish the jobs at the time, I mean with acceleration, also sometimes, I mean, assuming changes proposed by the client that they are still not agreed. This will come into claims. But due to the prudent approach that we have to claims, we are not recognizing in the results. But as I mentioned, I mean, all the impact is already covered in June.

[Silvia Ruiz, Investor Relations]

Next set of questions coming from [Marco Wever] from JPMorgan. First question -- with June LBJ traffic at minus 13% and 407ETR traffic at minus 16% versus 2019 levels, excluding positive call in our impact, are you seeing any positive recovery trends in July? Why are these assets still lagging? And any update on work-from-home trends within the regions.

[Jose Maria Velao, CFO Cintra]

Thank you, Marco, for your question. This is J.M. Let me start with the 407ETR. It's true that the traffic is at below 16. But if you check the graph in the presentation, the improvement in the congestion and mobility in this region and the performance in the 407 is quite good. This minus 16 is probably the -- it's the best traffic performance that we have since the pandemic began. We are -- in July, we see that the traffic performance is in line with the general mobility in the area, and we have to keep an eye as Ernesto mentioned in the presentation on economic softening. In the long term, we have strong economic indicators in Toronto, such GDP and population growth in the area that has the 407ETR, which is positive considering the long duration of the asset, very positive. Going back to the LBJ traffic. What is happening in -- we -- what is happening in the LBJ, we identified two things. The first one is that in the area, the area where the LBJ is more exposed to residents and company that are -- that can work from home. So they got more flexibility, and that is affecting to the traffic performance. And the second impact comes from the ongoing works, construction works in the IBEX 35 is that is an important feature of the LBJ. These two concepts are what is behind the lag.

[Silvia Ruiz, Investor Relations]

Next question. You mentioned inflation protection measures in your construction activities in Poland and Spain. Can you give an indication of amount of contract indexes on inflation?

[Ernesto Lopez Mozo, Chief Financial Officer]

Yes. Thank you, Marco. I think I already mentioned, I mean, in Spain and in Poland, just for public clients Spain, we can say that about 50% of our backlog and our revenues are with public clients. And as I mentioned before, only [indiscernible]. I mean probably they will come sooner or later. So about this 50% will be the percentage. In case of Poland, the percentage of public contracts is higher with the distinction that I made, I mean that for roads, there is a higher cap than for railways, but 60% could be the percentage of protection in public contracts.

[Silvia Ruiz, Investor Relations]

Next set of questions is coming from Marcin Wojtal from Bank of America. Can you provide an update of the new managed lane opportunity in Atlanta? When do you expect this trade to be awarded?

[Jose Maria Velao, CFO Cintra]

Thank you, Martin for your questions. This is J.M. again. Yes, we are working on and operate. We are very motivated because it’s our target. And we are working the pre-qualification in these weeks. We expect to have the bid process at the end of the year. So everything goes under expectations.

[Silvia Ruiz, Investor Relations]

Next question. When could we expect for dividend to be distributed by the NTE35 West project?

[Jose Maria Velao, CFO Cintra]

As you know we are working and build in the -- we are constructing segment 3C at this moment. We need to wait till the end of this construction works to receive any dividends for the 35 West. So we expect it to finish this construction on September 2023, so probably at the end of the year we see any dividend.

[Silvia Ruiz, Investor Relations]

Last question from Marcin. Can you provide a comment on how mandatary mode and the mandataries are impacting financial results?

[Jose Maria Velao, CFO Cintra]

Okay. Mandatary mode work for -- just to keep a good level of service in our highways that led us to increase the tariff even that we are in a stock-up. So the impact in revenues is relatively -- is important, but it's this -- this happened only in certain periods of times and in certain segments of the highway. So the general impact is not so huge. But relatively, it's important for us. In concrete in our asset, that is the NT that is the asset that has experienced this kind of mandatory moves at this moment.

[Silvia Ruiz, Investor Relations]

Next set of questions coming from Stephanie D'ath from RBC. Could you please let us know when 2023, '24, '25, you will share key traffic and revenue and margin assumptions on JFK investment?

[Ignacio Gaston]

Thank you very much, Stephanie, for your question. This is Ignacio Gaston from Ferrovial Airport. I'm afraid that at this moment in time, the only answer I can give you, Stephanie, is that that information remains highly confidential and it's commercially sensitive. Thank you.

[Silvia Ruiz, Investor Relations]

Next question, are you confirming walking away from your 2024 construction guidance?

[Ernesto Lopez Mozo, Chief Financial Officer]

Yes. Thank you, Stephanie. Yes, we can confirm, I mean, the 3.5% EBIT in 2024. Please bear in mind the deflation impact in our backlog as of today is what we are suffering in profit and loss account today, and we are going to suffer in 2022 mainly. And in the new contract, we are considering the inflation for sure.

[Silvia Ruiz, Investor Relations]

Do you expect 407ETR to be back to pre-pandemic levels in 2023?

[Jose Maria Velao, CFO Cintra]

Thank you, Stephanie, for your question. This is J.M. again. We don't provide any guidance about the future performance of our assets, but -- the pre-pandemic levels, just to reach the pre-pandemic levels, we need to depend in that case, on the mobility and congestion trend in the corridor. As you saw in the graph in the presentation, when the alternative increases congestion on the 407ETR is getting more attractive to users, increasing its market share. That's the reason that we are closing the gap during this last quarter. Therefore, we have to keep an eye on how the return to the office evolves during the coming months, considering that at some point, there should be a shift from voluntary to mandatory presence in the office. That could have a positive impact in the congestion and the mobility and the general mobility in the area.

[Silvia Ruiz, Investor Relations]

Next set of questions coming from Tobias Woerner from Stifel Europe. First question Schedule 22, what time line would you expect the first year to end?

[Ernesto Lopez Mozo, Chief Financial Officer]

Thanks, Tobias. As you know, this -- the Force Majeure agreement that we got, we've come to the end, what happened one of these two things. The first one is that you increase the tariff in any segment of the highway, -- the toll rate, sorry, in any segment of the highway. And the second that we get a traffic level that is equal to the average of the traffic in 2017 and 2019. So we will see how it is performing the asset and the traffic in the coming months, and we will see if that happens in the coming future.

[Silvia Ruiz, Investor Relations]

Next question. The net cash position at €1.5 billion at the half year seems to be at the lower end. Can you remind us of the key contributors to this performance, please? And should we expect a rebound of the net cash position in the second half of the year in line or above the one seen in the second half 2021?

[Ernesto Lopez Mozo, Chief Financial Officer]

Yes. Thanks, Tobias, for the question. Well, really the explanation, the 1.5, I can refer to the slide I covered in the presentation, but I would like to remind you that the main driver has been shareholder remuneration, both dividends and buybacks and also investment. I mean, we are investing in the I-66. I covered that asset that we're looking forward to and is accelerating to reach, I mean, the year-end opening. And we are also accelerating 3C the in the managed lanes, right? In the presentation, you have the pending capital commitments there, right? So that relates to the second part of the question, that is what we expect for the second half of the year, right? So investment -- we will continue investing, remunerating shareholders, right? Then there's the component of the cash outflow in construction in the U.S. is related to the working capital unwinding in those projects, right? So all these components will remain in the second part of the year, remuneration investment and this cash outflow in construction in the U.S. On the positive side, I mean we could have dividends from the infrastructure assets, in particular, the 407 that we mentioned, -- and then we also could be looking to maybe other works being closed and getting some advanced payments to counter for this. The divestments that are being carried out could also bring some additional money. But I mean, we've mentioned in the past that this year was a year for investing, and that's probably driving some cash out while the underlying businesses keep growing and delivering dividends and more in the future. But I mean, I wouldn't guide to any specific number in the second half.

[Silvia Ruiz, Investor Relations]

Next set of questions coming from Jose Maria Arroyo from Santander what is the main factor, spending the longer average distance traveled on the 407ETR plus 6.6%. Is it heavy vehicle traffic?

[Ernesto Lopez Mozo, Chief Financial Officer]

Thank you, Jose Arroyos, for your questions. We've seen a faster increase in long distant trips along the 407, especially those accessing the 407 is that is the following of the toll 412 and 418. And in general, and this is a trend we see an increase in the share long distance by customers or second residence users driving more in 2022 than in 2021.

[Silvia Ruiz, Investor Relations]

Next question, Dallas Fort Worth. When did the disruptions caused by the construction of NTE3C started and for how long will the disruption last? Is this disruption, the single factor depressing traffic on NTE35 West in June or are there other factors?

[Ernesto Lopez Mozo, Chief Financial Officer]

Thank you again, [indiscernible]. Everything started in June because it's when we started to divert traffic and that is creating some bottlenecks in the North bound of the exit of the segment 3D. We are seeing that is affecting mainly the light traffic. You can see an image in the presentation that -- so you illustrate pretty well what is happening in this Northbound exit on the segment 3D. It started in June, we expect that everything will finish when the construction ends. We are doing everything that we can, just to minimize the impact, but for us, our priority is just to finish 3C that is a very important project for the connectivity just to increase the length of our highway.

Just answering your second question. Mainly this is the impact. There's not more impact except that we have to keep an eye in the economic softening.

[Silvia Ruiz, Investor Relations]

Can you provide an update on the sale of Amey and Chile mining?

[Ernesto Lopez Mozo, Chief Financial Officer]

Well, in Amey we have several bidders that are looking to clinch the transaction. And the asset is performing really well, right? So we are advancing the typical topics of discussions would be derisking this sort of thing. They're advancing in good shape. Chile mining is slower for macro and political reasons. I mean the country is both in a macro situation, macro is uncertain. So that is a little bit slower, but we are carrying on with both.

[Silvia Ruiz, Investor Relations]

Next question is coming from [indiscernible]. Can you explain us the reason for the strong working capital outflow at second quarter 2022 and expectations for full year 2022?

[Ernesto Lopez Mozo, Chief Financial Officer]

Thanks Philip, for the question, well, a combination of two things in -- well, I would say, in construction, there's two. One of them is the outflow in finalization of these big projects in the U.S., I-66, I-285 -- those are big ones. To a similar degree is some working capital consumption in Budimex, and Budimex probably could unwind part of this a long time because they have delivered important works that have to be collected. And as I was in the main driver is this working capital in construction, but also we have some unwinding of favorable working capital in Amey that is also taking part of this. We've been doing contracts for the different ministry and advanced payments have been unwound at the moment, right? So that has affected. As I said, the main one we explained as kind of more important is the cash flow outflow in the U.S. and Budimex we will have to see at year-end.

[Silvia Ruiz, Investor Relations]

Next question coming from [indiscernible] Asset Management. I would like to inquire whether you have, at this stage, any plans for the refinancing of your 2.124% hybrid bond, €500 million total, with a call date, February 14, 2023?

[Ernesto Lopez Mozo, Chief Financial Officer]

Thanks, for the question. Yes, I mean the hybrid is -- fits a role in the capital structure of the company. And the idea is to refinance it when conditions are right. Right now, the markets are distorted. So there's no point in issuing hybrid at this point in time. We are monitoring that to see when there could be a good opportunity. But right now, there's no point.

[Silvia Ruiz, Investor Relations]

Next question coming from Daniel Gandoy from JB Capital. Could you also provide an update on the pending equity commitments in infra projects in the second half of 2022?

[Ignacio Gaston Ferrovial]

Thanks, Daniel, I will take this one. This is Ignacio Gaston. So we have several important investments, I-66, we still have €225 million pending, other toll roads is 81. And then we have airports with JFK 356 and Dalaman 124. So we are, I mean, around €485 million to €486 million in dues before taking in investments in the second part of the year.

[Silvia Ruiz, Investor Relations]

Next question coming from [Agustin Sendero from Stifel]. On Dalaman airport, is the aeronautical revenue per passenger regulated? At which level is it trending today? And how do you expect it to evolve in the future given the Turkish Lira falling versus the Euro?

[Ignacio Gaston]

Thank you. This is Ignacio Gaston from Ferrovial Airport. Just to confirm to you that the tariffs, the aero revs per pax are set in U.S. further to the concession agreement. The levels are €15 per international passenger and €3 per domestic passenger. Those are the revenues of today. Thank you.

[Silvia Ruiz, Investor Relations]

Next question is coming from Nabil Ahmed from Barclays. First question, what level of return to office you believe you need for 470ETR traffic to return to pre-pandemic level?

[Ernesto Lopez Mozo, Chief Financial Officer]

Okay thank you for your question, Nabil. Most of the companies in Toronto are in hybrid models under a voluntary basis, as I said before, and it will continue that way, at least till September. There is a consensus between the CEOs about the importance of the presence in the office in terms of collaboration, engagement, and innovation and employees are having the opportunity to see these advantages as well. So we will see how it evolves they return to the office during the coming months, considering that at some point, there should be a shift from voluntary to mandatory-presence in the office.

[Silvia Ruiz, Investor Relations]

Next question, could you please remind us the timing of NTE 3C works and the expected benefits when completed?

[Ernesto Lopez Mozo, Chief Financial Officer]

Yes. With -- everything is going well with the construction work. So we expect to finish on September 2023. And the benefit is that we are increasing the connectivity in the corridor, in the segment 3A and 3B, and we have an additional 6.4 miles of managed lanes.

[Silvia Ruiz, Investor Relations]

Next question. Could you please describe the I-77 vehicle mix compared to Dallas Fort Worth managed lane? What exposure to commuting on heavies?

[Ernesto Lopez Mozo, Chief Financial Officer]

Yes, we are not providing this kind of breakdown of information for our assets. The only information that I can give you is that approximately 40% of the business accounts is the only information I can provide. We are not seeing, there's some managed lanes in Dallas with better exposure to heavies. But as we said in the presentation, the I-77 is performing quite well, even in light traffic and heavy traffic.

[Silvia Ruiz, Investor Relations]

Next question, could you please come back on store. We had construction losses in the second quarter? Are these non cash provisions? How do you see margins going forward?

[Ernesto Lopez Mozo, Chief Financial Officer]

Thank you, Nabil. Well, Parallel construction is basically impacted by inflation, as I mentioned, €42 million out of the €50 million that I commented and also, I mean, the contracts in the U.S. But the contracts in the U.S., I-66 s finishing this year, I-285 is almost finishing. I mean, we'll finish next year, but -- so they are coming to an end. So the impact on the CASA flows is going to be suffering this year and there is no need for provision. I mean the losses are already and will be considering in the profit and loss account. Regarding the inflation, one thing important to mention is that although there are compensation formulas -- this will be covered at the end of the contract. I mean they will be collected at the end of the contract. So inflation you're suffering today, even in P&L, you have less impact, but you are paying for this inflation in this moment, and unfortunately, will be collected or compensated at end of contract and maybe not in this year. So that's why also you see the -- our working capital, this distraction of construction in this half year.

And regarding margins, I mentioned that construction, we expect being positive by the end of the year around the margins that you are seeing now, but we cannot give further guidance. Thank you.

[Silvia Ruiz, Investor Relations]

Next question is coming from Nicolas Mora from Morgan Stanley. Can you explain why clients collections at 407ETR was so low versus revenue in the second quarter of 2022?

[Ignacio Gaston]

There's not any problem with collection. What is happening here is that the collection has month of delay. So we will -- you will see the collection of June the next month in the third quarter compared with our revenues. That is what is -- why we're seeing so low collection at this moment.

[Silvia Ruiz, Investor Relations]

Next set of questions coming from Robert Joynson, BNP Paribas Exane. First question, during June to what extent was 407ETR be covered with traffic below the average level seen during 2017, 2019? And given that the 407ETR first major agreement will remain in place until peak hour traffic returns to average levels seen during 2017, 2019 rather than total traffic. This is an important metric for the pricing outlook. Does Ferrovial plan to disclose this metric going forward?

[Ernesto Lopez Mozo, Chief Financial Officer]

Thanks for the question, Robert, Ernesto here. Well, my understanding that we have to check this, but is that the force majeure agreement that relates to average traffic, not peak hour traffic, right? And that one has to compare to 2017 and 2019. And really, peak hour traffic is something that is, I would say, fluid, is changing a long time with different patterns. That's something that long time will assess how patterns could be changing and discuss that with you guys more than just putting a metric now that probably is outdated. So we'll be discussing patterns going forward as they stabilize.

[Silvia Ruiz, Investor Relations]

There are no further questions.

[Ernesto Lopez Mozo, Chief Financial Officer]

Well, thank you guys for attending the results conference call and for those fortunate can enjoy some vacation, please do that and let's see in the not-too-distant future. Bye.