Ferrovial SA

MAD:FER

Earnings Call Transcript 2023-Q2

[Silvia Ruiz, IR]

Good afternoon, everybody. This is Silvia Ruiz speaking. First of all, sorry for the slight delay, we had some technical problems, but we are now ready to welcome you to Ferrovial's Conference Call to discuss the Financial Results for the First Half of 2023. Just as a reminder, both the results report and presentation are available to you on our website. 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 forum 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 over to Ernesto. Ernesto the floor is yours.

[Ernesto Lopez Mozo, CFO]

Thank you, Silvia and good afternoon, good morning to you all from Amsterdam today.

So if we move to the overview of the first half of the year in Ferrovial results, the highlight is that we continue to see strong growth in our main infrastructure assets toll roads, 407 ETR traffic increased versus the first half of 2022. We see improved mobility trends and also we see that in the managed lanes in the Dallas Fort Worth, and the rest of the U.S. posted a strong revenue growth.

In Airports also we see very good traffic recovery ahead of the peak summer season. Construction profitability has been impacted by completion works in large projects in the U.S., otherwise the division is performing very healthily.

In terms of cash, the net cash position at the end of the year, first half is €819 million and this is a combination of strong dividends we received from infrastructure projects and of course we had the repayment or repurchase of the hybrid bond that we announced in combination with the reverse merger. We have also invested in equity in the projects and have had some shareholder remuneration. In terms of strategic developments, the dual listing was completed. Ferrovial shares are now listed in Amsterdam and Spain. This happened on June 16, 2023. And then the hybrid bonds, we had 94.3% acceptance.

The remainder will be bought back this summer. Also the First Scrip dividend was announced. And we have concluded that in July and the amount is €0.2871 per share. In terms of ESG probably the highlight news is the inclusion for the 20th consecutive year in the FTSE4Good Global Index. Okay.

So if we move on to discuss operations, starting with toll roads, highlight the distribution of the 35 West after opening ahead of schedule and being able to distribute the cash that was accumulated after some years of operations of 3A and 3B and really the U.S. assets are the bulk of all these numbers. They provided 82% of revenues, 92% of EBITDA. And the like-for-like growth in revenues and EBITDA is 38% and 40%.

The 35 West Segment we see adding 106.7 miles and we'll discuss performance in a minute. This has implied a €81 million investment, of which €14 million are pending. The concession goes all the way to 2061. In terms of dividends, not only 35 West solid dividends from NTE and LBJ, USD123 million at 100%. Also the NTE ultimate configuration is advancing. I mean this was part of the contract. It has been anticipated due to the outperformance and it'll be adding managed lane in Segment 2 and general purpose Lane in Segment 1.

Given the growth in the region, this added capacity will be very helpful in the later years. In terms of construction period for this is from 2023 through 2027 is fully debt financed and this financing is expected to close in August. Also talking about IRB, new projects are coming and exposed to traffic risk, at very attractive terms, really the infrastructure plan in India is getting delivered.

If we move on to the next slide, we can have a look at the performance of the 407 ETR. This is something that has been for some days in the market, but we think it's outstanding how the mobility trends are recovering.

In terms of financial performance, you'll see that we have more than 22% growth in revenue and EBITDA and this is allowing for dividends. I mean, dividends were distributed in the first half of 2023 CAD 150 million but also another dividend was approved at the July board meeting of CAD 115 million.

So the performance is very healthy. We see really mobility trends going up, performance has kept improving across the quarter. It's also true that June is probably flattered by more work days, if we take that out, that would be like a drop of 3.4%, also had some additional trips on lanes compared to 12 months.

But I mean clearly the trend is very good and solid. And I mean we usually carry out polls with consumers and drivers across the regions here in Canada as well as in America and in Spain. We see people seeing increased mobility for the coming months and next year.

So in terms of the performance in workday trips, the average workday trips in June it was close to 12% versus 2019. Also there's rehabilitation works in the Highway 401. This is something that usually happens with different intensity, pretty much every year but probably more intense this year and with favorable weather conditions also helping.

But the main message here is that the mobility trends keep improving. If we move to the next slide, we can see that mobility is improving across the board. We also see that urban transit is improving. We see that presence in the office keeps improving and also employers are kind of investing in their offices to make them more attractive.

So we see clearly like another year in terms of workforce coming back to the office with employers asking for that. If we move on to the next slide, here we look at the Dallas-Fort Worth managed lanes and here I mean the pricing power is clearly evident from the top part of the slide. We see NTE, LBJ and 35 West clearly increasing the average revenue per transaction, well above the inflation of the region that leaves the soft cap in 2023.

Traffic performance is also growing healthily so NTE keeps the strong performance, LBJ keeps improving is still below June 2019, still affected by works in some connecting roads, but clearly with a very positive trend. And then 3C that was affected by construction works. I mean, now well 35 West affected by construction works in 3C. Now, it has some days of 3C that don't wait. But I mean, clearly it will add to the performance of the asset. If we move to the following slide, please.

We also have other managed lanes in the U.S. that are even growing faster than those we discussed before, right. So I-77 is growing revenue per transaction at more than 37% and revenues and EBITDA are growing at an amazing rate of more than 60% and more than 100%.

And also then, latest addition to the portfolio is clearly improving the ramp-up, you can see the monthly transactions in June were more than 30% higher than in January and revenue per transaction more than 70% higher in June versus January.

Okay, so very solid performance. And if we look into the next slide, how the prospects of the area where we invest are. I mean you can see that you have probably more big companies moving into these regions, also employment growth is higher than the average of the U.S. And when we look into economic activity, you see that these areas and others that are looking for managed lanes are outpacing the growth of other parts of the U.S.

Okay. So moving to the next slide. Here we have Heathrow's performance, also it had the results and release yesterday and also the conference call. We can see that the demand is there and traffic is very close to the 2019 levels already, I mean June was just close to 3% below 2019. And the demand is driven by outdoor leisure.

But you have recovery among all the lines and that business is also recovering international travel as well. It's important that the passengers periods has been good. I mean we have had some industrial action or strikes in the past. I mean there has been an agreement is something that Heathrow management is stretched themselves to keep customers satisfied, and the things flowing and the outlook for the summer is strong.

In terms of regulation, the CMA appeal is going on with different hearings in the different concepts that are being appealed. We'll have to wait until October for the final decision, very important matters are being appealed and discussed here. If we move to the next slide here, we have the performance of other airports, in Aberdeen, Glasgow and Southampton, it's also growing up, I mean is not as close to others to 2019 performance.

I mean, we need to remind everyone that Flybe was part of the airlines operating here and the means at the start of 2023 affected but we have other airlines come in and looking for routes from this Airports and also going forward. So I mean, looking forward to the summer season here to see how it performs. Dalaman has already outperformed 2019. Here we can see that there is like a peak season and clearly domestic and UK travel are growing and that's helping the performance of a very attractive tourist destination.

And then last but not least in airports, we have a big project NTO where I mean construction works, keep progressing. It remains on budget and on schedule and the ratings have been reaffirmed by Kroll and Moody's, the traffic of the airport keeps performing well and we have advanced discussions with different airlines in May 2023 also Korean Airlines signed an agreement. So this has been going as expected so far.

We have also contributed equity here, I mean as of June 30 this year €123 million have been invested in this attractive asset. If we move on please. And here we have construction. As I mentioned India introduction performance from Budimex and Webber has been strong, but we have slipped in some projects that are just doing the completion works in the rest of Ferrovial construction.

Here basically in this completion works we have faced two things we didn't expect. One of them was that all the actions that need to be done in general purpose lanes or frontage road, adjacent roads have been more out of sequence than expected and what that means that you have shorter times of operation and you need to keep the ideal teams while you wait for the next time of intervention.

This has been, as I said, more stop and go than what we could have expected. And also the punch list is way above the standard we've seen in other roads of this size that we've done in the U.S.. Of course we think that we are entitled to recover part of discuss. We have submitted claims, but I mean this could take some time.

The good thing about this, I mean, this should be done this year. Our expectation is that for the remainder of the year, the good performance of the rest helped to overcome this impact, but as I said not expected, I'm happy about this, but we are turning the page here and looking forward to 2024.

If we move on to the next slide. Here we have the overall P&L with very solid growth vis-a-vis next - last year, sorry, vis-a-vis 2022 probably one of the things that I would like to highlight is the financial performance. In terms of financial results from infrastructure projects, remember that we have full consolidation of the I-66 this year, whereas in the first half of 2022, it was negligible, right. So we have all that interest aspects going on there, but in June '22, we had some inflation impacts in Autema. They are not there and also the cash in the projects have been helping.

And in particular that one that probably was more overlooked by the market is the ex-infrastructure projects. I mean in 2022, the positive amount was due to the unwinding of hedges for bond issuance, but here is just carry cost. I mean at the ex-infrastructure project level, the debt cost is like 2.4% whereas cash is yielding now 4%. Right.

So this is adding to the solid results this quarter. Okay. Going down the line and just finishing the slide on results. Do you have the net profit from discontinued operations, the fact that we have a small positive here is that we closed the final accounts on the sale of a €5 million that was slightly better than we expected, hence the result.

Okay, so very solid results. If you go into the cash flow explanation, I mean we see the strong performance of dividends. Then we have some working capital drainage, an important part of this is from construction. Then we have taxes mainly in Budimex and withholding tax from cash, from Canada and then we have equity investments and other investment cash flows in the construction division.

In terms of shareholder remuneration. Yes, we had a slow start to the year probably this program will be more back ended. But I mean we are looking forward to complete that shareholder remuneration with buybacks not only dividends. In terms of the hybrid bond, I mean this is the full repayment considerations, we will squeeze out the kind of 5% plus that did not tender and it also includes the coupon accrual.

And then in another financing cash flows, you have. I mean, dividends to minorities that is Budimex but the rest, you have the positive effect of the carry we were mentioning before. Okay, so a solid performance. If we move on to the last slide. I mean when looking ahead, it's clear that we have very solid mobility trends. This is the driver for cash generation dividends from our strong asset portfolio.

I mean pricing flexibility is clearly proving valuable in this growth areas, where we are present. There is a very interesting pipeline. I mean there is complex projects, to come to the market and we're looking forward to that and we keep delivering the corporate organization and we plan to apply for a listing later on the year. And of course, last but not least, we keep advancing our decarbonization roadmap.

So, okay, we will open now the floor for questions. I would like to apologize again for the glitches on uploading the information. I mean, I hope that my pace has been a little bit slower to allow for you guys to read things. We open the Q&A session now. Thanks.

[Silvia Ruiz, IR]

Thank you, Ernesto. The Q&A session will start shortly. Please stay tuned. Okay. Starting with the first set of questions coming from Nicolo Pessina from Mediobanca. First question on 407 ETR. How much is the impact that positive extraordinary effects had on the second quarter traffic?

[Unidentified Analyst]

Hello, Nicolo. Thank you for your question. This is [indiscernible], CFO of the Business Division of Cintra. While we are seeing is improvement in the trends in the mobility trends basically and a good quarter we started in Toronto in the second quarter. In addition to that we are with the weak weather, the construction works has started in the 401 creating some congestion that is helping to the traffic in on the 407 ETR. So basically, these are the reasons of the improvement in this quarter.

[Silvia Ruiz, IR]

Next question from Nicolo on 407 ETR also. What is the level of peak traffic compared to 2019 levels?

[Unidentified Analyst]

There we've seen a gradual improvement in peak hours during this first half of the year, especially in the second quarter for the reason that I mentioned before. We are still lagging compared to 2019, but the trend is positive. We think looking the trend of the mobility trends that we are seeing in this quarter, there is - and what we are seeing in other cities in U.S. that is in Canada, there is room of improvement.

[Silvia Ruiz, IR]

Next question from Nicolo. Also on NTE, is it reasonable to assume that revenue sharing mechanism is triggered within five years. Given the strong traffic growth and inflation?

[Unidentified Analyst]

Hi, Nicolo as you know, the revenue sharing mechanism is part of our contracts in all managed lanes in Texas and in the rest in the U.S. so in the case of NTE, you have to keep in mind that with the ultimate configuration we're going to start the construction works. And this is going to - will create some impact in traffic.

But for that reason, we think that the sharing mechanism is going to be delayed for a while, but we don't see any problem in the long term because the corridor has a very powerful growth and stable growth, has good perspectives in the future. So we see surplus demand right now. This is one of the reason that we are increasing capacity because, there are surplus demand. So we don't see any impact in the long term.

[Silvia Ruiz, IR]

Last question from Nicolo. Would you say that Fiona and Calcasieu winning the IT project in Alabama highlight increasing competition for greenfield projects in the U.S.?

[Ernesto Lopez Mozo, CFO]

We have limited information, yes, the press release of the DOT, what we can say here that the competition in the U.S. is not back in itself. We need competition just to push these big projects in U.S.. In the case in this particular project I-10, what we can say is, how we see the project is a project which revenue is linked to the GDP with some local exposure to the local economy.

And, we have seen some construction breeze and considering that we don't have a local presence there. We put our best offer in this bidding process, considering the growth of the revenue and the risks associated to the project.

[Silvia Ruiz, IR]

Next set of questions coming from Elodie Rall from JP Morgan. First question, what is the traffic trend on the 407 ETR in July?

[Ernesto Lopez Mozo, CFO]

Hi, Elodie you know that we cannot disclose the specific data about July. But in general we are seeing that the traffic is consolidating the recovery that we've seen in the first half of 2023.

[Silvia Ruiz, IR]

Next question from Elodie, what traffic performance that you need to see at the 407 ETR before increasing tariffs?

[Ernesto Lopez Mozo, CFO]

I think that the traffic performance is pointing in the right direction, but we cannot commit to a specific date at this moment of the year.

[Silvia Ruiz, IR]

Last question from Elodie. Do you agree that it would make more economic sense to increase tariffs on the 407 ETR on January 1 2024 rather than during the remaining of 2023, given it would delay the enforcement of scheduled 22 payment?

[Ernesto Lopez Mozo, CFO]

Elodie, yes, you're right. So according to the Schedule 22 and push major letter if we want to raise it all we need to communicate to the DOT one month in advance, so that would mean rights sold in the next months, so we only have a couple of months of gain in this revenue. So for that reason, it's more interesting economically speaking to raise the toll hypothetically in the 1st January in 2024, instead of August or October in 2023.

[Silvia Ruiz, IR]

Next, set of questions coming from Luis Prieto from Kepler Cheuvreux. First question. When should we expect the company to increase tariffs in the 407 ETR? This or next year, for how long would it be reasonable to expect the payment of scheduled 22 payments?

[Ernesto Lopez Mozo, CFO]

As I've said in the previous question, the good thing is that the performance is or traffic performance is pointing in the right direction. But at this moment, we cannot commit to a specific date. And the second part of your question, a scheduled 22 payment is part of business plan as we released in 2018. It's nothing extraordinary, and we need to get used to that.

[Silvia Ruiz, IR]

Next question from Luis. Given the reiteration of the 2024 profitability target for the Construction division, could you please shed some light on the sequential evolution of EBIT margin over the next quarters? In other words, should there be a material improvement in the second half of 2023 or mostly in 2024?

[Inaki Garcia-Bilbao, CFO, Ferrovial Construction]

Thank you, Luis for your question. This is Inaki Garcia from Construction. We cannot give guidance for 2023. But what we can say with you is that we are estimating that we will close the year with the current assumptions of the large projects in the U.S. that are already included in the financial statements as of June. And on a recurring run rate level of the rest of the business, I mean Budimex and Webber.

So improvement in the second half, but we cannot commit with the percentage of EBIT. For 2024 is what you said, I mean we give guidance of 3.5 EBIT basically based in three pillars, I mean the healthy backlog that we have in this moment that is well protected against inflation.

These large projects in the U.S. that have of course traveling in the past we will finish in 2023 and also, I mean there are very good projects, profitable projects that are starting in this moment, so they are progressing well and we will see profitability in 2024. I'm talking, for example, about I-35 NEX or Ontario Lane. Thank you.

[Silvia Ruiz, IR]

Last question from Luis, when should we expect the U.S. listing to be live and the Capital Markets Day to happen?

[Ernesto Lopez Mozo, CFO]

Yes, Hi Luis. Well, this is really for the SEC to determine right, I mean, we will be probably filing the 20-F in the fall. And then the approval process could be shorter or longer depending on SEC requirements right. So we are really looking forward to this listing, the capital markets, they should be shortly after the listing unless it's a peak earning season that you didn't have the undivided attention of the public, right. So we will look forward to that maybe early next year. We will keep you posted as the approval process of SEC works.

[Silvia Ruiz, IR]

Next set of questions coming from Robert Joynson from BNP Exane. First question, since the most recent 407 ETR toll increase in February 2020. To what extent has the Scheduled 22 traffic threshold increase?

[Unidentified Analyst]

Hi, Robert. This is Velao again from Cintra. As you know, because we have all the documents on the 407 website. The traffic threshold increase depending on the segment between 1% and 3%. So we cannot disclose more information than that.

[Silvia Ruiz, IR]

Next question from Robert, with respect to the Toronto office occupancy Index, does Ferrovial have any estimate as to the level at which this data is likely to stabilize?

[Ernesto Lopez Mozo, CFO]

We are following this Index as you do and what we seeing is that the trend is positive. Well, when we go to Toronto and we discuss with local people and we are seeing that there is some motivation to make more enforcement to come back to the office. So, and according to all data in U.S. cities, we consider that there is room of improvement. So we think that the trend is positive. It could continue in that way in the following months.

[Silvia Ruiz, IR]

Last question from Robert. Roughly how much revenue this segment will contribute to NTE 35W during the second quarter?

[Ernesto Lopez Mozo, CFO]

We don't disclose information for particular segments, just the whole project. But what I can say about the 3C that is - it's early days, but we are seeing very positive initial performance of these sections. We are in a corridor that is growing fast and healthy and we're receiving a positive impact of ending the construction works in the area with a normalization in the traffic flow.

[Silvia Ruiz, IR]

Next question coming from Fernando La Fuente from Alantra. Should we expect any cash outflow at Construction in 2024?

[Inaki Garcia-Bilbao, CFO, Ferrovial Construction]

Hi, Fernando. This is Inaki again. As we said, EBITDA for 2024 is going to be positive. I mean, so we expect positive cash flow on this. But now it's very soon to give guidance on the working capital movements that will depend very much on what you know it will happens in the construction business now. Advance payments in new contracting and also advance payments also at the end of the year, but generally, we can say that we are not expecting construction in 2024. Thank you.

[Silvia Ruiz, IR]

Sorry, I missed another question from Fernando La Fuente, what is the estimate of dividends from associates by year-end and the expectation for 2024?

[Ernesto Lopez Mozo, CFO]

Hi, Fernando. We are sorry, we don't give this specific details. I mean you can work out with the performance. What could be the generation of these assets, but we don't provide a specific guidance. Apologies for that.

[Silvia Ruiz, IR]

Next set of questions coming from Marcin Wojtal from Bank of America. Have you seen a meaningful improvement in 407 ETR peak hours traffic in the second quarter which is relevant for Scheduled 22 calculations?

[Unidentified Analyst]

Thank you, Marcin. This is Cintra again, while we are seeing in the peak hours a gradual increase in the second quarter, especially in the second quarter they are performing better than 2022. So yes, we are seeing meaningful improvement.

[Silvia Ruiz, IR]

Other question from Marcin. Do you expect the U.S. listing to be finalized before the year-end of 2023?

[Ernesto Lopez Mozo, CFO]

Yes, Hi, Marcin, this is really the SEC's call, right, I mean to take time, and even to approve the transaction right. So we are working, as I say, hard to file in the fall and do the fastest process possible but it is their prerogative. So, it could go into 2024 [indiscernible] approvals.

[Silvia Ruiz, IR]

Next question from Marcin, do you believe the tariff hike at the 407 ETR could happen in the 2024 or 2025?

[Unidentified Analyst]

Hi, Marcin. This is Cintra again. I think that I really answered these questions. So basically traffic is pointing in the right direction. And, we cannot commit any date at this moment of time.

[Silvia Ruiz, IR]

Last question from Marcin, are you monitoring any potential external growth opportunities outside of North America?

[Unidentified Analyst]

Yes, we are monitoring selective investments in Latin America and Europe. And we are working to grow in India. As you know, it's a country that is booming with our huge Cintra pipeline that we feel comfortable with our partner IRB. It's another country that we are monitoring so closely.

[Silvia Ruiz, IR]

Next set of questions from Sathish Sivakumar from Citi. First question, what is your expectations from construction activity in the second half of the year? Do you see further inflationary pressures?

[Inaki Garcia-Bilbao, CFO, Ferrovial Construction]

Thank you. Sorry, I think the first question has been already answered. We expect the same run rate trend for the rest of the business and probably Ferrovial Construction with no more losses as all the costs in these large projects have been already included. And regarding inflationary pressures, we are not expecting inflationary pressures in the second half of the year. But on the other hand, as we mentioned our backlog in this moment is well protected against the inflation. Thank you.

[Silvia Ruiz, IR]

Next question, what is your expectation on tariff at Heathrow? Can you elaborate on the timeline?

[Laura Sotomayor, Head of Financial Compliance]

Hi, this is Laura Lopez, CFO of Ferrovial Airports. We have to wait for the CMA final decision that will report by 17 of October. We are confident that the points raised by Heathrow will be fully considered by the CMA. There are a number of areas with the CMA has made clear and will undermine investment needed to deliver their service and resilience comes from the ones. So we'll have to wait and see. Thank you.

[Silvia Ruiz, IR]

Next set of questions coming from Augustin Cendre from Stifel. First question, could you please comment on the evolution of traffic on the 407 ETR? Was there any one-offs after considering the strong unit traffic back at 2019 levels?

[Unidentified Analyst]

Hi. Thank you for your questions. As I said before, we think that the traffic performance is improving in second quarter due to many reasons. No, nothing extraordinary. An improvement in the mobility as Ernesto comment before, they will come to Toronto in the second quarter, and this is positive for the mobility as well. And with this where it starts something that is in a normal course of business, that rehabilitation, the 401. So in June, is really probably the most important months in terms of traffic in the 407 ETR, this following the positive trend that we're experiencing in the whole quarter.

[Silvia Ruiz, IR]

Another question from Augustin, Budimex had a very strong performance in the first quarter and a weaker second quarter. It looks quite different from the usual seasonality. Could you please detail what happened?

[Inaki Garcia-Bilbao, CFO, Ferrovial Construction]

Thank you. We did see a second Q weaker in Budimex profitability is 6.8% and it was 5.1% in the first Q, probably you are comparing with the previous year. But remember that previous year had a shift between the first Q and second Q because it was just the time that the Ukraine war has started.

So there was a lot of uncertainty, profitability in the first Q was very poor and in the second quarter it had a recovery based on new contracts started again and also, I mean some measures for inflation were established, so, we don't see this weaker Budimex in Q2 and for sure I mean we expect profitability, a good profitability for the year-end 2023. Thank you.

[Silvia Ruiz, IR]

Last question from Augustin. The others division lost minus €22 million EBIT in the second quarter, what is this driven by? Are these one-offs?

[Ernesto Lopez Mozo, CFO]

Yes. Hi Augustine. Ernesto here. Yes, I mean, the bulk of that is one-offs related to the corporate restructuring, transaction and listing in the Netherlands.

[Silvia Ruiz, IR]

Next question coming from Victor Acitores from Societe Generale. The Texas Managed Lanes NTE LBJ and NTE 35 West. What was the second quarter traffic versus 2019 levels?

[Unidentified Analyst]

Thank you for your question. So, the specific data is in the note that we would release in our webpage. But what I can say is that NTE and 35 West is about 2019 levels and LBJ is closed. It's around minus 5%, is lagging from 2019 5%. But you have to consider then the LBJ is affected by the construction works in the 65 East. So it's something to keep in mind. In general the trend is very positive, with a strong growth in other corridor.

[Silvia Ruiz, IR]

Next set of questions coming from Jose Manuel Arroyas from Santander. First question I-66. Could you please outline the main factors for the rise in the revenue per transactions to USD6 in June. Is it general congestion, more heavy vehicles?

[Unidentified Analyst]

Thank you for your question, Manuel. We have seen different factors in this improvement in the revenue transactions, their mobility in general is improving in all U.S. cities for their return to the office and for the better economic prospects. But in the case of the I-66, we have seen that the users experienced a lot of time savings in peak hours and we are seeing more percentage of heavy vehicles than we expected in a highway. So that's affecting positively to our revenues as well.

[Silvia Ruiz, IR]

Next question from Jose Manuel, New York JFK, we have learned today that Korean Airlines has been onboarded. Have there been more airlines onboarded since 2022?

[Laura Sotomayor, Head of Financial Compliance]

Nice question, Manuel. This is Laura again. The agreement with Korean Airlines is additional to the agreements already signed with Air France, Etihad [indiscernible] and KLM. So really good sign on that entails value proposition has been validated by the airlines, who are willing to commit very ahead of the construction and contracts. And let me add that there are ongoing discussions with key major international careers and there is advanced negotiation with some of them.

[Ernesto Lopez Mozo, CFO]

Last question from Jose Manuel. 407 ETR what are the key factors for the increase average distances traveled and how sustainable are they?

[Unidentified Analyst]

Thank you. This is Tim again. The key factor is that the leisure trips, [indiscernible] than the commuting and the increase of percentage of the trips are affecting to these increase in ATR. Thank you.

[Silvia Ruiz, IR]

Another question from Elodie Rall from JP Morgan. Could you quantify the impact of the construction works in the second quarter? And if you expecting to impact the second half of the year?

[Inaki Garcia-Bilbao, CFO, Ferrovial Construction]

Thank you, Elodie. Excluding Budimex, wherever the impact in the second Q of Ferrovial Construction is minus €63 million. Most of this is coming from the contracts or the large contracts in the U.S. that are finishing. As we said we are provisioning here for losses. I mean, not all the cost is incurred and we are estimating, which are the total cost till the end of the contract, including bank lease and another requirements from the client, so all the cost is incurred. So no impact on these contracts in H2. Thank you.

[Silvia Ruiz, IR]

Next question coming from Patrick Creuset from Goldman Sachs. On the I-66 looks like traffic is ramping up nicely throughout the second quarter. Can you please share your perspective on how the asset is performing relative to your expectations and the continued ramp up from here?

[Unidentified Analyst]

Thank you. This is Tim again, just to say that the traffic is performing according to our expectation, and they continue to ramp up. It's performing well.

[Silvia Ruiz, IR]

Thank you. Next question from Mariana Gonzalez from Toro Partners. Can you please talk about JFK and TO is doing? Can you talk about any advancements?

[Laura Sotomayor, Head of Financial Compliance]

Thanks Mariana for your question. Happy to share details on the of the project. Project is in good progress during the second quarter. The comprehensive design plan has been approved jointly with the safety plan, we're working towards having 100% of the final design packages approved well construction continued.

So currently the final design is 90% achieved. The commencement of the diversion of the roles serving the altitude has been activated, which is key to a low construction progress and very happy to announce that yesterday, the commencement of the steel erection of the household structures took place. They are trending closer and T2 demolition ongoing, expected to be finished by the end of the year. So we can say all the milestones in critical parts have been achieved and suspected under rest of activities continuous focus on pilot production of pile, caps and steel erection.

[Silvia Ruiz, IR]

Next set of questions is coming from Nicolas Mora from Morgan Stanley. First question, you have fully provisioned contracts in the first half of 2023, but how much cash consumption should still be seen in the second half of the year?

[Ernesto Lopez Mozo, CFO]

Thank you, Nicolas. Yes, you're right, I mean, everything is provisioned, but there will be cash consumption in the second half. As mentioned in the previous question is true that some of these cost are still estimations. So we are still under discussions with the set clients in these contracts. And as also mentioned, the claims corresponding to recovery of part of these costs that we estimate that we are entitled, I mean to recover a big part of this probably won't be in 2023.

So an estimation of between €50 million and €90 million is our better estimation in this moment of cash consumption of this contracts. Thank you.

[Silvia Ruiz, IR]

Next question from Nicolas. Is Managed Lanes' excellent traffic and tariffs despite headwinds for the U.S. consumer what is the real driver of growth at above 2 times the weight for per average weight?

[Unidentified Analyst]

Thank you for your question. This is Tim again. Basically, we are seeing that the congestion is growing in all our carriers and we are seeing less seasonality of working from home more than the last year during summer. And that is because as I said before, the mobility trends are improving.

[Silvia Ruiz, IR]

Next question. Leverage situation as U.S. Managed Lanes, what is the potential for re-leveraging an NTE or NTE 35 West over the next few years.

[Unidentified Analyst]

Thank you for your question again. So we will analyze every leverage in our assets depending on the macro situation and the interest rate. We need to see some stabilization in interest rate because as you can see the Fed is raising interests and we will see. Yes, after a year.

[Silvia Ruiz, IR]

Last question from Nicolas, where would you feel comfortable to put leverage on I-77 in the medium term?

[Ernesto Lopez Mozo, CFO]

Yes, we are analyzing all the assets on the optimal level of leverage. In the case of I-77 is performing quite well. So depending what our medium-term perspective in the market, considering the interest hiking in the Fed. We will make a decision.

[Silvia Ruiz, IR]

Next set of questions coming from Graham Hunt from Jefferies. First question, can you give any guidance on the traffic update you expect from segment 3 of the 35 West for the second half of the year, do you expect any positive impact on segment A and B after Segment C has opened?

[Ernesto Lopez Mozo, CFO]

As I said before, it's early days to give any guidance, but we are positive with initial performance of this section of the project. We are receiving positive impact thanks to the end of the construction works in the area in this segment B.

[Silvia Ruiz, IR]

Second question, what are the latest developments related to be I-270 project Maryland. Is that a project, you would look at, if it comes back?

[Ernesto Lopez Mozo, CFO]

We have no more news from the DOT since the cancellations. So there is no further comment about this.

[Silvia Ruiz, IR]

Has there been a significant mix impact from heavy vehicles in the revenue transaction growth you've seen in the I-66 or is that pure pricing? Can you give any sense of the split between light and heavy vehicles in the corridor?

[Ernesto Lopez Mozo, CFO]

Yes. I've said before, there's multiple impacts in the revenue improvement, one is that users seeing more time savings in peak hour. So it's performing well and more percent of trucks.

[Silvia Ruiz, IR]

Next question coming from Kenton Moorhead from DWS. What benefits will you see from the investments in the 407 ETR CRM - CRM sorry, and ERP systems.

[Ernesto Lopez Mozo, CFO]

Yes, hi Kenton, always when you get into more sophisticated pricing and campaigns, you need an integrated ERP and CRM, that will be the main benefit of this. And as I said, in particular more for tailor campaigns and things like that are more data segmentation that could be quite valuable in the years ahead.

[Silvia Ruiz, IR]

Next set of questions coming from Tobias Woerner from Stifel are there any other bond maturities we should be aware of reducing your net cash position.

[Ernesto Lopez Mozo, CFO]

Hi, Tobias. Okay. So basically, the first thing I would like to mention is that it would reduce the gross cash position not net cash position. But you're right. And now we are enjoying a fantastic carry. The next bond maturity is in the July 2024. So I mean close to a year from today. And the other bonds mature in 25, 26, and 28.

So still we have some distance to those maturities. Here I'm not considering the short-term financing of European commercial paper that is not helping with the carrier, really just pure liquidity. So yes, we should be able to keep enjoying this carry for some time.

[Silvia Ruiz, IR]

Another question from Tobias. Can you give us the timing of the losses at Agroman? And what is the underlying margin of the business. Sorry Ferrovial construction, not Agroman and what is the underlying margin at the business ex these losses or put another way, is the underlying Ferrovial Construction above or below your 3.5 margin target on a normalized basis?

[Ernesto Lopez Mozo, CFO]

Yes. Thank you, Tobias. The margin of Ferrovial Construction, please think about the priority of geographies, I mean in the U.S., however also in LATAM, also in Spain. I mean, so the margins are quite different in each of them. But if it is not compounded and what we are expecting for 2024 onwards, but more thinking in the final contract, not done because it will also depend on the progress of the contracts when they are at the first phase is usually they are more contingencies in this periods, but we expect something below 3.5% and probably below 3%.

[Silvia Ruiz, IR]

Okay. So it seems, there are no further questions.

[Ernesto Lopez Mozo, CFO]

Okay, so thank you all and I hope you enjoy deserved summer break, and hope to see you soon. Thank you. Bye-bye.