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Edited Transcript of FER.MC earnings conference call or presentation 27-Feb-17 5:00pm GMT

Thomson Reuters StreetEvents

Full Year 2016 Ferrovial SA Earnings Call

Madrid Feb 27, 2017 (Thomson StreetEvents) -- Edited Transcript of Ferrovial SA earnings conference call or presentation Monday, February 27, 2017 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ricardo Jimenez

Ferrovial SA - Head, IR

* Rafael Del Pino

Ferrovial SA - Chairman

* Inigo Meiras

Ferrovial SA - CEO

* Ernesto Lopez

Ferrovial SA - CFO

* Alejandro Joya

Ferrovial SA - CEO, Ferrovial Agroman

* Santiago Olivares

Ferrovial SA - CEO of Ferrovial Services

* Enrique Diaz-Rato

Ferrovial SA - CEO, Cintra

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Conference Call Participants

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* Olivia Peters

Berenberg - Analyst

* Bruno Silva

BPI - Analyst

* Andy Jones

RBC - Analyst

* Marcin Wojtal

Bank of America Merrill Lynch - Analyst

* Thomas van der Meij

Kempen - Analyst

* Victor Acitores

Societe Generale - Analyst

* Santiago Molina

Caixa Bank - Analyst

* Guillermo Fernandez Gao

Deutsche Bank - Analyst

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Presentation

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Ricardo Jimenez, Ferrovial SA - Head, IR [1]

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Good afternoon everybody and welcome to Ferrovial's conference call to discuss the 2016 financial year results. Just as a reminder, the result report and presentation are available to you in our website. If you have questions, you can send them through an email to IR at ferrovial.com or at the end of this call at the Q&A session.

And with this, I will hand over to Mr. Rafael del Pino, who will be leading this conference call.

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Rafael Del Pino, Ferrovial SA - Chairman [2]

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Thank you, Ricardo. Good afternoon and thank you for attending the full year results presentation. I'm joined here today by Inigo Meiras, the CEO; Ernesto Lopez, our CFO; and the CEOs of each of our business divisions.

Ferrovial has closed 2016 with an excellent operating cash flow, excluding infrastructure projects, of EUR995 million. This has allowed us to increase the remuneration to our shareholders to EUR544 million, which is an increase of 2% over last year, and is also a key pillar of our strategy. Our main infrastructure assets have also increased the dividend they distribute, having an increase of 8% in the case of Heathrow and 5% from ETR 407.

Looking at our main assets, the 407 ETR has shown a strong traffic growth, helped by the opening of the East extension and registering the highest EBITDA growth over the past 10 years. NTE and LBJ managed lanes in Dallas, have continued to show a significant growth in revenues and the Spanish toll roads have seen traffic growth close to 10%.

Heathrow has also reached a new annual record number of passengers, 75.7 million, or 1% more than 2015, and it continues to improve its client satisfaction levels. Glasgow and Southampton airports also show the strong traffic growth, 7.4% and 9.8%, respectively, which has allowed them to increase their dividends and offset most of the decrease in traffic in Aberdeen.

UK services have suffered from the budgetary restrictions of local authorities in the UK and we have responded with a restructuring plan at Amey, which should have a positive impact in 2017. The Spanish services activity has reached record cash flow generation and the integration of the Broadspectrum advances as expected, while it confirms an attractive pipeline. In construction, it is important to consider the order book growth, which does not include the yet important awards, such as the I-66 in Virginia and the strong operating performance in Poland.

During 2016, we have issued the new six-year EUR500 million corporate bond and have no meaningful maturities until 2018. During the year, both S&P and Moody's have confirmed their BBB rating with a Stable outlook.

We have ended 2016 with a net cash position, excluding infrastructure projects, of almost EUR700 million, not including the inflow from the upcoming sales of our Portuguese assets. On the back of a strong cash flow generation, which I mentioned at the beginning of this call, we are close to a 50-50 balance contribution between dividends received from our infrastructure assets and operating cash flow generated by our construction and services divisions.

2016 has also been an intense year in terms of investments, which have reached EUR1.4 billion, combining the regular business CapEx, close to EUR350 million, and growth CapEx, almost EUR1 billion, where we highlight the acquisition of Broadspectrum in Australia and the entry into the electricity transmission business in Chile.

We have also continued with our asset rotation policy as a way to crystallize value. In 2016, we closed the sale of the Chicago Skyway and our Irish toll roads and announced an agreement for the partial sale of our Portuguese toll roads, which is still pending final close.

During 2016, we have also suffered by uncertainty in our business environment. The vote of Brexit has led to the pound devaluation and has also led to high inflation, which increases the value of our regulated assets. And we have benefited from the US and Canadian dollar strength, as two of our main assets are in these countries.

The potential exit of the UK from Europe implies uncertainties in terms of future economic growth, but is also an opportunity for the development of new infrastructure, as demonstrated by the recommendation by the British Government of the Heathrow extension.

In the US, infrastructure investment is at the center of the political agenda in a market where in 2016, we were awarded a new managed lane, as I mentioned, the I-66, which will imply an investment of close to $3 billion.

In this next slide, we see the main figures of our results. Revenues were up by 11% reaching EUR10.7 billion, mostly due to the integration of Broadspectrum and despite the negative impact of changes in the consolidation perimeter and the weakness of the UK pound. On a like-for-like basis, we achieved 1% growth. It would highlight the double-digit organic growth at Cintra.

EBITDA posted a minus [4%] decline on a like-for-like basis, due to roughly 13% decline both in construction and services, partially offset by 25% growth at the toll road division.

And net income stood at EUR375 million, almost half of that of 2015, where results were boosted by EUR370 million non-recurring impacts, connected mostly to Heathrow, the reconsolidation of Radial 4 and AP-36 toll roads in Spain, and the sale of the Indiana toll road. We will look at this impacts on -- for the detail later today.

And after the review of 2016, let me hand over the call to Inigo Meiras, who will discuss the operating performance of our business units.

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Inigo Meiras, Ferrovial SA - CEO [3]

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Thank you, Rafael and good afternoon to everyone. Let's start in, in Cintra. I think the toll roads business posted a strong organic growth and we're successful in both crystallizing value from asset sales and achieving new and relevant awards during the year. As in previous year, the dividends received from our projects outpaced investments. We received some [EUR280 million] as dividends from our main toll road assets. And we invested EUR113 million in the equity of new projects. The division keeps looking actively for attractive opportunities to deploy capital with a high degree of bidding activity.

As for the operations, we saw significant and a steady traffic growth during the year in all the geographies where Ferrovial is present. The economic recovery in the regions where we operate Ausol since the second half of 2014, our calendar impact from 2016 being a leap year and to a lesser extent, the lower oil prices are behind this strong performance. [Very strong] performance in light traffic in most toll roads are clear reflection of a stronger economic activity. Growth has continued through to January 2017. We highlight the very strong growth in both, the ETR 407 in Canada and in our [Texas] managed lanes, which are still in ramp-up phase. Now, we will take a closer look at these assets in the coming slides.

During the past year, we saw an improvement with new contract award, the I-66 in Virginia in the US, a new managed lane with dynamic tolling to the west of Washington DC, which will imply an investment of over EUR3 billion, for which we expect financial close to take place in summer 2017. We are very glad with this award. The asset is longer than the managed lanes in Texas. The region is richer than Dallas Fort Worth in terms of average household income. There is no tariff cap. Capacity will not considerably grow with the new managed lanes, in which a higher speed limit is allowed. Finally, we have been allowed several design improvements, which should lead, in many cases, to a higher capture rate versus our competition.

In terms of financial closings, which took place in 2016, in March we closed the refinancing of Ausol, Spain. The new non-reserve financial structure amounts to EUR558 million, has allowed financial close to be reduced and maturities to be extended to 2045, [30 years] from now.

Crystallizing value of our portfolio through rotation of mature assets after reducing risk is a key part of our strategy. As such, we agreed the sale of several of our assets and executed the sale of orders, which have been agreed in 2015, as Rafael mentioned in the beginning of this call. The sale of Chicago Skyway to consortium of Canadian pension funds was executed with a net capital gain of EUR103 million.

We also completed the partial sale of our Irish toll roads, M4 & M3 to a Dutch fund, DIF, for EUR59 million; net capital gain of EUR21 million. We will maintain a stake of 20% in each asset.

Last June, we reached an agreement, also with DIF, for the sale of 51% stakes in the Norte Litoral toll road and 49% of the Algarve toll road, both in Portugal. We will maintain the stakes at 49% and 48% respectively, once the sales is completed. It is currently pending administrative approvals.

As for the financial results of the Toll Road division, revenues in like-for-like terms grew by almost 25% to EUR486 million, driven by the strong growth in managed lane results and the strong traffic performance in most of the division's assets. We must highlight the full-year contribution of LBJ, which in 2015 have only contributed three months of the year. EBITDA in comparable term was up by almost 25%.

The next slide, the 407ETR has continued to show an outstanding performance last year with traffic up by almost 5%, despite tariffs growing by some 9.5% since February 1, helped by economic growth, lower oil prices and the positive impact from the opening of the East Extension Phase 1, which took place in June and which has been free until February of 2017. 2017 tariffs have already been announced with an increase of close to 9% on average. We expect the price increase to have a neutral impact on traffic.

As for the financial position of the 407, net debt versus EBITDA fell to 6.8 times from 7.5 times in 2015. Dividends continued to increase. 407ETR paid CAD790 million to its shareholders, 5% above the [CAD715 million] in 2015. The first dividend for 2017 has been approved. It's an overall growth of over 10% compared to the dividend paid in the first quarter of 2016.

Both NTE and LBJ showed a very strong performance in 2016. NTE was opened for the full year in both, 2015 and 2016, whereas LBJ was only opened with its full configuration from September 2015. Taking a closer to look at the NTE, its financial performance has been extremely promising during 2016. Revenues increased by 41% versus 2015 and EBITDA increased by almost 50% from $38 million to $57 million in the same timeframe, whose EBITDA margin increased by 4.3 percentage points to close to 80%.

As for the traffic, the asset ramp-up is coming to an end. In the last quarter of the year, traffic reached 6 million transactions, 5% over -- above the last quarter of 2015. The toll road continues to increase its market share and maintains a large percentage of new clients each month. Despite the strong performance of the assets, we will highlight that in the fourth quarter of 2016, an increase in construction works of projects adjacent to the NTE, as well as the non-workdays, have had a negative impact in the traffic growth of the road compared to previous quarters.

Before moving to services, I would like to confirm that we'll be hosting our Capital Market Day in London next -- May 25 to explain Ferrovial main toll roads with a final [communication] with Ferrovial Group CEO, myself.

On services, the first thing to mention while looking at the recent results is the acquisition of Broadspectrum, which was completed in May of last year. Further, we have fully consolidated the company into our accounts since June 1. Other than the Broadspectrum acquisition, it is clear that during 2016 our services division in the UK has had a difficult year and has faced important challenge, which has taken the toll on our results.

Budgetary restrictions at local authority level has lowered our activity, especially in road maintenance contracts which have fallen by 23% on average, but in some cases, was by as much as 40%. These budgetary constraints have changed the way many of our clients operate. They have either eliminated their additional works, which brought on a strong increase in margins, or they are putting this additional works up for auction, which reduces the potential profitability. The lack of extraordinary results from rail consulting and engineering contracts, we had a positive impact in 2015.

And finally, the negative impact of the Birmingham contract, which has impacted our results throughout the whole of 2016, leading to a negative EUR13 million result, given additional OpEx and costs from the structure in place, which we have not been able to reduce, given the ongoing negotiation process following the [core] resolution in favor of the Company.

In this scenario, which I have just described, Amey has undertaken measures to face the challenge. An important restructuring plan with over 900 layoffs has been executed in the second part of the year. The costs associated with this plan have negatively impacted our results by EUR21 million, that is positive impact should be felt in the profitability during 2017. Annual cost synergies are estimated to be EUR42 million, and EUR18 million of those savings were already achieved in 2016.

Amey has changed its own focus. Instead of looking for growth, Amey has focused on profitability when looking at new contracts. A better reflection of this change can be observed in the division's order book, which has fallen close to 16% in like-for-like terms. Finally, negotiation with Birmingham are advancing to normalize the contract going forward and we expect to reach an agreement by the second quarter of this year.

Going forward, taking all of this into account and considering the uncertainty of our future government fiscal policy that could impact market conditions, we can expect to see Amey in 2017 improving its profitability towards an EBITDA margin between 3% to 4% at the year end, with a level of sales somewhat below 2016.

Looking at the Services division results, revenues reached EUR6.1 billion, which implies a 24% growth compared to 2015. Particularly, all the growth in revenues is due to the Broadspectrum acquisition. Looking at revenues in like-for-like terms, they have real growth by 2.8%. EBITDA margin decreased from 6.4% to 5.4%, mainly on the back of the negative performance in the UK. In the 2016 EBITDA, we include expenses from the restructuring process being undertaken in Amey. Excluding which the EBITDA margin would have reached 5.7%. The main highlight is probably the EUR395 million operating cash flow, which was generated despite the extraordinary expenses from the restructuring plan, helped by the EUR155 million contribution of Broadspectrum.

Looking at the various geographies where our Services division is present, the performance has been rather different in each. In Spain, organic growth reached 5.1% growth in revenues with a stable profitability. EBITDA margin remains at 10.7%, in line with the margins achieved in 2015. The order book fell by 6.5%, which is a better reflection of lower tendering activity in Spain, affected by political instability in the country during last year. In the UK, 2016 performance was influenced by the budgetary constraint in public clients and exceptional items.

Revenues were flat on a like-for-like terms with a negative GDP impact leading to [reported] revenues falling by 12%. EBITDA was affected by the restructuring plan, which I just mentioned, which was EUR21 million of additional expenses. Excluding the restructuring expenses and the GDP impact, EBITDA would have fallen by 45% or EUR50 million, which is explained by the impacts, which I have described a couple of minutes ago.

In UK, services following the difficult 2016, we should be well positioned to finally leave behind the issues we have faced with our Birmingham contract, focusing on becoming a smaller, albeit more solid and profitable company. For the contribution of Broadspectrum, its results include EUR7 million of acquisition cost and EUR60 million of intangible amortization. Excluding these impacts, EBITDA will have amounted to maybe EUR1 million, 6.3% margin. The integration of Broadspectrum advanced as expected. The solid pipeline, the company's investment capacity and the Group's complementary offer of services together with the rest of the Group divisions, all contribute to the future growth.

In October, 2017, the contracts that the Company has with the Department of Immigration and Border Protection of Australia will come to an end. We are confident that the increasing activity from the attractive pipeline is in place, with Broadspectrum acting as a platform for growth in services, toll roads and construction helped by the know-how of the rest of Ferrovial, should lead the Company to compensate the loss of these contracts in the coming years.

One thing to highlight, when looking at the future of Broadspectrum results is that in order to benefits from the growth opportunities that lay ahead, we have restructured the Company, separating Australia and New Zealand from the Americas division, which in turn includes the US, Chile and Canada. Going forward, this America division will be reported in the International Services division, leaving only Australia and New Zealand in Broadspectrum. As a reference, the Americas contributed EUR161 million in sales and neutral contribution to the EBITDA.

For the Construction division, very solid operating cash flow generation reached EUR245 million compared to EUR272 million in 2015. Revenues fell by almost 3% on a like-for-like terms, mainly on the back of the end of important projects in the US, as well as a further slowdown of the domestic market, which were not compensated by the strong growth at Budimex and the rest of international markets, where we must highlight the strong performance of Australia and the UK.

International sales represented 83% of those of the division, with a strong presence in our traditional and strategic markets; Poland, North America, UK, Chile and Australia. There was a slight fall in profitability, with EBITDA margin at 8.1% compared to the record 9.2% in 2015, mainly given the end of the US projects.

As for the Construction order book, grew by 2.6% in comparable terms with a strong contribution from Budimex 6%, like-for-like, and despite however, due to the advanced level of execution of main projects, declines in Spain of 9% and expansion in our other main markets. The order book as for the year-end, does not include the Bucaramanga road in Colombia, nor the I-66 managed lane in Virginia, that will contribute EUR2.3 billion to the backlog.

Our UK airports showed a very positive performance in 2016. They generated operating cash flow of EUR134 million through the dividends they paid, slightly above EUR132 million received in 2015. Heathrow, with an increase of 8.3% in ordinary dividend payout paid, paid Ferrovial EUR96 million. And the non-regulated airports, AGS, increased their payout up by 6.7% and paid Ferrovial EUR38 million.

2016 was yet another record year in terms of passenger traffic. 75.7 million passenger travelled through Heathrow, 1% more than the 75 million in 2015, helped amongst other reasons by the fact that 2016 was a leap year. Traffic saw a strong performance in European rules and long-haul flights. As for the non-regulated airports, traffic grew by 2.8% with a strong positive performance in both Glasgow and Southampton.

Heathrow has constantly improved business quality and user satisfaction throughout 2016. As a result, 84% of passengers surveyed rate their experience at the airport are excellent or very good versus 81% in 2015. All our UK airports are integrated through equity consolidation. Their contribution in 2016 was a negative EUR46 million compared to a positive EUR199 million in 2015, EUR57 million from Heathrow and EUR12 million from AGS. The strong decrease in the contribution from Heathrow was due to the two main factors. First one, the negative impact from mark-to-market hedge, non-cash item of [EUR160 million] net profit impact, reflecting the recovery in inflation expectations and the fall in interest rates. Although the uptick of inflation has a negative accounting impact, from the business point of view, it implies an increase of our [rental] revenues by increasing the tariff at the value of the RAB. In addition, if the expected inflation increase was to take place, the positive impact in value will be much greater than the potential negative accounting impact. And second, Heathrow 2015 results include a positive non-recurrent non-cash item of GBP237 million, due to the change in the pension plan conditions.

Finally, looking forward at the potential expansion of the airport, there have been several important developments throughout 2016, especially in the last quarter of the year. In October 2016, the British government announced its decision to select the building of a third runway to increase airport capacity in the South East of England. This decision, although positive, still requires parliamentary approval of the National Policy Statement (NPS) and approval by the Secretary of State of Development consent order, expected between the end of 2017 and the end of 2020.

With this review of the additional operational figures, I will hand over the call to Ernesto, our CFO, who will run through our financial results.

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Ernesto Lopez, Ferrovial SA - CFO [4]

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Thank you, Inigo. Let's start by looking at the macro variables, foreign exchange inflation and interest rates, given the important movements in the year.

The Brexit vote brought a significant devaluation of the pound. We remain with a significant amount of hedges in place that cover dividends for the next three years with some additional protection bought through options to cover for additional dividends [for the division]. On the other hand, the US dollar, the Canadian dollar and Australian dollar appreciated versus the euro. In these currencies, we have major infrastructure assets like the 407ETR or the managed lanes in Texas.

The UK is also seeing inflation pick up, as well as future expectations with a further reduction in real rates. Heathrow has a positive exposure to RPI, since their regulated asset base grows with inflation and [the analytical] types are indexed to RPI as well. To illustrate this point, we show year-end figures for the regulated asset base and the RPI linked debt. We have more than GBP15 billion of the London Heathrow RAB in pound sterling, and EUR7.3 billion of debt linked to RPI, approximately 48% of the regulated asset base. So without taking these factors into account, a rising inflation brings higher value to the asset and to the debt, creating value and leading to potentially higher dividends.

Interest rates, if you look at the consolidated group, debt is 90% fixed. So a 100 basis points increase in rates would only have an increase of EUR8 million in financial expenses.

If we move to the next slide to review cash generation, I mean this has been one of the highlights of the year, the strong cash generation. Operating cash flow reached almost EUR1 billion, EUR995 million pretax. Thanks to higher dividends from London Heathrow, 407 ETR, and solid contribution from services and construction. 89% of operating cash flow is generated internationally. If we deduct the investments related to the ordinary course of business, EUR356 million, we get an ordinary or recurrent activity cash flow of EUR639 million, enabling a payout to shareholders of EUR544 million, up 2% vis-a-vis 2015.

There was a balanced contribution to operating cash flow across all our business lines. Construction contributed with 25% of total operating cash flow, reaching EUR245 million, a touch below the EUR272 million in 2015. Services generated about 40% of total cash flow, reaching almost EUR400 million, EUR395 million, with Spain hitting the high mark of EUR231 million and Broadspectrum with EUR135 million, compensating the weaker but still positive contribution from the UK.

Airports dividends reached EUR134 million, 13% of total, of which EUR96 million came from London Heathrow and EUR13 million came from AGS. We expect these dividends to grow again in 2017. London Heathrow increased 8% dividend in 2016 and AGS has paid a total of EUR76 million in just [two] years, on the back of a strong EBITDA growth. Yes, we should bear in mind that there has been a 22% increase in EBITDA in a couple of years, 2014 through 2016.

Finally, Toll Roads contributed with EUR290 million in dividends, 29% of total operating cash flow, with 407ETR contributing EUR244 million, and other toll roads EUR46 million. The main uses of the operating cash flow are shareholder remuneration, which reached EUR544 million, as I just mentioned, and investment which reached EUR356 million in ordinary course of business terms, in line with the EUR374 million of 2015.

If we also look at the activity in M&A, we were very active throughout 2016, investing EUR629 million in acquisitions, plus EUR435 million of consolidated debt related to Broadspectrum mainly. The acquisition of Pepper Lawson also -- a small construction company in Texas and the acquisition of Transchile, EUR69 million, our first investment in electricity transmission. On the other hand, we cashed in EUR340 million through divestments, Chicago Skyway and its stake in the Irish Motorways.

In the next slide we can see a detailed breakdown of the net debt evolution. Consolidated net debt for the Group stands at EUR4.2 billion compared to EUR4.5 billion last year. While net debt and infrastructure level stands at EUR4.9 billion versus EUR6 billion in 2015, the reduction in net debt is due to the deconsolidation of the SH-130, EUR1.4 billion and the average toll roads, say, about EUR300 million. At the ex-infrastructure projects level, we have a net cash position of EUR697 million versus the EUR1.5 billion, which we held at the end of December 2015. The main movements have been explained in the previous slide, but I would like to highlight the good working capital performance of construction and services in the last part of the year.

Finally, we have taken advantage of the favorable financial environment to reduce financial cost and extend maturities. At the Corporate level, we issued a EUR500 million six-year bond at 0.375% coupon. And in toll roads, we closed the refinancing of Ausol with a 30-year bond at 3.75% coupon, with a small tranche of subordinated debt. Heathrow as well raised GBP1.6 billion from a diverse range of sources.

If we move to the next slide, we can review the lines below revenue and EBITDA that have been reviewed by Inigo. In terms of disposals and impairments, we posted EUR324 million positive result, impacted by the capital gain of the sale of Chicago Skyway, EUR259 million, EUR21 million capital gain of the sale of the Irish toll roads, plus the positive effect of the SH-130 deconsolidation, and EUR52 million non-cash reversion of our accumulated losses. This was mitigated by our non-cash provision registered in Autema, EUR21 million.

In terms of financial expenses, net financial expenses fell to EUR391 million from the EUR637 million in 2015. The main reasons for this decrease are, first [EUR144 million] of lower financial expenses, mostly at the infrastructure level, due to the completion during the year of the divestment of different projects, Chicago and Irish toll roads, and the deconsolidation of SH-130, mitigating the full consolidation of LBJ for 12 months. Also, we had [an underlying] EUR101 million lower expenses related to derivative instruments. This was mostly due to high expenses in 2015 from derivatives that were deemed ineffective in the refinancing of Ausol and the restructuring of SH-130. If we look into the equity accounted results, we have EUR82 million this year versus EUR312 million in the previous year. This is due to lower extraordinary results in Heathrow.

In 2015 there was a EUR186 million net contribution related to several non-cash one-offs, such as the renegotiation of the pension plan or positive mark to market of inflation hedges versus a negative contribution of EUR57 million this year, caused by the increase in inflation expectations, change in the mark-to-market of the hedges. As we have seen before, increases in inflation are very positive for the business. What that reflected, as inflation materializes, various mark-to-market changes are booked instantly with changes in the curve. The 407ETR contribution keeps growing, reaching EUR98 million in 2016.

Our net income reached EUR376 million versus EUR720 million in 2015. But in 2015 our net profit was impacted by several positive extraordinary results, adding EUR373 million last year.

Okay, so, now let me hand it back to Rafael Del Pino.

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Rafael Del Pino, Ferrovial SA - Chairman [5]

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Thank you Ernesto. Concerning shareholder remuneration, the Board will propose to the Annual Meeting two scrip dividends, roughly will imply EUR0.32 per share and EUR0.42 per share for a total dividend of EUR0.74 per share. That compares with almost EUR0.72 that we paid in 2016. And a share buyback program of up to EUR275 million or 19 million shares.

As a conclusion, the key issues of 2016 were, number one, the strong performance of our infrastructure assets in terms of operations, financial results and client satisfaction, with all main assets posting record figures and increasing their dividends. This represents the bulk of our value. The operating data of our main infrastructure assets in 2017 remain positive, and should lead to higher dividends over the year.

Number two, the strategic acquisitions undertaken, such as Broadspectrum and Transchile, which has implied entering into a new sector -- or the new sector of electricity transmission of Pepper Lawson, all in business areas in which we can compete successfully and seeing a strong pipeline in the coming years.

And number three, the solid financial position, even after having used EUR1.4 billion in investments and EUR544 million in shareholder remuneration, a top priority at Ferrovial, on the back of the strong operating cash flow generated over the year, EUR995 million, excluding infrastructure assets.

Looking forward for 2017, our main focus is the development of our current business perimeter, rather than extending it further, having properly managed already the issues we faced in Services in the UK in 2016. And we also see significant new infrastructure opportunities arising in the US, the UK and Australia, both in traditional construction and PPPs.

So thank you very much for your time today. We now open the floor to any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Olivia Peters, Berenberg.

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Olivia Peters, Berenberg - Analyst [2]

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I have four questions please. My first question is on the US pipeline and obviously with sort of protectionism going on in the US, and I was wondering if you are deemed to be bidding as a local player or as a Spanish player in that market? My second question is on the phasing of the construction margin going forward. I think it's something that people find particularly hard to forecast and I was wondering if you could provide any guidance on that too. My third question is on Broadspectrum. Maybe you could give us some details on what you are bidding for. We have very little visibility there; what the pipeline is like, how large you [think], particularly in the context of the integration contracts coming to an end. And also, just one question on clarity there, could you say again what the EBITDA contribution for the Americas was? Thank you.

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Rafael Del Pino, Ferrovial SA - Chairman [3]

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Olivia, the line was broken. So we may ask you to repeat some of the questions, right? The first one that was regarding US pipeline. The sub question in the US pipeline was -- if you could repeat that please?

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Olivia Peters, Berenberg - Analyst [4]

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Are you bidding or you deem to be bidding as a local player in that market, given what's going on in terms of a protectionist attitude there?

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Alejandro Joya, Ferrovial SA - CEO, Ferrovial Agroman [5]

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I'm Alejandro Joya from Ferrovial Agroman. Regarding, if we feel local or not in the US market, well we feel local for some type of projects and maybe we feel local in Texas where we acquired Webber 12 years ago. So there are few markets where we are not present. So it means that those markets we are not local at all.

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Ernesto Lopez, Ferrovial SA - CFO [6]

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The next question Olivia, I think was regarding the evolution of margins in construction, is that right? You're asking for some sort of color there?

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Olivia Peters, Berenberg - Analyst [7]

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Yes. Can I get back to my first question? I really meant Cintra in terms of bidding for future managed lanes. How is Cintra viewed in the US? I'm more interested in how you perceive rather than how you feel.

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Enrique Diaz-Rato, Ferrovial SA - CEO, Cintra [8]

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I'm Enrique Diaz-Rato. The President Trump announced during the past elections a plant in [Australia], but no further details have been provided. So we think therefore it's early to assess what the plan can bring. And regarding us, there is a couple of managed lanes in the pipeline, and yes we feel local in the US, we certainly are, or we have been for the last few years.

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Inigo Meiras, Ferrovial SA - CEO [9]

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The question was then -- Olivia the second one regarding the evolution of margins in construction, if I got it right?

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Olivia Peters, Berenberg - Analyst [10]

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Yes, that's correct.

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Alejandro Joya, Ferrovial SA - CEO, Ferrovial Agroman [11]

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Hi, Olivia. Alejandro Joya again from Ferrovial Agroman. Well, as you know, we do not give guidance concerning margins in any of our business and/or infrastructure neither. So that's the question -- that's the answer.

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Olivia Peters, Berenberg - Analyst [12]

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Maybe you can give us an idea of the exact phasing of when the large US projects come to an end, maybe that would be helpful.

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Alejandro Joya, Ferrovial SA - CEO, Ferrovial Agroman [13]

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I'm sorry, I cannot give you any light regarding your question.

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Inigo Meiras, Ferrovial SA - CEO [14]

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Olivia, okay, so regarding the big construction work, you've seen that they are pretty much done, but you have new things come into the backlog, right, as we mentioned before, the I-66 will come to the backlog next year and then -- it is very difficult to forecast given these different big projects coming at different times to the accounts. Okay?

The Broadspectrum question, we didn't get it properly, you were talking about the bidding pipeline, could you rephrase that again, please?

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Olivia Peters, Berenberg - Analyst [15]

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Yes. Could you give us an idea of the magnitude of it and what type of projects you're bidding for? And also can you tell us what be EBITDA was again the Americas business? I missed it.

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Santiago Olivares, Ferrovial SA - CEO of Ferrovial Services [16]

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Okay. So this is Santiago Olivares speaking. Regarding your first question is more detail on the type of projects that we are bidding. I think we have said the total pipeline is around EUR30 billion, so it's very significant and out of that around 40% is with government, mainly defense. In Australia, there are a lot of opportunities in the defense sector where Broadspectrum is one of the -- I would say, is a leading provider of support services to defense. So a significant part of that is in government.

Then we have also a good pipeline in the utility sector and that is both for water projects similar to what we do in the UK and also for telecommunications, both in Australia and New Zealand. Then transport is around 20% of that pipeline. Broadspectrum was not very strong in transport, but now with the capabilities that we can add from Europe, both Spain and the UK, there are opportunities to compete in traditional road maintenance contracts and there are several opportunities both in New South Wales and in Victoria.

And also there are some PPP projects, actually one of them we have been shortlisted in Melbourne, where we are in a construction with Cintra. What Cintra is, I think the investment capability and the structuring of the projects and Broadspectrum is in charge of the maintenance of the roads. And that project in particular, the one that has been shortlisted is around AUD1 billion in order book.

And then regarding the second question, which is the EBITDA in Americas, the contribution is nil for the year and this a combination of a reasonable margin in Chile and a negative contribution in the US.

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Olivia Peters, Berenberg - Analyst [17]

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And if I can just quickly follow-up, what's typically Broadspectrum's bid to win rate?

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Santiago Olivares, Ferrovial SA - CEO of Ferrovial Services [18]

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Can you say again, Olivia, the signal is very poor.

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Olivia Peters, Berenberg - Analyst [19]

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Sorry, what is your bid to win rate typically at Broadspectrum or where has it been in the past?

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Santiago Olivares, Ferrovial SA - CEO of Ferrovial Services [20]

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Around 30%. It differs if it is a renewal or a new project, but it's let's say 20% to 25% if it's new project and 35% to 40% if it's a renewal.

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Operator [21]

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Bruno Silva, BPI.

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Bruno Silva, BPI - Analyst [22]

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My first question is related to managed lanes, and could you please give us some color on the kind of traffic growth and tariff growth that you are seeing year-to-date?

The second question related to 407 ETR. I was really looking for you to update us on how you see the optimal capital structure for 407? I mean do you feel it would be more efficient to be closer to 9 times to 10 times net debt to EBIDTA, or for some reason, you're willing to keep leverage steady at the current levels?

And finally, if you don't mind, regarding construction, a quick follow-up. The reversal of provision this year has reached roughly EUR120 million, levels of construction, domestic construction continue to go down. So I mean for 2017, could you please give us some idea of what could be the level of release of provisions in domestic activity? That's all. Thank you very much.

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Enrique Diaz-Rato, Ferrovial SA - CEO, Cintra [23]

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Enrique (inaudible) first question was related to managed lanes in Dallas/Fort Worth, we don't provide qualitative guidance to what evolution of the traffic and -- or it's maybe in the future. What I can say is that we're very happy with the performance of both highways so far, and that we're confident that both highways will complete the ramp-up period with revenues pretty much in line with our original expectations. And regarding our rate levels, we are very much convinced that we are still far away from the optimal levels. So there's plenty of room for growth over there.

Your second question was related to capital structure of the 407 ETR. That's a matter of shareholders to decide on, it's not only us who decide it, so they're -- all other shareholders who have a say on that. And again, I'm not in a position to make comments on what the quantitative approach to that will be in the future.

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Operator [24]

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Andy Jones, RBC.

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Santiago Olivares, Ferrovial SA - CEO of Ferrovial Services [25]

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Operator, we didn't answer the last part of the question, and I don't know if there was a follow-up question from the last participant. So we are getting to the question regarding construction, and then the last participant, I don't know if he was cut off. So we need to check that.

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Operator [26]

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Okay, we will put him back.

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Alejandro Joya, Ferrovial SA - CEO, Ferrovial Agroman [27]

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Hello, Alejandro Joya from Ferrovial Agroman again. As we have already explained in previous years, in construction, we create during the life of the project, those provisions needed in order to cover high probability risks. And if these risks finally are controlled or disappear, the provisions are released as soon as the certainties is covered. And we do not know what is going to happen in 2017, we do not know if those risks are going to disappear, or are going to be controlling off to take a decision to release the provision. So we do not know today how these figures going to behave in the next 12 months.

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Bruno Silva, BPI - Analyst [28]

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Okay. So if you don't mind just a follow-up on this last one. What is the level of provisions in the books related with the contracts that should be executed during 2017 in Spain in the domestic activity?

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Alejandro Joya, Ferrovial SA - CEO, Ferrovial Agroman [29]

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Alejandro Joya again. I apologize, but we do give details of this figure.

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Operator [30]

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Andy Jones, RBC.

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Andy Jones, RBC - Analyst [31]

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Good afternoon. Just one question from me, please. You said the infrastructure dividends cover about 40% of operating cash flow and that's not quite enough to cover the Ferrovial dividend. When do you think you might reach that point? And once you're at that point, how would you think about the business then? Is it opportunity to grow dividend more strongly or do you think about your portfolio of businesses differently? Thank you.

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Santiago Olivares, Ferrovial SA - CEO of Ferrovial Services [32]

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Well of course, and you're right that cash flow should be growing in a long time with more dividends from the infrastructure assets that we own, that's what the plan say. And that we will be making this decisions then every year, vis-a-vis the investment opportunities and of course, always keeping an eye on an attractive remuneration. But we will see that cash flow, as you say, coming before taking the decisions, we have to balance all the aspects.

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Operator [33]

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Guillermo Fernandez Gao, Deutsche Bank.

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Guillermo Fernandez Gao, Deutsche Bank - Analyst [34]

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Good evening, and thanks for taking my question. A number of them have been already answered. But I still have one on the ETR 407, I understand the second phase or this one part of the second phase of the extension is supposed to be open to traffic at the end of 2017. And the question would be, if you would expect a similar positive impact in traffic to the one we saw with the first phase?

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Enrique Diaz-Rato, Ferrovial SA - CEO, Cintra [35]

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It's Enrique Diaz-Rato. I was looking for what is the date for the final completion of the second extension of the 407 ETR and it's end of 2018. There's a partial opening this year or beginning of next year.

Regarding the impact on traffic, we believe it's going to be negligible. Nothing comparable to what we have seen in the first extension. The opening of the extension explained around 3.5% of the increase in traffic last year and that's going to keep on going until June this year at least. So that has been a very significant impact, even higher than the one we expected, but again, I repeat that the expected impact of the second phase or the second extension is practically negligible on the 407 ETR.

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Operator [36]

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Thomas van der Meij, Kempen.

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Thomas van der Meij, Kempen - Analyst [37]

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Good evening, gentlemen. I actually have three questions from me. First of all you guided to 3% to 4% margin in the Service division. Is this including the release -- potential release, provision release of the Birmingham contract versus excluding the provision released? Second on Broadspectrum, I mean including the intangible amortization acquisition cost, you did not generate any EBIT. With contracts coming to end in 2017, can we assume that this number will be negative in 2017 and 2018 as well? And then the last question on the managed lanes. In your presentation, actually the number of transactions is flattening as from the second half of the year. Can we assume going forward that the growth is mainly driven from pricing and not per se volume? Thanks very much.

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Ernesto Lopez, Ferrovial SA - CFO [38]

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Well I will answer the first question, which is the margin in Amey includes a release of EUR10 million of the Birmingham provision. We still have EUR55 million remaining to be released in the future, or to cover the risk in the future. Sorry, just to add to that, I was talking about 2016. Regarding 2017, we are not assuming any release in these 3% or 4% margin.

Then, you were asking about the EBIT evolution at Broadspectrum. I mean, the intangible has been allocated to different contracts. We don't provide a breakdown of how each contract is, of course. But you are right that in 2018 a substantial part of intangible would have been amortized. We don't provide that exact detail. But you're right that a lot of the amortization will be gone by then.

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Rafael Del Pino, Ferrovial SA - Chairman [39]

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Again regarding your question of the managed lanes, we're still in the ramp-up period. So those expected growth to take place both in terms of toll rates and traffic, but I can't give any more qualitative approach to guidance on that regard.

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Andy Jones, RBC - Analyst [40]

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Then maybe as a follow-up on slide 9 of your presentation, could you maybe explain why the number of transactions is flattening in the second half of the year?

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Ernesto Lopez, Ferrovial SA - CFO [41]

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Well it's seasonality. The answer to your question is seasonality. There was nothing disturbing going on in the LBJ [RO].

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Operator [42]

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Marcin Wojtal, Bank of America Merrill Lynch.

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Marcin Wojtal, Bank of America Merrill Lynch - Analyst [43]

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There are two. The first one is on your strategy in terms of M&A in the Services division. Can you just provide an update? Are you again open to transactions in that segment and what regions or countries are of interest to you? And question number two --

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Inigo Meiras, Ferrovial SA - CEO [44]

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You have two questions, is the right?

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Marcin Wojtal, Bank of America Merrill Lynch - Analyst [45]

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Yes, the question number two is just on Broadspectrum. I just wanted to check if you have completed the business review for Broadspectrum and what do you intend to change in that company in terms of its strategy or structure?

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Ernesto Lopez, Ferrovial SA - CFO [46]

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Okay. Well, the first question was related to M&A, and that is no, I mean we are not considering any significant M&A. We guess the acquired Broadspectrum, that gave us a leading position in Australia and also a platform to grow in the US and North America. So we are not planning any significant transaction in the short-term.

Regarding your question about Broadspectrum and what we are doing in the company, well, first thing is, as Inigo said, we separated the Americas business and we concentrated Broadspectrum in Australia and New Zealand. And what we are doing there, we changed the organization to be more focused on P&L accountability and more focused on margins. And actually we are putting in place significant reduction in overheads, one. And then the other is, we are putting in place some measures to improve the margin at the contract level.

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Marcin Wojtal, Bank of America Merrill Lynch - Analyst [47]

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If I have one follow-up on Broadspectrum. Have you taken already any restructuring charges, or are you planning to take any restructuring charges in 2017?

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Ernesto Lopez, Ferrovial SA - CFO [48]

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No, there are no additional charges in terms of restructuring cost, all of those have been booked in 2016.

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Operator [49]

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Victor Acitores, Societe Generale.

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Victor Acitores, Societe Generale - Analyst [50]

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I have two simple questions. One is for Enrique for the managed lanes, if you can any color on the -- he mentioned that there are two managed lanes on the pipeline. Only if he can provide either size of the projects are similar to the I-66? This is the first one. The second is only to confirm the date of the concession day in London is May 25? Thank you.

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Inigo Meiras, Ferrovial SA - CEO [51]

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Yes, the date is May 25, yes you're right. And now Enrique will take the first one.

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Enrique Diaz-Rato, Ferrovial SA - CEO, Cintra [52]

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It's Enrique speaking now. The [other two] managed lane concessions that we have in the pipeline is the segments we see for an extension of the NTE. It's an [unsolicited] proposal that we are negotiating for the note section on top of NTE (inaudible) Texas. And the other managed lane concession that is in the pipeline, is in Chicago. It's still being defined. I think it's 55 Highway in Chicago -- I-55 in Chicago, that's the second one. And I don't know if I had another question, or that was it?

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Victor Acitores, Societe Generale - Analyst [53]

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It's only to know -- in terms of the size of that projects are similar to the I-66 in terms of the type of the project, or they are, let's say, lower than the previous one?

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Rafael Del Pino, Ferrovial SA - Chairman [54]

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The size of NTE, this is around [EUR500 million] and the one in Chicago is still under definition, because the scope of the contract is -- they were still receiving comments from the industry. So it's yet to be defined.

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Operator [55]

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Santiago Molina, Caixa Bank.

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Santiago Molina, Caixa Bank - Analyst [56]

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I have two questions if I may. The first one is on ETR, on the dividends. Can we expect the dividend growth in February to be maintained for the whole year, or should we expect more like 5% growth as it was in 2016? And the second one is on services, your guidance of 3%, 4% EBITDA margin, if we assume that you don't reach an agreement on the maintenance contract in Birmingham, this margin should be lower or higher? Thanks.

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Enrique Diaz-Rato, Ferrovial SA - CEO, Cintra [57]

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Okay. It's Enrique again. I'm sorry, but we don't provide quantitative guidance to the dividends. On top of that it's a decision that needs to be decided by the Board and we are not in control of that Board. So, I cannot -- nothing else to note rather, I'm sorry.

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Inigo Meiras, Ferrovial SA - CEO [58]

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Regarding your question on Birmingham, our assumption for 2017 is that the margin for the year is going to be between 3% and 4%, regardless of what happens with Birmingham. So we are positive that we are in constructive conversation with the council and we think that we are going to reach a positive solution for the two parties. But if not, we are comfortable with the provision that was in place.

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Operator [59]

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Ladies and gentlemen, there are no further questions. I now give back the floor to the Company. Thank you.

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Inigo Meiras, Ferrovial SA - CEO [60]

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Before closing the call, I mean, we have some questions that we received through email and I'm going to read them for the public, and will answer them. We have one question from (inaudible). She wants to see if we could comment on normalized free cash flow generation at Broadspectrum. And the second one is, if we could elaborate on the Plenary deal.

The first is normalized cash flow generation for Broadspectrum. What we can say is that the conversion rate in Broadspectrum is between 80% or 90% conversion rate. And then at this point, we are not going to give guidance for the EBITDA for the year.

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Enrique Diaz-Rato, Ferrovial SA - CEO, Cintra [61]

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Enrique again. You asked about the Plenary. Yes, we have teamed with Plenary to create a joint venture, we have called Netflow to develop the traffic concession market both in Australia and New Zealand. We share the same objective, which is to bring competition to Australia and (inaudible) market and we believe that we bring to the table complementary capabilities or capacities. So we are very satisfied and we're very confident that we will have results.

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Rafael Del Pino, Ferrovial SA - Chairman [62]

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Having no further questions, we close the 2016 full-year results call. Thank you very much for your attendance.