© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, everybody. I'm [ Sylvia Ray ], and I would like to welcome you to Ferrovial's conference call to discuss the financial results for the first quarter of 2022. Just as a reminder, both the result report and presentation are available to you on our website.
As in previous results and of domain restrictions to mobility have been lifted during the first quarter of the year, we would like to highlight that the financial information included in the report is still impacted by the COVID-19 outbreak. Given the uncertainty regarding the speed and the extent of the full resumption in activity, it is not possible to predict how the health crisis will affect Ferrovial's group information and performance in 2022. In addition, the uncertainty caused by the Ukraine-Russia crisis is expected to affect global markets. Ferrovial will continue to closely monitor trading conditions and further evidence of wider economic impacts.
I am joined here today by Ernesto Lopez Mozo, our CFO; and by the CFOs of the different business divisions. [Operator Instructions] With this, I will hand over to Ernesto. Ernesto, the floor is yours.
Thank you, Sylvia, and hello, everybody. Probably you have noticed by our results released a little bit shorter than we will be focusing on the operational results and trends and led the floor for discussion on those topics. And we will be publishing, as required, the full consolidated results in June and December, as usual.
So starting with the overview, the first slide, we see that operational recovery on track across the board. In toll revenues, we saw strong growth in the U.S. assets despite Omicron and weather impact. The 407ETR was also highly impacted by Omicron at the beginning of the year and is starting to recover as the restrictions are eased.
In airports, we had a slower start to the year, but demand recovered strongly in March, in particular in the Easter season once the U.K. travel restrictions were removed. In Construction, we continue to have a record level backlog and producing in all our different geographies.
We closed the quarter with a strong cash position, EUR 2.2 billion net cash ex infrastructure projects. And as an introduction, last but not least, some ESG awards that basically reflect top performance in the sector in terms of sustainability. This is one of our main priorities. Of course, it is a business-savvy decision and we are looking forward to improvements along the way.
If we move to the following slide, we can see that in Toll Roads there was a very strong growth, as I mentioned before. I mean, revenues more than 38% and EBITDA 41%. But in particular, I would like to highlight the U.S. performance, north of 50%, both lines, revenues and EBITDA.
Also, it's very important that we are advancing well in the development of very important infrastructure that is fast approaching opening. The first one, the I-66 is in Virginia, 22 miles, a 50-year concession and is 66% complete. So by the end of the year, we should see the opening. We have pending equity investment here north of EUR 400 million.
The 35 West segment we see in NTE is also approaching fast this one to open in 2023. We would be adding 6.7 miles, it's a 66% addition to the 35 West. And here, the pending investment is smaller, EUR 78 million, but really looking forward to the opening of these 2 assets.
If we move to the following one, we discussed the 407 ETR. I mean, results were released some time ago. I would like to focus on the financial growth vis-a-vis last year. Really higher revenues due to increase in traffic and with longer trips. And in terms of financial position, showing a very strong liquidity position, with limited maturities in the coming years. I mean, 300 and almost CAD 20 million this year, but only CAD 20 million, 2023, and CAD 271 million in 2024. If we combine this with the fact that there's a liquidity of CAD 360 million in cash and undrawn facilities of CAD 800 million, the 407 ETR is a very robust position in the reopening after the pandemic and all the restrictions.
We also have a reminder of how the schedule '22 applies. And we would need to see traffic in the network, really in the alternatives and the 407 to reach the averages of 2017, '19 for this to apply or to have an increase in tariffs.
If we move to the following slide, we have a little bit more detail into the operational trends of the 407. The start of the year was really affected by Omicron and mobility restrictions, something that maybe a lot of people were not aware, but it was pretty much on an almost full shutdown. And then we see the improvement along the way. In March, it reached a 26% drop versus 2019, with really worse weather conditions than in the comparable 2019 that I mentioned.
So we see it reopening. It's early to talk about our trends. I mean we can say it's a low return to the office. I mean the occupancy index is around 20% in downtown Toronto. I mean this is well below other areas in the U.S. that we follow. But clearly, this has started much later, right? So we saw in Texas people going back and staying in home much earlier, probably a year in advance. So we will have to keep an eye on these trends going forward.
If we look at the comparables, both the 401 and transit are below clearly the 2019 levels. This, let's say, low return to the office is implying reduced mobility and congestion across the network. But as I said, it's clearly reopening. We will have to see how it gathers pace a long time. If we move to the following slide. I mean, it's good always to keep an eye on the developments of the region. This is what really props the value proposition of the 407. And we have really put a slide, that is it looks more like a page on a Bible, right, because it's a full of writing, but it shows all the different announcements of new facilities, real estate developments that would bring employment and activity overall. And as we always say, I mean, all this growth usually happens along the 407 corridors. So it's really encouraging to see all these signs that the region will keep growing.
If we move to the following slide, we can see that the performance in the managed lanes really gathered pace after a start of the year that was affected by pandemic and weather. But if you look into the March numbers, you see that NTE is clearly above pre-pandemic levels 2019. The same as the 35 West, you are in double-digit growth here. And LBJ that was lagging, it's also closing in fast, right? So activities garner a lot of momentum. You can see that also the revenues grew ahead of our expectations. And you can see that the soft cap went by the local inflation of 7%. But really rates went higher, I mean. And you see limited elasticity and a lot of activity. In particular, in the 35 West, you're seeing a higher proportion of heavy traffic impacting NTE, I-77 corridor that is related to industrial activity. And LBJ that is more, let's say, residential or related to office work, is also catching up very fast.
In terms of also activity in our roads, the NTE is seeing mandatory mode events. And not only even in that is the usual situation, but we also saw occasionally peak mandatory modes. So this really gives you an idea of the activity in the region. And the revenues, I would say, is a consequence of that activity.
If we move to the next slide, we see that, clearly, all our managed lanes, also the one in North Carolina, we'll touch that in a second, is clearly above the pre-pandemic levels. And as I said before, NTE 35 West, NTE, I-77, traffic is above pre-pandemic already.
Okay. If we move to the next slide, we can see the kind of magnet that the Dallas Fort Worth area has become. I mean, you see a lot of even headquarters from major corporations relocating there. But one of the key drivers is not only ease of business conditions, even taxes. And so one of the advantages that business people mention is logistics and the multi-modal transportation options. And clearly, the Alliance area is a good example of that. So no wonder that the 35 West is doing great. Okay. So I mean this trend is expected to continue, and we're looking forward to it.
If we move to the next slide, talking about the I-77, we also see growth in this area and more people are relocating there, the Dallas Fort Worth area. But clearly, there's growth in the population and employment and the growth is also happening along the corridor of the I-77. So, okay, it's growing faster than the region and it seems that the asset is in the right place with revenue per transaction growing nicely.
Okay. If we move to the next one, I would be getting into the airport division, starting with Heathrow. And here, the restrictions were lifted in March and we've seen really a surge in traffic, the Easter season. A lot of this related to, let's say, leisure travel for vacation. But also we see other type of traffic also recovered a little bit, but mainly is this kind of leisure travel that is picking up.
Having said that, and having Heathrow updated the -- I mean, to the upside, the traffic projection, still, I mean, there's some restrictions in many countries, you need to plan in advance for this administrative stuff that you have to cover, it acts as a deterrent clearly. And we cannot ignore that there is uncertainty around with the world still ongoing and the economy looking bumpy, okay? So clearly, very good recovery. There's still uncertainty ahead, but Heathrow has updated the -- upgraded the traffic projection. The financial performance reflects this important growth vis-a-vis last year. Inflation is affecting the OpEx and also, I mean, all the ramp-up really needs all this additional growth in -- in OpEx, but the financial performance has been very good.
Inflation is helping the deleverage of the assets. So I mean 0.3% deleverage on RAV is very good, let's say, sign of the Heathrow dynamics. And we are waiting for the regulation. I mean, there's no visibility. Probably it should be announced by the summer, the final proposals, but we don't have visibility on what the CAA is up to here.
Okay. So we move to the next one. Looking at Aberdeen, Glasgow and Southampton. Here, as well, we see a good recovery and best traffic after the pandemic erupted. And this -- well, the milder COVID-19 impact has helped. People are looking forward to go on vacation and traffic recovery. The revenues and EBITDA are growing accordingly. And this is also helping the cash situation in the company that has good cash position of GBP 41 million. So it's stronger than expected at this point in time.
Okay. If we move on to Construction in the next slide. We see the growth in revenues in line with the growth in the backlog.
We see a lower EBITDA and margins than last year. A couple of things are affected. Well, first of all, last year 2021 was flattered by the sale of some equipment boring machine for tunnels. That brought something like EUR 5 million of EBIT of that tune, I mean, this and some other disposals that helped in this regard. But then we have already seen impact from inflation and some scarcity of supplies, right? So we really have some impact there and we have to keep an eye on this. I mean the company has done all the reasonable initiatives to manage this. I mean, the stockpiling beforehand, closed contract with suppliers that aren't compliant, but nevertheless, I mean, you end up in bottlenecks in this kind of situation, in particular in Poland, okay? So we will keep monitoring this along the year. And also, we -- I mean, all this acceleration to deliver our infrastructure in the U.S. will imply cash consumption in the U.S. works in 2022. But as I said, the backlog is high and in very good health.
Going to the next slide, that is where we talk about the net cash evolution. While the net cash has done well in terms of working capital compared to other years, the main impact comes from services in the U.K. Also Construction didn't have the typical seasonal impact, although we expect working capital consumption in the remainder of the year for Construction, and this is a very good start for the year.
Also, we cashed in the divestments from Services, mainly this EUR 178 million. And we have been buying back shares. I mean, liquidity limited, but we have been buying EUR 110 million of shares. Then in other financing, we basically have most of that close to EUR 40 million is the deconsolidation of the cash that was in the assets that were sold.
Okay. So if we move on to the last slide before getting into the Q&A. Clearly, this traffic recovery, I mean, post pandemic, all of our assets are looking towards that. I mean the pace could be different in different assets. But clearly, the trend is there. They are -- all our assets are located in growth areas, is good to be in that area because in the end you have limited physical space that has to serve all the growth around it.
Our main infrastructure assets benefit from inflation. You have flexibility for tariffs or you can pass on inflation with a formula or linked to your asset base.
We have headwinds in Construction, that's something that nobody can deny, from supply disruption and inflation. Of course, another tool that I didn't mention before is that in some countries there's price review formula that are in place or are being discussed, negotiated. This doesn't happen in the U.S., but just, for instance, in Spain and Poland, there could be some angles there. But clearly, this is something to monitor for the remainder of the year.
And last but not least and probably more important, there's attractive investment opportunities ahead. I mean our focus remains on complex infra projects in the U.S. Toll roads and airports, we're looking at opportunities there. And I mean, this growth with sustainable infrastructure, I mean, it's more present and probably close than it was some time ago.
So thanks for the -- for bearing with us, and now we move into the Q&A part.
Thank you very much, Ernesto. The Q&A session will begin shortly. Please stay tuned.
Okay. So starting with Q&A session. First set of questions comes from Nicolò Pessina from Mediobanca. First question, can you provide an update on the negotiations with Blackstone on JFK new terminal 1?
Thank you, Nicolo. This is Ignacio Gaston Ferrovial Airport, CFO. Just one first in negotiations are taking place with Carlyle, not with Blackstone. Carlyle could be the counterparty. And [indiscernible] would be that the negotiations under the exclusivity agreement signed with Carlyle back in February of this year are still ongoing and happening. Thank you.
Next question. Can you provide an update on traffic for April for 407 ETR and the Texas managed lanes?
Nicolo, this is [indiscernible] Velao from Cintra, CFO. All information related to April will be provided in the next quarter, but I can give you some flavor about some mobility trends in Dallas and Toronto. Dallas mobility is reaching pre-pandemic levels due to some economic reopening after Omicron, in part thanks to they experienced mild lockdowns during 2021 and allow them to return to the office earlier.
Toronto reopening was completely different. They've just lifted the restrictions and they returned to the office for the first time and in a voluntary basis. That's an important part, voluntary basis. This is almost 1 year later than Dallas. And for that reason, we think that they need more time to gradually recover senior levels of mobility. Thanks.
Okay. Next set of questions comes from Luis Prieto from Kepler Cheuvreux. First question, how should we think about the impact of cost inflation on the pending investments in Toll Roads concessions? Is the higher cost being assumed by the Group's Construction division with no impact on the Toll Roads division? Would cost inflation trigger any form of concession rebalancing?
Luis, this is Ernesto here. Okay, so the Construction is independent on the concession here, right? So the concession, of course, would benefit from an uplift on prices from what was expected, right? I mean, all this inflation probably provides a base that is higher than what was discounted in the model. But then construction is independent. Construction usually does have fixed price contracts with suppliers. Not always fixed in the I-66 and also you need to balance a long time if suppliers of contractors will deliver, right? And usually, I mean, if there's pending prices that could impact, that would be a possibility and would affect the Construction division. Also for subcontractors, it's important if they see the opportunity of business going forward, that is usually something that means that could be more and more flexible.
So yes, it's independent. Concession is clearly benefiting from a better start in Construction, We'll need to see how this finalization pans out. But there is no, let's say, formula to rebalance the concession.
Next question. What is the rationale behind the positive working capital performance this early in the year?
Okay. So Luis, it's going be even though this -- I mean, comprises different divisions, I mean, Services and Construction, probably there was less of, let's say, advanced payments in some countries at the end of 2021. That has helped a healthier start to 2022. And in the case of Services in the U.K., I mean, good payment terms still are there and really ended the year also with a tight pace of payment that can be relaxed a little bit, right? So there's been no, let's say, kind of very symbolic or one-off payment or advanced payment that could have helped this working capital, it has been a mixture of all these things that I mentioned.
Okay. Next set of questions come from Elodie Rall from JPMorgan. First question on Heathrow. Are you still in the view there is no need for any capital injection?
Thank you, Elodie. This is Ignacio from Ferrovial [indiscernible]. I think we have learned in the past 2 years that uncertainty can be really brutal. COVID is still there and there is a war in Europe. Having said all that, Heathrow's increasing and upgrading the traffic outlook for this year and has a massive amount of liquidity. So in our base case for this year, we are not anticipating any equity injection in the asset.
And next question from Elodie on Construction. What is the outlook for margins for 2022?
Thank you, Elodie. This is Inaki Garcia from Ferrovial Construction. Sorry, but now it's very difficult, I mean, to tell you about the outlook for margins by the end of the year. You know that, for some time, we said with you that we are moving towards achieving the 3.5% EBIT margin for 2024. I mean that is in our strategic plan of horizon. But in this moment of uncertainty, it's even tougher. The first quarter, we have suffer inflation and this is something we are sharing with you. But the uncertainty is more on which are going to be also the movements from the different administrations in Spain, in Poland and also what is going to be really the level of inflation that we will finally have now. So difficult to serve in this moment. We usually don't give you guidance, but in this moment it's particularly difficult. Thank you.
Next set of questions coming from Filipe Leite from CaixaBank BPI. Construction EBITDA margin stood below 3% at first quarter 2022 and EBIT below 1% which was worse than any quarter of 2021. Can you explain the reason for such low profitability and your expectations for full year 2022?
Thank you, Filipe, this Inaki Garcia again. On the margin on the first quarter, we can give you that information that we have suffered we estimate around EUR 10 million in inflation. Basically, in Poland, I mean, they are closer to Ukraine and they are having problems with the supply of iron and also with other subcontractors. Also in Spain and with the energy -- in our energy division, we are also suffering the cost of energy. So this is what will explain to you what is happening in Ferrovial Construction.
In Poland, I tell you, I mean this reduce in profitability is based on inflation. And in Webber, you know that last year we sold our materials division. As you see it, that was very profitable. I mean, probably with a higher profitability than the heavy civil works and this is impacting also in our lower profitability in the -- in this year compared with the previous year. Thank you.
Okay. Next set of questions comes from José Arroyas from Santander. First question, 407 ETR paid 2 dividends since first quarter of 2021, right, before Omicron. Only one of these dividends have been announced, with the other coming as an add-on. Can you please tell us to what degree Omicron surprised the 407 ETR Board then and what traffic on this is the Board was seeing and expecting?
This is [indiscernible] Velao again. Thanks, Jose Manuel for your questions. Yes, it was completely unexpected, Omicron for the 407 ETR Board and for Ferrovial, for everyone. That's the reason that this first quarter. We think that it's too early to pay dividends, considering that Toronto's just lift the restrictions after the Omicron wave. We need more visibility of traffic patterns.
About the future, as you know, we do not give any guidance about future dividends payment in our assets. But we will monitor the performance on the following quarters. And the decision will be taken once the Board is comfortable enough. Sure.
Next question. On I-77, could you elaborate on the main factors explaining the plus 50% increase in average revenue per transaction in the first quarter of 2022?
Okay. We need to consider that the I-77 is in ramp-up. So we are seeing some improvement in the performance and the traffic performance. Thanks to this contract that is similar than the I-66 where we have flexible to increase the tariffs. We are trying to capture all the value possible. And that's the reason that we are showing this increase in the revenue, which is positive, very positive for all these assets. Thanks.
Next set of questions coming from Marcin Wojtal from Bank of America. How close to 2019 levels does the 407 ETR traffic need to be for the asset to increase tariffs?
Thanks for your question. We need to see an economic reopening similar than other U.S. cities and it was not on all levels of mobility and congestion before thinking about toll strategy in 407 ETR. It's too early. Considering that Toronto just -- Toronto's just lifted the restrictions and the return to the office is a voluntary basis, as I mentioned it before. We will monitor closely mobility patterns and congestion in the free alternatives to raise tariffs, but only when it makes economic sense. Thanks.
Next question. How much cash burn from here do you expect on the legacy U.S. Construction projects previously provisioned?
Thank you, Marcin. Ignacio Gaston from Construction again. We cannot give you guidance till the end of the year. In this quarter, we have burned 100 million in these U.S. projects. Remember that these projects are coming to an end. So I-66 is going to have a big percentage of completion by the end -- by the end of this year. And also I-285, almost the same now.
But as previously mentioned, I mean, it's going to depend also on the performance, on final settlement and on these 2 projects periods. And also what is going to be the impact on inflation, that is still uncertain. Thank you.
Next question coming from Nabil Ahmed from Barclays. Please describe your project pipeline as it stands today. Anything on complex turning projects that could happen before year-end or 2023?
This is [indiscernible] Velao. Thanks for your question, Nabil. We are optimistic in general about the pipeline in the U.S. As we saw in the presentation, we are focusing on the [indiscernible] plan announced by Georgia DOT that will start with the SR-400 project prequalification that is expected at the end of the year.
Within the next 12 months, we also expect to submit a bid for a large P3 project, the I-10. We are waiting for a tech qualification of the England Group project in California.
In LatAm, we are interested in some projects in Chile. We just submitted proposal in Colombia this quarter. Thanks.
Next set of questions coming from Tobias Woerner from Stifel. First question, where are you with regard to the Amey divestment?
Okay. We keep advancing. We said we expected it to be a transaction of 2022 and we are still on schedule for that. Yes, we are progressing. We cannot comment on specific dates, but we are progressing in the disposal.
Next question from Tobias also. Why the increase in the EBIT loss to minus EUR 11 million in the airport division?
Thank you, Tobias. This is Ignacio from Ferrovial Airports. The increase amounts to around EUR 6 million. Basically an increase in activity of bidding and staff. 2021 was a very low activity year for us, given COVID. So basically, this is just coming back to normal activity with respect to Ferrovial Airports. Thank you.
Thank you. There are no further questions.
Okay. Well, thank you, Sylvia, and thank you all for joining us. I mean we'll keep updating as the year goes by and all this reopening happens. Thanks for being with us. See you shortly in person. Thank you. Bye-bye.