Earnings Call: Q4 2016

Feb 27, 2017

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 the presentation are available to you on our website. If you have questions, you can send them through an email to ir@ferrovial.com, or at the end of this call at the Q&A session. With this, I will hand over to Mr. Rafael del Pino, who will be leading this conference call. Thank you, Ricardo. Good afternoon, and thank you for attending the full year results presentation. I am joined here today by Íñigo Meirás, the CEO, Ernesto López, 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 EUR 995 million. This has allowed us to increase the remuneration to our shareholders to EUR 544 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 407 ETR. 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 ten years. NTE and LBJ managed lanes in Dallas have continued to show a significant growth in revenues, and the Spanish toll roads has 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 a 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. U.K. services have suffered from the budgetary restrictions of local authorities in the U.K., 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 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 yet important awards such as the I-66 in Virginia and the strong operating performance in Poland. During 2016, we have issued a new six-year, EUR 500 million corporate bond and have no meaningful maturities until 2018. During the year, both S&P and Moody's have confirmed their triple B rating with a stable outlook. We have ended 2016 with a net cash position, excluding infrastructure projects, of almost EUR 700 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, with 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 $1.4 billion, combining the regular business CapEx, close to EUR 350 million, and growth CapEx, almost EUR 1 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 higher inflation, which increases the value of our regulated assets. We have benefited from the U.S. and Canadian dollar strength, as two of our main assets are in these countries. The potential exit of the U.K. from Europe implies uncertainties in terms of future economic growth, but it 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 U.S., 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 EUR 10.7 billion, mostly due to the integration of Broadspectrum and despite the negative impact of changes in the consolidation perimeter and the weakness of the U.K. pound. On a like for like basis, we achieved 1% growth. We would highlight the double-digit organic growth at Cintra. EBITDA posted a -4% decline on a like-for-like basis due to roughly 13% decline both in construction and services, partially offset by a 25% growth at the toll road division. Net income stood at EUR 375 million, almost half of that of 2015, where results were boosted by EUR 370 million non-recurring impacts related mostly to Heathrow, the reconsolidation of Radial 4 in AP-36 toll roads in Spain, and the sale of the Indiana Toll Road. We will look at these impacts in further detail later today. After this review of 2016, let me hand over the call to Íñigo Meirás, who will discuss the operating performance of our business units. Thank you, Rafael, and good afternoon to everyone. Starting in Cintra, I think the toll roads business posted a strong organic growth and was successful in both crystallizing value from asset sales and achieving new and relevant awards during the year. As in previous years, the dividends received from our projects outpaced investments. We received some EUR 290 million as dividends from our main toll road assets, and we invested EUR 113 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 steady traffic growth during the year in all the geographies where Ferrovial is present. The economic recovery in the regions where we operate observed since the second half of 2014, a calendar impact from 2016 being a leap year, and to a lesser extent, the lower oil prices are behind this strong performance. Heavier performance and light traffic in most toll roads, a clear reflection of a stronger economic activity. Growth has continued through to January 2017. We highlight the very strong growth on both the 407 ETR in Canada and in our Texan managed lanes. That is still in ramp-up phase, though 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 U.S. A new managed lane with dynamic tolling to the west of Washington, D.C., which will imply an investment of over €3 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-recourse financial sector amounts to €558 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 risks is a key part of our strategy. As such, we agreed the sale of several for our assets and execute the sale of others, which had been agreed in 2015, as Rafael mentioned in the beginning of this call. The sale of Chicago Skyway to a consortium of Canadian pension funds was executed with a net capital gain of €103 million. We also complete the partial sale for Irish toll roads M4 and M3 to the Dutch fund DIF for €59 million, net capital gain of €21 million. And we will maintain a stake of 20% in each asset. Last June, we reached an agreement also with DIF for the sale of 51% stake in the Norte Litoral toll road and 49% of the Algarve toll road, both in Portugal. We will maintain stakes of 49% and 48%, respectively, once the sale is completed. It is currently pending of administrative approvals. As for the financial results of the toll road divisions, revenues in like-for-like terms grew by almost 25% to €486 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 had only contributed three months of the year. EBITDA in comparable terms was up by almost 25%. The next slide, the 407 ETR has continued to show an outstanding performance last year with traffic up by almost 5%, despite tariffs growing by some 9.5% since 1st of February. Helped by economic growth, lower oil prices, and the positive impact from the opening of the East Extension Phase One, which took place in June and which has been free until February of 2017. 2017 tariffs has 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 continue to increase. 407 ETR paid 790 million Canadian dollars to its shareholders, 4% above the 750 million Canadian dollars in 2015. The first dividend for 2017 has been approved, a showdown 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 open for the full year in both 2015 and 2016, whereas LBJ was only open in its full configuration from September 2015. Taking a closer look at 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 time frame, with EBITDA margin increased by 4.3 percentage points to close to 80%. As for the traffic, the assets ramp-up is coming to an end. In the last quarter of the year, traffic reached 6 million transactions, 5% over about 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 NTE, as well as unknown work days, have had a negative impact on the traffic growth of the road compared to previous quarters. Before moving to services, I would like to confirm that we will be hosting a capital markets day in London next May 25th to explain Ferrovial Mentor Road with a final Q&A session with the Ferrovial Group CEO, myself. On services, the first thing to mention when looking at the division results is the acquisition of Broadspectrum, which was completed in May of last year, so that we have fully consolidated the company into our accounts since the 1st of June. Other than the impact of Broadspectrum acquisition, it is clear that in 2016, our services division in the U.K. has had a difficult year and has faced important challenges, which have taken their toll on our results. Budgetary restrictions at local authority level have lowered our activity, especially in road maintenance contracts, which have fallen by 23% on average, but in some cases by as much as 40%. These budgetary constraints have changed the way many of our clients operate. They have either eliminated the additional works, which brought on a strong increase in margins, or they are putting these additional works up for auction, which reduces their potential profitability. The lack of extraordinary results from road consulting and engineering contracts, which had a positive impact in 2015. Finally, the negative impact of the Birmingham contract, which has impacted our results throughout the whole of 2016, leading to a negative EUR 13 million result, given additional OPEX and costs from the structure in place. We have not been able to reduce given the ongoing negotiation process following the court 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 half of the year. The costs associated with this plan have negatively impacted our results by EUR 21 million, but its positive impact should be felt in the profitability during 2017. Annual cost synergies are estimated to be EUR 42 million, and EUR 18 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 divisions of the road, which have fallen close to 16% in like-for-like terms. Finally, negotiations 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 about future government fiscal policy that could impact market conditions, we can expect to see an Amey in 2017 improving its profitability towards an EBITDA margin between 3%-4% at the year-end, with a level of sales somewhat below 2016. Looking at the services division results, revenues reached EUR 6.1 billion, which implies a 24% growth compared to 2015. Practically, all the growth in revenues is due to the Broadspectrum acquisition. Looking at revenues in like-for-like terms, they have grown by 2.8%. EBITDA margin decreased from 6.4% to 5.4%, mainly on the back of the negative performance in the U.K. 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 EUR 395 million operating cash flow, which was generated despite extraordinary expenses from the restructuring plan and helped by the EUR 135 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 a 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 direct reflection of a lower tendering activity in Spain, affected by political instability in the country during last year. In the U.K., 2016 performance was influenced by the budgetary constraint in public clients and exceptional items. Revenues were flat on like-for-like terms, with a negative GBP impact leading to reported revenues falling by 12%. EBITDA was affected by the restructuring plan, which I just mentioned, which was EUR 21 million of additional expenses. Excluding the restructuring expenses and the GBP impact, EBITDA will have fallen by 45% or EUR 50 million, which is explained by the impacts which I have described a couple of minutes ago. In U.K. services, following the difficult 2016, we should be well-positioned to finally leave behind the issues we have faced with our billing and contract, focusing on becoming a smaller, albeit more solid and profitable company. As for the contribution of Broadspectrum, its results include EUR 7 million of acquisition costs and EUR 60 million of intangible amortization. Excluding these impacts, EBITDA will have amounted to EUR 91 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, should all contribute to the future growth. In October 2017, the contract that the company has with the Department of Immigration and Border Protection of Australia will come to an end. We are confident that the increase in activity from the attractive pipeline 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 this contract in the coming years. One thing to highlight when looking at the future of Broadspectrum results is that in order to better benefit from the growth opportunities that lie ahead, we have restructured the company, separating Australia and New Zealand from the Americas division, which in turn includes the U.S., Chile, and Canada. Going forward, this Americas division will be reported in the International Services division, leaving only Australia and New Zealand in Broadspectrum. As a reference, the Americas contribute EUR 161 million in sales and neutral contribution to the EBITDA. As for the construction division, very solid operating cash flow generation reached EUR 245 million compared to EUR 272 million in 2015. Revenues fell by almost 3% on like-for-like terms, mainly on the back of the end of important projects in the U.S., 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 U.K. International sales represent 83% of those of the division, with a strong presence in our traditional strategic markets, Poland, North America, U.K., 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 U.S. projects. As for the construction order book, it 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 EUR 2.3 billion to the backlog. Our U.K. airports showed a very positive performance in 2016. They generate operating cash flow of EUR 134 million through the dividends they paid, slightly above the EUR 132 million received in 2015. Heathrow, with an increase of 8.3% in ordinary dividend payout, paid Ferrovial EUR 96 million. The non-regulated airports, AGS, increased their payout by 6.7% and paid Ferrovial EUR 38 million. 2016 was yet another record year in terms of passenger traffic. 75.7 million passengers traveled through Heathrow, 1% more than the 75 million in 2015, helped, amongst other reasons, by the fact that 2016 was a leap year. Traffic showed a strong performance in European routes 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 services quality and user satisfaction throughout 2016. As a result, 84% of passengers surveyed rate their experience at the airport as excellent or very good versus 81% in 2015. All U.K. airports are integrated through equity consolidation. Their contribution in 2016 was a negative EUR 46 million, compared to a positive EUR 199 million in 2015. EUR 57 million from Heathrow and EUR 12 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 EUR 160 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 aeronautical 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. Second, Heathrow 2015 results include a positive non-recurring non-cash item of GBP 237 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 his decision to select the building of a third runway to increase airport capacity in the southeast of England. This decision, although positive, still requires parliamentary approval of the National Policy Statement, NPS, and approval by the Secretary of State of a 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. Ernesto? Thank you. Thank you, Íñigo. Let us 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 from the airport division. On the other hand, the U.S. dollar, the Canadian dollar, and the Australian dollar appreciated versus the euro. In these currencies, we have major infrastructure assets like the 407 ETR or the managed lanes in Texas. The U.K. 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 aeronautical tariffs 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. You have more than 15 billion of the London Heathrow RAB in pound sterling and 7.3 billion of debt linked to RPI, approximately 48% of the regulated asset base. So without taking other factors into account, a rise in inflation brings higher value to the asset and to the debt, creating value and leading to potentially higher dividends. Interest rates. If we look at the consolidated group, debt is 90% fixed, so a 100-basis-points increase in rates would only have an increase of EUR 8 million in financial expenses. If we move to the next slide to review cash generation, this has been one of the highlights of the year, the strong cash generation. Operating cash flow reaches almost EUR 1 billion, EUR 995 million pre-tax, 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, EUR 356 million, we get an ordinary or recurrent activity cash flow of EUR 639 million, enabling a payout to shareholders of EUR 544 million, up 2% vis-à-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 EUR 245 million, a touch below the EUR 272 million in 2015. Services generated about 40% of total cash flow, reaching almost EUR 400 million, EUR 395 million, with Spain getting a high mark of EUR 231 million and Broadspectrum with EUR 135 million, compensating the weaker but still positive contribution from the U.K. Airport dividends received reached EUR 134 million, 13% of total, of which EUR 96 million came from London Heathrow and EUR 13 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 EUR 76 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, Toros contributed with EUR 290 million in dividends, 29% of total operating cash flow, with 407 ETR contributing EUR 244 million, and other Toros EUR 46 million. The main uses of the operating cash flow are shareholder remuneration, which reached EUR 544 million, as I just mentioned, and investment, which reached EUR 356 million in ordinary course of business terms, in line with the EUR 374 million of 2015. If we also look at the activity in M&A, we were very active throughout 2016, investing EUR 629 million in acquisitions, plus EUR 435 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, EUR 69 million, our first investment in electricity transmission. On the other hand, we cashed in EUR 340 million through divestments, Chicago Skyway, and a 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 EUR 4.2 billion compared to EUR 4.5 billion last year, while net debt and infrastructure level stands at EUR 4.9 billion versus EUR 6 billion in 2015. The reduction in net debt is due to the deconsolidation of the SH 130, EUR 1.4 billion, and the Irish toll roads, about EUR 300 million. At the ex infrastructure projects level, we have a net cash position of EUR 697 million versus the EUR 1.5 billion, which we held at the end of December 2015. The main movers 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 costs and extend the maturities. At the corporate level, we issued a EUR 500 million six-year bond at 0.375% coupon. In toll roads, we closed the refinancing of Autopista with a 30-year bond at 3.75% coupon. That is a small tranche of subordinated debt. Heathrow as well raised GBP 1.6 billion from a diverse range of sources. We move to the next slide. We can review the lines below revenue and EBITDA that have been reviewed by Íñigo. In terms of disposals and improvements, we posted a EUR 324 million positive result impacted by the capital gain of the sale of Chicago Skyway, EUR 259 million, the EUR 21 million capital gain of the sale of the Irish toll roads, plus the positive effect of the SH 130 deconsolidation, a EUR 52 million non-cash reversion of our accumulated losses. This was mitigated by a non-cash provision registered in Autema, EUR 21 million. In terms of financial expenses, net financial expenses fell to EUR 391 million from the EUR 637 million in 2015. The main reasons for this decrease are, first, EUR 144 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 the SH 130, mitigating the full consolidation of LBJ for 12 months. Also, we had, in another line, EUR 101 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 Autopista and the restructuring of the SH 130. If we look into the equity accounted results, we have EUR 82 million this year versus EUR 312 million in the previous year. This is due to lower extraordinary results in Heathrow. In 2015, there was a EUR 186 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 EUR 57 million this year caused by the increase in inflation expectations changing the mark-to-market of the hedges. As we have seen before, increases in inflation are very positive for the business, but are reflected as inflation materializes, whereas mark-to-market changes are booked instantly with changes in the curve. The Ferrovial contribution keeps growing, reaching EUR 98 million in 2016. Our net income reached EUR 376 million, versus EUR 720 million in 2015. But in 2015, our net profit was impacted by several positive extraordinary results, adding EUR 373 million last year. Now let me hand it back to Rafael del Pino. Thank you, Ernesto. Concerning shareholder remuneration, the board will propose to the annual meeting two scrip dividends, roughly will imply EUR 0.32 and EUR 0.42 per share for a total dividend of EUR 0.74 per share. That compares with almost EUR 0.72 that we paid in 2016. A share buyback program of up to EUR 275 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. These represent 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 entry to the new sector of electricity transmission, or Pepper Lawson, all in business areas in which we can compete successfully and seeing a strong pipeline in the coming years. Number three, the solid financial position, even after having used EUR 1.4 billion in investments and EUR 544 million in shareholder remuneration, a top priority at Ferrovial, on the back of the strong operating cash flow generated over the year, EUR 995 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 U.K. in 2016. We also see significant new infrastructure opportunities arising in the U.S., the U.K., and Australia, both in traditional construction and PPPs. Thank you very much for your time today. We now open the floor to any questions you may have. Good afternoon, ladies and gentlemen. The Q&A session starts now. If you wish to ask a question, please press 01 on your telephone keypad. Thank you. The first question comes from Olivia Peters from Berenberg. Please go ahead. Good evening, everyone. I have four questions, please. My first question is on the U.S. pipeline. Obviously there's a sort of protectionism going on in the U.S. 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. I was wondering if you could provide any guidance on that at all. My third question is on Broadspectrum. Maybe you could give us some details on what you're bidding for. We have very little visibility there. What the pipeline's like, how large you see it being, particularly in the context of the immigration contract coming to an end. Also, just one question on clarity there. Could you say again what the EBITDA contribution to the Americas was? Thank you. Olivia, the line was breaking. May I ask you to repeat some of the questions, right? The first one that was regarding U.S. pipeline, the sub-question the U.S. pipeline was, if you could repeat that, please. Are you deemed to be bidding as a local player in that market, given what is going on in terms of a protectionist attitude there? Hi. Good afternoon. I am Alejandro de la Joya from Ferrovial Agroman. Regarding if we feel local or not in the U.S. market, well, we feel local for some type of projects, and maybe we feel local in Texas, where we acquired Webber 12 years ago. There are a few markets where we are not present, so it means that those markets we are not local at all. Okay. 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? Yes. Can I go back to my first question? I really meant as Cintra, in terms of bidding for future managed lanes. How is Cintra viewed in the U.S.? I'm more interested in how you're perceived rather than how you feel. I'm Enrique Díaz-Rato. President Trump announced during the past elections a plan to invest $1 trillion, but no further details have been provided. We think, therefore it's early to assess what the plan can bring. Regarding us, there's a couple of managed lanes in the pipeline. We feel local in the U.S. We certainly are, or we have been for the last few years. Okay. The question was then, Olivia, the second one regarding the evolution of margins in construction, if I got it right? Yes, that's correct. Hi, Olivia. Alejandro de la Joya again from Ferrovial Agroman. Well, as you know, we do not give guidance concerning margins in any of our business, and not in construction either. That's the question, that's the answer. Well, maybe you can give us an idea of the exact phasing of when the large U.S. projects come to an end. Maybe that would be helpful. Well, I'm sorry, I cannot give you any light regarding your question. Olivia. Okay. Regarding the big construction works, you've seen that they are pretty much done, but you have new things coming to the backlog, right? As we mentioned before, the A-66 will come to the backlog next year, and then it's 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? Yeah. Could you give us an idea of the magnitude of it and what types of projects you are bidding for? Also, can you tell us what the EBITDA was again for the Americas business? I missed it. Okay. This is Santiago Olivares speaking. Regarding your first question is more detail on the type of projects that we are bidding. As Íñigo said, the total pipeline is around EUR 30 billion, so it is very significant. 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 the 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 U.K., 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 U.K., there are opportunities to compete in traditional road maintenance contracts. There are several opportunities both in New South Wales and in Victoria. Also, there are some PPP projects. Actually, one of them we have been shortlisted in Melbourne, where we are in a consortium with Cintra, where Cintra is adding the investment capability and the structuring of the project, and Broadspectrum is in charge of the maintenance of the roads. That project in particular, the one that we have been shortlisted, is around 1 billion Australian dollars in order book. Regarding the second question, which is the EBITDA in Americas, the contribution is nil for the year, and this is a combination of reasonable margin in Chile and a negative contribution in the U.S. And if I can just quickly follow up, what is typically Broadspectrum's bid-to-win rate? Can you say again, Olivia? The signal is very poor. Sorry. What is your bid-to-win rate, typically at Broadspectrum? Or what has it been in the past? Around 30%. Thank you. It differs if it is a renewal or a new project, but it's, let's say 20, 25, if it's a new project, and 35 or 40, if it is a renewal. That's great. Thank you very much. The next question comes from Bruno Silva from BPI. Please go ahead. Yes. Good afternoon, everyone. My first question is related to managed lanes. Could you please give us some color on the kind of traffic growth and tariff growth that you are seeing here today? The second question related to 407 ETR. I can say is that we are very happy with the performance of both highways so far, and that we are confident that both highways will complete the ramp-up period with revenues pretty much in line with our original expectations. Regarding our rate levels, we are very much convinced that we are still far away from the optimal levels. So there is plenty of room for growth there. Your second question was related to the capital structure of the 407 ETR. That is a matter of shareholders to decide on. It is not only us who decide it, so there are other shareholders who have a say on that. Again, I am not in a position to make comments on what the quantitative approach to that will be in the future. The next question comes from Andy Jones from RBC. Please go ahead. Operator, we did not answer the last part of the question, and I do not know if there was a follow-up question from the last participant. So we get into the Question regarding construction. The last participant, I do not know if he was cut off, so we need to check that. Okay. We will put him back. Hello. Alejandro de la Joya from Ferrovial Agromán again. As we have already explained the previous years, in construction, we create, during the life of the project, those provisions needed in order to cover high-probability risks. If these risks finally are controlled or disappear, the provisions are released as soon as the certainty is agreed. 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 controlled enough to take a decision to release the provision. We do not know today how this figure is going to behave in the next 12 months. Okay. If you do not mind, just to 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? Yeah. Alejandro de la Joya again. I apologize, but we do not give details of this figure. Okay. Thank you very much. The next question comes from Andy Jones from RBC. Please go ahead. Good afternoon. Just one question from me, please. You said that infrastructure dividends cover about 40% of operating cash flow, and that is not quite enough to cover the Ferrovial dividend. When do you think you might reach that point? Once you are at that point, how would you think about the business then? Is it opportunity to grow the dividend more strongly or to think about your portfolio of businesses differently? Thank you. Well, of course, you are right that cash flow should be growing along time with more dividends from the infrastructure assets that we own. That is what the plans say. We will be making decisions then every year vis-à-vis the investment opportunities and, of course, always keeping an eye on an attractive remuneration. We will see that cash flow, as you say, coming before taking the decisions. We have to balance all the aspects. Okay. Thank you. The next question comes from Guillermo Fernandez Gao from Deutsche Bank. Please go ahead. Good evening, and thanks for taking my question. A number of them have been already answered, but I still have one on the 407 ETR. I understand that 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. The question would be if you would expect a similar positive impact in traffic as the one we saw with the first phase. It's Enrique Díaz-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. Beginning of next year. 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. Well, at least, no. 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. Okay. Thank you. The next question comes from Thomas Van Der Bey from Kempen. Please go ahead. Good evening, gentlemen. Actually, three questions from me. First of all, you guided the 3%-4% margin in the service division. Is this including the potential release, provision release of the Birmingham contract, or is this excluding the provision release? Second, on the Broadspectrum, including the intangible amortization acquisition cost, you did not generate any EBIT. With contracts coming to an end in 2017, can we assume that this number will be negative in 2017 and 2018 as well? 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. Okay. Well, I will answer the first question, which is the margin in- In Amey includes a release of EUR 10 million of the Birmingham provision. So we still have EUR 55 million remaining to be released in the future or to cover the risk in the future. Just to add to that, I was talking about 2016. Regarding 2017, we are not assuming any release in this 3% or 4% margin. Okay. Then you were asking about the EBIT evolution at Broadspectrum. You are right, the intangible has been allocated to different contracts. We do not provide a breakdown of how each contract is, of course. But you are right, that in 2018, a substantial part of the intangible would have been amortized. We do not provide that exact detail. But you are right that a lot of the amortization will be gone by then. Again, regarding your question on the managed lanes, we are still in the ramp-up period. There is expected growth to take place, both in terms of toll rates and traffic, but I cannot give any more qualitative approach to guidance in that regard. 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? Well, it is seasonality. The answer to your question is seasonality. There was nothing disturbing going on the LBJ at all. Okay. Clear. Thanks. The next question comes from Martin Wachtel from Bank of America, Merrill Lynch. Please go ahead. Yes. Good afternoon. Thank you for taking my questions. 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? Question number two. Can you hear me well? Do you have two questions, is that right? 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 the company in terms of its strategy or structure? Okay. The first question was related to M&A. That is no, we are not considering any significant M&A. We acquired Broadspectrum, that gave us a leading position in Australia and also a platform to grow in the U.S. and North America. 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 Íñigo said, we separated the Americas business, and we concentrated Broadspectrum in Australia and New Zealand. While we are doing that, we changed the organization to be more focused on P&L accountability and more focused on margins. 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. If I can have one follow-up on Broadspectrum. Have you taken already any restructuring charges, or are you planning to take any restructuring charges in 2017? No, there are no additional charges in terms of restructuring costs. All of those have been booked in 2016. Okay. Thank you. The next question comes from Victor Acitores from Societe Generale. Please go ahead. Thank you. Good afternoon. I have two simple questions. One is for Enrique, for the managed lanes. If you can provide any color on the He mentioned that there are two managed lanes on the pipeline. Only if you can provide the size of the projects as similar to the I-66. This is the first one. The second is only to confirm the date of the concession there in London, it's 25 May? Thank you. The date is the 25th of May. Yes, you are right. Enrique will take the first one. Yes. It's Enrique speaking now. There are two managed lane concessions that we have in the pipeline. One is the segment 3C for an extension of the NTE. It's an unsolicited proposal that we're negotiating for the north section on top of NTE 3A, 3B in Fort Worth, Texas. The other managed lane concession that is in the pipeline is in Chicago. It's still being defined. I think it's the 55 highway in Chicago, I-55 in Chicago. That's the second one. I don't know if I had another question, or that was it. Yeah. It's only to know, Enrique, in terms of the size of that project are similar to the I-66 in terms of the size of the project, only how they are, let's say, lower than the previous one. The size of the NTE 3C is around EUR 500 million. The one in Chicago is still under definition because the scope of the contract, they're still receiving comments from the industry, so it's yet to be defined. Okay. Thank you so much, Enrique. The next question comes from Santiago Molina from Caixabank. Please go ahead. Good afternoon. I have two questions, if I may. The first one is on ETR and 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? 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. Okay. It's Enrique again. I'm sorry, but we don't provide a 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 can add nothing else to add. I'm sorry. Yeah. 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. We are positive that we are in a 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 we have in place. Thank you. Ladies and gentlemen, there are no further questions. I now give back the floor to the company. Thank you. Okay. Before closing the call, we have some questions that we received through email, and I'm going to read them for the public, and we'll answer them. We have one question from Oriana Bastianelli from Kairos. She wants to see if we could comment on normalized free cash flow generation at Broadspectrum. The second one is if we could elaborate on the Plenary deal. The first is a normalized cash flow generation for Broadspectrum. What we can say is that the conversion rate in Broadspectrum is between 80% or 90% conversion rate. At this point, we are not going to give guidance for the EBITDA for the year. Enrique again. Just about Plenary. We have teamed up 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 the Greenfield market. We believe that we bring to the table complementary capabilities or capacities. So we're very satisfied, and we're very confident that we will have results. Okay. Having no further questions, we close the 2016 full year results call. Thank you very much for your attendance.