Ferrovial - Q2 2023
July 27, 2023
Transcript
Silvia Ruiz (Director of Investor Relations)
Good afternoon, everybody. This is Silvia Ruiz speaking. First of all, sorry for the slight delay. We had some technical problems, we are now ready to welcome you to Ferrovial's conference call to discuss the financial results for the first half of 2023. Just as a reminder, both the results report and presentation are available to you on our website. I am joined here today by Ernesto López Mozo, our CFO, and by the CFOs of the different business divisions. If you have any questions, you may ask them through the forum included in the webcast. During the Q&A session, at the end of this call, we will be reading out your questions and who they are from. With this, I will hand over to Ernesto. Ernesto, the floor is yours.
Ernesto López Mozo (CFO)
Thank you, Silvia. Good afternoon, good morning to you all from Amsterdam today. If we move to the overview of the first half of the year in Ferrovial results, the highlight is that we continue to see a strong growth in our main infrastructure assets. Toll roads, the 407 ETR traffic increase versus the first half of 2022. We see improved mobility trends, also we see that in the managed lanes in the Dallas-Fort Worth and the rest of the U.S. posting a strong revenue growth. In airports also, we see very good traffic recovery ahead of the peak summer season. Construction profitability has been impacted by completion works in large projects in the U.S. Otherwise, the division is performing very healthily.
In terms of cash, the net cash position at the end of the first half is EUR 819 million, this is a combination of a strong dividends we received from infrastructure projects, and of course, we had the repayment repurchase of the hybrid bond that we announced in combination with the reverse merger. We have also invested in equity in the projects and have had some shareholder remuneration. In terms of the strategic developments, the dual listing was completed. Ferrovial shares are now listed in Amsterdam and Spain. This happened on June 16th, 2023. The hybrid bonds, we had 94.3% acceptance. The remainder will be bought back this summer.
Also, the first scrip dividend was announced, and we have concluded that in July, and the amount is EUR 0.2871 per share. In terms of ESG, probably the highlight, the news is the inclusion for the 20th consecutive year in the FTSE4Good Global Index. If we move on to discuss operations, starting with toll roads, the highlight the distribution of the thirty-five West after opening ahead of schedule and being able to distribute the cash that was accumulated after some years of operations of 3A and 3A-3B. Really, the US assets are the bulk of all these numbers. They provided 2% of revenues, 2% of EBITDA, and the like for like growth in revenues and EBITDA is 38% and 40%.
The NTE 35W Segment 3C is adding 6.7 miles. We'll discuss performance in a minute. This has implied an $81 million investment, of which EUR 14 million are pending. The concession goes all the way to 2061. In terms of dividends, not only NTE 35W, solid dividends from NTE and LBJ, $123 million at 100%. The NTE ultimate configuration is advancing. I mean, this was part of the contract. It has been anticipated due to the outperformance. It will be adding a managed lane in Segment 2 and a general purpose lane in Segment 1.
Given the growth in the region, this added capacity will be very helpful in the later years. In terms of construction period for this, is from 2023 through 2027, is fully debt finance, and this financing is expecting to close in August. Talking about IRB, new projects are coming, and the exposed to traffic risk, a very attractive terms. Really the infrastructure plan in India is getting delivered. If we move on to the next slide, we can have a look at the performance of the 407 ETR. This is something that has been for some days in the market, but we think it's understanding how the mobility trends are recovering.
In terms of financial performance, you see that we have more than 22% growth in revenues and EBITDA, and this is allowing for dividends. I mean, dividends were distributed in the first half of 2003, CAD 150 million. Also another dividend was approved at the July board meeting of CAD 150 million. The performance is very healthy. We see really mobility trends going up. Performance has kept improving across the quarter. It's also true that June is probably flattered by, is flattered by more workdays. If we take that out, that would be like a drop of 3.4%.
Also had some additional trip length compared to other months. I mean, clearly the trend is very good and solid. I mean, we usually carry out polls with consumers and drivers across the regions here in Canada, as well as in America and Spain. We see people seeing increased mobility for the coming months and next year. Okay, in terms of the performance in workday trips, the average workday trips in June, it was close to 12% versus 2019. Also, there's rehabilitation works in the Highway 401.
This is something that usually happens with, well, different intensity, pretty much every year, but I mean, probably more intense, this year, and with favourable weather conditions also helping. The main message here is that the mobility trends keep improving. If we move to the next slide, we can see that mobility is improving across the board. We also see that urban transit is improving. We see that presence in the office keeps improving, and also employers are kind of investing in their offices to make them more attractive. We see clearly like another gear in terms of workforce coming back to the office with the employers asking for that.
If we move on to the next slide, here we look at the Dallas-Fort Worth managed lanes. Here, I mean, the pricing power is clear. It's evident from the top part of the slide. We see NTE, LBJ, and NTE 35W clearly increasing the average revenue per transaction, well above the inflation of the region that leaves the soft cap in 2023. Traffic performance is also growing healthily, NTE keeps the strong performance. LBJ keeps improving. It's still below June 2019, still affected by works in some connecting roads, clearly with a very positive trend. 3C, that was affected by construction works, I mean, now...
35 West was affected by construction works in 3C, now has some days off, 3C that don't weigh. I mean, clearly, it will add to the performance of the, of the asset. If we move to the following slide, please. We also have other managed lanes in the US that are even growing faster than those we discussed before, right? I-77 is growing revenue per transaction at more than 37%, and revenues and EBITDA are growing at an amazing rate, more than 60% and more than 100%. Also, the latest addition to the portfolio is clearly improving the ramp up.
You can see the monthly transactions in June were more than 30% higher than in January, and revenue per transaction, more than 70% higher in June versus January. Very solid performance. If we look into the next slide, how the prospects of the area where we invest are, I mean, you can see that you have probably more big companies moving into these regions. Also, employment growth is higher than the average of the US. When we look into economic activity, you see that these areas and others that are looking for managed lanes are outpacing the growth of other parts of the US. Moving to the next slide. Here we have Heathrow performance.
It had the results and released yesterday, and also the conference call. We can see that the demand is there, and traffic is very close to the 2019 levels already. I mean, June was just close to 3% below 2019, and demand is driven by outbound leisure, but you have recovery among all the lines, and that is business is also recovering, international travel as well. It's important that the passenger experience is being good. I mean, we have had some industrial action or strikes in the past. I mean, there has been an agreement.
I think that Heathrow management has stretched themselves to keep customers satisfied and things flowing, and, well, the outlook for the summer is strong. In terms of regulation, the CMA appeal is going on with different hearings in the different concepts that are being appealed. We'll have to wait until October for the final decision. Very important matters are being appealed and discussed here. If we move to the next slide, here we have the performance of other airports in Aberdeen, Glasgow, and Southampton. It's also growing up. I mean, it's not as close to others, to 2019 performance.
I mean, we need to remind everyone that Flybe was part of the airlines operating here. The demise at the start of 2023 affected. We have other airlines coming and looking for routes from these airports and also going forward. I mean, looking forward to the summer season here to see how it performs. Dalaman has already outperformed 2019. Here, we can see that there's like a broader peak season, and clearly, domestic and UK travel are growing, and that's helping the performance of a very attractive tourist destination. Last but not least, in airports, we have the big project, NTE, where I mean, construction works keep progressing.
It remains on budget, on schedule. The ratings have been reaffirmed by Kroll and Moody's. The traffic of the airport keeps performing well. We have advanced discussions with different airlines. In May 2023, also, Korean Airlines signed a new agreement. This is going as expected so far. We have also contributed equity here. I mean, as of June 30th this year, EUR 123 million have been invested in this attractive asset. If we move on, please. Okay, here we have construction.
As I mentioned in the introduction, performance from Budimex and Weber has been strong, but we have slipped in the some projects that are just doing the completion works in the rest in Ferrovial Construction. Here, basically, in this completion works, we have faced two things we didn't expect. One of them was that all the actions that need to be done in the general-purpose lanes or frontage road, adjacent roads have been more out of sequence than expected. What that means is that you have shorter times of operation, and you need to keep the idle teams while you wait for the next time of intervention.
This has been, as I said, more stop and go than what we could have expected. Also the punch list is way above the standard we've seen in other roads of this size that we've done in the US. Of course, we think that we are entitled to recover part of this cost. We have submitted claims, but, I mean, this could take some time. The good thing about this, I mean, this should be done this year. Our expectation is that for the remainder of the year, the good performance of the rest should help to overcome this impact, as I said, not expected.
I'm happy about this, but we are turning the page here, looking forward to 2024. If we move on to the next slide, here we have the overall PNL with a very solid growth vis-à-vis next last year, sorry, vis-à-vis 2022. Probably one of the things that I would like to highlight is the financial performance. In terms of financial result from infrastructure projects, remember that we have full consolidation of the I-66 this year, whereas in the first half of 2022, it was negligible, right? We have all that interest aspects going on there. In June 2022, we had some inflation impacts in Autema.
They are not there. Also the cash in the projects have been helping. In particular, that one that probably was more overlooked by the market is the ex-infrastructure projects. I mean, in 2022, the positive amount was due to the unwinding of hedges for bond issues. Here is just carry cost. I mean, at the ex-infrastructure project level, the debt cost is, like, 2.4%, whereas cash is yielding now 4%, right? This is adding to the solid results this quarter. Okay, going down the line, just finishing the slide on results. You have the net profit from discontinued operations.
The fact that we have a small positive here is that we closed the final accounts on the sale of Amey, and that was slightly better than we expected. That's hence the result there. Very solid results. If we go into the cash flow explanation, I mean, we see the strong performance of dividends. Then we have some working capital drainage. An important part of this is from construction. Then we have taxes, mainly in Budimex and withholding tax from cash from Canada. Then we have equity investments and other investment cash flows in the construction division.
In terms of shareholder remuneration, yes, we had a slow start to the year. Probably, this program will be more back-ended. I mean, we are looking forward to complete that shareholder remuneration with buybacks not only dividends. In terms of the hybrid bond, I mean, this is the full repayment considered, since we will squeeze out the kind of 5+% that did not tender, and it also includes the coupon accrual. In other financing cash flows, I mean, dividends to minorities, that is Budimex, but the rest, you have the positive effect of the carry we were mentioning before. Solid performance. If we move on to the last slide.
I mean, when looking ahead, it's clear that we have very solid mobility trends. This is the driver for cash generation, dividends from our strong asset portfolio. I mean, pricing flexibility is clearly proving valuable in these growth areas where we are present. There's a very interesting pipelines. I mean, there's complex projects to come to the market, and we're looking forward to that. We keep delivering the corporate organization, and we plan to apply for a just listing later on the year. Of course, last but not least, we keep advancing our decarbonization roadmap. Okay, we will open now the floor for questions. I would like to apologize again for the glitches on uploading the information. Happy...
I mean, I hope that my pace has been a little bit slower to allow for you guys to read things, but we open the Q&A session now. Thanks.
Silvia Ruiz (Director of Investor Relations)
Thank you, Ernesto. The Q&A session will start shortly. Please stay tuned. Okay, starting with the first set of questions coming from Nicolò Pessina, from Mediobanca. First question on 407 ETR: How much is the impact that positive, extraordinary effects had on the Q2 traffic?
Chema Velaúndez (CFO of Cintra)
Hello, Nicolo. Thank you for your question. This is Chema Velaúndez, the CFO of the Business Division of Cintra. What we are seeing is a improvement in the trends, in the mobility trends, basically, and the good weather started in Toronto in the Q2. In addition to that, we are with the good weather, the rehabilitation construction works started in the four one, creating some congestion that is helping to the traffic in on the 407 ETR. Basically, these are the reasons of the improvement in this quarter.
Silvia Ruiz (Director of Investor Relations)
Next question from Nicolo, on 407 ETR also. What is the level of peak traffic compared to 2019 levels?
Chema Velaúndez (CFO of Cintra)
We've seen a gradual improvement in, in peak hours during this first half of the year, especially in the Q2, for the reason that I mentioned before. We are still lagging, compared to 2019, but the trend is positive. We think, looking the trend of the mobility trends that we are seeing in this quarter, that there is, and what we are seeing in other cities in U.S., in Canada, there is room of improvement.
Silvia Ruiz (Director of Investor Relations)
Next question from Nicolo. On NTE, is it reasonable to assume that revenue sharing mechanism is triggered within five years, given strong traffic growth and inflation?
Chema Velaúndez (CFO of Cintra)
Hi, Nicolo. As you know, the revenue sharing mechanism is part of our contracts in all managed lanes in Texas and in the rest of the US. In the case of the NTE, you have to keep in mind that with the ultimate configuration, we're gonna start the construction works, and this is gonna create some impact in traffic. For that reason, we think that the sharing mechanism is gonna be delayed for a while, but we don't see any problem in the long term because the corridor has a very powerful growth and a stable growth and good perspective in the future.
We see suppressed demand right now, that this is one of the reasons that we are increasing capacity, because there are some suppressed demand. We don't see any impact in the long term.
Silvia Ruiz (Director of Investor Relations)
Last question from Nicolo. Would you say that Acciona and Sacyr winning the I-10 project in Alabama highlight increasing competition for greenfield projects in the U.S.?
Chema Velaúndez (CFO of Cintra)
We, we have limited information, just the press release of the DOT. What we can say here is that the competition in the US is not bad in itself, you know. We need competition just to push these big projects in US. In the case in this particular project, the I-10, what we can say is how we see the project is a project which revenue is linked to the GDP, with some export, local exposure to the local economy.
We have seen some construction risks, and considering that we don't have a local presence there, we put our best offer, you know, in this bidding process, considering the growth of the revenue and the risks associated to the project.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from Elodie Rall from JP Morgan. First question: What is the traffic trend on the 407 ETR in July?
Chema Velaúndez (CFO of Cintra)
Hi, Elodie. you know that we cannot disclosure specific data about July, but in general, we are seeing that the traffic is consolidating the recovery that we've seen in the first half of 2023.
Silvia Ruiz (Director of Investor Relations)
Next question from Elodie. What traffic performance do you need to see at the 407 ETR before increasing tariffs?
Chema Velaúndez (CFO of Cintra)
I think that the traffic performance is pointing in the right direction, but we cannot commit to a specific date at this moment of the year.
Silvia Ruiz (Director of Investor Relations)
Last question from Elodie. Do you agree that it would make more economic sense to increase tariffs on the 407 ETR on January first, 2024, rather than during the remaining of 2023, given it would delay the enforcement of Schedule 22 payment?
Chema Velaúndez (CFO of Cintra)
Elodie, yes, you're right. According to the Schedule 22, and the Post-Merger Letter, if we want to raise a toll, we need to communicate to the DOT 1 month in advance, that would mean raise tolls in the next month. We only have a couple of months to gaining this revenue, you know? For that reason, it's more interesting, econom- economically speaking, to raise the toll hypothetically in the first January in 2024, instead of August or October in 2023.
Silvia Ruiz (Director of Investor Relations)
Next, set of questions coming from Luis Prieto, from Kepler Cheuvreux. First question: When should we expect the company to increase tariffs in the 407 ETR, this or next year? For how long would it be reasonable to expect the payment of Schedule 22 payments?
Chema Velaúndez (CFO of Cintra)
As I said in the, in the previous question, the, the, the, the good thing is that the performance is or traffic performance is pointing in the right direction, but at this moment, at this moment, we cannot commit to a specific date. The second part of your question, the Schedule 22 pay payment is part of our business plan as we released in 2018. It's nothing extraordinary, and we need to get used to that.
Silvia Ruiz (Director of Investor Relations)
Next question from Luis: Given the reiteration of the 2024 profitability target for the construction division, could you please shed some light on the sequential evolution of EBIT margin over the next quarters? In other words, should there be a material improvement in the second half of 2023, or mostly in 2024?
Iñaki García (Head of Construction)
Thank you, Luis, for your question. This is Iñaki Garcia from Construction. We cannot give guidance for 2023, but what we can say with you is that we are estimating that we will close the year with the current assumptions of the large projects in the US that are already included in the financial statements as of June. In the recurring run, and a recurring run rate level of the rest of the business, I mean, Budimex and Weber. Improvement in the second half, but we cannot commit with a percentage of EBIT. For 2024 is what you said. I mean, we give guidance of 3.5% EBIT, basically, based in three pillars.
I mean, the healthy backlog that we have in this moment, that is well protected against inflation. This large, big projects in the US that have caused trouble in the past will finish in 2023. Also, I mean, there are very good projects, profitable projects that are starting in this moment, so they are progressing well, and we will see a profitability in 2024. I'm talking, for example, about I-35 NEX or Ontario Line. Thank you.
Silvia Ruiz (Director of Investor Relations)
Last question from Luis: When should we expect the U.S. listing to be live and the capital markets day to happen?
Ernesto López Mozo (CFO)
Yeah. Hi, Luis. Well, this is really for the SEC to determine, right? I mean, we will be probably filing the 20-F in the fall, and then the approval process could be shorter or longer, depending on the SEC requirements, right? So we are really looking forward to this listing. The capital markets day should be shortly after the listing, unless it's a peak earnings season that you don't have the undivided attention of the public, right? So we look forward to that maybe early next year, and we'll keep you posted as the approval process of the SEC works.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from Robert Johnson from BNP Paribas Exane. First question: Since the most recent 407 ETR toll increase in February 2020, to what extent has the Schedule 22 traffic threshold increased?
Chema Velaúndez (CFO of Cintra)
Hi, Robert. This is Chema Velaúndez again, from Cintra. As you know, because we have all the documents on the 407 website, the traffic threshold increased, depending on the segment, between 1% and 3%. We cannot disclose for more information than that.
Silvia Ruiz (Director of Investor Relations)
Next question from Robert: With respect to the Toronto office occupancy index, does Ferrovial have any estimate as to the level at which this data is likely to stabilize?
Chema Velaúndez (CFO of Cintra)
`We are following this, this index, as you do. Uh, and what we are seeing is that the trend is positive. Um, uh, we are-- when we, when we go to, to Toronto, and we discuss with, uh, local people, uh, and we are seeing that there, there, there, there's some motivation to, to, to make more enforcement to, to come back to the office. So-- and according to our data in other city, in US cities, we consider that there is room of improvement. So we think that the trend is positive, uh, it could continue in that way in the following months.`
Silvia Ruiz (Director of Investor Relations)
Roughly, how much revenue this segment 3C contribute to NTE 35W during the Q2?
Chema Velaúndez (CFO of Cintra)
We don't disclose more information for particular segments, just the whole project. What I can say about the 3C, that is, it's early days, but we are seeing a very positive, this positive initial performance of this section. We are in a corridor that is growing fast and healthy, and we're perceiving a positive impact of ending the construction works in the area with a normalization in the traffic flow.
Silvia Ruiz (Director of Investor Relations)
Question coming from Fernando Lafuente, from Alantra. Should we expect any cash outflow of construction in 2024?
Iñaki García (Head of Construction)
Hi, Fernando, this is Iñaki again. As we said, EBITDA for 2024 is going to be positive. I mean, so we expect positive cash flow on this, now it's very soon to give guidance on the working capital movements. That will depend very much on what you know, happens in the construction business, no? Advanced payments in new contracting and also advanced payments also at the end of the year. Generally, we can say that we are not expecting cash consumption in 2024. Thank you.
Silvia Ruiz (Director of Investor Relations)
... Sorry, I missed another question from Fernando Lafuente. What is the estimate of dividends from associates by year-end and the expectation for 2024?
Ernesto López Mozo (CFO)
Hi, Fernando. We are sorry, we don't give these specific details. I mean, you can work out with the performance what could be the generation of these assets, but we don't provide a specific guidance. Apologies for that.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from Marcin Bodzial from Bank of America. Have you seen a meaningful improvement in 407 ETR peak hours traffic in the Q2, which is relevant, sorry, for Schedule 22 calculations?
Chema Velaúndez (CFO of Cintra)
Thank you, Marcin. This is Cintra again. What we are seeing in the peak hours is a gradual increase in the Q2, especially in the Q2, and they are performing better than 2022. That, yes, we are seeing a meaningful improvement.
Silvia Ruiz (Director of Investor Relations)
Another question from Marcin: Do you expect the US listing to be finalized before the year-end of 2023?
Ernesto López Mozo (CFO)
Yeah. Hi, Marcin. Well, this is really the ACC's call, right? I mean, to take time and even to approve the transaction, right? We are working, as I said, hard to file in the, in the fall and do the fastest process possible, but it's their prerogative. Yeah, it could go into 2024, easily, if they approve us.
Silvia Ruiz (Director of Investor Relations)
Next question from Marcin: Do you believe a tariff hike at the 407 ETR could happen in 2024 or 2025?
Speaker 5
Hi, Marcin. This is Tim again. I think that I already answered this question. Basically, the traffic is pointing in the right direction. We cannot commit any date at this moment of time.
Silvia Ruiz (Director of Investor Relations)
Last question from Marcin: Are you monitoring any potential external growth opportunities outside of North America?
Chema Velaúndez (CFO of Cintra)
Hi. Yes, we are monitoring selective investments in Latin America and Europe. We are working to growth in India. As you know, is a country that is booming, with a huge infra pipeline that we feel comfortable with our partner, IRB. It's another country that we are monitoring so closely.
Silvia Ruiz (Director of Investor Relations)
Next set of questions from Satish Sivakumar from Citi. First question: What is your expectations on construction activity in the second half of the year? Do you see further inflationary pressures?
Iñaki García (Head of Construction)
Thank you. So, sorry. I think the first question has been already answered. We expect the same runway trend for the rest of the business and probably for real construction with no more losses, as all the costs in these large projects have been already included. Regarding inflationary pressures, we are not expecting inflationary pressures in the second half of the year. On the other hand, as we mentioned, our backlog in this moment is well protected against inflation. Thank you.
Silvia Ruiz (Director of Investor Relations)
Next question: What is your expectation on tariff at Heathrow? Can you elaborate on the timeline?
Laura López (CFO of Airports)
Hi, this is Laura Lopez, CFO for Ferrovial Airports. We have to wait for the CMA final decision that we'll report by the seventeenth of October. We are confident that the point raised by Heathrow will be fully considered by the CMA. There are a number of areas in which the CMA has made clear errors and will undermine the investment needed to deliver the airport service and resilience consumer ones. We have to wait and see. Thank you.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from Augustine Sander from Stifel. First question: Could you please comment on the evolution of traffic on the 407 ETR? Was there any one-offs after considering the strong yield traffic back at 2019 levels?
Chema Velaúndez (CFO of Cintra)
Hi, thank you for your question, sir. As I said before, we think that the traffic performance is improving in Q2 due to many reasons, no, nothing extraordinary. An improvement in the mobility, as Ernesto comment before, the good weather came to Toronto in the Q2, and this is positive for the mobility as well. With this good weather, it starts something that is common in a normal course of business, that is the rehabilitation in the Highway 401. In June, it's probably the most important month in terms of traffic in the 407 ETR, and this following the positive trend that we are experiencing the whole quarter.
Silvia Ruiz (Director of Investor Relations)
Another question from Augustine. Budimex had a very strong performance in the Q1 and a weaker Q2. It looks quite different from the usual seasonality. Could you please detail what happened?
Iñaki García (Head of Construction)
Thank you, Augustine. We did see a second Q weaker in Budimex. Profitability is 6.8%, and it was 5.1 in the first Q. Probably you are comparing with the previous year, but remember that previous year had a shift between the first Q and the second Q because it was just the time that the Ukraine war started. There was a lot of uncertainty. Profitability in the first Q was very poor, and in the Q2, it had a recovery based on, well, new contracts started again, and also, I mean, some measures for inflation were established.
We don't see this weaker Budimex in Q2, and, for sure, I mean, we expect a profitability, a good profitability, for the year in 2023. Thank you.
Silvia Ruiz (Director of Investor Relations)
Last question from Augustine. The others division lost -EUR 22 million EBIT in the Q2. What is this driven by? Are these one-offs?
Ernesto López Mozo (CFO)
Yeah. Hi, Augustine, Ernesto here. Yeah, I mean, the, the bulk of that is one-offs related to the corporate restructuring transaction and listing in the, in the Netherlands.
Silvia Ruiz (Director of Investor Relations)
Next question coming from Victor Acitores, from Societe Generale. The Texas Managed Lanes, NTE LBJ and NTE 35W, what was the Q2 traffic versus 2019 levels?
Chema Velaúndez (CFO of Cintra)
Thank you for your question. The specific data is in the note that I would release in our webpage. What I can say is that NTE and NTE 35W is above 2019 levels, the LBJ is close, is minus, around minus 5%, is lagging 2019 in 5%. You have to consider that the LBJ is affected by the construction works in the 635 East. It's something to keep in mind. In general, the trend is very positive, with a strong growth in all the corridor.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from José Manuel Arroyo from Santander. First question, I-66, could you please outline the main factors for the rise in the revenue per transactions to $6 in June? Is it general congestion, mo
re heavy vehicles?
Chema Velaúndez (CFO of Cintra)
Thank you for your question, Jose Manuel. We are seeing different factors in this improving in the revenue of transactions. The mobility in general is improving in all the U.S. cities, for the return to the office and for the better economic prospects. In the case of the I-66, we are seeing that the users are experience a lot of time savings in peak hours, and we are seeing more % of heavy vehicles than we expected in our highway. That's affecting positively to our revenues as well.
Silvia Ruiz (Director of Investor Relations)
Next question from Jose Manuel. New York JFK, we have learned today that Korean Airlines has been onboarded. Have there been more airlines onboarded since 2022?
Laura López (CFO of Airports)
Thanks, Jose Manuel, this is Laura again. The agreement with Korean Airlines is additional to the agreements already signed with Air France, Etihad, LOT, and KLM. A really good signal that NTO value proposition is being validated by the airlines, who are willing to commit very ahead of the construction and with long-term contracts. Let me add that there are ongoing discussion with key major international carriers, and there is advanced negotiation with some of them.
Silvia Ruiz (Director of Investor Relations)
Last question from Jose Manuel. 407 ETR, what are the key factors for the increased average distances traveled, and how sustainable are they?
Speaker 5
Thank you. This is Tim again. The key factor is that the leisure trips has more length than the commuting, and the increase of percentage of these trips are affecting to this increase in the ADL. Thank you.
Silvia Ruiz (Director of Investor Relations)
There's another question from Elodie Rall from JP Morgan. Could you quantify the impact of the construction works in the Q2, and if you expect the impact to impact the second half of the year?
Iñaki García (Head of Construction)
Thank you, Elodie. Excluding Budimex and Weber, the impact in the second Q of Ferrovial construction is -EUR 63 million. Most of it is most of this is coming from the contracts or the large contracts in the US that are finishing. As we said, we are provisioning here for losses. I mean, not all the costs is incurred, and we are estimating which are the total costs till the end of the contract, including punch lists and other requirements from the client. All the costs is incurred, no impact on these contracts in H2. Thank you.
Silvia Ruiz (Director of Investor Relations)
Next question coming from Patrick Rousset from Goldman Sachs: On the I-66, looks like traffic is ramping up nicely throughout the Q2. Can you please share your perspective on how the asset is performing relative to your expectations and the continued ramp up from here?
Speaker 5
Thank you. This is Tim again. Just to say that the traffic is performing according to our expectation. It continue the ramp up. It's performing well. Thank you.
Silvia Ruiz (Director of Investor Relations)
Next question from Mariana Gonzalez from Toro Partners. Can you please talk about JFK NTE is doing? Can you talk about any advancements?
Laura López (CFO of Airports)
Thanks, Mariana, for your question. Happy to share details on the advance of the project. Project is in good progress. During the Q2, the comprehensive design plan has been approved, jointly with the safety plan. We are working toward having 100% of the final design packages approved, while construction continues. Currently, the final design is 90% achieved. The commencement of the diversion of the road serving the old T2 has been activated, which is key to allow construction progress. I'm very happy to announce that yesterday, the commencement of the steel erection of the household structures took place. The air training closure and the T2 demolition are ongoing, expected to be finished by the end of the year.
All we can say is all the milestone in critical path are being achieved as expected, and the rest of activities continues, focused on piling, production of pile caps, and steel erection.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from Nicolas Mora from Morgan Stanley. First question: You have fully provisioned the US contracts in the first half of 2023, but how much cash consumption should still be seen in the second half of the year?
Iñaki García (Head of Construction)
Thank you, Nicolas. Yes, you're right. I mean, everything is provisioned, but there will be cash consumption in the second half. As mentioned in the previous question, it's true that some of these costs are still estimations, so we are still under discussions with the said clients in these contracts. As also Ernesto mentioned, the claims corresponding to a recovery of part of this cost that we estimate that we are entitled, I mean, to recover a big part of this, probably won't be in 2023. An estimation of between EUR 50 million and EUR 90 million is our better estimation in this moment of cash consumption of this contracts. Thank you.
Silvia Ruiz (Director of Investor Relations)
Next question from Nicolas. U.S. managed lanes, excellent traffic and tariffs despite headwinds for the U.S. consumer. What is the real driver of growth at above 2x the weight pool just per average weight?
Speaker 5
Thank you for your question. This is Tim again. Basically, we are seeing that the congestion is growing in all our corridors, and we are seeing less seasonality of working from home, more than the last year during the summer. That is because, as I said before, the mobility trends are improving.
Silvia Ruiz (Director of Investor Relations)
Next question. Leverage situation as US managed lanes, what is the potential for releveraging an NTE or NTE 35W over the next few years?
Chema Velaúndez (CFO of Cintra)
Thank you for your question again. We will analyze every leverage in our assets depending the macro situation and the interest rate. We need to see some stabilization in the interest rate because as you can see, the Fed is raising interest, and we will see year after year.
Silvia Ruiz (Director of Investor Relations)
Last question from Nicolas: Where would you feel comfortable to put leverage on I-77 in the medium term?
Chema Velaúndez (CFO of Cintra)
Yeah. We are analyzing all the assets and the optimal level of leverage. In the case of I-77, it's performing quite well. Depending.
Iñaki García (Head of Construction)
the medium-term perspective in the, in the market, considering the, the interest hiking in the, in the Fed, we will make a decision.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from Graham Hunt from Jefferies. First question, can you give any guidance on the traffic uplift you expect from Segment 3C of the NTE 35W for the second half of the year? Do you expect any positive impact on Segment 3A and 3B after Segment 3C has opened?
Iñaki García (Head of Construction)
Hi, Chema is here. As I said before, it's early days to give any guidance. We are positive with initial performance of this section of the project, and we are perceiving a positive impact, thanks to the ending of the construction works in the area, in the AB, in the segment B.
Silvia Ruiz (Director of Investor Relations)
Second question: What are the latest developments related to the I-270 project in Maryland? Is that a project you would look at if it comes back?
Iñaki García (Head of Construction)
We have no more news from the DOT since the cancellation. There's no further comment about this.
Silvia Ruiz (Director of Investor Relations)
Has there been a significant mixed impact from heavy vehicles in the revenue transaction growth you've seen in the I-66, or is that pure pricing? Can you give any sense of the split between light and heavy vehicles in the corridor?
Iñaki García (Head of Construction)
Yes, as I said before, there's multiple impacts in the revenue improvement. One is that the users seeing more time savings in peak hour, so, it's performing well, and more percentage of trucks.
Silvia Ruiz (Director of Investor Relations)
Next question coming from Kenton Moorhead, from DWS. What benefits will you see from the investments in the 407 ETR, CRM, sorry, and ERP systems?
Ernesto López Mozo (CFO)
Yeah. Hi, Kenton. Well, always when you get into a more sophisticated pricing and campaigns, you need an integrated ERP and CRM. That will be the main benefit of this, and as I said, in particular, more for tailored campaigns and things like that. More data segmentation, that could be quite valuable in the years ahead.
Silvia Ruiz (Director of Investor Relations)
Next set of questions coming from Tobias Woerner, from Stifel. Are there any other bond maturities we should be aware of, reducing your net cash position?
Ernesto López Mozo (CFO)
Hi, Tobias. Basically, the first thing I would like to mention is that, well, it would reduce the gross cash position, not the net cash position. You're right, and now we are enjoying a fantastic carry. The next bond maturity is in the July 2024, I mean, close to a year from today. The other bonds mature in 2025, 2026 and 2028. Still, we have some distance to those maturities. Here, I'm not considering the short-term financing of European commercial paper. That is not helping with the carry, really, it's just pure liquidity. Yes, we should be able to keep enjoying this carry for some time.
Silvia Ruiz (Director of Investor Relations)
Another question from Tobias: Can you give us the timing of the losses at Agroman? What is the underlying margin at the business... Sorry, Ferrovial Construction, not Agroman. What is the underlying margin at the business, ex these losses? Put another way, is the underlying Ferrovial Construction margin above or below your 3.5% margin target on a normalized basis?
Iñaki García (Head of Construction)
Thank you, Tobias. The margin of Ferrovial Construction, please think about that, that there is a priority of geographies. I mean, part in the US, except of Weber, also in Latam, also in Spain. I mean, so the margins are quite different in each of them, no? If in a compounded and what we are expecting for 2024 onwards, but more thinking in the final contract, not because it will also depend on the progress of the contracts. When they are at the first phases, usually they are, well, there are more contingencies in this phase. We expect something below 3.5%, and probably below 3%.
Silvia Ruiz (Director of Investor Relations)
Okay, it seems there are no further questions.
Ernesto López Mozo (CFO)
Okay, well, thank you, all, and I hope you enjoy a deserved summer break, hope to see you soon. Thank you. Bye-bye.