Ferrovial - Q4 2022
February 28, 2023
Transcript
Silvia Ruiz (Global Head of Investor Relations)
That's the financial results for the full year 2022. Just as a reminder, both the results report and the presentation are available to you on our website. 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. I am joined here today by Mr. Rafael del Pino, Ferrovial's Chairman, Mr. Ignacio Madridejos, Ferrovial's CEO, and Mr. Ernesto López Mozo, our CFO. With this, I will hand over to Mr. del Pino. Rafael, the floor is yours.
Rafael del Pino (Chairman)
Thank you, Silvia. Good afternoon, everyone. Ferrovial showed a solid performance in its main assets in 2022. In toll roads, the U.S. Managed Lanes posted a strong revenue growth in the year on the back of higher traffic and double-digit revenue per transaction increase despite lower GDP growth. 407 ETR registered a significant increase versus 2021 following the lifting of the restrictions in Toronto, but with a slow return to the office. The airports division also showed a relevant traffic recovery. In the U.K., Heathrow and AGS had a steady improvement versus 2021 since the removal of U.K. travel restrictions in March. Dalaman in Turkey showed a great operating performance with traffic at the end of the year above pre-pandemic levels. In construction, the inflationary pressure has been actively managed through mitigation measures, getting an EBIT margin of 1%.
In terms of order book, the figure ended the year at an all-time high, reaching EUR 14.7 billion. This positive operating performance has been combined with important development duration at the end of November. We also increased our exposure to I-77 Managed Lanes by acquiring an additional estate in November. Ferrovial has been pre-qualified for the SR 400 Managed Lanes project in Georgia, also in the U.S. The construction works for the extension of the NTE 35W, NTE 3C in Texas, are advancing in according to schedule, and the opening is expected for September. In airports, Ferrovial acquired a 49% stake in JFK Airport New Terminal One in New York, and completed the acquisition of Dalaman International Airport. Lastly, at the end of 2022, Ferrovial reached the completion of the Amey sale, ending the divestment process of the services division.
A natural step further in our international growth is to list Ferrovial in the U.S. We will propose for approval to our AGM a corporate reorganization followed by an application to list ordinary shares there. In terms of cash, we finished the year with a strong cash position, reaching EUR 1.4 billion, thanks to dividends collected from our main projects and the positive impact from advanced payments in construction. The cash outflows were driven by the good reasons related to all the investments for future growth that we have just mentioned in form of acquisitions and equity injections in new projects. The shareholder remuneration reached EUR 578 million. ESG keeps being fully aligned with our business strategy. I would like to highlight the advances in terms of scope one and two emission reductions on the back of renewable energy production and procurement.
Other important milestones in 2022 were the update of our human rights policy that was approved by the DoD. Ferrovial becoming the first infrastructure company to receive the Good Corporate Governance Index by INR. In the following slide, we review some of the main figures of the year. Revenues stood at EUR 7.6 billion on the back of higher construction revenues and higher contribution from toll roads. Construction order book reached an all-time high at EUR 14.7 billion with 45% coming from North American projects. Dividends from infra projects reached EUR 475 million. Gross investments of EUR 856 million, with the I-66 taking the biggest share, amounting to EUR 322 million.
Gross divestments in the year totaled EUR 429 million, highlighting Infrastructure Services in Spain for EUR 175 million, and Amey for EUR 132 million. The net cash position, ex-infra projects, reached EUR 1.4 billion. Now Ignacio will review Ferrovial's strategy and the 2022 results by business unit. Ignacio, you have the floor.
Ignacio Madridejos (CEO)
Thank you, Rafael. Now hello, everyone. Let me start giving an update on our Horizon 24 strategy. We continue with our vision to develop and manage sustainable, efficient, and innovative infrastructure for a world on the move, with a focus to grow in the U.S., our main market. In Virginia, we contributed to reduce congestion in the Greater Washington area by the opening of 22.5 miles of new Managed Lanes in the I-66. It will follow this year with 6.7 miles of new Managed Lanes in the 35W in Fort Worth, supporting one of the main logistics hubs in the U.S. We continue developing a pipeline of new Managed Lanes in the U.S.
This year, we will bid for the SR 400 in Atlanta together with other two pre-qualified bidders. We also increased last year our exposure to the I-77 in Charlotte with acquisition of an additional 7% stake, reaching 72%. We took a 49% participation in the consortium appointed to design, build, and operate the New Terminal One at JFK Airport. Outside the U.S., we participated in selective infra investment with acquisition of a 60% of Dalaman Airport in Turkey. We almost completed the divestment of our services division with the sale of Amey and Infrastructure Services in Spain to concentrate on developing infrastructure and continue with our strategy of rotating mature assets with the sale of a 15% of Ausol and the completion of the sale of Algarve.
In new businesses, we will open this year our first 50 megawatts photovoltaic plant in Spain and a new transmission line in Chile, while we continue growing our pipeline in water projects and energy solutions. Last year, we also increased our shareholder remuneration, including share buybacks to EUR 578 million. Finally, sustainability is at the core of our strategy, helping us to capture new contractual opportunities, for instance, related to energy efficiency, being more competitive in our bidding in the U.S., thanks to our collaboration with disadvantaged groups, and growing while reducing our carbon footprint. We are progressing well in our main sustainability KPIs. Our Scope one and two absolute emissions were reduced by 25.4% compared to 2009. It was 3.6% lower than previous year. 70% of electricity consumption was from renewable sources.
Our water consumption was reduced by 29.7% versus 2017, with a 125x annual compensation. 23% of presence of women in leadership roles, 2.8 percentile points better than previous year. We reduced the number of fatalities but increased the serious injury frequency rate. We work hard to get all people working with us to go back home safe every day. Regarding new taxonomy, still there is a lot of uncertainty about the criteria to be used to measure it. Following industry standards in which transport infrastructure with low carbon measures following the wording of the taxonomy are included, our eligible revenue is 84%. If we do not include this infrastructure, it will be 40%.
In the case of alignment, in the first case it is 54%, and in the second, 25% of revenue. Last year, we reinforced our position in all main sustainability indexes, renewing our presence in the Dow Jones Sustainability Index, FTSE4Good, CDP at A level, Bloomberg Gender-Equality Index, and BEGI, among others. We are well-positioned in an inflationary environment. 82% of Ferrovial's value assets have pricing frameworks allowing to increase tariffs above inflation. On top of that, we have other assets like Hydro and other toll roads like IRB and relevant part of construction linked to inflation. We are also well protected to an increase in interest rates because most of our debt is hedged or with fixed rates and long term. Also, our infra assets after eliminated construction and ramp-up risk should reduce their discount rates. Now, moving to our toll roads division.
Last year, we increased our toll roads revenues by 22.4% and EBITDA by 21.6%. This data does not include equity accounted assets. The U.S. projects represent 78% of toll re-road revenues and 91% of EBITDA, and supported last year growth with 44.5% revenue growth and 45% EBITDA growth in EUR. Total dividends from toll roads were EUR 388 million, EUR 237 million from the 407, EUR 92 million from NTE, and EUR 31 million from LBJ sections. If we move now to the 407 and Toronto area, traffic in the 407 has improved 30.5% and EBITDA 32.6% compared to 2021.
Average revenue per trip increased 1.5% versus 2021, supported by longer average trip length of 2.4%. As commented previously, the 407 ETR distributed a total of CAD 750 million during the second half of last year versus CAD 600 million previous year, showing a very robust asset. It has a strong financial position with cash and equivalents of CAD 370 million and undrawn credit facilities of CAD 800 million, with no significant maturities ahead. Traffic. The fourth quarter last year was 13.5% above previous year and -14.7% compared to 2019. For the whole year, traffic was 30.5% above 2021 and -19.3% below 2019.
Traffic was affected at the beginning of the year by lockdowns related to Omicron wave, with a slow reopening throughout the year. Mobility in Toronto last quarter was affected by the calendar effect of workdays and the seasonal effect increase after the pandemic of reduction of mobility close to holidays and days of bad weather. The trend to return to office continue in Toronto like other North American cities, and it may impact positively in days without winter and holidays effect. The 407 was also affected by the end of construction work in the 401 during the month of November, with an increase in capacity compared to previous months. Like previous quarters, traffic during weekends recovered faster than workdays. Last quarter, workday traffic was 18.9% lower than 2019. Network congestion is expected to grow in Toronto area.
Canada's immigration plan targets to increase around 500,000 permanent residents per year until 2025. Historically, more than 40% of that population goes to Ontario, with GTA absorbing most of it. This new population will live and work mainly around the 407, as we can see in the map with the major employment zones in Toronto. We confirm our strategy of delivering value to our customers, offering a reliable alternative in a very congested corridor. Continue monitoring traffic to decide when to increase tariffs. We are confident about the long-term value of the asset. Moving now to the Texpress Managed Lanes, we can see the revenue per transaction of the three assets with growth versus previous year of 18.8% at NTE, 11.8% at LBJ, and 20.7% at 35W.
In January 2023, soft cap was increased by 6.5% in the three Managed Lanes. Traffic last quarter of the year was 12.7% above 2019 at NTE, 4% at thirty-five West, and minus 19.5% at LBJ, even if the last two were affected by construction work in the area. Compared to previous year, EBITDA was 30.4% higher at NTE, 24.8% at LBJ, and 16.4% at thirty-five West, with margins above 80% for all of them. Probably this is the last time that we present this slide, but it is a good way to illustrate that all our U.S. Managed Lanes outperform in revenues versus pre-COVID levels.
Excellent performance of our U.S. assets, supported by the value giving to our customers who appreciate the time savings and reliability of our Managed Lanes versus congested alternatives in very dynamic urban centers. A good sample of a dynamic urban center is Dallas-Fort Worth. It continues attracting new businesses like Samsung, Goldman Sachs or Wells Fargo. Employment grew 6.1% last year versus the 3.2% average of the U.S. Industrial leasing continues very robust, and the area leads the country in industrial development with a 3.1% GDP growth, 0.4 percentage points above the U.S. GDP. Dallas-Fort Worth area is expected to grow from 8.2 million people in 2023 to 11.4 million in 2045, increasing the number of jobs from 5.7 million-8.1 million in 2045.
We move to the I-77 on next slide. The project increased revenues and EBITDA versus previous year by 67% and 91% respectively. Revenues per transaction grew 43%, supported by higher toll rates. We took advantage of the opportunity to increase our participation in the asset and pay $109 million to acquire an additional 7.1% to reach 72.2%. Expected returns are like past investment with similar risk. The region keeps growing, attracting new jobs with a 4.9% growth in employment last year. Charlotte consolidates as the second largest banking hub in the nation after New York City. Segment one of the I-66 was open four months in advance. The full managed lane was open November, also ahead of the schedule, despite COVID and supply chain disruption.
We will report traffic and revenues with first quarter results, but the asset is ramping up in line with expectations. The I-66 has the advantage of a flexible pricing framework with no soft cap and freedom to set heavy multipliers. It is an area with a higher household income than Dallas-Fort Worth, and it is growing, bringing new employment to the region. The pending investment for this year is EUR 55 million, mainly work in the intersection, site lanes, and landscaping. Total equity injected by Ferrovial until now was EUR 857 million. IRB had a good 2022, increasing revenues 10.7% and EBITDA 14.2% in euros. Main assets grew traffic with double digits, and toll rates are linked to inflation. IRB improved its corporate ratings to AA- by fits and was able to refinance some assets.
There is a huge pipeline in India. Last year, IRB won the Ganges Expressway, a 36-year BOT, and also a 50-year HAM. This year, there is a relevant allocation of funding to transport and roads, and IRB was recently selected preferred bidder in a new BOT. IRB enhanced its ESG last year by being a member of India Global Compact and by issuing a sustainability report. IRB implemented new corporate policies following global best practices. Moving to the airport business. Heathrow revenues grew 140% last year, and EBITDA reached GBP 1,684 million. Last year, traffic at Heathrow reached 61.6 million passengers recovering from COVID restrictions. This is 23.8% below 2019. December closed with a traffic 11% below 2019.
The recovery last year was driven by outbound leisure. In 2022 was 28% of total passengers versus 32% in pre-pandemic. The regulation is more than a year delay. It is difficult to understand why the CAA is taking so long. This uncertainty and arbitrariness are not good for investors, and it may affect the service that passengers expect. We hope our CAA final decision corrects the errors in the CAA's forecast of key regulatory building blocks. After the final decision, Heathrow and airlines have the option to appeal to the CMA. AGS improved revenues, traffic and EBITDA compared to previous year. Traffic was 9.2 million passengers, 164% above 2021, but still 32.5% below 2019.
Dalaman traffic reached 4.5 million passengers, only 7.5% below 2019, the end of the year was above pre-COVID levels. U.K. passengers represented 46% of total and substituted most of Russian and Ukrainian tourists. The New Terminal One project is on schedule and on budget, although still it is heavy days. Our equity contribution last year were EUR 59 million. Looking at the construction business, we ended 2022 with EUR 144 million operating cash flow and a positive activity cash flow supported by advanced payments in Canada of EUR 160 million. Margins were flat compared to previous quarters, we closed the year with a 1% EBIT, affected by the inflation impact of suppliers and subcontracts.
Our order book reached an all-time high, and it is mainly concentrated in North America, that represents 45% of our backlog, followed by Poland, that represents 22%, and Spain 15%. We do not have visibility today of similar advanced payments in 2023. We continue working to achieve our Horizon 24 target of 3.5% EBIT margin. Now Ernesto will continue with the main financial figures.
Ernesto López Mozo (CFO)
Thank you, Ignacio. Hello, everybody. Looking into the financial results below the operating lines that were discussed by Ignacio, I go into the financial result from infrastructure projects. There you see a growth vis-a-vis last year. A part of this has to do with Perimeter. Remember that we acquired a further stake in I-66 at the end of last year. We consolidate the asset that has opened to operations along this year, and therefore we are accruing interest that were beforehand capitalized. We have some additional expenses from Autema that are exposed to inflation, that have been discussed in other calls. Regarding ex-infrastructure projects, we have a positive result compared to last year expense.
This has to do with the unwinding on a hedge for bond issues. You see that we have a net cash position that in 2022 didn't accrue much in interest given the low rates in the euro, but now in 2023, you're starting to see interest accruing across the board. Equity-accounted affiliates show a positive result thanks to the contribution from 407 ETR and IRB, and we don't have negative impacts from Heathrow or AGS. They have both improved, we are not incorporating any result from that due to IAS 28.
Corporate income tax is in line with the corporate tax rate. The result from continuing operations comes up to EUR 238 million. Remember that last year we had the positive effect of the revaluing of the whole stake in the I-66 after the purchase of a controlling stake. In terms of net profit from discontinued operations, we have a positive EUR 64 million that is related mainly to the divestment of the Infrastructure Services business. Moving on to the cash position, we see dividends from projects helping for cash generation. I mean, these are basically from toll roads. You have a broader portfolio of toll roads paying dividends. You have a portfolio that is growing and will bring more dividends in the coming years.
[There's no dividends from airport though. Heathrow has been in the levering through the pandemic and now it's at the similar levels or even better than pre-pandemic in terms of net to Iraq, but is not paying dividend and is awaiting regulation as in Ignacio explained before long delayed by the way. In terms of EBITDA working capital evolution, we see a slight draw from work capital and then a taxes payment that is basically related to Poland. Also some payments in Spain and Canada, but it's not recurrent. Then we have investments in the different infrastructure, mainly I-66 , but also airports. And this is a good reason to draw cash.]
I mean basically divestments related to services mainly, and then we have the whole remuneration that, as you see, is even above pre-pandemic levels. In terms of other financing flows, you have the net cash that is deconsolidated after sale of some assets and also some minorities distribution that is in Budimex and FX effect. The EUR 1.440, basically rounding up, net cash position does not include vendor loans from the sale of Amey. We have close to EUR 190 million that are not reflected in the net cash position because they are expected to be cashed in in more than a year. Okay, so we move on to the next slide. I will pass on the microphone to Ignacio to discuss this transaction.
Ignacio Madridejos (CEO)
Yeah, thank you, Ernesto. I move to comment about the corporate organization to align our corporate structure with our international profile. We are an international corporation with most of our business outside Spain. Last year, 82% of our revenue was generated outside Spain, and 90% of our equity value is international according to research analysis. In addition, most of our future opportunities and growth will come from international markets, in particular the U.S. International institutional shareholders represent 93% of our institutional investor base. Listing in the Netherlands enhances our internationalization while maintaining our Spanish roots. The Netherlands is the country of choice for companies with a strong presence both in Europe and the U.S. Being a Dutch-listed company may facilitate future listings in the U.S. The Netherlands is AAA rated with a stable and trusted regulation and a sound corporate governance framework.
[...consistent with our portfolio and our pipeline and RIN regional benefits. U.S. and Canada are one of the largest transportation infrastructure markets worldwide. We are currently a leading player in the region with a phenomenal track record of value creation. U.S. and Canada are the markets with the highest growth potential for us. Listing in the U.S. will give access to the largest investor base globally, and we soon benefit from a scarcity of public companies with U.S. infra assets linked to inflation exposure to and growth. U.S listing will also contribute to further attract U.S. Talent and enhance our brand awareness in the U.S helping to extend the pipeline. Nothing will in Spain or other countries. We'll continue with our investment plan in Spain. We'll continue hiring a Spanish talent to support our Spanish and international operations will continue be enlisted in Spain. Now Ernesto will explain in the tele transaction to be approved at the shareholders meeting.]
Ernesto López Mozo (CFO)
Thanks, Ignacio. Basically, this reverse merger of Ferrovial S.A. into Ferrovial International. This is a Societas Europaea, European society. It's based in the Netherlands, so Dutch SE. This company already holds 86% of the assets. Therefore, Ferrovial International, the new Ferrovial SE, will become the whole co of the group, and it will be exchanged 1 for 1. There's no dilution whatsoever. Also, this entails a change in corporate domicile from Spain to the Netherlands. Dual listing in the Netherlands and Spain, and will apply for listing in the United States at a later stage. I mean, this has ordinary shares, and the Netherlands allow for the possibility of connecting in the future with a potential U.S. listing.
This fact that we have ordinary shares also allows for a potential inclusion in the future in indices in the U.S. We don't expect impact on business and strategy or investment plan, the organization or day-to-day operations. This is the same company. Spain is expected to remain key source for developing talent, but of course, we also plan to add international talent along the way. The transaction is subject to shareholders' approval. If shareholders vote against the transaction, the ones voting can exercise their separation right. The completion of the merger is conditional to total separation rights exercised, not exceeding EUR 500 million, as well as, of course, having reasonable assurance of dual listing in the Netherlands and Spain. Corporate governance in the Netherlands is in line with current practices, save for changes driven by local statutory law or market practice.
There's no changes in voting rights contemplated, no change in the Board. If we move to the following slide, we basically don't change the shareholder remuneration policy. If separation rights were to be exercised, the shares repurchased this way could be used for shareholder remuneration. Solid investment grade rating remains a priority. Part of the transaction, if the merger goes ahead, the outstanding EUR 500 million hybrid loan bond is expected to be repurchased. A replacement for this hybrid would be sought in the future when market conditions are more stable and more favorable financing terms are achievable.
We don't expect any other financing, refinancing need, because of this transaction, except for the eventual separation rights. In terms of timetable, well, we announced today the approval by the Board, and the timeline is expected to happen early in the second quarter, but it could go slip into the third quarter. We expect to have the AGM and the merger completion in the second quarter. As I said, it could slip into the third quarter. After the merger, we'll apply for listing in the U.S. post-merger completion. After bidding for the SR 500 and, I mean, if successful listing happens, we plan to have our capital market days after all these events. This is the description of the reverse merger that we will be subjecting to approval in the AGM.
Now let me hand it back to Rafael.
Rafael del Pino (Chairman)
Thank you, Ernesto. Finally, after review of the year, we remain confident on the significant growth to come when looking ahead on the back of the following pillars. First, the significant cash generation to come from increasing dividends from a strong asset portfolio with new toll roads distributing. Second, value creation through pricing flexibility in long-term infra assets located in growth areas. Third, attractive investment opportunities ahead focused on our core market, which is now the U.S. Also, the corporate reorganization and U.S. listing application will allow Ferrovial to tap a broader pool of capital. Last, the company is advancing on the decarbonization roadmap. Looking at 2023 shareholding remuneration, the Board has approved two script dividends, which as a reference could imply about EUR 0.715 per share in total to be distributed in two payments.
Both are expected to take place after the execution of the reverse merger. We will continue with our share buyback, seeking approval for a program of up to a maximum of EUR 500 million or 34 million shares. If some shareholders exercise their separation rights, the amount used for that purpose will be considered as being part of the share buyback program. Thank you very much. Now we open the floor to questions.
Silvia Ruiz (Global Head of Investor Relations)
Okay, let's start with the Q&A session. First question coming from set of questions, sorry, coming from Nicolò Pessina from Mediobanca. First question, could you provide an update on 407 ETR traffic for January and February?
Ignacio Madridejos (CEO)
Yeah, we don't give, as you know, I mean, updates of traffic for previous month. I think as commented during the presentation, some of the things that we have seen is some seasonality and during the holiday periods and also the winter storms, what we see is lower mobility. The trends have been continued to be the same.
Silvia Ruiz (Global Head of Investor Relations)
Question from Nicolò. Would it make any sense to increase tariffs in 407 ETR before traffic has fully recovered in 2019 level, or the risk in reactivating Schedule 2022 is too high?
Ignacio Madridejos (CEO)
No, we don't need to be back to the traffic of 2019 to increase the tariffs in the 407. By the way, this is a decision by the Board of the 407. The way we are thinking about it is to calculate the net revenues considering the additional revenues increase in tariffs, at the same time, the Schedule 2022 payments. It's just a net present value of these net revenues that we are considering in order to decide when to increase tariffs.
Silvia Ruiz (Global Head of Investor Relations)
Next question. Would you expect average trip length to decline in 407 ETR once traffic recovers and maybe there are more commuters that today use other roads?
Ignacio Madridejos (CEO)
Our estimate is that these average trip lengths increased last months, mainly thanks to the eliminations of tolls in the 412 and 418. This is something that probably will stabilize in the future and will be closer to the previous figures.
Silvia Ruiz (Global Head of Investor Relations)
How much would you expect 407 ETR interest charges to grow in 2023?
Ignacio Madridejos (CEO)
We have long-term debt in 407 with fixed interest rates. There is no bond repayment in 2023. For that reason, only new debt issue could be affected by current interest rates.
Silvia Ruiz (Global Head of Investor Relations)
Next question coming from Karan Sanghavi from Santander. Has management decided what they are going to do with their upcoming hybrid call?
Rafael del Pino (Chairman)
As I mentioned, Karan, when I was describing the transaction, the reverse merger we will be proposing to the AGM. If this transaction is successful, we expect to be repurchasing the hybrid bonds, so it will be economically equivalent to a hybrid call. I mean, if barring this transaction, I mean, we would not be exercising the call right now. We would be waiting for an opportunity down the road, maybe next year, looking for a more stable markets and better economic terms. I mean, our expectation is the transaction to be successful and therefore with the transaction to repurchase the hybrid bond.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Elodie Rall from JPMorgan. First question on LBJ. Please, could you remind when construction works will finish?
Rafael del Pino (Chairman)
It will finish in 2024.
Silvia Ruiz (Global Head of Investor Relations)
I-66, what revenue and EBITDA contribution could we expect in 2023?
Ignacio Madridejos (CEO)
We are not, we are not giving information until the first quarter of traffic and then tariffs and revenue in the I-66. We have to wait until the first quarter to give, to have some information. The only thing that we are committed is the ramp up is according to what our expectations. We'll see how it continues. It's too early. With the first quarter we'll give additional information.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Luis Prieto from CaixaBank BPI. First question, would you be able to shed some light on when it would be sensible to expect the reactivation of tariff growth at the 407 ETR? In this context, what would be a reasonable expectation of the amount of time you'd expect to have to pay penalties?
Ignacio Madridejos (CEO)
Well, the decision, as commented previously, is a decision taken that will be taken by the board of the 407. What we are doing right now, a decision has not been taken so far. What we are doing is following the evolution of the traffic in, at the beginning of the year and the first months of the year. It's a pure economic decision based on the, as commented previously, on the net present value of the net revenues. We think that once the 407 decides to increase tariffs, it will be a fast catch up with inflation. How we can do that, I think we have a long... are very, very confident about the long-term value of the asset.
Silvia Ruiz (Global Head of Investor Relations)
Could you please comment on your perception of users' willingness to pay your key high complexity assets? Is it something that we should expect to last for a good number of years after they fully recover from the pandemic impact?
Ignacio Madridejos (CEO)
As commented, we are very positive about the long-term value of the asset. What we see is that the urban centers, that they have a very active and very dynamic with the population growth, employment growth, a lot of seasonal activity is the case for our main assets, of course including Toronto here. They are going to be very congested. We think that the value of savings of time and reliability are going to be there for the long term. We see a lot of value. As commented in the 407, we see that we can recover this inflation very short after we start to increase tariffs.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Augustin Cendre from Stifel. First question, could you please elaborate on the traffic performance on the 407 ETR in, I guess, last quarter, which fell back slightly versus Q3? How has traffic developed year to date?
Ignacio Madridejos (CEO)
As commented during the presentation, we see three main effects during the last quarter of the year. One, the first one is related to a poor calendar effect because we are comparing to 2019, and we are comparing the work days in the fourth quarter of last year to 2019, that it has a lower number of working days. It was exactly the opposite in the third quarter, that we have more working days than 2019. This is the first effect.
The second one is, as also commented previously, there is an effect, a seasonal effect that was increased during the pandemic, in which there is less mobility in periods in which there is a winter storm or when we are close to the holidays. That had an effect during the last quarter of the year. Finally, also the finalization of some construction in the fall over with increase of capacity that also affected the traffic since November. For the beginning of the year, as commented, I'm not giving any forecast or information, and we have to wait till the first quarter to get additional information.
Silvia Ruiz (Global Head of Investor Relations)
Next question from Stifel. Could you please elaborate on the Ferrovial Construction loss at the EBIT level? How much of the loss can be attributed to the I-66 and I-285 contracts? With the I-66 project being completed, what is the remaining risk coming from the I-285?
Rafael del Pino (Chairman)
Okay. Well, thanks. I mean, we don't provide a specific disclosure on these on these projects. It's true that the risk has been diminished substantially. Still there is some pertinent works and finalization to do and some discussion and potential compensation. It's finalization of these works. We don't provide a specific detail of these specific projects. Definitely looking into 2023, the impact from these projects is substantially gone.
Silvia Ruiz (Global Head of Investor Relations)
Last question from Stifel. Could you please provide some details on the new energy infrastructure and mobility division which was added?
Ignacio Madridejos (CEO)
Well, as [Facas] commented previously, we are increasing our order book, both in energy solutions, with the different type of projects related to energy transition and also water projects. In the case of energy infrastructures, as the only things that we have invested so far are these transmission line, two transmission line in Chile and a photovoltaic plant in Spain. Our idea is not to be on utility. What we want to do is to develop infrastructure. We are developers there and rotate the asset as fast as we can. Mobility has not been any changes or additions compared to what we have done before. We are concentrating more on things that are related to our own infrastructure.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Graham Hunt from Jefferies. First question, how do you see Ferrovial's competitive position for bidding on the SR 400 project? Can you provide some color on what could set you apart versus your competitor bidders in Georgia?
Ignacio Madridejos (CEO)
What we are working to prepare the best offer for the SR 400 in Atlanta. At the same time we have other two competitors that I'm sure that they will do the same. Have to compete with them, and we'll try to present the best offer that we can. At the same time is profitable and makes returns for the shareholders of the company. Different from us, probably we have more experience of construction in Atlanta and the Georgia area. I think that could be a negative or a positive. We can self-perform and have we more knowledge of the market. At the same time, it is a very complex market.
If you underestimate the complexity of this, maybe, I mean, you can present a lower offer if you don't estimate properly the cost of construction in Atlanta. I think we have the capabilities to develop this project that is difficult and is a market that is not very easy to develop these type of projects. Hopefully this is an advantage, but it could be that some competitors, they underestimate the difficulties and the complexities of large construction projects in this market.
Silvia Ruiz (Global Head of Investor Relations)
Next question from Jefferies also. Any update on the I-77 unsolicited proposal process?
Ignacio Madridejos (CEO)
Yeah. We presented an unsolicited proposal for the I-77 south of our concession. This was discussed at the North Carolina Transportation Panel, and they accepted to study the feasibility of this project and environmental projects. It will take a period of time until they decide to go ahead or not. After that, there will be a procurement process in which it will be open for bidding, and we expect to be one of the companies bidding for this project if at the end they decide to approve it and go ahead with the procurement.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Filipe Leite from BPI CaixaBank. First question: regarding dividends, do you expect in 2023 higher dividends from 407 ETR than the dividends collected in 2022?
Ignacio Madridejos (CEO)
As the 407 ETR management mentioned, they are expecting a better year in 2023 compared to previous year. If that's the case, I think that the dividends will follow. Of course, we have to wait to understand the conditions and the situation of the year.
Silvia Ruiz (Global Head of Investor Relations)
Next question: Can you confirm that NTE 35W will pay its first dividend this year after the opening of NTE 3C in September?
Ignacio Madridejos (CEO)
Yeah, I can confirm that after the opening of the 3C, we'll pay dividends in the 35W.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Nabeel Ahmed from Barclays. First question: We see a continuous improvement in Toronto's return to the office rates in the second half, but not real momentum behind 407 ETR traffic. Could you please explain why this is the case? Do you believe there are drivers other than return to the office which could drive the traffic going forward?
Ignacio Madridejos (CEO)
Yeah. We are seeing a positive development, not only in Toronto, but also in other North American cities, that people returning to the office. The case of Toronto, they are, between one year and one year and a half, compared to other places because of, they started later to opening and lifting the restrictions. I think the progress is moving in the same direction, but, later than the, than the rest. In other cities we have seen, similar congestion or even more activity, like in the case of Dallas, than before the pandemic. As, We don't see any other drivers that, may affect, in the short term.
I think that it's not a question of capture rates for the 407 ETR. It's more a question of mobility in general in the area. The mobility will continue, I mean, improving in the following months, with the people going back to the office.
Silvia Ruiz (Global Head of Investor Relations)
On the new listing, could you please confirm the intention to be listed in Spain, Netherlands, and the U.S. At the same time, or you will withdraw one of the listings later? Given the strongly North American profile, we can understand the U.S. Rationale, but what about the Netherlands? Any tax reason or benefits we should be aware of? What is the total cost of the transaction?
Ernesto López Mozo (CFO)
Many questions here. The first thing is that we want to list ordinary shares. Ordinary shares are key to eventually end up in the U.S. indices. What the Netherlands provide is the possibility of listing ordinary shares in Spain, in the Netherlands, and the U.S., and that is a great enabler. Of course, we expect the liquidity to be in Spain at this point in time, initially. Along time, we should enjoy increased liquidity in the U.S. Given the profile our assets, the growth, and the new assets that will be coming into the portfolio. Growth in the U.S., being such landmark assets should attract liquidity. Okay?
Long time, we would have to discuss liquidity in the different markets, but right now it's just about growing awareness of a successful infrastructure story in the U.S. to U.S. investors and growing liquidity in that market. The Netherlands shouldn't have much weighting in terms of liquidity. In terms of the estimated cost of the transaction, the ballpark number should be around EUR 20 million. There's no specific tax reason for this. I mean, the Netherlands and Spain have very similar tax regimes. Tax in the Netherlands from foreign companies and from investments are tax-exempt.
Silvia Ruiz (Global Head of Investor Relations)
Next question. What is the group CapEx budget for 2023, 2024, and 2025?
Ernesto López Mozo (CFO)
I mean, we don't provide that kind of detail or guidance except for specific projects like JFK, we have commented the type of investment expected.
Silvia Ruiz (Global Head of Investor Relations)
Next question coming from Christian Porwoll from J.P. Morgan Cazenove. Does the corporate restructuring obligated repurchase of the corporate hybrid at par or 101, or can it be done at market levels?
Ernesto López Mozo (CFO)
Yeah. Thanks, Silvia. Thanks, Christian. Okay. Basically, as I mentioned before, if the transaction is successful, we expect to repurchase the hybrid bond and that we would be equivalent to a call or, let's say, a par repurchase, right. We plan to have a call for bondholders and hybrid bondholders to explain more about the transaction. As I said, the economics would be similar to a call or a par.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Marcin Wojtal from Bank of America. First question: Regarding the reverse merger, will any of the headquarters and management functions be moved out of Spain and in the Netherlands and the U.S.? When specifically does the company intend to apply for U.S. listing?
Ignacio Madridejos (CEO)
What we are doing is taking the management decisions from the Netherlands, but as commented previously, nothing will change in Spain. Regarding the U.S. listing, it will happen after we are listed in the Netherlands, and we expect to do that in the second half of the year.
Silvia Ruiz (Global Head of Investor Relations)
Next question from Marcin. Can you indicate where 407 ETR traffic was in last quarter relative to thresholds relevant for the Schedule 2022 penalty calculation?
Ignacio Madridejos (CEO)
Unfortunately, we are not giving that information. Sorry about that.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Stéphanie D'Ath from RBC. First question: Can you comment on Budimex bribery charges and risk?
Ignacio Madridejos (CEO)
It's probably comment that is not charges to Budimex, and we don't know if it's bribery or what it is. The only thing that we know is that the three employees who belongs to FB Serwis were investigated by police. Of course, for us in the company, we do not tolerate any commission of criminal acts. Have a zero tolerance against bribery. What we have done is cooperate, of course, with the police, and Budimex is also launching an internal investigation.
Silvia Ruiz (Global Head of Investor Relations)
Next question: Can you comment on 2023 outlook for construction, in particular margins?
Ignacio Madridejos (CEO)
As commented, the guidelines that we are giving is that 2024, we continue to be committed with the 3.5% EBIT margins. In that path, I think we expect to improve during 2023 compared to previous year.
Silvia Ruiz (Global Head of Investor Relations)
Last question from Stéphanie: Could you update us on JFK Terminal One project progress?
Ignacio Madridejos (CEO)
Yes, this is going well. I think it's progressing according to the schedule. First steps are mainly about the designs and are well advanced and almost getting to be finished and approved. The demolition of the Green Garage and also we have access to the Terminal Two and the initial, I mean, foundations are going according to the schedule. The progress is okay, and we are happy about that. Of course, as commented, it's very early, so still opening is 2026. A lot of work to be done. So far we are happy about the progress.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from José Manuel Arroyas from Banco Santander. First question: On NTE's extension, what is the length in miles of the two new Managed Lanes that will be added? What disruption may the construction of the new Managed Lanes bring?
Ignacio Madridejos (CEO)
No, as commented, this is the ultimate, I understand you mean about the NTE ultimate, configuration. This is the whole length of NTE. For one of the segments, it's one additional general purpose lane, and for the other segment, it's one additional managed lane what is will be added. In terms of the disruptions, well, we are trying to avoid that there will be any traffic disruptions for this work. Construction work will work mainly during nighttime, and it will be. That's why it's taking a longer period of time than initially could be considered. In general, this is bringing additional capacity to the NTE, so it's a positive thing in the future to get additional traffic with the same revenue.
Additional revenues, but with the same tariffs that we have right now. With the growth that we expect in Dallas-Fort Worth and the additional population and employment, I think we'll see a lot of activity. This increasing capacity will benefit the NTE in the future.
Silvia Ruiz (Global Head of Investor Relations)
On I-66/I-77 Managed Lanes, when will these two toll roads start paying dividends?
Ignacio Madridejos (CEO)
I-77 in 2024, and the I-66, just 12 months after we pay TIFIA. It means that also, it will be in 2024, of course, according to the traffic expectations are the realities according to the expectations that we have for this asset. We should expect that in 2024, both assets will have dividends, will pay dividends.
Silvia Ruiz (Global Head of Investor Relations)
Last question from José Manuel. 407 ETR: Why did 407 ETR skip the quarterly dividend in the last quarter of 2022?
Ignacio Madridejos (CEO)
The 407 paid last year CAD 750 million, is CAD 150 million more than previous year. All of that was paid since July. July to December was paid the full amount. I think that's okay. As commented previously, we are positive on the 407. Management team is positive about the better performance of the traffic for the asset in this year, 2023. That will follow with dividends during the year. It may be more concentrated, similar to last year in the last months of 2023.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Antonio Rodríguez from Oddo. First question: Has the cash outflow from losses already provisioned in U.S. construction been presented within the working capital in the cash flow statement ex infrastructure that you provide?
Ernesto López Mozo (CFO)
Yes. I mean, the working capital number in the bars graph include the cash outflow from these provisions.
Silvia Ruiz (Global Head of Investor Relations)
Next question from Antonio: What cash outflows do you expect in the U.S. construction division for the coming years?
Ernesto López Mozo (CFO)
I mean, basically, we have the finalization of I-66 and I-285 that will drain cash in particular in the first half of this year. Going forward, I mean, we expect it to have more balanced margins, so I wouldn't be looking to cash flow on a regular cash outflow on a regular basis. The finalization of these works, yes, but in the first half of the year will be more marked.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Nicolas Mora from Morgan Stanley. First question, can you explain why the number of transponders in circulation at 407 ETR, a proxy for future user-based traffic, did not grow in the last quarter of 2022? Can you give us color as to how much heavy users of 407 ETR have cut their toll road usage?
Ignacio Madridejos (CEO)
About the transponders, we can say that we have seen a higher number of video users over the last year. Having transponders or not is not a condition to use the road. As we commented earlier, most of the users are not that are heavy users of the 407. They use it two, three times a month maximum.
Silvia Ruiz (Global Head of Investor Relations)
Next question from Nicolas. Can you help us on construction? Can you help us understand how much cash you consume at U.S. legacy projects in the last quarter of 2022? These works continuing into 2023, should we expect more cash consumption, at least in the first half of 2023?
Ernesto López Mozo (CFO)
Yeah. Nicolas, well, we don't provide details on these, numbers. This links to a prior question where I mentioned that, yes, we expect in these projects to have cash consumption in the first half of 2023. I mean, beyond that, it should be pretty much over for this project.
Silvia Ruiz (Global Head of Investor Relations)
Last question from Nicolas. NTO, you've been boosting the management team of late. Should we expect announcements on new airlines committing to New Terminal One in 2023? Status of works?
Ignacio Madridejos (CEO)
Yeah. About the management team. Yes, we of course, we are building a very strong management team at, in NTO. Of course, they need to start to review the project and the maintenance and the commissioning and also to make sure that we have a state-of-the-art terminal and a very good project and everything and the systems and procedures are in place. I think that this strong team will deliver that. Of course, we are working with different airlines and whenever we have any news, I mean, we will communicate those. Our intention is not to have a 100% of the capacity committed, but at least a percentage, and then later we have some airlines that will move directly to Terminal One when it's closed.
Of course, we will prefer to negotiate probably at the end with others, so it will be more following a strategy of how we maximize the revenues from terminal one.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from [Charles de Milly] from Kempen. First question, understanding that you reiterate the 3.5% construction on EBIT margin for 2024, could you give us some color on the path to this recovery? Should we expect most of the improvement to come in 2024 and a marginal progression in 2023?
Ignacio Madridejos (CEO)
Well, of course, we are not disclosing any information or giving any forecast, but of course, we'll work to improve as fast as possible.
Silvia Ruiz (Global Head of Investor Relations)
Could you give an update on the current pipeline and opportunities you see?
Ignacio Madridejos (CEO)
Well, in terms of Managed Lanes, what we are bidding is this year SR 400 in Atlanta. That, that will happen in August, at the end of August, with a decision at the end of the year. They announced also in Atlanta that they will follow with another two Managed Lanes later in, or in following years. We commented also previously about the I-77 South that we presented a solicited, it was approved to study the feasibility project. We are working in many other places, but we are not disclosing the information that is confidential or in which places we are working to develop additional Managed Lanes.
Other projects that we are bidding in the short term, the I-10 in Louisiana, that is a traffic risk project that we will bid that in a couple of months. These are the main projects that we have in the U.S.
Silvia Ruiz (Global Head of Investor Relations)
Next set of questions coming from Tobias Woerner from Stifel. First question, other than Brookfield Infrastructure Partners, are there any other listed infrastructure entities in the U.S.?
Ernesto López Mozo (CFO)
Well, you have some rail companies that are listed, but anything that has to do with road transportation or airports, I mean, there's pretty much nothing listed over there.
Silvia Ruiz (Global Head of Investor Relations)
Will the Spanish do a listing satisfy IBEX index investors?
Ernesto López Mozo (CFO)
Yes. We expect to remain part of the IBEX. We expect liquidity to remain basically in Spain vis-à-vis the Netherlands.
Silvia Ruiz (Global Head of Investor Relations)
Last question from Stifel. What other U.S. relistings have you reviewed, Ferguson? Are there any others you have considered?
Ernesto López Mozo (CFO)
Okay, we have looked at a variety of listings in the U.S. and also the Netherlands, the companies from Italy, France, and there's a variety that we can discuss outside of this call. This is a path that other people have followed.
Silvia Ruiz (Global Head of Investor Relations)
Next question coming from Marcin Wojtal from Bank of America. You indicate the dividend to shareholders for calendar year 2023 will be EUR 0.715 per share, which is in line with the 2022 dividend. Why is there no increase in dividends year-on-year despite the earnings recovery in the main infra assets?
Ernesto López Mozo (CFO)
We always look to different opportunities for growth. We have a substantial buyback program as well that could help to tweak this amount. This is a stable dividend because we are in a growing an investment mode. As I said, this could be tweaked with the buyback if opportunities arise.
Silvia Ruiz (Global Head of Investor Relations)
Next question from Andy Jones from HSBC. Will the company be changing reporting currency to match, U.S. listing?
Ernesto López Mozo (CFO)
No, we will remain in euros a long time. That could change part of the success of growing in the U.S. I mean, we are expecting to be filing IFRS accounts and listed, sorry, the reports in euros. Of course, the direct listing would be a direct listing in dollars for people that buy the share in the U.S.
Silvia Ruiz (Global Head of Investor Relations)
Question from Nicolas Mora, from Morgan Stanley. Can you please explain why costs shot up in the last quarters of 2022 at LBA and NTE 35W? Any specific charge profit sharing?
Ignacio Madridejos (CEO)
On NTE 35W, we have the revenue share with the TxDOT due to overperformance of the asset, and LBJ Express higher NTTA fees in conjunction with improvement traffic.
Silvia Ruiz (Global Head of Investor Relations)
Okay, there's no further questions.
Rafael del Pino (Chairman)
Okay. Well, thank you very much for attending this presentation and for your questions, and I look forward to the next meeting. Goodbye.