1.1 BASIS OF PRESENTATION, COMPANY ACTIVITIES, SCOPE OF CONSOLIDATION AND ADJUSTMENT
1.1.1. Basis of presentation
The consolidated financial statements are presented in accordance with the regulatory financial reporting framework applicable to the Group and, accordingly, present fairly the Group’s equity, financial position and results. The regulatory framework consists of International Financial Reporting Standards (IFRSs), as established by Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002.
1.1.2. Company activities
Ferrovial comprises the Parent, Ferrovial, S.A., and its subsidiaries, which are detailed in Appendix II. Its registered office is in Madrid, at calle Príncipe de Vergara 135.
Through these companies, Ferrovial engages in the following lines of business, which are its reporting segments pursuant to IFRS 8:
- Construction: design and performance of all manner of public and private works, including most notably the construction of public infrastructure.
- Services: maintenance and upkeep of infrastructure, facilities and buildings; waste collection and treatment; maintenance of energy and industrial facilities and rendering of other kinds of public services.
- Toll roads: development, financing and operation of toll roads.
- Airports: development, financing and operation of airports.
For a more detailed description of the various areas of activity in which the consolidated Group conducts its business operations, please consult the Group’s website: www.ferrovial.com.
For the purpose of understanding these consolidated financial statements, it should be noted that a part of the activity carried on by the Group’s business divisions consists of the performance of infrastructure projects, primarily in the toll road and airport areas, but also in the construction and services fields.
These projects are conducted through long-term arrangements with public authorities under which the concession operator, in which the Group generally has an ownership interest together with other shareholders, finances the construction or upgrade of public infrastructure, mainly with borrowings secured by the cash flows from the project and with the shareholders’ capital contributions, and subsequently maintains the infrastructure. The investment is recovered by means of the collection of tolls or regulated charges for the use of the infrastructure or through amounts paid by the grantor public authority based on the availability for use of the related asset. In most cases the construction and subsequent maintenance of the infrastructure is subcontracted by the concession operators to the Group’s Construction and Services Divisions.
From the accounting standpoint, most of these arrangements fall within the scope of application of IFRIC 12.
Accordingly, and in order to aid understanding of the Group’s financial performance, these consolidated financial statements present the impact of projects of this nature separately in “Investments in Infrastructure Projects” (distinguishing between those to which the intangible asset model is applied and those to which the financial asset model is applied), in non-current financial assets and, mainly, in the net cash position and the cash flow disclosures, in which the cash flows called “non-infrastructure projects”, which comprise the flows generated by the Construction and Services businesses, the dividends from the capital invested in infrastructure projects and investments in or divestments of the share capital of these projects, are presented separately from the cash flows of the infrastructure projects, which include the flows generated by the related concession operators. In addition, a list of the companies regarded as infrastructure project companies can be consulted in Appendix II.
It is also important to highlight that two of the Group’s main assets are its 25% ownership interest in Heathrow Airport Holdings (HAH), the company that owns Heathrow Airport in London (UK), and its 43.23% ownership interest in ETR 407, the concession operator of the ETR 407 toll road in Toronto (Canada), which have been accounted for using the equity method since 2011 and 2010, respectively. In order to provide detailed information on the two companies, Note 3.5 on investments in companies accounted for using the equity method includes information relating to the changes in the two companies’ balance sheets and statements of profit or loss, and this information is completed in other Notes with data considered to be of interest.
1.1.3. Changes in the scope of consolidation
Set forth below is a description of the most significant changes in the scope of consolidation in 2017. The information was prepared taking into account IFRS 3, and the other disclosures required by the standard that do not appear in this Note are included in the Note on goodwill arising on consolidation (see Note 3.1).
Sale of Portuguese toll roads Norte-Litoral and Autoestrada do Algarve
In 2017 the two agreements for the sale of the Portuguese toll roads were completed. On the one hand, the Norte-Litoral agreement, whereby Ferrovial reduced its ownership interest to 49%. Following the review of the shareholders agreement entered into and the conclusion that control has been lost, this ownership interest has been accounted for using the equity method since the date of the sale (21 April). The sale price of the transaction amounted to EUR 104 million and the transaction gave rise to a net gain of EUR 56 million (see Note 2.5).
Also, on 26 September 2017, 49% of Autoestrada do Algarve was definitively sold, after which the ownership interest in this toll road stood at 48%. As was the case with Norte-Litoral, control was lost and, therefore, this investment is now accounted for using the equity method. The sale price of this transaction amounted to EUR 58 million, giving rise to a net gain of EUR 42 million (see Note 2.5).
Acquisition of 6.3% of NTE and 3.6% of LBJ
On 2 August 2017, the agreement was executed for the acquisition of 6.3% and 3.6% of the US toll roads NTE Mobility Partners, LLC and LBJ Infrastructure Group Holding, LLC, respectively. Following the transaction, Ferrovial held ownership interests of 62.9% in NTE and 54.6% in LBJ. The total payment made to complete the two transactions was USD 107 million (approximately EUR 94 million). The transaction had an impact of EUR -68 million on reserves of the Parent and EUR -27 million on non-controlling interests (see Note 5.1.1).
Sale of 10% of Zero Bypass (Slovakia)
In July 2017 the sale of 10% of the Slovakian toll road Zero Bypass took place, for EUR 3 thousand, reducing the ownership interest held to 35%. The net loss on the transaction was EUR -0.1 million. This company continues to be accounted for using the equity method, as it was in 2016.
Award of Outer Suburban Arterial Roads (OSARs) contract (Australia)
In November 2017 Ferrovial, through the Netflow joint venture formed with the Australian company Plenary, was awarded the contract for the construction, financing and maintenance of the upgrades to the road network in western Melbourne (Australia), with a value of AUD 1,800 million (approximately EUR 1,150 million). The concession has a term of 20 years from completion of the construction work.
The project financing is made up 60% of senior bonds issued through a US private placement and 40% of bank borrowings. The equity financing is provided by the Netflow consortium (50% Cintra and 50% Plenary), in line with its goals to invest in, develop and manage major concession projects. At 31 December 2017, no capital disbursement had been made. The company will be accounted for using the equity method.
Acquisition of Trans-Formers Group and Grupo Maviva
In June 2017 the Services Division, through the subsidiary FBSerwis, completed the purchase of all the shares of the Polish company, which engages in waste collection and treatment. The value of the transaction amounted to PLN 129 million (approximately EUR 31 million). The agreement encompasses the acquisition of the following companies: Trans-Formers Group, Trans-Formers Wroclaw and Trans-Formers Karpatia.
At 31 December 2017, seven months of Trans-Formers Group’s results were included in the consolidated financial statements of the Ferrovial Group; its sales amounted to EUR 16 million (EUR 27 million for 2017 as a whole) and it contributed a net profit of EUR 2 million (EUR 4 million for 2017 as a whole).
Also, in July 2017 Ferrovial Servicios acquired, for EUR 18 million, all the shares of Grupo Maviva, a company specialising in high value-added logistics operations, quality control and pre-assembly of components for the automotive industry. Its sales volume amounted to EUR 10 million (EUR 24 million for 2017 as a whole) and its net profit in both cases was EUR 0 million.
Sale of 3.9% of Budimex
On 31 March 2017, one million shares of Budimex (3.9% of the company’s share capital) were sold, with no impact on the consolidated statement of profit or loss because a controlling interest is still held in the company (55.1%). The cash impact of the transaction amounted to EUR 59 million (PLN 252 million). The difference between the price of the transaction and the carrying amount of the ownership interest sold (EUR 48 million) was recognised as reserves attributable to non-controlling interests.
Award of Denver Great Hall contract
In August 2017 the agreement for the redevelopment and commercial operation of the Jeppesen Terminal at Denver International Airport was entered into between the Great Hall Partners consortium, led by Ferrovial Aeropuertos, and the City and County of Denver. The concession operator under the contract is Denver Great Hall LLC, which is 80% owned by Ferrovial and is fully consolidated.
This project is a 34-year administrative concession arrangement, and is accounted for using the financial asset model under IFRIC 12.
The financial close was reached in December 2017. The total investment will be financed through a combination of payments by Denver City and County government, capital commitments made by the consortium partners (USD 68 million) and a USD 189 million bond issue.
The construction and redevelopment work will be carried out by Ferrovial Agroman (70%) and Saunders Construction at a cost of USD 650 million.
1.1.4. Adjustment of the comparable consolidated statement of financial position as at 31 December 2016
As discussed in Note 3.1, Goodwill, the consolidated statement of financial position as at 31 December 2016 has been adjusted, although this did not have any material impacts on the other financial statements. The allocation of the purchase price of Broadspectrum includes the impact of new information obtained about facts and circumstances that existed at the acquisition date relating to the duration of the existing contracts and the probability of renewal. The aforementioned adjustment was made within twelve months from the acquisition date, as required by IFRS 3.45.
The adjustment resulted in the recognition of a reduction of EUR -15 million in goodwill, with a EUR 41 million increase in intangible assets, an increase of EUR 13 in provisions and impacts on other line items (receivables/payables) amounting to EUR -7 million, as well as the related deferred tax liabilities of EUR -6 million.