AIRPORTS

The Airports division contributed -EUR46mn to Ferrovial’s equity-accounted results (vs. +EUR199mn in 2015).

• HAH: -EUR57mn in 2016, versus +EUR186mn in 2015. This drop in the result vs. 2015 was mainly due to:
  1. The negative impact from mark to market hedges vs. 2015, non-cash item, (-EUR160mn net profit impact) reflecting the recovery in inflation expectations and the fall in interest rates. Although the uptick in inflation has a negative accounting impact, from a business point of view it means an increase in aeronautical revenues due to the increase in tariffs and the higher value of the Regulated Asset Base. If the higher inflation expectations materialise, these would imply a much higher positive valuation impact than the negative accounting impact.
  2. Heathrow’s December 2015 result included a positive non-recurrent non-cash item of +GBP237mn (EUR67mn given the 25% stake held by Ferrovial), due to changes in the pension plan conditions. In addition, a positive EUR39mn result was included on the back of the positive evolution of the derivative hedges’ mark to market.
• AGS: Contributed EUR12mn to Ferrovial’s 2016 equity-accounted results (vs. EUR14mn in 2015).

As regards the dividends that have been distributed:

• Heathrow paid out GBP325mn, +8.3% vs. 2015 (EUR96mn for Ferrovial in 2016).
• AGS paid out GBP64mn to shareholders, +6.7% vs. 2015 (EUR38mn for Ferrovial in 2016).

HEATHROW

Heathrow Traffic

In 2016, Heathrow Airport handled 75.7 million passengers, up +1.0% vs. 2015. Traffic levels were particularly high in July with 7.4 million passengers using the airport, the highest monthly number on record.

Traffic numbers were positively affected by the additional day in February (leap year), which was responsible for +0.2% of growth over the year. In addition to these impacts, there was an increase in the number of seats due to larger aircraft (with an average number of seats per aircraft of 211.5 vs. 208.7 in 2015). Occupancy levels were slightly lower than 2015 (76% vs. 76.5%).

Traffic performance by destination

Intercontinental traffic grew by +1.7%, mainly due to the Middle East routes (+8.8%) on larger aircraft and more flights, to the Asia Pacific region (+2.8%) as a result of substantial growth in existing routes to Thailand, China, Vietnam and the Philippines, along with new services to Indonesia with the incorporation of Garuda Airlines, which is the latest airline to transfer its services from Gatwick to Heathrow. This growth was slowed by the poor performance of the African market, mainly due to the planning changes made by Virgin Atlantic and to the performance of the North America routes (-0.5%), as a result of slightly lower seat occupancy levels.

European traffic increased by +1.8%, driven by the increase in the number of seats on British Airways flights.

Greater international traffic offset the drop in domestic traffic (-9.6%) due to Virgin Little Red ceasing operations since 2015.

HEATHROW SP Revenue

Revenue growth (+1.5%) thanks to the strong performance of retail revenue (+7.7%), which offset the flat performance in the aeronautical revenues and the slight decrease in Other revenues (-0.4%).

Revenue breakdown

Average aeronautical revenue per passenger decreased (-1.0%) to GBP22.45 (compared with GBP22.67 in 2015), but was compensated for by the increase in traffic (+1.0%).

Retail revenue grew by +7.7%, thanks to the major redesign of the Terminal 5 retail area and was particularly driven in the second half of the year by sterling depreciation after the referendum to leave the EU at the end of June. We would highlight the growth of the World Duty Free (WDF) stores (+7.8%) after the refurbishments of Terminals 4 and 5, specialist shops (+15.0%) due to the addition of new brands, car parks (+6.5%) and catering (+8.9%).

Net retail revenues per passenger reached GBP8.09, +6.7%.

Other Revenues fell slightly by -0.4%, due to a combination of the drop in income from airline re-billing, as a result of the effort to reduce costs (-2.9%) and the +1.5% growth in income generated by the Heathrow Express thanks to pricing strategy improvements, and the rise in rental income (+2.4%), thanks to the new passenger rooms that have been opened in terminals T3 and T4.

HEATHROW SP EBITDA

Heathrow’s EBITDA increased by +4.8% in the year vs. sales growth of +1.5%. EBITDA margin reached 59.9% (58.0% in 2015). Amortization fell by -1.9% versus 2015.

The cost controls implemented in 2015 were maintained (operating costs -3% vs. 2015):

• Consumption expenses were -19.6% lower.
• Personnel cost savings (-2.9%), driven by measures such as changes to the pension system in 2015, the adoption of a voluntary redundancy programme and other efficiency measures.
• Reduction of penalties thanks to the improved quality of service.
• Renegotiation of the NATS contract (air traffic control services).

Main HAH figures (like-for-like)

User satisfaction

User satisfaction reached new record levels in 2016, with 84% of passengers rating their experience as “excellent” or “very good” (81% in 2015) and scoring above 4 points out of 5 in the Airport Service Quality (ASQ) survey for twelve consecutive quarters, rounding out the year with the top scoring of 4.19 in 4Q 2016.

In 2016, Heathrow was nominated “Best Airport in Western Europe” for the second time running by Skytrax World Airport Awards. The award, voted by passengers all around the world, also recognised Terminal 5 as the “Best Airport Terminal” for the fifth year running and for the seventh year running, Heathrow won the “Best Shopping Airport award”.

For the first time, Heathrow won the prestigious “Best European Airport Award”, in the category of more than 40 million passengers, in the 2016 Airports Council International (ASQ) awards. Additionally, ACI named Heathrow Best Airport in Europe for the third time in the category of more than 25 million passengers.

Finally, Heathrow’s success was recognised in the Frontier Awards in the categories “Operator of the Year” and “Airport Marketing Campaign of the Year”.

Regulatory aspects

Regulatory period: The regulatory period (Q6) started on 1 April 2014 and will initially be extended until 31 December 2018, with an annual maximum tariff increase per passenger of RPI-1.5%.

On 21 December 2016, the CAA confirmed the extension of the current regulatory period (Q6) until 31 December 2019, continuing with the annual maximum tariff increase per passenger of RPI -1.5%.

Regulatory asset Base (RAB): At 31 December 2016, the RAB reached GBP15,237mn (vs. GBP14,921mn in December 2015).

Expansion: On 25 October 2016, the British Government announced its decision to select the building of a third runway at Heathrow Airport to increase airport capacity in the Southeast of England. The Davies Commission, selected to study the airport expansion, already and unanimously recommended it as the best possible solution in July 2016.

The Heathrow extension will imply the construction of a third runway, a new terminal and other associated infrastructures such as platforms, a baggage terminal and parking spaces.

This decision requires parliamentary approval of the National Policy Statement and subsequently approval by the Secretary of State of the Development Consent Order, which are expected between the end of 2017 and end of 2020.

On 2 February 2017, the expansion project passed the first hurdle after the British Government published the first draft of the National Policy Statement.

HAH

The table below shows HAH’s Profit & Loss Account.

Financial Result

The HAH financial result reached –GBP1,231mn vs. -GBP571mn in 2015, mainly explained by fair value adjustments to the derivatives portfolio due to the lower interest-rate and higher inflation expectations (-GBP479mn vs. +GBP138mn in 2015).

HAH net debt

At 31 December 2016, the average cost of Heathrow’s external debt was 5.26%, including all the interest-rate, exchange-rate and inflation hedges in place (vs. 4.97% in December 2015).

UK REGIONAL AIRPORTS (AGS)

AGS Traffic

In 2016, the number of passengers at the regional airports grew by +2.8% to 14.4 million, primarily thanks to the increase at Glasgow.

Traffic at Glasgow reached 9.4 million passengers (+7.4%). Domestic traffic improved (+5.5%), mainly thanks to the good performance of the routes to London due to higher occupancy levels at Ryanair and more flights at EasyJet, partially offset by lower performance of BA’s routes to London. In the rest of the domestic market there was a notable improvement in capacity at EasyJet (Bristol and Belfast), and a good performance at Flybe, with its new routes to Cardiff and Exeter.

International traffic increased (+9.1%) due to the growth in European traffic thanks to the good performance of Ryanair’s routes to Berlin, Dublin, Riga and Sofia, the growth of Wizz Air on its routes to Bucharest, Budapest, Lublin and Vilna, Jet2, Easyjet, Blue Air, Stobart Air, and to the use of larger aircraft by KLM. This was offset by the decline in charter passengers, primarily from Thomas Cook.

Passenger numbers at Aberdeen reached 3.1 million (-12.2%). Domestic traffic declined (-13.8%), mainly due to the poor performance of the routes to London, due to the negative impact of the loss of Virgin Little Red (BA and Flybe have only absorbed some of their passengers) and the drop in charter passengers on the routes related to the oil business.

International traffic dropped (-6.0%), mainly due to the loss of passengers on the Scandinavian routes (oil destinations), with reduced schedules and occupancy levels at BMI, and reduced schedules at SAS and Wideroe, to the reduced schedules at Air France and Lufthansa, and to the reduced capacity at KLM due to the use of smaller aircraft. This was partially offset by Wizz Air’s new route to Gdansk and Warsaw, and Icelandair’s new route to Reykjavik.

Helicopter traffic also dropped (-18.3%) as a result of the reduced demand from the oil business.

Passenger numbers at Southampton totalled 2.0 million (+9.8%). Domestic traffic improved (+2.6%), mainly thanks to the growth on the routes to Manchester, Glasgow, Newcastle and Belfast, offset by reduced numbers of passengers on the route to Aberdeen/Leeds.

International traffic increased (+23%) due to the new routes to Charles de Gaulle, Cork, Toulon and Biarritz and the good performance of the routes to Amsterdam, Dusseldorf and Palma, offset by the decline in passengers on the routes to Malaga, Alicante and Faro.

AGS Revenue and EBITDA

The airports posted EBITDA growth of +10.8% in 2016, on traffic growth of +2.8% and sales growth of +1.2%, coupled with a -4.8% drop in expenses driven by greater cost control.

AGS net bank debt

At 31 December 2016, the regional airports’ net bank debt stood at GBP533mn.

AGS results (like-for-like terms)