AIRPORTS

The Airports division contributed EUR89mn to Ferrovial’s equity-accounted results during 2017 (vs. -EUR46mn in 2016).

• HAH: EUR87mn in 2017 (-EUR57mn in 2016), was due mainly to the positive mark to market performance of the hedging instruments in 2017, as compared with the negative impact seen in 2016, as a result of an uptick in the expected inflation figure and the cut in interest rates.
• AGS: EUR2mn in 2017 (EUR12mn in 2016) primarily due to the positive non-recurrent non-cash item in 2016, due to changes in the pension plan conditions (EUR7mn) and the two percentage point drop in tax rate to 17% (EUR6mn).

In terms of distributions to shareholders:

• Heathrow paid out GBP525mn (100%), which is significantly more than in 2016 (GBP325mn) and the figure forecasted at the start of the year (GBP375mn). This extraordinary increase was due to the good operating performance and the uptick in inflation. In 2017 Ferrovial received EUR153mn for its stake.
• AGS distributed GBP146mn (100%), of which GBP75mn resulted from an extraordinary distribution following the refinancing carried out in 1Q 2017, which led to optimisation of the financing structure, the extension of maturity terms and the partial repayment of shareholder debt. Ferrovial received EUR84mn in 2017.

CORPORATE OPERATIONS

On 24 August 2017, Great Hall Partners, the consortium led by Ferrovial Airports, signed a contract for the redesign and retail operation of the main terminal at the Denver International Airport for an investment of USD650mn and a term of 34 years. For more information, please visit the following link.

HEATHROW

Heathrow Traffic

Heathrow achieved a new record in traffic in 2017: 78 million passengers (+3.1%) with 471,082 passenger flights (470,764 in 2016), which reflects the plan launched in 4Q 2017 to increase the use of limited free capacity, which resulted in more than 1,300 additional flights in 4Q.

The higher occupancy levels registered (78% vs. 76% in 2016) represent an increase in inbound demand to United Kingdom, particularly from the Middle East and Asia Pacific. The average number of seats per aircraft increased +0.4% to 212.3 (2016: 211.5).

Intercontinental traffic (+3.6%) has headed up growth thanks to improved occupancy levels. Traffic was particularly robust on the Middle East routes (+9.5%), with larger aircraft and more flights to the Asia Pacific region (+4.5%), introduced as a result of higher occupancy levels on existing routes to Malaysia and new or more services to Thailand, Philippines and Vietnam. In North America (+1.1%) cargo traffic played a greater role. Latin American traffic rose by +5.5%, due to more flights and higher occupancy levels on the planes.

European traffic increased (+2.4%) as a result of larger aircraft and higher occupancy levels, with notable growth on the routes to Italy, Russia, Belgium, Denmark, Holland and Portugal, with more than 70,000 additional passengers on each route and market. Domestic traffic grew by +3.3%, including the new Flybe services to Scotland.

More than 30% (in value) of non-EU exports from the United Kingdom currently pass through Heathrow. In 2017, cargo volumes at Heathrow increased by +10.2%, making it one of the strongest periods in the last five years, with notable increases in North America and the Middle East.

Heathrow SP Revenue and EBITDA

Revenue grew by +2.7%, thanks to growth in retail revenue (+7.7%), aeronautical revenues (+1.0%) and others (+2.6%).

Average aeronautical revenue per passenger decreased -2.0% to GBP22.00 (GBP22.45 in 2016), but was offset by the increase in traffic (+3.1%), which generated additional revenues by GBP51mn.

Retail revenue (+7.7%), was aided by greater traffic and growth in retail concessions (+10.5%) reflecting the improvement in Duty Free stores and specialist stores, due to the depreciation of sterling after the referendum to leave the EU at the end of June 2016, although this trend has subsided slightly. The remodeling of the luxury goods stores at T4, which was completed at the end of 2016, also contributed to this growth. Restaurant income also registered strong growth, due to the increase in traffic and the refurbishment of restaurants in T5. Net retail revenues per passenger reached GBP8.45, +4.5% compared to 2016.

Heathrow SP’s EBITDA increased by +4.6% in 2017 vs. sales growth of +2.7%. The EBITDA margin reached 61.4% (59.9% in 2016). In addition, greater cost control has also helped to reduce operating costs per passenger by -3.1%. Amortization grew by +3.3% vs. 2016.

User satisfaction

Customer satisfaction remained at record highs in 2017, with the airport achieving a scoring of 4.16 out of 5. According to Airport Service Quality (ASQ), 82% of the passengers surveyed classified their experience in the airport as “excellent” or “very good”. Heathrow ranked first out of European airports in this service quality survey for the past 13 consecutive quarters. In 2017, Heathrow was nominated “Best Airport in Western Europe” for the third time running by Skytrax World Airport Awards. As well as this award, which was voted for by passengers all around the world, Heathrow as also recognised was the “Best Shopping Airport” for the eighth year running. Heathrow also improved its punctuality and luggage management, reducing the number of suitcases lost to 10 out of 1,000 passengers (14 in 2016).

For further information, please see the Note on HAH’s results.

Regulatory aspects

Regulatory Asset Base (RAB): At 31 December 2017, the RAB reached GBP15,786mn (GBP15,237mn in December 2016).

Regulatory period: in December 2016, the Civil Aviation Authority (CAA) confirmed the extension of the current regulatory period (Q6) until 31 December 2019, maintaining the annual maximum tariff increase per passenger: RPI-1.5%. The latest consultation states that a further extension of Q6 to at least the end of 2020 is expected to be needed, with the CAA emphasising the need for flexibility to better align the start of H₇ with commencement of the expansion construction programme.

In 2017, the CAA stated the importance of the regulatory framework of the expansion being based on a system developed over the past 30 years; including the RAB and the single till scheme. We expect to have greater clarity on these matters in April and September 2018, when the CAA publishes its next update.

Expansion: in October 2016, the British Government selected a third runway at Heathrow to increase airport capacity in the South East of England. The expansion requires parliamentary approval of the NPS (National Policy Statement) and the DCO (Development Consent Order) by the Secretary of State, respectively expected between 1H 2018 and 2021. In January 2018, Heathrow launched a consultation on expansion options, which would help to design a plan of action, which help define a preferred masterplan that will be presented in a second consultation in 2019. In December, Heathrow confirmed the possibility of an expansion plan that would be GBP2,5bn less than the one presented to the Airport Commission. The total cost would therefore stand at GBP14bn, which would help to reach the government’s proposed target of maintaining airport charges close to current levels.

Heathrow Airports Holding (HAH) profit and loss account

HAH net debt

At 31 December 2017, the average cost of Heathrow’s external debt was 5.62%, including interest-rate, exchange-rate & inflation hedges in place (vs. 5.26% in December 2016).

The net debt figure relates to FGP Topco, HAH’s parent company.

UK REGIONAL AIRPORTS (AGS)

AGS Results

AGS Traffic

Glasgow: 9.9 million passengers (+5.7%). Domestic traffic (-1.1%) reflected fewer routes to Stansted and more regional routes on Flybe and Loganair. International traffic grew (+11.5%) via European traffic with new Ryanair routes to Lisbon, Valencia, Palanga and Frankfurt, Jet2’s new service to Dubrovnik and more capacity to the Canary Islands, Alicante, Cyprus and Malaga. Long-distance traffic volumes demonstrate the strength of Emirates and the new Delta service to New York.

Aberdeen: 3.1 million passengers (+1.9%). Domestic traffic (+1.3%), mainly reflected the London Heathrow route operated by Flybe. International traffic volumes increased (+3.2%) due to new Ryanair routes to Alicante, Malaga and Faro, the new Wizz services to Warsaw and Air Baltic services to Riga. The increase was partially offset by less routes to international airports (Paris CDG and Amsterdam) and lower Scandinavian passenger numbers.

Southampton: 2.1 million passengers (+6.1%) with greater domestic traffic (+3.7%) and more Flybe flights to Manchester, Glasgow and Newcastle, partly compensating for the fewer routes to Guernsey in 1Q; and international growth (+9.8%) due to greater capacity on routes to Amsterdam, Munich, Malaga and Cork.

AGS Revenue and EBITDA

In 2017, EBITDA improved by +10.7%, primarily due to a +6.3% increase in revenue, due to higher traffic, and good retail and parking revenue performance, coupled with the +3.0% increase in operating costs.

AGS net bank debt

At 31 December 2017, the airports’ net bank debt stood at GBP656mn.