SERVICES

In 2017, Services revenues reached EUR7,069mn, +16.3% vs. 2016.

In 2017, Broadspectrum was included for the whole year, compared to the consolidated 7 months in 2016 (from 31 May 2016).

From January 2017, and with the aim of optimising business opportunities in the different geographical territories, the Continental American businesses were separated from Broadspectrum’s other activities and included under International Services.

In comparable terms, excluding the exchange rate impact and Broadspectrum, revenue rose by +1.9% compared to 2016. In Spain, revenue increased by +7.7%, in the UK -2.7% and International +13.6% (LfL). EBIT increased by +29.5% vs 2016.

EBITDA margin stood at 6.0%, above the 5.4% reported in December 2016, mainly as a consequence of the positive performance in the UK.

In December 2017, the order book reached EUR20,918mn, -14.4% down vs. December 2016 (-11.3% LfL). In general, the reduction in the order book has been in the UK (-17.0%).

SPAIN

Revenues in Spain grew by +7.7% compared with 2016, although there continues to be a background of fewer public tendering processes. Revenue growth stems from the extension of contracts and higher volumes of waste treatment, which have partly offset the delayed awarding of contracts by Local Authorities. In addition, the incorporation of several acquisitions in the industrial maintenance sector, which account for 5.3% of revenues. These activities usually offer lower returns than the average. EBIT grew in line with revenue growth.

The order book volume stood at EUR5,260mn in December 2017 (-8.4% compared with December 2016). The reduced size of the order book is directly related to the slowdown in competitive tendering processes, whose impact in revenues is offset with contract extensions. Particularly notable among the contracts awarded during 2017 were the renewal of on board customer services contract for Renfe (2 years EUR134mn), the contract to provide cleaning services at the Virgen del Rocío and Virgen Macarena Hospitals in Seville (2 years, EUR38mn), and the contract to manage the health transport service in La Rioja (4 years EUR27mn).

UK

The business climate in the United Kingdom continues to be affected by the budgetary restrictions imposed on public sector clients, which has had an impact on the number of opportunities that come on to the market. In turn, from a commercial point of view, the company continues to apply a strict selection policy regarding the opportunities for which bids are to be submitted. As a result, revenues have fallen by -8.5% (-2.7% LfL by exchange rate).

EBITDA reached EUR86mn in 2017, reaching a margin of 3.5%. EBITDA Growth in LfL terms compared to the previous year was +49.6%. This improvement is due to measures implemented to adapt the Company to the complicated market situation in UK. The company continues to focus on improving contracts with low rates of return, or withdrawing from unprofitable contracts where relevant (ASC 6&8 in Highways or Affinity Water).

In 2017, the Birmingham contract contributed losses (-EUR10mn) which have been virtually fully offset by part of the provision set aside in 2015. On February 22^nd 2018, the appeals court in UK has ruled in favour of the Birmingham City Council, cancelling the High Court’s previous sentence in favor of Amey from September of 2016. Amey is considering the possibility of appealing the resolution before the Supreme Court. At the same time, and following the Court’s mandate, in the following weeks, Amey and Birmingham City Council will negotiate the best way to make this sentence effective. Currently, Amey counts with a provision of GBP74.4mn, of which GBP37.9mn correspond to the balance from the provision registered for this litigation in 2015 and GBP36.5mn correspond to the adjustment from the application of IFRS 15.

In December, the order book stood at EUR9,878mn (-13.6% LfL compared with December 2016). The trend in this area was marked by the stricter project selection process mentioned above, and by consumption in the business portfolio for utilities that will be offered for tender in 2019 and 2020, coinciding with the regulatory periods imposed by clients. The most significant contracts awarded this year are the waste collection contract in Surrey (EUR131mn, ten years) and the contract to maintain the Manchester light railway (EUR181mn, seven years). The latter of these two amounts corresponds to Amey’s 40% share in the joint venture that will perform the contract.

BROADSPECTRUM (AUSTRALIA*)

(*) Reported information regarding Australia & the rest of the Pacific Islands.

As previously mentioned, Broadspectrum’s financial statements have been consolidated since 31 May 2016. Thus, the P&L to December 2016 includes a seven-month contribution from the company, compared to 12 months in 2017. As mentioned above, since 1 January 2017, the Company’s business activity in Continental America has also been separated off into a separate management unit and now forms part of Ferrovial International Services (headquartered in Austin, Texas).

The EBITDA figure includes EUR6mn of restructuring costs in Australia, the bulk of which are related to personnel reduction.

The Broadspectrum account includes an expense of -EUR72mn relating to the amortization of the intangible fixed asset created by the acquisition (EUR60mn in 2016). Excluding this impact, EBIT would stand at EUR75mn with a 3.4% EBIT margin compared to 4.5% in 2016 (where the EUR6mn acquisition costs were included). In December 2017, the net intangible reached EUR94mn; its amortization will be progressively reduced over the coming 8 years.

The integration of Broadspectrum was carried out in line with the proposed plan. Its integration into Ferrovial, now provides Broadspectrum with greater investment capacity and complementary competences and credentials with other business activities within the Group, which should aid future growth. To take advantage of these opportunities, the Company has reorganised itself around four sectors in Australia and New Zealand, where activity was as follows.

• Government (EUR1,197mn): includes all the current contracts with regional and central governments.
• Urban Infrastructure (EUR441mn): includes activities in the water, electricity, energy and telecommunications sectors.
• Natural Resources (EUR352mn): focused on the maintenance and operation of wells and oil, gas, mining and agricultural installations, as well as on solutions for industrial clients.
• Transport (EUR221mn): includes activities related to the highway, railway and public transport networks.

In line with previous statements made by Ferrovial, since the end of October 2017, the Company has not serviced the contracts with the Australian Department of Immigration and these contracts and all relations therewith have now ended.

The order book amounts to EUR4,246mn compared to EUR4,624mn in 2016. Notable are the maintenance contract awards for the Melbourne highway network (EUR340mn, 23 years) and the extension of the National Defence facilities management contract (EUR304mn, one year).

INTERNATIONAL SERVICES

Since January 2017, International business has included Broadspectrum’s business activity in Continental America (primarily USA, Canada and Chile). This activity has contributed a total of EUR306mn in revenues and an EBITDA of EUR8mn.

Transformers, a waste treatment company based in Poland, was incorporated in the second half of 2017 for EUR36mn, which has now been fully integrated. Revenues increased by EUR16mn, as a result of this incorporation.

In 2017, excluding the changes for perimeter variations, revenue grew by +13.6%, whilst EBITDA fell EUR2mn, primarily weighed down by Chile, associated with the extra costs created by factory stoppages and other operating issues.

As regards the order book, this stood at EUR1,533mn vs. EUR675mn in 2016. Notable are the incorporation of Transformers (EUR67mn), the awarding of the Washington DC tunnel maintenance contract (EUR22mn, five years) and the full maintenance of the S7 toll road in Kielce (EUR18mn, five years).