5.1 EQUITY

5.1.1 Changes in equity

The detail of the main impacts net of taxes that affected the changes in equity in 2017 and which explain the changes in equity in the period from December 2016 to December 2017 is as follows:

Following is a description of the main changes in shareholders’ equity in 2017, which gave rise to a reduction of EUR 94 million in equity attributable to the shareholders.

Transition to IFRS 15. As explained in Note 1.3, the Group adopted early IFRS 15, Revenue from Contracts with Customers, effective from 1 January 2017. The main impact of the application of this new standard was a decrease in equity attributable to shareholders’ of EUR -272 million.

The consolidated profit for the year attributable to the Parent totalled EUR 454 million

The income and expense recognised directly in equity relate to:

• Hedging instruments: recognition of the changes in value of the effective portion of derivatives qualifying for hedge accounting (see Note 5.5), the impact of which was EUR 76 million.
• Defined benefit plans: this item includes the impact on equity of actuarial gains and losses arising from adjustments and changes to the Group’s defined benefit plan assumptions, as described in Note 6.2, which had an impact for the Parent of EUR 51 million net of taxes (EUR 63 million at fully consolidated companies (Amey) and EUR -12 million at the companies accounted for using the equity method (HAH/AGS)).
• Translation differences: the currencies to which Ferrovial has the greatest exposure in terms of its equity (mainly the Canadian dollar, the US dollar and the pound sterling), as detailed in Note 5.4, giving rise to translation differences of EUR -318 million attributable to the Parent. Specifically, the depreciation of the Canadian dollar gave rise to translation losses of EUR -124 million. In turn, the depreciation of the US dollar and the pound sterling gave rise to translation losses of EUR -84 million and EUR -49 million, respectively. The impact of the other currencies was EUR -61 million, mainly due to the fluctuations in the exchange rate of the Chilean peso.

Amounts transferred to profit or loss:

• This relates mainly to the transfer to profit or loss of fair value changes in derivatives relating to the sale of the 51% ownership interest in Norte Litoral (see Note 1.1.3, Changes in the scope of consolidation).

Shareholder remuneration:

• Scrip dividend: for the third successive year, the Annual General Meeting of Ferrovial, S.A. held on 5 April 2017 approved a flexible shareholder remuneration scheme, whereby the shareholders can freely choose to receive newly issued shares of the Company by subscribing a capital increase with a charge to reserves or an amount in cash through the transfer to the Company (if they have not already done so in the market) of the bonus issue rights corresponding to the shares held by them. As a result of this resolution, in 2017 two capital increases were performed with the following characteristics:
  • In May 2017 6,971,168 new shares were issued with a charge to reserves at a par value of EUR 0.20 per share, representing a capital increase of EUR 1 million, and EUR 97 million of bonus shares were purchased, representing a payment per share of EUR 0.315.
  • In October 2017 9,746,022 new shares were issued with a charge to reserves at a par value of EUR 0.20 per share, representing a capital increase of EUR 2 million, and EUR 121 million of bonus shares were purchased, representing a payment per share of EUR 0.404.
  • EUR -218 million are included in this connection in the foregoing table.
• Acquisition of treasury shares: the Annual General Meeting of Ferrovial, S.A. held on 5 April 2017 approved a treasury share purchase plan the objective of which was a subsequent capital reduction through the retirement of the shares purchased. This transaction is described in Note 5.1.2-c below.
• As can be observed in the preceding table, the cash flow impact of the remuneration of shareholders in 2017 amounted to EUR 520 million (see Note 5.3), of which EUR 218 million related to the scrip dividend and EUR 302 million to treasury share transactions.

Other transactions:

• Capital increases corresponding to non-controlling interests: increase of EUR 33 million in the equity attributable to non-controlling interests, principally at the US North Tarrant Express Segments 3 toll road.
• Share-based remuneration schemes: in 2017 a total of 830,371 treasury shares were acquired, representing 0.11% of the share capital of Ferrovial and with a total par value of EUR 0.2 million, which were subsequently delivered, together with the treasury shares existing at the beginning of the year, to beneficiaries under share-based remuneration schemes. The total cost of acquisition of these shares was EUR 15 million and the result recognised on these transactions in the Company’s equity amounts to EUR 1 million.
  • It should be noted, as discussed in Note 5.5, that the Company has arranged equity swaps in order to hedge against the possible impact on equity resulting from the exercise of the share-based remuneration schemes. These instruments gave rise to cash inflows of EUR 3 million and the changes in the fair value thereof had an impact on the financial result of EUR 5 million.
• Subordinated hybrid bond: increase in equity was recognised as a result of the issue of this perpetual bond for EUR 500 million, as described in Note 5.1.2-d) on other equity instruments.
• Other changes: this includes mainly an impact of EUR -68 million on equity attributable to the Parent resulting from the acquisition of 6.3% and 3.6% of the US toll roads NTE Mobility Partners, LLC and LBJ Infrastructure Group, respectively, as described in Note 1.3. This transaction also entailed an impact of EUR -27 million on equity attributable to non-controlling interests (see “Equity Attributable to Non-Controlling Interests – Other Changes” relating to the two companies in Note 5.1.2-h), giving rise to a total impact on consolidated equity of EUR -95 million.

5.1.2 Components of equity

Following is an explanation of each of the equity items presented in the consolidated statement of changes in equity:

a) Share capital

At 31 December 2017, the share capital amounted to EUR 146,453,094.40 and had been fully subscribed and paid. The share capital is represented by 732,265,472 ordinary shares of a single class and with a par value of twenty euro cents (EUR 0.20) per share. The changes in 2017 detailed in the table below relate to the capital increase and reduction transactions described in the preceding paragraph.

At 31 December 2017, the only company with an ownership interest of over 10% was Rijn Capital BV, with 20.210% of the shares. This company is controlled by the Chairman of the Company’s Board of Directors Rafael del Pino y Calvo Sotelo. The shares of the Parent are traded on the Spanish Stock Market Interconnection System (SIBE) and on the Spanish Stock Exchanges and all carry the same voting and dividend rights.

b) Share premium and merger premium

At 31 December 2017, the Company’s share premium amounted to EUR 1,202 million, and the merger premium, which arose as a result of the merger of Grupo Ferrovial, S.A. with Cintra Concesiones de Infraestructuras de Transporte, S.A. (currently Ferrovial, S.A.) in 2009, totalled EUR 349 million. Both line items are considered to be unrestricted reserves.

c) Treasury shares

At 31 December 2016, 2,775,174 treasury shares were held. The following changes took place in 2017:

The Annual General Meeting of Ferrovial, S.A. held on 5 April 2017 approved a treasury share purchase plan for a maximum amount of EUR 275 million the objective of which was a subsequent capital reduction through the retirement thereof. As a result of this resolution, in 2017 14,593,242 shares were acquired at an average price of EUR 18.8 per share, giving rise to a payment totalling EUR 275 million. Subsequently, it was resolved to reduce capital by 17,000,192 shares, giving rise to a capital reduction of EUR 3 million and an impact of EUR -298 million, which was recognised against unrestricted reserves (merger premium) and related to the difference between the acquisition price and the par value of the retired shares. 1,569,148 treasury shares with a value of EUR 29 million were also acquired. Thus, treasury shares totalling EUR 302 million were acquired.

The fair value of the treasury shares held by Ferrovial at 31 December 2017 (2,167,237 shares) was EUR 41 million.

d) Other equity instruments

The Group, through its subsidiary Ferrovial Netherlands BV and with Ferrovial, S.A. acting as guarantor, issued in December 2017 subordinated perpetual bonds for a nominal amount of EUR 500 million with an annual coupon of 2.124% up to the first recalculation date (May 2023). The coupon will be changed after the first recalculation date to a rate equal to the five-year swap rate at that date plus 2.127%. The same calculation will be performed in May 2043; however, in this case, the five-year swap rate at that date will be increased by 2.877%.

These bonds can be redeemed for the first time at the issuer’s discretion in five and a half years (2023) from the issue date (from 14 February 2023 to 14 May 2023, inclusive) and, subsequently, on each coupon payment date. Ferrovial also has the power to delay the timing of the coupon payment, which cannot be claimed by the bondholders.

As stated in Note 1.3.3.3, when it is at the issuer’s discretion to decide both the repayment of the principal and the possibility of deferring the payment of the bond’s coupon, the bond should classified as an equity instrument.

Thus, these subordinated perpetual bonds are recognised under “Other Equity Instruments”. The costs associated with the issue of these bonds and the accrued interest, which at the end of 2017 amounted to EUR -5 million, are recognised under “Reserves” and treated in a similar way to dividends.

Irrespective of this type of instrument being classified as equity from an accounting standpoint, the method followed by the rating agencies for the purpose of analysing the Group’s debt level is to consider the hybrid bond issue fully or partially as debt and/or partially as equity, according to the current methodologies applied by each of these rating agencies.

e) Valuation adjustments

“Valuation Adjustments” in the consolidated statement of changes in equity, the balance of which at 31 December 2017 was EUR -1,277 million, includes mainly the accumulated amount in reserves of the valuation adjustments made to derivatives (EUR -608 million), pension plans (EUR -511 million) and translation differences (EUR -453 million).

As regards the requirements of IAS 1 in relation to the disclosure of “income and expense recognised directly in equity”, it is important to note that the only items that under the related accounting legislation may not be transferred in a future period to profit or loss are the valuation adjustments relating to pension plans.

f) Retained earnings and other reserves

This line item includes prior years’ retained earnings and other reserves totalling EUR 4,624 million (2016: EUR 4,731 million). The other reserves include restricted reserves of the Parent, relating mainly to the legal reserve of EUR 29 million.

Adjustments relating to share-based remuneration schemes and the impact of the subordinated perpetual bond’s coupons and associated costs are also recognised under this heading.

g) Proposed distribution of profit for 2017

It is planned for the Board of Directors to propose to the Company’s duly convened Annual General Meeting that the profit of FERROVIAL, S.A. be distributed as follows:

The legal reserve has reached the legally required minimum.

h) Non-Group companies with significant ownership interests in subsidiaries

At 31 December 2017, the non-controlling interests in the share capital of the most significant fully consolidated Group companies were as follows:

The main financial statement aggregates of the most significant Group companies in which other shareholders own interests are as follows (data in 100% terms):

The main changes in "Equity Attributable to Non-Controlling Interests" in 2017 were as follows:

“Other Impacts” includes, on the one hand, the impact of EUR -27 million associated with the NTE Mobility Partners LLC and LBJ Infrastructure Group LLC US toll roads as a result of the Group’s purchase of a 6.3% and 3.6% interest, respectively, as explained in the “Other Transactions” paragraph in Note 5.1.1 above.

On the other hand, as detailed in Note 1.2, this “Other Impacts” includes an impact on reserves attributable to non-controlling interests amounting to EUR 59 million at the Budimex Group, of which EUR 48 million correspond to the gain on the sale of 3.9 % of capital of the company and EUR 11 million to the increase in the aforementioned percentage of equity attributable to non-controlling interests.