Impact of COVID – 19, results, going concern, asset values, individual businesses, in line with ESMA recommendations

Ferrovial S.A. – Annual report – 31 December 2021

Industry: construction; transportation


Almost two years after the World Health Organization declared the COVID-19 global pandemic, progress towards herd immunity thanks to vaccination has allowed the countries in which Ferrovial operates to partially raise the restrictions on mobility and on economic activities that have been in force since the start of the pandemic, although at an uneven rate depending on the country, and with ups and downs caused by successive waves, with a particularly negative impact due to the Omicron variant in the final weeks of the year. This has therefore allowed a recovery in demand for Ferrovial’s services, though uneven and uncertain as regards the end of the wave caused by Omicron, as explained below.

The Construction and Services activities were hardly affected by the pandemic during 2021, while traffic on the main toll roads operated by Ferrovial recovered quickly as soon as the countries began to lift restrictions over the course of the year. In contrast, the Airports business is clearly experiencing the greatest difficulties and recovering more slowly due to the air traffic restrictions, exacerbated at the end of the year by the omicron variant.

With the aim of presenting the global impact of the pandemic and in line with ESMA’s recommendations, this note provides an explanation of the impact on the financial statements for 2021 (focused on the infrastructure business), a description of the analysis performed to conclude that the Company can continue to do business under the going concern principle, an analysis of the possible impact of COVID-19 on the impairment of assets and an assessment of the potential impact on the main financial risks, including an analysis of the risk of breach of covenants included in financing agreements.

1.2.1 Impact on the financial statements for 2021 and mitigating measures adopted

The effects of COVID-19 on Ferrovial’s business results are described below:

Airports Division

During 2021, the number of passengers both at Heathrow and at AGS (the holding company of Aberdeen, Glasgow and Southampton airports), which are equity-accounted companies, has remained at extremely low levels compared to those prior to the start of the pandemic, as detailed in the following table:

However, passenger volumes improved overall compared to 2020, except for the first quarter of the year, which in 2020 was pre-pandemic. The trend is shown below:

The passenger trend was directly related to the evolution of the pandemic during the year:

  • The first few months of 2021 were adversely affected by new outbreaks in certain geographies.
  • But from the second quarter onwards, following successful vaccination campaigns and the reopening of borders, Heathrow and AGS saw a steady increase in traffic as mobility restrictions were lifted and entry requirements were simplified. Specifically, in May the UK government began to gradually open up international air traffic, establishing a traffic light system, classifying countries of origin into three categories (green, amber and red) based on progress in vaccination, infection levels and the incidence of particularly worrying variants.
  • On 4 October, the British government announced the end of this system, which led to a significant improvement in passenger volumes until December, when fear of the spread of the new Omicron variant led the UK government to significantly increase restrictions.

Heathrow Airport’s passenger volumes for the year totaled 19.4 million. AGS passengers numbered 3.5 million, split between 2.1 million at Glasgow airport, 1.1 million at Aberdeen and 0.3 million at Southampton.

This trend had a negative effect on Ferrovial’s results, the Airports Division having contributed EUR -254 million, of which EUR -238 million related to Heathrow Airport.

Toll Roads Division

Toll road traffic recovered in 2021 as mobility restrictions were lifted, although traffic in the last fortnight of the year suffered following the rapid expansion of the Omicron variant. Generally speaking, trends have been more positive in the US toll roads, particularly in the Dallas area thanks to the swift lifting of restrictions since March. Traffic in December was above 2019 levels (pre-pandemic) at the NTE and NTE 35W toll roads, but LBJ is still below.

The Canadian 407 toll road recovered more slowly in the first half due to the quarantine in Toronto until the end of May and then improved quickly from June onwards, as restrictions were lifted, although the delay in the return to the office in some sectors meant a new setback in the recovery that had begun in August. Traffic trends on the main toll roads in North America in 2021 (compared with pre-pandemic levels in 2019) are analyzed below:

The trend compared with the previous year is shown below:

Toll Roads Division traffic was irregular. Assets such as NTE 35W or NTE were close to or above 2019 pre-pandemic levels, while LBJ and 407 ETR were still below. However, traffic volumes on all the tolls roads were well above 2020 levels. As a result, Ebitda reached EUR 415 million, having improved considerably in relation to 2020 by EUR 280 million, although without reaching the EUR 436 million recognized for the same period of 2019 (pre-pandemic). Similarly, the contribution by equity-accounted businesses, particularly 407 ETR (EUR 52 million), was above the 2020 figure (EUR 33 million) but below the EUR 153 million reached in 2019.

Impact on cash flows

The impact of the pandemic on cash flows in the infrastructure businesses is quantified in terms of the change in dividends received (mainly due to the 407 ETR and Heathrow assets). Set out below is the trend in dividends since 2019 (pre-pandemic). It may be observed that the overall volume of dividends is above 2020 but below 2019, due primarily to the amounts that were not received from the Airports Division.

1.2.2 Going concern assessment

Ferrovial is confronting 2022 in a position of very high liquidity. In December 2021, ex-infrastructure projects, liquidity reached EUR 6,421 million, including EUR 132 million relating to the Services Division, as well as lines available at the ex-infrastructures level in the amount of EUR 991 million. The ex-infrastructures net cash position stood at EUR 2,182 million at end-December 2021 (including the Services Division). It should also be noted that the Group’s short-term assets and liabilities, including cash and debt position, show a positive balance at end-December 2021.

As in the prior financial years, in order to conclude as to the Company’s capacity to continue as a going concern, the Group has analyzed future cash needs, focusing on the financial years 2022 and 2023, also including a pessimistic scenario with a series of stress assumptions regarding the Company’s cash flow, most notably:

  • Assumption that there will be no additional dividends received from infrastructure projects in 2022 or in 2023.
  • Construction business cash projections for 2022 and 2023 are calculated as a 50% decline in 2021 working capital (excluding provisions and lease payments), estimated at around EUR -100 million per annum.
  • Delay in sale processes currently under way, until after 2023.

The conclusion drawn from the analysis demonstrates that, although the scenario would entail a deterioration of the Company’s cash position, cash resources would continue to be sufficient to meet commitments. Therefore, based on the available information, no material uncertainties have been identified with respect to events or conditions that could raise significant doubts regarding the Group’s capacity to continue operating under the going concern principle for 12 months following the date these financial statements were signed.

1.2.3 Impact on asset impairment

As previously mentioned, the Construction and Services businesses were largely unaffected by the pandemic in 2021. The favorable outlook for the Toll Roads business leaves potential impairment risks in the Airports Division.

Nonetheless, it should be noted that, at December 2021, the value of the ownership interest in Heathrow had fallen to zero (the value of the investment in AGS has also been zero since December 2020) due to the absorption of losses (Note 5.4), so no additional impairment is possible.

1.2.4 Impact on financial risks

As mentioned in the previous point, financial risks relate primarily to the Airports Division.

To bolster its liquidity position, Heathrow has issued GBP 1,600 million in debt since the start of the year. The liquidity position and cost reduction plans have been recognized by Standards and Poor’s and Fitch, which confirmed the credit ratings in March 2021, although in January 2022 Moody’s issued a credit opinion with a negative outlook on Heathrow Finance as part of its annual review.

On 18 June, AGS entered into an agreement with a syndicate of banks to modify and extend the facility agreement concluded in February 2017 in the amount of GBP 757 million (the entire amount having been drawn). The main terms and conditions of the agreement are explained in Note 5.4.