Download - Ferrovial - Annual Report 2012

Consolidated financial statements at 31 December 2011
Ferrovial S.A. and Subsidiaries
4. Management of financial risks and capital
The Group’s activities are exposed to a variety of financial
risks, particularly interest rate risk, foreign currency risk, credit
risk, liquidity risk and equity risk.
4.1 Interest rate risk
The Ferrovial Group’s business requires financing that can take
the form of borrowings indexed to fixed or floating interest
rates. Interest rate risk management optimises the cost of
financing to guarantee fulfilment of the business plans in
accordance with the Group's risk management policy.
As part of its interest rate management policy, the Ferrovial
Group tends to keep a percentage of the debt tied to fixed
rates, either arranged at inception or hedged by means of
derivative financial instruments.
Ferrovial applies a proactive management approach to the
portion of the debt that is tied to floating rates, paying
particular attention to the evolution of market rates in order to
obtain the lowest rates wherever possible.
As regards infrastructure project financing, each project is
analysed and criteria are identified to minimise exposure to
interest rate fluctuations, resulting in the establishment of
ceilings on the volume of debt tied to floating rates, which is
usually between 15% and 35% of the total project financing.
This avoids potential changes in expected project returns due
to changes in interest rates.
This objective of establishing pre-set rates for projects is often
achieved by arranging hedging derivatives, an analysis of which
is provided in Note 12 on "Derivative Financial Instruments at
Fair Value".
Occasionally, in certain infrastructure projects the revenue from
which is tied to inflation through a contractual formula, an
attempt is made to structure their financing through
borrowings, the cost of which is indexed to the changes in
inflation observed in the period, obtaining a natural hedge
between income and expenses. This structuring and hedge can
be set up directly with the debt or through derivative financial
instruments.
The accompanying table shows a breakdown of the Group’s
debt, indicating the percentage of the debt that is considered
to be hedged (either by a fixed rate or by derivatives). Not all
the assets, such as cash and cash equivalents and long-term
restricted cash associated with the debt are hedged.
M illions of euros
Borrowings
Total gross
debt
% of debt
hedged
Net debt
exposed to
interest
rate risk
Impact on
results of
+100 b.p.
Construction 64 20% 51 1
Services 182 10% 164 2
Airports 0 0% 0 0
Toll roads 0 0% 0 0
Corporate and other 1,015 0% 1,015 10
Other companies 1,261 2% 1,230 12
0 0% 0 0
Other airports 0 0% 0 0
Toll roads 6,222 74% 1,621 16
Construction 155 92% 13 0
Services 271 56% 119 1
Infrastructure projects 6,649 74% 1,753 18
TOTAL BORROWINGS 7,909 62% 2,983 30
M illions of euros
Borrowings
Total gross
debt
% of debt
hedged
2011
2010
Net debt
exposed to
interest
rate risk
Impact on
results of
+100 b.p.
Construction 50 36% 32 0
Services 170 20% 136 1
Airports 0 0% 0 0
Toll roads 0 0% 0 0
Corporate and other 1,844 44% 1,024 10
Other companies 2,064 42% 1,192 12
BAA 15,017 73% 4,028 40
Other airports 0 0% 0 0
Toll roads 5,769 74% 1,527 15
Construction 142 96% 6 0
Services 54 87% 7 0
Infrastructure projects 20,981 73% 5,568 56
TOTAL BORROWINGS 23,045 71% 6,760 68
As shown in the foregoing table, 62% of the Group’s debt is
hedged against the risk of changes in interest rates. 74% of
the project borrowings are hedged (2010: 71%).
Also, it must be borne in mind that the results relating to
companies accounted for using the equity method include the
results corresponding to the 49.99% ownership interest in BAA
and the ownership interest of 43.23% in 407 ETR. As indicated
in Note 10, the two companies have a significant volume of
debt, of which 80% (BAA) and 100% (407 ETR) is hedged
against interest rate risk (see Note 10 for more details).
Based on the foregoing, a linear variation of 100 basis points in
the interest rate curves existing on the market at 31 December
2011 would increase the finance costs in the income statement
by an estimated EUR 30 million, of which EUR 18 million relate
to infrastructure projects and EUR 12 million to the other
companies, with a net impact on the profit attributable to
Ferrovial of EUR -24 million and a net impact on the results of
companies accounted for using the equity method of EUR -11
million, giving a total impact of EUR -35 million on the net
profit of Ferrovial.
Note 20 provides a more detailed analysis by type of debt,
based on the extent to which the interest rate risks are hedged.
In addition to the impact of interest rate fluctuations on the
assets and liabilities making up the net cash position, changes
may arise in the values of the derivative financial instruments
arranged by the Company, which are indicated in Note 12.
Revaluation gains and losses are mainly recognised in reserves
in the case of derivatives that are effective hedges, as required
by International Accounting Standards.
Ferrovial, S.A. Consolidated financial statements at 31 December 2011 19