Ferrovial SE Q3 FY2026 earnings call

• Strategic Wins: Ferrovial was awarded the I-24 Southeast project in Tennessee and the I-285 East Express Lanes in Atlanta, adding significant long-term value to its managed lanes portfolio.
• I-24 Project Details: The concession payment structure is front-loaded, with approximately $7.7 billion in nominal payments during construction (2027-2033). The total present value of payments to TDOT is $21 billion. The project includes revenue-sharing mechanisms if performance exceeds base case IRRs or toll rates exceed specific thresholds.
• I-285 East Project Details: Phase 1 covers ~23 miles with an estimated construction cost of $8.9 billion and expected service commencement in 2034. The proposed concession payment is $21.1 billion. Phases 2 and 3 are indicative/partially committed and subject to future negotiation.
• Operational Efficiency: Improved vehicle classification technology in Dallas managed lanes has led to double-digit growth in revenue per transaction, significantly outpacing inflation. Targeted promotions on 407 ETR have reduced marketing costs while maintaining demand.
• Cash Management: Closed September with a net cash position of €1.66 billion. Strong cash generation came from project dividends (€604 million) and construction operating cash flow (€591 million).
• Construction Profitability: Record order book of €19 billion supports future growth. Udimex maintained healthy profitability (6.9% adjusted EBIT margin), while Weber and Ferrovial Construction also improved margins through operational efficiencies and better execution.

Highways: Total revenue grew by 18.4% in the first nine months, driven by higher toll rates and strong performance in managed lanes despite lower traffic volumes on some assets. Adjusted EBITDA grew by 21%. Key assets include 407 ETR (revenue +18.4%, EBITDA +21%), Dallas Forward Managed Lanes (NTRE revenue +14.8%, LBJ revenue +16.3%, NTE 35 West revenue +15.8%), I-66 (revenue +17.7%, EBITDA +18.1%), and I-77 (revenue +5.4%, EBITDA -6.1%). Airports: New Terminal 1 at JFK remains under construction with a Phase A DBO date of March 2027; Dalaman airport saw revenue decline by 7.1% and adjusted EBITDA decline by 7.7% due to geopolitical impacts on international travel. Construction: Revenue reached €5.8 billion (+9.1% like-for-like), with an adjusted EBIT margin improving to 4.1% from 3.7% last year. The order book hit a record high of €19 billion.

• Dividends: Announced a second interim dividend of €600 million, payable in cash or shares.
• 407 ETR Dividends: Total dividends approved for 2026 are C$2.1 billion (C$1.05 billion already distributed, C$1.05 billion approved for Q4), up from C$1.5 billion in 2025.
• Dallas Managed Lanes: Dividend distributions remain at 100% stake level, consistent with previous periods (June/December payouts).
• New Terminal 1 (JFK): No dividend distributions until the notice to proceed for Phase B2 is issued, which must occur no later than June 2033.
• Construction Margins: Management reaffirmed that a long-term adjusted EBIT margin of around 3.5%-4% is reasonable, noting that current Q3 performance (5.1%) reflects temporary strengths but will average out over time.

• Traffic Decline Risks: 407 ETR traffic declined 7.1% in Q3 due to slower economic growth, unfavorable weather, holiday timing, and a shift away from broad promotional discounts. I-77 traffic declined 5.2% YTD due to heavy vehicles shifting to alternative routes during construction.
• Legal Challenges: An ongoing legal challenge against the I-24 award exists, though management expressed low concern regarding its impact.
• Construction Delays: New Terminal 1 at JFK faces delays in Phase B1 and B2 milestones due to contractor execution, KPI achievement, and coordination with stakeholders like CBP and TSA.
• Geopolitical Impact: Dalaman airport revenue was negatively affected by geopolitical challenges in the Middle East reducing international traffic.
• Revenue Share Impacts: I-77 adjusted EBITDA declined due to a step-up in the revenue share band from 25% to 50%, though this is expected to normalize as revenue grows within the new band.

Q: Analyst asked about the rationale behind the steep traffic decline on 407 ETR in Q3 and whether toll reductions might be considered. / A: Management explained the decline stems from a strategic shift from broad promotions to targeted ones, alongside macro factors like tariffs and flat GDP. They ruled out lowering prices, noting that revenue growth remains substantial despite volume drops, and the product is still well-valued by customers.

Q: Analyst sought clarification on the capital structure and leverage for I-24 and I-285, specifically regarding TIFIA financing and equity requirements. / A: CFO clarified that TIFIA allows up to 75% debt financing, requiring only 25% equity at financial close. The projects target a high single-digit unlevered IRR, translating to double-digit levered IRR. Management noted that while they hold 90% of I-285, they may reduce participation later to match risk profiles seen in other assets.

Q: Analyst inquired about the timeline and payment schedule for I-24, noting a discrepancy between service commencement and first payment years. / A: CEO clarified that while operations begin in late 2035, the first full-year concession payment occurs in 2036. He emphasized that the payment schedule is based on present value calculations using a discount rate tied to TIFIA costs, ensuring consistency with grantor expectations.

Q: Analyst asked about the potential for additional partners in I-285 and the ability to walk away if conditions change. / A: CEO stated that finding partners is not mandatory for financial close, and the company can proceed alone. However, bringing in partners later could increase project value. Management reiterated that while they have the option to withdraw, they view the project as highly valuable and do not anticipate doing so.

Q: Analyst questioned the impact of capacity improvements on NTRE revenue and the normalization of pricing benefits. / A: CFO noted that limited data is available post-capacity opening, but traffic is returning. Regarding pricing, he highlighted that the initial surge in revenue per transaction from technology enhancements and mandatory modes is normalizing, but underlying economic growth in Dallas continues to support positive trends.