Ferrovial N.V. Q3 FY2025 Earnings Call

Good afternoon, everybody. This is Silvia Ruiz speaking, and I would like to welcome you to Ferrovial's conference call to discuss the financial results for the third quarter of 2025. I'm joined here today by our CFO, Ernesto Lopez Mozo. Just as a reminder, both the results report and the presentation are available on our website since yesterday evening, after the U.S. market was closed. At the end of the presentation, there will be a Q&A session. Before starting, please take a moment to look at the safe harbor statement included in the presentation. And please bear in mind that the presentation contains forward-looking statements and expectations that are subject to certain risks and uncertainties, so actual figures may differ. Other than as required by law, the company assumes no obligation to update forward-looking statements. During this call, we will discuss non-IFRS financial measures, which are defined and reconciled to the most comparable IFRS measures in our results report. With all this, I will hand over to Ernesto. Ernesto, the floor is yours.

Thank you, Silvia, and hello, everyone. Thank you for joining us today for Ferrovial's Third Quarter 2025 Operating Earnings Conference Call. Starting with the overview. In the first nine months of 2025, we saw continued strong momentum across our business divisions. Our highways delivered outstanding revenue and EBITDA growth, fueled by our North American assets. Airports saw continued progress at New Terminal One at JFK. Here, we are now intensely focused on operational readiness. Construction maintained solid profitability with the adjusted EBIT margin reaching 3.7% in the first nine months. On the financial side, net debt, excluding infrastructure projects, stood at negative net debt or net cash of EUR 706 million. The main cash inflows included EUR 406 million in dividends collected from projects and proceeds of EUR 534 million from the sale of AGS Airports in the U.K. and EUR 539 million from the sale of a 5.25% stake in AGS Airports. This was closed in July. The main cash outflows related to the acquisition of an additional 5.06% stake in the 407 ETR for the equivalent of EUR 1.3 billion and also equity injections of EUR 239 million in NTO. Shareholder distributions reached EUR 426 million in the first nine months. We also announced a second scrip dividend and expect to submit the RFQ for the I-77 South Express project in North Carolina in December. As a reminder, we have already been shortlisted for bidding on the I-24 Southeast Choice Lanes in Tennessee and the I-285 East Express Lanes in Georgia. We expect to submit these bids in the first half of 2026. Let's move now into the operations with the slide on highways. And here, the U.S. highway revenue grew 16.4% in like-for-like terms in the first nine months of the year compared to last year, and adjusted EBITDA was up nearly 15.1%. Ninety-seven percent of the highways adjusted EBITDA and 88% of the highways' revenue come from the North American assets. Dividends from these North American assets in the first nine months of 2025 totaled EUR 312 million, versus EUR 420 million in the same period last year. This reflects the strong growth and the cash generation of these concessions. As a reminder, the first nine months of 2024 included the first dividend from the I-77, which was an extraordinary amount of CAD 195 million. Let's move to the specific assets, the 407 ETR that delivered another outstanding performance this quarter. Traffic in the quarter grew strongly, 9.4%, and it grew 6.2% in the first nine months of the year compared to last year. This growth reflects the success of targeted rush hour driving offers as well as the increase in mobility in the region from return-to-office mandates. The strong underlying traffic trends were the driver of 18.6% revenue growth in the third quarter and 19.3% in the first nine months. EBITDA surged 20.1% in the third quarter and 15.8% in the first nine months. In terms of Schedule 22, 407 ETR reduced the 2025 Schedule 22 Payment Estimate. Given the new estimate is markedly lower than the previous estimate, the provision for the first nine months is lower than the one recorded up to June. As a result, the 407 ETR recorded a CAD 9.8 million provision recovery in the third quarter, bringing the accrued provision for the nine months to CAD 35.4 million. Promotions are working very well in incentivizing more efficient use of the road. Through these targeted offers, we continue to gain valuable insights into customer behavior. We expect our focus on demand segmentation to continue enhancing value for users and maximizing EBITDA growth. In terms of dividends, CAD 450 million has been paid in the first nine months of the year. This is up 13% compared with the same period last year. The 407 Board has approved a dividend of CAD 1.05 billion to be distributed in Q4. This is up 50% from last year's fourth quarter dividend. This would bring the total amount of dividends approved for the 2025 year to CAD 1.5 billion. This is up 36% from 2024. Moving to the Dallas-Fort Worth Managed Lanes, we will start with NTE. Despite traffic impact from capacity improvement construction works, there are fewer vehicles in the corridor, which affected traffic, declining 3.7% in the third quarter and 4.4% in the first nine months of the year. Revenue per transaction has increased by a healthy 14.2% in these first nine months. This benefits from a favorable traffic mix that means more heavy vehicles in proportion and more mandatory mode events. The asset grew adjusted EBITDA by 7.4% in the first nine months, and this includes $1.3 million of revenue share in the third quarter and $4 million in the first nine months. In LBJ, traffic grew 1.7% in the quarter and 1.5% in the first nine months of the year despite the impact of continued construction works in the surrounding roads and corridors. Revenue per transaction grew 8.7% in the first nine months and adjusted EBITDA grew 11.1%. NTE 35W is the only Dallas-Fort Worth managed lane that is not impacted by construction works. Traffic in the third quarter grew 4.6% and by 4.1% in the first nine months. This drove outstanding revenue per transaction growth of 12.0% in the third quarter and 10.2% for the first nine months. Adjusted EBITDA grew 11.8% in the first nine months of the year and included $4.9 million of revenue share in the third quarter and $14.8 million in the first nine months of 2025. All the Dallas-Fort Worth assets recorded solid revenue per transaction growth, above the soft cap, benefiting from the favorable traffic mix I mentioned. They are also benefiting from more mandatory mode events, which occur when tolls are temporarily set above the soft cap to guarantee a minimum level of service. In terms of dividend distributions for the first nine months, the figures at 100% participation would be $108 million for the NTE, $52 million for LBJ and $99 million for the NTE 35 West. There's no change versus June. Please remember that these projects usually distribute dividends in June and December. Moving to management outside Dallas-Fort Worth, we have the I-66 and the I-77. The I-66 saw exceptional traffic growth, 13.2% in the third quarter and 8.5% in the first nine months of the year. Revenue per transaction grew 12.1% in the quarter and 18.3% in the first nine months of the year. This strong growth was driven by robust corridor growth, especially during peak times where we are seeing some benefits from greater enforcement of return-to-office policies. This is happening across the U.S. and also Canada. These strong underlying traffic trends helped to drive outstanding growth of 32.5% in adjusted EBITDA in the first nine months of the year. The I-66 distributed $64 million in dividends in the first nine months. The I-77 also saw traffic growth, 1.5% in the third quarter despite adverse weather conditions, particularly in August. Revenue per transaction increased by a strong 25.7% in the quarter and 24.4% in the first nine months. Adjusted EBITDA grew 21.1% in the first nine months with $5.4 million of revenue share for Q3 2025, and this includes revenue share from extended vehicles. Revenue sharing, including extended vehicles, totaled $15.7 million for nine months 2025 compared to $6.9 million in the first nine months of 2024. The I-77 distributed $22 million in dividends since the beginning of the year. Now let's move to the Airports division. At New Terminal One, we are making steady progress towards operational readiness. The project remains on budget. In terms of schedule, we are discussing acceleration measures with the contractor to guarantee that the official opening date of June 2026 is achieved. Construction is 78% complete and we have commitments from 21 airlines. As a reminder from previous quarters, we achieved an important milestone in July, completing the refinancing of Phase A through the issuance of a $1.4 billion long-term bond. In Dalaman, we saw steady performance. Adjusted EBITDA growth in the first nine months is supported by commercial upgrades despite softer international traffic during the summer, which was affected by the geopolitical situation in the Middle East. In the first nine months, traffic declined by 1.5%, yet revenue grew 2.9% and EBITDA 1.8%. Dalaman distributed EUR 7 million in dividends during the third quarter. This is Ferrovial's share. Now let's move to Construction, which keeps showing solid profitability. The division delivered a 3.7% adjusted EBIT margin for the first nine months of the year, aligned with the long-term target of 3.5%. It recorded a solid 4.2% adjusted EBIT margin in the third quarter. Budimex and Webber maintained steady profitability with very healthy adjusted EBIT margins of 7.6% and 3%, respectively, in the first nine months. Ferrovial Construction's adjusted EBIT margin was 1.7% in the nine months, slightly down versus the same period last year due to significant design activity in bidding for projects in the U.S. and costs related to digitalization and IT systems, while partially offset by increased margins in projects approaching completion. These expenses should support the growth that we're seeing ahead. Our order book stands at EUR 17.2 billion at the end of September. This is up 9.1% in like-for-like terms compared to the close of December 2024. The composition of the order book remains very healthy given the lower weight of large design-and-build projects with non-group companies. It does not reflect approximately EUR 2.3 billion in contracts that are pre-awards or pending financial close. Almost half of our backlog is in our core U.S. and Canada market, which we expect will continue to support future growth. Now let's move to the next slide to look at the main figures. You see the strong revenue and profitability performance for the first nine months of the year: strong across the board, revenue growing 6.2%, adjusted EBITDA 4.8% and adjusted EBIT 6.0% in like-for-like terms. Let's move now into the consolidated net debt position. Net debt, excluding infrastructure project companies, as I mentioned in the introduction, was negative EUR 706 million or net cash of EUR 706 million at the end of the third quarter. This reflects strong cash generation, disciplined investment and the impact of recent divestments. We collected strong dividends; please remember this figure does not include the latest dividend announced by the 407 ETR that will be paid in the fourth quarter. The cash flow from construction is affected by the lack of significant advance payments during the first nine months. You know that there's usually seasonality in construction. We expect to see a substantial improvement in working capital in the last quarter of the year. In this operating section, we also have tax payments that are mainly related to Budimex and, to a lesser degree, construction projects in Australia and Canada. In the investment bucket, we see significant activity in terms of investments for growth, the main one being the 5.06% acquisition of an additional stake in the 407 and the equity injections in NTO. Just a reminder: NTO has no additional equity injections scheduled for the year. Additionally, in this block, we reflect interest received in cash and deposits, and we reflect the divestments from the sale of Heathrow and AGS primarily. Then we have shareholder distributions, including cash and share buybacks, which amounted to EUR 426 million. We are on track to deliver across the years 2024 through 2026 EUR 2.2 billion in cash to our shareholders. Then we have cash flow from financing activities related to external debt repayments, interest, and also FX translation of the cash balances. So it's a very solid net cash position. Closing remarks before moving into the Q&A session: the performance in the first nine months of 2025 demonstrates the strength and resilience of our portfolio. The North American assets continue to drive growth, supported by increased customer segmentation and favorable market dynamics where the assets are located. Looking ahead, we're really looking forward to the attractive pipeline of opportunities in North American highways mainly. We expect to have bid submissions for the I-24 in Tennessee and I-285 in Georgia in the first half of 2026, and we expect to submit the RFQ for the I-77 South in North Carolina before the end of this year. The construction order book remains healthy and the division is ready to enable delivery on the growth opportunities that the infrastructure concession pipeline shows. Thank you, and let's move into the Q&A session.

Thank you very much, Ernesto. Let's start with the Q&A session. Operator, please go ahead.

Our first question comes from Ruairi Cullinane from RBC Capital Markets.

First question on the NTO. What are the potential financial consequences in a scenario where there is a delay to the launch of Phase A? And secondly, the widening of operating losses in the other segment, was that just driven by the divestment?

Okay. As I mentioned, we are working with the contractor for the official opening date in June. If there were to be delays beyond June, then the contractor will have to face liquidated damages. For us, delays in opening would mean a delay in the recognition of revenues. But as I said, we are working on what's needed for the original opening. Regarding the other segment, yes, this plant, Isle of Wight, was commissioned some months ago. When you commission operations some start-up effects can affect performance. We needed to invest to improve the ash removal from the chamber and we delayed the ramp-up a little. This relates to the commissioning and start-up of this plant. Remember that when we divested the whole services business, we mentioned that this part of waste treatment in the U.K. needed overhaul of the plants before divesting. So we've been doing that with all the plants. It was the last to be commissioned. Yes, we are now exiting this business.

Great. Actually, could I just... (inaudible)

Yes, go ahead. You're on the line.

Should we expect any impact from the U.S. government shutdown in Q4? Just one more question.

Thanks. Up to date, we haven't really seen any significant impact on the I-66. That is the one closer to Washington; maybe some small tweak in traffic, but nothing significant in terms of revenue. We'll have to monitor that, but we haven't seen anything. Regarding bidding processes, these are mainly carried out at the state level, so they are not affected. The only federal agency involved here is the Federal Highway Administration. So the process goes on as scheduled so far.

The next question comes from Elodie Rall from JPMorgan.

My first one is on Schedule 22. The provision reversal in Q3, I think, came a bit as a surprise. Maybe you can come back on what drove this reversal, if it's the fact that underlying traffic was a lot higher, promotions outperformed. And also what that means with regard to how optimistic you are with regard to Schedule 22 penalty decreasing to zero maybe sooner? And what would be the time frame? And my second question is on the NASDAQ 100 inclusion. I was wondering if you could give us some color on what you think about your chances to get in and the latest on that.

Thanks, Elodie. On Schedule 22, several things. First, there's been more mobility in the area. As I mentioned, it's also happening in Toronto: there's a clear mandate of return to the office and you see general congestion in the area. One example is the 407 East that saw traffic jumps in the summer. So clearly there's more mobility that has helped. But the main driver has been that we've been positively surprised at how effective promotions have been. Heavy users continue using the road as expected or even a little more, and infrequent users are starting to use it. The combination of our rush hour proposition being more valuable given what's happening in the area and the segmentation has worked much better. We don't comment on detailed projections of Schedule 22 because the product has to meet all the quality requirements, so we won't provide projections on how this could pan out in the future. What is sure is that performance has been much better than the assumptions we had when we bought the additional stake, so we are pleased with the situation. Regarding the NASDAQ 100, inclusion will be determined at the end of November based on relative market capitalization. It's not for me to comment on chances. The criteria are very clear and markets will decide; I won't comment on probabilities.

The next question comes from Cristian Nedelcu from UBS.

On the ETR, you have the pricing for next year you will announce in November. I don't know if you can offer any color there. It seems that the backdrop is favorable. You have more mandates to the office, more congestion. Also, if we look at your last five years price increases in the context of the tariffs being frozen, you've been doing smaller price increases on average than pre-COVID levels. So any reason why the price increase will not be comparable with what you've done over the last two years in the ETR for 2026? The second question on the ETR discounts you're offering: this represents somewhere around $100 million to $150 million per year in discounts. Now we just discussed the Schedule 22 provisions are lower than we thought. Can you give us a directional steer into 2026? How should we think about these discounts? Should they be flat year-over-year? Or do you see reasons to increase or decrease them? And the last one, on the I-66, we've seen double-digit volume growth in Q3 and more return-to-office mandates. Could you talk a little about the development we've seen there on revenue per transaction actually decelerating versus Q2? What caused that? Is it mix or other factors? And to what extent is this development in Q3 sustainable for the next quarters?

Thank you. Let me address these. On the I-66, we need to go back to 2024 to understand the dynamics: that quarter we increased use of dynamic pricing with algorithms acting more flexibly, so some of the growth started then and has been building through the year. The algorithm keeps improving; we are optimistic but will monitor performance going forward. Regarding the 407 and what you call discounts, we view promotions as incentives that drive additional trips and loyalty. Some promotions can be seen as discounts, but our focus is on revenue and EBITDA growth. These promotions encourage trips and help overall revenue growth and client satisfaction through better segmentation. I cannot provide specific guidance on future discounts or the exact logic of next year's pricing; we expect the 407 to announce timing and details similar to last year, but we'll have to wait for the actual announcement.

The next question comes from Ami Galla from Citi Research.

Just a few questions from me. The first was on NTO. If you could give us some color based on the agreements that you've had with the 21 airlines as to the broad framework of how should we think about fees and the revenue structure when you start operating? I appreciate it's early days, but if you can give us some ballpark estimates that would be helpful. The second question I had was on the managed lanes business: where you've been operating mandatory mode events, were there any specific events or disruptions in Q3 that drove that? Or was that a general increase in traffic that led to that? And last one was on the competitive backdrop: any color on how you see competitive intensity across your markets on the contracting side?

Thanks. On NTO airlines and ramp-up: we are in a commercially sensitive stage ahead of the opening. Airlines typically finalize arrangements months before opening; these have been negotiated now but are commercially sensitive so we cannot comment at this time. The focus right now is operational readiness and then commercial disclosures will follow later. On mandatory modes in the managed lanes, this is probably an effect of more peak-hour activity. As I mentioned, across the U.S. and in Toronto we are seeing a clear return-to-office pattern that drives traffic and peak performance. Combined with a higher proportion of heavies, this has increased mandatory mode triggers. Even though NTE saw less traffic overall due to construction, the mix and peak demand explain mandatory modes. On the competitive environment in construction, rather the contrary: there is healthy activity. Heavy civil works remain active and you also have data center activity on top. We are not seeing irrational aggression on pricing; it is a rational market environment with solid demand.

The next question comes from Dario Maglione from BNP Paribas Exane.

Three questions for me. One on the Texas managed lanes. You mentioned in the press release there was a positive effect due to traffic mix. Can you tell us more about this? Is it both heavy vehicle and light trucks that have a higher share? And if you could tell us why this is happening? Second question, how far is the LBJ from hitting mandatory modes? Third question on the 407 ETR: going back to the incentives working very well, can you give us some examples of these incentives and maybe more color on which ones are working best in your view?

Thanks. On the traffic mix in the managed lanes: the positive effect is due to a higher share of heavier vehicles, which includes light commercial vehicles as well as other commercial traffic. I cannot give a macro rationale for why this is happening, but it could be that these users are keener to use our roads in peak times given the increased intensity from return-to-office mandates. On LBJ reaching mandatory modes: LBJ has more free-lane capacity and many users have avoided the corridor due to surrounding construction works. So we do not expect mandatory modes in the near term; recovery depends on how traffic returns as works complete. Regarding incentives on the 407, rush-hour promotions targeted at those who live or work close to the road are proving effective. These promotions encourage more peak trips and loyalty and the peak-hour incentives have become more valuable given return-to-office trends. We will continue to refine segmentation and promotions over time.

The next question comes from José Manuel Arroyas from Santander.

Two questions, please. First one is on the potential to deleverage any of the managed lanes. I know there is a limit, which is the need to incur a refinancing gain if you do so, but I wanted to hear from you if you expect any of the managed lanes to pay dividends in excess of their underlying free cash flow anytime soon. And my second question is again on 407 ETR's promotions. I wanted to understand— I understood a comment you made earlier, Ernesto. I think you said that the promotions are helping to increase customer segmentation. I'm not sure how that's happening. Are you alluding to the fact that the current tariff in 407 ETR has more segments than before? I'd like to understand your comment earlier about this.

I'll start with leverage on the managed lanes. Yes, there's a possibility of releveraging some of them, namely the I-66. Not short term, but not far away; in the coming years there could be an opportunity. For other Express Lanes, not at the project level in the near term, though there may be some tweaking outside the project level that we are exploring. We will comment to the market when closer to execution. On segmentation at the 407: it's not only about tariff tiers. Segmentation means tailoring promotions and offers to different user groups. For example, infrequent users can be offered introductory promos to encourage more trips, while heavy users are targeted differently. These targeted promotions help convert infrequent users into more regular users and encourage additional trips, which benefits revenue and usage patterns.

The next question comes from Marcin Wojtal from Bank of America.

I have a couple of questions. One is on the share buyback. You committed to return EUR 500 million through the buyback. I believe based on the last weekly disclosure, EUR 142 million has been spent. Should we still assume that this buyback is on track to be completed in full by the end of the mandate, which I believe is May 2026? And can you explain why this buyback is only being done through the U.S. line? Originally, I believe you were buying both through the European listing and the U.S. listing and now it's only going through the U.S. And my second question is regarding your business plan which goes from 2024 to 2026: should we expect a new business plan to be presented at some point in the next 18 months?

Thanks, Marcin. We are committed to the EUR 2.2 billion to be returned across 2024 through 2026. You mentioned the timing: the end of 2026 is the deadline to deliver the EUR 2.2 billion. We need to catch up on some buyback activity. We have been balancing the mix of distributions and buybacks to ensure market liquidity is maintained; most buybacks so far have been in the U.S., but they could be done elsewhere. Short answer: yes, we'll deliver the committed amounts; we need to catch up and will manage the execution across jurisdictions. On the business plan: there is no decision yet, but we will update the market. We have important bids that will be awarded next year, so we will have to get in touch with you. There's no official date in the calendar yet, but we will update when appropriate.

We have a new question, and the question comes from Alvaro Lenze from Alantra Equities.

Yes. Just one quick question. We saw last week a small acquisition in data centers. Could you run us through your strategy in data centers? I think you have been less enthusiastic in the space compared to some peers. Does this acquisition signal that you see more opportunity or is there any change to your strategy in data centers?

Thanks. The acquisition is small. It adds capabilities for the Construction division in data centers because the acquired company has skills in installation and data center maintenance management. These capabilities are scarce in the market and our clients demand them. So this is more related to Construction. On the broader data center strategy, we remain opportunistic. It could be a good business and we continue to take a piecemeal approach. There is no change to a broad strategic shift.

There are no further questions at the conference call. I will now hand back to Silvia Ruiz.

Thank you, operator. I have one question here from the webcast. This is from Miguel González from JB Capital. The question is: could you please explain the reasons behind the acceleration in highways headquarters and other costs? And do you expect this trend to continue in the coming quarters?

Yes. Two things. Compared to last year, we had a one-off ST expense of roughly EUR 12 million from SR 400 that we lost; that was reflected in Q3 2024 overheads from Cintra. Now we are incurring two main types of additional spend. First, we are investing in engineering for bidding activity on the pipeline of opportunities coming up. Second, we are investing in IT, including developments related to systems and AI, which will support revenue generation. So the two main drivers are bidding costs and IT investment. Both are purposeful expenditures to support future growth. I should have highlighted this in the presentation, so thanks for bringing it up.

Okay. I think there's no further questions. Thanks for being with us. I think that the results are excellent. We're looking forward to meeting you and to the new developments in the business coming up. Thank you, and bye-bye.