TOLL ROADS

Revenues at the division grew +15.7% in comparable terms in 2017, bolstered by the higher contribution from the Managed Lanes toll roads in the USA, traffic growth in the majority of assets and due to the payment of success fees (+EUR19mn). In comparable terms, the division posted EBITDA growth of +23.8% in 2017.

The USA accounted for 37.5% of revenue and 42.8% of EBITDA in 2017.

The comparable figures stripped out the FX effect and the changes to the consolidation perimeter in 2016 and 2017. Notably from the disposals of:

• Chicago Skyway: sale to a consortium of Canadian pension funds of Cintra’s 55% stake in this asset, for EUR230mn. The sale was completed in February 2016 (two months’ contribution in 2016).
• Irish Toll Roads: sale of 46% of M4 and 75% of M3 to the Dutch fund DIF for EUR59mn. Ferrovial retains 20% in each, and they are now consolidated using the equity method. The sale was completed in February 2016 (two months’ contribution in 2016).
• Norte Litoral and Algarve: in June 2016, Ferrovial reached an agreement with the Dutch fund DIF to sell a 51% stake in the Norte Litoral toll road and a 49% stake in the Algarve toll road (both contributed 12 months in 2016). In April 2017, the sale of the Norte Litoral stake was completed (aprox. four months contribution in 2017) for EUR104mn; and in September the sale of the Algarve stake was completed (nine months contribution in 2017) for EUR58mn. Both were consolidated through equity method following the completion of the transactions.

Assets in operation

Traffic performance during 2017 was very positive on Ferrovial’s main toll roads, both in terms of light and heavy traffic.

Canada: traffic on the 407 ETR increased by +2.6% in the period (light traffic +2.3% and heavy traffic +6.3%), bolstered by the positive impact of the opening of the 407 East Extension Phase I toll road (open to traffic in June 2016, toll free until February 2017) and by the calendar effect and stronger economic growth in the Ontario region.

USA: traffic growth was driven by the very positive performance of the Managed Lanes toll roads (NTE +10.9% and LBJ +9.3%), which are still in the ramp up phase.

Spain: traffic trended upwards, boosted by the country’s economic growth. Traffic at Ausol I grew by +10.3% in 2017 and Ausol II by +5.7%.

Portugal: performance has been positive in 2017, aided by the economic recovery and, in Azores (+6.7%), due to the increase of tourism on the back of the airline market liberalisation. In Algarve (+17.0%), traffic was positively affected by works on the alternative route.

Ireland: continued positive performance thanks to the upturn in employment. 2017 ended with similar growth to 2015 and 2016, around +6% at M4 and close to +9% at M3.

Greece: lower Ionian Roads ADT (-29.3%) due to the opening of new segments in 2017, which has distorted the average daily traffic calculation. Excluding this impact, IMD variation would have been +5.6%.

Globally consolidated toll roads

Toll roads consolidated using the equity method

407 ETR

Profit and loss account

Revenues at 407 ETR increased by +11.7% in local currency in 2017.

• Toll revenues (93% of the total): grew by +11.6% to CAD1,178mn, mainly due to the tariff increases applied since February 2017 and the improvement in traffic.
• Fee revenues (6.5% of the total): reached CAD82mn (+20.1%), mainly due to starting to manage the 407 East Ext Phase I toll road, coupled with an increase in the number of transponders and higher tariffs.

Average revenues per journey rose +10.4% (CAD9.96 vs. CAD9.02 in 2016).

The toll road also recorded an increase in EBITDA of +12.1% in 2017, with an EBITDA margin of 87.1% vs. 86.8% in 2016.

Financial result: -CAD358mn, CAD14mn fewer expenses vs. 2016 (+3.9%). Main components:

• Interest expenses: -CAD364mn. CAD14mn higher than in 2016, largely due to the increase in debt, after the recent issuance of CAD800mn in senior bonds in September 2017 and CAD250mn in March 2017.
• Non-cash financial expenses linked to inflation: -CAD9mn vs. -CAD34mn expenses in 2016 (up by +CAD25mn), due mainly to the positive impact of falling inflation over 2017, partially compensating for the negative impact resulting from the decrease in the discount rate.
• Other financial income: CAD16mn (vs. CAD11mn in 2016) due to greater returns on investment and higher average cash balance.

407 ETR contributed EUR125mn to Ferrovial’s equity-accounted results (+27.8% vs. 2016), after the annual amortization of the goodwill following the sale of 10% in 2010, which is being written down over the life of the asset on the basis of the traffic forecast.

407 ETR dividends

In 2017, 407 ETR distributed dividends of CAD845mn, +7.0% vs. 2016. Of these, EUR262mn were distributed to Ferrovial (EUR244mn in 2016). At the February Board meeting, the 1Q 2018 dividend payment was approved in the amount of CAD226.25mn (+9.0% vs. 1Q 2017).

407 ETR traffic

Traffic (kilometers travelled) rose by +2.6%, with an increase in the number of journeys (+1.0%) and an increase in the average distance travelled (+1.6%). Traffic has been bolstered by the positive impact of the opening of the 407 East Extension Phase I toll road (open to traffic in June 2016, toll free up to February 2017) and by the calendar effect and stronger economic growth in the Ontario region.

407 ETR net debt

The net debt figure for 407 ETR at 31 December 2017 was CAD6,958mn (average cost of 4.43%). 53% of the debt matures in more than 15 years’ time. The next maturity dates are CAD14mn in 2018, CAD15mn in 2019 and CAD738mn in 2020.

407 ETR carried out various bond issues over the year:

• In March, a senior bonds issue was carried out worth CAD250mn, maturing in 16 years (maturing in 2033) with an annual coupon of 3.43%.
• In September, it issued bonds worth CAD800mn:
  • CAD500mn of 27 year bonds (maturing in 2044) and a coupon of 3.65%.
  • CAD300mn of 5 year bonds (maturing in 2022) and a coupon of 2.47%.
  • Simultaneously to this issue, it announced the early payment of a CAD300mn bond, with maturity date of November 2017.

407 ETR credit rating

• S&P: on 31 May 2017, the company remained at a rating of "A" (Senior Debt), "A-" (Junior Debt) and "BBB" (Subordinated Debt), with a stable outlook.
• DBRS: on 17 November 2017, the company remained at a rating of "A" (Senior Debt), "A low" (Junior Debt) and "BBB" (Subordinated Debt), with a stable outlook.

407 ETR Tariffs

In 2017, the tariffs were increased on 1 February, and a new tariff structure was announced, including variations depending on the direction of travel (as well as by area, day and time of travel, which was already taking place). Tariffs applied from 1 February 2017 for light vehicles (expressed in CAD cents/km):

In December 2017 a new tariff structure was announced and tariffs increased from 1 February 2018. For more information on the new tariffs, please click on the following link.

For further information on the 407 ETR toll road results, please click here to see the 407 ETR MD&A report.

NTE

NTE Profit & loss account

In 2017, Ferrovial increased its stake in NTE by +6.3%, reaching 62.97% (see Other Events chapter)

During 2017, revenue rose by +26.8% compared to the year before, on the back of traffic growth and higher tariffs.

EBITDA reached USD75mn (+32.6% vs. 2016). EBITDA margin reached 80.8% during 2017 (+360 basis points), as a result of the growth in revenues and operational cost management.

Toll road traffic continues to increase its market share of traffic on the corridor. The average toll rate per transaction has also risen during the year (+9.9%). Construction progress on the I35W corridor is helping to draw traffic back onto the corridor (that connects to NTE1-2), and the opening of Segment 3B in July 2017 has also benefitted NTE users, by increasing the length of the Managed Lanes network. Finally, the connectivity improvements implemented at Segment 2 of NTE since 2Q 2017, have also had a positive effect on growth.

NTE Quarterly Traffic and EBITDA

In terms of traffic: in 4Q 2017, NTE recorded 6.9 million transactions, +14.2% more than in 4Q 2016 (6.0 million transactions).

Very positive EBITDA performance, with growth of +25.3% between 4Q 2017 and 4Q 2016, as a result of good revenue performance and operating expense management.

The average toll rate per transaction in 4Q 2017 at NTE reached USD3.5 vs. USD3.2 in 4Q 2016 (+9.9%).

NTE net debt

As of 31 December 2017, net debt for the toll road amounted to USD1,028mn (USD1,032mn in December 2016), at an average cost of 5.35%.

NTE credit rating

LBJ

LBJ Profit and Loss Account

In 2017, Ferrovial increased its stake in LBJ by +3.6%, reaching 54.6% (see Other Events chapter).

During 2017, the toll road generated revenues of USD101mn (+33.0% compared with the same period in 2016), as a result of both the continued growth in traffic during the ramp-up phase and higher tariffs.

EBITDA reached USD80mn (+37.4% vs. 2016) helped by a strong surge in traffic. The EBITDA margin reached 79.6%, aided by the significant growth in revenues.

Toll road traffic continued to register robust growth, as did the corridor, which continues to be in its growth phase, exceeding the existing volumes prior to construction of the project. At the same time, the average toll rate per transaction has significantly increased compared to the previous year. Completion of works on the I35E corridor, incorporating the new Managed Lanes operated by TxDOT, has led to a gradual increase in traffic on this corridor that connects directly to LBJ, above the average for other toll roads in the area.

LBJ Quarterly Traffic and EBITDA

In terms of traffic, a total of 10.6 million transactions took place during the fourth quarter of 2017, +5.2% in comparison with 4Q 2016 (10.1 million transactions).

EBITDA in 4Q 2017 reached USD21.4mn, a significant increase compared to 4Q 2016 (+29.8%):

The average toll rate per transaction at LBJ reached USD2.60 in 4Q 2017 vs. USD2.1 in 4Q 2016 (+21.1%).

LBJ net debt

As of 31 December 2017, net debt for the toll road amounted to USD1,463 (USD1,449mn in December 2016), at an average debt cost of 5.44%.

LBJ credit rating

FINANCIAL ASSETS

Under the terms of IFRIC 12, concession contracts are classified as intangible and financial assets. Intangible assets (where the operator assumes the traffic risk) are those for which remuneration is earned from charging the corresponding rates depending on level of use. Financial assets (no traffic risk for the concession holder) in which payment consists of an unconditional contractual right to receive cash or other financial assets, either because the body awarding the concession guarantees the payment of specific sums, or because it guarantees the recovery of any shortfall between the sums received from users of the public service and the aforementioned specific sums.

The financial assets in operation are: Autema, 407 East Ext Phase I, M8, Algarve, A66, Norte Litoral and Eurolink M3 (except for Autema, all of them are equity-accounted).

ASSETS UNDER DEVELOPMENT

NTE 35W: financing close was reached in September 2013. Work is proceeding on schedule (98.9% of design and construction works were completed at December 2017, with the full opening scheduled for the second half of 2018).

I-77: construction works began in November 2015. In December 2017 the design and construction works were 49% complete, and the toll road is expected to open at the end of 2018.

407 East Extension Phase II: At end-December 2017, the design and construction works were 67% complete.

I-66: in October 2016, Cintra won the Transform I-66 Project (Virginia, USA), the commercial negotiations of which were completed on 8 December 2016 and includes the construction of 35 km along the I-66 corridor (between Route 29, close to Gainesville, and the Washington DC Beltway, the I-495, in Fairfax County).

Financial close was completed in November 2017 with the issue of PAB bonds for an amount of USD800mn. The committed capital for this project is estimated at EUR633mn (for Cintra’s stake).The term allocated for construction of the project runs until 2022, while the concession is granted for 50 years since the commercial close, which took place in 2016.

Awarding of the “Western Roads Upgrade” contract, Melbourne

In Australia, in October 2017, Cintra was awarded the “Western Roads Upgrade” project (OSARs), an availability payment project with a concession term of 22 and a half years, which consists of the improvement and maintenance of the Melbourne toll road and inter-city motorway network. The commercial agreement was completed on 11 December and the financial agreement on 19 December 2017.

TENDERS PENDING

In the USA, Ferrovial continues to pay close attention to private initiatives.

• In September, the Maryland Department of Transport (MDOT), issued a Request For Information (RFI) for the I-495/I-95 (Capital Beltway) and I-270 Congestion Relief Improvements projects. The MDOT is considering a design, construction, financing, operation and/or maintenance project for both projects, which would take the form of Managed Lanes. These projects fit perfectly with the Cintra strategy, as they are High Complexity Concessions, which Cintra has been extremely competitive on in the past.
• The pre-qualification of the I-10 Mobile River Bridge in Alabama, was presented on 17 November 2017. Cintra was pre-qualified on this project on 2 February 2018.
• We also continue to follow various processes in different states (primarily in Illinois, Maryland, Virginia and Texas).

In Canada, Cintra has been pre-qualified for the Hurontario LTR (Ontario) project, which consists of 20 kilometres of light railway under an availability payment system.

In other markets, Cintra has been pre-qualified for the Silvertown Tunnel project in London (United Kingdom), with an estimated investment of EUR1,230mn.

PROJECT DIVESTMENTS

Norte Litoral & Algarve Toll Roads

In June 2016, Ferrovial, through its toll roads subsidiary Cintra, reached an agreement with the Dutch infrastructure fund DIF to sell 51% of the

Norte Litoral and 49% of the Algarve toll roads. After this transaction, Ferrovial will continue to hold 49% of the Norte Litoral and 48% of the Algarve, as well as its position as the principal industrial partner in both assets.

On 21 April 2017, the sale of a 51% stake in Norte Litoral was approved, for which EUR104mn was received. On 26 September 2017, the sale of the stake in Algarve (49%) was approved, for which EUR58mn was received.

OTHER EVENTS

Acquisition of the Dallas Fire & Police Pension Scheme stake for Managed Lanes

Cintra, along with the other Managed Lanes partners (Meridiam and APG), acquired the Dallas Fire & Police Pension Scheme’s stake in NTE (10%) and LBJ (7%) in September 2017. Cintra acquired 6.3% in NTE and 3.6% in LBJ, and now holds 62.97% in NTE and 54.6% in LBJ. The total amount paid by Cintra for the stakes stands at USD107mn (NTE 65mn and LBJ 42mn).

Autema

In July 2015, the official journal of the regional government of Catalonia (Diario Oficial de la Generalitat de Cataluña) published Decree 161/2015, which unilaterally approved changes to the administrative concession for the Tarrasa-Manresa toll road. The new tariffs (discounts) included in this Decree were first applied in January 2016. In October 2016, the concession holder Autopista Tarrasa-Manresa filed a legal challenge to this Decree with the Catalan High Court (TSJC).

A further Decree was published in the official journal of the regional government of Catalonia on 30 December 2016 (337/2016). This was once again unilateral, and it basically amended and extended the discounts contained in the earlier Decree. The concession holder, Autopista Tarrasa-Manresa, also filed a legal challenge to this decree on 20 July 2017.

Both of these legal actions have been adjoined in one single action by the TSJC. The co-defendants (Generalitat de Catalunya and the Consell Comarcal de Bagés) have already submitted their briefs in response to the demands and the procedure is awaiting the start of the test phase.