Ferrovial N.V. (FER) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to Ferrovial's conference call to discuss the financial results for the first half of 2020. I'm joined today by Ernesto López Mozo, Ferrovial's CFO; and the CFOs of our business divisions. Just as a reminder, both the results report and the presentation are available to you on our website. [Operator Instructions] With this, I will hand the call over to Ernesto López Mozo, who will be leading this conference call. Ernesto, the floor is yours.

Thank you, Begoña, and welcome, everybody. I hope you're all healthy and well. The first half of 2020, the highlights probably should start with the operating impact. Toll Roads traffic was quite impacted, especially in April, but have been improving since as restrictions ease and the economy reopens. In Airports, there's a strong impact on traffic in Heathrow and AGS. Construction has kept high levels of production, in particular, in the U.S. and Poland, but of course, there's been additional costs of producing in this environment. The company has record-high liquidity, EUR 7.5 billion and a net cash position at Cintra projects of more than EUR 1.6 billion. There's been several measures to increase the liquidity, like corporate bond issues, drawing down sort of credit facilities and the European commercial paper issuance. In the main infras, as the main projects, there's also strong liquidity. And therefore, the first 6 months of the year closed with strong cash flow and generated in an important part from construction and services. In this environment also, operational efficiencies are a must and the company has engaged in the different initiatives for reducing operating expenses and reducing CapEx as well. The streamlining of operations in Heathrow and AGS has been a major, even though some of the effects will be more seen in the second part of the year. But clearly, all the initiatives have started, and some of them landed already. Also, the program Horizon 24 is advancing according to plan. It's a new operating model that would make us more efficient, more digital, that keeps its pace, as you will see in the numbers. And then, of course, across the group, there's overheads streamlining and saving initiatives, and we'll see more of this later. From an M&A point of view, a couple of divestments here. 5% stake of Budimex was sold for EUR 57 million and Broadspectrum sale closed that was announced before the year. Most of it closed before the end of June, but there was a smaller part, EUR 12 million, that closed in July that is not included in these numbers. Okay. We move over to the specific impacts of COVID-19. I'll start on the top left corner and move clockwise. From a P&L perspective, the -- in Airports, the traffic drops affected, but also we had some extraordinary initiatives that should help to make the business more efficient, going forward. There was a GBP 37 million provision at Heathrow that will help also to have a reduced cost base. There was also an GBP 85 million fixed asset impairment. And here, it has to do with projects that will take time to reinitiate or maybe are not considered to go on in the future. But probably it's more about timing, most of the things. We could get them back in the future from an accounting point of view, but this is a high hurdle. But what is more important, I mean, they are part of the regulated asset base. So from an economic point of view, in fixed asset impairment does not affect us. And the GBP 37 million provision has a clear positive NPV. In AGS, at the same time, there was a EUR 2 million provision. In Toll Roads, there were traffic drops at NTE of 29%; LBJ, 32%; NTE 35 West, 17%. We'll see that the traffic mix didn't have homogeneous drops, and heavy traffic behaved much better. In construction, we have additional costs with an impact on EBIT of EUR 44 million. And we'll talk about mitigations for this. But right now, I mean, you have to take the cost of maybe some delays or additional costs caused by this pandemic. And then in Services discontinued activity, we had lower industrial activity and services related to transportation or infrastructure maintenance because most of the business were quite resilient like waste treatment in Spain, for instance. And the EBITDA impact in Services was EUR 72 million. Moving clockwise, as I mentioned, we have the cash flow impacts, the main one from infrastructures that there were lower dividends and you can see that most of the dividends were captured in the first quarter. And the remainder of the year, if traffic keeps improving, we should see dividends from the main infrastructure assets because they have ample liquidity but we'll need to see this kind of operating improvement. In terms of Heathrow, there were no dividends in the quarter, just in the first quarter, and of course, during the waiver period that Heathrow carried out a preemptive waiver. During the waiver period, there would be no dividends or until you have the regulated asset ratio, that is the ratio of the net to RAB below 87.5%. Per annum, of course, this year, we only are able to reach, but it's a very good mark, given that we started most of the initiatives in the second quarter we'll be able to reap EUR 25 million of savings throughout the company and additional measures have been addressed. In Toll Roads all the OpEx and CapEx is being reviewed and throughout the year, we should be able to reduce the building out projects from these captions by EUR 33 million. In Airports, there were a lot of initiatives, as I mentioned before. In terms of savings, 100% of Heathrow OpEx will be reduced by more than GBP 300 million and CapEx by more than GBP 650 million in 2020. And also, yes, although much smaller, have very important efforts with OpEx being reduced by GBP 27 million and CapEx by EUR 23 million. These are estimates for the whole year for 2020. In Construction, the proportional cash reduction is small, even though -- I mean, part of the initiatives in the Horizon 24 affect construction. But directly, we're talking about a small amount because activity has been pretty high, as I mentioned. And the initiative that is also taking place is logging of claims, asking for compensation because we have in some contracts force majeure or change in law. And we have not recognized any income or revenue from these claims whatsoever. This could take time and maybe be uncertain. So in this quarter, we've reflected the cost but not the opportunity of recovering them. In Services, also more efficiencies that should help also in the divestment process. Because they can be, let's say, carried out a long time. You can view them as permanent. This EUR 28 million cash reduction is something that is taking place more in the second part of the year. And it does not include any of the lower costs from temporary reduction of employments or furloughs as you call them in the U.K. or the U.S. Well, and finally, regarding the strategy, Ferrovial's strategy. The group's priorities during the pandemic has been, first and foremost, the safety of the workplace and to protect the health of employees and clients; second, protect the company’s liquidity and its financial position; and the third one has been to support the community with a fund to help different people in the countries where we operate, affected by COVID-19. Okay. So this is kind of a slide for the COVID-19 impacts and different initiatives. As I said, all the cost initiatives will be seen more in the second part of the year, given that now you have the initial one-offs that allow you to get you to that position, but the reductions come later on in costs. Okay. We move to the section of Toll Roads. We can see that traffic has been recovering as lockdowns were eased. And if you look at the different graphs, really the last part of June was clearly looking better. And in some cases, like the 35 West on the far right of the slide, getting close to last year's level though there's been a little bit of a setback in Texas. You are all aware that there had been a surge in COVID cases. And that has kind of put a little bit of a hold to the recovery, but still, they are in much better levels than the trough in April. In the following slides, please don't flip over, we'll see how patterns are recovering. And I think that these are very good signs of the potential for recovery of these roads. On the left, we have the 407ETR. And here, the recovery has been a little bit slower also because probably there were more restrictions in place. The economy has been slower to reopen. Important news is that throughout this period, we haven't seen, really, any slow traffic in the alternatives. There has been pretty much free flows throughout the day. And now in July, we are starting to get some data that shows that speeds are starting to slow down in the 401, for instance. Okay. So let's flip over to the page where we have the 407. The 407, you have seen the results already, so I won't dwell too much time into the results. I mean, you see that revenues dropped by 40%. Of course, you had some higher tariffs from the first of February. And then in general, with -- the drop of traffic has been kind of partially compensated, but in the 407, with the 401 at free flow, you haven't really seen patterns where you could picture peak traffic in the evening or in the morning, right? Well of course, this is something that is -- as the alternative approaches, let's say, slower speeds, as more and more traffic, we should start to see the shape of traffic that we are seeing in Texas, and we'll see in the next slide. Also, very important, if we look into the top right, we have taken the decision to withdraw the appeal to exercise our right of first refusal for a 5% stake in the asset that was sold by SNC-Lavalin. This is a decision that has been taken in order to preserve liquidity in the current environment. We believe that a strong balance sheet and liquidity will provide opportunities for a high-value creation. And there's uncertainty on how long the recovery or putting the health issues behind will take. This has nothing to do and should not be read, I was also not thinking this is a great investment -- a great investment for value creation. I always say that with the 407, what people miss is, with the long duration, the area being so diversified, you end up having even produce in congestion in the forms just to growth in population and traffic, and that leaves you to higher revenues even with higher prices just to keep the quality of the asset, right? So the duration, the fact that the area will keep growing and growth will happen along the 407, this is still there. We like the asset. We like the investment, but now we have to be tactical, we have to preserve liquidity, but it shouldn't be read in a different manner. In terms of dividends from the 407, there has been no dividend this quarter. The 407 is monitoring the situation. I mean, this is clearly a steady recovery, but probably, I mean, we'll wait to see this kind of continuous performance and recovery in place before making any -- taking any decision on dividends. From a rating or financial position point of view, very solid. Rating agencies have ratified their high investment-grade ratings, and there's enough liquidity to satisfy obligations in the coming months and into next year. Okay. So it's slow but recovering the shape, the 407. Let's move now into the Managed Lanes. And I'll show you some graphics, some graphics that tell more than a thousand words, but still I have to tell you some words about these graphics, right? The first one is that you don't see numbers on the y-axis. That has been on purpose. This could be commercially sensitive. The other thing is that scale is comparable within a toll road. So for instance, in NTE, heavy and lights, the graphs are comparable but they are not comparable to LBJ in terms of scale, right? So let's look at the different colors that we have here. The light gray is the color that reflects just before the pandemic arrived. So that was kind of the best performance we saw at the time. And you can see some patterns that are clear, the peak in the morning and the afternoon. But look at the heavy traffic at NTE or 35 West, you see that it's pretty much at a very high level throughout the day, right, throughout the daylight. And in the last part of June, I mean, the third week of June, you could see that the black line was approaching that kind of level, both in 35 WEST and NTE. LBJ has more of peaks and troughs, even in heavies. Probably this is natural, given that it's a kind of a ring road, one segment being a little bit more commercial. But still -- I mean, you can see that third week of June, it was clearly approaching the light gray that was the first week of March. When you look into the into lights, the story here is different, but look how it was approaching in NTE and 35 West. And it peaks in the evening or afternoon. Of course, in the morning, with the schools being closed, and let's say, always drivers favoring the use of the road when they get out of work, the PM peak is performing better. But I think that these graphs show that as long as the economy reopens more and more broadly, patterns end up being quite similar. Of course, one of the things that is apparent when you look into heavies or commercials, is that e-commerce has grown a lot. And now it's 27% of -- well, in April of retail sales in the area. With all the influence not only of delivery logistics but also of reverse logistics or where people return merchandise that they don't like or whatever, that influences the traffic as well. Okay. So the area now we hope recovers quickly and all the best in health to people in the area should recover the let's say, the strength and diversity that the economy has. Okay. If we move to the next slide, we see more of the numbers, less graphs. And here, you can see that the average revenue per transaction has been coming up. And we think there's room to go still in this, let's say, revenue per transaction. This reflects more moves that happened before the COVID arrived. We'll see a long time and with the different patterns, how this evolves. So they still have the sensation that there's still room to go. Of course, in terms of revenues, you can see that the mix of traffic has helped the improvement in revenues, right? And this is great news that they keep increasing share. Also, the share of heavies here is higher than in the 407 in all these 3 roads. Looking at the financial position of these assets. I mean, this financing doesn't have the typical events of default that can accelerate debt. I mean, they have some ratios that you have to meet for dividend distribution. And these are at 1.2 in NTE and LBJ and in 35 West, 1.3. But of course, 35 West has to wait a little bit for their first dividend. LBJ has a strong liquidity position accumulated throughout the years and is looking forward to refinancing all or part of the debt this year. So rating agencies have been on that and the process is followed in the expected schedule. Regarding the dividends of LBJ and NTE, they will be decided by the boards there and will depend really on operational performance. We wanted to include some information on how a diversified economy of these areas is, we've done this in the past, and also the growth in population. Well in the restart of the economy, we think this area is really dynamic, and that's another of the important factors in our roads. Okay. So that would be pretty much for the Toll Roads section, and I'm going to move into Heathrow, that again had the results conference yesterday, and they were -- talks about different topics that have been on the press, right? So clearly, the operational performance is affected by travel restrictions. One of the most important is probably the quarantine requirements that could be imposed. I mean, if you are traveling somewhere and you have to stay put for a night, that really drives out a lot of traffic, right? So it's important to get to models that -- I mean, focus more on testing as Heathrow was saying yesterday. There's been a lot of efforts to improve all the protection to have technology that makes it safe. So I think that Heathrow and the industry is moving to provide ease of travel. And in fact, I mean, the projections that were released by Heathrow for the preemptive waiver negotiation are being bidden at this point of time. But the fall, I think, will need to ride on a successful summer and the summer needs probably some reopening or ease of quarantines. In terms of financial performance, I mean, you've seen that published, I already discussed the additional or exceptional charges that, as I said, are for better Heathrow going forward and the write-offs of -- economically the write-offs of CapEx. The revenue and the adjusted EBITDA fall, of course, and then we have below operating in financial, other items that I will touch on. In general, all these extraordinary items are noncash, and they are moving in the right direction to save cash from Heathrow, but more on that on a page later. Here, you see the impact of half year where really a quarter almost had no traffic. Then Heathrow is preserving liquidity or even drawing down the lines that it had. It managed to get a preemptive waiver at Heathrow Finance with their bondholders. And now the interest coverage ratio covenant that goes through December of 2020 and tested in June 2021 has been waived. And you have other covenants that have been amended regarding leverage to 95% net debt to RAB in December 2020 and 93.5% in December 2021. As I said before in the introduction, no dividends to be paid until the regulated asset ratio returns to below 87.5%. A lot of initiatives from Heathrow to make it more efficient and more ideas to come in the future. And probably, technology will play a part going forward to make Heathrow more easy to use and more efficient. In terms of cost efficiencies, as I said, we will capture more than EUR 300 million but in this half year, only them was able to reach EUR 100 million due to timing, right? Costs in the quarter are down by 24.6%. And here, different initiatives were right away capturing, let's say, reductions in costs like company-wide paid reduction, furlough schemes, simplification, restructuring of the organization, renegotiating contracts with suppliers and stopping all nonessential costs. And of course, CapEx was also reduced by more than EUR 650 million for 2020. So a lot of effort and work by all the Heathrow team, congratulations to them on all the incredible effort and speed they are taking on these initiatives. If we move over to the Heathrow looking ahead. As I said, there was a forecast produced that is being made or, let's say, even -- it's been traffic is doing better than this forecast, but you always have to have disclaimer here because of all the uncertainty with quarantines and the evolution of the pandemic. Also, looking at adjusted EBITDA with an important decline versus 2019. So here, you have to look more beyond that. I mean, we have to remember that Heathrow is a regulated asset, the new regulatory period that starts in January in 2022. The CAA has been commenting on risk and rewards and producing -- I mean, commissioning studies from third-parties before the pandemic that we're showing that there was more risk to the business and should be reflected. So all these discussions and businesses for Heathrow to be submitting in the fall will provide the building blocks for the regulation that starts in 2022. But also something we are really aware is that regulation takes into consideration a degree of risk in the business. This pandemic is way beyond. So I mean, discussion also on this should take place. Regarding AGS, on the following page. We can see that the impact of traffic has been major, and we had only 2.2 million passengers, also affected by the collapse of some travel companies like Thomas Cook or low-cost airlines like Flybe. Traffic for oil & gas to the North Sea has been resilient. And really, management has been doing a great job at trying to respond quickly to backfill and fly these routes. So a lot of effort also in reducing costs and CapEx and also negotiating with lenders preemptive waiver and drawing down facilities to get liquidity. So the waiver for June and December was achieved. Of course, you need a minimum liquidity in the fall in November, I believe, to keep this waiver, but the company is looking at different alternatives that are available to provide that liquidity. Okay. So I mean, the hard numbers is that in response to COVID, OpEx has been reduced by GBP 27 million CapEx by GBP 23 million, and they do name -- you can name the initiatives, right, shrinking operations, simpler organization, removing nonessential cost and furloughs. Also, something that Heathrow has not been able to do is business rates waiver. This is the tax you get for usage of buildings, real estates, something that the Scottish government has allowed, but Heathrow is not able to get yet. Hopefully, that could change in the future. So CapEx is maintained at minimum levels. Okay. So moving from Airports into Construction. We can see that there has been a high level of production and cash flow has been way better than last year. Keeping high production levels also comes with a cost. And the COVID-19 has been quantified in this first half as costing additional EUR 44 million. I mean, with the locals and different shifts of work to keep production pace and some increase in provision for losses for estimated higher cost in onerous contracts. In the end, without this COVID impact, EBIT would have reached EUR 38 million. So it's clearly on the path that we were expecting. And then probably within this and whatever standout, especially Budimex is having a great year with a very good cash generation. And this comes from better underlying performance, good collection terms and also some advance payments at the beginning of the year. Okay. So in Construction, even though it doesn't get any margin at this point in time, if COVID is not coming back, it's on good track to improve margins in the second part of the year. Okay. We could move to Services now in the next slide as discontinued activity. You saw that we closed the transaction with Ventia for the price agreed. AUD 485 million was the price. It was broken down into 2 components, 2 transactions. The bulk of it was sold to Ventia for AUD 465 million. And the last part was a stake in a joint venture, where the partner bought the stake and was closed in July, so is therefore, not in these numbers. And that was the additional AUD 20 million that, as I said, are not recorded in June, but have been recorded in July. They are not in these numbers. The cash flow generation from services stands out. I mean, the services management has done a great job of taking advantage of early payments, taking -- shortening of days of collection and also taking advantage of delays in taxes, especially in the U.K., payee and VAT have been delayed, and that has helped to improve the cash performance. Okay? So some of the impacts that I will cover in the next slide that are below the operating level in terms of P&L, probably it's better than I address them here. In terms of fair value adjustment, we've taken an adjustment of EUR 44 million in Amey. Really, there's transactions now in the U.K. So I mean, you could raise your eyebrow and say if this is the right time to take this, having seen transactions that have looked at better multiples than what we have considered recently and in a sector that probably is looking for more budget being allocated and more maintenance and reshaping of infrastructure likely to take place. So the sector is awaiting news there. Hopefully, they will get it. Infrastructure is in good need of repair in many areas, and that should help the sector. Probably, also that's one of the reasons why we saw transactions, and we should see some consolidation. Nevertheless, we were prudent here. And just in case this takes longer, we provided for $44 million of reduced fair value. Then in terms of the Broadspectrum divestment, also when you close, you recognize different items like foreign exchange and translation that goes through the P&L now, among other things. And this here, where you have some historical investments from the former Broadspectrum into New Zealand, Papua New Guinea, other places that was affecting. And the main impact is from foreign exchange reserves that, as I said, had their hedges, but with the difference in finance cost between the Australian dollar and the euro don't really mitigate the impact, right? But this is a noncash item. And it closes the debt transaction. In terms of results, yes, we've recognized results, an increase in fair value in Spain, as I said, apart from this, impacting the maintenance of transport infrastructure or services for transport, and the rest has been quite resilient, and we carry on, we increase their value because it's not amortized and we have that positive result. Okay. So in general, Services has -- weather was this part in terms of the process that we have there before we get into the other lines of the P&L. And in Ferrovial, Services divestment, we are carrying on a smaller divestments with counterparties interested in international and some small parts of Amey, not the bulk of Amey nor the bulk of Ferrovial. But clearly, the market is moving and the market is moving for specific products and services or specific countries. It's really focused into consolidation, looking ahead for more maintenance coming up. Okay. So enough of Services. I move into the consolidated P&L. And here, I will also touch on some items regarding Heathrow. Okay. So pretty much, the financial results are similar to last year. The main difference is because last year, all the hedges for the employee stock option -- or sorry, share programs, they really enjoyed the share price going up, right? And that was quite a big impact. Now with the share coming down, you have an impact of like 9 or -- like EUR 9 million. And the rest probably is more also from the reopening of the I-77 for the full year. Okay, so you have some higher expenses in financial results. The main explanation is what I mentioned, these hedges on the share price. And if you move into the impact from the equity accounted affiliates, here, you have impacts from some derivatives from Heathrow, and I will explain how they are adding value, but they have a negative impact, right? I will start with the inflation derivatives. The hedges are used to protect equity value. Remember that all the regulated asset base is linked to inflation. And therefore, it helps to secure dividends and maintain the gearing ratios in relation to the regulated asset base. And the alternative is to do nominal bonds because it is required by the common terms agreement of the financing to have at least 75% fixed, right? So a Heathrow that has the alternative of doing a fixed nominal bond or a real rate bond. The real rate is done by swapping a fixed nominal bond into fixed real and floating or variable inflation. Since inflation has been, let's say, locked in at levels, well locked in, has been closed with real rate and nominal rate at levels above 3.5%, and the last 10 years have shown an average of 3% or lower, and now it's at 1%. So the financial expenses of Heathrow are much lower. It's very good for shareholders that you have this lower cash outflow from the variable RPI or inflation, but its mark-to-market is considered speculative, not a hedge, even though this is a part of the IFRIC agenda and has been logged in for consideration because we believe IFRS 9 takes this into account, and it should be consider a hedge, right? So until and if we get a hedge treatment, this is speculative. And what happens is that real rates are now lower because rates are much lower. Okay. So something that is a clear economic hedge and has benefited with lower cash outflows provides this kind of negative mark-to-market. But of course, enough of this for this presentation, happy to take calls with you apart from this to see how it works because it has really worked in favor. And the other part that is also something a consequence of this pandemic, the cross-currency swaps that are having a good and positive mark-to-market, you have to take a hit for what is considered the deterioration of the credit of the counterparties, right? So this is something that comes from IFRS 9. And even though it shouldn't have an impact on cash, it's something that you have to take into account and the CDS of many banks have gone up, and therefore, you have to take a hit. So things that are making money for the company and for shareholders need to take this sort of hit from mark-to-market. One of them, a little bit artificial and the other, instead of considered hedge is being mark-to-market and it's suffering from the lower rate. Okay, so probably I went too long for that, but I think it's worth it. And then the other impacts below operations have been discussed pretty much. Okay. So I move to the next slide that is the cash flow generation. And here, when you compared to the closing of December '19, we see that we have a better position. And here, it's a mixture of dividends from projects and divestments helping. But also, you can have pretty much working capital consumption that is something to stand out. I mean, every first half of the year, we usually have a working capital consumption. It's negligible this time. That doesn't mean that it's something that shouldn't be reverted in an important part, especially in services in the second part of the year and next year. But very good performance now. Shareholder remuneration includes EUR 93 million roughly -- of EUR 494 million of cash dividend and the rest is share buybacks related to that -- to that scrip dividend. And then in other financing flows, the most important component is the reconsolidation of the net debt from Broadspectrum, that is close to EUR 80 million. All in all, it is up with a situation that is a better net cash position than at the end of next year. Okay. So if we move into the concluding remarks. Of course, traffic has been impacted by COVID-19. But the signs that we get when there's reopening, and there's a sense of safety is that people are back on the roads. Dallas-Fort Worth and Toronto are economies that are very well diversified and should lead the growth in their areas and also where there's high e-commerce presence and mobility needs, right? So the assets are located in great areas. Other features is not only location, but they have long duration, and they have pricing flexibility, and that allow us to make the most of the different situations and segmentations. But of course, we cannot fool anyone. Uncertainty remains there. We have to preserve liquidity and continue to focus on operating efficiencies. And we, of course, keep our strategy intact. We have to develop and operate innovative, efficient and sustainable infrastructure while creating value for our stakeholders. So thanks for bearing with me, probably took a little bit longer than usual. Now we open the floor for Q&A. Thank you.

The first question comes from Elodie Rall from JPMorgan. Could you provide a monthly breakdown of the U.S. Managed Lanes traffic, please? And also, how should we think about the prospects of dividends from the U.S. Managed Lanes?

Thanks, Begoña. Hi, Elodie. We -- well the -- this is -- sorry, this is Pedro Losada, Cintra CFO speaking. The breakdown -- the market breakdown of the U.S. Managed Lanes traffic, you have that in the reports, so it makes fairly no sense to go one-by-one. On your second question related to dividends. We are -- keep on working on getting the dividend flow that we were expecting from early 2020 from our assets in LBJ and NTE due to the traffic performance. We need to wait a little bit further to understand whether we are going to receive some of these dividends on these assets. And it's also related to the ability to end up in above the local ratio that we've got under the financial contracts. And more than that, we cannot provide more guidance at this point.

Thank you, Pedro. The next question also from Elodie. In the first quarter, you said an equity injection in Airports would be unlikely but not ruled out. What are your thoughts now?

Thank you very much, Begoña. This is Ignacio Gastón from Ferrovial Airports. I think the answer to your question is, that we hold to our previous statements. In these uncertain times, we cannot rule out any equity injection in the Airports. Having said that, with respect to Heathrow, given there is strong cash position, we think that it's highly unlikely that, that may happen. In the case of AGS, despite the healthy cash position at the end of June, given the new quarantine rules, the waiver terms and the refinancing coming in 2022, we think that is a possible scenario having to inject equity. Thank you very much.

Thank you, Ignacio. The next question also from Elodie. Could you give us an update on the process for the Maryland projects?

Hi. This is Pedro Losada again. As you may all know, we have been prequalify with another 3 consortia. As a part of the prequalification process, we have signed an NDA, a confidentiality agreement that not allowed us to disclose anything related to the process or to the project. So sorry about that. But at this point, we cannot provide any further details about this project.

Thank you, Pedro. And the final question from Elodie. What is the plan for restarting the Services disposal process?

Thanks, Begoña, this is Ernesto speaking. Well, I mentioned that we are already doing some smaller projects in the international part, right, like Chile, North America. We're also doing some divestments like collections treatment in the U.K. in Amey. So that, together with the streamlining of operations, should be pretty much over before we do other parts. It's true that maybe we could change pace at one point in time for 2 reasons. There seems to be interest in an area that is quite resilient and probably could have some tailwinds like all the waste cycle, right? And if that's the case, maybe something could be reinitiated. But the -- at this point in time, as I said, we're doing some smaller ones and simplifying the organization in the different countries. Just getting ready for the second wave. But we'll keep you posted as things evolve.

Thank you, Ernesto. The next set of questions come from Fernando Lafuente from Alantra. What are your views for the remainder of 2020 in terms of traffic and tariffs for the U.S. Managed Lanes? And how do tariffs play in the current environment? Is there room to keep on increasing them?

Thank you, Fernando. This is Pedro Losada, again. It's probably too early to understand which is the tariff strategy for the next half of 2020 due to the circumstances. We have still some restrictions for mobility, some businesses that has already opened, some restaurants with limitations of 50%. So under this scenario, it's complicated to understand whether we could settle at this point any different strategy as the one that we have already in place. So we need to see a little bit further how things are evolving. It looks like things are stabilizing a little bit more in terms of the -- going up of the pandemia again in the area, but we need to wait and see a little bit more.

Thank you, Pedro. And also from Fernando. What is your view on Ferrovial's dividend to its shareholders? Does it make sense to keep it flat versus 2019 in the current environment? And how dependent is it on dividends to be received from the ETR or the Managed Lanes?

Thanks, Begoña. Well, what we've said at the general shareholders meeting that approved the first tranche of the dividend is that the Board will have to analyze at that time. We probably will be analyzing this in the fall around October and November with more information. At the moment, there's no comment on the dividend until we reach that point.

Thank you, Ernesto. The next question comes from Marcin Wojtal from Bank of America. Which of Ferrovial's infrastructure assets are the most likely to distribute dividends to the parent company in the second half of 2020? Do you still expect a jumbo dividend from LBJ Managed Lanes in 2020?

Okay. This is Pedro. Hi, Marcin. I will start with answering the second part of your question, which is related to the potential dividend on LBJ. As you know, the idea is to replicate what we did in 2019, with the refinancing of NTE that allow us to [ moderately ] distribute after the 5 years of operation jumbo dividend as you mentioned. It's true that the main thing that we need to take care is the operating performance. That's the #1 priority to understand whether we can end up distributing the dividend. But then also, we are working with the refinancing of the current financing structure. There is a mix of private activity bonds plus [indiscernible] loan. We are working quite well with the rating agencies and with good feedback and working with the documentation. Probably this is going to be also important to -- as well as with the operating performance to understand whether we are going to see that jumbo dividend by the end of this year. But as I said, the main feature is to have the delivery of the operating performance and the delivery of the traffic growth that we are expecting.

Thank you, Pedro. Also from Marcin, his last question. Are you working on any further asset divestments for the rest of 2020?

Well, thanks, Begoña. This is Ernesto here. It's true, that even with this uncertainty, there's a lot of interest for investors in availability projects that we have. And it's also true that government rates that are the main payer of this kind of project have been coming down a lot. So we are getting reverse inquiries for some of our availability projects. And we could entertain part of that. We'll keep you updated. But apart from that, nothing else.

The next question comes from Kenton Moorhead from DWS. Was it the potential cash uses instead of investing in the 407 ETR? Is it sustainable assets? Do you think that the 407 is a safer investment than bidding against competitors on new projects?

Okay. Thanks, Kenton. Ernesto here. Yes, we think the 407 is a very safe investment. It's also true that when we look into other investments that could have more risk, we take into account the return we get in the downside scenarios and it has to be quite high. So the short answer is, of course, we would be looking to have a risk-return situation more favorable when the situation comes up. As I said, right now, it's a mixture of tactics. We think these opportunities are likely to come, and it's good to be more solid, okay? It has nothing to do with, as you rightly said, the safety and value creation of the 407, that is fantastic.

Thank you, Ernesto. The next question comes from José Manuel Arroyas from Santander. It's a question on the 407 ETR. In the second quarter of this year, fee revenues, and otherwise stable revenue stream, declined by 57% year-on-year due to "a temporary suspension of the late payment charge, enforcement fees for new license plate, denial notices and lease fee charges to help mitigate the economic impact of the pandemic on customers." Have these fee waivers being applied to all types of customers or just to a few categories of them? When should we assume these waivers will cease?

Thank you, Begoña. Hi, José Manuel. It's Pedro Losada speaking. The answer is yes, the fee waivers has been applied to all type of customers, not just to a few categories. And the second part of the question is, I would say that, I mean, these waivers started when restrictions started. So when the state of alarm and the shelter-in-place started. If we -- we consider to end up with this waiver if we see that these restrictions are over. Again, it's a little bit too early, but maybe, hopefully, we are close to it.

Thank you, Pedro. The next question comes from Bosco Ojeda from UBS. Do you see any scenario where the ETR 407 tariffs could be revised down even if temporarily?

Hi, Bosco. This is Pedro. There's no -- actually, there's no clue what is going to happen with the tariffs. We started the seasonal toll regime on February 1, then we didn't apply the one that we were expecting early in this year on May. And at this point, what we could say is that we will remain with the tariffs that we've got at this point. Nothing -- again, we need to see a little bit more -- we need to have a little bit more visibility to understand which is going to be the tariff strategy going forward.

Thank you very much, Pedro. The next set of questions come from Stephanie D'Ath from RBC. Why divest 5% of Budimex? And would you consider -- why did you divest -- sorry, 5% of Budimex? And would you consider selling anymore and dropping below 50%?

Okay. Hi, Stephanie. Ernesto here. Well, this was really opportunistic. We think that the asset still has more value and room to go. There was volume that is something very rare for 5%, and we took the opportunity to get some liquidity. But we remain very happy with the 50.1%. There's no intention to go below that. And as I said, we think it's a fair value, but we think that the companies that has room ahead and is performing great. Okay. So then you have a second question. Stephanie, listen, we clarify what we mean by quick recovery for traffic in Slide 16. What we were just saying is that the moment that restrictions reopened, you saw how the patterns quickly approached last year patterns. And it is something that we showed in the slide where we see the graphs with the different time traffics in our Toll Roads in Texas, right? Of course, there is still restrictions like schools and so on. But clearly, the mobility was coming back pretty quickly, right? So if health issues are behind and the economy reopens, the expectations should be for a quick recovery. We were just referring to those graphs where you could see that we were just, like last year, let's say, in the third week of June. That's the comment we're referring to.

The next question comes from Ruben Gonzales from Zurich. Are you expecting -- excuse me, sorry, we had a bit of a technical problem with the question. I'll move to the next question. The next question comes from Pepa Chapa from Fidentiis. Could you quantify the equity injection for AGS?

Thank you very much, Begoña. Nice to meet you, Pepa. This is Ignacio Gastón from Ferrovial Airports again. With respect to an equity injection in AGS, we cannot rule out an equity injection at AGS. It's not a possible scenario. Having said that, it's too early to provide any kind of estimate given that the timing and the traffic and how those 2 things evolve in the following months will help us to understand if that is -- an equity injection is certain in any case. At that moment in time, after a few months of trading, we'll be able to know if that is necessary.

Thank you, Ignacio next question, and I will recover it, which is the one we lost before. It's from Ruben Gonzales from Zurich. Are you expecting an increase to the construction provisions on U.S. projects for the remainder of the year?

Thank you, everyone. This is Iñaki García, CFO of Ferrovial Construction. No. Well, we review, I mean, the projects 3 times in the year. So we know that in this moment, I mean, we are not increasing the provisions. So in this moment, I mean, the EUR 345 million that were provided last year, deeply decreased, I mean, because of the execution of the other sites. And in this moment, I mean, the provision is EUR 251 million, and we are not expecting to increase that on the other side, I mean, to decrease due to the execution.

Yes. To put it in other words, Ruben, we would be taking the provision now. We were expecting that. So we think it's balanced.

Thank you very much, Ernesto. The next question comes from Rushil Paiva from MainFirst. Can you provide a little more detail regarding the 407's ETR covenant position? Where does it currently sits in relation to its covenants? And do you anticipate the assets recovering back above its covenants in the near-term given the progressively improving traffic trends?

Hi, Rushil. This is Pedro speaking. I think your question, I'm not sure if it's correct because you are referring to the covenant position of the 407, it's below a certain level, which is not the case. Currently, the 407's covenant position is comfort enough. And we shouldn't have any problem to keep on going above certain financial covenants like the low cap ratios, for example. It's true that if things go worse than expected, we can enter into such a situation, but it wouldn't affect other things like dividend distribution. But at this stage, we are not in such a position. And again, our ratios are above comfortably in the 135% lockup ratio.