Earnings Call: Q1 2020

May 15, 2020

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome at the audio conference to discuss CCR SA's earnings call relative to the Q1 2020. All participants will be connected in listen only mode during the company's presentation. After that, we'll start a Q and A session and further instructions will be provided. If you need assistance during the call, please request the help of an operator by pressing star 0. Before moving on, we'd like to state that forward looking statements made during this audio conference concerning the company's business outlook, financial and operating projections are based on beliefs and assumptions that are part of the company's management and also on information currently available. Forward looking statements are no guarantee of performance as they involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that may or may not materialize. Investors should have in mind that general economic conditions, industry conditions and other operating factors might influence the company's future results and lead to results that would differ differently from these expressed in these forward looking statements. I'd now like to turn the floor over to Mr. Eduardo de Toledo, Corporate Manager of yes, please Mr. Eduardo, you have the floor. Good morning, everyone. It is a pleasure to be here with you this morning for our earnings call relative to the Q1 of 2020. Today with me at this call, we have Alberto Perez, our IRO and CFO, Marcus Delicios Moncero, our RI Head, Mr. Ribeiro and Mr. Moraes who are in our IR team. So given the magnitude of this pandemic we're all facing, I think would be only fitting to concentrate my opening remarks on the pandemic related issues and how we are at the company have been reacting to that. In moments like these, having a highly engaged and committed company and a conservative financial policy is very important. And of course, we have brands which are well known. It is right at those moments where those features emerge as very strong pillars. So let's address this in a more chronological order. Starting late February right after Ash Wednesday when the first case was confirmed here in Brazil, the first case of coronavirus infection. Back then nobody was really talking about, but CCR created a multidisciplinary group at the very first week headed by our own doctor and we decided to address issues concerning our internal publics. We created a 24 hour helpline for employees and their families. We bought inputs, supplies for suspected cases and we started training programs for all employees who are in contact with our users. Right after that on March 11th, we created our crisis committee composed by our executive management. And this crisis committee has been meeting on a daily basis to make decisions and decide on our actions to carry on in response to the virus. On March 18, we disclosed our first material fact relative to the coronavirus and its impact on our businesses. And then as of March 21st, we decided to provide information on a weekly basis as for the traffic of vehicles and passenger cars in our highways and also airports, so as to maintain the market up to date and to avoid asymmetry with our official decisions. Also on March 21st, those employees who could work from home started doing so. As of now we have over 2,000 employees working from home and doing a very good job. The very publication disclosure of our results is proof of that. The company has shown strong capacity to do that, start working fast, those more immediate cases. We started looking at of course the financial side And I'd like here also to acknowledge the BNDES for taking action early on that benefited 4 of our concessions. That was very important. But besides, we also focused on our conservative policy and we decided to raise another $400,000,000 additional $1,000,000 dollars This was predicted to be raised by the end of the Q2, but they started to anticipate that the raising of those funds, right, to provide more liquidity to the company. And from then on, we started focusing our actions on issues relative to costs to adjust our costs to this new reality that we're not going through. Right first, we used our bank vacations, but because of the law of MP346 which was also very important, we were able to reduce working hours for all the leadership group as of May. So we are now working fewer hours and we have now over 1,000 employees in that situation. We suspended board contracts for those who belong to risk groups and who cannot work from home. And we adjusted of course the working days for all our concessions. And we adjusted, of course, supplies and all other fronts vis a vis this new reality. We have always based our decisions on the principles of preserving the well-being of our employees, our partners, our suppliers and of course contracted and of course the losers as well to try and mitigate the economic impact of the company, of course always providing a lot of transparency to the market. Additionally, like I mentioned, other actions we took to take care of those who are responsible for insurance supply across the country, truck drivers. So we have handed out tips and guidelines as to personal care and we offer meals because restaurants are closed. We offer masks for truck drivers and more recently, and this is very, very recent, we made the decision to make 50,000 medical consultations free of charge to truckers. At the first sign of problem, they can consult doctors remotely for free. We are ensuring that. So they have access to free medical doctor consultations. So actions we put in place to reinforce the care we have towards our users. In this case, in this case, the truck drivers who are making sure the country is still up and running. I'd like now to turn the floor over to Guadaluperes for him to go into the numbers for the Q1. Please, Paris, you have the floor. Good afternoon, everyone. First of all, thank you all for participating and for your interest in the company. Before talking about the results, I'd like to inform that the release, the respective release is available at the company's website ccr.com.br slash ri. As mentioned before, we saw in this first quarter, the first impact coming from the COVID-nineteen situation in our operations, especially due to social distancing and traffic restrictions, which of course impacted vehicle traffic and most of the concessions we have under our control. And of course a drop in demand for our in airport users as well. CCR's result remained stable despite of that showing operational efficiency and resiliency as we'll see going forward in this presentation. Speaking of the main highlights of the quarter, pro form a traffic which saw a growth of 3.9% when compared to the Q1 of 2019. Excluding the Viasu concessionary, there was a drop of 1.5%. For light vehicle traffics, it's 36.6% below last year. And for heavy vehicles, we saw an increase of 3.1%. Now the main pro form a numbers for Q1, in other words, considering the business over which we have no control or where we share control there, consolidated proportionately to our stake. For the same basis number, we included new projects of assets where the company has changed its participation, its stake as it has been detailed in our earnings release. The net revenue on the same basis, dollars 2,400,000 in the Q1 of 2020, which is an increase of 2.5% when compared to the 1st year of last year. The adjusted EBITDA on the same basis increased by 0.2%, reinforcing the company's operating efficiency in this period. As I mentioned before, the month of March was highly impacted by the COVID-nineteen situation and still our adjusted EBITDA on the same basis saw slight growth when compared to the Q1 of last year. 61.9 percent for the adjusted EBITDA, a drop of 1.3 percentage points when compared to the Q1 of last year, reflecting the same effect that I mentioned just now. Same basis net profit, dollars 246,800,000 in the Q1 of 2020, a drop of 29.2% when compared to the same period of last year. Net profit reached 289,700,000 dollars a drop of 19.1% when compared to last year's Q1. That reflects mainly depreciation and amortization as we get near the end of the concession period for Rolodinarty and Almadutra. And also coming from the impact traffic restrictions once again due to the COVID-nineteen situation. In the Q1 2020, investments totaled R529,900,000 and concession areas which most invested was BSR, Golden Norte and VLT. For DSU, ROD100 million were invested and RODONAR in 609 and DLT 589.2000000 as you can see on this slide. As to the pro form a net debt, BRL 14,900,000 in the first quarter, an increase of 7.51 percent visavis the Q1 of last year and 0.2% when compared to the Q4 of last year. The company's leverage is set at 2.4 times in the Q1 and remained flat when compared to the Q4 of 2019. That ratio reflects a very comfortable situation, which reiterates our strategy for growth. Despite the volatility brought about by the COVID-nineteen as of early March, CCR has had ample access to financing lines. As Eduardo mentioned in his opening remarks in April, we concluded R1.2 billion dollars in terms of funding which we had already been planned for all 4 of our concessions. Additionally between March April, we made the strategic decision to anticipate hiring of credit lines which were planned to happen throughout the year, as to reinforce our cash position. Up until now that totaled R900,000,000. That strategy was adopted, grounded our consistent follow-up on the economic scenario and also in light of the uncertainties that lie ahead. Despite the availability of credit, the market was quite restricted in terms of terms and maturities. But as of recently we have seen some changes and terms have been extended from 12 to 24 months and in some cases up to 36 months. So we see an improvement in the credit scenario. We continue to seek opportunities to raise more cash and which is scheduled to happen later in the year so as to further increase the robustness of our cash position. For more details, please refer to our COVID-nineteen secondtions for our earnings release and of course the explanatory notes of our financial reports. And we're now open for Q and A please. Operator, we have the floor. Ladies and gentlemen, I'll start the Q and A session. Our first question comes from Dieter Musuraki from Bradesco BBI. Good afternoon everyone. I have 2 questions please. Number 1, as you mentioned, you have a very conservative profile in your portfolio. But given the current scenario, what can we expect in terms of impact on the dividend payout policy for CCR going forward, say 12 months? Does it make sense to imagine something around 25%? And the second question relative to the balances going forward, you just mentioned government decisions if you could, if you're down for us, especially in terms of airports where we saw our business drop significantly and also urban mobility and also if you could touch upon the concessions in the sale of Sao Paulo please. Thank you. Thank you for your question. We'll address both of them. Number 1, in terms of dividend payout, our policy has been to have 2 payouts a year, 1 in April and second one typically in October in the second half. It will depend on the moment. We have not made a final decision now in terms of dividend payout. Of course, we will make that decision in light of the conditions we'll have in the second half where it will need more data to see how the pandemic is advancing, the impact of the business. We'll have a clearer horizon in the second half. As you said, we had a very conservative policy and that leaves us in a I'd say, reasonable financial situation because of that. But I do not anticipate any reason for us to change our dividend payout policy. But again, we'll make the decision when we come we'll cross the bridge as I say when we come to it, right, the second half a better picture of the scenario. As for the balance issues, I think we have very distinct situations for the different modes of operation we have. As for airports, we have a more dramatic situation of course, because the drop in revenue is reaching around 97% and has been announced, disclosed. So for that industry, we'll need short run measures to reach a balance line. But given the situation of some sectors, We'll need measures to bring balance. So that is the short one. The government has proven to be sensitive to that situation. They have been changing payments for concession or delaying those payments and that's a way to try and reach a new level of balance when you delay payments with the concessions. That's also a way to try to bring balance to that equation. And of course, as I said, the airports are a very specific animal in this case. And of course, all airport concessions are being affected and not ours only. Right? As for mobility, I think the situation is slightly different. The drop was not so significant as it was the case for airports And it's also local, right? It depends on the local situation or depends on how the pandemic is playing out in different places where we have the concessions. And also, as soon as we have permission to resume activities in an organized way of course, we expect to have a faster recovery for mobility than we expect for airports, different dynamics as I said. And some of our concessions are already a way to reestablish balance because we have been addressing the drop in demand by alternative highways. Lastly, for highways, it's also a case by case analysis. Some of our highways have not seen any change in traffic crime, for example. But there's still some power. I think that's a point where this issue is even more relevant. Since early on we've seen a desire from the state government to be very supportive. But in the wake of that we need to address if there will be space for new investments and we see a very positive picture in that respect. As we go through this economic crisis, whatever actions, measures that might bring investments and requirements will be helpful, will be supportive of a speedy recovery. So the government was already sending signs that they were going to look at this issue carefully that becomes even stronger now. The perception is even stronger now. Okay. If I could have a follow-up question. When you talk about the highways, for example, because of the COVID-nineteen. When you talk about the drop are you talking about the drop in trash before 2020 or are you including discussions about a more permanent change in the traffic curve going forward? We are at the first steps of that, right? It's difficult to predict and what kind of impact are we going to have. Ideally, we would need to have short term mitigating measures including financial measures. Because the short run balance would be supportive of a better scenario in the future. But to have a final calculation as you are asking for the future then we're going to have to wait. This is only the first steps. Our next question comes from Andreso Saboluto from UBS. Thank you for the call. My first question is about the increase of the variable compensation. Is that a recurring item? And a second follow-up about this rebalancing situation. Anything new in terms of airports? And if you have any timing expectations for Sao Paulo. That's it. Thank you. Marisa, thank you for your question. As for the increase in personnel costs, the previous system we had at the company with variable compensation, it was slightly different because you had positions which were more controlled. And then it would be more discretionary to provide the whole compensation to make it cover all the compensation policies. And that in good years, it could of course pay more. So from that point of view, that policy would make different quarters present in different situations, of course. And when we were to pay the PLR in the 3rd quarter, we would see a natural growth. That's why we had an oscillation. Under the new system which was created, we have lower discretionary changes. The policy is the same, right? Good years, compensation is better. So the policy doesn't change, does it? But now we have a more uniform provisioning. That's the change. When it's not a quarter where we have to pay POR, the situation is more comfortable. As for international airports, we now have to deal with the different we don't know how the revenues will be in different countries, but we need to face the different situation in different countries. Different countries, different governments make different decisions that affect us differently. Now airports are a minor proportion of our issues now. As per Sao Paulo is what I had said to Victor before. Conversations are going well And I feel as I said a strong desire coming from the state government to solve the situation in a way that would be good for the company, for the government, for all parties involved. And in the wake of this agreement, there is room for more investments of course. And given the current scenario for the state, specifically of harsh drop in economic activity, there is more incentive to look for other investments to work counter cyclically to what we're seeing right now to as I said provide the means for a speedier recovery. Okay, thank you. Our next question comes from Mr. Rodrigo Stemberg. Good afternoon. Thank you. Congratulations on the results. As far as the international scenario, given the current situation, what's the company's strategy in terms of asset management? Are you looking for something outside of the country? Or are you going to be focusing on Brazil mainly? Thank you. Rodrigo, thank you for your question. I'd say that if opportunities in Brazil grow and they have grown strongly, especially in this government with Minister George Sezio and with the State Department of Sao Paulo. We saw we're seeing many opportunities. And we understand that the government's view is that infrastructure might be a strong driver for economic growth. So in a post pandemic scenario that would be even more intense. So when you have so many opportunities, so many concessions, so many infrastructure projects under construction, we of course become more selective in terms of international product. That does not mean we're not looking at that. We're only looking abroad in a more selective manner than we did before because of the attractiveness of the local market. Okay. Thank you. While we poll for questions. Our next question comes from Santander Lucas. Good afternoon, everyone. A question about or along the lines of Rodrigo's question about going abroad, going international. If you could perhaps talk about the pipeline of local concessions for highways, looking more at the local situation. What if you have delays for those concessions? In terms of competition, right, what kind of competition are you expecting that might be more attractive for a company like CICI which has a stronger, more robust balance sheet? So the question is about the pipeline for local concessions locally and the competition as we move forward with bigger companies in the market, bigger players. Thank you for your question. Yes, we'll need to adjust the bids which have been approved before the crisis in moments of great uncertainties such as now, there are mechanisms which are currently used. So different triggers for investments need to be readdressed under this new scenario. So there are mechanisms in place to make those adjustments if the need comes to postpone or delay some of those projects. But the projects will eventually emerge and materialize. And we're talking about months, right? It's a matter of months. We do not see it is a matter of years, especially for those projects which were further along. As for competition, I think it's early to say how the competition is going to behave or how the world will look like in 6 months or 8 months. I think we still have a lot to go through. But as I said, CCR has always adopted a very conservative management procedure and our team has been able to deal quite well with everything that's happening, have been able to respond expeditiously, efficiently and that places us in a more positive light in this scenario. But as for the others, what other players will be present. It's still early I think to be able to list those competitors as you have asked. Okay. Thank you. Thank you. Our next question comes from Roberto Guzziani from Citibank. Thank you for taking my question. The growth in highways, how do you explain that in some of your highways? How do you explain that? Thank you. The connection was slightly choppy. Thank you, Roberta. As I see it, we have been seeing growth in heavy vehicles specifically. For light vehicles we have a rather homogeneous situation across the country. But for heavy vehicles in World Automotive, for example, we see a slight growth actually. I think it's because of the agribusiness basically. The fact that we have a very unusual foreign exchange rate that favors agribusiness of course. It's difficult to make predictions around foreign exchange ratio. But should the current situation continue, we'll see a trend of heavy or high traffic volumes for heavy vehicles because that serves as an incentive for agribusiness, no doubt. Okay. And about e commerce, what can you tell us about them? It? Can you repeat the question? The question is about e commerce. As for e commerce, well, the heavy vehicle traffic is doing well even in Sao Paulo at the same level as before. And Roddo Norte as I said, we saw a growth. In Sao Paulo a slight drop. And of course that is clearly a sign that e commerce is working and also food services, in other words consumption has remained at a relatively high level. And so the economic activity on that front has been somewhat preserved, especially for food and grocery stores. I think they're presenting a very high economic activity right now. Okay. Thank you. We now close the Q and A session. I'd like to turn the conference back over to Mr. Ed Warder for his final remarks. Well, we are now going through times of uncertainty, as I said, high volatility. And it's difficult to have visibility of things going forward. But still I remain very confident in the company and CCR and the infrastructure sector is recognized around the world, not only Brazil, as the one which will be able to boost the economy in terms of growth and jobs, especially in a moment like this we're going through in the country, it becomes even more important, right? The issue of infrastructure is key for the country's recovery going forward. CCR given all its characteristics, its financial robustness, its technical efficiency, its operating efficiency, all of that combined leads the company in a position to be to play a leading role in this recovery process. So thank you all for participating and have a nice day. It was a good start to you. Stay safe, stay well and we'll see you next time. Thank you. CCR's conference call is now over.