Earnings Call: Q2 2019

Aug 9, 2019

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the CCR S. A. Conference Call to discuss the results of the Q2 of 2019. This event is being recorded, and all participants will be on listen only mode during the company's presentation. Soon after, we will start a Q and A session where further instructions will be provided. Before proceeding, we would like to clarify that forward looking statements made during this conference call pertaining the company's business prospects, projections, operational and financial goals our beliefs and assumptions of the CCR management as well as information currently available to the company. These forward looking statements are not a guarantee of performance and involve risks, uncertainties and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general conditions, industry conditions and other operating factors may affect the company's future results and may result in outcomes that differ materially from those expressed in such future conditions. I would like to give the floor to Mr. Eduardo de Toledo, Corporate Management VP, who will begin the presentation. Mr. Eduardo, you may proceed. Good morning to everyone. It's a pleasure to be with you in our earnings results of the Q2 of 2019. We have Arturo Piloto Marcos Vidicos and Flavia that you know from our Investor Relations team. I would like to start this call showing how consistent our results were during the Q2 of 2019, Aligned with the company's behavior, we have had a good evolution in our indicators. Our operating adjusted EBITDA had a 27% increase in the quarter when we compare it to 20.90. And net debt EBITDA had a positive evolution, reducing 2.6%, 2.5%. Therefore, the company is prepared from the financial point of view for this new cycle of growth. But we'll continue working. We are honing our corporate governance, and we have carried out a number of actions. I would like to highlight 2 of them. 1 would be the review of our metrics and our provisional road. We are working with this very carefully in such a way that we have the best governance regarding our decisions in the company. In addition to this, you may have observed with the election of the Board, we rearranged our committees and we also created a risk committee that didn't exist in the past. This is a clear demonstration of how we are concerned with the organization of our committees and our governance. And in addition, another fact that is important to highlight is that all our committees have at least one independent board member. So these are very important facts that demonstrate how we're improving our governance. During this quarter, we also initiated projects that target to provide CCR instruments to be successful in this new investment cycle. The first point that I would like to share with you is the operational excellency project. We have good experience with Falconi and other experiences. And Falconi is going to allow us to systematize this pursuit of opportunities to improve our operation. Of course, CCR already has strong competency. Nonetheless, Falcone can help us to In addition to this, we have also initiated a project with culture and purpose. And this initiative is to deep dive the connection between CCR and the employee is very positive because CCR should continue being a company that is admired and that people wish to work for the company. And this is very important from the competitiveness point of view to attract talent. I also wanted to highlight these main points. And I will give the floor to Arthur that will talk about the quarterly results. Good morning to everyone. First and foremost, I would like to thank you for your participation and your interest on the company. Before talking about the results, I would like to tell you that the release of the company is in our site. Now speaking about the main highlights of this quarter, we would like to highlight traffic that presented an increase of 7.2% in the late same period last year, excluding the effects of the suspended axle exception, the DSO will be increased by 4.8%. We would like to highlight the main pro form a figures of this year, considering business that we do not have control or consolidated proportionally in each one of the lines. We exclude a nonrecurring effect and assets that the company where the company increased its participation. And here, we can see the base of comparison. As you can see, what was announced yesterday after and now the cash cost reduced, a 3 0.2% drop. This is a reduction of cost with FirstNL, and there was lower variable remuneration. The operating adjusted EBITDA was BRL 1,500,000,000 this quarter, And this is an increase of 25.5 percent when compared to the same period last year with a margin of 62%. And this totaled an expansion of 3.9 percentage points. Net income was BRL 347,400,000 during this quarter, presented an increase of 25.1 percent visavisame period last year and was driven by new businesses. The net income on the same basis was BRL 317.3 percent, maybe with a growth of 8.2% when we compare it to the same period last year. This is a result of the operational performance of the company. Now during the Q2 this year, the investments, including financial assets and maintenance, totaled BRL 395,300,000. The concessionaires that more that invested most were Roto Norte, Roto Nudra, the San Jose International Airport and Via Sur. Now regarding net incentives, in IFRS, this was BRL 13,400,000 in this quarter, with an increase of 3.7% and 1.7% when compared to the quarter of the last year and the past quarter or the Q1 of 2019, respectively. Now the company's leverage net debt of operating adjusted EBITDA was 2.5 times during this quarter. We are confident with the new opportunities, and we are pursuing new business international and in the international market, primary, secondary market, airport and related business. According our objectives, We expect a number of growth opportunities. We have over 8,000 kilometers of Highway B between 2019 and 2021,5000 as of 2022, the bid of the 3 6.365 Highway, Goedemineraes has already been published. And the tender the auction will be held on September 18. In addition to this opportunity, other federal highways will are in the process, Santa Catarina, 3A1 between Minas Gerais and the state of Pirito Santo and 153 rehabilitation highway between Toca, Chingza, Goya. Very recently, in the Sao Paulo Transportation, also announced Pilatikaba Panaraman, there's an auction for November 20, early. Now the airport sector, the federal government announced that they will there will be a private concession of an additional 6 groups of airports. And there are 2 routes that total 37 assets until the year 2022. Now in the urban mobility lines, the Line Beta 9 of CPT will initiate their bids this year. Now we will hold a Q and A session. Operator, may you proceed? Ladies and gentlemen, we will initiate a Q and A session. Our question from Victor Mizuho Bradesco, Vivia. I have a question. I was analyzing the results of the second quarter, and you have a long recurrent expense of BRL 11,000,000 with legal costs. When we discussed the independent committee, if I am not wrong, these legal lawsuits ended in December last year. I wanted to understand if this is connected to immune negotiation with the prosecutor's office? Or can we consider that there is nothing material that was discussed during the 1st semester quarter? Okay. Victor, thank you for your question. The expenses with legal services support the actions in Sao Paulo and Parana. What we did once again was we revealed the matters that we were aware of, and we wanted to continue cooperating. And this is what happens. So we have we need legal advice because of 1, there are always matters that we have to deal with. Okay. Thank you very much. But at this point, is there something that you could disclose? Any novelty regarding plea bargains and you believe that it is necessary to have legal counseling. Now regarding this point, once again, our position regarding this subject is to cooperate continuously and answer all questions that are made. Every time a matter emerges, we deal with the competent authorities to help them with their investigation. Now in terms of details, we have limitations regarding this subject. I would like to highlight this matter. Sometimes it's not very clear, But any information that we provide to them, they use this information to deep dive in their investigation, because we have 3rd parties involved. And because of this, the information that we provide is very confidential until the authorities believe that it is no longer necessary for them to remain confidential. And they are the only ones that can disclose this type of information. Thank you very much. Our next question is from Pedro Pascual, JPMorgan. Good morning, and thank you for your question. I have 2 questions. 1 would be Victor's follow-up. You have Italo and Castaneda. I would like to know if the pre agreement was already concentrated or if something new has emerged. And that's my question. Thank you for your question. Well, basically, the peak the executives that were in the company until November December last year participated in the peak. We announced this peak, and we did it. No executive can be part of the PIC after this period. So we have no there is no executive that remained in the company and that led the pig. And now regarding the exit of the executive, these changes had already been contemplated. When years ago, when we analyzed the company's leadership and we would analyze the age group, And we realized that the company was going to go through a rate reorganization throughout the upcoming years. And this is exactly what is happening. Each one of the 4 divisions of the company are led by executives that started working for the company this year. But this matter had already been contemplated and outlined some time ago. Perfect, Eduardo. My second question. The government announced a decree to return assets. Could you have a negotiation with the government now? And speaking about government negotiation, is there an asset in Sao Paulo? And Any light you could shed on us would help us a lot. Thank you for your question. Regarding the decrease that was published this year, this is something positive for us because you clearly realize that the federal government wants to find a good solution to these concessions. And there are a number that are regarding CCR, and the impact is important. This is an evolution nonetheless. There are still a number of things that we're analyzing. And a few of them and a few of them will need analyzed from the regulating agencies. So here, we believe that we can have an evolution. Now regarding Sao Paulo, we from the state authorities' point of view, I believe that they want to resume these matters. So they're looking for alternatives. And this is very positive and very fruitful because they want to drive the concessions at the state area. And I believe that interesting opportunities will emerge for CCR. Thank you very much, and have a very good weekend. Our next question from Roberta Delcina, Pitt. Just a follow-up regarding the Sao Paulo concession. Any novelties regarding the contract extensions? And the second question, with the interest rates, do you believe that the government will reduce the return rates of the contracts? Thank you for your question, Roberta. Well, your first question regarding the extension of the contracts. From the CCR point of view, we believe that there are a number of interesting projects to improve and new access points that will benefit the upcoming highways and concessionaires. Now the negotiations together with the government are ongoing. I believe we have positive prospects regarding this point. There are a number of alternatives with a number of outlines. I believe that we're having very good conversations or negotiations. I believe that the expense of the federal state government is very positive right now regarding investments that can benefit the users. Your second question would be the reduction of interest rate in the company. As an executive of a Brazilian company, and I've been here for over 30 years in the market, we have a situation like we have never seen the drop of the interest rates in the country in a consistent fashion. And they are not artificial drops. This type of news is very positive. And this can only benefit the entire market. And this only provides a drop of the funding costs. So it is natural that the parameters will adapt themselves to this new reality. And everything is very positive because the structural interest rate in the country can only benefit the investment. And we are a company that needs this. Thank you very much. Our next question from Victor Mizuho Sacchi, Bradesco, Berenberg. Thank you very much for taking our question of follow-up regarding the Prosecutor's Office. You mentioned confidentiality because there are 3rd parties engaged. Are we talking about people? Or are we what can this impact other CCR concessionaires that were in part of the plea agreement that you agreed upon within the prosecutor's office? Thank you very much. Well, once again, our cooperation is to disclose all the information that we are aware of. Now this once again, there have been 2 private agreements, 1 at the federal level in Jobo Norte, 1 at the state level in Sao Paulo. So we understand that we are encompassing points that engage CCR as a whole. And everything that we know which engages CCR and our intros here and the peak is that everything that has happened should be disclosed as fast as possible, so that we can resolve all of these matters. Turn the page and to be ready for this new positive scenario that we have ahead of us. Thank you very much. Our next question from Rogerio Araujo, UBS. We have two questions. One regarding traffic. I believe that when we see the last year's truck drivers strike, I believe that the traffic is flat year on year. What is your perspective for the recovery of traffic? Could you say something about this? And also regarding the traffic regarding what you projected. And cost CapEx, if it's negative, positive, we could start with this question. Thank you for your question, because of the truck driver strike last year. It is difficult to withdraw the effect of the strike. We withdraw the effect of the suspended axle. Now what we can say is that we have observed since the beginning of July, since beginning of this quarter, the traffic behavior that is very positive. It is above what we saw the Q1 this year. So the Q2 is polluted, contaminated by the strike last year. Our vision is that it is a flat positive. And now we see a more positive movement than during the Q1. And these are 2 quarters that were not contaminated by the strike. Now, hedges to know regarding Via Sur, I believe that it's too early to talk about the performance, if it's better, worse or the same, because we have had success since the beginning of operation. We delivered ahead of time into cities. And our plans are aligned with expectations. But perhaps it's a bit too early to give you an entire outlook. But what we have done has exceeded our expectations. My second question regarding an update of the new auctions. What have you planned? You have 364, 365. You have Centro Villas from Sao Paulo. And September November, is there another option that has already issued a tender now regarding urban mobility? What kind of pipeline are you contemplating? Just so that we could know what new opportunities you have in terms of projects? Precisely, you're right. The scheduled auctions are or the auctions can change as well. We cannot state anything, but the 364, 365 Highway in September and the project in Sao Paulo that includes the Centro Villas Highway from Pirasucama to Paranauma. November this year, we do not have other auctions scheduled. We our expectation in terms of mobility project would be Line 89 in Sao Paulo. And there are a list of projects that I'm not going to outline right now. You can see them in our presentations in our slides. And we expect this to happen till 2019 2021. Of course, these projects are part of all the segments where the company performs. Now thank you very much. Our next question from Renato Havering, Banco DO Brasil. Good morning and thank you for taking my question. I have two points. 1, your liability management, If you're interested in renegotiating contracts, the the NDS and if there is an interest from the company. And number 2, if there is any interest from BNDES to renegotiate these contracts without charging additional tariffs? And the second question would be the return of assets, especially Barca asset in Rio de Janeiro. I would like an update if CCR is still interested in returning this asset or if this is a balance matter or if you will continue with this concession until the end. Genato, thank you for your question. Your first question regarding liability management. We are analyzing the market. The market has interesting opportunities, and we are analyzing liability management. But the characteristic here of CCR, our liability is long. So we're talking about Metro Bahia. That is a 30, 25 year project. And we are still in the beginning of this process. Although we always observe these points and we try to look for opportunities, I would say that it's not as obvious as other companies that have shorter BNDES contracts and are interested in points that are more obvious. In our case, we have to study the matter. And once again, We would have to run the risk of refinancing 10 years, 12 years. And this is something that is starting to exist in Brazil. But here, you run the risk of refinancing. We are analyzing this matter, but it's not as obvious as it is for other players that have BNDES maturities that are shorter. Now regarding Barcas Rio de Janeiro, our interest is to end this concession To end this terminate this contract, we understand that under the current conditions, it's not interesting for us. There is a legal lawsuit connected to this point. And we want this to be resolved in the shortest period possible. Of course, things don't happen exactly as we wish. But we're doing everything to resolve this as fast as possible. If you could allow me to make another question regarding the economic balance of suspended axles. How are you negotiating this with the regulating agencies? What do you expect in terms of response? You would extend the concession period. How do you visualize rebalancing of the suspended axle? While the good news of suspended axle is that this is clear. They recognize and their figures match our figures Regarding what we have done, this is very clear in the conceding power with the conceding powers conversation. Now how this rebalance is going to be done? Two forms are being studied. There are some concessions where you kind of have a lower tariff, where we could have a low toll fee and we could rebalance this through toll. And the others will be done through a time line. Well, we still do not know how this will happen. But as I said, the conversations have been very positive. And our conversation is good because we want to deal with this matter jointly. Our Q and A session has come to an end. I would like to give the floor to Mr. Eduardo de Toledo for his final remarks. Before closing, I would like to highlight that the initial results of this quarter show us that we will have a good operating performance. Now we have a very positive feeling. We are reassured, and we feel that our businesses are very positive. And we are very reassured that the decisions that we are making will prepare CECR for this new growth cycle that we had ahead of us. It was a pleasure to count with all of you in this call. Thank you for your participation, and we will talk to each other in brief. The TCR conference call has come to an end. Thank you very much for your participation, and good