Good morning, ladies and gentlemen. Thank you for waiting. Welcome to CCR Teleconference to discuss Q1 2019 results. All participants will be in a listen-only mode during the company's presentation. We will then have the Q&A session. Further instructions will be given then. If you need assistance during the conference, please press star one. Pressing star zero. Statements made about business perspectives, projections, financial goals are made up by beliefs of the company's management based on current information available to the company. Future considerations are not a guarantee of performance, and they are related to future events. They are dependent upon circumstances that may or may not occur. Investors should understand that general conditions and industry conditions, among other operational factors, may impact future results of the company. They, of course, result in different consequences than those stated here. I would like to turn over to Mr. Eduardo de Toledo, Corporate Management VP of the company. You may proceed now, sir.
Good afternoon, everyone. It's my pleasure to be here with you today for this quarter's results. Arthur Piotto Filho, the RI Financial Director, and Flávia Godoy, she's from the RI team. I would like to start by pointing out the good performance of our company in Q1. Very positive numbers. Two indicators make that very clear. The operational adjusted EBITDA showed us a 15.8% increase when compared to Q1 2018. The other one is the net debt/EBITDA ratio, 2.6 this quarter, Q1. From 2.8 to 2.6 reduction from Q4 to Q1 this year. These are positive indicators that show our good performance.
I would like to point out that we may see this type of evolution throughout the year because we do have business that are in the ramp-up phase. The subway system in Bahia, for example, has shown a 28.9% increase when compared the number of passengers when compared year-over-year. In this quarter, we had over 500,000 passengers per working day. When compared to ViaSul, traffic in Q1 2019 surpassed 5 million vehicles. These are ramp-up businesses, and they will have this performance throughout the year. As to ViaSul, in particular, let me point out that the company has shown its capacity when we managed to start the operations February 15th. Only three and a half months after we were awarded the auction, despite all the bureaucracy, the hiring of personnel.
Three and a half months later, in other words, we were able to make that happen. We had to rehire executives, workers, and mobilize assets, rescue vehicles, the entire system. A concession that had been deactivated for over a year. That's clear evidence that the company can properly run its operations. Before I turn over to Arthur, he'll be giving you further detail about Q1 results. Let me just say that we're pleased to hear the proposals be approved on the 22nd. This is an important step to CCR so that we can overcome the issues we faced last year. I turn over to Arthur now.
Thank you. Good afternoon. Let me thank you for attending this call. Let me just make some comments about the results. The release is available at www.ccr.com.br/ri. Let me now talk about the highlights of the quarter.
Pro forma traffic is down 1% year-on-year. That is first quarter 2018. Recently factored the exemptions of suspended axles and also Via São , the latest highway added to the company's portfolio earlier this year, there was a 1% increase. Let me point out, the pro forma numbers of Q1 consider that we do not have total control or shared control that is consolidated as to our stake at each line, excluding non-recurring expenses, new projects and assets in which we have a higher stake and in comparable basis as we stated in our results release. Cash cost is down 1.8% as a result of the concession course. Adjusted EBITDA is BRL 1.5 billion, up 14.2% when compared year-on-year with 63.8% margin. That accounts for a margin expansion of 11.2 percentage points. Net income is BRL 337 million in the first quarter.
It is down 23.2% when compared to first quarter of last year. This result is impacted by operational performance, as we have stated before, and greater depreciation and amortization in that period. These two components, depreciation, amortization, are a result of the conclusion of Dutra, RodoNorte, and Metrô Bahia construction projects that were ended. Another important component that contributed to that decrease of 23.2% is that end of the interest capitalization period for the constructions that were not used in two projects, in Metrô Bahia and the Confins Airport. Still, in Q1 this year, investments including financial assets and maintenance, amounted to BRL 331 million. The company's RodoNorte, NovaDutra, and Juan Santamaría International Airport in Costa Rica had better results. As to the net asset, BRL 13.2 million, an expansion of 11.2% when compared to. 4.1% down when compared to Q4 last year.
With the reduction from Q4, the company's leverage measured by net debt/EBITDA, operational adjusted, is 2.6 times. On March 11th, the company made up of CCR with an 80% stake, presented the best proposal in the onerous transfer for Line 15-Silver in the subway system in the city of São Paulo. Analysis is further pending and the official announcement of the company awarded that bid. This achievement is evidence of the qualified service the company provides. We remain optimistic and we are interested in new businesses, both domestically and internationally, both at the primary and secondary level, for highways, urban mobility, airports and ports and related businesses. This is, of course, in alignment with our bylaws. There are several opportunities to grow.
Two federal highways are now currently being prepared for the invitation to bid in Santa Catarina BR-101, and BR-364/365 between Goiás and Minas Gerais. Additionally, still in 2019, a re-bidding process will take place in Tocantins, Goiás by the transportation agency and stretches SC-370 and BR-325 highways currently in the hands of Centrovias. This process is going to be run by the State Secretary of Transportation. In terms of airports and ports, the federal government has just announced it is going to include the private initiative in six airports concession. 36 different assets will be auctioned in the period between 2019 and 2022. In terms of urban mobility, lines eight and nine of the metropolitan train system in São Paulo are going to start bidding still in this first semester of this year. Internationally, we are now pre-qualifying phase in the Bogota subway system.
Let's move on to the Q&A session. You can move forward. Ladies and gentlemen, we will now start the Q&A session. Please press star one to ask a question. To remove yourself from the queue, press star two. Alexandre Falcão from HSBC is going to ask the first question.
Thank you. My question is about that note you paid over the PIC. You paid out BRL 15 million in fines. Was this voted in the general meeting? When we calculate the PIC, the remainder, I think the total was seven odd million, vote for the approval of the general assembly. Am I right in those calculations? Thank you. Hi. This is Eduardo. Thank you for your question. Those BRL 15 million were included in the contract. These are individual fines. CCR is accountable for those fines. They are being fined as individuals. That's what they are.
This has been announced only now. It's a provision. To the best of our knowledge, this is the global amount, the total amount. As to the amounts paid and the current remainder, these were all approved by the PIC, and there were some advances before. If that was not approved, that would be returned, of course.
Have you hired someone in corporate governance? You couldn't have access to those BRL 15 million before the vote. Why wasn't it included?
Well, actually, we do not have direct access to that piece of information. As to the agreements, the plea bargains, this is in secrecy. We have recently asked to get information about it, what would those individual fines be, so that we could provision them. We knew they were below or under the PIC number. They wouldn't be so substantial. The issue was a matter of information flow because we do not have direct access to those plea bargaining agreements directly.
I have a final question, if I may. We talked about materiality, because these are not material values, actually. These are just small amounts. You said that there's nothing that is material in other states. Let me just try to understand that. In the same non-materiality scale, would there be any amount that would be at this level, in this neighborhood? Would you be liable to any type of contingency of that sort?
Once again, Falcão. What we can announce is what we have in our statements. Everything that was found that is material, and again, materiality is the accounting sense, in the auditing point of view. Everything that is material is contemplated in the agreements that were signed, everything that was found in the investigation.
That's what we can say now.
All right. Thank you.
Pedro Bruno, Santander, asks the following question.
Good morning. Thank you for taking my call. Actually, most of it has been answered. Let me just follow up on Falcão's question. As to those BRL 15 million, my question is, maybe you don't know yet, is there anything else that might come up in the near future? Could there be anything else? Something that was not in that voting? I know you may not know how much it is. How much it is may be not the most important thing, but my intention is to find out whether there is anything else that was not included in the PIC. That's it. Thank you.
Hi, Pedro. Thank you for your question. As to the amounts, this is what we asked the lawyers.
We wanted them to give us the numbers that are already known. This is the number they gave us. We're not expecting any significant numbers. Of course, we do not have full control of the situation, but we don't see any significant amount coming up.
All right. Thank you.
Lucas Naji from Citibank is asking the next question.
Good morning. Shifting gears, you talked about government projects in the pipeline. What's the competition like for these new projects, especially considering foreign players that were not involved in previous processes?
Lucas, let me just give you an overview. We've seen important foreign players in airports. This is an industry in which foreign players play an important role. In other areas, highways and urban mobility, we haven't seen that many foreign players.
There was a wave last year, a stronger wave of foreign players last year, but we haven't seen that important presence more recently. Let me just follow up on what Eduardo said. In our industry, especially in highways, which is older, so to speak, it's an industry that has always been open to foreign players. There isn't any preference for domestic players, especially during the auction phase. It's only natural that they'll come. This is a result of the economic scenario abroad. There are not only strategic players that we need no introduction, but we've seen other players, such as financial players, pension funds, coming to Brazil and being an important part of some projects. More than being concerned about the competition, I think we should look at the number of opportunities. We should be optimistic, be it in new projects or re-bidding process of concessions that are expiring.
Between 2019 and 2020, 2021, there are several projects out there, so that's what we are aiming for. We're not only trying to maintain our portfolio of those projects that will be expiring in the same time frame, but at the same time, we're trying to expand even our portfolio. In that sense, in the past 12 months, the company has done great work. We added a new project or increased our stake in one concession per quarter. So I believe it's a good rhythm, and it has to do with CCR. That's our desire to benefit from this new macroeconomic scenario. It is a competitive one, of course, but the country as a whole has the necessary conditions so that the market can actually take off finally.
I understand. I was more concerned about highway construction.
There was some time with no foreign players, and now we had in this latest auction, a somewhat aggressive player in the auction. What's your take in the next auctions? Do you think foreign players will play a more important role? Can you share your take on the balance sheet? Do you believe you have a great leverage ratio even to take part in these new auctions?
Well, in terms of highways, it's a local issue. Everything's local. The revenue is based on domestic currency, local inflation. Airports are somewhat different, right? You talk to major airlines, major brands. It's more of a global issue. But highways is very local in nature. Foreign players will be competing within the same conditions. And we, as CCR, have a competitive advantage because of its know-how. And I think Arthur is right. Foreigners are welcome because there's a lot of supply.
There will be opportunities for everyone. The pipeline looks very positive. As to the leverage, the number that we use as a benchmark is 3.5 net debt/EBITDA ratio when we are more leveraged. That's the standard. That's the benchmark we aim for.
Perfect. Thank you.
Lucas Marquiori from Safra is asking the next question.
Good morning. Thank you for the call. I have two questions. First one, is the CCR Day in the presentation of the Governor Doria's administration. He was very optimistic about the renewal of contracts, and we're considering about changes. I would like to hear your take on the updates, and I would like to know whether the government is demanding anything to extend concessions, something as tariff reductions. Are they demanding that to extend the timeframe?
The second question is about the latest two Mobilidade and ViaSul, the most recent assets. Could you compare the financial performances and traffic of the two assets compared to what was budgeted, especially ViaSul, a very sought-after asset. I would like to better understand the traffic, whether they are performing according to the forecast.
Thank you. Thank you for your question. Okay. Let me address the first question about the extensions from the government of São Paulo. I think the outlook is very positive. We've been publicly discussing these issues. The focus is in new projects that can improve highways overall, and again, including extensions. That's the main focus of conversations. These negotiations are currently underway. They're moving forward. We can clearly see that desire on the part of the government, Doria's administration, to move forward in that direction, and that's very positive.
There's nothing new, nothing that hasn't been discussed in the media. As to the ramp-up projects, okay, ViaSul, we started two months before what we predicted. We are going to have traffic that will be above expectations. Things are looking great. ViaSul is a project that has a very positive outlook. As to the other project, everything's according to plan. Over 500,000 passengers per working day, completely in line with what we expected. Outward traffic was down. Again, it's a country that was expecting to grow 4% a year in the next four to five years. Rather, GDP was down by 3% for two years in a row. It's a combination of factors. A lot of expectation at the time, and a major recession that the country had to go through. Projections today for ViaSul are now way more optimistic.
It's very possible to overcome those difficulties. Projections were conducted when the country was more cautious, if I may.
All right. Thank you.
Victor Mizusaki from Bradesco asks the following question.
Good afternoon. I have a couple of questions. Let me go back to another issue, but this is something that our customers demand. In terms of the payments in BRL, is that for RodoNorte, or would that include concessions in São Paulo? My second question is about the accounting materiality. Is that the same concept that the DA's office used to analyze the issue? Thirdly,
thank you for your question. Let me go back to the BRL 15 million. That includes the individual fines both in São Paulo and Paraná. That would include both cases, two claims. What was your second question again? From the. Well, let me give you an update.
There have been some decisions made. Overall, every time we have an analysis or an expert opinion, and they can show clearly what we have been doing. This is in line with recent decisions. My third question, the comparison between- The concept of accounting materiality. Is this the same criteria that the DA's office uses in the investigation process? I cannot answer that question. I don't know what criteria they use. The way I see it, I'm referring to the accounting issues. I don't know what criteria they use.
All right. Thank you.
Samuel Alves from BTG Pactual asks the next question.
Thank you. Good afternoon. My question is a follow-up on the comment on MSVia. Could you elaborate on the negotiations of the contract? Are they thinking about some financial consideration to reshape the investment?
Thank you for your question. MSVia, we filed a suit, and we have received that legal support. We cannot keep on investing according to the initial plan because of the major imbalance we have in the concession. So within that claim, within that lawsuit, that would involve the grantor, so both parties are now submitting their pleas. During that phase, it's desirable to come to some sort of settlement. These settlements, the way we see it, should protect investments we have made. This is the most important part. Again, we are willing to negotiate. At the same time, we are taking all legal measurements available to protect the company's interests. Thank you.
Press star one to ask a question. Alexandre Falcão from HSBC asks the next question.
My question is about commercial traffic. Even excluding suspended axles, traffic is very slow for the quarter. Was it in one specific highway or a specific line in which traffic was much slower than usual? Is it going back to normal in April, or would that be a trend for the year? Because December is very small.
Hi, Falcão. Thank you for your question. CCR, I think we're impacted by two non-recurring events. That's viaduct on Marginal Pinheiros, and again, a viaduct in the Dutra Highway. There were two major problems. Traffic had to be rerouted. There was some restriction that impacted us to a certain extent. Numbers would have been better, not for those restrictions. Going back to trends now. Earlier this year, January and February, we detected some more positive traffic, and now March, April, things is again going back to normal.
I think the economy numbers reflect the same temperature, if I may. It's not picking up as rapidly as we expected earlier this year. All right. Thank you very much.
Victor Mizusaki from Bradesco asks the next question.
Thank you. Just a final question, Eduardo, if you please. When you talk about the materiality or accounting materiality, how do you make that calculation? Is that a fixed calculation based on the number or the size of the company? How do you make that calculation, if you please?
I'm not a specialist on the matter. That calculation takes into account several variables, and every accounting company or every auditing company makes their own calculation. That's dependent upon the size of CCR . I think it has some relation with accounting materiality, but it will change depending on the auditor.
Sales, assets, those variables are taken into account, but it's not the same criteria amongst several auditors.
All right. Thank you.
That concludes the Q&A session. I turn over to Mr. Eduardo de Toledo for his final remarks. Mr. Toledo, you may proceed.
I would like to thank you for taking part of this call. At CCR Day, we had the chance to give you more detail, and we talked about every business opportunity, just like we did here today. New highway concessions, new airport concession rounds that have been announced by the government, the new concession of railway system mentioned by Arthur. These are my first six months in the company, and CCR has the necessary conditions to play a significant role in this new cycle. Once again, thank you for attending this call, and see you next time. Thank you. This concludes CCR teleconference.
Thank you for attending, and have a good afternoon.