Good afternoon, ladies and gentlemen. Thank you for waiting. We would like to welcome everyone to the fourth quarter 2018 earnings conference call of CCR S.A. We would like to inform you that all participants will be in the listen mode during the presentation. After the company's remarks are completed, there will be a Q&A session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star-zero to reach an operator. Before proceeding, let me mention that forward-looking statements about CCR's business prospects and financial operating goals are based on the beliefs and assumptions of CCR's management and on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties, and assumptions because relate to future events, and therefore dependent circumstances may or may not occur.
Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of CCR and could cause results to differ materially from the expressed in such forward-looking statements.
Now I will turn the floor to Mr. Eduardo de Toledo, Corporate Management VP of CCR. Mr. Toledo, you may begin, please. Good afternoon. It's a good pleasure to be with you today. I'm the CCR Corporate Management VP. Maybe we have met in the marketplace, and most recently at Clubinvest. We have today Arthur Piotto, DRI and Financial Director of the company, a friend of yours for the long time, as well as Marcos Vinicius and Flávia Godoy. This is the first time that I'm participating of CCR's call, and I consider this one to be very important in terms of our communication with the marketplace.
I would like to start by saying how pleased I am with the invitation to come to CCR. First, because of the company itself. It is recognized by technical excellence in the concession of public services, such an important sector for our country. CCR has the conditions to do this. It's a financially solid company with a good history and a leader in this sector. Another important element, it is that CCR, since the beginning, has the stakeholder vision in public interest that should be met, and this contemplates market shareholders and society overall. CCR has this vision since its inception. In terms of our industry, the infrastructure industry, we have to run a lot because you all know how fundamental this industry is for any country, and mainly in Brazil with the urban issues we have with its population and our dimensions.
This importance is clearly reflected and present in the government's agenda in the several spheres of the business. The third element of the reason for my coming to CCR, which weighed a lot in my assessment, when deciding to come, was the changes that took place in our company. CCR started still in 2014, the design of its succession, which was called the Leadership Reinvigoration process. This program started to be carried out at that time when Leonardo Vianna was appointed CEO of the company and went on throughout other leaderships. Now since November, as the new VP for Compliance with Pedro Sutter, which you will meet soon. The company has been undergoing a very important moment in terms of changing its governance mechanisms, which I think are very important because they are very much in line with everybody's thoughts. Now, talking about our quarter.
Arthur will soon go into detail on our results, but I would like to say that the company's results were much in line with our expectations, and this reassures the foreseeability of results of the company. In this quarter, we had a very specially important quarter in which we accounted for all the agreements signed with the public prosecution, both signed in November here in São Paulo and last February in Paraná. These agreements with the public prosecution office were fundamental. Due to the nature of our activity, because they are fundamental for this reason for us. The independent committee carried out a very comprehensive work since the beginning of this 2019 year. With that, we were able to bring in elements, but without the cooperation of the former executive, we wouldn't have reached the agreements we signed with the public prosecution office.
We have the obligation to maintain confidentiality on the latest agreements. Otherwise, we run the risk of losing these agreements executed. I want to make clear our obligation to maintain this confidentiality. Now, I'll give the floor to Arthur Piotto, who will share with us the details on this last quarter.
Good morning. Thank you. First, I would like to thank for your participation and interest in the company. Before making comments on the results, I would like to tell you that our release is available at our website. Now on the main quarter. First, the consolidated traffic rates fell by 3.6% as compared to last year, for Q3. This was due to the initiatives that started in the second quarter 2018. These exemptions really gave us a moving up by 7.7%.
Considering the businesses on which we are not responsible for the control or we have joint control, we consolidated. We also excluded expenses and non-recovering provisions. We increased our participation and the components that are outside the basis of comparison, as you can see in our results release. Our adjusted EBITDA in the same base period was BRL 1.54 billion, representing an increase as compared to last quarter. This corresponds to the expansion of 0.5 percentage points. The net EBITDA represented a decrease of 21% as compared to the last quarter, same quarter last year. This result was impacted by the operating result, which already was mentioned, and the greater amortization in the period. The increase in amortization and depreciation were due to the conclusion of the civil work of RodoNorte and NovaDutra.
In the fourth quarter 2018, our financial assets totaled BRL 540 million. The concessionaires, RodoNorte, NovaDutra, SPVias and Metrovias, were those who invested more. In terms of IFRS net indebtedness, we attained BRL 4.3 billion, representing 16.6% increase in comparison with the same quarter last year, and 8.8% in comparison to the previous quarter. With this increase, our leverage measured by EBITDA and operating adjustments attained 8.8%. At subsequent events, we are pleased to announce the signature of the building contract of the integrated Rodovias do Sul on January 11, 2019, with the commercial operation to start on February 15. On March 11, the consortium CCR, with 80%, and who has participating with 20%, presented the best proposition for the concession in terms of transfer of rights to the public service of the Line 15-Silver of the subway system of São Paulo.
We are waiting for these analyses of results declaring as our winner. The conquest of these last events qualify our company. I would like to return the floor to Eduardo de Toledo.
Thank you, Arthur. Before starting and opening to questions, I would like to invite you at this opportunity to join CCR Day on April 8. At that time, we will be able to discuss at ease our strategies and plans and the future of CCR. I open the floor for your questions, please.
Ladies and gentlemen, we will now start the Q and A session. In order to pose a question, please press star one. To remove your question from the line, press star two. Our first question comes from Roberto Otero, Bank of America.
Good afternoon, friends. Thank you for receiving my question.
My question will leave set aside from the scope of the results. I think that you've covered very well your operating dynamics and financial. I would like to discuss your plan of incentive to cooperation during the last quarter. I would like to understand the context of this proposal, if you could explain the need to do this, if you are taking into account the legal framework due to the lenience agreement and the results that you established. I would like to know how did you reach that figure. Thank you, friends.
Well, Roberto, thank you very much for your question. Basically, the PIC issue has its origin in the necessity of CCR due to the nature of its activity of going after an agreement with the public prosecution's office. This agreement with the public prosecutors is fundamental for the continuity of our businesses.
As I said, we immediately heard the news on CCR's issue. Our administration created an administrative committee, an independent one, to carry out a deep investigation on what had happened. This investigation brought about some important elements. They were not enough to make us understand what happened. Without understanding very soundly what had happened, we wouldn't have what to offer to the public prosecutors. This was a sine qua non condition to reach the agreement with the public prosecution's office in terms of having the cooperation of the current executives and the previous ones. PIC was created exactly in this context, or else, to give the calm to all of our executives so that they would be able to cooperate with the company when rendering their testimony, because this is a basic condition for our agreement with the public prosecutors.
In terms of the sum, the sum tried to base itself on the executives' compensations while working with us. Our concern was great with this. Throughout 5 years, these executives will have the financial support from the company in exchange for their continuing contribution with the public prosecution's office. This, I must say, is a necessary condition for the company not to run the risk of losing all the agreements signed.
Well, thank you very much, Eduardo. I would like to know, this sum is distributed to these 15 former executives in proportion throughout these 5 years, or is it conditioned to some type of specific cooperation? That's what I want to know if I understood properly.
Well, it is. This amount will be uniformly distributed to the 15 executives throughout 5 years. They have to provide, in exchange, continuous cooperation to the public prosecution.
Maybe the public prosecutors want explanations on some details on actions they took. We committed ourselves to offer them this counterpart in terms of cooperation.
Okay. Understood. Thank you very much.
Our next question comes from Rogério Araújo, UBS.
Hello. Good afternoon. Thank you for the opportunity. I have two questions. The first regards to the future CapEx number. In every fourth Q, you disseminate this amount, including the unbalanced figures, those that you call for compensation from regulators. This year, we realized that there was a great increase around BRL 400 million in ViaQuatro, BRL 500 million at Rodoanel, BRL 300 million for ViaMobilidade, and BRL 350 million for the Belo Horizonte Airport. I want to understand these increases more properly. Which is the probability that the company bases itself on and the amount that is today around BRL 2.6 billion investment.
I would like to know of this BRL 2.6 billion investment, how much of this can you get compensation from the regulator for?
Well, thank you for your question, Arthur. This amount, in fact, every year, whenever we announce the figures for the closing of the previous year, we make an adjustment in this forecast of investment. This reflects our frustration, which then really happens because every year we carry to the next year an amount that didn't come true in the previous year. Based on the best information we have at hand, we also assess and add to this forecast of investment a given amount that we consider contingent or else these other investments that we consider could help us rebalance the numbers. I want to make it clear here that this doesn't mean obligatory investments, mandatory investments. In terms of quantitative, you're answering your question.
The uncertainty is due to two reasons. First, we don't know if part of these investments are contingent and depend upon some triggers. The other part depends on our negotiations with the government. Despite that, we consider this the best information, and it's part of our investment budget, which was approved by the company. As I mentioned before, throughout time, at least in the 5-10 years passed, there is a carry. To explain, from carry trade from one year to the other, around 25% of the adjusted amount, which is adjusted, as I said, like we are doing now at every year-end. It's important for all of you who are listening to this call, you have to understand that this amount, despite being the best amount we can consider, and that's why we share it, doesn't mean that it will be totally fulfilled.
These are not the mandatory investments that have to be concluded by the end of the year.
Well, thank you very much for your clarity. The second is the suspension of the eixo, the charging for collection for eixo suspenso . I want to know if you have an idea of when this is going to finish or to have a mixed situation.
Well, look, the situation is still open. Until the moment, we don't have any definition. We are not too much concerned with this because due to our concession concept, all this is quite clear. It's only a matter of time. In terms of the possibility of rebalancing it, as you said yourself, this can be made by different ways, either with time or with other alternatives, or increase in tariffs. There are several different possibilities. We don't think that this is a problem.
As I said before, we are in the starting phase with new governments throughout Brazil, which took office in the beginning of the year. It takes some time until this is fully understood and fully equated by the new managers of the country.
Well, thank you very much.
The next question comes from Felipe Vinagre, Credit Suisse.
Hi, good afternoon, Eduardo and Arthur. I have a question going back to the first topic, the incentive collaboration program. I want to understand better your explanation. First, the risk. Is it connected to the past negotiations as the public prosecutors of Paraná and São Paulo announced that this has to do with that past negotiation, and it depends upon the executives going on helping and cooperating with this?
Or if there is something in terms of the reimbursement of costs or lawyers' fees, any type of payment that was made or will be made to these executives.
Well, thank you, Felipe Vinagre, for your question. Well, going back to the fifth topic again. We are committed vis-à-vis the public prosecutors, the continuing cooperation. If they want to shed light on some actions that we took, we are available to that. When I say us, it means all of us who made their testimonies. With the 15 executives, the agreement is that they will go on contributing, because if they stop contributing, all the agreements will go down.
The equivalence of one monthly salary during five years is part of the cost, we also have lawyers' fees and whatever fees that occur in order to make these depositions, then we'll calculate the total cost of the agreement. Thank you very much.
Our next question comes from Juliana Angélica Aripé.
Hi, Juliana.
I have still three questions related to PIC. They are connected questions. First, the special instrument of working contracts that you disseminated on item eight, I'm reading. As to the topics approved by the board of directors as a counterpart of what was said above depends of the remuneration, the compensation of a given quantity. What I understand from this is, this is a blank check. This BRL 71 million can reach a much higher sum.
Let's imagine a scenario that the executive signs a deal and has to pay a fine of BRL 1 million. Who will pay this fine? The executive or the company? Because it says the word indemnified. The second question, is it clear for you or to the independent committee, who was the beneficiary of the contravention that took place? Were the executives who benefit from it, or was the company who benefited? Or even, because I read that it was mentioned that was an electoral crime. My question is this: Is it clear who benefited from it? My third question, in case you don't know yet who was the beneficiary, there is a possibility that the beneficiary is the one who really was a controller. I ask now, is it correct if the controller does not vote in the next general meeting?
Well, these are my three questions.
Hi, Juliana. Thank you for the three questions. I'll try to answer the three of them. The first, to maintain indemnified. This is exactly what's in the contract, and this will be analyzed by the general director's meeting because they are sovereign to analyze and discuss it. Nevertheless, I mentioned that it is clearly of the interest of the company to meet this request, but the general meeting is sovereign. The blank check is not true because at the same time, the company carried out the negotiation in terms of the penalties that it suffered as part of the agreement. At the same time, the individuals also carried out individual negotiations, and the sums were much smaller. This is not a blank check. These amounts are not to be considered a blank check.
The most important amount is of another order of grandeur. Well, the other question, as I said, I cannot comment on it because we are bound by the confidentiality agreement. Therefore, I cannot comment on who were the beneficiaries from the standpoint that who received the amount. The third aspect, we still don't know it because this is part of the confidentiality of the process. The third element in terms of the controller or our board and whatever can be done. In my view, I think that there is a very important element, and that's the way the board acted when it was made aware of these facts. The creation of an independent committee with two independent members from the board, two external members with the funds to hire the best experts, reasonably speaking.
This shows and demonstrates our clear will to find out what happened with all the elements involved. From my standpoint, I don't see any reason for any tampering in their capacity of speaking up in the general meeting.
Our next question comes from Fernanda Bedalla, JP Morgan.
Good afternoon, Eduardo. Good afternoon to all. I have two quick questions. Well, this topic received several explanations, and it's quite clear. However, it's weird somehow for me to think that you are encouraging an executive who, in theory, did wrong things. He left the company with his compensation and will go on receiving compensation to benefit the company, so that the company will go on being effective. I don't know. Would there be another alternative? This will hamper the minority partners, and this is my first question.
I don't know if there will be another option instead of this one, because I don't understand this aspect. The second, the São Paulo Paraná agreement. I would like to know if the Paraná agreement, due to the difference in value, could it cause the São Paulo agreement to be reanalyzed? Could you give us the reason for the difference, BRL 80 million São Paulo, BRL 100 and something for Paraná? Who buys CCR today is different. We are buying CCR knowing that there were wrong things in the past and now the company is clean, or Metrô Bahia, Rio de Janeiro could be affected also. Could we be sure that the history is cleaner in this sense?
Thank you. Well, Fernanda, thank you so much for your question.
I think that in terms of the first aspect of the remuneration, I think that as executive managers of the company, we have the duty to think exclusively in the interests of the company. To some extent, the question whether it's fair or unfair isn't proper, because no matter how many personal opinions I may have, I here have to work and think for the best interests of the company, and I am sure that this was done. These corporations of the former executives, as I said, are vital for the survival of the company. In these aspects, they are very calm. The second element on the question of whether other things may come up. What we can state here is that everything that was found in the internal investigation and that has materiality was contemplated in the two agreements.
There's nothing material found in these investigations that is not contemplated in the agreements. This is what I can say to you now, very emphatically. Is there any legal reason? I also am not an expert in this, but is there any explanation for this huge difference between the two states? Fundamentally, it's the nature of the accusations. In the case of São Paulo, the nature of that accusation was electoral crime, and in Paraná, the nature was different, not electoral crime, and this leads us to difference in amounts.
Thank you very much.
Our next question comes from Paula Gomes, Bradesco BBI.
Good afternoon. Thank you for receiving my question. I want to understand better when you say that all the material was included in the internal investigations and in the lenience agreement signed. When you say material, what can I consider as material? Was there any other problem that you found out, or the independent committee found that is yet not covered by the investigation? What's the material amount you are considering?
Paula, the statement I made is part of the financial results of the company. This is what we can consider materiality. I repeat, nothing material was found that is not included in all this situation. This is what we can say.
Thank you very much. A last question. In terms of the accountability for the events, do they fall only on the 15 executives, or the members of the board could also be accountable for them?
Paula, from the standpoint of what we found out, all the elements that reached all those involved in the findings participated in the PIC and contributed to the agreement. There is nothing that goes beyond these people.
Thank you.
Thank you, Paula. Thank you, sir.
Our next question comes from Felipe Vinagre, Credit Suisse.
Good afternoon. I have two more questions. The first on the investigation. I want to make clear what was the committee's scope. Did they focus more on São Paulo, Paraná? Other states were also investigated, Rio de Janeiro, Bahia, whatever. Can we state that what was found included everything that is included or any other state has a specific asset involved? In terms of PIC, again, from the public prosecutor's standpoint, what do they say about the potential conflict of interest of these executives that will go on cooperating, receiving payments from the company being investigated. This, for me, sounds like a potential conflict of interest.
Felipe, thank you for the new question.
The encompassing of this work, in terms of its encompassing, I will say that there were 10 months of work, very encompassing. Their mandate was to investigate this topic and any other event that could be correlated to this, any word that sounded linked to it. I think that was a large encompassment, and this is what I can say. The second point on the conflict of interest, this topic was discussed with the public prosecutors as part of the agreement, exactly because the public prosecutors need the continuing cooperation of those involved. For them, this is absolutely clear in order to allow them to find out, because their interest with us is to be able to investigate other eventual persons that are involved. They want these 15 executives to investigate other actors, other companies that could possibly be involved.
Well, it's clear. Thank you.