Earnings Call: Q2 2018

Aug 14, 2018

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to CCR Second Quarter 2018 Earnings Conference Call. Please be advised that during the conference presentation, participants will only be able to listen to the call. Once the presentation is over, we will begin the Q and A session and further instructions will be provided at that time. If any of you need any assistance during the call, Before we begin, we would like to clarify that all statements regarding the company's business prospects, projections and operational and financial goals that may eventually be made during this conference call constitute the beliefs and premises of TCR's Executive Board as does all the information that is currently available to the company. Considerations about the future are not guarantees of future performance as they involve risks, uncertainties and assumptions relating to future events and therefore depending on circumstances that may or may not occur. Investors should understand that general economic and industry conditions as well as other operating factors may affect the company's future results and may lead to results that differ materially from those expressed in such forward looking statements. Now, I will give the floor over to Ms. Flavia Godoy from CCR's Investor Relations team. Ms. Slavia, you may proceed. Thank you, operator. Good morning, everyone, and thank you for joining our 2nd Q 'eighteen earnings conference call. With me today are Mr. Arthur Piotus, CCR's CFO and IR Officer, Marcos Macedo and Marcella Diaz of the IR team. The company's news release for the Q2 is available on our website, www.cir.com.brir. I would like to begin with a few macroeconomic indicators that we believe are important for the performance of our business. We start by pointing out that during the Q2, unemployment rate reached 12.4%, down by 60 bps versus the same quarter of 2017 and down by 70 bps when compared to the first quarter ended in March. The real average worker income reached BRL2198 in the second Q 'eighteen, stable in comparison to the same period of 2017. The latest data on industrial production related by IGB showed a 1.7% growth in the Q2 of 2018 when compared to the same quarter in 2017 and a 2.5% decrease when compared to the 1st Q of this year. Credit data released by the Central Bank shows that in June, the financial system credit balance increased by 1.7% in relation to the same amount of 2017. Credit balance for individuals increased by 6%, while for legal entities, it's reduced by 3%. The credit to GDP ratio fell to 46% from 47% during the same period. During the Q2 'eighteen, the volume of credit available for Vifco financing increased by 27% when compared to the same quarter of 2017. We remind you that the ultimate seed sector is closely linked to the trustee growth and has a great relevance in industrial GDP. In this sense, the number of licensed vehicles increased by 13% in the 2nd Q 'eighteen over the same quarter of last year. According to the most recent data published by Alfavia, decal production increased by 13% during the same period. When considering the main operation figures for the quarter, we highlight the pro form a property revenues, which declined by 5.1% in related to the Q2 of 2017. Traffic volumes for commercial vehicles decreased by 4.8%, light vehicles decreased by 5.5% during the same period. However, we would like to remind you that the quarter was negatively affected by the national truck drivers strike in May, which lasted 10 days and the toll exemption on empty and suspended access, which entered in force also in month of May based on a decrease issued on May 18 that provides for the exemption of so fees on empty and suspended truck access, which was one of the requirements made by truck drivers to the end of the strike. This resulted with a toll exemption of over suspended axles at the Togo of Rodonote, Villalagu and Villarreal on May 28 and of Autobah Rodonel Oeste, renovias, expevias and Vios on May 31. Excluding the impact of these exemptions, CCR's consolidated traffic, including Renovias and Villarreal, would decrease by 3.4% in 2nd Q 'eighteen over 2nd Q 'seventeen. It should be emphasized, however, that the compensation to establish the economic financial rebalance of the concession contracts are still being discussed with the of Paris. Were not affected as such expansions have been enforced since April 2016, when the approval of the truck driver's law was issued. More information on truck evolution for its concession is provided in our earnings release. We now highlight the main pro form a figures for 2nd Q 'eighteen, that is considering the businesses in which we do not have full orchard control, which have been consolidated in proportion to CCR stake in each of this business. We also exclude the following items for the same base comparison, Guillermo delidar, whose contract was signed in April 'eighteen, nonrecurring expenses of BRL17.6 million in EBITDA and BRL11.6 million in net income related to independent committee. Via Rio, which are held by CCR increased from 33% to 67% as of May 2017. And the nonrecurring effect related to the acquisition of 1st Indiaparta and Via Hill during the 2nd Q 'seventeen in the amount of BRL548 1,000,000 in EBITDA and BRL362 1,000,000 in the net income. According to this criteria, adjusted pro form a EBITDA for the same base comparison reached BRL 1,200,000,000, a 2.6% increase versus 2nd Q 'seventeen with a stable EBITDA margin of 59%. Although, fracking volumes were affected by national truck driver spikes and its sole exception over suspended axle. As I mentioned earlier, it's worth noting that these positive results reflect the company's discipline in controlling costs. Cash costs increased by 3.3% versus an inflation of around 2.6% during the same period. Net income on the same comparison basis totaled BRL 300,000,000 down by 5% when compared to the same quarter of 2017. This result was mainly impacted by the operational performance already described and was partially offset by control of cash costs and a better financial result. The company's pro form a leverage measured by the rate in net debt to EBITDA reached 2.6 times in June over this year. In March, the smaller ratio of 2.2 times reported in Nonco Nexunon, recurring effect 48,000,000. We concluded our comments of the quarter highlighting that although, toxic volumes were affected by national truck drivers strike and the tow exemption over suspended axles, pro form a EBITDA on the same base comparison increased by 2.6%, confirming the company's discipline and controlling costs. We may now begin our Q and A section. Operator, please go ahead. Ladies and gentlemen, we will now begin the Q and A session. Our first question comes from Stefan Tran, Citigroup. Hi, good morning, Flavia and team, and thanks very much for taking my questions. I was just curious if you could give us your view with respect to your expectations on upcoming auctions and opportunities in the secondary market? And that's my first question. Thanks. Hi, Stephen, this is Claudia. Thank you for your question. Well, in terms of new opportunities, actually, I would say that CCR is quite optimistic. We do believe that we are going to see another investment cycle in Brazil. So although this year is going to last year, we already have some opportunities by the end of the year. Actually, we have 2 tender process. 1, the first tender process is going to be November 4. This is a tender process for a highway located in Yigua de Dusu space, the Federal Highway. The second tender process is a monorail Line 50. It's a project, I mean, located here in Sao Paulo Quirri, the state of Sao Paulo concession and the tender process is set up to November 22. So like those opportunities, we expect to have more. It's important to mention that we already had some tender process this year, close to 3 to 4 tender process. And we expect more opportunities like that, not only this year, but as I said before, by the beginning of the next year, the company is quite optimistic. We do believe that, I mean, over the next 5 years, we are going to have a bunch of opportunities. Regarding the secondary market opportunities, I would say that CCR has been analyzing some opportunities. Unfortunately, I cannot give you more details on that due to some of our contingency agreements. But I would say, yes, the company was very proactive in the past. I mean, the company already acquired some concessions in the past. The company has been pursuing some opportunities from the secondary market. Very helpful, Flavia, and I appreciate that. And then just one very quick follow-up question. I mean, I know in the past that you guys have done some investments in airports, I mean, in Brazil, outside Brazil, even in the United States. Any thoughts at this point regarding the Brazilian government's thinking on potentially auctioning more airports? Is that something that may also interest the company? Hi, Ceeson. Yes, there are more opportunities. Actually, the Brazilian government allowed to announce the 3 quarters of airports in Brazil. The government is conducting the public hearing. And according to the government, they expect to launch those opportunities soon. We still don't have the official date, but I mean, they are working on that. I mean, by the end of this year or the beginning of the next year, we should see those opportunities. Okay. That's perfect. Thanks for the color Flavia. Thank you. Our next question comes from Rafael Fertil, Bradesco BBI. Hi. I have two questions. The first is, do you have any update on the rebalance regarding the listed equity tariff extension? And the second is, I'd like to know actually, you already answered the first part of the question, but I'd like to know if you are analyzing any potential acquisitions right now. Rafael, this is Claudia. Regarding our first question related to the exemption, the company is still negotiating with the government how the company will be rebalanced to exempt the standard axle. So it's important to mention that in our concession contract, we have some mechanisms to rebalance the contract. But it is still under discussion. I mean, I don't have at the moment more details to share with you. But the company definitely will be compensated. Regarding our second question related to the M and A opportunity, CCR has been pursuing some opportunities from the Santo Socondara market, as I mean, we have added it in the past of some acquisitions. Unfortunately, I cannot give you more details on that or to talk about a specific project. I mean, due to some confidentiality agreements and due to our scrapping, I cannot share more details with you. Okay. And just a follow-up on a number you mentioned during the first call. Regarding MXN here, you said you invested EUR 7,000,000 to EUR 6,000,000 during the first half of twenty eighteen and we will invest more BRL 4,000,000 to BRL 5,000,000 in the second half, is that right? Rafael, let me add those numbers. In Enya TV, during the first Q 'eighteen, we invested BRL 76,000,000. We released that information in our documents. And according to our estimated investments, we should end the year with the total investment around BRL150 1,000,000. BRL 145 1,000,000. BRL 45 1,000,000. Okay. Thank you. Thank you. We now end the Q and A session. I would like to turn the floor over to Ms. Flavia Godoy for the company's final consideration. Ms. Flavia, you may now proceed. On behalf of CCR, I would like to thank you for your time and interest. Please do not hesitate to contact any of us if you have any further questions. Our contact information is available on our release and on the IR website. Thank you. This year's conference call is concluded. Thank you for your participation. Have a good day and thank you for using Corus' call.