Earnings Call: Q1 2018

May 11, 2018

Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to the Q1 2018 Earnings Conference Call of CCR S. A. We would like to inform you that all participants will be in listen only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. Before proceeding, let me mention that forward looking statements about CCR's business prospects and financial and 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 they relate to future events and therefore depend on circumstances that 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 those results to differ materially from those expressed in such forward looking statements. Now, I'll turn the conference over to Mr. Daniel Kuratomi, a member of CCR's IR team. Please, Mr. Kurotomi, you may proceed. Thank you, operator. Good morning, everyone, and thank you for attending our earnings conference call for the Q1 of 'eighteen. With us here today are Arthur Piotu, our CFO and IRO Marcos Macedo, Flavia Godoy and Marcela Gias, members of the IR team. The earnings release is available on the company's website at www.ctr.com.brir. Let us first take a look at some of the macroeconomic indicators we consider important for the performance of our business. We would like to begin by highlighting that the unemployment rate came to 13.3% in 1st q 2018, 40 bps down year on year and 130 bps up on 4q2017. Real per capita income reached R2,669 in 1stq 'eighteen, in line with the same period last year. IBG's latest data on industrial production show a year on year increase of 1.3% in March 2018. In the last 12 months, industrial production grew by 2.9%. According to the latest credit details released by the Central Bank, credit granting the financial system remained stable year on year in March. The balance of individual credit grew by 6%, while corporate credit fell by 6%. The credit to GDP ratio fell to 46.6 percent versus 49.6% at the end of 2017. Credit to finance vehicles grew by 28% year on year in 1st Q 2018. It is worth emphasizing that the automotive sector is closely linked to traffic growth and has a huge influence on industrial GDP. The number of licensed vehicles increased by 16% year on year in fiscal 2018, while vehicle production grew 15% in the same comparison according to recent data from ANFAVIA, the Brazilian Auto Manufacturers Association. Moving on to our operating numbers for the quarter, we highlight pro form a traffic, which grew by 3.1% over 1st Q 2017. In the same comparison, commercial vehicle traffic moved up by 3.5%, while light vehicle traffic grew by 1.9%. In our press release, you'll find more information on traffic trends for each concessionaire. We now show the key pro form a figures for 2018 that is considering our businesses, which we do not control or hold share control consolidated according to CCR's share in each line. We also adjusted the comparison basis by excluding from calculations via Quatro and Via Hill in which we increased our stake in April 2017. Same basis adjusted EBITDA totaled R1.2 billion dollars 9% higher than in 1st Q 2017, with an increase in the margin of 90 bps to 62.5%. This increase was due to a recovery in the company's operating results and its controlled costs, disciplined costs control. Same basis net income totaled $440,000,000 in 1st Q 'eighteen, 32% more than in 1st Q 'seventeen, mainly due to the improved operating performance previously mentioned and the financial results, which was positively impacted by the lower CELIC interest rate. The company's pro form a leverage measured by the net debt to EBITDA ratio came to 2.2 times in 1st Q 2018, according to the excluding the no recurring effect of the acquisition of stakes in Via Cuatro and Via Huanca on quarter 2017, totaling BRL548 1,000,000, this indicator would have come to 2.4 times. We end our comments on the quarter's results by highlighting that the traffic showed signs of recovery, increasing 3.1% in line with the 2.7% GDP growth expected by the focused Volodin. Same basis EBITDA, EBITDA margin and net income increased in the period, highlighting our business' resilience and strength. We will now open to question and answer session. Operator, please go ahead. Ladies and gentlemen, we will now begin the question and answer Our first question comes from Steven Prince from Citi. Good morning, Daniel, and good morning, everybody, and thanks for taking my question. I just wanted to get a sense as to how you guys are thinking about potential capital deployment opportunities. There seems to be perhaps a good window of potential auctions into next year perhaps or maybe more focused around next year versus this year. Just kind of wanted to get your sense as to what opportunities you're seeing maybe for federal auctions versus state auctions or opportunities in the secondary market? Hi, Stephen. Thank you for your interest and your question. Yes, we are very optimistic about opportunities either this year or next year and onwards. As you know, we raised equity 1 year ago. The idea was to pursue opportunities in the secondary market or in the primary market. Obviously, the focus was secondary market is, but this market is it takes a little bit longer. Regarding but we are still pursuing opportunities there. Regarding opportunities in the primary market, we do expect some highways this year. Those would be a couple of federal highways that do we have the expectation of having an auction until the end of this year. We have a couple of more highways in the state level in Goya and in Minas Gerais Estates And we are also analyzing opportunities in the urban mobility area, namely the Line 15 in Sao Paulo City. So, as I said, we do expect all these projects this year. To give an idea. This is State Highway Minas Gerais 4Q4, the auction date is expected to be in June 6 and the auction of Line 15, the auction date is June 26. So we are analyzing those opportunities. We expect to participate. And for next year awards after the government change, our view is that there will be probably as this government has been doing an increase in investments in infrastructure as the pent up demand for this kind of service is pretty huge. So we are very optimistic about the future. Okay. I really appreciate that. I'll let Manav ask the question. Thanks for the color. Thank you. Our next question comes from Victor Mizusaki from Bradesco BBI. Hi. Just a question about new opportunities, just a follow-up from this topic. In the CCR Day, the company mentioned a lot about new opportunities in South America like Argentina, Chile, Colombia. So I'd like to know if you can comment about these opportunities, if I mean and if you can comment about Argentina. Yes. We had if I'm not mistaken, there was the first phase of auctions in Argentina already. We analyzed that market. We understood that this first phase is kind of more focused on construction. So our view is that eventually this wouldn't be a good fit for us. But we are still interested in opportunities in South America as we said in the CCR Day. Obviously that our focus is on profitability. So whichever is the opportunity outside Brazil, it has to fit our criteria for returns. So I guess that as you've heard before, with all these opportunities in Brazil, I think obviously that the focus will be on Brazil, but we cannot afford to kind of not looking to things that are happening outside our country, which is our obviously region of operation. We already have airports in Latin America. So to move to a hiring in Latin America wouldn't be that much different, but it has to make sense for us. So I think that as of now, we are looking opportunities outside, but I guess that the focus in the very short term will be more in Brazil. Brazil. Okay. And Marta, just a second question. I mean, if you can give any update on the discussions with the state government of Argentina in order to early return the concession of Barcas? This process, we had a public hearing about this, so it's happening, but obviously also it takes time. Okay. Thank you. Our next question is coming from Steven Trent from Citi. Good morning, everybody, and thank you for the follow-up. One or two other things that struck me out that I wanted to ask. I was curious what you guys are generally seeing in terms of potential competition in terms of the primary market? I mean, when we think back a couple of years ago, you had several bidders for some of these forward auctions. And it's now just a handful of points. Do you anticipate that we should see a limited competition for the auctions over the next couple of quarters? Or do you think we could maybe see more foreign involvement, for example? Well, I think as you correctly put in the past, we had many players, eventually some of them overbidding for projects. But I think that this was also a function of the subsidized rates for financing. So there was at the time cheap financing for everyone. I think now the situation is different. There is no artificial interest rates. So any player has to go to market. So I think that it's possible to see more foreigners participating in this market. But I don't think partners will be irrational. I think that eventually they can benefit from their lower cost of capital or cost of equity, but we cannot forget that they are going for a new market that for them would add some risks is a different geography for them. So I think local players, they are financially strong, we'll be able to be very competitive in those opportunities. So the straightforward answer is, we do expect competition for future projects. It's possible to see foreigners coming more than in the past. But considering the amount of investments that the country requires for infrastructure, I think there will be market for everybody. Okay, very helpful. Appreciate that. And just one last from me, if I may. And then thank you again for your earlier question. You guys mentioned toll roads, urban mobility projects and vis a vis with Victor's question as well. I didn't hear you guys express that much interest in airport auctions and there seems to be in Brazil maybe some opportunities on the horizon in that space and just kind of wanted to maybe gauge your early potential interest on the airport side? Thank you, Stefan. That's it's true. We didn't mention that. But I mean, the right message is we are interested in the airport segment. We do want to increase our participation in these segments. But in Brazil at least, we expect to have some airports being auctioned in the future, but we don't have any information about that. That's why we didn't mention anything. But we are interested in that. I think that it's going to it's more likely eventually to see CCR going for opportunities outside in the sense, especially in the airports that we already have a stake, okay, as we did in the past. So I think the interest is there. But the problem is we don't have anything to share with you right now. Okay. Fair enough. And once again, really appreciate the color. Let me leave it there. Thank you. Thank you, Stephen. Bye. We now end the Q and A session. I would like to turn the conference over to Mr. Daniel Kuratomi for his closing remarks. Please, Mr. Kuratomi, you may proceed. On behalf of CCR, I would like to thank you for your time and interest. Please do not hesitate to contact us if you have any further questions. Our contact information is available in our press releases and on our Investor Relations website. Thank you. That does conclude CCR audio conference for today. Thank you for your participation and have a good day.