EcoRodovias Infraestrutura e Logística S.A. (ECOR3) Earnings Call Transcript & Summary

Good morning and welcome to EcoRodovias Fourth Quarter of 2019 Earnings Conference Call. With us here today are Mr. Marcello Guidotti, CFO and IRO; Ms. Andrea Fernandes, the IR Director; as well as executives of the company. This presentation is being recorded. [Operator Instructions] The audio and the slides of this conference call are being broadcast simultaneously at www.ecorodovias.com.br/ir, where you will find the presentation for downloads from the webcast platform in the Investor Relations section. Before proceeding, we would like to clarify that the forward-looking statements that may be made during this conference call relating to EcoRodovias' business prospects, projections and the operational and financial targets are based on the management's beliefs and assumptions as well as on currently available information. They involve risks, uncertainties and assumptions as they refer to future events and hence, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future performance of EcoRodovias and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn the floor over to Ms. Andrea Fernandes, who will discuss the fourth quarter of 2019's results. Ms. Andrea, you may proceed.

Good morning. Welcome to Grupo EcoRodovias' conference call today pertaining to the results of the fourth quarter of 2019. We thank you all for your interest and your participation. We would like to mention some important events of this period. In December 2019, Ecovias do Cerrado and the National Ground Transportation Agency, ANTT, signed a concession agreement for commercial operation of BR-364/365 highway for 30 years. This is one of the main corridors connecting the Midwest region of Brazil and the state of São Paulo. This is consistent with EcoRodovias Group's strategy of focusing on highway concession assets and extending the duration of our portfolio. BNDES approved the long-term financing for Eco135 in the amount of BRL 996.4 million at TLP plus 3.49% per year and a term of 23.5 years. The National Waterway Transportation Agency, ANTAQ, approved the Economic, Environmental and Operational Technical Feasibility Study of Ecoporto Santos envisaging the economic and financial rebalancing and expansion of the agreement till 2048. The process is still pending approval from the Secretariat of Ports of the Ministry of Infrastructure. In January 2020, the decision on the suspension of the bid process of Concessionária Rodoanel Norte, Ecorodoanel, until June 30, 2020, was published. In January -- or in the fourth quarter of 2019, EBITDA pro forma of new concessions Eco135, Eco050 amounted to BRL 78 million, representing approximately 13% of the consolidated pro forma EBITDA. On Slide 3, we can see consolidated traffic of equivalent paying vehicles in the fourth quarter of 2019 posted an increase of 29.8%. Excluding the start-up operations at Eco135 and Eco050, consolidated traffic posted an increase of 2.4% in the fourth quarter. Heavy vehicles traffic posted an increase at Ecocataratas, Ecovias dos Imigrantes and Ecosul, due to the exports of agricultural commodities. In both Ecovia Caminho do Mar and Ecocataratas, there's an increase of traffic due to tariff reductions as of October 2019. Eco101 presented a decrease due to the cycle of the pulp industry in the region and unfavorable economic conditions in the state of Espírito Santo. In addition, the increase in light vehicle traffic at Ecovia Caminho do Mar, Ecocataratas, Ecovias dos Imigrantes, Ecopistas, and Ecosul is due to the improvement in climate and weather conditions during weekends and holidays as well as traffic induction at Ecovia Caminho do Mar and Ecocataratas due to tariff reductions. At Ecoponte, there was a decrease due to the works at the Rio de Janeiro BRT close to the access to the bridge. As for the group's consolidated financial results on Slide 3. The net revenue excluding construction revenue in this quarter amounted to BRL 804 million, and net revenue of highway concessions posted an increase of 26%, due mainly to the start of operations at Eco135 and the consolidation of Eco050. Moving on to Slide 4. Comparable cash cost in the quarter amounted to BRL 203 million, an increase of 4.4%, mostly due to the increase of costs of maintenance at the concessionaires and an increase in expenses with third-party services at Ecoporto due to the increase of handling activities. It's important to notice that the company has already began the process to adjust its corporate structure at the holdings to support future growth opportunities and the new assets recently acquired by the group. Pro forma EBITDA amounted to BRL 592 million in the fourth quarter, an increase of 39% and margin of 74%. Note that the exemption for -- toll exemption for suspended access reduced toll revenue BRL 32 million in the fourth quarter of 2019 and BRL 129 million in the year 2019. This toll exemption will be the object of a financial, economical rebalancing of the contracts. Most concessions presented EBITDA growth, as we can see on Slide 5 and 6, mainly due to tariff adjustments and traffic increase. The highlights are the new concessions Eco135 and Eco050 with a pro forma EBITDA totaling BRL 78 million. On Slide 7, we see the evolution of the recurring net income impacted positively by a higher EBITDA, but negatively, on the other hand, for the -- by the financial results due to the beginning of the accounting of inflation adjustments on the concession rights of Eco135 and a higher depreciation amortization resulting in a net income of BRL 91 million. As for investments on Slide 8, in 2019, CapEx amounted to BRL 1.3 billion. Estimated CapEx for 2020 is of approximately BRL 2.1 billion, highlighting the duplication works at Eco101, expansion works at Eco050, the works to connect the Rio-Niterói bridge to the Linha Vermelha and the Port Avenue at Ecoponte, works at Eco135 that already have the BNDES financing, works pertaining to initial works to build toll plazas at Ecovias do Cerrado and contractual amendment works at Ecovias dos Imigrantes. On Slide 9, the pro forma net debt-to-EBITDA indicator presented a reduction, reaching 3.2x. We closed the quarter with cash balance of about BRL 2.1 billion, which, together with the future cash generation, makes us comfortable as regards the group's financial capacity. As for the investments in 2020, we're already in advanced stages to negotiate the first half financing. Company remains mindful of growth opportunities and posted a proposal for the bid of BR-101 in Santa Catarina, which will occur this Friday. We're currently studying federal concessions BR-153 Tocantins Goiás and BR-116/101 Dutra and concessions in the São Paulo -- close to the government of São Paulo. We're optimistic with the agenda of the state of São Paulo's government which, in addition to new privatization processes, is making progress in the discussion of new contractual amendments to Ecovias dos Imigrantes and the solution of the pending adjustments. This concludes the presentation. We'd like to move onto the questions-and-answer session. Operator, we're ready for the questions from our analysts and investors.

[Operator Instructions] First question, Victor Mizusaki, Bradesco BBI.

Just one question about Ecoporto. You mentioned that now we have the final approval. You need a final approval of the Ministry of Infrastructure. I'd like to know if you have any idea of when you should get this approval. And once this process is concluded, what would your strategy be for this asset?

Victor, this is Marcello. The process now is for the analysis. This process has very well-defined stages. So we'd expect it by the end of the first quarter of 2020, we'll have a conclusion. Ecoporto has been showing a recovery of volumes being more dedicated to its operations and project cargo, other activities. We don't have a strategy. We can't advance you any information, but we'll always certainly operate -- or support Ecoporto's operations in their recovery of values and numbers that get better and better. We're focusing now on the renewal process.

Alberto Valerio, UBS.

I have a few questions here. If you could give us more detail about Eco135 EBITDA margin. It's very good for a new concession. And comparing it with Eco050 that wasn't as good, and it's a concession that you had for a little longer. That would be my first question.

Thank you for your question. The EBITDA margin needs to take into account the type of tariff, tariff increase, but 135 has a higher margin because it has a different structure in the concession rights and there's a financial debt throughout the construction. So the EBITDA needs to be worked to pay for that concession. So it has a higher EBITDA margin, but there are obligations throughout the concession to pay first. And that explains a little bit why there is a difference in the 2 margins, and 050 is different. There's no concession rate fees to be paid. So the contract structure is a little bit different. But I should also note that 135 has been doing very well. Traffic is growing well. And we should also say that it's also growing at 050, but the main difference is the structure of the contract, the type of agreement.

If you could remind me, 135 doesn't have to be duplicated in this entire extension. It's all only in the hills going up. It doesn't have to be duplicated in its entirety.

No. Eco135 has the duplication of the third lane and shoulders, that's correct, and 050 is different. By the end of the year, it will be completely duplicated, and the duplication works are bringing good results and attracting a lot of traffic.

Another question from me. On the fourth quarter last year, there was something about the CapEx that has to be done, in the concessions and the main impact was 56% in the asphalt price. This year, there was an adjustment as well. I would like to know if it was due to the asphalt and how much the asphalt increased in price.

The increase in the asphalt cement was already reflected. There are some analysis and some increases in the paving expenses for the concessions. There were some adjustments, especially at Ecopistas because it's longer, and there's a lot of saving involved in the others as well. It's not -- this increase is not due to the increase in the price of the asphalt that's in the CapEx division that we made, and it was made clear.

And my final question then, about this Friday's bid, if you could tell us a little bit about your expectations, whether are you going to think it's going to have a lot of competition as the other recent auctions, we're seeing between 6% and 7% for Friday, if you deliver the bid?

It's a competitive bid. It's public already. There's 3 players. That's us, CCR and the GLP. It's a different asset. It's smaller with robust traffic already. The main investments, and it has a duplicated section. So it's a lighter assets in that sense. But we'll see, we need to wait for Friday. And depending on the results, we'll talk about it again.

[Operator Instructions] EcoRodovias' Q&A session is now over. We turn over to Ms. Andrea Fernandes for her final remarks. Please, Ms. Andrea, you may proceed.

I would like to thank you for your attention on this call. My team and I remain available for any future questions. Thank you. Have a good day.

EcoRodovias' conference call is now closed. Thank you very much for your participation. We wish you all a very good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]