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

[Operator Instructions] The slides of this presentation are available on the company's Investor Relations website in the Results Center section at ir.ecorodovias.com.br. After the end of the earnings presentation, the recording will be available in the same section. Before proceeding, we would like to clarify that the forward-looking statements that may be made during this presentation relating to EcoRodovias' business prospects, projections and 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 to Andrea Fernandes, who will make the comments about the company's earnings. Please, Andrea, you may proceed.

Good morning. Welcome to EcoRodovias' earnings presentation on the first quarter of 2024. We thank you all for your interest and participation. Before we begin, we would like to offer our solidarity and support to the people of Rio Grande do Sul in this very difficult moment due to the floods. Our concessionaire located in the state, Ecosul, continues to work with teams, machinery, fleet and mechanical and medical assistance in the preventative actions at the Pelotas Highway Hub. EcoRodovias also provided engineers to support the development of product for the reconstruction of the infrastructure through an action coordinated by the state of Rio Grande do Sul. Since Monday, May 6, Ecosul is also granting exemptions to users who travel transporting donations and in humanitarian actions in addition to receiving donations at its user service stations. We inform that despite the rains in the state, the infrastructure of the highways managed by Ecosul was not affected. In the period between May 1 and 7, the concessionaire's vehicle traffic decreased by 32% and the gross revenue dropped 11%. Ecosul's traffic represents approximately 4% of EcoRodovias' total traffic and, in April, showed growth of almost 9%. In our ESG 2030 Agenda, we prioritized the construction of a plant to adapt and mitigate climate pain, considering future scenarios and action plans as well as control systems. To support the construction of this plan, climate risk studies are being prepared to identify which areas will be the most affected by climate threat in the medium and long terms. Based on these results, we'll draft adaptation actions, thus reducing the risk to our assets and our users. In addition, we have also developed a decarbonization plan with a series of mitigating measures to reduce our emissions as well as our supply chain emissions, contributing to the fight against the worsening of climate change. Turning the presentation on Slide 3. We would like to highlight the adjusted EBITDA of BRL 1.1 billion in the quarter; the growth in adjusted cash costs, lower than the inflation recorded in the last 12 months, which demonstrates our cost discipline; and the adjusted EBITDA margin of highway concessions that reached 73% in the quarter. Consolidated net income reached BRL 237.6 million in the quarter, a growth of 110% compared to the first quarter of '23. It is worth noting that the growth in adjusted EBITDA contributed to a leverage of 3.4x, a reduction of 0.5, when compared to the first quarter of 2023, and 0.1 compared to December of 2023. In terms of CapEx, we invested BRL 805 million in our assets, mainly in road-widening work, capacity expansion, special pavement conservation works and the implementation of operational buildings. Another highlight is the approval by the Board of Directors of the payment of dividend of BRL 135 million to be paid as of July 29, 2024. The first quarter, we concluded a funding of BRL 1.6 billion at Ecovias dos Imigrantes. On Slide 5, we demonstrate operational performance. Consolidated traffic grew by 28.2% in the first quarter, mainly due to the start of toll collection by EcoRioMinas and EcoNoroeste. Comparable traffic grew 5.8% in the quarter, driven by an 8.3% increase in heavy vehicle traffic due to the increase in exports of soybean, corn and sugar, an increase in industrial production and the induction of traffic due to the delivery of road-widening in some of our concessions. We also highlight the strong 9.4% increase in comparable traffic in April 2024. On Slide 6, we present the evolution of adjusted gross revenue reaching BRL 1.7 billion, up 29%, highlights for the BRL 446 million increase in gross revenue from highway concessions. The table on the right shows toll collection by electronic means, self-service and digital payment means, which totaled 80.3% of toll revenue in the quarter, an increase of 5.5 percentage points compared to the same period of the previous year, demonstrating the growing engagement of our users with these payment modalities, ensuring better flow on the highways and, at the same time, reducing the cost of cash management. On Slide 7, adjusted net revenue increased 34.7% in the quarter while cash costs grew 23.5%. We highlight that comparable net revenue, excluding EcoNoroeste and EcoRioMinas, grew 9.1% in the quarter while adjusted cash cost increased 3.8%, a variation that is lower than the inflation observed in the last 12 months, reflecting for another quarter the efficient and optimized management of our assets. Moving on to Slide 8. We highlight the results of the EcoRodovias Value Agenda program, EVA, after identifying and implementing operational efficiencies achieved since 2022. We highlight the evolution of the indicator of the percentage of cash cost in relation to adjusted net revenue, which decreased by 6.9 percentage points since the beginning of the program in 2022, reaching 28.5% in the first quarter of 2024. On the right, we highlight some of the EVA program initiative such as the consolidation of synergy between the organizational structures of the concession, the optimization of internal and external processes such as Digital HR and Req2Pay. And it's worth mentioning that EcoRodovias was a pioneer in the implementation of the Electronic Manifest of Fiscal Documents, MDF-e, to collect tolls for suspended axles of non-empty trucks. On Slide 9, we show the evolution of adjusted EBITDA, which reached BRL 1.1 billion in the first quarter of '24, a growth of 35.3% with a margin of 71.5%. Adjusted EBITDA from highway concessions increased by 42.6% and margin by 73%, demonstrating the resilient, efficient cost management and the potential for growth of our concessions. On Slide 10, we highlight the increase in net income, reaching BRL 237.6 million compared to BRL 113 million for the same quarter of the previous year. mainly due to the increase in adjusted EBITDA. On Slide 12, we highlight investments of BRL 805 million made in the first quarter of the year, mainly aimed at the investments in the expansion and maintenance of our highways. This quarter, 61% of investments were allocated to 5 concessions in the CapEx expansion cycle, Eco135 and Ecovias do Cerrado in the final phase of delivery of the expansion work and EcoRioMinas, EcoNoroeste, Ecovias do Araguaia starting their investments in expansion. On the right side of the slide, we highlight the main deliveries of 2024. On Slide 13, we ended the quarter with consolidated leverage of 3.4x, down 0.1x from December 2023 due to the excellent operating performance of our highway concessions. Leverage for EcoRodovias Concessões e Serviços ended the quarter at 3.3x, stable compared to December 2023. EcoRodovias worked hard in 2023 on the optimization of capital structure and tax efficiency. In March 2024, the share of net debt at the holdings was 45%, a reduction of 24 percentage points when compared to the share in December 2022. On Slide 14, we ended the quarter with a cash balance of BRL 5.5 billion. The maturities of BRL 3.2 billion in the second quarter of 2024 were concentrated in Ecovias dos Imigrantes, BRL 1.4 billion, and in EcoRodovias Concessões e Serviços, BRL 1.2 billion, which were already paid in April. On Slide 16, we present highlights of our ESG agenda. The progress of our Safety Always Program, which brings actions to further strengthen our safety culture, this program is aligned with the safety pathway of our ESG 2030 Agenda with goals aimed at improving our occupational and road safety indicators. In line with our climate strategy, we also highlight the installation of 11 electric chargers at EcoNoroeste to support users of electric cars. Another important point in our agenda is innovation and technology. And EcoRodovias was recognized as the fourth most innovative company in Brazil in information technology, an award from the IT Forum. We close this presentation by reinforcing that EcoRodovias is focused on the efficient cost management and execution of its investments, carrying out expansion works and important deliveries at its concessions. In addition, the company will continue to advance and prioritize occupational safety, innovation and sustainability. We also highlight that the company will continue to monitor and evaluate opportunities, albeit more selectively, for new growth opportunities since the agenda of new auctions is promising for the medium and long term in Brazil. With that, we conclude our presentation. And we would like to turn to the Q&A session. Operator, we are ready for the questions from our analysts and investors.

[Operator Instructions] Our first question, Fernanda Recchia, BTG.

I have two points to discuss with you. First, in capital allocation, Andrea, you mentioned that there's a robust pipeline again. I'd like to understand EcoRodovias' mind for these coming auctions. On the last auction, we saw EcoRodovias having a more conservative approach. We have some important assets, 381 [indiscernible]. So if you can talk about your view of how you're looking at it. If there's any specific auction that raises more interest from you than others, that would be helpful. And the second point, I'd like to talk a little bit about traffic. We've seen the numbers from April, traffic growing almost 7% year-to-date. Looking forward, if you can give us an idea of what we could expect in terms of traffic, if this pace of mid-single digits is sustainable throughout the year despite a perspective of a slightly worse agribusiness growth and the effect of the rains in Rio Grande do Sul.

Fernanda, this is Marcello. About the new auction that you mentioned, the ones you mentioned are definitely part of the opportunities that EcoRodovias has mapped, not because they're coming up, but as you have mentioned, because they're assets that are close -- somehow close to our assets in Minas Gerais and the assets being prepared in Paraná as well. One of them is a former concession of EcoRodovias. So they're part of our list of projects chosen for us to look into carefully. We maintain the strategy of being assertive, having a view towards the medium to the longer term. As Andrea said, we have opportunities this year and the other opportunities that we'll also have next year and on. So what I can say is that we're going to study this to see if they are projects that make sense for us, if they're sustainable for EcoRodovias. And we'll make the decisions at the appropriate time. About traffic, traffic in April was very good. In May, the first few days, of course, excluding Ecosul because they're having a few complicated couple of weeks, traffic in May, comparable traffic is already more than 4% in these first days. And that should be more or less the level that we could expect for 2024, 4%, 4.5% consolidated traffic growth is what we expect.

Next question, Guilherme Mendes, JPMorgan.

I have two points here. First, about margins and costs. We see a very strong performance in terms of cost. Actually, congratulations on your work. But my question is to understand whether there is anything else relevant still to happen if we could think in terms of the margin the company has been delivering in recent quarters, if it would be a more normalized level of margins. And the second part, on the regulatory part, if you can update us in the evolution of the discussions of Eco101 and Ecoporto.

About cost management, my answer is yes, we have more to deliver. But this is all based in the review and the digitalization of the processes, the technologies that have been constantly replacing and improving and increasing the efficiency of our processes. But also in the -- not only in the point of view of cost but collection, MDF-e is one of them. But of course, there's other technologies that we're testing. Some of them are actually in operations, such as free flow. And even though there's not a lot of movement, there's the [ HSI ] that are technologies that will revolutionize toll collection in Brazil and, of course, increased margins and efficiency. HS-WIM is the High Speed Weight in Motion system that is capable of weighing 100% of the trucks. And of course, it can redistribute excess cargo through more axles. So these are technologies, innovations, digitalization that will certainly support margin expansion, obviously, along with the good performance of traffic. About your second question, Ecoporto and 101. Eco101 negotiations are well advanced. I believe we'll have some definition soon. Fortunately, unfortunately, everything is still confidential. The negotiation cannot be disclosed yet. But what I can tell you, I can assure you is that the discussions have been fair. We had a detailed renegotiation and the result will certainly be positive for society, for the state of Espirito Santo, for the users and for the company. So I think we're quite satisfied with the progress. We have to wait until it's formalized and we are allowed to disclose details. About Ecoporto, we're in discussion with the Santos Port Authority for the business plan for renewal at the port. We are working for now with an active concession contract. And within 180 days after the second period that is concluded in July, we're waiting for a renewal for another 180 days so that we can continue negotiations.

Next question. Victor Mizusaki, Bradesco BBI.

Congratulations on the earnings. Two questions. It's more of a follow-up about Guilherme's question on Ecoporto, Guidotti. In the past, the government had recognized part of the request for rebalancing. Do you have any update if the other part, if the government has already recognized or if it's something that's still under discussion? And the second question, about the free flow, we've been seeing some discussions and there's a concern in terms of the regulatory risk, in terms of fines. How have you been seeing this discussion? And how is this protected within your EcoRodovias' concession agreements?

About Ecoporto, just to make it clear, we have a credit to be recognized. The depreciation side that was not concluded of the investments made in the first stage of our agreement, those are already recognized and they're in the balance sheet and should be somehow liquidated by the grantor, by the government. And how they'll be liquidated has not been decided, but they have been recognized. And we have other liabilities that are not regulatory because we are judicializing these discussions. These discussions are happening in port. So they're still -- in the administrative phase, they were denied, the imbalance of the smaller areas received in the first contract at Ecoporto. So we're discussing it in court, in the legal level, judicial level. About free flow, free flow is a well-known technology. But of course, what challenges free flow is the back-office process behind free flow, collection of fines. And of course, there has to be some -- it must be robust. And what we're preparing internally at EcoRodovias, I mean, our systems, our back-office processes, we're prepared to start collection at free flow at Noroeste this year, which is the contract where all toll plazas will have to be replaced. The contract, of course, protects delinquency very clearly. But still, we are preparing to be consistent in treating the data and sending fines. And there's a whole process. It's very complex, it's not simple. But it exists in other countries and it can be done. And I believe that, that's what's happening. We had some initial issues. But I'd say I'm optimistic free flow will be good and it will be in advance in the toll collection system for the highways in Brazil.

Next question, Filipe Nielsen, Citibank.

I'd just like to explore two points on CapEx. One, related to the pace of the work, I'd like to understand how you've been seeing the progress of these works. Is it evolving as expected? Can you -- is it possible that there will be a delay of some of it to next year or if the ramp-up should continue to accelerate during the year? And the second question, about the contracting environment for the works, if you've felt any pressure in terms of demand for construction works in Brazil pressuring prices or if you've seen any level of challenge in terms of new contracting looking forward.

About CapEx, the base of the works, we'll maintain it at a constant at BRL 4 billion, BRL 4.5 billion in coming years. That's the pace of the works that we already have contracted. So there's not going to be an abrupt growth. New works will start in RioMinas and others are concluded in other highways and one will replace the other. And the idea is to maintain this pace of BRL 4 billion, BRL 4.5 billion for the coming years so that it's a sustainable pace and that also -- is in agreement with the concession contract. So all of that, the timeline for our concessions is organized. The schedule is plan to be realized that is sustainable. And jumping to your next question, it is something to be possible to be absorbed by the company. We do not see any major challenge in that sense. I believe the market, our works are not complex. It's possible to do it with construction companies that are medium-sized, even smaller-sized companies. And regionally and locally, they exist. So it's not major construction works with high complexity that require big players. So we do not see -- and we're supported by our related counterpart that, in some major construction works, they act aligned with the company's strategy as well.

Next question, Andressa Varotto, UBS BB.

Just a quick question, this quarter, we saw a reduction of the tax rate compared to what the company has been presenting in past quarters. So I'd like to know whether there has been any impact this quarter and what to expect looking forward.

I think that the accounts quarter-by-quarter don't have necessarily a linear progress -- progression. We are working on the most efficient debt management possible, trying to reduce debt at the holdings and that doesn't have tax yields. As we saw in the release, we're increasing debt at the project level. But I'd say the average rate will be stable. This quarter, there has been an improvement. But we expect it to remain stable basically at around that level. Of course, we're always going to try to optimize capital structure. And we're working in the holding in Araguaia and on Araguaia itself to try and optimize this financial structure that was inefficient. So we are already in discussions with ANTT to be able to advance, to move forward. So that's it.

Next question, Luiz Capistrano, Itau BBA.

In the recent past, at some point, we talked about a possibility of partnerships of a minority sale of assets or some of the assets. I remember that there was a call where we talked about this. So this discussion was coupled with a discussion of getting into new assets. But I'd like to know two things. How have you been evolving in the conversations? Is there a good demand for that? Is it something that the company is looking at? And this discussion, is it really coupled with a new asset? I mean, is there a situation where you would do a minority stake sale in some of the highways, even if it is not to enter into a new asset?

So Luiz, these discussions of equity solutions through partnerships or M&As, they're continuous, they're ongoing. I think that coupling it with a growth strategy is complex. It's not something that we can couple perfectly. So just as we maintain and continue to study opportunities that could be interesting assets, even if we don't decide to go in, we're still studying. At the same time, we continue to discuss and looking at players in the market and hearing from them to maybe consider solutions in that sense. So these are discussions that run parallel to each other. And EcoRodovias also has to look at the alternatives. And there's no timeline of coupling, of going in a new thing. These two topics of inorganic growth and an improvement of the capital structure are parallel. Of course, occasionally, things are a match. And there's also new businesses. And the idea in the financial flows is not immediate. We always have 2 to 3 years. So we can run both things at the same time. And if good alternative, good solutions, good projects come up, of course, things fall into place.

The question-and-answers session is concluded. We will turn the floor to Andrea Fernandes for her final remarks.

I would like to thank you all for your participation. My team and I remain available to any doubts you may have after the call. Have a great weekend.

EcoRodovias' earnings conference call is concluded. We thank you all for your participation. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]