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

Good morning, and welcome to EcoRodovias' Second Quarter of 2025 Earnings Presentation. With us here today are Marcello Guidotti, CEO; and Andrea Fernandes, CFO. This presentation is being recorded. [Operator Instructions] The slides of this presentation are available on the company's Investor Relations website, ri.ecorodovias.com.br in the Results Center section. 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 economic -- 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 discuss the results. Andrea, you may proceed.

Good morning. Welcome to EcoRodovias' earnings presentation for the second quarter of 2025. We thank you all for attending. We start the presentation with the main highlights of the period. Comparable traffic grew by 3.3% in the quarter and 4.6% in the first half of 2025. This is mainly due to the performance of heavy vehicles. For comparison purposes, the ABCR Index recorded a growth of 2.8% in the second quarter and 2.4% in the first half of 2025. Adjusted cash costs, excluding Ecoporto, whose operation is under a transition agreement, increased by 5.4% in the quarter, in line with inflation. It is worth mentioning the reduction of 1.1% in the first half of the year as a result of the efficiency initiatives. The consistent operational performance and discipline in cost management resulted in an adjusted EBITDA of BRL 1.4 billion in the quarter and BRL 2.6 billion in the first half with an EBITDA margin of 75%. Net income was BRL 204 million in the quarter and BRL 351 million in the half year, while investments totaled BRL 2.1 billion in the first half, maintaining our focus on investments aimed at expansion, innovation and operational safety. We also highlight the company's participation in the bidding process of Ecovias 101, which ensured continuity in the management of the concessionaire, enabled the extension of the concession term to 2049, the optimization of contractual conditions, allowing for new investments in the region and contributing to the generation of value to shareholders. Finally, yesterday, the Board of Directors approved the payment of dividends in the amount of BRL 215 million as of August 29, 2025. On Slide 5, we demonstrate the operational performance. Comparable traffic grew by 3.3% in the quarter and 4.6% in the first half of '25, driven by heavy vehicle traffic. Highlights include the growth at Ecovias Leste Paulista of 7.9% in the quarter and 14.6% in the first half of '25, mainly due to the increase in handling at the Port of São Sebastião and at Ecovias Norte Minas, an increase of 13.5% in the quarter and 14.5% in the first 6 months, reflecting the increase in traffic following the capacity expansion, particularly 122 kilometers of widened roads in the period between 2023 and the first half of 2025. Moving on to Slide 6. We present the evolution of adjusted net revenue, which reached BRL 1.8 billion in the quarter and BRL 3.5 billion in the first half of '25. To the right of the slide, we highlight the growth of 9.7 percentage points in toll collection by AVI and digital means of payment, which reached approximately 92%, underscoring the increase of digital payments in our operations. Some of our concessionaires are already approaching 95% of collection through AVI and digital means of payments. On Slide 7, we show cash costs, highlighting the growth in line with inflation in the quarter and the reduction of 1.1% in the first half of '25 when we excluded Ecoporto whose operation is under the transition agreement. On the right side of the slide, the indicator of cash costs in relation to adjusted net revenue reached 25% in the quarter, down 2.5 percentage points compared to 2024 and 10.3 percentage points compared to 2022. This cost reduction confirms the advances generated by the efficiency initiatives adopted by the company over the last few years. On Slide 8, we show consolidated adjusted EBITDA of BRL 1.4 billion in the quarter and BRL 2.6 billion in the half year, up 19% and 17%, respectively, and adjusted EBITDA margin of 75% in both periods. The highlight was the adjusted EBITDA margin of highway concessions, which reached 76% in the first half of the year. On the next slide, we present the net income of BRL 204 million in the quarter and BRL 351 million in the half year. This robust operating performance and efficient cost management continue to boost EBITDA, while the investments in expansion and the high interest rate scenario are reflected in the income for the period. On Slide 11, we show the investments of BRL 1.2 billion in the quarter and BRL 2.1 billion year-to-date, highlighting the delivery of 34 kilometers of road widening, additional lanes and frontage roads in addition to the implementation of 2 overpasses and 11 intersections. It is worth mentioning that 58% of the total invested in the quarter was directed to 3 highway concessions, reflecting the progress in the works of the expansion cycle of the new concessions. On the next slide, the progress of road widening works and addition of third lanes in order to ensure better flow and more safety for users. Slide 13 highlights the evolution of debt of highway concessions, which in 2022 represented 41% of total net debt and in June was 71%, reflecting a more efficient capital structure aligned with cash generation from assets. In addition, we ended the quarter with consolidated leverage of 3.9, stable compared to the previous quarter due to the funding raised for the payment of the concession fee by Ecovias Raposo Castello, which started operation at the end of March. Pro forma leverage calculated based on Ecovias Raposo Castello's annualized EBITDA reached 3.6, in line with expectations. On the next slide, we present the debt amortization schedule. The main maturity for the next quarter will be Ecovias Noroeste Paulista, whose bridge loan is due in September and the structuring of the long-term financing is at an advanced stage. We will continue to work on operations that will further contribute to the extension of the company's debt profile. Finally, on Slide 16, reflecting the progress of our sustainability agenda, some recent highlights. We were winners in the Transport and Logistics category of the Best of ESG 2025 Award promoted by Exame magazine, one of the most relevant recognitions in corporate sustainability in the country. In addition, our federal concessionaires were among the best in the country in environmental management according to the ANTT Environmental Performance Index. More information about our initiatives is detailed in the earnings release and our integrated report. We conclude this presentation by reaffirming the company's focus on the execution and delivery of the works to expand capacity and improve highway concessions as well as on the valuing of opportunities that the current assets in the portfolio have to offer. We reinforce our commitment to operational efficiency, innovation and safety. We would now like to move on to the questions-and-answer session. Thank you.

[Operator Instructions] Our first question comes from Guilherme Mendes at JPMorgan.

Two points, please. First, in the portfolio management, Andrea, you mentioned at the end that you had the opportunity from assets in the portfolio. I'd like to hear from you, please, what exactly you mean by that? If you see room for maybe growth opportunities or divestments. These are things we discussed in the past, whether this remains in the pipeline in your mindset? And the second point in margin. I think, first of all, congratulations on the results in the second quarter and the consistency on the cost aspect. But I'd like to see how you see a normalized level of margin -- EBITDA margin from now on.

Guilherme, this is Marcello. Thank you for your question. About our portfolio, it's important as it's known, we have investment opportunities in our highways. Some of our highways are mature, located in regions that require more investments, markedly São Paulo, obviously, and the third connection from São Paulo to Santos, that road is a very important project for us, and we're dedicating to it. Other opportunities also in São Paulo exists. So the message is that we are looking at our portfolio and the possibilities to increase investments in some cases, and that's the priority. We also have the case of EcoSul's concession that is valid until next year, and the government is working for the rebidding, and we don't know exactly when it's going to be, if it's going to be next year. But potentially, this could be a target for EcoRodovias. Of course, Eco101 that was just concluded the bidding process, and we are preparing to sign the amendment, and that's also part of our portfolio and offers a very good opportunity. So that's the message. It doesn't mean that we're completely closed to considering new bidding processes. We monitor everything. There's a lot of opportunities, and we understand that these opportunities will continue to appear in coming years. And of course, we'll keep monitoring this program. About margins, margins continue to raise, to increase. The expectation is that we reach 80% and maybe even more. So it's normal. It's part of the cycle of concessions. And we're headed towards 80% definitely and maybe more 82%, 83%. That's part of it. That's all the technologies, the fact that we can use, as Andrea said, automatic payments, reduce a lot of costs at toll plazas, the cost of those scales, the weightingsystems that will be replaced with the automatic weight-in-motion. So other technologies that also bring margins to increase.

Great. If I may, just a follow-up on the first point. The part of divestment is something that you still consider or not?

Divestment, we made an attempt. We structured the project, but I think now we don't have a lot of interest in that alternative, the market is. Although we've heard -- we've been hearing about M&As and so on, I don't think it's the right time for that due to interest rates and everything for capital recycling opportunities. But it remains in EcoRodovias' radar, of course, it's more opportunistically, but it remains in our radar.

Our next question, Pedro Tineo, itaú BBA.

I have a doubt here about the traffic dynamics in the first half. In the first half, we had a dynamics that slightly -- I'd like to hear about the company's mindset about the second half of the year. And in terms of CapEx, we saw a reduction at least in terms of the average dollar. I'd like to understand a little bit more how you see the CapEx dynamics in the medium term, considering this reduction.

Pedro, so in terms of traffic, the second half, we estimate -- we're starting already with the beginning of the year, traffic in 2025 at 4%. The second half of the year will certainly be less compared to the first. The first was surprising, but also because the comparison base with last year is up. Last year, the second half grew 5%. So to think we'll continue to grow 3%, 4% above last year is too much. So we estimate we'll conclude the year at around 4%, and this indicates probably a reduction in growth for the coming months compared to the same months of last year. But last year, the growth was too big. So the simple fact that we continue to grow compared to last year is positive.

Now about your CapEx question. We have been making investments. Some concessions had delays in environmental licensing. And in any case, these licenses have already been achieved, and we expect to see CapEx acceleration in the second half with a target to invest this year close to BRL 5 billion.

Next question, Filipe Nielsen at Citi.

My question is more about leverage. You maintain a ratio that was below 4x. And you also mentioned when we annualize Raposo Castello, it's a ratio of close to 3.6x. So I'd like to understand, looking forward, as we have a CapEx ramp-up, if you also ramp up EBITDA, and with Raposo Castello, if we should continue to see 3.9, if it's going to get close to a little bit higher than 4x as we already expected or if it would be closer to 3.6 over time? That's my first question. And the second question, just to talk a little bit more details within what you can discuss about the conditions of this rollout of the bridge loan at Noroeste, the rolling of the debt, if you can give us any additional detail.

Thank you for your question. About the first question, Raposo Castello had an effect of deleveraging in the first years. As you know, the works at Ecovias Raposo Castello start as of 2028, '29. So until then, there will be a deleveraging effect. On the other hand, the CapEx cycle gains, as Andrea mentioned, gains momentum because the 2 effects will be super exposed. And we understand that close to 3.9 continues to grow slowly over the next years, until we get close to 4 to 4.5. And after that, that would be the expected peak. And from that moment, with Raposo Castello starting the works, the other highways will start to deleverage. So Raposo Castello has an effect of almost buffering in the next few years, and then it will be reversed. So we see this of 3.9, even though Castello is generating cash, we have investments going on, but nothing too accelerated until we get to 4.5, the peak, and then we will start decreasing again. So everything is well under control, not presenting any type of surprises.

Now about Ecovias Noroeste Paulista, over the next few weeks, we will probably be able to disclose. We are now at the silence period about this funding. But over the next few weeks, the conditions will be made public, and we will have the takeout with the long-term financing customized with the flows of the concession in adequate conditions or the market that we understand to be competitive. So as soon as we can disclose the information on this operation, we'll communicate to the market in coming weeks, it's already almost all concluded. It's only the red tape now.

Next question, Matheus Sant'Anna from XP.

I have 2 questions. First, I'd like to continue on the liability management aspect. What do you see in the credit market at this point? What would be the average price of a marginal issuance? And in this point, talking about the holding, we see that it has been going down in the quarters. What do you see in terms of a reduction of this indicator? And my second question about Ecoporto. How do you see the contract renewals? Probably this contract will remain solid until the end of the STS10 bid. What would be the term to get the rebalancing of what the government owes? It would be close to the conclusion of the contract? These are my questions.

Thank you for your question. In terms of the liability management, the company will continue doing that and some operations already being worked on by the company. The market is very net. And with a great liquidity, we've been able to raise funds, and we're capturing that with CDI plus 1. And we're also -- the infrastructure debentures funding that's probably going to be something very similar to what we raised recently with Rio Minas. So I think it's a good moment for companies to have good quality of credit and assets like EcoRodovias to access the market and increase the average duration of debt. And that's what we're going to do in the coming months.

Now about Ecoporto and the holding, Pedro also -- it's about the level, the percentage of the debt that will be allocated for the holding and the concessions, it tends to increase. It tends to reduce the percentage of the holdings as BNDES and the long lines of the units will be disbursed. So we estimate we'll get to a normalized situation of 75% total debt at the units and 15% at the holding. Today, we're close to 71% -- 70%, 71%. So there's still room for growth there for increasing there. And this will happen, obviously, with the increase of debt at the holding.

And remember that the funding with the BNDES, we signed at around BRL 8 billion at Rio Minas, but the disbursement will occur along with the CapEx realization. So as we make the disbursement for the BNDES lines, we will see the improvement of the debt percentage of the concessions. And the same thing will happen with Ecovias Noroeste Paulista, that I mentioned in coming weeks, we will likely announce the long-term takeout. In other concessions like Araguaia, for example, we already have a contracted funding with BNDES, and it will also be disbursed as the CapEx is being realized. So in any case, we've also been trying to work with other operations that may improve this indicator. But as Guidotti mentioned, it's -- probably there will be room for us to improve and get close to 75%.

About Ecoporto, you're correct. Ecoporto is already with a temporary contract that expires next year in May, and it will certainly follow the new bidding, and we expect to continue operating until then in this temporary regime. The time line of the next concession is still not very clear. There are still some ongoing discussions. But until then, we will certainly continue operating and the credit of assets that are not amortized will be resolved in our expectation once the bidding occurs. And after the bidding, we will have the definition of how this credit will be paid out. So it all depends on the bidding time line.

Next question, Andre Ferreira, Bradesco BBI.

Congratulations on strong results again. I have 2 points going back to 2 topics. First, in CapEx. Even though you had the okay of the licenses, my doubt is whether there's a possibility for the CapEx this year to be slower than BRL 5 billion due to the delays, at least so far. And the second is, I don't know if it was only cut off for me, but about the EBITDA margin that you believe you can reach that Guidotti mentioned. I heard something about 80%. If I'm mistaken, please correct me. And on that point, the improvement of cash cost has been a point of attention, very positive over the last quarters and years, and there's been a series of initiatives in efficiency that you mentioned. But if you can, I'd like to hear, first, where you see incremental efficiency grades, for example, weight-in-motion, but what else you're looking at that we may not know about? And the second point is on new concessions. There's an increased lane within the new Ecovias 101. What you already see in terms of possible efficiency gains outside of the government or instead that's already existing in your portfolio that could improve the returns?

About the first question, the answer, whether there's a possibility of the BRL 5 billion for us not reaching 100%, that's our objective. And despite the calendar, the time line, for us, that's still the execution. We started a little bit late, but we have a goal, but there is the possibility of being slightly under BRL 5 billion. There's a rain period as well that may affect. But definitely, it's not going to be too far from that, nothing relevant. But yes, there is a possibility that part of this CapEx will be for next year and so on. Normally, we say it's between 80%, 85% being met, a little bit more, a little bit less, but that's the expectation. About the EBITDA margin, we estimate we'll get -- in 2, 3 years, we'll get to 80%. And then we'll continue to grow. But with the maturity of the projects and tariff adjustments, we'll continue on the long term as well. But we still have quite fast growth in the coming 3 years until we get to 80%. And part of that, also addressing your third question, the increase in margin is due to cost controls, yes, but also the increase in tariffs. More mature highways tend to have a bigger margin. Cash costs remain an object of analysis and attention. Maybe next year with the exit of EcoSul, there may be a slight difference, but we soon resume reduction and increase of that. There are a lot of activities, but digitalization of operations is the main avenue for improvement. And then there's a series of things that we are applying and long-distance cameras, weight-in-motion, digital toll collection, so many different things that can be done and are being done. And also the administrative costs, the administrative processes that are complex today are done a lot more quickly and efficiently through artificial intelligence applications. So everything is being employed along with a good performance of traffic and tariff adjustments, the margins expand. 101 was a renegotiation, optimization of the contract, so to speak. We start with a well-discussed structure. The next 3 years will be a transition. But obviously, EcoRodovias will now apply all possible levers in this contract. Because there are ours, it's not -- it's a little bit outside of the manual of how to exceed the typical highway. So obviously, we will from now on apply a modernized contract, modernized in various aspects. And now it allows us with this modern contract to apply all of the technologies that we were already employing in other contracts. The original Eco101 contract had a lot of inefficient parameters and that did not allow for this type of approach. But now we will be able to use all of our levers and also extract from Eco101, the margins we already have at other concessions. Also because Eco101 in its program will have tariff increases consistently in coming years and obviously, a high CapEx concentrated for road widening that will also increase traffic. So there's a whole set of aspects that will allow Eco101 to become a concessionaire at the same level or even better than others.

Next question, Alberto Valerio at UBS.

I'd like to ask first about yesterday's results and then a couple about the future. From yesterday, in addition to the CapEx being slightly below, but you explained it will accelerate in the second half to get close to the BRL 5 billion we had. There's a very good margin at Nova Raposo, about 3 points higher than what we had. Is it something that's not recurring? Or should we consider this margin looking forward? And in the future, there are some good auctions coming in the pipeline, some good repatriations at bridges [indiscernible] the 2 bids in Paraná. Is there room in your balance sheet? Would you be interested in these assets? And the last one would be about the third lane at Imigrantes, the third road in Imigrantes, if you have any update in this asset?

Valerio, thank you. About the margins at Ecovias Raposo Castello, that's correct. Those are the margins. It's an asset that -- that's one of the reasons why we mentioned that they have very good leverage with the capacity of cash generation that is very high and that favors financing. So we have the margins aligned. About the bids, combine this question to the third lane. The third lane, we have just concluded the bid for Eco101. The third road is a big project that's going well. We're advancing with the studies, projects, environmental licenses, structuring of the contract. Everything is moving along, and that's our priority. So the new bids that you mentioned that are definitely important. They are being monitored, one of them being studied, but the priority for EcoRodovias will be more on contract amendments in existing contracts. And one of them, as I mentioned, just quickly to put Eco101 in the good track of value generation and monitor EcoSul's rebid if it does take place in 2026. So just reiterating our position a little bit, even though the auctions, as I said, there are many, but they will also continue in coming years. So I think there's enough for all types of investors and will begin -- will remain in our portfolio.

Excellent. Just a follow-up, Guidotti, if I may. The third lane or the third road at Imigrantes, if you have a balance sheet to do it yourselves? Or are you looking for partners? What's the strategy for that asset?

This third road at Imigrantes, if it is done and there's an amendment to EcoRodovias' contract, we'll have to look at the conditions, whether there will be -- if this new investment will be balanced. And depending on the type of solution for the contract, there will be a need for a financial structure that may include equity. So we don't have a final decision about the solution yet. Ecovias has the capacity to leverage. There's a low net debt to EBITDA. But depending on the type of amendment, if it's going to be via tariff, probably not, if there's going to be an extension of the contracts or government investment and to what extent, all of that will be coming up and will guide us towards the decision to be made. So it could be more or less need for it. But it's still too early. I think we still need to conclude the studies, get to a value structure and think about a way to include that in the contract and then see the best way to fund it.

Next question, Ricardo Bello, Genial Investimentos.

So my first question is about traffic, especially heavy vehicle traffic. We saw here an increase of 4% in this segment. And then we see a lot about the export of soybean pulp, both on the agribusiness and industrial side. I'd also like to know now for the second half of the year, you mentioned in a previous question, something about a decrease, the effect of comparable basis as well. Okay. But I'd like to know more about the perspective, the outlook you have on the macro aspect of the dynamics for the second half of the year and 2026? And also how much -- and I imagine it's not a lot, but how much the exemptions done on that big tariff implementation, if it mitigates the risk or does not from what you had in mind or whether this is an agenda you have in your radar for traffic, especially of heavy vehicles? And then my second question is related to capital structure and the payment and payout of distribution of dividends. And we know, we understand a minimum of dividends you shall pay out of 25%. But I'd like to know more about this type of remuneration to shareholders, even considering the possibility of the buyback programs. We know that the company has performed quite well this year already, but I'd like to learn from your mindset about that. If there's a possible macroeconomic slowdown, if there's an impact of interest next year with the uncertainties we have in the radar? Those are my questions.

Thank you for your question. Uncertainties we have been having for a long time. I think it's normal. It's a dynamic economy and that affects on traffic. And so starting with traffic, heavy vehicle traffic in the second half of the year, it's normally not a period where heavy vehicle traffic grows. We're getting closer to summer, and we get more growth from light vehicles. But we -- still July continue to see heavy traffic at 3.2 above last year. What I talked about traffic is that there's not going to be a decrease in traffic. There will be an increase, but the increase will be smaller than what we saw in the first half, given the great performance of traffic last year. So all of that indicates that traffic is resilient even to unclear potential macroeconomic shocks. We don't have it clear what the impact could be of the big tariffs that are being implemented, that were redimensioned in some aspects, but we don't -- initially, we don't see that they seem very impacting initially. Maybe one input or another that may be of high added value, but small volume that could be affected. I think indirectly, the impact in Brazil's GDP will affect traffic. We are elastic to the GDP. The more the GDP grows, the more it impacts our elasticity, our traffic. But the analysis that were done not only by ourselves but other analysts show that there's no expected major impact in the medium to long term. These cargoes will probably be reallocated. So we are monitoring and keeping track. Obviously, everything needs to be monitored. But we feel that the business model -- our business model, our assets, our OpEx structure, our balance sheet allows us to be quite comfortable in delivering the results expected. And then we also get to the second answer. The payout of dividends, the minimum dividend is an important value for us, but it's a way for us to also generate cash. We have the capacity to pay out a certain amount of dividends and to establish some predictability as well. A minimum dividend will remain until the CapEx cycle slows down, but it's the part of dividend. And other operations that may happen in opportune conditions are not in our radar. Over the past few quarters, we have been capable of meeting the guidances provided to the market, and we expect that the minimum dividend payout will remain so that all of that makes it easier to understand. Other operations are not being considered.

The question-and-answer section is concluded. I will turn the floor to Andrea Fernandes for her closing remarks.

I would like to thank you all for attending our call. Myself and the Investor Relations team remain available for any additional questions. Thank you. Have a great day.

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