Hidrovias do Brasil S.A. (HBSA3.SA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Hidrovias do Brasil Earnings Conference Call for the Second Quarter of 2025. Joining us today are Decio Amaral, Chief Executive Officer; Andre Hachem, Chief Financial Officer and Investor Relations Officer; and Gabriela Colus, Investor Relations Manager. This event is being recorded and will be available on the company's Investor Relations website. Ensuing the comments from Hidrovias management, there will be a question-and-answer session when further instructions will be provided. We emphasize that the simultaneous translation tool is available on the platform. To access it, simply click on the interpretation button at the bottom of the screen and choose your preferred language. Before proceeding, we would like to underscore that forward-looking statements are based on the beliefs and assumptions of Hidrovias management and the information currently available to the company. These statements may involve risks as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should consider that events related to the macroeconomic environment, the segment and other factors could cause the results to differ materially from those expressed in forward-looking statements. That said, I would like to turn the floor over to Mr. De Sampaio Amaral to begin the presentation.

Good day, everybody, and thank you for participating in our earnings call for the second quarter of 2025. This is my first disclosure as CEO of Hidrovias do Brasil, and I would like to start by sharing some initial impressions. I have been at the helm of the company for 2 months and have found a young company with only 15 years of history, but with high-quality logistic assets and well positioned in strategic corridors in agribusiness in the Northern Arc and in the movement of fertilizers in Santos. I see the company as having great potential, but requiring management to enhance its profitability. Today, despite the recent recovery and results, we operate with a single-digit return on investment capital. But I believe that in over the 3 to 5 years, we will be able to advance to double digits, consistent with a robust and efficient company. An important milestone for the start of this phase was a new completion of capital increase in May, bringing in BRL 1.2 billion to the company, BRL 700 million cash inflows in that quarter. This move definitely balances our financial situation, giving Hidrovias a robust foundation to resume its growth agenda. In this context, we are carefully reviewing our opportunity portfolio, prioritizing projects with a greater impact on the return of invested capital. One example is the [indiscernible] II project in the North corridor, which has already virtually obtained all the necessary licenses we are revaluating the schedule in light of productivity opportunities that may allow for volume gains without additional investments. Our goal is to act with capital discipline, executing each step at the right time and based on concrete evidence to ensure consistent results and sustain the ROIC recovery trajectory. We will present more details on this strategic agenda at Ultra Day at the end of September when we will share our medium-term vision and growth priorities. Now if you could please turn to Slide 5. We had a positive quarter with the North corridor sustained by the tariff adjustments implemented at the beginning of the year, strengthening the profitability of the operation. In the southern corridor, we had a consistent recovery of results because of better [indiscernible] and because of the volume sold of iron ore. In Santos, we continue to be focused on operational results to prepare the asset to capture all of its performance. And we remind you that this is a docking year. With this, we reached an adjusted recurring EBITDA of BRL 348 million in the quarter and BRL 604 million in the first half of the year. With that, I will conclude my remarks and turn the floor over to Andre Hachem, our CFO, to detail the results by operation. Thank you.

Well, thank you, Decio. Good morning, everyone, and thank you for attending another Hidrovias do Brasil earnings call. Before we begin, I would like to remind you that the figures presented are pro forma and therefore, include the results of the Cabotage operation for better comparability as we did in the first quarter. Let's move on to Slide 7. In the quarter, our throughput was 2.2 million tons, an increase of 7% compared with the second quarter ' 25 and 18% compared to the first quarter of '25, reflecting seasonality of the harvest. We had 4 million tons handled the volume, 2% lower than last year, impacted by the harvest delays, but partially offset in revenue by positive tariff adjustments implemented this year. As a result, net operating revenue reached BRL 307 million in the quarter, an increase of 17% vis-a-vis 2024 -- totaling BRL 553 million. Now we reached BRL 194 million in EBITDA, up 16% compared to 2024 and 28% compared to the first quarter of the year. In the first half of the year, EBITDA totaled BRL 346 million, an increase of 5% year-on-year. For the third quarter, considering normalized navigation conditions, we expect good results observed in the second quarter to continue sustained by similar volumes and tariff adjustments. It is worth noting that in the annual comparison, the third quarter of '24 already reflected the impacts of lower trough levels in the operation. Let's go on to Slide #8, where we discuss the results of the southern quarter. In this operation, navigation conditions remain adequate, as mentioned by Decio, because of seasonality of [indiscernible] and stretching and rock removal efforts. This has translated into volumes closer to what would be normal in the corridor. In the quarter, we handled 1.4 million tons of volume significantly higher than both the same period in '24 and the previous quarter. In the first half of the year, we reached 2.5 million tons, a 46% increase compared to 2024 and a mix similar to that observed in 2023. Net operating revenue was BRL 284 million in the quarter and BRL 492 million in the first half. of 48% and 65%, respectively, when compared to the same period in '24. Adjusted recurring EBITDA totaled BRL 140 million in the quarter and BRL 232 million in the first half, reflecting both the increase in volumes and operational normalization. After nonrecurring events of asset transfers between corridors in 2024, EBITDA margin for the half year reached 47%, an increase of 28 percentage points compared to the same period last year. It is worth noting that in 2025, we ended the hedge accounting recorded in this operation, an effect that was already adjusted by the operating company and nonoperating results and adjusted EBITDA. Looking ahead, we expect that the -- we will continue to reflect the navigability conditions with emphasis on the maintenance of iron ore, albeit slightly below the historical record of 2023 and the consequent evolution of EBITDA vis-a-vis 2024. Moving to Slide 9 for the results of Cabotage. We moved a volume of 872,000 tons of bauxite, 13% above the first quarter, but lower than the same quarter in '24 because in the first half of the year, we talked one of our assets incurring an additional expenditures for maintenance of the asset. In the first half of the year, we handled 1.6 million tons, 15% below the previous year due to the same docking effects. Net operating revenue totaled BRL 68 million in the quarter and BRL 134 million in the first half, an increase of 7% and 12%, respectively, reflecting exchange rate effects and trips completed in the accounting period. Adjusted recurring EBITDA for the quarter was BRL 24 million, 22% below last year and accumulating BRL 45 million in the first half, 18% below the same period last year because of docking and exchange rate impacts. Looking ahead, we expect the next quarter results will reflect the completion of the docking process and go back to a more normal operation. Finally, we go on to the results of the Santos operation on Slide 10. In terms of volume, we handled 431,000 tons, up 22% vis-a-vis the same period 2024 and 871,000 tons year-to-date, up 23% from the first half of '24. This performance mainly reflects the start of salt operations in the second half of last year as fertilizer volumes were lower than in the previous year. Net operating revenue was BRL 31 million in the quarter, up 10% over 2024, totaling BRL 65 million in the quarter, also with a 10% increase. This evolution reflects the entry of salt into the operation, but also the mix effect, representing 30% of the volume handed in the semester. Recurring adjusted EBITDA was BRL 10 million in the same quarter, in line with the first quarter '25, but 19% below the same period in 2024, totaling BRL 20 million in the first half. This is because of difficulties we face in the terminal. We expect similar results to those observed in the second quarter for the third quarter. Now let's go on to Slide 12. The consolidated result shows a movement of 4.9 million tons in the quarter, the second highest volume in the company's history and 9 million tons in the first half of the year, surpassing the same period last year, driven mainly by recovery and navigability in the Southern corridor. Net operating revenue on pro forma basis reached BRL 690 million in the quarter, up 27% vis-a-vis the second quarter '24, totaling BRL 1.2 billion in the quarter, up 25% over the same period in 2024, with consistent recovery in the North and South corridors. Recurring adjusted EBITDA reached BRL 348 million in the quarter and BRL 604 million in the first half, up 39% and 45% in 1 year, respectively. These results reflect more normalized navigation conditions we saw in the South and a more favorable tariff environment in the North. On Slide 13, we present Hidrovias financial results, highlighting the reduction in leverage, ending the quarter at 4.0x net debt EBITDA, a reduction of 1.7x. Net debt to EBITDA compared to the same period last year. This improvement reflects both operational improvements and the effects of the capital increase completed in May of this year. During the quarter, we completed the repurchase of part of the company's bond through a local debenture issue. This brought significant benefits by maintaining a competitive cost and debt and our debt went from 79% in dollars to 38% in June 2025. This transaction is also eliminating covenants associated with the previous bond, bringing greater flexibility and alignment in Hidrovias new risk profile. This strategic move strengthens our financial structure, preserving competitive cost conditions and mitigating risks associated with exchange rate volatility. Now this happened after Ultrapar control, and it was also guaranteed by the controlling shareholder, which reflected in our risk perfection. At the end of the quarter, our average duration was 4.5 years and the weighted average cost of debt at 102.7% of the CDI. With this, I would like to conclude the presentation. And along with Decio, I'm available to answer any questions.

[Operator Instructions] Our first question is from Fernanda Recchia.

We have 2 questions at our end. I would like to explore the competitiveness of the northern corridor. And you said that the tariffs improved in the North. And of course, this will help you because in your scenario, you are maintaining flat prices. Will the level of tariffs be sustainable going forward, which will be the scenario for the second half of the year and 2026? I take advantage to welcome Decio, wish him a great deal of luck and would like to ask about the short-term priorities. Your priorities, Decio, which will be your short-term focus for Hidrovias and if we should expect significant changes?

Good morning Fernanda this is Hachem I will answer the first question, and Decio will answer the second. Regarding competitiveness, as we can observe, Hidrovias has adopted several measures to eliminate debt. We're not exposed to the spot tariffs for the time being. What we have observed in the harvest is that there was a delay in the harvest. And when we look at the new harvest, there is an increase in volumes, but with a different behavior of the [indiscernible] that they're holding back on marketing. And what we see is a market with a lower demand that we would wish to see. This will be redressed until the end of the year. And in our tariff part, we're not exposed to the spot market because we have taken the necessary measures.

Fernanda, thank you for your question. I'm here completing 60 days at the helm of Hidrovias. And as I mentioned in the introduction, we're positioned in very interesting markets in the north with the outlook for good growth, the fertilizer market in Santos, where we have a bottleneck and we have a grain export help being outflowed by Paraná. And -- this is one of the most relevant waterways in the continent with a good outlook for growth. Now when we look at the assets we have, there is something that is incompatible. Our 1-digit ROIC. It doesn't make sense. Now it doesn't make sense to work with that level of return on invested capital. I have a greater fascination for ROIC than for EBITDA. Therefore, in the short term, and we're working on this is to identify the internal and external bottlenecks that don't allow us to make the most of the assets. This is the priority of my management to materialize the use of the assets to reduce our operational costs and to gain significant productivity in operations, a highly assertive capital allocation in those bottlenecks that require investment in the coming 3 to 5 years, we want to work with a 2-digit ROIC, which is what an infrastructure company should have to invest with the appropriate leverage. Now to complete the question, well, price, it's not under our control. We control players with the lowest cost and those that add more value to the client. This will be the focus of our management.

Our next question comes from Matheus Sant'Anna from XP.

I have 2 questions. The first, I would like to go back to that concession for the installation of a floating terminal in Vila do Conde. Last week, there was the approval of the final stages before the installation. I would like to know which is your mindset regarding this asset, and there has been a delay of 2 years in terms of the installation. The second question which is your vision, short-term and long-term vision for the North and South in terms of drought. In the short term, it seems to be positive. I think we won't be repeating the scenario of the last year of a very intensive drought. But what will happen with the concession of the 2 waterways and the changes that [indiscernible] is making and could make?

Thank you for the question. This is Hachem, and then Decio will speak about dredging. Now we're working with [ PDC ]. And what happened in December -- we had that project of the boys that, of course, are delayed. We are facing difficulties in terms of licenses to begin the operation, but it is not linked to the PDC. Now at this point, we don't have a forecast in terms of this project. I believe that we will address that stage that will be called intermediate where we will be able to conclude these boys.

This is Decio. Thank you for the question. To speak about the drought that we can expect in the waterways, this is an important factor to resolve issues that are external to the operation, but that have a few impact in the South. Outside of Brazil, Argentina and Paraguay, the drought is doing very well. We have seen significant strides in Brazil. Some of the licenses are still pending. But in Brazil, the hydrological regime has been favorable. And in the midterm, we would not want to undergo what we underwent at the end of last year. In the North, the situation is favorable. We work with some dredging this year, not fully, and we're working proactively so that we can have the right intervention if something happens. Now in the long term, things are better. The government has understood the importance of waterways in Brazil and what we need to guarantee navigability is the concession of the waterway. We're working closely with the government to have this concession. The first concession will be for Paraguay. It is in the final stages of the tribunal of accounts. And this will guarantee dredging in the long term. In the north, the concession is somewhat ahead. We're thinking of making a dredging contract for 3 years until the concession materializes. So in the midterm, we will have concessions. And this is an issue that has been well set forth. And of course, we have to work with the regulatory environment and perhaps if we want to participate in the concession, we will carry out that decision at that time.

Our next question comes from Gabriel Frazao from Bank of America.

My question is a follow-up on the increase of the ROIC. In the first question, if you could give us an idea of some of the initiatives you are surveying or that you have put in practice to increase the ROIC. And when should these initiatives be implemented in the company? Another point regards the results of the company that were higher than usual in this quarter because of the expansion of the derivatives and the amortization of the cost of capital. What has justified this expansion? Was there something nonrecurrent? Or is this the normalized situation?