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

Good morning, everyone, and welcome to Hidrovias do Brasil earnings conference call to discuss the results for the third quarter of '25. Joining us today are Mr. Decio Amaral, CEO; and Andre Hachem, CFO; and Ms. Gabriela Colus, Investor Relations Manager. This event is being recorded and will be available on the company's Investors Relations website. And then after the company's management remarks, we will open the floor for a Q&A session. At that time, further instructions will be provided. Simultaneous interpretation is available and to access it, simply click on the interpretation button at the bottom of your screen and select your preferred language. Before proceeding, we would like to remind you that any forward-looking statements made during this conference call are based on the beliefs and assumptions of Hidrovias do Brasil's management and the information currently available to the company. They involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or not occur. Investors and analysts should be aware that various factors related to the macroeconomic environment, the industry and other operational aspects could cause actual results to differ materially from those expressed in such forward-looking statements. Having said that, I turn over to Mr. Decio Amaral.

Good morning, everyone, and thank you for joining us today for Hidrovias do Brasil Third Quarter '25 Earnings Call. Let's get started on Slide 5 with the main highlights of the quarter. The third quarter was marked by another period of strong results, driven mainly by the continued normalization of navigation conditions in the southern corridor and tariff adjustments in the North. On the Paraná-Paraguay Waterway, we operated through the first 9 months of the year with water levels within the normal range. This environment, along with our ongoing dredging and rock removal work allowed for smooth navigation and supported a solid recovery in results for this operation. I would like to highlight the growth in iron ore volumes, which reached the highest levels in our history. We had a longer period. But even though the quarter was positive. In Santos, performance remains similar to what we saw in the first half of the year. Our focus there continues to be optimizing assets through commercial and productivity initiatives aimed at maximizing returns even under adverse conditions. And finally, our coastal shipping operation, whose sale was completed last week, delivered results in line with normal operations. In the third quarter of '24, recurring adjusted EBITDA for Hidrovias, including coastal shipment reached BRL 361 million and for the first 9 months of '25, it totaled BRL 965 million with a recurring adjusted EBITDA margin of 49%, which is 10 percentage points higher than in the same period last year. I now hand over to Andre Hachem, our CFO, who will go over the results by operation. I'll be back later for the Q&A session.

Thank you, Decio, and good morning, everyone. Before we dive into the numbers, just a quick note. This release is presented on a pro forma basis, including the results of our coastal shipping operation. Let's begin with the Northern Corridor on Slide 7. We handled 2.3 million tons in the quarter, which is higher than the same period last year, mainly reflecting the normalized navigation conditions. The quarter had some mixed dynamics on one side. We faced temporary challenges in cargo reception at the ETC and the usual harbor seasonality. On the other hand, we saw higher grain intake via direct road transport and greater fertilizer backhaul volumes. Year-to-date, we've handled 6.3 million tons, generating net operating revenue of the BRL 331 million for the quarter and BRL 884 million for the first 9 months, a 15% increase versus the same period of '24. Recurring adjusted EBITDA came in at the BRL 194 million for the quarter, 36% above last year, when navigation conditions were more restricted. In the first 9 months, recurring EBITDA reached BRL 540 million, up 14% year-over-year with an adjusted EBITDA margin of 61%. And looking ahead for the fourth quarter, this is a seasonally weakest period of the year, reflecting both the crop cycle and lower river levels. In this context, we expect volumes similar to '22, noting that in '22 -- sorry, in '24 results were impacted by the severe droughts that hit the region. In Slide 8, on the Paraná-Paraguay Waterway, draft conditions remained normalized throughout the quarter, which allowed for a strong recovery in volumes compared to last year. In the first 9 months, we moved 4 million tons with iron ore representing 76% of total corridor volume in '25, up 50% in '24, a very meaningful increase. Net operating revenue was BRL 285 million for the quarter and BRL 777 million year-to-date, driven by high volumes and a better product mix, which helped offset the negative impact from converting dollar-denominated revenue. Recurring EBITDA was BRL 145 million for the quarter, a strong improvement over the second quarter and the third quarter of last year. For the first 9 months, it totaled BRL 386 million with a 50% margin, up 35 percentage points year-over-year. This reflects better operating conditions. And now looking to the fourth quarter, we've already seen lower water levels, which is typical for this time of the year. In response, we've implemented our low water plant starting in November. We expect volumes to be lower than in the third quarter, but still above what we saw in '24 when operations were heavily affected by drought. In Slide 9, Santos operation. In the third quarter, we handled 484,000 tons, slightly below last year's volume with a small deterioration in the product mix. For the first 9 months, we moved 1.3 million tons, 13% higher year-over-year, driven by the start of salt operations at the end of the second quarter of '24, partially offset by lower fertilizer volumes. Net operating revenue reached BRL 36 million for the quarter and BRL 101 million year-to-date, reflecting the additional salt volumes though with a less favorable mix. Recurring adjusted EBITDA was BRL 14 million in the quarter, down 12% year-over-year and BRL 35 million year-to-date with a 34% margin, 9 percentage points below the same period last year, again due to mix and tariff effects. For the fourth quarter, we expect results similar to those seen in the second quarter. And finally, in Slide 10, we'll discuss the coastal shipping operation. I'll keep this brief, since we completed the sale in the beginning of November. We handled 892,000 tons in the quarter and 2.5 million tons year-to-date. Recurring adjusted EBITDA totaled BRL 75 million in the first 9 months reflecting the impact of dry docking and lower operational capacity during the period. With the sale completed, we'll no longer report this segment starting in the fourth quarter of '25. In Slide 12, consolidated results. For the first 9 months of '25, we handled 14.3 million tons, up 14% year-over-year, mainly reflecting the recovery in navigation conditions in the southern corridor. Net operating revenue was BRL 711 million in the quarter and BRL 2 billion year-to-date, an increase of 32% versus last year. Recurring adjusted EBITDA reached BRL 361 million in the quarter and BRL 965 million year-to-date, up 65% compared to the same period in '24, again, mainly reflecting the improved conditions in the South. In Slide 13, a look at our financial position. I highlight the reduction in leverage, which closed the period at 2.9x net to debt -- I'm sorry, net debt to EBITDA, well below the levels seen in the third quarter of '24, this improvement reflects not only stronger operational performance and cash generation, but also a higher cash position following the capital increase completed in May. As we mentioned in our last results call, we also took an important step in our financial strategy this year, by restructuring part of our debt through the issuance of Hidrovias fourth debenture guaranteed by Ultrapar. With that, we purchased part of the 2031 bond, reducing our foreign currency exposure. That wraps up our presentation. And I now turn over to Decio for the Q&A.

[Operator Instructions] Our first question comes from Pedro, Itau BBA.

First, I would like to explore the effects of ETC, and we had an expectation that the EBITDA margin would be similar in the third quarter, but you commented that we still have some issues with the ETC. And I would like to know what operational results we can have in the region? That would be the first question. And now looking at the South, we can see that there is a higher participation in iron ore. Since the Ultraday, you'd already mentioned, that you have that potential, but I would like to know what operational leverage we can consider for the South considering a higher participation of iron ore?

Hello, Pedro. Good morning. This is Hachem. Regarding the North, quarter-over-quarter, the mix is similar in terms of integrated volume. But what happens is that this quarter, we navigated a little bit less. Navigation is one segment of our operations, which has the lowest margins. Having said that, when we consider the mix, we could be using more integrated capacity if the transport activities were adjusted. With that, we end up increasing the road transportation.

Good morning. Thank you for your question. What is happening with transport route for you to know. The beginning of the construction of the new transport route has already happened. We anticipate that we will have this area paved correcting the very large lanes in the last quarter of next year. So it will be totally operational in the end of next year. So we're going to install provisional pavement and the expectation for the next crop is to have less problems than we had this year. But the expectation is only for 2027. Would you like to talk about the South, Hachem?

Yes, perfect. Could you repeat to the question about the South? It wasn't very clear to me.

Yes, of course. I just wanted to better understand what the EBITDA margin could be for the South? We had a better leverage because of more iron ore transportation. But looking ahead, what is the participation of iron ore going to be? And what will the operational leverage be?

When we look at the South corridor, we can see that the corridor has been an important player. There are 2 factors. As I mentioned, first of all, we had more favorable actions this year. And when we look at it in a more structural way and look at the long-term perspectives, I wanted to emphasize the seasonality aspect. In the fourth quarter, we have less waters. And basically, when you have that, you can carry less per shipping and it also takes more time for the cycle and lower margins. So when we look at the fourth quarter, we have lower margins. And when we think about the river, we usually have a first and second quarters with lower results because of the level of the river. Now looking at the quarter, and once again, talking about the midterm, the South corridor, is right now going through the effects of dredging, the perspective for the conclusion of the dredging and with the concession is being analyzed by our courts. And over the year, we will have an increase in our market share for transportation, especially of iron ore. This is what we anticipate for the South.

Our next question is from Gabriel Frazao, Bank of America.

I have a question about the negotiation of tariffs for next year. Could you comment a little bit about these negotiations? And do you expect the scenario we had in the past years where Hidrovias had gains in the tariffs, would that be seen in '26? Or should it be a little bit lower because of the amount that you've been able to deliver in the past years?

Gabriel, this is Decio. Thank you for your question, Gabriel. First of all, I'd like to focus on the things that I can control, which is operational cost and efficacy. We have to learn how to make profits regarding the tariffs. We must be able to be profitable at any point in time. Having said that, we have positive expectations for the 2026 period, and we do not see a lot happening, but we consider a third-party terminal, our own terminal. We do have some contracts. But having said that, some corridors compete with us and are more flexible in their negotiations. We are doing well, similar to past years. The scenario is of normality, nothing different from previous years.

Our next question is from Filipe Nielsen, Citi.

I have a question related to CapEx. In the Ultraday, we talked about modular project opportunities. It was very illustrative in terms of how much CapEx we could expect for this year and next year. But I wanted to better understand CapEx for this quarter, it was a bit lower than what we expected. Do you see it increasing throughout the fourth quarter and next year? How are these projects advancing? Could you tell us a little bit about this?

Hello. Good morning. Regarding CapEx, this quarter, more specifically, we concluded our first modular projects, Cábrea, and it will start commissioning in the end of the year. The ramp-up will take place in the first half of next year. In terms of significant investments in modular projects, this is the main aspect. In the fourth quarter, we have lower operations traditionally because of the level of the river. Looking ahead, basically, when we think about '26 and the projects that are already ongoing and combined to natural maintenance expenses, we should not have any significant oscillation for '26. It will be close to normality and maybe the only expansion project, which is already going on is the Tombador project.

Our next question from Pedro Bruno, XP.

Part of my question has already been answered. It was about the South. But could you give me a little bit more detail about what we've already seen in terms of the dredgings that have been performed over the year, with good effects, as Decio commented about the same level with a more efficient operations, but I wanted to confirm that in the fourth quarter, we should have improvements with results adjusted for the period. And also, I wanted to understand if these dredging projects are still ongoing. Decio talked about these efforts, combined with the concessions. So could you give us an update and timing and maybe more operational explanations about dredging and rock removal work regardless of the dynamics of the corridors and within the contracts that we've seen a faster decrease of the water level reading. Of course, we have the seasonality and 1 year is never the same as the past year, but I would like to have an idea.

Well, Pedro, thank you very much for your question. And just to reinforce a little bit but what was mentioned regarding seasonality, we start with the low-level regimen so that we do not fully load our ships, and you cannot use everything together. So you have to limit a bit and lose some capacity because the ship -- I'm sorry, the shipping time is longer. So what is happening this year because we had some rock removal work, which has enabled us to move a little bit more. And in the river today, we have 40 to 60 areas, but the dredging itself is on the way of navigation. So the perspectives with the conclusion of the dredging and rock removal work, which will continue for some time next year is that we will be more resilient because of these investments that are being made and we'll have higher capacity as well.

Perfect. If we can have an update with what we expect, everything that is public in terms of updates and expectations in general and concessions as well?

Well, regarding the concession, we will evaluate the participation or not, always taking into account the financial return and guarantee of -- guaranteed navigation actually.

Our next question comes from Isabella Pacheco, Bank of America. Our next question is from Isabella Pacheco, Bank of America in writing. What leverage do you see for the end of this year and next year?

Hello Isabella, good morning. This is Hachem again. I think that the main thing we have to keep in mind is that our LTM EBITDA is BRL 965 million. And if you consider the same period last year, it was BRL 586 million. When we look at the end of the year, we continue to see, first of all, a third and fourth quarters that are much healthier than they were last year. And that will be very helpful when we think about our net debt and the EBITDA. For net debt, we are in a very healthy position, and it will remain in the fourth quarter and next year. So the company will have good leverage at the end of the year. Also, we have to take the following into account.

With this, we conclude today's session, and I would like to invite Mr. Decio Amaral to move on with the final considerations. Please, Mr. Decio proceed.

I would like to thank you all for your participation and questions. I hope that we've been able to address your questions. And we will meet again next quarter to talk out the closing of this year and the perspectives for next year.

The conference call is now over, and we thank you all for your participation. Have a good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]