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

Good morning, everyone, and welcome to the Hidrovias do Brasil Earnings Results Conference for the Second Quarter of 2026. Today, we have the presence of Mr. Decio Amaral, Chief Executive Officer; Andre Hachem, Chief Financial and Investor Relations Officer; and Vinicius Bioni, Investor Relations Manager. This event is being recorded and will be available on the company's Investor Relations website. [Operator Instructions] We highlight that the simultaneous translation tool is available on the platform. To access, simply click on the interpretation button at the bottom of the screen and choose your preferred language. Before proceeding, we take this opportunity to emphasize that the forward-looking statements made herein are based on the beliefs and assumptions of Hidrovias management and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors and analysts should take into account the macroeconomic environment, industry and other factors that could cause results to differ materially from those expressed in the forward-looking statements. Having said that, I turn the floor over to Mr. Amaral to begin his presentation.

Well, good morning, everybody, and thank you for participating in our earnings call for the second quarter 2026. The second quarter of 2026 was a period of important learning for us. In the North, we began the quarter still facing difficulties in accessing our Miritituba terminal due to the ongoing works at Transportuaria, an issue that was gradually normalized. As a result, we experienced some impacts on product intake in our integrated system. On the other hand, navigation conditions remain normal while demand for grains in the state of Para and Northern Mato Grosso remained strong. This allowed us to partially offset the volumes lost. In Santos, volumes continue to grow, reflecting our increased commercial focus and operational improvements. In Paraguay, navigation conditions were also favorable, allowing us to operate with a larger number of barges per convoy. Volumes increased in line with our commercial strategy of prioritizing iron ore transportation, enabling us to capture additional volumes. Despite the challenges faced during the quarter, we remain focused on operational discipline, efficiency and maximizing the utilization of our assets. Lastly, we continue to maintain a more efficient capital structure with leverage at appropriate levels and disciplined capital allocation. I will now turn the floor over to our CFO, Andre Hachem, who will discuss our results for the quarter. I am at your disposal at the end of the presentation. Thank you.

Thank you, Decio, and good morning, everyone. Before we begin, I would like to emphasize that our analysis will consider only continuing operations. Let's start with our Brazil results on Slide 4, please. During the quarter, we handled 2.1 million tons in the North. The year-over-year decline mainly reflected the challenges we faced at the beginning of the quarter with product intake at the Miritituba terminal, which resulted in lower volumes. This effect also had a drop in the volume of fertilizers in the North system. In Santos, we handled 582,000 tons during the growth -- quarter, up 35% year-on-year, reflecting our new commercial strategy and operational improvements at the terminal. This allowed us to handle 2 different cargoes simultaneously. On a consolidated basis, our Brazil division handled approximately 2.7 million tons during the quarter with adjusted EBITDA of BRL 184 million and a margin of 51%, stable compared to the same period last year. Now this reflected a less favorable volume in the North, offset by improved results in Santos. Looking ahead to the third quarter of 2026, we expect results to be broadly in line with the same period last year, although uncertainties remain regarding the dynamics of corn exports and the effects of El Nino during the second half of the year. Let's move on to the Paraguay operations. We handled 1.6 million tons during the quarter, up 10% compared to the second quarter '25, driven by a 38% increase in iron ore transportation. Our recurring adjusted EBITDA totaled BRL 138 million with a margin of 45%, representing a slight compression compared with the previous year. As you know, we took the decision to prioritize iron ore in our cargo mix, and we were able to capture significant additional volumes. This growth in volumes and revenue was accompanied by higher costs, mainly due to a longer-than-expected operating cycle and some impacts relating to asset availability, but we had important learnings during the quarter. We believe there is room to further improve the efficiency of this operation and better capture the benefits. It is also worth highlighting the impact of foreign exchange translation in the quarter results. The average exchange rate was BRL 5.05 per U.S. dollar compared with BRL 5.67 per U.S. dollar in the second quarter, affecting the exchange of our results into Brazilian reais. Looking ahead to the third quarter of '26, we expect results to be similar to those recorded in the same period last year. We're also progressing and capturing efficiencies with a new operating mix with a greater share of iron ore. Please move on to Slide 6. During the quarter, we handled 4.2 million tons, up 5% vis-a-vis the same period last year, reflecting higher volumes in Santos and Paraguay, offsetting the decline in volumes in the North. Net operating revenue totaled BRL 664 million compared with BRL 622 million in the same period last year, reflecting higher volumes handled in Santos, the recognition of take-or-pay revenue from fertilizer contracts. Recurring adjusted EBITDA totaled BRL 322 million with a margin of 48%, reflecting higher costs in Paraguay and higher costs and expenses in Brazil. We now move on to the debt slide, ending the quarter with a leverage of 2.4x, down 0.3x from the previous quarter. This reduction was driven by stronger operating cash flow generation. On the year-to-year basis, we continue to deliver meaningful deleveraging and a reduction in net debt following the capital increase. We maintain a balanced capital structure with an extended debt maturity profile, an average of 4.5 years. Our foreign currency exposure is appropriately hedged. Now with that, I would like to conclude my presentation. And Decio and I are available for the question-and-answer session.

[Operator Instructions] First question comes from XP from Joao.

In truth, we have 2 topics here. First, I would like to touch upon the operations in Paraguay. We see a relevant increase in volume in the quarter. And you mentioned that the main drivers were the increase in iron ore and increasing the share of this product. Now could you refer to how you have enforced this strategy to have a stronger iron ore mix? And if you could share with us the scenario going forward and the mix between your products to see what we can expect to see if iron ore will become ever more relevant in the operations of Paraguay. My second topic, I would like to explore that recognition of pay-per-take (sic) [ take-or-pay ] in the North. If you could speak about the effects, what made it difficult to carry out these volumes and perhaps refer to the magnitude of this movement in your results for this quarter.

Good morning, Joao, thank you for your questions. Let's begin addressing the question on Paraguay, and then we will speak about fertilizers. In Paraguay, as we have been remarking, we took the decision this year of focusing our fleet on working with iron ore. As you know, iron ore, because of the drop of grains, has increased. And this, of course, brings about significant changes to the exposure of our fleet. The travel time in the iron ore transport is longer than that of grain. So this made sense for us. We're working with records of iron ore volumes during the year. And we had some premises referring to the cost cycles that we included in the plan. There are other factors that ended up not being confirmed and that were important. We had the opportunity for improvement. And in-house, we had greater availability of assets that we had imagined. When we look forward, we see that, yes, there are opportunities to increase our volume of iron ore more than in the past. We have to make an adjustment in strategy and we have to see the size of that increase. And we had important learnings. Of course, we were able to execute these figures more efficiently, of course, with an increase of costs. When we speak about costs, we have an important impact on the cost of fuel that is transferred to revenues. So we don't mix all the cost increases with this opportunity that we foresee.

Well, this is Decio, Joao, and I would like to add something to what Hachem mentioned. This is a year of stabilization of the port operations of our client, given that our contract begins with a cargo that the client initiates. So we have an increase in the fleet in Rio (sic) [ river ]. We had an increase in the movement of ports of our client. And this means a longer waiting time for the convoys creating a longer cycle, which is something that will be stabilized through improvements. We had not anticipated this longer waiting period in the port because of the transportation of iron ore. Nowadays, all of the iron ore of our client is being transported by ourselves through the client's private fleet. There are no other operations doing this.

Now if we look at the issue of the fertilizers, as we have reported, we have had a significant decrease of fertilizers since last year. When we look at the fertilizer market, there are interesting opportunities. This is a return cargo for us. And what we foresee are potential opportunities in Santos. We saw a more relevant part in the terminal with a focus on fertilizers once again. Yes, this is an interesting potential business. We're going to attempt to recover our share in the region. And once again, there are mechanisms. There are some contracts, but it's not interesting for the client or ourselves to have this as our main revenue.

To add to what Hachem has said, Joao, we have contracts nowadays with 2 important clients in fertilizers. One of the clients that is international has repositioned the portfolio because of the scarcity of products due to the war and the less profitable route was in the North, that transport between countries and the northern region of Brazil. Now we weren't sure if this client would use our capacity, and that is why we resorted to take-for-pay (sic) [ take-or-pay ]. Now there are opportunities in the North to diversify the client portfolio and of course, to increase the volume of fertilizers that we will end up bringing into our system.

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

Another question for the Brazil division. We have inflation on the revenues per volume despite the more competitive atmosphere for grain transportation and the commercial situation in Santos. Was that increase concentrated in take-for-pay (sic) [ take-or-pay ] for fertilizers? Or was the focus grains? And in coming quarters, is there a space to increase to a similar rate? Or will the readjustment be a bit more modest?

Good morning, Gabriel. We're truly not sure that we understood your question. So I'm going to answer based on my understanding. When you look at the revenues of Hidrovias, you will understand it is a mixture of several services. Some factors are captured here. We also have to transfer the price of fuel. We have an increase in the price of fuel. And of course, this dynamic is important, and that is why we have an impact on margin and unit revenues. Now this year, the prices in general are more stable. We don't have huge variations among quarters. But once again, I'm not sure I fully understood your question. Perhaps I can clarify further.