Motiva Infraestrutura de Mobilidade S.A. (MOTV3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for holding. Welcome to CCR S.A.'s conference call where we will discuss our second quarter of 2024 earnings. [Operator Instructions] Before we continue, we would like to clarify that any statements made during this conference call about the company's business perspectives, any projections, operational and financial goals are simply beliefs and assumptions by the Board of Directors at CCR. They are based on currently available information. remarks about the future are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that the general economy, industry conditions and other operational factors may affect the company's future results and lead to results that differ materially from those expressed in these forward-looking statements. We will now hand it over to Mr. Miguel Setas, the CEO of CCR Group. Go ahead, sir.

Hello, everyone, and welcome to our conference call where we will discuss the earnings for the second quarter of 2024. I am Miguel Setas, the CEO for the group, and I'm here with Waldo Perez, our CFO; and our Investor Relationship Director, Flavia Godoy. We'd like to give you a summarized view of the main highlights for the second quarter. It was a solid quarter. We received record demands for many of our assets. It was the best second quarter in the company's history, and especially for our most important assets, AutoBAn and the Belo Horizonte Airport. We have the highest month historically for them. We also controlled costs by continuing to implement our cost reduction plan, which increased by 14%, our adjusted EBITDA comparing the second quarter of 2024 with the second quarter of 2023. Our EBITDA margin went up 0.9 percentage points, and this has translated into 102% growth in our adjusted consolidated net income. Of course, we also have to highlight revenues, not only our score, but complementary revenue. As you know, our goal is to increase our mix and we had an increase of 18.6% quarter-to-quarter, which shows the potential growth in this revenue line. When it comes to costs, we are continuing our cost control program. OpEx to cash was down to -- excuse me, 2 percentage points to 40.5% and our efficiency program continues. Finally, we have two other highlights related to financing. First, the issuance of the best incentivized debenture in the Brazilian market, a value of BRL 9.4 billion, which comes to return a total of BRL 10.75 billion in long-term financing for Rio San Paulo. And this was performed for an investment of over BRL 15 billion into our structuring assets in our portfolio. And finally, a highlight for liability management. We had a 17th bond issue of BRL 2.2 billion. This is more competitive than the previous financing plan to optimize our financing costs. One final highlight, which is not here on the slide is that as a reminder, we concluded our optic fiber operation with Sun, a transaction that led to a value of BRL 100 million. And it continues to optimize and reduce our portfolio and also our capital recycling plan, which, of course, is a part of our strategic plan. So this is a brief summary. I'll pass it over to Waldo Perez, who will go into details and I'll return at the end for the Q&A.

Thank you, Miguel. Good morning, ladies and gentlemen. We will now discuss the main highlights for the second quarter of 2024. As Miguel said, this was a solid quarter when it comes to demand. We had 13.8%. Our growth in toll roads, 8% growth in Urban Mobility and airports grew by 9%. In toll roads, commercial vehicles were 7.6% of the growth, mostly due to the sugar industry that posted record exports. We also had cotton, coffee and some other products that had a huge impact to our demand and there was a representation of 3% for suspended axles, which also led to higher revenues. So it was a strong quarter for Toll Roads. For light vehicles, it was a bit weaker. So there was a reduction of 0.3%. In RioSP, we had a reduction of 4.5%, mostly due to the construction work and the investments that we have been making to RioSP. And as you know, there was also a natural disaster in Rio Grande do Sul, which impacted ViaSul and ViaCosteira and led to a reduction in vehicles. But it was still a very strong quarter. Urban Mobility grew 8% in Metro Bahia. We included two new stations with Trammo 3 and a 24-hour operation for some events, which also led to a higher demand. For ViaMobilidade lines 4 and 5, we had a growth of 11.8% and 5.3%. This was due to the increase in commercial activities and trade. VLT grew 29% due to the operation of the Jinshlisa Intermodal station, which was not in operation yet in the second quarter of 2023. Airports. The main highlights were international airports, Aeris 14%; Carajás, 30% increases. This is mostly due to the consolidation of international routes. In Brazil, BH Airport grew 15.3% in domestic traffic due to a higher number of flights from Azul and LATAM and BH Airport also have its best June in history with over 1 million passengers. So it was a very strong quarter across all of our models. Looking at costs. As Miguel said, we had a reduction in 2 percentage points to our OpEx cash to adjusted net revenue index, down to 40.5%. When we compare costs between the second quarter of 2023 and the second quarter of 2024, we can see the main factors. Personnel costs, we had we had a number of contract cancellations and a higher provision for PLA excuse me, PLR. Third-party services also had an increase, especially due to MSVia, where we had to recover a part of the payment according to the concession contract. So that was the increase we saw in comparison to the second quarter of 2023. We also had more cleaning and maintenance services in Curacao and Aeris, mostly due to the additional traffic and the higher number of passengers and also Metro Bahia. When we look at nonrecurring costs, we had BRL 217 million, which is basically the investments made to ViaOeste this quarter, which are accounted for as an expense instead of a CapEx. So again, in this quarter, we had solid cost control. And as a result, we saw consolidated adjusted EBITDA growth, reaching BRL 2 billion, up by 14.4% this quarter. Toll Roads represented 10% of this growth. Urban Mobility, 33% and airports grew by 28%. So it was very robust. And here we can see, especially in Urban Mobility, the increase from the number of passengers and the increase in EBITDA, which grew but also was affected by inflation. Nonetheless, it was a strong result. As a consequence, we have our adjusted net income that more than doubled 102% growth, reaching BRL 411 million. If we look at our net financial results, there was a reduction, 9.8% lower, mostly due to the reduction of the CDI by 13.4 percentage points. And this calculation includes BRL 81 million from the lines 5 and 17 of financing plans. So there was a strong quarter. We had very good results, and this all shows that our efficiency program is on the right track. Investments. We're focusing on investing well. We reached BRL 1.6 billion invested, out of which BRL 217 million are in ViaOeste alone. As you know, these are accounted for as an expense. The biggest investments in toll roads were in RioSP with expansion expropriations, pavement and system recoveries, BRL 45 million were invested in ViaCosteira, implementing marginal roads, walkways and pavement restoration. We also invested in ViaSul despite the arain with payment recovery, duplications and several improvements in different sections of this road. Urban Mobility received investments in lines 8 and 9, where we spent most of this CapEx and airports in the South and Central blokes, we are focused on delivering Phase Ib, which will conclude in November. So all the investments here are on improving terminals and in general improvements. So we are performing according to our plan for the year, and we're continuing to look into this. Leverage has been controlled. Our net debt to EBITDA rate for this quarter was 3.1x. You can see that our debt for the holding was BRL 4 billion, which is a reduction in comparison to the second quarter of 2023. Our debt has been extended. 43% of it will be due after 2032. And here, you can see RioSP's bridge loan. As was said in the beginning, we contracted BRL 10.7 billion with BNDS through market debentures and Fine. So that removes risk from this project. It has been financed to implement these BRL 15 billion in CapEx. And this BRL 1.1 billion has already been refinanced with the first and second series of the debentures. It will be a total of eight series by July. So the cash impact will take place in the third quarter. So that makes our second quarter very confident when it comes to financing, and you can see that our debt profile has been extended with all of the disbursements that took place during the quarter. So that concludes my presentation. We had a strong demand, strong EBITDA growth, 102% in our net adjusted income. Net debt-to-EBITDA was 3.1x. So we now have had six quarters in a row with consistent indexes, and we have been performing very well. And with that, I'll hand it back to the operator for the Q&A. Thank you.

We will now begin the questions-and-answer session. [Operator Instructions] The first question will be asked by Pedro Bruno from XP.

I actually have two questions. First, I'd like to get an update about the strategic use of your airport assets. You've been vocal about reducing priorities set on this business unit on the middle term. And if you can tell us what your focus has been in executing this CapEx, that would be great. I think despite this unit's CapEx representing about 5% of the total CapEx, there's still questions about the overall CapEx. We've seen that airport CapEx has been changing, and this drew our attention. When we look at the Central and South blocks and Pampulha, the exception here is Belo Horizonte due to the investment commitments you have there. We've seen that this number of commitments has been going up 20% above your CapEx execution plus inflation quarter-on-quarter. So I'd just like to get your perspective on that. There might be a readjustment that was accumulated there. So we just like to understand if there's anything noteworthy in your CapEx execution in airports. So those are my two questions.

Let me make a comment on the first part of your question, and then I'll let Waldo and Flavia answer as well, specifically on the evolution of CapEx for this quarter. So to tell you about our strategy, I think your question has already answered what our intentions are. 2024 is a year in which we are focused on executing our CapEx. As you know, we have until November 2024 to conclude the works in the 15 airports we have in the Central and South blocks. This is what we're focusing on, derisking this portfolio. You have probably heard this in our results and our previous conversations, but we are focused on continuing our efficiency program. So optimizing costs is a relevant priority for airports and also reducing our top line. As Waldo said, this means our international routes, new services that we're providing in our terminals. You've probably seen that we are opening six additional VIP lounges for complementary revenue. So we're working on the top line and bottom line so that these assets become more mature so that they get ready for what we believe will be our next agenda and we've been very explicit on this. Our agenda is to combine assets possibly. And if that happens, if it is possible, we will be able to have more value from this portfolio. So this agenda remains. We're preparing this agenda right now as we are also doing for the mobility platform. We're working on governance, organizing our platforms, simplifying our social structures, so it can be an enabler and also to identify potential partners that may be with us in Urban Mobility and airports. So this is our agenda. Waldo if you have anything else to say.

Well, to answer your question on CapEx. First of all, you made a comment and for us to be assertive in CapEx and to control our business plan and costs. It's critical to manage our CapEx, whatever the value is. So yes, CapEx is lower in airports than toll roads because complexity is different. In toll roads, you might have more concentrated CapEx and higher volumes. But in airports, we're talking about 15 airports where you have distributed CapEx. So managing and implementing these investments in the right way to meet the contract requirements needs special attention and precise delivery week after week. So that's why we've been focusing so much on executing Phase Ib. Balances, I think that was your other question. They vary according to a couple of things. First, there are readjustments according to accounting rules. So this is a regulatory investment balance that is specified in the beginning of the conjecture contract, but we also try to improve it. We've seen investments in Navegantes and Londrina, and I'll let Flavia talk about that. Where besides the business plan, we have improved efficiency or revenue for our clients. So that's why you see this variation quarter-on-quarter. I think Flavia can give us some more detail on that.

So looking at the three airport assets, I think we have to highlight that the company is in a significant derisking phase for this platform as we've been saying, especially in the latest Investor Day. The estimated investment for 2024 has already communicated some improvements that we have communicated to make these projects more profitable. So this was a potential revenue that we found, and we have been investing in some additional projects, especially Navegantes, the terminal to receive cargo ships, and we've also made some investments to the Londrina Airport to expand the runway. So these were some opportunities we found. They were not based on the contract and it's all aimed to improve how much we can extract from these projects. So this account is not necessarily some 0. This is a CapEx that we've been investing without any additional cost. So this year, will conclude a significant part of this investment.

So for the next question, we will have Filipe Nielsen from Citi.

Congratulations for your results. I have a couple of questions. First, do you have any updates on MSVia? How has that process been going? We've discussed this contract and I'd just like to understand how that has been going. Secondly, on margins, we've been seeing significant growth in margins year-on-year. I think this is within your expectations, but I'd just like to understand what has already been performed from the initial plan you showed. What are the next steps in this cost reduction process? If you can tell us a bit more.

I'll answer your first question about MSVia. This is a process that is going according to plan. As you know, our contract in this concession runs until March 2025, and the negotiation that was ongoing has been concluded. So now we're following the internal rights to get it approved. And it's all going according to plan. So we just have to wait for some more news, but according to the information we have the initial term continues the same. By March 2025, we hope to conclude this process. So I'll let Waldo answer your second question.

Yes, about our efficiency plan, that's included in our value acceleration plan as we heard. As we mentioned in our CCR Day, there's no magical solution. There's no silver bullet. It's a number of initiatives, so we have to manage this week by week and look at how costs evolve and looking at other solutions to see where we can optimize where technology can help. In CSC from the beginning of the year, we have been looking at our entire structure, process by process so that we can do this faster with fewer people in each one. This is an area that has been advancing. We have been looking at outsourcing, and that may lead to some actions next year. And supply as well. We've been seeing some significant improvements in efficiency gains in contracting through some changes in contracts and how we relate to our suppliers. So there's a number of initiatives, something that has been helpful as well in this new organization we designed is to manage each platform. So we have CFOs in each platform, which help us look at how we are controlling costs at a closer range, something that we didn't do before. In a company of this size, it's important to look at it closely so that we can be efficient. So we're starting to see some efficiency increases. So we're getting close to the ambitions that we have set for the organization.

The next question will be asked by Victor Mizusaki from Bradesco BBI.

Congratulations for your results. I have a couple of questions. The first is, in your release, you discussed mobilization for Serra das Araras. So if you can tell us a bit more about this process. I know that this is an old project in the series in NovaDutra. So were you positively or negatively surprised by anything in this? And the second question is the Sao Paulo state government has already published bid tenders for Sorocaba and other projects. How have you been getting ready to participate in these bid tenders?

I'll pass it over to Waldo soon, but for Serra das Araras, as you know, we've received environmental licenses, and we've started construction. It's a structural construction, right? So it will change the experience for the users in the region. So far, we've had no surprises. I think we're still following the same initial expectation, a significant investment of BRL 5 billion and the execution term is long. So I think it will conclude by 2028. So that is our plan. We've been seeing images every day and it has been progressing normally. Waldo, I don't know if you have anything to say about Serra das Araras.

Yes, I think that was it. If there has been any challenge, it was probably environmental approvals. Ibama had a strike. So in our CapEx management program, it was seen as critical. That was an attention point. We had some teams that were focused on obtaining environmental licenses at the right time, and it worked. So we started very well with Serra das Araras, and we expect the project to go according to plan. Your second question was about Nova Raposo and Sorocaba -- these are two very relevant projects for CCR, as you may imagine. The bid tenders were published recently, especially the one for Nova Raposo. So we're looking at the projects and getting ready to make a decision on whether we will participate in them. But obviously, these are projects that are a part of our list of priorities.

There are two very different projects. As we know, Nova Raposo has 93 kilometers. Arriving in Sao Paulo is complex because of all of the different functions we need to do to implement it Sorocaba is a bit longer. So it's something that we know very well. Looking at the roads included in this concession. So naturally, we're going to use what we already know in the CCR Group to get ready for this. Any comments, Waldo?

No, I think that's it.

The next question will be asked by Alberto Valerio from UBS.

I have a follow-up question to Victor's question about new bid tenders. The government announced eight new ones for this year, five federal and three at the state level and four additional bid tenders for next year. What is your take on them when it comes to CapEx and cash generation. Does CCR need to leverage itself or would these be assets that would generate cash from the beginning? You mentioned that your TRR would reach double digits. So I'd like to ask about that. And finally, what is your perspective on the competition for these bid tenders? We saw that there are some regional players. So what do you expect for the next 14 projects that are opening up in the next 12 months?

There were many of them. So first of all, we've been selective in our strategy. You mentioned five federal to bid tenders for the next year. So it's a vast pipeline, and we have to select, as you saw last year, we were very selective in what we decided to get involved with. And that's how it will be for the next auctions. Of course, assets where we are already present like ViaOeste are a priority for the group. Assets that we know historically like the state of Parana. This is a market that we have a lot of interest in. So we have been selective in the assets that are being prepared for the next tenders. Concerning profitability, I think 381 is a great example of that. The projected profitability for the next tender is double digit. So that's very relevant for us. We have been interacting with the conceding powers in the market, and this has allowed us to adjust our expectations. We've been very dynamic, and we've been continuously improving it. And that's what we expect to happen. I think in Cedi powers are actively listening to the market needs, especially the operators that are competing right now for the assets for the competition, and I'll let Waldo answer. We have several types of competitors. We have traditional companies in the industry. We have international companies that are also betting on the Brazilian market. We have companies that have a more financial history. We have other operators. So at CCR, we are valuing a healthy competition. So I think especially the toll roads market is a countrywide market. It requires a number of competitors prepared for all the opportunities that can come. So we welcome these competitors and we will be participating in the tenders where we have the most potential.

Yes, I think Miguel said it all, but to state it clearly, we have been analyzing a number of opportunities. We are looking at them on a case-by-case basis. And at the end of the day, it will depend on the contract, how it is structured and its risk and potential returns. So we have Rotha dus Crystize, Rothauser, Nova Raposo, Sorocaba, three in Parana and a number of new ones for next year. And here, I'm only talking about Urban Mobility. So we have a selective process. We're going to decide which ones we will create proposals for. And it's always a matter of market intelligence. With that being said, it's always about risk returns and how much value it can add to CCR's portfolio.

Just adding to that Alberto. You've mentioned CapEx, cash generation. I don't want to go into technical details, but the Ceron table, which is a price reference table that we use has been outdated with comparison to the market. So we have some CapEx estimates, which are different from what we see on these official tables. I think this table requires an update. In our business case, we included a more assertive and precise vision of what we believe that the CapEx should be for our projects. Concerning cash generation, you're right, some projects are accretive because we have demands for the ongoing projects. And some of these projects might be more back loaded. They might be further along. So some of these projects can have a positive impact to the group's leverage in the first years. So this is also a factor that we take into consideration when we determine our time to cash or the long-term cash flow for several years of projects.

[Operator Instructions] The next question will be asked by Rogério Araújo from Bank of America.