Ecorodovias Infraestrutura e Logistica SA

BOVESPA:ECOR3

Earnings Call Transcript

[Operator]

[Interpreted]

Good morning, and welcome to EcoRodovias' Third Quarter of 2021 Earnings Conference Call. With us here today are Marcello Guidotti, CFO and IRO; and Andrea Fernandes, IR Director.

This presentation is being recorded. [Operator Instructions]

The audio and the slides of this conference call are being broadcast simultaneously at ri.ecorodovias.com.br, where you will find the presentation for downloads from the webcast platform in the Investor Relations section.

Before proceeding, we would like to clarify that the forward-looking statements that may be made during this conference call willing 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 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 over to Ms. Andrea Fernandes, who will discuss the third quarter of 2021 results.

Ms. Andrea, you may proceed.

[Andrea Fernandes, executive]

[Interpreted] Good morning. Welcome to Grupo EcoRodovias' Conference Call today discussing the earnings of the third quarter of 2021. We thank you all for your interest and participation.

The third quarter was marked by some important achievements. We signed a contract for federal concession, BR-153, Tocantins Goias, to operate it for 35 years, in line with the company's growth strategy.

In September, the shareholders meeting of Holding do Araguaia approved the issue of BRL 1.4 billion in incentivized debentures with maturity of 15 years for the payment of promissory notes issued in August 2021. The ESG agenda continues to progress. The company conducted a study of its main risks and vulnerabilities related to the effects of climate change for the years 2030 and 2050 in its operations.

The study was carried out at all of the Group's units and pointed the key risks in our highways, considering 5 climate-related events: Floods, landslides, heatwaves, strong winds and rising sea levels. The findings of the study will help the company in its preparation to address climate change by making both structural changes and adapting its operational strategy. More details on our ESG agenda are available on Page 2 of the earnings release.

Moving on to operations performance on Slide 2. We can see the monthly evolution of consolidated traffic and comparable traffic during the first 9 months of 2021, compared to the same periods in 2020 and in 2019. It's important to note that in the months of July, August and September 2021, comparable traffic presented an increase of 1.8%, 3.3% and 5.5%, respectively, compared to those months in 2019.

As for the third quarter, we see on Slide 3 that the variation of consolidated traffic posted an increase of 17.7%. Excluding the start of operations at Ecovias do Cerrado comparable traffic presented a 7.9% increase in the quarter. Due to the flexibilization of social distancing measures and the progress of the vaccination campaign. The highlight is light vehicles with an increase of 12%.

As for the Group's consolidated financial performance on Slide 4, we see the evolution of gross revenue with an increase of 19.3% in the third quarter. Excluding construction revenues, gross revenue increased by 19.6% driven by the start of toll collection at Ecovias do Cerrado, traffic increase and tariff adjustments. The highlight is the increase of BRL 127.9 million in electronic toll collection, AVI.

On Slide 5, we show gross revenue in the 9 months of 2021, which increased 20.3% and 15.7% when we exclude construction revenues, note the increase of BRL 415.2 million for highway concessions.

On Slide 6, net revenue excluding construction revenue grew 19.7% in the quarter and adjusted cash costs amounted to BRL 285 million. This increase in cash cost is mainly due to higher personnel expenses caused by a wage increase in March 2021. Provisions for the demobilization of Ecocataratas and Ecovia Caminho do Mar due to the termination of the concession agreements in November 2021, increase of operations at Ecoporto and normalization of conservation and maintenance expenses in 2021.

On Slide 7, adjusted EBITDA amounted to BRL 636.4 million in the third quarter. That's 20.6% higher year-on-year with an EBITDA margin of 69%. The adjusted EBITDA for the 9 months of 2021 was of BRL 1.8 billion, as we can see on Slide 8.

On Slide 9, we see the evolution of net income in the third quarter of 2021, up BRL 72.1 million vis-a-vis the third quarter of 2020. Net income was affected mainly by the EBITDA increase in the quarter, and by the reversal of the provision for fines in the Civil Non-Prosecution Agreement in the third quarter of 2021, which was not ratified as per the material fact disclosed by the company in September. Net income in the 9 months of 2021 amounted to BRL 359.1 million, as you can see on Slide 10.

As for investments, on Slide 11, CapEx in the third quarter of 2021 reached BRL 892.8 million. Considering the payment of concession fee for Ecovias do Araguaia amounting to BRL 357.5 million. The highlight is the road widening works and conservation works at Eco135, Eco050 and Eco101, as well as special road conservation works at Ecocataratas, Ecovias do Cerrado and Ecosul.

On Slide 12, we closed the quarter with net debt of BRL 7.3 billion, an increase vis-a-vis the previous quarter, due mainly to the issue of promissory notes at Holding do Araguaia in the amount of BRL 1.4 billion. The proceeds from said issue were used for capital injection in Ecovias do Araguaia and a deposit of BRL 1.1 billion in the reserve account as well as payment of the concession fee of BRL 357.5 million. Leverage measured by the net debt over adjusted EBITDA indicator was of 3.1x, compared to 2.6x in the second quarter of 2021.

Moving on to Slide 13. We closed the quarter with cash balance of BRL 3.4 billion, which represents 0.7x the short-term debt. Maturities in 2022 totaled BRL 4.2 billion and are distributed as follows: BRL 1.1 billion at EcoRodovias Infraestrutura e Logística, BRL 592 million at EcoRodovias Concessoes e Serviços, BRL 962 million at Ecovias dos Imigrantes and BRL 1.4 billion at Holding do Araguaia, which will be settled using the net proceeds from the first issue of incentivized debentures for a term of 15 years.

On Slide 14, we see EcoRodovias' growth drivers, the capitalization of the company in the amount of BRL 1.7 billion as well as partnerships and future bids, target projects that generate cash already on day 0, extension of the contract for Ecovias dos Imigrantes. Dividend distribution in line with the growth cycle and future cash generation are factors that make us comfortable with the company's financial and competitive capacity and will allow us to seek investment opportunities in the Brazilian highway market.

Slide 15 shows the main milestones of the deliveries at Ecovias do Araguaia, since the winning of the auction in April of this year, Holding do Araguaia had financing for the payment of the concession fee and deposit in capital injection to fulfill concession obligations between August and September.

In September, the concession agreement was signed. And in October, we signed the term of listing and transfer of assets as well as the construction agreement to carry out the works that are mandatory as per the concession agreement.

Slides 16 to 21 present the main ESG indicators, in particular, the enhancement and inclusion of new ESG goals for the leadership. The company continues to study the upcoming highway concessions and federal concessions in Parana, CRT and Triângulo Mineiro in the state of Minas Gerais.

This concludes our presentation. We would like to move on to the questions-and-answer session. Operator, we are ready for the questions from our analysts and investors. Thank you.

[Operator]

[Interpreted] [Operator Instructions]

Our first question is from Regis Cardoso, Credit Suisse.

[Regis Cardoso, analyst]

[Interpreted] Congratulations on the results. 2 quick questions here from my side. One of them about the CapEx level. In the third quarter, I wanted to understand if it's closer to a normalized level, or if there was any onetime event effect because we saw a relevant increase even excluding the BRL 358 million of BR-163, in the annual comparisons, there has been a considerable increase.

And my other question is if this leverage level of 3.1 is a limiting aspect in the decision to participate in future bids. Of course, the main event in terms of size of concession is Dutra now this week. So what are the alternatives to participate or not having any leverage issues. If you can talk about the covenants, I know that there is a covenant of [ 3.5 ], but sometimes it's distributed in the subsidiary. So if you can talk a little bit about this fire power BR-153, I don't know if I said it.

[Marcello Guidotti, executive]

[Interpreted] Regis,It's Marcello. Thank you for your question. About CapEx, as you said, excluding the payment of the concession fee for Ecovias do Araguaia, BR-153, CapEx in this quarter is more normalized. There were some postponements in the first and second quarter that would normalize now.

So we expect the fourth quarter to be at the same level of the third quarter. So it's more of a seasonal effect, I'd say, since the works were delayed for operational reasons, nothing that we couldn't overcome. But now they're being realized. So both with the Eco135, Eco101, that's still in it's construction cycle, Ecovias do Cerrado as well coming in.

So I think it's what was expected. It took a little time in the first and second quarter, but now it started in the third quarter and will remain in the fourth.

About leverage, I won't say anything about Dutra, obviously, but in general a 3.1 makes us comfortable. We know the projects. There are projects that already -- that are born with cash generation with the possibility of partnerships and equity, the strong cash generation coming from our mature projects, as well as the extension of the Ecovias maturity with the renewed capacity to use the financial position.

So all that is being taken into account when we consider new opportunities. We monitor our covenants, as you said, there are different levels, but the past covenants get to 4, 4.5. And it's -- we have a lot of clarity on our capacity, on our targets and we'll -- and our levers. So we are comfortable.

The numbers are doing well. It's been a quarter was very positive. Traffic is coming back and that brings us even more room for growth. But again, long-term growth, very cautious looking at everything. Thank you, Regis.

[Operator]

Next question, Victor Mizusaki, Bradesco BBI.

[Victor Mizusaki, analyst]

[Interpreted] I have 2 questions. First, in the results of the third quarter, you mentioned that the provisioning for the termination of the concession of Ecocataratas and Caminho do Mar. But if you can detail it further, what's the provision? And if there's anything else that would impact the results of the fourth quarter?

And my second question about the time line for the debt schedule, Andrea mentioned the details for 2022. But if you can also give us more details of what you're thinking about the reconditioning of those debts.

[Marcello Guidotti, executive]

[Interpreted] Victor, thank you for your question about the provision for Ecovias and Cataratas is something that has already been done in the past quarters, and now we have a final adjustment. We're getting close. To the end of the concession, there will be something in the fourth quarter.

About the provisions, it's about in this quarter, BRL 2 million. There were other costs that were punctual in some programs, the key executives of the concessions that will remain with the EcoRodovias Group, of course, for new opportunities. Combining the 2 things, provisions and these retention packages, it's about BRL 3 million, BRL 3.5 million.

About the time line of the debts, it's quite simple. Ecovias do Araguaia, we're finalizing the liquidation of debentures with a maturity of 15 years that will replace the promissory notes that is well designed and to fit in the project that's a great news.

The Ecorodovias Infraestrutura e Logística holding maturing in March of BRL 1.1 billion. We're starting the works now and discussing with the banks and taking debentures to the market to roll out the debt. And there is some maturity to Ecovias dos Imigrantes close to BRL 900 million.

Ecovias dos Imigrantes has low leverage. There is opportunity to restructure this debt. With the amendment already signed, we can extend and prolong this debt, and we're starting to study the alternatives. But I don't see any problems there, and the remaining will be coming from the cash of the projects. So with Infra and Ecovias do Araguaia, it's well operational Ecovias do Araguaia is settled.

[Operator]

[Interpreted] [Operator Instructions]

We have a question on the web. I don't know if we should read and answer the question. I can read it. The question is about CapEx. We saw this year an expressive movement of important metals for maintenance and the CapEx of the highways. If there's a risk and how to work around this increase in costs from [Paula Tanasaki]

[Marcello Guidotti, executive]

[Interpreted] [Paula] Thank you for your question. You saw in our quarter reviews that we updated all our CapEx base. It has been increasing and the base is being adjusted. And of course, we monitor the developments of the main inputs that are part of the materials that we need.

There is an increase, but it's a punctual increase that may effect CapEx here and there in '21 -- 2021- 2022, but it's not an impact that will effect the entire CapEx future curve. As we always mentioned, there are internal levers to prevent great consumption of those inputs at high moments and use different technical solutions.

So there may be occasional impact, some of them reflect in the inflation rate as well. And the company is always watchful, so that there are specific one-time events and not a permanent effect in the curve.

[Operator]

We have a question from Murilo Freiberger from Bank of America.

[Murilo Freiberger, analyst]

We wanted to talk a little bit about the auctions that are coming up. We have Dutra now. And we know that there are others in Paraná. Of course, there's an edge for bids, but if you can talk a little bit about the strategy for the next auctions. Are you going to come in with partners?

I don't know if you can talk about this or not for the next bids and for those assets. I think Dutra is happening now, but what's the timing for the Paraná concession in your mind? It's important and others are participating. So if you have anything that you can tell us about the future auctions, it would be interesting.

[Marcello Guidotti, executive]

[Interpreted] Murilo, thank you for your question. We're very transparent in this sense. We keep track of the federal program as a whole. And as you said, we highlight this integration in Paraná that's estimated to the second or third quarter. So in 2021, there's no defined date, but it's towards the second or third quarters.

We keep track of the concessions that are close to termination, any changes in the characteristics of the auctions, but there's a basis for integration. We're looking at these opportunities and studying them at the federal auctions, CRT and Rio de Janeiro as well, that's an interesting point. We have presence in Minas Gerais and that also attracts our attention about the concessions in Minas, Triângulo Mineiro will probably be in the first quarter of next year.

And we remain watching São Paulo, the Rodoanel. There's some delay on the bids here, but we have been declaring to investors that they are part of our main targets, and we are always paying attention to the possibilities of studies, if we go alone or if we have any financial partners as we did at the Ecovias do Araguaia. Everything is going well. I believe we can continue with this strategy, but we're open to that as an opportunity. So for 2022 in general, these are our targets that we -- as we've been declaring to the market.

[Operator]

[Interpreted] Next question, Thais Cascello, Itaú.

[Thais Cascello, analyst]

[Interpreted] Two questions here. First, about the income tax, the effective rate, even with the adjustments that you had this quarter, I just wanted to confirm if this is a result of better earnings that dilutes losses? That would be my first question. It's more to confirm it and understand what we could expect.

And my second question about indebtedness that was answered to Regis, but I'll include something else here, not related to the quarter necessarily, but to ask about the new CEO the nomination of the [indiscernible] CEO to the position, how this is going? And what we could expect for his tenure?

[Marcello Guidotti, executive]

[Interpreted] Thais, thank you for your questions. About the first one. Your answer is perfect is exactly, as you said, positive results is coming. And I confirm it, it's something that depends on future results. So the company intends to increase its earnings results. So that trend will continue.

The second question about the indebtedness, that was answered. About the CEO, it was appointed. And now we're working on the permission since it's a foreigner. There are some requirements in terms of documentation, and we're working on that in November he may be confirmed to the position, and then it will be available to all of you, to investors, to talk. But for now, he was just appointed.

[Operator]

[Interpreted] Next question, Banco Safra.

[Unknown Analyst]

[Interpreted] A question about a comment you made in the beginning of the third quarter regarding the potential rebalancing of the concessions due to the losses in traffic with the pandemic, I would like to know if you have any dimensioning of what type of, what levels of value would be reimbursed. If all concessions have disclosed in the contract that may allow this reimbursement of traffic due to the traffic loss and how our test has been positioned about this unbalancing if they recognize this liability publicly. I imagine that in terms of the agility or speed what we can expect.

[Marcello Guidotti, executive]

[Interpreted] Thank you for your question, [ Luis ]. About this recognition -- public recognition during the pandemic, there have been many declarations and statements from the federal government and our test. And of course, it's a force majeure event, but we're beyond that now.

In addition to recognition, we want to receive the rebalancing. It's going well at the federal level. But I've declared here that they're not extremely representative amounts or traffic and federal concessions over the pandemic was supported by the volumes to export commodities.

So they're not expressive values, but we are making progress with the population and probably will have tariff adjustments to rebalance this loss. It's nothing too significant.

Here in São Paulo, the discussions are suspended, yes, still. And terms of finalization or conclusions or something that may not be accepted, but everyone is being dedicated with the agency to finalize the discussions on the rebalancing that we understand is our priority. So we're making progress in other agendas. But in São Paulo, we're not talking about expressive amounts either there are amounts that may be rebalanced simply. It's nothing to express it.

[Operator]

[Interpreted] We now conclude our question-and-answer session. I will turn the floor over to Andrea Fernandes for her final remarks.

[Andrea Fernandes, executive]

I thank you all for your participation on this conference call. And my team and I remain available for any doubts. Thank you. Have a good day.

[Operator]

EcoRodovias' conference call is now closed. Thank you very much for your participation, and have a great day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]