1. Conference Call Transcript
1Q08 Results
CCR – Companhia de Concessões Rodoviárias
May 15th, 2008
Operator:
Good morning, ladies and gentlemen, and thank you for waiting. At this time we would like
to welcome everyone to CCR 1Q08 earnings conference call.
We would like to inform you that this event is being recorded and all participants will be in
listen-only mode during the Company’s presentation. After the Company’s remarks are
completed, there will be a question and answer section. At that time further instructions
will be given. Should any participant need assistance during this call, please press *0 to
reach the operator.
Before proceeding, let me mention that forward-looking statements are being made under
the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking
statements are based on the beliefs and assumptions of CCR management, and on
information currently available to the Company. They involve risks, uncertainties and
assumptions because they relate to future events and therefore depend on circumstances
that may or may not occur in the future. Investors should understand that general
economic conditions, industry conditions and other operating factors could also affect the
future results of CCR and could cause results to differ materially from those expressed in
such forward-looking statements.
Now, I will turn the conference over to Mr. Arthur Piotto Filho, the CFO and investor
relations officer at CCR. Mr. Arthur, you may begin your conference.
Arthur Piotto Filho:
Thank you, operator. Thank you everyone for attending our first quarter 2008 conference
call. Here we have with us Gildo Rodrigues, Flávia Godoy and Danilo Cabrera, members
of our IR team. For your information, the quarter’s earnings release is available on the
Company’s website, at: www.grupoccr.com.br/ir.
As you can see in our earnings release, this quarter the Company’s results were impacted
mainly by the excellent traffic performance. In order to give you an overview of the sector,
we will now discuss some relevant macroeconomic indicators for this quarter, such as: the
IPCA inflation index, the national extended consumer price index, whose variation came
to 1.51% in the quarter, above the 1.25% inflation recorded in the 1Q07. This increment
was one of the factors leading to the rise in the Selic interest rate; however, until now
there was no traffic reduction that may be attributed to such rise.
On the demand side, with the potential impact on the traffic of our concessionaires, is very
healthy for our sector. Vehicle sales totaled approximately 500,000 units in the 1Q08, up
by approximately 22% on the same period of the previous year. In the truck segment,
sales rose by almost 29% year on year, totaling 29,000 units.
Foreign trade volume remained high, despite the 18% year-on-year appreciation of the
Brazilian Real, with the USD quoted at R$1.75 at the end of March. This appreciation did
not affect the increase in exports, which rose by 13.9% in the 1Q08, while imports moved
up by approximately 42.1% in the same period.
On the industrial front, according to the National Confederation of Industry’s, March
figures’ growth in the 1Q08 over the 4Q07 was the highest for the last five years in terms
of revenues, number of hours worked and number of jobs. One of the biggest
contributions came from the auto industry, which was responsible for 36% of the total
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2. Conference Call Transcript
1Q08 Results
CCR – Companhia de Concessões Rodoviárias
May 15th, 2008
revenue growth. In the year-on-year comparison, revenue moved up 7.6% in real terms,
adjusted for seasonal factors.
We will now discuss the quarter’s operating costs and results. We believe traffic is the
best performance indicator for our Company, and so we would like to share some figures
with you: in the 1Q08, consolidated traffic grew by 7.5% year on year as a result of the
concessionaires’ performance, which recorded growth of between 3.1% and 8.4%.
In addition, in April 2008 our consolidated traffic grew by 9% compared with the same
month a year ago. However, it only refers to the first month of the 2Q, clearly indicating
that the recent traffic performance remains unaltered. You can find more detailed
information on traffic performance per concessionaire in our earnings release.
In the 1Q08, total consolidated costs reached R$306.6 million, up by 7.5% year on- year.
As for the increase in total costs, we will now present the quarterly variation for each
component of operating costs: depreciation and amortization moved up by 9% as a result
of the investments along 2007 in the concessionaires AutoBAn and ViaOeste mainly;
concession costs climbed by 6% due to the growth in the variable portion of the
concession fee, as a result of increased revenue, and growth in the fixed portion due to
the tariff adjustment in July 2007 for AutoBAn and ViaOeste.
Third-party services moved up by 1.4% in this quarter, there were no relevant components
in this line; personnel expenses increased by 27.8% mainly as a result of the R$7 million
provision related to the payment of the profit sharing program - in the same period of the
year before, this payment was not provisioned - the 4% collective pay rise in March 2008;
and an increase in the headcount related to the new business development; and finally,
other expenses fell by 2.4% mainly due to the decline in travel and publication expenses.
As a result of these factors, EBIT and EBITDA operating margins rose by 2.9 p.p. and 2.3
p.p., respectively, in the quarter, compared with the same period in the previous year. The
quarter’s net financial result was an expense of R$53.4 million, versus an expense of
R$43.2 million in the 1Q07. This increase was due to the higher appropriation of interest
and monetary variation of ViaOeste concessionaires, totaling R$13.6 million in the 1Q08,
as a result of an acceleration in the IGPM inflation index, which is the index that adjusts a
big part of these concessionaires indebtedness. Net income rose by 13.9%, totaling
R$167.2 million in the 1Q08, due to the factors discussed previously.
We will now comment on several points of the Company’s growth strategy.
On March 11th this year, the Company informed its shareholders and the market that the
General Consortium Integração Oeste, in which CCR holds a 95% stake, obtained the
best classification among the proposals with lowest toll tariffs submitted in the bid for the
Concession of the Mário Covas Ring Road West Segment.
On May 7th 2008, Consórcio Integração Oeste, was declared the winner of this public
tender for the exploration through a concession, of the same project. On May 8th, the
Consortium was called within 30-days timeframe to sign off the contract. As for the State
of São Paulo highways, we are awaiting the bidding documents to be disclosed, which
should begin in the next few weeks.
In the secondary market front, we expect to conclude, in the next days, the transaction for
the acquisition of 40% stake in the capital of Concessionária Renovias S/A. We believe
there will be a consolidation which may create new acquisition opportunities in this
industry.
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3. Conference Call Transcript
1Q08 Results
CCR – Companhia de Concessões Rodoviárias
May 15th, 2008
External markets, I mean, foreign markets: CCR continues to analyze new opportunities.
At this moment we are analyzing several biddings in target countries, always
remembering that we will participate through consortiums, so as to preserve our financial
capability for future growth, mainly in Brazil
São Paulo Subway: the execution of this agreement is proceeding as expected, and the
concessionaire Via Quatro is currently awaiting the conclusion of the train project, and
also expecting the release from the State government, the manufacturing order of the
growing stock.
Federal concessions: we are still awaiting the publication of bid invitations for the third
phase of the federal program. It is something that we estimate might happen in the 4Q08.
That brings our presentation to a close and we will now be happy to answer any questions
you may have.
Operator, please go ahead.
Sebastian Rodriguez, Morgan Stanley:
Good afternoon, gentlemen. In general, what is the Outlook on traffic for the next quarter
and the rest of the year? And what contribution should be expect from the new Rodoanel
concession and when should we expect is?
Arthur Piotto Filho:
This traffic information I just mentioned some time ago indicates that, for April, we have
been seeing a very positive performance, it is a little bit higher than the 1Q, it is about 9%
increase, in April, in a year-on-year basis. And we are still waiting to get the preliminary
figures for May; it is something that we still do not have. But this indication just makes us
more comfortable and confident that 2008 tends to be a great year for us.
Our long-term traffic assumption, the Company still works with a 1.5x GDP, so if we go
back to the 1Q, we are going to see that the reverse math would indicate that the Brazilian
GDP must come around 5%. And looking forward, it is really hard to predict what it is
going to be, this performance up to the end of this year or the years to come. But at the
same time, there is anything in the horizon that can indicate us that we have a significant
obstacles that will prevent us to keep benefitting from this traffic performance, and we are
also expecting that this must be translated in even more expended operational margins.
Regarding the Rodoanel, I think just at the very end of this year, our assumption is that we
should sign out the contracts at the very beginning of next month, in June. If that really
happens, according to this timetable, we have an intention to start the toll collections
approximately five or six months later. So if we are efficient, the Company will start this
revenue generation by November or December, which means that, for this year, I think the
impact of the Rodoanel project must be quite limited. And we are going to see the full
impact at the very beginning of next year.
Sebastian Rodriguez:
Thank you very much. I appreciate it.
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4. Conference Call Transcript
1Q08 Results
CCR – Companhia de Concessões Rodoviárias
May 15th, 2008
Andrew Root, Alkeon Capital:
Good afternoon. Thank you for taking my question. I am curious on the cost of capital for
the new Rodoanel concession, if it has a chance of being lower than what you originally
modeled when you were bidding on the total just based on the data upgrade, and also,
related to that, if there are any opportunities to refinance any parts of your capital structure
in an accretive way?
Arthur Piotto Filho:
I think we are just weeks after this Investment Grade status and, so far, we have not seen
any relevant change in this financial costs, particularly here, in Brazilian capital market,
that I think we are quite disconnected with the international situation, due to the very
accelerated trend from credit needs regarding all the activity in the retail sector or
consumer sector that is really posing a very strong demand on Brazilian banks, which
means that the cost of debt here, in local markets is, I would say, quite even more
expensive or higher costs, if you make a comparison with the international standards at
this moment.
But our gain trend for the Rodoanel indicates that we are probably going to be doing the
take out funding approximately one year ahead, which means that our perception is that
one year from now, maybe this Investment Grade might have some positive impact, which
means that assumption that we took in our proposal to leverage this project with a cost of
debt equals LIBOR plus 250 b.p. might be lower. But this is something that we really need
to be careful about, because it is so ahead in time. You see in newspapers everyday that
the international credit crunch is not over yet, so that means that the Company needs to
be careful. But at the same time, you can be absolutely sure that we are going to be doing
as much as possible to come out with a funding structure that makes us even more
efficient.
Andrew Root:
That makes sense. And just a last question on that particular concession. Do you think
you will keep the whole thing or potentially sell a stake to a strategic partner?
Arthur Piotto Filho:
This is a situation where the Company is waiting to get the contracts. And then this
approach with potential partners will be really initiated. Somehow, we feel that if we have
already started these negotiations at this moment, we would have a different negotiating
position, before and after you get the contracts. Despite that, we have been approached
by some potential partners, mainly foreigners, pension funds or infrastructure funds that
we believe that these negotiations should not take much time, based on our previous
experiences in trying to team up with the same type of partner. We have a complete MOU
already done, we also have a very good head start on the corporate governance issues
and things like that.
I would say that the most relevant issues towards reaching a final agreement on a
partnership like that have been already addressed. But I am just not confident to let you
know how long they are going to take, these negotiations. In practical terms, I would say
that the Company has been approached by five or six potential partners for this project.
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5. Conference Call Transcript
1Q08 Results
CCR – Companhia de Concessões Rodoviárias
May 15th, 2008
Andrew Root:
That is great. I appreciate the color. And one more, if I may, on some of the large biddings
that are going on in the United States, if you guys have any interest on that, or if the
returns are contracted based on what you are seeing right now?
Arthur Piotto Filho:
At this point in time, I think CCR is quite busy trying to structure views here in Brazil and
trying to get involved in other tender processes as well. But this is something that is clear
for us. The big project that is probably going to take place in the United States, like for
instance, New Jersey, Turnpike, for instance, I think it is just not feasible for CCR to be
interested.
And for these reasons, I think those projects are out of our radar screen. And in that sense,
I think we still have interest in the United States market, but in a very selective way. And
for sure, we do not expect to get involved in any very high capital intensive projects.
Andrew Root:
That is great. Thank you very much.
Operator:
This concludes the question and answer section. At this time I would like to turn the floor
back to Mr. Arthur Piotto Filho for any closing remarks.
Arthur Piotto Filho:
Once again, I join all the executives of CCR in thanking you for your time and interest in
the Company. Please do not hesitate to contact us should you have any further questions.
Our contact information is available in our press-release and in our website:
www.grupoccr.com.br/ir. There you will find more information about the Company. Thank
you very much.
Operator:
Thank you. This thus concludes today’s presentation. You may disconnect your lines at
this time, and have a nice day.
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