EcoRodovias Infraestrutura e Logística S.A. (ECOR3) Earnings Call Transcript

Good morning, and welcome to EcoRodovias' Second Quarter of 2026 Earnings Presentation. With us here today are Marcello Guidotti, CEO of EcoRodovias; and Andrea Fernandes, CFO. This presentation is being recorded. [Operator Instructions] The slides for this presentation are available on the company's Investor Relations website in the Results Center section at ri.ecorodovias.com.br. After the end of the earnings presentation, the recording will be available in the same section. Before proceeding, we would like to clarify that the forward-looking statements that may be made during this presentation relating 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 to Andrea Fernandes, who will discuss the results. Andrea, you may begin.

Good morning. Welcome to EcoRodovias' Second Quarter 2026 Earnings Presentation. We thank you all for attending. We start the presentation by highlighting some relevant events. In June, Ecovias das Gerais signed a concession agreement and in July, started operating the stretches of BR-251 and BR-116 in Minas Gerais, starting the 100-day plan, which includes the first infrastructure and road safety improvements. Toll collection is scheduled to begin by January 2027. As of that date, the new concession will contribute to the company's operational results, recomposing the portfolio after the end of the Ecovias Sul concession agreement in March of 2026. I would also like to highlight the 4.72% toll tariff adjustment at Ecovias Imigrantes and Ecovias Leste Paulista applied on July 1. In addition, the concession authority authorized the application of an additional BRL 0.10 per plaza as a precautionary measure to mitigate economic and financial imbalances. In the case of Ecovias Imigrantes, the maintenance of the additional BRL 0.30 applied in a phased manner in the previous adjustment was also authorized. Finally, in June, we concluded the issuance of BRL 2.4 billion in debentures by Ecovias Capixaba, guaranteeing the necessary resources to finance the concessions investment plan through 2030 when its long-term financing is expected to be structured. Moving on to the results. Slide 5 presents the operational performance, which registered comparable growth of 3.2% in the quarter and 1.8% in the first half of the year, driven by the increase in heavy vehicles with emphasis on Ecovias Norte Minas, Ecovias Capixaba and Ecovias Imigrantes. The quarter's performance is the result of the deliveries of works to improve and expand capacity on our highways, the increase in sugar exports, growth in industrial production and the pulp cycle in the Espírito Santo region. Moving on to Slide 6. We show adjusted net revenue of BRL 1.8 billion in the quarter, up 1% and of BRL 3.6 billion in the first half, an increase of 4.6%. The growth of earnings in the quarter is mainly due to the result of toll tariff adjustments since consolidated traffic decreased due to the termination of Ecovias Sul's concession agreement in March. Comparable net revenue, excluding Ecovias Sul, increased 9.8% in the quarter. Adjusted cash costs, excluding Ecoporto, grew 4.7% in the quarter, in line with the inflation and 4% year-to-date, below the inflation in the period. In the quarter, this increase is mainly explained by costs with personnel as a result of the collective bargaining agreement and third-party services focused on developing the technology and innovation initiatives to optimize operational and administrative processes in preparation for the expansion of the free flow system, reinforcing the company's operational efficiency agenda. Finally, in the chart on the right, we can see that the termination of the Ecovias Sul's concession agreement in March contributed to a reduction of 1.1% in adjusted EBITDA in the quarter, totaling BRL 1.3 billion and an increase of 5.2% in the half year, reaching BRL 2.8 billion. Excluding the effects of the termination of Ecovias Sul, comparable EBITDA increased 9% in the second quarter, reflecting the strong operating performance of EcoRodovias. On the next slide. Recurring net income totaled BRL 52.9 million in the quarter and BRL 43.1 million in the first half of the year. This reduction in the quarter was mainly due to the decrease in adjusted EBITDA resulting from the termination of Ecovias Sul's concession agreement in March, the increase in indebtedness and the monetary variation on debentures indexed to the IPCA, which accumulated a variation of 3.5% between December 2025 and May 2026. In the first half of the year, in addition to these effects, the results reflected the full amortization of the remaining balance of Ecovias Sul's intangible assets with no cash effect as a result of the termination of the concession agreement. Excluding the effects related to Ecovias Sul in the first half of the year, recurring net income would have totaled BRL 137 million compared to BRL 278 million in the same period of 2025. The tariff adjustments applied in July in the São Paulo concessions, combined with the continuous search for operational efficiency and the expectation of lower inflationary pressure on financial expenses tend to contribute positively to the evolution of the company's results throughout the second half of this year. On Slide 9, investments totaled BRL 1.5 billion in the quarter and BRL 2.5 billion year-to-date. The highlights are the progress of our works, the delivery of 14 kilometers of additional lanes by Ecovias Noroeste Paulista, road widening works in Goiás at Ecovias Araguaia and the expansion of the southern section of BR-101 by Ecovias Capixaba. Moving on to Slide 10. We ended the quarter with consolidated leverage of 4.1x. The leverage of EcoRodovias Concessões e Serviços ended the period at 3.9x. It is worth noting that the percentage of gross debt indexed to the inflation reached 77%, the same index as the toll tariff adjustments of the concessions. And the percentage of gross debt allocated to highway concessions reached 72%. On the next slide, we highlight the evolution of the company's debt profile. With the conclusion of the BRL 2.4 billion issuance in Ecovias Capixaba, the next relevant maturity will be the bridge loan from Ecovias Raposo Castello, which will occur only in 2029. The company maintains a solid liquidity position with a cash balance more than sufficient to cover the amortizations over the next 3 years and an average maturity of 7.6 years. It should be noted that the concessionaires also have BRL 10.6 billion in contracted financing to be disbursed for the execution of the works with the important investment cycle in the coming years. On Slide 13, we present some highlights of our sustainability agenda. The group's federal concessions have joined ANTT's Infrastructure Sustainability Program, which allows for the testing of new technologies, methodologies and sustainability practices. This program also provides for financial and regulatory mechanisms to foster the adoption of strategic initiatives related to climate resilience and sustainable innovation. With a focus on road safety, we have extended the use of artificial intelligence and other technologies in the vehicles of our fleet, helping to identify risk-driving behaviors and issue alerts in real time. These initiatives strengthen accident prevention and contribute to more efficient and safer operations, also strengthening the protection of our employees and highway users. Finally, we highlight some of the awards received by EcoRodovias and Ecovias Noroeste Paulista in recognition of their practices aimed at promoting diversity, equity and inclusion and integrity and transparency. We conclude this presentation by reinforcing that even with the termination of the Ecovias Sul concession agreement, we've maintained strong results supported by the evolution in the expansion and modernization works in our assets and by the ramp-up of our most recent concessions. These investments expand the capacity and fluidity of the highways, foster traffic increase and contribute to the evolution of revenue, including through tariff reclassifications contractually provided for in the stretches with widened roads and third lanes. In addition, as of 2027, Ecovias das Gerais will fully contribute to the company's results, reinforcing the recomposition of the portfolio after the end of the Ecovias Sul concession, also expanding the company's operational generation capacity. At the same time, we continue to advance in discussions aimed at improving the regulatory environment and the implementation of potential contractual amendments that may unlock new investments, further raise the quality of the services provided and expand value generation of our asset portfolio in the long term. We would now like to move on to the questions-and-answer session.

[Operator Instructions] First question, Guilherme Mendes, JPMorgan.

My question is regarding the amendment. If you can give us an update on the third lane of Imigrantes, the delivery from the government and the expectation of definition for this project? And the second point is last week, we saw this notice at Imigrantes with an additional BRL 250 million CapEx. And I think that was an example that was kind of out of radar, but it's also nice to see this evolution. Do you have anything else that we should map though it's a slightly slower -- lower level of CapEx for us to monitor and follow up with?

Guilherme, thank you for your question. About the studies of the third lane, the executive project is concluded. We're already putting the final dossier together. Expecting to deliver this between August and September, the studies, and conclude our obligation, which was basically to deliver the definitive -- the final studies with the executive project, specifications and everything. This will occur in the next coming weeks between August and September. And then at the same time, we'll start to discuss the ways to enable this development. And then we'll bring news, I believe that closer to the second half of the year, before the end of the year about how this work will be done and how it's going to be rebalanced and how the concession agreement will be amended. So we are finally just be patient for a little bit longer, and we'll conclude this first phase. The other amendments, there are many, we have in São Paulo, Ecovias dos Imigrantes with a lot of opportunities that are being discussed with the concession authority. One is the validation of the area. That's an investment that's already been defined. Another investment always at Ecovias dos Imigrantes related to some adjustments of some bridges and overpasses on Leste Paulista, there will be the access to Itaquaquecetuba. So all these investments between BRL 100 million and BRL 200 million. The concessions, especially here in São Paulo, are just as in other areas of our portfolio, constantly offering this type of opportunity. It's hard to have a specific time line of dates and so on, but it's a very positive agenda, as Andrea said earlier. It's an agenda that we continue on constantly. Of course, these amendments, we don't have a value or the size that the third road would have, but it's a constant agenda that we have. It's very positive.

About the CapEx, Guilherme, you also mentioned -- this is Andrea now, that we published additional investments at Ecovias related to the dynamic convoy that will be rebalanced. So once the free flow is implemented, today, the plaza -- the physical toll plaza works as a barrier because at Ecovias, there's a lot of fog conditions. So going down the mountain is done accompanied. And once the free flow replaces the physical plaza, we are implementing this dynamic convoy system that will have that volume of investment so that once the plaza is removed, this can be done digitally or through the use of lights, bringing safety to users. So I think this is also an additional opportunity that will be rebalanced, but this is already approved.

Yes, that's together the implementation of the free flow system has its cost and the intelligent monitoring system with cameras and lights that also amount to that number.

Next question, Filipe Nielsen from Citi.

I'd also like to understand a little bit more about the free flow system at Imigrantes. You talked about the free flow dividing traffic and the toll tariffs equally. So when we look at these moves, we usually see a drop in traffic offsetting the revenue or vice versa, depending on how this develops. But I'd like to understand how this breakdown will be and the impact it may have on revenue. And also to understand what these investments are in terms of size, time line and the rebalance. You talked about VPL of BRL 250 million -- BRL 255 million. But if you can provide more details about the conditions of execution, size of investments and time line for execution.

Filipe, the amount that is declared is an estimate once the development is concluded. So the construction of the free flow gantries and the implementation of the dynamic or automatic convoy. These investments are already being developed. And part of it was done because the free flow gantry, both in Imigrantes and Anchieta are already being prepared. So this is an investment that tends to be concluded by next year. But it's already -- in the first half of next year. It's already at advanced stages. It's already being executed between -- so there's a very short VPL. About the impact on traffic and revenue, the impact is null because any difference that may come, for example, trucks going down full and coming back up empty, which will probably happen. On the trucks, they go down with full cargo and they have the opportunity to come back with the raised suspended axle and pay less and they come way back, but this will be rebalanced. In the protection escrow, there's enough protection. It's hedged and monthly, it will replace or replenish the difference in revenue. Annually, if there's still difference in revenues in the old methodology that we measured in the Imigrantes gantry will be rebalanced, but it's a marginal difference. So the impact to net present value is null. There's no impact. But on the other hand, it opens. It reduces the weight of a single tariff that's breaking it down into tariffs with an adapted tariff value. But it's a signed amendment, and we are already advanced and ready to conclude this.

Excellent. And if I may, a second question, very quickly, about traffic. What would be your expectation with the second half of the year? And if we should see already some normalization in Noroeste Paulista, considering the balancing of traffic compared to the other options there?

Leste Paulista, I'd say, is getting normalized. It's already absorbed. The resumption of part of traffic in the Dutra corridor that was expected, and it's already becoming normalized. We estimated a decrease year-on-year about 3%. And starting on 2027, probably Ecovias Leste Paulista will start to bring positive signs again. But it's an expected decrease and even lower than what we expected in terms of results. So I think that this Leste Paulista corridor remains positive. And overall, by the end of the year, we expect to maintain. I mean we are aligned at 1x or slightly more than 1x the GDP. So we are at around 2% growth or comparable growth in the year 2026. It's a year of transition suffering from high interest rates, high inflation. So I think that the traffic position is actually positive.

Excellent. It's also important to remember that starting in 2027, we will start with Ecovias das Gerais that will bring all the new traffic. It's a large important concession, and it will be very important to the comparable numbers.

Next question, Rogério Araújo, Bank of America.

I've got 2 questions. First, about that CapEx adjustment that was made in the first quarter in Ecovias Norte Minas, slightly above BRL 400 million. It's something that's not usual. And now in the second quarter, with no type of adjustment. I know you already addressed this topic in the last quarter. But just to try to create some comfort to that point, if you can explain with a little bit more details what explains that adjustment? And looking forward, if we would see any type of CapEx adjustment in the highway or others? That's my first question. And the second question. You talked about contractual investments in the release at or about BRL 245 million. Could you share more details about these investments? If it's this rebalancing with the concession authority is already guaranteed? Or if there's going to be a negotiation and the expected time line as well?

Rogério, thank you for your question. Yes, last quarter, there was an adjustment, and we explained it. There were 2 reviews that coincided in 2 concessions, Imigrantes and Norte Minas with completely different natures, but that coincided at the same time. And we decided to execute. And one was the adjustment -- the inflation adjustment at Imigrantes, we reduced the value because we had a balance that was booked, that was higher than what would be effectively necessary, excluding all the amendments that are being discussed. But the contractual CapEx since we act with the inflation linearly IPCA without getting into too many details, but it ended up being higher than the obligations. And we decided to adjust it to the reality. On the other hand, at Norte Minas, we had to recalculate and update the CapEx and the obligations, and that was below the expectations. And these 2 movements occurred at the same period, almost offsetting it, although they have different natures. And that's not going to happen again this quarter. We don't have it. It's already mapped, and we're mapping and there's no -- we don't have any movements like those from now on. So that was going back to that topic of last quarter. And the second question, Andrea?

Yes, about those investments, Rogério. A lot of that amount is concentrated at Ecovias Imigrantes, especially those related to the study of the third road that Guidotti mentioned, that are being -- the studies being concluded to be delivered to the state government and the concession authority. And there's also alterations in the scope of works at Ecovias Rio Minas. And the remaining balance is split between different concessions, especially demands of different city halls and public agencies to implement radars, pedestrian crossings and integration to urban stretches. And these items will be part of contractual rebalancing in Ecovias dos Imigrantes, the studies for this third road by a contract or an agreement extension and the others will be discussed of their characteristics. And there will be negotiations with the concession authority to see if it's going to be on tariffs or duration.

And the -- just to add, it's difficult to have the exact details on federal roads. When there is tariff adjustments here in São Paulo, there's also extension of contracts, but there are aspects already being adopted by the agency. In the past, we never had the 5-year plans approved, and now we have different agendas and different concessions already moving forward. This 5-year program needs to be run through society to hear their demands that could not be expected in the original concession agreement. So these are things that happen in the day-to-day to have small amendments. So for that first question, it's important to remember that those updates, the total balance of CapEx adjusted by the IPCA is not always -- I mean, sometimes it exceeds the needs when there are peaks of the IPCA as we had in recent months. So the buffer that was created at Imigrantes was atypical. But I would say that, that is a movement that may bring adjustments in the midterm to other concessions because sometimes what was planned exceeds the actual need for monetary updates and the CapEx. That's very complex. So we see it almost as a way to create a safer buffer. So we apply the IPCA. And then on coming years and the concessions mature a little bit more and CapEx -- most of the CapEx will already be realized, we may see adjustments in terms of reducing this buffer that was created, simply applying the IPCA linearly.

Next question, Gabriel Rezende, Itaú BBA.

I just wanted to follow up on Andrea's comments about -- in the opening remarks about the leverage. We saw that increase, and I understand that there was a contraction -- a natural contraction of EBITDA due to the concessions, but there was also an increase on net debt. I just wanted to understand how the company sees this level of 4.1x of net debt over EBITDA. In our math, we had some increases in the company's EBITDA level in coming quarters. But I'd like to understand if this increase we saw in the second quarter is within your time line or it's slightly above what you expected?

Gabriel, thank you for your question. It was in line with our expectations. And we expected -- we know that when leaving from one to the other in 12 months of significant EBITDA will make a difference, but we are very much aligned. And the company estimates that the peak of this leverage measured by net debt over EBITDA shall occur by the end of 2026 and then in 2027 to become stable because Ecovias das Gerais will start to contribute and to start to slow down starting in 2028, '29, '30, '31 to be below 4x, getting closer to 3.5x. So I think we're getting to -- we're getting close to the peak of leverage. And we're very comfortable because really, we are maintaining what we expected. And what's most important in all this is that the investment agenda and the execution of CapEx, the deliveries are actually taking place.