CVC Brasil Operadora e Agencia de Viagens SA

BOVESPA:CVCB3

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon. Welcome, everyone, to CVC's First Quarter 2018 Results Conference Call. Today with us we have Mr. Luiz Eduardo Falco, Chief Executive Officer; and Leopoldo Saboya, Chief Financial Officer.

Today's live webcast and earnings release may be accessed through CVC website at www.cvc.com.br/ir. We would like to inform you that this event is recorded. [Operator Instructions] We have a simultaneous webcast that may be accessed through the company's website. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during the conference call.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of CVC management and on information currently available to the company. They involve risk and uncertainties because they relate to the future events, and therefore depend on circumstance that may or may not occur. Investors should understand that conditions related to the macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now, I'll turn the conference over to Mr. Luiz Eduardo Falco, Chief Executive Officer. Mr. Falco, you may begin your conference.

[Luiz Falco Pires Corrêa, executive]

Thank you, [ Graciele ]. Good afternoon, everyone. We are pleased to begin our conference call to discuss the CVC Corp. results of the first quarter 2018. Regarding today's agenda, as always, we will talk about the main events on the first quarter. Then we will present the financial results and lastly, we will begin the Q&A.

To begin, I would like to talk about the highlights of the first quarter on CVC Corp. Please Slide #4.

In this quarter, CVC Corp. bookings grew 12.7%, highlighting the double-digit growth, as we presented in all quarters of 2017. The increase in the first quarter '18 was driven by a good performance in the Leisure segment, which grows more than 12%; on the Corporate segment, which grows more than 10% and also on the Online segment with Submarino Viagens.

In the first quarter, all the channels showed double-digit growth, highlighting the online channel that grew above 25%. In January, we implement the new organizational structures, as we mentioned on the fourth quarter, aimed on capturing operational synergies and generate greater integrations between the business units. In March, as a material fact we published on March 26 the new CFO, Leopoldo Saboya, was appointed and the new CEO, Luiz Fernando Fogaça, was approved to take place on the beginning of 2018. During March, CVC held in Dubai its first sales convention outside Brazil and more than 1,500 people attended the event, including franchisees, employees and suppliers. In Dubai, we present the new market campaign "Que férias você quer? , a CVC term which means "Which kind of vacation do you want? We have it." And we present everything that CVC provides to the customers, including a wide variety of destinations and products with flexibility and personalized service, in addition to democratization of tourism in the country.

Going to the business units highlights. CVC Leisure ended the first quarter growing more than 13.4% in bookings with the same-store sale growth of 11.4%. We opened 9 new stores, with 95 net opens in the last 12 months. RexturAdvance grew more than 16% on the first quarter '18, totalizing BRL 728 millions in booking. Submarino Viagens improved the product mix in the quarter and posted a strong growth in bookings. Experimento ended the first quarter with bookings growth more than 13% and 2 new stores with 15 net opens on the last 12 months.

On the Slide #5, we show some pictures of the event of Dubai just for our investors to understand what's a sales convention and how is the power of this channel. This event also was used to make more training to our workforce and it was very well accepted. As this is a World Cup year, we held a lot of suppliers, and we have Pelé with us on this specific.

On Slide #6 we represent the new organization structure, which is a [ matrixal one ]. The new organization structure, as mentioned before, is based on the concept that who do not work in sales, work for sales. We now have 6 business units under CVC Corp. umbrella, and all support areas providing service to the business units.

On the Slide #7, we will talk about the main financial indicators of CVC Corp. that showed growth in its main metrics. As you can see, CVC Corp. bookings totalized BRL 3.1 billion on the first quarter, growth about 12.7% versus the first quarter '17 pro forma. Net revenues reached BRL 385 million, representing an improvement of almost 9% when compared with first quarter '17 pro forma. Adjusted EBITDA grew 13.5% and adjusted net income grew 34.6% versus first quarter '17 pro forma.

Now for the results, I will pass to our new CFO, Leopold Saboya, who is going to talk about the financial results of the company. Leopold, please?

[Leopoldo Saboya, executive]

Thank you, Falco. And first of all, I'd like to say that I'm very honored to be part of the CVC team. And second to mention that all the comparisons that I'll make will be against Q1 '17 in a pro forma basis. If not, I'll let you know, okay? So talking about bookings by segment on the Slide 9. We have here the split of our growth and results of our bookings by segment. In the Leisure segment, we posted 12.6% growth. This increase was driven by the strong growth in cruises and international segments, especially the European circuits. On the corporate segment, bookings increased 10.5% in Q1 due to the good performance of RexturAdvance that grew more than 16% in the quarter. The bookings of CVC Corp. reached and totalized BRL 3.1 billion in Q1, representing a 12.7% growth. It is important to highlight that the double-digit growth in the quarter was on top of a double-digit growth basis saw in 2017.

On Slide 10, we will break down the booking by channel. The online channel recorded a rise of more than 27% in Q1. Submarino Viagens presented a strong growth in the period as observed in the last 2 quarters. Worth mention that we are growing high 20s while achieving positive EBITDA. Also good performance in the exclusive stores that grew 14.2% and independent agents grew 10.2% also sustained bookings growth in the quarter. On the right-hand side of the slide, we have here the same-store sales performance, and we are posting an 11.4% growth, pretty solid.

On Slide 11, we have a little more details on our net revenues. So the net revenues of boarding-based business units. CVC, Experimento, Trend and Visual totaled BRL 322 million in the quarter, representing growth of 7.7%. The take rate was 14.4% in Q1, decreasing 15 bps in the period due to a greater mix in international travels, that faces structural lower margins, as you may know. Net revenues of booking-based business units like RexturAdvance and Submarino Viagens totaled BRL 63 million in Q1, representing growth of 15.2%. The take rate of that -- of those segments was 6.5% in Q1, reducing 30 bps against last year. Reasons why. On RexturAdvance, it was due to a greater mix in international segment, same thing as in CVC. And also by lower incentives paid by airlines, particularly in this quarter in the corporate segment. In Submarino Viagens, on the other hand, take rate enhanced in line with the increase in travel packages and hotel sales in our OTA platform, which have a higher take rate, partially offsetting the reduction in the corporate segment. With that, CVC Corp. net revenues totaled BRL 385 million in Q1, 8.9% above last year figures.

On the next slide, we are giving more details on our operational expenses. So first and foremost, the G&A expenses in Q1 decreased 4.5% as a result of synergies captured. The recurring operational expenses grew 4.6% in the first quarter, mainly due to the increase in marketing expenses that, in line with bookings, grew of more than 12% with the event held in Dubai.

Moving to the next slide, summarizing our EBITDA performance. It's pretty remarkable to mention that our EBITDA margin reached 52.2%, which is at 210 bps above last year. Bear in mind that we are reaching this performance with a few minor synergies from recent acquisitions, Trend and Visual, our goal in line with the synergy plan. The EBITDA adjusted was BRL 201 million in the quarter, representing a growth of 13.5% against last year pro forma basis.

Now with the bottom line of our balance sheet, our net income with total BRL 92.2 million in the quarter, 34.6% above last year. Q1 earnings growth was driven basically by the EBITDA growth, 13.5% improvement as the reduction of 20% in financial expense. It's not in this slide, though, but it is in our releases, that our adjusted EPS that was $0.63, that is $0.13 above last year figure, attesting how accretion for shareholders has been our M&A execution and organic growth in this period.

Now moving to our cash flow, balance sheet and ending with our net debt performance. Let's move to Slide 15, that is our cash flow. So first of all, it's important to mention that we did some adjustments here to compare apples to apples in the chart on our left-hand side. In Q1, CVC Corp. had an operating cash consumption net of investments of BRL 314 million. But we need to do 2 adjustments to compare in the same way. First of all, we need to exclude the effect of Trend and Visual acquisitions, whose balance sheet was not in 2017. So this is all the working capital that belongs to those businesses. And the extraordinary effect of the judicial deposit, so then we can compare apples to apples. The cash consumption in Q1 '18 should have been BRL 188 million versus BRL 261 million in Q1 '17. And bear in mind that we are talking about the quarter that is typically heavier in terms of cash consumption in a year where typically we generated more cash towards the ending of the year.

Let's move now to next slide, 16, that we give more details on the working capital and ROIC of the companies. Here again, we need to make the same exclusion of Trend and Visual backwards in '17. So when we excluded those companies, the working capital has improved BRL 10 million and even considering this estimation before like the judicial deposit, the working capital improved 3 days in the quarter because the business of Trend and Visual, they have a shorter cycle of cash conversion. On the right, the ROIC of 25.2% LTM ended March 31. It is a result though of seasonally heavier quarter on supplier payments. But comparing to Q1 last year, the ROIC grew by 60 bps.

Moving to Slide 17. The net debt reached BRL 1.4 billion on March 31, against BRL 1.1 billion on same period last year. It represents 2.16x net debt to EBITDA against 1.98x in last year in this figure. Excluding the receivables, Q1 leverage was 1.7 -- 1.71x. The net financial expenses, basically the cost to serve the debt, fell by 51% in Q1 '18 due to the drop of the CDI rate, debt amortization related to acquisitions, reduction of company's debt cost, and higher revenue from prepayments to tourism services suppliers. The rise in the expenses, on the other hand, related to bank slips was due to the rise in the company's bookings and the greater mix of this payment type, which increased from 26.2% in Q1 last year to 36.8% participation in Q1 '18.

So having said that, we now turn to Q&A session. Thank you very much.

[Operator]

[Operator Instructions] As there are no questions, I'll turn over to Mr. Luiz Falco for final considerations. Mr. Falco, you may give your final considerations now.

[Luiz Falco Pires Corrêa, executive]

Okay, Renee. Thank you very much all of our shareholders and other people which are on board on this conference call. We are very proud to our results. We think Brazil is a very difficult environment but CVC has proved his resilience and keep going very, very predictable on the quarters -- on the last 5 quarters. And tell our investors that we are proud also with the confidence that you have with us. And see you on the next conference call. In the meantime, if you have any doubts, please do not hesitate to make contact with our Investor Relation team, which are here to serve you. Thank you. Have a good afternoon for all of you. Bye-bye.

[Operator]

Thank you. This concludes today's CVCs First Quarter 2018 Results Conference Call. You may disconnect your lines at this time.