CVC Brasil Operadora e Agencia de Viagens SA

BOVESPA:CVCB3

Earnings Call Transcript 2023-Q2

[Operator]

[Audio Gap]... CEO and Mr. Carlos Wollenweber, CFO and IRO. We would like to inform you that this event is being recorded. [Operator Instructions] This event is also being broadcast simultaneously over the Internet via webcast and can be accessed at www.cvccorp.com.br/ri, once again, where you will be able to control the selection of slides and download the file. The replay of this event will be available shortly after its conclusion.Before proceeding, it's worth bearing in mind that the forward-looking statements made regarding the CVC Corp's business prospects, projections, operational and financial goals, our current expectations and assumptions of the company's management as well as on information currently available to the company. And operating factors, other factors may impact the future results of CVC Corp. And in the future, the company may present results that differ materially from those expressed in these forward-looking statements. Now everything will depend on the risk and uncertainty environment in which CVC Corp. operates.With the conclusion of this legal notice, I would now like to turn the floor over to Mr. Fabio Godinho, who will begin the presentation. Mr. Godinho, you may proceed.

[Fabio Godinho, executive]

Good afternoon to everybody. Thank you for participating in our results conference call for the second quarter '23. We begin here with the market highlights, the tourism market continuing on with its growth and gaining share as part of the Brazilian GDP. We have macro and micro dynamics that are quite positive for the sector as well as for CVC. In terms of macro factors, we observed a reduction of inflation in our sector and in the broader consumer price index. And of course, this will benefit us considerably.We have an increase in the capacity of airlines about 2 digits, both in the domestic and international flights. Since last year, there has been a resumption of levels back to 2019 with a faster growth in the national network throughout the second quarter. We do believe that in 2024, we will return to the levels of 2019 that were quite positive both domestically and internationally. The hotel occupancy rate reaching in 2019 levels with an increase in the average ticket as you can observe in the presentation, something that is quite positive one segment from the viewpoint of airlines as well.We have gotten to the beginning of June, we have the opportunity of holding a wonderful sales convention with our franchisees for realignment for the goal of the company, which is to sell, to sell, to sell ever more. This is our intention. We had more than 1,300 participants with realignment and engagement with the franchisees, and we observed a very positive energy when we think about the future in CVC, which presently is focused on what an operator truly does, focus on marketing.We're thinking a great deal about the sales for the high season and the sales and aftersales operations are important as people return to the offices so that we can have a better service level with relevant NPS levels in our stores as well as with our independent agents. And of course, focusing on our main suppliers, which are the airlines, the hotels in general and adjusting our pricing when it comes to margins. I was aligned with the interest of our franchisee base that bring in products so that they can have a better profitability.The second stage was to be able to deliver these results. We are very helpful and very positive in terms of this. We come back with the B2B brand, RexturAdvance, under the leadership of Marvio focusing on the profitability of the institution of airline tickets and activating Visual with Hugo, who has broad experience as well as Marco. Marco has a lot of experience in Visual and has helped us to reassemble Visual going back to the strong margins that it had and making almost BRL 1 billion. So we resumed strongly with that positioning it as an upscale operator in the tourism market.Now Hugo has broad experience in the hotel sector. He's leading the trade. He was our Director of Domestic products. And now he holds this very important position. He's leading trend, has a deep knowledge of the hotel sector, and he is our most capable leader to manage this business that has already had a result of more than BRL 1 million. Once again, enhancing the company in those areas that have a direct relationship with B2C, especially CVC and our franchises, he has broad knowledge of the business. He was trained by [ Patriani ] and is already offering us excellent results.And we have Cecilia in Argentina, who recently has been offering very positive results and continuing with this work. In the business support areas, we have Mader, who is his fourth passage with us in the sector. And in CVC, he has been carrying out excellent work in the relationship with suppliers and is now taking on the pricing area.The part of products as a whole, not only the negotiation, but the pricing as well in the field of operations in the junction of the operations center and the shared services center for the stores and for the land and air traveling as well, we have Paulo, who has broad knowledge of CVC. He was at CVC for 10 years. He worked with us 3 years in Webjet. He was a CIO of GOL for 12 years, and he now returns home with a great deal of experience in the tourism segment, and he's already showing us very significant considerable results. And in the back-office areas, the corporate areas, we have Carlos, who will continue on with the presentation, Paula in the people area, and in governance, we have Eliane.

[Jose Filho, executive]

Good afternoon, everybody. I begin here -- while I arrived at the company only 60 days ago, we carried out a IPO of shares for BRL 500 million, 166 million shares issued with a price of BRL 3.30. Additionally to this, we have a subscription bonus that will be exercised on November 21. We have 3 million shares where the shareholders that participated in the offer will be entitled to buy shares from CVC with a goodwill in the fortnight, the last fortnight of the market. It's important to speak and mention that we're back to the shareholder position of CVC through a fund.We now go on to the presentation and our financial results. We're going to open up the results per business unit, separating B2C, B2B and Argentina as well to offer the presentation more transparency. We begin with a Brazilian B2C performance. We had BRL 3 million of confirmed results reserves, and we had consumed bookings. Now this quarter is usually weaker as part of the seasonality of the sector. And that is why we have this mismatch among our reservations. Despite this, we had a growth of 2.5% and 4% and 10% compared to the same period in 2022. Consumed bookings grew 8% for the half of the year.When we look at the take rate, there was a relevant drop due to 3 factors mainly. First of all, a very aggressive strategy of exclusive product where we were not able to have 100% of occupancy in these exclusive products. And of course, they led to a loss in take rate. We have discontinued these products. Secondly, we embarked on a very strong aggressive campaign carried out in the fourth quarter of 2022 with an expressive increase in cruises that have a very good take rate. So our results were negatively impacted by 7% for the quarter and 12% for the half year.We go on to the next slide to speak about the B2B performance. We have a reduction of 9.5% for the quarter, reaching BRL 1.5 billion. Now in the second quarter of last year, we had a very strong performance with corporate traveling because of the lesser restrictions imposed by COVID-19. In the quarter, we had 7.6% higher sales. And even with the drop of sales, this ended up impacting the net revenue of the quarter by only 2%. When we look at half of the year, the revenue grew 4%.We go on to speak about the performance of Argentina on Slide 9. Argentina delivered point of sale or international traveling. They had a growth of 22% for the half of the year and 40% for the half year. Now this reflects the scenario of inflation in Argentina. So in the quarter, Argentina delivered cash of BRL 3 million for the year, BRL 22 million as a base of comparison last year, the net revenue for the quarter was BRL 8 million, a growth of BRL 8 million to BRL 22 million quarter-on-quarter.In the next slide, here, you see the consolidated data. Our net revenue for the quarter totaled BRL 269 million and for the quarter, BRL 565 million, in line with the same period last year despite the fact that we had an increase in the shipments during the quarter of 60%. This negative effect of the volume in the number of boarding, the revenue had a drop in the take rate of 8.6%, down to 7% in the first quarter of this year, basically because of the loss of profitability in B2C, as we have just explained previously. The entire company at present is trying to enhance the take rate, focusing on the growth of the more profitable products and negotiating with strategic partners and enhancing the management of our customer base.On Slide #11, you see the share of revenue and the EBITDA for the period. 50% of our revenues in the quarter came from B2C and the other half is B2B in Argentina and the take-rate of these 2 business units. Our EBITDA result was marginally negative of BRL 1.5 million, below the potential of CVC and corporate and operational expenses that were high. In July, we had a significant cut on spend, especially in noncore areas, representing an annual savings of BRL 100 million. We continue to reduce fixed and variable costs to gain efficiency.Our EBITDA for the quarter was BRL 14 million, BRL 18 million below if we compare this to the same period '22. Now this loss is due because during the same period last year, we had a reversal of provisions that ended up improving the EBITDA of the first half of the year in 2022.In Slide #12, you can see the cash balance for the quarter when you look at the right of the page. The cash balance stands at BRL 220 million because of the capitalization of BRL 550 million held at the end of June and partially offset by the negotiation for the maturity of debentures, a disbursement of BRL 178 million, BRL 124 million to pay off the debt, the rest to pay interest rates. Additionally to this, we had an increase in the sales volume, [ not a counter part ] in the EBITDA because of a loss of profitability in this first quarter of this year. So our cash flow in the operation was negative by BRL 64 million. Thanks to the measures we have put in place at the end of July, we see a clear improvement in the operating cash of CVC.To the left of the slide, you can see the debenture amortization schedule. As was mentioned, we have a tender that is mandatory for a partial reduction of the total balance of the debenture for a minimum volume of BRL 75 million. And considering the carryover rate and CDI rate, this amortization and the reduction within interest rates will reduce the line of financial cost for CVC going forward.With this, I would like to return the floor to Godinho to present the plan for CVC in the coming months.

[Fabio Godinho, executive]

Well, we already have a plan that is quite focused on short-run measures that will offer us immediate results in up to 3 months, for the medium term between 3 and 12 months and structural measures, which will aid and abet the business considerably by streamlining and modernizing the CVC business beginning with the first 12 months.Now these measures can be summarized in 4 pillars. The first, of course, expansion in sales, a focus on products, quality products through our B2B units, B2B brands and CVC stores experimenting with people from the tourism segment that have deep knowledge of this sector and that are highly seasoned in the sector. And so we will sell these quality products to increase not only the sales in the stores that exist, but also we're going to foster the opening of new stores, the growth of same-store sales for products and hiring in specific stores that we are still below the results of 2019. All of this has been carefully mapped and we're working with the franchisees to be able to hire back this personnel and we're working with [ Milano ] in an important pipeline this quarter and the coming year to open up new stores.The second pillar of course is profitability and increase in our take-rate of improvement in mix, better B2B, where we're going to focus on the profitability and consolidation of the airline sector. And through Visual, the trade, we're going to gain share where the take rate tends to be higher in the B2B segment. And in CVC, in B2C, the priority will be travel packages that do have a better profitability and because of our lower working capital needs. This is already being done in the sense that we carried out in July and will have a positive impact in the coming quarters.Another point is a reduction of our fixed cost, as mentioned by Carlos. We have a significant problem in terms of the adjustment of our contracts and part of our personnel structure. And all of this should bring about results in the coming quarters. We will be able to have greater visibility, preserving the business areas, marketing, operations and post sales. And through the follow-on and significant improvement in our capital structure along with that focus, where we have a better working capital dynamic. Doubtlessly, all of this will have a positive effect on our working capital and the reduction of our net leverage.

[Operator]

[Operator Instructions] Our first question is from Ruben Couto from Santander Bank.

[Ruben Couto, analyst]

There are several points that you mentioned in the presentation and in the release focusing on product offer, and you have given examples of your own products or negotiations with suppliers, a great deal of effort to increase profitability. Could you explain to us how much we can expect in terms of take rate from these efforts? Is it what we saw in the second quarter? Or will the best results be in the medium term?

[Jose Filho, executive]

Well, this is Carlos Wollenweber. First of all, thank you for the question. Yes, we put these measures in place. But some time ago, 5 or 6 weeks ago, when we look at the month of July, and we have concluded July, we already observe an improvement in the take rate, especially in B2C and B2B because of the measures put in place. And the best results are in freight. Our results have been highly impacted in take rate because of the exclusive products that we had as leases, and they had a significant impact on our results. All of these products have been discontinued. And well, we have products that are the image of CVC. They adhere better to a more adjusted pricing.We have carried out negotiations for partnerships with relevant operators and the take rate of these products in July were considerably better. And of course, this enhances our combined results. So we already observed a gradual improvement. We still cannot forecast how rapid this resumption will be, nor offer you any guidance, but the fact is that all of these measures have had a positive impact in this first months after the closing of July.

[Operator]

Our next question is from Joao Soares from Citibank.

[Joao Pedro Soares, analyst]

I have 2 points here where I would like to hear more about, first, about your relationship with the franchisees. You spoke about the sales convention and you do have an important background with this type of relationship. And regarding the question on the take rate, which will be your relationship with franchisees? And how are you going to increase the take rate in [Technical Difficulty] and this new alignment towards stability? I would like to better understand this dynamic.Secondly, this is also about take rate, but from the outlook of B2B. How are you bringing together the content going forward, [indiscernible] products? How are you going to increase the take rate in the B2B sector?

[Unknown Executive]

Thank you for participating in our call, and thank you for your questions about the relationship with franchisees. Our relationship with franchisees is of the utmost important. In CVC, we have a base of franchisees and master franchisees, which is very important for us, at least regionally. And this was our first step to get closer to them on Friday and Saturday. We announced our sales convention for the CVC franchisees who are the success of our program. And they were quite apprehensive and worried at that point. And while the entire face was concerned with this new management changes in the company and we have already been suffering for some years and we brought about this idea of this new focus on CVC, which clearly has allowed the company to be very large, to become a leader in Latin America in terms of marketing, sales and cooperation after sales.All of the company areas are there to sustain these 4 pillars, in truth are the soul of our business, and they are the foundation for the growth of sales and profitability for CVC with competitiveness, marketing, domestic, international, regional as well and a sales strategy that combines this motivation and management and enthusiasm of our master franchisees, our normal franchisees and our control center, the CEO, our operations control center.Now immediately, there has been a reflection of this because of this movement. First, the increase of sales and same-store sales, we knew that the sales had been improving in that current initially. And then through stores that already have a full head count, we have even more details. We have stores that continue to be open. Of course, some stores have closed. But we do have B2B stores, and we know which stores have gaps, which do not have gaps. We're going to enhance those that have gaps. We're going to enhance our hiring based on the year 2019. And all of this has already been improving the same-store sales and the opening of new stores.And as of the next 6, 12 or 18 months, we should be able to revert the negative trend of the closing of stores and begin to see a more positive trend when it comes to store openings, new stores, of course. And this, of course, will improve the take rate because the B2C gets a share on the back of B2C. Because in B2B, our strategy -- well, it's important for take rate. But in B2C, we are going to gain share because this is the most profitable part of our company that comes through the same-store sales and the growth of new stores.We have several initiatives that have already been offering positive results at a faster pace. And all of this should happen during the next 18 months. And very slowly, we will be harvesting the results during this specific period. We have a marketing company with a group that came back to marketing and sales. We have a marketing campaign that began in August, and this is the high season, the yellow alert that has impacted more than 30 million consumers, very, very strong marketing domestically on television, regionally and also online. We have only with digital leads more than 1 million leads for the sales in the stores. So all of this is already in place and working very positive to face the high season at the end of the year.Now regarding the question about take rate for B2B, we have a series of initiatives. But basically, it is feasible, it is the lowest take rate in the company. We began to set up a team separately with managers per business unit instead of per brand. And we will have this in the experiment as well so that we can segment a part of sales and our service offer to travel agencies. And of course, the impact will be completely different with Visual. It won't be the same agencies necessarily. This is a highly specialized market. To return to even better results, we have to have this separate management. And that is the role to improve profitability.The profitability has increased through 0time and the greatest profitability is to gain share, preserve margins and improve the take rate through some actions, which is already something that is in place. And of course, the results are higher on average than what we saw in the first half of the year. In Visual, we have enough skill brand that does not compete with the stores at CVC. And as Visual returns to its operations, the take rate will be much higher, 3x, 4x higher than RA. And of course, they have greater representativity on sales, and they will enhance the margins of the B2B market.And thanks to the strategy, in our vision this have the contrary result in sales. We have diversification of sales. And so we're beginning to work separately in trades and as they recover their sales, their share will have a better take rate and this will enhance the mix for the experimental. So this mix of a growth in share where we work more with learn, packages, all of this will generate a B2B take rate that will be higher through time. And we will transfer the sale of the CVC brands to the CVC structure that was part of 2C. There was an erosion of sales in that channel, where back to our original model and had always operating very well under the leadership of Milan and Rosario.And we already have good results. The franchisee are once again going back to servicing the regional agencies with the CVC brand sector, and of course, this will take some time while we set up the structures once again. But I have no doubt that until maybe we will be able to obtain good results in the coming quarters.

[Joao Pedro Soares, analyst]

Simply a follow-up regarding your brand, is that now a days you are trying to decrease the size of brands, perhaps unifies some operations simply to understand if you see an opportunity in this unit and in B2B?

[Unknown Executive]

No, it's the contrary. This efficiency model will be for the services that the agent, the IT strategy, the financial strategy, the governance strategy, the operational strategy, share service center. All of this has already been integrated and the operations control center will also change throughout the third and fourth quarter. Where coming back from home office to the brick-and-mortar office, and all of this will have a great deal of synergy and areas that will continue to be separate with the management of each brand, our sales and service.And for the total of headcount, this is 80% that back-office structure has been fully consolidated under managers from CVC Corp. And it is sales and service that will be under the leadership of the business unit with different managers with different take rates. And they will have direct contact with travel agents, vis-a-vis all of this will be separate. That's the agents and servicing each of the brands are different.

[Operator]

[Operator Instructions] Our next question is through the web from [ Levisio Pedroso Olivera ] from VP Capital.The former management invested significantly in technology. Are these technologies being used for example, more digital store or dynamic pricing apps?

[Unknown Executive]

Yes, the company has invested in the last few years, very close to BRL 0.5 million in technology and part of this to avoid hacker techs. And of course, the company has maintained is in its security areas in its digital areas, which continues to be a priority in IT under the leadership of Paulo Palaia, not only for CVC, but for the tourism market. CVC also has good knowledge and we're continuing on in that issue of digital security.Well, we can remark further on that has proven as an excellent result is the physical and digital purchase journey. We're one of the few retail companies at present that is able to carry out this sale fully. We have a center that connects all of the digital initiatives directly through your geo localization with the stores. So presently, we're generating approximately 1 million leads every month for this and the stores have customers coming into the store and concluding everything through the computer. All of this is integrated in the WhatsApp app. And the response level of all of these leads that come to the store, the conversion levels, all of this is operating very well. And we're beginning with that yellow alert both live and online.We know that the decision making process, the purchase of vacation does not take only 5 minutes. It's a lengthy process and we're only prepared, and we're already servicing the customers in this way through our brick-and-mortar channels as well as through our digital channels and most of the time the same customer will enter different channels to make the purchasing decision through the variety of channels that we offer. And all of this is operating with a model of payment to the store.If the store has the income tax number of the customer, if they have formally carrying out of sales to that customer, it will already receive a commission, for example, we were highly prepared within this, well, servicing the market needs. The decision made on occasions is and will continue to be a decision that will also lay between the brick-and-mortar world and the digital world.

[Operator]

Our next question is through telephone from Nicolas, from JPMorgan.

[Nicolas Larrain, analyst]

I would like to ask about the tourism market. It is a competitive environment like not only in that segment of population that you normally cater to. I would like to know after having capital restructures, do you have had a change in the competitive environment of the tourism market?

[Fabio Godinho, executive]

Nicola, this is Fabio Godinho. Thank you for participating in for the questions. First, about the tourism market, the market is doing very well after 2022. It's the main contributor to the growth of GDP in Brazil. It represents 7.8% of the GDP of Brazil. Almost a record has been attained as part of the share of economy. One out of every 10 jobs relates to tourism. And it was not different in the first half of this year.Of course, the main movement in 2021 and 2022 was the growth of the domestic network, not only in Brazil, but in all countries now throughout this year, and we can see through the guidance of companies in the first quarter, in the second quarter, the guidance of S&P, the growth is high single digit or a double digit, which is what we were foreseeing. But it continues on to be in a very healthy condition. And while the domestic market has a pain level of above those of 2019, the goal now is the international sector.And we have growth in Azul and GOL, for example, that launched their air traffic for July. The passengers transporter in July by Azul had a growth of 40% and in another company, 49%. So this is the level of growth we will see in the international network. And this is what we see reflected in other countries as well especially in the intercontinental flight, United States, and the main network, which is the network till South America, specifically for Argentina and the network to Europe. These are the segments that internationally grow more for CVC. But with the United States, we will have a strong recovery.Now the domestic market have the main recovery and has obtained the level of 2019. The growth now will be international. And throughout 2024, it should go back to the level we had in 2019. This is our forecast for the future market.Now when it comes to the competitive environment, CVC in the last few years has distanced itself from the tourism market, from the trade market as a whole. And with the bit of franchisees and master franchisees and suppliers and -- well, we're in the sector for almost 50 years, and we are resuming this, reestablishing this quite strongly through negotiations with our suppliers so that we can quickly have more competitive products with more favorable margins for the company.The regional operators -- diverse regional operators are growing. Now before the pandemic, the invoice 10%, 20% of what they're invoicing now. We have spoken about this often. The company was offering market share to the competition. And certainly, this is a movement that we are reverting. Thanks to the entire group that is here now and that has deep knowledge, not only of our franchisee base, but also on the tourism market and the operation of CVC per se. So we are, without a doubt, going to gain more market share in the coming periods.

[Operator]

[Operator Instructions] Our next question is through the web from [ Antonio Pedro ] anticipation of receivable it was high in the second quarter of '23, BRL 746.8 million. Do you still foresee a need for this or a follow-up? Or will the subscription bonus resolve the cash needs for the company?

[Jose Filho, executive]

This is Carlos. Thank you for the question. This is a very important issue of course to give you an idea. We had that average volume of BRL 750 million participation of receivables basically accounts receivable for credit cards. We ended the quarter above BRL 1 billion, BRL 1.05 billion. We have decreases by BRL 300 million. The company went through a capitalization process only in interest rates. This represent a savings of BRL 50 million. It's quite relevant.Now besides this we have a subscription bonus in November with a price that has been announced by the company, revenues of an additional BRL 250 million. Of course, this will appreciate the share and this amount will increase as well because of the company's market prices, we issued BRL 83 million subscription bonus. If you do the calculation with a share price very close to what we have this days, it's a total capitalization of BRL 800 million, almost 100% of our gross debt at present. So we understood that this would be sufficient. It depends on the future growth of the company. This could be positive news if we look at our gross levels going forward.Now this has to be adequate and we use that policy of anticipating credit card receivables, and we have a higher savings and financial costs. There are additionally 2 points that are important. The amortization, thanks to the offer that we made, it is mandatory to have a tenure of BRL 75 million. The debenture has a high cost CDI plus 5%. All of this will help us to decrease the cost of our gross debt that should be a minimum of BRL 85 million and the drop of the interest rate per se. Looking forward, this should reduce our financial expenses that were quite expressive, especially in the first quarter of this year. And we're going to play to favor the enhancement of the company cash going forward.

[Operator]

We would at this point like to end the question-and-answer session. I will return the floor to Mr. Fabio Godinho for his closing remarks. You may proceed, Mr. Godinho.

[Fabio Godinho, executive]

Well, this is our first call here. We have been in the company for practically only 60 days like Carlos and many of the rest of us. We do have a good combination of managers from the team of the former management, the present-day management, and there has been a great level of exchange. Thanks from the digital world that were implemented, that was very important. And of course, we're now harvesting the results now. The first month was the convention, enthusiasm or are base of franchises. And secondly, we have an injection of capital in the base of the conventions and the success in that case was quite positive. It went beyond our expectations.What we have the follow-on, the second month. Well, we now have 60 actions underway there for the short, medium and long run. Every Friday, we hold a meeting that begins here, and we speak about the strictly actions that are underway. And they are base on 4 pillars, sales that kind of cost and the injection of working capital. Of course, and some actions and results will be speedier another, the results will only appear in 2 years or 18 to 24 months, 6 to 18 months, and some actions that will only begin to appear as of the 18 months. But we are thinking for the long term for this company, and we're preparing the CVC for another 51 years of success.Now the market in which the company is in is highly positive. It continues to increase the GDP of Brazil. We want to continue like that and the macro economy of the country has improved significantly. CVC is one of the countries in the stock market that will benefit the most from the drop-in interest rates because of the receivable and because it will unharness credit. We have companies that are directly benefited by the drop-in interest rate.Secondly, the company's business model is ready, ready to face digital sales. We have the brick-and-mortar stores. We have the digital stores. Of course, this will go back to growing in the coming 18 months with an acceleration of sales and acceleration in same-store sale and the penetration of digital sales that represent 40%, thanks to the digital leads. And with the separate management of the brands, looking at the needs of each brand, so they can go back to being as strong as they were when they were purchased. And always in accordance to the needs of our customers to buy the product. And with specialists in tourism working with each vertical for the brand, working towards the consolidation of air flights and in experiment as well.We have deep knowledge not only of CVC, but also of tourism and we know how specialized these verticals are nowadays. And those in our teams are those that are best prepared to manage each of these verticals. A very positive market and the right management to deliver results now. All we have to do is work in the coming quarters.

[Operator]

The earnings results conference for CVC Corp. has ended now. We would like to thank all of you for your attendance. Have a good afternoon, and thank you for using Chorus Call.[Statements in English on this transcript were spoken by an interpreter present on the live call.]