CVC Brasil Operadora e Agencia de Viagens SA

BOVESPA:CVCB3

Earnings Call Transcript 2017-Q4

[Operator]

Good afternoon. Welcome, everyone, to CVC Fourth Quarter 2017 Results Conference Call. Today with us, we have Mr. Luiz Eduardo Falco, Chief Executive Officer; and Luiz Fogaça, 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 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 on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances 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, Victoria. Good afternoon, everyone. We are pleased to begin our conference call to discuss CVC quarterly results of the fourth quarter 2017. Regarding today's agenda, we will talk about the main events in the fourth quarter of 2017; 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 fourth quarter 2017 on CVC Corp.

Slide #4, in this quarter, CVC Corp bookings grew 12.4%, with double-digit growth in all quarters of 2017, resulting in a growth of 13.5% in the year. The increase in the fourth quarter '17 was driven by the good performance in the leisure segment; on the corporate segment, which grows about 17%; as well as on the Submarino Viagens, which grow more than 30%.

In the fourth quarter, all channels showed double-digit growth, highlighting the online channel that grew above 20%. In December, CVC concluded Trend's acquisition and already started to capture synergies from Trend as well as from Visual. In January, CVC implemented a new matrix structure and defined the corporate proposed values.

Regarding business unit performance. The CVC Leisure ended 2017 growing more than 13% in bookings, with a same-store sales growth of 11.5% and 109 new stores opened. RexturAdvance grew 16% in 2017, totaling BRL 3.3 billion in booking. We restructured Submarino Viagens team under Maurizio's leadership, stabilized the platform and ended 2017 with improved product mix and strong growth in bookings. Experimento ended 2017 with bookings growth of more than 20%, and EBITDA grew more than 50% after synergies.

CVC achieved for the eighth consecutive year the award Marcas de Confiança, which means Trustworthy Brands, performed by magazines Seleções and Datafolha. The company also granted for the seventh consecutive year Top of Mind 2017 award from Folha de São Paulo as the most recognized brand in 2017.

Also in November, CVC was again ranked among the 25 Most Valuable Brazilian Brands by the international brand consultancy firm, Interbrand.

On Slide #5, we will present the new organization structure. We now have 6 business units under the CVC Corp umbrella and support areas providing service to these business units. The structure is based on the concept that those who don't work in sales work for sales.

On Slide #6, we will present our mission of CVC Corp. This is to provide the best travel experience in all moments of people's lives. If you're traveling to attend a meeting or to attend a course or your deserved vacations, CVC Corp will be there to provide the better experience in all those moments.

On Slide #7, we will show company's corporate values. Now all 6 business units have a common purpose and values, and we will incentive and recognize that: focused on customer, people, results, transparency, meritocracy and innovation.

On Slide #8, we will talk about the main financial indicators of CVC Corp that showed growth in its main metrics. CVC Corp booking totaled BRL 2.76 billion in the fourth quarter 2017, growth of 12.4% versus the fourth quarter '16 pro forma.

Also in 2017, CVC grew 13.5%, reaching more than BRL 10.2 billion in bookings. Adjusted EBITDA grew 10.9%, and adjusted earnings grew 25.7% versus fourth quarter '16 pro forma results. In 2017, adjusted EBITDA grew 12.9%, and adjusted earnings grew 20.6% against 2016 pro forma results.

Now I will pass to our CFO, Luiz Fogaça, who is going to talk about the financial results of the company. Fogaça?

[Luiz Fogaça, executive]

Hi. Good evening to everybody. Starting on Slide #10, I will talk about bookings dynamics. Bookings of leisure segment posted a 9% growth compared to fourth quarter 2016, while CVC leisure posted 10% growth and 12.8% compared to the full year 2016 pro forma. This increase was driven by the strong growth in cruises and international segments, especially European Circuits.

Regarding the corporate segment, bookings increased 17% in fourth quarter and 16% in the year compared to 2016. Bookings of CVC Corp reached BRL 2.8 billion in fourth quarter and BRL 10.2 billion in the year, representing 12.4% growth versus fourth quarter and 13.5% compared to the 2016 pro forma figures. Submarino Viagens' improved performance also supported company's results.

Moving to Slide #11. We will cover bookings by channel. The online channel posted a rise of 20% in fourth quarter, with improved performance of Submarino Viagens. Good performance in the cruising stores with 11% growth and independent agents with 13% growth also sustained bookings growth in the quarter.

Moving to Slide #12. We will cover net revenue. Net revenue of boardings-based business units, like CVC Experimento, Trend and Visual, totaled BRL 282 million in the quarter and BRL 956 million in the year, representing growth of 6.9% and 7.9% when compared to 2016 respective periods. The percentage of net revenues over boardings was 14.7% in the quarter and 15.3% in the year, lower by 50 basis points in both periods due to a greater mix in international segment.

Net revenues of bookings-based business units such as RexturAdvance and Submarino Viagens totaled BRL 56 million in the quarter and BRL 229 million in the year, representing growth of 6.3% and 4.6% with 2016 respective periods. The percentage of net revenues over bookings was 6% in fourth quarter and 6.2% in the year. CVC Corp net revenues totaled BRL 339 million in the quarter and BRL 1.2 billion in the year, representing growth of 6.8% and 7.2% compared to 2016 figures. The percentage of net revenues over CVC Corp bookings was 11.9% in fourth quarter and 12% in the year, lower by 70 basis points and 60 basis points compared to the previous year, basically due to a greater mix of international segment.

Moving to Slide #13. We will cover operating expenses detail. The recurring operating expenses grew 5.7% in the quarter, mainly due to the increase in marketing expenses that are linked to bookings growth of more than 12%.

General and administrative expenses in the quarter decreased 2.8% as a result of the synergies. The nonrecurring expenses in fourth quarter grew 26% due to the new incentive plan approved for the senior manager. The long-term incentive plan for all executives is considered as a recurring expense. In 2017, recurring operating expenses grew only 2.6% compared to 2016.

Moving to Slide #14, we will see figures of EBITDA. CVC Corp adjusted EBITDA posted BRL 171 million in the quarter and BRL 594 million in the year, representing 10.9% and 12.9% growth versus 2016 periods. The EBITDA margin increased from 48.6% in the quarter and -- to 50.5% in 2017. In 2017 full year period, the EBITDA margin reached 50% compared to 47.6% in 2016.

Moving now to Slide #15. Adjusted earnings totaled BRL 86 million in the quarter and BRL 251 million in the year, representing growth of 25.7% and 20.6% versus fourth quarter '16 and 2016, respectively. Fourth quarter '17 earnings growth was driven by EBITDA improvement and the reduction in financial expenses.

Moving to Slide #16, we will see cash flow dynamics. In 2016, the company generated BRL 173 million of operational cash after CapEx. The lower cash generation in the quarter was a consequence of higher interest over capital payment compared to previous year by BRL 19 million and also by a judicial deposit of BRL 20 million related to a lawsuit filed by the company to support the mercantile nature of the stock options plan and protect the company from fines of an eventual legal notice.

Moving to Page 17, we will see working capital and return on overinvestment. The change in working capital was driven mainly by the higher interest over capital payment and the judicial deposit already mentioned. The return of invested capital was 32.3% in the last 12 months.

Moving to Slide #18, we will see debt and financial expenses. Net debt was BRL 1.1 billion on December 2017, representing 1.76x LTM, last 12-month, EBITDA. The net financial expenses of CVC Corp fell by 44% due to the drop in the CDI rate, debt amortization related to acquisitions, reduction of the cost as a consequence of the new debentures issued in the year and also by a higher revenue derived from prepayments made to tourism service suppliers in the period. The rise in expenses related to payments from bank slips was a consequence of company's bookings growth of 12.4% and also by the greater mix of this mean of payment, which increased from 24% in fourth quarter 2016 to 32% in fourth quarter 2017.

We'd like to thank everyone for their participation in this conference call, and now we are going to start the Q&A.

[Operator]

[Operator Instructions] Melissa Bui from Bank of America would like to make a question.

[Melissa Bui, analyst]

Can you first provide an update on the integration process for Trend and Visual? What progress have you made so far? Have you identified any new synergy opportunities as you go through the process? And should we be prepared for any restructuring costs? And then my second question is just a follow-up on the big increase in terms of participation of bank slips in sales. Has there been any change in your strategy or that of your bank partners or in the economics of those arrangements that's contributing to that increase?

[Luiz Fogaça, executive]

In relation to the acquisition with the new synergies, we normally work on that in 2 stages. We have a preliminary analysis before we conclude the acquisition, of course, as a consequence of not having all the details prior to the closing. And after the closing, on a 30-day period, we have all the details, and then we are able to identify the synergies by area and also do the scheduling throughout the year. So we have already made that for Trend and Visual. Those synergies have already been included in 2018 budget. We estimated that we will be able to capture roughly 70% of the synergies in 2018. And in 2019, we'll be able to capture 100% of the synergies. We don't have any future impact of restructuring in the P&L because normally, when we do the opening balance sheet, we can estimate the -- any eventual severance payment and with -- to the provision in the opening balance sheet. And of course, they are not material. When you go to bank slips, we could see an increase in that means of payment. It has reduced in the past as a consequence of the economy and the insolvency. And of course, in the second half of the year, with the improvement in the economy or the -- and also in the perceptions of the consumer, that has started to grow. We do not have any change in terms of cost of -- [ with the currencies ]. We did some initiatives in the Black Friday with moving from 10 to 12 installments, but only for that period. And so it's more a consequence of the economy as general.

[Melissa Bui, analyst]

And just a follow-up on the synergies. As you went through the 30-day process of reconfirming those potential synergies, are you seeing any new areas that you perhaps have not discussed before with us? And is the size or the magnitude of those synergies bigger now?

[Luiz Fogaça, executive]

Yes. After concluding the analysis, we think that we found some new opportunities that were not met, and we have already started to capture those synergies. And we will -- of course, we will disclose that only after we capture those opportunities. But yes, at the end of the day, we are able to identify higher synergies than expected.

[Operator]

[Operator Instructions] I will turn over to Mr. Luiz Falco for final considerations. Mr. Falco, you may give your final considerations now.

[Luiz Falco Pires Corrêa, executive]

Okay. Thank you, everybody, for your presence here on this call. If you have any doubts, you have our Investor Relations people with Pedro and Henrique available anytime to you. And have a good evening, everybody. Thank you.

[Operator]

Thank you. This concludes today's CVC Fourth Quarter 2017 Results Conference Call. You may disconnect your lines at this time.