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Edited Transcript of TRAXIONA.MX earnings conference call or presentation 29-Oct-19 4:00pm GMT

Q3 2019 Grupo Traxion SAB de CV Earnings Call

Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupo Traxion SAB de CV earnings conference call or presentation Tuesday, October 29, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aby Lijtszain Chernizky

Grupo Traxión, S.A.B. de C.V. - Executive President & Director

* Antonio Tejedo

Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations

* Wolf Silverstein

Grupo Traxión, S.A.B. de C.V. - VP of Finance

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Conference Call Participants

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* Alberto Valerio

UBS Investment Bank, Research Division - Associate Director & LatAm Transportation Equity Research Associate

* Marcos Barreto Guerrero

Citigroup Inc, Research Division - Research Analyst

* Martín Lara

Miranda Global Research - CEO & Founding Partner

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Presentation

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Operator [1]

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Greetings, and welcome to the Traxión Third Quarter 2019 Earnings Call results. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Aby Lijtszain, Chief Executive Officer. Thank you. You may begin.

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Aby Lijtszain Chernizky, Grupo Traxión, S.A.B. de C.V. - Executive President & Director [2]

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Thank you. Welcome, everyone, to Traxión earnings call. I want to briefly talk about our extraordinary results and about the balance after the first 2 years of Traxión being listed in the Mexican Stock Exchange, then we'll hand over to Wolf and Antonio.

We have had a great year so far. These results reflect the resilience and strength of Traxión and reinforce our leadership in transportation and logistics. Most relevant, we're updating our estimate figures for 2019. Wolf will discuss the details in a moment. But I want to talk about the drivers. Traxión has been generating a significant operating leverage that translates into improved bottom line as revenues grow. This is achieved basically by applying our business model, which has been proven to be effective. We have reached important and sustainable efficiencies as the company evolves.

Moving on, since IPO, Traxión has invested more than MXN 5.2 billion in organic growth and more than MXN 1.6 billion in strategic acquisitions by which Traxión integrates a unique and robust platform. Those investments have translated into a growth of more than 73% in revenues, 97% in EBITDA, and 152% in net income while expanding the margins by 254 basis points. Traxión is now the benchmark of the industry and have progressed significantly. We'll continue to be an innovative and disruptive company moving forward.

Having said that, I will now hand over to Wolf, who will talk about other financial and strategic matters. Please, Wolf?

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Wolf Silverstein, Grupo Traxión, S.A.B. de C.V. - VP of Finance [3]

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Thanks, Aby. Hi, everyone. I want to start by discussing our expected closing figures for 2019. This update considers that Traxión will end 2019 with revenues of approximately MXN 12 billion, with an EBITDA margin of around 21%. That implies an EBITDA of over MXN 2.5 billion, which represents a growth of more than 40% compared to 2018. These figures are mainly due to a very good performance, especially in the first half of this year, increased productivity across the company in the first 9 months, and other efforts to maximize profitability. It is worth mentioning that the aggregate results of the first 9 months show that Traxión has improved significantly compared to what it was at IPO.

Now shifting gears, I want to provide more color on other important milestones to complement what Aby just said. Since IPO, Traxión has strengthened its management and commercial model, refinanced its debt under more convenient conditions, implemented processes to further grow split profitability and develop a robust ESG strategy. Furthermore, since the offering, Traxión has generated more than MXN 2.1 billion of operating cash flow.

It was yet another active quarter as you can see, and indeed, very busy 9 months. We continue committed to look for strategic opportunities to expand our operations, be disruptive and innovative, maximizing value over time. Both quarterly and 9 months figures show extraordinary growth rates in virtually every item. As Aby mentioned, we are running the company with a tremendous operating leverage.

Finally, we believe our business segments benefit from Mexico's natural economic dynamics. On the one hand, cargo is the most common transportation mode in Mexico and is a key sector for the economy. On the other hand, passenger transportation has gained progressive relevance as industrial parks and other labor hubs develop further away from urban centers. We have been an excellent complement to transportation, offering a nice and safe commuting option.

Traxión looks forward on growth. We continue delivering strong double-digit growth rates with a sound capital structure and prudent leverage utilization.

I will now pass the mic to Antonio. Thanks for your attention.

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [4]

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Thank you, Wolf, and welcome, everyone. I will review the financial and operating details before opening the floor to Q&A. I just want to briefly talk about the drivers of growth this quarter.

First, you can see that our cargo business continues improving. Overall kilometer volume and revenue per kilometer have increased while keeping a strict control in cost and expenses and with no significant growth in fleet. This has enabled Traxión to maximize the useful life of its cargo trucks and to extend renovation CapEx. This is perhaps one of our most important competitive advantages, to have this CapEx flexibility. Moreover, if you remember, last year, we merged the freight operations of 2 of our subsidiaries, which has brought important and sustainable savings and efficiencies.

Now moving on to the passenger segment. We continue investing in new fleets to serve our clients and seize attractive opportunities. As you know, in this segment, Traxión grows by 2 forces: first, by gaining regional market share to other players; and second, by expanding with actual clients via what we call loyalty growth because their success is our success. As a consequence, our strategy going forward in passenger segment is to keep providing for our clients' demands, always with profitability in mind. That's the most important driver.

Anyway, if you take a look at both financial and operating metrics of the passenger segment, you will see that there's a tremendous improvement in efficiency. Our expenses have remained virtually unchanged, while we have been increasing, quite notably, our revenues, EBITDA and margins. As an example, revenue per kilometer in this segment grew 9%, while its cost grew only 7%. Again, this is proof of the economies of scale through which Traxión operates and creates long-term value. All of that drove consolidated results this quarter to a healthy net income of MXN 131 million, and the cash flow from operating activities of MXN 384 million, which was mainly due to the growth in operating income. These are indeed impressive increases compared to the same period of last year. Furthermore, our EBITDA margin improved significantly, both in the quarter and during the first 9 months of the year.

And finally, in terms of leverage, you can see that Traxión has increased its debt and reinvested its cash to tackle the profitable opportunities I just talked about. However, our ratios remain strictly below our self-imposed limit of 2.5x net debt to EBITDA.

Well, with this, I conclude my remarks. Thank you again for your attention. I will now open the floor to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Martín Lara with Miranda Global Research.

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Martín Lara, Miranda Global Research - CEO & Founding Partner [2]

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Congratulations for the very strong results. My question is, where do you see the net debt to EBITDA ratio by the end of this year and in 2020?

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Wolf Silverstein, Grupo Traxión, S.A.B. de C.V. - VP of Finance [3]

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This is Wolf, and thanks for the question. For this year we're expecting more or less the same that we are right now. As you can see, it's almost the same ratio that we have in the last quarter also. So we expect to finalize this year almost in the same way that we are right now in the third quarter.

And for 2020, we're not ready to say that right now, but we are planning all the strategic plans for the next year. So I hope we can be in a comfort way to say that soon enough. Again, as you can remember, we are always below the 2.5 net debt to EBITDA, but it's our internal ratio policy.

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Martín Lara, Miranda Global Research - CEO & Founding Partner [4]

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Okay. And I have another question. The 21% EBITDA margin that you're expecting according to the new guidance for this year seems a little bit conservative given that you generated 22% in the third quarter. So I don't know if you could please share your thoughts on this.

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [5]

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Martín, this is Antonio. Thanks for your question. If you remember, we have always said that our margins should be between 20% and 21% as the company continues to grow. So we think that a 21% margin, far to be conservative, we think that's a reasonable margin where the company should be as it continues to grow and be profitable.

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Operator [6]

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Our next question comes from the line of Marcos Barreto with Citi.

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Marcos Barreto Guerrero, Citigroup Inc, Research Division - Research Analyst [7]

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Do you have any comments on how the onboarding of last year's acquisitions have gone? Has the process of improving the target companies' operations gone better than you expected or in what point are they?

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [8]

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Marcos, can you repeat the first part of the question?

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Marcos Barreto Guerrero, Citigroup Inc, Research Division - Research Analyst [9]

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Any comments on how the acquisitions have gone -- last year's acquisitions have gone so far?

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [10]

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Well, as you see, Bisonte contributed to revenues this quarter with MXN 335 million. That's how acquisitions contributed this quarter. We did not disclose Redpack because Redpack is fully comparable with last year quarterly results, but I think it was around MXN 160 million of revenue.

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Marcos Barreto Guerrero, Citigroup Inc, Research Division - Research Analyst [11]

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MXN 160 million?

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [12]

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Yes.

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Marcos Barreto Guerrero, Citigroup Inc, Research Division - Research Analyst [13]

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Okay. And are you still expecting organic growth going forward, largely?

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [14]

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Yes. We expect organic growth in both segments.

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Marcos Barreto Guerrero, Citigroup Inc, Research Division - Research Analyst [15]

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Okay. And for the cargo volumes, those have been robust in spite of global trade concerns. Have these outperformance mostly come from market share gains? Or what are the drivers of the cargo volumes?

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [16]

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It's mainly fleet utilization. And well, that's paired to strong demand. We have been increasing some circuits that are -- we charge more per kilometer and they are -- they have lower costs, those who could have lower costs, and the clients tend to be more profitable.

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Operator [17]

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(Operator Instructions) Our next question comes from the line of Alberto Valerio with UBS.

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Alberto Valerio, UBS Investment Bank, Research Division - Associate Director & LatAm Transportation Equity Research Associate [18]

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A quick one on my side. Congrats for the results. I would like to know if you can provide some color on IFRS 16 impact on this quarter? And if you also can break it down between what went to depreciation and amortization and which part account for the financial expense?

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Antonio Tejedo, Grupo Traxión, S.A.B. de C.V. - VP of Investors Relations [19]

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Alberto, this is Antonio. Thanks for your question. The impact on EBITDA on this quarter was approximately MXN 67 million, of which around MXN 57 million was from depreciation and amortization and the rest was from the comprehensive financial results.

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Operator [20]

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(Operator Instructions) There are no more questions in the queue. I'd like to hand the call back to management for closing remarks.

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Aby Lijtszain Chernizky, Grupo Traxión, S.A.B. de C.V. - Executive President & Director [21]

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As you can see, the company has delivered great results consistently, and the numbers speak for themselves. We expect to continue on the same track, creating long-term value for all our stakeholders. Thank you. Have an excellent week.

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Operator [22]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.