Log-In Logística Intermodal S.A. (LOGN3) Earnings Call Transcript & Summary

Good day, and welcome to Log-In Logística Intermodal conference call to discuss fourth quarter and full year 2019 results. [Operator Instructions] This conference call, followed by the slide presentation, is being broadcast live over the web on the company's website at www.loginlogística.com.br/ri. In case you do not have a copy or Log-In Logística's release posted on Monday, March 16, after B3 trading hours ended, you can download the company's website. Mr. Marco Cauduro, CEO; and Mr. Gisomar Marinho, CFO and IRO, will be presenting the company's performance and will be commenting on the main highlights of the quarter. They will then be available to answer your questions. Mr. Cauduro, you may begin.

Good morning, everyone. I'd like to thank all of you for joining us in our conference call to discuss fourth quarter 2019 results of Log-In Logística. And 2019 was a year of great achievements for the company. Among them, I would like to highlight a record volume of coastal navigation, 357,000 TEUs handled. A consolidated revenue record, BRL 1.52 billion, a consolidated EBITDA record at BRL 271 million, a record consolidated EBITDA margin and costal navigation, 25.8% and 27%, respectively. In TVV, record general cargo volume handled, more than 547,000 tons; and the record net revenue at TVV as well, BRL 195.3 million. The strong financial performance in 2019 is the result of a guideline focused on maximizing the profitability of our asset base. However, the set of achievements is the result of a lot of discipline in executing our routines. More and more, our management system is maturing and is contributing more effectively to deal with nonconformities, allowing the whole organization to react effectively to changes in the environment and to deliver the intended results. However, the financial result is a mere consequence of operating excellence and managing our assets, supported by our fundamental value, which is safety. I'd like to highlight that in 2019, we hit our best safety indicator in coastal shipping. No nonfatal days lost to accident. So it's a daily practice of safety. It is a fundamental value and the main objective of our organization. And I would also like to share the following material events that represent the strength of our company and our commitment to the process of creating value to our shareholders. In December of 2019, the Log-In Polaris vessels started operating, representing a hallmark in marine merchant history. It is a very modern vessel, the most modern vessel operating along the Brazilian coast. And then after Log-In Polaris started operating, we -- Log-In acquired Log-In Endurance, with a normal capacity of 2,900 TEUs that should start operating along the second quarter of this year. In this way, after a sequence of 12 consecutive quarters of significant increment of our results, the company consolidated our structuring plan, which allowed us to have a follow-on operation of -- raising BRL 634 million. This fund strengthens the capital position of the company, allows it to execute its growth plan, serving the interest of our clients and contributing to increased Brazil's competitiveness. Finally, I would like to share with you that until now, COVID-19 epidemic has not materially impacted the growth of our business. If necessary, the company will be communicating changes in our activity to the market. The leadership of the company is determined to protect and care for the health and integrity of our crews, teams, preserving our assets, and ensuring the continuity of our operations. I would like to urge you to reduce the risks of transmission. Please remain safe and healthy. I now turn the floor to our CFO, Gisomar Marinho, who will present the 2019 results.

Thank you, Marco, and good day to everyone joining us on this call to discuss fourth quarter '19 and full year 2019 results. Moving to Slide 3, please. Let us start with the highlights for 2019. And Marco has mentioned some of them, but I will reinforce them anyway. This was a year when we achieved several achievements and record marks for the company. Consolidated EBITDA was BRL 271.2 million in 2019, a big record mark for us, representing an increase of 47.1% compared to adjusted EBITDA posted in 2018. Consolidated EBITDA margin was 25.8% in 2019, up 6.9 percentage points compared to the 2018 margin. Coastal shipping EBITDA totaled a record mark, BRL 224.2 million in 2019, up 37% compared to the 2018 coastal shipping EBITDA. Coastal shipping EBITDA margin was 27.1% in 2019, up 6.5 percentage points over the 2018 margin. The volume of containers handled in coastal shipping in 2019 totaled 357,800 TEUs with a 5.1% increase compared to volume handled in 2018. As regards to TVV, the Vila Velha Terminal EBITDA totaled BRL 80.1 million in 2019, up 44.6% over the 2018 EBITDA. EBITDA margin for the terminal was 41%, up 4 percentage points from a 37% margin in 2018. It is worth highlighting that in 2019, Log-In reached the historic mark of 0 nonfatal days lost to accidents across its fleet, as Marco mentioned in the beginning of this presentation. In November of 2019, Log-In successfully concluded its public primary offering, follow-on with restricted placement efforts, raising BRL 634 million and substantially improving its capital structure. On December 2, 2019, this was a landmark for the company, the Log-In Polaris vessel built in the Guangzhou Wenchong Shipyard, GWS, in China began operating in the Amazonas Service route, SAM, starting trip for Manaus. Moving to Slide 4, we have a table with Log-In's consolidated results, whose main line items will be explained in the next slides. Worth of note is the company's adjusted EBITDA of BRL 60.9 million in Q4 '19, growing 10.5% compared with Q4 '18. For the full year 2019, adjusted EBITDA totaled BRL 271.2 million, up 47.1% over 2018 adjusted EBITDA. 2018 was positively impacted by nonrecurring events, i.e., tax credits of PIS/COFINS in the amount of BRL 38.2 million, and the positive result from the sale of TERCAM, BRL 12.1 million. Q4 '19 net income was BRL 13.5 million. In the full year 2019, net income was BRL 11.2 million, up 83.6% from BRL 6.1 million in 2018. And 2018 benefited from the nonrecurring events mentioned previously, plus a tax credit restatement, PIS/COFINS, in the amount of BRL 44.3 million. Please go to Slide 5 for our consolidated net operating revenue, NOR. In Q4 '19, NOR totaled BRL 265.4 million, up 6.5%. In the full year '19, NOR was BRL 1.052 billion, up 7.7% over 2018. This growth of NOR was due to higher revenue of container transportation, mainly in cabotage, coastal shipping and higher TVV revenues, which offset the negative impact of lower vehicle transportation activities in Mercosur, reflecting the intensification of the crisis in Argentina. On Slide 6, we see the company's cost of services rendered consolidated or as we call it in Portuguese, CSP. In the fourth quarter '19, CSP was BRL 211.6 million, posting a 10.3% growth, basically driven by higher volumes of containers transported in coastal shipping. In the full year '19, the cost of services rendered was BRL 768 million, up 1.6% due to a higher volume of containers transported in coastal shipping, increased cargo loading and unloading, and ancillary services in TVV. And positively impacted by lower chartering cost of roll-on/roll-off vessels used for vehicle transportation. On Slide 7, please, we have our consolidated net operating expenses. In Q4 '19, net operating expenses were a positive BRL 500,000, due to tax credit recognition, PIS/COFINS in the amount of BRL 7.7 million versus a negative BRL 10.8 million recorded in Q4 '18. In the full year '19, operating expenses came to BRL 62.5 million compared to the BRL 18.2 million recorded in 2018, which were positively impacted by the previously mentioned nonrecurring events. On Slide 8, we present our consolidated adjusted EBITDA. In the fourth quarter of '19, the company's consolidated adjusted EBITDA totaled BRL 60.9 million, growing 10.5% with an EBITDA margin of 22.9%, up 0.8 percentage points over the margin obtained in Q4 '18. In the full year 2019, consolidated adjusted EBITDA was BRL 271.2 million, a 47.1% increase with an EBITDA margin of 25.8%. In other words, 6.9 percentage points over 2018. We should highlight that Q4 '19 and full year 2019 EBITDA were not impacted by nonrecurring results unlike what happened in the comparative periods for 2018. On Slide 9, please, we have the breakdown of our EBITDA by business as well as the composition of nonrecurring events occurred in the period, for comparison's sake. As previously mentioned, Q4 '19 adjusted EBITDA was BRL 60.9 million in 2019, BRL 271.2 million, up 47.1%, highlight going to a higher costal shipping EBITDA up 37% and higher TVV EBITDA of 44.6%. Moving to Slide 10, we see the evolution by business comparing adjusted EBITDA of Q4 '19 versus Q4 '18 on the left graph. And on the graph on the right, the same comparison, 2019 versus 2018. The contribution of coastal shipping was BRL 60.5 million, and the contribution of TVV was BRL 24.7 million for a previously mentioned growth of 47% of the EBITDA. Please go to Slide 11. Here, we see the evolution of the coastal shipping business. In Q4 '19. Q4 '19 posted a volume of containers handled of 88,700 TEUs, down by 3.8% year-on-year, resulting from lower feeder in Mercosur volumes despite a growth in cabotage volumes. The full year 2019 posted a record volume of containers handled 357,800 TEUs with a 5.1% growth stemming from higher cabotage in feeder volumes as well as higher occupancy in the southbound north to south trips. On Slide 12, we see the coastal shipping net operating revenue, NOR. On the left-hand corner, we have the container NOR, which was BRL 187.3 million in the fourth quarter of '19, a growth of 5.4% due to higher cabotage volume, which has higher unit value, and due to the positive impact of cargoes, which have revenues in U.S. dollars, such as feeder and Mercosur. In 2019, the container NOR was BRL 709.5 million, representing a 17% increase over 2018. The main drivers for that were higher volume and better container mix and the bunker rate throughout 2019. On the right-hand corner, we see coastal shipping NOR, which in Q4 '19 totaled BRL 214 million, up 5.4%. In the full year, coastal shipping NOR totaled BRL 828.2 million, representing a 4.3% increase. Please go to Slide 13. for an update on bunker price. Average bunker price was BRL 1,750 in 2019, up 11.5% versus the price in 2018. Also in the graph, we see the increase in average bunker price in October 2019, standing from IMO 2020 regulation, which imposed a limit of bunker, a limit of 0.5% in sulfur emissions as of January 2020, which demanded their fuel to adapt to the new standard, putting pressure on prices in the last months of 2019. However, there was a reversal of this trend in January 2020, as you can see in the chart. On Slide 14, we see a table with coastal shipping EBITDA, which was BRL 45.1 million in Q4 '19 with an EBITDA margin of 21.1%. However, in the full year, coastal shipping EBITDA was BRL 224.2 million, growing 37% over 2018 with an EBITDA margin of 27.1%, up 6.5 percentage points. On Slide 15, we showed the composition of coastal shipping EBITDA for the Q4 '19, Q4 '18 comparison. We see a BRL 10.8 million, approximately BRL 11 million contribution from NOR due to higher volumes transported in cabotage and the positive impact of BRL depreciation and revenues in U.S. dollars, feeder and Mercosur, despite an increase in variable costs driven by higher volume of containers handled and higher fixed costs resulting from the hiring of maritime crews for the Log-In Polaris vessel and the charter cost of the additional vessel in December of 2019 to cover a scheduled maintenance of one of our vessels. This represented an EBITDA ex AFRMM of BRL 38.5 million in Q4 '19, and including AFRMM obtained in the period of BRL 6.6 million, we reached an EBITDA of BRL 44.1 million in Q4 '19. On the following slide, Slide 16, we showed the composition of coastal shipping EBITDA for the 2019-2018 comparison. We see a BRL 34.1 million contribution from NOR due to higher container NOR despite a negative impact from vehicle transportation revenues. Increased variable costs by BRL 32.8 million due to higher volume of containers transported and a reduction of fixed costs by BRL 47.8 million due to the reversal chartering costs for vehicle transportation. In 2019, EBITDA ex AFRMM was BRL 174.7 million and with AFRMM of BRL 49.5 million, we reached an EBITDA of BRL 224.2 million, up 37% as previously mentioned. Moving to Slide 17, we see the Vila Velha Terminal volumes, TVV. In Q4 '19, we handled 42,000 containers, down 5.6% compared to Q4 '18. With the latter having a positive impact of the flow of a strong coffee harvest in the state of Espírito Santo. In 2019, for the year, we handled 174,500 containers, up 7.8% over 2018, due mainly to household appliances and electronics and granite slabs. On the right graph, general cargo handling in Q4 '19 posted a significant growth of approximately 57% due to higher volumes of granite, trails and machinery. In the full year, general cargo were 48%, hitting a record mark of 547,100 tons handled, highlight going to the handling of machinery and mining inputs. On Slide 18, TVV's net operating revenue, NOR, in the fourth quarter of '19 was BRL 44.3 million, up 14.8%. In the full year, TVV's NOR was BRL 195.3 million, representing a 30.3% increase due to growth of ancillary revenues, stemming from increased exploitation of TVV's potential as a provider of additional services to container handling. Also due to higher volumes of general cargo, which hit a record mark in 2019 and due to increased container handling in 2019, as we previously mentioned. On Slide 19, we see a table showing TVV's EBITDA. In Q4 '19, it was BRL 17.5 million, up 10.1% with an EBITDA margin of 39.5%. In the full year, TVV's EBITDA was BRL 80.1 million, up 44.6% with a 41% EBITDA margin, up 4 percentage points. On Slide 20, on the left, we see the composition of TVV's EBITDA in the Q4 '19, Q4 '18 comparison with a 10.1% growth and the contribution of BRL 5.7 million from NOR due to growth in ancillary revenues and general cargo handling and negatively impacted from increased costs of services rendered by BRL 3.9 million. On the right side of the slide, we see the 2019-2018 comparison of TVV's EBITDA with a 44.6% growth and NOR contributing with BRL 45.4 million. Now moving to Slide 21, please, we see the breakdown of Log-In's debt, which has a very long-term profile. Only 8% is short term, 92% is long-term debt. Gross debt of the company is BRL 1.256 billion, approximately, average cost of 7% per annum, and a net debt of BRL 593 million approximately. Along 2019, we had 2 very important events financially speaking. The second debenture issuance, raising BRL 90 million to pay for the final installment of the acquisition of Log-In Polaris vessel. And the taxes to nationalize it and the completion of our follow-on raising BRL 634 million. On Slide 22, we see the deleveraging evolution of the company represented by net debt over EBITDA LTM ratio. In the fourth quarter '19 after the follow-on capital increase, it was down to 2.2x, representing an extremely positive change in the company's capital structure. To end on Slide 23, we present -- we introduced the 2 new vessels in our fleet's renewal and its main characteristics. Log-In Polaris, already operational since December 2019, and Log-In Endurance, recently acquired in the beginning of March of this year, that will begin operating in May 2020. And finally, on Slide 24, we present the current operating model of the company's fleet. We have 6 own vessels, all will be able to generate AFRMM revenue for the company. I thank you for your attention and turn the floor back to Cauduro.

Thank you, Gisomar. Now we open the floor to questions.

[Operator Instructions] Our first question comes from Paula Picado, Condor Insider.

Congratulations on the presentation. I have a couple of questions. If we have a prolonged reduction in fuel prices, how will this affected the company? What about your competitive advantage versus road and -- highway and railroad transportation?

Paula, thank you for the question. This is Marco Cauduro speaking. The abrupt plunge in oil prices and consequently in bunker price, which is the main fuel of our company, does have an impact, an initial impact, with a relevant reduction in fixed costs for the company, which theoretically will be an advantage for us. A bunker price reduction with reduced structure of fixed costs. But as you anticipated, the same reduction in oil prices, reducing bunker price for our vessels will lead to a reduction in the price of diesel, which is the fuel for highway transportation. And that kind of reduces a little the comparative advantage that exists between coastal shipping and highway transportation. However, for the moment, we haven't seen any change in the competitive landscape. The gap in cost, the difference is still very relevant considering coastal shipping, cabotage and highway transportation. So we don't see a reduction in bunker prices and eventually a reduction in diesel prices affecting the competitive dynamic in comparison between coastal shipping and highway. Cabotage price-wise is still a lot advantageous in the modal comparison.

It was very clear. I would like to ask a couple more questions, if I may. How do you see the impact of the economic slowdown in Brazil? And what are the effect of coronavirus? Considering what happened in the Chinese market, how do you expect this to impact costal shipping?

Well, thank you for the questions. Indeed, due to coronavirus, there is a retraction of economic activity in our country, an impact on consumption, given the lockdown of companies and people and individuals. What I can tell you is, in today's snapshot, our business has not been affected yet. The company's performance along 2020 months remains in keeping with our plans. However, we do envision eventual abrupt impact as of April. And because of that, the company has contingency plans in place, has conducted stress tests to try to post upon investments and reduce expenses as much as possible in an attempt to preserve the company's cash. But until now, we haven't seen any reduction in our activities considering volumes handled and the results that we've had so far. However, we know that there will be an impact. We are paying attention to some industries that might have a supply issue due to issues related to inputs coming from Asia and China. But again, until now, we haven't seen any reduction in volumes due to coronavirus. But as I said before, if there is any material change in the course of our business due to the pandemic, we will be communicating to the market. But so far, I have nothing really different to share.

Next question from Joan Fuso with Goldman Sachs.

This is Bruno Amorim, actually, from Goldman Sachs. My first question is, can you give us an update on interactions with the government, any novelties that you can mention since the last earnings conference call? And then a follow-up question regarding possible impact for looking as a result of an eventual slowdown of the economy. Is there any type of take or pay in a niche where you operate? And could you confirm how long it will take for you to pass through the new bunker price for your clients?

Bruno, THIS is Marco Cauduro. The question -- the first question, there is no update. There are a number of initiatives, wishes and some measures. That the government intends to consolidate in this fostering program the rest of these initiatives. We've seen many PowerPoint presentations about that. And the government -- not exactly the government, but there are some news that every now and then are republished by the press. Regarding the government's goal to announce BR of the sea. However, there is nothing for the short term regarding BR of the sea. I know that there is some coordination and alignment of interests between the Ministry of Finance and the Ministry of Infrastructure. Now the way in which the measures will be announced partly by decree, partly by bill of law, well, that's not clear yet. We don't know any details to share with you for now. Your second question regarding impact of a slowdown -- economic slowdown due to coronavirus. Of course, we don't have a number to share with you, but we are aware that a retraction in economic activity will impact the volumes of the company. Our business, as you know, has an operating deleveraging, which is relevant. Reduction in volumes and revenue will have a nonlinear impact on the company's results. So what we do is to be close to our clients, monitoring their scheduled volumes with a daily execution plan that is very well planned and coordinated by our teams. And like I said, until now, in today's snapshot, we haven't seen any reduction in volumes or any changes in the plans vis-à-vis what we have planned for the year so far. Now of course, there are some risks for some industries. Let me give you an example. Household appliances and electronics living Manaus. Theoretically, they rely on a supply chain and inputs coming from Asia, particularly China. But so far, until today, we don't know about any undersupply or risk of operational discontinuity. However, we are not naive to believe that a possible economic retraction, contraction will not impact us. We know that volumes will be revisited. There might be a negative spiral that will come very quickly. And given that, the company prepared a stress test. So we are considering all of the volumes that theoretically have greater elasticity or change that have some reliance, independence on the imports of inputs or industries, then export to other markets that have retracted economic activities. So we are evaluating everything that is manageable in terms of costs, expenses, CapEx and working capital so that, yes, we can preserve the company's cash and so that we can mitigate all of these impacts on the company. There are many plans, commercial plans that have been established so that we can preserve the integrity of our earnings and particularly the integrity of our cash. And finally, regarding the delay in passing through the bunker surcharge. Well, we pass through quarterly. So every 90 days, we check the average bunker price realized, and we apply the respective adjustments to our shipping costs, shipping prices. The less the bunker surcharge that we had was in February 15. And we have been maintaining this practice in a transparent way with our clients for more than a year. So clients knew, they understand the dynamics. In 90 days after February 15, there will be a new review.

[Operator Instructions] As there are no more questions, I would like to turn the floor back to the company executives for their final statements.

Once again, I would like to thank all of you for joining us. I'd like to stress our responsibility in this moment that we are living as a society. I would like to urge everyone to do their part to reduce transmission of this disease and to reduce the impact on our health care service. And please, I wish you all remain healthy and hope to have you on board in our next call for 2020. Thank you very much.

Thank you. That concludes Log-In Logística Intermodal's conference call. Please disconnect your lines, and have a good day.