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

Hi, everyone. Welcome to Log-In Logistica Intermodal conference call to discuss Third Quarter 2021 results. My name is Sandra Calcado. I'm Log-In's Investor Relations, Strategy & ESG Manager, and I will be your hostess during this event. The presentation and comments about the company's results will be made by Log-In's CEO, Marcio Arany; by our CFO and IRO Pascoal Gomes; by our Chief Commercial Officer, Mauricio Alvarenga; by our Chairman's Officer, Ilson Hulle; as well as by our COO, Mauricio Trompowsky. They will comment on the company's performance and main highlights of the quarter. Then they will be available to answer your questions that you might have. The slide presentation and third quarter earnings release in both Portuguese and English are available in the results center at the company's website, but we will be showing the presentation in Portuguese here on Zoom. In addition to the rooms available in Portuguese and English, we will also provide Brazilian sign language interpreting during the whole event. [Operator Instructions]. This webinar is being recorded and will be available on the company's website. Before proceeding, as usual, let me mention that forward-looking statements that might be made during this conference call relative to Log-In's business perspectives, projections and operating and financial goals are based on the beliefs and assumptions of Log-In's management. Based on information currently available to the company, forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions, and therefore, depends on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Log-In and could cause results to differ materially from those expressed in such forward-looking statements. Now with the legal disclaimers made, I'd like to turn the floor to Marcio Arany, Log-In's CEO to share his comments.

Thank you, Sandra. Good day to all. I am Marcio Arany, CEO of the company. I would like to thank everyone for joining us on this conference call to review third quarter 2021 results of Log-In Logistica Intermodal. We will start the presentation on Slide 3 going over the main achievements of our strategic plan. Then we'll move to the presentation of our earnings. In our cabotage business, we highlight record volume, EBITDA and NOR for a third quarter. The acquisition of 2 container ships to be built at a Chinese shipyard and awards received by clients, Braskem in category Suppliers and Electrolux in the category innovation. In TVV and in logistics solutions, 3PL, we highlight historical records of volume EBITDA and NOR at the terminal and approval of the first issuance of TVV debentures in the amount of BRL 240 million. As regards to our capital structure, the third pillar of our business strategy, Standard & Poor's upgraded Log-In's ratings by 3 notches to brA with stable outlook. And our first debenture issuance was rated by Fitch's AA+ and by S&P SA. The fourth and last point is related to our corporate management strategy. We received a request for authorization from MSC's subsidiary to the Administrative Council for Economic Defense (CADE) for a public offering of shares of up to 67% of the company's capital stock. The certification of Log-In is a great place to work. Now our team will be presenting our quarter results, starting with our CFO, Pascoal Gomes.

Hello, Marcio, good morning. Thank you, and thank you for joining us on this call. Please go to Slide 4 for our consolidated results. I would like to say that this Q3 '21 was another quarter of excellent results for Log-In with a number of records, operational and financial records. Our net operating revenue totaled 20%, totaling almost BRL 360 million. EBITDA related to the same period of last year had a positive 22.5% variation, more than BRL 100 million in the quarter. And EBITDA margin increased to 0.5 a percentage point, reaching 28.6%. I think that in the quarter, the main highlights are a greater share of our feeder volumes, a 51% variation in volume. This is a line that has been growing a lot along the year of 2021, mainly at TVV. I believe we hit all of the records in our history and Ilson is going to be speaking more about that. But I believe the biggest highlight was general cargo in the quarter. With these operating results, EBIT to the prior 2 quarters that were also very strong, Q1 and Q2 of 2021. Although that led us to post very strong variations in NOR, net revenue and EBITDA of 25% and 30% in the first 9 months of the year compared to the same period of last year. Our margin grew by almost 1 percentage point, reaching 26.4% year-to-date. And it is in the upward trend, as I'm going to show you on the next slide. But another important highlight before I move to the next slide is the increase in adoption of our digital platform, Log-In, that reached to more than 50% of our customer base. So more than 50% adoption by our customer base. EBITDA, both in the quarter and year-to-date, was also positively impacted by efficient management of operating expenses, which were down almost 7% in the quarter. And costs grew proportionally to volume, particularly bunker fuel as pricing dollar has been increasing in the dollar rate, which is more appreciated and has affected our results a little bit. But this was totally offset by our dollarized revenues from feeder and Mercosur. Now moving to the next slide. This is a message that is very clear. Looking at the EBITDA and NOR in the quarter, we hit record marks. The NOR was the highest ever in Log-In's historic series, not only up 20% over Q3 '20, but almost 30% higher than the best pre-pandemic quarter, which was Q3 '19. Year-to-date, we mentioned we had a significant growth. As regard to EBITDA, variations are even more positive. This was up 22.5% over Q3 '20 and almost 47% over the very best quarter in the pre-pandemic series. This shows a resilience of Log-In and the composition of our business, because one business line might be doing better than the other and a 30% variation in the 9 months of the year. The margin has been growing, starting at 24% in Q1, increasing to 29% in Q3. It is lower than the average margin of last year quarters a lot because of our Ro-Ro vessel business which has a lower margin compared to other business lines. So that ended up reducing a little bit our average margin. And this business has been growing, has been resumed along 2021. I now turn the floor -- well, actually, before I turn the floor to Mauricio Alvarenga, let's continue talking about our financial results. Please note that in Q3, exchange rate variation helped us have a lower exchange rate expense in our financial results. That was coupled with our hedge accounting strategy, which meant lower oscillation in that business line -- business result line. When we couple that with our excellent operating performance, looking at the graph on the right, we can see that Log-In has been posting consistent profit results over quarters. We made BRL 60 million of net profit -- net income in this quarter, more than 500% variation over the same quarter last year. In the 9 months, '21, we started with a loss and moved to a profit of BRL 76.5 million year-to-date. Looking at the bottom table. In the last 12 months, our earnings per share is almost BRL 2 per share, the very best result in Log-In's historic series. Now moving to the next slide, I turn the floor to our -- to Mauricio Alvarenga, our Chief Commercial Officer.

Thank you, Pascoal. I am Mauricio Alvarenga, Chief Commercial Officer of Coastal Shipping. Before I dive into our Q3 '21 figures, I would like to highlight that we had a very strong quarter in turnover and business volume as well as an excellent operating performance of coastal shipping. We achieved new records in volumes and operating revenue, but also a high level of service. We had 2 customers from different industries, one from the chemical -- petrochemical industry and another from the home appliances segment, that awarded Log-In in this quarter, which indicates that our actions are linked to level of service and customer focus are on the right track. Looking at Q3 '21 and the 9 months of 2021, Log-In performed above the average growth for the sector. As measured by the Brazilian Association of Cabotage Shipowners. Our vehicle transport operations also posted a very strong quarter, as Pascoal mentioned. Despite great difficulty on the part of automakers that have been facing component shortages around the world. It is precisely the much stronger volume of vehicles handled in Q3 '21 compared to Q3 '20, that drove our EBITDA margin to drop 3 percentage points, as indicated on Slide 7 at the top right. Our total net revenue was BRL 279.1 million, up 15.7% and volumes reached 117,000 TEUs, up 23.5%. Volume growth in Q3 was concentrated a lot on feeder, as Pascoal mentioned, and feeder has been performing very well throughout the year. It was also impacted by Mercosur cargo and here especially in the Brazil to Argentina export flow. Feeder has a slightly different characteristic. Normally, these are short routes and a good part of the volume was in these short routes that we call double use by users. Our EBITDA reached BRL 80.7 million, up 5% over Q3 2020, another record for Q3. It is important to comment that Log-In's discovery finished the period that started in Q2 '21, in which it was replacing docking operations and started to operate in the international market on a charter basis. And this vessel is expected to continue on a charter basis, operating in this mode until early 2022, capturing a very significant market opportunity. Thank you very much for your attention. I now turn the conference over to Ilson Hulle, our Terminals Officer.

Thank you, Mauricio. Good day, everyone, and I hope you're all well. I would like to start with some highlights regarding the operation of TVV and speak a little about this quarter, which was very good for our operations. For the third consecutive quarter, Log-In posted record net revenue and EBITDA in our operation since we started operating TVV. Making this our very best 9 months since the company started operating. Besides the financial highlight, I would like to stress the strong container handling operation in the period, another record mark for a third quarter since the start of our operation. This quarter saw months of intense and strong container handling at the terminal. I mentioned this in the previous conference call and I stress this, once again, we have spared no effort to react to this increasing volume. We have increased our headcount and made the necessary investments to guarantee our operating capacity and to serve the strong demand for our operations. TVV financial and handling highlights reflect another quarter with continued growth in international trade deals in our region of operation, which includes the state of Espirito Santo a good part of Minas Gerais State, Rio de Janeiro State, and even some handling from Sao Paulo. The civil construction market in the U.S., our main customer is still quite overheated, particularly in Southern USA. With a positive impact of or ornamental rocks from Espirito Santo and these ornamental rock use TVV as their logistics operator that benefited our volumes. In addition, coffee produced particularly Espirito Santo mountains and in Minas Gerais, also continues to enjoy good international demand and that benefits container handling prior TVV. I would also like to underscore an important highlight in this quarter, which is general cargo volumes. We had 280,000 tons of general cargo, up 70%, by far the very best quarter since the start of TVV's operation and the result shows exactly where we want to get. For some months now, we have been commenting on our strategy to diversify TV to turn TVV into a multipurpose terminal, capturing new business for the operation. And this is the result we are pursuing, 280,000 tons of general cargo. Highlight going to fertilizer and coal operation, new products that we started to operationalize 2 years ago and that now present a huge source of new revenue for our business. With that, we were able to end the quarter with BRL 70 million in revenue, a record growth almost 40 years year-over-year and an EBITDA of 32.2%, another record mark, an almost 50% increase year-over-year. These 2 results reflect what I have been mentioning over 2021, intense handling and the increased capacity of TVV. Finally, I would like to update you on our TVV modernization project. I have given you some highlights about the progress of this important investment we're making. In September of last year, we announced investments amounting to around BRL 120 million until the end of 2022. And we are practically halfway in the project. And we are finishing the construction of part of the equipment that will arrive at TVV. We have sent a team of our experts to Germany to follow up on the final stage of construction of the mobile harbor cranes, a 150 tons of lifting capacity each. They are practically ready in Germany and will be shipped in the coming weeks. And also, the final part of the manufacturing of the 5 new reach stackers that are being manufactured in the Netherlands, and they are expected to arrive in January. So by early 2022, already in January, we will have a new TVV operating with new capacity with increased capacity and productivity and we are only halfway along the project. It will continue along 2022. By the end of next year, we will complete a retrofit of all current equipment of TVV. The project is moving ahead on schedule and the expectation is that by early 2022, we will have an improved performance of TVV. We are looking forward to the arrival of the new equipment, the modernization of TVV and continuing to capture new business for TVV. We've been very successful with that. And the results that we are reporting reflect everything we are doing for this asset. This is what I had for you in terms of TVV in this quarter. I turn the floor back to Pascoal.

Thank you, Ilson. To continue the presentation. Regarding our indebtedness, I think the main highlight is clearly the level of leverage expressed by net debt over EBITDA ratio, which is the lowest in our historic series, 2.1x net debt over EBITDA. As you can see, our cash has been stable in recent quarters. Despite the fact that we are making investments, particularly CapEx for our costal shipping and TVV. Part of the CapEx for the projects that Ilson mentioned of renewal of the technology park at TVV. So there is a dip in the end of last year to first quarter 2021 because we invested in a new vessel, Log-In Discovery, but still with an improved operating performance in EBITDA. Our leverage strategy has remained consistent. I think at a very positive factor contributing to that is in the bottom chart in our amortization schedule. We have been talking about that. In Q1, we had debt to be amortized by Q1 2023. So as our debt amortization schedule was more concentrated until 2023. So we decided to manage the risk with the new issue that extended -- extended our amortization schedule. This meant a relevant cash savings of around BRL 270 million until that date. All of that contributed directly to improve the company's risk perception. Our debt portfolio is rather balanced. It is very much concentrated on the long term. For 2021, you can see with this new instrument, we were able to reduce our leverage, our level of financial outlay to pay for debt interest. Now moving on, speaking about relevant subsequent events I would like to announce firsthand that we are releasing our first sustainability report relative to the year of 2020. We are very proud of that at Log-In. You're going to see -- this is a report that is simple, objective, standardized. We used international GRI standard. It has the Log-In look and feel. 45 standardized and globally comparable KPIs because we're using the global reporting initiative. The report is already warranted and audited. We were careful to focus on themes of high materiality. Among these high materiality themes, which is to focus on greenhouse gas emissions as the theme to be zoomed in and detailed and we discovered with our carbon footprint inventory. With this covered then 82 -- around 82% of our emissions come from coastal shipping and 17% from our intermodal operation. When we compare shipping -- shipping operations, handling of containers via cabotage when we compare it with road transportation, which is our main competitor. We have an emission factor, which is 80% better in terms of carbon emission vis-a-vis road transportation. It complements our integrated logistics service, but it is our main competitor and that's why we want to convert cargo to cabotage. In addition, fuel consumption average head an average factor, 73% lower in favor of shipping and that comes to prove Log-In's vocation for a lean operation. The last polluting operation have been investing in new technologies, particularly for our vessels. Whenever we acquire a new vessel, we raised this point, and we take this point into account when we make a decision because we want to become more and more a differentiated company in terms of sustainability, not only environmental sustainability, but social sustainability and governance. Let's now go to the next slide about a month ago, we disclosed to the market that we acquired -- we purchased 2 new containerships. These 2 new containerships will be built at a Chinese shipyard and this action is in line with our fleet expansion plan. Each one of these have vessels has a nominal capacity of 3,150 TEUs approximately. Each costs $42 million, almost $43 million. These are modern and efficient vessels when we compare with our most modern vessel Log-In Polaris. These vessels will be approximately 25% greater in terms of effective capacity compared to Log-In Polaris. So this -- and they have a similar fuel consumption performance, thus contributing directly to reducing pollutant emissions spread transported container. The first vessel will be delivered in December of 2023. The second ship is expected to arrive in May 2024. Well, I now want to turn the floor back to Marcio Arany.

Thank you. Well, thank you. Now we will begin the Q&A session. Pascoal, Alvarenga, Ilson, Trompowsky and myself remain available. Thank you.

We will begin the Q&A session. [Operator Instructions]

We have here a question by [ Guilherme da Costa]. Regarding Log-In's liquidity profile since 2019. The company has had cash positions that are robust from BRL 500 million to BRL 600 million. Can we expect this liquidity level will be maintained in the coming quarters?

I will turn the floor to Pascoal to answer your question.

Let me speak about liquidity. We have a very clear policy of Log-In. To maintain a liquidity cushion, we overcame the COVID-19 prices with a lot of cash, with a lot of liquidity, and that gives us some peace of mind to run our day-to-day operations and not losing focus on the relevant parts of the business without having to worry about the financial management of the company. Now of course, [ Guilherme ], we're executing our plan that we communicated to the market during the 2019 -- during our follow on deal, we were thinking about increasing our productivity. So the new -- the recent acquisitions of vessels that we have done. Since then is using this cash, such as Log-In Discovery the first quarter of this year. We have a down payment. We will pay for these 2 vessels, as I mentioned in the presentation, with our cash generated along the contract milestones. The TVV investment, which we had announced in the past to renew the technology part to increase TVV's capacity, that project will be funded. We have had a deal communicated to the market. We will issue [ incentivated ] debentures raising BRL 240 million to fund this very relevant project at the terminal. So in terms of our strategy to use our cash, particularly for expansion projects, vis-a-vis financing structured financing to improve our debt profile, extend the maturity of the debt and lower the cost of the debt. Well, all of that is a constant dynamic in our decision-making. So as to try to preserve our liquidity cushion, which is important for the company.

We have another question by [ Juan ].

The question is good day, how are you doing? I hope you're well. What about the MSC acquisition process, if approved? Is there any plan to restructure services?

Thank you, [ Juan ], for your presentation I'm going to answer it. This is still pending approval by CADE, the antitrust agency. Log-In is the object of the acquisition. So this is a conversation that MSC will have with our shareholders. They have requested or authorization with CADE to be authorized to have the deal, but we cannot disclose anything and not talk about it until the deal is complete. I'd like to remind you that MSC would hold up to 67% of Log-In but Log-In will continue to be a listed company in the stock exchange. We would continue to work with MSC but simi0lar to what we have here with all the information that Log-In's shareholders have.

We have another question from [ Leonardo Martos ]. The question is, how will the new vessels contribute to Log-In's growth strategy in the Brazilian and Mercosur market?

Thank you, [ Leonardo ], for the question. I will ask Alvarenga to answer your question.

It's an interesting question. This is a question that we ask ourselves internally when we are discussing the strategy of our business looking forward. Yes, probably a way that we have Log-In Discovery as a growth strategy. But then it's a foreign vessel to operate in Brazil, it depends on a specific legislation. Now when we talk about these new vessels, these are 2 new vessels in the current legislation. When ready, the 2 vessels will be able to be imported and brought to operating Brazilian cabotage, regardless of any new law. So that gives us some security in that regard, and this is part of our strategy. These 2 vessels will encourage the growth of cabotage, which is what we've been doing in recent years, the history of Log-In in recent years has been a story to convert road transport. We believe a lot in this market, a lot of the cargo that is fit for coastal shipping and cabotage is still being transported on highways and these vessels will help us develop new capacity from new cities. And of course, Mercosur and neighboring countries are part of our strategy. We haven't yet defined where exactly the vessels will operate, but they will fit our core business, which we have been developing in recent years.

We have a question by [ William Wu ].

Hello, could you elaborate on how -- regarding the volume, 282,700 tons of general cargo handled in TVV was for fertilizers, general cargo in vehicles.

We don't normally break down our numbers with fertilizers and coal. Our cargo with high weight. So a vessel with fertilizers, we're talking about 30,000 tons for coal, 20,000, 30,000. For most 5,000 to 10,000 in vehicles weigh a little less. How the general cargo projects equipment don't weigh so much. So what I can tell you is that the good part of these volumes are in bulk, fertilizers, molt and coal. In addition, we had significant growth of vehicles and this has been happening given the new vehicle yard, just next to TVV. We separate level with the automaker -- automakers' production issues. Particularly in Europe and Asia, where most imported vehicles come from. But we grew a lot and part of our growth comes from bulk, particularly fertilizers. Our Granite blocks to China remains stable. Not a lot of growth right now from the Chinese market, but a good part of the growth comes from bulk, fertilizers and coal.

[Operator Instructions]. We have here another question by [ Maria Susan ].

What would you be doing with the last vessel acquired without [ BR Bomar ] the Highway of the Sea.

Well, we have some alternatives. One of them is being used. One of them of also is being used in the international market. I would say that if a Log-In, we're not committed to developing cabotage in Brazil. For the next 2 years, we would leave the vessel in international trade, but we want to bring in the vessel. We want to work here in Brazil. We believe that with BR Bomar should be validated by early next year. Again, in our classic scope of action, we can use the vessel for Mercosur. We could open a feeder service for the Caribbean feeding Brazilian ports. There are a number of alternatives that we can adopt. If BR Bomar doesn't come through. We also have a Log-In Pantanal. We have a lot of options that we can use actually. It will depend on the moment and on the decision that we make.

We have another question by [ Guilherme da Costa].

Regarding the 2 vessels being built in China, will they have a Brazilian flag to be able to receive AFRAM.

That will depend a lot on BR Bomar. Today, at least one of them would have a Brazilian flag would be nationalized to ensure tonnage for Log-In.

I have another question by [indiscernible].

You commented in Q3 that there was an increase in the share feeder in costal shipping. Looking forward, should we expect the same mix between feeder and coastal shipping and therefore, a unit revenue closer to Q3? Or should we expect a normalization to levels closer to the first half of the year?

I will ask Alvarenga to answer.

This is not a simple question to answer because we were considering the opportunities that we have in the market. Peter is enjoying a very good moment and this is a little related to what is happening in the world market. What I can tell you is that feeder has a good fit, a good characteristic for our business. Like I said, most of the routes are short. These routes can we -- can we double or triple use our slot that gives us the capacity to handle high volumes in some regions. And in this moment of the world market international shipowners are facing great difficulties given the world context, either related to shortage of containers or demand. And Log-In has been a solution to sometimes avoid them having to stop at more Brazilian ports or having to go to Argentina. So we are taking this market moment. We're taking the opportunity, this market opportunity. But our focus has been a lot on cabotage. In other words, we will continue to bring cargo from trucks to cabotage. So it will all depend on the international context, on feeder performance. But what I can tell you is that we will continue to pursue the best opportunities for Log-In. What is best for the company, given market conditions and our operating conditions so that we can load more cargo in our ships, in our vessels.

Well, as there are no more questions, I would like to thank all of you for joining us, and I'd like to return the floor back to Marcio Arany for his final messages.

Thank you, Sandra. So my final statements are. Well, one classical take home message is that we want to stress the excellent result in Q3 in all our business lines. All business lines continue with vigorous business and extremely positive record results. With the acquisition of the 2 vessels and the publication of the company's first sustainability report with the inventory of Green House gas emissions. Like I said, the commissioning of the 2 containerships. These are important steps towards the consolidation of our strategic plan. And I'd like to say that Log-In continues motive -- motivated, safe and focused to continue to deliver consistent results. Thank you very much for your attention, and I wish you a very good day.

Thank you. The conference call of Log-In Logistic Intermodal to discuss Q3 2021 results is ended. Please disconnect and have an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]