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

Thank you, everyone, and welcome to Log-In Logistica Intermodal conference call to discuss second quarter 2022 results. My name is Sandra Calcado. I'm Log-In's Investor Relations, Strategy and 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; our CFO and IRO, Pascoal Gomes; our Commercial Officer, Felipe Gurgel; our Terminals Officer, Ilson Hulle; and the Director of Tech, Mauricio de Alvarenga. They will comment on the company's performance and the main highlights of the quarter. And they will be available to answer questions that you might have. The slides presentation and earnings release in 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 them. In addition to the rooms available in Portuguese and English. We will also provide Brazilian sign language interpreting during the whole event. I'd like to remind you that all participants will be in listen-only mode during the company's presentation. Later, there will be a question-and-answer session when further instructions to participate will be provided. Be advised that 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-Ins management and on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions, and therefore, it depends on circumstances that may or may not occur. Investors should understand the 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 start the presentation.

[Interpreted] Good day to all. I'm Marcio Arany, CEO of the company. I would like to thank everyone for joining us on this conference call to review second quarter 2022 results of the Log-In Logistica Intermodal. We will start the presentation on Slide 3. Going over the main achievements of our strategic plan, we have structured our strategic plan around 4 blocks: coastal shipping to BPM terminals, Tekmar to the fourth pillar, our ESG agenda, which permeates all of the company's business lines. Next. So we will now move on to the presentation of our results. In our cabotage coastal shipping business, we highlight record quarterly NOI, highest EBITDA for the second quarter, highest container volume handled in the second quarter, highest Mercosur volume for the second quarter and NPS in the quality zone. In TVV and in logistics solutions to 3PL, we highlight historical NOI record, record EBITDA, record handover of warehousing and other services, highest volume of general cargo handled for the second quarter and NPS also in the quality zone. With regard to Tekmar, we continue to emphasize the company's restructuring process. We highlight an increase in our customer base by 7.5% compared with the previous period. The restructuring of the Northeastern branches, implementation of the FX manual and complaint channel for the whole team, the training of 1,380 employees in our safety culture and the change in the aggregate hiring model. The fourth and last point talks about our East [ year ] agenda, where we also highlight 18% reduction of greenhouse gas emissions with EU transport comparing 2021 with 2020. Continuity of the various social initiatives already implemented in the company and the publication of the 2021 Sustainable report. Next, our team will present the results of the quarter, starting with our CFO, Pascoal Gomes.

[Interpreted] Marcio. Thank you very much. Good day, everyone, and thank you for joining us on this call. Please go to Slide 4, where I present the historical series of results until Q2 2022, and the novelty here is the inclusion of Tekmar results. Once again, as Marcio mentioned, we had a quarter with excellent results for Log-In. We achieved record marks for cost of shipping, TVV, a number of good results. Now talking about the historical series, our net operating revenue totaled BRL 452.6 million, without Tekmar to still a significant 28.3% increase over Q2 2021, and it is the best historical record of results for the company. When we add PegMiles revenue for the period of BRL 156.6 million, the consolidated NOR totals BRL 609.2 million. In the half year, NOI variation on the same basis. In other words, without Tekmar is 29.4%, reaching BRL 841 million. EBITDA variation between the quarters on the same basis was 38.6% at BRL 129.1 million, also a record in the company's historical series. With the contribution of BRL 6.4 million from [ Tekmar ] then this result totals to BRL 135.5 million in the quarter and BRL 149.6 million for the half year, a variation of 52.5% compared with the first 6 months of the previous year. Slide 5. I present the consolidated results for the quarter in the half year. And the significant growth is due to higher volumes transported in coastal shipping, especially the increase in the occupancy level of our vessels, which grew 6.4% in the quarter. This is mainly due to new clients captured. Another effect that contributed to this revenue increase was the positive variation in the unit NOI in all coastal shipping trades, [ Merchsur ], feeder and Cabotage. The explanation of that is a better mix. This is constant work that our commercial teams do to convert cargo particularly from road transport and to improve our cargo profile transported in our vessels and also due to better price. Price has the component of variation. The bunker price variation, which has been increasing a lot, particularly with the Ukrainian war, that has been growing just as the pandemic. And together with that, we had a record general cargo handled at TVV, growing 16.7% between the quarters with a direct impact on net operating revenue at the [ Villaver ] terminal. So also with General cargo, we had ancillary revenues of warehousing and other projects that TVV is working on. Ilson will speak more about TVV. When all of this clearly shows that the strategy of transforming TV into a multipurpose terminal still in progress is being effective. The market overall had a plummet in the volume of containers. Ilson is going to speak about that with general cargo hit a record mark. It more than offset a reduction in the volume of containers handled.  EBITDA was up 29.4% over to 221 and 48.6% over the first 6 months of 2021 without Tekmar. This strong rise was driven by the increase in revenues of the company's core businesses, as already highlighted. In addition to the 8.5% and 15.8% growth in [ FRM ] in the quarter and half year comparisons, respectively, due to the expansion of capital revenues. Once again, this revenue growth more than offset cost pressures. Of course, we are feeling inflation pressure on our cost base, mainly derived from bunker prices and coastal shipping and diesel prices in door-to-door delivery services. In addition to our payroll, while we held back salary increases during the pandemic, but now we had to resume those. Lastly, consolidated EBITDA margin, although dropping 4.2 percentage points to 22.2% in the quarter due to the inclusion of Tekmar in the company's results with a very tight margin. Well, the consolidated EBITDA margin remained stable in the half year, 25%. And this means that the margin without Tekmar would have expanded for another quarter. In Q2 2022, we posted net income of BRL 22 million, a positive result for the fifth consecutive quarter, which was not even better quarter-on-quarter due to the exchange variation effect on the balance sheet. In Q1, we had the opposite exchange variation effect. And I always like to underscore this exchange variation effect is only on the balance sheet with no material cash effect in the short term and reached a net income in the half year of approximately BRL 82 million if we compare with the first half of the previous year, this increased more than 400%. Now I'll turn the floor to Felipe Gurgel, our Commercial Officer. Thank you very much.

[Interpreted] Thank you, Pascoal, Good day, everyone, I am Filipe Gurgel, Commercial Officer. As highlighted by Marcio and Pascoal, we had an excellent quarter, achieving some more important records in our results of coastal shipping. Please go to Slide 6. This second quarter, we had an increase in the volume of containers transported of 6% compared to the same period of the previous year, we transported about 116,000 TEUs. This volume was driven mainly by the [ mercer ] trade, which grew 52% over Q2 2021 and 67% over the first 6 months of 2021. We also reached the highest historical NOI, of course, all shipping approximately BRL 359 million, up 29% over the same period of 2021. The highlight was the NOI of container shipping, which grew 39%. This revenue is a result of a better mix of cargo, the best-through of bunker costs and the high utilization rates of our vessels. Costal shipping EBITDA reached BRL 101 million, about 31% higher than the same period of the previous year with an EBITDA margin of 28%, the highest result for a second quarter. Year-to-date EBITDA was 56% higher than last year. Lastly, I would like to point out that we are quite confident in the plan that we have structured for the second half of the year, a period that historically has seen an increase in demand. We are already operating with Log-In discovery in Kebotachand [ Mercosur ]. At the moment, she's replacing Log-In Jacaranda, which is performing its mandatory docking of tenures. During this period, in addition to all the scheduled, preventive and corrective maintenance, we will implement projects to increase the vessel's energy and operating efficiency. Subsequently, Log-In Discovery will replace Log-In Pantanal, which will also perform its mandatory docking. In this way, we're able to maintain the capacity and regularity of our services in order to maintain a high level of service to our customers. I now turn the floor to you from Ilson Hulle who'll present TVV's results.

[Interpreted] Thank you, Gurgel. Good day, everyone. Again, it is a pleasure to have you all here. So we can talk about TVV. I'd like to start reinforcing some highlights that were mentioned by Pascoal and Arany. On Slide 7, I will give you a summary of the financial and volume results at TVV. I would like to start mentioning the NOI, which reached a historical record since the start of the operation, BRL 79 million with a very substantial growth of almost 21% in a year-over-year comparison. I would also like to highlight EBITDA of Q2, which totaled BRL 37 million, also a record mark since the start of the operation. A record mark for any quarter, posting almost 25% growth when compared to second quarter 2021. In addition to the financial records, I would also highlight the volume of general cargo during the period, 190,000 tons, growing almost 17% in the year-over-year comparison. So a very important quarter. Our container volumes dropped 17% with 39,400 units when compared with Q2 of 2021, which was a period when we had a strong economic upturn after COVID. These volumes reflect what I have been mentioning. We have had a successful strategy, increasing the mix of products in the portfolio of the terminal. Bringing to TVV business other than containers. This strategy has proven to be very efficient. And this quarter reflects that as a quarter when volumes posted a reduction, but we were able to offset that with an increment of general cargo, thus supporting our financial results. This quarter, we were successful in capturing [ steelmaking ] end project cargo in addition to bulk, which has been constant cargo in our operations. Now speaking a little about the reduction in container handling. This reflects the comparison of this year with last year. Last year, during the second quarter, we were resuming work in the post-pandemic period with an abrupt uptrend of the economy, which drove volumes in general. This reduction in this quarter is reflected not only TVV, but in container terminals as a whole. This is a relatively normal movement given the instability that we have seen in container handling globally. When we compare with the pre-pandemic period, we can see the volumes are in quite a good shape. Lastly, I would like to give you an update on our modernization and expansion project for TVV. We have our 2 MHC in full operation, also supporting these volumes of general cargo. This new equipment has brought to the terminal, a lot of versatility and additional productivity. And we have captured new cargo because of that. In addition, we started phase 2 of the project. We also communicated to the market an important contract we've signed with Siemens for a complete retrofit of our FTS [ deportainers ] equipment that we used to move containers. This contract has been signed. The project is unfolding, and we believe that by 2023, we will have all 3 pieces of equipment totally modernized, and this will increase productivity and capacity for container handling at TVV terminals. We this is what I had. Thank you very much, and I will be available in the end for questions. I turn the floor to the officer in charge of Tekmar, Mauricio de Alvarenga.

[Interpreted] Thank you, good day one and all. I am Mauricio de Alvarenga, Officer-in-Charge of Tekmar [ Despocio ]. Since the acquisition of Tekmar was recent on March 18, 2022. I would like to reinforce the reasons why Log-In acquired Tekmar. You see playing into parcel cargo market in Brazil was something important. It was part of our strategic plan. This is a business that is operationally more complex than cabotage, which requires a structure of pickup and delivery routing. It requires warehouses for storage and cross-docking in the several regions of operation and cabotage was find it very hard to get into this business. So this was our plan to understand this business a little better because parcel cargo accounts for a good part of transport in Brazil. And we saw great potential in Tekmar and a lot of synergy to be derived with Log-Ins activities. We're going to see this in a moment. As the acquisition took place in March. Here on Slide 8, we see the figures. It is the first disclosure of results of Tekmar. Please note that we have an expressive net operating revenue of BRL 156 million and EBITDA of BRL 6 million and a midterm margin that is still low, as Pascoal mentioned. The road market has suffered a lot with fuel price increases. But what matters at this stage is to look at the customer base and the work that we are going to do to restructure the business. When we took over the management of Tekmar, we identified the abrupt and successive increases in diesel oil costs, especially in the last 12 months had considerably affected the profitability of the business and Tekmar did not have the same speed of agility to make the necessary adjustments in the rates charged to its customers. But this is what we have begun to accelerate, particularly in the end of Q2. In these first weeks at Tekmar, our management focused its efforts on mapping the management structure in particular on mapping for main gaps that affect the results and on developing a master plan for the continuity and management of the business. Even in this little time, we were able to start a training plan for our employees, focusing mainly on safety, as Arany mentioned in the beginning, but also focusing on compliance, fuel consumption, management of indicators and problem handling more than 1,300 employees have been trained. On Slide 9, we can see the new map of Log-In's operations with Tekmar in addition to this extensive shipping, cabotage network, which covers the entire Brazilian coast from Manaus to the Mercosur countries, there is now Tekmar road distribution network, which includes 50 branches and provides service to around 2,600 cities in 17 Brazilian states. I can say, I can affirm that we are now the Brazilian logistics operator with the most complete logistics network when we add cabotage en route. And our goal is to have differentiated products to capture the best of each transport mode integrating cabotage shipping, with port operations, road operation, the distribution centers that Tekmar on its network, the distribution of parceled cargo and all of that, one way or another, integrated. [ For a product that we have called 3PL indeed robust logistics network ]. Now we certainly have a lot of work ahead of us. The business has tight margins. But in 2022, we will focus on the restructuring. But I believe that the main thing our team is very motivated to pursue this goal. So thank you all. Let me turn the floor back to Pascoal, our CFO.

[Interpreted] Thank you, Alvarenga. Well, let's move to the next slide, where we show our indebtedness. For another quarter, the highlight is the deleveraging of the company. We measure the main indicator, net debt over EBITDA ratio in the last 12 months. And you can see we are the lowest historical leverage level of Log-In in our whole historical series. Where does this come from, although the gross debt was impacted by the exchange rate, our cash position improved. Quarter-on-quarter. And there was a significant expansion and increase in our EBITDA in the last 12 months. And this is why we're reducing the debt of the company. I always say that there is room for us to get more loans for Log-In, if good projects arise. We have, of course, financial covenants to be complied with, but we have a lot of room to expand our debt level for good projects in the future. Our basket of indicators is quite balanced with CDI, TJLP, Dollar IPCA. Not that we have any good interest indicated in Brazil at this point, but the debt is very much long term. We can see in the bottom graph in the amortization schedule that we were able to extend our debt since the first quarter of 2021. So we have been operating very easily our ability to service our debt in the coming years. On the next slide, the big highlight is our second sustainability report, which was published and launched during the Log-In day. We had debt investors, equity investors and we have the launch and the publication of our report. This is a report verified by an independent body detailing our very high materiality actions. We are compliant with international standards GRI that give us the standards for this report. We also comply with FASB Sustainability Accounting Standards Board. And we also included in alignment with the sustainable development goals of the UN Global Compact. The report has a number of important indicators. One of them, Marcio mentioned, 18% reduction in greenhouse gas emission in our shipping business in 2021 versus 2020 in emissions for [ TU ] transport. And this is due to the higher occupancy of our assets, of our vessels parallel to that when we dock a vessel, we make investments aiming to increase the efficiency of dual consumption for economic reasons, but also for environmental reasons, according to our ESG agenda. We also have initiatives that harness our corporate social responsibility and governance. I really recommend that you download the report in our IR website. The report is really nice, and it was made for you. Thank you very much. I now give the floor back to Marcio.

[Interpreted] Thank you, Pascoal, Ilson, Gurgel and Alvarenga. We will now begin the Q&A session. We are available. Thank you very much.

[Operator Instructions] I have a question by [ Gilenya Aveja ]. Good afternoon everyone. For Q3 2022, do you see any reduction in terms of volumes? He asks 3Q 2021, but I think he refers to Q3 2022. I'll ask Gurgel to speak a little about cabotage and our expectations, and then Ilson will speak about terminals.

[Interpreted] Thank you [ Gilenya ]. Well, we have interacted a lot with our customers trying to get a diagnosis for the second half of the year and for Q3, of course. In all of our interactions, they have been very positive in terms of maintenance of the volumes we've had so far. We have been able to maintain our vessels with a very high occupancy level. Seasonally, the second half normally has a higher demand. So we should maintain the same pace and perhaps increase the level of volumes a little bit. Ilson? You can add.

[Interpreted] Thank you for the question. From the standpoint of terminals we see what I mentioned, the reduction in container volumes, but there are some facts that are favoring volumes, which is a slight reduction in international freight prices that can favor the volumes of imports and exports, our main businesses, granite and coffee. We see a little more impact on coffee. Due to logistics, competition among producing countries, and that in favor of Brazil. So if it favors Brazil, we can have a volume increment in containers in the second half. For general cargo, we see a lot of demand for projects, and this has favored the volumes of general cargo. And the second half of the year is historically a period when we capture more bulk business. So we have a growth expectation there as well. Alvarenga could also speak about Tekmar's expectation because now we have the third pillar.

[Interpreted] Thank you, Marcio. Well, Tekmar is slightly differently than TVV and coastal shipping because we are in the process of integration. We're trying to understand how the Tekmar network works. I could say that we still don't have a lot of information. But what I can say is that normally, the second half of the year is strong for the road market as well. But I believe that we are going to be selecting now our customer base. This may not be reflecting an increase in volume for Tekmar transport, but we will be focused on the quality of volumes that we will be transporting in the second half of the year. What matters is that the second half of Brazil tends to be stronger for the internal market, and we are part of that business.

Question asked by [ Murilo Campos ]. Fifth consecutive quarter with a record NOI. What can we expect for the coming quarters?  Thank you for the question, Murilo. I will answer that myself. We continue to be very motivated with our work. We always operate looking forward. We don't work looking just at the next quarter. We have a lot of seats to grow and to bear fruits in the coming quarters, and we are very confident that we will continue on this growth path in all of our business lines.  We have Pedro Pimenta with 11 Financial. He raised his hand, Pedro. I will enable your microphone.

Good day, everyone. Can you hear me?

Yes. Yes, we can.

I have 2 quick questions. My follow-up question for TVV. We saw new volumes in the steel making segment -- My question is, do you think that this is a recurring business? Or is it a one-off effect in this quarter? Second question about Tekmar. In the consolidated numbers, we saw that the EBITDA margin was very much reduced. But this is not the best way to analyze the business. So could you give us an idea -- I know it's not a guidance, but what do you expect in terms of margins in the long run for Tekmar? Once you enjoy all of the synergies with Log-In.

Thank you, Pedro. I will ask Ilson to speak about TVV, and then Alvarenga will speak a little about Tekmar.

[Interpreted] Thank you, Pedro, for the question. We understand that this can be a recurring business. I cannot really say what kind of volumes we will be handling because we depend on the steel making market since it's overheated, new and more opportunities will arise. When it contracts, opportunities are also reduced. Here in the region of [ City to Centre ], there is a big steel making hub, and we benefit a lot from that. For some product lines, we end up using the exclusive terminal for some exports and imports flows. For others, we are considered an alternative terminal and we operate on demand. But we understand that this is something that could be a recurring business.

[Interpreted] Pedro speaking a little about Tekmar.  The road market, according to the information that we have and that we monitor, with tight margins. We knew that -- it's kind of hard to say what will be the margin that we will be operating with. But what I can say is that this market operates with 10% to 15% margin. And this is what we are going to pursue. Again, this is not our immediate focus. We're going through a restructuring process, and we are a lot more focused on that right now. We want to solidify the foundation of the company in 2022. So that in the coming years, we can capture more results. When we talk about synergies, there are a lot of synergies mapped with coastal shipping, especially with coastal shipping. But the synergy gains will not necessarily go to Tekmar. It will go to the whole group. So we won't necessarily have that reflected in Tekmar's results. To give you an example, we have started the transport of part of Tekmar's cargo in-containers. So that's already reflecting a positive result for coastal shipping, but we don't see that in the Tekmar results. I just wanted to get a sense of the dynamic. The synergies arrived, will go to the whole Log-In group and not necessarily to Tekmar line item. So the way we look at this has to be through this angle.

I have a question by [ Suvier ] Hernandez.

Congratulations on the results. To what extent the MSC expertise contributed to excellent results? To what extent this expertise has been helping Log-In?

Thank [ Suvier ] Hernandez. For now, the MSE expertise has not contributed at all what you see is Log-In's efforts to achieve these results. We are starting to understand now the synergies, particularly cost and know-how that they can help us with. They have global contracts with suppliers. They have know-how for fleet management and maintenance management. So some of our teams are interacting with MSC in terms of learning and identifying this kind of synergy. But today, the progress and performance of our earnings, well, that's all Log-In's efforts.  We have another question, [ Sean ]. He says good day, everyone. Congratulations on the excellent results for Q2, even with the reduction in bunker price in the last few weeks, do you believe that prices passed through to the market remains at the current levels, given the usual increase in demand in Q3?  Sean, thank you for the question. I will answer that myself. To answer your question, yes, I believe that we will continue with this level of average freight prices because of the cargo mix that changes in the second half of the year. Naturally, sources of cargo origin and destination change in Brazil, and we act to improve the average profitability per slot in our vessels. So bunker prices dropped. And of course, you know we have a rate that follows bunker fueling price increase. It too little so next month, this rate might be reduced if the trend continues. But in terms of average freight and margin, for us, our expectation is that the margin will continue to grow.  We have a question asked by [ Guilerme ].

Congratulations on the results. In addition to investments undergoing TVV, any relevant CapEx insight, M&A deal or asset acquisition? Thank you, [ Guilerme ], for your question. I will turn the floor to Pascoal, he's probably enthusiastic to talk about that.

[Interpreted] Guilerme thank you for the question. Well, the answer is we are going through a massive M&A process. That was the acquisition by MSC. And the final approval by CADE, the Brazilian antitrust entity is quite recent. It has just happened, as Marcio mentioned. We have a number of working groups exchanging information with MSC and putting together future projects. So this is the priority agenda for Log-In. It's priority for our controlling shareholder to drive value, drive results, improve our practices. There are many different work frames. Business with [ fronts ] to improve the back office, this whole part of sustainability that we have been working hard on recently. So this is a process that is ongoing, as Marcio mentioned, with no impact on our results in this quarter, after the second quarter. Now regarding new mergers and acquisitions that will depend on the new design on the new strategic plan looking forward together with MSC. We'll see the kind of projects we can leverage together with them. So there's nothing really in the radar right now. Of course, we are always looking at market opportunities to execute the strategy that we established for Log-In. Log-In growth organically. In the case of Tekmar, this was an M&A deal that was very much studied for a long time, a long project that was in our radar for a long time. I'd like to say that we always grow focusing on the margin. Following our core business pursuits. And in terms of relevant CapEx, we have 2 dockings happening. Other than TVV, we have 2 docking operations, one that is underway with Log-In Discovery, Gurgel mentioned, Log-In Discovery replacing Log-In Jacaranda and subsequently, we'll dock a second vessel and of course, that requires investment, but this is scheduled investments for maintenance as part of the docking operation, which is performed by our operations team. I believe that, that would be a relevant CapEx at this point. We have a question by [indiscernible], which has been partially answered by Pascoal. What's going to happen with the company's results when Log-In Discovery returns to cabotage? I can answer that. Well, today, she's in cabotage so it's going to be in cabotage for around 90 days if we put together the docking of both vessels. After that, we are studying how to best use Log-In Discovery in the short term because that depends on the market, that depends on options, demand along the Brazilian coast. So we have some alternatives. We have about 3 scenarios for Log-In Discovery usage, but we haven't really defined anything. And reinforcing what we have been seeing for a while, our expansion plan, not only Log-In Discovery, but the 2 vessels that are being built in China, it's all about reinforcing our share in the North market. From Santa Catarina state to Manaus. This is the original design for these ships. Well, if there are no more questions, I would like to thank you all for participating, and I turn the floor again to our CEO, Marc Arany for his final statements. For my final messages. As you could see, in all of our business lines, they are the figures delivering successive record results. This makes us very proud as the result of the work of our team. We are very happy and confident. And Tekmar, the challenge is a little different as Alvarenga said. We want to promote a cultural transformation. We want to give Tekmar [ vila ] gain in management style. We have a moment of learning for our executives. So that is the challenge of Tekmar. At the same time that we are taking a new culture there, we are learning a lot from their executives in terms of parcel load. They have a lot of highly skilled people and we like that. These would be my final messages. Thank you very much for your attention during this conference call. Thank you very much, and have a great day. The conference call of Log-In Logistica Intermodal to discuss Q2 2022 earnings has ended. You may disconnect and have an excellent day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]