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

Good day, everyone. Welcome to Log-In Logistica Intermodal Conference Call to discuss Fourth Quarter and Full Year 2022 Results. My name is Sandra Calcado. I am 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 Marcio Arany, CEO; Felipe Gurgel, our Commercial Officer; Gustavo Paixao, Terminals Officer; Mauricio Alvarenga, Tecmar's Transportes Officer; Andrea Simoes, People, Culture and Digital Transformation Officer. They will comment on the company's performance and main highlights of the quarter. [indiscernible] and then they will be available to answer questions that you might have. The slides presentation and earnings release in both Portuguese and English are available in the results center at the company's IR website, and 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] Be advised that this webinar is being recorded and will be available on the company's website. Before proceeding, as usual, let me clarify that forward-looking statements that might be made during this video conference call relative to Log-In's business outlooks, projections and operating and financial goals are based on the beliefs and assumptions of Log-In's 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, depend 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 would like to turn the floor to Marcio Arany, Log-In's CEO, to start with his introductory remarks.

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 fourth quarter and full year 2022 results of Log-In Logistica Intermodal. We will start the presentation on Slide 3, going over the main achievements of our strategic plan structured around 4 blocks: Costal Shipping, TVV and Terminals, Tecmar and ESG and capital structure, which permeates all of the company's business lines. Next, we will move on to the presentation of our results. In our Cabotage, coastal shipping business we highlight a historical record EBITDA due to our pricing strategy, better cargo mix and greater vessel availability with NOR benefiting from excellent conversion of cargo from road transport. In total [indiscernible] our performance, we also highlight the completion of docking of vessels Log-In Jacaranda and Log-In Pantanal. In TVV and in logistics solutions 3PL, we highlight highest NOR for a fourth quarter historical EBITDA record for the fourth quarter and higher imports subjected with resumption of shipments to levels closer to pre-pandemic. With regard to Tecmar, we continue to emphasize the company's restructuring process. We highlight an improved level of covenants with restructuring of the compliance department. The success in capturing more profitable cargo and the acquisition of the Oliva Pinto Group in Manaus, that was completed. The fourth and last point talks about our ESG agenda and capital structure. Here, we were recertified by Great Place to Work Brazil as a great place to work. I also highlight women in operations program that was awarded second place in the Antaq Award, and our NPS, Net Promoter Score that increased compared to the 2021 survey. Now moving on to Slide 4. Net operating revenue was BRL 547.5 million, up a significant 41.1% over the same period last year and the best result ever for the company, a record broken for the fourth consecutive year. When we exclude Tecmar's revenue for the period BRL 128.7 million, the variation of the comparable consolidated NOI was 8% in a quarter and 18.8% in 2022 against 48% considering this revenue. Growth shown in the quarter and in the full year in consolidated figures is due to higher volumes handled in the Coastal Shipping Cabotage and Mercosur trades, and we highlight increasing the occupancy level of our vessels, mainly on account of new customers captured, another effect that contributed to the increase in revenue was the positive variation in the unit NOR in all Coastal Shipping trades, Mercosur, Feeder and Cabotage by virtue of better mix and better pricing, given the constant work to improve cargo mix transported and conversion of cargo from road transport. Additionally, there was an annual record in handling of general cargo and warehousing services and consequently, a record net operating revenue at the Vila Velha Terminal. Adjusted EBITDA, the variation in the full year on the same basis was 55.6% and 63.3%, if we include Tecmar results, which posted BRL 597 million, also a record mark in the company's historical series. This strong increase was driven by revenue growth in the company's core businesses, as already highlighted, in addition to higher FMM resulting from higher Cabotage revenues. Revenue growth more than offset cost pressures mainly derived from bunker prices in Coastal Shipping, diesel and door-to-door services, which include road, port duties and seafarers payroll. Moreover, we posted record annual EBITDA TVV by virtue of higher general cargo handling and increased warehouse operations and ancillary services. Lastly, the results for consolidated adjusted EBITDA margin grew in the quarter by 4.5 percentage points to 30.1% and 2.7 percentage points in the full year, reaching 28.9%. I now give the floor to Felipe Gurgel, our Commercial Officer.

Thank you, Marcio. Good evening, everyone. I'm Felipe Gurgel, Commercial Officer of Log-In. As highlighted by Marcio, we had another excellent quarter and an exceptional year end, again, achieving some more important records in our results with the highlight going to the highest Costal Shipping EBITDA in Q4, reaching BRL 117.2 million, up 28.4% over the same period of the previous year. Coastal shipping EBITDA for the full year of 2022 was 48% higher year-on-year. Also noteworthy, this quarter was the increase in the container Costal Shipping margin reaching 35.8%, 6.3 percentage points above 2021. Regarding volume of containers, despite ABAC data showing a small reduction in the quarter, Log-In posted a 5.1% increase, transporting about 113,000 TEUs. This increase is due to the significant increase in Mercosur and Cabotage shipments. Cabotage grew 16% year-on-year despite the restrictions caused by the drought in the Amazon River. In the full year '22, volume handled by Log-In grew about 4% with a slight reduction in Feeder volume, which was offset by a significant increase in Cabotage of 11%, 40% in Mercosur, when compared to 2021. Costal Shipping revenue grew about 6% over fourth quarter 2021, totaling BRL 327 million, driven by a better cargo mix transported and, in particular, but the continuous migration of cargo from road to Cabotage. In 2022, we posted the highest historical revenue in Coastal Shipping with about BRL 1.3 billion. I would like to highlight that in Q4 2022, we had 2 important docking operations of our vessels, Log-In Jacaranda and Log-In Pantanal, those completing the compulsory docking cycle involving 5 of our 6 vessels used in Cabotage. These investments make our vessels safer and more efficient in terms of operating efficiency and fuel consumption, consequently reducing our CO2 emissions. Lastly, I would like to congratulate the entire Log-In team for their excellent work throughout 2022. Focus not only to achieve great results, but mainly guided to deal with daily challenges, always prioritizing safety and the best service to our customers. Now I give the floor to Gustavo Paixao, who will present the results of Terminals.

Good morning. Thank you, Gurgel. Good day, everyone. This is Gustavo Paixao, Log-In's Terminals Officer and it would be my pleasure to present the Terminals results. Fourth and last quarter of 2022 posted great numbers. As was the case of previous quarters and mainly as compared to the same period of 2021, we had another quarter with consistent growth of the Terminals results. I would like to start by highlighting general cargo handling in Q4 '22, which despite a reduction of 27.2% year-on-year with handling of 182.700 tons ended 2022 with a historical record, especially in the handling of steel and bulk products reaching a mark of 960,000 tons in this period of 18% higher than the volume on of 2021, affect the consolidated upward terminal and being multi-purpose terminal. Our net revenue in Q4 '22, was also highlighted, with the highest NOR for the fourth quarter. We grew 12.2% compared to Q4 '21 with BRL 78.3 million. And I must also highlight the results for the full year. We posted a record net revenue of BRL 319.1 million, up 20% compared to 2021. This result was positively impacted by the diversification strategy of our terminal and the capturing of new business and operations, some of them resulting from the modernization of our port, which with the 2 new MHCs or others to carry out operations that previously would not have been possible in the State of Espirito Santo. In turn, our EBITDA in Q4 of 2022 turns out due to the largest positive percentage variation year-on-year. We totaled an EBITDA of BRL 36.6 million, which represents a 30% growth over the fourth quarter of 2021. And this was the highest EBITDA for a fourth quarter. And still talking about the highlights, our EBITDA results for the full year 2022 was also record mark, totaling BRL 149.7 million, up 25.6% over the full year 2021. Net volume of containers handled at the Tecmar in Q4 despite showing a little variation when compared to Q4 '21, it was down around 0.4% or down from 409,000 to 408,000 containers. In the full year, there was a negative variation of 12% with 163,300 containers handled still impacted mainly by the volume of coffee and ornamental rocks exported. These are the main export products for our state, which among other things stuffed with increase in maritime freight prices and with the exchange rate that applies to coffee. The rock segment, on the other hand, suffered a greater impact due to the consumption reduction in its main consumer market the USA. Before closing my point, I would like to give you -- I would like to mention the work of the terminals. With our operational commercial strategy to diversify the operations of TVV supported by the modernization of the terminal, we could get to these wonderful results. Before I end my point, I'd like to give you an update regarding our modernization project for the terminal, which will enter a phase that is considered already final in the second quarter of 2023 with the mechanical and electrical retrofit of our 3 STSs in a phased manner, which will enable greater safety for people and processes, better performance and reliability based on the technologies and automation that will be embedded in them. The delivery of this and other modernization action is maintained according to our schedule for the last quarter of 2023. And I'll turn the floor to Mauricio Alvarenga, Tecmar Transportes Officer.

Hello. Good morning, everyone. This is Mauricio Alvarenga speaking, and the officer in Tecmar Transportes. Mostly since we took over Tecmar at the end of March 2022, we have been working hard on the company's turnaround and restructuring processes mentioned by Arany in the beginning of this call. In the first results of this work are already visible in Q4 '22. Please note on the slide, that we recorded adjusted EBITDA of BRL 12.5 million in Q4. And for the company, although we've been managing the company for a little time when we look at the history of the company, this was the best quarter for Tecmar since it was established. This shows that we are on the right track. Another highlight that is very important is the use of Cabotage, something we began in Q3 to transfer long-haul parcels cargo. This contributed significantly to increasing Tecmar's transportation capacity because we can direct, take more vehicles to shorter routes. And it also contributes positively to improving the average Costal Shipping margin, as mentioned by Gurgel. Since synergy gain, which is actually double -- the double impact on the company results. The accounting result in the earnings release reached BRL 39.3 million and EBITDA margin of 30.6% in the quarter due to the one-off reversal of provisions for risks not materialized. However, our focus is on what we call recurring adjusted EBITDA, where we reached an EBITDA margin of 9.7%. For the road segment, it means that we are, again, on the right track. In the full year, we reached an adjusted EBITDA of BRL 28.2 million. This was reference, this is -- adjusted EBITDA of BRL 28.2 million is already 3x higher than the 2020 EBITDA, which was the balance sheet that Log-In used to evaluate and purchase the company. So we've been trading our management practically in this period of Q2 '22, we were able to triple the EBITDA that the company had in 2020. Now moving to Slide 8, please. At the top of the slide, we remind of the status of the turnaround process that we disclosed in previous quarters. We are now moving forward with actions in Phase II and already driving some Phase III actions. Some highlights of improvements already implemented are the start-up of container transport operations for Log-In. This was not an activity [indiscernible] also is provided by Tecmar effective container transport. The Tecmar trucks were not appropriate for container transport, but we already began this kind of activity. So that's an important synergy with Log-In. We implemented operating control indicators in the main important cost line items, and we are monitoring that up close and also for measuring service level, which is a big focus for Tecmar, we want to make Tecmar, a benchmarking level of service just as Log-In is in the Cabotage service. And another important highlight is the improvement in the company's level of governance. We have been working strongly on that. We created an external auditing structure, and we are undergoing external auditing as well. That's another positive point. And another focus of ours at the company has 22 terminals spread from the South to the Northeast, and we are capturing customers for warehousing management. It's not just transport. You see this involves customers that use Cabotage the road network and when we integrate these warehouses, we create a very important ecosystem for Brazilian logistics, integrating road, Cabotage and our warehouses. Moving on to Slide 9, I'm going to talk about the acquisition of the Oliva Pinto Group. It happened at the very end of December 2022. And it is very nice to think that less than a year after work at Tecmar, we now as Tecmar are already talking about expanding the logistic network. So please note of the map that Tecmar was positioned in the South to Northeast access with a robust distribution network. Now with the acquisition of Oliva Pinto, we are now also positioned in the North region of Brazil in the States of Amazonas and Roraima. The Oliva Pinto group has a different characteristic from Tecmar, which will provide an exchange of experiences for the group. Oliva has many years of experience in container transportation, which has enrolled and for Cabotage, taking the containers from the port to the customers and the customers to the port. And it was important not only for Cabotage, but also for imports and export customers in the region. This is important for shipowners and customers overall. The Oliva physical structure includes a terminal with a total area of 70,000 square meters considering built area in the yard. And this terminal is very well positioned strategically. Just as a reference, you can know the region. It is located across the road from the Moto Honda factory, and it's literally next to [indiscernible] Electronics, Positivo Informatica, and many other customers that are Oliva customers already, but there could be potential take more customers for distribution in the region. This as we began the work here at Tecmar at Oliva, we have directed an executive for this new operation and we are working strongly on the diagnosis, just as we did to Tecmar and then we gain a 100-day plan that will guide us in the implementation of a future plan with robust actions. We have also started the necessary implementation so that Tecmar begin to capture parceled cargo from the Manaus Industrial hub for distribution in the Northeast and South of Brazil as well as the structuring of the Tecmar and capture cargo from all over Brazil and distribute parceled cargo, both in the States of Amazonas and Roraima. We understand that this acquisition creates a lot of value for the group as a whole, generating synergy use with Tecmar in Coastal Shipping. And looking forward for 2023, the challenges remain great, mainly focused on implementing operational processes here at Tecmar. We're focusing a lot on that and also focusing on what we call technologies applied to the business. These are 2 important focus areas for us. And we also have to have a strong focus on our leadership because with our people, we cannot do anything. So this would be a summary of our quarter. And of course, before ending my part, I would like to take this moment to thank the entire Tecmar team for this year of 2022. This was the first year under Log-In's management. We count on seasoned professionals in the segment and a team that is very motivated, to seek the results we set out to obtain, but also motivated through innovation. It's very nice to see the motivation of our team. So thank you all and I give the floor to our People, Culture and Digital Transformation Officer, Andrea Simoes.

Thank you, Alvarenga. Good day, everyone. This is Andrea Simoes, Log-In's People, Culture and Digital Transformation Officer. To continue the presentation, I will now present the main deliverables of the EESG agenda for the year 2022. Starting with the economic side, I would like to highlight improvement in Log-Ins and TVVs ratings granted during the year. And the company is deleveraging, which will be presented by Marcio Arany in more detail on the next slide. We also created CapEx and OpEx committees, important initiatives to strengthen the culture of capital discipline. As regards to the social pillar, the highlight is the GPTWB certification with 9 percentage point growth in the trust index year-on-year. And the fifth position in a state of [indiscernible]. Speaking of awards, we also won second place in the Antaq Award with our program called women in operations of 188% of a number of women in 3 years, another [indiscernible] and then I highlight the investment we are maintaining our seafarers with a 40% reduction in the turnover of seafarers in the second half of the year. In relation to the environment, the main highlights are reduction in greenhouse house emissions for TEU transported. As it was demonstrated in our second sustainability report issued by an independent auditor. We are making investments to ensure this reduction of emissions. Among other actions, as an example, we have the implementation of a ballast water system in our fleet. Something that makes us proud is the reformulation of our supplier excellence program, with the goal of increasingly aligning our supply chain with the EESG program. Inside of governance pillar besides the formation report remains the major highlight is the deployment of Log-In's ethical compliance program for Tecmar as mentioned by Alvarenga as well as training for the entire leadership team of Tecmar. We implemented also there was [indiscernible] channel and established new policies on this subject. I now turn the floor back to Marcio Arany, our CEO.

Thank you, Andrea. Now on Slide 11, our indebtedness again, the highlight in this chapter goes to our indebtedness, our debt level expressed by net debt over EBITDA ratio, which dropped 21.5x the lowest in the company's history, a variation quarter-on-quarter due to a greater expansion of EBITDA in the last 12 months vis-a-vis the expansion of net debt. The graph below we simply show graphically the extension of the company's amortization schedule as well as the debt service expected for the upcoming years. All ending the presentation here, I'd like to thank Gustavo, Gurgel, Alvarenga and Andrea, and we will now move to the question-and-answer part. Thank you.

[Operator Instructions] We already have a question by Bruno Amorim. Bruno is asking 3 questions. The first is, could you please give us an update on the plans to expand capacity and volume for 2023 and for the upcoming years?

Thank you, Bruno, for the question. Sure. Our capacity expansion plan consists on the acquisition of 3 -- Log-In discovery, which has been acquired. She's in long-haul and we will bring her, if all goes well to operating Cabotage in the second quarter of this year. Complementing the expansion plan, we have our 2 new vessels that are being built in China. It is all going very well on schedule. One of them anticipating the schedule. One of them should be delivered in December of this year, in China, it should be operational for us in the end of February, beginning of March.

Thank you, Marcio. Another question by Bruno Amorim with Goldman Sachs.

What is the results expected with [ BR Demar ]?

Good question. It's still undefined. On our end, we'll be adding capacity to the sector. We'll be bringing a ship vessel in Q2 most likely launching a new service. And it is possible that there will be some freight price pressure with this increased capacity in the market. So that's a risk that we will have to work with along this year.

Third, last question by Bruno Amorim. What changed in practice in the company with the arrival of MS in control? Any change in terms of operating efficiency, any change in the commercial strategy?

So in the commercial strategy, there was no change whatsoever. We have total autonomy to develop our strategic plan. This has been done and updated in recent years. Regarding administrative changes, none. The Log-In team continues to be intact. What we had was disclosed to. We had a change in the Board of Directors with the participation of the controlling shareholders. And this is very good for us actually because these are people who can add a lot with their experience. And as communicated in prior calls, we try to work with them to have cost reductions drinking from their know-how. And in practice, this is what's happening with them.

Now we have a question asked by [ Jean Pedro ]. He says, excellent results. Congratulations to the Log-In team. What is the expectation for the capital market in 2023, given the systematic drop in freight values for long haul and particularly increasing global capacity? Are you expecting capacity increase for Cabotage in Brazil, particularly with [ Manas Origin ] and destination?

Thank you [ Jean Pedro ] for your question. I'll turn the floor to Felipe Gurgel to answer your question.

Thank you, Jean Pedro for the question. As regards pressure of international freight, we understand that this can have a repercussion in our feeder cargo, but as presented in our results, our conversion from road transport has been offsetting a possible reduction in volume from feeder and even [indiscernible]. So we understand that these 3 lines altogether end up maintaining a good occupancy level over our vessels. For 2023, there is some market signaling that there will be capacity increase, not only Log-In, with Log-In Discoveries Marcio mentioned, but also with the action by the competition. And we see them now throughout the greatest demand at this point. So these would be our expectations for this year. And as Marcio also mentioned, this offering of capacity will pressure the prices, the average prices of freight, but we understand that we do work of differentiated level of service and we can minimize that impact, we believe.

We have a question by [ Max Buyona ] with [ Max Investment ].

What is the expected start-up of operations after 2 new vessels in the coastal shipping business?

Thank you for your question. Although the only [indiscernible] here next year one of them, like I said, will be ready this year in China, and then she will sail to us and then is the nationalization process. We have to put together the crew. So it's only next year. And this is exactly [indiscernible] point. No delays whatsoever. The shipbuilder is working very professionally, delivering everything with quality. So we are very confident we'll start next year.

A question from [indiscernible].

Does the company have expansion plans for waterways in the northern region?

No, we don't have expansion plans in the waterways in the North region. Our focus is on working always with containerships here on the Brazilian coast. We are bringing Log-In Discovery to operate in Cabotage in Q2 2023, as mentioned. And this is our focus. We don't have anything in the radar, nothing being considered or studied for waterways in Brazil.

Another question from [ Ricardo Pereira ].

Marcio looking forward, what do you identify as the greatest challenges for the company.

Thank you, Ricardo, for your question. Okay, let's break this down by business vertical. In the Vila Velha Terminal, we have a challenge because we depend on the world economy. The world economy as well, the container handling will do well. Gustavo is doing excellent work with his team of attracting new cargo for differentiation. But this is always a risk for our terminal. As regard to [indiscernible], I think that [indiscernible]work and focus is to continue with the turnaround. It's a start of capturing new business, that's their challenge. It is what he presented to you. It's quite simple, labor intensive, but this is exactly what we are doing there. We are improving current operations and trying to capture new business and synergy with the other verticals of the company. In the case of Cabotage, I believe that Felipe mentioned this capacity increase that is being announced in the market might put some pressure in Cabotage freight prices. We have a number of levers, as Felipe mentioned, our differentiation, our strong effort to convert cargo from the road transport to Cabotage and we believe we can deal with that.

There is another question from [indiscernible]. He says, good day, congratulations on the results. Could you comment on the privatization of the [ Porta Victorian ] possible spaces of growth of action by Log-In?

I'll turn the floor to Gustavo to answer your question.

Thank you for the question. On our part, we're following this outlook very positively. I mean the privatization of [indiscernible] to unlock investments and bring more competitiveness to the port as a whole. In terms of new areas and new spaces, we are following of course the situation, but we are in a previous stage. In the privatization possibility, we had to change our contract from private to private. It was private to public. And so now we have some time to think about new investments, but we are following this privatization possibility with a positive expectation.

Another question from Bruno Amorim, follow-up question.

Considering the expected capacity expansion for Q2 and the new vessels in the coming years, to what extent the market capacity should increase this year and in future years? Do you see other players adding capacity as well?

Bruno, thank you for the follow-up question. Well, I think the Cabotage market increases in one of 2 ways. If the Brazilian economy grows current customers of Cabotage also grows and the market grows. And the second way is by converting cargo from road transport. So we're working strongly on converting cargo from road transport. We converted in the last year, 15% of what we transported. So we believe a lot in this kind of work. It is labor-intensive. It's slow. We explained this. It's not easy to do, but that's where, again, is very well positioned exactly in this kind of service. And as regards capacity increase by the competition, yes, the competition recently announced the exchange of one of their vessels to increase their capacity, but that's all we know. Gurgel and myself mentioned that pressure on freight costs is a point of attention, particularly in -- from into Manaus, which is our focus but we are ready for that. So that's the message.

[Operator Instructions] There's a question by [indiscernible].

I'd like to know if the company has any expectation to have dividend payout in the future?

It is somewhat difficult for us given our debt reality to have dividend payout in the short term. I believe that in the next 2 to 3 years, there will be no dividends paid by the company.

If there are no more questions, I would like to thank you all for participating. And I turn the floor back to our CEO, Marcio Arany for his final statements.

Well, we ended the fourth quarter of the year exceeding our initial estimates with our business being vigorous and fully aligned with our growth strategy, as you could see in our presentation. We achieved successive record marks in our main work fronts. At [indiscernible] after the initial implementation of the Log-In culture, our Log-In Way, we have already begun to implement more consistent projects in the synergy between the main business verticals, as I mentioned, such as the start of container operations in Santos and the acquisition of Oliva Pinto. We are very confident. I think the questions were excellent to help us explain the risks involved for the coming year. And finally, I would like to thank all of you for joining us in this video conference call. Thank you very much, and have a great day.

Thank you. The conference call of Log-In Logistica Intermodal to discuss fourth quarter and full year 2022 earnings has ended. You may disconnect and have an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]