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

Good day, everyone. Welcome to Log-In Logistica Integrada Conference Call to discuss Third Quarter 2024 Results. My name is Sandra Calcado, I'm Log-In's Investor Relations, Strategy and ESG Manager, and I will be your host during this event. The presentation and comments about the results will be made by Log-In's CEO. The presentation and comments about the results will be made by Log-In's CEO, Marcio Arany; Pascoal Gomes, Finance and Investor Relations VP; Marcus Voloch, Coastal Shipping VP; Gustavo Paixao, Terminals Officer; and Mauricio Alvarenga, Road Cargo Transportation Officer. They will comment on the company's performance and main highlights for the quarter. 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 of the company's IR 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] Be advised that this webinar is being recorded and will be available on the company's website. Before proceeding, as usual, we would like to clarify that forward-looking statements that might be made during this conference call relative to Log-In's business perspectives, outlook, projections and operating and financial goals are based on the beliefs and assumptions of Log-In's management and on information currently available. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions, and they 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'd like to turn the floor to Marcio Arany, Log-In's CEO, to start with his initial remarks.

Thank you, Sandra. Good day, everyone. This is Marcio Arany speaking, the company's CEO. I would like to thank you all for attending Log-In Logistica Intermodal's Third Quarter 2024 Earnings Video Conference Call. We'll start our presentation on Slide 3 by reviewing the main achievements of our strategic plan in 4 blocks: Coastal Shipping and Integrated Solutions; second block, TVV; third, Road Cargo Transportation; and fourth, ESG and Capital Structure. In our coastal shipping business, we highlight historical record in coastal shipping revenue with BRL 452.2 million, historical record of container volume with 198,600 TEUs and an all-time high record volume in feeder containers with 134,100 TEUs handled. As for TVV, we highlight highest NOR with third quarter BRL 91.7 million, highest volume handled in the third quarter 57,900 TEUs completion of the retrofitting phase of the terminal's modernization project, ISO 9001, and ISO 14001 recertification at TVV and Fitch Ratings, reaffirming the terminal's rating and its debenture issuance at AA+(bra). With regard to road cargo transportation, we highlight the highest NOR in the quarter, BRL 151 million, the 30% increase in Oliva Pinto's fleet, the modernization of 2 branches, Curitiba and Salvador and the continued synergies gained with Log-In with 1,167 TEUs handled in Cabotage. The fourth and final point relates to our ESG agenda and capital structure. Here, we highlight GPTW recertification as a great place to work in Rio de Janeiro and the fifth best place to work in Espirito Santo. We also had the Third Health Week been held our A+ Brazil rating reaffirmed by Fitch Ratings. Now our team will present the quarterly results, starting with our Finance and Investor Relations Vice President, Pascoal Gomes.

Thank you, Marcio. Good day, everyone. It's a pleasure to have you on board our earnings video conference call. I'd like to share with you Log-In's results, the main points, the main highlights and consolidated results in third quarter and year-to-date comparing with the same period of last year. In the third quarter of 2024, we achieved 13.6% growth in net operating revenue totaling more than BRL 700 million, the highest NOR on record, driven by all business units. In other words, all of our verticals posted growth in their revenues. Coastal Shipping posted a record NOR of BRL 452 million, benefiting primarily from higher revenue from services. Feeder posted record revenue of more than BRL 150 million, very much due to the increase in volume with the new service that we launched last quarter, Navegantes Shuttle Service and greater handling and demand of international cargo. Another good news is that Mercosur is coming back with posted revenue growth of 23% compared to the same period last year, driven mainly by Argentina exports that are returning. Cabotage, on the other hand, suffered a drop in volume, mainly due to congestion in Brazilian ports, the drought in the north region of Brazil. And this is going to be explained in more detail by Marcus Voloch in a minute. Cost of services provided, CSP increased by 23% in coastal shipping and 10% in road cargo transportation. This increase is mainly due to operational contingencies in coastal shipping given port congestion that I mentioned. And in road cargo operations, we had an increase in the fleet, as mentioned by Marcio. The modernization of branches and the customer portfolio, which is undergoing adjustments. Regarding adjusted EBITDA in Q3 '24, it was down BRL 9.6 million, a 4.7 percentage point drop in adjusted EBITDA margin compared to Q3 2023. This reduction was mainly due to increase in fixed costs of road cargo transportation, which is undergoing restructuring, and this will be detailed more by Mauricio Alvarenga. And due to provisions for labor contingencies at TVV, this was a one-off event this quarter. In the first 9 months of 2024, adjusted EBITDA fell by 5.3% year-on-year, and this was impacted mainly by additional variable costs given a new service in shipping and also the contingencies mentioned in the drought in the Amazon River Basin, as well as the increase in our fleet of vessels. In summary, despite these operational challenges and higher costs this quarter, our earnings showed the company's robustness and adaptation to the new context with solid growth in revenue lines with record results on several fronts. And we have ongoing some measures to control costs and expenses in the medium and long-term. Now I will hand over to Marcus Voloch, Costal Shipping VP, who will give us more detail about this business unit.

Thank you, Pascoal. Good morning, everyone. This is Marcus Voloch speaking, Coastal Shipping VP. As Pascoal pointed out, we had a good third quarter with records in volume handled and net operating revenue. I'll start on Slide 5 by highlighting our 46% growth in total volume handled year-on-year, reaching the mark of 198,600 TEUs. It is worth highlighting the continued growth in feeder cargo. And Mercosur trade, which is showing that it has turned the corner finally and put the bad times behind it with the recovery of the Argentine economy. Year-to-date in 2024, according to data from the Brazilian Association of Cabotage Shipowners ABAC, the volume of containers handled in Cabotage in Brazil grew by 7.4%, while Log-In recorded growth of 13.9%. In feeder cargo, the market grew by 24.4%, driven mainly by our growth, which was 45.6% growth. So our market share in this segment, feeder is over 60%, making Log-In the biggest company in this sector in Brazil by far. In the third quarter, we recorded a slight drop in Cabotage volumes as a result of operational problems, as Pascoal explained, at the main ports where we operate, which led to port calls being delayed and canceled. In addition, September was marked by the start of the dry season on the Amazon River Basin, which naturally restricts volumes transported to and from Manaus. On the other hand, the idle space was taken up by feeder volumes. Whenever there are big problems at the ports, feeder increases. So despite a decrease in Cabotage market share, we managed to keep our vessels with high utilization levels, although with cargo whose revenue -- feeder cargo whose revenue is lower than Cabotage. In terms of figures in the quarter, we had a 4.2% reduction in Cabotage volumes, but an 88% increase in feeder transport. In the third quarter of last year, we had more capacity. It was exceptionally a quarter with more capacity last year and volume then have been a record one. In the Mercosur trade, the third quarter saw an increase of 17.7% in the volume transported year-on-year and 18.7% quarter-on-quarter, which had already been a little higher, truly confirming the trend towards recovery in this market. Our team also remains committed to the commercial strategy of bringing new transportation alternatives to the market. Also in the Mercosur migrating from road to multimodal international transportation. Moving on to net revenue of Coastal Shipping, this grew by 21.2% over Q3 2023. And the average ticket ends up decreasing on account of feeder's lower revenue per TEU and its increased share in Log-In's revenue metrics. Adjusted EBITDA for Coastal Shipping totaled BRL 129.8 million, down 1.7% year-on-year with a consequent 6.7 percentage point reduction in EBITDA margin. As explained by Pascoal, part of the drop in margin is due to the increase in ship costs, because we had one more vessel compared to the same period last year as well as higher bunker prices, port duties and crude costs, in addition to the feeder's greater share in company's revenue metrics with lower margins. Another relevant point of pressure is the increase in operating costs, mainly port handling, for example, transshipment, storage and land transportation. The result of the complicated situation in Brazil's main ports. This situation also has an impact on bunker consumption as we need to speed up our vessels to offset the delays -- even delays having other ports, even if just partially. Lastly, on expenses, the operation of the Itacoatiara floating pier requires additional handling of cargo, increasing the cost of services provided. Moving on to the next slide. We can see how the drought has affected the operational situation comparing the top photos with the bottom ones, especially the ones on the right, we can see a very clear reduction in the level of the river, which in the rainy season reaches the port's concrete wall in the top right-hand corner. Well, in the one below, there is more than 25 meters of sand, separating the riverbank and the wall that was previously the level of the water. So this is the size, the effect of the drought this year until -- well, considering the last few years, it was the most severe drought. Moving on to the next slide, Slide 7. We have 2 photos taken during the first operation still in September, when the ships were still able to cross to Manaus, albeit with less cargo and what we call a relief operation. In the third week of the month, navigation was completely interrupted and all the cargo in the vessels had to be unloaded onto boxes and vice versa. Although slow, the operation proved to be extremely efficient in maintaining the flow of cargo during the drought, albeit in reduced volumes. During July and August, several customers worked with us to bring forward shipments in order to minimize the impact on their production lines. In our view, the barge and the floating pier operation was extremely efficient, like I said, because it prevented a complete interruption of the transit of cargo to Manaus. Last year, we spent 6 weeks with no ships crossing and no cargo arriving. I now hand over to Gustavo Paixao, who will present the results for Terminals. Thank you.

Thank you, Voloch, and good day to all. This is Gustavo Paixao speaking in. Now I'll be sharing with you TVV's results for the third quarter of 2024. Well, starting with volume of containers handled our main cargo, we have a highlight in the third quarter as well as in the year-to-date 2024. In this third quarter, we handled about 58,000 boxes, a record for a third quarter, which represents a growth of 6.7% compared to the same period of 2023. Year-to-date, we grew about 38%, having handled 176,500 boxes, which is an all-time record at TVV. The main highlight in these container handling volumes -- well, the main highlights are the great recovery in coffee exports via TVV since last year, the repositioning of empty containers to China and even a remnant of electric vehicle imports. Turning now to general cargo. The scenario is actually the opposite. Compared to the third quarter of 2023, we had a 43.8% reduction in handling this type of cargo with 130,600 tons handled, while the year-to-date reduction is around 34% with 133,000 tons handled. The cost of this reduction was mainly the momentary restriction resulting from the project to modernize our ship-to-shore cranes, which restricted our terminal for all the 3 quarters of the year, causing historically captive cargo at the terminal, which is vehicles and granite to migrate to other terminals or markets, as well as other factors related to competitors that affected the volumes of solid bulk cargo. Moving on now to our financial results. We highlight our net operating revenue, which despite being in line with the results for the same period in 2023 with BRL 91.7 million, this is a record mark for the third quarter. But year-to-date, we have reached the terminal's all-time record with BRL 278.8 million, a result 8.5% higher than the first 9 months of the previous year. Net operating revenue being in line with the same quarter of last year due to the mix of cargo and container operations, a lot of empty units being handled due to the need to reposition these units, especially the flat racks bound for China, and also due to the drop in general cargo handling in the quarter as explained. All this leads us to an adjusted EBITDA for the quarter of BRL 41.5 million, around 10.5% lower than that of the third quarter of 2023. However, year-to-date, we stand out with TVV's historic results in the period, BRL 126.9 million, around 2% more year-on-year. The lower results for the quarter compared to the same period last year is explained by a number of factors. The main one and the most impactful factor is due to operating expenses related to the provisioning of legal contingencies arising from labor claims with partial decisions unfavorable to the company, something which is a one-time off, which had a final judgment in the period. Another factor was the extra costs with additional infrastructure to support the period of restriction that the terminal went through. Additionally, the momentary loss of capacity to generate ancillary revenues mainly from general cargo also due to the restriction. All of this contributed to the lower adjusted EBITDA in this Q3. However, for the 9 months, we see a positive and noteworthy result. In the next slide, we'll give you an overview of TVV's renovation project, which was a total of 3 years with investments of around BRL 180 million and whose main deliverables were the renovation and modernization of our equipment, including the acquisition of new ship operation equipment, our MHCs with a capacity of 154 tons each, which immediately changed TVV's service capacity, making it possible to have a cargo on special project, giving our terminal even more prominence in Brazil's logistics landscape. And the modernization of our ship-to-shore cranes, the last and most complex phase of this major project, which directly affected our terminal's service capacity in the first 9 months of the year, but which now has been completed and brings capacity back, but with an increase in performance given the improvements in technology and automation. This has a direct effect on the safety of our operations on operating efficiency and reliability. As an additional stage of this project, we still have the remote operations of the ship-to-shore cranes, a phase that now takes place in parallel without affecting operations and which will be a pioneering initiative in placing us on the same level of technology as other major ports in the world. So these are the results of the terminal's business unit, which despite the challenges we perceived and experienced in the first 9 months of 2024, given the complex logistics scenario in Brazil and our momentary restrictions caused by what I call our "growth pain" before stood out in container handling, a distress is our main business and in the year-to-date, net operating revenue and adjusted EBITDA. This concludes the presentation of terminals. I now hand over to Mauricio Alvarenga, Officer in charge of Tecmar Transportes to continue the presentation. Thank you.

Thank you, Gustavo. Good morning, everyone. This is Mauricio Alvarenga speaking, Tecmar's Executive Officer. Well, we had our highest NOR for third quarter, this was the best quarter in terms of revenue since Log-In took over the company in 2022. In the 9 months of 2024, we grew our turnover by around 5%. Our adjusted EBITDA didn't keep up, and we totaled BRL 1.3 million in the quarter. To give you a better overview, I'll divide my part of the presentation into 2 blocks. The first, it is important to remind you, and I mentioned this in the prior quarter, we are transforming Tecmar into a multimodal operator, and we are diversifying the business. Among our businesses, we implemented the container transportation business, which is standing out, delivering results within our expectations. In the beginning of last year, we acquired Tecmar Norte, formerly Oliva Pinto. Now we call it Tecmar Norte, which did well, posted good results according to our expectations. Of course, it started to be impacted in the end of the quarter, particularly in September by the reduction in the volumes that started arriving in Manaus on the ships according -- because of the Amazon River drought Basin. But this business is really noteworthy. Another business we have is full truckload. As Tecmar had a small share in this business, we are growing in FTL full truckload. And this is a business that is posting positive results. Another business that we are trying to grow is warehousing. Warehousing being an option and with us being an option for our customers. And lastly, we have the less-than-truckload business, LTL. This is a business that has been undergoing restructuring of its cargo profile, and we're trying to reduce the operating complexity of cargo that creates a lot of cost in the last mile. And last mile -- in the LTL, less-than-truckload business did not do well in the quarter. Moving on to the next slide. I'll highlight the second block, which is exactly restructuring of the LTL business. When we consider Tecmar's lines of business, we're in line with the plan, but except for less-than-truckload. And the LTL business is undergoing a recovery plan based on 3 pillars. First, improving the level of service offered to customers. We understand that in order to pursue a new cargo profile, we have to improve our level of service. And for that, we need to reduce operational complexity. And we're implementing technology to help us have cost optimization, process optimization, but also so we can generate better information to our customers with this improvement, we expect to have a gradual recovery of the LTL business. In line with this recovery plan for LTL cargo, we have replaced 2 more branches, as Arany mentioned. And in this quarter, we had the replacement of Curitiba and Salvador. We had already replaced other branches. And all of these changes are necessary because these were old structures that did not give us an opportunity to improve productivity and reduce costs. So we are working on modernizing these branches so as to achieve greater productivity to improve the level of service and to reduce costs. Well, that's it. Thank you very much for your attention. And I'll hand over to Pascoal Gomes, who will continue the presentation.

Thank you, Alvarenga. Now we have to speak about our indebtedness. Starting with our leverage indicator, net debt over EBITDA ratio in the upper right-hand corner of the slide. We maintained net debt over EBITDA ratio at 2.2x in keeping with the previous quarter. The good news is that Log-In generated cash, about BRL 55 million. Although our bottom-line result was a loss, this loss is due to the non-recognition of the deferred asset of income tax with no cash effect. Part of our exchange rate variation has no cash effect. EBITDA in the last 12 months posted a marginal reduction, very much in line with the explanation made by our officers here, the officers in charge of the different verticals of the company. However, this is an indicator that is doing well regarding our covenants. So we can invest in projects, increasing indebtedness if it makes sense for looking, the good news we had regarding the amortization schedule. In the first quarter, we had liability manager, actually, we had liability management that we carried out on operations maturing in the short and medium-term, 2024, '25 and '26, lessening the amortization schedule. And also, we reduced the average cost of debt by virtue of an issuance that in general terms was a lot more positive than the debt we had. On the next slide, speaking about governance. Log-In has been consolidating an ESG agenda since 2020. We had a number of practices in place, but we defined a road map, a strategy. We created a department for the PMO of these initiatives, and we have been aligning our business model to the ESG agenda with an active involvement of our leadership team and employees to strengthen the several initiatives we have in this agenda. In the third quarter, the highlights are the compliance at sea project, reinforcing compliance ethics practices, a whistleblowing channel for our maritime crews. This is crucial to guaranteeing responsibility and integrity in our activities in the coastal shipping vertical. Another excellent piece of news is that we were recertified ISO 9001 and 14001 as mentioned. And this recertification had no nonconformities. And this reflects our continuous efforts in operational excellence and environmental management. In coastal shipping, we carried out to environmental emergency drills. I mean, we prepared the company for spills, chemical product spills at sea. So we reinforced this culture of safety. On the social side, as Marcio mentioned in the first slide, Log-In has been recognized by Great Place to Work Brazil as one of the best places to work in Rio de Janeiro. And TVV ranked 5th place as the best company to work in the state of Espirito Santo. We have also been investing in our apprentice program. We have now 25 young people, and we go beyond legal compliance, because we want to seek to promote a positive impact. We also held the Health Week. We approached relevant topics, physical and mental health, psychological safety with a focus on employee well-being. As regards governance, in addition to compliance at sea project, we ran the strategic planning cycle. These are initiatives that engage our team and increase operational integrity in aligning the business vision with the ESG perspective. In a nutshell, these actions show Log-In's commitment to creating a safe, ethical, and sustainable work environment, consolidating our organizational culture that values positive impact on the environment and on society. I now turn the floor back to Marcio Arany, CEO.

Thank you, Pascoal, Voloch, Gustavo Paixao and Alvarenga. We'll now move on to the question-and-answer session. We are here for you. Thank you.

[Operator Instructions] We have a question from [ Joan Pedro. ]

Congratulations on solid results in the quarter. This 4% reduction in Cabotage volumes, do they point to a trend of limitation in growth in the market in 2025? What is the expected growth of this market in 2025, if any? Will the strategy in 2025 continue to be associated with feeder volumes and readaptation of services to carry imports and exports cargo in detriment of Cabotage.

Well, thank you, Jean Pedro. I'll ask Marcus Voloch to answer your question in more detail.

Thank you, Jean Pedro and Marcio. Well, this is a good question, a very valid question. And I'll divide the answer. I'll try to divide the answer into some parts. In 2024, the market posted growth. If I'm not mistaken, around 7% year-to-date. Log-In was the main company growing. What happened in September was, in the third quarter, particularly in September, was a one-off event because in July and August, we continue to grow. But in September, we faced serious problems -- something happened, in September, we had specific problems in port calls and call delays that led to a cancellation because of that, the Cabotage volume suffered. The point is that feeder cargo was at the port waiting for connection. So when we see that there is room left, we use the space with the feeder cargo that is there and bringing forward connection that would happen in the following ship. So that leap in the feeder volume was expected, given the new Navegantes Shuttle Service, but it was even greater because we had more idle space because of the reduction in Cabotage volume. That is not a strategy. That was a tactic, so we could better use the space of our ships at that moment. We continue to bet on market growth for 2025, our estimate is 5% to 7% growth along 2025. We are preparing ourselves to capture this growth as well to grow at least in line with the market. But with the growth of Brazilian foreign trade, we'll also be prepared to enjoy take advantage of that growth. For 2025, we expect to continue capturing growth in Cabotage as well as in feeder. Both things are very necessary because the services do not sustain themselves isolatedly. In order to maximize results and utilization, we need both doing well concomitantly, so that we can improve the unit costs, the theoretical unit cost only becomes real, when the vessel is well used. So this is our tactic of maximizing both. We believe in the growth of both markets for 2025, and we're preparing to capture both. Thank you. Back to you, Marcio.

Thank you, Marcus. We have another question from [ Antonio Neto. ]

You mentioned about the modernization project at TVV. What's the expected productivity gain now that it's been completed? Are there new modernization projects for the terminal in the future?

Thank you, Antonio. I will ask Gustavo to answer your question.

Thank you, Marcio, and thank you, Antonio Neto, for the question. We have about a month since we delivered the modernization project at TVV, a project that lasted 3 years. The most challenging phase was the one we lived through in the first 3 quarters of 2024. But we already see as expected a productivity gain. If we take into account our base operation containers, we had 20%, 30% increase in operating capacity. In operations since we got the third ship-to-shore crane back, and it was being serviced. And that was very relevant. It puts us in a whole new level. Regarding new investments and modernization of the terminal, I want to stress that we took on the commitment to renew given the 25 years the activity in 2 phases. The first phase, immediate investments, that would last for 3 years. And that's where we have the modernization of ship-to-shore cranes, modernization of machinery and exchange of some equipment. For the next 25, we have another BRL 500 million to be invested. Again, so we can remain at a technological and innovation level following the trends of the most modern terminals in the world. So yes, we have other modernization projects waiting so that we can keep TVV at the same level as the main ports around the world. Thank you, Antonio Neto, for the question.

Thank you, Gustavo. I have another question from [ Marcus Vinicius. ] He writes about -- about road cargo transportation. You mentioned a loss in the period. Are there operations or specific ports that contribute to this increase in cost?

Thank you, Marcus Vinicius. I'll answer this question myself. I believe that there are 2 aspects here that are driving this cost increase. The first is fulfilling with the truck drivers' law. For companies that work in the right way, like Log-In, so there was an increase in cost because of that. And the other one is about productivity at the terminals where we berth, all of the ports are very congested. So in a place where you return an empty container, this is an operation that used to last 30 minutes, when you would get to the port. Now sometimes it takes 2 hours. All of that leads to cost increases in the whole chain. Same thing at the terminals, we had a period to deliver cargo in the terminals. Now we have to deliver cargo in a very narrow window, it's like 24 hours. So we have sometimes to work in the middle of the night. So as the situation in the port terminals improves, I believe that this cost increase will be reduced.

Thank you, Marcio. As there are no more questions, I would like to thank you all for participating. And I turn the floor again to Marcio Arany for his final remarks.

Very well. As you could see, we ended a challenging third quarter. Some of our business lines faced challenges, TVV ending the capacity restriction phase, linked to investments in operating efficiency. Cabotage facing a drought in the north, congestion at the ports all over Brazil, to be frank. Tecmar continuing its turnaround process. We are still learning and designing solutions to the problems we're having. But overall, all our business lines posted good results in the third quarter. So I guess that overall, the message is good. Our new service in the North and Northeast getting all the way to Manaus is in a ramp-up phase, but it is already a fantastic alternative to customers. It is a service with a direct Manaus, Santos link, which unfortunately, this quarter, because of the drought is not such a direct channel because we still have some transshipment activity in the floating pier as Voloch showed, but it is a differentiated product for the region. It is ramping up. It is growing. But it is considered to be important to customers. With that, I'd like to thank you all for your attention for joining us in this video conference call. Thank you very much and have a good day.

Thank you, Marcio. The conference call of Log-In Logistica Integrada to review third quarter 2024 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.]