Wilson Sons S.A. (PORT3) Earnings Call Transcript & Summary

[Interpreted] Good morning, ladies and gentlemen. Welcome to the Conference Call for the Wilson Sons Limited Fourth Quarter and 2019 Results. Today with us, we have Mr. Cezar Baião, CEO of Operations in Brazil; Mr. Fernando Salek, CFO of the Brazilian Subsidiaries and Investor Relations; and Mr. Arnaldo Calbucci, COO of Operations in Brazil. As a reminder, this conference is being recorded, and we will have simultaneous translation for those who wish to listen to the English version. [Operator Instructions] Before proceeding, we would like to mention that Page 2 of the presentation contains the usual forward-looking statements for your reference. Now I would like to turn the conference over to Mr. Fernando Salek. Sir, you may go on.

[Interpreted] Thank you, good morning, everyone. Welcome to our results conference call for the fourth quarter of 2019. Let's start with Slide 3. As is customary here at Wilson Sons, we highlight safety, not only for its importance to the lives and security of our employees and operations, but also as a fundamental principle for our clients who contract our services to ensure the safety and security of their employees, assets and cargo. Our relentless commitment to workplace safety was evidenced by the improvement in the lost-time injury frequency rate, which decreased to 0.48, a 93% reduction between 2010 and 2019. The commitment to safety in all our operations continues to be our top priority. We will strive for the continuous improvement of our work safety to achieve and maintain best practices in this area, ensuring the quality of the services we provide to our clients. Turning to Slide #4. Here, we summarize our consolidated results. As of January 1, 2019, the company adopted the new IFRS 16 accounting standard, which uses the modified retrospective approach, meaning assets and liabilities recognized are equal at the point of application with no need to republish the financial statements of previous periods. Therefore, comparatives for the 2018 financial statements were not restated. Thus, for comparison purposes, we present the adjusted 2019 figures, excluding the impact of IFRS 16. The adoption of IFRS 16 for 2019 resulted in a USD 23.2 million increase in EBITDA but a $4.9 million reduction in profit after tax. Net revenues during this period decreased 11.7% to $406.1 million in 2019 due to a reduction in towage revenues as a result of the more competitive environment, as well as the negative impact of the BRL devaluation against the U.S. dollar in container terminal revenues, the decline in logistics revenue is due to the end of a specific high-volume contract and lower shipyard results. The 2019 EBITDA of USD 141.3 million decreased 12% against 2018. Despite cost reductions, the adjusted EBITDA, excluding IFRS 16, dropped 26.5% in U.S. dollar terms to $118.1 million. In 2018, it was USD 160.6 million. This was largely driven by an impairment charge of $13 million against goodwill and intangible assets of the offshore support bases in Brasco, as well as container terminals experiencing reduced import warehousing revenues and lower transshipment at the Rio Grande terminal, and we also had a decrease in towage operating results. CapEx increased 45% to $89.5 million due to the progress made on the Salvador terminal expansion. On March 9, 2020, our civil works achieved 90% of completion. Nonconsolidated CapEx for the Offshore Support Vessel joint venture declined due to a lower vessel conversion activity level. We now move to Slide 5, please. On this slide, we can see some of our liquidity and leverage ratios. The metrics show that all liquidity ratios remain strong, and this is a result of a robust balance sheet. In 2019, there was a 6.8% reduction in the company's operating cash flow to USD 111 million, and this was mainly due to the investments made on the Salvador terminal expansion. Following to Slide 6, please. On this slide, we present the dividends that have been paid in dollars since 2004. The double-digit CAGR, or C-A-G-R, confirms the company's commitment to the market and our shareholders. This slide also shows the dividends proposed for 2020 regarding 2019 results, which amounts to $38.6 million or $0.54 per share. This is in line with the previous year. Despite such a challenging environment, the company maintains its resilience, always seeking sustainable growth. Turning to Slide 7, please. On this slide, we outlined the company's operating data registered in the first 2 months of 2020. Container terminal overall volumes fell 3.8%, largely due to reduced exports at both terminals, even though full container imports have increased by 14.9%. Total container handling at the Salvador terminal increased 5% with solid performance of imports and transshipment. The Rio Grande terminal reported weaker volumes affected by the reduction of exports and cabotage, although imports grew 10.6%. The towage division saw a 4.2% drop in harbor maneuvers. This was negatively impacted by an increased competition in some ports with an oversupply of tugs in harbor operations due to reduced oil and gas demand and also a temporary reduction of iron ore exports. Offshore Vessel operating days dropped by 23.8%, negatively affected by the weakened demand. Our oil service units still face weak demand, even though we expect a recovery in the medium term. We continue to explore alternative revenue streams for our off-hire vessels and base areas. They are well positioned to profit from the expected recovery in the industry over the next couple of years. Given the impacts of the coronavirus outbreak, we are expecting at least some reduction in forecasted volumes for our container terminal and towage divisions in March and April. While the full impact from the coronavirus outbreak on economic activity and global trade with the associated implications for our businesses are still uncertain, it is increasingly concerning. We remain confident in the resilience of our assets as demonstrated in other periods of volatility, such as the 2008 global financial crisis. We now move to Slide 8. In this image, we can see the ongoing expansion of the Salvador terminal. And it will extend the principal quay to 800 meters of length. On March 9, 2020, civil works were 90% completed. And when finished, they will allow the simultaneous berthing of 2 super-post-Panamax ships, facilitating access to the port and the largest economy in the northeast of Brazil. Of critical importance to the economy of Bahia, this project is a priority investment of the Brazilian government's Investment Partnership Program and reflects the company's commitment to continuously improve the efficiency and competitiveness of the Port of Salvador. The presentation ends here, and I would like to invite you to the Q&A session. Thank you.

[Interpreted] [Operator Instructions] Our first question will be asked in English, and it comes from Rob Byde, Cantor.

Good morning, everybody. I hope you are all well. These are very unusual times. I have 2 questions, please. Can you talk about current trading, particularly with the container terminals and the towage business? And then my second question is on liquidity and CapEx. If trading turns more negative, what measures can you take to protect the balance sheet, for example, cuts to capital expenditure?

[Interpreted] So the first question that Rob asked is about volumes in container terminals. And he's also asking about tug boats and how the towage market is doing. So during the first few days of the year, we saw that there was a very slight reduction in container terminals activities. But of course, with the coronavirus outbreak, we believe there will be a higher impact than what we have seen so far. What we've seen so far in terms of volumes, both for towage as well as for the container terminals, haven't had much of an impact, but it is very likely that the impact will -- the impact to volumes will be felt later due to the coronavirus outbreak. This will be felt in the next months. I'll let Fernando Salek answer your second question, Rob.

[Interpreted] So Rob's second question was about our liquidity position and what we are doing to prepare ourselves for a possible CapEx reduction this year, if necessary. Well, we're looking at the situation closely, of course. This is a part of our study on the impact of coronavirus. We've made a projection for CapEx and for cash. And we are doing a study on our liquidity to see how we are going to do during this period, regardless of what comes to pass. We will be ready, if necessary, to pull whatever levers are necessary, whether that be a reduction in CapEx or what we can do to preserve our liquidity. Our cash position right now is comfortable. And it makes us feel that we are in a privileged position regarding the scenarios that might come to pass. But obviously, depending on what the scenarios are, we'll make all the appropriate measures.

[Interpreted] Our next question comes from Pedro Fonseca from Edison.

[Interpreted] My question has already been answered.

[Interpreted] [Operator Instructions] This concludes today's questions-and-answers session. I would like to invite Mr. Cezar Baião to proceed with his closing statements.

[Interpreted] I'd like to thank everyone for participating in our conference call. The company, as it always has done, remains focused on increasing cash flow and improving capacity utilization across all businesses in order to maximize stakeholder value. We maintain our relentless commitment to safety in all our operations. Once again, I'd like to thank everyone for listening in. I wish you all well during this difficult moment, and have a good day.

[Interpreted] This concludes Wilson Sons conference call. Thank you for participating. And have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]