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

Good morning, everyone. Welcome to Wilson Sons Limited's earnings conference call for the third quarter of 2020. 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] In line with the rules of physical isolation, the company is conducting this conference digitally, and the executives may take more time to respond compared to traditional conference calls. Before proceeding, we would like to mention that Page 3 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. You may proceed, sir.

Thank you. Good morning, everyone. Welcome to our earnings conference call for the third quarter of 2020. I hope you are well and safe in these exceptional circumstances. I'd like to start on Slide 4 with an update on how we are dealing with the COVID-19 pandemic. We are aware of the importance of our services. So we focus our efforts on, first, preserving the health and well-being of our employees and other stakeholders, also ensuring the operational continuity of our assets and safeguarding the company's financial strength. To date, we have been successful in keeping all our business activities operational, and this has only been made possible by the flexibility and commitment of all our employees. We've also taken immediate austerity measures to safeguard the financial strength and resilience of our businesses. In order to preserve a robust cash flow through this global crisis, we are implementing several operational and financial initiatives to further strengthen our liquidity, including a reduction to our capital spend as well as operating and administrative expenses. Turning to Slide 5. Here, we highlight an overview of our safety performance as well as an update on our environmental, social and corporate governance practices. We carefully monitor our safety performance, not only for its importance to protect the lives of our people and our operations, but also as a fundamental principle for our customers who contract our services to ensure the safety of their employees, assets and products. Our commitment to safety was evidenced by the improvement in workplace safety. In the first 9 months of 2020, our lost time injury frequency rate increased slightly to 0.56 incidents per 1 million man-hours worked against the 2019 level. This was due to 5 accidents recorded in the period. However, we saw a 92% reduction since 2010. We're pleased to see that even during such a serious health crisis, we've managed to remain focused and absolutely committed to our safety standards, clearly demonstrating that they are nonnegotiable. The safety in all our operations is our top priority. We will strive for the continuous improvement of our work safety to maintain best practices in this area, ensuring the quality of the services we provide to our customers. We also take improvements in our environmental practices. In September 2020, the company published its Corporate Greenhouse Gas Emissions Inventory in reference to our 2019 emissions. This is part of our commitment to the Brazilian GHG Protocol Program. Since 2013, our emissions have been reduced by 12%. We continue to seek improvement in our ESG practices. Now moving to Slide 6. On this slide, we present a summary of our results in the third quarter of 2020. Net revenues decreased 17% to $88.1 million in the quarter when compared to the same period of 2019, which mainly reflects the negative impact of the Brazilian real devaluation on container terminal revenues, decline in logistics revenues due to the end of a specific high-volume contract and the reduction in offshore support base revenues against the backdrop of pressured oil and gas sector. On the other hand, the company benefited from the solid increase in towage revenues. In Brazilian real terms, group net revenues rose 12.5%. Overall expenses fell 17.5% in U.S. dollars against the comparative period, benefiting from the 35.5% devaluation of the Brazilian real against the U.S. dollar. In light of the COVID-19 pandemic, we took several austerity measures to safeguard the financial strength and resilience of our businesses, including travel bans, hiring freezes, restrictions on discretionary spend and administrative expense reductions. EBITDA decreased 17.3% compared to the third quarter of last year to $37.8 million impacted by lower container terminal and logistics results. In Brazilian real terms, EBITDA grew 12.1%. Profit after taxes fell 68.1% to $8.3 million, negatively impacted by exchange rate effects totaling $14 million in the period. Excluding exchange rate movements, the company would have shown a net profit of $22.4 million. Our liquidity remains solid with $112.6 million in cash at the quarter end due to the strong operating performance and bank loan disbursements mainly for the container terminal division. The company currently has material headroom in its bank covenants. We now move to Slide 7. Here, we detail our operating yield registered in the third quarter against the 2019 comparative. Container terminal revenues decreased 27% in U.S. dollars, negatively affected by currency devaluation in the period. In Brazilian real terms, revenues decreased 1.2%. Towage revenues rose 3% in U.S. dollars, benefiting from an improved revenue mix, which reflects the volume growth in more profitable core operations and also the increase in the average size of ships attended. In Brazilian real terms, revenues grew 39.5%. In the offshore support vessel division, revenues decreased 12.6% in U.S. Dollars due to the negative impact of currency devaluation on the portion of revenue denominated in Brazilian reais. In Brazilian real terms, revenues increased 18.2%. Moving to Slide 8. On this slide, we see some of our liquidity and leverage ratios. The metrics show that all liquidity ratios remain strong as a result of a robust balance sheet. Net bank debt decreased 6.7% to $219 million compared to the end of the second quarter of 2020 with a robust cash generation in the quarter. At quarter end, 85% of the total bank debt was long term. Excluding IFRS 16 effects, the net debt-to-EBITDA ratio remained flat at 1.9x. We now move to Slide 9. Here, we highlight our CapEx expectation for the next 2 years. They basically comprise the investments necessary to maintain our operations as well as the completion of the Salvador terminal expansion. In 2020, we are estimating a total investment of $60 million to $70 million, of which approximately $38 million will be allocated to the Salvador expansion. For 2021, we forecast between $50 million and $65 million primarily in maintenance CapEx in addition to $6 million in the completion of the Salvador expansion. During the third quarter, CapEx decreased 74.3% to $4.1 million due to the slowdown in the pace of Salvador terminal civil works to extend the principal quay. In view of the COVID-19 pandemic, we took several measures to temporarily reduce our capital spend in order to preserve a robust cash flow through this global crisis. Turning now to Slide 10. In this image taken in October, we can see the ongoing expansion at the Salvador terminal, which is expected to be completed in the first quarter of 2021. In May, we received the new quay and yard cranes, and we are currently carrying out the commissioning of the equipment as well as leveling and paving an existing backyard area. With the start of operations of the new berth at the end of the year, the extended 800-meter quay 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. This project is of critical importance to the economy of Bahia, and it's a priority investment of the Brazilian government's Investment Partnership Program. It reflects the company's commitment to continuously improve the efficiency and competitiveness of the Port of Salvador. Moving to Slide 11. On this slide, we outline our operating data registered until October 2020. In the first 10 months of the year, trade-linked activities at our container terminals and towage divisions remained resilient although impacted by COVID-19. In October, container terminal volumes decreased 14.8% as a result of the vessel call delays and cancellations. On the other hand, towage harbor maneuvers saw robust increase of 10.4% when compared to the same period of 2019. Container handling at the Rio Grande terminal decreased 18.1% mainly driven by vessel call cancellations due to delays in the ports of origin. Cabotage fell 32.1% with lower volumes of rice. Transshipment and shifting decreased 11.9% driven by lower volumes from Hapag-Lloyd and Maersk. At the Salvador terminal, container handling fell 7.8% due to lower fruit and polymer exports. Cabotage was up 7.9%, reflecting better volumes of beverages and spare parts. Despite a decrease in TEU terms, we should highlight an increase in container units handled in the period when compared to the same period of 2019. The towage division saw a robust increase of 10.4% in harbor maneuvers performed during the quarter, reflecting the higher volumes in São Luís and São Sebastião. Offshore support vessel operating days declined 6.1% with the termination of a few contracts in the period. Vessel turnarounds at our offshore support bases increased 6.3% due to an increase of spot operations. It's worth mentioning that the environment remains challenging, and the recent oil price weakness is expected to delay the recovery in offshore oil and gas support services. While the full impact from the coronavirus outbreak on economic activity and global trade is still uncertain, we remain confident in the resilience of our assets as demonstrated in other volatile periods, such as the 2008 financial crisis. More importantly, I'd like to highlight the commitment of all our employees who have guaranteed the continuity of our services to our customers. The presentation ends here, and I'd like to invite you to the Q&A session. Thank you.

[Operator Instructions]

We received a question from the webcast, and they asked how much CapEx is foreseen for the 6 new tugboats, excuse me. So our forecast is about $55 million to build these 6 tugboats, which will be 80 tonnes. So that is about $9 million per tugboat. Another question is how much CapEx of the Salvador terminal expansion has been recovered in the third quarter of 2020. In the third quarter, our investment was $13 million for the expansion of the Salvador terminal. This came from Matheus Rech from Ártica. We also got a question from the webcast from Jacqueline Broers from ICM. She asks if we have any guidance for the expected volumes in maneuvers for 2021. And I'll let Arnaldo and Salek answer Jacqueline's question.

This is Arnaldo. For towage maneuvers, we expect to see an improvement as long as the COVID crisis doesn't become more severe and as our economy recovers in Brazil. In container terminals, we are also seeing an improvement. It might not be so expressive because the commodities market seems to be doing better than the containers market. So I'm not sure if Fernando Salek has anything to add.

No, Arnaldo. The only comment I have is that the level of uncertainty is still quite high. Our point of view today is that the Brazilian GDP will grow a bit in 2021, but there are still too many variables. The level of uncertainty is very high, so it's not very easy to make forecasts.

And we have another question from the webcast from Lucas at Larus. He's asking about the Salvador and Rio Grande terminals and if we expect any recoveries there for the fourth quarter or if we're expecting anything for 2021. I think it really depends on the economic recovery in Brazil. I don't see that we will have many changes in imports, especially with the volatility being so high in foreign exchange. So I don't see an immediate recovery, and that goes for Rio Grande and Salvador. We're more optimistic for 2021, but not for the fourth quarter. And we have one more question from Lucas Facury from Larus. Can you tell us more about what CapEx will be used in the fourth quarter for the Salvador expansion? I'll let you answer, Salek. What investments are we expecting for the fourth quarter?

Thank you, Cezar. For the fourth quarter, we will have investments of around $20 million. So this places us at the $38 million figure for the year and for 2021, $6 million. That's the projected figure.

We also have a question from [ Alex Paterson ], and he is asking about Salvador. We invested in the terminal expansion there, and he is asking how quickly we should fill the new capacity that we've built. He also asks if we're seeing any shipping lines volumes going up in Salvador. Alex, as Fernando said, there are many uncertainties right now, so it's difficult to answer your question. The most important thing is that exporters and importers in the region, especially in Bahia, have good infrastructure with the capacity to receive large ships that are already coming to South America. Salvador used to have a restriction because it only had 1 berth and now we have 2 berths for the biggest ships that are starting to come up our shores in Brazil, 366-meter ships. So today, after this expansion, this container terminal in Salvador is prepared to receive these large ships, which is very important for the economy of the state. So we're very optimistic that we'll be able to attract more, but we're not sure how long it will take to reach the new capacity that we have. We expect that it will be in the coming years. Someone asked if we could talk about the succession for the CFO, if we expect to make an announcement. Well, we are far along in that selection process. I think until February, we will have to find who the new CFO will be. So we have plenty of time. This was all planned. So we have until March to select our new CFO. I'll remain CEO until March. Fernando will need as CFO. And by February, we should have a name.

This concludes our questions-and-answers session. I'd like to give the floor to Mr. Cezar for his closing remarks. You may proceed, sir.

Okay. I'd just like to conclude by saying that in what is a challenging environment for humanity, we reaffirm our commitment to the safety and well-being of all our stakeholders, and we remain very confident in the resilience of our businesses. We've also taken several austerity measures to safeguard the financial strength and resilience of our business, especially with a strong reduction in administrative expenses and also an important reduction in CapEx. We were agile in adopting precautionary measures and adapting to this dynamic scenario, and we've been successful in keeping our business activities operational. We will continue to monitor the situation carefully, and we're well positioned to deliver sustainable growth, perpetuating efficiency gains. I'd like to thank everyone for participating in our conference call. I hope you are well and safe. Thank you, and have a good day.

This concludes the teleconference. Thank you for participating. Have a good day, and thank you for using Chorus Call. [Statements in English on this transcript were spoken by an interpreter present on the live call.]