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

Good morning, everyone. Welcome to Wilson Sons Limited's earnings conference call for the fourth quarter and year 2020. Mr. Cezar Baiao, Chairman of the Board of Wilson Sons Brazil; Mr. Fernando Salek, CEO; and Mr. Arnaldo Calbucci, CEO, are here with us today. This conference is being recorded, and we 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. 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.

Thank you. Good morning, everyone. Welcome to our earning calls for the fourth quarter and year 2020. I hope you're all safe and well in these exceptional circumstances. I would like to start on Slide 4 with an update as to how we're dealing with the COVID-19 pandemic. We are aware of the importance of our services. We have focused our efforts on preserving the health and well-being of our employees and other stakeholders, ensuring the operational continuity of our assets and safeguarding the company's financial strength. To date, we have been successful in keeping all our businesses activities operational, and this has all been made possible by the flexibility and commitment of all our employees. We have 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 have been implementing several operational and financial initiatives to further strengthen our liquidity, including reducing our capital spend as well as operating and administrative expenses. On to Slide 5 now, please. Here, we highlight our safety performance as well as an update on our environmental, social and corporate governance practices. We carefully monitor our safety performance, not only to protect the lives of our people and our operations, but also as a fundamental principle of our customers, who contract our services to ensure the safety of the employees, assets and cargoes. Our commitment to safety can be seen through the improvement in working place safety. In 2020, our lost time injury frequency rate fell to 0.42 incidents per 1 million man-hours worked, a 12.5% decrease against the 2019 level. In addition, we have seen a 91% reduction since 2011. We are pleased to see that even during such a serious health crisis, we have 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 seek improvements in our environmental practices. Just like we mentioned before, back in September 2020, we published the Corporate Greenhouse Gas Emissions Inventory in reference to our 2019 emissions. As 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 and transparency. Moving on to Slide 6 now. On this slide, we present a summary of our results in the fourth quarter and for the year 2020. Fiscal year 2020 net revenues decreased 13.1% to $352.8 million in the quarter when compared to the same period of 2019, mainly reflecting the negative impact of the Brazilian real devaluation on container terminal revenues, a decline in logistics revenues due to the end of a specific high-volume contract and the reduction in offshore support base revenues against a backdrop of a pressured oil and gas sector. On the other hand, the company benefited from the solid increase in towage revenues. In reals, group net revenues rose 13.3%. Overall expenses fell 16.2% in U.S. dollars against the comparative period, benefiting from the 31% devaluation of the Brazilian real against the U.S. dollar. In light of the COVID-19 pandemic, as I said, we took several austerity measures to safeguard the financial strength and the resilience of our businesses, including travel bans, hiring freezes, restrictions on discretionary spend and administrative expense reductions. EBITDA increased 0.2% when compared to 2019 to $141.6 million, impacted by lower container terminal and logistics results. In reals, EBITDA rose 31.9%. Profit after tax fell 35.7% to $20.5 million, negatively impacted by exchange rate effects totaling $6.3 million in the period. Excluding exchange rate movements, the company would have shown a net profit of $26.8 million. Our liquidity remains solid at $98.3 million in cash at the end of the year. We now move on to Slide 7, please. Here, we detail our operating yield registered in 2020 against the 2019 comparative. Container terminal revenues decreased 21.2% in U.S. dollars, negatively impacted by currency devaluation in the period. In reals, revenues increased 2.3%. Towage revenues rose 8.8% in U.S. dollars, benefiting from an improved revenue mix, reflecting the volume growth and more profitable port operations and the increase in the average size of ships served. In Brazilian reals terms, revenues increased 42.3%. In the Offshore Support Vessel division, revenues decreased 7.1% in U.S. dollars due to the negative impact of currency devaluation on the portion of revenue denominated in Brazilian reals. In reals, revenues increased 20.7%. Now on to Slide 8. On this slide, we can see some of our liquidity and leverage ratios. Metrics show that all liquidity ratios remain strong as a result of a robust balance sheet with $98.3 million in cash at the end of 2020. The company currently has material headroom in its bank covenants. Net bank debt decreased 5% to $244.3 million compared to the end of 2019 with a robust cash generation in the year. 83% of the total bank debt was long-term at the end of the year. Excluding IFRS 16, effects, the net debt-to-EBITDA ratio remained flat at 2x. We now move on to Slide 9, please. Here, we highlight our CapEx expectation for the next 2 years, basically, comprising the investments that are necessary to maintain our operations as well as the completion of the Salvador terminal expansion and the construction of new tugboats. In 2020, we invested $71 million. Approximately $43.2 million were allocated to the Salvador expansion. For 2021, we forecast between $50 million and $65 million, primarily in maintenance CapEx in addition to $6 million for the completion of the Salvador expansion. In 2020, CapEx decreased 25.7% to $70.8 million due to a slowdown in the pace of Salvador terminal civil works to extend the principal quay and a reduction in the dry docking operations in the period. 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. Moving on to Slide 10 now, please. In this image taken in March 2021, we can see the ongoing expansion at the Salvador terminal, which was completed in March 2021. We are currently waiting licensing formalities to start operations in April 2021. In February 2021, Brazilian Navy granted the operation license for the principal quay extension. The extended 800-meter quay allows the simultaneous berthing of 2 super-post-Panamax ships, facilitating access to the port and the largest economy in the North Eastern Brazil, a 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. Nevertheless, dredging works are necessary to enable simultaneous berthing operations in the extended quay. Works will be completed by the second quarter of 2021. The Rio Grande terminal was certified with a 15-meter draft for the navigation channel in Q4 '20, allowing the terminal to receive larger than 366-meter vessels, further increasing the terminal competitiveness in the global ports and shipping industry. Slide 11 now, please. On this slide, we outline our operating data registered up to February 2021. In the first 2 months of the year, trade-linked activities at our container terminal and towage divisions remained resilient, although still impacted by COVID-19. In February, container terminal volumes increased 0.4% as a result of higher volumes in transshipment and cabotage flows. On the other hand, towage harbor maneuvers saw slight decrease of 0.6%, in line with the same period in the prior year. Container handling at the Rio Grande terminal decreased 1.5%, mainly driven by lower volumes in exports and cabotage flows. Imports, however, grew 9.3%, driven by growth in industrial segments. Transshipment and shifting increased 61.8% due to the greater movement to the Gulf of Mexico and the West Coast of South America. At the Salvador terminal, container handling increased 3.8% due to imports and cabotage flows. Imports were driven by higher volumes of resins and food products. Cabotage was up 28.2%, reflecting better volumes of beverages and the construction industry. Exports were negatively impacted by lower volumes of industrial segments, such as chemicals and petrochemicals. The Towage division, as I said before, saw a decrease of 0.6% in harbor maneuvers performed during the month, reflecting the lower volumes, mainly in Santos and Salvador ports. Offshore support vessel operating days increased 3.3% with the beginning of contracts in the period. Vessel turnarounds at our offshore support basis fell 48.8% due to the finish of contracts and a reduction in spot operations. It's worth mentioning that the environment remains challenging, and the 2020 oil price weaknesses is expected to delay the recovery in offshore oil and gas support services. While the full impact from the coronavirus outbreak and 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 would like to point out that all employees are fully committed. They have guaranteed the continuity of our services to our customers. As announced on March 5, Cezar Baiao assumed the role as Chairman of Wilson Sons Holdings Brazil and stepped down from the CEO of operations in Brazil. Thus, we are truly honored to still have Baiao's expertise. He will continue to work with us in the development of the company's business strategy and capital allocation. I would like to warmly thank him for his tenure at the helm of Wilson Sons as he contributed decisively to the growth, development and innovation of the company in port and maritime support. During his term, the company became the largest integrated provider of port and maritime logistics services in Brazil. The company has achieved numerous milestones over the last 27 years, including, becoming the largest harbor towage fleet in the country, winning 2 container terminals concessions, building a fleet of 23 offshore supply vessels, constructing 2 offshore supply business, operating 2 bonded logistics centers, the expansion of our shipyard capacity and the consolidation of one of the largest independent shipping agency in Brazil. In 2007, Cezar Baiao led the Wilson Sons IPO on the Brazilian Stock Exchange, implementing significant advances in the company's governance practices in the process. Cezar Baiao leaves a strong legacy, and I assume the commitment with each one of you to dedicate myself to continue these advances. As the new CEO of Wilson Sons, I hope to contribute to the maintenance of the company's successful trajectory, generating value for the company, its stakeholders and its employees and society overall. I conclude the presentation here. I would like to invite all of you to the Q&A session. Thank you.

[Operator Instructions] Mr. Lucas Marquiori from BTG Pactual asks the first question.

I have two questions actually. The first, can you please talk a little bit about the disruption in the global shipping industry, lack of containers, jams or traffic jams in the busiest ports, how would that reflect on Wilson? Is there room to increase prices? I would like to better understand how Wilson plays out within that shipping industry globally, that would be interesting to have this global perspective. And when we think about regulatory changes, what's your take on cabotage regulation changes, do you envision any volume changes in that area? What's your take on those regulatory changes? These are the 2 questions I have.

This is Baiao. Thank you for your questions. Before I turn over to Arnaldo and to Salek, let me just address your first question. One of the most important things that a operator should pay close attention to is infrastructure and the quality of the services they provide. This is what we have been doing in recent years. We have been preparing our terminals to receive both in terms of draft sizes or berth sizes to serve the biggest ships in the world. Every time we have these major changes in container handling, shipyards are always striving for more efficiency and they end up resorting to bigger ships. And the cost per container goes down for the most efficient operators. So the terminal operator will have to have the proper infrastructure. And that's what we have been doing. Both Rio Grande and Salvador today can serve the largest ships that would be coming down to South America. So we are well positioned with the proper infrastructure to receive these largest or these larger ships. Any encouragement, any incentive in cabotage is good for our business. Both good for the terminals and for our tugboats, our towage division. That will be more volume in a nutshell. They play a very important role in highway transportation, and the incentive to change that transportation grid, bringing more cargo to the ship would be beneficial to Wilson Sons. But I'll turn over to Arnaldo to complement the answer.

Thank you, Baiao. Let me talk about disruption for a minute. We believe that the traffic jams in ports and the lack of containers is or are temporary. That has to do with pandemic essentially. Things will go back to normal as routes and demands stabilize. As to the lack of containers, this is a one-off situation that was beneficial back in January. We had a lot of repositioning of our empty containers. We can even benefit from these temporary situations because of the pandemic. But I believe that Baiao gave you an overview as to how we are preparing our terminals for the future on a mid- and long-term basis. [ BR do Mar ] is a new regulation that's still pends or that's still pending. The Senate may change it to a certain extent. But in its score, it's positive legislation. We believe there should be an increased volume in cabotage, which is positive to our container terminals and also for our Tugboat division, just like Baiao put it.

[Operator Instructions] Mr. [ Luis ] Marquiori from BTG Pactual asks or Lucas Marquiori asks the next question.

Let me now talk about the offshore. We've seen what some competitors are doing. There was a listing of one of your competitors for offshore services. There are several players planning to increase their fleets. Can we expect some volume increases as the drilling production resumes, both in shallow and deep waters. What's your take on this industry? We had another fourth quarter that was still weak. But what is the contracts, the day rates, what do they look like? Is there any signal of a reversal trends? And if I may, I have a second question and about the -- it's about the tugboat industry. It's been very competitive in the past 2 to 3 years. How did that dynamic change? The excess capacity we had back in 2017, 2018, is this a more disciplined market today? Some competitors left the market, that could help the price, right? That's my -- those are my two questions.

Thank you, Lucas. This is Baiao, again. Let me answer this two question about the offshore and the tugboats. Let me just say a couple of words before I turn over. We believe that the offshore market will remain challenging in 2021. The difference is that as of 2022, 2023, we see some -- we have more hopes but it's going to be challenging this year, but Arnaldo can talk about that. He'll address the two questions actually. Over to you, Arnaldo.

Lucas, the offshore market will remain very competitive in 2021. We've seen these IPOs, a beginning of a consolidation, we see some early warnings of that happening. There may be some demand for specialty vessels, but later in the year, early 2022, we don't expect major changes in 2021. Just like Baiao said, we'll see some gradual improvements in 2022 and even more so in 2023. With the IOCs and Petrobras becoming more active players, and as soon as we overcome the pandemic, which, of course, gets in the way of the oil and gas industry as things will look better once the auctions take place. As to the tugboats market, it remains competitive. It stabilized somewhat last year. All players were aware to a certain extent that tariff rates were very low. You end up not being as aggressive the market stabilized. Competitors did not leave the market. We believe that the market will remain competitive. There may be some new constructions to replenish their fleets. Some operators may grow a little. We don't see any major changes. We are very well positioned as to the size of the fleet, locations, technology, costs to compete. So we believe we'll remain successful but still a very competitive market, nonetheless.

Lucas Facury from Larus asks the next question.

I actually have three questions. Two about tugboats piggybacking on what Lucas said. The ticket per maneuver, is it going back to the levels we hadn't seen, $3,100. What's your take for 2021? Do you believe it will stabilize because of the mix? My second question about tugboats is about costs. We have seen they're growing very high. In Q4, margins were down quarter-on-quarter, to believe these costs will down in 2021. And my third question is about Salvador terminal. You said that the yield in the end of Q2, you'll be able to be berthing 2 ships once the dredging operation is concluded. You wouldn't depend on extra calls and new lines. I want to know how soon you can get those efficiency gains by extending the berth.

This is Baiao. I'll give the floor to Arnaldo. But let me just comment as to tugboats. The freighting costs, this line is impacted by several variables. There are years in which we have more special operations. You end up transferring tugboats and the port to a special operation. And in order to replenish that tugboats, you end up hiring tugboats. Another variable takes place in, when you have more docking operations in your fleet, you may have to charter more tugboats. Once we have new tugboats in 2022, and by increasing our fleet, that's -- that variable will reduce the chartering of tugboats. Those costs will go down. I'll turn it over to Arnaldo to answer the other question you asked.

Let me talk about the ticket now. The ticket is impacted by the mix, too. We took over 100% of the operations in Ponta da Madeira. And the obvious effect is that 50% of that volume with larger vessels did not belong to us. It impacts the average ticket. Porto do Ceu that had important growth, especially in ship-to-ship, when you transfer oil, plays a very important role in that mix using or making good use of some niches, where we have more tugboats. This is also important. And there's no doubt that the market behavior plays a role. Despite being very competitive, it's somewhat stabilized, just like I said in answering the previous question from the other -- Lucas. We believe the ticket remains stable with a slight growth bias for the year. As to the chartering costs, just like Baiao said, there are several variables that impact chartering costs. One of the important things is that we took over 100% of operations in Ponta da Madeira. There are several simultaneous maneuvers with larger vessels. So even when we have more than 10 tugboats in that complex, you have to use competitor's tugboats to service your vessels, so that would bring chartering costs up. [ WSUT ] also increased, and we ended up having 2 charter more tugboats, just like Baiao put it. Special operations in 2020 also played a role. There were many special operations, and we have to transfer these tugboats from ports to perform these special services to keep on meeting the needs of our customers, we have to hire or charter third-party tugboats. Stocking, maintenance also play a role in that scenario. And of course, by building new tugboats, we will reduce the need to resort to third-party tugboats, who have newer tugboats will require less maintenance. We don't want to increase the fleet so much. We just want to renew it. As to the Salvador terminal, we'll gradually increase there year after year. It's long-term investments. We don't expect any sudden growth. In 2021, we'll be performing maintenance in the existing quay, what we call the old quay. It will be out of service for some time for that maintenance, and we'll be operating in the new quay. But that growth curve will take place during some years.

Let me just follow-up on the Salvador to -- volumes will pick up gradually. Once you have 2 operational berths, the way you organize it, I want to know whether we'll be able to dock 2 ships at the same time, you can berth 2 ships at the same time or whether it will take longer.

Go ahead, Baiao.

No. Go ahead, Arnaldo.

As soon as maintenance in quay #1 is concluded, of course, we have efficiency gains, we have 2 berths, will be able to attract shipyards. You don't see major gains immediately. But again, it's a positive, and we'll be able to operate both berths, simultaneously. Absolutely. Was that clear? Webcast, that's where our next question comes from.

Yes. We have question from Matheus.

Are you done with the CapEx in Salvador, $4 million for Q4 and $2 million for Q1 in 2021. Is the project in line with these numbers Arnaldo or Fernando?

I can take that question. It's so easy. Yes. We're just going to conclude the investment, a small amount that will be taking place in 2021 in terms of disbursement. And that will match those 6 million you mentioned, Matheus. So it's perfectly in line with the numbers you mentioned. We have some questions from webcast from Bruno Bretas.

The expenses with the tugboats grew 50% in Q4. It increased 72%. Can we expect any reduction along those lines? When you have new tugboats in operation, are you going to reallocate the fleet on a short-term basis to reduce this expense?

We have just answered that question, Bruno, when Lucas asked that same question. Yes, of course. That increase in that expense has to do with the increase in special operations, larger volumes in Ponta da Madeira and [ WSUT ] They end up pushing us to higher or charter tugboats. When you have new tugboats, of course, you bring those costs down. Arnaldo, is there anything else you would like to say?

When we compare 2021 with 2020, the trend is a downward trend. In 2020, we changed that level when we took over 100% of Ponta da Madeira operations. This will continue. There's no point in positioning more tugboats in Ponta da Madeira, because we would put more pressure in the market. The competition would be even fiercer. That wouldn't be wise on our part. We changed the level of chartering. That might be smaller when we compare to 2020. But we must be aware that we'll be having a lot of docking operations. And 2021, that should be brought back to that level we had before. Was that clear?

We have another question from Matheus from [ ATMA ] Investments.

What's your take on the impact of Ford. You have less imports in Salvador terminal.

Can you address that one, Arnaldo?

The impact is already there. We expect about $500 million a year and that's the impact on our EBITDA. Ford shuts down, but the tire manufacturers, spare parts manufacturers will reposition themselves. That impact might be reduced, but initially, it's about $500,000 rather USD 500,000.

We have another question from Matheus from Ártica.

Have you started investments for the 6 new tugboats. The CapEx for tugboats was higher. Can you address that one? Arnaldo?

Back in January, we started purchasing steel, engines and equipment to build those tugboats. These inputs will be delivered in the months to come, especially the steel. We already started with the CapEx, but that started in 2021? That CapEx increase in late 2021 had to do with the necessary docking operations. Just like I said before, there were some delays in those operations in late 2020. And towards the years and we began to resume that. That's why that was not the CapEx for construction.

We have another question from Matheus.

Corporate costs may have been or seems to have been higher. Are there any initiatives to reduce costs?

Can you field that one, Fernando?

There's no specific reason behind it? Initiatives to reduce costs, just like I said before, we have been adopting these initiatives on a regular basis. We do that because of the pandemic, but we also do that on a regular basis as an efficiency practice. We do have an important program, that's the digital transformation program that has been gaining ground in the organization. And that program and our open innovation initiative, we believe, that these 2 initiatives will be very important to improve in our costs even further, reducing on a long-term basis and attaining these significant efficiency gains. But we maintained our cost discipline, very stringent on a regular basis, especially during this global crisis, our austerity program is very intense, indeed. We do have some projects that are important for the company and they were put on hold in 2020. Some of them will have to take place in 2021, depending on our long-term needs to generate value.

Lucas Facury from Larus asks the next question.

Let me just do some follow-up. I was disconnected, but the answer was very clear. I could hear it. I have two more questions. The first one is about the possibility of investments. Bulk liquid and solid terminals. I want to know whether you are considering it or not? And the second question, could you elaborate on what you've done in restructuring the companies of the group, are there any tax benefits or cost reduction opportunities?

This is Baiao. We're always paying close attention to everything that has to do with ports in Brazil. When we look at them, of course, maintaining our very strong discipline. We are interested. We are considering all opportunities. As to the restructuring of the companies in the group, it's a major structuring. We've had good results for the group. But I will turn over to Salek. He can give you further detail on the topic.

Thank you, Baiao. Yes. This is currently underway. We're finalizing that process. We are restructuring the organization. We're reducing the number of companies. We are having a more rational structure in place. That process will generate lifetime benefits. There are some potential gains that are one-off events that have to do with using tax credits and things of that nature. Our #1 focus is simplifying things and to capture these life-long gains. Compliance efforts and compliance costs plummet once you have a simpler structure in place. And of course, we can reorganize ourselves internally, trying to be simpler. The way I see it, these costs are higher and inefficient when you have a more complex structure. There are gains that are immediate and one-off, but the goal is to have a long-term benefits by being simpler, nimbler.

Very clear. Just a final question. Are there any expectations of allocation for 2021? [ 400% ] was USD 15 million. But because of the agreements with the Brazilian development bank that should be transferred to 2022. What's the expectation of that allocation?

Fernando, can you address that question, please?

Yes. I can. Yes, you're right. That's the number we estimated, that number is a little better. We may even have that allocation -- or reduced allocation in 2021. But the important message is that we're ready to give the support. When I say we, I mean our partners too. We can provide support if that is necessary in 2021. As far our scale goes, that's the maximum number. With the second stand still we have more headroom, more leeway in our cash and the capacity of refinancing some operations and that will depend on the -- on how the market reacts and the operational capacity of WSUT. So the way we see it, that is maximum amount.

This concludes the Q&A session. I would like to give the floor to the company for their final remarks.

Let me take this opportunity in the name of the company. I would like to thank Fernando Salek for his words. And I wish him the very best of luck in his new challenge. I am completely convinced that we -- that you will do an excellent job Fernando at helm of Wilson Sons, preserving our corporate principles and values and further developing our business units. Just like you said, in your previous answer, I'll continue my office as Chairman of the Board of Directors of the Brazilian Subsidiary, a position in which I have the chance to keep on contributing to strategic decision-making of Wilson Sons. I would like to express my gratitude to everyone who worked with me during my term as CEO. Our employees, directors, clients, stakeholders, board members who were by my side and entrusted me with the privilege of leading this organization that I admire so much. My heartfelt thanks to all of you. Finally, I would like to say that during the pandemic, this is a very challenging environment for humanity. I would like to reaffirm our commitment to the safety and well-being of all our stakeholders and workers. And we remain very confident in the resilience of our businesses. We have also taken several austerity measures to safeguard the financial strength and the resilience of our businesses. We wasted no time in adopting precautionary measures and adapting to this dynamic scenario. We have been successful in keeping all our business activities operational. We will continue to monitor the situation carefully. We are well positioned to deliver sustainable growth, perpetuating efficiency gains. I would like to thank everyone for participating in our conference call. I hope you are all well and safe. Thank you, and have a good day.

Thank you. This concludes Wilson Sons earnings call. Thank you for attending. Have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]