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

Good morning, everyone. Welcome to Wilson Sons Limited earnings conference call for the first quarter of 2021. We have with us today, Fernando Salek, CEO of Operations in Brazil; Fabricia de Souza, CFO of Operations in Brazil; and Arnaldo Calbucci, CEO 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. Before proceeding, we would like to mention that Page 3 of the presentation contains the usual forward-looking statements for your reference. Now I'd like to turn the conference over to Fabricia de Souza.

Thank you. Good morning, everyone. I hope you're safe and well. Welcome to our earnings conference call for the first quarter of 2021. I would like to start with an update on how the -- on how Wilson Sons is dealing with the pandemic. It's important to highlight our commitment with the measures adopted to protect our employees as well as other stakeholders. With these measures and counting on the commitment and flexibility of our team, we have been successful in keeping our business activities operational and safeguarding the financial strength of the company. With that being said, it's worth mentioning that cost austerity measures, operational and financial efficiency initiatives and planned extensions of capital expenditures were also implemented by the company to go through this period, which is still full of uncertainties in the domestic and global context. Turning to Slide 5. Here we highlight our environmental, social and corporate governance practices. The company is committed to continuously developing and enhancing its ESG activities. In April, we approved the creation of an audit committee moving forward with our corporate governance agenda and increasing our adherence to the Brazilian corporate governance code. This year, we also became members of the Carbon Disclosure Project. Our long-standing commitment to the safety and integrity of employees and other stakeholders remains an important pillar of our company culture. For this reason, we monitor our performance closely. In the first quarter, our lost time injury frequency rate increased to 0.5 incidents per 1 million man-hours worked. Bearing that in mind, short and term -- excuse me, short- and medium-term plans were defined, reinforcing our focus on operational safety. Now moving to Slide 6. On the slide, we present a summary of our results in the first quarter of 2021. You'll notice that net revenues increased 1.5% to $92.5 million. In Brazilian real terms, company net revenues rose 24.8%. Increase in harbor maneuvers at ports that operate large ships, improvement of mix of containers handled and 7 dry docking operations at our shipyard are among the reasons for this growth. Overall expenses dropped 11.5% in U.S. dollars against the comparative period, benefiting from the 22.8% devaluation of the Brazilian real against the U.S. dollar. There were also restrictions on discretionary spend and travel bans during the COVID-19 pandemic due to the measures adopted. EBITDA increased 20.8% in U.S. dollar terms to $43.6 million, impacted by cost efficiency gains and improvement in revenues. In Brazilian real terms, EBITDA rose 48.6%. Profit after tax rose to USD 4.6 million. This was negatively impacted by exchange rate effects totaling $4.2 million in the period. If we were to exclude exchange rate movements, the company would have shown a net profit of $8.8 million. We now move to Slide 7. Here, we detail our operating yield registered in the first quarter of 2021 against the comparative period. Container terminal revenues increased 11.8% in Brazilian reals despite decreasing 9.1% in U.S. dollar terms due to the currency devaluation that took place in the period. Towage revenues rose in Brazilian real and U.S. dollar terms, increasing 10.2% in U.S. dollars and 35% in Brazilian real terms. This business benefited from an improved revenue mix, reflecting a better mix of deadweight and types of cargos. The average deadweight of vessels attended rose 17%, reflecting higher volumes in ports that operate larger ships. In the offshore support vessel division, revenues decreased 8.1% in U.S. dollars due to the negative impact of currency devaluation on the portion of the revenue that is denominated in Brazilian reais. Operating days were down 6%. In Brazilian real terms, revenues increased 12.6%. Moving to Slide 8. On this slide, we can see some of our liquidity and leverage ratios. As you can see, they remain solid. This was a result of a robust balance sheet with the payment in March of USD 20.5 million related to working capital raised in March 2020 to ensure the company's liquidity. Net debt -- net bank debt decreased 6.7% to USD 228 million. At the quarter end, 87% of the total bank debt was long term. And the company had combined cash as well as cash equivalents of USD 80.3 million. Our leverage continues to be low. Excluding IFRS 16 effects, the net debt-to-EBITDA ratio decreased to 1.7x. We now move to Slide 9. This slide highlights the dividend distributions over the past years, especially in 2020. In March, the Board of Directors approved distribution of USD 38.8 million based on the 2020 results, with USD 0.54 per issued share. This represents a dividend yield of 5.9%. Turning to Slide 10. Well, on this beautiful image you see, which was taken in March, we can see the ongoing expansion of the Salvador terminal, with the completion of civil works related to the backyard expansion. The operations in the extended key were allowed in March as the Brazilian Navy granted the operation license. Tecon Rio Grande received ISO 45001 certification, which confirms the distinction of our occupational health and safety practices as the terminal is already certified in environmental and quality management. In addition, in February, we started the construction -- or excuse me, the port administration delegation for SUPRG in the state of Grande do Sul was renewed, reinforcing our commitment with the port of Rio Grande. Also in February, we started the construction of a new tugboat in Guaruja. This was tugboat WS 172 with 80 tonnes of bollard pull at our shipyard. This new tugboat has the best-in-class equipment, which ensures a high level of security in our harbor maneuvers. Furthermore, reinforce -- it reinforces the company's commitment to sustainability as the tug is IMO Tier 3 certified, which attest the elimination of nitrogen oxide emissions by vessel engines. Moving to Slide 11. On this slide, we outline our operating data registered up to April 2021. In the first 4 months of the year, our container terminal and towage divisions were positively impacted by the growth of trade linked activities. In February, container terminal volumes increased 24% as a result of higher volumes in transshipment and cabotage flows. Towage harbor maneuvers saw a strong increase of 10.2%, especially due to higher volumes of commodities. Container handling at the Rio Grande terminal increased 17.2%, mainly driven by higher volumes in transshipment and cabotage flows. Cabotage increased nearly 26% due to higher volumes of rice and increased volumes in the furniture segment. Transshipment and shifting increased 41.4% due to the greater movement in the services operating between South America and the Gulf of Mexico and North America. At the Salvador terminal, container handling increased 38.1%, driven by overall better performance. We would like to highlight the higher transshipment volumes due to greater movement in services operated between South America and the Middle East. Cabotage volumes rose reflecting better volumes of chemicals, beverages and the construction sector. The towage division presented solid figures in April, with strong volumes both in maneuvers and average DWT. Harbor maneuvers rose 10.2% in April, mainly due to higher volumes of iron ore and also crude oil. The average deadweight of vessels attended rose 5.1% and this reflects higher volumes in ports that operate larger ships. Operating days for offshore support vessels rose 7.3%, especially due to higher demand for spot operations. Well, this concludes my presentation and I'd like to invite you to the Q&A session. Thank you.

[Operator Instructions] Our first question will be asked by Lucas Facury from Larus.

Congratulations on your results. I have a couple of questions. First, on the Tecons, you had an EBITDA margin which was quite good, 61%. I think this is the best in your historical series, at least of what I had. So can you tell us a bit what were the drivers for this margin, especially costs, which was well under control? Should we expect that to continue in the next quarters? Or is it nonrecurring? My second question is on CapEx. It was also low this quarter versus the projection for the year. So what, in this CapEx, was due to the expansion in Rio Grande and Salvador? And how much was it because of the tugboat? So if you could just give us some color on that.

So Arnaldo, you can answer the first question please.

Thank you, Lucas. This is Arnaldo. So in terms of the terminals, we had a very good volume this quarter. Exports, imports and cabotage were strong in both terminals. Costs were under control. We were very diligent on that. We tried to maintain a very good cost discipline even considering the risks of the pandemic and all of that. So for the rest of the year, we should expect costs to remain under control probably at the same level, but some of the expenses we're postponing will take place this year. But our perspective has been very positive. Regarding CapEx, the biggest difference you see in CapEx is for the Salvador container terminal, where there are still some costs to come throughout the year. They were a bit delayed during the first quarter. As for tugboats, the main expenses when it comes to CapEx were related to docking our vessels. And construction for the first tugboat began, but it didn't have a significant cost this quarter at least. Thank you.

The next question will be asked by Alex Paterson from Peel Hunt.

Can I just ask 2 questions, please? Firstly, could you just say what caused the increase in lost time delays in Q1 relative to the recent quarters? And secondly, growth in your container volumes has been very good, certainly in the current year. Would you expect that to improve further as hopefully Brazil's economy improves as it exits from coronavirus?

Could you please repeat your second question? We were unable to hear exactly what the question was.

My second question was growth in your container volumes has been very good this year. Would you expect that to improve further as hopefully Brazil's economy improves later in the year?

Okay. Thank you for your question. Regarding our incident rate that you asked in your first question, we had some incidents in the first quarter. So we immediately put into practice, plan to reinforce our safety measures, both on the short and medium term. We had an incident that showed that this was a need. So to answer your second question, during the first quarter, we had some inventory replacements, but the large part of the volumes that we've shown are demonstrating that the economy is recovering, and I'll let Arnaldo add to that second answer.

Thank you, Fernando. Well, basically, some of the cargo made our results very good this quarter in Rio Grande, especially in exports, furniture, tobacco and frozen poultry, in imports, resins, plastics and in cabotage as is common in Rio Grande price. In the Salvador terminal in terms of exports, the main cargo that helped us were pulp, paper tires and fruit and in import, solar power and polymers. For cabotage, chemical products, beverages and construction material. So we see that trade is recovering very well. We're very optimistic because we believe that volumes will remain very good, but we should always be careful especially because the pandemic is still ongoing and it is very concerning in Brazil. So there could be unexpected retractions because of the pandemic.

[Operator Instructions] We have a question here about the main drivers for the company's EBITDA results. And also what were the main components in our CapEx.

So in Salvador, we concluded the civil construction in our expansion. It was concluded in March 2021. And we still have some CapEx related to the dredging that was required for the new key. There were also some reinforcement adjustments in the previous key so that we can use our equipment fully. So this is a planned CapEx, although we have concluded civil construction. And our key is already in operation. We also had docking expenses. And the -- we started building our new tugboat, as Arnaldo said before. With regard to EBITDA, once again to reiterate what Arnaldo said, we maintained a very strong cost discipline with significant austerity. And this added to an increased activity level as revenues rose. So we had robust volumes in this period. The mix in the terminals has also been more profitable. In the first quarter, we saw very good results in the importation line. As for tugboats, we clearly saw a significant increase in volume and also a better revenue mix as the kind of cargo that we saw rise significantly, commodities, minerals and so on, are more profitable because they bring more deadweight to the vessels. And this cargo was used in lieu of other cargo that hasn't recovered as well. I don't know if Arnaldo has anything that he wants to add, but I'll pass it on to him.

Fernando, I think you covered it very well. You answered the question very well. I'd just like to highlight that when it comes to costs, there's also a component of foreign exchange there. So we see that the exchange rate has changed since last year. And that also creates an impact on our cost reduction in 2021. So the EBITDA drivers are related to terminals and tugboats. Tugboats grew significantly for ores, oil and grain as well. We expect these commodities to continue to grow, especially ores and green. In container terminals, I've mentioned the main cargo that has allowed us to grow that much. Thank you.

The next question will be asked by Lucas Facury from Larus.

Just as a follow-up, with truck boats, we're seeing strong drivers in commodities. We see that ores are growing a lot, oil and gas as well as soybeans. So should we continue to expect that for the rest of the year in maneuvers? We haven't seen it grow that much. So congratulations on these results. And what do you expect as well as your ticket? Do you believe it will increase? Or will it remain flat versus last year?

Thanks for your question, Lucas. I will pass it to Arnaldo.

Lucas, we had a strong growth in the commodities I mentioned in the first quarter. We expect this growth to continue. Our forecast is not as strong as what happened in the first quarter, but we do expect it to remain high versus last year. When it comes to price, to the rates used this year versus last year, we remain optimistic. We believe that this increase will remain, but it's a competitive market. We don't expect it to grow. We expect it to remain flat versus what we're seeing right now, which is already an increase versus last year.

Great. Everyone. And if I can add something, what is your perception on how your competitors are reacting to this better market in towage? You mentioned some expansions. We also saw that some of your competitors were expanding. So do you believe that this is a concern when it comes to the supply or not yet?

Lucas, I'll let Arnaldo answer.

Lucas, we are expecting not on the very short term, but on the medium term to renew some of our tugboats and we expect others to grow. So we know that we can't build a tugboat so quickly, but we can expect our fleet in Brazil to grow in the next years. We don't expect that any of it will be a big concern. But the market definitely will be more competitive with new vessels coming in.

[Operator Instructions] This concludes our questions-and-answer session. We'd like to pass the word to Mr. Fernando Salek for his closing remarks.

Thank you. First of all, I'd like to apologize for the technical issues we had in accessing our teleconference. So I know that some people had challenge -- had issues joining us, but I'd just like to start by thanking the Wilson Sons team for this extraordinary result during such a tough time. I'd also like to reaffirm to all of you our commitment to the safety and well-being of our stakeholders in these still challenging times. We remain very confident on our resilience, on the resilience of our business, and on the company's financial strength through our continuous austerity measures. We will continue to monitor the situation carefully in this difficult environment and we're well-positioned to deliver sustainable growth, perpetuating efficiency gains. Thank you, everyone, for participating. I hope you are well and safe. Thank you and have a good day.

This concludes Wilson Sons conference call. Thank you for listening. Have a good day and thank you for using Chorus Call.