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

Good morning, everyone, and welcome to Wilson Sons Limited's Earnings Conference Call for the Second Quarter of 2021. Today with us, we have Mr. Fernando Salek, CEO of Wilson Sons; Ms. Fabricia De Souza, CFO; and Mr. Arnaldo Calbucci, COO. 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 lines 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 would like to turn the conference over to Fabricia ícia De Souza.

Thank you. Good morning, everyone. I hope you are safe and healthy. Welcome to our earnings conference call for the second quarter of 2021. I would like to start with an update on how Wilson Sons is dealing with the pandemic. As it should be, the company continues to be committed with the measures adopted to protect our employees and our stakeholders. We have good news with the recent COVID-19 vaccine rollout in Brazil with the government authorities, including port workers, as a priority for vaccination throughout the country. As a result, today, we have a high rate of vaccination among our employees. About 90% of our operational staff will be fully vaccinated by next month and the rest of the team by November. The vaccine rollout, in addition to the solid work of our HSE area, has enhanced the sense of security and confidence among our employees, helping them to perform their activities with increased commitment and flexibility. We have no doubt that this is an essential factor for the success and resilience of our operations. Turning to Slide 5. Let's talk about our environmental, social and corporate governance practices. The company is committed to continuously develop and improve its ESG practices as part of its strategy. This agenda is supported by the company's Executive Board, as well as by its Board of Directors. One of the ongoing initiatives is our participation in the standard in force ESG corporate sustainability assessment. This initiative is based on the recognized S&P methodology and considers the world-class ESG practices to assess the company's performance. We understand that this assessment will reinforce and accelerate the adoption of better ESG practices. In addition, we maintain our ongoing initiatives, such as the construction of Tier 3-certified tugboats, which will be equipped with pioneering solutions in Brazil, reducing nitrogen oxide emissions by more than 75%. In the second quarter, our lost-time injury frequency rate increased to 0.8 incidents per 1 million man-hours worked, which is above the level we achieved in 2020. Bearing that in mind, we have reinforced our focus on operational safety, aiming to act assertively and effectively. We work in partnership with DuPont reference and safety and have developed an action plan that has been enforced since April. We understand that we are moving in the right direction with our actions, and a good indication is the fact that the last lost-time accident occurred 3 months ago in April. Now moving to Slide 6. On this slide, we present a summary of our strong financial results in the second quarter of 2021, driven by the recovery in the domestic economy and commodity volumes. In U.S. dollars, net revenues increased 16% to $96.4 million. In Brazilian real terms, company net revenues rose 14%. This increase is driven by the towage volumes and container terminals, both of which maintained consistent results in line with the first quarter of 2021. The current commodity super cycle has been positively affecting the towage results, driving demand for ship calls in different cargo segments, such as iron ore, soybeans and fertilizers. Local and global economies have been rebounding, and this has increased trade flow and boosted the results of container terminals, mainly in imports and transshipment operations. Our EBITDA increased 11.3% in U.S. dollar terms to $41.1 million, impacted by higher volumes. In Brazilian real terms, EBITDA rose 9.8%. Profit after taxes rose to USD 22.8 million, positively impacted by exchange rate effects totaling $12.6 million in the period. Excluding exchange rate movements, the company would have shown a net profit of $10.1 million. At the end of the first half, the positive results of the first quarter, in addition to the strong results in the second half, have meant that EBITDA increased by around 16% when compared to the same period in 2020. Expenses increased by around 3% when compared to the second half of 2020, basically due to higher operational activity, driving increases, especially in raw material costs and rent of tugs. Profit also increased this quarter, and it was directly impacted by the better operating results as well as the positive exchange rate effects. We now move to Slide 7. Here, we highlight our financial performance registered in this quarter against the second quarter of 2020. Container terminal revenues increased 17.5% in U.S. dollars, mainly due to an increase in import volumes and transshipment operations with the rebound of the local economic activity in the quarter despite the lack of empty containers and logistical bottlenecks in the global supply chain. Towage revenues increased, both in Brazilian reals and in U.S. dollars, with 15.6% in U.S. dollars. Special operational revenues were a highlight with an increase of 17.2%. In addition, there was an increase of 8.8% in harbor maneuvers, which reflects an increase in the commodities throughput. Larger ships increased average harbor revenue per maneuver by 3.2%. The offshore support vessel business unit continues to face a challenging scenario with a slow market recovery. Operating days were up 8% when compared to the same period last year. However, revenues were negatively impacted by the decrease of operating days of higher daily rate vessels. As a result, revenues decreased by 7% in U.S. dollars and 9% in Brazilian reals. Moving to Slide 8. On this slide, we can 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. With a solid operating cash generation during this quarter, cash was used to distribute USD 38.9 million in dividends to pay $36 million in debt and a capital increase of $10 million in our joint venture, Wilson Sons Ultratug. This means that the company ended the quarter with $53.5 million in cash and cash equivalents. As a part of our strategy to strengthen our capitalization, the company has agreed to a further USD 10 million capital increase in our WSUT joint venture, which will take place in the second half of 2021. Our net debt-to-EBITDA ratio decreased to 1.9x, excluding IFRS 16 effects. In terms of debt profile, there was no relevant change. At the end of the quarter, 86% of the total bank debt was long term, and 70% was linked to FMM, the Merchant Marine Fund. CapEx decreased 61% when compared to the second quarter of 2020 with the CapEx reduction in Salvador. Considering the capital expenditures of $17 million in the first half of 2021, we can highlight the towage division with a higher number of dry dockings compared to the same period last year, in addition to the construction of 2 new vessels in our shipyard. We now move to Slide 9. On this slide, we now highlight the corporate restructuring. The project is on schedule and is performing well. Request has already been approved by the Ministry of Economy in Bermuda in July, and we carried out the first filing of WSSA registration on CVM and B3. On August 11, we carried out the second filing, and we expect to have the registration of Wilson Sons Holdings Brasil S.A. with the CVM and B3 by mid-October. At this point, the Wilson Sons Holdings Brasil shares would start trading on B3's Novo Mercado segment, and the BDR program would be canceled. We'd like to point out the positive effects already noticed, such as the expansion of our shareholder base and an increase in the trading volume of our shares, since the restructuring announcement on May 23. We understand that these positive effects are the first signals of a new beginning. They signal the full potential still to be unlocked after the conclusion of the project. Turning to Slide 10. On this slide, we outline our solid operating data registered up to July. In the first 7 months of the year, our container terminal and towage divisions were positively impacted by the growth of trade-linked activities. The Salvador terminal had an all-time record during the first half of the year, handling 184,000 TEU. Rio Grande terminal carried out the largest simultaneous transshipment operation in the history of the terminal in May with 13,580 TEU and 2 300-meter long vessels. In July, container terminal volumes decreased 15.9% as a result of the lack of empty containers and global logistics bottlenecks, which continue to be a challenge for export volumes. In cabotage, the reduction in rice throughput has significantly impacted volumes, given the uncommon cargo throughput in 2020. Container handling at the Rio Grande terminal decreased 21.4% in July with the lack of empties and the vessel call cancellations greatly affecting exports. Import volumes increased with the recovery of the local industry. At the Salvador terminal, container handling decreased 3% with the effects of vessel call cancellations on exports. In terms of imports, the volume continues to rise with a positive impact of solar energy project cargoes. Considering the year-to-date throughput, the terminal presents a remarkable increase of almost 13% when compared to 2020. Towage figures remained strong in July with increases of harbor maneuvers and the average deadweight of vessels attended. Towage harbor maneuvers saw a strong increase due to higher volumes of iron ore, grains and crude oil. The average deadweight of vessels attended rose 4.3%, reflecting higher volumes in ports that operate larger ships. Despite the challenging scenario, operating days rose 10.2% due to the start of new contracts and higher demand for spot operations. Well, this concludes the presentation, and I'd like to invite you to the Q&A session. Thank you.

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

Congratulations on your results. We seem to see strong figures, especially against such a strong comparative basis. But I have a question on your line regarding empty containers. Can you give us any idea of what you expect for the second half of the year? Do you believe this will continue? We heard some news from China closing ports, so can Wilson do something about it? Or are you going to depend on shipowners? Finally, once again, we saw that our shipping prices were a bit high. So if you could tell us a bit about the causes for that, if we'll see this being reversed during the second half of the year.

Lucas, thank you for your question. This is Fernando. I'll pass this question on to Arnaldo, but I just want to make a brief comment. Obviously, we see some improvement right now, but there's still a lot of instability. The pandemic continues to develop right through its Delta variant, and that's generating some concerns about some kind of disturbance in the global cargo market. Arnaldo, I'll let you answer the questions on towage and the terminal.

Thank you. Lucas, it's very difficult to make a forecast on how that's going to happen. As you know, the global market is disorganized when it comes to logistics and in transporting containers. There are several ports that have bottlenecks, and this has caused some disruptions to our own terminals. Our understanding is that it will take some time for it to improve. I don't think it's going to get significantly better within the next 3 or 4 months. Obviously, we're trying with our 2 terminals to be as efficient as we can to allow shipowners to have more agility when they come to our terminals, and we hope that, that can help them to schedule their ships. So the more efficient we can be, the more that helps -- aligns to help -- to improve their scheduling. About towage, you mentioned that prices were high, but that comes as a consequence of the high volumes that we're getting in services. You also mentioned docking. In comparison to last year, we're having more dockings than last year. Last year, we were prevented from doing some of them because of the pandemic. It was very difficult to access shipyards, and we also had to take care of all of our employees and their health, so we avoided some dockings. And this year, we have to increase that number. So besides docking, we're also having higher volumes, which means that we have to use third-party ships. So to minimize that, on the short term, we've accelerated our construction program. So we have 6 tugboats in Guarujá. And as they come in, this level will also be improved. Thank you.

We received one question here in writing from Matheus from Ártica Capital. So the question is, you mentioned that you intend to sell your logistics operations. And although it's not as relevant, how much do you intend to get from that sale?

So let me give you some color on that. We put this in our quarterly earnings report. There is a note that we are selling our swap operations and logistics. We still haven't published the value for that operation. We're carrying out with Suape, which is an integrated logistics company that has over 20 years of experience in the market. But more important than this operation is the fact that it exemplifies clearly what our philosophy is when we manage our portfolio, which is to be dynamic. We're constantly looking at the different alternatives, at the value curves for our assets. And our intention is to define exactly how we want to carry on strategically with our portfolio. In this case, we understood that it was time to divest, and we're concluding that operation now.

We received one more question from Matheus in writing. The question is the price per TEU has dropped in terminals, although you had a better mix. Why did that happen?

So I'll let Arnaldo answer this question. Arnaldo, you might be on mute.

Can you hear me now?

We can hear you now, Arnaldo.

Sorry, I had a connection issue here. I apologize. So the price per TEU depends on several factors, and it doesn't rely purely on absolute volumes. So it depends on -- there are several variables. Although imports are better, cabotage is lower. Exports are a bit lower, too. So it's not a very simple explanation only connected to exports. It depends on storage time and other factors.

[Operator Instructions] We got one more question here from [ Julio ] [indiscernible]. The question is, is there any possibility of your shares being unbundled so that small investors can access them.

[ Julio ], we're actually going through a process, as Fabricia said, to restructure our company, which will conclude with our inclusion in B3 and Novo Mercado. So once this is concluded, we'll certainly look at different strategies that can increase our capillarity and can expand our base of shareholders. So we have a number of potential initiatives mapped, and one of them might be unbundling shares if our analysis shows that it makes sense so that we can increase our capillarity with retail.

[ Julio ] asked another question. His question is, is there any possibility to advance dividend payouts in 2022, considering there's a possibility that they will be taxed?

Well, we're following up on that process very closely. There is a large discussion on the tax reforms, but we understand that it's still at a very preliminary stage, and it certainly will still be discussed a lot and will likely be adjusted until we get to any kind of proposal, anything that can be actually done. So for now, we haven't taken any positions. What I can say is that we're following up on that directly and through the associations we are a part of. So we're being very close -- we're keeping an eye on that very closely.

We have a question from Pedro Fischel from Charles River. And the question is, congratulations on your results. Are there any reasons for having a poor mix in offshore vessels that led to a drop in your average ticket this last quarter? And what should we expect for the future?

So I'll pass this question on to Arnaldo Calbucci for his answer.

Thank you for your question, Pedro. Although the number of days in operation went up, as you noticed, the average ticket this quarter went down because some vessels that have a higher daily rate were stopped due to COVID. And there were some concerns related to maintenance, especially vessels that had their operations stopped for a long time because of COVID. Some vessels that we're going to go into contract with some higher prices also were delayed by the client. So that's basically it. We expect the mix to normalize this year and for the next months, but it's still a challenging scenario. We expect that this year will still be a little difficult.

So we received a question from Lucas Facury from Larus.

If I may, I have a follow-up question. There are some contracts ending during the second half of this year. I know that some of them were extended, but I know that you have about 7 contracts that will conclude between June and December. Petrobras has started auction. So I'd just like to know what your perspectives are for future contracts. What do you expect? What have you been seeing? And are you expecting to join any auctions with your vessels, maybe with better daily rates or if it will depend on new auctions to be announced so that you can reallocate all of your vessels?

Can you take that one, Arnaldo?

Yes, I can. Lucas, we are expecting a better scenario for 2022 than 2021. We have vessels finishing their contracts. We have vessels that already have signed contracts and are only waiting for a notice so that it can start operations and not only Petrobras but also IOCs. So we expect to have more vessels in operation than we have been having in 2021. Of course, we could go through each vessel, but that would just make it for a long answer here during this call, but we can do it later.

No problem. Good to know that that's what you expect. So from what I understood, you're expecting utilization percentages to go up next year. So that's very good. If I could ask one more question about your terminals. I had understood that transshipment was very strong, and it has a lower average ticket. So is that probably why it was pulled down? But then your average cost was also lower, so we can see that your margins were at a very good level once again. So I'd just like to know if that makes sense, if it was because of having higher transshipment volumes.

Yes, I can continue answering. So yes, definitely. Transshipment had exceptional volumes during this quarter with great operations, and transshipment prices are lower on average. So that reduces your average income, but many of the efforts that we're making into cost and efficiency are helping us to have better results in terms of EBITDA and revenue.

Okay. That was clear.

And Lucas, just a brief comment on transshipment. This is a business of scale. So although it's not as profitable, it has several benefits. It has indirect revenues, and it gives our terminal more relevant. So it's something that is welcome. It's something that we see as a positive trend.

Yes, I'm sure. Especially in Rio Grande, that has a lot of potential. So I think you can see that in your margins that, with higher skills, you can expand easily. And you have been doing very well in controlling your costs.

Ladies and gentlemen, that concludes our questions-and-answer session. We'd like to pass it on to Mr. Fernando Salek for his closing remarks.

Thank you. Well, first of all, I'd like to thank the Wilson Sons team for this extraordinary result during the last quarter. It has been a very difficult and challenging period. And I'd like to reaffirm our commitment to the safety and well-being of all of our stakeholders in Wilson Sons. We closely oversee the evolution of the pandemic, and we continue to guarantee the well-being of our employees and their families. We'll continue to monitor the situation carefully in this difficult environment. And we're well positioned to deliver sustainable growth, perpetuating efficiency gains. I'd like to thank everyone for listening to our conference call, and I hope you are well and safe. Thank you, and have a good day.

That concludes Wilson Sons conference call. Thank you for listening, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]