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

Good morning, everyone. Welcome to the Wilson Sons Earnings Conference Call for the Third Quarter of 2022. Today with us, we have Mr. Fernando Salek, the company's CEO; and Fabricia Souza, the CFO; and Arnaldo Calbucci, the COO. 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'd like to mention that Page 3 of the presentation contains the usual disclaimers on forward-looking statements for your reference. Now I would like to turn the conference over to Fabricia Souza.

In the 12 months ended on September 30th, our lost time injury frequency rate was 0.23 incidents per 1 million hours worked. This is below the world-class standard of 0.5 and a 63% reduction from the rate recorded in 2021. This performance evidences our relentless commitment to the safety of our employees. In September, our sustainability report was elected as the winner among 13 entrants in the services category of the ESG Investing Reporting Awards 2022. In total, more than 300 reports were evaluated this year. During the quarter, our shipyard delivered WS Orion. The second of a series of 6 tugboats with over 90 tonnes of followed pole joining our fleet in the next 2 years. This reaches the historical mark of 150 vessels built at our shipyards. The vessels follow the International Maritime Organization, IMO Tier 3 standard and the new hydrodynamic design improves whole efficiency for an estimated reduction of up to 14% in greenhouse gas emissions compared to previous technology. In October, for the second consecutive year, Wilson Sons received the gold seal in the Brazilian GHG Protocol program. This is the tool most used by companies and governments to assess, quantify and manage greenhouse gas emissions. This award reinforces our climate-oriented agenda and attests to our continued commitment to the environment. All these actions contribute to the development and continuous improvement of our ESG practices and operational excellence, strengthening one of our strategic pillars. Turning to Slide 7. Here, we present a summary of our consolidated results. Net revenues increased 14% in the third quarter to BRL 619 million mainly reflecting a better revenue mix in the Towage division, along with a price and volume improvement in the international logistics business, Allink. Higher revenues from ancillary services in the Container Terminals division, such as warehousing and energy supply to refrigerated cargoes, increased operational activity in the offshore support basis unit, higher shipping agency revenues and also the growth in conversions and dry docking services for third parties in the shipyard business. EBITDA rose 13% in the quarter to BRL 248 million, mainly benefiting from the solid results in the towage and logistics divisions. Although cost pressure remains a point of attention in all business lines. Net profit increased 92% in the quarter to BRL 67 million, driven by revenue growth. The negative exchange rate effects were lower in the period as the Brazilian real depreciated 3% against the U.S. dollar compared to a 9% devaluation in the comparative period. Negative FX impact amounted to BRL 17 million, of which BRL 9 million were impacted on real-denominated monetary items of the offshore support vessel joint venture and $7 million in exchange losses caused by balance sheet translations of real-denominated net monetary assets. such as accounts receivable and cash and cash equivalents in dollar functional currency subsidiaries. Excluding these effects, the company's net profit would have increased by 26%. In the first 9 months of the year, EBITDA was only 3% above the comparative period in reais and grew 7% in dollar terms, reflecting the robust results of the Towage and Logistics division, also seen in the last reported quarter. Net profit increased 24% to BRL 226 million and was 28% above the comparative period in dollar terms. In the year-to-date through September, profit has already surpassed the net result recorded in the 12 months of 2021, both in reais and in dollar terms. We now move to Slide 8. We highlight here the financial performance of our main business units in the quarter. Container terminal revenues grew 4% to BRL 199 million, mainly reflecting the improvement in ancillary service revenues. Container handling revenues grew 2%. Warehousing revenues rose 3%, and revenues from other services increased 11% in the period. Although volumes remain impacted by global logistics bottlenecks and the shortage of MT containers, especially in the Rio Grande terminal. Container handler and the Rio Grande terminal decreased 20% in the period with a decline of empty containers, exports and transshipment reflecting the effect previously mentioned. During the quarter, the terminal received 138 ships against 152 vessels in the comparative period. In the Salvador terminal, volumes grew 3%, driven by increased handling of empty containers and cabotage. Between July and September, 108 ships were birth at our terminal compared to 115 vessels received in the same period of 2021. In the Towage division, revenues grew 15% to BRL 320 million, reflecting an increase in operational activity and higher average revenue per maneuver. The better revenue mix reflects an increase in maneuvers of ships carrying grain and break bulk cargo, which generally have higher tonnage. Our offshore support vessel joint venture continues to show recovery. Net revenues grew 85% with an 18% increase in operating days and a 57% improvement in the fleet average daily rate. Another highlight in the quarter was our International Logistics division, Allink, which posted a 47% increase in net revenues to BRL 44 million. This result reflects the high levels of demand and higher revenues from both shipowners and terminals. Looking ahead to the fourth quarter of the year, although the turmoil in global logistics supply chain has calmed, the scenario for our container terminals remains challenging. In the business associated with the offshore energy market, we expect the recovery trend to continue with new contracts in both our offshore vessels joint venture and in the support base decision. Moving to Slide 10. On this slide, we can see some of our liquidity and leverage ratios. They remain solid, as you can see, as a result of a resilient balance sheet and business performance. Total bank debt rose 10% in the quarter with disbursements from the Merchant Marine Fund related to the construction of new tugboats and fleet maintenance dry dock in offsetting the BRL 52 million in loan amortizations in the period. Net bank debt decreased 2% compared to the quarter ended on June 30th, reflecting the increase in operating cash flow in the period. Regarding cash flow movements. We highlight the BRL 100 million in CapEx, mainly for the construction of tugboats and the acquisition of new equipment by the Salvador terminal. As a result, we ended the period with BRL 340 million in cash. Our bank leverage ratio decreased slightly to 1.9x EBITDA for the 12 months ended on September 30th, excluding the effects of IFRS 16 as a result of the earnings increase. Regarding debt profile, 81% of our bank loans are long-term. And 67% are financed by the Merchant Marine Fund with fixed interest rates. So this is the end of the presentation, and I'd like to invite you to the Q&A session. Thank you.

[Operator Instructions]. First question will be asked by Pedro Fontana from Bradesco BBI.

Congratulations for these results. We've seen that the number of containers has been an issue, a lack of containers, especially in Tecon Rio Grande. So what will happen in 2023? We expect this shortage of continues to stabilize. But we've seen that it had a global impact on volumes. So how do you believe volumes will behave in the future?

This is Fernando. I'll pass your question over to Arnaldo Calbucci, our COO, who will answer.

Thank you for your question. What we expect is that there will be a gradual improvement in volumes in the next year. We're already seeing an improvement in the third quarter. Of course, there are many uncertainties as the war on Ukraine continues with COVID in China. So there is a possibility that these issues will affect us, but we do have a positive outlook. However, we're still very careful about next year. We do believe that the worst has passed, though.

We have a question from Lucas Facury from [indiscernible], and I'll ask the question. I'll read the question, excuse me. Can you tell us about how the average ticket is doing in terminals in prices per maneuver? Was there a significant price increase? And what will be the long-term trends there?

Arnaldo, I'll pass it over to you.

Lucas, thank you for your question. So first, let me tell you, there has been a significant increase in the third quarter in price per maneuver with our tug boats as well as the average ticket for our terminals. With tug boat, this is due to a good contract renegotiation with shipowners in general. There are new contracts at better prices than what we had in the past. And there is a lower mix if maneuvers in container ships, any higher mix of oil and gas, pulp and others. About the terminals, the increase in the average ticket is also due to good negotiations with shipowners in general. The mix of services with more storage, more monitoring. These are services that have higher average tickets and that helps us with our average ticket in general. For the future, we expect these prices to be maintained in container terminals. For tugboats, I imagine that we will see slight price increase.

We received a question from Pedro Fonseca at the Edison Group. So here's his question. What is your forecast for a better mix in tugboats? Is there any space for special operations to increase? When will there be substantial improvements in logistics bottlenecks and for this shortage of empty containers?

I think Arnaldo has partially answered this question, but I'll let him add to his answer.

Thank you for your question, Pedro. About the mix of tugboats, what we have been seeing in the latest reports is that there is a market -- excuse me, there is a trend in the container market, where it will be normalized, where freight will be reduced and there will be a reduction in the tonnage in the market. So what we foresee for Brazil is a reduction in the number of stops in container ships, which will lead to a higher number -- or excuse me, higher mix, including oil and gas, pulp, which is doing very well right now and this reduction in the number of calls does not necessarily mean that the volume of containers will go down. Ships are becoming larger and larger, and consignment per call is higher in most terminals. So we expect volumes to grow, as I said before in previous answers. Considering the price for special maneuvers, Well, special maneuvers are a bit unpredictable when they are assisting cabotage. So when you have, for example, an accident or a vessel that has facing engine issues when you're fighting fires. These are some unpredictable situations that we service. But we have special operations and we support the oil and gas industry, which we believe will grow. We believe that Brazil will see more FPSO units. Although hydroelectric power is doing well, although reservoirs are filled and that this reduces the demand for gas. We also have a prediction for LLG gas maneuvers, which is a special operation.

Arnaldo, so we also received a question from [ Guilherme from TAP ] about the tugboat market, and he's asking us to give an update on the competitive scenario.

We had a significant fact this year, which was the purchase of the Starnav tugboats by SAAM. This operation hasn't been approved by all of the relevant authorities, but we believe it will happen early next year. It will be a consolidation movement, which we believe will be positive for the market. We haven't seen an increase in the number of units in operation in Brazil. So that will be very positive. SAAM is a rational competitor. This is what we've seen in the market in the last few years, and we expect this scenario to maintain, to remain so we don't believe we'll see major changes in how the market behaves.

Adding to that, I think that the tug boat market was behaving in the way that already suggested there would be a consolidation, especially when you compare the number of players in the Brazilian market and the number of players in other markets and other ports -- attending to other ports that is. So this is a positive movement because it does not add new supply to the market. We're actually seeing just assets being passed from one company to the other. So that will not change the supply and demand in the market. So we consider it to be positive. It's a natural movement.

We have one more question here, and I'll read it. The tug boat industry has shown a recovery -- no, excuse me, this was not the question I meant to read. The offshore industry has seen a recovery. Can you tell us a bit about the current demands and the medium-term perspective for the offshore vessels joint venture and its support basis? This will be answered by Fernando Salek.

So looking at the macro scenario. I think there is a clear improvement in the industry, and this improvement is due to the long period in which the market, especially upstream, had low investments. In this scenario, at the same time, I think we need to look at oil and gas as a significant energy source in the energy transition mix towards greener energy. And this should continue for a longer amount of time. And this has made Brazil an essential market. We might be the greatest protagonists in this scenario. We've seen a significant improvement for 2022 versus last year, 2021. In our case, from our offshore perspective, vessel turnarounds. We had an increase in comparison to last year. And days in operation in our offshore support fleet has also gone up 20% versus last year. In 2023, we understand that this is a transition year, and we expect 2023 to be better than '22 and '24 to be better than ‘23. But '23 is still a transition year because obviously, for example, in order to have your entire fleet in operation to service the new demand, it will require a level of investments. And when it comes to results, that means it will be a transition year. In 2023, we believe it will be a curve that will improve. And so it will be better in 2023 and even better in 2024.

[Operator Instructions]. We received an additional question from Alex Paterson from Peel Hunt, and he has 2 questions. The first, well, his question is if we can increase prices or volumes in warehousing or other services to offset a reduction in container volumes, which is what we've been seeing especially if it extends to 2022.

I'll pass this question to Arnaldo.

Alex, first of all, we don't believe that volumes will continue to go down. We believe that volumes will go up slowly, but constantly. In any case, we have the possibility of having more warehousing in our market, the warehousing wave. And this is a commercial effort that we've been making very carefully. And there is a possibility of increasing prices in auxiliary services, if we have any cost pressure, for example, if we have higher energy prices, which we have been seeing and if costs go up due to inflation, of course, it will all depend on the market as a whole, but we do have some space to work with that. And more importantly, we can reduce costs, which is a point that we can control a little bit better. And we will definitely continue focusing on that next year.

Alex has a second question. And here it is. He asked if we are at a good level of net debt and what we would do if our net debt was below the optimal level.

Our capital structure has been great, and we are respecting it with discipline, but I'll pass this question over to Fabricia for her answer.

So first of all, I'd like to apologize because I was told that my presentation was cut off in the beginning. So I think the first part of my presentation was cut off. But in any case, we can answer any questions you may have. So to answer your question, the company is at a very good leverage now. We're about 2x net debt to EBITDA. We have strong cash, we're a good CapEx levels. Even if we consider our joint venture today, we're still under 3. So our indebtedness is very healthy. When we look at infrastructure assets, we can see that this level about 3x is still very healthy but if there are stronger investment opportunities, we understand that going up to 3.5x net debt to EBITDA is still very healthy and manageable.

Thank you. As there are no further questions, I will pass it over to Mr. Fernando Salek for his closing remarks.

Thank you. So I'd like to tell you that we're very pleased to report robust growth in our financial results in addition to some important operational achievements, such as the delivery of increasingly powerful and sustainable tugboats. One of our major achievements and focus has been to ensure the safety of our people as well as the continuity of operations, delivering excellent services to our customers and the trade community. We continue to strive to improve the world-class performance of our infrastructure, the safety of our operations, our activity portfolio and the resilience and versatility of our services. We believe this is the best way to address the challenges in our industry, transforming maritime transport over time and creating an even more prosperous future. I'd like to thank everyone for participating in our conference call. I hope you're all well and safe. Thank you, and have a good day.

This 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.]