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

Good morning, everyone, and welcome to Wilson Sons earnings conference call for the first quarter of 2023. Today with us, we have Mr. Fernando Salek, the company's CEO; Fabricia Souza, the CFO; and Arnaldo Calbucci, COO. The conference is being recorded, and we will have simultaneous translation for those who wish to listen to the English version. [Operator Instructions] During the conference, participants will be able to file their questions via webcast. At the end, we will begin a Q&A session with the company's executives. The financial results are discussed in Brazilian BRL and presented in accordance with International Financial Reporting Standards, or IFRS, unless otherwise stated. Before moving on. I'd like to mention that Page 2 of the presentation contains the usual disclaimers on forward-looking statements for your reference. Now I would like to turn the floor to Fabricia Souza.

Thank you. Good morning, everyone, and welcome to our earnings call. Let's begin on Slide #4, if you will, by talking about safety and sustainability, 2 of the key topics for our company. In the first quarter of 2023, we filed a lost time injury frequency rate of 0.30 incidents per million hours worked, outperforming the world-class benchmark and a 33% reduction when compared to the rate registered in 2022. This performance shows our relentless commitment to safety of our employees. In April, we delivered WS Rosalvo, the third in a series of 6 tugboats with over 90 tonnes of bollard pull, joining our fleet by 2024. This vessel is already operating at the Açu' port. In May, we published our 2022 Sustainability Report, taking yet another step towards increasingly transparent and consistent disclosure of the company's environmental, social and governance performance. By the end of this month, the Salvador container terminal, we received 12 fully electric terminal tractors as part of the implementation of the first electrification project of this nature in Latin America, which will contribute significantly to reduce our carbon emissions. Together with the waterway cargo transportation in Rio Grande, all these actions combined contribute to the development and continuous improvement of our ESG practices and also operating excellence, thus strengthening one of our strategic pillars. We can now move on to Slide #6, if you will. Net revenue increased by 8% in Q1, reaching BRL 570 million, mainly driven by a higher volume and a better revenue mix in towage. In addition to that, it also reflects a higher operating activity in the offshore support bases, also higher revenues from cargo handling and ancillary services at the container terminals and an increased conversion and dry-docking for third parties at the shipyard and also higher shipping agency revenues. EBITDA was in line with Q1 of last year at BRL 240 million, mainly driven by the strong FX gains in the equity result for the comparative period. Net profit came in at BRL 85 million, a drop against the number filed in the previous period, due to a strong FX gain at BRL 63 million in Q1 of last year when compared to a benefit of BRL 9 million in the first 3 months of this year. The main drivers in Q1 were the positive exchange rate variation of BRL 7 million on deferred taxes and the exchange gain of BRL 3 million on Brazilian real-denominated monetary items coming from the offshore support vessel joint venture. If we exclude those effects, profit would have decreased by 5%. Now moving on to Slide #7. On this slide, we highlight the financial performance of our main business divisions. Container terminal revenues rose by 5% in Q1, reaching BRL 191 million, benefiting from an increased operating activity and higher ancillary service revenues. EBITDA decreased slightly to BRL 90 million due to higher costs, such as container handling and payroll taxes. Volumes increased 7% driven by higher empty container, inland navigation, export and cabotage flows. During the quarter, container terminal schedule reliability improved considerably as a result of lower ship call cancellations, continuing a recovery trend towards prepandemic levels in the short run. Towage revenues rose 9% in the quarter to BRL 276 million, benefiting from higher volumes as well as an increase in average revenue for maneuver and special operations. The better revenue mix reflects an increase in maneuvers of ships carrying grain and oil, which generally have higher tonnage. EBITDA increased by 17%, reaching BRL 127 million, driven mainly by higher revenues and margin increase. As for joint ventures, the nonconsolidated ones, they accounted mainly for the offshore support vessel operation, saw a significant recovery in demand. Revenues rose 62% in the quarter, supported mainly by the 25% increase in operating days and 30% in the fleet average daily rate. Net profit, which is accounted for in the company's results via equity pickup system, was BRL 12 million. Moving now to Slide #9, if you will. On this slide, we present some of our liquidity and leverage ratios, which remains solid, reflecting a robust balance sheet and resilient businesses. Bank debt decreased slightly when compared to December 31, 2021 due to the amortization in the period as well as a 3% depreciation of the U.S. dollar when compared to the BRL, reducing the U.S. dollar-denominated debt when reported in BRLs. In terms of cash flow, we highlight BRL 174 million coming from operating activities; also the BRL 85 million in CapEx, mainly for tugboat construction and the acquisition of new equipment for the Salvador container terminal; as well as the BRL 48 million in bank debt amortization. As a result, we ended Q1 with BRL 278 million in cash and cash equivalents. The bank leverage ratio remained stable at 1.7x EBITDA for the last 12 months. At the end of the quarter, 81% of our bank debt was long term and 67% was financed by the Merchant Marine Fund with fixed interest rates. Moving now to Slide #11, please. Here, we have the company's operating performance year-to-date April. In the first 4 months of the year, our container terminal and towage divisions benefited from trade flow growth. At the terminals, aggregated volumes increased by 8% in the period, driven mainly by higher empty container, exports and inland navigation flows. In Rio Grande, volumes were 11% above of that filed in the same period last year, while Salvador saw a growth of 4%. In towage, harbor maneuvers increased 1% in the period, and the average size of ships rose 2%, mainly due to the strong flow of commodities and oil transshipment. In the offshore energy segment, the demand for our services improved considerably. Operating days in the offshore support vessel joint venture increased by 21%, while vessel turnarounds at the support basis rose by 69% in the same period. Moving now to Slide #12, if you will. On this slide, we present some factors driving the Rio Grande container terminal performance in 2023. 2022 volumes were negatively affected by the turmoil created by the pandemic and the disruption in global supply chains. A rapid increase in freight rates and the lack of capacity made carriers direct ships and containers to their most profitable destinations, leading to cancellations of calls and blank sailings to recover service schedules. Rio Grande's imbalance between export and import flows makes the port highly dependent on the repositioning of empty containers to meet the higher export demand. Additionally, a significant part of the terminal volume is comprised of agricultural products, which are sensitive to freight prices. This led some shippers to seek logistical alternatives to transport their goods, such as break bulk ships or road transportations over cabotage or even shift with domestic markets. As a result, the shortage of empty containers and the volume reduction due to higher freight rates made Rio Grande a frequent cancellation option for carriers who were seeking to recover voyage schedules. Added to this, the cancellations reduced confidence in the Rio Grande logistics corridor, leaving some shippers to momentarily seek other ports or less efficient logistics alternatives, all of that in order to guarantee shipments. As a result of these market dynamics, the terminal's commodity volumes decreased by 27% and the availability of empty containers dropped by 15% in 2022 when compared to 2019. As pandemic-driven issues eased, [indiscernible] on ports improved, first, with the compliance, and empty container volumes increased consequently. This led to a drop in ship call cancellation and Rio Grande recovered market confidence in its logistics solutions. Moreover, freight rates have resumed prepandemic levels, making container transport once again viable for certain commodities. The result can be seen in the operating performance recorded in the first 4 months of 2023, but there's still room for improvement. Both commodity volumes and empty container availability have shown strong recovery, having already achieved levels which are close to those seen before the pandemic. With this, I end my presentation, and I'd like to invite you all to the Q&A session. Thank you.

[Operator Instructions] Our first question comes from Andre Ferreira from Bradesco BBI.

I have 2 questions. Number one, we have run the volume of transshipment last year, and now happening the same thing this quarter. In your opinion, can we say that this is a trend in terms of transshipment volume? Or are there other one-off factors driving that trend? And the second question, how do you see the expansion of the tugboats markets to -- beyond Brazil?

Andre, thank you for the questions. I'll answer the second question. I'll start by the second question, then I'll give the floor to Arnaldo for him to address questions about the Rio Grande transshipment situation. As for a potential intention or strategic intention of expanding our tugboat operations to other countries, what I can tell you now is that we are constantly looking at those opportunities. We are well aware that the growth driver for this segment in Brazil for Wilson Sons, as we are market leaders, we are somewhat limited because of that. And therefore there is room, there is a possibility for us to look beyond Brazil to other markets in Latin America to assess that market. What I can tell you right now is that we are constantly looking at those possibilities, and we are paying close attention to possibilities and trying to capture good opportunities on that front. Now over to Arnaldo, who will be talking about Rio Grande.

Thank you for your question, Andre. Rio Grande transshipment has improved. That's a fact. We believe that this trend will remain as we have larger ships, not only transshipment. We have also improved considerably in terms of volumes in Rio Grande as we normalize worldwide logistics, a relevant reduction in the number of omissions in calls and schedules in Rio Grande and Salvador. To give you an idea, we had only 1 call cancellation in Rio Grande in April, only 1. So the trend towards improvement is clear. Of course, a lot of repositioning still to happen on the part of the carriers as they need to allocate space. But that's very positive. That allows us to have loads in Rio Grande and in Salvador, allows us to export, provided we have empty containers, which was a difficult thing to have last year, as you know.

Okay. And if I can ask a follow-up. The container terminals, if you could comment on the container movements for May, container figures for the month of May.

Well, for May, Andre, we cannot as yet announce or publicize data now to the market. Right now, we cannot do that.

We have a question, and will read the question from the webcast in writing. The question is, the volumes in terminals grew by 8% in Q1 2023. Does the company believe that this trend will continue for the rest of the year? I'll turn the floor back to Arnaldo for that question.

We do believe that there will be an improvement in terms of volumes -- in terms of volume growth at terminals. Of course, this also depends on the growth of the country as a whole, but the trend is one of the improvement in our terminals as we see a normalization in schedules. This will allow our clients to import and export using a more natural, more organic way, which is the closer -- as close as possible to their manufacturing plants. The same goes for cabotage.

And if I could add to Arnaldo's point, there's also an interesting point when we look at operating data for April. We have a healthier mix, right? We're talking about 8% of growth, as you mentioned, in April. We also have grown in exports and imports at very aggressive rates, more aggressive than 8%. Exports to Rio Grande grew by 15%, and imports, 33%, which, of course, shows a more interesting mix in this case. And it's important to say also that the end of the bottlenecks, we see a trend for us to do away with the bottlenecks, call cancellations, repositioning of empty containers, all of that is going back to normal.

We have one more question, and I'll read it from the webcast. In 2022, about 1/3 of the dividend -- annual dividend were anticipated to December. Does the company intend to do the same 2023 or moving forward? I'll give the floor to Fabricia De Souza, our CFO.

That was a measure we took in 2022. It is part of a set of measures in terms of best practices we have been adopting in terms of IRR, aiming at improving liquidity and expanding our shareholder base. That is a practice we intend to maintain. The answer is yes, always, of course, with some kind of anticipation of dividend end of the year when we have a good idea of what the results will be.

Our next question comes from Fernanda Recchia from BTG Pactual.

I have 2 questions. First, the pricing scenario, that rate going forward, if you could explore that issue from the point of view of the containers operation and tugboats operations. Pricing, now we see a competitor repricing their services. It's a different dynamic, I know, but if you could comment on how you see for those 2 terminals you operate, for containers and tugboats. And number two, for the offshore business, this is a very strong result for Q1, which of course reflects the industry scenario. But how do you see that also going forward for the rest of the year? Can we expect good results for the next quarters as well, as good as the ones we saw now in Q1?

Thank you, Fernanda, for your question. I will give the floor over to Arnaldo to address the question on pricing.

Fernanda, as for pricing, I'm talking about tugboats first. Throughout the past years, we were able to increase our price in U.S. dollars per tugboat, per maneuver. We are at a level we consider to be very healthy. There was a trend of stabilization. That's how we see it, right, a trend towards stabilization. We will try to increase prices, but it's more in terms of fine-tuning around a stable level. As for containers, our main objective is to bring back shipments from Rio Grande which ended up being shifted to other states because of logistics problems that we identified in the past years, much more so than increasing prices. Of course, we will be able to recover inflation losses and have real gains, but still nothing to the tune of the comment that you mentioned, okay?

As for the second question about the offshore segment, Arnaldo, would like to touch upon that?

The offshore segment is recovering strongly. Demand is quite strong. We've identified an improvement in the levels of the price seen on the daily rates through the vessels being contracted now. We've been very successful in the past and last bids. And we see in the next months until the rest of the year, a very positive way, including 2024. Very bullish in price. I would add that the tendency to contract vessels, the tendency that we've seen, we see a trend, a mix in component is the significant drop in the level of uncertainty in terms of results and in terms of cash flow for that business division. Hopefully at the end of the year, we will have both of our vessels under contract.

[Operator Instructions] This concludes the Q&A session. I would like to invite Mr. Salek to proceed with his final remarks. Please, Mr. Salek, you may carry on.

Thank you very much. We'd like to say that overall, Q1 performance is a solid base for improved full year results in 2023. While the near-term outlook remains somewhat uncertain, we remain positive about the mid- to long term fundamentals of the industry and also positive on the ability of the company with intent to deliver consistent returns. We continue to pursue a world-class performance level with our infrastructure, maintaining the safety of our operations and always seeking opportunities to leverage our market position, thus reflecting the resilience of our business model and the diversity of our services. We will continue to challenge and transform maritime transportation for the benefit of all our stakeholders towards an increasingly sustainable future. Thank you all for joining our conference, and I hope you all stay well and safe. Have a nice day, everyone. See you next time.

Wilson Sons audio conference is now over. Thank you all for participating, and have a nice day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]