Wilson Sons Holdings Brasil SA

BOVESPA:PORT3

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, and welcome to Wilson Sons First Quarter of 2024 Results Conference Call. Joining us today are Mr. Fernando Salek, the company's CEO; Mr. Arnaldo Calbucci, COO; Mr. Michael Connell, Investor Relations Officer; and Mr. Marcello Torres, Controller. The call is being recorded. [Operator Instructions] The question-and-answer session will begin after the company's presentation. Financial results will be presented in Brazilian reals and comply with international financial reporting standards, unless otherwise stated. Page 2 of the presentation contains the usual disclaimers regarding forward-looking statements.I would now like to hand the conference over to Mr. Fernando Salek.

[Fernando Salek, executive]

Thank you. Good morning, everyone, and welcome to our results conference call. First and foremost, I'd like to express our deepest sympathy to the people and communities affected by the recent severe storms and flooding in the state of Rio Grande do Sul over the past few days. At times like these, it is important that we come together to offer all the help we can provide. We're working with the competent authorities to support the reception of victims and to maintain essential services. I also want to reassure you about the safety of our employees. Fortunately, everyone is safe.Although we're facing some operational challenges, such as delays in truck arrivals due to roadblocks, the Rio Grande terminal at this moment is operating as usual. As for our Santa Clara terminal located in the Triunfo petrochemical complex, operations have been temporarily suspended due to flooding in the region.It's important to note that industrial and agricultural activity in the state has been affected and may take some time to normalize. And this context is still too early to assess the impact on volumes at our terminals in the region. We will continue to monitor the situation closely and take all necessary steps to mitigate their impact and support our employees, customers, partners, and the local community during this challenging period.We now move to Slide 4. On this slide, we highlight our performance in safety and sustainability. Our lost time injury frequency rate for the 12 months ended on March 31, 2024, and was stable at 0.2 incidents per million hours worked, in line with the performance observed in December 2023, and continuing to outperform the world-class benchmark. In the first quarter of 2024, we had no lost time accidents. Our unwavering commitment to safety is a cornerstone of our operations, prioritizing the well-being of our employees. Wilson Sons, together with our partners in the innovation hub, has launched a manifesto for innovation in the maritime and port sector, highlighting the main regulatory bottlenecks for innovation and transformative proposals for the future of the logistics and port sector.In early May, we inaugurated a new electrified berth at Porto do Acu to reduce carbon emissions and improve operational efficiency and safety. The structure, which allows up to 4 tugs to moor simultaneously, is equipped with shore power, enables tugs to reduce fuel consumption while on standby, and contributes to an estimated 8% reduction in Scope 3 carbon emissions. The berth will also improve availability and efficiency of the tugs and allow for safe crude changes. This project is part of our decarbonization effort. We aim to act as a catalyst for continuous improvement and innovation and remain committed to sustainable development and creating long-term value for our stakeholders.Turning to Slide 6. Here, we provide an overview of our consolidated results. In the first quarter, net revenue increased 12% to BRL 641 million, mainly due to improved operating performance in the container terminal and towage businesses. In U.S. dollar terms, revenue increased 18%. EBITDA increased 16% to BRL 282 million in the quarter, mainly due to excellent container terminal results and fixed cost dilution. In U.S. dollar terms, EBITDA increased 22%. Net profit for the quarter increased 23% to BRL 105 million. In U.S. dollar terms, profit surged 30% compared to the same period last year.We now move to Slide 7, please. On this slide, we highlight the financial performance of our main businesses. Container terminal revenue rose 33% in the quarter to BRL 254 million due to enhanced operational activity and gains from ancillary services. EBITDA increased 58% to BRL 142 million, driven by higher volumes and fixed cost dilution, resulting in a margin expansion of 9 percentage points. Container handling increased 24%, driven by gains in all trade flows with transshipment and exports standing out. In U.S. dollar terms, revenue was up 39% and EBITDA rose 66%. Towage revenue rose 8% in the quarter to BRL 298 million, benefiting from higher volumes and an increase in revenues from special operations. Harbor maneuvers increased 7%, mainly due to a greater number of ships carrying iron ore, grain and containers.The rise in special operations revenue was driven by the expansion of services provided to the offshore energy industry. Despite a notable 9% growth in the average revenue per maneuver in U.S. dollar terms, driven by the servicing of larger ships and more favorable pricing conditions, it remained in line with the comparative period in Brazilian real terms as the depreciation of the U.S. dollar against the Brazilian real offset the revenue mix gains.EBITDA remained in line with the comparative, at BRL 126 million as volume growth and higher revenue from special operations were offset by the depreciation of the U.S. dollar against the Brazilian real. In U.S. dollar terms, revenue increased 13% and EBITDA rose 4%.In our non-consolidated joint ventures, comprised mainly of the offshore support vessel operation, revenue rose 10% in the quarter to BRL 148 million, thanks to improved fleet utilization and higher daily rates. Operating days rose 9%, driven by new hires and contract renewals. Net profit reflected in the company's results as equity income amounted to BRL 3.6 million.Moving on to Slide 9, please. On this slide, we present some of our liquidity and leverage ratios, which remain solid. Bank debt in reals increased 3% compared to the balance on December 31, 2023, due to a 3% appreciation of the U.S. dollar against the Brazilian real, which effectively raised the value of U.S. dollar-denominated debt when reported in Brazilian real terms. In U.S. dollars, bank debt remained stable.In the cash flow for the first quarter, we highlight BRL 218 million from operating activities, BRL 58 million in investments, primarily allocated to tugboat construction and container terminal maintenance, BRL 59 million in dividends, as well as BRL 50 million in bank loan amortizations. As a result, we ended the period with BRL 346 million in cash and cash equivalents. The bank leverage ratio reduced from 1.5x EBITDA at 31 December 2023 to 1.3x EBITDA over the last 12 months ended March 31, 2024. At quarter end, 78% of our bank debt was long-term and 68% was financed by the Merchant Marine Fund at fixed interest rates.In terms of shareholder remuneration, we have distributed a total annual dividend of BRL 276 million based on 2023 results. This was an increase of 34% over the amounts paid last year, reflecting our robust cash generation. Moreover, in May, our board approved an interim dividend of approximately BRL 0.17 per share, equivalent to around BRL 75 million based on outstanding shares to be paid in early June 2024.Continuing on to Slide 11. Here, we would like to comment on our operating performance in the year up to April, which we believe adequately reflects a positive trajectory in the efficiency and momentum of our operations, underscoring the resilience of our businesses. Our core terminal and towage segments delivered strong results propelled by the continued expansion of trade flows. We exceeded our positive expectations for the first 4 months of 2024. For the year until April, aggregate terminal volumes increased 28% driven by gains in all trade flows. In Rio Grande, container handling surged 29% driven by strong growth in transshipment and exports. Similarly, Salvador witnessed a remarkable 27% increase with transshipment and imports standing out. Despite the exceptional performance to date, achieving our best month ever in April, we expect some reduction in the pace of volume growth at the Rio Grande terminal due to the flooding in the region, which may take some time to normalize.In Towage, harbor maneuvers increased 7% over the period, and the average size of ships attended rose 3%, mainly due to the rise in iron ore, grain and container volumes. In the Offshore Energy segment, our OSV fleet recorded a 7% increase in operating days, thanks to new hires and contract renewals. At our support basis, vessel turnarounds rose 4% due to the start of new contracts and an uptick in spot activity.Moving on to Slide 12. On this slide, we highlight an important milestone for both Wilson Sons and Brazil. In April 2024, our Rio Grande terminal established a landmark strategic partnership with South Korean carrier, HMM, and Singapore feeder operator, Bengal Tiger Line. It was an important step towards redefining the dynamics of container logistics in South America. The initiative involves the integration of a feeder service designed for the agile transfer of cargo between smaller ports and a hub terminal with a direct and optimized route to Asia. This collaboration is an intelligent response to the structural constraints faced by neighboring countries.The reduced depth of the channels leading to the ports of Argentina and Uruguay limits the loading capacity of medium-sized vessels serving the East Coast of South America. This forces them to make double calls along the Brazilian coast at ports such as Santos, Rio de Janeiro, Parana and Santa Catarina to lighten the load and allow navigation to Buenos Aires and Montevideo terminals. This depth restriction also prevents the entry of the new generation of new Panamax vessels, which are unable to dock at Argentina and Uruguay in first facilities. The situation poses a major challenge to the region's connectivity with the world's main markets.The use of smaller feeder vessels to serve the plate parts is an ingenious solution that allows large ships to serve deeper Brazilian ports such as Rio Grande. This operational arrangement not only allows full utilization of the vessels' cargo capacity, but also brings significant efficiency and cost savings to both carriers and shippers. The benefits include the use of larger vessels such as the new Panamax class, which maximize the amount of cargo transported per voyage, the reduction of transit times, which may even allow a vessel to be excluded from certain routes, thereby improving operational efficiency, obviously. It eliminates double calls, improves service levels by increasing call reliability, and increases our systems' sustainability, including vessels and ports involved, and ensures alignment with the global commitments to carbon neutrality by 2050.These measures not only help to reduce operating costs, but also facilitate traffic in Brazilian ports, improving the use of these vital infrastructures for the country's economic dynamics. With its strategic location, cutting-edge infrastructure, and capacity to handle 1.4 million TEU per year, Rio Grande emerges as the definitive solution to a critical logistics bottleneck on the East Coast of South America.Our terminal is one of the few in the region capable of accommodating new Panamax vessels. It is best equipped to serve as a hub board for the Southern Cone, concentrating significant transcription volumes and acting as a key force in optimizing the South American logistics chain. This operation began with the departure of the Hyundai Grace vessel from South Korea in April, which is due to dock in Rio Grande in late May.This concludes my presentation, and I would like to invite you to the Q&A session.

[Operator]

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

[Andre Ferreira, analyst]

Hi, everyone. Congratulations for your results and for this new service. I have 2 questions. The first is about this new service itself.

[Operator]

Sorry, Andre, I can't hear you. Yes, go ahead.

[Andre Ferreira, analyst]

Okay. So about the new service, I'd just like to confirm that all new volumes will come in at the end of May. And how much is your expected monthly volume?

[Operator]

Sorry to interrupt, Andre, we are facing an audio issue here. Now we can hear you.

[Andre Ferreira, analyst]

Okay. The first question is about the new service you mentioned just now. So I'd just like to confirm new volumes will come in at the end of May, or excuse me, the beginning of May. And what's your expected volume? And do you also expect other services like this to begin in the next few months?My second question, looking at April, the container volumes were high, but especially transshipment in Rio Grande, in your release, you mentioned higher volumes due to the plate river region. But I'd just like to understand if this performance includes the changes or the construction work that was done in Navegantes? And how much of that can be recurring?

[Fernando Salek, executive]

Andre, I'm going to pass it over to Arnaldo. But the service transshipment in Rio Grande, we expect it to be the first of a few others. So we've worked hard on that, and we'll continue to do so because we really believe that this solution in Rio Grande -- well, Rio Grande has a quite unique combination of factors and can really play that role because it's a constant -- it can be a concentrating area for cargo in the region.I'll let [ Fernando ] speak a bit more.

[Arnaldo Calbucci, executive]

Andre, yes. So if we just consider any delays, you're correct, it will be in mid-June. We're expecting about 1,000 weekly TEUs, and that can be higher than that. And we've had indications from other shipowners who expect to use BTL, the company that will provide this feeder service between it and Rio Grande, but we can't disclose them yet because this situation -- excuse me, this negotiation is not concluded yet. But it will definitely be a catalyzer and a solution for a problem that we're having right now in Argentina and Uruguay with the shallow depth.So to answer your second question, Andre, can you just remind us of what it was?

[Andre Ferreira, analyst]

Yes, about operational data in April. We saw higher volumes of transshipment in Rio Grande. So I'd just like to understand if that was a one-off or if there is any recurring effect there.

[Arnaldo Calbucci, executive]

Yes. So part of that increase in transshipment is a result of the challenges we're facing in Navegantes. But I'd see about 50% of the transshipment cargo is due to the commercial effort and the efficiency of the Rio Grande terminal. A part of it is due to the challenges in Navegantes. But that's definitely a part of our commercial efforts. We need to be consistent. Of course, it was an exceptional month. And this scenario will still be here for some time. But on the middle term, obviously, these first or the next week, we'll still see an impact due to the floods in Rio Grande do Sul. But we will probably resume normal operations soon.

[Andre Ferreira, analyst]

Okay. If I could just ask a quick follow-up question besides volumes. The new contract in weekly TEUs, what we've seen, does it consider unloading and loading into the next vessel?

[Fernando Salek, executive]

No. These are 1,000 TEUs coming from the vessel. So that includes offloading -- excuse me, that doesn't include offloading and loading. In total, it would be 2,000.

[Operator]

The next question will be asked by Alex Andre from MSX Invest.

[Alex Andre, analyst]

Congratulations on your results. I have a couple of questions. You've announced dividends in April for the following month connected to the first quarter. What should we expect when it comes to quarterly dividends? Should we expect more?

[Fernando Salek, executive]

Well, from the end of 2022, we've been paying dividends more frequently. We did advance some of them. We clearly have a higher cash generation. I think our track record in this cash generation increase has been positive. So once our cash flow priorities are applied, any additional cash will be used in shareholder payout or dividends, right? So we expect to continue paying dividends frequently. But with that being said, we do have to highlight that there will be a significant event, or there is a significant event happening in Rio Grande right now, the floods. So we have to understand how it will impact our assets. But from my understanding, this does not -- this has not affected our intentions concerning dividends so far. But we do need to understand how it will impact our cash.

[Alex Andre, analyst]

Okay. So you mentioned the tragedy in the south, but considering the asset, when it is time to recover it, and we hope that, that will be soon, do you expect there will be an upside in modernizing infrastructure? What impacts do you expect for the near future?

[Fernando Salek, executive]

So Alex, I think it's still early to assess anything about the event. In fact, I'd tell you that looking at the forecast, we still are expecting some rain across the state of Rio Grande do Sul. It seems to be moving southward. Of course, the expected rainfall is spreading across the state. So in summary, we still need to understand what the impact will be. We know that definitely industrial infrastructure and agricultural infrastructure in the state has been affected. We know that the roads have been affected, but we still don't have any assessment of the extent of the damage. So I will be very careful and not providing any sort of prognosis on how it will happen. We still need more time to understand it.

[Alex Andre, analyst]

Okay. And one last question. What is your expectation for the year for Salvador? Is transshipment going to continue to be a strategic component of that performance?

[Fernando Salek, executive]

Okay. I'll let Arnaldo answer it.

[Arnaldo Calbucci, executive]

Well, the perspectives for Salvador are very good after the investments we made to building a second berth. It gives efficiency and flexibility to ship orders. We believe it will boost volumes in Salvador. We've just heard officially that a new line titled Santana from MSC will now have a call with its large vessels, probably 3, 6, 6 vessels in the near future. This will be weekly and will go directly to Asia via Southern Africa.So that's very good news for us. It shows that the investments we've made have been crucial for this new line.

[Operator]

[Operator Instructions] The next question will be asked by Andre Ferreira from Bradesco BBI.

[Andre Ferreira, analyst]

Just like to ask about the new line in Salvador. If you could tell us a little bit more about the expected volumes, timeline.

[Fernando Salek, executive]

Andre, the first vessel we'll probably call in, in July, we still have an exact date. The volumes are significant. That's what I can tell you. But we don't have an exact number to tell you as of yet. But it will definitely be significant.

[Andre Ferreira, analyst]

Okay. And can I ask one more question? I don't know if you can hear me.

[Fernando Salek, executive]

Yes, go ahead.

[Andre Ferreira, analyst]

Is this line, can it affect your decision to make investments in Salvador or any other negotiations? Would that affect that?

[Fernando Salek, executive]

Well, Andre, we need to see what's going to happen. We've been working diligently on the commercial side to make use of the infrastructure that we invested in. This needs to be done as fast as we can. Of course, it will be good for everyone as we advance and as we acquire new volumes that are sustainable -- and that seemed to be a perennial at all, then, of course, that will be a natural question that will arise. That is the need to expand our capacity before we have to. So you can rest assured that we are looking at that, and we're going to try to find the right timing for the next stage of the investment.

[Operator]

The next question will be asked by Marcelo Arazi from BTG Pactual.

[Marcelo Arazi, analyst]

And since we're talking about the Salvador terminal, what can you tell us about the BYD plant, which will probably start its operations in late 2024, early 2025? Have you tried to understand how that will impact your volumes?

[Fernando Salek, executive]

Marcelo, I'll pass it over to Arnaldo, but we are active participants in that process. We have been in constant contact with them. They have some volumes with BYD, but I'll let Arnaldo give you a few more details.

[Arnaldo Calbucci, executive]

Thank you for your question, Marcelo. BYD will impact the Salvador terminal and other businesses in the group. We concluded a contract with our own topos with BYD, and we will definitely receive, in containers, the machines that they will be using to build that plant, and of course, parts, spare parts. So the expected volumes are significant. It's very difficult to give you an exact forecast of what's going to happen once they're operating on a full scale. But it is an important client that will arrive to Salvador to Bahia.

[Fernando Salek, executive]

Yes, Marcelo. Actually, even before the plant was commissioned, BYD is -- had already been a significant -- an important client for Wilson Sons as they import automobiles at aggressive volumes.

[Operator]

The next question will be asked by Andre Ferreira from Bradesco BBI.

[Andre Ferreira, analyst]

About tugboat prices, I'd just like to understand what is happening there. How much of it is due to higher port activities? How much is it just foreign exchange? What's the mix of special operations? Whatever details you can provide would be great.

[Fernando Salek, executive]

Thank you, Andre. I'll pass it over to Arnaldo.

[Arnaldo Calbucci, executive]

Andre, we've been successful in negotiating price readjustments. This is very significant. Our average price per maneuver is significant. We're at a very good price level right now. So we're seeking gradual increases. I'm sure we're going to get them. The mix depends on what is happening in foreign trade in the country. Prices go up when you have iron ore cargo because these vessels tend to be bigger, oil. So of course, the mix also plays into the price. But I would see that we're seeing a moderate growing trend.

[Andre Ferreira, analyst]

That was very clear.

[Operator]

This concludes the questions-and-answer session.We will now pass it over to Fernando Salek for his closing remarks.

[Fernando Salek, executive]

Thank you once again. As we conclude the first quarter of 2024, I reiterate that Wilson Sons continues to deliver robust growth and operational excellence. The strength of our core businesses has been remarkable, showcasing not only the vigor of our operating model, but also the effectiveness of our strategy. Looking ahead, we remain firmly committed to our principles of stringent safety standards, optimal asset utilization, and disciplined capital allocation.I'm quite optimistic about the prospects ahead and confident in our ability to navigate towards an even brighter future. Throughout our 186-year history, we have always contributed to the development of Brazil. At this challenging time in the midst of one of the saddest and most tragic environmental disasters ever to hit Rio Grande do Sul, we're reinforcing our commitment to society and the communities around us. In partnership with the Ministry of Ports and Airports and action for citizenship, we're committed to providing the best possible support to the state's population and competent authorities. We invite everyone to join us in this active solidarity. For more information on how to contribute, please visit our institutional website.Once again, we express our deep support for the affected communities and our immense gratitude for the dedication and resilience of our employees at this critical time.Thank you all for joining our conference call, and I hope you stay well and safe. Have a good day. Thank you.

[Operator]

This concludes our conference call. Thank you for participating, and have a good day.