Wilson Sons Holdings Brasil SA

BOVESPA:PORT3

Earnings Call Analysis

Wilson Sons' Q2 2024 Highlights Strong Performance Despite Currency Headwinds

In Q2 2024, Wilson Sons saw a 17% increase in net revenue to BRL 694 million, driven by strong performance in container terminal and towage businesses. EBITDA rose by 8% to BRL 284 million, while net profit fell 60% to BRL 45 million due to exchange rate impacts. Excluding these effects, profit would have increased by 38%. Container terminal revenue jumped 26%, boosting EBITDA by 37%. Despite higher operational costs for offshore vessels, overall business resilience was strong, with significant gains in terminal volumes and towage operations.

Continued Commitment to Safety and Sustainability

Wilson Sons underscores its commitment to safety and sustainability, marking a 0.29 injury frequency rate, significantly surpassing world-class benchmarks. In June 2024, they published their 2023 sustainability report, enhancing transparency in environmental, social, and governance (ESG) performance.

Robust Revenue Growth

In Q2 2024, Wilson Sons reported a notable 17% increase in net revenue, reaching BRL 694 million, driven by improved operational efficiency in its container terminal, towage, shipyard, offshore base, and shipping agency sectors. Year-to-date, the company saw a 15% revenue uplift in BRL and 14% in USD.

EBITDA Performance

The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) rose 8% to BRL 284 million in the quarter, propelled by strong results from the container terminal and towage sectors. Over the first half of 2024, EBITDA increased by 12%, demonstrating solid operational strengths across the board.

Impact of Currency and Profit Adjustments

The net profit for Q2 fell 60% to BRL 45 million, primarily due to a BRL 78 million negative exchange rate impact. After adjusting for these currency effects, the profit would have increased by 38%. Year-to-date, profit adjusted for these movements has grown by 49% in both BRL and USD.

Sector-Specific Growth Insights

Container terminal revenue surged 26% in Q2 to BRL 252 million, with a 37% jump in EBITDA. This growth was attributed to heightened operational activity and increased ancillary services, marked by a 17% rise in container handling. Additionally, towage revenue ascended 10% to BRL 335 million, strongly influenced by the rise in grain, iron ore, fertilizers, and petroleum transports.

Challenges in Offshore Support Vessels

A joint venture in offshore support vessels recorded a disappointing net loss of BRL 3.3 million despite a 22% revenue increase to BRL 163 million. This was attributed to a BRL 18 million foreign exchange loss, overshadowing improvements in fleet utilization.

Financial Position and Leverage

After increasing bank leverage from 1.3x to 1.4x EBITDA due to currency fluctuations, Wilson Sons maintained a robust liquidity position with BRL 281 million in cash and equivalents. The company's focus remains on managing its debt effectively while pursuing growth opportunities.

Future Outlook and Growth Strategies

Looking ahead, Wilson Sons projects steady growth in its core operations, particularly with container terminals looking to sustain the positive momentum through increased trade flows. New services in the Rio Grande and Salvador terminals, particularly with Asian market connections, present a promising growth trajectory. The company is optimistic for gradual growth in harbor maneuvers and expects to capitalize on upcoming FPSO (Floating Production Storage and Offloading) operations over the next few years.

Commitment to Shareholder Returns

Despite the current financial challenges, Wilson Sons has recommitted to shareholder returns, having already distributed $25 million in dividends this year. The company signals intentions to continue optimizing its cash flow for further dividends rather than retaining excess cash idle.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, everyone, and welcome to Wilson Sons Q2 2024 Earnings Conference. Joining us today are Mr. Fernando Salek, the company's CEO; Mr. Arnaldo Calbucci, the COO; Mr. Michael Connell, Investor Relations Officer; and Mr. Marcelo Torres, the comptroller. This call is being recorded. [Operator Instructions].

Now, I'd like to hand the conference over to the CEO, Mr. Fernando Salek. Please, sir, you may proceed.

[Fernando Salek, executive]

Thank you. Good morning, everyone, and welcome to our earnings conference. We'll start our discussion on Slide 4, focusing on our performance in safety and sustainability.

Our lost time injury frequency rate for the 12 months ended in June 30, 2024, was 0.29 incidents per million hours worked. Again, we outperformed the world-class benchmark. Our unwavering commitment to safety is a cornerstone of our operations, as is the well-being of our employees.

In June, we published our 2023 sustainability report, taking another step towards increasingly transparent and consistent disclosure of the company's environmental, social, and governance performance.

Our purpose is always to act as a catalyst for continuous improvement and innovation, and we remain committed to sustainable development and to creating long-term value for our stakeholders.

Now, turning over to Slide 6. Here, we provide an overview of our consolidated results. In the second quarter, our net revenue increased 17% to BRL 694 million, primarily due to improved operating performance across our container terminal towage, shipyard, offshore base, and shipping agency businesses.

In the first 6 months of the year, our revenue increased 15% in reais and 14% in U.S. dollars. EBITDA increased 8% to BRL 284 million in the quarter, largely driven by the excellent container terminal and towage results.

In the first 6 months of 2024, our EBITDA increased by 12%, both in reals and dollars. Our net profit for the quarter decreased by 60% to BRL 45 million. This was because of a negative exchange rate impact of BRL 78 million. This was largely attributable to a net negative deferred tax impact of BRL 56 million, an effect of translating nonmonetary items from U.S. dollar to real and our dollar functional currency subsidiaries.

Excluding these effects, our profit for the quarter would have increased by 38%. Year-to-date, profit adjusted for exchange rate movements grew by 49%, both in reals and dollars. When we consider the impact of the currency translation reserve, we had a positive effect of BRL 196 million on comprehensive income for the quarter and of BRL 252 million for the first 6 months of the year.

Now, moving on to Slide 7. Here, we highlight the financial performance of our main businesses. Container terminal revenue rose by 26% in the quarter to BRL 252 million, given the enhanced operational activity and gains from ancillary services.

EBITDA increased by 37% to BRL 129 million, driven by higher volumes and fixed cost dilution, which led to a margin expansion by 4 percentage points. Container handling increased 17%, driven by robust gains in transshipment and gateway traffic.

In U.S. dollar terms, revenue was up by 20% and EBITDA rose 30%. Towage revenue rose by 10% in the quarter to BRL 335 million. It benefited from higher volumes and an improved mix despite a decrease in special operations revenue. Harbor maneuvers increased 6%, which was primarily because of a higher number of ships carrying grain, iron ore, fertilizers, and petroleum.

In U.S. dollar terms, the revenue went up 4% and EBITDA rose by 15%. In our nonconsolidated joint venture comprised mainly of the offshore support vessel operation, revenue rose by 22% in the quarter to BRL 163 million, thanks to improved fleet utilization and higher daily rates.

Operating days increased 9%, driven by new hires and contract renewals. However, despite strong operational performance, the unit recorded a net loss of BRL 3.3 million, which is shown in the company's results as equity income due to a BRL 18 million foreign exchange loss during the period.

Now, let's move on to Slide 9, please. On this slide, we present some of our liquidity and leverage ratios, which remains solid open debt in reais increased 3% versus the balance on March 31, 2024, given an 11% 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. dollar, our bank debt decreased by 7% in the period to $300 million. The cash flow for the second quarter note showed BRL 242 million from operating activities, BRL 76 million in investments, primarily allocated to tugboat construction and container terminal maintenance, BRL 151 million in dividend distribution as well as BRL 83 million in bank loan amortization.

As a result, we ended the period with BRL 281 million in cash and cash equivalents. The bank leverage ratio increased from 1.3x to 1.4x EBITDA in reais on March 31, 2024, given the currency-driven rise in debt, as we said earlier.

In U.S. dollar terms, the bank leverage ratio remained steady at 1.3x EBITDA. At the end of the quarter, 74% of our bank debt was long term and 71% was financed by the Merchant Marine Fund at fixed interest rates. Now, over to Slide 11. Here, we'd like to comment on our operating performance in the year to July.

We believe this adequately reflects the positive trend in the efficiency and momentum of our operations, underscoring the resilience of our businesses. Our core terminal and towage businesses delivered very solid results, which were propelled by the continued expansion of trade flows. We've exceeded our positive expectations for the first 7 months of 2024.

In the year to April, aggregate terminal volumes increased to 27%, driven by gains in all trade flows. In Rio Grande, despite the severe climate crisis, container handling surged 30%, driven by strong growth in transshipment and exports. Similarly, Salvador witnessed a remarkable 22% increase with transshipment and imports standing out.

In Towage, harbor maneuvers increased 5% over the period. And the average size of ships that were serviced rose 2%, particularly because of the rise in iron ore, rain, 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 as we said earlier.

At a support basis, Vessel turnarounds rose 3%, given the start of new contracts as well as an uptick in spot activity. Now, moving over to Slide #12. Here, we highlight an important milestone for both Wilson Sons and we believe, for Brazil as well.

In July 2024, Salvador welcomed Brazil's first regular call by a new Panamax vessel, establishing a direct link to Asian markets and strategically positioning the terminal to handle substantial gateway and transshipment volumes from the country's northern and northeastern regions.

Well, with that, I conclude my presentation and invite all of you to join us in our Q&A session.

[Operator]

[Operator Instructions]. Our first question comes from Gabriel's proposal DePina with Bardesco BBI.

[Unknown Analyst]

There are 2 things we would like to ask. First, on the offshore support vessels JV, there's been an increase in the personnel and other operating cost lines. So, if you could please address that and what led to this increase in the narrower margins in this quarter, this would be our first question.

Then our second question, in terms of volume. How much color can you give us in terms of the scenario in terms of the number of containers in the second half of the year in 2025? What should be the main drivers in the terminals of Salvador and Rio Grande and Salvador more specifically, could you provide us any estimate of how much the new BYD firm could add in terms of imports?

[Fernando Salek, executive]

Gabriel, thank you for your questions. I will turn over to Arnaldo Calbucci, our COO.

[Arnaldo Calbucci, executive]

With regard to the JV, the trend that you've noticed in our earnings is connected to the collective bargaining that took place during this quarter and actually increased our staff costs retroactively.

As for other expenses, there's been a one-off increase in fuel oil consumption and this was because of the maintenance and reactivation of 2 vessels. These were the 2 points that led to significant increase in the joint venture.

I just wanted to point out something with regard to this, Gabriel, which is the increase in staff or personnel costs is connected to a movement in the market at large.

We finished our collective bargaining agreements, which is why we are now showing this impact. But in general, there's been a demand for highly skilled labor in this market that has increased, which naturally had an impact on costs on this line for the market in general.

Well, as for the volumes in container terminals, what we could tell you is, we are optimistic about the second half of the year. And we have concrete reason for that much in the Rio Grande terminal. We have the first service that's servicing the Tiger feeder with Hyundai, and we also have other services being provided in a one-off fashion, but this is a trend that we see as extremely important to turn our Rio Grande terminal into a hub.

We're also optimistic about Salvador. One example is the new Santana service, which Fernando included in the slide deck and this is the first service that connects Salvador directly to the Asian region. So, these are just a couple of examples.

What you mentioned about the BYD plan. During the plant construction, we will receive containers with equipment to set up the plant. And later on, we will also be seeing parts and other material coming in not only for the next few quarters, but also the next few years as well.

[Operator]

[Operator Instructions] [Audio Gap] We have another question online asking us to elaborate on our prospects for tugboats. I will turn it over to Arnaldo.

[Arnaldo Calbucci, executive]

What we can tell you about our towage industry, the market is very steady right now when it comes to port maneuvers. We expect a steady and slow increase when it comes to harbor maneuvers, also considering the increase we're seeing in the trade flows, international trade flows in Brazil.

And as for special operations, we should absolutely benefit from the arrival of FPSOs in Brazil, those that have already been hired by Petrobras in the next 2 or 3 years. So, prospects are bright and the market is currently very much stable.

[Michael Connell, executive]

Our next question comes from Alex Patterson with Peel. I will read the question in English and answer that in Portuguese. Is low despite increasing your dividend? Please, can you talk about future investment opportunities in towards and container terminals and whether you would consider share buyback or special dividends?

[Fernando Salek, executive]

Alex, admittedly, our bank leverage is now at a very healthy level. This does not suggest we need to use our cash flow in any significant way to reduce our debt. Again, we understand that we are at a healthy level, and we're constantly looking at ways to optimize our balance. That being said, Alex, from the standpoint of our cash flow needs, we have already been advancing interim dividends.

We've already paid $25 million in dividends this year, which connect to our earnings so far this year. And as we've said before, we have no intention of keeping excess outstanding cash idle on our accounts. We also have the company's regular investments, which are designed to update our fleets and tugboats. There are no significant investments planned for the near term that we should consider right now.

Therefore, any excess cash will be allotted and used to pay dividends.

[Michael Connell, executive]

We have a question from an anonymous attendee, he asks what should we expect from the container terminals margins for the year. As I said earlier, we expect volumes to increase. And as a consequence, we should be able to see our fixed costs be diluted, and it will allow our margins to expand as well. And actually, we can't tell you exactly what will happen that will be impossible. But we can tell you is that we expect there to be growth.

[Operator]

This concludes the question-and-answer session. Now, I'd like to invite Mr. Fernando Salek to proceed with his closing remarks. Please, sir, go ahead.

[Fernando Salek, executive]

Thank you. As we conclude the first half of 2024, I'd like to emphasize 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 extremely pleased with the results we've achieved so far. Very proud of the outstanding work our team has developed and confident in our ability to navigate toward an even brighter future this year.

Thank you all very much for joining us in our conference, and I hope you stay well and safe. Have a great day. Thank you so much.

[Operator]

This concludes Wilson Sons' earnings conference. Thank you all for joining us, and have a great day.