Wilson Sons Holdings Brasil SA

BOVESPA:PORT3

Earnings Call Analysis

Wilson Sons Showcases Commitment to Operational Safety and Environmental Sustainability

The company sets a sterling example of operational safety, achieving a lost time injury frequency rate of 0.2 incidents per 1 million hours worked in the first 9 months of 2023, demonstrating a remarkable 56% improvement over last year and outpacing world-class benchmarks. Environmental stewardship also remains at the forefront of their efforts, as evidenced by the delivery of the WS Castor tugboat and their third consecutive receipt of the Gold Seal from the Brazilian GHG Protocol Program, validating their sustained efforts toward environmental sustainability.

Financial Resilience Amidst Challenging Conditions

Wilson Sons’ financial resilience is evident through their management of net revenue, which maintained at BRL 619 million in the third quarter, unchanged from the prior year. The disparity between the divisions, with increases in container terminal, towage, and offshore base revenues offsetting declines in logistics, showcases a strategic balancing act. Remarkably, net profit soared by 43% to BRL 95 million for the period, and the EBITDA showed an uptrend, growing 8% in the third quarter to BRL 268 million. These gains were propelled by cost reductions and positive outcomes from the Offshore Vessels joint venture, highlighting the company's efficient operational management.

Consistent Growth and Dividend Distribution

Operational performance of container terminals and towage divisions benefited from growth and the ongoing normalization of trade flows. The business reported a 14% increase in aggregate volumes at its terminals, supported by growth across all trade flows. In particular, harbor maneuvers in towage and vessel turnarounds at support bases demonstrated significant surges, indicative of the company's resiliency and potential for recovery. Moreover, it's worth noting the company's shareholder-friendly approach, evidenced by the distribution of BRL 137 million in interim dividends, reflecting confidence in its financial stability.

Strategic Fiscal and Investment Maneuvers

While bank debt saw a marginal rise due to currency valuation changes, the company's financial strategy remains cautious and forward-looking, ending the quarter with BRL 217 million in cash and cash equivalents. Refined investment decisions and a structurally sound bank leverage ratio of 1.5x EBITDA signal the company's disciplined fiscal management. The continuation of strategic investments, such as in towboat construction and container terminal equipment, further underscores their commitment to long-term growth and capital allocation efficiency.

Outlook on Vessel Operations and Market Positioning

Wilson Sons anticipates an uptick in average daily rates for their vessels in 2024 and 2025, bolstered by the renewal of expiring contracts and their increasing participation in higher-rate bids. The company is poised to make judicious investments in its fleet, echoing the strategic foresight to capitalize on market dynamics and reinforce its competitive edge.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and welcome to the Wilson Sons Earnings Conference Call for the Third Quarter of 2023. Today, with us, we have Mr. Fernando Salek, the company's CEO; Fabricia Souza, CFO; and Arnaldo Calbucci, the COO. This conference is being recorded. We will have simultaneous translation for those who wish to listen to the English version. [Operator Instructions]

The financial results will be expressed in Brazilian reals and presented in accordance to the International Financing Reporting Standards unless otherwise stated.

Before proceeding, we would 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 conference over to Fabricia Souza.

[Fabricia de Souza, executive]

Thank you. Good morning, everyone, and welcome to our earnings conference call. Let's start on Slide 4, by talking about safety and sustainability.

In the first 9 months of 2023, we registered a lost time injury frequency rate of 0.2 incidents per 1 million hours worked. Again, outperforming the world-class benchmark and showing a 56% improvement compared to the 2022 performance. Our efforts and attention to this agenda has ensured what for us is one of the pillars of our operations, the safety of our employees.

In September, our shipyard delivered WS Castor, the fourth of 6 tugboat series with over 90 tonnes of bollard pull joining our fleet by the third quarter of 2024. In October, for the third consecutive year, our greenhouse gas emissions inventory received the Gold Seal in the Brazilian GHG Protocol Program, which is the most widely used tool by companies and governments to assess, quantify and manage their emissions. This award reinforces our agenda to combat climate change and attests to our standing commitment to the environment.

Also in October for the second time, the company was proud to receive the Great Place to Work certification. An internationally recognized benchmark of excellence for workplace environments. These initiatives contribute to the continuous improvement of our ESG practices and operational excellence, strengthening one of our strategic pillars.

Continuing to Slide 6. Here, we present a summary of our consolidated results. Net revenue for the third quarter was in line with the previous year at BRL 619 million as the increases in container terminal, towage and offshore base revenues were offset by the decline in Logistics revenues.

In the first 9 months of 2023, net revenue increased 6% in Brazilian reals and 8% in U.S. dollars. EBITDA increased 8% in the quarter to BRL 268 million. This was driven mainly by the reduction in costs and the slightly positive result of the Offshore Vessels joint venture. In the year-to-date through September, EBITDA increased 11% in reals and 14% in U.S. dollars. Net profit for the period increased 43% to BRL 95 million. This quarter, there was a foreign exchange loss of BRL 15 million compared to a negative impact of BRL 17 million in the pre year -- excuse me, in the prior year period. The main factors here were a negative impact of BRL 9.5 million on deferred taxes of U.S. dollar functional currency subsidiaries and a negative impact of BRL 5.4 million on Brazilian real denominated monetary items of the Offshore Vessels joint venture. Excluding these effects, the profit for the quarter would have been BRL 110 million. In the year-to-date, through September, profit increased 29% in reals and 33% in U.S. dollars.

We now move to Slide 7. On this slide, we highlight the financial performance of our main businesses. Container terminals revenue increased 11% in the quarter to BRL 220 million, and this reflects an increased operational activity and revenues from ancillary services, such as container scanning and power supply for refrigerated cargo. EBITDA increased 10% to BRL 110 million in line with the increase in revenue. Volumes increased 22%, driven by increases in all trade flows.

During the quarter, the reliability of the shipping lines served by the terminals continued to improve substantially as a result of reduced deep-sea ship call cancellations, continuing the trend or the recovery trends to reach pre-pandemic levels in the short term.

Towage revenue increased 2% in the quarter to BRL 324 million, benefiting from higher volumes and growth in special operations. The decrease in the average revenue per maneuver reflects the depreciation of the U.S. dollar against the Brazilian real. EBITDA increased 5% to BRL 157 million, driven by higher revenues, cost reductions and an increase in margin.

In the nonconsolidated joint ventures comprised mainly of the offshore support vessel operation, revenue increased 1.4% in the quarter, driven by higher operational activity of our own fleet as well as chartered vessels. Net profit, which is recorded in the company's results via equity income improved significantly to BRL 0.6 million against a loss of BRL 13 million in the comparative period.

Moving to Slide 9. On this slide, we present some of our liquidity and leverage ratios, which remain solid. Bank debt rose slightly compared to the 30th of June of 2023. And this was due to the depreciation of the Brazilian real against the U.S. dollar, which increased the U.S. dollar-denominated debt balances when reported in reais. In the cash flow for the third quarter, we highlight BRL 216 million from operating activities, BRL 99 million in investments, mainly for tugboat construction and the acquisition of new equipment and civil works in the Salvador container terminal, as well as BRL 48 million in loan amortizations. So we concluded the quarter with BRL 217 million in cash and cash equivalents -- excuse me, BRL 217 million in cash and cash equivalents.

Lastly, in October, we distributed BRL 137 million in interim dividends equivalent to approximately BRL 0.32 per share. The bank leverage ratio reduced slightly to 1.5x EBITDA for the last 12 months. At the quarter end, 80% of our bank debt was long term, and 67% was financed by the Merchant Marine Fund with fixed interest rates.

Moving on to Slide 11. Here, we would like to comment on our operational performance in the year through October, which we believe adequately demonstrates the upward trend of improvement in the pace of our operations and the resilience of our business. In the first 10 months of 2023, our container terminals and towage divisions benefited from the growth and continued normalization of trade flows.

At the terminals, aggregate volume increased 14% in the period, driven by increases in all trade flows. In Rio Grande, volumes rose 20%, while Salvador registered a 5% increase. Here, we highlight the particularly significant increase in volumes at both terminals over the course of the year, demonstrating the trend towards recovery and the resumption of operations at higher levels than in the comparative period.

In towage, harbor maneuver increased 3% in the period, and the average size of ships attended rose 1%, driven by the strong flow of commodities and oil transshipment. In the Offshore Energy segment, our OSV fleet registered a 15% increase in operating days while vessel turnarounds at our support basis rose 45% in the period.

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 from Bradesco BBI.

[Andre Ferreira, analyst]

Congratulations for your results. I have a couple of questions here. First, about the material fact posted on Tuesday about the portfolio in the controlling company. If you sell some of your stake, how much would that be? And I'd also like to ask about support vessels. What kind of demand inventory are you expecting for the next month? And do you plan on investing on this division, given the disinvestments that we're seeing in oil?

[Fernando Salek, executive]

This is Fernando Salek. To answer your first question, so in the company's bylaws, the tagalong expectation for any sale -- indirect sale is listed. So this is an insured right that has been reinforced as we went into the new market.

To answer your second question, we have been seeing some increased daily rates in the market, but the average daily rate for Wilson is growing slowly as contracts expire and get renewed. But I'll pass it over to Arnaldo, who will give you more details on that.

[Arnaldo Calbucci, executive]

So the daily rates have been going up in the last bids that we've participated in. As Fernando said, this is a trend that our average daily rate grows as contracts expire and get renewed. So we can expect growth in the company's average daily rate in 2024 and 2025 and from then onwards. As for investments, we have been paying attention to what happens in the market. And obviously, this will be analyzed at the right time so that we can continue to invest on vessels.

[Operator]

The next question will be asked by Lucas Marquiori from BTG Pactual.

[Lucas Marquiori, analyst]

I'd like to ask you about 2 things. First, about the strong movement in the Rio Grande terminal. I understand that there's a trade flow normalization issue. But I'd like to understand a bit more about the company's strategic initiative to absorb higher volumes. So if you can tell us about that situation in Rio Grande. And secondly, about maneuver fees, I know that there was a foreign exchange effect, but there was also a lot of special operations in larger vessels. So what trends do you believe there are for fees per maneuver? Or anything you can tell us about that for the next quarters?

[Fernando Salek, executive]

I'll pass it over to Arnaldo, who will answer.

[Arnaldo Calbucci, executive]

Yes. So in Tecon or Container Terminal Rio Grande, there has been some changes due to the normalization of shipping in the world, and that has been helping us in recovering the terminal. Of course, this would have no effect. If we didn't have a significant commercial effort to bring in cargo that left Rio Grande and went to other ports during COVID. So we've been working with intelligence to try to make Rio Grande a stronger port. And solving the problems that we see in Buenos Aires and Montevideo due to the draft height. As ships grow, it will become more difficult to -- for ship owners to operate them. This hasn't come to pass yet. But I see it with a lot of optimism.

Considering tugboat fees, our perspective is to maintain the good prices that we have been having lately, obviously, contracts have a duration of 2 or 3 years. So fees get readjusted according to the conclusion of these contracts. We see a trend towards stability with lower levels of growth.

As for special operations, although there are uncertainties when we talk about assistance to [indiscernible], we have seen some growth in the oil and gas industry as platforms and FPSOs have come in. And this requires special operations. So our perspective on that is very positive.

[Operator]

[Operator Instructions] We received a question from Alex Paterson from [indiscernible]. So I'm going to read it for you to translate it and we'll have it answered.

Here's the question. He says that our net debt to EBITDA has gone down to 1.5x and that our cash flow is very positive. Also, our offshore support activities have also presented better results and has operated better. So based on that, he's asking if there are opportunities for new investments to be made. Maybe acquiring more assets in container terminals or towage operations?

[Fernando Salek, executive]

So our answer to that is this, Alex. We are monitoring our core markets. So we look at market opportunities constantly, and we're always looking at potential new opportunities that might be relevant to us. But this is always done with a lot of discipline, and we're very selective in how we allocate our capital. So to answer your question, right now, we're at a moment in which we have a healthy balance, positive cash flow.

This was our situation before. I mean, it's improved a bit, but we already had positive cash flow and balance. And we're always looking at new possibilities to expand the organization. But this is always done very carefully when it comes to capital allocation. So we're always paying attention to how we generate returns on these potential investments and their valuations.

[Operator]

The next question will be asked by Lucas Marquiori from BTG Pactual.

[Lucas Marquiori, analyst]

I'd just like to enjoy or make use at this moment to ask about strategy for the Salvador market. Volumes there are good, not as big as Rio Grande, but I'd like to understand your strategy and how you are positioning yourselves commercially in Salvador? How have your commercial flows been going? And this is sort of a continuation of your comment on capital allocation. Since we have a weaker pipeline, I'd just like to understand if there is some space here for the company to increase its dividend payouts this year or next year considering this -- the company's balance.

[Fernando Salek, executive]

Thank you, Lucas. I'm going to pass it over to Arnaldo, who will answer about Salvador and then I'll answer your other question.

[Arnaldo Calbucci, executive]

In Salvador, we're seeing a recovery in volumes. So the way in which the terminal works has changed slightly with the end of the COVID pandemic. Cargo is having -- it is staying less on the floor and we have been seeing some volume growth. So what's going to happen is that with the availability of the new key, we will have the opportunity of receiving 2 large vessels. So the entire effort of our commercial team is being structured strategically to seek more lines to work in Salvador and also to work very closely on captivating or capturing cargo.

So it's a positive perspective. There are some areas in Salvador that will grow, such as the BYG plant that was announced a couple of months ago. So not only will we have more operations when the plant is in operation, but as new equipment comes into the terminal, there's also a strong trend in solar and wind. So that has been our focus.

[Fernando Salek, executive]

Lucas, to answer your second question about dividends, the company has a very consistent policy in how it approaches that. In the absence of opportunities that makes sense to receive investments from the company and as we have excess cash, we have consistently paid this excess cash out as dividends to our shareholders.

Starting last year, we created interim dividends. This year, we have already advanced the intermediate or interim dividend payout date. And we have already made 1 payment. And what I can ensure is that if we are generating more cash and if we don't have opportunities to allocate this capital that will generate value for the company, then yes, we will pay dividends out or return capital to our shareholders in the best way possible.

I remember that last year, we also had a share buyback to complement our dividend payout. So I don't know if Fabricia has anything to add on that.

[Fabricia de Souza, executive]

No, I think you made it very clear. Our capital structure policy is following those assumptions that Fernando mentioned. We have no intention of leaving excess cash and making our capital structure inefficient. So if we don't have any investments that make sense, then this amount will be returned to shareholders.

[Operator]

The next question will be read by the company.

[Unknown Executive]

We received a question from [ Gustavo Ferreira ] from Insider. And he's asking if we can give any color on how the fourth quarter of 2023 is doing? And what trends have been seen so far? We're halfway through the last quarter. So what will be the main positive drivers? What should we keep our eye on?

[Fernando Salek, executive]

[ Carlos ], what I can tell you about the fourth quarter is that October has been maintaining a positive trend from the operational perspective. We've published numbers. There has been an advance confirming the positive trend and that, obviously, is reflected in our results.

Growth drivers for the year have been given. But actually, we're talking about the recovery of -- or the end of the crisis in International trade, recovery in volumes that we had lost, especially in Rio Grande. And also recovery in oil and gas, which has been confirmed by our 2 businesses that are the most exposed to this segment. Our Offshore Vessels joint venture and our support basis, we've seen significant growth in these markets with a trend to continue on that track.

[Operator]

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

[Fernando Salek, executive]

Thank you. So I'd just like to say that our performance this year through September demonstrates an important organic growth for our businesses. We remain positive on the fundamentals of our trade flow related businesses, which, together with rebounding demand for our offshore energy industry-linked services will provide the basis for a superior performance of our assets.

In the context of a positive market environment, we continue to be confident that our focus on safety, growing utilization of assets, cost control and a disciplined approach to capital allocation will continue yielding robust results for clients, shareholders, employees, and other stakeholders of our business. Thank you all for joining our conference call, and I hope you stay well and safe. Have a good day.

[Operator]

That concludes the Wilson Sons' conference call. Thank you for participating, and have a good day.