Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, everyone, and thank you for holding. Welcome to Santos Brasil Participacoes' First Quarter 2021 Results Conference Call. With us here today, we have Mr. Antonio Carlos Sepulveda, the Chief Executive Officer; Mr. Daniel Pedreira Dorea, Chief Financial and Investor Relations Officer; and Mr. Ricardo dos Santos Buteri, the Chief Commercial Officer.

This event is being recorded and all participants will be in a listen-only mode during the company presentation. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed at ri.santosbrasil.com.br where the presentation is also available. Participants may view the slides at their own convenience. The replay of this event will be available shortly after the event is finished. [Operator Instructions]

As a reminder, let me mention that forward-looking statements made during this conference call are based on the beliefs and assumptions of Santos Brasil Participacoes. And they're based on information currently available to the company. They involve risks and uncertainties as they relate to future events and therefore, depend on circumstances, which may or may not occur. Investors and analysts should understand that conditions relating to macroeconomic situations, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

I would now like to turn the floor over to Mr. Daniel Pedreira Dorea, who will begin the presentation. You may proceed, Mr. Dorea.

[Daniel Dorea, executive]

A good day to all of you and thank you for your presence in one more conference for Santos Brasil. I hope that you are all well. I am Daniel Pedreira Dorea, the CFO and IRO. With me, I have the CEO, Antonio Carlos Sepulveda; and Ricardo Buteri, the Chief Commercial Officer.

After going through an unprecedented situation in 2020, going from initial optimism to uncertainty until the close of the year, it is invigorating to end the first quarter of 2021 with that feeling that we have delivered strong results that are also sustainable. In terms of EBITDA, this is the best quarter in the history of the company with exception of the first quarter in 2013. The volumes recorded are truly historically high. Our expectation continues to be high during the year and some signs are the basis of this confidence.

We renewed our contract with America Group with all of the services rendered at the Port of Santos. It is the extension of a very successful partnership of more than 20 years of the leader of containers in Brazil with great shipowners. The new contract will last for 2 years, beginning on April 1, 2021, until March of 2023 as the new prices agreed upon are based on April 1st and they no longer depend on the results of this first quarter.

In terms of demand, we continue to have a very balanced mix with a good flow of imports expected. This balance will give thrust not only to the results of Tecon Santos, but also the activities of SB log. We have been operating with 90% of occupation in warehousing. Our main terminal continues to receive investments to strengthen our competitive edge and to maintain high productivity to support the new demand. Since 2018, only in Tecon Santos, we have invested more than BRL 350 million in work and equipment, a figure that will reach BRL 550 million at the end of 2021.

Additionally, we are reinforcing our personnel at the terminal so as not to lose efficiency and to absorb the greatest volumes possible going through that port. Now this positioning has given us very good dividends. It enabled us to capture 75% of all the additional calls test into the port of Santos in the first quarter. We operated 22 additional calls with a gain in market share. And we also have the capacity to offer to the market excellence in our service rendering. Some operational indicators point to this. In the first quarter of '21, you will observe that Tecon Santos grew 22% year-on-year, overcoming the growth of 17% of the Port of Santos in the same period. And the full containers had a leap of 43% vis-a-vis the first quarter '20. The growth of Tecon Santos reflects the resumption of imports stimulated by very sensible sectors such as the automotive, pharmaceutical and general consumption.

In terms of port units, we have had a growth of 27.3% of Tecon Vila do Conde in the throughput of containers in the first quarter '21, leveraged by reefer containers for frozen beef. You will also see an increase of almost 15% in the vehicle terminal in the first quarter of '21 when compared to the first quarter of 2020. In the Imbituba terminals, we had a drop of 13% in the throughput of containers year-on-year due to a lower cabotage for rice going to Mexico. But on the other hand, the general cargo container had an enormous growth, 72%, given the number of shipment of pulp and others.

In Santos Brasil Logistica, the warehousing volume grew 17.4% in the first quarter '21, reflecting the resumption of industrial activity and additional calls at the port of Santos. This because the industry is replenishing its inventory and requiring logistic operations such as warehousing, cross-docking and distribution.

I would like to continue to speak about our financial highlights and record a growth of almost 41% in the consolidated net revenue for the first quarter '21 vis-a-vis the first quarter '20. We reached BRL 315 million. The company EBITDA amounted to BRL 106 million in the first quarter, a growth of 175% year-on-year. Our margin went up to 34%, showing a gain of 16 percentage points in the quarterly comparison. And in the bottom line, the company had net revenues of BRL 31 million, reverting that net loss that it had of BRL 13.3 million in the first quarter '20.

Now the main drivers were precisely the strong volume with a very favorable mix and several containers of imports that were warehouse. Now this combination is a virtuous one because based on this, our operational cash allows us to expand our results. And you can see that in the first quarter 2021, the price variable has not contributed to those gains in margins. We have already seen this dynamic in the past. Mark Twain used to say that history does not repeat itself, but we should keep an eye on it.

In our case, it is interesting that we no longer need to imitate the last decade to continue growing. We no longer bet on warehousing -- bonded warehousing to leverage our results. Our systems have balanced out gradually working more with ports, very equivalent to what happens outside, greater efficiency in terms of operations, decreasing costs with automation systems and state-of-the-art equipment. This is a gradual step that will take moderate velocity.

Now in Brazil, we will be able to observe the symmetry that seems to be positive to us. In this first quarter, we invested BRL 32 million in our main asset, Tecon Santos. Now these resources refer to expansion work, the deepening of the key in the Port of Santos and all of this is within our schedule. The expectation is to conclude this in the second semester 2021.

In Santos Brasil Logistica, the investments were BRL 2.5 million for the quarter to expand the truck fleet and equipment for the new distribution center at Imigrantes that was recently inaugurated. In terms of cash, we ended the quarter with BRL 1.1 billion in cash and cash equivalents. This means BRL 653 million in net cash, maintaining a very low leverage that will be gradually reduced as we have better capital, and we detect new business opportunities.

The first step was taken in the auction for liquid terminals. We took up 3 ports in Maranhao in tenders held by the Ministry of Infrastructure, where the investment will be of approximately BRL 600 million. This is an important expansion of our business in a market with growing demand for fuel, given thrust by our business with infrastructure bottlenecks that require investments and port capacity and where we have a competitive edge, a natural edge as we need that key. And we have already been able to work with critical mass, working with 30% of our capacity that will enable us to have very illustrative costs and expenses and a very good CapEx.

We haven't stopped there. We do have opened other fronts. We have negotiations underway, besides the pipeline of the port sector tender that is something natural. We reached the end of this presentation, and I will refer to some highlights that refer to prevention of accidents and security. Beginning in 2019, we have had 0 accidents in the Tecon Santos terminal. We have gone beyond 200 days without accidents with lost days in 500 days. And in Imbituba more than 2 years without accidents with days lost.

Additionally, I would like to invite you to look at our 13th sustainability report that will be published in the next few days, where we present in detail the measures adopted and the commitments taken on by Santos Brasil with ESG, People Management as well as other relevant indicators for our business.

Very well, these are my initial remarks. We are now at your entire disposal with Mr. Antonio Carlos Sepulveda and Ricardo dos Santos Buteri should you have any questions or doubts. Thank you very much.

[Operator]

[Operator Instructions] We have a question from the webcast from [ Rafael Alves Rodrigues ] from the company Evolve Capital.

Congratulations for your results. Given the strong results for the first quarter 2021, which figures still do not reflect the new contract with Myers, which is a possibility that the company will increase the EBITDA guidance for 2021?

[Daniel Dorea, executive]

This is Daniel Pedreira. When we disclosed our guidance and this happened after the signature of the contract with Maersk, the guidance, of course, already includes this new contract and the terms that have been agreed upon for the time being. We will maintain the guidance that, of course, could be reviewed as time goes by and as the volumes overcome our expectations, of course. But for the present time, we are maintaining the guidance and following up very closely on the market evolution.

[Operator]

The next question through the telephone is from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

Congratulations for your results. I have 2 questions. The first, if you could remark on the lineup of hiring for your works, what is it that we should expect for May and June? And the second question, if you could give me an update on the M&A acquisitions in logistics in the field of logistics.

[Daniel Dorea, executive]

Victor, this is Daniel Pedreira. I'm going to begin by the end in terms of the M&As and then will give the floor to Ricardo Buteri so that he can speak about the lineup at Tecon Santos. In terms of mergers and acquisitions, yes, we do have some negotiations underway. I mentioned this in my initial remarks and we are making strides in these conversations. Now when I say making strides, you should not imagine that we will have something to disclose in the coming months. These are negotiations that are lengthy. Of course, these are analyses that are required further conversations, a normal M&A process with no novelties to share.

However, what I can say is that we are very determined going down this avenue. And we imagine that this will be a way of giving us greater strength, it will accelerate the business plan of Santos Brasil, better integrating these assets with our terminals. Therefore, we're still very determined to go through these evaluations.

[Ricardo dos Buteri, executive]

Victor, this is Ricardo. It is a pleasure to speak to you and thank you for the question for the lineup for May and June. Now the efforts to recompose stocks continues to gain traction. Imports are increasing continuously. The May line up adheres fully to the forecast we made in June. The probability is that this will be even better. Why? Because we had a very slight impact in Tecon Santos due to the Swiss channel creating a bottleneck, a concentration of containers coming to Brazil from the Mediterranean. But the response to you is that the lineup is gaining traction. It is doing very positively.

As Daniel said, we are reinforcing our operational team. We want to continue to offer the best capacity and knowledge of the key and the logistic assets in the secondary zone to supply the entire demand that we foresee, a growing demand for the short term.

[Antônio Sepúlveda, executive]

Victor, this is Antonio Carlos. I would like to complement what was said with a macro vision. We're beginning to deliver at the Port of Santos, especially beginning in the second semester of this year. We're going to go from 1.8 million, 1.9 million to 2.4 million, 2.5 million. So the first lot will be arriving now to the key. We're going to release the areas that are now occupied by the works and we will begin with a part that will greatly enhance our capacity that is to say, expansion of yards and much more.

And this -- we see that there is a benign macroeconomic situation in Brazil, United States with a very good economy, as well as other countries. So for the coming 24 months, I think we will be in a good position. And of course, we will have the capacity to deliver in Santos. We already have 40% of market share at this port. And what will probably happen is that we will capture a large part of what is coming in because of the enormous capacity of Tecon Santos, so the outlook for the next 24 months for us is very good.

[Victor Mizusaki, analyst]

Excellent. If you allow me one more question. Daniel mentioned the contract with Maersk that was negotiated now in April. If you could remark on the balance of this contract and how it could impact your other contracts, perhaps there will be a lower price increase for shipowners?

[Antônio Sepúlveda, executive]

Victor, thank you for the question. We are, in fact, following a market analysis for the Port of Santos. Of course, there are other shipowners that are smaller that do have contracts that will mature between April and June. And all of them will exceed our commercial proposal because of the capacity that we have at present. So these negotiations are under way, 3 shipowners with maturity in April have already received the initial proposals, and it is very possible that until the end of the third quarter of this year, we will renegotiate with other shipowners and conclude the negotiation this year.

[Operator]

[Operator Instructions] The next question is from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

In terms of margins, you have had a very good recovery. Now in the first quarter and now with the improvement in mix, better prices and operational efficiency, this should improve. Which is your outlook for the margin during the year and extending up till 2022, which are the levels that we can expect in the coming quarters?

[Daniel Dorea, executive]

This is Daniel. I think we have 2 elements here. First, the operational leverage that is high in this business and the volume that we see that will continue to grow, we'll expand this. And of course, the price issue, the important price recomposition, beginning on the coming result. So our expectation is that we see some room to continue to have an expansion, especially in Tecon Santos where we have the characteristics I mentioned and where we will have the best company in terms of price and the best marginal volume. This is the expectation.

Santos Brasil Logistica, we have carried out reorganization in terms of cost, outsourcing the truck drivers where labor is more expensive. And with the level of imports, we believe that there will be a growth. Of course, all of this depends on the real-time behavior and changes are not so sudden. They are more controlled. So margins in terms of logistics should also have a significant growth.

Now what is it that we will have at Tecon Santos, we do have to hire personnel. We are in the process of doing this because we want to be ready to accept additional volumes, strong volumes that could come in the big season, especially at the end of the second quarter and beginning of third quarter. Of course, this will increase the cost. This is possible, but not to the point that it will hamper our margins. So this is what we are expecting going forward.

[Operator]

[Operator Instructions] Our next question comes from Gabriel Rezende from Itau BBA.

[Gabriel Rezende;Itau BBA;Equity Research Analyst, analyst]

Congratulations for your very strong results in the first quarter. A question referring to the Itaqui terminals. If you could refer to your expectations for timing for this project? And how this will impact the company results and which is the potential of synergy among the 3 terminals owned by the company? Will they offset costs, CapEx, given the synergy that exists between your 3 terminals?

[Daniel Dorea, executive]

I will begin by answering and then Antonio Carlos, would you like to begin?

[Antônio Sepúlveda, executive]

No, you can begin, and then I will add to the response. Please go ahead.

[Daniel Dorea, executive]

A deal. Well, these distance calls, everybody in a different part, makes it somewhat difficult to come to an agreement, Gabriel. Let's explain what has happened since the auction up to present regarding Itaqui. We presented all of the documents for Santos Brasil. These documents are reviewed by ANTAQ and they have been approved by that agency, which means that the company has now been enabled to sign contracts. Today ANTAQ published and referended our victory in the auction. They did this today because they had to wait for that legal period of resources and others. So Santos Brasil has officially been declared the winner by the official newspaper and all the documents have been approved.

What we are waiting at present is the convening of the granting authority. That is the Ministry of Infrastructure, the National Secretariat of Ports that disseminate these results and convene us to sign the contract. The expectation is that this signature will take place between June and August, perhaps before, perhaps somewhat later. But everything will depend on the terms of the granting authorities. But the expectation is that the signature will take place at the beginning of the second semester. After that, we take control, we take over the terminals. We have the entire part of licensing that we imagine will take some time. This would be natural and then we will begin to come up with CapEx in 2022.

Now 2 of these terminals, if I recall, are brownfield terminals presently operated one by [ Piranda ], another by [ HAIS ]. So they are terminals that are already in operation. The tanks belong to these leasers, which means that eventually, we could accelerate the coming into operation in the 2 terminals. So this is one of the upsides of the deal and we're going to try to seek this out. If this should not materialize, we're not worried because our indicators, our models do take this into consideration. We're dealing with this as an upside, a very positive upside.

When it comes to the synergy, I will allow the commercial part to respond to this with Ricardo Buteri. But in terms of synergy, yes, we will have SG&A synergies naturally because the structure that we set up for one terminal will be the same for the 3 terminals from the viewpoint of G&A, an important synergy, of course. And the same will apply to CapEx. Why? Because you end up purchasing the same equipment, contracting works that are equivalent, and this gives you a gain of scale in the negotiations. And eventually, we will have a dilution or gain through contracting this CapEx. At least this is our mindset. Antonio Carlos?

[Antônio Sepúlveda, executive]

I believe that it was very important to be able to win the 3 terminals in the auction. This will enable us to have an expressive volume that dynamic capacity of the 3 projects that will get to 2 million cubic meters at present day prices. This means invoicing of more than BRL 100 million and the EBITDA margin will be 60% to 70%. So per se, it is a business with very expressive figures and will enable the company to enter the bulk segment with a considerable size.

We are the second player in the Port of Itaqui when you think about the capacity and the port has been growing a great deal. The growth in the first quarter of the Port of Itaqui was expressive vis-a-vis last year, and the expectations are very good. We are maintaining contact with several bulk operators, formulators and distributors with a very good outlook. And everything has run according to plan with very good expectations.

[Operator]

The next question is from the webcast in [ Antonio Eluani ] from [ Palua Capital ]. Congratulations for your results. You already gave us an update of your negotiation with Maersk for a lengthier contract. Do either you or they have timing so that you can schedule your future investments?

[Antônio Sepúlveda, executive]

Antonio, this is Antonio. Thank you very much for your question. Yes, we can give you an update on the negotiation. It has been a very recent one and we concluded the negotiation in the month of April. Based on this negotiation, our main client has signaled his intention of extending the contract for the long term. We began these negotiations. We got over this first stage of balance with a positioning that is more adjusted to the market price in the Port of Santos. The contracts have already been signed. And in fact, we're going to undertake a conversation with Maersk to adopt a longer term in terms of demand so that we can identify the investments for future capacity.

Now what is normal is that we begin the negotiation of a contract 6 months before it matures. In the case of Maersk, as the first contract were negotiated in April already shows the interest that we have of having a longer-term relationship because of the capacity that we require at the Port of Santos and so that we can render the same services with operational expertise and excellence. We will have to begin our negotiations very soon with that long-term view to identify and schedule future investments.

And in the coming months, we already foresee an upgrade in capacity going from 1.8 million to 2.4 million in terms of static capacity at the terminal. We will always be one step ahead in terms of capacity adjustment, following up on the market using the forecast capacity that we have to be able to accommodate the demand of all of the shipowners. Now the timing for this to materialize is 6 months before the contract matures.

[Operator]

[Operator Instructions] We have another question from the webcast. If you could remark on the expansion potential in EBITDA in Vila do Conde and the outlook for the region.

[Antônio Sepúlveda, executive]

This is Antonio Carlos Sepulveda. The northern region of Brazil is growing more than the rest of the country, at least the GDP. And Tecon Vila do Conde is a good example of this. There is an enormous avenue for growth in the north. We have been investing in the terminal. And we're also seeking other long-term alternatives to consolidate our position. There are important events that will take place in the medium term. I don't know if you follow-up on this, but there is an area that is undergoing licensing, the Tapajos River where Tecon Vila do Conde has an area between Maraba and Vila do Conde that once again will have to be undergo recovery because of the rivers. And this is the expectation that will take place in the coming years, which will allow for further expansions in that region where Vila do Conde is. The outlook is very good.

We're bidding on a 2-digit EBITDA growth there for the coming years, unless something changes our reasoning. We also focus on cargo for exports in that region, mineral products, industrial products, commodities, vegetables, all of these are very important for the work of this terminal. And the variation in commodities will define what will happen with our throughput there.

We also have an expressive growth in cabotage. Cabotage began approximately 4 years ago, very strongly 2 years ago and has been growing significantly, which means that we still have the expectation for strong growth, growth of 2 digits in the coming years.

[Operator]

The next question from the webcast is from Marcelo Aguiar from Leblon Equities. If you could remark on your box rate levels of Tecon Santos in the long term in 3 to 5 years vis-a-vis the present day levels, which would be your breakout level in terms of dollars, containers, if you compare this to other ports with equivalent services?

[Antônio Sepúlveda, executive]

Marcelo, this is Antonio Carlos once again. The Port of Santos is the port that is the best port for containers in Brazil. It is the port for all shipowners who organize their ships. It is the Port in Brazil. It is being dredged for ships of 366 meters at present. And of course, this offers a great deal of value to shipowners. We're coming out of a very difficult situation of the Port of Santos. We had a significant drop in demand, a drop in 2014, 2015, along with an increase of capacity.

The result of this was a complete drop in prices that had a great impact on us because this is a very large asset and has a very high fixed cost component. And we now have a better balance between supply and demand, and a price recovery.

Now the situation of Santos at present. Well, Santos is still in the second-tier of Brazil. The -- we have large terminals, terminals that operate more and deliver good value to shipowners, 40% to 50% at BRL 700, BRL 800 per day. And I think we still have room to improve prices as well as volumes. It's very difficult to speak more precisely. We don't know where the price increase will stop. We have 2 components, of course, the price component and the volume commitment for the long-term component. We already have taken the terminal to reasonable levels. But of course, there is room for improvement for enhancement in terms of our average price.

It's very, very difficult to explain where this is going and which will be the timing. We're completing the renegotiation cycle at present and we're going to attempt to set up long-term relationships with such shipowners. We still have some investments to make in that terminal. And we have to have a volume hedged to facilitate these investments with better prices and greater facilities in terms of volumes for the future.

Now throughout this year, we will focus on these negotiations and have a better idea in terms of price stability. The moment, nevertheless, is highly positive. And we have to pay attention to the impact of Tecon Santos that has high capacity. And as we have 40% market share at present, we're going to look upon moments where we can grow more than twofold. So it's a very good moment for Tecon Santos. And during these next 24 months, they will be very good months for Santos Brasil.

[Operator]

[Operator Instructions] At this point, we will conclude the question-and-answer session. We will return the floor to Daniel Pedreira for the closing remarks. You may proceed, sir.

[Daniel Dorea, executive]

We will end one more conference call. And doubtlessly, we hope to see you at the next conference call for the second quarter of 2021. I hope that we will continue on with this dynamic. I wish you very good work and greet all of you.

[Operator]

The Santos Brasil Participacoes conference call ends here. We would like to thank all of you for your participation. Have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]