Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2018-Q2

[Operator]

Good morning. Thank you for waiting. Welcome to Santos Brasil Participações's Second Quarter of 2018 Results Conference Call. We have Mr. Antônio Carlos Sepúlveda, Santos Brasil's CEO; Mr. Daniel Pedreira Dorea, Santos Brasil Chief Financial -- Investor Relations; and Mr. Marlos Tavares, COO.

This event is being recorded. [Operator Instructions].

This event is also being broadcast live via webcast and may be accessed through ri.santosbrasil.com.br where the presentation is also available.

[Operator Instructions]. The replay will be available shortly after the event is concluded.

Those following the presentation via the webcast may post their questions on our website. They'll be answered by the IR team after the conference is finished.

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Santos Brazil Participações management and on information currently available to the company. They involve risks and uncertainties because they relate to future events, and therefore, depend on circumstances that may be or may not occur -- that may or may not occur.

Investors and analysts should understand that conditions related to macroeconomic conditions industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Dorea. Mr. Dorea, you may begin your presentation.

[Daniel Dorea, executive]

Good morning, everyone. Let me start by analyzing Q2 results and 2018. Let us start with the -- some of the Q2 highlights and some of the Q1 highlights too, and the outlook for the next quarter.

The CLIA operation increased in a growing trend. The Santos Port grew by 1.3% when compared to Q2 of 2017. The total volume was 630,000 containers. When we compare it to the 14% increase in Q1, had a direct impact from the truck drivers' strikes.

Our expectation now that the second half will have a different scenario. The truck driver strike posed some question marks about the economic recovery. We'll be able to improve the situation later on.

Let me go back to the Q2 2018. The global operation amounted to BRL 2 million, between 70% and 75% of its commercial capacity.

There is growth in transshipment, but the outlook for Q3 will have more containers that are imported given the greater projection of consumer goods for years and sales.

Let me point out the Asian service. We have 8 scales from PIL shipyard. Storage was the highlight with imported container.

The results were impacted by the truck drivers' strike with a reduced number of trucks. We've concluded the second phase of investments in the Conde terminal, including BRL 22 million, 3 container forklifts and 10 trucks, and we are now concluding the construction work, we're building new entrance gates and improving the terminal's infrastructure overall.

At the same time, we're implementing the scheduling of truck deliveries. This would help. We are going to improve the quality of the services. We are now going to boost its operational capacity. We have already started the second phase of investments in Santos. Next week, we are bringing 2 cranes, they'll be delivered in 18 months. At the same time, we're now procuring the extension for the Tecon centers. The previous environmental license was granted on August 6. We're now starting the expansion work as soon as authorities approve this investment phase. We have submitted documents for authorities to approve them. That highlights our commitment to investing in our infrastructure, providing more effective use of resources.

On the other hand, we continue to add value to the company's portfolio based on strategic partnerships in Imbituba and Vila do Conde.

We are going to extract the -- all the value from these assets for both the company and its shareholders.

Let me move on to Slide 2. I'll be showing you some of our leading operation results. We have an increase of volumes in Q2 2018, 266,121 containers.

If we extract the ESA, it's a 19.9% increase for all 3 container terminals. As of Q3 of 2018, volume compression will be taken -- will be made on the same basis.

We don't have to adjust for ESA services. Tecon centers had a 33% market share in Q2 compared to 34.2% in the previous quarter. Our market share was not only bigger, given the impact of the truck drivers' strike in our volumes, we lost market share because we're exposed to cabotage volumes during that period when we compare to our competitors.

I like to remind you that was a suspension -- 1-week suspension of all cabotage operations. Santos Brasil logistics, the storage volume was up 31.1% with a positive impact of contract segments of NVO 16. Volume was up by 12%, 10.6% from imports in the quarter. There was a dual time in the vehicles, 7 days in Q2 '17, 6 days in Q2 2018, partially mitigating the positive impact brought by greater volumes.

On Slide 3, we see a consolidation of terminal activity. We're all impacted by the truck drivers' strike. At Tecon centers, when we analyzed the entire volume for the first quarter, 70% capacity was used.

Our strategy, on a short-term basis for Tecon centers is to leverage operational areas by correcting prices of our cash operations. It's difficult to implement these resources now because there's some idle capacity in the quarter.

On to Slide 4 now. Net revenue is BRL 230 million, up 20.7% when compared to Q2 '17. There was a 14.6% increase in operations in almost 30%. 41% up of revenues for Santos Brasil Logística.

The Tecon center's contribution for the net revenue was 55% in Q2; when compared to Q2 '17 contribution was 61%. The growth of other company units, especially in Logistics, explain a smaller take of the Santos Tecon.

In Q2 2018, there was some extraordinary expenses given to labor liabilities, BRL 21 million, part of the reorganization that is currently underway. In Q2 '18, we had a consolidated EBITDA in the old methodology, BRL 21.9 million, excluding extraordinary data or one-off expenses, the total was BRL 27 million, 11.7% margin.

We had net losses of BRL 3.9 million this quarter compared to BRL 22.7 million in Q2 '17.

Finally, I would like to point out the cash position is BRL 247 million. Low financial leverage, our net cash is BRL 29 million in the quarter, and EBITDA rate is minus 0.31x.

These are our initial remarks as to the results in Q2 2018. We are here, Antônio Carlos and Marlos Tavares, we're available for questions. And I would like to thank you for attending this conference.

[Operator]

[Operator Instructions] The first question comes from Samuel Alves from BTG Pactual.

[Samuel Alves, analyst]

I have actually 2 questions. The first one is about storage. You reported an important revenue growth for that division, right? Now in Q2, especially when compared to Q1, in terms of -- the time was bigger because of the truck drivers' strike I understand. Can you elaborate on the outlook in that area for storage, especially in terms of retention for the second semester actually?

Let me ask you a second question, if I may. Could you please update us on the negotiations as to the [indiscernible] -- do believe that contract will be renewed with better commercial conditions?

[Antônio Sepúlveda, executive]

This is Antônio Carlos. We expect an improvement or improvements in Q3 when compared to Q3 last year. Q2 was somewhat impacted by the truck drivers' strike. And right after the strike ended, we still ran into problems. Some ships bypassed the port. We believe Q3 will be better, especially when compared to Q2 and -- in 2018, and also in comparison to Q3 last year.

We have the PIL shipyard now. And we have services from Asia, it's going very well, and we expect better results in storage. In regards to the [indiscernible] contract, we have already started negotiations. It's the largest shipyard, the largest terminal, and we have a lot of synergies to explore, and we are working on that platform to add value to both companies. And I think it should be concluded by the beginning of next year.

But more important than that contract, specifically, is the overall trend for the port. We have [ Amber ] port coming in, there were some impacts and then with the crises 2013, '14, '15, '16, the balance between supply and demand ended up taking longer than expected, despite this minor GDP growth for the country between 1% and 2%. The port is growing, it's going to recover what it had lost. Prices will go up, margins will be better, this is all very positive. Despite the contract, the outlook is very promising.

[Operator]

The next question comes from Pedro Pascoal from JP Morgan.

[Pedro Pascoal, analyst]

Can you please update us on the asset sales? That will be very helpful.

[Daniel Dorea, executive]

Pedro, this is Daniel. There are ongoing negotiations with some companies involving both assets I've mentioned. The due diligence is takeoff now, and we're just concluding, just answering or clarifying any remaining questions. But we have summer in Europe in August. That slows down the timing. Some interested parties are from there because it's only obvious, strategic players from this industry for are from Europe. So we expect to conclude those negotiations by picking the right partner that can add more value to one or more assets and draft the structure that is better suited to us. And we may even strike an exclusivity deal or something better structured. So this is the timeframe.

[Operator]

Since there are no further questions, we conclude the Q&A session. I would like to turn over the floor to Mr. Dorea for his final remarks.

[Daniel Dorea, executive]

I just want to say thank you, and we hope to see investors and analysts in Q3 results conference call, and we hope to see better numbers then. And we believe they will be better. Good morning. Thank you.

[Operator]

This concludes our conference call. Thank you. Have a good day.