Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, everyone, and thank you for standing by. Welcome to the Santos Brasil Participacoes' Second Quarter '21 Conference Call.

With us here today, we have Mr. Antonio Carlos Sepulveda, the Chief Executive Officer; the CFO and IRO Daniel Pedreira Dorea; and the Chief Commercial Officer, Ricardo dos Santos Buteri.

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. Participants may view the slides at their own convenience. The replay will be available shortly after the event is concluded. [Operator Instructions]

As a reminder, we would like to mention that forward-looking statements made herein referring to the beliefs and business assumptions of Santos Brasil Participacoes' operating and financial goals are based on the beliefs of the management as well as on information currently available to the company. They involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur.

Investors and analysts should understand that macroeconomic conditions, industry conditions and other factors could also impact the future results of the company and lead to results that differ materially from those expressed in these forward-looking statements.

I would now like to give the floor 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. I hope that you're all well, and I begin of course by thanking you for your participation in one more conference call of Santos Brasil.

We ended the first half of 2021 with sound and consistent results, both financially and operationally. There is a conversion of 3 fundamental factors for this, high volumes, a balanced cargo mix and a price recomposition. These 3 variables are on the rise, while costs are under control. This dynamic that we mentioned in 2020 had a clear sign in the fourth quarter of last year.

In the specific case of Santos Brasil, we are not necessarily benefiting from a weak base of comparison impacted by the pandemic. So much so that if we compare the figures of the second quarter 2021 with the same period in 2019, we see a substantial growth, an increase of 43.5% in net revenues and 152% in EBITDA.

Let us focus on volume in the 3 container terminals operated by Santos Brasil. 337,000 units were handled in the quarter, an increase of 31% if compared to the second quarter 2020. Tecon Santos alone recorded an increase of 34% year-on-year, surpassing the accrued growth of Porto de Santos, and we gained market participation. Our market share reached 40% in the first semester of 2021, possible given the high flow of imports at the port and our greater exposure to services that handle imported containers.

We also contracted 2/3 of the skills in this period. And the effect is completely beneficial for the company, not only because of the amounts per se, but because imports offer us a quality revenues and we have balance cargo helping us in the results of Santos Brasil Logistics. The outlook is for this balance to continue on.

In the other port units, I would like to underscore the 13% growth of Tecon Vila do Conde in container handling in the second quarter 2021, with a highlight for the shipment of mineral and agricultural commodities.

The vehicle terminal had a growth of 293% in the second quarter 21 vis-a-vis the second quarter '20 with greater export volumes as well as import volumes. At the Imbituba port, our container terminal was stable year-on-year, but in the general cargo terminal, there was a growth of 25% this quarter, once again, driven by shipments of food and pulp.

In Santos Brasil Logistics, the warehousing operations grew 62% in the quarter of 2021, driven by the strong growth of imports at the port of Santos. There is a process to replenish inventory in industry and the retail market to service the domestic consumption growth, which has enabled us to work with integrated logistics operations going through warehousing of imported cargo, but also hiring bonded warehouses, picking/packing, cross-docking, distribution and even e-commerce. Now these are the cargo mix and volume factors. Not less important and perhaps more outstanding is the new prices of our services, based on the renegotiation of contracts with several company customers, be they shipowners or cargo-owners.

The average ticket improved in the key operations and in warehousing. The expansion of EBITDA and margins are very clear. BRL 147 million reported for EBITDA, the highest value per quarter since 2013, a threefold growth that of the second quarter '20 and a twofold growth compared to the second quarter '19. And the volume of the second quarter '21 was only 5% higher than that operate in the same period 2019. The EBITDA margin grew 20 percentage points between the second quarter '21 and the second quarter '20.

We go on to our financial highlights. Consolidated net revenues for the company grew almost 69% in the second quarter 2021 vis-a-vis the second quarter 2020, reaching almost BRL 380 million. The company EBITDA for Santos Brasil amounted to BRL 148 million in the second quarter '21 with a 38.9% margin with Tecon Santos and Tecon Vila do Conde already going beyond that threshold of 40% EBITDA margin. And in the bottom line, the company reported net income of BRL 60.5 million, inverting the net loss observed in the second quarter of BRL 9.4 million. With this, net income reached BRL 91.3 million at the close of the first half of the year.

Throughout the second quarter, we invested BRL 56.9 million in Tecon Santo in extension work, deepening and reinforcement of keys. And the vehicle terminal, we think this will be fully completed until the fourth quarter of this year, however, with partial deliveries in the third quarter. Disbursement should speed up in the second semester and reach the level of BRL 250 million or BRL 300 million.

Regarding cash, we ended the quarter with BRL 1.1 billion in cash and cash equivalents, with a net cash of BRL 688 million, a very low leverage rate. But our expectation is for reduction of this cash as we invest this capital in new businesses that will expand the port assets of the company. There is an opportunity for M&A under negotiation, beside studies to also participate in new auctions fostered by the infrastructure ministry.

And speaking about this, regarding the 3 net bulk terminals that we won at the auction of Port of Itaqui, we have paid off the initial grant payment and this week we will be signing the contracts. Our expectation is to continue with the brownfield terminals and begin the services under the flag of Santos Brasil until the first quarter of 2022. We're working towards this, setting up a first-line team to do this.

To conclude my remarks, I think it is important to mention the update and the guidance for 2021. We have reviewed the lines for volume and EBITDA with an interval of BRL 530 million and BRL 580 million vis-a-vis the former forecast, which is BRL 400 million to BRL 450 million. The figures of the first half of the year surpassed our expectations and our forecast for the rest of the year is equally positive.

There are two foundations for us to continue in the coming exercise. The company has prepared for this. We have strengthened our competitive edge. We have invested in operating excellence. We have reinforced our personnel, and we're ready to capture opportunities going forward.

With this, we are at your entire disposal to begin the Q&A session.

[Operator]

The floor is now open for questions. [Operator Instructions] Our first question is from Lucas Marquiori from BTG Pactual.

[Lucas Marquiori, analyst]

Congratulations for the result. We have 2 questions at our end. I know that Antonio is with you for the strategic part. You referred to the updating guidance and what draws attention, of course, is the incredible boost in the figures for the year. My doubt is, what is it that has maintained the volumes handled at the port with this growth that is much higher than the previous guidance? It would be interesting to understand the drivers. We see that the maritime navigation scenario is still very strong with historical peaks because of global trade. Therefore, which is your vision and what will happen in terms of the commercial update because of this dynamic?

The second topic refers to the participation. We see November very filled in with assets. You have already entered the carriage of net bulk. You have a new pricing of your present day portfolio. Which other assets would have a best fit for your portfolio? Would it be Santos or the creation of a hub in the northeast? Therefore, if you could speak about the main focus of your projects, we would be very appreciative.

[Ricardo dos Buteri, executive]

Lucas, good morning. This is Ricardo Buteri. And thank you for the questions. Let's speak about the first question that refers to the handling of volumes and commercial projects. It's true that if we consult statistics, growth has been very strong, and it is not different from the Port of Santos. While the Port of Santos grew 18%, Santos Brasil grew 29% since January to the quarter.

So there is a stock replenishment, and this volume will maintain its trend for the period beginning from August to December. We had a growth of 63% in the volumes for export using regular services with Santos Brasil and because of demand that come from a growth of capacity and a demand peak that because of our operating excellence, investment in automation and personnel, we're able to balance at the Port of Santos. In terms of volumes, the trend is to continue at the level at which we are operating. Since the second quarter there is no visibility of a weakening of these volumes and demand until the end of the year.

I would like to add that we are dealing very well with the peaks that we have observed because the port capacity cannot be produced overnight. So we have been working on capacity significantly since the end of 2020.

I would like to underscore here that we're doing this also for 2022. We have a project to reach $400,000 of capacity until the end of the year, and to capture all possible opportunities. And our growth has been almost twofold the growth of the port, and we're capturing all of this growth. This is our strategy. And of course, we are able to present positive results, besides the new pricing that has been ongoing.

[Daniel Dorea, executive]

Lucas, this is Daniel speaking to you. For your second question on the new projects and new auctions going forward, let me give you a more qualitative viewpoint and then I will speak about the more specific points.

Nowadays, Santos Brasil has a very strong portfolio in containers. We're the main container player in general cargo and we are now part of the liquid bulk carriage. And we want to be as good as we are in containers, and we're going to strengthen that vision of our port asset portfolio that we have at Santos Brasil.

What has taken us to the liquid segment was a conversation with the Brazilian agri business sector that consumes a great deal of fuel. In Itaqui, the main demand goes to the center west and [ Matopiba ]. And then the competitive edge is very clear in Brazil, which means that we may be analyzing, working with other cargo that will benefit from the Brazilian agri business ecosystem.

Our first bet was in the liquid segment, and it is natural to have carried out an in-depth study of the market, and we have participated in the auctions of the Itaqui Port. And because of our first-rate team, we're not going to restrict ourselves to that cluster. And because of this, we're looking for opportunities, the auctions that are being held presently in Santos and others and eventually those of Paranagua.

In the third quarter onwards, we have a new business team that has been set up. And it is this team that will be working on this type of business. It's an extremely well-prepared team. Now everything will depend on the makeup of the auction, the auction for Santos. We would like to remind you, it is a very large area operated by Transpetro. And the market in Santos is different from that of Itaqui. So the situation is very competitive. Our studies continue to observe what is happening.

And one of the company's strategic guidance is to have the same relevance that we have with containers in liquid bulk. This is what we desire. We want to be very big in Brazil with net bulk for liquids as we are with containers. Now each project has its individual details. And we're working with open bids. So we have our ROIC thresholds in terms of the size of operations. Perhaps this will not work out. But we're carefully serving this, and this will give us the security to enter as we did in the project of Maranhao.

And you can be sure that we're going to look at all bulk opportunities on the coast in bids as well as through M&As. This is part of our radar presently. We have taken the first step and the first step is clearly sedimented.

[Lucas Marquiori, analyst]

Antonio, that was very clear. If you allow me a very brief follow-up, referring to what Ricardo said about volumes. In the case of Tecon Santos, if there's any line that is standing out, the market share of Santos compared to the rest of the port, is this the correct reading of this?

[Antônio Sepúlveda, executive]

Lucas, your understanding is correct. The great volume of percentage received by the demand is a given, but Tecon has also stood out. Well, now the main line here is the agri business for exports. And these are the lines with a gain in market share, the demand that we have and of course, the team that we have.

Lucas, the world is extremely active, heated with a great deal of imports. There's liquidity among the governments, a great deal of capital and money. And we mentioned this peak at the beginning, high freight rates and the demand is very heated in the entire world. So we're surfing this wave. We're prepared of the terminals. We're quite ready for this. And our expectation for the near future is highly positive.

[Lucas Marquiori, analyst]

Congratulations.

[Operator]

Our next question is from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

I have a question with 2 different points. First, referring to your pricing results with a substantial increase in price per book rate. I would like to understand if you have implemented this for Maersk as you expected for this year?

And secondly, if there was another service, a large service with readjustments or with an impact because of the peaks in terms of the Itaqui terminals, I would like to have some more color in terms of results, profitability expected, especially in terms of the brownfields for the time-being.

[Ricardo dos Buteri, executive]

Thank you very much. This is Ricardo speaking. Referring to your first question, yes, as we sign a new contract with Maersk since April 1 up to present, all of the agreements and all of the rates and types of services are rigorously following the new agreement that was signed since April up to present.

Regarding the other lines, it means speaking to you about other clients because each shipowner has different lines, with different destinations for imports and exports. Yes, we are renegotiating the contracts that have matured as the contract for Maersk. We have a readjustment being practiced up to October of 2021, which means that all of the contracts that are overdue since April of this year until October will be renegotiated with a more competitive pricing and with the rates of other ports that already delivers throughout Brazil.

[Unknown Executive]

Guilherme, in terms of Itaqui, what is it that is happening there? What is it that we still have not released in terms of figures for the market? And I have said this on other opportunities. These are the ones that were part of our projections for the bid. And basically they resulted from the call to bid. This in the call to bid, all of these terminals are greenfields, although the greenfields are in operation, they are not part of the port. So we adopted a more conservative scenario.

Now there are negotiations underway at present so that eventually we can acquire these tanks from the present lessees. And of course, this will completely alter the scenario we had set forth to participate in the auction. And what is on the table is very interesting. And this will have an impact on CapEx as well as on our returns.

We're updating this, analyzing the figures, negotiating the acquisition of these tanks. We're conversing with several distributors, including the present day lessees. And I would not like to release a figure, and I apologize for this, because we still are doing our homework before we can release a guidance or something similar so that you can incorporate this to your model. Any figure at this point would be a little hasty in this call. And because of this, I request your permission not to release a figure.

[Guilherme Mendes, analyst]

No, there is no problem.

[Unknown Executive]

Now in the third quarter, we will have more clarity on this. We're negotiating the contract. And then we will take on all of the key features of the lease, and this will give us greater clarity. And throughout the third quarter, we will be able to speak about this agreement.

[Operator]

Our next question is from Lucas Barbosa from Santander Bank.

[Lucas Barbosa, analyst]

Congratulations for the results and for the guidance. My question is on the automotive sector in Tecon Santos. Of course, the automobile industry is in Sao Paulo, and they export considerably. Could you explain how representative this segment is for the Port of Santos? In the next 12 months, there should be an increase in the production of automobiles, and perhaps there will be an increase in the segment for you.

[Unknown Executive]

In terms of imports and very generally, the great volume for the Port of Santos is concentrated in what you mentioned in the automotive, chemical and pharmaceutical sector. And it is very relevant in the last quarter up to present, we had a 2-digit growth. Now all of this issue of imports for the segment represents approximately 40% of the volumes imported if automotive is significant. Just to give you an idea, when we look at the semester and the vehicle terminal, we went from 47,000 vehicles to 54,000 vehicles for exports. So it's showing an increase of 16%, very clearly pointing to the fact that there has been a resumption of the automotive activity, that grows through us, not only for the vehicle terminal but also for containers.

[Operator]

Our next question is from Victor Mizusaki from Banco Bradesco BBI.

[Victor Mizusaki, analyst]

Congratulations for the results. I have 2 questions at my end. The first about the second semester. When we look at the background of Santos Brasil, normally, we see a seasonality. The third quarter tends to be stronger than the fourth quarter. Last year because of COVID-19, the fourth quarter ended up being stronger. My first question is if you have visibility in terms of the seasonality for the semester?

The second question refers to your M&A strategy. If you could give us further details in terms of your negotiations and remark on the news that we had last month of your possible partnership.

[Unknown Executive]

Thank you very much for the question, Victor. In terms of our vision of the second semester, the second semester is always very significant and it has attained levels that we normally begin to see as of the third quarter. What I can say is that the third quarter we'll maintain this resumption of demand above 100,000 containers that we're carrying out per month. This demand has no sign of dropping, and it seems that it was anticipated. This is what happened. And the trend is that the third quarter will continue on. We're going to continue working with these volumes that are already very steep of 100,000 containers at Tecon.

[Unknown Executive]

Victor, if you allow me to also add to this. I'm sorry, I was on mute. I was thinking about the commercial part. We have a volume. Ricardo already gave you the figures, but the cargo mix is extremely healthy. And this also will bring about a financial impact that is very interesting. I believe that the third quarter will continue to be strong. So let us remember volume plus the cargo mix and the recomposition of price that we mentioned at the beginning of the call. These are 3 convergent factors.

Now to respond to the question that was made publicly here. What is happening is something that I have already mentioned in our conversations with the market. We're looking at a large amount of things. We're looking at liquids. We're looking at opportunities in the container market, logistics, which is always part of our radar and something that I also said as a response to Lucas.

We are interested in participating in this chain, and our strength is in the chain fertilizers, for example. Well, you will read this in our release to the market. Several opportunities. We converse with all of the relevant players of the segment, and we continue on forward. But we go beyond what we have already communicated to the market.

[Operator]

Our next question is through the web from [ Mr. Auto Neto ]. Which is the percentage of type of product in your handling of the agri business compared to the automobile business?

[Unknown Executive]

Thank you for the question. When we speak about the agribusiness sector, its representativity, if we look at the first semester of 2021, it is 25%, the automotive sector, 21%, this for agro and automotive in the Tecon Santos balance.

[Unknown Executive]

Our next question is also via web from [ Alejandro ]. Thinking about the company's strategy, how do you assess a potential joint venture?

[Daniel Dorea, executive]

Daniel, this is me speaking. We will continue in the lines of the response given to Victor Mizusaki from Bradesco BBI. What we can mention is what is in the market release that we sent out a few weeks ago. We do like the agribusiness sector. And if there is the opportunity, we would like to participate in that chain. But regarding the specific case mentioned, there is nothing beyond what was already communicated to the market.

[Unknown Executive]

Our next question is also via web from [ Alejandro Danao ]. Thinking about the company's strategy, how do you assess a potential JV with -- oh, no.

[Daniel Dorea, executive]

No, I think that's the question that I just responded to. I think it came in twice. We can go on to the next question. If you could, please.

[Operator]

[Operator Instructions] At this point, we would like to end the question-and-answer session. We will return the floor to the company for the closing remarks. You may proceed, please.

[Daniel Dorea, executive]

Thank you so much for your participation. We hope to see you again in the release for the third quarter 2021. Please be well.

[Operator]

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