Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2018-Q3

[Operator]

Good afternoon, and thank you for waiting. Welcome to the Conference Call of Santos Brasil Participações for the Earnings of Q3 2018. We have with us today -- we have the -- we have Mr. Daniel Pedreira Dorea, CFO; Mr. Antônio Carlos Sepúlveda, CEO; and Mr. Marlos Tavares, COO; and Marcos Magalhaes Tourinho, Chief Commercial Officer.

The event is being recorded. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through Santos Brasil Participações' website at http://ri.santosbrasil.com.br, where you will find the presentation. You will control the slides. The replay will be available right after the conclusion. [Operator Instructions]

Before proceeding, we would like to mention that forward-looking statements are based on the beliefs and assumptions of Santos Brasil Participações' management. Projections, operational, financial goals are based on assumptions and beliefs of the management of the company as well as information currently available to Santos Brasil Participações. Points about the future are not guarantees of performance. They involve risks and uncertainties. They refer to future events, and therefore, they depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, sector conditions and other operational factors may affect the future results of Santos Brasil Participações and may lead to results that will differ materially from those expressed in these future considerations.

Now I'd like to pass the floor to Mr. Daniel Dorea, who will begin the presentation. Sir, you have the floor.

[Daniel Dorea, executive]

Good morning to all. In Q3, there was an improvement in all the business units of Santos Brasil due to the peak season. The growth in the movement of containers was in line with our expectations, whether it be in quay operations and also bonded warehouse. The operational performance of the company continues with strong recovery with growth in revenue, expense and cost control and increase in operational margins.

As of July, when the impact of the truck driver strike became normal, we observed a more recovery in the port activity with the Port of Santos reaching a volume of 690,000 containers in Q3, an increase of 3.4%. Analyzing year-to-date, the 9 months this year, the global movements in the Port of Santos was 1.9 million containers, which represents a growth year-over-year of 6%. This corresponds to 3.1 million units and 75% of the capacity of the port. Our expectation is the continuous growth of volume in the Port of Santos.

Considering all the Tecon Santos, we reached 1.1 million TEUs moved from January to September, which on an annualized base, would represent approximately 72% of the terminal's capacity. But in Q3, there was a small drop in relation to Q2 2018, allowing a better mix of containers, full containers.

The storage of containers in our operations in Santos is also a highlight. We see a growth not only in volume, but also in dwell time above 14 days and a retention index of container, full containers, of 58%.

On the other hand, in Santos Brasil Logistic, apart from repricing several contracts, we intensified the rendering of services in a more integrated chain and, thus, better margins and loyalty.

In relation to the investments of the company, during Q3 '18, we really -- we bought 2 new containers, 30 terminal tractors, 30 semitrailers and trucks with the -- after getting authorization. We are also in a -- we have a bid for the expansion of the quay. We believe that civil works will begin as soon as the authorities approve the project.

In Tecon Vila do Conde, after investments made in Q1 2018, with the acquisition of new equipment, we continue with the paving works and renovation of the infrastructure in the terminal. These investments made until September, together with improvements in the management, allowed us a growth of 26.5% in the volume of containers moved. And we announced a historical record at Tecon Vila do Conde with a volume of 10,602 containers moved.

Finally, yesterday night, we divulged a material fact. We renewed the partnership, commercial partnership with Hamburg Sud, Aliança and even Maersk Line now in force until March 31, 2021. We see this event as positive consolidating years of a successful commercial relationship, an excellent service and synergies that the largest container terminal in South America can offer to the world leader in navigation.

Now we'd like to talk about operational indicators beginning with Slide #2. There was an increase of 21.1% in the volume moved in the quay operations of the company in Q3 '18, totaling 288,798 containers. In the Port of Santos, Tecon Santos recorded a market share of 35% in Q3 '18, a little below 36.6% in the previous year same quarter, but well above the 30.3% reached in Q3 '17. So we see here, at Santos Brasil Logistica, the volume of warehousing went up 15.9%, together with the growth in the volume of import containers in Tecon Santos.

The volume of TEV dropped 24.2% due to the drop in exports of -- export of vehicles to Argentina, which is going through an economic crisis. On the other hand, we had an improvement in the mix of imported automobiles, which represented 26.8% of the total moved in the quarter, with a higher dwell time in TEV of 5.8 days. The mix also improved and with the operation of -- with greater margin than in the case of light vehicles. Also, I would like to highlight, for example, vehicles that were transported and also to the Port of Pecém.

On Slide #3, we see that the growth of the movement of terminals continue solid, especially in July and August with a small deacceleration in September. In the movement of full containers in transportation in long periods, export represented 56% and imports 44%.

Now going on to Slide #4., and we will see the financial highlights. The net revenue, consolidated net revenue of Santos Brasil reached BRL 255.7 million in Q3 2018, which represents an increase of 23.3% in relation to Q3 2017. There was an increase of 24% in the revenue of Port Terminals and 23% in Logistics. We'd like to highlight an increase of 14% in the revenue of the Vehicle Terminal in spite of a drop of 24% in the volume moved, especially to a better mix and heavy vehicles, together with the growth in dwell time, as shown in the previous slide. The contribution of Tecon Santos in the net billing of the company was 55% in Q3 '18 in comparison with 56% in Q3 '17.

In the current quarter, we had nonrecurring expenses due to severance payments worth BRL 7.9 million and nonrecurring gains of BRL 2 million as a result of our reversal of labor lawsuits. The company also finished Q3 '18 with a consolidated EBITDA. In other words, expenses with leasing of $40 million. Excluding nonrecurring effects mentioned, the recurring pro forma EBITDA in the quarter reached BRL 45.9 million with a margin of 18%. We had a net profit of BRL 9.1 million in the quarter in comparison with a loss of BRL 1 million in Q3 '17.

We'd like to highlight our cash position, BRL 247.7 million, and the low financial leverage. We will finish the quarter with a net cash of BRL 38.9 million, representing a net debt over pro forma EBITDA of 0.37x.

In 2019, according to our expectation, we should continue to grow in terms of operations with a greater profitability, not only due to an improvement in the top line, but also due to the continuous control of expenses and costs and a higher efficiency in the services rendered by the company. The company is prepared to really continue investments in Tecon Santos and Tecon Vila do Conde with promising returns, allowing the company to maintain its leadership in port infrastructure in Brazil.

These were our comments, initial comments that we had concerning Q3 2018. And now we are available, ladies and gentlemen, to clarify any points. Thank you very much for participating.

[Operator]

[Operator Instructions] The first question, Samuel -- Mr. Samuel with BTG Pactual.

[Samuel Alves, analyst]

My question has to do with the material fact that you announced yesterday night. You were able to renew the contracts with -- also with Maersk. Two questions. The first, could you give us more details about the prices in this new commercial agreement? I know that it's confidential, but if you can give us an idea of the prices, this is important. And the second question, from what we understood, you had a renew and a better condition at Tecon Santos. Do you believe it -- there is a high probability of a rearrangement of lines in the Port of Santos that could result in additional volumes for Tecon Santos as of 2019?

[Marcos de Magalhaes Tourinho, executive]

Mr. Samuel. Marcos Tourinho. Unfortunately, as you mentioned, we have a confidentiality agreement with Maersk. So the contract terms concerning prices, unfortunately, we cannot comment in detail. What we can mention is that we are continuing the partnership. This is very important for us. The guarantee of this partnership, the continuity of this long relationship, which was expected, is natural. Since there is a great interdependence, we depend on the volume of the largest company here, Maersk, and they depend a lot on the capacity of the largest terminal here on the East Coast of South America. So it was a date that had everything to become a marriage. What I can tell you is that on the part of Santos Brasil, there is no guarantee of capacity nor exclusivity in volumes. Concerning the rearrangement of the line, yes, there is the possibility of changes in the configurations that this is one of the reasons of the confidential agreement with Maersk. They are still in a negotiation process concerning some services, and our expectation is that there will be an increase in volume in Tecon Santos. We expect this. In general terms, maybe with the service in the next few months, maybe we might have more information to give you.

[Operator]

Our next question comes from Mr. Raphael Frankel, Bradesco.

[Raphael Frankel, analyst]

Could you comment on the current status for renovation renewal of the contract of Tecon Santos?

[Antônio Sepúlveda, executive]

Raphael. Carlos Sepúlveda. Well, you - we -- the contracts -- the renewal is done. It is in force. We were able -- we don't have approval for the executive project in the case of Tecon Santos. We -- there's -- we have some items that are considered emergency. We are in touch with them, and we have already invested BRL 100 million. We have another group of investments totaling around BRL 150 million. We believe we will receive the approval in the next few days. What we imagine is that by the end of the year, especially the agreement with the TCU, they will approve our investment plan. Then we have a request not to alter, but to carry out these investments in phases. This is still being analyzed by the secretariat. There were discussions about the decree, and Tecon told them that this continues. There's an article that talks about having the investments in changes with -- we have many investments in progress. Our forecast is that there will be an increase in volume in 2019, 2020. So these investments are truly necessary. Our expectation is that we receive the permission for investment in phases, and thus the yard investments may be delayed. So these would -- these investments would happen later on, soon. We are very optimistic. It took longer, it's true, than we expected due to the decree that the government enacted for ports.

[Operator]

[Operator Instructions] Our next question comes from Mr. Pedro Pascoal from JPMorgan.

[Pedro Pascoal, analyst]

We talked about the sale of the secondary assets until the end of the year. Would you give us an update, your expectations?

[Unknown Executive]

We were not able to hear the question.

[Pedro Pascoal, analyst]

Can you hear me now?

[Unknown Executive]

Okay.

[Pedro Pascoal, analyst]

Do you have any update on the sale of secondary assets, Tecon Vila do Conde, Imbituba? You were supposed to announce this by the end of the year. Does this continue?

[Daniel Dorea, executive]

Daniel speaking. The expectations continue. We continue to wait. It is -- I can tell it's within the window, the time window that we estimated. We -- our expectation is the same, as I had informed, to finalize some due diligence processes that are in progress by the end of the year. Of course, we can't give you many details. But being objective, we're within the expectation window, within the window. As soon as we have new facts, we will communicate immediately.

[Operator]

[Operator Instructions] We will now answer the questions that arrived via webcast.

We have a question here. The question is can you give us more details about the transportation of vehicles? When did it begin? And what is the shipping lines mean?

[Unknown Executive]

We had 2. It was Key Line -- "K" Line, Ford and Fiat are using. The expectation is that this should continue with -- the pilot project was successful, transportation of vehicles by ship, although we don't have a definition for regular routes. This should help in the volume in the next few months. Since we're suffering with the crisis in Argentina, 50% of our volume concerning vehicles are vehicles going to Argentina. So this had a negative impact on volume. And if there is continuity, this will really help us in imports and exports to Argentina.

[Operator]

[Operator Instructions] We'd like to conclude the Q&A session. Now I'd like to pass the floor to Mr. Daniel for his final comments. Sir, you may proceed.

[Daniel Dorea, executive]

Once again, we'd like to thank you all for participating. We hope to meet you again in Q4. We will have a meeting with the market analysts and investors on November 30, 2018, November 30. It will be a pleasure to have you in our meeting.

Thank you very much.

[Operator]

The conference call of Santos Brasil Participações is concluded. We thank you for participating. We wish you a good afternoon.