Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, everybody, and thank you for holding. Welcome to the Santos Brasil Participações Conference Call to release the results for the Third Quarter '21. We have with us today the company's CEO, Antônio Carlos Sepúlveda; the Economic Financial and IR Officer, Daniel Pedreira Dorea; and the Commercial Officer, Ricardo dos Santos Buteri. We would like to inform you that this event is being recorded. [Operator Instructions] Ensuing this, we will go on to the question-and-answer session when further instructions will be given.

[Operator Instructions] This event is being broadcast simultaneously through Internet via webcast and can be accessed at ri.santosbrasil.com.br, where the respective presentation is also available. You can flip through the slides at your own convenience. The replay of this event will be available soon after closing. We would like to remind the webcast participants that through the website, they can post their questions to Santos Brasil.

These will be responded at the end of the conference call by the IR area. Please bear in mind that the forward-looking statements made during this conference refer to the business outlooks, projections, operational and financial goals, and they are based on assumptions and promises of the company management, as well as on information currently available to the company.

These forward-looking statements are no guarantees of performance, and they involve risks, uncertainties and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, sector conditions and other operating factors could affect the future results of the company and lead to results that differ materially from those expressed in the 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]

Hey. Good morning to all of you. I hope that you are well, and I thank you for your participation in the Santos Brasil conference. With me today, Antônio Carlos Sepúlveda, the CEO; and our Commercial Officer, Ricardo dos Santos Buteri. Santos Brasil presented a sound and consistent result in the third quarter '21. From the financial and operational viewpoint, we continue to have a balanced container mix with a good import volume and with better prices in queue and warehouse operations. The numbers support this analysis, and frankly, the company's performance could have been even better were it not for the bottlenecks in its logistic and supply chain around the world, which have caused congestion in major ports in Asia, Europe and the United States due to limited capacity and supply of ships to meet the heated global demand.

These effects ended up restricting the potential demand of the so-called peak season. Therefore, monthly volumes that we had expected to exceed the 100,000 container mark ended up being lower in July, August and September. This glass have full aspect, it's not that there is a cooling off of demand. We can imagine that volumes will continue to be good throughout the fourth quarter 2021. Note that in the month of October, Tecon Santos handled about 94,000 containers. Analyzing the results of the third quarter quantitatively, the volume operated in our 3 container terminals reached 321,000 units, representing a growth of 26% if compared to the third quarter '20. This is a mark that is only second after the third quarter of 2012.

Tecon Santos even recorded a 31% year-on-year increase, surpassing the growth in container movement at the Port of Santos, that was 13%. The company's market share stood at 40% for the 9-month period with the benefit of a cargo mix with a good flow of imports in the other port terminals, It is worth noting the 11% growth in container movement at Tecon Vila do Conde in the third quarter driven by shipments of mineral and agricultural commodities. The vehicle terminal presented an increase of 9% when compared to the third quarter '20, a growth both in exports and imports. We even experienced a higher share of heavy vehicles in the quarter, stimulated by the import and export of agricultural implements and yellow lines such as tractors and harvesters generating higher margins at the TEV warehouse operation.

In the Port of Imbituba, our container terminal showed a drop of 13% year-on-year due to the lower volume of cargo transported by a cabotage. At Imbituba, we decreased the volume handled by 15% in this third quarter influenced by the lower volumes of pulp and food shipments. Santos Brasil Logistic on the other hand had a strong performance with the number of containers growing 90% in the period derived from the growth of imports in Port of Santos. As a result, the warehousing operations and other integrated logistics services continue to be in high demand benefited from the growth in imports and the retail restocking.

Let's move on to the financial highlights for the third quarter. Consolidated net revenues grew 80% vis-a-vis the third quarter 2020, reaching BRL 397 million, EBITDA totaled BRL 152 million in the third quarter '21 with a consolidated EBITDA margin of 38.3%, and the company's 2 main terminal's margins reached 36% at Tecon Vila do Conde and at Tecon Santos, the EBITDA margin almost reached 50%.

Look at the strength of operating leverage when our business combines productivity with a balanced business environment. In the last line, we recorded a net profit of BRL 67 million in the third quarter reverting the loss of BRL 5 million in the same period last year. In the 9 months, accumulated net income totaled BRL 158 million. This result reflects not only the volumes and the mix of cargo observed, but also the general improvement in prices practiced and negotiated with the company's main customers. The full annual effect we will see in the next fiscal year.

A few lines regarding the CapEx. During the third quarter, the company invested BRL 88 million, of which BRL 42 million related to the payment of 25% of the concessions of the bulk liquid terminals in the Port of Itaqui that we acquired in April last year. The investments in expansion and modernization of Tecon Santos totaled BRL 37 million in the third quarter. The works are expected to be concluded this year with a new berth ready to operate in the first half of '22 after the dredging services are completed, and, of course, we will have a due approval for operation. In the first [ 9 months ] of 2021, Santos Brasil invested a total of BRL 182.5 million, 6% more than in the same period last year. Financial leverage remains low, and the company ended the third quarter with cash of BRL 1.5 billion, negative net debt of BRL 717 million.

We remain firm in identifying good businesses to allocate this excess capital in order to expand our portfolio of ports and logistic assets. There are ongoing M&A negotiations, not to mention the studies that are being conducted in the scope of port auctions announced by the Ministry of Infrastructure.

Coming to the final considerations, I would like to locate you about the liquid terminals at the Port of Itaqui. In August, we signed a leasing contract for the 3 liquid terminals we won, and in sequence, we presented the Basic Implementation Plan of the investment to map the Port Authority.

Additionally, the engineering and contracting process are underway, and all of this has included documentation sent to the National Petroleum Agency. We believe that this brownfield terminals will begin as early as 2022, which would mean anticipating by 2 years, the execution of the original business plan. We are looking forward to kick-starting Santos Brasil [ Liquidoes ]. We are now at your entire disposal. The 3 of us here can now begin the Q&A session, and I would like to thank all of you for participating in that session. Thank you very much.

[Operator]

[Operator Instructions] Our first question comes from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

Carlos, Daniel and others, I have 2 questions on my side. I would like to know about your expectation for 2022 with the present day scenario that we are observing, especially at the Port of Santos and Tecon? Secondly, if you foresee any eventual competition, yes or no? And if you are going to participate in the auction for Tecon?

[Antônio Sepúlveda, executive]

Guilherme, thank you very much for your question. This is Antônio Carlos speaking. First of all, at present at the Port of Santos, there is an unfulfilled demand and demand has not been fulfilled because the ships are waiting in line in the Northern Hemisphere. We speak about the lack of ships and containers, but what is happening in the Northern Hemisphere is heavy traffic from the United States. We are lacking infrastructure, truck drivers and equipment to be able to service this additional demand generated by COVID. What happens in Brazil, we have demand, but we're lacking the ships. And so much so that the volumes of the first and second quarter are very similar this year compared to the seasonality, and we were able to obtain a few additional ships.

Now to respond to your question for the coming year, we expect a minor growth, but not because of the lack of demand, but because of the lack of ships and containers in our market. And we do believe that in the last quarter, we will already begin to observe enhancements and improvement in this scenario, not due to a drop of demand in the Northern Hemisphere, but because of a migration of the unfulfilled demand. Europe and the United States are lacking truck drivers, perhaps they're going to phase out their points and thanks to the control of COVID. United States has already opened up its frontiers and we believe it will become easier to fulfill this excess demand.

It is important to mention that the world, the entire world is working with very low inventories, regardless of what happens to consumption as the logistic flows are established and normalized, we will have a pretty difficult period. We're quite optimistic with 2022, 2023, as well as with a growing demand and an ever more stable flow. Daniel will complement here.

[Daniel Dorea, executive]

Guilherme and others, simply to mention some interesting news disclosed yesterday. The world is producing and marketing as never before. During the pandemic, we had a displacement of demand for services moving to durable goods. Now if you look at September and look back 20 months through the world, we had more than 14 million containers moving around, which is 1.5x what Brazil does every year. So these figures are extremely high. And of course, this shift of services towards durable goods is, of course, due to the pandemic. The service market was highly impacted, and this will not change overnight. Inventories are empty. Demand is increasing. So this is worldwide data that supports what Antônio Carlos has just mended and our expectation for 2022 and 2023 that will continue on strong.

Your second question, the project is still underway at the state agency that does all of the modeling for the government and the state authority was careful in indicating this. From what we see in the press, there will be no restriction in the participation of any terminal. My vision is that the Port of Santos will require greater capacity in a 10-year horizon. And the best option for the port will be to increase the terminals that already exist in our port and others, because the total occupancy or creating another port would not be efficient and will displace a large amount of cargo from the last area that we have at the Port of Santos. So all of this is being highly debated. The creation of this new port that would shelter part of the cargo, but this terminal has not become feasible.

Some of the areas have already been occupied by containers. The situation is not very clear yet. We're quite sure that in the next 5 years, nevertheless, everything will have been properly reseted. And the Ports of Brazil this year will end with a million deals. And we have very closely calculated our capital investment and beginning the next year, we will be able to work with an additional 4,000 TEUs at the port, once again, and this will enable us to market these additional 4,000 TEUs in the best way possible. We are the terminal with capacity to deliver and that will guarantee the growth of the port for the coming 2 years. And we should grow above and beyond the growth of the port because we have a 40% market share, and we're going to be able to absorb more of the market at the port. All of this will be very favorable for us. We're going to follow up on this closely, and, of course, we have our doors open to participate in this.

[Operator]

Our next question is from Lucas Marquiori from BTG Pactual.

[Lucas Marquiori, analyst]

I have 2 points here. Your expectation for 2022, and if you could perhaps remark on the margins? This ramp-up of margin that you delivered in the third quarter, thanks to a highly favorable mix, one of the lowest figures of empty containers ever. What are you expecting for the coming year? Are you going to get to a margin level of [ ZTP ], although there has been a bottleneck in terms of containers, should there be more empty containers, will you require more warehousing? So please remark on this mix of margin and what you expect in terms of profitability? The second question, and if you could comment what is in your map, your route for new auctions, a lot of CapEx will go there? What is Santos Brasil going to do, which are the assets that you have your eyes on?

[Ricardo dos Buteri, executive]

Lucas, this is Ricardo. Thank you for the question. I will respond the first part of the question regarding the expectation for margin and mix in 2022. It is our understanding that in 2022, there will be no great changes in mix. Exports continue to increase because of the low stocks of the industries in the country. We also had a contract negotiation with all of the clients. And this was also a question at the last conference call after April with the negotiation of [ Maersk ], 11 points in our contracts with shipowners were altered and renegotiated in the month of October.

1-year contracts, 2-year contracts with the price well established and the mix between empty and full containers extremely well accommodated with the market that we observe at present. So the forecast is that we will maintain our margins as they are margins of 2021 because of the resiliency and the growth of exports with empty containers coming in and perhaps being a little more aggressive in terms of the import of containers, not only in the first quarter, but for the rest of the year. So the mix will be maintained, the contracts have already been renegotiated, and 2022 is well prepared in terms of negotiations and margins of our main clients. And as Daniel mentioned in his speech based on solid maintenance and growth in 2022, where we will continue to perform as we did in 2021 in terms of containers. I give the floor to Daniel now.

[Daniel Dorea, executive]

Now Lucas, there is an important point here. This year the contract negotiation became valid as of April and we had some contracts that were negotiated at the end of the quarter. So we will have these new tickets in 100% of the cases with new margins. And as we stand, we ended the quarter with a 50% margin, margin that is extending to the terminal part with an increase. Now when you look at the total margins, the EBITDA margin is smaller this -- and the consolidated margin, and this, of course, will penalize us.

Now we're still studying the investment. We're speaking about very large terminals, terminal that is more geared towards fuel and very much geared to Petrobras, who used to be the former owner of this terminal. We're looking upon this cautiously. We still have not concluded our analysis. As you mentioned, it will represent significant CapEx, and we do have other options on the table. So once again, we're looking upon all of this very cautiously, we will make a decision soon.

[Operator]

The next question comes from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

Congratulations for your results. I have 2 questions. The first, looking at the fourth quarter, I -- you mentioned the issue of the new contracts that have just been renegotiated in October. Now when we look at the variation year-on-year of tariffs, there has been a significant increase. And based on our accounts on a quarter-to-quarter increase, we saw -- quarter-to-quarter basis, we saw an increase of 13%. What can we expect as an average price in the fourth quarter because of the negotiations, and if it makes sense to expect that the volumes will also increase? Well, give us your expectation because of the lineup, will the volume remain at 94,000, 95,000 containers per month? And the other question relating to 2022, the possibility of anticipating the Itaqui project for the coming year, what is the CapEx that we can expect for 2022, therefore?

[Ricardo dos Buteri, executive]

Victor, this is Ricardo. I'm answering your question. Now to speak more specifically of the fourth quarter '21, what we can say is that the curve continues to be quite steep -- not steep that goes beyond the 100,000 containers, but performing within that spread of 94,000, 95,000 containers. This is our reality, this is what has been materialized, and we don't expect to have a retraction on that figure in the last quarter of the year.

Regarding the contracts renegotiated, yes, it will make sense to have a higher percentage in the last 2 contracts at the end of October, this is what we saw. And there will be an increase on our margins and tariffs, because we have just renegotiated at the end of October, and this will still perform in November and December.

[Daniel Dorea, executive]

Victor, this is Daniel to speak a bit about CapEx. Itaqui, while we forecast BRL 100 million to BRL 105 million for 2022, and evidently, this will depend on the negotiation that we are undertaking for the acquisition of the tanks installed in 2 of the terminals. Now this is a good solution for everybody involved for the users at the point, we already have service for the former and present lessees because they would have the obligation of uninstalling the tanks, and for Santos Brasil that can begin operations and begin rendering services in Itaqui. This would require civil work and other investments amounting to BRL 100 million or BRL 105 million.

The other part of the CapEx projected for 2022 is for Tecon Santos. We are undergoing our budgetary process in these last few months, we still have not come to a conclusion, but we do foresee the possibility of anticipating the CapEx curve for 2022. We imagine that because of the macro and micro conditions at the Port of Santos would make sense for Santos Brasil to increase its productivity and efficiency and benefit from that dynamic at the port. So this is a discussion we are about to have. I can say that we're considering BRL 400 million for 2022 could be higher perhaps if we foresee that opportunity of anticipating our disbursement curve.

[Operator]

The next question is from Thais Cascello from Itaú BBA.

[Thais Cascello, analyst]

The vision for 2022 has been made very clear through your objective answers. I have 2 questions, the first referring to the result. There has been an accounting restatement of revenues beginning this quarter, they are being looked upon as financial results. I simply want to confirm if we have the right calculation, if our count is correct, your EBITDA at ports was perhaps higher? This is the first question. And the second question with the focus on the short-term, the strike of truck drivers that we saw at the Santos Port, which was the impact for you?

[Daniel Dorea, executive]

Thais, this is Daniel. Yes, there was an accounting reclassification. In fact, for this line item, we charge a price for that service of segregation and delivery to the price. And of course, this is being judicially debated and there are warehouses -- sorry, there are deposits carried out in court. Now all of this refers to a service rendering linked to the operation, and it has always been classified as an operating revenue. Now this year during the third quarter in conversations with our external auditing decided to reclassify this as a financial revenue. So the judicial deposits will now become financial revenues. You are right, we would be reporting a higher EBITDA simply because we are measuring that part of the operational revenues. We have already reclassified everything, and going forward, this will be deemed a financial revenue for Santos Brasil. This is the effect that happened.

[Ricardo dos Buteri, executive]

Thais, this is Ricardo, once again, thank you for your question. I would like to refer to the second part about the truck driver strike. It was an extremely short strike that, of course, has no similarity to what we underwent throughout the country in 2020. It lasted 2 days. Now the port terminals continued unloading normally. We did have a hold-back of containers at some terminals, this has been fully addressed and has gone back to regular.

And this backlog so as not to penalize the clients, if there were an additional cost, all the terminals prolonged the date of withdrawal, especially for those who could not find transportation. And this will not affect or impact the performance of the terminals or the CLIAs or the logistic bonded houses or logistics. We took everything to our secondary area to our bonded warehouses, where we do offer a type of service more than receiving a container and simply unloading merchandise. We do carry out services at these logistic services. It was a very short strike. It will not impact our results, and this 3 or 4 day backlog has been diluted this in the 72 hours after the truck drivers returned to work.

[Operator]

Our next question is from Lucas Barbosa from Santander Bank.

[Lucas Barbosa, analyst]

Carlos, Daniel and Ricardo, congratulations for the results. A follow-up on our auction project, you have spoken that you are speaking about solid terminals, grain terminals especially, which is the type of projects that you're looking on greenfields, brownfields and the contracts that you prefer to sign, would they extend to 5 years or do you prefer to be exposed to shorter term contracts? And after this, I will pose my second question.

[Daniel Dorea, executive]

Hello, Lucas, this is Daniel. Terminals that hold grains, yes, this is part of the strategic field of the company, it's a market that grows, it is connected to agribusiness. There are some new projects and our preference, so to call it is for mature assets, brownfield assets, less greenfield assets, assets that will generate cash that have a higher maturity level, which represents less risk and they will enhance our portfolio. The auction that will be held now, if we focus on auctions, this will happen at the Port of Santos, and we have looked at several assets in that segment of course. If you look at 4 places, you will find Santos Para at -- in the North, and the Porto Sul and the Port of Itaqui, which presently is an interesting port for the movement of cranes that continue southward of Maranhao and Tocantins.

[Lucas Barbosa, analyst]

That was very clear. My second question if you allow me, if you're thinking about a share buyback program, you have a good cash position, good leverage, if this would make sense for you?

[Daniel Dorea, executive]

Lucas, our intention is to allocate this capital for the growth of the company through the acquisition of new assets, participation in new assets through M&A, through auctions. This is why we have gone to the market in September 2020, we issued shares at a price that is lower than the one in the stock market at present. However, this does not mean that we are not attentive to sudden oscillations and price distortions in terms of the appropriate value for the company. We do have cash and we're always very attentive to these movements. This is a analysis that we carry out. But our intention is to continue on with the commitment that we took with our shareholders and with the market of growing the company via an expansion of the portfolio and new acquisitions. That is -- therefore we don't have that intention, and this is the reason.

[Operator]

Our next question comes from the webcast, [ Davidson Nascimento Pereira ]. Which is your projection for the logistic area and which is the general market share of Santos Brasil Participações? And are you going to look for an increase in share, not only in the port, but also in the logistics area in the future?

[Antônio Sepúlveda, executive]

This is Antônio Carlos, [ Davidson ]. Well, the logistic area of Santos Brasil has always been very connected to the container terminal in the Port of Santos, and this is performing well, it is in a good moment, it increased a great deal this year. Our intention is to expand the logistic business and to become more active and to expand throughout Brazil and operate in other terminals. We're looking for the means to do this. We have surveyed some possibilities of inorganic growth through acquisitions, but we're still surveying this.

And there is a conceptual change happening in the world at present. The pandemic has sped all of this up, and it showed the society and consumers how digital purchases work well, and we do want to become part of that market, acting in B2B, working with large companies, large service takers. Now this is our plan and this is what we are focusing on about the growth of market share in the container business, this is something that is inevitable. We are the terminal at Port of Santos with available capacity for coming years. We will capture most of the growth of the port. We're investing for this. You have seen this in our release, we have done this for 2 years attaining BRL 200 million. We foresaw this moment and we're going to make the most of it. You can wait and see a growth in market share in the company in the coming years.

[Operator]

The next question is also from the webcast from Pedro Pimenta, Eleven Research. Congratulations for the results. Can you clarify the scenario of container movements and new ships to face up to the demand at the end of the year with a robust cash, are you going to participate in the auctions scheduled for the 19th, and which is the acquisition pipeline?

[Antônio Sepúlveda, executive]

There will be no change in the offer of ships until the end of the year. I think Daniel mentioned this, we still have that congestion, not at the end of the year or the beginning of the coming year, the change of capacity in South America perhaps will happen in the last quarter of the coming year and more firmly so beginning in [ 2023 ]. This is a scenario that we foresee at present with that congestion of ships in Asia, Europe and the United States.

Regarding the coming auctions, we're still surveying a very specific investment. We understand that the location of these areas is more geared to fuel, it has a direct link with refineries. And this is a very specific asset that requires a high investment. We still have not made a decision. And as it competes with other very good opportunities, we're proceeding very carefully. We will make that decision further ahead.

[Operator]

Our next question via audio is from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

At Santos Tecon, that additional volume has it already been contracted?

[Antônio Sepúlveda, executive]

Guilherme, no, it is uncontracted. All of our contracts are spot and for less than 4 months at this height of events. Thank you. Thank you very much.

[Operator]

[Operator Instructions] At this point, we would like to end the question-and-answer session. We return the floor to Daniel Dorea for the closing remarks.

[Daniel Dorea, executive]

Well, all I have left is to thank you once again. Thank you for your participation. We will meet again in our disclosure of the fourth quarter and thank you. Have a very good day and good work for all of you.

[Operator]

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