Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to the Santos Brasil Q3 2022 Earnings Conference Call. With us today are Chairman, Antônio Carlos Sepúlveda; Chief Financial Officer and Investor Relations, Daniel Pedreira Dorea; and Commercial Director, Ricardo dos Santos Buteri. [Operator Instructions] Before proceeding, please note that forward-looking statements about Santos Brasil's business perspectives as well as projections and operational and financial targets are based on beliefs and assumptions of the company's management as well as information currently available.

Forward-looking statements are no guarantee of performance and involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the future results of the company and may lead to results that differ materially from those expressed in such future conditions. I would now like to hand it over to Mr. Daniel Pedreira Dorea, who will begin the presentation.

[Daniel Dorea, executive]

Good morning to all. Thank you for participating. I hope you all are well. I have Antônio Carlos Sepúlveda, CEO and also Ricardo Buteri Commercial Director of the company. We have a new format to announce the results. It is more modern. I hope everything runs fine. And afterwards, we expect your feedback. And I also believe that I could not begin this earnings call without first making an honorable mention of Santos Brasil's 25 years, which were celebrated in November. It has been 25 years full of stories, building a company that has become a reference in ports and logistics. And the results of the third quarter of '22 reflect, well, this trajectory. This is a growth in business gains in productivity and efficiency and constant improvement in our operational and financial indicators, we are celebrating 25 years with strong recovery and profitability, cash generation, present and future and the strengthening of Santos Brasil investment capacity.

And at Tecon Santos, the Q3 volumes of 2022 presented the typical stronger seasonality of the quarter when both the industry and retail prepare for the year-end sales. For example, we recorded a growth of 12.4% in the volume operated at Tecon Santos when compared to the same period previous year. By the way, please note that this growth was in a record base comparison, which reinforces the company's ability to anticipate the projected demand and from their organized Tecon Santos to serve the user of Port of Santo with efficiency and excellence, we totaled 40% of market share in the Port of Santos stable vis-a-vis last year, but our expectation is that the volumes of the Port continue growing until the end of 2022 and Tecon will continue to provide capacity at the Port of Santos, including gain of market share. The vehicle terminal registered another excellent result on Q3 of 2022 handling 76,719 vehicles, which is an 82% record year-on-year. We recorded growth in import-export flows, but also an increase in the movement of heavy vehicles would help to raise the average ticket of this business unit.

Another highlight of the quarter with Santos Brasil Logistics during the first 9 months of the year, we won a 3 percentage points of market share vis-a-vis the same period last year. This is a market share of 11% of our logistic assets in the Port of Santos. The Tecon may be continued to benefit from the growth of cabotage in Q3 of '22, volumes grew 29% year-on-year with the rice shipment standing out the Imbituba General Cargo Terminal operated 21,340 metric tons, down 70% when we compare it to last year because of the end of pulp exports at the terminal.

And finally, on the operational side, it is worthwhile pointing that Tecon Vila do Conde was still impacted by the shortage of empty containers in the region with a drop of 6.3% in the volume of containers handled in comparison to Q3 of 2021. In any case, we have observed a trend in Vila do Conde volumes in recovery in October as a global logistic bottleneck and therefore, normalization in the repositioning of empty containers and the capacity on shipments. Having gone through the good operational highlight, I would like to talk about the financial indicators of the company in Q3 of 2022, the consolidated net revenue totaled BRL 522 million in the quarter. This is a growth of almost 32% vis-a-vis Q3 of 2021. In addition to the higher volume and the growth of imports contributing to a better mix of cargo, the main driver of this result is centered on the price adjustment of the services offered by Santos Brasil, mainly in quay and storage operation, which is reflected in higher average tickets in all our business units.

The company's EBITDA totaled BRL 215 million in Q3. This is a new quarterly record with a growth of almost 42% year-on-year. Now the EBITDA margin was 41.3%. This is a gain of 3 percentage points vis-a-vis the same quarter of 2021. Now in the first 9 months of 2022, we recorded BRL 608 million measured by the EBITDA and a consolidated margin of 41.5% going toward 5 percentage points year-on-year on gain, which is in line with what I've mentioned in other occasions. Here, we could improve the company's future profitability, and this is one of the main points of our management. In turn, the net income totaled BRL 109 million. This is a high of 64.3% year-on-year and BRL 306 million year-to-date with a net margin of 21% during the first 9 months of 2022 when compared to the same period last year. There is a gain of 7 percentage points in the net margin line, thus an important increase in the company's profitability.

We closed the quarter with a cash position of BRL 756 million, which were discounting the gross debt totaled a net cash position of BRL 425 million. As I have always strengthened the company's strong combination of cash renovation and a balance sheet allows us to adequately remunerate our shareholders without compromising the ability to invest in the expansion and modernization of our assets or even M&A activities. In September, we distributed BRL 327 million in interim dividends based on the net income calculated on the first half of 2022 and the profit reserve account. And 3 days ago, we announced a new distribution of interim dividends and investment on shareholders on equity totaling BRL 196 million for shareholders. So far, we have paid or announced BRL 523 million to pay out the capital of our investors.

Now on the CapEx side on Q3 of 2020, we invested BRL 111 million in our assets, highlighting BRL 77 million for Tecon Santos, which includes the payment of an advanced payment of the acquisition of 2 quay cranes and 8 electric RTGs equipment that will deliver by the end of 2023. Now these electric RTGs are the first yard equipment that have been acquired by Santos Brasil, and this is in line with the modernization of the terminals seeking greater efficiency, automation, a reduction of the emission of pollutants, which also reinforces the company's commitment to our ESG agenda in all dimensions. In environment, we anticipate the achievement of 2 of the 3 goals established for the period between 2020 and 2024. Number one, a reduction of 15% in greenhouse gas emissions and the second goal achieved the reduction of 30% in water consumption and 50% reduction in waste generation.

That is our third goal is already close to being achieved. It is also important to highlight the progress in the operations of the brownfield liquid bulk terminals at the Port of Itaqui, both terminals are already duly licensed. And last week, this is good information to share. We've signed the first contract for handling and storing fuels with an important regional distributor. It is a historic milestone that marks the beginning of Santos 3 years ahead of our original business plan. Our commercial team is in advanced deals with potential customers. So, we believe that this will be successful in our company. So we are very reassured in the area of liquid bulk.

Now in my final considerations, I would like to congratulate all the company's stakeholders for the Epoca 360 awards and Santos Brasil was elected the best infrastructure company and the company competing with big names in the sector. It is an award that honors us not only because of the quality of the competitors, but also the comprehensiveness of the 6 evaluated criteria, we have future vision, ESG environment, ESG governance, innovation, people and financial performance.

And finally, one last comment about a milestone, important for Brazil sports sector, which was the operation of the first new Panamax class container ship in the country. Tecon Santos was chosen by CMA CGM to receive this giant of 347.5 meter long vessel and unload is more than 3,000 containers in just 30 hours. This event awards the operational excellence of Santos Brasil's operational excellence and shows that the company's investments, with the attraction capacity of this new class of ship are on the right track. So, I think we can stop here and we can start our Q&A session, and we are at your disposal. Thank you very much.

[Operator]

[Operator Instructions] Our first question from Guilherme Mendes.

[Guilherme Mendes, analyst]

I have two questions. One regarding the auctions of the Santos port, what is your expectation together with the government to enable these projects? And my second question is if you can elaborate on capital allocation and dividends. I believe you have a deleverage balance and you have conditions to pay dividends. But now where are you going to focus your investment and all this re-leveraging can generate more dividends. If you could elaborate on this point?

[Antônio Sepúlveda, executive]

This is Antônio Carlos. Well, with the change of government, I believe that the bidding is going to change. In the case of the SPA, they want to continue with the privatization of services, but probably the bidding with the port authorities will be different. We have to wait and see, well, this is going to take some time, I believe. Now the STS10 had already been included with the SPA station package. So, let's say, we go back to scratch to see what is going to happen, so we have to wait for a new ministry to be made up. President, Lula in his first mandate, he created the Port Secretary. He strongly focused on ports. So, we really don't know if we will see this again if there will be a breakout. But there will be a change in the way we manage and we have to wait and see. Anyhow, I believe that we won't have news in the short term. We will see things in the future.

Daniel will talk about our dividend policy. Okay, Guilherme. What I am going to strengthen here what we have been mentioned, the company's situation is timely to be a strong dividend payer. And I always make a caveat here because we don't lose the ability in investing because we have excellent return. For example, the investments that we have on the Tecon Santos and also, this allow us to evaluate an organic growth opportunities or M&A as long as we find assets that match our strategy and bring synergy to our portfolio. This is not a simple task. This is a task where you have to be careful and you must work with discipline. Now the cash position currently and the future cash generation projected by us, and we believe that is strong. We will turn Santos in a strong dividend payer, have shown this throughout 2022. I believe that there is still space to pay a bit pay more profit because we did this when we analyzed the results of the first 9 months.

We still have another quarter that is a strong quarter. And if there is no better place to allocate these funds, I'm not saying that this is going to happen, okay? But we perhaps will propose an additional distribution of dividends. So Santos Brasil is a growth company. I think we have growth and value. I just would like to add something that is the following. We have a strong demand on our 3 areas that are container port terminals, logistics and liquid bulk. So we have a strong investment agenda in these 3 business lines that are low-risk investments of high return. So, we will continue growing in terms of volume in a positive environment, I believe that we are facing a good moment. Our expectation is that in the next years, we will see a continuous growth of volume and margin.

[Operator]

Our next question is from Mr. [ Luiz Capistrano ].

[Unknown Analyst]

Antônio and Daniel, congratulations for your excellent results and this is thanks to what you have been doing in the past quarter. My question is a follow-up. You mentioned that you expect a very strong fourth quarter. Could you elaborate what volume of cash can we expect? Can this be a volume expansion quarter-on-quarter because we know that Q3 is seasonally speaking, the strongest quarter, if you can elaborate how strong you see the fourth quarter vis-a-vis Q3 in terms of volume? My second question will be more related to margins. We saw the margins of port terminals dropping quarter-on-quarter. If this is a result because of the expenses of the liquid bulk terminals and what margins do you have in Tecon Santos? What kind of margins do you expect? And also a logistics business, there was a good margin during this quarter, but there is a sequential drop. This is 5 points vis-a-vis the first quarter. Could you tell us what is your prospect regarding the margin from here on? if we will see something you mentioned that 26% perhaps wouldn't be a stable figure. Could we expect 20% in the future? Can it be between 20-26.

[Ricardo dos Buteri, executive]

Good morning, Luiz. This is Ricardo speaking. Thank you very much for your question. Now speaking about the Q4 of 2022, we have to highlight that we had a first semester in the Port of Santos that wasn't a strong, but from July up to the date, the growth has been extremely favorable, totaling 13% when we compare the same quarter of 2021. When we talk about the fourth quarter, yes, we already have a good lineup, a good visibility. After the resumption of the imports of the last quarter, we expect an additional 9%. And now we want to meet the strong demand of food pulp and sugar, which is strong. Yes, the fourth quarter is extremely traction. We don't expect nothing below 100,000 containers until the end year. Because we have imports for Black Friday and Christmas, especially in the 3 segments that I mentioned.

[Daniel Dorea, executive]

Luiz, this is Daniel. I am going to answer the other two questions. I am going to talk about the margin. Yes, we have Itaqui issue, but we suffered 3 cost pressures that impacted the margin of Q3. One of them, the adjustment in the payment of PPR because we are already projecting the achievements of the targets established with the union labor through a bargaining. We did a provisioning of PPR that impacted BRL 10 million. This is a very specific adjustment but was concentrated on Q3, another matter. We had a concentrate of payments and labor lawsuits. This was around BRL 10 million. If we compare this BRL 10 million with what was paid on this during the same quarter of 2021, that was BRL 4.9 million.

We have a delta of BRL 5.1 million and when you add to the BRL 10 million to the PPR adjustment, this represents BRL 15 million. In addition to this, there was SPA, the port authorities of Santos, that is the table 3. There was a payment that impacted an additional BRL 2.3 million. We are even discussing from the management and legal point of view. This new payment or SPA to fight them. But nonetheless, yes, we did incur in this additional payment. So these 3 lines here that I just mentioned, I'm not even including Itaqui totaled BRL 17 million. If we add this up to our recorded EBITDA, that would be BRL 230 million and EBITDA margin of 45 million that I think that our consolidated result is 45%. Your question is important, so that I could explain the pressure that we've suffered in the concentration of lines of costs during Q3.

I am going to hand it over to Ricardo, so he can talk about the run rate margin of SBLog. We have to remember the following. There was a drop in ground time between the second and third quarter. This time, we had this standard operation of the IRS and this standard operation of the tax authority elevate the dual time of import storage. And this went back during Q3, so naturally a drop in time impacts the logistics margin. But now Ricardo will comment on this. He demonstrated our good expectations regarding Santos Brasil Logistica. Thank you, Luiz, talking about SBLog after Daniel's comments. Now our logistics is thriving. We are even allocating able to gain capacity. The rate of utilization of our areas is extremely high. The gross operating revenue growth and all the tickets grow in all units. What can I say about logistics when we talk about the integration about GPL and custom will be 2025.

Compare to other market players, you will see lower margins than this. So there is no expectation of hindering our strategy. And because we're using market intelligence in all our new contracts, there are important points. We are growing in market share. Daniel mentioned this in his initial speech. We are 11% in the secondary area, gaining 3 percentage points year-to-date. There was a detractor but is very specific when we think about the distribution centers because there were [ planned paralyzation ] of customers during Q3 of 32 because of demonstrations of outsourcing parties. So the cargo is stored within our distribution centers. Nonetheless, it's there, and it hasn't been collected. Logistics is generating capacity when an increase of price and volume, especially new contracts of fraction cargo, especially logistics when we deal with customs. Thank you very much. Thank you for your clear answer.

[Operator]

Our next question from Victor Mizusaki.

[Victor Mizusaki, analyst]

Congratulations for your results. I have two questions here. In your results release, you say that on November 18, STF will rule over the segregation and delivery service. If you could elaborate on how this can impact the results of Santos Brasil in the future? And a follow-up question regarding logistics, thinking about the future or if we see the results of Q3, we see a strong growth in the logistics EBITDA. Last year, during Q3, it was around 8% and now it is around 11%. Now when we see the logistics, the EBITDA of poor term and logistic gaining momentum within the group, which would be an ideal mix or a possible mix between these 2 divisions and what kind of investment is needed in order to achieve this figure. Now regarding, the process and the Federal Supreme Court regarding the PCCA, the delivery and segregation, this is to determine that ANTAQ would prevent the charge of this line. And in the case of Santos Brasil, this is a limited impact. Just for you to have an idea, the BRL 10 million a year. And here, I would like to remind you that great part of the price of internal segregation service that we collect.

We already transferred these 2 losses because of the number of legal discussions that we've had. We no longer could consider this in our results. And on the other side, the Santos Brasil Logistics that with draws cargo in the liquid terminals, no longer incur in this cost when it provides services. This net effect is negative, but it's limited up to BRL 10 million a year. It does not exceed this amount and what we want in reality, we want legal security. We want this to be foreseeable. And I think that Ricardo can answer the second part of your question.

Thank you for the question. We have executed plans with discipline, and this is why we have this evolution from 8% and 11% in the EBITDA participation of the company that we believe that this will not drop in the upcoming years. We are currently investing. Speaking of port logistics, the CLIA, we are investing currently BRL 13 million to increase 25% of our capacities in the CLIA Santos. This is a terminal with high utilization rate, and this additional opportunity and capacity has contracts in order to occupy this area. So we're training capacitating the clear for this volume. Now, when we talk to clear Guaruja, we are going to increase the capacity. These are Central Brazil's own plots of land that we achieved the environmental license, and we will be able to increase our capacity.

With Guaruja, we have a conceptual project underway. We will increase the capacity of our yards and also capacity of storage for fraction cargo. We had two important contracts with Freight Forward, and therefore, our ticket in CLIA Guaruja increased 108% only during the last quarter of 2022. So yes, we're going to invest in the CLIA Guaruja capacity when we see 3PL logistics. Our strategy is asset-light, we are participating in bids. We have experienced executives from the logistics and distribution center. Market doing for picking and packing, and we are participating in bids to build asset-light customize for chemical products, automobile products and other things that we define. So logistic will continue thriving, we expect to grow in volume and profit.

[Antônio Sepúlveda, executive]

This is Antônio Carlos. I would like to piggyback on what he said. As Ricardo just mentioned, our logistic project is asset-light, we can increase our market share in custom storage in Santos, and we're focusing fractioned cargo, this will improve the logistics EBITDA in the upcoming 2 years with this increase of capacity. The EBITDA of our ports will increase because we invest in Tecon Vila do Conde that are two highly demanded ports. So when we think about Santos Brasil in the future with these investments and with the growth of logistics in 3PL that is an asset-light, we see that, yes, it is possible from here to 4, 5 years with Itaqui in operation. We will have a portfolio of 70 of the EBITDA coming from the container 15 liquid. This is a portfolio that we see in the short term and this depends on how the market is going to be hit, but this is a mix that we pursue in order to have a more diversified revenue. We cannot think about this for 2023 because both are growing. So logistic is going to grow and Tecon's EBITDA is also going to grow.

[Operator]

Our next question from [ Jose Vitor Garcia ].

[Unknown Analyst]

What is the company's expectation for the renegotiation of the contracts of the Tecon Santos during 2022.

[Antônio Sepúlveda, executive]

Thank you very much for your question. This is a continuous agenda, and it is extremely dynamic. So when we talk about 2022 to during some other conference calls, we said that we have 3 shipbuilders to negotiate this year. What happened during the third quarter of 2022, we conclude the contract with 3 shipbuilders now in 2023. We have a negotiation of all of the participants in 2023. We are concluding things, be it for capacity operational efficiency and tariffs abroad. They want to begin the great contract with Maersk that ends in December. Now after this negotiation, we have the negotiation, and we will renew the other 12 contracts with the other shipbuilders in 2023.

[Unknown Analyst]

What is the expectation to buy new Reach stacker electric to move containers within the sites.

[Antônio Sepúlveda, executive]

This is Antônio Carlos. Our electrification plan is for RTGs that are on wheels and not Reach Stackers. So we will focus on RTG and trucks, vehicles that are electric. We are going to receive the first 8 electric RTGs by the end of the year. For the time being, we do not have a project for which stack electric. This apotheosis would be interesting for the clears that are smaller yards that use this type of equipment, but for the time being, we haven't started. If you would have something interesting, you can contact us because we are paying attention to the decarbonization of all of our units.

[Operator]

[Operator Instructions] Our next question is from Lucas Barbosa, Santander.

[Lucas Barbosa, analyst]

I have a mid- and long run question. When we see the Santos port, where do you believe that there is more space for demand growth. We have the growth of GDP that can be a growth driver, but which segment can grow and which segments when compared to 5, 10 years ago are smaller, and you believe you have a potential to put them back to past levels.

[Ricardo dos Buteri, executive]

Lucas, thank you very much for your question. This is Ricardo. At first, driver that must be considered because of the growth that we've observed not only in Santos but mainly in Vila do Conde cabotage. The BR do Mar, we believe that this will be more importance to cabotage. And this segment may grow more than what it has grown lately in Brazil. So yes, there is a restricted volume and after the elimination of red tape. Well, we believe we will have redistribution through Brazilian Coast. Now also the disparity of the dollar vis-a-vis our currency, we have records month-on-month of export volumes for cars and heavy imports.

What does this mean regardless of the destination. For instance, when we talk about TEV, we have a favorable position to export to Colombia, Chile, Peru. These are countries that in the past didn't represent an important market share. Controversially, what happens is that the automobile production result has better results than in the past. When you have better results, you have better rates of employment. So our vision is that demand will be it for import of export of the auto industry will grow beyond cabotage, and we believe that [indiscernible] will insert a volume above what we have today. There are three points here. Recently, Daniel mentioned it in his speech, we received the first ship. We have the major ship holders, they have their own cabotage [indiscernible], I believe that this will turn Santos in a concentrating port, and we can increase even more.

We are in the middle of our investment plan of broadening the Tecon Santos. So here, we're increasing the cabotage transportation. We have to see the fiscal side. The Lula's government is a new government. We don't know what his relationship will be together with Congress, but this has been within Congress for over 10 years. And we lost 15% of our imports to Santa Catarina and Victoria. Fiscal reform [indiscernible] the special regime of Vitoria and Santa Catarina, and we may bring this import. This is the Paulista cargo that on unloads to Vitoria to Santos to Santa Catarina. This cargo is brought to Sao Paulo through highways. If we can reduce this fiscal gap, we bring this load back to Sao Paulo. Another important point, this is in the short run would be the massive return of agro business through container with the increase of container. With the drop in fleet, this can go back. This would be an increase in export cargo. And we have 3 drivers that would allow the multiple growth vis-a-vis the GDP could go from 2.5x that would be through these 3 points. So we want this to happen very quickly. Thank you very much.

[Operator]

[Operator Instructions] As we have no further questions, I will hand it back to Mr. Daniel for his final remarks.

[Daniel Dorea, executive]

Once again, I thank all of you and I end this call thanking all of our employees, shareholders that have helped us to build the first 25 years of Santos Brasil's history. Thank you very much, and have a good day.

[Operator]

Santos Brasil's conference call has come to an end. We thank you all for your participation, and have a good day.