Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Analysis

Santos Brasil Achieves Record Volumes and Strong Financial Growth

In Q3 2024, Santos Brasil recorded unprecedented operational success, handling 403,000 containers—its highest to date. Revenue surged 43% year-on-year to BRL 764 million, while EBITDA reached BRL 406 million, reflecting a remarkable 57% increase, with a margin of 53%. Net income also rose 55% to BRL 216 million, resulting in a net margin of 28%. The company announced BRL 164 million in dividends this year, with promising future cash generation anticipated despite a current leverage of 1.6. Furthermore, CMA CGM is acquiring a 48% stake in Santos Brasil, enhancing its market position as it joins the Ibovespa index.

Strong Operational Performance

Santos Brasil reported its highest quarterly container volume ever, handling 403,000 containers in Q3 2024. This marks a significant milestone, especially at its Tecon Santos terminal, where they managed 357,000 containers, representing a 24% increase compared to the same period last year. This growth outpaced the overall Port of Santos by twofold, reflecting the company's investment in capacity and productivity which allowed it to capture surplus demand faster than competitors, thus increasing market share to 42.5%.

Favorable Cargo Mix and Growth in Key Segments

The growth in handled containers was complemented by a favorable cargo mix, with full containers making up 77% of total volume, increasing by 31% year-on-year. Notably, imports rose by 25.5%, driven by consumer goods, chemicals, and capital goods, while exports saw a robust 28% increase, notably in agriculture and food products. Additionally, cabotage volume grew by 12%, reflective of stronger feeder services that support internal trade, highlighting the company's diversified operational strength.

Financial Results Showcase Strong Earnings Growth

Financially, Santos Brasil reported a remarkable 43% year-on-year increase in net revenue, reaching BRL 764 million. Perhaps even more impressive was the EBITDA which surged 57% to BRL 406 million, resulting in an EBITDA margin of 53%, an increase of nearly 5 percentage points from the previous year. Net income also rose sharply, up 55% to BRL 216 million, maintaining a net margin of 28%. This underlines the operational leverage potential of its port activities, especially at Tecon Santos.

Commitment to Shareholder Returns

The company demonstrated its commitment to shareholder returns by announcing BRL 164 million in dividends for 2024, amounting to BRL 0.54 per share. This continues the policy of distributing 100% of its distributable net profits while still investing in future growth. The total dividends projected for the year is BRL 467 million.

Investment in Future Capacity and Strengthened Financial Position

Santos Brasil invested BRL 357 million in capital expenditures during the first nine months of 2024, aimed at enhancing future capacity. Despite a current leverage ratio of 1.6, the company expects to reduce this figure at a reasonable pace, indicating stable financial health moving forward.

Noteworthy Strategic Developments

Two significant events occurred during the quarter: the addition of Santos Brasil shares to the Ibovespa index, greatly increasing liquidity, and the acquisition of nearly 48% of its share capital by CMA CGM. This shift represents a promising transition from previous leadership under Opportunity and aligns the company with a major player in global shipping and logistics. This acquisition is pending regulatory approvals and will likely involve a takeover bid for remaining outstanding shares.

Looking Ahead: Promising Future Prospects

With robust financial growth, strategic partnerships, and ongoing investments in capacity, Santos Brasil stands on a solid foundation for future performance. The company's focus on enhancing productivity will likely continue to yield substantial returns, positioning it well in the competitive logistics market.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, everyone, and thank you for holding. Welcome to Santos Brasil Third Quarter 2024 Conference Call. With us today, we have the Chief -- Daniel Pedreira Dorea, Chief Financial and Investor Relations Officer; and Ricardo dos Santos Buteri, Chief Commercial Officer. [Operator Instructions] Please bear in mind that the earnings release and presentation are available on the company's Investor Relations website, where the replay of this event will be available. In addition to the rooms in Portuguese and English, we have simultaneous translation into Brazilian sign language.

Before proceeding, please bear in mind that the forward-looking statements that are made here are based on the beliefs and assumptions of the Santos Brasil management and on information currently available. These forward-looking statements involve risks and uncertainties as they relate to future events that may or may not happen. Investors and analysts should understand that conditions related to macroeconomics, industry and other factors could also cause results to differ materially from those expressed in the forward-looking statements.

I will now turn the conference over to Mr. Daniel Pedreira Dorea, who will begin the presentation. Mr. Dorea, you have the floor.

[Daniel Dorea, executive]

Good morning, everybody. Thank you for your attendance. I hope that you are all well. With me today, we have Ricardo Buteri, our Commercial Director. Unfortunately, Antônio Carlos Sepúlveda, our CEO, will not be able to participate today because he is at the opening of the annual event called MoveInfra, of which he is the Chair. So it will be only myself and Ricardo for the Q&A.

The third quarter of 2024 was full of achievements and milestones with growth in all of the Santos Brasil business lines. Our terminals handled 403,000 containers in the quarter, the highest quarterly volume ever recorded in the company's history. At Tecon Santos alone, we handled 557,000 (sic) [ 357,000 ] containers, representing a 24% year-on-year increase, 2x greater than the aggregate growth of the Port of Santos. This relative comparison is interesting because it shows what we have been saying for some time, that by continuing to invest in increasing capacity and productivity at Tecon Santos, we would capture the port surplus demand at a faster rate than our competitors with our market share reaching 42.5% in the period.

In that same context, it is important to note that Tecon Santos growth was accompanied by a more favorable cargo mix with full containers accounting for 77% of the total handled, which grew 31% year-on-year. Imports alone grew 25.5% in the third quarter '24 with consumer goods, chemical products and capital goods standing out. Warehousing activities continue outpace both at the terminals, which showed a 38.5% gain and at Santos Brasil Logística, units with an 8% increase compared to the same period last year. The contribution of exports was also significant as they grew 28% in the third quarter '24 with shipments of agriculture and food commodities as the main highlights such as coffee, sugar, animal protein, especially beef.

Cabotage volume grew 12% in the third quarter when compared to the same period in '23 as a result of the higher volume of feeder services. Tecon Vila do Conde also performed well with a growth of 4% year-on-year in terms of containers handled. With the repositioning of empty containers, we'll have a good flow of exports in the area of influence. Tecon had a growth of 28% in the third quarter of '24 when compared to the same period of '23. And the main drivers were the long-haul containers and feeder containers operated by our client, CMA CGM. Now the movement of vehicles in the TEV had a growth of 17.4% in the third quarter '24 after having an annual drop in the first half of 2024. The main driver was a strong recovery of exports of light vehicles to the Argentinian market that offset the compression of 31% in vehicle exports during the period. The liquid bulk terminal moved 135,000 cubic meters, a growth of 10% year-on-year with a highlight for long-term contracts when compared to spot operations. I would like to point out that the first phase of the project to expand the capacity of the liquids terminal has been completed. We went from 50,000 to 110,000 cubic meters of tankage with only 1 ANP license remaining to start operating. This will take our capacity to 190,000 cubic meters scheduled for conclusion in 2025.

Well, two highlights, economic and financial. The net revenue of Santos Brasil reached BRL 764 million in the third quarter '24, an increase of 43% year-on-year, well above the growth in volume, which also shows a higher average ticket invoiced by the company. EBITDA totaled BRL 406 million in the quarter, registering an even higher relative growth of around 57% year-on-year with a margin of 53%, an increase of almost 5 percentage points vis-a-vis the third quarter 2023 and the second quarter of 2024. The increase in margins reflects the operational leverage potential of our port terminals, especially Tecon Santos.

Net income grew by 55% year-on-year with a net margin of 28%, totaling BRL 216 million in the third quarter '24. The company continues to be able to distribute 100% of its distributable net profit without losing its ability to make investments. We will be paying BRL 164 million in dividends to our shareholders. totaling BRL 467 million over the course of 2024, equivalent to BRL 0.54 per share up to the moment. On the other hand, in CapEx, we invested BRL 357 million in the first 9 months of 2024, which will be used to increase future capacity. Santos Brasil's future cash generation is promising. And even with the increase in present leverage that is 1.6, the trend is for the company to deleverage at a reasonable speed.

Well, in my final comments, I would like to highlight two important events that took place in the quarter. Firstly, the entry of the company's shares in the Ibovespa index with a significant increase in liquidity. And secondly, the announcement of the acquisition of a stake close to 48% of Santos Brasil's share capital by CMA CGM, a stake which was then held by companies managed by Opportunity. Santos Brasil will close a successful chapter under Opportunity's leadership to write another equally promising chapter now together with one of the leading companies in the global shipping and logistics market. This transaction is still pending approval from regulatory bodies such as CADE and ANTAQ, and once completed, will be accompanied by a takeover bid for the remaining outstanding shares.

These are my initial comments. I am at your entire disposal, along with Ricardo Buteri, for the questions and answers. Already thanking you for your attention.

[Operator]

[Operator Instructions] Our first questions comes from Leandro Neto.

[Leandro Neto, analyst]

Congratulations for your results. I have two very quick questions. First, to know if CMA has entered the process at CADE, the antitrust regulatory agency and how this partnership will operate through capital or through a stake?

[Daniel Dorea, executive]

The notification to CADE has already been done by the acquirers and by the sellers. And additionally, yesterday, this was published in the Official Gazette. So this is something public, something that has been publicly disclosed, and that is following the normal pace expected at CADE.

Regarding [ OPAM ], I still do not have that information, which means which will be the tools for offer that will be used. But as has already been communicated, it will be the acquisition of 100% of the outstanding shares in the same conditions offered to the seller opportunity.

[Operator]

[Operator Instructions] As we have no further questions, I will return the floor to Mr. Dorea for the closing remarks. Mr. Dorea, you may proceed.

[Daniel Dorea, executive]

Well, thank you. And to end the call, I would like to thank all of you for your attendance. Have a good day, and we hope to see you at the next conference call. Thank you very much.

[Operator]

The Santos Brasil conference call has been concluded. We would like to thank everybody for their attendance. Have a very good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]