Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, and thank you for waiting. We would like to welcome you to the conference call of Santos Brasil Participações concerning the earnings of Q4 2018. We have with us the CFO and also Investor Relations Officer, Daniel Pedreira Dorea; also, the Chairman (sic) [ CEO ], Antônio Carlos Sepúlveda; and the Commercial Director, Mr. Marcos de Magalhaes Tourinho. [Operator Instructions] This event is also being transmitted simultaneously through the Internet and webcast. You can access at ri.santosbrasil.com.br, where you will find the slide presentation. [Operator Instructions] This event will be available right after the closing. The participants in webcast can also send questions to Santos Brasil Participações. They will be answered after the end of the conference by Investor Relations.

Before we proceed, we'd like to say that any declarations made during the conference call concerning business perspectives of Santos Brasil Participações projections, operational and financial goals are based on beliefs and assumptions of the company's management as well as information currently available to Santos Brasil Participações. Considerations about the future are not guaranteed, and the involved assumptions may refer to future events and, therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, macroeconomic conditions may affect the results of Santos Brasil Participações and may lead to results that will differ materially from those expressed in these considerations about the future.

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

[Daniel Dorea, executive]

Good morning. Thank you for participating. Q4 2018 had a great impact due to the drop in the number of containers from imports in the Port of Santos. This affected the performance of our company, both in the quay operations and also bonded warehousing. This worsening in the mix, especially in November and December, put pressure on our operational margins and due to the uncertainties due to elections and volatility in the exchange rates.

We'd like to remind you that the import orders are normally placed 70 to 100 days before, depending on the commercial routes. So we see this as something that is nonrecurring, and this truly happened in the Port of Santos from volatility on the results every 6 months or even 2 quarters that were weaker was something expected due to the dynamism of the activity and with volatility in this industry.

Notice that the Port of Santos moved 740,000 containers in Q4, which means a drop of 1.6% in relation to Q4 2017 and 6% in relation to the previous quarter. Analyzing only the arrival of containers from imports, the drop was 4.9% in the Port of Santos. Tecon Santos, 4.6% in 2018, therefore, the global movement in the Port of Santos reached 2.5 million containers, a growth of 4% year-after-year and equivalent to 4.1 million units, close to 70% of the capacity of the ports.

If we look at Tecon Santos in an isolated way, the growth was 10.8%, higher than that of the whole port. With this, we arrive at 1.4 million in 2018, approximately 72% of our commercial capacity.

Our expectation for 2019 is positive, though, because of a business environment that is more favorable and more dynamism in the preceding economy, a stronger growth. We expect a stronger growth after the second -- after the 15th of March, and this is due to many issues. Also, there will be growth in the services and now with other factors that will -- we will have larger ships coming.

Concerning investments of the company, we got in 2018 another 140 million in equipments and also authorization to extend the -- also the quay in Santos. This should begin in the first semester of 2019, the expansion program. So these represented BRL 72 million in 2019.

At Vila do Conde, we concluded last year paving the pavements. We paved the area, and we will continue with improvements in the yard and also, we will build new gates for access. And the acquisition of new equipment, Tecon Vila do Conde, brought -- had 3 great gates: first, increase in capacity; second, greater productivity in the quay. This is a significant improvement in the operation of the terminal.

I'd like now to pass the floor to see the indicators. We will look at the indicators, and this will be on Slide #2. In the Port of Santos, Tecon Santos has a market share of 35.8% in Q4, a little above the 35% we had before and above the 32.5% that we had in Q4 '17. Santos Brasil gained market share and now is close to the leadership. There was an increase of 11.1% in the volume of quay operations in Q4 '18, totaling 276,411 containers. The negative side was due to the mix with less imports, and this was a little attenuated and by imports in Santos Brasil Logistics. Warehousing went up 7.4% in spite of the drop in imports. So Tecon Santos continues with a high capacity.

And in Guarujá, we see less surplus capacity. So also, we had a cargo of cotton. We began to work with cotton, and now it is higher due to the harvest.

The volume in TEV dropped 52% due to a drop in exports of vehicles to Argentina. But the improvement in the mix of imported vehicles and heavy vehicles continued in Q4 '18. Vehicle imports represented 10.9% of the total movement in the quarter, caused also by higher TEV, which went from 5.5 to more -- 5.5 days to 7 days in 2018. The mix of heavy vehicles now represented 15.1% of the total volume, compared to 9.8% in Q4 2017, although there was a drop in exports of vehicles and also had a high capacity around 81%.

On Slide #3, you can see year after year the movement in the terminals, it continues above 10%. On the graph on the right, you can see the drop in 2018. And I mentioned this in the moving of full containers, imports represented 37% in Q4 '18, in comparison with 43% in Q4 '17 and 44% in Q3 '18.

On Slide #4, we have the financial highlights. Net revenue -- consolidated net revenue, BRL 221.5 million in Q4 '18, and there was an increase in the revenue from port terminals and also 4% in Logistics. The revenue from the vehicle terminal due to the drop in the number of vehicles fell 12.4% in Q4 '18. On the other hand, due to better -- due to more imports of heavy vehicles, the revenue per vehicle went up 32.5% in Q4 '18 when compared to Q4 '17.

The contribution of Tecon Santos for the consolidated billing was 54% in Q4 '18, compared to 57% in Q4 2017. In this quarter, we had also labor issues, labor and nonrecurring expenses of BRL 13 million because of lawsuits, personnel lawsuits and also taxes concerning production. The company thus closed Q4 '18 with a consolidated pro forma EBITDA with the leasing expenses of BRL 28 million. Net profit was BRL 3.4 million (sic) [ BRL 3.8 million ] in the quarter. Concerning cash, the balance, BRL 253.7 million, and with low financial leverage, we have BRL 26.3 million.

While finalizing this, I would like to close with this message. For 2019, our expectation is a new cycle with expansion in the economy, therefore, we expect this to be a positive for 2019. We expect a more favorable mix, additional volumes due to the renewal of the contracts with the Maersk group and also the improvement of the average prices.

Looking at the services, the perspective for the year is to gain market share in the port. This comforts us to progress and make more investments in Tecon Santos, so expanding the quay and also in the north. These are our initial comments concerning Q4 '18.

And now we are available for questions. And I would like to say that we are very thankful. Thank you very much on behalf of the Board of Directors.

[Operator]

[Operator Instructions] Our first question comes from Samuel Alves from Banco Pactual.

[Samuel Alves, analyst]

Two questions. The first, looking at Logistics Q4, I'd like you to explore more the reasons for EBITDA being below in relation to the last quarter's. You mentioned that the mix changed, also cost of freight, fuel, personnel. I'd like to understand was this EBITDA outside the curve, a nonrecurring event? Or the trend for EBITDA will be lower in the future? The second question, to explore this positive outlook that Daniel mentioned concerning 2019. If you could give more details, quantities. You said you expect more growth after March 15. If you could give us more details, a quantitative idea, we'd like that.

[Marcos de Magalhaes Tourinho, executive]

I will -- Marcos Tourinho. I will talk about Logistics, then I'll give you an overview of the trend for the year in the Port of Santos. Then also a fresh perspective for Logistics. In the case of Logistics in Q4, it was not a typical quarter. The weak economic activity, a drop in the economic activity, elections, presidential elections, volatility of the exchange rates had their effect. We had a drop also in the LCL cargo. It dropped 39%. And LCL cargo, the billing per container is very high, and the margin is very interesting, very positive. So this has a direct impact on the performance in Logistics in Q4. In January, for example, the situation changed. We had a significant improvement. It came to a more normal level, and it's better in January. So the trend is that of normalization. The trend is to normalize. So the economic activity was low because of the exchange rates. Also, this had an impact in Q4, not only in Logistics, but in everything, in Tecon Santos, in the port. So it was not a typical quarter.

Concerning perspectives, as Daniel mentioned some points that will help a lot to increase volume, revenue and results of the company in 2019. So with this trend of improvement, so we have the Maersk. Four large companies were added to our clients with 30% or even more than 30% of the volume, with average price improving significantly. So apart from adding a significant volume with Maersk, with these 4 companies, we also have an improvement in profitability due to a higher average price. We're expecting to get to 20,000, 24,000 containers in terms of volume per month when everything is normal. Because, first, for example -- we had, for example, a ship on the 21st or 23rd. This was the first from Maersk.

Another fact that is worthwhile mentioning, that is relevant, the service will no long -- be more called PIL. Three large companies were added to this service, and you will have a significant increase in the services and volume expected. We are working with 8,000 container ships in place of 3,500 containers. The ships that are coming now in the second week of March are full. And this not only includes the service of Maersk from Asia but also a strong impact in the average price due to the arrival of new companies. So a significant increase in volume.

To give an idea, concerning PIL, this was a service that worked with 5,000 to 6,000 containers for Maersk. We're going now to 16,000 to 18,000 containers per month. So the freight formation, which is relevant and greater in Santos, we're going from a market share of 4% in 2018 to 40% of this trade in 2019. I'm talking about an increase in volume of 400. And this comes with a better average price, not only due to the new prices of Maersk beginning on April 1, but also due to the other companies that we are -- we have now. We negotiated with these extra companies, and they are adding value to our portfolio and our average price.

Apart from this, I would also like to mention, we are finalizing the hiring of new services, which will help the operation in volumes and in the revenue. We haven't signed the contract yet, although the negotiation has already been done in terms of price, but it hasn't been signed. We are now going to sign. This will help because we were suffering, especially in the second semester, with the drop of exports to Argentina. So this year, we are very optimistic. Once again, we have our -- we're not expecting anything that will happen. Now we're talking about things that are already signed, volumes that we will have. Daniel mentioned we will be increasing our market share in a significant way in the Port of Santos. We will increase average price. Average price will increase a lot. And we will increase the result because the additional volume will have a multiplier effect in the warehousing and also in cargo. We will have a critical mass that will be much greater in cargo, the other revenues, other services linked to cargo. So this is the message that we have since you asked about the future and the perspectives. I don't know if Daniel wishes to supplement.

[Daniel Dorea, executive]

I believe you answered well this issue of Logistics. We had some costs with labor courts. We had some expenses. But the worsening of the mix put pressure on the company's margin. It's not a trend for Logistics, as Marcos said. We begin to see the recovery at least in January. So our perspectives for Logistics are good for 2019.

[Operator]

Our next question comes from Victor Mizusaki for Bradesco BBI.

[Victor Mizusaki, analyst]

Two questions. The first, you talked about Vila do Conde to the strategic alternatives. Could you comment on the current status? And whether we can expect any announcements concerning these projects? And we saw net cash. You mentioned the growth of EBITDA, growth of volume. And on the other hand, talked about Vila do Conde and Imbituba, the perspectives. What are your expectations concerning cash and EBITDA? What can we expect?

[Daniel Dorea, executive]

Well, Victor, very quickly concerning Vila do Conde and Imbituba, we have no material change in this scenario that we mentioned, no changes. The process is ongoing. It continues as expected. If we have anything new, if we have anything relevant, we will share with the market immediately.

Now concerning the year-end reports, as you mentioned, we have 2 issues to observe. The investments in expansion that the company made, the ones that we already hired, so we will make an investment that will be more relevant this year. Next year, we want to have a modern terminal. We want to preserve the competitive edge of Tecon Santos with investments, so we will be cautious. We're very optimistic with Brazil in 2019. We don't want, though, to stop being cautious. We are always cautious with cash. These -- we will have disbursements in Tecon Santos. Now we are taking out loans. We will get loans. The capital structure should be more efficient with a stronger cash generation due to all the factors we mentioned.

Now concerning the growth of the company, here is an organic growth. And in terms of inorganic growth, if there are bids or opportunities of M&A, mergers and acquisitions, we're always looking into these opportunities. And if we believe that an acquisition or merger will bring value to the shareholders and stakeholders, our role will be to take advantage. Antônio Carlos can even make some additional comments concerning this.

[Antônio Sepúlveda, executive]

As Daniel mentioned, we're now going into a new cycle of growth in Brazil after the elections. Tecon Santos had a lot of surplus capacity for a long time and in the last 5 years, and now we will need extra capacity, so we will need new capacity.

We have another asset that is doing very well. It is growing with double-digit rates for 2 years. And we're looking at other opportunities for investments. So we are working on this, looking at the opportunities, and we have other areas that will be -- that were strong in 2018. And the return from Vila do Conde is good. So these are the perspectives that surely will bring opportunities. And we will -- we are always cautious, but we're very optimistic, too, in relation to opportunities that will appear.

[Operator]

[Operator Instructions] As there are no more questions, we'd like to conclude the Q&A session. I'd like to pass the floor to Mr. Daniel for his final comments. Sir, you may proceed.

[Daniel Dorea, executive]

Well, to conclude, thank you very much for participating. Thank you for the questions. We're available, and we hope to really be with you in our next conference call. Thank you.

[Operator]

Thank you. The conference call for Santos Brasil Participações is concluded. We thank you for participating, and wish you a good day.