Santos Brasil Participacoes SA

BOVESPA:STBP3

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, everybody, and thank you for holding. Welcome to the Santos Brasil Fourth Quarter '22 Earnings Conference Call. We have with us today, Antônio Carlos Sepúlveda, the Chief Executive Officer; Daniel Pedreira Dorea, the Chief Financial and Investor Relations Officer; Ricardo dos Santos Buteri, the Chief Commercial Officer. [Operator Instructions] Once again, the earnings release and the presentation are available on the company's Investor Relations website. Before proceeding, please bear in mind that the forward-looking statements are based on the beliefs and assumptions of Santos Brasil management and on information currently available. They involve risks and uncertainties as they relate to future events that may or may not occur. [ Independent sirs ] and analysts should understand that conditions relating to macroeconomic industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. I will now turn the floor over to Mr. Daniel Pedreira Dorea, who will begin the presentation. Mr. Dorea, you have the floor.

[Daniel Dorea, executive]

Good morning to all of you. I hope you are well. And thank you for your presence at another earnings call of Santos Brasil. As has been announced, beside me, Antônio Carlos Sepúlveda, the CEO of the company; and Ricardo Buteri, our Commercial Director. 2022 was a historic year for Santos Brasil, with significant growth in all business units and a sound cash generation, allowing us to distribute more than BRL 0.5 billion in dividends to shareholders and invest more than BRL 400 million in the company expansion.

This strategy for growth and shareholder remuneration should continue to guide Santos Brasil's next chapters. In the business environment, 2022 represented a return to normalcy, with a progressive regularization of global supply chains after the most acute period of COVID-19. With this, we saw a return to the typical seasonality of the sector with a strong third quarter and a lesser fourth quarter in terms of volume.

We should repeat the seasonal trajectory in 2023. In 2022, we experienced stability in the volume of containers handled at our units. However, the financial result is a record. This was only possible because our commercial and pricing strategy proved to be right with a price increase in the average ticket in all service lines, whether for the wharf, warehousing or integrated logistics, including integrated logistics with a higher added value, in spite the container retention having remained high above 50%.

I would like to quickly go through the financial highlights. In the fourth quarter '22, the consolidated net revenue for Santos Brasil grew 6.2 (sic) [ 5.7 ]% vis-a-vis the fourth quarter '21, totaling BRL 469 million despite the 8% drop in container handling in this quarter. In the year 2022, consolidated net revenue reached BRL 1.9 billion, representing an increase of 26% vis-a-vis the year 2021.

Consolidated EBITDA also had an important increase of 24% in the fourth quarter '22 totaling BRL 198 million with a margin of 42.3%. In 2022, EBITDA totaled BRL 810 million, representing a growth of 42% vis-a-vis 2021. The consolidated EBITDA margin closed at 42%, returning to the 40% level, even if we disregard all of the nonrecurring effects throughout the year.

It is an important milestone, and we see room for margin expansions, whose increase will come from a greater containment of costs and expenses in 2023. In our bottom line, we reported a net income of BRL 135 million in the fourth quarter, totaling BRL 430 million, 68% higher than 2021.

From the net income generated and the use of available profit reserve, Santos Brasil paid out BRL 535 million to the shareholders in 2022, which approximately represents BRL 0.62 per share and a dividend yield of 8%, considering the closing price of the share in the last trading session of '22. When it comes to CapEx, we reached BRL 166 million in the fourth quarter '22, mainly allocated to Tecon Santos and the brownfield liquid terminals at the Port of Itaqui, whose operations have already begun throughout 2022.

CapEx totaled BRL 406 million, concentrated in the expansion and streamlining of our port terminals, especially Tecon Santos and the Itaqui terminals. Of this total, about 60% were invested in Tecon Santos, which increased its commercial capacity by 2,000 TEUs. We should reach 2.6 million TEUs by 2026. In fact, 2022 marked the first operation of the new Panamax class ship at the Port of Santos, the largest ever operated at the port.

Our terminal is being prepared to operate 13 ships of this type at the Port of Santos. This will create a competitive edge, which is significant for our terminal. The message is, we are focused on maximizing the return of our assets, and in equal measure, generating value for our shareholders. That is why we have had BRL 1 billion in investments and distribution of dividends.

Even so, the company ended the fiscal year with BRL 615 million in cash and net cash of BRL 278 million. Now let's speak about some operational indicators. If we look at the volumes recorded in the fourth quarter '22 when there was a drop of 8% compared to the fourth quarter '21, there is a clear contrast in the financial result, which may raise doubts about the future.

This is not our [ vision ]. First we must keep in mind that 2022 already reflects the typical seasonality of this segment, with the concentration of the seasonal peak in the third quarter and a cooling down in the fourth quarter, especially beginning in the 2nd fortnight of November.

Now this pattern has been altered by the effects of the pandemic in 2020 and especially in 2021, which makes these comparative bases imperfect. Tecon Santos and Santos Brasil Logistica ended up being somewhat more affected, given the greater exposure to import volumes, which suffered more in the fourth quarter '22 because of the drop of durable goods consumption, which did not occur with Tecon Imbituba, which posted a year-on-year growth of 18% and Tecon Vila do Conde, which grew 4% in container handling in the quarter.

Now these terminals have a vocation to exports in cabotage. Now the vehicle terminal, the TEV, showed a growth of 33% in vehicle throughput in the fourth quarter '22 when compared to the same period in '21. The export of light vehicles was the main factor driving the volumes of this business unit. In 2022, the number of vehicles handled by TEV totaled 281,000 units, 40% higher than in 2021.

It was a great year for our vertical -- vehicle terminal of Santos Brasil. Now 2 quick and final topics that I would like to address before we open up for questions and answers. First, the activities of the company in the Sustainability Index of B3, the ISC that came into effect in January of 2023. This brings together a select group of companies committed to the ESG agenda and the entrance of Brazil in this. Now this consolidates the company's commitment towards sustainable development.

And finally, I would like to draw your attention to some enhancements in our results. In this new format, we have segregated business units to facilitate the vision of the performance of each unit and to allow for a better breakdown of our logistics volumes and the revenues of our bonded warehouse operations and the movement of pallets in our distribution center.

It is our understanding that all of our investors and those who consume our information will be able with greater clarity and assertiveness to individually survey each business unit at the company. Having said that, I would like, along with my colleagues Antônio, Carlos and Ricardo, open the floor for questions and answers. And we are at your entire disposal to answer any question that you may have. Thank you very much.

[Operator]

[Operator Instructions] Our first question comes from Andre Ferreira from Bradesco BBI.

[Andre Ferreira, analyst]

And first of all, congratulations for your results. And I have a question with 2 points. If you could remind us, you have a negotiation with Maersk at the end of March. Now which is the horizon for readjustments during this year in your latest negotiations? And the second question, there was an improvement in the last few quarters. Now is there a problem with the demand of light vehicles? And if we're going to see an exacerbation in the scenario for the TEV, the vehicle terminal?

[Ricardo dos Buteri, executive]

Andre, good morning. This is Ricardo. Let's begin therefore, regarding the questions. First, the negotiation with Maersk. You are right. The contract extends until March 31st this year. We're about to come to an agreement that will be good for Maersk as well as Santos Brasil. We're seeking a financial balance of this contract to guarantee to Maersk a competitive edge at the Port of Santos.

Now we have been successful in this, considering the relevant market share that we have, not only with Maersk, but with other shipowners, and it's not a single contract that will alter this. The contract ends on March 31st. And since January, we have been redefining clauses, having face-to-face negotiations to get to the 31st of March and conclude this very important negotiation for both parties.

Regarding the rest of our contracts, I can update you. We still have 9 contracts that will mature throughout the year, beginning in April until December. Well, in May, for example, we're going to Asia, where we have 3 negotiations underway with Asian shipowners that are part of our lineup. And once again, we're all showing the capacity that we have at Port of Santos, the evolution and operational efficiency, our investments, how we're expanding this capacity in a year of expansion of Santos Brasil. So another 9 contracts will undergo readjustment between the end of April, beginning of May until December.

Regarding the TEV, I think Daniel expressed this very well. It has brought us a special joy in 2022 with 280,000 units, and has become very attractive because of the exchange rate mismatch with Colombia and Chile. And we have gone beyond the figures of Argentina in terms of cars exported in Mercosur. Our vision is not for one of a drop with the assembly plants. There is a projection for a drop in the domestic market, but not in terms of our exports. Our exports are still performing very well, according to what we saw in January and February. Exports to Mexico and Colombia, this is our forecast and the vision that we have already seen since the beginning of the year.

[Operator]

A question from Lucas Esteves from Santander Bank.

[Lucas Esteves, analyst]

Congratulations for your results. I would like to speak about your volume dynamic. What are you expecting? And what is bringing down the volumes in this first part of the year, which will be the evolution during the rest of the year. Looking forward, which are your expectations for 2024 and which will be the drivers for volume growth?

[Ricardo dos Buteri, executive]

Lucas, this is Ricardo once again. Thank you for the question. We are very attentive to the volumes carried out by Santos Brasil. In January, Lucas, this issue of volume continued on from the fourth quarter, but the volumes were offset by the number of contracts readjusted directly by importers and exporters.

And when we speak about the first quarter 2023, in January, the expectations were highly aligned. In February, signs of consignation of the route of China to Brazil, way below what we had expected. And this began in the fourth quarter. This is a drop in imports and secondly, due to cabotage. Both can be justified by the inventories of the industry that are very high and because of the interest rate that, of course, has a -- works as a damper on consumption.

Now to complement your question, the moving average for March is back to the normal levels, reaching 21 containers per week. So we see a resumption already in March. And in the second quarter, we will be in accordance with our expectations in all fronts: in cabotage, imports, exports and ourselves as well as the shipowners, where our clients do receive a trend of 2023 are very similar to 2022 in terms of volume.

The good news is that the resumption of March is already here. I would like to complement. We had expressive results in the sector. And of course, they depend on volumes. We have a huge critical mass to be able to leverage our fixed and operational costs. And we also have to work with the appropriate prices. You have been following up on this for some time, and we have reduced the prices accompanying the market in the past, and we had a massive services increasing at Santos Brasil.

So I think that the issue of volume is resolved through all of these moves. In the fourth quarter and the beginning of the first quarter, we had great volatility as you were able to observe, especially when we look at Brazil as well as when we look at the rest of the world. Ricardo mentioned that our figures are coming back to normalcy. Now the great change that we had in 2022 and something we will see going forward, is a change in terms of mixes and prices.

Our prices were lagging behind. We're once again back to market prices as well as offering new products to the market in terms of logistics. And day after day, we're selling more liquid bulk.

[Daniel Dorea, executive]

You spoke about our forecast for 2024. Our most significant driver is the development and expansion of EBITDA, which will allow us to have better margins through better products and a repricing that has already been put in place. We're returning to the price levels of Brazil.

A positive thing, Santos Brasil has never stopped investing in capacity. So we're going to enter 2024, '25, '26 as a great supplier of capacity for Brazil. We continue to invest. We have grown 200,000 TEUs in terms of capacity per year. And this will enable us to grow steadily.

We will continue to offer premium services to shipowners, premium services for cargo. And with this, we would like to attract most of the market growth. Now if there is a growth of volume in the port, we will face this, and we will have a market share gain. This is a very positive situation. We gain market share and increase our margins. We have sown a great deal to be able to harvest this now.

[Operator]

Our next question comes from Gabriel Rezende from Itau BBA.

[Gabriel Rezende, analyst]

We have a question from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

Which is the current projection for STS and how do you assess the end of partnership between Maersk and MSC at the Port of Santos?

[Antônio Sepúlveda, executive]

Guilherme. The expectation for the change of projects does have 2 factors, a project for a station by the port authority. You have seen this published in the press, in the STS 10, which is located in the very last area of the Port of Santos, an area of 400,000 square meters.

And of course, there will be a fertilizer terminal that will be built at the tip of the beach. And we would have reasonable costs in that area. And of course, we're working with projects for cargo in that area. We do believe that all of this will come back to the drawing board.

And I do believe that this project will be revised so that we can accommodate all of these factors that are in play. Once again, we will have to start from scratch again in terms of the project development. But this will be discussed. And in the midterm, this will be necessary. We have invested a great deal and we have the capacity to support the growth of the port in the coming years. And this is what we're going to do, and Santos Brasil does have the ability to do so. We do require expansion towards this new area. Now once again, this is back to the drawing board as a project, and the Ministry of Transportation and the Ministry of Ports and Airports are all very good. They're highly seasoned ministries, and we're quite sure that they will come up with very good work to make feasible the growth of the State of Sao Paulo and the Port of Santos without hampering the ecosystem, with containers and other cargoes that will be necessary for the development of the state.

[Ricardo dos Buteri, executive]

This is Ricardo, once again, regarding your question about our analysis or vision on the end of the partnership Maersk and MSC. I was in the state of Parana when this was published, and to speak from the viewpoint of our client, Maersk. The business vertical is for South America. It's a very well-established agreement the way that they act, the terminals that they have.

And this is not a concern for the Port of Santos. Maersk is partner of an asset of MSC called [ BCT ] that has 700,000 containers at Port of Santos. So our relationships already exist. We have contracts not only with Maersk and MSC, but also with all of the other shipowners of Brazil. If we don't identify any influencer impact on the relationship that we have, we will continue on with our contracts with each of the shipowners, of course respecting each shipowner, and this should occur only in 2025.

Our contracts will continue to be renewed. There could be an adjustment in terms of volume in the terminals, always respecting the commitment that they have with Santos Brasil, not only Maersk but also MSC. Commitments that they have with BTB (sic)[ BTP ], which is a terminal where they do have a partnership.

[Operator]

A question from Gabriel Rezende from Itaú BBA. Well, Gabriel has sent a text question. Follow-up in terms of volumes, import and export mix. Should this continue on in similar levels during the coming quarters? Or is there additional trend for accommodation in imports? Which is the competitors' appetite for expansion in the port, and which is the room that you would have for this expansion?

[Ricardo dos Buteri, executive]

Gabriel, thank you for the questions. Regarding the volumes, we spoke about this in the previous question with Lucas from Santander Bank. We're going to zoom in and speak about the mix. The consignation, that was below what we normally see in January and in February, are now at levels above 70%.

Exports have resumed and cabotage had an extremely good reaction in the last 4 weeks. So what we can say is that there is no trend that we could understand or view when it comes to our volumes, anything that could cause a retraction if compared to what we are doing in March.

Our expectation, as well as the expectation of terminal owners, shipowners and others, is that the inventory of the industries has reached a more acceptable level. And beginning in April, we should resume working with more advantageous volumes for both parties, enabling us to reach a position of balance as we did in 2022. And this is the trend to return to the volumes very similar to those of 2022, especially in the second bimester.

[Antônio Sepúlveda, executive]

Now this is Antonio Carlos, Gabriel. Regarding room at the Port of Santos, we have 3 terminals operating, offering services and container operations. These are our main lines. So there is a good terminal divided between pulp and paper, but with very little room to enhance their capacity. It would be a marginal capacity. Now capacity has to be gained through productivity, by a better match of services. There is no other way to expand unless you're willing to pay an extremely steep cost in external yards.

This is not an idea that should be adopted. The only one that has a consistent path towards expansion, with a project that has been approved, is Santos Brasil. And we may have an independent terminal or it could be added to BTP through a remaining area. Now all of this should be resolved this year. And the increase of supply and space will primarily come from Santos Brasil that worked with 1.4 million containers per day. We can reach 6 million TEUs.

But we have to see which are the square meters that will be devoted to passenger terminals, to container terminals or general cargo. We also don't have clarity in terms of this. Now the new government that has taken power is surveying this. At present, the Port Secretary and Minister Marcio Franca [ are from ] Santos and were convinced that this project will be approved.

[Operator]

The next question comes from Bruno Amorim from Goldman Sachs.

[Bruno Amorim, analyst]

I understand the effect of seasonality in the fourth quarter, but the volumes continued to be weak at the beginning of the year. Is there a possibility of increasing volumes this year? And when will the comparison base become more normalized? Should we expect a return of a correlation with GDP as of this moment?

[Antônio Sepúlveda, executive]

Bruno, thank you very much for your question, and for following up on the details of our volumes. As has been highlighted, March already has changed the scene for the year 2023. We have carried out very sophisticated surveys of prediction, seeing every vessel with cargo coming out from China, and we see that there is a more normal situation in the second quarter, gaining traction.

We also understand that the third quarter, because of the return of seasonality that we knew before the pandemic, will come in a very strong way. Regarding the close of '22 versus 2023, we see a very equivalent trend, marginally higher perhaps. So we have better predictions regarding 2023.

Now there has been a growth announced of 3% this [ year ]. When this was announced in December, we did not have a vision of the retraction. So it is possible that beginning in the second quarter with this better traction, and especially because of the seasonality of the third quarter that is very important in port terminals and cargo handling, that we will return to the volumes of 2022, perhaps marginally above.

This is what we're betting on, and this is what we're doing with each vessel that is loaded, especially in the Brazil-China route.

[Operator]

A question from Pedro Bruno from XP.

[Pedro Bruno, analyst]

Can you hear me?

[Antônio Sepúlveda, executive]

Yes, yes, we can hear you well, Bruno.

[Pedro Bruno, analyst]

I'm sorry to insist and harp upon this, but I would like to follow up on a question that was made at the beginning of your Q&A session regarding volumes. And Ricardo referred to January where there was a compensation in terms of revenues that were somewhat below what you expected. Now, which is this effect that happened? Perhaps I did not understand this clearly. And beginning in February and March, there was a very good explanation, the moving average had resumed. Is this the right understanding, because you have still not disclosed your volumes for March, 20,000 containers at Tecon Santos. If you could confirm this. If we consider 4 weeks, for a month, will these containers be significantly higher than February, but still below what you have just commented? In terms of your outlook for stability for the year between March and December, we should be working with 24,000 containers per week. Now is this the right understanding? 24,000 containers per week until the end of the year represents 20% above the 20,000 containers that you're working with presently. Do forgive me for being so insistent, but I do need to gain an understanding.

[Ricardo dos Buteri, executive]

Pedro, thank you. No problem whatsoever. We do clarify doubts whenever necessary. I think you have understood this rightly. In January, regardless of the retraction in volumes at cabotage, we did have some upsides, especially in our commercial strategy, in the mix and in the pricing strategy. And the volume did not represent any negative impact for us in February.

This relationship was higher. We had blank sails of some ships, and the regularity of services makes that comparison with 2021 imperfect, as mentioned by Daniel. Now this issue of the moving average, and we spoke about 21,000 containers a week, allows us to see a more favorable March vis-a-vis February. And the trend that we see beginning in April and May is that the volumes will be higher than 21,000 containers, but not in a standardized way every week, multiplied by 52 weeks for the year.

There is none of that. There is seasonality. There is a second quarter and a third quarter that will perhaps go beyond that. So we speak with total volume figures for the year, very similar to those of 2022 with a slightly marginally higher margin. Now we have all of the festivities that give a thrust to imports in Brazil. We're used to seeing this since 2019 before the pandemic. But if you allow me to conclude this, I think that volume is also an uncertain variable. It's very difficult to have predictability some months before.

So it is a variable that we're going to have to learn how to live with throughout the year. Observing some signs for the resumption of consumption and perhaps greater availability of credit, higher appetite of companies in terms of investing. And this will allow us to increase our handling of cargo. After a tough February, below our expectations, we can look towards a March that is recovering its normalcy beyond what we expected. And a second semester that will close in accordance to our budget. And I have the confidence to tell all of you here that at the end of the year, it seems we will have stability of volume for 2023 vis-a-vis 2022. We don't expect significant growth in terms of volume throughout 2023.

Our expectation is not based on this, and we could live with a slight drop in volumes. That would not pose a problem. We're also prepared for that scenario. We don't believe that the results of the company will be fully based on volume. We're expecting a vigorous [ strong ] in mix. And it's what Ricardo mentioned, this mix should be reasonably equivalent to 2022. And of course, we do have a drop of imports since December.

It doesn't seem to be the case in this first quarter. So this year, our gain will not be based on volumes. I do understand the accounts. We have to offset some other factors. Now if the third quarter behaves like it did in 2022, there is room for the third quarter, where we have a peak to offset the drop that we saw in February, more particularly.

This is simply to show you what is in our mindset and how we play this game. Our game doesn't depend on volumes. And to add information and to speak about products. Of course, the volume of containers is important, especially when it varies. But Pedro, we just closed in January with a global company. We closed a new contract. And despite the drop of imports we had in January and February, we have been very satisfied at our [ clinas ]. They're not accompanying this retraction in imports. The mix of the consolidated cargo that we call LCA, and the close of new contracts that are much higher than what we used to have, will bring us this balance referred to by Antônio Carlos, that we're bringing in new products and new offers not only focused on services more precisely.

[Operator]

Our next question is from Lucas Esteves from Santander Bank.

[Lucas Esteves, analyst]

To change topics somewhat, could you remark with us on an update of the Itaqui project, the close of new contracts, what is happening with the terminals? And what do you expect for the year?

[Antônio Sepúlveda, executive]

Lucas, good morning. This is Antônio Carlos. The Itaqui project, simply to remind you, has a standard capacity of 200,000 TEUs. We already have 50,000 cubic meters operating, they were made available in November of last year, [ 1/6 ] of our capacity. Now the next delivery of capacity will be at the end of 2024, where we will receive an additional 50,000 cubic meters.

We will have 100,000 cubic meters, which is the total amount. And we would thus end with this reform of the brownfields in 2026. We will receive the additional 100,000 cubic meters to conclude the work. We anticipated the delivery of capacity. We already have hired contractors. The projects are advancing according to schedule and the dynamic of volumes and prices in the region are well within what we had surveyed. This is a project that is doing very well. Adhering closely to agri business, and it's a region that is changing from cattle raising to agriculture, agri business. And we have to be patient and wait our full capacity to be installed to begin to see improvements in our portfolio.

[Operator]

Our next question is from Pedro Moreira from Trihla Investimentos.

[Pedro Moreira, analyst]

Which is the viewpoint of the company of warehousing in 2023? Will there be a retention index higher than 50% and dwell time similar to 2022?

[Ricardo dos Buteri, executive]

Pedro, thank you very much for your questions. Very judicious and important at the moment where we have to follow up on volumes in all of our business fronts. To speak about dwell time, it is in line, somewhat above the fourth quarter of 2022. In terms of warehousing, we are maintaining a retention above 53%. Of course, when the logistics bottlenecks disappear and when we have more regular services, there will be great intensity in terms of warehousing, and we have to be attentive to this, work with customer loyalty. We do have a very active customer service area, and we're also very attentive to market intelligence and pricing now, to know which is the volume coming in at Port of Santos, what comes in through Tecon and what comes from outside.

And we have to maintain a competitive tariff within Tecon. We do not foresee any type of risk regarding the retention. We can prove this through the first quarter and the dwell time that is 1.1 days above the fourth quarter of 2022.

[Antônio Sepúlveda, executive]

Pedro, I would like to add this: 2022 was not a very good year in terms of imports quarter-on-quarter. We hope to see a recovery in consumption in 2023. There is a good outlook for this, but our focus is definitely not on market share. You have asked about this a great deal. Our focus is the quality of our revenues in the last 5 years. And I believe Ricardo mentioned this, we have come up with several tools that enable us to objectively research the quality of the cargo coming into the Port of Santos, which services we could offer to that cargo to enhance our average price. This is what we have been working on, new products, enhancing our customer portfolio without focusing overly on volume.

Now you did speak about retention, the trend as we increase capacity and the volume grows in that ratio that we have, the trend is to increase retention and market share. We're going to end up using all of this to improve retention. So this is a good moment, and our expectations are for an increase in consumption. The consumption in the automotive market is bringing about more spare parts. The supply chains are becoming more normalized, and we will have more products coming in with ships, and this will be of help in terms of imports.

[Operator]

[Operator Instructions] As we have no further questions, I will return the floor to Daniel for his closing remarks.

[Daniel Dorea, executive]

Well, I would like to simply thank all of you for attending our conference call, and we hope to see you in the next call. Have a very good day.

[Operator]

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

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