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Edited Transcript of 000111867.LU earnings conference call or presentation 19-Nov-19 2:00pm GMT

Q3 2019 Wilson Sons Ltd Earnings Call

HAMILTON Nov 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Wilson Sons Ltd earnings conference call or presentation Tuesday, November 19, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arnaldo Calbucci

Wilson Sons Limited - COO of Maritime Services

* Sergio Fisher

Wilson Sons Limited - COO of Port Terminals & Logistics Services

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the Conference Call for the Wilson Sons Limited Third Quarter 2019 Results. Today with us, we have Mr. Arnaldo Calbucci, COO of Maritime Services; Mr. Sergio Fisher, COO of Port Terminals and Logistics Services; and Mr. Michael Connell, Head of Treasury and Investor Relations.

As a reminder, this conference is being recorded, and we will have simultaneous translation for those who wish to listen to the English version. (Operator Instructions) Before proceeding, we would like to mention that Page 2 of the presentation contains the usual forward-looking statements for your reference.

Now I would like to turn the conference over to Mr. Arnaldo Calbucci.

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [2]

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Thank you. Good morning, everyone. Welcome to our results conference call for the third quarter of 2019. Let's start with Slide 3. As is customary here at Wilson Sons, we highlight safety, not only for its importance to the lives and security of our employees and operations, but also as a fundamental principle for our clients who contract our services to ensure the safety and security of their employees, assets and cargo. Our relentless commitment to workplace safety was evidenced by the improvement in the lost-time injury frequency rate, which decreased to 0.42, a 94% reduction between 2010 and the 9 months of 2019. The commitment to safety in all our operations continues to be our top priority. We will strive for the continuous improvement of our work safety to achieve and maintain best practice in this area, ensuring the quality of the services we provide to our clients.

Turning to Slide 4. Here, we summarize our consolidated results. As of January 1, 2019, the company has adopted the new IFRS 16 accounting standard. It uses the modified retrospective approach, meaning assets and liabilities recognized are equal at the point of application. There is no need to republish the financial statements of previous periods. Therefore, comparatives for the 2018 financial statements were not restated. Thus, for comparison purposes, we present the adjusted third quarter 2019 figures, excluding the impact of IFRS 16.

The adoption of IFRS 16 for the third quarter of 2019 resulted in a USD 5.2 million increase of EBITDA but a USD 1 million reduction in profit after tax. Net revenues amounted to USD 106.1 million in the third quarter of 2019. Compared to the third quarter of 2018, we had a 7% decrease due to: a, a reduced import warehousing revenue for container terminals; b, the decline in logistics revenues due to the end of a specific high-volume contract; and c, lower shipyard revenues.

Despite cost reductions, adjusted EBITDA in U.S. dollar terms was 11.6% below the third quarter of 2018, largely driven by container terminals experiencing reduced import warehousing revenues as well as lower transshipment at the Rio Grande terminal.

CapEx increased to USD 25.2 million, largely due to the progress made on the primary quay extension of the Salvador container terminal, achieving 60% of its completion. Nonconsolidated CapEx for the offshore support vessels joint venture was higher in relation to the comparative quarter with planned dry-dockings.

We now move to Slide 5. On this slide, we can see some of our liquidity and leverage ratios. The metrics show that all liquidity ratios remain strong as a result of a robust balance sheet. During the quarter, there was a slight reduction in the company's cash, and this was largely due to investments made in the Salvador terminal expansion as well as planned loan amortizations.

Following to Slide 6. On this slide, we outline the company's operating data registered in the first 10 months of 2019. Container terminal total volumes declined 4.5%, largely due to lower transshipment at the Rio Grande terminal, although full gateway volumes increased 4.2%.

Container handling at the Salvador terminal increased 3.2%, supported by a solid performance of imports and cabotage.

The Rio Grande terminal reported weaker volumes, affected by the significant reduction of transshipment with the loss of 2 services in the first quarter of 2019, although full gateway volumes improved 3.3%.

The towage division presented a 5.1% drop in harbor maneuvers. This was negatively affected by an increase in competition in some ports and the temporary reduction of iron ore exports in Vitória and Sepetiba.

Offshore vessel operating days fell 8.4%, negatively affected by weakened demand.

Our oil and gas services division still face a challenging market, although we expect a recovery in the medium term. We continue to explore alternative revenue streams for our off-hire vessels in base areas, which are well positioned to profit from the expected recovery in the industry over the next couple of years.

Turning to Slide 7. In this image, we can see the civil works at the Salvador terminal expansion, which have achieved 60% of its completion, extending the principal quay to 800 meters in length. When finished, the expansion will allow the simultaneous berthing of 2 super post-Panamax ships, facilitating access to the port and the largest economy in the Northeast of Brazil. This project is a priority investment of the federal government's investment partnership program, and it's critical to the economy of the state of Bahia.

The presentation ends here, and I would like to invite you to the Q&A session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) So we received a couple of questions from Fitzgerald. The first on towage and how the towage market is doing, if there are competitors or clients who want to accelerate their services.

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [2]

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Well, actually, this is deeply connected to the level of price that we've reached. We've reached very low fares. All competitors realized that this price was unsustainable, and therefore, the market movements started to allow prices to grow a bit. There's a relative stability, it's subtle, but this is not related to the idea clients have of ensuring capacity.

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Operator [3]

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We also have a question on future demands and if we could talk about the next calls for bids for oil in Brazil, and if we see that as a positive or a negative thing for the company.

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [4]

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This is Arnaldo again. These rounds, these bids still takes some time to change the market dynamics we see here in Brazil. It will definitely produce a positive effect on the middle term, not immediately, both for ships and vessels as well as for the Brasco base.

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Operator [5]

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And the third question we have was about the Salvador expansion, which is now 60% completed. If you could please remind us what is the expected completion date for this expansion.

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Sergio Fisher, Wilson Sons Limited - COO of Port Terminals & Logistics Services [6]

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This is Sergio Fisher. So work should conclude by the end of April 2020, and we are still expecting to have an investment of around USD 45 million.

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Operator [7]

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We also have a question from Adam Sues from Yacktman Asset Management about towage. There was a value of USD 10 million in the last months up until the fourth quarter of 2018. But from 2010 to 2016, it was consistently at USD 25 million to USD 35 million. So what happened that led to this change in the market? And when should we expect to see a more consistent level as we saw in -- from 2010 to 2016?

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [8]

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Adam, this is Arnaldo Calbucci answering your question. What happened was that there was a major structural change to the oil and gas market in Brazil. So from 2010 to 2016, we saw that many oil rigs were being built or many of the floating structures in the Brazilian market were being concluded, and that demanded a higher level of special operations than what we've currently seen. That's basically the reason why. There are, of course, some salvage activities, firefighting, but they are sporadic and they took place in years when the revenue was higher. And we don't have any forecast for that kind of operation. They just happen when they happen.

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Operator [9]

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The second question is about the Rio Grande terminal. In 2019, you had around 600,000 that was foreseen in 2014. So what caused the volumes at Rio Grande to be stable and why? And what would it take for the volumes to continue to grow?

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [10]

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The only condition that we basically saw in 2019 was transshipment, which was significantly reduced. And for 2020, we are expecting to grow by about 3%, and we'll try to have transshipment from [Lizmo], but that's not certain yet. The transshipment for 2019 is around 70,000 kilos lower than what we saw in 2018. So we had a significant impact, around 10% of the terminal volume, and the cargo volume in Rio Grande grew by 3%, so full containers that went to Rio Grande. So we are expecting to see some recovery in transshipments to see a better growth.

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Operator [11]

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(Operator Instructions) So we have a question from [JP Lee] about the expected growth in the Salvador terminal after the ongoing works conclude.

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [12]

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Well, the expansion works were a counterpart to the conclusion of the Salvador expansion. So we expect to grow by 3% to 4% a year. Of course, this occupation will take some time to take place. With 3% to 4% in 2010, we have foreseen that it would grow by 5% to 6% every 10 months and a growth of 3% to 6% in total containers. So that was the estimate that we had at that time, which is what Sergio Fisher just said.

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Operator [13]

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This concludes today's question-and-answer session. I would like to invite Mr. Arnaldo Calbucci to proceed with his closing statements. Please go ahead, sir.

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [14]

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I would like to thank everyone for participating in our conference call. The company remains focused on increasing cash flow and improving capacity utilization across all businesses in order to maximize stakeholder value, maintaining our relentless commitment to safety in all our operations. Thank you, and have a good day.

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Operator [15]

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That concludes the Wilson Sons conference call for today. Thank you very much for your participation, and have a good day.