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Edited Transcript of 000111867.LU earnings conference call or presentation 15-Aug-19 2:00pm GMT

Q2 2019 Wilson Sons Ltd Earnings Call

HAMILTON Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Wilson Sons Ltd earnings conference call or presentation Thursday, August 15, 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

* Augusto Cezar Tavares Baião

Wilson Sons Limited - CEO of Brazil Operations & Executive Director

* Fernando Fleury Salek

Wilson Sons Limited - CFO of the Brazilian Subsidiaries & IR and Executive Director

* 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 Wilson Sons Limited Second Quarter 2019 Results. Today with us, we have Mr. Cezar Baião, CEO of Operations in Brazil; Mr. Fernando Salek, CFO of the Brazilian subsidiaries and Investor Relations; Mr. Arnaldo Calbucci, COO of Maritime Services; and Mr. Sergio Fisher, COO, Port Terminals & Logistics Services.

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. Fernando Salek.

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Fernando Fleury Salek, Wilson Sons Limited - CFO of the Brazilian Subsidiaries & IR and Executive Director [2]

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Thank you. Good morning. Welcome to the Conference Call for the Wilson Sons Limited Second Quarter 2019 Results. Today with us, we have Mr. Cezar Baião, and we're going to begin our conference call with Slide 3. As is customary here at Wilson Sons, we highlight safety not only for its importance to the lives of 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. Workplace safety improvement was evidenced by our relentless commitment to safety with a lost-time injury frequency rate of 0.16, a 98% reduction in the indicator between 2010 and June of 2019.

Turning to Slide 4. Here, we summarize our consolidated results. As of January 1, 2019, the group has adopted the new IFRS 16 accounting standard using the modified retrospective approach. This means that assets and liabilities recognized are equal at the point of application with 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 first quarter 2019 figures excluding the impact of IFRS 16. The adoption of IFRS 16 for the second quarter of 2019 resulted in a USD 5.3 million increase in EBITDA but a USD 1.1 million reduction in profit after tax.

Net revenues amounted to USD 98.7 million in the second quarter of 2019. Compared to the second quarter of 2018, we had a 14.7% decrease due to: a, the reduction in shipyard revenues as a result of lower shipbuilding activities; b, a decline in towage revenues as a result of the more competitive environment; and c, the impact -- the negative impact of the BRL devaluation against the U.S. dollar on container terminal revenues.

Despite cost reductions, adjusted EBITDA in U.S. dollar terms was 23.1% below the second quarter of 2018 largely driven by a decrease in towage operating results, lower transshipment at the Rio Grande terminal and both container terminals experiencing reduced warehousing revenues as the comparative period dwell time was exceptionally positive as a result of a one-off event, the Brazilian truck drivers' strike. In BRL terms, EBITDA was 17.9% lower.

CapEx increased to USD 23.8 million largely due to the progress made on the primary quay extension of the Salvador container terminal. Nonconsolidated CapEx for the offshore support vessels joint venture was slightly lower in relation to the comparative quarter with less vessel conversion activity.

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 remained strong as a result of a robust balance sheet. During the quarter, there was a slight reduction of the company's cash due to planned loan amortizations and dividend payment. We would also like to highlight that during the quarter end, the company signed a USD 25.4 million financing agreement denominated in Brazilian reals to finance equipment acquisitions related to the Salvador terminal expansion, which slightly increased our leverage ratios.

On to Slide 6, please. On this slide, we outline the company's operating data registered in the first 7 months of 2019. Container terminal volumes declined 2.2% as economic growth in Brazil remained slow -- sluggish. Operating volumes at Salvador terminal increased 7.2% in relation to the comparative period of 2018, supported by solid performance in cabotage. Rio Grande terminal reported weaker volumes affected by reduced transshipment cargo with the loss of 2 services in the first quarter of 2019, as was previously reported. In May, Rio Grande terminal reached a productivity record of 217 movements per hour.

In towage, Harbour Manoeuvres declined 6.6% (sic) [6.9%], negatively impacted by the -- by Vale's accident in Brumadinho affecting iron ore exports at the ports of Vitória and Sepetiba, also by heavy rainfall in northern Brazil affecting iron ore shipments at São Luis and also increased competition in some ports.

Offshore vessel days in operation fell 10.5% negatively affected by weakened demand. The Brazilian offshore oil and gas market is expected to face another difficult year with demand for OSV hire remaining soft, although we continue to explore alternative revenue streams for our off-hire vessels, which are well positioned for the expected recovery in the industry over the next couple of years. In June, PSV Talha-Mar signed a new 2-year contract.

Turning to Slide 7, please. Here, we can see an image of the ongoing expansion of Salvador terminal. The terminal civil works to extend the principal quay from 377 meters to 800 meters continue and 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. The initial phase of the project also includes the acquisition of 3 STS cranes and 5 electric RTG cranes and the leveling and paving of an existing 28,000-square meter backyard area.

This reflects the company's commitment to continuous improvements in productivity and operational efficiency. The terminal's investment plan will promote the development of the Port of Salvador, creating jobs and reinforcing economic growth in 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) We have a question from [Antonio Luis], which was asked online, and he's asking us to comment on the results for the offshore support vessels.

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Unidentified Company Representative, [2]

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Yes. We've had good results with these vessels in operation. Obviously, as we said, we have some vessels which are, like, at the moment fixed. We had a 2-year contract with a client at PSV Talha-Mar. And there's also a short-term contract for the (inaudible) as we said. So we managed to recover on the offshore vessels market a bit, and we hope that in the next years, this will pick a higher pace.

There's another question from Robin Byde, Cantor. He asked it online, and he is asking if the Salvador project's CapEx is flexible and if we can change it if necessary.

Robin, we have already, when we presented the project, created a project that was based on 3 phases. One was the initial stage, building the berth; and then a backyard that was to be paved; and the third page -- phase was filling and feeding in the area which was annex to the berth. So this project has already been presented in a way that was phased, meaning that we will be more calm in this investment, and it provides us with different options. Recently, a couple of days ago, the Ministry of Infrastructure published a new ordinance which helps in the case of repaving, but we don't see that this is necessary for the Salvador project because the concept was already phased and it was approved in this way.

So Robin asked a second question about towage. He is asking if there are any signs in the towage market for stability, and that is regarding price and volume. So I'll let Arnaldo answer.

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [3]

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Robin, volumes are very stable in Brazil right now. Growth in volume depend, of course, on trade, and this has remained stable. So -- and volumes remain stable in the market as a whole. If there are any subtle signs of price stability, we can't really say that this is a trend right now, but there is a higher stability in the last few months.

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Unidentified Company Representative, [4]

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So we have a third question from Robin Byde of Cantor regarding container terminals. He asks what is the current utilization rate for the Salvador and the Rio Grande terminals. And also, Santos apparently has had improved container volumes and what the big difference would be between the Salvador and Rio Grande volumes versus the Santos terminal. I'll let Fisher answer.

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Sergio Fisher, Wilson Sons Limited - COO of Port Terminals & Logistics Services [5]

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So right now, our utilization is at 53% in Salvador and 74% in Rio Grande. The Santos port has grown more than Rio Grande and Salvador because of local factors.

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Unidentified Company Representative, [6]

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So we've got one more question online about the strategic review on container terminals which we recently announced.

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Fernando Fleury Salek, Wilson Sons Limited - CFO of the Brazilian Subsidiaries & IR and Executive Director [7]

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This is Fernando Salek. As we disclosed in our material fact in June, we had a strategic review for container terminals, and the decision at the time was to not have any kind of transaction and to continue to operate our container terminal assets.

Arnaldo, can I answer the question on towage?

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Unidentified Company Representative, [8]

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We have another question from [Antonio Luis], and he's asking us to tell a bit more about the competitive environment for towage. I'll let Arnaldo answer.

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Arnaldo Calbucci, Wilson Sons Limited - COO of Maritime Services [9]

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The environment is still quite competitive. As I previously said, there is already some subtle stability in the price level for this. Of course, we expect this -- that this will become a trend, but obviously, we can't state that yet. But there is some stability for the prices right now. This is a result of the measures we've taken as companies, of course.

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Operator [10]

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(Operator Instructions) This concludes the questions-and-answers session. I would like to invite Mr. Cezar Baião to proceed with his closing statements.

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Augusto Cezar Tavares Baião, Wilson Sons Limited - CEO of Brazil Operations & Executive Director [11]

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Okay. I would like to thank everyone for participating in our conference call. The group 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. Once again, thank you and have a good day.

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Operator [12]

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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.

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