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Edited Transcript of 000111867.LU earnings conference call or presentation 28-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Wilson Sons Ltd Earnings Call

Mar 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Wilson Sons Ltd earnings conference call or presentation Tuesday, March 28, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arnaldo Calbucci

Wilson Sons Limited - Executive Director

* Augusto Cezar Tavares Baião

Wilson Sons Limited - CEO of Brazil Operations and Executive Director

* Fernando Fleury Salek

Wilson Sons Limited - CFO of Brazil Operations and Executive Director

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Conference Call Participants

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* Andrew Mitchell

Edison Investment Research Limited - Associate Director

* Robin Francis Byde

Cantor Fitzgerald Europe, Research Division - Transport, Travel and Leisure Analyst

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Presentation

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Operator [1]

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Welcome to the conference call for Wilson Sons Limited Fourth Quarter and 2016 Results. With us, we have Mr. Cezar Baião, CEO of Operations in Brazil; Mr. Sergio Fisher, COO, Port Terminals & Logistics; Mr. Arnaldo Calbucci, COO of Maritime Services; and Mr. Fernando Salek, CFO of the Brazilian subsidiary and Investor Relations.

As a reminder, we will have simultaneous translation for those who wish to listen to the English version. (Operator Instructions) Page 2 of the presentation contains all the usual forward-looking statement disclaimers for your reference.

Now I will turn the conference over to Mr. Fernando Salek.

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Fernando Fleury Salek, Wilson Sons Limited - CFO of Brazil Operations and Executive Director [2]

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Thank you. Good morning, and welcome to our conference call for results of the fourth quarter 2016.

Let's start with Slide #3, where I present our safety performance through the Wilson Sons group lost time injury frequency rate from 2010 to 2016. In this period, we see that there was a decrease of 90% in the lost time injury frequency rate, which shows the commitment we have with security in our operations for our employees, contractors and other services providers. I would particularly like to thank all our employees who have helped to achieve these results and the significant 55% reduction in lost time accidents during this year. The maintenance of safe and sustainable operations continues to be an absolute priority and will always be one of our strengths as a company.

Turning now to Slide #4. Here, I summarize our consolidated results. Wilson Sons 2016 pro forma net revenues with the Offshore Vessels joint venture were USD 528 million. Compared to 2015, total net revenues decreased 9% mainly due to the impact of the stronger BRL in the group revenues and operationally reduced order book in the Shipyard and fewer dedicated operations in Logistics. Pro forma EBITDA for the quarter was 8.3% lower than the comparative. This is mainly as a result of the decrease in the company's revenues.

Looking at the investments made during the quarter, our CapEx was mainly concentrated in the Towage and Container Terminal businesses, which we will discuss later in this presentation. In light of the country's difficult economic situation, we understand that we have achieved solid results for our shareholders.

Turning now to Slide #5. Here, we present a quick summary of the quarterly highlights broken down by business. The import volumes in the Rio Grande terminal were positively impacted by the big bags project. Big bags are a type of package, and this has benefited mainly cargoes such as fertilizers.

In the case of the Salvador terminal, imports were mainly driven by charges related to the solar sector, a project that emerged in 2016.

As expected, speaking now about Brasco, the revenues and EBITDA decreased against the comparative period of 2015. Revenues were negatively impacted by the end of a client operation in October 2016. Furthermore, both revenues and EBITDA were negatively impacted by the decrease in the number of vessel turnarounds compared to 2015.

As a positive highlight, during this period, we can mention the higher volume of lay-up operations at Brasco Caju.

In Logistics, we had a revenue variation, and this was due to the new accounting method since previously, the variable cost of the businesses were allocated within the net revenue line itself. This has been corrected.

In Towage, the number of harbor maneuvers increased in comparison to the previous period as a result of improved results in some of the ports in which the company operates its tugboats and also due to higher volumes of maneuvers of some specific vessels. In the case of revenues, there was a decrease mainly due to the reduction of oil and gas operations, which decreased in 2016 in relation to the comparison.

The Shipyard revenues and EBITDA were negatively impacted by the reduced third-party shipbuilding activities. And in the case of Offshore Support Vessels, the days in operations went up because of vessels Larus and Pinguim delivered in 2016. They commenced long-term contracts for 6 years, and the vessels Albatroz, Fragata and Gaivota also started new contracts. Daily rates improved with the stronger average Brazilian real exchange rate, affecting the Brazilian real portion of the contracts and also because of the entry of Larus and Pinguim in the joint venture fleet since both have daily rates in dollars above the fleet average.

Moving now to Slide 6. On this slide, we are looking at the history of results since 2004. Here, we can see that Wilson has shown solid results despite some significant exchange rate variations during this period. The consistency that we present is a reflection of the resilience of our business model, which involves the diversification of portfolio and client, the quality of investments accomplished over the years and the incessant search for efficiency and productivity gains, and this has allowed us to continuously improve our operations.

Analyzing CapEx. Here, there has been a significant reduction in recent years as we have already mentioned since we have already completed a large investment cycle, and this has allowed us to expand our capacity in almost all business units. With that being said, we emphasize that the 6.5% increase in CapEx that we see in the comparison between 2015 and 2016 is mainly due to the new tugboats and new equipment for the Port Terminals in Rio Grande and Salvador.

In pro forma EBITDA, we highlight the importance of the Container Terminals, Towage and Offshore Vessels, which contributed with 95% of reported business EBITDA in 2016.

Moving now to Slide 7. On this slide, we can see some of our financial liquidity ratios. The metrics of this slide show, among other things, that the total debt in the fourth quarter was at a similar level to the comparative period. The variation is very little, about 30%. All liquidity ratios remain strong. There was a reduction of cash due to the investment made to buy the equipment that will increase the efficiency and the operation of both terminals.

Moving now to Slide 8. This slide outlines the latest operating data for both Container Terminals, Towage and Offshore Support Vessels with a comparison between the first 2 months of 2017 and 2016. The Rio Grande container terminal had flat performance. Exports decreased due to the lower number of -- sorry, the lower volumes of cargoes such as frozen chicken. Imports increased, though, due to the entire volumes handled of cargoes such as plastics and parts and pieces. Cabotage, which has been growing significantly over the last years, had an expressive result mainly due to the rights [ph] handles. In the case of others, which includes shifting and transshipment, growth was mainly due to the beginning of the inland waterway operation of the Santa Clara terminal, with scrap metal and glycerin being the highlight among the cargoes handled.

The Salvador terminal had an expressive result. It showed a double-digit growth in this period driven by import growth. Even though exports presented a decrease due to the lower demand of some cargoes such as cellulose, imports grew strongly driven by the cargoes related to the solar sector with photovoltaic panels. Cabotage grew due to the higher handling of cargoes such as chemicals and petrochemicals. There was also an increase in the volumes of transshipment.

In the case of Towage, the number of harbor maneuvers grew due to the better performance in some of the ports operated and an increase in the number of tugboats in operation compared to 2016. The Offshore Support Vessels had an increase in the number of days in operation when compared to 2016. This was due to the commenced operations of 2 PSVs, Larus and Pinguim, at the end of 2016 with long-term contracts. Albatroz, Fragata and Gaivota also started to operate in 2016 with short-term contracts. I would like to emphasize here that despite the challenging scenario for the oil and gas industry, we had a positive result in the comparison between the years.

Moving to Slide 9. On Slide #9, we show the dividend that have been paid in dollars since 2004. The double-digit compound average growth rate confirms the company's commitment to the market and its shareholders. The slide also shows the dividends proposed for payment in 2017 in reference to the results of 2016, and I'll take [ph] the $36.9 million, which is an increase of 4%. Particularly here [ph] is that despite the challenges faced, we can see the robustness of the company and its businesses in these results. We're always seeking to grow consistently.

At this time, I would like to conclude my presentation and invite you to move to the Q&A portion of today's conference call. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is in English, and it will be asked by Andrew Mitchell from Edison.

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Andrew Mitchell, Edison Investment Research Limited - Associate Director [2]

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Yes, I have 2 questions, please. One was on the reference in the statement to continuing work on cost savings. I was wondering if you could give any guidance for it in terms of the level of saving that might flow through in 2017 from work that you've mentioned that you've already taken and potentially from further measures that you're planning. And the second question I had was just a small one regarding the dimension of legal claims impacting personnel costs in the quarter. I wasn't sure if that was purely the reallocation point that you explained in the statements or whether there was an underlying increase -- marked increase in that period. And if so, what did that arise from?

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Fernando Fleury Salek, Wilson Sons Limited - CFO of Brazil Operations and Executive Director [3]

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This is Fernando Salek to answer your questions. I'm just going to repeat the question first. So your first question was about further details in cost reductions and efficiency and productivity. Your second question was about increasing the legal contingencies for the quarter as presented by our financial statements. So to answer your first question, we are running a constant process of having better cost efficiency. We started a project last year to review the operational expenses and reduce overall expenses in the company. This project seeks to take a deep look at our structure to identify opportunities. In fact, we have already captured some opportunities, which resulted in important reductions in 2016. But this project is not aiming to capture gains through the next periods. We want to gain efficiencies to make the company more competitive and, of course, more efficient and sustainable in our businesses. Now to answer your second question, you asked about legal contingencies. There was, in fact, an increase in legal contingencies in this quarter. This was partially due to a number of labor contingencies in the Salvador terminal and also a fiscal contingency in the Rio Grande terminal. But there was a significant impact of the exchange rate in the contingency balance. So this also explains why there was an increase there.

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Operator [4]

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The next question will also be asked in English by Robin Byde, Cantor Fitzgerald.

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Robin Francis Byde, Cantor Fitzgerald Europe, Research Division - Transport, Travel and Leisure Analyst [5]

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Can you talk a bit more about the growth outlook for 2017, please, regarding container volumes, container unit revenues and also towage volumes. That's my first question. Secondly, could you talk about the Logistics business, and when do you expect that to be profitable? And then thirdly, could you talk about your CapEx plans for 2017 on an IFRS basis, so for the company but also for the joint venture?

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Fernando Fleury Salek, Wilson Sons Limited - CFO of Brazil Operations and Executive Director [6]

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So to answer your question on volumes comparing between 2016 and '17 in the Container Terminals. As we've said, volumes are flat, we're doing basically the same as last year. And Salvador had an impact due to the increased imports, and this is mostly due to photovoltaic panels and then solar energy. And I think that's a trend that should continue throughout the year.

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Arnaldo Calbucci, Wilson Sons Limited - Executive Director [7]

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Yes, this is Arnaldo. Now speaking about volumes in Towage, we had a significant growth in the first few months of this year. This was basically due also to the improved financial current in Brazil and also exports of ore. Now about Logistics, we are working strongly on costs and also on operational issues to make this profitability come as soon as possible. And about CapEx, Rob, for 2017, our budget has a reduction, and our CapEx budget is 17 -- including the Offshore Vessels, should be $80 million in 2017.

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Operator [8]

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(Operator Instructions) Our next question is -- will be made by Rob Byde, Cantor Fitzgerald.

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Robin Francis Byde, Cantor Fitzgerald Europe, Research Division - Transport, Travel and Leisure Analyst [9]

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I thought I'd ask another one. Could you talk about the Brasco business a bit more, please? Are you seeing any signs at all, any early signs of business picking up.

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Fernando Fleury Salek, Wilson Sons Limited - CFO of Brazil Operations and Executive Director [10]

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So to answer your question about Brasco, our expectations for this year is that the year will continue to be difficult as last year was, and we expect that in the second half of the year, there will be some improvement.

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

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Rob, this is Cezar. Just to add something, the offshore market in Brazil in 2017 should, as a whole, including Brasco and Shipyard, will -- for 2017, will continue to be challenging. We expect some improvement in the second half of the year for the offshore market as a whole.

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Operator [12]

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(Operator Instructions) Our next question will be asked by Jacqueline Brelly [ph], UtiliCon.

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Unidentified Analyst, [13]

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Just a quick question. Are you looking at doing any streamlining [ph] opportunities for the next year, or any additional bidding [ph] opportunities you need to look at to build up revenue growth more than in old years, or you're just looking to focus on existing business?

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Augusto Cezar Tavares Baião, Wilson Sons Limited - CEO of Brazil Operations and Executive Director [14]

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This is Cezar. Could you please repeat your question? And if you can, please speak up. We were unable to understand you.

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Unidentified Analyst, [15]

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Is that better? Is that clearer? So the question is basically are you looking at any new M&A opportunities? Or are you just focusing on the existing business?

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Augusto Cezar Tavares Baião, Wilson Sons Limited - CEO of Brazil Operations and Executive Director [16]

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Jackie, this is Cezar again. So we are paying close attention to the opportunities that may arise here in Brazil. We have been looking especially at the possible assets in the Container Terminal inventory that might go to market. So we have been looking at those very closely.

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Operator [17]

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(Operator Instructions) This concludes today's question-and-answer session. I would like to invite Mr. Fernando Salek to proceed with his closing statements. Please go ahead, sir.

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Fernando Fleury Salek, Wilson Sons Limited - CFO of Brazil Operations and Executive Director [18]

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Okay. Thank you very much. I'd like to thank you all for taking part in our results conference call. And I'd just like to reiterate that if you have any other questions, you can contact our Investor Relations Department. Thank you very much, and this concludes our call.

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Operator [19]

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That concludes the Wilson Sons Limited audio conference call for today. Thank you very much for your participation. Have a good day, and thank you for using Chorus Call.