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Edited Transcript of SMSAAM.SN earnings conference call or presentation 17-Mar-20 1:00pm GMT

Q4 2019 Sociedad Matriz SAAM SA Earnings Call

LAS CONDES Apr 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Sociedad Matriz SAAM SA earnings conference call or presentation Tuesday, March 17, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Macario Valdés Raczynski

Sociedad Matriz SAAM S.A. - CEO & GM

* Paula Raventós

Sociedad Matriz SAAM S.A. - Head of Investors Relations Officer

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Presentation

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Paula Raventós, Sociedad Matriz SAAM S.A. - Head of Investors Relations Officer [1]

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Good morning, everybody. This is Paula Raventós, SAAM's Head of Investor Relations. Thanks for joining us today for our results conference call for the fourth quarter of 2019. Speakers today will be Macario Valdés, SAAM's CEO; and Juan Carlos Riedel, SAAM's new CFO since January 2020.

We would like to inform you that this call is being recorded. After the company's remarks are completed, there will be a question-and-answer section through the webcast platform.

Before proceeding, let me mention that the information discussed today may include forward-looking statements regarding the company's financial and operating performance. We undertake no obligation to update and maintain updated any such forward-looking statements after the date of this conference call. All projections are subject to risks, uncertainties and other factors that could cause actual results to differ materially from our current expectations. Furthermore, please refer to the detailed note in the company's presentation disclaimer regarding forward-looking statements.

I will now turn the call over to Macario Valdés, SAAM's CEO. Please go ahead.

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Macario Valdés Raczynski, Sociedad Matriz SAAM S.A. - CEO & GM [2]

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Thank you, Paula. Good morning, and welcome to our results conference call for 2019. Thanks for joining us today. Nowadays, we are all dealing with the coronavirus contingency, which is affecting people's health and economies around the world. SAAM operates as a facilitator of commercial trade in the economies where we have presence. Our group of companies in the ports, tugboats and logistics segments play a key role in many economies within Americas. So even though focus of this presentation is to go through 2019 results, at the end of this presentation, we will discuss this topic and current situation in more detail.

So I would like to start some top line highlights, then we'll move on to financial results. And finally, I'll close with an outlook for the rest of the year.

So let's start with Page 4. SAAM is a multinational company providing services for international trade through its 3 divisions: Port Terminals, Towage and Logistics, all 3 critical links on the productive cycle -- supply chain on the continent. With 58 years in business, SAAM has operations in 12 countries in North, Central and South America, creating jobs for more than 8,000 employees. It is the leading towage service in the Americas.

If we go to Page 5, we'd like to show a midterm retrospective. So I would like to take a look at the company's evolution over the past 5 years, which is certainly a history of growth, beginning in 2015 with relevant steps forward, such as joint towage operations with Boskalis. This partnership enabled us to enter 2 new markets and move forward on spreading our footprint across the Americas. We also made great progress on extending port concessions together with this structured investments that enabled us to secure new commercial contracts. In 2017, our Port Terminals Division entered Central America by acquiring 51% of Puerto Caldera. We continued to make strides to optimize our portfolio and implement our new operating model, which today has allowed us to reach a consolidated EBITDA of $177 million, up 93% since 2015.

If we move to Page 7, we will review the main highlights of 2019. A new management structure and strict cost discipline enabled us to close 2019 with positive numbers and net income of $57.8 million, 16% higher than the one reported last year. The results for the fourth quarter of 2019 were also positive, even though social crisis in Chile partially affected operations, particularly at our domestic ports. In the last few years, we have implemented a model that puts us in a stronger position to face a highly challenging context in the foreign freight industry. The results for the year 2019 are positive, thanks to cost efficiency at our operations and the geographic diversification of our assets.

In 2019, we concluded the largest acquisition in our history, acquiring Boskalis' stake in our former joint operations on the Towage business in Brazil, Mexico, Panama and Canada for $194 million. Another milestone during the period was the progress we made in implementing our new operating model, which in 2 years has involved more than 400 initiatives, including substantial progress in risk management and process standardization.

Our management based on environmental, social and governance criteria was endorsed by being listed for the fourth straight year on the Dow Jones Sustainability Index Chile and for the second time on the Latin America Integrated Market Index, which particularly highlights our progress in environmental matters, as I mentioned, where the company rose 8 points with respect to the previous year. In addition to the organic acquisition, in 2019, we invested $82 million when considering 100% consolidated and associated companies. Mainly this investment were directed to tugs, where we built 1 unit for Canada, 1 for Guatemala. We also in terminals pursued civil works at Terminal Portuario Guayaquil, and we invested in new cranes for our port terminal in San Vicente. Also, we invested in a new distribution center for Aerosan here in Chile.

The Towage Division experienced during 2019 an important development on its growth strategy, pursuing a leading role in the industry consolidation process. In addition to the aforementioned acquisition, during the period, 3 tugs began operations under the long-term contract at RIPET propane gas export terminal in Canada. One of these tugs was built especially for this project, and it is the first vessel with IMO Tier III emissions control certification in our fleet in Canada, making it one of the most ecological tugs in the world. Along with that, we announced our entry into a new market in 2021, El Salvador. We will provide services for the Energía del Pacífico, EDP, project at the Port of Acajutla. This project will require 3 tugs, 2 of which will be newbuilds.

As part of our vision of consolidating our portfolio and making our operations more efficient, the companies within our Port Terminals Division also reported several milestones during the period. We successfully concluded all of our collective bargaining processes of the period, maintaining operational continuity and safety at our operations. Following this process, we will continue to work to build trust-based relationships. Worthy of particular mention are the dock expansion works at Terminal Portuario Guayaquil and the completion of dredging works on the access canal. This enabled our port to receive ships with deeper draft from 9.75 meters to 12.5 meters and also to extend our commercial agreements in this port facility. At Puerto Caldera in Costa Rica, our dredging campaign was executed during the fourth quarter of the year in order to optimize terminal operations.

In the Logistics Division, we also took important steps. For example, Aerosan now has one single name and image in Chile, Colombia and Ecuador. We also renewed the concession for export distribution center at the Santiago Airport and began operating the new import distribution center. Our operations in Chile for Logistics reported positive results during the period, while closing new retail industry contracts and continuing to lead in the bonded warehouse segment.

If we move to Page 8, this page shows how newly generated efficiencies, cost-cutting efforts and opportunities for inorganic growth have enabled a sustained increase in EBITDA and EBITDA margin. We have successfully implemented a new operating model, which has reflected in results and allowed us to move forward with our growth strategy. After reviewing our structure and our business divisions, we have simplified them, creating a more robust central corporate office generating synergies in operational processes. As a result, we are consolidating, sorry, a more flexible modern management model with a lighter structure and standardized processes with a new operating model. This has led to greater productivity, optimized cost and enhanced control of -- over our businesses.

Now let's move on to Page 10 and review the company's aggregate results. Sales for the year totaled $529.7 million and consolidated EBITDA was $177 million, an increase of 21% when compared to the one of the previous year. The increase is due to cost and expense efficiencies in all 3 business divisions, growth at Port Terminals, consolidating SAAM Towage Brasil for 2 months and IFRS new accounting treatment, which accounted an effect of $6 million. The EBITDA margin reached 33% for the period, up 5 percentage points from the 2018 figure of 28%. The company's share of net income from associates in 2019 decreased by $5 million, mainly due to decreased earnings from Chilean port terminals affected by social unrest in Chile and nonrecurring costs.

Net income for 2019 was up 16% to $57.8 million. Isolating the extraordinary effects of the sales of our interest in TPA, consolidation of the newly acquired towage operations and nonrecurring cost to implement the new operating model in both periods, net income rose due to improved results across the 3 business divisions and cost and expense savings from implementing the new operating model. Our results reflect the effect -- our results reflect the effects of our new operating model diversification of our assets and 2 months of consolidating the operations acquired from Boskalis.

Let's move to Page 11. As you can see in this slide, today, we are an international company with operations in 12 countries in the Americas. When we analyze our EBITDA pro forma weighted by the equity method, South America, excluding Chile, represents 35% of our cash flow; followed by Chile with 33%; North America with 20%; and Central America with 12%. This is undoubtedly one of our strengths and a factor that give us stability in a market with very challenging conditions.

On Slide 12, we see that net income reached, as we already mentioned, $57.8 million in the last year. Broken down by business divisions, the Port Terminals Division generated cost efficiencies from the new operating model and earnings growth at foreign terminals, which was offset by lower results from Chilean terminals as a result of domestic civil unrest. The Towage Division performed well as a result of increase in special services, salvage operations, efficiencies and consolidations -- and consolidation of the operations acquired from Boskalis since 1st of November last year.

The Logistics Division also reported strong results, reflecting the new operating model and the closing of new contracts with the retail industry. Nonoperating income saw increased financial costs and taxes, explained by our better results and the sale -- on the sale of TPA.

On Page 13, here, we can -- let's move on now to Page 13. Here, we can see SAAM's sound financial position, which the company has maintained through its history. We, nowadays, have a consolidated cash position of $230 million and net financial debt of $307 million. So net financial debt-to-EBITDA ratio is 1.7x. The same ratio calculated using the equity method implies a net financial debt-to-EBITDA of 1.51x. This is quite a conservative ratio within our industry. Therefore, our rating agencies have confirmed our AA- risk ratings.

Now on Slide 14. Here, we show our vision of growth, diversification and leverage, internationalization accompanied by a simplified structure that concentrates and strengthens support areas and the implementation of a culture of operational excellence, leave us on a better footing to face the intense competition in our industry and a challenging global economic environment and sociopolitical reality in Latin America.

The Towage Division reported more dynamic activity in 2019 as a result of special services and salvage operations, together with 2 months consolidating 100% of the operations in Brazil, Canada, Mexico and Panama. Thanks to this, the division increased its sales by 5% this year compared to 2018, reaching $207 million, while EBITDA reached $78 million, up 16% over 2018. Pro forma EBITDA reached $109 million, up 5% when compared to the one of 2018.

Regarding our recent acquisition, we concluded the acquisition of Boskalis' interest in our joint operations for the Towage business in Brazil, Mexico, Panama and Canada. With the closing of this transaction, valued at $194 million and financed with 50% cash and 50% bank debt, SAAM now owns 100% of the operations in those countries. This is the largest acquisitions we have done in our history and a strategic step in moving our business into the future, giving us a single entity providing coverage in the Americas and an attractive position to continue growing within the towage industry. SAAM will group all its towage operations under one single model, operating, commercial, brand and legal under the name of SAAM Towage. This transaction positions SAAM Towage as the largest tugs operator in the Americas and one of the leading operators in the world, with a total fleet of 152 tugs and operations in 9 countries on the 2 continents. SAAM Towage fleet performs more than 100,000 maneuvers each year at over 60 ports where it operates. It offers harbor towage services for offshore vessels and positioning and anchorage to oil and gas platforms as well as salvage and special services. In this context, we signed an agreement in January to purchase 70% of the operations of Intertug, a towage company with operations in Colombia, Mexico and Central America. SAAM Towage has also begun operations for the AltaGas Canada project, and we will begin to provide services next year in El Salvador, as we already mentioned.

Continuing now with our Port Terminals Division on Page 19. In 2019, the higher volume from transfer services at foreign terminals and cost efficiencies offset the drop in earnings at some Chilean terminals. Sales reached $2,074 million (sic) [$274 million] and EBITDA was $105 million, which represents an increase of 1% and 17%, respectively. The division's transferred volumes held steady with respect to 2018 with 38 million tons and 3.4 million TEUs.

On Page 21, we will review the results of our Logistics segment. Greater volumes of airport services for exports partially offset the Logistics Division's drop in sales during the year due to reduced volumes of bonded warehouses and hub services. Nevertheless, the decrease in sales was accompanied by strong cost-cut initiatives consistent with our new operating model, which allowed us to achieve an EBITDA of $10 million, which is 35% greater than the one reported in 2018.

Now I would like to conclude the presentation with an outlook for the next few years -- sorry, the next few months of this year. Let's turn please to Page 23. We are, of course, very much concerned about the current situation. All foreign trade has been impacted by the effects of the coronavirus. At first, the problem centered on trade with Asia, but now shipments have faced additional complications and some of them have been delayed. In any case, it is still too soon to make projections since it is still unclear how the virus will evolve. Internally, we are applying all guidelines issued by the Ministry of Health and all local authorities in the countries where we operate and taking all possible precautions to protect our employees and customers from contracting the disease, but at the time -- at the same time, trying to ensure we maintain operational continuity across all of our operations. We have implemented an emergency committee, Safety Talks, while international trips and business have been suspended, coupled together with sanitation and ventilation measures among many others.

For the first quarter of 2020, we are forecasting a drop of about 35,000 boxes for our portfolio of Port Terminals, due mainly to the effect of blank sailings by shipping lines. Particularly in Central Chile, for the first quarter of this year, we estimate that there will be a 2-digit decrease in volumes transferred as a result of direct services coming from Asia. For the remaining part of this yearly -- clearly, the current global situation and the coronavirus evolution will have an effect over the ports and maritime activity in the Americas, but it is too early to assess the magnitude of this impact and the expected timing for a potential recovery.

Now if we move to Page 24. On March 6, we informed the market of the dividend proposal of $34 million that our Board agreed to present at the upcoming shareholders' meeting. This dividend represents a 59% payout when calculated over the net income of 2019. This dividend will be charged to 2019 net income and will guarantee stable returns for our shareholders. Today, we have a more resilient structure that enables us to better face this very challenging context. We've already made major investments this year. We forecast investments of $88 million, considering 100% for consolidated companies and associates, mainly related to building and maintaining tanks at foreign operations in Mexico, Panama, El Salvador and port terminals expansions.

We began the year 2020 with the announcement of the purchase of 70% of Intertug, a company with broad experience in the towage market in Colombia, Mexico and Central America, as we already mentioned. This deal strengthens our leadership position in the Americas and confirms our intention to play a key role in the industry consolidation process. Also, the oil and gas industry is going through a very volatile cycle. Prices have decreased substantially in the last 2 weeks. The current market condition in the short term will benefit the cost of fuel for our towage operations. And in the midterm, it may impact the activity level in countries such as Mexico and Brazil. Nevertheless, our exposure to this segment in the Towage Division is quite limited.

Regarding the Port Terminals Division, our terminals will be affected by the current situation and the effects of the coronavirus along with the effects of service reconfiguration that shipping companies are currently making. At Aerosan also, volumes will be impacted by the coronavirus starting from March '20, as a result of the closure of several national borders and decreased deployed capacity by the airline industry. With this, we can conclude the results presentation for the fourth quarter of 2019.

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Paula Raventós, Sociedad Matriz SAAM S.A. - Head of Investors Relations Officer [3]

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Thank you, Macario. The floor is now open for questions, please. (Operator Instructions).

We don't have questions. So this concludes today's presentation. Thank you very much for joining us today on this conference call, and we look forward to talking to many of you over the coming days. Thank you.