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Edited Transcript of STBP3.SA earnings conference call or presentation 13-Nov-19 2:00pm GMT

Q3 2019 Santos Brasil Participacoes SA Earnings Call

Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Santos Brasil Participacoes SA earnings conference call or presentation Wednesday, November 13, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Antônio Carlos Duarte Sepúlveda

Santos Brasil Participações S.A. - CEO, Interim Operations Officer & Member of Executive Board

* Daniel Pedreira Dorea

Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board

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Conference Call Participants

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* Lucas Marquiori

Banco BTG Pactual S.A., Research Division - Research Analyst

* Marcelo Aguiar

Leblon Equities Gestão de Recursos Ltda. - Partner & Portfolio Manager

* Victor Mizusaki

Banco Bradesco BBI S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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[Interpreted] Good morning, everyone, and thank you for standing by. At this point, we would like to welcome you to the Santos Brasil Participações Third Quarter 2019 Conference Call. With us today, we have Mr. Antônio Carlos Sepúlveda, the CEO; Daniel Pedreira Dorea; and the Commercial Officer, Ricardo dos Santos Buteri. This event is being recorded. (Operator Instructions)

This event is also being broadcast live via webcast and may be accessed through http//ri.santosbrasil.com.br, where the presentation is also available. Participants may view the slides at their own convenience. The replay of this event will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions on our website. These questions will be answered by the IR team.

Before proceeding, we would like to mention that forward-looking statements made during this call are based on the beliefs and assumptions of Santos Brasil participations management and on information currently available to the company. They involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur.

Investors and analysts should understand that general conditions, macroeconomic conditions and other operational factors could cause the results of Santos Brasil participation to differ materially from those expressed in some forward-looking statements.

We will now turn the conference over to Mr. Daniel Pedreira Dorea, who will begin the presentation. You may proceed, sir.

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Daniel Pedreira Dorea, Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board [2]

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Good morning to all of you, and thank you for your participation. We have Antônio Carlos Sepúlveda, the Chief Executive Officer; and our Chief Commercial Officer, Mr. Buteri. We're going to comment on the results for the third quarter '19. The results for the third quarter '19 have proven to be stable vis-à-vis the second quarter '19 where we had a recurrent EBITDA of BRL 42 million. If we consider the methodology of the IFRS when compared to the third quarter 2018, there is a slight drop.

I would like to remind you that last year, we had an incident due to the high dwell time caused by the truck drivers' strike. If we discount this exceptional event, we're very close to reporting the best quarterly results since 2015. The growth of Santos Brasil this quarter follows the same path that we observed during 2019. The increase of our volumes is no longer the one we used to have at Santos, and this puts us at the lead of the market for the year.

Now this becomes evident when we observe that Tecon Santos had a growth of almost 9% in the third quarter '19 compared to 1.2% for the port in general. Now because of the exports to Asia, we were able to handle 40,000 additional containers during the semester. Now even though the macroeconomic growth has been a disappointment, we continue to look forward with optimism to the future. We have important catalyzers for the company, and we can benefit for a greater trade opening that will benefit exports.

Now if this scenario is materialized, the Port of Santos will enter a more competitive scenario with better handling. And once again, all of this has been severely compressed in the last 5 years. This is our expectation. Now all of this will begin to gain force beginning in 2020.

I would now like to go back to the third quarter '19 to speak about the most important highlights in the container port terminals in a consolidated way. Our terminals had an increase of 5.3% in the volume of containers handled during the quarter, and the export volume had an increase of 30%. The vehicle terminal continues to suffer the impact of the reduction of the exports to Argentina and the lower number of vehicles imported into Brazil.

In terms of amount, we have had a reduction in exports as well as in imports. In terms of logistics, the negative impact is due to a better pickup of containers. On the right bank, we had containers operated by Libra and of course this has changed. We have a decrease in the average ticket of imports. Positively, we would like to highlight the impact of integrated logistics, especially for the automotive industry.

In the financial aspect, we had a consolidated net revenue that represents a slight drop of 9% vis-à-vis the third quarter 2018 due to 2 main reasons. You can observe that there is a change in the law to collect taxes that is now being charged directly and no longer from the terminals. Now if we exclude what is charged from the shipowners, we see a reduction in invoicing, and the cost of handling has also decreased. And of course, this has not had much of an impact on the gross profit of the company. When it comes to CapEx, our disbursement has been lower than expected because of some technical reasons. And as we have had a derivation of one of the emissaries of SABESP, in 2020, we will be receiving the 2 cranes that we have recently purchased. These are state-of-the-art cranes, and they should increase our productivity as well as our cash.

I would like to refer very briefly to our environmental, social and governance activities. For some years already, we do publish the company's sustainability report that is based on GRI, which is a benchmark worldwide. We continue to enhance our sustainability policy with a reduction of 19% in the emission of CO2 during the handling at our terminals.

This year, we're running a campaign that is called Zero Accident to strengthen the safety culture in the company. We have held lectures, workshops at all of our business units because this is one of the key commitments of the company.

And finally, this quarter, we reviewed and launched our new code of conduct, which means that we have directly trained 1,200 employees in the new forward practices. We're going to train all of our employees until the end of the year.

Now these are the initial highlights that I wanted to mention. We are now at your entire disposal to respond to your questions, doubts or comments. And once again, thank you very much for your participation.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We continue on with the first question from Lucas Marquiori from BTG Pactual.

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Unidentified Analyst, [2]

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This is [Carlos Daniel]. I would like to discuss 2 regulatory aspects that happened during the quarter, and I would like you to shed light on this. First of all, the decision of ANTAQ, referencing your claim in terms of the CapEx. I know that this is subject to the final approval of the Ministry of Infrastructure. If you could refer to the conditions of the contract on terms. It is our understanding that if you redistribute CapEx, which will be the counterpart for you, if it will be longer terms. Therefore, which are the final conditions of this contract? This is the first question.

And the second question refers to a decision of ANTAQ of not deferring your request for balance at Imbituba. Which are your plans for this asset? Are you going to resort to court? Are you going to attempt a new balance? So that we know your next steps regarding Imbituba.

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Daniel Pedreira Dorea, Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board [3]

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Lucas (sic) [Carlos], this is Daniel. I would like to begin by your question of rescheduling the CapEx. Now the decision of ANTAQ accepts a claim that is favorable to the company. The understanding is that the economic and financial balance of the contract will be maintained as was requested by the company. At this precise point in time, we're not speaking about alterations in terms or any other modification. Once again, the request has been accepted that company had already stressed the maintenance of this balance as an inherent part of this contract, and this has been understood and accepted by ANTAQ. What ANTAQ will do now is that once this process is over, they will recommend and sign an amendment as requested by the company for the new cash flow. The following step now, again, will be up to the Ministry of Infrastructure through the National Secretariat of Ports. Our expectation is that once the amendment has been fully signed off, and this could still happen this year, we truly cannot specify when this will happen. But this new amendment will consolidate all of the contractual obligations that arise from this contract.

Now in the case of Imbituba, this process still is pending. There is still an agreement that we're trying to address to be able to have greater clarity in terms of the decision of ANTAQ. And this will return to the National Secretariat of Ports and administratively, we would still have a recourse. What we are doing now is channeling the possibilities. Resorting to court is one of the possibilities, but I do believe we will have a negotiated solution. And there is an instrument of ANTAQ to rediscuss that issue of the balance in the contracts. There is a recent decree issued once again, recently by the Ministry of Infrastructure for this. And at the moment, we're deciding on the best solution to address the problem at Imbituba. I hope to have responded to your questions and thank you for the question.

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Operator [4]

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The next question is from Victor Mizusaki from Bradesco BBI.

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Victor Mizusaki, Banco Bradesco BBI S.A., Research Division - Research Analyst [5]

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I have 2 questions. The first, if we continue -- consider what happened with the investment plan at Tecon Santos, what will happen with the balance with this approval? You should have a very comfortable balance. And will this enable you to participate in new auctions, payout dividends or participate more in M&A?

At the beginning of the conference call, you spoke about a scenario of resumption in 2020, which would be the evolution of tariffs in 2020. And should we expect that in the short term, tariffs will return to their historical levels?

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Daniel Pedreira Dorea, Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board [6]

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Victor, once again, this is Daniel, and I will base myself on your first question that refers to the deleveraging of our balance. I believe that once the amendment has been signed to the contract, and once we have a clear idea of the horizon of our disbursements, we will have, of course, greater comfort when it comes to our financial scheduling. This without a doubt, the company regardless of the CapEx, constantly analyzes opportunities that may appear in the market. Evidently, once the CapEx issue has been addressed, it will remove all of our questioning, not only for the market, but also for the company. We continue on with business as always.

Now if something appears that we deem to be worthwhile, that will add value, without a doubt, we will analyze this and hold conversations. We may participate in eventual acquisitions. At present, there is nothing in the radar going forward. When it comes to the dividend policy, the policy at the company is to continue with its historical payout of dividends. We have always paid a great deal of dividends. And there is also the issue of results that depends on the economic scenario of Brazil. We're thinking in a rather conservative fashion at present. This does not mean that the company has changed, and that it will stop paying out dividends to the shareholders. When you spoke about the tariff, I would like to perhaps shed a bit of light on this issue and ask Carlos to do this.

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Antônio Carlos Duarte Sepúlveda, Santos Brasil Participações S.A. - CEO, Interim Operations Officer & Member of Executive Board [7]

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I think that we have always known the level of services offered by Santos, and the level of tariffs that are being charged. Our tariff level is very much lower compared to what is normally charged at forward operation. And of course, all of this depends on demand. We have already begun to practice tariffs slightly above inflation. Our contracts will undergo a readjustment until the year 2021. And in our contracts, gradually, we have improved the amount of the tariff. Now the tariff will depend on what will happen in Brazil. We're counting on a better situation in 2020. And the logistics service at Santos, the supply of services that we have at Santos, allow us to have an improvement during the year 2020, especially in the second semester where we believe that demand will increase for port operations. We believe that this is inevitable. This expectation already exists in the entire market. And you all know what happened in Santos, and the recovery will happen early on and will, of course, depend with the growth of volumes.

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Operator [8]

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(Operator Instructions) We continue with Lucas Marquiori from BTG Pactual.

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Lucas Marquiori, Banco BTG Pactual S.A., Research Division - Research Analyst [9]

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A very quick question. In the presentation, you spoke about the delay in the works that are carried out on the Santos quay. There were some unforeseen events. What is happening at present? Have you returned to normalcy? Should we expect an acceleration of CapEx for the fourth quarter so that we can truly understand what happened in the third quarter?

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Antônio Carlos Duarte Sepúlveda, Santos Brasil Participações S.A. - CEO, Interim Operations Officer & Member of Executive Board [10]

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This is -- Lucas, I'm sorry, this is Antônio Carlos. The works have already been contracted. We have service orders that are already in course. We're going through that first stage, which is a stage of preparation that is taking longer than was expected, but we will now begin to increase our disbursements regarding this work site. The expectation for CapEx this year is of approximately BRL 100 million. This should increase the coming year because we're going to deepen the quay as was contracted and -- which means that we will employ more working capital during that second stage.

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Operator [11]

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We continue with Victor Mizusaki from Bradesco BBI.

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Victor Mizusaki, Banco Bradesco BBI S.A., Research Division - Research Analyst [12]

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Simply one more question, if you allow me. If you could speak about your vision with the potential impact in the Port of Santos and more specifically, in Santos Brasil? If we can expect that because of cabotage, Santos Brasil could be favored through an improvement of mix?

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Unidentified Company Representative, [13]

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Well, cabotage has been quite regular as Tecon is a very large. These new lines with cabotage, of course, favor us, and we look upon this very positively. We're also thinking of long-haul transportation. And if we deleverage cabotage, this will be an important driver. We have the first step and other initiatives that are underway. But it's very difficult to refer to the magnitude of all of this. Cabotage has been growing more than the average of other cargoes, and we foresee that this will become ever more important. Now this is not something that will have an impact during a quarter. Perhaps, in 2020, we will see the growth of cabotage going beyond and above the growth of other cargo.

And of course, this will help us a great deal with a logistic of shipowners. The trend, once again, is to have a long-haul cargo, and this means that we will be able to have much larger vessels and a national distribution. And of course, this favors specifically Tecon Santos. This is a terminal with space and with capacity to receive larger vessels, and I think our product will be ever stronger in the market.

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Operator [14]

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We have a question coming from the webcast from Marcelo Aguiar from Leblon Equities.

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Marcelo Aguiar, Leblon Equities Gestão de Recursos Ltda. - Partner & Portfolio Manager [15]

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Could you please remark on the performance of box rate for spot cargo in the Port of Santos for the quarters of '18 and '19? Which is your estimation of CapEx? And which would it be for growth in the year 2021, '22 and '23?

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Daniel Pedreira Dorea, Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board [16]

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Marcelo, this is Daniel speaking. Basically, there is no box rate. Spot, you have a public price list that could perhaps take the place of the spot prices. But as the shipowners that could bring spot cargo already have a contract with us. This tariff is used for regular services. I will give you an example. In the third quarter, we had a vessel from Merch, and what we applied was the tariff that we had already applied formerly. And in October, we had some ships or vessels under the captain ship of Cosco. And in that case, we once again applied the tariff that has been contracted with Cosco, so that public price list in practice ends up now being applied due to this dynamic of the services, especially at Tecon Santos. And this is important. This is a good sign what happened in October, the new imports. And once again, this is a very positive sign for the port, and the vessels we have been able to attract this type of service.

Now when it comes to CapEx, which is the second part of your question, I'm going to explain to you what we imagine until the year 2020. In '19 -- I'm sorry, in 2020 because of the work site that we mentioned, it should be BRL 250 million to BRL 300 million. And in 2021, BRL 150 million to BRL 200 million. For 2019, it's BRL 190 million. And beyond that, the flow that we normally imagine. And this is what we imagine will happen until 2021.

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Operator [17]

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(Operator Instructions) At this point, we would like to end the question-and-answer session and turn the floor back to Mr. Dorea for his closing remarks. You may proceed, sir.

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Daniel Pedreira Dorea, Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board [18]

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Simply to conclude, I would once again like to thank you for your participation, your question and your interest. And we do await you in the fourth quarter 2019 conference call. Have a nice day.

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Operator [19]

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The Santos Brasil Participações 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.]