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Edited Transcript of STBP3.SA earnings conference call or presentation 14-Aug-19 1:00pm GMT

Q2 2019 Santos Brasil Participacoes SA Earnings Call

Aug 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Santos Brasil Participacoes SA earnings conference call or presentation Wednesday, August 14, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Pedreira Dorea

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

* Marcos de Magalhaes Tourinho

Santos Brasil Participações S.A. - Chief Commercial Officer & Member of Executive Board

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Conference Call Participants

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* Pedro Pascoal

JP Morgan Chase & Co, Research Division - Analyst

* Pedro Bruno

Santander Investment Securities Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. Welcome to Santos Brasil's Second Quarter '19 Results Conference Call. Here we have with us the Economic Financial Director and IR, Daniel Pedreira Dorea; and the Commercial Director, Marcos Magalhaes Tourinho. We inform to you that this is being taped and recorded. (Operator Instructions) Now we're going to -- and then we're going to start Q&A where more instructions will be provided. (Operator Instructions) This (inaudible) is being translated via Webcast, and you can access it via our ri.santosbrasil.com.br where our presentation is available. The slide collection is going to be controlled by yourself, and this would be available after the end. (Operator Instructions)

Before we go on, we would like to clarify that any statements that maybe [done] during teleconference relative to business effects perspective of Santos Brasil Participações, projections, operational goals, financial goals, are promises of the of the (inaudible) of the company as well as informations that are available to Santos Brasil Participações based on that. Future considerations are not guarantee of performance, and they may undergo uncertainties since important decisions depend on circumstances that will or not occur. Investors and analysts should understand that general conditions, conditions of the factor and other operational factors may affect future results of Santos Brasil Participações and may lead to results that are materially different from those expressed in such future statements.

I would like now to give the floor to Mr. Daniel Pedreira Dorea, who will begin his presentation. Please go on.

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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, all. I'm here with Marcos Tourinho, our Commercial Director, to analyze and comment the results of 2Q '19 that demonstrated an excellent improvement in the performance of the company. This improvement is not in tune with (inaudible) for (inaudible) activity in which custom industry and the imports have not really taken off. If on one on hand, our expectations for the end of 2018 will link to a better recover of economy. On the other hand, the growth that we have seen with well-succeeded initiatives and service contractions that include expansions activities of Santos Brasil.

Looking forward, we see a constant cycle of growth in this sector, supported by special reforms in governmental policies that will contemplate private capital with more commercial opening, less regulations despite a more technical public management. It feels like we have seen the [infrastructure] (inaudible). This year, the company has positioned itself to grow with more profitability, be it in revenue with more throughput and also reorganizing prices and quay operation or cutting expenses, which started 2 years ago. In the first half of 2019, we registered an increase of 10.7% in containers handling in our ports and 17% advance in EBITDA pro forma as compared to the first semester of '18, even for insignificant increase in costs that were nonmanageable with payroll and et cetera.

As a concern to the most important operation of the company, there was a 12.8% growth in containers handling in the semester as opposed to a drop of 4% in Porto de Santos.

With that, we -- it was the first time that there was growth Y-o-Y since -- in the time that, in the second trimester 2019, the second quarter, there was a 43% growth in this full-container handling of imports into [gold] currencies, that was pushed forward by the 2 Asiatic services that we have. And (inaudible) has consolidated its 41% of market share. (inaudible) has a good operational performance in the second Q with more handling of imports of heavy-duty vehicles. And those have margins that are much larger as compared to handling of light vehicles for exports.

Santos Brasil Logística deal on the operation that had worse results in this quarter. The impact was because of the less participation of fragmented loads, LCS -- [LCL]. Especially because of the [wide] bank of Porto de Santos. And we have to offer both services and divert our revenues in a (inaudible). Again, the general load terminal was the highlight. In (inaudible) there was 109% improvement in the Y-o-Y, leading forward the exports of wood to the Chinese market. And after the bad performance in the first 2 months of the year, the (inaudible) of the country had increased a lot in throughput, in the containers of the second quarter, especially because of cabotage between North and Southeast regions.

Another important aspect was the imports of project cargoes that were aimed at mining places and high-end power plants in the northern region. In relation to the investment, the company has used BRL 46 million at the end of July and those millions were for circumstances. At the end of July, we obtained a license for the extension and reinforcement construction site. And considering the equipment and the cranes that we bought in 2018 we're going to achieve much productivity than competitors. The construction site and the materials have already been acquired, and we intend to finish this job in the first semester of 2021.

Now I'd like to go through the analysis of the most important indicators. We are going to talk about the second slide of the presentation. In the second quarter 2019, consolidated, the company increased 20.3% in container handling, about 320,000 containers and that has to do with -- that led to 31% growth in the volume of import, 33% in export and 10% in cabotage. Tecon Santos increased its market share in positive currencies for 42.7% in the second quarter of 2019 as compared to 33 -- 36.6% in the second quarter of Q of '18. Operating 2 of the 4 services that go to Asia, Tecon Santos has benefited from this trade. What is the most important in a commercial haul of the quay, and that presented more growth in the other hauls. The volume of warehousing in the logistics grew 9% with worse mix because of LCL, as I commented.

Thanks to the general cargo of Imbituba, there was a significant increase in the operations of [after load] around 105% because of wood -- of logs. And -- soda ash and tariff has maintained its a dynamic in the last trimester with an (inaudible) of 39% but was compensated with 10% imports in more handling of heavy duty as agricultural machinery, buses and trucks.

In Slide 3, it's clear the pickup in containers handling that we had in May and June was positive impact in the 2 Asian services. On the right, you see the import volume that was better comparing quarters and yearly.

Slide 4 presented financial highlights. The net revenue reached BRL 265-almost million in the second quarter, increasing 14.9% in the Y-o-Y. The revenue of operations on ports grew 23.5%. In logistics, a drop of 4.7%, which was a reflect of LCL [operations] load. The revenue of tariff had less volumes but was stable as considered to last year.

On the other side, the more imported vehicles increases all time and also heavy-duty vehicles in the mix allows for [41%] raise in the revenue of vehicles handled. Tecon Santos, the consolidated net revenue was 59% in 2Q '19, 55% above what we saw in the first quarter.

In the second trimester -- second quarter of '19, the company reported consolidated EBITDA pro forma. So we consolidated in rental loans, BRL 35 million. Expenditure and extraordinary gain excluded, the recurring EBITDA was a total of 42.6%, a margin 16.1%. So the profit was BRL 6.3 million in the quarter.

Our cash position in June was almost BRL 460 million, reinforced by the (inaudible) of debentures in April, where we captured BRL 300 million in the market capital that are going to be destined to the expansion and modernization circumstances. Financial levering's still low, and we closed the quarter with liquid net debt of BRL 19.8 million (inaudible) net and EBITDA pro forma [0.17%] (sic) [0.17x]

So this being said, we are open to answer questions, whatever doubts that you have. And we thank you for your presence.

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Questions and Answers

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Operator [1]

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We're now open for Q&A. (Operator Instructions) Our first question comes from Mr. Pedro Bruno from Santander.

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Pedro Bruno, Santander Investment Securities Inc., Research Division - Research Analyst [2]

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Could you please give us an update in relation to the regulatory discussion of CapEx? We understand that you have -- that it's going (inaudible) with the government. Could do give us an update of the talk and how do you see those discussions trying to think about time (inaudible) and what could expect for a final solution in relation to this economical imbalance?

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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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This is Daniel. This discussion is happening right now at ANTAQ. There were many interactions with the technical area of ANTAQ that we understand their perspective. We still need an opinion from the legal area of ANTAQ to then forward their opinions, their recommendations for the general Board. And then they will deliberate. We believe, and we are optimistic that to the end of 2019, this issue will be -- at least in ANTAQ, it will be solved. And we'll go, be forward to the Infrastructure Ministry, so that we can go -- move to the loan contract. In Brazil today, the Infrastructure Ministry should publish a draft that will regulate the ports and then there's going to be 4 extra sessions there. So we think that this is going well, our case is going well. It's in ANTAQ but also if it's (inaudible) that I think will make the regulatory frameworks like (inaudible).

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Operator [4]

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Next question from Pedro Pascoal, JPMorgan.

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Pedro Pascoal, JP Morgan Chase & Co, Research Division - Analyst [5]

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I have 2. First, could you talk about the throughput outlook, for instance capacity for the second half with the shipowners? And second question has to do with investments in Vila do Conde and Imbituba . How is it going? Have you been talking about it? Anything would help.

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Marcos de Magalhaes Tourinho, Santos Brasil Participações S.A. - Chief Commercial Officer & Member of Executive Board [6]

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Good morning, Pedro. This is Marcos Tourinho. About the outlook for the second half, it's a constant growth, especially with the recovery, slow recovery of macroeconomic activity that impacts directly on our business, which mirrors what happens in the macro situation. But we see a consistent growth of throughput, better mix for -- at the port. The imports are starting to react. Daniel has commented that in the first half, the port has less volume throughput. What we think should happen is a recovery at mildly less than what we expected at the beginning of the year, but at least is consistent growth.

Regarding the capacity, we now operate with comfort in relation to the capacity we have at Tecon. And the trend with this throughput recovery and growing the (inaudible) of ports is that this (inaudible) what levers in a better scenario to negotiate price recovery for the next month.

If you analyze the level of prices in (inaudible) it's less compatible with the level of service that we provide for 20 years already. Actually, Santos today is the cheapest port in Brazil, what is incompatible with the level of service and productivity that we provide.

Port owners of Santos, but with all container handling there. And that brings us some comfort, and we're optimistic that prices will be recovered for the next month.

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Pedro Pascoal, JP Morgan Chase & Co, Research Division - Analyst [7]

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Worker capacity?

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Marcos de Magalhaes Tourinho, Santos Brasil Participações S.A. - Chief Commercial Officer & Member of Executive Board [8]

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Well, we have still some -- we have some breadth, yes. We can increase the throughput, maybe 15%, 20% without increasing the fixed cost. So this is operational leverage that will give us opportunity to grow with interesting profitability.

There is a second question on investment. Pascoal. You know the quantities of investments. What I can tell you right now is that the processes are open, and according to their rhythm -- natural rhythm, with (inaudible) the difference. I think in (inaudible) what I can tell you is, it's not exactly connected to investments but the financial balance offering in fact is advancing. It's ready to be released by the general Board. We don't know what they're going to determine, but anyway, it's positive to recognize that there is an unbalance. I think that's going to be good. And maybe we haven't probably (inaudible) will be solved really in relation to the other [quality]. Again, what we want is a good offer, that we anticipate the future gain that we have and (inaudible) depend on prices. So it's what I have to say right now, related to that process.

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Operator [9]

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(Operator Instructions) We have a question from the webcast, Tiago Noel.

Tiago's asking whether you can please give an update in relation to the sales process of the terminal.

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Unidentified Company Representative, [10]

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I think this question by Tiago, it comes along the lines of the unpurchased

(technical difficulty)

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Operator [11]

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(Operator Instructions) We have a question from [Marcel] (inaudible).

Could you comment on price demand, and towards the (inaudible) using capacity of 75?

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Unidentified Company Representative, [12]

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I had answered a similar question in relation to price expectation, throughput capacity, but what we expect is that transport price recovery, considering that once again, the level of prices in (inaudible) is not compatible with the level of servers, we have been growing that help with the shipowners that understand that this unbalance between the services provider prices is not sustainable throughout time. So we are optimistic in relation to price recovery in the next months and (inaudible)

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Operator [13]

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(Operator Instructions) There is a question (inaudible) is asking about the growth expectation in relation to throughput for the second half. Also asking CapEx filing for the second half and for 2020.

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Unidentified Company Representative, [14]

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In relation to growth expectations, we believe that it's similar to what happened on the forecast and (inaudible). At least this is what we expect and also the shipowners that operates the (inaudible) always recurring that we have gained market share there. That have the (inaudible) have a growth rate much more than the port, but expectations at the port will grow in the second half, but did not happen in the first half. There was a drop in throughput in the port as a whole. So we expect 15%, 20% growth. Our forecast is that this growth will be maintained around 10%, 20% for the second semester of this year in relation to CapEx.

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Operator [15]

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We have a next question. Which is asking about the second half of 2019 and also for 2020.

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Unidentified Company Representative, [16]

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For the second half, we expect in fact, BRL 80 million, and we think that that's feasible, considering that the licenses start with the construction has already been issued in July. So we are acquiring material. We will be around BRL 80 million for the second half. For 2020, our forecast is that, it's around BRL 250 million -- BRL 300 million year-on-year. That's what we are ready to do.

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Operator [17]

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Next question from (inaudible)

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Unidentified Analyst, [18]

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I have a question regarding privatization process for ports. We have seen (inaudible) in relation to (inaudible) company. I would like to understand from -- you all heard the story. How do you see this scenario? Do you think that can represent a gain if throughput should happen?

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Daniel Pedreira Dorea, Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board [19]

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Hi [Lester], this is Daniel. We have been following. We are stakeholders. We have been following Porto de Santos and our other ports in Brazil. So we are paying attention to that. For us, it's not clear as yet what the model would be. It's [port] of our privatization of the canal, which is something that works in other ports abroad. So we see it as ports of bias, those with privatization. Of course, it depends on the model. I believe that there may be a gain in throughput associated with privatization, yes. Because it's interesting to improve the terminal, the (inaudible) may lead to productivity. And also, we can have larger ships in those ports. So that we can be asked when there's new plans of ships are approved when they come to Santos Port. We want to go on operating those larger ships, those larger vessels, 3 at the same time, plus smaller cabotage vessels, even long-haul. If the model is well done, it should bring productivity to the ports. Then we'll benefit from that.

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Operator [20]

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(Operator Instructions) A question from Pedro (inaudible) on what do you think -- how do you think Argentina could affect the company in the next months? And you mentioned that during the talk.

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Unidentified Company Representative, [21]

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We have a specific operations to TEV (inaudible). In 2018, for instance, 46% of exports of vehicles was to Argentina and this year, it dropped to 30% of our exports. In imports, it went from 38% what we received from Argentina and it dropped to 22%. And took on -- those figures are less relevant. We represented something around 8% of the volume handled by (inaudible) in 2018 and 2% in 2019. First order of relevance it (inaudible) even in TEV, although today, we have 30% of exports and 22% of imports, because basically, it's from light vehicles. And our largest growth that brings interesting profitability is on top of machinery and equipment that do not come or go to Argentina. It's more like Europe, U.S. So I'll say that the impact of the Argentinian crisis for the company's is small, it's irrelevant. It should not affect operations. What the -- the impact it would have -- it has had already with this drop in TEV. And even so, we maintained profitability in that terminal, improving the mix with more machinery and equipment, but does not have direct relation with Argentina.

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Operator [22]

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(Operator Instructions) So we now close our Q&A session. I would like to give the floor to Mr. Daniel Dorea for his final considerations, final remarks.

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Daniel Pedreira Dorea, Santos Brasil Participações S.A. - Economic-Financial Director of Finances, IR Officer, CFO & Member of Executive Board [23]

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So we will be -- we will expect you in our next meeting to analyze the third quarter of 2019. We thank you for your questions, for your presence. Have a nice day.

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Operator [24]

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This teleconference by Santos Brasil Participações is -- has closed. We thank for your participation, and have a nice day.

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