Log-in Logistica Intermodal SA

BOVESPA:LOGN3

Earnings Call Transcript

[Operator]

Good day, and welcome to Log-In Logística Intermodal conference call to discuss first quarter 2020 results.

[Operator Instructions]

This conference call with the slides presentation is being broadcast live over the web on the company's website at www.loginlogistica.com.br/ri. In case you do not have a copy of Log-In Logística's release, listed on Monday, May 11 after B3 trading hours ended, you can download these releases at the company's website.

With us today are Mr. Marco Cauduro, CEO; Mr. Gisomar Marinho, CFO and IRO; Mr. Mauricio de Alvarenga, Commercial Officer; and Mr. Ilson Hulle, Terminals Officer. They will be presenting the company's performance and the main highlights of the quarter. They will then be available to answer your questions. Mr. Cauduro, you may begin.

[Marco Cauduro, executive]

Good day, everyone. I'd like to thank all of you for joining us in this conference call to discuss Q1 2020 Earnings Results. In this quarter, the world was surprised with the appearance and rapid spread of coronavirus, COVID-19. It is highly contagious and the disease was spread all over the world, creating an unprecedented global health care crisis.

Given the uncertainties and risks associated to the lives of our employees and their families, we created a crisis committee to centralize information and to decide on actions and measures to protect the lives of everyone around us.

In this context, a number of measures were adopted to mitigate the risk of exposure and contamination of our employees. Mercosur activity is responsible for transporting essential goods for the lives of people located all over Brazil. Our activities were not interrupted. They were a little reduced so that our challenge was to preserve our ability to have operational execution in this moment of social isolation.

We migrated all our employees to home office. But even working remotely, our ritual, so routine rituals were fully preserved. So that are our ability to serve our clients in road and maritime transportation and the work at our terminals were not affected.

Once we decided on a plan to protect people and assets, we focused on the potential economic and financial impact that a consequent economic activity reduction should bring to our business.

In this plan, the whole focus was on executing actions to preserve the company's cash. In that context, we reviewed our cost structures, expenses, working capital, potential disbursements to pay taxes and debt. So we want to reinforce that we remain absolutely focused on executing our plans to mitigate risks to protect people's health, the integrity of our assets, the service to our customers and to preserve our cash for our shareholders, maintaining the financial solidity of the company.

Moving to Slide 6. I would like to highlight the results of this first quarter. Consolidated net revenue of the company of BRL 271.3 million due to a very good performance of coastal shipping and of our terminals. Consolidated EBITDA of BRL 53.2 million, with an EBITDA margin of 19.6% consolidated margin. We had a positive TVV EBITDA. And in coastal shipping, we suffered onetime off effects as will be detailed by our CFO later on.

I would also like to highlight the acquisition of Log-In Endurance vessel, a containership that started operating in the Atlantic South service SAS in May 1, 2020, replacing a chartered vessel.

I'll turn the floor to Gisomar to detail our results. Thank you.

[Gisomar Marinho, executive]

Marco, thank you, and good morning to all. Moving to Slide 7. We have the company's consolidated net operating revenue NOR. In the first quarter 2020, net operating revenue totaled BRL 271.3 million, up 13.7% compared to first Q '19. This NOR growth is explained mainly by the performance of coastal shipping, which posted higher capita volumes with higher prices and better contribution margins; greater share of door-to-door services, that generate greater margins for the company; a positive impact of the BRL depreciation in revenues fixed in USD in the Mercosur feeder segment; higher emergency bunker rate, fuel for ships which is passed on to customers, and according to the company's methodology, had a positive impact on only part of the quarter.

Moving to Slide 8. We see the company's cost of services rendered in a consolidated manner for the company, CSP in the Portuguese acronym. In the first quarter of 2020, CSP was BRL 213.8 million, posting an approximately 24.3% growth. Basically driven by some recurring and some other nonrecurring events such as increase in capitalized volume; growth in door-to-door service, which includes road transportation and which had a positive impact on our revenue; higher average price of bunker fuel import costs, which are packed to the dollar; crew cost of the Log-In Polaris vessel, which started operating in December 2019, and in the same quarter of the previous year, we didn't have that cost; in cost linked with a chartered vessel, Vessel Bomar, which operated during maintenance of our vessel Log-In Jatoba, and this is a nonrecurring cost.

Now moving to Slide 9, please. Here, we have our consolidated operating expenses. In Q1 2020, operating expenses totaled BRL 14.1 million, down 15.6% from Q1 '19. I'd like to highlight that these lower operating expenses incurred in the period, this was due to over expenses incurred in the quarter and the reversal of a provision for labor claims as well as recognition of PIS, COFINS tax credits.

On Slide 10, we present our consolidated EBITDA. In the first quarter of 2020, the company's consolidated EBITDA totaled BRL 53.2 million, down 16.6% approximately, with an EBITDA margin of 19.6% impacted by some higher cost self services rendered, as mentioned previously in this presentation.

Now moving to Slide 11. We see the breakdown of our financial result. In Q1 2020, our financial result was a negative BRL 137 million compared to a negative result of BRL 29 million in Q1 '19. This is due to the impact of a negative exchange variation of approximately BRL 118 million resulting from depreciation of the BRL in Q1 '20 of 29%. In other words, we had a dollar exchange rate, dollar-real exchange rate of BRL 4.03 on December 31, 2019, to BRL 5.20 on March 31, 2020. It is worth noting that this is an accounting impact. In Q1 '20, the cash effect of exchange variation on our amortized debt was merely BRL 0.6 million.

On the right-hand corner of the slide, we see a table with the exchange variation breakdown, where we see the impact of the NDS financing in USD, BRL 92.6 million, and the impact of container leasing contracts of approximately BRL 20 million. And also the container variation. The increase in quantity, and there was a depreciation of the exchange rate.

Moving to Slide 12. We see a comparison of the consolidated income statement, Q1 '20 compared with Q1 '19. We highlight the growth of our net operating revenue, BRL 271.3 million and a growth of approximately 14%. Q1 '20 AFRMM was BRL 9.8 million, but in Q1 '19, the amount of BRL 13.8 million had a positive effect of BRL 8 million regarding a court decision favorable to Log-In. Excluding this nonrecurring amount, we would observe a 69% growth in the first quarter of 2020 in the yearly comparison.

In the first quarter of 2020, EBITDA was BRL 53.2 million. The financial result, as mentioned before, was a negative BRL 137 million due to the impact of approximately BRL 108 million of passive exchange variation. And we reported a loss of BRL 114.6 million in the first quarter of 2020, basically due to the foreign exchange variation, as we mentioned before.

On Slide 13, we have the breakdown of our EBITDA by business. On the table on the left, we highlight the TVV EBITDA of BRL 26.1 million, up approximately 31%. And on the graph, now on the right, we see how each business contributed to a BRL 53.2 million EBITDA in the first quarter of 2020.

I now turn the floor over to Mauricio Alvarenga, our Commercial Officer.

[Mauricio de Alvarenga, executive]

Thank you, Gisomar. Good day, everyone. I am Mauricio Alvarenga, Commercial Officer, and I will be commenting on the Coastal Shipping business in more detail.

Please go to Slide 14. We are going to talk about navigation volumes. We posted a 3.2% growth in volumes handled in Q1 2020 over Q1 '19. The main growth driver continues to be the conversion of volumes from road to Cabotage. We acquired 73 new customers in the first quarter. In addition to new customers, regular customers who started allocating goods to our ships in the last quarter of 2019 also had higher volumes handled by Log-In.

Worth of note here is our constant effort to raise the bar of our door-to-door services, which is a constant focus of our service department. This contributes to gaining new customers and to maintaining Log-In's active customers.

Moving to Slide 15. I speak about Coastal Shipping operating revenue. On the left graph, we can see the NOR of containers, up 11.4%, increasing to BRL 183.2 million from BRL 164.5 million. The NOR increase is explained by a couple of factors: increased volume, as mentioned in the previous slide; positive foreign exchange effect of Mercosur and Feeder revenues mentioned by Gisomar; and the transfer of the emergency bunker rate to customers.

Here, I must point out that these fees are adjusted to the customer every 90 days using an objective and transparent metric, but the effect of this cost transfer is normally delayed in relation to the effective cost. On the right graph, we see the total NOR of Coastal Shipping. And we added revenues from vehicle transportation. There was a total growth of 16.7% year-on-year.

Moving to Slide 16. We see a graph with the evolution of contribution margin of navigation. We are speaking about NOR minus variable costs of the business. We observed that in the first quarter of 2018, the margin percentage was 52.9%, increasing to 57.8% in the first quarter of 2019. In 2020, we reached a margin of 60.2%. This effect is directly linked to actions to improve the mix of cargos transported with a greater share of Cabotage and door-to-door services, particularly of new cargos that are converted from the road model.

On Slide 17, we see the evolution of bunker fuel in the last 2 years. We can observe a significant increase in fuel price as of September 2019. Here, it is important to remember that the new IMO 2020 regulation, which reduced sulfur content in the fuel, took effect in January 1, 2020. This is globally. But in Brazil, since October 2019, Petrobras is only supplying the new product. And this was an important factor explaining the price increase.

With the COVID-19 pandemic and the consequent expectation of lower demand for oil, we see a reversal of this growth trend. However, the first quarter of 2020 saw the highest bunker average price of the last 2 years at BRL 2,172 per ton, up 43%in the yearly comparison.

Please go to Slide 18. Here, we have a detailed view of the Coastal Shipping EBITDA. We highlight net operating revenue NOR, as we can see on the slide. And the AFRMM, as mentioned by Gisomar, of BRL 9.8 million compared to the first quarter of last year, a 29% variation due to a favorable legal ruling and highlight to the EBITDA, BRL 43.2 million, equivalent to a 19.8% margin.

On Slide 19, in this graph, we see the evolution of EBITDA comparing first quarter '20 versus Q1 '19. Here, we highlight the NOR. As previously mentioned, we had positive effects of Cabotage volumes; dollar revenues from the Feeder and Mercosur segments. Transfer of bunker rates to customers, which happens every 90 days, as mentioned. And here, the effect of increased vehicle transportation revenues.

Another highlight is total fixed costs. We highlight here the negative impact of port costs linked to the dollar. We also had an additional vessel chartered in a good deal of Q1 '20, and also the previously mentioned effect of bunker fuel prices.

To end my part of the presentation, I'd like to speak a little about COVID-19 impact on our business, Coastal Shipping. As mentioned in the beginning, we put together a COVID-19 crisis management to address all topics related to the safety and health of our employees as well as to care for the integrity of our operations. We supply essential services to the whole population to the industry. And this is very important in this very difficult moment we are living.

We ended the first quarter with important results for Coastal Shipping, capturing new clients, improving the mix and improving the container contribution margin. In the end of the first quarter, beginning of April, after social distancing started and even lockdown in some regions of the country, we saw very different effects in the several segments and industries where we operate.

I'd like to remind you that we transferred all kinds of goods in our containers: food, beverages, personal care products and also inputs for the industry, and also durable goods, white line products, et cetera. And clearly, we see different impacts in each one of these segments. One example is the Manaus route where most of the products in our mix with the electronics and white line products. And these have felt a stronger impact of COVID-19. The same goes with the transportation of vehicles. Now volumes going to Manaus with consumer goods, they go to the shops supermarket. Then we have a satisfactory occupancy rate of our vessels.

Now to speak about Terminals, I'll turn the floor to Ilson Hulle, our Terminals Officer.

[Ilson Hulle Filho, executive]

Thank you, Mauricio. Good day, everyone. As mentioned in the beginning of this presentation, my name is Ilson, and I am currently the company's Terminals Officer. I'd like to thank you for the opportunity to share with you the results of the Vila Velha Terminal, or as we call it, TVV.

On Slide 20, we see the Vila Velha Terminal volume. In Q1 '20, we handled 37.500 thousand containers, down 4.6% compared to Q1 '19. However, it's worth to note that in Q1 '19, we handled through TVV a high volume of coffee due to strong demand for that commodity and good international prices in that specific period. The same movement is expected to happen in the second quarter of 2020 on account of the coffee season, favorable international market conditions, price and exchange rate for this commodity during the pandemic where the consumption of coffee has increased a lot, people was trying to drink healthier drinks. So this has driven the price up of coffee.

And I highlight the good volume of granite slates. And that contributed to mitigate the reduction in coffee movement. On the graph on the right refers to general cargo handled. The first quarter of 2020 posted significant growth of approximately 70% or 75% when compared to Q1 '19. This growth stems mainly from the development and capture of new customers for bulk port operations. And we launched new products in the market, providing customized logistics solutions, and this has yielded good results. In addition, we saw good demand for granite blocks from the Asian market, thus, strengthening TVV's vocation as a multipurpose terminal and not one limited to containers only.

Going on to Slide 21, we see the evolution of TVV's net operating revenue, which in the first quarter of 2020 was BRL 46 million, up 4.5% versus Q1 '19. This growth stems mainly from the financial results of our new bulk business and the high general cargo volume handled in this first quarter. And once again, it shows the importance of diversifying TVV's activity to other areas, other businesses, neutralizing the financial impact of reduced container volumes.

On Slide 22, we see a table showing TVV's EBITDA. In Q1 '20, it was BRL 26.1 million, an all-time high mark for this operation and up 31.2% year-on-year. I also highlighted a significant EBITDA margin of 56.6% in this quarter.

Slide 23 shows TVV's EBITDA evolution in Q1 '20 versus Q1 '19. I would like to highlight the NOR increase with general cargo operations in the amount of BRL 2 million, reversals of contingency provision as well as PIS/COFINS, amounting to EUR 4 million.

I now turn the floor back to Gisomar, our CFO.

[Gisomar Marinho, executive]

Thank you, Ilson. Now going to Slide 24. We see the breakdown of Log-In's debt, which has quite a long profile, with only 8% maturing in the short term and 92% due in the long term. The percentage of dollar-denominated debt increased from 27% in the last quarter of 2019 to 32% in Q1 '20 because of BRL depreciation of 29% occurring along Q1 of this year. Gross debt totals BRL 1.334 billion. And net debt amounts to BRL 753 million, with an average cost of debt of 6.4% per annum. The company's leverage in Q1 '20 was 2.9x.

Now going to Slide 25, we highlight the subsequent events. On May 1, 2020, Log-In Endurance began its first trip, leaving Salvador to assist the South Atlantic Service. With the state of operation of Log-In Endurance, the company now has 6 ships of its own. On April 30, 2020, the new draft of the Victoria port was authorized now 12.5 meters deep. In other words, a draft which has 1 meter, 83 centimeters more, which makes it possible to increase the loading capacity in the current routes and the ability to more bigger ships, creating more flexibility and competitiveness for the Vila Velha Terminal.

And in April, we also have BNDES granting Log-In's framework on the standstill line with a deferred payment of debt installments, principal plus interests, from April to September 2020, including September, in the estimated amount of BRL 52 million to be deferred and paid for the remaining term of the contract. That is in installments due from October 2020 to June 2034.

With that, I end my part of the presentation. And I turn the floor back to Marco Cauduro.

[Marco Cauduro, executive]

Thank you, Gisomar, Mauricio, Ilson. We now begin the Q&A session. We are all available to answer your questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Pedro [indiscernible] with Condor Insider.

[Unknown Analyst]

My question has to do with margin. What should we expect if the Brazilian real continues to depreciate and the oil prices continue to reduce?

[Marco Cauduro, executive]

Thank you for the question. This is Marco Cauduro. Perhaps we should divide the answer to your question into 2 components. The Terminals business, which I believe has quite consistent profitability and operating margin levels. Adjusting the margin of this quarter with nonrecurring events, reversal of provisions and PIS COFINS tax credits, we understand that the margin, in addition to being very robust and strong, is very consistent.

We don't envision any change in the profitability or the activity. Of course, the oil price does impact the business and the exchange rate as well. But it all depends on the activity. The exchange rate affects imports. Imports volumes in the terminal positively impacts storage revenues that entails high profitability. So the volume of imports at the terminal, depending on the activity, that can affect the profitability.

Now in terms of exports, as also mentioned, in the coming months, we should have very consistent volumes exporting, particularly coffee. We also have to diversify our loads, particularly for the general cargo projects, projects that we are maturing since last year. And in this quarter, we had a representative share, and we expect to continue to mature these general cargo projects. Ilson, would you like to add anything to terminals? And then I'll speak about Coastal Shipping.

[Ilson Hulle Filho, executive]

No, I think you were very clear, Marco. I just have to add the coffee point. This is very important volume for the terminal. We see there is high demand for coffee by the international market in this period of pandemic. People are trying to drink healthier drinks. The Zona da Mata crops traded being harvested last week and this week, we are already seeing additional volumes.

So I just want to underscore what you said in exports. Yes, we have good volumes expectation for imports. We didn't feel much of an effect. We import a lot of products from Asia in the first quarter that continued flat, stable. And now with China's rolling, we see a stable volume.

[Marco Cauduro, executive]

Thank you, Ilson. And now speaking about Coastal Shipping. The way we see our result, despite a relevant reduction in EBITDA margin in the first quarter compared to the first quarter of '19, I think that there are 2 effects here. We'll speak about fixed costs, but looking at the profitability of the business, in other words, revenue minus the variable costs, the contribution margin of cargos handled, we understand that the result was quite consistent. Given Cabotage growth, increased the door-to-door services and the effort of our team to maximize the contribution margin so that we had an increment of the contribution margin of the Containers business and of around 15.5% in Q1 '20 versus Q1 '19, considering that 60% contribution margin in the first quarter of 2020.

We did have some problems related to fixed costs here and there. Most of them onetime off examples. First was the bunker fuel price that increased very strongly and quickly, and that generated a mismatch in our mechanism to transfer the bunker surcharge to our customers. And of course, that had an impact on the fixed cost line item without the counterpart of revenue. So that's one point.

The second point is the fixed costs. This was thoroughly explained during the presentation. We had one additional vessel. The whole running cost, as we call it, of having a crew, insurance, maintenance, all of that was incurred. And we didn't have the revenue, the corresponding revenue. But that is a onetime off because of the phase in and the phase out of vessels.

Operationally, you cannot match the day when you buy a vessel, the day when you start operating the new vessel, and the day when you return the chartered vessel. Of course, that was expected by the company. But when you compare with the first quarter of last year, there is a mismatch in the fixed cost structure. In addition to other costs, which are dollar packed, as explained in our release, such as port costs. Not only port fees and duties in the Mercosur, for example, because of the foreign exchange variation, there was an impact.

And there are other costs that we incur in dollars. So looking forward to thinking about the business contribution margin, we understand that the level achieved was very strong. And we don't see -- we don't expect a reduced profitability in the contribution margin for cargo handled. Reduction in profitability of the activity might happen due to reduced activity.

Our business has a high fixed cost structure. And as activities slow down, that impacts the volumes transported in our vessels. They become more idle. And consequently, we will reduce the dilution of fixed costs, and that may impact the profitability and the EBITDA margin of the company.

But net of the onetime effect of that cost, and -- of that fixed cost delta, we believe that our results is very consistent. There is nothing structural happening. Now low oil price for a long time, of course, we enjoy a benefit of buying bunker fuel at a lower price. On the other hand, on May 15, 90 days after February 15, we will adjust. We will transfer the new bunker fuel oil price in the surcharge. So we follow the methodology that was agreed upon with our customers. Mauricio Alvarenga, would you like to add anything?

[Mauricio de Alvarenga, executive]

Well, I think I can add 2 things. First, foreign exchange depreciation does contribute in terms of Feeder and Mercosur segments as these are dollar-packed revenues, so it does help the profitability of the business.

On the other hand, speaking about bunker fuel, when we say that if we buy bunker fuel at a lower price, we will transfer that to the rates charged to our customers. We expect that when we charge them lower bunker fuel prices, we will be more competitive. This will add competitiveness to our business.

[Marco Cauduro, executive]

Thank you, Mauricio. We'll have 2 questions from the webcast.

[Operator]

A question by Victor Jr.

[Unknown Analyst]

The question is, is the company able to pass through increased costs in the second quarter?

[Unknown Executive]

Well, we don't give any guidance regarding a quarter or guidance for the year, for that matter. But cost increases because of bunker fuel price increases, which is not the case. Again, we use our bunker surcharge. So we passed through an increase in bunker surcharge in February, and most likely, in May 15. Actually, on May 15, we will be charging the new bunker surcharge at a lower price than what we had on February 15, given the abrupt plummeting of the oil price, consequently, of the bunker fuel price.

Now regarding costs. Talking about Coastal Shipping, we have commercial contracts, commercial proposals. And these entail terms and conditions, which are annually renegotiated or renegotiated twice a year. It really depends on the customer. But yes, the company spares no effort, not just now, for the last 3 to 4 years, we spare no efforts to maximize the profitability of our asset base.

[Operator]

The next question from the webcast is by [ Mauro Santos ].

[Unknown Analyst]

Considering the increase in dollar price, does Log-In Logistica have a part of its dollar-pegged debt protected or hedged?

[Marco Cauduro, executive]

Now speaking about the result, the company does not see exposure of the exchange variation on our cash results. We do have dollar-pegged revenues in Feeder and Mercosur segments that more than offset our dollarized costs, particularly fuel cost and some other fixed cost line items. So that's the first point.

Regarding our balance sheet, yes, there is exposure. About 30% of our debt, particularly the BNDES debt, if I'm not mistaken, BRL 450 million. It is a basket of currencies. So it's dollarized, and that is not hedged. And we do not intend to hedge the dollar-packed debt because we understand that in terms of flow, we are protected. And in terms of the balance sheet, we have assets which are dollarized. Thank you for the questions.

[Operator]

As there are no more questions, I turn the floor back to the company's management for their final statements.

[Marco Cauduro, executive]

I'd like to thank all of you for joining us on this call. And I wish you all to remain safe, healthy and collaborating with social distancing so that we can recover from this as quickly as possible. Thank you very much, and have a good day.

[Operator]

This concludes Log-In Logistics Intermodal conference call. Please disconnect your lines, and have a good day.

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