Sociedad Matriz SAAM SA

SGO:SMSAAM

Earnings Call Transcript

[Operator]

Good morning, everyone, and welcome to SAAM's Fourth Quarter 2018 Results Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions]

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

[Macario Raczynski, executive]

Thanks, and good morning to everyone. Thanks for joining our results conference call for the fourth quarter of 2018. I'm here with Mr. Hernán Gómez, our CFO; and Paula Raventos, our Head of Investor Relations.

Today, in this call, we will cover 4 topics, beginning with the main highlights for the year. After that, we'll continue with SAAM's aggregate results. And then move to results by division. Finally, I will close with the priorities and an outlook for the year 2019.

So now let's start with Page 5. Our company posted a net income of $49.6 million in 2018, a decrease of 16% compared to 2017, explained mainly by a high basis of comparison following the sale of a minority interest in Tramarsa, Peru, in 2017, for $26 million and nonrecurring effects in 2018. Excluding these effects, net income was up 91% over the prior year.

In 2018, we implemented a series of initiatives to streamline our structure and cost in order to improve returns, and at the same time, we took major steps to strengthen our position in the markets where we do business. The goal of these changes was to build a more modern, competitive organization and lay a strong foundation for the future. After an internal review, we acknowledged the need for a simpler, more robust corporate structure closer to our operations in term of control, accountability and overall lighter. Implementing these new structure has created significant synergies across our business lines and our corporate office. As you may see in Page 6 of this presentation, you can found -- find some examples of this new operating model plus cost savings, such as centralized corporate procurement for main categories, centralized investment decisions through CapEx committee with senior management, standard processes and closure of nonprofitable business.

We saw important milestones in growth as well in 2018, particularly our Port Terminals Division, where 4 of our terminals reported significant growth in cargo transfer. Those were TPG in Guayaquil, Puerto Caldera, STI in San Antonio and then Puerto Corral.

In April 2018, Automobile International Terminal, a joint venture between our company and Terminal Zárate from Argentina signed a memorandum of understanding to develop our Ro-Ro terminal with capacity for up to 210,000 vehicles per year at Port of Mobile in the State of Alabama, U.S.A.

In October, we completed a project to modernize Florida International Terminal, FIT, which doubled its cargo receiving capacity with an investment of $5 million. Another $5 million was invested to upgrade equipment at the terminal. Also, in October, at Puerto Caldera in Costa Rica, we inaugurated a new reefer container yard and purchased new loading equipment in order to continue improving efficiency at this port. With an investment of around $10 million, these improvements are expected to increase service quality and productivity at a port operating with high levels of utilization.

In our Logistics Division, through Aerosan, we concluded the acquisition of the remaining 50% of Transaéreo, which provides a wide range of airport services at airports in Columbia, in the cities of Bogotá, Medellín, San Andrés, Barranquilla, Cartagena and Pereira. We continue to demonstrate efficiency and discipline in managing cash flows from subsidiaries and associates. In 2018, upstream dividends from subsidiaries and associates totaled $55 million.

Also, in 2018, we invested $75 million, corresponding mainly to tax constructed for Canada and Brazil and civil works carried out by -- at Terminal Portuario Guayaquil, Florida International Terminal and Puerto Caldera.

We have made sustainability a priority within our company, with a special focus on fostering collaborative labor relations, several collective bargaining processes concluded during the year. We had also made significant progress in safety and health, managing environmental impact and implementing a culture of ethics and compliance within the organization. We cut our lost-time injury rate by 19% over 2017 and 71% in the last 6 years.

In September 2018, we received the news that we had been selected to join the Sustainability Index for the Integrated Latin American market. And for the third straight turn -- year, we were listed on the Dow Jones Sustainability Index, Chile.

Now let's move on to Page 8 to review the company's aggregate results. As you can see, we will see a financial summary. In 2018, SAAM reported consolidated sales of $515.9 million, an increase of $48 million over the same period in the previous year. This is due to greater activity in the Port Terminals Division, which led to an 18% increase in tonnage transferred.

Consolidated EBITDA for 2018 increased $29 million over the same period in 2017, totaling $145.9 million, with growth in all 3 business divisions. The EBITDA margin reached 28% for the period, up 300 basis points from the 2017 figure of 25%. Net income from continuing operations, attributable to the controller, was $49.6 million for the period, marking a decrease of $9.7 million over the same period in 2017. This net income for 2018 includes extraordinary income for dividends received from Terminal Puerto Arica as well as nonrecurring cost to implement the new operating model of $7 million.

Net income for 2017 includes an extraordinary gain of $26 million from the sale of the company's interest in Tramarsa in Peru and $6 million in earnings from discontinued operations in 2017. Excluding the extraordinary effects in both periods, net income was up $24.6 million in 2018 over 2017 when the company reported $27 million.

Now let's move on to Page 9. Adjusting from extraordinary gain, SAAM reported $27.1 million in net income for 2017. For 2018, net income totaled $49.6 million. This figure includes extraordinary income as well as nonrecurring cost to implement the new operating model. Excluding this, net income for 2018 was $51.7 million, up $24.6 million from 2017.

This is the result of the strong performance from the Port Terminals Division and the recovery of our Logistics Divisions and savings also across the board. We have been able to maintain cash flow generation with lower capital employed after we sold our operations in Peru. A big part of those proceeds are still in our cash position, which provide us a very healthy position and prepare us to capitalize growth opportunities in the future.

On Page 10, we can see SAAM's sound financial position. We have a consolidated cash of $240 million. Out of those, $193 million are matched directly by SAAM and $48 million by subsidiaries. Net financial debt is $49 million. So we have a very healthy leverage and liquidity ratios, with a net financial debt to EBITDA of 0.34x and net financial debt to equity of 0.1x.

Now we'll review the results by business divisions. So let's turn to Page 12. Our Towage Division was stable in 2018, but our operations in Brazil experienced strong competitive pressure. However, we laid the foundation for strengthening our services by signing the first regional contract for an important shipping line in 6 companies in the Americas. Along with that, we upgraded part of our FIT in Brazil and Canada with $49 million in investments.

Consolidated revenues for 2018 totaled $189 million, up $7 million over 2017 as a result of increased activity in North America. The Towage Division reported consolidated EBITDA of $67 million for the year of 2018, an increase of $7 million over 2017, due to improved results across almost all operations.

The EBITDA margin grew 3 percentage points to 36%. Share of net income loss of associates accounted for using the equity method totaled $7.5 million, reflecting a decrease of almost $5 million, due mainly to weaker results from Brazil because of industry changes affecting that market. All in all, the Towage Division reported net income of $22.2 million in 2018, reflecting a drop of $3 million over 2017. The rise in consolidated operating results due to increased activity did not offset the weaker results in Brazil.

On Page 13. Now we will see the performance of our Port Terminals Division. Within this division -- I mean, this division reported consolidated revenue of $271.6 million, up $53 million over the prior year, due to a rise of 18% in tonnage transferred. This is due to growth at foreign terminals, specifically a 23% increase in volumes transferred over 2017 from Terminal Portuario Guayaquil because of new contracts awarded in the prior year, a 20% increase in tons transferred at Florida International Terminal, as a result of additional services provided at the terminal and a 10% increase at Puerto Caldera.

EBITDA for the Port Terminals Division totaled $90 million for 2018, up $21.3 million from 2017. This is explained primarily by group results at most foreign terminals due to increased activity, combined with cost cutting initiatives implemented by this division. The EBITDA margin improved 2 percentage points to 33%. Share of net income of associates accounted for using the equity method totaled $3.4 million for the period, reflecting an increase of $3.1 million over the prior year, due mainly to improved results from San Antonio Terminal International, STI; and Antofagasta Terminal Internacional, ATI, because of the increased activity and efficiencies generated. All in all, the Port Terminals Division reported net income of $31.5 million, an increase of $12 million over the prior year.

Now we will review the Logistics Division. In logistics, the company posted revenue of $58.7 million in 2018, down $10.5 million, due to the new business focus at Logística Chile, which involved closing some businesses.

For 2018, the Logistics Division posted EBITDA of $7.3 million in 2018, up $4 million over 2017, due to a strong performance from Logística Chile, where earnings recovered, thanks to its new structure, sales of several assets and its new business focus. The EBITDA margin improved 8 percentage points to 13%. Logística Chile performed particularly well. Share of net income of associates accounted for using the equity method totaled $6.9 million for the period, reflecting growth of almost $4 million over the same period in the previous year, due mainly to improved results at Aerosan and Reloncavi.

For the year 2018, the Logistics Division reported net income of $9 million, up $6 million from the same period in the prior year, due mainly to improved results from Logística Chile, Aerosan and Reloncavi, and again savings generated and selective sale of real estate assets.

Let's move now to Page 16. I'd like to conclude the presentation by talking a little bit about the priorities for this year and a general outlook for each business division.

First, we will continue to make progress on our new operating model and consolidate savings, which is designed to make the company more profitable, strengthen our competitive in all 3 business divisions and recover our growth capacity.

SAAM aspires to be a global operator in Towage industry. With this objective in mind, in early 2019, we closed a preliminary agreement with Boskalis to acquire the remaining interest in our joint ventures in Brazil, Mexico, Panama and Canada. With this transaction, valued at $201 million and pending regulatory approval and final agreements, we are moving forward towards our goal of becoming an active important player in the industry's consolidation process.

We will begin Towage operations with AltaGas at the Port of Prince Rupert in Canada. The construct is for 12 years with a 5-year extension option. Moreover, we continue to optimize our portfolio of assets. And in February, we finalized the sale of our minority interest in Terminal Puerto Arica, TPA, that was a stake of 15% that we had in that terminal. And also, last Friday, we informed the markets of the dividend proposal of CLP 2 per share that our board agreed to present at the upcoming shareholders' meeting. This dividend will be charged to 2018 net income and will guarantee stable returns for our shareholders.

Our investment plan, over the next few years, is based on making existing investments more profitable. This year, 2019, we estimate CapEx of $77 million consolidated and proportional value of affiliates, below depreciation and will mainly focus on asset maintenance. Also, the adoption of IFRS 16 will have limited effects with an estimated impact of $800-change in results and $28 million in balance sheet.

Regarding the outlook. Let's go to Slide 18 (sic) [ Slide 17 ]. Regarding the outlook for the Towage division, we ended our construct in Honduras, and we will continue facing intense market competition in Brazil. The Port Terminals Division will make strides on the Puerto Caldera expansion project presented to Costa Rican authorities in December 2018. During the year, we will collaborate on our technical working group to conclude the proposal, in order to make an important investment design to increase terminal capacity by fivefold. The Chilean port terminals market is facing changes. In January, Puertos y Logística, controlling shareholder of Puerto Central and Puerto Lirquén, announced that they signed a share purchase agreement with DP World to acquire its 71.3% stake in this company.

Also, last week, TCVAL owned by the investment fund -- Australian investment fund, IFM, announced they canceled -- or decide not to continue with the concession contract with Empresa Portuaria Valparaíso.

In the Logistics Division, we will continue to selectively seek out contracts in line with our new business strategy, focused on warehousing and transportation services.

Finally, at Aerosan, the partnership we have with American Airlines to provide cargo and passenger services at the main airports in Chile, Ecuador and Colombia, we're making progress on the new construction of our distribution center in Chile.

With this, we have concluded the results presentation for 2018, and now we will open the floor up for questions.

[Operator]

[Operator Instructions]

[Macario Raczynski, executive]

So there's one questions asking for our assessments of IFM's exit from TCVAL. Well, first, thanks for the question in a -- let me clarify that this news it's not a surprise for the industry, not for us. Central Chile has enough capacity. Actually, we have overcapacity of close to 30%, and price continue to face quite some pressure. So that coupled with backlog environmental permit processes, I think, that made IFM to take this decision. We are of the strong opinion that more than creating new terminals, we think it is essential to help create better conditions for the logistics chain, particularly in the in-land services in order to provide quality service for importers and exporters at all stages.

There is another question regarding our expansion projects in Puerto Caldera. And the question is what stage -- in what stage is this project now?

Thanks, again, for the question. At SAAM, we firmly believe that Costa Rica, and particularly Puerto Caldera, have a lot of potential and we would like to grow with this certainly. We have had a good experience and hope to be able to move forward with the project, which must be, of course, reviewed from a technical and legal perspective by the local authorities. All in all, the project was well received, and we hope to continue making progress over the next few months. Thanks, again, for the question.

We see no more questions. So I think we can conclude this presentation and the Q&A session at this time.

[Operator]

This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Valdés for any closing remarks.

[Macario Raczynski, executive]

Thank you very much for joining us today on this conference call. And we look forward to taking -- to talking to many of you over the coming days. Thank you, again. Bye.

[Operator]

Thank you. This concludes today's presentation. You may disconnect your lines at this time, and have a nice day.