Log In Logística Intermodal S A : 2Q22 Conference Call Transcript

Log-In Logística Intermodal

2Q22 Results

August 10, 2022

Sandra Calcado:

Good day, everyone, and welcome to Log-In Logistica Intermodal conference call to discuss 2Q22 results. My name is Sandra Calcado, I am Log-In's Investor Relations, Strategy and ESG Manager, and I will be your hostess during this event.

The presentation and comments about the Company's results will be made by Log-In's CEO, Marcio Arany; our CFO and IRO, Pascoal Gomes; our Commercial Officer, Felipe Gurgel; our Terminals Officer, Ilson Hulle; and the Director of Tecmar Transportes, Mauricio de Alvarenga. They will comment on the Company's performance and the main highlights of the quarter, then they will be available to answer questions that you might have.

The slides presentation and earnings release in Portuguese and English are available in the Results Center at the Company's website, but we will be showing the presentation in Portuguese here on Zoom. In addition to the rooms available in Portuguese and English, we will also provide Brazilian Sign Language interpreting during the whole event.

I would like to remind you that all participants will be in listen-only mode during the Company's presentation. Later, there will be a question-and-answer session when further instructions to participate will be provided. Be advised that this webinar is being recorded and will be available on the Company's website.

Before proceeding, as usual, let me mention that forward-looking statements that might be made during this conference call, relative to Log-In's business perspectives, projections and operating and financial goals are based on the beliefs and assumptions of Log-Ins management and on information currently available to the Company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions, and therefore, it depends on circumstances that may or may not occur. Investors should understand the general economic conditions, industry conditions and other operating factors could also affect the future results of Log-In and could cause results to differ materially from those expressed in such forward-looking statements.

Now with the legal disclaimers made, I would like to turn the floor to Marcio Arany, Log-In's CEO, to start the presentation.

Marcio Arany:

Good day to all. I am Marcio Arany, CEO of the Company. I would like to thank everyone for joining us on this conference call to review 2Q22 results of the Log-In Logistica Intermodal.

We will start the presentation on slide three, going over the main achievements of our strategic plan. We have structured our strategic plan around 4 blocks: coastal shipping, TVV and terminals, Tecmar and the fourth pillar, our ESG agenda, which permeates all of the Company's business lines.

We will now move on to the presentation of our results. In our cabotage, coastal shipping business, we highlight record quarterly NOR, highest EBITDA for the 2Q, highest container volume handled in a 2Q, highest Mercosur volume for a 2Q and NPS in the quality zone.

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In TVV and in logistics solutions, 3PL, we highlight historical NOR record, record EBITDA, record handover of warehousing and other services, highest volume of general cargo handled for the 2Q and NPS also in the quality zone.

With regard to Tecmar, we continue to emphasize the Company's restructuring process. We highlight an increase in our customer base by 7.5% compared with the previous period. The restructuring of some Northeastern branches, implementation of the ethics manual and complaint channel for the whole team, the training of 1,380 employees in our safety culture, and the change in the aggregate hiring model.

The fourth and last point talks about our ESG agenda, where we also highlight 18% reduction of greenhouse gas emissions per TEU transported comparing 2021 with 2020, continuity of the various social initiatives already implemented in the Company and the publication of the 2021 Sustainable Report.

Next, our team will present the results of the quarter, starting with our CFO, Pascoal Gomes.

Pascoal Gomes:

Marcio, thank you very much. Good day, everyone, and thank you for joining us on this call. Please go to slide four, where I present the historical series of results until 2Q22.

And the novelty here is the inclusion of Tecmar's results. Once again, as Marcio mentioned, we had a quarter with excellent results for Log-In. We achieved record marks for coastal shipping, TVV, a number of good results.

Talking about the historical series, our net operating revenue totaled R$452.6 million, without Tecmar, posting a significant 28.3% increase over 2Q21, and it is the best historical record result for the Company.

When we add Tecmar's revenue for the period of R$156.6 million, the consolidated NOR totals R$609.2 million. In the half year, NOR variation on the same basis, in other words, without Tecmar, is 29.4%, reaching R$841 million.

EBITDA variation between the quarters on the same basis was 38.6%, at R$129.1 million, also a record in the Company's historical series. With the contribution of R$6.4 million from Tecmar, then this result totals to R$135.5 million in the quarter and R$249.6 million for the half year, a variation of 52.5% compared with the first 6 months of the previous year.

On slide 5, I present the consolidated results for the quarter in the half year, and the significant growth is due to higher volumes transported in coastal shipping, especially the increase in the occupancy level of our vessels, which grew 6.4% in the quarter. This is mainly due to new clients captured.

Another effect that contributed to this revenue increase was the positive variation in the unit NOR in all coastal shipping trades, Mercosur, feeder and cabotage. The explanation of that is a better mix. This is a constant work that our commercial teams do to convert cargo particularly from road transport and to improve our cargo profile transported in our vessels, and also due to better price.

Price has a component of variation. The bunker price variation has been increasing a lot, particularly with the Ukrainian war. It has been growing just as the pandemic. And together with that, we had a record general cargo handled at TVV, growing 16.7% between the quarters, with a direct impact on net operating revenue at the Vila Velha terminal.

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So also with general cargo, we had ancillary revenues of warehousing and other projects that TVV is working on. Ilson will speak more about TVV.

All of this clearly shows that the strategy of transforming TVV into a multipurpose terminal, still in progress, is being effective. The market overall had a plummet in the volume of containers. Ilson is going to speak about that, but general cargo hit a record mark. It more than offset a reduction in the volume of containers handled.

EBITDA was up 29.4% over t 2Q21 and 48.6% over the 1H21 without Tecmar. This strong rise was driven by the increase in revenues of the Company's core businesses, as already highlighted. In addition to the 8.5% and 15.8% growth in AFRMM in the quarter and half year comparisons, respectively, due to the expansion of capital revenues.

Once again, this revenue growth more than offset cost pressures. Of course, we are feeling inflation pressure on our cost base, mainly derived from bunker prices and coastal shipping, and diesel prices in door-to-door delivery services, in addition to our payroll, while we held back salary increases during the pandemic, but now we had to resume those.

Lastly, consolidated EBITDA margin, although dropping 4.2 p.p. to 22.2% in the quarter due to the inclusion of Tecmar in the Company's results with a very tight margin, the consolidated EBITDA margin remained stable in the half year, 25%. This means that the margin without Tecmar would have expanded for another quarter.

In 2Q22, we posted net income of R$22 million, a positive result for the fifth consecutive quarter, which was not even better quarter-on-quarter due to the exchange variation effect on the balance sheet. In 1Q, we had the opposite exchange variation effect. And I always like to underscore this exchange variation effect is only on the balance sheet with no material cash effect in the short term and reached a net income in the half year of approximately R$82 million if we compare with the first half of the previous year, this increased more than 400%.

Now I will turn the floor to Felipe Gurgel, our Commercial Officer. Thank you very much.

Felipe Gurgel:

Thank you, Pascoal, Good day, everyone, I am Filipe Gurgel, Commercial Officer. As highlighted by Marcio and Pascoal, we had an excellent quarter, achieving some more important records in our results of coastal shipping.

Please go to slide six. This 2Q, we had an increase in the volume of containers transported of 6% if compared to the same period of the previous year. We transported about 116,000 TEUs. This volume was driven mainly by the Mercosur trade, which grew 52% over 2Q21 and 67% over the 1H21.

We also reached the highest historical NOR, of course, all shipping approximately R$359 million, up 29% over the same period of 2021. The highlight was the NOR of container shipping, which grew 39%. This revenue is a result of a better mix of cargo, the best-through of bunker costs and the high utilization rates of our vessels. Costal shipping EBITDA reached R$101 million, about 31% higher than the same period of the previous year with an EBITDA margin of 28%, the highest result for a 2Q. Year-to-date, EBITDA was 56% higher than last year.

Lastly, I would like to point out that we are quite confident in the plan that we have structured for the 2H22, a period that historically has seen an increase in demand. We are already operating with Log- In Discovery in cabotage and Mercosur. At the moment, she is replacing Log-In Jacaranda, which is performing its mandatory docking of ten years.

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During this period, in addition to all the scheduled, preventive and corrective maintenance, we will implement projects to increase the vessel's energy and operating efficiency. Subsequently, Log-In Discovery will replace Log-In Pantanal, which will also perform its mandatory docking. In this way, we are able to maintain the capacity and regularity of our services in order to maintain a high level of service to our customers.

I now turn the floor to you from Ilson Hulle, who will present TVV's results.

Ilson Hulle:

Thank you, Gurgel. Good day, everyone. Again, it is a pleasure to have you all here to hear me talking about TVV.

I would like to start reinforcing some highlights that were mentioned by Pascoal and Arany. On slide seven, I will give you a summary of the financial and volume results at TVV. I would like to start mentioning the NOR, which reached a historical record since the start of the operation, R$79 million with a very substantial growth of almost 21% in a year-over-year comparison.

I would also like to highlight EBITDA of 2Q, which totaled R$37 million, also a record mark since the start of the operation, a record mark for any quarter, posting almost 25% growth when compared to 2Q21. In addition to the financial records, I would also highlight the volume of general cargo during the period, 190,000 tons, growing almost 17% in the year-over-year comparison. So, a very important quarter.

Our container volumes dropped 17% with 39,400 units when compared with 2Q21, which was a period when we had a strong economic upturn after covid. These volumes reflect what I have been mentioning. We have had a successful strategy, increasing the mix of products in the portfolio of the terminal, bringing to TVV business other than containers. This strategy has proven to be very efficient, and this quarter reflects that as a quarter when volumes posted a reduction, but we were able to offset that with an increment of general cargo, thus supporting our financial results. This quarter, we were successful in capturing steelmaking and project cargo in addition to bulk, which has been constant cargo in our operations.

Now speaking a little about the reduction in container handling, this reflects the comparison of this year with last year. Last year, during the 2Q, we were resuming work in the post-pandemic period with an abrupt uptrend of the economy, which drove volumes in general. This reduction in this quarter is reflected not only TVV, but in container terminals as a whole. This is a relatively normal movement given the instability that we have seen in container handling globally.

When we compare with the pre-pandemic period, we can see the volumes are in quite a good shape. Lastly, I would like to give you an update on our modernization and expansion project for TVV. We have our 2 MHC in full operation, also supporting these volumes of general cargo. This new equipment has brought to the terminal, a lot of versatility and additional productivity. And we have captured new cargo because of that.

In addition, we started phase two of the project. We also communicated to the market an important contract we have signed with Siemens for a complete retrofit of our STS, the portainers, the equipment that we use to move containers. This contract has been signed, the project is unfolding, and we believe that by 2023, we will have all three pieces of equipment totally modernized, and this will increase productivity and capacity for container handling at TVV terminals.

This is what I had. Thank you very much, and I will be available in the end for questions. I turn the floor to the officer in charge of Tecmar, Mauricio Alvarenga.

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Mauricio Alvarenga:

Thank you, Ilson. Good day, one and all. I am Mauricio de Alvarenga, Officer-in-Charge of Tecmar Transportes.

Since the acquisition of Tecmar was recent, on March 18, 2022, I would like to reinforce the reasons why Log-In acquired Tecmar. Playing into parcel cargo market in Brazil was something important. It was part of our strategic plan. This is a business that is operationally more complex than cabotage, which requires a structure of pickup and delivery routing. It requires warehouses for storage and cross-docking in the several regions of operation, and cabotage was finding it very hard to get into this business.

So this was our plan, to understand this business a little better, because parcel cargo accounts for a good part of transport in Brazil. And we saw great potential in Tecmar and a lot of synergy to be derived with Log-Ins activities. We are going to see this in a moment.

As the acquisition took place in March, here on slide eight, we see the figures. It is the first disclosure of results of Tecmar. Please note that we have an expressive net operating revenue of R$156 million and EBITDA of R$6 million and a midterm margin that is still low, as Pascoal mentioned. The road market has suffered a lot with fuel price increases. But what matters at this stage is to look at the customer base and the work that we are going to do to restructure the business.

When we took over the management of Tecmar, we identified the abrupt and successive increases in diesel oil costs, especially in the last 12 months had considerably affected the profitability of the business, and Tecmar did not have the same agility to make the necessary adjustments in the rates charged to its customers. But this is work that we have begun to accelerate, particularly in the end of 2Q.

In these first weeks at Tecmar, our management focused its efforts on mapping the management structure in particular, on mapping for main gaps that affect the results and on developing a masterplan for the continuity and management of the business. Even in this little time, we were able to start a training plan for our employees, focusing mainly on safety, as Arany mentioned in the beginning, but also focusing on compliance, fuel consumption, management of indicators and problem handling. More than 1,300 employees have been trained.

On slide nine, we can see the new map of Log-In's operations with Tecmar in addition to this extensive shipping, cabotage network, which covers the entire Brazilian coast from Manaus to the Mercosur countries, there is now Tecmar road distribution network, which includes 50 branches and provides service to around 2,600 cities in 17 Brazilian states. I can say, I can affirm that we are now the Brazilian logistics operator with the most complete logistics network when we add cabotage en route.

And our goal is to have differentiated products to capture the best of each transport mode integrating cabotage shipping, with port operations, road operation, the distribution centers that Tecmar has on its network, the distribution of parcel cargo, and all of that, one way or another, integrated for a project that we have called 3PL. It is indeed a robust logistics network.

We certainly have a lot of work ahead of us. The business has tight margins, but in 2022, we will focus on the restructuring. But I believe that the main thing is that our team is very motivated to pursue this goal.

So thank you all. Let me turn the floor back to Pascoal, our CFO.

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