Log In Logística Intermodal S A : 3Q20 Conference Call Transcript

Log-In Logística Intermodal

3Q20 Results

November 11, 2020

Sandra Calcado:

Good day, everyone, and welcome to Log-In Logística Intermodal conference call to discuss the 3Q20 results. I am the Investor Relations and Strategy Manager of Log-In, and I will be the hostess in this conference call. The presentation and comments on the Company's results will be presented by Marcio Arany, CEO; Pascoal Gomes, CFO and IRO; Mauricio Alvarenga, Commercial Officer; and Ilson Hulle, Terminals Officer.

They will comment on the Company's performance and main highlights of the quarter. Later, they will be available to answer your questions.

The 3Q presentation and earnings release are already available in the results center of the Company's IR website, loginlogistica.com.br/ri, and you can also follow the presentation here on Zoom.

I would like to remind you that at this time all participants are in listen-only mode during the Company's presentation. Later, there will be a questions and answer session when further instructions to participate will be provided. This webinar is being recorded and will be available in 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 the Company's management, and on information currently available to the Company. Forward-looking statements are not a guarantee of performance, and involve risks, uncertainties and assumptions, and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the Company's performance and could cause results to differ materially from the Company's expectations.

Now, with the legal advice, I will turn the conference over to Marcio Arany, CEO, who will start the presentation. Go ahead, sir.

Marcio Arany:

Thank you, Sandra. Good afternoon, everyone. I want to thank all of you for joining us and this conference call to discuss 3Q earnings results of Log-In Logística Intermodal.

the 3Q20, Log-In posted some relevant results. After ending the 2Q resuming the pace of our operations, we ended this quarter with all of our operations running at the expected pace for the year. In other words, we returned fully to the pre pandemic growth rate. And since safety is our primary value, we continued to perform our activities ensuring the health and safety of our workforce, either working from home or in our operations.

Moving to slide three, I would like to highlight the 3Q results. We had a record adjusted EBITDA of R$83.9 million, up 19.9% year over year, and of R$204.8 million in the 9M20, up 9.3% in the annual comparison, thus confirming our resilience during the most critical phase of the pandemic and our extreme ability to resume growth.

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Adjusted EBITDA margin was 28.1% in 3Q, representing a 0.2 p.p. increase over 2019 19. This significant result stemmed from our revenue growth, high availability and efficiency of our vessels, and the optimization of costs and expenses in view of the pandemic scenario.

Coastal shipping adjusted EBITDA totaled a record R$76.9 million in 3Q, up 37.6% over the 3Q19, and totaled R$179.3 million in the 9M of 2020, 14.9% higher in the annual comparison. And we achieved their record ROL in the 3Q, 10% higher than the same period of 2019. Later on, our CFO will comment on these results in more detail.

As regards TV, the Vila Velha terminal, EBITDA totaled a record R$67.2 million, up 7.3% over the 9M19. Thus, we reached a net income R$9.1 million in 3Q, R$26.3 million greater than the result of the 3Q19. I also highlight that in July 2020, Fitch Ratings assigned Log-In for the first time the national long term rating BBB+ (bra) with a stable perspective. And we also signed the amendment to the port leasing agreement at TVV, extending its duration for another 25 years, until September of 2048.

I now turn the floor to our CFO, Pascoal Gomes, who will present the Company's 3Q20 results in more detail.

Pascoal Gomes:

Thank you, Marcio. Good day, everyone, and thank you for joining us today. On slide four, I highlight a strong 7.3% increase in the Company's net operating revenue, NOR, in 3Q20, which totaled R$298.5 million over R$278.3 million in the same period of last year, showing the strong recovery of volumes of coastal shipping, mainly transported by vessels in cabotage mode. This result reversed the NOR loss accumulated in the first six months of the year, contributing to a 2.2% growth in the 9M20 compared with the 9M of the prior year.

This NOR increase is explained basically by the resumption of volumes in the sectors which were affected the most by the pandemic during the 2Q, and by the positive impact of USD denominated revenues in the feeder and Mercosur services due to depreciation of the Brazilian currency during the quarter.

On slide five, we present the evolution of consolidated costs of services provided, CSP. In 3Q20, this cost amounted to R$211.2 million, up 8.4% over 3Q19. And in the 9M20 it totaled R$587 million, 5.5% up over the same period of last year.

This growth is explained by the following factors: increase in running costs due to the addition of two vessels to our own fleet, Log-In Polaris and Log-in Endurance, which started operating in December 2019 and in May 2020 respectively, replacing two chartered vessels, which were returned to the ship owners in March and in May of this year, when there is a reduction in the chartering costs as the counterpart. Another factor, our port costs pegged to the USD, mainly towboats and calls in the Mercosur.

In addition, additional costs related to specific measures for prevention of covid-19, protecting the health of our maritime crews and avoiding interruptions in our services. And lastly, the average bunker fuel price in BRL, which increased 11.8% over 1H19.

Let us go to slide six. Here we present our consolidated operating expenses, which in 3Q20 totaled R$17.6 million, a significant almost 14% drop in the yearly comparison, reflecting our ongoing effort to reduce discretionary costs such as travel, consulting, etc., in addition to lower expenses given the home office regime adopted by the Company. In the 9M of the year, this reduction was 8.1% in the annual comparison, and it would have been a greater reduction if it were not for a negative, non-recurring impact of R$10.2 million due to the early recognition of costs incurred with the

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Company's stock options, but no relevant impact on the cash. Excluding this non-recurring event, expenses would have dropped almost 25% in the first 9M of 2020 when compared to the same period of the prior year.

Moving to slide seven, we present the excellent performance of our AFRMM revenues, which in 3Q totaled R$14.2 million, more than double the amount posted in the same period of last year. In the 9M of 2020, AFRMM totaled R$35.3 million, up 77.4%. If we considered non-recurring AFRMM, due to a successful judicial AFRMM, amounting to R$15.9 million, and an extemporaneous AFRMM of approximately R$7 million, both accounted for in the 1H, the variation is 17.7% between the periods. I would like to highlight that the Company's current fleet is composed of six own ships, all able to generate AFRMM.

Moving to slide eight, we present the Company's EBITDA and adjusted EBITDA. In 3Q20, adjusted EBITDA totaled R$83.9 million, up almost 20% in the annual comparison. And adjusted EBITDA margin reached 28.1%., a 2.9 p.p. increase. In the first 9M of 2020, consolidated adjusted EBITDA, and we have the IOP program of the Company, and extraordinary AFRMM, those have been mentioned before, so consolidated, adjusted EBITDA reached R$204.8 million, up 9.3%.

If we were to exclude non-recurring events, Log-In would have posted a record adjusted EBITDA of R$204.8 million, an increase of 9.3% over the 9M19. And an adjusted EBITDA margin increment of 1.7 p.p., reaching 25.5% on the back of some factors, such as increased container handling volume and cabotage, positive impact of the depreciation of the Brazilian currency on revenues fixed in USD, a focus on reducing costs and general and administrative expenses given the uncertainties in the pandemic scenario, increase in AFRMM revenues due the expansion of our own fleet, and TVV's operational optimization measures, which led to a margin increase.

Now moving to slide nine, we present the composition of our financial result. In 3Q20 the financial result was a negative R$44.1 million, versus a negative result of R$67.5 million in 3Q19, mainly due to a lower impact of a negative foreign exchange variation of the period, which was 2.9%. Year to date, the impact of exchange variation was a lot greater in view of the strong BRL devaluation of 40%, which was offset by lower payment of interest and debt service due to the standstill covid-19 line with BNDES, and higher financial revenues linked to full investment of proceeds from the follow-on in cash.

This relevant exchange variation in the year-to-date results, totaling more than R$160 million, is primarily due to adjustment to present value of future payments after long term debt extending until 2035 with BNDES, with a current balance pegged to the USD of R$469.7 million. So this is an accounting effect and does not have a significant impact on the Company's short term cash.

To give you an idea, the cash effect from debt amortized in the 3Q was only R$0.2 million in 3Q and R$1 million in the 9M20. On the other hand, the Company has a positive operating leverage with the BRL exchange depreciation considering its revenues and expenses denominated in USD resulting in gains year-to-date, showing that there is a natural operational hedge in the Company.

Please go to slide ten. Here we present our income statement comparison with consolidated results for 3Q and year-to-date. And the main highlight here is that the Company reported a profit of more than R$9 million versus a loss of R$17.2 million 3Q19, thus reducing the year-to-date loss, which in turn is explained essentially by the accounting impact of foreign exchange variation, as explained, with an immaterial effect on the cash.

I know on the floor to Mauricio Alvarenga, our Commercial Officer.

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Mauricio Alvarenga:

Thank you, Pascoal. Good afternoon, everyone. I will comment on the coastal shipping business in more detail. So to continue with the presentation, please go to slide 11. Here we are going to talk about volume of containers in coastal shipping.

On the left-hand corner graph, we see a 1.3% increase in volumes handled in 3Q20 compared with 3Q19. Here it is important to highlight the commercial effort to capture cargoes during 2Q, when we faced the most critical impacts of the pandemic. This allowed us to enter 3Q with a more robust client base. We posted 13% growth in the quarterly comparison.

In the 3Q, we see the rebound of some economic sectors which have been strongly impacted in the beginning of the pandemic by social distancing measures, electronics and white line products, for example.

As Marcio Arany said, we are once again operating with pre pandemic volumes, as we have projected for this quarter of the year. In the 9M20, variation was negative by 1.4% due to reduced feeder volumes, especially imports. But this was almost totally offset by an increment in cabotage and Mercosur volumes.

Let us move to slide 12, please. Operating revenue. In the graph on the left, we can see the variation in containers NOR, up 14.5% in 3Q20 over 3Q19. Year-to-date, variation was 8.5%, growing from R$522.2 million in 2019 to R$566.4 million in 2020.

Better cargo mix, coupled with a BRL devaluation compared to the USD, contributed to a better NOR per TEU, an increase of 13% in the quarter and 10% year-to-date versus 2019.

On the right, we show the performance of coastal shipping total NOR. Here we are the revenues coming from the transportation of vehicles, which resumed activities gradually along the 3Q after the strong impact caused by the coronavirus pandemic in the 2Q20.

Moving to slide 13, this graph shows the evolution of the contribution margin of coastal shipping since the 1Q19. This means NOR minus the variable costs of the business. The BRL depreciation vis-à-vis the USD, together with the ongoing work to improve the mix of cargoes handled, had a very positive effect on the profitability of the coastal shipping business, raising the percentage margin to 63.4% in 3Q20. 2Q and 3Q20 recorded the best contribution margins obtained so far.

Moving to slide 14. This graph presents the evolution of bunker fuel in the last two years. We can observe that with a very significant reduction in the fuel price with the intensification of the pandemic worldwide in the middle of the 1Q, bunker fuel price started a gradual ascending curve that stretched until August of this year. We maintain our commitment to our clients to adjust the bunker rate every 90 days.

Moving to slide 15, coastal shipping EBITDA totaled R$76.9 million in 3Q20, as mentioned, a 37.3% increase versus the same period of 2019.

In the 9M20, EBITDA totaled R$179.3 million, in line with 2019. And here, if we disregard a nonrecurring effects of AFRMM and IFRS 16 on the leasing of containers, which positively affected 2019 EBITDA, our adjusted EBITDA grew 14.9 % in the 9M20.

Moving to slide 16, on this graph we detail EBITDA evolution, comparing 3Q20 with 3Q19. From left to right, I highlight the positive NOR effect of R$21.9 million, resulting from a better mix of cabotage and Mercosur cargoes, as well as AFRMM revenue, now with all vessels of our fleet generating AFRMM.

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