Log In Logística Intermodal S A : 4Q22 Conference Call Transcript

Log-In Logística Intermodal

4Q22 Results

March 9, 2023

Sandra Calcado:

Good day, everyone. Welcome to Log-In Logistica Intermodal Conference Call to discuss 4Q and full year 2022 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 Marcio Arany, CEO; Felipe Gurgel, our Commercial Officer; Gustavo Paixão, Terminals Officer; Mauricio Alvarenga, Tecmar's Transportes Officer; Andrea Simões, People, Culture and Digital Transformation Officer. They will comment on the Company's performance and main highlights of the quarter and the year, and then they will be available to answer questions that you might have.

The slides presentation and earnings release in both Portuguese and English are available in the results center at the Company's IR website, and 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 questions 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 clarify that forward-looking statements that might be made during this video conference call relative to Log-In's business outlooks, projections and operating and financial goals are based on the beliefs and assumptions of Log-In's 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, 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 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 with his introductory remarks.

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 4Q and full year 2022 results of Log-In Logistica Intermodal.

We will start the presentation on slide 3, going over the main achievements of our strategic plan structured around 4 blocks: Costal Shipping, TVV and Terminals, Tecmar and ESG and capital structure, which permeates all of the Company's business lines. Next, we will move on to the presentation of our results.

In our Cabotage, coastal shipping business, we highlight a historical record EBITDA due to our pricing strategy, better cargo mix and greater vessel availability, with NOR benefiting from excellent conversion of cargo from road transport, and that improved a lot our performance. We also highlight the completion of docking of vessels Log-In Jacaranda and Log-In Pantanal.

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In TVV and in logistics solutions, 3PL, we highlight highest NOR for a 4Q, historical EBITDA record for a 4Q, and higher imports due to the resumption of shipments to levels closer to pre-pandemic.

With regard to Tecmar, we continue to emphasize the Company's restructuring process. We highlight an improved level of covenants with restructuring of the compliance department, the success in capturing more profitable cargo and the acquisition of the Oliva Pinto Group in Manaus, that was completed.

The fourth and last point talks about our ESG agenda and capital structure. Here, we were recertified by Great Place to Work Brazil as a great place to work. I also highlight women in operations program that was awarded second place in the Antaq Award, and our NPS, Net Promoter Score that increased compared to the 2021 survey.

Now moving on to slide 4. Net operating revenue was R$547.5 million, up a significant 41.1% over the same period last year and the best result ever for the Company, a record broken for the fourth consecutive year. When we exclude Tecmar's revenue for the period R$128.7 million, the variation of the comparable consolidated NOI was 8% in a quarter and 18.8% in 2022, against 48% considering this revenue.

Growth shown in the quarter and in the full year in consolidated figures is due to higher volumes handled in the Coastal Shipping, Cabotage and Mercosur trades, and we highlight increase the occupancy level of our vessels, mainly on account of new customers captured. Another effect that contributed to the increase in revenue was the positive variation in the unit NOR in all Coastal Shipping trades, Mercosur, Feeder and Cabotage, by virtue of better mix and better pricing, given the constant work to improve cargo mix transported and conversion of cargo from road transport. Additionally, there was an annual record in handling of general cargo and warehousing services, and consequently, a record net operating revenue at the Vila Velha Terminal.

Adjusted EBITDA. The variation in the full year on the same basis was 55.6% and 63.3%, if we include Tecmar results, which posted R$597 million, also a record mark in the Company's historical series. This strong increase was driven by revenue growth in the Company's core businesses, as already highlighted, in addition to higher AFRMM resulting from higher Cabotage revenues. Revenue grew more than offset cost pressures mainly derived from bunker prices in Coastal Shipping, diesel and door-to-door services, which include road, port duties and seafarers payroll.

Moreover, we posted record annual EBITDA TVV by virtue of higher general cargo handling and increased warehouse operations and ancillary services. Lastly, the results for consolidated adjusted EBITDA margin grew in the quarter by 4.5 p.p. to 30.1% and 2.7 p.p. in the full year, reaching 28.9%.

I now give the floor to Felipe Gurgel, our Commercial Officer.

Felipe Gurgel:

Thank you, Marcio. Good evening, everyone. I'm Felipe Gurgel, Commercial Officer of Log-In. As highlighted by Marcio, we had another excellent quarter and an exceptional year end, again, achieving some more important records in our results with the highlight going to the highest Costal Shipping EBITDA in 4Q, reaching R$117.2 million, up 28.4% over the same period of the previous year. Coastal shipping EBITDA for the full year of 2022 was 48% higher year-on-year. Also noteworthy, this quarter was the increase in the container Costal Shipping margin reaching 35.8%, 6.3 p.p. above 2021.

Regarding volume of containers, despite ABAC data showing a small reduction in the quarter, Log - In posted a 5.1% increase, transporting about 113,000 TEUs. This increase is due to the significant

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increase in Mercosur and Cabotage shipments. Cabotage grew 16% year-on-year despite the restrictions caused by the drought in the Amazon River.

In the full year 2022, volume handled by Log-In grew about 4%, with a slight reduction in Feeder volume, which was offset by a significant increase in Cabotage of 11%, and 40% in Mercosur when compared to 2021.

Costal Shipping revenue grew about 6% over 4Q21, totaling R$327 million, driven by a better cargo mix transported and, in particular, by the continuous migration of cargo from road to Cabotage. In 2022, we posted the highest historical revenue in Coastal Shipping, with about R$1.3 billion.

I would like to highlight that in 4Q22, we had 2 important docking operations of our vessels, Log-In Jacaranda and Log-In Pantanal, those completing the compulsory docking cycle involving 5 of our 6 vessels used in Cabotage. These investments make our vessels safer and more efficient in terms of operating efficiency and fuel consumption, consequently reducing our CO2 emissions.

Lastly, I would like to congratulate the entire Log-In team for their excellent work throughout 2022. Focus not only to achieve great results, but mainly guided to deal with daily challenges, always prioritizing safety and the best service to our customers.

Now I give the floor to Gustavo Paixão, who will present the results of Terminals.

Gustavo Paixão:

Good morning. Thank you, Gurgel. Good day, everyone. This is Gustavo Paixão, Log-In's Terminals Officer and it would be my pleasure to present the Terminals results.

4Q22 posted great numbers. As was the case of previous quarters and mainly as compared to the same period of 2021, we had another quarter with consistent growth of the Terminals results. I would like to start by highlighting general cargo handling in 4Q22, which despite a reduction of 27.2% year- on-year with handling of 182.700 tons ended 2022 with a historical record, especially in the handling of steel and bulk products reaching a mark of 960,000 tons in this period of 18% higher than the volume on of 2021, affect the consolidated upward terminal and being multi-purpose terminal.

Our net revenue in 4Q22, was also highlighted, with the highest NOR for the 4Q. We grew 12.2% compared to 4Q21 with R$78.3 million. And I must also highlight the results for the full year. We posted a record net revenue of R$319.1 million, up 20% compared to 2021. This result was positively impacted by the diversification strategy of our terminal and the capturing of new business and operations, some of them resulting from the modernization of our port, which, with the 2 new MHCs, allowed us to carry out operations that previously would not have been possible in the State of Espirito Santo.

In turn, our EBITDA in 4Q22 turns out due to the largest positive percentage variation year-on-year. We totaled an EBITDA of R$36.6 million, which represents a 30% growth over the 4Q21. And this was the highest EBITDA for a 4Q. And still talking about the highlights, our EBITDA results for the full year 2022 was also record mark, totaling R$149.7 million, up 25.6% over the full year 2021.

Net volume of containers handled at the Tecmar in 4Q despite showing a little variation when compared to 4Q21, it was down around 0.4% or down from 409,000 to 408,000 containers. In the full year, there was a negative variation of 12% with 163,300 containers handled still impacted mainly by the volume of coffee and ornamental rocks exported. These are the main export products for our state, which among other things stuffed with increase in maritime freight prices and with the exchange rate that applies to coffee. The rock segment, on the other hand, suffered a greater impact due to the consumption reduction in its main consumer market the USA.

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Before closing my point, I would like to mention the work of the terminals. With our operational commercial strategy to diversify the operations of TVV supported by the modernization of the terminal, we could get to these wonderful results.

Before I end my point, I would like to give you an update regarding our modernization project for the terminal, which will enter a phase that is considered already final in the 2Q23, with the mechanical and electrical retrofit of our 3 STSs in a phased manner, which will enable greater safety for people and processes, better performance and reliability based on the technologies and automation that will be embedded in them. The delivery of this and other modernization action is maintained according to our schedule for the 4Q23.

And now I turn the floor to Mauricio Alvarenga, Tecmar Transportes Officer.

Mauricio Alvarenga:

Good morning, everyone. This is Mauricio Alvarenga speaking, I am the officer in charge of Tecmar Transportes.

Since we took over Tecmar at the end of March 2022, we have been working hard on the Company's turnaround and restructuring processes mentioned by Arany in the beginning of this call. And the first results of this work are already visible in 4Q22.

Please note on the slide, that we recorded adjusted EBITDA of R$12.5 million in 4Q. And for the Company, although we have been managing the Company for a little time when we look at the history of the Company, this was the best quarter for Tecmar since it was established. This shows that we are on the right track.

Another highlight that is very important is the use of Cabotage, something we began in 3Q to transfer long-haul parcels cargo. This contributed significantly to increasing Tecmar's transportation capacity because we can direct, take more vehicles to shorter routes. And it also contributes positively to improving the average Costal Shipping margin, as mentioned by Gurgel. Since synergy gain, which is actually the double impact on the Company results.

The accounting result in the earnings release reached R$39.3 million, and EBITDA margin of 30.6% in the quarter due to the one-off reversal of provisions for risks not materialized. However, our focus is on what we call recurring adjusted EBITDA, where we reached an EBITDA margin of 9.7%. For the road segment, it means that we are, again, on the right track.

In the full year, we reached an adjusted EBITDA of R$28.2 million. This adjusted EBITDA of R$28.2 million is already 3x higher than the 2020 EBITDA, which was the balance sheet that Log-In used to evaluate and purchase the Company. So been strengthening our management practically in the start of 2Q22, we were able to triple the EBITDA that the Company had in 2020.

Now moving to slide 8, please. At the top of the slide, we remind of the status of the turnaround process that we disclosed in previous quarters. We are now moving forward with actions in Phase II and already driving some Phase III actions.

Some highlights of improvements already implemented are the start-up of container transport operations for Log-In. This was not a service provided by Tecmar, effective container transport. The Tecmar trucks were not appropriate for container transport, but we already began this kind of activity. So that's an important synergy with Log-In.

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We implemented operating control indicators in the main important cost line items, and we are monitoring that up close, and also for measuring service level, which is a big focus for Tecmar. We want to make Tecmar, a benchmarking level of service just as Log-In is in the Cabotage service.

And another important highlight is the improvement in the Company's level of governance. We have been working strongly on that. We created an external auditing structure, and we are undergoing external auditing as well. That's another positive point. And another focus of ours at the Company has 22 terminals spread from the South to the Northeast, and we are capturing customers for warehousing management. It's not just transport. You see this involves customers that use Cabotage the road network and when we integrate these warehouses, we create a very important ecosystem for Brazilian logistics, integrating road, Cabotage and our warehouses.

Moving on to slide 9, I'm going to talk about the acquisition of the Oliva Pinto Group. It happened at the very end of December 2022. And it is very nice to think that less than a year after Log-In acquired Tecmar, we, now as Tecmar, are already talking about expanding the logistic network.

So please note on the map that Tecmar was positioned in the South to Northeast access with a robust distribution network. With the acquisition of Oliva Pinto, we are now also positioned in the North region of Brazil in the States of Amazonas and Roraima.

The Oliva Pinto group has a different characteristic from Tecmar, which will provide an exchange of experiences for the group. Oliva has many years of experience in container transportation, which is the road end for Cabotage, taking the containers from the port to the customers and from the customers to the port. And it was important not only for Cabotage, but also for import and export customers in the region. This is important for shipowners and customers overall.

The Oliva physical structure includes a terminal with a total area of 70,000 m² considering built area in the yard, and this terminal is very well positioned strategically. Just as a reference, so you can know the region, it is located across the road from the Moto Honda factory, and sits it's literally next to LG Electronics, Positivo Informática, and many other customers that are Oliva customers already, but that could be potential Tecmar customers for distribution in the region.

Just as we began the work here at Tecmar, at Oliva, we have directed an executive for this new operation, and we are working strongly on the diagnosis, just as we did at Tecmar, and then working on a 100-day plan that will guide us in the implementation of a future plan with robust actions.

We have also started the necessary implementation so that Tecmar begin to capture parceled cargo from the Manaus Industrial hub for distribution in the Northeast and South of Brazil as well as the structuring of the Tecmar and capture cargo from all over Brazil and distribute parceled cargo, both in the States of Amazonas and Roraima. We understand that this acquisition creates a lot of value for the group as a whole, generating synergy use with Tecmar in Coastal Shipping.

And looking forward for 2023, the challenges remain great, mainly focused on implementing operational processes here at Tecmar. We are focusing a lot on that and also focusing on what we call technologies applied to the business. These are 2 important focus areas for us. And we also have to have a strong focus on our leadership because with our people, we cannot do anything. So this would be a summary of our quarter.

And of course, before ending my part, I would like to take this moment to thank the entire Tecmar team for this year of 2022. This was the first year under Log-In's management. We count on seasoned professionals in the segment and a team that is very motivated, to seek the results we set out to obtain, but also motivated through innovation. It's very nice to see the motivation of our team.

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