Sociedad Matriz SAAM SA

SGO:SMSAAM

Earnings Call Transcript

[Operator]

Good morning, everyone, and welcome to SAAM's Third 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 will now turn the call over to Hernán Gómez, SAAM's CFO. Please go ahead, sir.

[Hernán Gómez Cisternas, executive]

Good morning, everyone. Thanks for joining our results conference call for the third quarter of 2018. I'm here with Paula Raventos, Head of Investor Relations.

Today, we'll cover 4 topics, beginning with the main highlights for the third quarter of 2018. After that, we will continue with SAAM's aggregate results and move to results by division. Finally, I will close with an outlook for the remaining months of the year.

Let's start with Page 5. SAAM posted net income of USD 15.1 million for Q3 of 2018, a 73% increase over the same period of 2017. These results include extraordinary income of $3.7 million in dividends from Terminal Puerto Arica, which has been classified as held for sale since September 2017. Excluding this extraordinary income, the company posted net income for this period of $11.4 million, up 35% from 2017.

Highlights for the period include progress on our project ONE of operational excellence. We have moved forward in implementing our new operational model designed to make the company more profitable, strengthen our competitiveness in all 3 business divisions and recover our growth capacity. We have made changes at the corporate level, centralizing processes and bringing corporate functions closer to operations.

At Port Terminals and Towage operations, we have made changes in management, so that our operations can focus on customers and productivity, while SAAM provides support in other areas. We have centralized parts of finance, systems and HR and now procuring our main goods and services through centralized tenders.

In September, we received the news that we have been recently added to the Sustainability Index for the Integrated Latin American Market; and that we have been listed again for a third consecutive year on the Dow Jones Sustainability Index in Chile. This is great news for our company, customers and shareholders alike, will inspire us to continue generating shared value in the areas where we operate.

As we have mentioned in previous quarters in the Towage Division in Brazil, we're still facing strong competitive pressure, which is producing structural changes in the towage market. These new competitive conditions with a new player entering the market and overcapacity at certain terminals has put a lot of pressure on both volumes and rates. And this has resulted in decreased results compared to previous years.

In the Port Terminals Division, I would like to highlight the growth in volumes seen at our foreign terminals, particularly FIT, as a result of a new service awarded at the beginning of this year and Terminal Portuario Guayaquil due to new investments and services awarded in the last 2 years.

At Puerto Caldera, Costa Rican President, Carlos Alvarado, inaugurated a new reefer container yard on September 30. The container yard has 432 refill connections in addition to several new pieces of equipment: 1 shipyard crane; 2 additional reach stackers to support cargo transfer; and other accessories for a total investment of $7.5 million. This will increase port productivity, reduce waiting times for vessels in the bay and strengthen our competitive advantage. Puerto Caldera, as you know, is the largest terminal on Costa Rican Pacific Coast and the country's second largest in terms of cargo handled.

In our Logistics Division, our results in Chile have grown as a result of changes made to the business structure in recent quarters. We have completed the biggest part of the changes, freeing up capital and keeping our profitable operations. To date, we are focused on developing customized solutions for our customers in the operations where we see our future and where we are profitable.

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 were able to extend the concession agreement for the import terminal in Santiago for an additional 13 years starting in 2020.

Let's move to Page 7 where we can review the company's aggregate results. In the financial summary, we can see that for third quarter of this year, the company reported consolidated sales of $126 million, an increase of $6.2 million over the same period in 2017. This increase is explained mainly by a 9% growth in tonnage in the Port Terminals Division.

For the quarter, the Port Terminals Division represented 54% of consolidated revenue, followed by Towage with 35% and Logistics with 11%. Our consolidated EBITDA for the period increased almost $4 million over the third quarter of 2017 to a total of $35.7 million. This increase is also a result mainly of growth in the Port Terminals Division where EBITDA rose 25%.

Our margin reached -- our margin in -- our EBITDA margin reached 28% for the period, up from 27% the previous year. For this quarter, the Port Terminals Division accounted for 59% of consolidated EBITDA, followed by Towage with 37% and Logistics with 5%.

At the net income level, our net income attributable to the controller reached USD 15 million for the third quarter of this year, up $6.4 million from the same quarter in 2017 when we reported $8.7 million.

During this quarter, I've mentioned previously the company recorded $3.7 million in extraordinary income from the dividends received from Puerto Arica.

Let's move on to Page 8. SAAM posted $8.7 million in net income for the third quarter of 2017, $8.4 million if we exclude our extraordinary income from the same Puerto Arica. For the third quarter 2018, net income totaled $15.1 million, a 70% -- 73% increase over the third quarter of the previous year. Excluding extraordinary income from dividends from Arica, net income for the third quarter was $11.4 million. The improved performance has to do with better volumes at most of our terminals and our logistics operation. Higher volumes and reduced cost have offset the strong pressure on rates that we have faced throughout the last few quarters.

Slide 9 details net income on a year-to-date basis. For the first 9 months of 2018, SAAM reported net income of $51.1 million as of September 2017, $18.5 million if we exclude the extraordinary gains in 2017 and the net income generated by discontinued operations, both mainly from Peru.

For the 9 months of this year, net income totaled $35.1 million, with a year-on-year variation of minus 31%. Excluding the extraordinary effects in both periods, net income for the period end of September 2018 was $30.3 million, up $11.7 million from 2017.

On Page 10, we can see our financial position. Consolidated cash of $237 million and net financial debt of $59 million, both very healthy leverage and liquidity ratios that should enable us to pursue opportunities for growth. If we analyze SAAM's net financial debt using the equity method, it totals $427 million or 0.76x EBITDA.

In Page 12, we can review the results of our Towage Division, which reported consolidated revenue of $45 million, down $1.1 million over the same period in 2017, due mainly to lower average rates for our harbor towage activities.

The division reported EBITDA of $14.9 million, down $800,000 over the same period in 2017, which a fall -- with a fall of 1 percentage point in EBITDA margin to 33%. The company's share of net income from associates totaled $1.9 million for the period, a decrease of $2.2 million over the same period, due mainly to lower results from Brazil because of higher and stronger competition.

Our Towage Division reported net income of $4.7 million for the third quarter of 2018, a drop of $4.4 million over the same quarter in 2017. The increase in net income from our consolidated operations did not offset the reduced results in Brazil as a result of tighter competition.

Moving to Page 13. The Port Terminals Division reported consolidated revenue of $68.4 million, up more than $9 million from the same quarter last year, as a result of a 9% increase in tons transferred mainly from foreign terminals, in particular, Terminal Portuario Guayaquil and FIT in the U.S.

EBITDA for the Port Terminals Division totaled $23.1 million, up $4.6 million from the same period in 2017, with improved margin to 34%, 3 percentage points higher. The company's share of net income from associates totaled $1 million for the period, an increase of $1.4 million over the same period in 2017, due mainly to an upturn in results at San Antonio, Antofagasta and Puerto Corral, partly offset by lower-than-expected results in San Vicente Terminal Internacional.

The Port Terminals Division reported net income of $7.7 million for the third quarter of 2018, an increase of $2.8 million over the same period in 2017, as we said, as a result of increased earnings from foreign terminals and the recovery of some of our Chilean operations.

Moving on to Page 14. Logistics posted revenue of $13.7 million, down $1.5 million from the third quarter of 2017, as a result of the closure of noncore activities in Chile. Throughout this year, we are experiencing a moderate recovery in volumes in some of our logistic services related to warehousing and transport.

For this quarter, Logistics as a division posted an EBITDA of $2 million, an increase of almost $1 million over 2017, as a result of reduced costs and expenses following the structural changes that we have implemented.

EBITDA margin improved 8 percentage points to 15%. These figures reflect the changes implemented by this division, including a more limited structure, streamlining of assets used and strengthening of services where SAAM has competitive advantages.

The company's share of net income from associates totaled $1.8 million for the period, an improvement over the same period in 2017, produced mainly in Reloncavi and Aerosan.

Our Logistics Division posted net income of $3.3 million for the third quarter of 2018, up $2.7 million from the same period in last year, explained both by the recovery in results we were just discussing and income generated on the sale of disposable assets and improved results from associates.

I would like to conclude the presentation in Page 16 with a general outlook for our business divisions for the remainder of the year. We will continue our progress in implementing our new operational model, designed to make the company more profitable, closer to operations, strengthen our competitiveness in all 3 business divisions and recover our growth capacity.

As a milestone, on October, we held our first Investor Day in San Antonio, Chile. 30 investors and several members of SAAM's management visited San Antonio Terminal Internacional, where they enjoyed the guide -- a guided tour of the port's yards and cranes and also saw the tugboats operated by SAAM in the area.

Two new tugs will arrive before the end of this year to Canada to help with the increase in vessel escort operations. These tugs represented an investment of over $15 million to us. In our Port Terminals, we will continue to see improved results in most of our operations, thanks to increased volumes on our cost initiative program.

As we have discussed in previous conference calls, in May, SAAM through its subsidiary, SAAM Puertos, signed an agreement to sell its 15% interest in Terminal Puerto Arica. The transaction is subject to conditions that must be met. The only remaining condition is the approval from antitrust authorities, which we expect to occur over the next 2 to 3 months.

In October, our terminal in Florida, FIT, inaugurated its new terminal project. This initiative included construction of a new gatehouse with 8 lanes, doubling its capacity to receive and dispatch containers, as well as an office building and mechanics shop for its equipment. These items entailed an investment of around $5 million. An additional $5 million were invested to renew equipment; tractors and container handling equipment. These new facilities will enable us to protect our business into the future, consolidate our terminal's leadership position in South Florida, with the best customer service, safety standards and efficiency. And we expect FIT to continue to produce good financial results in the next coming years.

Regarding Mobile International Terminal in Alabama, we're still in the process of negotiating the terms of the concession agreement with the Alabama State Port Authority. The next stage will be to sign the concession contract and begin construction of the terminal, which is scheduled to start operating in 2020.

As we have communicated earlier, in April, SAAM Puertos and Argentina's Terminal Zárate signed a letter of intent to operate a roll-on/roll-off terminal in the State of Alabama, which will have a capacity for more than 200,000 vehicles per year at the Port of Mobile.

In our Logistics Division, we will continue to see stable results at Logística Chile, thanks to the changes made to the business structure and the awarding of new commercial contracts.

Finally, I would like to highlight that we will keep our focus on improving upstream cash flow generations, generation from our subsidiaries and affiliates and our guide for cost optimization.

We have concluded the results presentation for the third quarter of 2018, and we'll now open the floor for questions.

[Operator]

[Operator Instructions] Okay. This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Gómez for any closing remarks.

[Hernán Gómez Cisternas, executive]

Okay. I think we can conclude the presentation and Q&A session. We thank you very much for joining us today on this conference call, and we look forward to talking to you over the coming days. Thank you.

[Operator]

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