Ports & Terminals

Santos Brasil posts improved 3Q21 results despite container crunch: “We have demand, but there are no ships”

Terminal operator reports increased margins and updates diversification plans

Santos Brasil’s three port terminals registered container throughput of 321,448 units in 3Q21 (+26.4% YoY and all-time high for 3Q), despite the challenges in global supply and logistics chains.

Logistics bottlenecks in containerized cargo supply and transportation, intensified by resilient demand in most global markets, led to shocks in the supply of ships and containers used to distribute goods, which weighed on potential volume in the quarter. Given the strong increase in maritime trade on premium routes (China, USA, and Europe), ships were redirected to those markets at the expense of secondary routes, such as South America.

Antonio Carlos Duarte Sepulveda, CEO, commented during the 3Q21 conference call on the worldwide container shipping disruptions: “We have demand, but there are no ships”.

Two STS cranes arrive at the Santos terminal in February 2020. Image credits: Santos Brasil

Despite the weaker-than-expected peak season, Tecon Santos registered container throughput growth of 30.7% YoY, outpacing container throughput growth at the Port of Santos (13.5% YoY), led by growth in full import containers (+69.1% YoY).

After a container market share in Santos as low as 34.3% in 3Q20, the company reversed the downward trend later in the year. Santos Brasil now has 40% of the market, slightly below BTP (40.3%). DP World has 18.7% and others, 1%.

At Tecon Vila do Conde, container throughput grew 11.1% YoY on strong growth in cabotage cargo (+30.3% YoY) and good performance of long-haul volumes (+3.4% YoY). At Tecon Imbituba, container throughput fell 13.0% YoY, reflecting lower cabotage volumes.

Net Revenue in the quarter was R$ 396.6 m ($73.46 m, +80.0% YoY), supported by volume growth and better mix in all operating units, as well as higher average ticket, especially at Tecon Santos, due to contractual renegotiations with shipowners. In relation to 3Q19, a comparison base free of Covid-19 impacts, Net Revenue advanced by 58.5%.

Ebitda came to R$ 152.0 m ($28.15 m, +205.8% YoY), with Ebitda margin of 38.3%. Compared to 3Q19, a period with no Covid-19 impacts, Ebitda grew 156.3%. The company recorded Net Income of R$ 66.6 m ($12.34 m) in 3Q21, reversing the net loss of R$ 5.5 m ($1 m) in 3Q20. In 9M21, Net Income was R$ 157.9 m ($29.25 m), representing a substantial turnaround from the net loss in 9M20.

In April 2021, Santos Brasil bid successfully for three liquid bulk port terminals in Itaqui, Maranhão state, the company’s first entry into the segment. Following the signing of contracts in August, the operator submitted the Basic Installation Plan to the port authority (EMAP) for analysis and is contracting basic engineering and concept services.

“We believe it is viable to start the operation of the two brownfield terminals already in 2022, which would mean a two-year anticipation over the original business plan”, said Daniel Pedreira Dorea, CFO.

Capex for the Itaqui terminals during the quarter was R$ 42.4 m ($7.85 m), corresponding to 25% of the payable signing grants. Total Capex for Santos Brasil came to R$ 88.1 m ($16.32 m), including R$ 37.3 m ($ 6.91 m) in capacity expansion and modernization projects at Tecon Santos.

Following on its diversification path, Santos Brasil is considering a bid for liquid bulk terminals in Santos too. The auction of the STS08 and STS08A areas, currently operated by Petrobras’ subsidiary Transpetro, is estimated to require R$ 1.0 billion ($180 m) of investments, in what could be the largest tender in Santos for the last 20 years.

Regarding the liquid terminals, Mr. Sepulveda commented: “We are studying it, it’s a big investment. Those are terminals connected to the Petrobras refinery, so very much oriented to clean products and to Petrobras’ operations. We are being very careful, we have not concluded the analysis yet, and have not decided [to place a bid] yet”. The Brazilian Water Transportation Authority (Antaq) published the notice in September, and tendering for the terminals is scheduled for November 19.

Vila do Conde container terminal in the Northern Arc. Image credits: Santos Brasil

Santos Brasil also maintained its 2021 guidance for quay volumes (1.3 – 1.4 million containers), Ebitda (R$ 530 – R$ 580 million), and Capex (R$ 250 – R$ 300 million).

The problem seems to be what to do with the R$1.1 billion ($200 m) cash pile that the company is currently sitting on. One analyst suggested share buybacks. Mr. Dorea dismissed this alternative, citing the company’s R$ 790 m ($145.7 m) secondary offering barely a year ago.

Investments will go to M&A transactions and further diversification: “Grain terminals are also in our ‘strategic field’. It’s a growing market, connected to the agribusiness. Our preference is for mature, brownfield assets, that are already generating cash”.

The executive laid out four main regions generating grain terminal interest. Itaqui, the Northern Arc (focusing on Vila do Conde), Bahia state (due to the railway Fiol development), and Santos itself. “There is the STS11 auction coming up in Santos, we have been looking into that”. The area is expected to be auctioned off by Antaq during the first half of 2022.

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