SIMPAR S.A. (SIMH3) Earnings Call Transcript

Good morning, everyone. We are starting the -- to announce the results for Simpar for the first quarter '24. On behalf of our more than 51,000 entities, I would like to thank you all for your participation and especially thank our customers for the opportunity to work with us and to choose our services. Thank you very much -- before talking about the main financial highlights, I would like to start on Page 3. When we talk about the ecosystem of Simpar Group, which was structured in recent years with completely independent companies, segments of great resilience in several sectors of the industry, a diversification of businesses and services and sectors of the economy. On the left-hand side, we talk about the main figures of this business group. We are today more than 51,000 employees, 8 completely independent companies with CEO, CFO, administrative structure, management goals and objectives that are independent, clear and for most part, with completely independent boards. We have more than 1,000 service locations today, dealerships, use feed stores, car rental stores and especially the logistic company and branches all over Brazil. Our customers are in 80% of all sectors of Brazil economy. We have more than 1.4 million square meters of warehousing and provide services to our customers in the most wide priority of industries, all of them with highly resilience and vital to people's lives. We have more than 330,000 assets. and this business was largely built in Brazil, but today, we are in other 9 countries in addition to Brazil. I wouldn't say that this is a barrier to enter. But I would say that our infrastructure, our team, our people are prepared for the development of all our businesses. And when we talk about our companies on the right-hand side, we talk a bit about our strategic planning and value creation and next steps. Here, again, on Page 3 on the right-hand side, we talk about the listed companies. Our companies are prepared for development and are positioned in an extremely differentiated position. JSL, the largest road logistics company, several sectors of the customers to several sectors of the economy, all of them with resilience. Alto, which is the first and leader in the sector has less than 2.5% market share. So huge potential for continued growth, whether organic or through NMA. Movida, the second largest car rental and fleet management company in Brazil has the right position in terms of size, brands, management and people prepared now with focus on operational efficiency and value creation. And I would say that it has just the right size for the size of the Brazilian market and has the option to grow by improving returns or creating more and more efficiency with less growth. Vermut, it is leader and has unique positioning in the rental of trucks, machinery and equipment. It has also a small dealership business, which also has great potential, but the rental business, which is its flagship in the market, it's just starting, and it has scale and unique positioning. When we talk at the bottom right-hand side in the development of maturation of our businesses that are not listed. We see great synergies to be explored and possible strategic moves that will create even higher value to the company. We have Automab which is the largest vehicle brand portfolio in Brazil. Today, we have more than 120 stores with opportunity for continued consolidation. And it is just starting to capture synergies. We have a bank within our ecosystem that is prepared to take more and better advantage of the ecosystem, bringing more scale, but it has already found its breakeven, but great potential to grow. CS Infra with a portfolio of concessions, PPP pose vocation is services, whether in social infrastructure, logistics or urban mobility and sickles and Intel with the largest urban solid waste treatment center in Brazil, one of the largest in the world and uses the biogas and produces more than 50% of Brazil's biomethane generated in the segment. CS Brasil, which offers fleet services with drivers whether logistics services or facility services through mobility as well as urban mobility for public and mixed ownership companies. Now on Page 4, we have the main financial highlights for 1Q '24. We had a record EBITDA of BRL 2.400 billion, which is 22% up over the same period last year. We had record revenues of BRL 10 billion, a 23% increase over the first quarter '23. Net revenue from services alone of BRL 7.2 billion, an increase of 25% over the same period last year. Adjusted net profit of BRL 122 million, an increase of 36% over the same period last year as well. And on the same comparable basis, that would give us an increase in profit of 298% compared to the same period last year. We had net CapEx of BRL 2.9 billion, which is down 33% compared to the fourth quarter '23. And our leverage ratio, which is net debt over EBITDA was capped at 3.8%. If we annualize our EBITDA generated in the first quarter of 24%, we would have a leverage ratio of 3.5x. Return on invested capital of 12.1%, accounting ROIC of 11.2%, an increase of 2.8 percentage points. As you can see, you have a lower CapEx higher revenue, higher generation of EBITDA, higher profit, which is our focus on efficiency and extracting value from everything that was built over the years. As we saw on the previous page, the basis foundation, people, our business position have all been built. And it's now up to us to create more and more value and efficiency and focus on extracting value to shareholders and the sustainable development together with our customers. On Page 5, we have JSL. As we mentioned, a unique positioning, managed model scale, operational efficiency, it is positioned in a different way in all segments in which it operates. -- great resilience in the economy, essential in the lives of people, with people that are prepared -- we've made some acquisitions in recent years, but we've had extremely strong organic growth. You can see it on the left-hand side on Page 5, JSL's EBITDA has constant margins, a small improvement, very consolidated net profit, return on invested capital improving every quarter and even more important than that, a contract managed model that ensures the quality of its services and prices. Efficiency of scale has been greater quarter-on-quarter. And finally, to close JSL, it has just 2.5% market share in Brazil. According to information, a logistic companies in developed countries, United States and Europe has more than 8% market share. leader companies. That shows the huge potential of growth and JSL in addition to all that, has expertise in post M&A management and has ensured the quality of the company's applied with growth and improvement in results. On Page 6, we have Movida. Yesterday, it announced its results. So I'm going briefly to go through the company. Movida has rapidly transformed to every $0.01 months, changing its fleet mix, making adjustments to that, both in cost and in a longer period, which is developed for the business. But more than that, it has today, a balanced fleet with an ideal mix -- and these vehicles have made it possible for the company to improve its yield and still recover prices. When I look at Movida forward, I see an improvement in prices. This extremely optimal asset mix with possibility of making fleet acquisitions even under more advantageous conditions. And this fleet, this new mix, we have still haven't seen the sale of those assets, which I believe are factors that will contribute to the constant improvement of Movida's results in a very solid way. That's what I'd like to share with you. On Page 7, we talk about Vamos. Vamos has been showing in rental, consistent growth solid and organic. And it is diversifying sectors where it operates as a rental company. Remember, these are long-term contracts, more than 95% of 5-year contracts that makes the business resilient. It has had some returns of vehicles on trucks. The return is not what we wished for, but it has also given us the opportunity to rerent those trucks at more competitive prices. And when they are sold, they have margins over 30% book value because of the quality of the acquisition, the quality of the product and our positioning. Asset sales have just been going up in Vamos, which shows the market there is to absorb Vamos used assets, which is part of its business. Dealerships are still being affected in every business, but showing signs of recovery. In other words, I think Vamos is only going to improve. And remember, its main business is the rental of trucks, machinery and equipment, which is still a market just emerging in Brazil with huge potential for development. And Vamos has a unique positioning. On Page 8, we have auto -- this is a network of dealership. This group has been operating since '95, developed more in the 2000's, but it was already part of our strategic planning. In the last 2 years, we focus on consolidating car and light vehicle dealerships becoming today, the company that represents the most number of brands, 28. We are in 22 cities, 5 states with 122 stores. We are in consolidated regions with spread synergy. As you can see, the growth here is shown on Page 8 from '20 to '24 first quarter. And this is already a company of BRL 9 billion pro forma with EBITDA of 4.9%. But there are some comments worth mentioning. You can see we used to sell 1.3 used cars for each every new one in 2020. acquisitions were made, synergies to be extracted are just touching. But we have more than 34%, 40% growth in the sales of acquired companies after we take over. So what does that mean? More inventory of used vehicles, more inventory of new vehicles, better differentiated financial conditions to customers, a space to offer a better environment to customers, which has led to higher volume of sales per location, but the synergies are still to come. We are very happy that the Board has appointed Antonio da Silva Barreto, as CEO of Automab. He is now the business owner, while the presidents of the brands are responsible for the operation of each business. In other words, the attitude of a small company with the efficiency of a large company led by someone of red in our group who certainly knows and we'll be able to draw on synergies more quickly, whether in same store sales and other business opportunities within Automab. On Page 9, we talk a little about CS Infra. It is building step by step, solid concessions, PPP, which focus is to provide services, creating high-quality assets, whether environmental, ports, urban mobility, highways, small businesses with appealing returns. And we are sure that through CS infra we are going to have one of the options to create value to shareholders, whether in joint ventures or different assets or in the sale of assets, that is, we believe, very much in creating value by contributing to the group with CSZentra. On Page 10, we have CS Brazil. This is a company that currently provides fleet management of sourcing services with drivers and performance services, logistics services through people and mobility. This is where a small part of our Urban Mobility business is concentrated. It's a company that has had some growth considering improving returns, but it is connected to have opportunities in concessions, but I also believe that has potential to grow. On Page 11, we have PBC, which is a bank. As I said, it found its breakeven point, but it's still just touching with huge potential to extract more value within our ecosystem. It has a credit origination that is growing year-on-year, and it's prepared to improve results, returns and to extract even more value within our ecosystem. On Page 12, we have some of our main financial highlights. Now I'm going to turn to Denys. Denys?

Thank you, Fernando. Good morning, everyone. So we are going to start on Slide 12. -- financial highlights, consolidated basis. The group's net revenue in the first quarter amounted to BRL 9.1 billion, of which BRL 7.2 billion came from services, in which compared to the same period last year, represents a 25% increase in net revenue from services to the right top EBITDA, it amounted to BRL 2.4 billion, growth of 21% compared to the same period last year. As a reminder, 75% of this EBITDA comes from long-term contracts. On the bottom left-hand part, we see operating profit with BRL 1.6 billion, 20% higher in the same period last year. To the right, -- our net profit amounted to BRL 122 million, up 36% over the same period last year. Although in the previous period, we did have some tax benefits. If we adjust tax benefits, it would be equivalent to saying that this quarter's profit had a fourfold increase compared to the same period last year. So then I'm going to the next slide that talks about our debt amortization schedule and liquidity on a consolidated basis. The group's net debt amounted to BRL 34 billion at the end of the quarter, and our liquidity position was around BRL 19 billion of the considering the transaction carried out in the beginning of April. Average net debt maturity stands at 5 years and the liquidity position enables us to say that it is equivalent to the amortizations of the years of '24, '25 and partially of '26. Or in other words, that this is equivalent to 3.5x the coverage of our short-term debt. In addition, I'd like to draw your attention to the out of the total amount raised in '24 about BRL 7 million. The average cost was approximately 90 basis points below the current average cost of debt, which will certainly contribute to the company in the future. I'd like to continue and move on to the next slide, where we talk about Simpar as a holding company exclusively. Simpar holding company ended the quarter with net debt of BRL 3.3 billion, cash position of BRL 3.2 billion, average net debt maturity of EUR 70 and short-term debt coverage of around 8 years. The liquidity means that we can cover all the scheduled payments until 2030. And here on the right-hand side of the slide, we are pointing out that only our stake in listed companies, remember that we have many other assets within the group is equivalent to proxy 3x more than the holding company's net debt. On the next slide, #15, we talk about our asset mix. We ended the quarter -- first quarter '24 with approximately 93% of the total asset base on vehicles, trucks, trailers that are quite young and have a very liquid secondary markets. Also, but nothing is that 95% of our assets are unencumbered. On the right-hand side, I'd like to draw your attention to the fact that the market value of our assets shows appreciation compared to book value, 11% higher than market value versus book value. And when compared to the financial obligations and payables to suppliers of machinery, equipment and vehicles in our subsidiaries. This is 1.2x higher than our applications. Moving on to the next slide. We bring at the top left, this time line of investments on a net basis, gross investments minus sales. We had a reduction, as you can see at the end of the charge of 33% in the volume of net investments when we compare 1Q '24 with 4Q '23. But it's worth mentioning that a large part of these investments have not yet generated cash. As we show here on the top right-hand side, we have around BRL 3 billion of investments that did not generate cash in the first quarter. This is part of our model. It's always good to emphasize because you often see the obligation recorded on the balance sheet, but not yet the cash that is generated from this investment. On the next slide, we talk about leverage. On the right-hand side, we have what we understand to be the business leverage. As we have said before, our business is based on assets with a strong secondary market. And at the end of year contracts after the service is provided, they will be searched. So when we consider the present value from the sale of assets at the end of contract, we have a leverage of 2.2x. However, according to the financial convention, we present a leverage if we take the EBITDA for the quarter and annualize it of around 3.5x. I annualized the first quarter because it already begins to better represent the new size of the company. But in the classic model 12 months back, leverage would be around 3.8%. The ratio is used in our external issues, in bonds, but we also have a leverage ratio for the domestic market, which I understand is more in line with the business profile. This ratio, as you can see at the bottom of the page, is 2.3x when its maximum is 3.5 So we have room of 1.2x the criterion applied, and this is what we call the maintenance covenant. On the next page, Page 18, we give you a bit of the mechanics of how we got to the business leverage ratio of 2.2x. I won't say much, but it's simply to tell you that based on the consolidated net debt, we subtract about BRL 26 billion, which is our assumption of present value of assets, which will be sold in the future and add obligations payable suppliers of vehicles, which wouldn't be fair not to do so. This is exactly what we're doing Simpar and the sum of these 3 items leads to a total of BRL 18 billion and you compare with the services EBITDA, of course, we could not use the benefit from the sale of assets here. So the figure of BRL 18 billion after deducting the present value of assets is only checked against the service EBITDA, which brings us to 2.2x leverage. Moving on here to my last slide before I turn it back to Fernando. On Page 19, we talk a bit about the return on invested capital. This is an indicator that we follow from close here. We brought a concept here, which is the concept of production, return on invested capital and production because as we've talked before, there is part of the capital that has been allocated that is not generating cash. And therefore, that we've reached 12.1% when we analyze the first quarter of the year, which is around 3 percentage points higher. The average cost of debt after tax. This is the result of the work that has been done and will continue to be done in the several companies, as you've already heard in the call of the listed companies, but also the work being done in unlisted companies, which have a lot either to mature because they are preoperational or to improve whatever is already operation. So we understand that we are on the right track. The figures show that, but we also understand there is a lot to be done. With that, I turn the floor back to Fernando. Fernando.

Now we are going to Page 20. And I would like to share with you our basis to carry out the strategic plans for '24 and '25. Simpar has the mission to contribute to the development of our companies with focus on creating value through operational efficiency, excellence in services and continuous development to extract the maximum value from everything that was built in a sustainable way. Take that we're building segments that are highly resilient that they're a part of the lives of people and industries. After investing more than BRL 31 billion in the last 3 years. We are focused on operational efficiency to extract greater value and returns from investments already made. I've said that this is the first time we start a new cycle of development, focusing on operational efficiency without having to build the foundations and infrastructure, which is very different, and I believe this will truly enable us to create even greater value to shareholders. Companies are ready to move forward with development without the need for additional capital. We have consolidated cash of more than BRL 18 billion at the holding, BRL 3.2 billion with an extended debt schedule average term of 5 years. And we do not need to have a follow-on in any of the companies in order to develop them properly. We also have a very strong focus on the efficiency of capital employed, whether by improving our asset turnover, reducing assets, creating value through asset-light operations wherever possible, producing inventory in dealerships or in used cars, which will certainly improve our return on invested capital and with focus on efficiency and operating costs, all this through a company-managed model that is unique with strong value and culture and people that are dedicated to the development and to the DNA of services that we have. It's true then that we have our business execution and ensure the strengthening of commercial alliances. People focus on a strategy that adjust the execution of our strategic plans and sustainable development. We are present in several sectors of the economy with barriers to enter because of our position and the ecosystem built, scale, reach, strategic differentiation built over the years of the company's development with consolidation and a leading position. This is what I wanted to share with you. Once again, I'd like to thank you all for joining us today. And now we are going to open for your questions. Thank you very much.

Thank you. We will now start the Q&A session for investors and analysts. [Operator instructions] Our first question comes from Gabriel Rezende from Itau BBA.

Congratulations for a sequence of strong results. we saw last night with other listed companies, but also listed companies. I have 2 questions about Automab. The first very straightforward with [indiscernible] now sitting as CEO of the company. Is he also going to sit as the M&A Officer of Simpar as a whole. So just to understand what kind of structure you're going to have and if you're going to restructure the activities that [indiscernible] performs or performed. And second point about Automab, if you could talk about the bonus for the sale of cars from OEMs, we are monitoring the fptable, and we see a more flexible demand and bonuses from OEMs. So if you could talk a bit about that, I would really appreciate that.

Gabriel, this is Fernando speaking. Can you hear me okay?

Yes, very clear.

Gabriel, Automab Barreto, as of next week on the 15th, he is going to be 100% dedicated to Automab. We, as a group, we count on people, our major difference are the people. Of course, we are going to hear. But M&A and strategic plans for Simpar Barreto will leave. He's going to focus on Automab. He is a board member of some companies, JSL. So he is part of committees when we talk about strategic plans, but he is going to be 100% devoted to Automab leaving Simpar M&A and planning. We created a very well-structured area, and we still do not have anyone in the position. That is how we have structured ourselves. As for bonuses from OEMs, we all know that brand new cars had a huge increase. And OEMs, I always say that in the end of the day, we are almost like a luxury franchisee because it's an interesting business. You have a low margin. It's always been a tight margin, but it will never be a negative margin for long because it's not interesting that the front end is not healthy. So at some point in time, OEMs can offer more or less bonus to contribute to our margins or to help the sale of some makes that are needed. So you're seeing there with more premium brands, SUV, that have a bit more modest. This is much more to regulate retail prices. So this is something that we are seeing. It's not really out of the ordinary. This is just business as usual that OEMs do whenever retail is not selling as well, as they wished, but quite business as usual, Gabriel.

Our next question comes from Matheus Sant'Anna from XP.

First, I have a follow-up on Gabriel's question, Automab. It was a quarter a bit tighter in terms of margins. You talked about bonus. You also had the consolidation of recent acquisitions. What are expecting for margins in the year? If you could give us a bit more color. Leverage, I would like to ask a plan slightly up. Again, what is your view for the year? And how do you see the balance between capital allocation and leverage control?

This is Fernando talking about Automab once again. Automab is a company that in 2020, we had revenue of BRL 900 million, and now we are close to BRL 10 billion. This is growth and transformation that happened by acquisitions and consolidation. And Automab has been integrating the businesses. So all synergies are still to come. Because when you consolidate, you have a concentrated effort, and you do increase costs and because margins are pet, you have a surplus cost, an excess cost, but this is what it is. You have to first organize yourselves not to lose what is best from each company and then you start to enjoy results. I'll give you some examples. You buy a dealership. You have administrative personnel that you put together, then you see what is passing one team, what's impacting the other. Sometimes in the integration, you even increase the team. So you have an increase in cost. But then in our stores, we have been proving sales by 30% to 40%. But with that, you have to increase inventory. Sometimes, these are simple things, 1 million, 2 million store. But sometimes you invest to improve your showroom because then you increase margins and scale on sales per store. So sometimes you have to create things structure to have more lung -- and then you will start to enjoy the benefits. So while you are building, sometimes you have a drop in numbers and returns. But Automab literally is under construction. And I think that in 3, 4 quarters, we are going to have a more stable margin that is more compatible to its potential. And again, our capacity of sales per store has been bringing 30% to 40% more revenues in acquired companies. But there is still a lot more to be implemented in Automab Leverage, I'm going to turn to Denys. I would just like to make a very quick comment. In the fourth quarter, '24.and in the first quarter, we had more than BRL 7 billion net CapEx and that is something that we haven't enjoyed revenues yet and quite the opposite to have the cost of interest pre operational costs and then you start receiving revenues and then you annualize revenues. But then Denys can give you a bit more color on that.

In your question about the leverage, you talked about our prospect for the year, and you did ask something else that I forgot, I'm sorry.

Yes, basically, how you see the balance between higher allocation of capital and leverage control.

Okay. I'll start with leverage then. In the year of '24, we see the peak of investments in the first quarter and then slowing down to the second half of the year, which should therefore should bring the number down. So here, I'm talking about just directions. But due to what Fernando has just mentioned, the company that you are showing is always closer to reality than the company 12 months ago due to all the investments made and everything that we have been doing. So when you take a look at the higher number, 3.8%, this is the number that looks into the past, again, following the classic metric of EBITDA. But if you annualize first quarter numbers, the 3.8% is 3.5%. And just using your question, I'd like to reinforce that our leverage is very different from other companies and sectors. It is based on net assets that belongs to contracts that are preterm and that will be sold. The assets have proved their quality along the time, at least that I've been -- had the satisfaction of working the company 16 years. We have gone through prices in Brazil globally, but we are very confident about the quality and value of our assets. So when you take a look at leverage, when you think about the business, this is a leverage level that is not 3.5%, 3.8%. It's about 2.2x. You see this number is much more adherent to the covenants of local debt. The indicator in this quarter was 2.3%, and the cap is 3.5. So you see a relevant difference. And this is the only covenant that we have, which is called maintenance covenant that you cannot go up. So we still have much room there. But to answer your question, we see all the planned growth ahead, not affecting the trend I mentioned before. The peak of investments for '24 was in the first quarter, and then we have a slowdown throughout the year. okay?

Our next question comes from Guilherme Mendes from JPMorgan.

I have 2 follow-ups. First is leverage. Denys, your answer was very clear. But my point is about the holding debt. You mentioned in other calls about reducing debt a long time. So I would like to know from you the main levers to decrease this leverage at the holding level? And what would be your final objective -- and the second question is a follow-up on Automab, more specifically about Chinese OEMs. March has been saying aggressive Chinese OEMs being very -- I'm sorry, Chinese OEMs been very aggressive in the market. How much do you think that could affect vehicle prices?

I'm going to turn to Denys. I'm going to talk about Chinese OEMs. But before I'd like to make a comment. When we say that our annualized EBITDA has a leverage of 3.5x. I would like to say that this does not really translate the reality of our results. because, for instance, in the first quarter of '24, you are not enjoying the CapEx made in the fourth quarter of '23. So it is just an idea. We are just going to see that in the second or third quarter, so very different dynamics, but I'm going to turn to Denys. And as a shareholder, and of course, Denys is going to talk about the answer as CFO. We are very comfortable with the level of debt at the holding because we would never be able to build the assets we built if it weren't for the holding debt. And what gives us the comfort is the liquidity of our assets and the options that we have with our assets and the revenue to come and the creation of value. So several alternatives. Some are part of our strategy, but others also give us a lot of confidence in our position. But anyway, Denys up to you.