JSL S A : 2Q21 Conference Call Transcription

Conference Call - 2Q21 Results

Ramon Alcaraz:

(...) about the ICMS [tax]. Even so, in terms of recurring EBITDA, we will have R$124 million, 50% from the same period of the previous year.

In terms of net income, we had R$93 million in this second quarter, a margin of 10.5%, almost 13 percentage points over the same period last year, when we had a net loss. We also had the facts already mentioned for EBITDA, but even with the adjusted profit, our result of nearly R$45 million in the quarter was nearly 8 percentage points higher than the same period last year.

Speaking of ROIC, our return on capital was 13.1%, a leverage of 2.7x in relation to EBITDA, the best number in JSL's recent history. In this semester, we concluded the acquisitions for TPC and the carrier company Rodomeu. The numbers for EBITDA and net profit I am disclosing included only 15 days for TPC, as of June 15, and 45 days for the carrier Rodomeu, as of May 15. We also announced the acquisition of Marvel.

And I take this opportunity to announce, with great joy, the launching of the beta version of our application, called JSL Frete. This is a very important tool for our general cargo transportation segment. Remembering that in this segment, we have over 55,000 truck drivers. This tool will help us to monitor travel visibility for the driver, for the client and with traceability. T

It also helps us in document visibility for cargo, either through awareness, proof of delivery, or residual payment, between us (2:16 AUDIO FAILED) and the customer, in such a way (2:18) and it will also be an indispensable tool for efficiency gains (2:25 - 2:18) because it will be a portal offered (2:32) to the truck driver and the customer itself, thus bringing more efficiency to the entire system. Without a doubt, it is a transformational tool, not only for JSL, but also for its customers and the truck driver.

On page 3, we can see in our forecast how the 5 acquisitions announced in the last 12 months complement our presence in sectors and geographies, adding scale and new services to our portfolio.

So began with a gross revenue of R$3.4 billion, for JSL alone, and adding the gross revenue for the last 12 months for Fadel, Transmoreno, TPC, Rodomeu, and Marvel, we reached a gross revenue of R$5.2 billion for the new JSL.

Speaking of results, EBITDA was R$782 million, by the same metric, and net income was R$254 million. As you can see, we became a much larger group, with 25,000 employees, almost 17,000 which are active, and over 55,000 registered truck drivers who are part of our business, in addition to over a million square meters of storage space, 270 branches and over 1,300 customers in our portfolio.

On page 4, we can see from our flowchart how we are the only end-to-end company. We are present in the primary, secondary, tertiary industry, and even in reverse logistics, with waste collection. From raw material to final consumer, in all segments of logistics, transport, storage, infrastructure, including Last Mile.

1

All of our acquisitions made complement some of these segments where JSL already operated, bringing volume and expertise to our business. Fadel in urban distribution and Last Mile. Transmoreno in the outbound of the automobile industry, Rodomeu in the transport of machinery and chemical products, and Marvel in the transport of refrigerated and frozen products for the national and international market.

With that, I now call Guilherme Sampaio, JSL's CFO, to provide further details on the financial numbers. Guilherme, you may proceed.

Guilherme Sampaio, CFO:

Thank you, Ramon. Good morning, everyone. I will now provide detail on JSL's 2Q21 results. Before getting into the numbers, I just want to make it clear that in the consolidated numbers for JSL, we only had 15 days of TPC and 45 days of Rodomeu, and we still don't have any effects from the Marvel groups since the transaction was completed on June 30th of this year.

We ended the quarter with 922 million net revenue, 65% higher than 2Q20, if we look at service revenue. Net income was 93 million in the quarter, with a positive effect of 48.3 million from the untimely launches of PIS and COFINS on the basis of ICMS and other non-recurring items in the quarter that are explained in the release. With the adjustments, we reached 44.8% of net income, and comparing to 1Q21 we were practically in line, with almost 5% of net margin.

Speaking of operating results, EBIT advanced to 155 million, with the help of extraordinary items, but without these effects, the margin would be 9%. We carried out an exercise to normalize this amount, with a retroactive revenue amount, which has already been approved by customers, but which did not impact the 2Q result. This revenue of 11.3 million would raise the EBIT margin to 9.8, in line with 1Q21 and almost double that of 2Q20.

EBITDA reached R$212 million with the positive effect, and doing the same (6:57) EBIT (6:58- 7:01) including the retroactive revenue, it would have reached R$133 million, with a 14.6% margin, in line with 1Q21.

EBITDA reached 212 million with the positive effect, and doing the same year as EBIT excluding non-recurring items and including retroactive revenue, we will reach 133 million, with a 14.6% margin, in line with 1Q21

Moving to slide 6, we tested the revenue in Asset Light and Asset Heavy, reaching 58% in Asset light and 42% in asset heavy already considering the fifteen days of TPC 100% in Asset Light, and the 45 days of Rodomeu and 100% with Asset Heavy. This index reinforces JSL's flexibility to meet the needs of our customers on a demand-by-demand basis.

And updating with the information from the material fact of May 18th, we signed R$2.5 billion in new contracts and new revenues, updating the number which was 1.6%, ending the quarter, now on June 3rd, reached R$2.5 billion.

These contracts were mainly in agribusiness, mining, and some cargo transportation contracts. To face the mobilization of these new contracts, we had a net CAPEX of R$140 million in the semester, of which R$94 million was in the second quarter alone.

Going to slide 7, I will talk more about future capital. We ended the quarter with R$680 million in cash, even with the net CAPEX level I mentioned, and almost R$200 million in payment for the acquisitions we made.

2

We also have a committed, contracted and undrawn line of 200 million reais that are not considered in this amount of 680. This is a line that I have 3 years to make the decision to withdraw, and 5 years the amortization period after the withdrawal . This cash allows us to repay our debt until 2023.

And the other important point is that this quarter we carried out an issue of R$500 million in a CRA, with a total term of 10 years, taking our average term to 4.9 years and it is still a work that we continue to do to lengthen our debt profile.

We ended the quarter with a cost of net debt of 3.3%, net of taxes, at the end of the period. Our leverage with 2.7 times over EBITDA, and 2.3 times over added EBITDA, if we consider EBITDA and Added EBITDA in the last 12 months for JSL, Fadel, Transmoreno, TPC and Rodomeu, which were consolidated at the end of the quarter.

We provided a table in our earnings release with the details of these numbers so that you can reconcile them. With that, I turn the floor back over to Ramon.

Ramon Alcaraz:

Thank you Guilherme, and to finalize, my friends, I'm going to emphasize a few points that I consider as a JSL momentum. A total focus on injecting results.

We had a difficult time in Brazil, including in the world, due to this wave of cost increases that all of you have been following. To cite some examples, taking our main inputs, fuel, parts, tires, we have an increase, only in 2021, in these first 6 months, which exceeds 15%, we have not seen this for many years.

To try to balance this inflationary pressure, we only have two options. The first is cost reduction, and we are working intensely and relentlessly in search for efficiency across our entire chain. The other option is negotiating with our customers, one by one, identifying the reality of each client and readjusting our tariffs, based on the price increase of each input.

On the other hand, several segments of our chain are recovering, with strong prospects for new contracts. Guilherme mentioned R$2.5 billion new contracts in his comments, and we are negotiating several other contracts for 2H21. It is interesting that this is on both ends, mainly in agribusiness, mining, and in e-commerce.

We are working hard on consolidating the companies we acquired, we have already managed to capture a few synergies, which already reflect an improvement of up to 2 percentage points in relation to each company's net revenue, improving the net income of each one by 10% to 20%.

The capture of synergies is not restricted to cost reduction, it also comes from taking advantage of the structure and cross expertise, we have an example between Fadel and JSL, we have just started a new e-commerce operation with the client, where we put an operation was set up in just two weeks with more than 500 trips/day, which was only possible by combining Fadel's expertise in the Last Mile and JSL's warehouse structure.

We began a new international expansion phase, with the expansion of operations in Paraguay, and prospecting contracts in other countries. In addition to being very excited about this

3

organic growth, we continue with the M&A strategy supported by the SIMPAR group in the medium and long term.

This concludes my presentation for JSL's 2Q21 results, and I would like to take this opportunity to thank you for your patience and attention. I remain at your disposal, along with Guilherme, CFO of JSL, Fernando Simões, president of the SIMPAR group, and Denys Ferrez, CFO of SIMPAR. Thank you very much. We are available for any questions.

Fernanda, BTG Pactual:

Hello, Ramon and Guilherme. Thank you for the opportunity to ask questions and congratulations for the result. I have two questions.

First, I would like to talk a little more about inorganic growth, this opening that you gave was very good, too, talking a little about synergy, but I would like to understand if there was any update of Tegma's conversations, after they amended the binding they had made, wanted to understand if the conversations are still continuing or turned the page.

I would like to understand what you are seeing of potential purchases and what size should we expect? Because you were buying smaller companies and this potential binding with Tegma has increased a lot too. I wanted to understand what we can look forward to.

And the second, addressing this point that Ramon talked about, about cost reduction, I would like to understand what initiatives you have been doing to mitigate this cost increase. And also, for me it was a little confused, when we look at fuel, Asset Heavy had an increase in fuel prices even higher than Asset Light, I would like to understand a little more about how these negotiations are going. Thanks

Ramon Alcaraz:

Good morning, thanks for the question. I will start with the second question, about the increase in costs, what are we doing to mitigate them? This is a question that has to do with directions, I'll leave it to Fernando Simões, from the SIMPAR group. As you know, the group has an acquisitions division, so there's nothing better than responding themselves.

Regarding your second question, about impacts from costs, in fact, this year, differently than several years ago, and its been many years since I saw this, we had a very significant increase in the cost of inputs. Fuel is more widely known by all of us because it is a widespread concern, but that was not the only one. Tires also had a very expressive increase, followed by parts, truck prices, etc.

What have we been doing to mitigate this? First, working on efficiency, working on motivating drivers, to improve average consumption, reduce consumption, working on larger volume purchases to be able to gain in the price of parts, buying in batches.

We are working on a management system, managing to have a longer interval between maintenance, working with tire models, managing to have better efficiency, in short, trying to remove any waste, and I still have it in some of the operations.

Given the size of the cost increase, it could not be different. We have been looking for each of our customers to re-evaluate the price adjustment. We had already done this in February and

4

now, less than 6 months ago, we are looking for it again because we cannot bear such an impact.

Each contract has a reality, there are contracts, especially in asset heavy ones based on a metric with some readjustment index, whether labor, IPCA, or some specific input, such as diesel, and other contracts, even if they are not in the metric we look for customer is customer, depending on its truth to show this impact, and we are opening negotiations.

We are not pushing any of our clients. We are doing this with transparency, in partnership. I have even noticed that doors are opening for us to work on this issue. So, these are the two fronts that we have been working on to mitigate the increases in costs.

Regarding the question on acquisitions, I'll hand the floor over to Fernando Simões and Denys to comment.

Fernando Simões:

Good morning everybody. Just complementing Ramon and the team who did a very nice job in terms of cost reduction. Just complementing the point he presented to us on the board, it is the sixth update of document issues with freight knowledge, which is currently done in all branches and has already started, in 10% of the branches started in a central and only the document leaves the door to continue the journey, this is not only important for the issuance of contracts because they can be used on other fronts, this comes with the improvement of processes, optimization, it is already part of the digital transformation that has been done the agenda at JSL.

Now, talking about acquisitions, thank you Ramon, who comes to deal with this in a way within the governance of M&A that all companies controlled by SIMPAR, M&A, strategic planning, has been thought of within SIMPAR. So we have been looking at the average ticket, I would say to you, which is a ticket of 400, 500 million reais, as you can have seen, here we have in the portfolio, with a lot of responsibility, always proud of JSL's capital structure, synergy , in quality.

This strategic planning has been carried out, as for Tegma, the proposal was made with Tegma, as you have seen, the positions are public, and we, as SIMPAR, have great complementarity in transforming value. JSL's shareholders, Tegma's shareholders, and I repeat, in the provision of services to customers who hire Tegma's service, diversification of the provision of services in Tegma's portfolio, a greater participation in the transportation of the zero car in the JSL issue, but it didn't happen, go ahead.

We made a proposal these days, which was fair, in a transparent way to the market, which served for everyone to evaluate, and we continued with our inorganic growth planning in all sectors, including car transport 0, regardless of the issue Tegma That's what we've been looking at in terms of M&A, and now I'll turn the call over to Ramon. Keep going. Thanks Ramon

Ramon:

Thank you, Fernando. I hope I have answered your question, if not please say so.

5