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Localiza Rent a Car S A : Transcription 3Q21

11/25/2021 | 05:59pm

Localiza Rent a Car 3Q21 Results

November 10, 2021

[Anna Branco]: Good afternoon, and welcome to the Localiza Rent a Car webinar referring to the results for the 3rd quarter of 2021. Today with us are Messrs. Rodrigo Tavares, CFO and Nora Lanari, Investor Relations Officer.

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Please be advised that this webinar is being recorded and will be made available on ri.localiza.com/en, where the complete material of our Earnings Release is available. You can also download the presentation from the chat icon.

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We inform you that the values of this presentation are in millions of Reais and in IFRS. We emphasize that the information contained in this presentation and any statements that may be made during the videoconference, regarding Localiza's business prospects, operating and financial projections and goals, constitute beliefs and assumptions of the Company's Management, as well as information currently available. Forward-looking considerations are not guarantees of performance. They involve risks, uncertainties and assumptions, as they refer to future events and, therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors may affect the Company's future performance and lead to results that differ materially from those expressed in such forward-looking statements.

Now, I will hand the floor over to Rodrigo, the Company's CFO, to begin the presentation.

[Rodrigo Tavares]: Good afternoon everyone and welcome to the Localiza results webinar.

After the second wave of the pandemic, in the second quarter, we felt the positive effect of the advance in vaccination, which contributed to the resumption of demand in all Car Rental segments. Even in a context of rising rental prices, which is especially necessary due to the increase in the value of new cars and maintenance costs, we have noticed a gradual and consistent increase in our volumes - already higher than what we presented in 1Q21 - with the utilization rate back to historic levels.


Increases in car prices, in maintenance costs and in the basic interest rate substantially impacted the entire mobility chain, but demand resilience reinforces the position of rental as an affordable and viable transport option for the most diverse mobility needs.

The demand for long term rental, both from large companies as well as individuals and small and medium-sized companies, is currently strong, resulting in the highest ever backlog.

We continue to live in a context of limited cars' supply, caused by insufficient supply of inputs in the chain, especially semiconductors. This scenario once again impacted purchases in the quarter and it should last, with a perspective of normalization only from the second half of next year.

In this context, we are seeking a better cars' allocation by segment, according to the mileage and the needs of our customers, thus managing to maintain the NPS at levels of excellence, as well as monetize the asset, without losing sight of our long-term relationships and customer vision. In this way, we are reducing the impact of the postponement of the fleet decommissioning until purchase volumes return to higher levels.

We continue developing Localiza's journey of digital transformation and building the future of sustainable mobility. Our strategy to develop our competence in technology and data science and to look at our ecosystem has been consistently evolving through Localiza Labs. We have intensified our efforts in the pursue of innovation within the customer journey, efficient cost management and greater productivity on several fronts, and we already have some important initiatives in the experimentation and expansion phase.

We are coming close to 150,000 connected cars and, as a result, we have a daily generation of around 65 million data points and more than 9 million kilometers monitored per month, which, in addition to reducing delinquency rates, is an important tool for theft reduction and increase in rate of recovery.

We remain diligent in the allocation of capital and will take advantage of the moment to look even more broadly at new opportunities that can enhance our business, whether by strengthening our competitive advantages, increasing our growth or return prospects. Our balance sheet keeps strengthening with substantial reduction of leverage ratios. Besides that, our fleet replacement cost is the lowest in the industry, ensuring cash preservation, fundamental while going through a period of uncertainty and increase in interest rates.

This quarter we concluded a technical study that supported the review of the useful life of our cars from a tax perspective, which accelerates depreciation and tax credit, with a direct impact on results. Based on the technical report issued by a qualified entity by the Brazilian Revenue Service, the fiscal useful life of the cars was reduced from 48 or 60 months to, on average, 24 months for the cars covered by the report. As a result, we had an increase in tax depreciation and the recognition of the corresponding PIS/COFINS credits, impacting the quarter's EBITDA by about R$320 million.

Finally, on the last twelve months we reached a ROIC of 16.8% and spread over debt after taxes of 13.9 percentage points.

For the presentation of the results, we will go to page 2 of our Webcast.


In 3Q21, we show a growth of 54.1% in revenue from the car rental division year over year. The utilization rate was 81.3% and the average daily rate reached R$92.0, reflecting our pricing strategy and the mix of segments.

Revenue from the Fleet Rental division has been growing sequentially and, year-over- year, shows an increase of 14.7% against 3Q20, due to the combined effect of volume and prices, with a stable utilization rate and an average daily rate 8.4% higher.

On page 3, we show the financial highlights for 3Q21.

Compared to the same period last year, net revenue from Car Rental grew 43.3% and from Seminovos dropped 36.1%, impacted by lower car decommissioning volumes, in the context of lower purchases. As a result, consolidated revenue decreases 9,6%. EBITDA grows 83.1% year-over-year, due to the higher operating result from both rental and Seminovos. EBIT advances 112.2% in the same comparison. Finally, we see a 106.3% increase in net income for the quarter, which reached 671.4 million, surpassing the 2 billion mark in the last twelve months.

To present the details of the 3rd quarter results, I would like to give the floor to our investor relations director, Nora Lanari.

[Nora Lanari]: Good afternoon, everyone.

Starting with the Car Rental division, as you can see on page 4, in the 3rd quarter the number of daily rentals increased by 11.0% and revenue grew by 54.1% year over year. Reflection of the volumes resumption from the vaccination against Covid evolution and the higher level of fleet utilization rate. We also continue to adjust our rental rates in all segments to accommodate new car price increases and higher interest rates. We see a resilient demand with consistent growth in all segments, which reinforces our confidence in rental growth avenues for the coming years.

On page 5, we show the result of the efficient management of prices and mix. In the context of low car supply and growing demand, the Car Rental division reached a utilization rate above 81% and an average daily rate of R$92. The price increase process should continue in the upcoming months to rebalance return levels, considering the replacement cost of cars, maintenance costs and high interest rates.

On page 6, we show that the network of own branches was expanded by 9 in the last 12 months, from 442 to 451, which reinforces our confidence in growth opportunities. The Company has been increasing convenience for its customers and getting ready to accelerate volumes as car delivery returns to more robust levels.

Moving on to page 7, in the Fleet Management division, we see the average rented fleet increased by 7.5% and net revenue increased by 14.7% compared to 3Q20. In this comparison, rates have increased by 8.4%, reaching R$1,753per month, per rented car and reflecting the pricing of new contracts in a context of rising new car prices and interest rates.

We are excited about what we have seen in the demand and results of Localiza Meoo. The number of orders continues to increase and Fleet Rental has a backlog of more than 20,000 cars, but we are still being impacted by the scenario of restricted production of new cars.


Moving on to page 8, we show the balance of cars purchased and sold. The quarter was affected by lockdowns in Malaysia, which aggravated the semiconductors global crisis, resulting in further suspensions in the production of cars in Brazilian. In this context, we bought 22,437 and reduced car decommissioning, which resulted in the sale of 21,620 cars, an increase of 817 cars between purchase and sale and a net investment of R$327.5 million. Our average purchase price was R$72.7 thousand, compared to a sales price of R$60.5 thousand, resulting in a replacement effort of R$12.2 thousand per car, showing the importance of maintaining discipline when buying cars.

On page 9, we show the used car network, or Seminovos. At the end of 3Q21, we had 132 points of sale and had 21,620 cars sold, a reduction of 52.5% in volume sold year- over-year. The average price was 34.5% higher than the prices charged in the same period of the prior year and reflect the context of a sharp increase in the price of the new car, which we were able to capture in our decommissioning.

On page 10 we show the fleet at the end of 3Q compared to the prior year. In Car Rental, we ended the quarter with a fleet of 207,550 cars, a reduction of 4.1%. While in Fleet Rental, the end-of-period fleet increased 6.5%. On a consolidated basis, the fleet decreased by 1.7%, reflecting the lower number of cars being activated and decommissioned, in addition to the lower number of vehicles available for sale.

Moving on to page 11, we see that the consolidated net revenue of the quarter drops 9.6% year-over-year. Net rental revenues increased by 43.3%, with a 54.1% increase in the car rental division and 14.7% in fleet rental, while Seminovos reduced 36.1%, impacted by the lower cars decommissioning and sales volume, partially compensated by higher prices.

On page 12, we see that EBITDA grows 83.1% in 3Q21 year over year, reaching R$1,187 million, with a strong contribution from Car Rental and Used Vehicles.

The positive performance in Car Rental is due to the increase in revenue, resulted from higher volumes and rise in the rental rates, in addition to a higher margin, benefited by the greater recognition of PIS and COFINS credits, the result of a study that culminated in the reduction of the fiscal useful life of the cars object of the report issued. The average fiscal useful life of these cars approached 24 months versus 48 months previously used for obtaining PIS/COFINS credits, which is to say that the credit recovered from these cars practically doubles. The bigger credit volume should be recurring as we obtain new reports updating the fiscal useful life of new cars entering the fleet.

Despite the expansion, some effects still have a negative impact on the Car Rental EBITDA margin, especially the maintenance line, property tax, licensing, and others, which remains high as the fleet age continues, increases in the price of cars and parts and larger theft recognition. Another line impacted was profit sharing, reflecting higher increased provision due to the strong result of the Company. Finally, margins have been impacted by continued investments in the brand and in the technology and data teams, preparing the Company for the next growth cycle and a more prominent presence in the mobility ecosystem. These combined effects resulted in an advance of

22.4 p.p. in the Car Rental EBITDA margin.


Moving on to the Fleet Rental division, the EBITDA margin decreased by 12.6 percentage points, mainly due to the increase in maintenance costs due to the fleet aging, in addition to increase in expenses with team, technology and advertising for Localiza Meoo. Last year´s basis of comparison is strong because of the lower personnel cost associated with the MP 926, reduced maintenance cost due to the lower usage of the fleet and reduced expenses with marketing and consulting during the beginning of the pandemic. In the last quarter, we have seen the order backlog increase, which should contribute to the gradual acceleration of growth and cost dilution, as vehicle deliveries advance.

The tailwind continues at Seminovos and contributes to a higher EBITDA due to the strong improvement in prices, even with less volume of cars sold. In the annual comparison, the Seminovos margin goes from 6.3% in 3Q20 to 18.6% this quarter.

As a result, the consolidated EBITDA margin reaches the level of 80.9%.

On page 13 we see that in RAC, the annualized average depreciation per car advances sequentially, to R$938. In the Fleet Rental Division, the average annual depreciation per car was R$ 975. The higher renewal of RAC cars as well as the fewer cars sold, with an impact on the lower dilution of fixed costs, explain the advance in depreciation in this division. Anyhow, the depreciation at low levels in the two business divisions is a result of the increase in new cars and consequent impact on used car sales prices and tends to advance slowly while the pace of fleet renewal remains low.

On page 14, we can see that the consolidated EBIT in 3Q21 reached R$1,068.8 million, representing an increase of 112,2% year-over-year.

The EBIT margin of the Car Rental division was 72.7%, representing an increase of

31.9 percentage points compared to 3Q20, mainly explained by the effects that impacted EBITDA. In the Fleet Rental division, the EBIT margin was 73.6%, an increase of 0.2 percentage points year over year, mainly explained by the reduction in depreciation and higher margin on the sale of cars in this division.

Net income for the quarter, on page 15, grew 106.3% compared to 3Q20, reaching R$671.4 million. In addition to the EBIT variation described above, financial expenses increased 77.6%, especially due to the increase in the CDI and income taxes, which increased by 143.2% due to the higher EBT and higher rate.

On page 16, we show a cash consumption of R$208.8 million in the nine months of 2021, explained mainly by the reduction of R$851.3 million in the automakers account.

As can be seen on page 17, net debt increased by R$541.7 million, ending the quarter at R$6.7 billion.

On page 18, we can see that we ended the quarter with a strong debt profile and strong cash position. Including the issue of R$2 billion in debentures made in October, in the pro forma analysis, the Company has almost R$5.5 billion in cash. The chart below shows the cost structure of our debt. Also considering the pro forma analysis, of the total gross debt, about 16% are pre-fixed, from protection via derivatives, ensuring the profitability contracted in the Fleet Rental division. Another 28% are indexed to 109.4% of CDI and the remaining 56% are indexed to CDI + 1.68%. Additionally, as a mitigator for the rate increase, the availability of cash is fully applied to % of the CDI, which helps to protect the Company from the increase in interest rates. The efficient management


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Localiza Rent a Car SA published this content on 25 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 November 2021 22:59:05 UTC.

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