SIMPAR S A : Conference Call Transcription 1Q23

Operator:

Good morning, and welcome to Simpar's conference call to discuss the earnings regarding the 1Q23. Today with us are Mr. Fernando Simões, CEO; and Denys Ferrez, the VP of Corporate Finance and Investor Relations Officer.

Right now, all participants are in listen-only mode. Later on, we are going to start the Q&A session, when further instructions will be provided. Should any of you need assistance during the conference call, please reach the operator by pressing *0.

We would like to also inform you that this conference call is being recorded and simultaneously translated into English.

Before moving on, we would like to let you know that any statements made during this conference relative to the Company's business outlook, projections, operating and financial goals are based on Simpar's management's assumptions and beliefs and provided information currently available to the Company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions because they refer to future events and therefore depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect the Company's future results and lead to results that will be materially different from those in such forward-looking statements.

We now turn the call to Mr. Simões that will start the presentation. Mr. Simões, you have the floor.

Fernando Simões:

Good morning, everyone. We are starting the release of our results for the 1Q23 of Simpar. On behalf of our team, I would like to thank you all for joining us, also thanking our customers for the opportunity of working, our people that work hard with determination and competence for us to have results such as the ones we are presenting today.

I am going to start with page 2, with the main highlights for the 1Q23. We had a strong operational performance with record revenue and EBITDA. EBITDA of R$2 billion in the 1Q23, which means 30% above the same period last year. We had gross revenue of R$8.2 billion, up 63% year-on-year. And if we annualize this number, we go past R$32 billion. EBITDA of R$2 billion growth of 30% year-on-year. And again, if annualized accounts for R$8 billion.

Net income of R$77 million, down 77% year-on-year. And leverage net debt to EBITDA of 3.7x, with net CAPEX of R$290 million in the 1Q. Return on invested capital of 22.5%. That is an increase 8.5 p.p. year-on-year. If we normalize, we would have 13.7%.

I am going to go to page 3. I would like to share with you a bit of the context of the 1Q23 and the position of the holding as a whole. We had more stable interest rates at higher levels, 13.75%. And the banking system have got more selective in terms of rating credits as well as the capital markets, OEMs balancing supply and demand on cars and starting to offer cars that are at lower units, that is more economic and the trend of the stability in used vehicle prices, starts and choices and the end of production of Euro 5 and start of Euro 6.

Within this context, I would like to draw your attention to the positioning of our companies that are subsidiaries of Simpar. All of them, with no exception, today enjoy the benefits of scale. We are prepared to start enjoying scale, synergies of the acquisitions made and also of the strong investments of recent years.

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All companies, Movida, we have everything built in terms of reduced car scores, rent a car, retail, Vamos with the farm equipment and network. So we have the foundations with CAPEX executed. Everything that had to be done was done to enjoy this new cycle of development.

And the position with organic growth for the generation of new contracts, continuous prospecting of opportunities that builds customer loyalty and generate contracts that are long term and have adequate returns because when credit is easy, interest rates are low, people get a bit more irresponsible. When you have fair pricing covenants, you generate more opportunities to create long-term relationships with customers.

Inorganic growth, which also brings more opportunities for M&A that will further contribute to the development and scale of our business, specifically when we talk about the Logistics segment.

We have the strategic inventory of trucks with early purchase at extremely competitive prices of Euro 5, which brings us more competitiveness and generates better results. We sold an exceeding fleet in Movida rent-a-car in line with our strategic plan. Because of the early purchase of last year, we sold the surplus and are now resizing the fleet in the 1Q23. That will certainly contribute to better results for Movida.

We are starting a process of extracting synergies of acquisitions and consolidating Automob in car dealers. We have several assets of high quality as the 2 ports in Bahia, CS Mobi in Cuiabá, which are preoperational and that have great potential of future results.

That's it. When we take a look at the market in the context of the 1Q23 and the business position of our companies, it is the first year that we start with all the foundations, infrastructure- ready to focus on operational efficiency and to enjoy everything that was built along the last years, improving margins, returning returns and, therefore, creating the foundation for continuous development.

Going to page 4. We talk about our main numbers in the context of JSL, operational efficiency, quality pricing and discipline in capital allocation generated strong growth. Such growth, I would invite you to give some thoughts on JSL.

When we had JSL's IPO in 2020, it was a company with revenue of R$3.2 billion. Along the 3 years, that is from 2020 to the 1Q23, the Company showed annual growth of 12%. If you get the acquired companies, they grew more than 20% year-on-year. And we had an average CAGR of 23% from 2020 to the 1Q23.That is practically doubling the size of the Company when compared to 2020. And if we compare to JSL 2020, we had a threefold increase in revenues in 3 years.

So on page 4, where you see the transformation in numbers, you see what we had at the IPO in 2020 and the Company's current numbers. EBITDA growth of 170%. Margin 4 p.p. above. Net income, plus 359%. These are some of our main numbers.

But I also draw your intention still on page 4 to your left is for the acquisition of IC Transportes, a company with operational efficiency, unique positioning in the transportation of gases, liquids and agribusiness. If you take into consideration the growth and synergies that we have extracted from acquired companies without creating expectations, but just showing that there has been recurrence, the transformation of the multiple page for the Company.

Sometimes we pay 5x EBITDA, and with gross synergy and better results that converts into less than 4x the multiple of acquisition. And this is a segment and a company that poses huge opportunities of growth.

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And before going to the next page, I would like to share with you that JSL and acquired companies have a unique position because of the diversification of businesses, the sectors it operates, capacity and scale to invest CAPEX and recognition of delivering to the customers that hire its services.

I am going now to page 5, talking about Movida's key numbers. Movida in the last quarters has been executing its strategic plans. Remember, we had early purchases along last year. That was part of our strategy. We met the needs of our customers. We bought whatever fleet was available. We operated the Company. And according to strategic plans, we sold exceeding fleet, that is 13,000 cars. We are starting to resize the fleet, selling more expensive cars and buying cheaper cars. And with that, with less CAPEX, we are going to keep growth in revenue, EBITDA and margins.

As you can see, in the 1Q23, we had higher revenue compared to 4Q22. And compared to the 1Q22, we had an increase of 38%, even with a smaller fleet in the 1Q23, again, in line with our strategic plans.

In addition to reducing 13,000 cars, we started to adjust our mix, bringing more return and efficiency to the Company. And talking about efficiency, we increased total occupancy rate by 5.3 p.p.

In our DNA of feeling customers' expectations and anticipating needs, we launched Moover, a company that is specialized in renting vehicles for professional drivers, that is cargo, urban distribution or app cars for passenger transportation.

When we talk about Movida, in addition to the main indicators, this is a company that has very well positioned stores for used car sales and rent-a-car, its structure is ready. I think it's the first year that we have our mission. We have operational efficiency. We want to improve returns and margins without being concerned about operational execution, building stores, people and et cetera. That is a company ready to enjoy what was built in past years.

Now going to page 6, Vamos. Vamos has had sustainable growth with better profitability, ensuring margins and expansion. On page 6, we show the transformation of the Vamos dealer business, a company going from R$700 million in 2020 to more than R$3.7 billion revenues in dealerships in the first Q23.

A transformation in the rental segment. You see in the 1Q23 in the last 12 months with R$2.4 billion revenues in the rental alone of trucks, machinery and equipment. There is growth of 43% over 2020. So a transformation in numbers consolidated comparing the IPO of 2020 and the 1Q23. This is a company that the whole market sees that is still just starting with a unique position because of its ecosystem.

Now we go to page 7. As you know, we have purpose, but we have discipline in execution. We want to consolidate car dealers in the country, light vehicles. And by means of mergers and acquisitions, we are executing the plan.

Remember that shareholders of the acquired companies will be partners with Automob in different regions. In Maranhão, with huge potential of growth, we acquired a company with premium brands, all of them with quality positioning that can brings us diversification of brands and also of regions.

Today, we are already the holding with the most diversified brands, 26 altogether. We are in 17 cities, 84 stores. We went from R$1.1 billion to R$5.5 billion. That is growth of 400% built in the last 2 years.

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The great opportunities of synergy will be started to be enjoyed in the coming quarters, again, with responsibility, making adjustments, synergies in back office whenever possible, F&A, better used car sales. And with that, you are going to see the extraction of value.

Now going to page 8, when we talk about CSInfra. This is a company with a diversified concession portfolio, extremely resilient and long term. Ciclus, the largest center of waste treatment in Brazil and one of the largest centers for solid waste treatment, with more than 290 tons of waste per month. We have generation of gas and energy in the treatment center coming from waste. We also have 2 ports. We were awarded the concession in the state of Bahia.

Ports in Lagoa de Todos os Santos, still preoperational. They are being built, modernized, and when in full operation in the year of 2023 will contribute to our results. We had the opening of the first plaza toll in line with our plan of CS Rodovias in Piauí. We have the BRT Sorocaba and CS Mobi.

As you can see, the main projects, are still being developed are still being built, but will generate long-term revenue extremely resilient and opportunities for the generation of complementary business for the existing companies as the case of the 2 ports that will certainly generate logistics opportunities for JSL.

On page 9, we have CS Brasil. This is a company that is also growing. And remember that here, we have basically the rental of cars and some trucks for state-owned and mixed ownership company with drivers, with operations and that had also some opportunity of growth.

Going to page 10, this is our bank. BBC is a multiple bank. More and more, we have products to offer. And this is a bank for the operations inside our ecosystem to fund part of our reduced asset sales to small and large companies, independent drivers, but this is a bank that grew in recent quarters and year after year.

As you can see on page 10, we already have a credit portfolio of R$510 million, more than 90% of trucks and cars within our ecosystem, with governance and management completely independent, such as all our other companies. And here, the huge opportunity to grow and generate value to shareholders of BBC, but also opportunities within our ecosystem.

Now we go to our page 11 with our main consolidated financial highlights. And for that, I am going to turn the call to Denys, our VP of Finance for Simpar. Denys?

Denys Ferrez:

Thanks, Fernando. Good morning, everyone. Well, moving on, as Fernando mentioned, we are on consolidated financial highlights. Our indicated net revenue, EBITDA and EBIT had positive evolution. Net revenue reaching in the quarter, R$7.4 billion, growth of 64%. In the last 12 months, it goes to R$27 billion, an increase of 12% compared to the year of 2022. EBITDA in the quarter reached R$2 billion, with gross margin of 34%, 30% above the 1Q22.

And year-to-date in the last 12 months, EBITDA reached R$7.5 billion, an increase of 6% compared to the close of the year 2022. EBIT reached R$1.3 billion, an increase of 16% compared to the 1Q22, and year-to-date, R$5.3 billion, an increase of 4% as compared to the whole year of 2022.

Net income reached R$77 million, down 77%, basically driven by increased financial expenses. The same effect occurs in the last 12 months with a reduction of 27%, reaching R$689 million compared to the whole net income for the year of 2022.

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On slide 12, we have consolidated numbers for our financial position at the end of the quarter. We closed with a strong liquidity position, which has been recurrent, with R$15 billion. That gives us the comfort to continue our development, with a very elongated debt profile, approximately an average of 5 years and coverage of more than 3x our short-term debt. Therefore, no pressure in the short term for rolling out the debt.

This advantage shows the early settlement made in the 1Q. In the Brazilian market, we decided to set about R$2 billion; and abroad, we repurchased bonds in the amount of R$800 million. Also in the 1Q, we had capital raising in the amount of R$1.5 billion.

On the next slide, we talk about Simpar as a holding company individually. When you take a look at our liquidity position continuous with strong cash, R$2.8 billion, with a debt schedule that is very elongated, concentrated by the year of 2031, which gives us an average debt time of 8 years.

If you take a look at the holdings, net debt, R$3.8 billion, compared to the value created so far using the market valuation of our listed companies and equity value of unlisted companies, you see that the total Company's stake value is more than triple the holding's net debt.

Going to slide 14, we show that our asset base covers 1.5x our liabilities at the subsidiary level. We have on the left R$42 billion in assets that are mostly cars and trucks that comprise 96% of the asset base, all of them very new; cars, an average 1.5 years, trucks 3.3 years. Remember that in the Brazilian market, the average age is 20 years.

So assets at R$42 billion, compared to the net debt in our operating companies of R$25 billion, and even adding suppliers to pay, another R$2 billion and floor plan that OEMs offer, we get to a total liability of R$27 billion. So we are very comfortable position in coverage of net assets, liquid assets compared to our liabilities. That is, the money is being allocated in liquid assets, long-term contracts that give us visibility for cash generation.

On the next slide, 15, I talk about CAPEX. In the 1Q23, we invested R$295 million, much lower amount than previous quarter as we had in the 4Q with R$4 billion. That was only possible because we had the early purchases of equipment in the last quarter 2022.

Companies have different behaviors, different dynamics. In Vamos, for instance, decided to build a strategic inventory for deployment in the coming months. And Movida, in the 3Q, selling the surplus of vehicles because it had the early purchases last year.

And whenever we talk about CAPEX, it's important to mention, in the year of 2022, we invested R$13.5 billion. And most of it not to yet showing in the year of 2022, but will show in the year of 2023 that is we expect evolution of revenues along the year with the full benefit of the investments already made.

Now the next slide, slide 16, we show a line with the period showed on the CAPEX slide that is starting in the 1Q21. Then you see quarter-on-quarter until we get to the current quarter. We have consistent evolution of cash generation measured by EBITDA from services that almost tripled in a 2-year interval. That is the result of us enjoying investments made in previous periods.

And then if we go to the next slide, 17, we talk about leverage. We closed the 1Q23 with leverage of 3.7x. I think the main point to mention here is the following. When excluding the capital allocated that we mentioned for early purchases, and that have already been paid up, this is very important to say. And adjusting the number, the number from 3.7x goes down to 3.4x, which is lower than what we closed the year of 2022 and in line with the year of 2021.

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