Grupo Traxión, S.A.B. de C.V. (TRAXIONA) Earnings Call Transcript & Summary

[Presentation] [Foreign Language] Aby Lijtszain, [Foreign Language]; Rodolfo Mercado, CEO; Wolf Silverstein, CFO; and Antonio Tejedo, [Foreign Language]. [Foreign Language], Aby Lijtszain.

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[Foreign Language] Rodolfo, [Foreign Language]

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[Foreign Language] Wolf, [Foreign Language].

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[Foreign Language] Antonio, [Foreign Language].

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[Foreign Language] [Operator Instructions] We have some questions that have already arrived, and we are going to start with the first one. Can you talk about your recent MXN 3.5 billion credit facility?

Yes. Just to mention, we just launched today the information to the market. We just signed a new credit facility for MXN 3.5 billion, which includes 2 different lines: one of MXN 3 billion, and one of MXN 0.5 billion. The first thing that we're going to do with that facility is to prepay MXN 2 billion of the actual facility that we have with the credit loans. And then we're going to have a lot of space also to new opportunity growth for the company. And with this, we are extending our maturity debt profile. And also, we are lowering our cost of debt.

Now we have another question from Credit Suisse. Could you, please -- this is a question from Credit Suisse is, could you please elaborate more on your MXN 2 billion CapEx guidance? And how do you determine your maintenance of this CapEx?

Thanks, Ana Paula. Yes. With these figures for 2021, with this MXN 2 billion, we're expecting to use approximately MXN 600 million for maintenance CapEx, for renewable fleet. And the rest we'll be using it throughout the year to grow the company. So we are expecting to use that number throughout the year. So the full potential of our investment, we will be looking for that in 2022, for sure.

And we have another question from BBVA Bancomer, and they are asking what are your expected results for 2021?

Could you repeat that question, please?

BBVA, what are your expected results for 2021?

Okay. We gave our guidance that the company is planning to grow 10% in revenues and 10% in EBITDA.

Does anybody want to elaborate a little bit more on that?

No, just to complement. In the other question, the maintenance CapEx that we usually use in the company, it's around 3% of our revenue. So just to be clear on the first question of Credit Suisse. That will be the other answer of the second question.

Then, Martín Lara asked is you think that you will grow in line with the GDP or faster than GDP in the long term?

Yes, the company has been growing faster than the GDP. We're gaining market, so we expect to continue this way.

What number are you calculating when you think about GDP? Because it's been quite volatile.

I mean we have been growing much more higher than the GDP. So I believe the trend will continue.

Okay. So we are waiting for a few more of the questions from the audience as we speak on this Investor Day, the first Investor Day for Traxión. And Martín Lara asks again if you plan to keep a low leverage in 2021 or you have plans to increase it.

Thank you, Martín. We're planning to remain, obviously, at some point, the same way that we made in 2020. So at some point, with the growth of the company that we're expecting, we're planning to maintain the leverage at the same levels.

Let me see if we get some more questions from the audience. Barclays asked, how much do you expect your logistics and technology division to contribute to revenues in 2021? And what margins could we assume?

We expect to have revenues about $200 million and with an EBITDA margin of 10%, and it's important to notice that this is the division asset-light of the company, the new division. So it's growing.

And hopefully, we get some more questions from the audience. We have another question from Ruben López from Santander. Traxión has clearly benefited from e-commerce since measures against COVID started. What is the opportunity in the medium term? How much could this segment represent for you?

I mean, we see that this trend arrived to Mexico to stay. Mexico is still undeveloped in e-commerce. We have around 9% of the total commerce from the country, and we believe this percentage will grow a lot in the near future, comparing to other countries. So we expect to continue growing in this business line, and it's going to be a very important part of the business.

Rogério Araújo asks -- well, he thanks the presentation and asks if you could provide more color on the asset-light business. How much does this represent of Traxión's revenue versus a few years ago and what to expect going forward?

A few years ago, this business line represent, maybe it was around $25 million, $30 million in revenues. Now, as I mentioned, we expect to have revenues in about $200 million. So it's growing on a very high rate, and we expect to continue growing these business lines.

Also, could you please give more information on how integrated logistics could be a driver for growth in upcoming years?

Yes. I mean in Mexico, only a few percentage of the companies outsource the logistics, comparing to other countries. As we said in the presentation, in Mexico, we are around 14% of the companies that outsource this service compared to other countries in the world. They outsource like 65% of the company's service. So we have a lot of space to grow. And we are seeing in our market, every year, we have new clients, and we see more clients that are going into outsourcing logistics. So we expect to continue growing on a similar rate that we are growing right now.

Okay. Let's see. We have some more questions. There some questions about the aging of your fleet. What were you thinking about the aging of your fleet?

Yes. We are happy right now with the age we have on the fleet, and we know that we have to continue this way. That's the best way to be productive and efficient in the operations segment. So we are looking forward to keep the age of the fleet as average as we have right now.

[ Colin Fitzgerald ]asks, you mentioned e-commerce, logistics being outsourced as only 14% in Mexico versus around 16% in the developed world, how and well -- and when will this 14% figure rise?

This figure has been rising since last year because, obviously, the boom of e-commerce driven by the pandemic also drove other logistics channels that were related to e-commerce. So the outsource of logistics has been growing. We expect it to keep growing and penetrating. It's hard to tell an exact number, but we think that 2020 was the kickoff year, if you will, for this growth.

And also Colin asks, Colin Fitzgerald, if there are any marketplaces or subsegments where you see the most immediate opportunity to offer the last-mile service?

Well, of course, the retail part of the business of e-commerce is the best way to get into this business. We now represent a big part of our business of last-mile goes to e-commerce. So I think -- and we think that that's the channel that will be growing in the future in very good percentage each year.

[ Javier Jajol ] asking about the management team. Is it looking for M&A opportunities? If so, in which of the company's business lines? Are you more bullish?

Yes. So, I mean, Traxión now has completed a platform that allowed us to grow organically. So we're not looking actively for M&A. But we are open to evaluate any acquisition that will represent a good opportunity for Traxión. And this will be mainly in the asset-light business.

[ Luciano Abullo ]from Santander. Are there any verticals or mobility markets missing in the strategy? And how large are they relative to current segments?

So there -- of course, there are always good verticals that can be added to our service platform. As Aby told you already, we're really focused on growing the asset-light division and the technology division. So we're still looking every day to improve our services offer to the market.

[ Eugenia Pichado ] has an interesting question. Please elaborate, she asks, how does COVID-19 positively impact your sales and EBITDA and whether Traxión risks will lower in the future.

Thanks for your question. Traxión has benefited slightly from the COVID-19 situation. At the beginning of 2020, we launched our asset-light division for logistics and technology-driven businesses. We ambition a natural penetration of such channels driven by natural market forces. Sadly, the COVID-19 situation unleashed huge e-commerce activity, that we were very well positioned to take advantage of -- from. And well, our diversification, our financial discipline and our technology technological innovation allowed us to take such advantage. And these 3 pillars are going to be the drivers of growth in coming months. And once we go back to normal, we think that we will have a more -- a better gauge of our risks within the company.

[ Roberta Verziani ] asks, how big can your logistics segment be 10 years from now?

I mean I would like to talk first about the next future. We believe this is going to be 1/3 of the business in the near future, and it's a division that is growing fast. So I believe in, 10 years, it's going to be something, really we're comparing to now, and talking about now, it's already -- it will be a $200 million revenue division and growing fast.

From [indiscernible] [ Salvador Ogas ] asks what are your expectations on Traxión's stock price 12 months from now?

Obviously, our expectations are good, but they are only expectations. We think that the stock price is still undervalued in terms of multiples, but we cannot control what the market thinks or perceives of the stock. We are working very hard to keep delivering good results to maintain margins, to keep a comfortable cash position and to delever the balance sheet. And well, at the end, that should be a positive perspective.

[ Ingrid Castillo ] asks if you could elaborate your -- on your guidance. And what are the main drivers in revenues and the main contributors in terms of profitability?

Yes. Just asking that question, again, we're expecting to grow our revenues and EBITDA around 10%. With this and the CapEx guidance that we already gave to the market, we're expecting to continue with the same levels in the regular segment basis. And as Aby just mentioned, also, we are expecting to grow faster the logistics segments. Remember that the margins in these segments are lower, but the -- again, the ROIC that we're expecting and the IRR that we're expecting also in this segment of the business would be higher than the regular ones because we don't have to invest a lot of money. It's the other way around. So we're expecting different numbers in that side of the business, and that will be also a trigger for the revenues of the company in 2021.

[ Ramon Ortiz ] from [indiscernible], asks if you are studying or evaluating options for inorganic growth during the coming months.

The company is not actively looking for acquisitions, but we are hoping to find any strategic one in the logistics and technology side of the business.

[ Gordon Lee ] had a question here. Is there some scope about expanding through M&A in Mexico? And would you even -- or ever consider expanding outside of Mexico?

For the near future, we're going to stay in Mexico. And in the future, we could consider going out of Mexico. But we still have much space to grow here in the country, so we're going to stay still for a while.

Rogério Araújo, will the expansion of asset-light business drive a margin reduction in upcoming years, as well as CapEx decrease as a percentage of revenue?

Okay. The traditional part of the business is also growing, and it's growing with a margin that is over 20%. The logistics and technology business is growing on a lower margin, that is around 10%. So we believe that at the end, we're going to maintain the margin of the company in the -- around 20%, 21% for the near future.

[indiscernible]

Pablo Monsivais. Could you please shed some light on the competitive landscape?

We have seen some competitors lose ground over the COVID-19 situation. On the other side, Traxión was able to gain market share and gain new clients because of size, scale, economies of scale, diversification. But in the asset-light business, in logistics and technology, we see relatively few competitors. There are a lot of regional companies, of startups, and we are definitely trying to become one of the key competitors here.

And Guillermo from Santander asks, what kind of IRR does the asset-light business have?

Okay. Maybe we mentioned in different presentations before, the basic ones that we use for the company, it's an IRR of 20%. In this side of the business, we can expect something higher of that, as just Rodolfo just mentioned. So I think it should be something of this number. So again, it's not just the IRR and also the ROIC because we're not investing a lot of money. It's just we way around. So it should be higher than 20%.

And do you -- what kind of growth do you expect? Or how scalable is it?

In terms of the segment? As Aby just mentioned, I think this has a large capability to grow for now in Mexico. It's something that we're penetrating also in the market. So again, we're expecting to be more representative in our revenues in 2021 and continue with this trend in the next future.

From Santander again, Ruben López has a follow-up question. He says, what is the time frame to get to $200 million sales in the asset-light business? And is all of this incremental? Or does it consider your current asset-light operations?

It does consider the current asset-light operations. So we believe we're going to be around MXN 200 million for this year in total revenues for the logistics and technology division.

[ Rafael Buerva ], could you elaborate further on how and when will the new asset-light initiatives be reflected on an improvement in ROIC?

At some point, we can look for that in 2020, the last year, as we just launched with more specific targets in the previous year. But for now on, we're expecting to see this to continue growing in 2021 and for sure in the next future.

Guillermo from Santander gives a few numbers and asks, if you weren't being too conservative, given the operational performance you have had so far on your revenues.

Okay. It's an uncertain year. We're still on COVID time. So that's why we decided to give this guidance to the market. The company will continue to make his big effort to grow and to be profitable, but we have been, yes, they could say, conservative because of the season that we are living right now.

Daniel Garber, any plans to increase the free float in the near future?

I mean the company has enough cash to grow and to capture the opportunities, as we saw the company's leverage only 1.6x net to EBITDA. So we have enough money to invest. So we're going to continue being in the same structure as we are right now for the next future.

[ Clark Sanchez ] ask from [Indiscernible], with a scenario of increasing fuel costs in our country, what are Traxión strategies? Or what is Traxión's strategy to keep its operating expenses stable?

In terms of fuel cost, whenever we see a rise, what we have been doing historically and what is the practice in the sector is to pass-through the cost of fuel, ultimately, to the client. That's the way it's been done for 50 years or more. We don't expect any change from that. So that's the way we keep our operating costs under control, especially that of fuel, which is, as you know, our most significant operating cost.

Thanks, Antonio. Alejandro Demichelis, could you please indicate the level of growth that you see in your different divisions over the next 3 to 5 years?

We see our different divisions are going to keep growing. Obviously, the one that has the fastest prospect of growth is technology -- logistics and technology. But we also see a very decent rate of growth in the personal transportation business, which is a business that is not that mature as many would think. There are a lot of opportunities of large opportunities with clients, especially as industrial parts keep expanding in Mexico and public transportation cannot cope with increased demand. Our personal transportation service is an excellent alternative for companies to take their employees and avoid using public transportation. And cargo is a very essential business to the economy. It's a very essential sector. We didn't realize how essential it was until COVID-19, and we plan that to grow as well at a more decent or at less explosive rates as the other 2 segments. But by the end of -- by 3 years from now, we expect probably the 3 segments each contributing 1/3 of revenues, considering the growth and -- that we ambition.

Rogério Araújo. I asked another question on the asset-light business revenue. He says it should come at around $200 million in 2021. How much was it in 2020?

So the asset-light business in 2020, rough numbers, around $150 million. So as we're saying, we see a good growth in 2021.

[ Tulio Chavez ] from [indiscernible]. How does this light-asset approach, how can it be potentially translated into a sustainable EBITDA margin expansion for the next few years? And are there any assessments on the EBITDA margin target on the long-term that the company expects to achieve?

Thank you, [ Tulio ]. Can you please -- the question again? Can you please put the question again? Just to be sure. Thanks. Ok, the potentially -- in the sustainable EBITDA margins, as Aby just mentioned before also, we're expecting to maintain our EBITDA margins, even the technology and the logistics side, we are expecting a lower EBITDA margins. We are expecting also to complement that with the base of the other 2 segments that we had in the company that are higher than the 20% base. So that will be how we can, at some point, average the margins, and we expect to be around 20%, 21%.

[ Jose Montero ], any plans in the short to midterm to move on to more clean energy units?

We obviously have a plan in place. Last year, if you recall, we started using natural gas buses for personal transportation. We always are innovating in this matter. But you obviously need to take into account that we need to go as the country evolves and as other technologies are implementing in Mexico.

Pablo Monsivais, what was the asset-light division sales in 2020 and 2019?

As we said, 2020 was roughly around MXN 150 million. And 2019, I think, like MXN 100 million.

Okay. And from BBVA, [indiscernible] asks when are you expecting the school transportation business to recover? And is this going to mean an increase in your fleet since you relocated those buses to other businesses?

Of course, we don't know exactly when the school buses will return to normally. That's a government issue and COVID issue that's still with us. The school buses represent around 4% of our revenues. So we are ready to get back to business and with the schools whenever it's necessary. And if everything's maintained, of course, this will be an increase in our fleet, so that's a good part of the business in the passenger side.

[Indiscernible] asks how much of the logistics business growth is going to come from mining existing customers versus adding new customers?

So the logistics side, we're gaining business in both sides. Of course, we're getting a lot of business through cross-selling the clients that we already have and offering them service that we don't give -- didn't give to them. But we have -- we also have created a strong commercial team in the logistics side and technology side that will add new clients to our base. So we think we have still much to gain in the cross-selling business. But we're looking for new clients also each day.

Daniel Garber from Fiera Capital. What percentage of cargo revenues were outsourced? And how much of that was done to the digital broker platform. What are the respective margins for those revenues? And this question relates to fiscal year 2020. Any guidance going forward would also be helpful.

Well, for 2020, if we look -- for the previous year, it was around MXN 600 million what we have in that platform, and we outsource through different providers of the cargo side. And the regular margins that we can expect in this kind of business, in terms of EBITDA, will be around 7% to 10%. So that's what we would expect in this kind of outsourced business in the cargo side with the brokerage in the platform.

Again from Fiera Capital, from Daniel Garber. Could you talk a bit about Traxporta and the economics? How is it performing? And where is this going?

So Traxporta, we see a lot of business in the near future. We think that's a innovative and disruptive platform that we will gain business in Mexico. We know it's going to represent a good part of the technology and logistics segment in Traxión.

I'm going to close with this one. [ Juan Carlos Lasama ] says, I just want to congratulate all the team for the results. I'm sure the best is yet to come. And I am sure of that as well. Thank you, everybody. And for having all these questions and posing them to Traxión's group.

Thank you very much.

Thank you.

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