JSL S.A. (JSLG3) Earnings Call Transcript & Summary

[Audio Gap] [Operator Instructions] This teleconference is being recorded and translated simultaneously. Before moving on, we would like to state that forward-looking statements made during the call concerning the company's business outlook, operating financial forecasts are based on beliefs and assumptions on the part of the company's management and also on information currently available. Future statements are no guarantee of performance as they involve risks, uncertainties and assumptions as they refer to future events, which may depend on circumstances that might or not materialize. General economic conditions, industry conditions and other operating factors might affect the company's future results, thus leading to results that will differ materially from those expressed in these forward-looking statements. I'd now like to give the floor over to Mr. Fernando Simoes. Please, Mr. Simoes, you may carry on.

Good morning, everyone. I'd like to -- on behalf of all of us here at JSL Logistics, thank you all for participating at this call. Here, we have today Guilherme, who is the new CFO of Logistics, succeeding Denys, who is now our President of the Board and who has helped in the transition and who's also here with us to support us during the call. Thank you very much for participating once again. Today is a very important day for all of us. For the first time, we are presenting to the market the results for the third quarter 2020 regarding JSL Logistics, a company that, as of August 5, turned its focus on logistics, moving away from playing the role of holding company for the other companies of the group and moving towards a focus more solely dedicated to logistics. Now moving on to Page #3. We will be talking about some of the main facts, highlights of the third quarter 2020. It's important to remember that our company is 64 years old, a track record of hard work, dedication. A past does not guarantee the future, of course. But if you do not have a past, you're not likely to have the right foundations to develop as we go forward towards the future. It's important to emphasize that after the reorganization that took place on August 5, 2020, JSL Logistics became the largest logistics company in -- with the largest portfolio services in Brazil, which places us in a very important position to grow across different logistic avenues. With JSL now dedicated to logistics exclusively, we have started a new development cycle focused on logistical services, which we believe would be the first step to a larger transformation that will generate more scale, more synergies, be it through growth by acquisitions, M&As or organic, what will contribute to improving our results. In line with our strategic planning, we acquired Fadel and Transmoreno in August 2020. We had our IPO in September 2020. It's important to remember that we started as JSL G11 as our ticket. And as of November 11, 2020, our definite change is JSL G3 for JSL Logistics, which is focused exclusively on logistical services. Moving on to Page #3. We'll be talking about some of the numbers for the company. Once again, just as a reminder, these numbers have not consolidated Fadel and Transmoreno. They are only referred to Logistics JSL. It's important to emphasize that people is what sets us apart. We are a team of over 17,000 direct employees, and over 100 of our managers have been at the company for 10 years on average. That is key to ensure quality, dedication and our DNA around services, always trying to better provide for our clients, society, shareholders and also to the company's sustainable development. Our team is, without a doubt, one of our main distinguishing factors. We also managed to acquire over 700 clients. 10 of our largest clients have been with us for more than 25 years. We have over 43,000 truck drivers in our network, drivers who provide services to us throughout the year. We have footprints in 5 countries: Brazil, Argentina, Chile, Uruguay, Paraguay; over 200 branches across 19 states; 19 distribution centers; over 137,000 square meters in storage capacity, which we have consolidated where we manipulate, handle and distribute merchandise for our clients. We have over 11,400 operating assets, which are our own and we are asset-light for the most part. Out of those 11,400 pieces of equipment, we're talking about semis and trucks for which have replacements at every 10 or 15 years because maintenance costs are extremely low. And we are fortunate to have been able to contribute with more than BRL 5 million in donations to fight the COVID-19 pandemic. Those donations happen through logistics services, through donation of PPEs, hygiene products, food, but mostly, we are contributing through logistics services, which is our business. We facilitate the transportation of those products to the farthest places in Brazil. It is a sad moment, but we are also happy to be able to have contributed with our services to those who more -- who need it the most. Moving on to the next page. We'll be talking about the main financial highlights of the third quarter of 2020. We had our IPO in September last year, and we raised BRL 694 million. We had net revenues for the third quarter at BRL 733 million, which means an increase of 26% when compared to the second quarter. When we talk about the EBITDA for the third quarter, we posted a figure of BRL 118 million, up 43% when compared to the third -- the second quarter of 2020. It's important to highlight that this EBITDA, BRL 180 million, it refers to JSL Logistics alone. If we factor in the combined EBITDA, not yet audited to include numbers from Fadel and Transmoreno, as we just finished the acquisitions, that EBITDA figure would reach BRL 155 million for the third quarter 2020. Once again, those numbers have not been audited yet. When we talk about the net income, for the third quarter, under logistics alone, we reached BRL 25 million, an increase of over 12% when compared to the same period of last year. And within the same rationale we used for EBITDA, when you look at net income as a combined factor, once again, not audited, when we include numbers from Fadel, where we hold 75% of the stake and 100% of Transmoreno, which is our stake, for the third quarter, our net income would have reached BRL 41 million. Once again, those numbers have not been audited, but those are the combined figures for the company. And when we look at the average cost of our gross debt, we had a very sharp drop, now sitting at 3.9% after the prepayment of BRL 1,812 million. I now turn the conference over to Guilherme, our CFO for JSL Logistics, who will be addressing our main financial results. Please, Guilherme, you may carry on.

Thank you, Fernando. Good morning, everyone. It is a pleasure for me to be here and to join this team. So let's move on. On Slide #5, we have our main financial results for the third quarter 2020. I'd like to start by talking about our net revenues. We posted BRL 733 million in the third quarter, BRL 661 million of those coming from services and BRL 73 million coming from the sales of assets. As for EBIT, we reached BRL 64 million in the third quarter 2020 and a margin of 9.7%, which accounts for a growth of 0.7% when compared to the same period of last year. Now in terms of EBITDA, the company posted BRL 118 million in the third quarter 2020, with an EBITDA margin of 17.9%, an increase of 1 percentage point when compared to the third quarter of 2019. As for net income for logistics, which reflects our operations, we closed the quarter with BRL 25 million and a liquid margin of 3.8%, which accounts for an expansion of 0.8% when compared to the third quarter of 2019. It's important to mention also something that Fernando has already mentioned, is that those numbers do not, do not include the recent acquisition of Fadel and Moreno. They will be included as we announce fourth quarter results moving forward. Moving on to Slide #6, where we have a breakdown of our numbers between asset light and asset heavy. It's important to mention that we had an expansion of margins across both segments, slightly larger under asset light. The main numbers are the following. For asset light, we had net revenue of BRL 438 million in the third quarter, a margin expansion for EBIT of 1 percentage point at BRL 35 million and an expansion of the EBITDA margin at 1.3 percentage points when compared to Q3 2019, reaching BRL 69 million in the third quarter 2020. As for asset heavy, we had posted a net revenue of BRL 275 million with a margin expansion of 0.3% under EBIT at BRL 29 million in the third quarter and a margin expansion of 0.9% also when compared to Q3 2019, posting the final number of 22.2% of EBITDA margin and BRL 49 million in the quarter. Moving on to Slide #7. We have a snapshot of our CapEx. In the third quarter of 2019, we had a CapEx -- net CapEx of BRL 46 million. As for the third quarter of 2020, we had a CapEx net of minus BRL 20 million. Given that we had a gross CapEx of $54 million and a sale of assets, we generated BRL 74 million in terms of revenues for the company. When we talk about the year-to-date 9 months for 2019, we had a CapEx -- net CapEx of BRL 106 million. And bringing at net number for 2020, we had a gross CapEx of BRL 270 million with BRL 144 million in terms of sales of assets and reaching a final net CapEx in the period of 9 months of BRL 1.26 million, which reflects the company's operating profile and a low demand for CapEx, given that most of our operations are around asset-light activities. Moving on to Slide #8. When we talk about our capital structure, the company's cash position at the end of the quarter was at BRL 979 million, which is enough for us to amortize our debt until 2023. When we look at the debt makeup of the company for the third quarter, we start at BRL 2.31 billion, a cash of EUR 979 million as I just mentioned. And we reach a net debt of million BRL 1.321 million, as you can see on the slide. And if we observe the curve of the cost of debt on the right, we reach September 2020 at 3.9% before taxes. Which means a drop in the cost of CDI, but also a reduction of 15 basis points in the spread when compared to the second quarter of 2020. Moving on to our leveraging rates for JSL. We closed the quarter with a net debt-to-EBITDA ratio of 2.6x and a net debt over added EBITDA of 1.9x. It's important to mention that for that calculation, we included the numbers for the 12 past months for Fadel and Transmoreno, and that those numbers have not yet been audited. Thus for covenant reference, we used a net debt over added EBITDA ratio, which could not be above 3.5x. So the company is clearly in a very comfortable situation in terms of its contracting obligations. The net debt -- average term for our net debt today sits at 4.5 years. With that, I turn the conference over back to Fernando, who will be addressing our current scenario and make his final remarks. Fernando, carry on.

Thank you, Guilherme. Here on Page 9, we'll be talking about some of the main points of our current moment. We are now starting to capture synergies from our recently acquired companies. We had a benefit of seeing a drop in our financial costs and a drop by BRL 8.12 million, and we'll benefit from that going forward, contributing to improving our results. We are now starting to resume volumes across some of the industries we service and which were hit hard by the pandemic. And that also contributes with the scale and with a drop in our cost in -- under the asset-light segment. We started to transfer payments for freights from our prepaid card with a new digital account, a digital account that will offer several benefits to truck drivers, be it when they buy oil, be it when they change their tires or increasing our scale, but also, we can also extend credit lines to them. This will help establish a stronger relationship with our truck drivers and help make for a more long-lasting and more sustainable relationship with those professionals. Also important to mention because the 2 things have an interaction, having invested heavily over BRL 16 million in technologies that will concentrate our e-JSL system as we complement our e-JSL app, under which all those systems will be put together and will help us monitor our load offerings. And we'll also benefit our clients. We'll be able to better trace their loads. In terms of M&A, we have been playing close attention to what we have and what we see going ahead, especially after we had our IPO last year. So those are some of the main highlights I'd like to emphasize, and we can now move on to our Q&A session so that we can clarify points or ask questions that you may have. So I'm here with Guilherme, the company's CFO; and Denys, the Chairman of the Board, who's now helping with passing the baton over to Guilherme. Thank you. The 3 of us remain available to you. Thank you for your attention once again.

[Operator Instructions] Our first question comes from Mr. Fernando Abdalla from JPMorgan.

I have 2 quick questions on my end. First one, a bit more color on the performance of the asset-heavy division. At least as vis-a-vis our expectations, we saw a drop of revenue of 15%, a drop of 12% in EBITDA. I'd like to understand a little better what was driving that performance, given that asset as it tends to be more resilient. So if you could give us more detail around that. And number two, about return on invested capital. You mentioned a number of 8%. I'd like to understand if you could give us some more color, if you could break down that ROIC across divisions. And if you are comfortable with that number going forward to 2021?

Good morning. This is Fernando. I'll try to address your first question, and then Denys will address the ROIC question. If you could rephrase the second question, the connection was not that good. When we talk about asset heavy, our company has a mix where we are quite diversified. We have different services and different industries that we service. And that contributes to the resilience of our revenues. And it's only normal to see a drop here or there, and that might lead to variation. For this last period that you mentioned when we saw a drop in asset-heavy, we had a couple of drivers. The main one was that we have a big client in the pulp and paper, and they restructured their logistics services. So we stopped providing some services for them. But we maintain some of the routes. So as they bought Fibria and Suzano, the 2 companies merged, we had a reduction in the average distance to be transported. So we stopped some of the routes. At the same time, we acquired some other contracts which are not in place yet. That's one industry. But just to give an example, that's only normal to have some variations that may also happen under asset-light. Every now and then, we might have that also inside our business. It's not very common, but that will have some impact on the company. Now it happens also that when you redesign a project which used to be asset-light and now it's asset-heavy, for example, we have an operation which loads and unloads only on commercial hours. And then you change that for 24-hour delivery, so you need to change your fleet lead in the organization. And so something you did with asset-light, you start doing with asset-heavy. So your projects may vary back and forth. But if you look ahead at the company's future, you will see that variation 60-40, 55-45. That will not be a major impact in the overall volume of the company. Now I'll give it over to Denys. If you could please repeat your question about ROIC, Denys will address the question for you. Thank you.

Fernando. And the question was about ROIC, returns. You mentioned the figure of 8% in annualized basis. I'd like to have some more color how was the ROIC across the different divisions and if you are comfortable with that number going forward to 2021.

Abdalla, this is Denys. We are comfortable, to answer your question. Just as a reminder, we came from our ROIC in 2019 where we excluded premiums, and we were talking about numbers of around 10%. We continue to show that asset having to be more resilient, as you mentioned. Now we have been having more expenses with maintenance, which is all in natural because we are working with shorter routes, so maintenance increases. But we also have been adjusting the scope for the client that Fernando mentioned. But we still look forward in terms of maintaining stability for asset-heavy. In terms of asset-light, we saw good recovery. And we continue to expect that. And that leads us to believe that we'll be on equal terms as we head in 2019 and even see that as volumes increase going forward.

Our next question comes from Mr. Victor Mizusaki from Bradesco BBI.

I have 2 questions. First, as the IPO was finalized, where do M&A negotiations stand that you can announce, that you can predict for the coming months? And #2, when you show on the slides on new investments and you highlight investments in technology, specifically. And you mention the new operational center, the new app, the e-JSL. I'd like to know if you could talk a little more about those initiatives and how they can help transform the company.

Victor, this is Fernando.

Okay.

When you talk about M&A, it is part of our strategic planning to grow organically and to grow through M&As as well. We are working on both fronts. And in the case of Transmoreno and 75% of Fadel. They are different markets, we have asset-heavy and asset-light. So we have companies with completely different profiles. And that's what sets us apart. It makes sense for us because they are good quality assets and which are important in their respective segments. So this will contribute to improve the company as a whole. When we look ahead, we have been talking with several players. I would not like to provide expectations. But what I can tell you, the IPO, the Transmoreno and the Fadel, that attracted companies who want to talk to us, either a share swap, either sell 100% of the stake. That has been a positive surprise. And we do have a portfolio around that. And we are assessing different opportunities, and we can expect something to happen in the short run. And this will be, I can say, recurring for the company because of the segmentation of the market and because of the opportunities that are emerging. So that's for M&A. It is part of our growth strategy to look at M&A possibilities. As for the technology question, we have 3 different topics, with which are complementary. The e-JSL, we are investing heavily to concentrate under one single system, all our subsystems. All our operating systems -- we had several systems that are including the SAP. So we are now trying to concentrate that under the e-JSL that will make the company more streamlined. And we are also reviewing other systems that will expedite our management procedures because we have a better interface with both the client and the trade partners. That's for e-JSL. And when you say heavily investing in technology, you're correct; we are now developing and we are going to do this, especially in the first half of next year. We are going to launch an app for us to interact with our truck drivers or contracted truck drivers within the app, be the case where they're working with us or not. So we can have -- we can offer them, as I said, discounts as they buy oil, as they change tires and the trucks. In other words, we'll strengthen our relationship and making them more loyal to us and also attract new truck drivers for this new type of relationship. So this platform will be even more robust to support our asset-light transformation. That's what the app will bring along. Along with the app, we have a digital account today. We pay our truck drivers through a prepaid card, if you will. We are now moving that to a digital account. And in this digital account, drivers will receive their payment online, but they'll also be able to get access to a credit line, for example. And those things combined, the e-JSL and the app, will turn the company even more attractive to those contractors. And that is key for us to grow, especially around the asset-light front. And it's also fundamental for us to transform, gain scale in terms of volume under asset-light. And all of that will, of course, provide more visibility for us, clients for the truck drivers and will lead to gains in productivity. I hope I have addressed your issues, Victor.

[Operator Instructions] Here is a question from the Internet I will read you. The numbers for the first 9 months are quite strong when compared to last year. Could you give us some more color on that increase on revenues? This is from [ Alessandri ].

Well, Fadel is helping us consolidating our revenues. That contribute to an increase of 25% of our revenues. Of course, it helped us expand margins and increase efficiencies. So those are the aspects which are included under Fadel's numbers. Fadel has been performing really well despite this challenging scenario provided by the COVID situation.

[Operator Instructions] I have 1 more question from the web. What are your expectations around growth for the fourth quarter 2020?

This is Fernando speaking. If you look at our track record, we expect to grow. Sometimes growth drops, but that's part of the adjustment that we conduct in our portfolio to improve overall operations. But when we look at the third quarter of 2020 and compare with the third quarter 2019, you can have an idea that we'll have growth as we have new industries reopening, industries that had just to stop operations this year. Having said that, when you look at logistics, the trend for the third and fourth quarters, it's usually to be the better quarters in the year. We are quite confident all our activities have been showing higher volumes. Our results are now benefiting from several adjustments we conducted in terms of cost reduction, as you could see in our slides, in terms of cost reduction. So we expect the fourth quarter to be quite favorable to us. And it'll be yet another quarter where we benefit from the synergies coming from the companies we have just acquired. That's what we see going forward. That's what we expect. And also industries that had shut down are now reopening with a higher volume than we had anticipated. And that will contribute further with volumes and with improvements of our results for the coming quarters, not only the fourth one.

This concludes the Q&A session, and I turn the floor over back to Mr. Simoes for his final remarks. Please, Mr. Simoes, you may carry on.

I'd like to once again thank you all for participating and in closing, even though I have already said that, I'd like to reaffirm some of what we saw in the third quarter and things which were key for our transformation, which happened in the third quarter. When you create a JSL Logistics who moves away from the holding role and starts focusing only on logistics, we had then the acquisition of 2 excellent companies. We are now fully ready to start a new growth cycle. We have been looking at different M&As. And today, we have the foundations for that. And we are now able to attract acquisitions or mergers through shares, obviously changes the model for us. We have a capital structure, which is also in place to execute our business plan. That's also important. And more importantly, we will be able to reap the results coming from synergies and from scales -- gains of scale and that represent the future in terms of results improvement. Those are some of the points that lead us to believe that in the coming years, we'll have a new development cycle in our logistics arm, which will lead to a larger transformation, contributing to scale, results, the margins and with the sustainable development, both for asset-light and asset-heavy. And everything we do is in line with our strategic plan, proposed by the Board and very well received by the market. We work in a very transparent manner. And the moment we're living now is something we planned for some years ago. So I'd like to take the opportunity to thank financial markets who have provided us with reliability, our shareholders, our Board to give us highlights and all our employees who have been helping turn our dreams true. We are very fortunate for what we've been doing logistics, but our great source of joy is that we are sure that you are now entering a new chapter, a new cycle where we'll exceed everything we've done. On behalf of all our employees, thank you for your attention, and thank you for the trust that you have endowed us with. And we remain available if you have other questions or comments. Thank you very much, and have a nice day. Thank you. God be with you. Thank you.

JSL's audio conference is now over. Thank you all for participating, and have a nice day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]