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

[Presentation]

[Interpreted] Good morning, ladies and gentlemen. Welcome to the conference call of JSL to discuss the earnings regarding the fourth quarter 2023. This conference call is being recorded and you can access the replay of the company's website, ri.gsl.com.br. The presentation will also be available for download. [Operator Instructions] Before moving on, I would like to reinforce that any forward-looking statements are based on the beliefs and assumptions of JSL's management and are based on information currently available to the company. Forward-looking statements may involve risks and uncertainties since they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should consider that events related to the macroeconomic environment segment and other factors mainly to results that will materially differ from the forward-looking statements. Now with us in this conference call, we have Ramon Alcaraz, CEO of JSL; and Guilherme Sampaio, CFO and Investor Relations Officer for the company. Now I'm going to turn the call to Mr. Alcaraz that is going to start the presentation. Please, Mr. Alcaraz, you may go on.

[Interpreted] Ladies and gentlemen, it's a pleasure to be here once again, representing the fantastic JSL team. You have a quick glimpse on our company in the [ cities ]. More than great machines, trucks and technology on board, our management ratio, the passion of our people to deliver excellence in our services. I'll start with the highlights for the year of '23. We had gross revenue of BRL 8.9 billion. Combined with ICE and FSJ, the last companies acquired, we had gross revenue of almost BRL 10 billion -- BRL 9.7 to be precise, almost tripled the amount announced at the IPO. CAGR of 38%, incredible. If we have a lot to celebrate in terms of revenue growth, we have even more to celebrate in terms of earnings growth, a reported annual EBITDA of BRL 1.73 billion, even adjusting for the bargain purchase of IC. We have an EBITDA of [ BRL 1.47p ], with margin over 20%, CAGR of 50%, and return on invested capital of 15.8%, more than double that was reported at the IPO. Our growth has been consistent, and we have formed a solid foundation for continued growth. This has been passed through a combination of organic growth capacity and acquisition of high-performance companies. The diversification of services and sectors, forces, revenue resilience and multiple avenues for growth, our ability to understand and build customized projects for each customer allows us for having individual management and consulting. Our discipline in pricing, cost control and focus on efficiency, consolidating new levels of profitability. Now on the next page, we can talk about the fourth quarter '23. BRL 2.6 billion in gross revenue, EBITDA of BRL 411 million, with a margin of 20%, profit of BRL 82 million in the quarter, and BRL 352 million of reported profit for the year, a ROIC of 15.8%. Now I would like to highlight a few important points. Consistent growth with diversification in operations, both Asset Light and Asset Heavy, both above 20% year-on-year and with margin expansion. Growth in ROIC by 0.7 percentage points versus '22, reinforcing our ability to grow with profitability while maintaining discipline in capital allocation and the adequate pricing of contracts. Our contract by contract management, guarantees quality delivery and consequently, cross-selling opportunities. On Page 4, you can understand how we do this. Each customer is managed by an executive director specialized in that sector and that segment. Each contract has a manager in charge, with technical knowledge of everything that has been negotiated and who also leads the managers for each type of service in that contract that guarantees Individualized management of each contract, appropriate pricing, cost control and operational efficiency in addition to autonomy and agility in decision-making. Projects are customized according to customer needs. We believe in a simple formula, but one that requires discipline and execution, that is delivering with excellent what was agreed in each project, generating customer loyalty and great capacity for cross-selling. On Page 5, we'll talk a little about management and scale, which ensures our continuous developed in 2023. Our investment capacity favors consistent growth. For example, [ AFJ ] has grown by 50% in revenue since the announcement of the acquisition in the second quarter '23. Scale and financial support foster the growth of acquired companies. In '23, we expanded our leadership position, growing at an average rate of 36% since the IPO. Average annual growth of acquired companies of 31%. Now talking about margins. We have worked very hard to ensure sustainable margins at levels appropriate to the profile of our operations, even with all the adversities over the last 3 years. In addition to our [indiscernible] cost management, we have adjustment mechanisms with effective parametric formulas to maintain plans profitability. In the year-on-year comparison, we reduced the representativeness of cash costs in relation to net operating revenue by 1.6 percentage points, reflecting the impact of scale, efficiency and cost control. Now if you allow me, I'll give you a quick overview of '23. In the first quarter, we highlight the announcement of the acquisition of IC Transportes, the largest acquisition since the IPO in 2020, upgrade operating by NSP (sic) [ S&p Global Ratings ], ROIC of 15.2%. In the second quarter '23, we announced the acquisition of a -- FSJ, strengthening our presence in the transportation of full truckloads in the Middle Mile. Consolidation of IC Transportes, a broad ROIC as well in the first quarter of 15.2%. Third quarter of '23, we completed 3 years since the IPO, celebrating growth of 210% in results measured by EBITDA in the last 12 months, CAGR of 46%. Talking about return on invested capital, more than double cost was announced in the IPO. Consolidated -- consolidation of FSJ and annualized ROIC of 15.7%. In the fourth quarter '23, as I just mentioned, consolidated revenue of almost BRL 10 billion, BRL 9.7 billion. Adjusted EBITDA of BRL 1.5 billion and reported EBITDA of BRL 1.7 billion and ROIC already closing 16%, 15.8% to be precise. On Page 6, we break down our logistics for you for better understanding. We have specialized dedicated logistics based on long-term contracts, 30% of operations do not use trucks because they are services based on people and onboard technology. We are in-housing operations, intralogistics. Examples include the handling of pulp and paper plants, management of intermodal terminals, handling of the main automaker [ plants, ] management of owned and third-party warehouses, services with light vehicles and chartering services in passenger transportation. 57% of our operations are specialized and dedicated and then involving trucks. For example, international transportation of refrigerated and frozen food in Brazil and South American countries, urban distribution of food, beverage and consumer goods, transportation of timber to pulp mills and transportation of the finished product to intermodal terminals, transportation of new vehicles and reverse logistics of used vehicles, transportation of chemicals, liquids and gases, among others. 13% traded operations, so to speak. In general [indiscernible], like the transportation of [ gas ] and consumer goods in this case, 100% Asset Light with flexibility to meet fluctuations in demand. So 87% of our revenue is concentrated in services with a high degree of specialization and critical to our customer supplies and sales trend. On Page 7, we talk about TruckPad, our technology company, a platform to boost efficiency in transportation. Our goal to maximize the efficiency of the general cargo transportation and agricultural sector through technology, making the process more digital, secure and sustainable. There are indicators that we believe will be impacted, drive a higher time with consequently generating creative productivity for our independent and autonomous truck drivers, lower polluted emissions through less fuel because we are going to use less vehicles to transport to the same volume and fewer routes. What are the expected results? Greater operational efficiency in the transportation system by speeding up the freight contracting classes, less paper and calls between parties, better service SLA, more productivity for truck drivers by reducing idleness, fuel savings with a smaller carbon footprint, more safety through training, travel checklist and digitalized processes. On Page 8, as in other quarters, we highlight our competitive advantages that have supported our organic expansion. We closed BRL 1 billion of new contracts in 4Q alone, with an average term of 39 months in the year. In period, BRL 3.5 billion with an average term of 42 months. This is an addition of BRL 83 million to our monthly revenue as of 2024. These contracts were basically closed in certain strategic segments. 34% in the chemical sector, 27% in pulp and paper, 15% in food and beverage, 9% in automotive, and 4% in retail. So as you see, in very diversified segments. The figures confirm the success of our business model with our competitive advantages, whether through our investment capacities together with our excellent in execution. This opens up several avenues for growth, whether our customers through co-selling, new customers and new segments. On Page 9, we highlight the transformation of the company's we have acquired with expertise and scale. If we consider net revenue paper since the fourth quarter of the year of acquisition of each company, we can see that they all grow by double digits, some high double digits, as it is the case of [indiscernible]. This is only possible due to the business management model we have together with our acquired companies with immediate synergies, reducing the cost of buying assets and diluting administrative expenses due to the growth of companies, also taking advantage of potential cross-selling, adding new customers, even between acquired companies, sharing customers with different services, growth and results driven by the quality and independent management model of the company, supported by JSL's scale and access to capital. Now I will hand the call to Guilherme to give you a bit more color on the financial figures for the fourth quarter. Guilherme?

[Interpreted] Thanks, Ramon. Good morning, everyone. So I think Ramon has explained well our combination that really makes the results of JSL, a sum of contracts, newer node with acquisitions of beautiful companies that contribute to this transformation that JSL has undergone since the IPO. Two figures, remember that the figures for IC Transportes have been consolidated since May '23, in [ FJ Logistics ] since the beginning of September. So in the fourth quarter '23, we already have the 2 companies for the 3 months in the companies and the quarterly figures. Net revenue closed the quarter at BRL 2.2 billion, up 30% quarter-on-quarter -- year-on-year, I'm sorry, and the [indiscernible] BRL 7.6 billion, up 26% year-on-year. Ramon presented the diversification of our revenue between cargo transportation, dedicated operations, warehousing and urban distribution. But in addition to the diversification of services, we have also diversification of sectors that contribute to the resilience of our revenue. In addition to the growth of our traditional JSL sectors, food, beverage, automotive, pulp and paper, and we also have the entry of new sectors that already account for 7%, such as chemicals and agri business in addition to e-commerce, which we believe has a potential growth far above the average of our other sectors in our business. I come back to the point of combined organic growth with acquisitions to our basket of revenues and opportunity for new businesses. In reserves, operating margin closed at 14.7%, 0.7 percentage points above Q -- '22, and in line with the fourth quarter when compared to the same period '22. Adjusted recurring EBITDA closed at BRL 1.5 billion with BRL 411 million, 4Q '23, growth of 35% in the year and 29% in the quarter. Margins remaining at 20%, expansion of 1.4 percentage points versus '22. Reported EBITDA in the year was BRL 1.7 billion due to the accounting of the bargain purchases of IC Transportes and FSJ. However, we adjusted it to [ BRL 206 million ] for you to have the correct reference of the operating and recurring EBITDA of JSF. Net profit closed the year BRL 213 million adjusted excluding the same bargain purchases and reported BRL 352 million. An important point is the profits impacted by almost BRL 40 million due to the exchange variation of Argentina. Remember that there was a 50% liquefaction of the peers in December, which mitigated the impact of the figure we report in the third quarter. Just to remind you that this variation is on the local cash and accounts receivable balance. So the size of the problem has been cured, given that the revenue from these operations has been realized in Brazil since the [indiscernible] shipments from Argentina to Brazil. Net profit for the year would be BRL 250 million. If we exclude this impact from Argentina that we believe is an effect of '23. In the quarter, net profit closed at BRL 82 million, and also taking out the cost of [indiscernible], which was higher in the quarter compared to previous 3 years, it would be BRL 96 million. ROIC increased slightly compared to the third quarter and rose quite 7 percentage points compared to the fourth quarter '22. This is an indicator that shows that we are on the right track, and that operational efficiency actions have paid off as well as the discipline of capital allocation in new contracts. It's a very execution-oriented business, focusing on what matters that lead us to this standard of returns. Breaking down numbers between Asset Heavy and Asset Light, we maintained our [indiscernible], 53% Light, 47% Heavy. In Light, we grew 27% in the quarter to BRL 1.1 billion, and 24% in the year to BRL 4 billion, expanded margins again. EBITDA got to 18% in the year and in the quarter as a result of all the work to adjust the profitability of some contracts and closing others. We have already mentioned that in previous quarters, and mainly due to the entry of new projects, increasingly critical as services as Ramon said, with more added value. Asset Heavy grew 34% in the quarter to reach BRL 1 billion and BRL 3.6 billion in the year, 28% higher than '22. Margins of 22% in the quarter and in the year due to the same movement, Asset Light of adjustments and termination of some contracts and the most relevant thing in the contract that most needed adjustments were closed at the end of December. So a positive outlook for '24 in margins for the segment. Remember that both segments are impacted by the consolidation of IC Transportes that is still not at the level of profitability suitable for the business. CapEx, we closed the year at BRL 1.3 billion gross CapEx, BRL 1 billion net. Remember that in '22, we bought forward a chunk of the 2023 CapEx due to the change from Euro 5 to Euro 6 at the time. As in every quarter, we compare the residue of our mobile asset base, trucks, machinery equipment that remains in line with our net debt. So I will stress that basically, our net debt is directly associated to CapEx, which is in turn, directly associated to long-term projects. This is one of the foundations of our business model, which demonstrates the predictability of our results. Also, I'll remind you that 80% of CapEx that was invested was spent on brand that support future gross revenue. That is extension CapEx. On the next slide, capital structure, one of the greatest strengths of the company in this market scenario with high interest rates and tighter credit, which is an important lever and competitive differentiator for JSL. We closed the quarter with net debt of BRL 4.8 billion, leverage of 2.7x net debt EBITDA, and 2.4x net debt added EBITDA, our covenants. But if we exclude the impact of the bargain purchase, as I mentioned, our leverage would be stable at 3.1x. Cash ended the quarter with BRL 2.7 billion in availabilities, BRL 1.8 million in cash, and BRL 805 million in lines that are revolving credit lines. We also have a cost of net debt after tax at 9.8%, a reduction impacted by the cost of CDI rate and also the reduction of spreads in our cost of debt. It's worth noting that February this year, we issued BRL 1.75 billion CRA with an average cost of CDI 0.97%. This is very important to managing our indebtedness and possible prepayment of older [ NMO ] expenses debts, a direct benefit for the company. Our rates continue to thrive, AAA by Fitch and AA+ by S&P. Now I'm going to turn it back to Ramon for -- and then for your questions.

[Interpreted] Thank you, Guilherme. Now on Page 14, I have to acknowledge all the works that this wonderful team won through '23. I'll mention a few. General Motors, the past logistics supplier in Brazil, a global award. Vale recognition that is double, 1,000 days without accidents, and also the Golden Helmet due to our safety culture. Whirlpool, also a vote award, TPC, the past logistics operator. And JSL, the best transportation company. Volkswagen, the one in service, quality and innovation. Heineken, first award in excellence in transportation. I had the pleasure to be appointed as the Highlights Executive by Besc in the Frotas & Fretes Award. For the fourth year in a row, we won the Golden Seal in the Brazilian GHG protocol. IC Transportes is recognized with the Green Seal of the environmental newspaper of the State of Sao Paulo. Best Companies to Work For, Fadel Paraguay, Paraguay. And recognition of TPC in an Incredible Places to Work For. All this awards make us proud. And also recognize two things that are important for our company: our people and our customers. And now to close, already thanking you for joining us. I would like to highlight the fundamentals of what we believe to be a new cycle. In '23, we established a solid base. We believe we have built a unique position with customized solutions, a track record of delivering to the most diverse segments in sectors with the most diverse intrinsic complexity scale and a broader portfolio of services. Our managed model is based on people who are focused and prepared to ensure quality and services and pursuit for efficiency. Our discipline in pricing, operational efficiency and cost control ensures us a strong balance sheet with adequate profitability. For '24, our focus on growth is on specialized critical services and the product opportunities for organic growth, whether with current customers or new customers. In addition, we are always open to opportunities of inorganic growth through strategic acquisitions. We believe in greater profitability through the consolidation of operating margins, coupled with efficiency and adequate capital allocation. This allows for consistent net margin evolution. The scale and profitability appropriate to our business model result in sufficient cash generation to sustain investments with deleveraging potential. And so gentlemen, we complete the first part. And I open myself and Guilherme to your questions.

[Interpreted] [Operator Instructions] Our first question comes from Gabriel Rezende from Itaú BBA.

[Interpreted] Congratulations on your result. I have two questions on my side. First, if you could give us a bit more color about margin dynamics on Asset Heavy. On the quarter-on-quarter comparison, we see a slight deceleration in profitability and also higher costs in fuel and lubricants. Just to understand if that was one-off, if margins of the third quarter were too high? If there are pass-throughs for contracts? Just for us, it was a small variation, but I would like to hear your insight. And a broader question, if you could give us some more color about the pharmaceutical sector. You said that you were not exposed to the sector before. It shows the company is able to enter new sectors. I would like to understand the dynamics. If that was a customer you already had relations with within the group, if newcomers are to be expected? That's it.

[Interpreted] I'm going to start with margins of Asset Heavy, right? Well, first, we have to consider a few things, especially for instance, in sugar, ethanol. Remember that this transportation was in the fourth quarter '23 and was not in '22. IC margins, both for Asset Light and Asset Heavy for different issues, but focusing on your questions, Asset Heavy are historically lower than what we had in JSL. And talking about JSL, by the way, the margin did go up if we exclude the IC effect. But we have the IC effect, contracts are being revisited, nothing that really changes the pointer. But that did have an effect, and we are negotiating that. And that has to do with your question in terms of the relevance of fuels maintenance that interfere in the market. But that is very much concentrated on the contracts of IC Transportes. Removing this specific effect of IC Transportes, the margin went up. And obviously, in the case of IT, we also have the seasonality of the sugar, ethanol business, that in the fourth quarter is lower than in other quarters. Talking about e-commerce. Well, that has to do with another company we acquired, also consolidated in the fourth quarter, which is FSJ. As you know that this is a company that is focused on e-commerce, but on a profitable line, which is the Middle Mile. We've mentioned that over and over again, especially in the post pandemic when e-commerce was really thriving, that margins for logistics in last mile are a bit more touchy because of several characteristics. But FSJ did find an interesting niche, Middle Mile, which is basically supply smaller warehouses to enable the last mile. And this has grown. We grew 50% since the acquisition of FSJ, even opening market for other companies in the group, JSL itself to enter the market together with FSJ. So it's a very interesting niche, and we want to grow in this area. Now talking about new customers, I think there is a piece of information that is quite fresh in our pipeline. We just got it today. So it is completely up to date. We did mention in previous calls that we had opened a new department especially to work on new customers. We have a very interesting revenue of BRL 3.5 billion but with a high percentage of cross-selling. And some of you even asked us in our last call, well, you congratulated us but also ask, why not open for new customers, which was already our strategy. So if I take my pipeline today, 26% of our proposals are for new customers. In terms of amount of amount of proposals and in [ reals ] amounts, we are talking about 13% of new proposals for new customers just for you to know that the strategy is working, and we really bet on that. Again, what we have been saying since ever. We are large, but we have 2% market share. We are large compared to the competition but very small compared to the market. The analogy we make, joking around that if were a house in a condom, we would have 50 meters long swimming pool compared to the neighbors. But compared to the ocean, this is nothing. So we have lots to explore. We have the competence. And given our size, a lot bigger than our competitors, it gives us really a competitive edge, and we have a lot to do in the segment. And this is a brand new department. It's been on for 6 months. So I think that we have much to see.

This is Guilherme. I'll just give a comment on Heavy Asset margins. When you compare our numbers, the margin is going up. But considering the sectors that we service in Asset Heavy, we have a seasonality effect, and there is a drop from the third quarter to the fourth quarter historically. And you have some effects. Sugar, ethanol, you have the intercrop, some customers reduce volumes or stop operations for the -- especially in the last 15 of December because they have a downtime in their plants and that impacts our margin. So two comments, you'll have the IC impact, especially when you have the comparison year-on-year, still much going up, and comparing the fourth quarter to the third quarter, which is a normal seasonality. Yes, remember that the third quarter is the best of the year, historically speaking.

[Interpreted] Our next question comes from Lucas Marquiori from BTG Pactual.

[Interpreted] I have two questions. First, CapEx. Thinking of the net CapEx in the fourth quarter, we saw an acceleration compared to the average of the remainder of the year '23. So I would like to know if you have purchase programs in this CapEx for the first project? If you're advancing purchases of fleets? We understood that from Euro 5 to Euro 6, but this year, we shouldn't have that. So I would like to understand the increase in net CapEx. And the second question in terms of capital allocation as well. What do you think you can work in terms of leverage for next year? Should we expect all the effects that you have in leverage to turn M&A? Just for us to have a notes in terms of net debt-to-EBITDA ratio for the year of 2024.

[Interpreted] Lucas, thanks for your question. I'll answer the first part. And then Guilherme will add to that. CapEx. CapEx in the fourth quarter is naturally higher because it is the time when we are going to make acquisition, thinking of the projects that have been completed along way. So if you take the ramp-up of contract execution, they concentrate their closing in the third quarter. In the fourth quarter, we started planning for acquisitions for the contracts to start working in the first, second quarter. This year, there was another relevant issue that we already disclosed, which is the [indiscernible] project, the largest pulp and paper plant in the world, belonging to [indiscernible], JSL One, the largest project, I think it is the largest pulp logistics project in Brazil, and that involves high CapEx. The plant should have its startup in May, June as the disclosure of [indiscernible] itself, but we have to start beforehand, buying trucks, machinery, hiring trucks, truck drivers, providing intensive training. The major challenge to us, it's a beautiful project, I was there last week. But it is located in a region that is small considering the amount of people, a lot of land, but small cities. So a few people prepared for the demands we have. So we have the challenge of hiring more than 1,000 people for the project, training them. We created a program to insert even women in operating centers. So beautiful work that we are going to disclose at the right time. But to answer your question, the higher acceleration of CapEx in addition to the normal seasonality is the [indiscernible] project that we are very proud of. As for leverage, I will pass it on to Guilherme.

[Interpreted] Lucas, I'll just add to what Ramon mentioned in terms of CapEx. Now I would just like to reaffirm that. 100% of the CapEx, we buy the asset when we have the contract in hand. So that's the order of our business model. You have the contract then you have a specific list of assets to buy. You buy the asset, and then you deploy them until the time they are retired. So today, I don't have any CapEx that is invested to wait for future contracts. This is not what happens. As for leverage, and I thank you for your question. We've always told you that our target internally is to be around 3x, this is something that we have been able to keep since the IPO, excluding the bargain purchase, so recurring leverage, even BRL 1.2 billion in CapEx and BRL 200 million in acquisition state, but we keep our leverage stable. Looking into the future with the CapEx already invested and the pipeline of BRL 3.5 billion with lots of warehousing, intralogistics operations, which is segments that we realized, we see enough relevant cash generation to keep the pace of growth to keep CapEx and deleverage the company. So given the amount of cash generation and the scale of the company. So our expectation for 2024, organically speaking, is to deleverage. Now you asked also another question, the impact of possible M&As. And if we could use this surplus in our balance sheet with M&As. In the history of our acquisitions, in the structure that we buy, with the valuation that we buy, real acquisitions help us with the leverage and do not pressure the indicator because these companies are generally less leverage than JSL and our cash generators with a huge potential to grow. Ramon gave the example of FSJ that grew 50% since its acquisition. So they help us generate cash to pay our sellers. So given the size and scale, we believe that we can deleverage organically, and with M&As of the same profile, that should not put pressure on this direction. And to make it clear, the information of a higher CapEx in the fourth quarter is very good news because you're already seeing the effect of leverage, the cash effect, but you're not seeing the income to come -- that will come in the first and second quarter. That's the beauty of the business. You already have an effect that is controlled. You haven't even started enjoying revenues yet.

[Interpreted] Our next question comes from [indiscernible].

[Interpreted] Congratulations on your results. Two questions. First, going international. In the past, you mentioned of a possible expansion to other African countries together with the customer that you have in South Africa today, and also opportunities in Mexico and Chile. If you could give us an update of what kind of conversations you're having? What we should expect in this regard? Second question, with GWM and BYT in Brazil with plans for local manufacturing at the end of the year, beginning of next year, do you have talks through [indiscernible] JSL with these OEMs for logistic contracts in the shipping of new vehicles or in plant?

[Interpreted] Andres, thanks for your question. First, going international. We continue with the same strategy and the same willingness to grow in other markets we got from Brazil. In Africa, specifically, we are growing in South Africa. We opened 3 new operations in the country with the same customer. Now we have an executive that is dedicated to Africa. It was higher for that, think of new customers in the country with huge opportunities. We are also in advanced negotiations to go into a new country in Africa with the same customer. So that's for Africa. So things are really going well. Other opportunities, Mexico, Chile, we have thee willingness and we have opportunities that are being studied, each with their own challenges and particularities. But we are looking into that. We have the willingness, but for it to happen, we need all variables that are suitable to us and to our potential customers. So what I can say is the opportunities are there. And when the right time, they will come, they will happen. We don't want to be adventurous, we really want to have a contract that makes sense. As you know, for the new players that you mentioned, BYT and GWM remember that we already have dealerships in automob with both brands, and this obviously helps us. And there are studies in JSL to provide the parts logistics for the supply of these plants. Remember that JSL is the largest [indiscernible] run logistics operators for OEMs. And obviously, any automaker contact us when they want to have this kind of service. And in outbound services, the shipment of new cars, perhaps more of the specialty of Transmoreno, we are talking to both brands. So very true great opportunities for both inbound and outbound operations. And we are using the strength of the group as a customer of these brands to really propel the business.

Our next question comes from Guilherme Mendes from JPMorgan.

[Interpreted] Ramon, Guilherme, I have two follow-ups. First, I see, I understand the impact on margins. But how -- what kind of ramp-up should we expect for the coming quarters? When do you think you're going to have normalized margins for this segment? And then TruckPad. Ramon did make some comments in the presentation, but I would like to hear more about contribution of revenues, how it fits in the segments of operation and the potential of this business within JSL. So any kind of color or numbers would be great.

[Interpreted] Guilherme, thanks for your question. IC, well, as we mentioned before, that was an acquisition that was slightly different from others. It was a business opportunity, but obviously associated to a challenge of margins and et cetera. We are working on that. Some contracts were renegotiated. So we should have a very interesting ramp-up with the company in the first quarter of '24, and especially as of the second quarter. So we are very encouraged, contracts with more pressured margins were renegotiated. So we should have a ramp-up, much more in margins, perhaps we are going to be a bit more hurt in revenues. But in margins, I think it's going to be a relatively fast ramp-up as planned and things are working. So much so, and it's important to mention that IC, although it did have a problem in margin, it's a very relevant recognized company because of the customers it has. Thinking of the points that we always draw attention, relevant and critical to customers. And this is IC and that makes contract renegotiations faster take. TruckPad, going back to what we said in the past when we bought TruckPad, we have 2 main objectives. The first and perhaps the most important is to use TruckPad's technology to develop JSL's digitalization process. I've mentioned that before. My dream is really to transform general cargo specifically into a digital business. in a simplistic analogy, Uber, I'm talking about technology, not company, okay? I'm talking about how bringing together supply and demand, and Uber was very disruptive in that. It put together supply and demand fast. So today, it is faster for me to get an Uber, than go down the elevator. So this is what we want to do with cargo. Of course, it is more complex, but this is our target. Transportation, general cargo in Brazil is very inefficient. Lots of trucks, we have the cargo but things are not connected digitally. And I think TruckPad can help and leverage businesses with JSL. Now under the head of TruckPad, our challenge is monetize the business, have a tool that can be used by smaller carriers, midsized carriers and customers of different sizes that wouldn't be customers of JSL. So deep down similar tools, but with slight different focus. This is our challenge for TruckPad and we are working on that.

[Interpreted] This is Guilherme speaking. I would just like to add something that perhaps can help you translate what we're saying to others. If you get the history of our margins in Asset Light, you are talking about 10%, 12% of our revenues. That is the transportation of JSL and grains. When you get the ramp-up of margins, perhaps the largest transformation we had was this segment, 5, 6 percentage points. And now I'm going back to a point that we mentioned on JSL Day, the work of digitalization and centralization of operations overall, to have more visibility, decrease idleness of the system and also remove the work that happened at the front and general transportation became lighter. It removed a very high weight in terms of G&A of operations. And TruckPad is the next path, is to have the whole process digital from offering cargo to truck drivers until the final delivery slip that is proving to the customer that we delivered the freight on the right time at the right place. So everything monitoring, loading, unloading, trips to make us the right evidence and also the right billing to our customers. So we believe it is a natural evolution. The next step is such of really having general cargo transportation and grain transportation lighter and faster. In terms of business, decreased idleness, as Ramon mentioned, and also in terms of margins should really have a step-up in the operation, bringing capacity at scale with the same structure that we have today.

[Interpreted] Our next question comes from [indiscernible] from XP Investimentos.

[Interpreted] Congratulations on your results. Thinking about segments and sectors further on, where do we want to focus? Which segments you want to increase exposure? And also which ones do you want to reduce exposure and you're not very much interested in growing? You did mentioned something, but just to give an overall view.

[Interpreted] First of all, that our [ factory ] segments, mainly in which we do not operate, drugs, for instance. This is a high value-added segment with high turnover. It still has primary logistics in which I really see an opportunity. So this is a second when you think of focus. This undoubtedly is a focus, and we have been working on that, and we even have ongoing negotiations in the segment. E-commerce, another segment, as I mentioned, especially with FSJ. It is growing. We have important customers, and perhaps not in the whole chain, but part of the chain as in the Middle Mile, which is very interesting to us and certainly another focus. Fuels, this is something that we started operating through IC, but we are still very small, another huge opportunity. Sugar, ethanol, we were more present in the segment before, today, not as much, but it is a sector of opportunities. So we have been working with different fronts when I'm talking about segments. Now sectors, parts of the logistics chain, one sector that we are really challenging ourselves in terms of budget to grow in intralogistics. In our presentation, we drew your attention to the fact that 30% of our revenues are not connected to trucks, but rather labor and technology, intralogistics, inbound operations, internal handling. So we have lots of opportunities to grow because there are a few players who are specialized in the business. And we are really advancing negotiations and delivering proposals in the market. So it is a combination of economy segment. The more segments, the more of a natural hedge we have, and that has a lot because if one segment is not doing so well, another is. And also sectors of the logistics chain. We are present throughout the chain but we want to go further into intralogistics. And just to add to the answer, Mathios, we already published that in our release. We closed first relevant contract in drug transportation, and FSJ is also starting a project with a drug distribution for the transportation of drugs. So you'll see increased presence in JSL and FSJ in our new segment. Just to add to the question.

[Interpreted] Our next question comes from Victor Tani from Santander.

[Interpreted] I have two quick questions. First, in line with the last question, I would like to know more about inorganic growth, what you have in mind? Even thinking of the article, [indiscernible] that was published today. Any surface or industry that JSL would prioritize? You talked a lot about strategic opportunities. It's not that you're buying just for the sake of buying. But anyway, this is my first question. And the second question, pharmaceuticals. In what part of their logistics chain are you in? And do you have the opportunities for organic expansion in the segment? That's it.

[Interpreted] Thanks for your question. Inorganic growth. We believe this is an avenue for growth for simple to understand reasons. We have a very fragmented business with small and medium-sized companies. And after 3 years of adversities, pandemics increase of prices, some of them are in a situation that favors M&A, in my opinion. But it's very important to say that although we understand that this is an avenue of growth, it is not a target for itself. Our budget does not demand growth. You know that our budget is focused on organic growth, that is my team works to grow what we have to grow organically, in segments, in sectors, as I just mentioned in the question before. Now obviously, we have in our pipeline -- on the pipeline of [indiscernible] because that is carried out by the holding company, several options. So every now and then, an opportunity comes in what we consider an acquisition that will add to the business. We only have acquisitions that add to the business, reinforcing a sector, reinforcing a segment, opening a new segment. I just mentioned FSJ as an example of that, but our strategy in M&A is very simple. We pay what is fair for the company up today, betting on a company for tomorrow. So it has to be a company with potential. And this is what has happened. We talked in our presentation that all the companies we acquired grew at a CAGR of 2 digits, some at high 2 digits. But things have to happen when the time is right. We cannot guarantee it will happen, but we are open for it to happen. But my team is focused on organic growth. And the 2 things together, bringing excellent results. As for your second question, the pharmaceuticals segment, which is what Guilherme mentioned. We have a, first, contract, we believe the sector because in addition to being a growing sector, a large sector and with high value added and where logistics is a must, you know that drug stores do not work with inventory just in time, very much similar to OEMs. You have almost daily supply. So logistics is very important. And we do believe that this is a market of huge potential. So we do believe this a lot, both for the transportation of finished products in [indiscernible] operations of plants. So I think that we have to think of putting together the needs from the segments with our capacity to serve.

[Interpreted] Our next question comes from [indiscernible] Investments.

[Interpreted] Congratulations on your results. I have a question about the volume of asset sales in the Heavy Asset. I see at this year, the fixed assets related to assets, a slightly higher number. I would like to understand if it is a seasonal effect? And what should we expect in terms of fleet turnover? Are we going to see an increase in revenues, given the fact that acquired companies perhaps will need to renew their fleet? Second question is the tax line. We've mentioned that before, talking about ICMS as subsidies, and today, as a coincidence, we saw new discussions, government revisiting taxes. I would like to understand the impact in our bottom line if we were to exclude the ICMS subsidy.

[Interpreted] [indiscernible], thanks for your question. ICMS. Yes, we were stuck to ICMS and we forgot the first question. Asset sales. This is a huge potential of our business. Let's remember that our business, especially in Asset Heavy, has the CapEx, as we mentioned, then revenue, obviously, that's why we invest, results and in the end, you have the sale. So the sale is very important for our business, differently from a plant, from a manufacturer. Our CapEx is net CapEx. You buy an asset that will have a residual barrier after 3, 4, 5 years because we have a large volume of contracts. We always say over time, average term of contracts are 40 to 50 months. And at the end of the period, I have an asset to sell. So huge one. In the past, we used the Vamos network with sales commissions, et cetera, to help in the process. But we created an independent department for this business to have more liquidity to be a bit more pushed. So it is our strategy. The fourth quarter showed a bit more strong but you should see an increase in the coming quarters because we believe this acceleration helps us deleverage, increase return on invested capital. You have less assets depreciating between retirement and sales. So we are being more active in using all sales channels possible. As I mentioned, Vamos continues to be an alternative, which is stores paying commission and everything, helping us with the process. But today, we have a specific area for the sale of assets of JSL and acquired companies. And we see that as a huge channel for results. To answer your question on subsidies, we have to wait until all discussions take place to know what's going to happen. But just for you to have an understand of magnitude, we have 2 incentives, the exempted ICMS and the calculated. So about BRL 60 million to BRL 65 million. That would be the amount if we didn't have the subsidy. But obviously, we have to understand where discussions will go, and then I apply that to the company results. But that is the magnitude of value that we are having discussed. I don't know if that was the buyers or not, but we intend to increase our internal supply even with Asset Light that is truck drivers use our locations because that brings us benefits in price and also tax credits. So this is a strategy of ours. I don't know if that relates directly to the question, but I would like to add to that. And when I say that we use Vamos channels, I'm not talking about related parts operations. I'm talking about sale of those assets in Vamos stores. But we do believe in the direct channel, as I mentioned.

[Interpreted] Our next question comes from Pedro [indiscernible].

[Interpreted] Congratulations on your results, another positive results in our opinion. I have just one question. To clarify the market for the future, thinking of demand, price and profitability, in the last 2 years, your ROIC grew a lot. And I think that has to do with the quality of management of costs, but also in a time where we had growing interest rates and JSL really showed quality and guarantee of services, and that you probably have a gain in bargaining powers and negotiations. But now interest rates are going down. And the question is, if you think prices are to accommodate following the drop in interest rates from now on? And if you see some competition coming back, and how this could somehow impact your level of return on invested capital? Or if you think demand is still very heated and you can keep higher prices? And therefore, we are going to continue to see the growth of ROIC and ROIC spread compared to net debt?

[Interpreted] [indiscernible, thanks for your question. You're right, if there is a lot of people who are not going to change to the world, it's supply and demand. In the market that is fragmented as ours, when you have a high supply of services, you have a trend to have more squeeze prices. And we've been through that in Brazil, when you have excess credit, excess and lower interest, you had more competition. Competition really supplied the market, and therefore, margins were squeezed and prices, too. But in recent years, the opposite happened. Credit was tighter, especially to smaller companies. Interest rates from 2% to 13.75%, and perhaps the major difference in the last 3 years generated an increase of inputs that was high and fast in very short periods when it is more difficult for you to renegotiate with customers. So the last 3 years really changed the market aggressively. And with that small, midsize companies had problems with their margins, results, financing, and these are the numbers, again, you know some of these companies when they are public and release their earnings. JSL, and I'm not trying to boast about that, but we did do our homework. We renegotiated prices. We focused on cost efficiencies. We have access to credit that our competitors or most of them don't. We just issued a new receivables with an effective interest rate lower than the market. So what is all this combo all about? Today, I have a lower supply of services, especially those that require CapEx. Very few companies have our ability to execute in different segments of the economy and logistics sectors. And with that, we have a favorable position today, and in my opinion, for the next 3 to 5 years. I think it is a window of opportunity that is open that is very unique for JSL. It is as if we had prepared for a marathon in the last 3 years. And then you know the referee gave the whistle, and I think that we are more physically prepared than the competition. And that contributes to our results, and we have been seeing that in the contracts we are closing now. So the macroeconomic scenario in addition to our preparation gives me the feeling that we are going to grow results and revenues in a very favorable manner for the coming years. This is what we are working for, a window of opportunity for us to enjoy. So my take, and this is not guessing. But I think we are on the right path.

[Interpreted] And just to add to that and very quickly, the impact of what Ramon mentioned of ROIC and ROIC spread, we have been talking a lot about that. It is disciplined in execution and pricing. We have to have the right prices in our contracts. We have to adjust contracts that lose track passed so we have to monitor from flows. And on the other side, we didn't say this as much in the call, but all initiatives of making the company lighter. TruckPad, cost reduction programs, efficiency programs, all this help us push our ROIC up, and even asset sales, as [indiscernible] mentioned, contributing to that. So different fronts, we work with over which we have control or we have initiatives are more in our hands, creating mechanisms that we need to make the company lighter and obviously translate that in our ROIC and ROIC spread.

[Interpreted] If I could just add to the question. I asked about demand because in '23, we saw investments in expansion and renewals that were lower than in '22. So do you think this is a sign of lower demand than before? And therefore, you would focus on deleveraging and reassessing contract by contract in terms of price and profitability?

[Interpreted] No, that's very specific. I don't know if you remember from '22 to '23, we had to change from Euro 5 to Euro 6. And that is public. I can say that we have a huge investment in a project of [ CNPC ]. The ramp-up started in March '23. And basically, we made a decision of anticipating CapEx of the first quarter to the fourth quarter '22. So when you compare apples-to-apples, it is in line, excluding this one-off, no deceleration whatsoever. We are delivering the same level of growth, no change in course from now on.

[Interpreted] Our next question comes from [indiscernible]from Citi.

[Interpreted] My question is about Fadel, the subsidiary area had a reduction of top line in the segment of dedicated operations in the fourth quarter '23, very much impacted by the strong performance due to the World Cup. So how do you see Fadel's performance for '24? Last year, Ramon did talk about expanding to Argentina and Mexico. Could you give us an update on the expansion plan?

[Interpreted] Thanks for your question, [ Filip. ] Okay. Fadel is very much connected to urban distribution and very much connected to food and beverage products, products that are more consumed at some times of the year. Generally, the fourth quarter is the best quarter because of summer and everything. And you're right, in the fourth quarter of '22, we had a rare effect that never happened before, which is the association of the World Cup, wet summer and at times because games were generally at the end of the day, that favor consumption. So it was a wonderful fourth quarter. The fourth quarter of '23 was not bad. We had a hot summer, it's still hot, and that really favors fun so much so that when you compare to the third quarter '23, we have a 15% increase. When you compare to the fourth quarter '22 because of this effect, we don't have as much increase, but because of seasonal reasons. In Fadel, in '22 did very well. For '24, the expansion in Africa has to do with Fadel. So as I mentioned, we are growing 3 operations in South Africa, probably a new country in Africa is still in the first half of the year, and we have possibilities to grow in other countries. As JSL, Fadel is very much interested in that following the strategy of the group itself. Once again, we have to agree with customers. It's not just our willingness. But we have studies on Argentina, Mexico, Chile, other alternatives in South America, other than Africa. And also, we are open to opportunities in North America and Europe. But regardless of that, Fadel in Brazil is negotiating with new -- 2 new customers. We can see very good opportunities in Brazil. The open distribution market in which Fadel specializes is a market with huge potential.

[Interpreted] Our next question comes from Jonathan [indiscernible].

[Interpreted] Great presentation. I'd like to know how JSL sees avenues for growth for the next year? M&A, more organic and how to keep growth, issue debt or maybe a follow-on would be a possibility?

[Interpreted] Thanks for your question. I'm going to answer the first part, and Guilherme will answer the second part. As I mentioned, the main objective of JSL as a group is to grow. And why? Because we have a whole universe of not explored market and huge windows of opportunity. And I can do that organically or inorganically, and we are open to both. The difference is that organic growth is objective. I create targets, strategies for growth in some segments, sectors, as I mentioned, put the team to work and go after results. Inorganic growth is not as straightforward. Remember that our acquisitions are always strategic, it is not only a matter of willingness. You have to make it happen. So organic is more rational, is more straightforward. Inorganic depends more on opportunities. Our budget, our strategy is focused on organic growth. The team is working to grow organically regardless of the inorganic growth. Inorganic is there. We have a huge pipeline. If it happens, great, but we do not count on that. We see opportunities, but we bet our tokens on organic growth. And if inorganic happens, and we believe it will, we'll add to that.

[Interpreted] And just to add to Ramon's answer, translating that in our balance sheet, but we have a very solid cash position. So cash-wise, we wouldn't have to have a follow-up, especially based on the model of acquisitions that we have been pursuing the type of companies, which is the average profile of logistic company in Brazil, the refragmented market. In terms of balance sheet, we already see an increase due to the company's cash generation. So today, we don't have a limit for that because of the structure of the deals and the size of our balance sheet. If we reduce our leverage, that is we have even more room in our balance sheet, we don't see any reason for a follow-up or anything of the kind for specifically complete an acquisition, given the average profile of the companies that we have been acquiring.

[Interpreted] JSL's Q&A session is now closed. We are going to turn the floor to Mr. Alcaraz for his final considerations.

[Interpreted] Well, first of all, I'd like to thank for your time, many questions, so many people, and that makes us very proud because you were paying attention in our business. Takeaway messages. Sometimes we sound repetitive, but it is very important to say that. And why is that? Because we are in a very unique market, very few markets offer the opportunities we have, a market of BRL 1.3 trillion. So we are the largest company by far and have only 2% of market share so there is a whole unexplored market to develop. So all we see a lot of opportunities. And again, modesty apart, we understand we have a unique position because of our size, and size here matters, especially when we're talking about access to credit and capacity to invest. But that's not enough. We have people. We have management that are second to none, especially when you take a look at the different sectors of the logistics chain and segments where we are inserted. That gives us the capacity to really enjoy the market in a unique manner. Buying equipment, Buying machinery, we can have competitors that do that, but our capacity of execution is hard to match. Guilherme has mentioned this here on the release and in different opportunities, that our capacity to deleverage comes from our own cash generation. It is, as I mentioned, a unique business model, hard to replicate. In recent years, we've been through different phases because of different risks, the pandemic, the economic situation, political changes, things that do affect the market. But we are starting '24 differently, different because we prepared ourselves, different because we are strong and... We can double or triple in the next years. We mentioned that on JSL and I'll say it again. If you control [indiscernible] in the last 3 years, tough years, for the next 3 years, we can be a company of BRL 16 billion organically. If you see what we did in the last 3 years, organically and with M&As, we can be a company of BRL 21 billion in 2016. This is not guidance. It is just a mathematical projection. You can all do that. What market do you know that in 6 years can go from BRL 3.5 billion, which was the IPO, to BRL 21 billion? I'm not saying it's going to happen, but it may happen. This is the market, and I really know very few markets with this potential. Well, with that, I thank you all, once again, very soon, we are going to be together to talk about the first quarter '24. Guilherme, would you like to add anything?

[Interpreted] No. Just thank you, everyone. Thanks for your call.

[Interpreted] JSL's conference call is now closed. We thank you very much for joining us and wish you a good day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]