Randoncorp S.A. (RAPT4) Earnings Call Transcript & Summary

Good evening, everyone. We would like to thank all of you for the participation in this video conference. We're going to share details about relevant fact published by Randoncorp. Today, after the market's closure, we communicate the strategic partnership between Rands and Pátria Investments. We have simultaneous translation to English and sign language. [Operator Instructions] This video conference is being recorded. The recording will be made available on our website, the investor relationship -- relation to the investor. This presentation contains forward-looking statements that are subject to risks and uncertainties. These statements are based on management's beliefs and assumptions as well currently available information. We start with a message from Sérgio de Carvalho. Afterwards, the Vice Executive of [Foreign Language], Daniel Ely, will bring the strategy of Rands and everything published today. Prignolato, our CFO, will explain the operational structure. Daniel Randon, President of Randoncorp will bring his final message. After the presentations, we have the traditional Q&A session induced by RI Director, Esteban Angeletti. Also connected with us, the other members of the Executive Committee, our team of Investment Relationship and the team that we thank the presence. I would like to remember that to participate in the Q&A session, you can follow the information that the screen indicate your participation any moment of the event. In case we don't have time to answer all the questions live, our RI team will get in contact after the event. I pass the floor now to Sérgio to start the presentation.

Thank you, Caroline. Good evening, everyone. Thank you for joining us in this important announcement for our Randoncorp. I would like to start off with a recap -- is the slide being shared?

Yes, Sérgio.

Perfect. Thank you. I'd like to do a recap of the transformation journey of Randoncorp. Since we have several opportunities talked about and showed that to you, our company is going through accelerated growth, international expansion of our business, always transforming but seeking a greater resilience and profitability in our business, transforming ourselves into a more complete company, always offering several solutions for the automotive sector. And the [indiscernible] you see on the screen represents the 5 business verticals that we have very quickly. On orange, we have the OEM with trailers and trucks. In the right, in green, we have auto parts for heavy vehicles, axles, suspension, brakes, many other products. In blue, we have our motion control or mobility with friction material, products for axles, for suspension, for the powertrain system and other activities. In green, we have our technology -- advanced technology area where we have our [indiscernible] Institute where we create our new technologies, have industrial automation, nanotechnology area, area for simulation and modeling, testing, laboratory, so forth. In yellow, to the left, we have our Rands, which is financial services and digital services arm that we're going to elaborate or detail more. We have several segments: agricultural machinery, trucks, buses, trailers, industrial sector, automobile technology, logistics with customers -- different customers, drug manufactured bus, agricultural machinery manufacturers, spare parts distributor, cargo technology companies, logistics operator, so a network of customers that is wide. What we do -- go back one, sorry. In our Rands, we have a transformation -- large transformation happening. Until recently, we had our consortium or coop-payment plan that -- our bank that offered credit to the market. This is our main area of activity for financial services. Well, the expansion happened and is happening in a meaningful way. We incorporated a part of insurance. We started to do start-up investment. We entered vehicle rental -- heavy vehicle rental business. We've joined together with Gerdau. We invested in service -- digital service company's software, purchasing DBServer -- to control DBServer. We also acquired Delta company acting in digital services, therefore, a transformation -- a meaningful transformation, increasing the services that we offer. In this vertical, Rands, this year -- this last year, it achieved 6% of the revenue of Randoncorp with BRL 850 million -- or BRL 844 million, 28% EBITDA margin, which is quite healthy, and a total of BRL 236 million, as you can see on the screen. Despite representing 6% of revenue, it represents 15% of the EBITDA of the company or the group. On the right, you can see that consortium or coop-payment plan is 43% financing; investment and payments, 41% of revenue; and the digital services technology representing 14.5%. Insurance and technical assistance, a bit over 1%. Our expectation in this model of growth -- accelerated growth model, but also seeking in a restless way more resilience. Our objective, our Rands vertical should continue to grow with a speed above the other units that we have in our product portfolio. We believe that in the future, in the next years, this vertical should get 10% of our total revenue. A few years ago, 2019, this vertical represented BRL 190 million of our net revenue. And currently, it's at BRL 844 million. It used to be 3%, BRL 190 million. We are at 6% with BRL 845 million, more or less. Next one. And where does -- where is this in our strategy? You can see the slide -- we shared this slide during Randoncorp Day some time ago. And you can see #5, which is expansion of financial services, digital and financial services, which is linked to the stock that we're having with you today, this novelty we want to present. Okay, guys. Now I pass the floor to Daniel Ely, that will continue to talk about our strategy and give you more details about the transition. Ely?

Thank you, Sérgio. Can you hear me well, Caroline, just to check?

Perfect, very clear.

Great. As Sérgio mentioned, in this strategy of growth that we're calling Rands or vertical for financial and services in Randoncorp, we are achieving expressive numbers. I would like to highlight 2 or 3. We are the third biggest consortium or coop-payment plans for heavy vehicles in Brazil. If we don't consider the big banks as independent, we would be #1. We have over BRL 14 billion currently in business generated with this financial solution that includes the coop-payment plans and insurance and bank. Over 2,000 sales professionals in Brazil with 45,000 (sic) [ 45 million ] active customers, as Sérgio explained, in the last 3- to 4-year cycle. Rands grew 46% a year on average. So it's an expressive growth. Keeping the profitability and its contribution margin, we see in our strategy for Randoncorp Rands getting to the 9%, 10% in our revenue share. We have another cycle ahead of us of 3 to 4 years where we need to continue to grow with this speed, at this average rate that we have achieved in the last years with the strategic project that we want to explain now. So Rands, in a normal life cycle of a company, we can consider today it's more than a bank or a consortium, coop-payment plan. We are a platform with over 40 financial solutions and services that is in accelerated growth. Obviously, when you have accelerated growth, we need to make an effort and invest to keep the growth because we have opportunities, and we have a market that we're going to detail, which is for these coop-payment plans and insurance, that we can grow with rates higher than we have done in the last 3 to 4 years. And here, we have a strategic project, which is to seek this partner, a private equity, an institution -- we have analyzed this for over a year, that could add to the robustness that we have in this coop-payment plan, market insurance that we have at Randoncorp to advance in logistics and transportation, but also in agriculture, retail and other segments. So here, we announce the creation inside Rands a holding that adds to business the consortium and coop-payment plan and insurance, as you saw before, as Sérgio showed. The coop-payment plan and insurance is 45% of net revenue of Rands, let's round things out. Basically, half of their revenue comes from these 2 business. Insurance is still small. We have a huge potential of growth in insurance. And we are, together with Pátria fund, one of the biggest funds -- biggest fund in Latin America -- private fund -- biggest private fund in Latin America that has experience with these coop-payment plans. They have experience with high -- they have a vertical for high growth, and they have coop-payment plans as a thesis for investments. So here, we put together 2 important factors: the credibility, reputation, the structure that Rands already has assembled in place and the channels that we manage today. Some are white label, where we are more in the back office, together with the reputation of Pátria, the knowledge that they have of the market. In the next slide, if we compare, there is a plan -- they complement each other in this partnership. And for the current moment, what we would like to build for the next 3 and 4 years for the next cycle, as we said, we are a leader in financial product and logistics, third biggest coop-payment plan for heavy vehicles. But we want to advance in other segments, not only heavy vehicles. Pátria brings expertise in other segments. They have an experienced team. We have our own very well structured channels, but we have a possibility to expand to other channels, exclusive channels also coming from this partnership with Pátria, accelerating our digitalization and growth. We want to do this with a lot of technology, a lot of automation. Currently, we work a concept of coop-payment plans that are more and more digital. Our investment to accelerate this digitalization is linked to what Pátria is doing already. They invested in secondary coop-payment plan. Pátria has already inserted as an investment. We haven't entered the segment yet. I could speak during a minute longly about the potentials that Rands plus Pátria together have to increase the journey of growth in the next few years. Market is favorable. All analysts know -- who's watching, the coop-payment plan is a market that's in expansion, in consolidation also. It's a moment of consolidation. It's important to have a strong distribution power and distinct channels seeking to create potential with the potentials greater number of coop-payment plans. It's what we believe is most adequate in the moment to continue to be a relevant player and become even more relevant in the market of coop-payment plans. As a last slide from my side as a strategy, I said that Rands grew around 46% average a year the last 3 to 4 years. If we look at just this business of coop-payment plan and insurance, we grew at a rate of 18% because we have the need to structure better a few processes, et cetera. Now we're very comfortable to increase this growth rate in coop-payment plans with seeking the support in terms of investment, competencies that Pátria will bring to us at this moment for these 4 fronts that are the most important that can sustain an accelerated -- even more accelerated growth, a strong digitalization entrance of alternative channels added to the ones we have, the market -- adjacent goes beyond logistics and transportation. But beyond the traditional model of consortium being able to get into the other expanding markets and the capabilities of both that add to each other, as I showed before. What we have -- the partnership is paramount for the advance with Rands, what Sérgio said, to seek 8%, 9% share in revenue. But it's also very important for our platform for solutions -- financial solutions to grow the arm of insurance and coop-payment plans in a sustainable manner for the next years. To be brief, this is the overall strategy that permeates the backdrop of our partnership with Pátria that we signed today. Now I pass the floor to Paulo Prignolato, who will explain how will be the operation structure.

Good evening. Can you hear me well?

Yes.

Thank you for being at this moment with us on such a short notice. I'm going to talk about the corporate structure of the operation. What we're telling you is we will constitute a holding in which Randoncorp will keep control with up to 80% share, and Pátria will have around 20%. The contract foresees the injection of up to BRL 320 million. The price is subject to a review until the operation. Notice that the holding, at the end of the day, will have this distribution in share, the partnership having 100% of Randon insurance and 100% of Randon consortia, which is the coop-payment plan. It's important to mention that the multiple for this type of transaction in the case of the coop-payment plan, the criteria to be used is based on net revenue due to relevant influence of accountability rules applied to this type of deal. Here, the estimated time line of the operation. Currently, we are in the signing. We did the signing on April 7. We estimate that the closing will happen between September to November of 2025. Why? In reality, we have to count on the approvals of CADE and Central Bank. We believe this will happen in 6 to 8 months. So in this stage of the closing, we should receive up to 60% of the amount, around BRL 180 million. And post-closing is foreseen in between September to November of 2026, is receiving up to 40% of the value. In other words, around BRL 140 million. It's important, as I said, the second installment has -- will be corrected. The price is -- should be affected by the normal adjustments. I'll pass the floor to Daniel Randon for his final message. Thank you.

Good evening. I would like to thank the shareholders, market analysts and everybody that's on this call. To us, this initiative is aligned to the future vision of Randoncorp or Rands vertical, especially coop-payment plans and insurance. It will contribute to our service growth -- service department area, with Pátria, improves our governance, will continue to contribute with the resilience of our growth in Rands vertical. Especially the last years, we have worked strongly the work together for digital transformation, a huge opportunity to scale this with the expertise of the guys from Pátria. And the increment in capital will add a lot, working for gain of scale. Without a doubt, I'd like to reinforce the importance of this moment for Randoncorp, so that the company continues to grow in a sustainable manner in Rands. We see as an opportunity -- Sérgio, Daniel Ely reinforced a history of growth in the last few years. Without a doubt, with the presence of this investment, partnership with Pátria will be an opportunity to continue to grow. I'm very optimistic to see the growth of Rands especially continue to work, reinforcing the increment that Randoncorp has done together with the business increment in terms of portfolio -- important businesses to increment Randoncorp, especially when we look at long-term vision. A very important moment for Randoncorp will add more value. We are very optimistic with this important partnership. I pass the floor to Carol to start our Q&A session. Thank you.

Thank you, Daniel. Thank you, directors, for your presentations. We will start the Q&A session now. [Operator Instructions] So we start with BBI, Bradesco analyst, Andre Ferreira.

Congratulations for the transaction. I have 2 questions. First, you mentioned to expand beyond heavies and some adjacent business model. So if you can mention, what are segments or more attractive models to you guys? And the second question, you mentioned projects also in different stages. So if you have any projects that you can mention or give an overall guidance of the main projects.

Very well. Andre, thank you for being on this call in a short notice. Two questions -- without a doubt, Daniel Ely, headed the deal -- is heading rounds, will be able to answer. Before I pass the floor to Daniel, this characteristic of Rands -- we have -- one of our greatest qualities as a company, as a vertical for financial services and digital services is this ecosystem that our business is -- was able to build in the last few years where more and more, we seek to capture not only life cycle of our customer, but penetrating in other segments that are adjacent. Daniel, feel free to tell us what are the segments or business models that are more obvious that we can act in -- act upon. Your mic is closed, Daniel.

Thank you, Esteban. Thank you for your question. And when we talk about increasing transport logistics, maybe this doesn't have too much visibility for -- to our investors. But we're talking about other segments, for example, retail. Today, we have our own brand called [indiscernible] and consortium or coop-payment plan. For vehicles and real estate, we have another [indiscernible] for services or coop-payment plan for services. We already have white label administration of John Deere coop-payment plan. We classify it as agri. We have the management of [indiscernible] coop-payment plan. We will continue to grow where we're already doing well. These channels related to logistics and transport in heavy vehicles. But we see an opportunity and avenue of growth, a strong avenue of growth in retail and services, a market that's a bit different. But we are already -- have navigated for 1.5 decades. Over 15 years, we have this [indiscernible], for example, but we never used its full potential. When we talk about other models that's looking at the secondary market for coop-payment plan, one of the markets that we are not looking in a structured, organized way, and we have the expertise with Pátria. We want to enjoy this expertise very much, as Daniel said. It's a lot more than an investment. It's that smart money, the expertise that they have in this -- these business models. So this would be the answer regarding your first question. The other projects, obviously, as Rands' vision of creating another cycle with accelerated growth in a year, demands that we look at the other Rands verticals, projects related not only to financial solutions. But recently, for 2 years, we -- ago, we announced a rental arm, a partnership with Gerdau where we create adjacency. Another example, we got together with Gerdau to enter this market in a more aggressive manner. 40% of Rands revenue comes from innovation and technology, which was less than 2% 2 years ago. In other words, we have a share of 14% coming from software engineering, Delta, DB side. We have the potential to grow here. The projects are related to these 3 segments in Rands: financial solutions, a part of management and fleet rental and a part of technology and innovation. In this moment, we understand that consortium or coop-payment plan and insurances where we have the highest potential to grow for the next years at higher rates. That's why we have this project and partnership with Pátria.

If you allow me, Andre, with rental, we didn't consolidate the results, that's why the revenue distribution per activity, we don't see the revenue that comes from adjacency. Just for this, we didn't do the consolidation. It's as an equivalent.

So let's go to the next question for today from analyst of Citibank, Kiepher Kennedy.

Congratulations for the deal. A question is more technical. I doubt you mentioned this revenue multiple of 3.4. I would like to confirm it to you. I don't know if this is what Sérgio mentioned. According to the revenue you published, it would be a little bit over 4. There's a difference here. And second, you mentioned the need of cash to sustain growth. You partially already answered me where you talk about where you're at in the future of the company. Just to understand if you can think about something more specific investment to compose your assets one way or another. So these 2 questions, thinking about the multiple that you announced and the allocation of resources.

Thank you, Kiepher, for your question and for being on the call. Second question, Daniel can answer about the allocation of resources that will enter once we conclude the deal. And regarding your first part of your question, the parameter of the transaction is exactly revenue and business of Randon consortia or coop-payment plan and Rands vertical. It's the percentage we published now recently, the next 45% of the revenue. Maybe a point to close this multiple of transaction is based on pre-money, not the post-money valuation. So it's necessary to use the pre-money estimate to close the transaction multiple. Daniel, please feel free to comment more about the use of resources.

The resources will be invested fully for acquisitions, JVs, acquire portfolio regarding this coop-payment plan and insurance. You saw that insurance has a smaller share, but there's an avenue for growth, greater opportunity also. These projects and targets already exist, a previous idea in Pátria -- on our side and Pátria's before the deal that now after the approval by CADE and Central Bank, we will close the negotiations, at least 1 or 2. But it won't be far or anything different from this parameter, which is the coop-payment plan and insurance. But in coop-payment plan, I can say there's a lot of opportunity in retail, which is probably where we will prioritize for the first investment. But we still will analyze this once the deal is closed.

Let's go to the next question this evening from Andressa Varotto, analyst from UBS.

I have 2 points. First point, understand better the capabilities of Pátria today inside insurance and coop-payment plan to understand how it will complement the scope of the transaction. Why don't you open for other segments or Rands? Second question is regarding [ draws ] the attention, the valuation of the transaction compared to what we see at company. You see other leverages to unlock value for the company. These are the 2 points.

Interesting 2 points about the capabilities of Pátria. Daniel can answer this, and after the issue, valuation of the transaction -- comparison of the valuation of the company as a whole, I invite Paulo to bring and share a bit of his considerations also. Andressa, I anticipate this is one of the facts that we -- people ask the most in conferences because really the valuation -- there's a discrepancy when we have Frasle that's openly traded an implicit valuation. Now this transaction makes the valuation of consortium or coop-payment plan and insurance business more visible to the market. Daniel, I start with your answer about the potential capabilities of Pátria.

Thank you, Andressa, for your question. To highlight, when I showed that complementary plot, we would like to highlight Pátria in the last 2 years. As in their vertical -- high-growth vertical, they have a very strong study about the consortium or coop-payment plan vertical. In Pátria, they were already seeking where to invest. And the marriage happened -- the radar that they have from Pátria, the knowledge of the market and this part of smart money, thinking about everything they can add regarding the analysis and future M&As is huge. Also, the secondary market for consortiums or coop-payment plan, we want to advance. You asked in the beginning, why not advanced another front of Rands, if I'm not mistaken. It's the beginning of a relationship where in this moment, we will leverage a vertical Pátria -- of growth that got deeper into the coop-payment plans. And insurance, it comes together -- there's a lot of synergy between these 2 channels to be explored. But that won't stop us in the future that the partnership can advance to other solutions of Rands' portfolio. It's the beginning of a relationship that we hope will be very fruitful, will bring great results for both parties, but it's a relationship that can advance and last for many years in other businesses. It's what we expect, and I'm sure that on the side of Pátria, the expectation they have regarding this deal with Randoncorp and Rands.

Thank you very much, Daniel. Paulo, I pass the floor to talk about the valuation, please.

Thank you so much, Andressa, for your participation. Thank you for your question. This is a very relevant point and question that's important in the context. As you know, we have always said that we consider that the value today -- market value today of RAPT4 does not reflect the reality -- the true value of the company. We also mentioned that we opted for the allocation of our resources into M&A projects. Due to this, we didn't establish no new program for rebuying. In other words, if we consider exactly the valuation that was made, it doesn't contemplate all of Rands. We're talking about a valuation of approximately BRL 186 million for coop-payment plan and for insurance. So coming from a group like Pátria with over 35 years of experience and over BRL 244 billion in assets under their management, it's another sign that proves that the value today traded for a stock exchange for Randon value is depreciated. Thank you for your question. Very relevant question. This tends to reflect also and reinforce this point for the better understanding of the market about the real value of Randon.

Thank you for your participation, Andressa. Now let's go to the next question, Gabriel Rezende, sell-side analyst of BBA.

Caroline, can you hear me?

Yes.

Congratulations for the deal. Thank you for the disclosure with us. I would like to do a follow-up to Andressa's question talking about the valuation of the company. And talking about the slide that Sérgio shared that you showed this company strategy, 5 was the expansion of financial services. I wanted to understand if there is a next step with the strategic pillars of the company that we can have in mind. We already had recent movements of M&A. Now the expansion in financial services. What would be eventual next step or the company will first digest this before any other movement? The second point, since we're talking specifically about the financial business of the company, we noticed with the last data from Central Bank, the default increased for businesses for automobile credits. Specifically, we did a cross-check, we see this is coming especially from heavy vehicles. How do you this? Did you feel this in your financial operations, if it was expected given the macro moment that we're going through?

Thank you, Daniel, for your questions and for being on our call. Daniel, once again, I'll pass the floor to you to comment about the potential next steps related to especially the transaction parameter. And Daniel allowed me to mention and he can add -- I'm talking about default and debt. One point that I would like to highlight, our customers in the vertical for financial services are people that we know for a long time, customers that we have a long-time relationship with aligned to our credit analysis service. And our business model makes that debt is usually or default is very low, below the market average because we have these factors. We know them for a long time. We have a robust credit analysis and a consolidated business. This makes it impact less Rands business even when macro is a bit more delicate like we're going through now. Daniel, please feel free to add about this point about debt.

Gabriel, thank you. Just to check, I think Gabriel's question goes beyond Rands. From my understood, next steps as Randoncorp. I'm going to talk about Rands, but that's just to check if my understanding is correct. In Rands, obviously, we continue to grow in the other segments. The bank -- we have been transforming our bank from an OEM bank. The bank doesn't have bigger ambitions than transport and logistics. We understand that transport and logistics sector, there are opportunities in the known waters, known customers that we have a strong relationship with already, financing trailers, but we can advance more. This plan is being established in the last few years. The bank is structuring itself to support the change -- the profile of products for OEM, the origin of a bank to a bank of transport and logistics. As we said about technology and innovation, it used to be 2% of Rands. Now it's 14% of revenue. And here, like Daniel said, the need of transformation, digital transformation of our customers, also, there's a huge potential to be a part of this journey, the customer's journey with this to make the customer more loyal in the other verticals where we act in Randoncorp. And in the coop-payment plan -- I'm talking about debt, if you allow, Esteban, to add. Coop-payment plan, the debt is measured by the canceling of quotas. And the reason -- one of the reasons Pátria look for Rands and Randoncorp from the independent players in the market, if you don't look at the big banks, we are today the independent with the lowest cancellation rate. Due to the robustness of our channels, sales action that we have working together with our customer, it's a very well-controlled indicator. What is canceled in the coop-payment plan becomes the secondary market that I mentioned before, which is a focus of the expansion in coop-payment plans to have this model of coop-payment -- secondary coop-payment plan as a portfolio solution. Esteban mentioned very well, many of the customers we know very well. And we have very positive numbers even going through a market moment that's turbulent in terms of debt or default. But we are still in a very favorable situation regarding our customers. Gabriel, if you're talking -- ask about the other verticals, maybe Esteban or Sérgio could add.

Perfect, Daniel. You mentioned very well at the beginning the question was about Rands, how this movement adds to the movement of the other verticals. In this sense, Sérgio, I would like to invite you to mention about the internationalization process. We know that services today is more focused in the domestic market. But we have companies like DB that has movements abroad outside of Brazil, and this can accelerate movements outside of Brazil. So would you like to mention the connection to the international strategy?

I would like -- thank you for your question. As we mentioned in previous events, we will continue our process of internationalization of our companies. In this sense, we've done movements October, November last year with acquiring EBS in U.K. by spare parts. In January this year, we finished the deal with Kuo Refacciones in Mexico. Same month, January, a few days later, we announced the deal with auto parts acquiring AXN in the United States. We have Auttom for industrial automation expanding its activities in the United States. According to what Esteban already mentioned, DBServer that sells digital solutions, also structuring itself to address more the North American market. So our intention is to continue with these transactions, with this growth becoming international. But this year specifically is a year to become stable. We did important transactions, as I mentioned. We must be certain that the integration of these companies is moving on as expected, that the synergies that we included in our financial models are shown. It's a moment now of make concrete and solidify these movements so that in the future, we continue this journey. Some movements, organic nature movements, as I mentioned, of Rands with DB or Auttom will continue to happen, but these are smaller movements compared to this moment. It's the same plan. We will continue to become international. But the current moment is a moment of stabilization.

Thank you, Gabriel, for your participation. So now we finish the Q&A session. We want to thank everyone that was with us in this video conference, and I want to pass the floor to Daniel Randon for his final message.

Thank you, Carol. Thank you, everybody, that participated. Thank you for the questions. It's another important moment, strategic for our Rands service areas that has huge potential for growth. Any questions you have, please get in contact to our Investor Relationship area, talk to our colleagues.

Good evening, everyone. Thank you so much.

Good evening, everyone. Thank you.

Good evening. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]