SIMPAR S.A. (SIMH3) Earnings Call Transcript & Summary

Good morning, and welcome to the Conference Call of SIMPAR to discuss the earnings regarding the Second Quarter 2023. Today, with us are Mr. Fernando Simoes, CEO; and Denys Ferrez, Executive Vice President of Corporate Finance and Investor Relations Officer. Right now, all participants are in listen-only mode. Later on, we are going to start the Q&A session when further instructions will be provided. [Operator Instructions] We would like to inform you that this conference call is being recorded and simultaneously translated into English. Before moving on, we would like to let you know that any statements made during this conference call relative to the company's business outlook, projections, operating and financial goals are based on SIMPAR's management's beliefs and assumptions, and rely on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions, since they refer to future events and therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect the company's future results and lead to results that will materially differ from those in the forward-looking statements. Now, we are going to turn the call to Mr. Fernando Simoes. Please, Mr. Simoes, you may go on.

Good morning, everyone. We are starting the release of SIMPAR's earnings. On behalf of more than 45,000 direct employees, we would like to thank you for joining us. Starting on Page 2, we talk about the main financial highlights for 2Q'23. Strong operating performance in subsidiaries with record revenue and EBITDA, a record EBITDA of BRL 2.3 billion in the second quarter, which means an increase of 33% compared to the same period last year. Here still on Page 2, below, we have the main numbers and the variation of these numbers compared to the same period last year. Gross revenues in the second quarter '23 was BRL 8.4 billion. Annualized, it would be BRL 33.6 billion. That means an increase of 42% when comparing the BRL 8.4 billion over the same period last year. Net revenue of BRL 6 billion, which is an increase of 46%; and EBITDA, as already mentioned, above BRL 2.3 billion, with net income of BRL 100 million, a reduction of 53%. A capital structure and leverage with 3.5x, But it normalized would be 3.4x. We had net capital expenditures of BRL 580 million, a reduction of 84% over the same period last year. That shows that our growth in revenue, our growth in EBITDA with a lower CapEx means that we are enjoying all the investments that were made in CapEx last year. Remember that not all of them are already in operation, the CapEx invested last year, and not all of them generate results in revenue and EBITDA. That will yet come in the next quarters, which means that you can see lower CapEx in the next quarters, but higher revenue creation, better EBITDA, given gains in scale and optimization of resources. Return on invested capital, 30.3%, an increase of 16.5 percentage points, normalized 13.2%. Now I'm going to Page 3 in which I talk a bit about our positioning. We developed and created solid foundations in our businesses, leading to a new level for the creation of long-term debt without creating expectations, but inviting you to think about this. After these 3 years, the building of these spaces and a potential drop in interest with all CapEx executed, implemented and parts that is still in operation with everything that we have to do based on already built, developed foundations, we believe in a result of profitability and profits, that is really differentiated in the near future. And remember, with all this, with people that are committed, with strong culture and values, which was crucial not only for our transformation, but also for the development to the new cycle with business sentiments, with major resilience, and the results of this you see on Page 3 to the right with a bit of the last 12 months, the transformation of the second quarter '23 compared to the third quarter of 2020, reminding that without the implementation of all our inventory assets, without the revenue of the last 12 months, some of them along with the last quarter, the 2 last quarters. So without creating expectations, I invite you to think about the potential of transformation, not only of our operating results, but also future profit. Now on Page 4, we talk about JSL and I'd like to bring you some highlights. JSL has had consistent evolution through organic growth, but also extremely strategic acquisitions with major potential to grow. All of them in markets of great resilience and alliances and logistics services within the main industries and sectors in Brazil. Food, automotive, commodity, this is what brings major resilience and potential for growth. You can see that the acquired companies grew more than 22% a year after acquisition. JSL Logistic itself grew more than 13% in the last 3 years. Year-to-date, that is growth of more than 25% a year from 2020 to 2023, this thanks to strategic services and alliances with the major customers and sectors of resilience, as I said. That shows that sometimes you have an acquisition with an EBITDA multiple of 4x, and with a growth of 2 years the multiple becomes 3x. So, it is continuous and consistent value creation, and it's even clear when you see on the same page on the right that we had an EBITDA of 2020 of BRL 432 million and EBITDA the last 12 months of the second quarter '23 is BRL 1.283 billion, which means growth in EBITDA of 197% in the last 3 years whereas revenues grew 137%. That shows gains in scale, synergies after acquisitions and a scale that brings a reduction in the cost of main inputs and improved margins. And what's more interesting, in a market that is still fragmented with huge potential to grow and that the main industries weren't companies that are reliable to them, and the companies that have the opportunity to grow are not structured to transform and seek to be bought by a fair value, which contributes even further to a potential of transformation to shareholders. On Page 5 we talk about Movida. Movida started a new cycle of development. And its priorities now are the mission of its excellence and operational efficiency. In the second quarter '23, you see in Movida's main numbers the beginning of this transformation. But I would say that it's so an incipient sight, you know that this was already planned in Movida to start changing the fleet mix. Remember that it was part of our plan to buy more expensive cars. With that, we rented cars with an upgrade to customers. They pay for less and received more. It was what we had available to buy. But with the automotive industry already normalized, you have cheaper cars to buy. So, Movida is changing its fleet mix. It will keep or improve its revenues and daily rates. The change brings an improvement in yield, but more than that, you have more fleet availability, because cheaper cars have less maintenance, less services. The cost of services is cheaper than more expensive cars. So, you're going to see better results in the coming quarters. And also, remember that the cars that are being bought today, in 12 months to 18 months are going to be easier to sell, which should create even more value to the company. But you see, with less cars in '23 than we had in '22, we have been increasing revenues. And we have a growth in the generation of EBITDA through services and less dependent on the sale of used cars. In the second quarter '22, 23% of EBITDA came from used car sales. In the second quarter of '23, it is only 11% from the sale of used cars. But the total EBITDA is almost the same, BRL 890 million against BRL 905 million. That shows transformation and EBITDA creation coming from services and not used car sales. Still on Page 5 with Movida, you see the size of the company and its transformation. From 2017 to '20, the company grew more than 50%. But from 2020 to '23, in line with our plans and the excellent work that was performed, the company went from 118,000 cars to 204,000 cars. It was growth of more than 70%. And still on the same page, you have in the bottom this comparison since the IPO. The net revenue of the company in '17 to '23 grew BRL 330 million and EBITDA grew 988%. That shows the capacity of our teams to execute and create value and deliver. Remember that from [indiscernible] in this new cycle, we don't have the need to expand and hire. The company is ready with solid foundations. And from now on, we are going to focus on efficiency, improved returns, more creation of value to shareholders and more customer loyalty. On Page 6, we talk about the main highlights of Vamos. Vamos has had continuous increasing scale, operating excellence and focus on the execution of its strategic plans, ensuring growth and sustainable development. The company's net revenue grew in the last 3 years almost 50%, going from BRL 824 million to BRL 2.737 billion in the last 12 months in rental alone, which shows growth of 49% a year in recent years. We had net revenue from dealerships with growth also in the last 3 years of more than 75%, with revenue in the last 12 months of BRL 3.673 billion, also a transformation with the dealership segment. Of that, with a unique ecosystem buying, selling, renting, buying and selling used assets. And here you have some of the main highlights, which is the company's backlog growth. More than revenue, backlog has transformed. We have more than BRL 16 billion. The deployed CapEx in the 6 months of 2023 was BRL 2.4 billion, which increases even further our backlog. And we still have this strategic inventory of Euro V trucks that has been paid using debt, but has not yet translated into revenue, which even contributes better numbers. And to close, when we compare the company at the IPO in 2020 to '23, you'll have a transformation of 290% in net revenues and EBIT of 283%. Remember that we had growth in dealership with generally lower EBITDA but still following the growth in revenue, closing the last 12 months with BRL 2.440 billion and net income of BRL 680 million, which shows the transformation of the company and others, but more important in a segment of huge opportunities, continued development in the future, which is the rental of trucks, machinery and equipment without services. Now, we are going to go Page 7 where we talk about some of the main numbers of Automob, which is the dealership network we have developed, consolidated and is today one of the largest networks of cars and light vehicles, 91 stores, 18 cities, 26 brands. We have built one of the largest groups of dealerships in the country with a diversified portfolio of premium and economic brands, but also in several regions in the country, with a unique positioning and huge opportunities in synergy and different strategies. The company went from BRL 1.2 billion when it was original to BRL 6.3 billion net revenues combined in the last 12 months. We had important growth in the sale of cars in retail, a growth of 33% in the period comparing second Q '23 to second Q '22. And in new vehicle sales, we grew 30%; used car sales, an important growth of 38%. The numbers do not represent in full the growth of the second quarter '23 because of availability. A large part of cars were sold in June but all invoiced in July '23. And therefore, we will only show in the results of the third quarter. We have had extremely strategic complementary strategy, gained scale and significant brands as the last move with Toyota where we acquired depending on the consent of the OEM and CADE the region of Guarulhos in the east side of Sao Paulo, the largest region in Sao Paulo to be representative of Toyota brand. We are very proud of this and we have already had a share in that. We are further increasing the share and relationship with such an important OEM as Toyota. And we have the transformation we show on Page 7 to your right in numbers, comparing 2021 to the last 12 months '23. We grew in retail sales 289%, going from 2 months to 26 months, 14 stores to 91 stores, and increasing revenues from BRL 732 million to BRL 6.073 billion net revenues; EBITDA of BRL 350 million, that is a 6% EBITDA margin. Without creating expectations, we are still at a very incipient mood, being able to collect synergies of all companies. In all our mergers, we have been paying attention to people, keeping in management, efficiency of sales and consolidating administrative areas in a surgical way. But the potential for F&I complementary sales, increase of sales per unit is so incipient and you're going to see in the future better synergies and margins. Now on Page 8, we talk a bit about CS Infra. We have a port. The port offer up to 12 and 18 the concession we won. It's just pre-operational based on investments made, but you still see the strength of our revenue of BRL 50 million in the second quarter, and we had expected a lot less when we took part in a bid. We are refurbishing, transforming and rebuilding warehousing, but the port continues to develop, generating revenues above expected and creating with customers and prospects a long-term commercial alliance, consistent numbers. Still, I believe, it's pre-operational, but in a market that has a huge potential to grow. The port will be in full operations in the second half of 2025. Now on Page 9, we talk a bit about the Piaui highway, Transcerrados. This is a completely pre-operational company being developed, but already with 2 toll plazas. Work is ongoing and should also be in full operations according to our plan as of the second quarter 2024. On Page 10, we talk a bit about Ciclus. We have the largest waste treatment center in Brazil, one of the largest in the world. We receive more than 290,000 tons waste per month. Today, we sell 1.8 megawatts of energy in [ Light's ] network. We have a potential of 8.4 megawatts after the implementation of modern generators. We have the BRT Sorocaba completed in December 2023, fully operational; and we have the concession of CS Mobi, which is the building of up 120 retail stores, 500 parking places, but together with that, we have the concession of the all parking areas in the city of Cuiaba urban assets in concession with a vocation in the provision of service, which is our focus, less CapEx, more services, create some value on to customers, resilient revenues and sustainable value to our shareholders without ever impacting in a negative way the other mobility businesses that we have. On Page 11, we have CS Brasil, our fleet outsourcing with drivers in public and mixed ownership companies, a company that grew 17% in 2022. For the second quarter '23 annualized, we reached BRL 316 million in net revenues from services. We sold the Consorcio Sorocaba. We kept the BRT but we are no longer providing urban transportation services in the city of Sorocaba. On Page 12, we have BBC, our bank. Remember that it is part of our ecosystem. It is part of the financing of our cars, trucks and trailers, and it is business that is complementary to ours, both thus contributing to the development of our ecosystem and credit origination. You see growth of 28% in the second quarter, BRL 469 million in the last 12 months, year-to-date second quarter '23, a portfolio that grew 23%, closing the second quarter with a credit portfolio of BRL 570 million in the second quarter '23. The hard line is that the financial intermediation revenues BRL 28 million, an increase of 85%; a funding balance of BRL 514 million, an increase of 118% and a base of index of 16.4%. This is a bank that is extremely focused on SIMPAR's ecosystem, with a huge potential to growth, without affecting the other business but rather in a complementary manner. And as of the next quarters, we are going to see it breakeven and more and more its sustainable development. On Page 13, I'm going to turn to Denys, that is going to talk about the main financial highlights of our company's consolidated numbers. Denys?

Thanks, Fernando. Good morning everyone. On Page 13, I talk about the financial highlights consolidated numbers. To the left, net revenues in the second quarter '23 totaled BRL 7.564 billion, an increase of 40% compared to the same period last year. Year-to-date, we are very close to BRL 30 billion, BRL 29.168 billion when we talk about the last 12 months. And compared to the full year of '22, this is already an increase of 21%. To the right, we talk about EBITDA. In the second quarter, EBITDA also had a strong increase compared to the same period, 33% up, totally BRL 2.267 billion. When compared to the last 12 months ended in June 30 this year, the total EBITDA is BRL 8 billion, an increase of 14% compared to the total of the year '22. A brief comment here, the EBITDA used for our covenant has the benefit of the last 12 months of EBITDA of the acquired company. So, this number of BRL 8 billion would be a total of BRL 8.254 billion when we add this part, that is still not translated into results. EBIT amounted to in the second quarter BRL 1.6 billion, also strong growth compared to the same period last year, 23%, and year-to-date in the last 12 months it amounts to BRL 5.6 billion, an increase of almost 10% when compared to the 12 months of '22. To conclude, net income in the second quarter, we had a BRL 100 million. This is a significant decrease compared to the number presented in the same period last year. And there are some implied factors here; the increase in interest rates that we had in the period which has just started reversal cycle apparently, if you think of the future interest rates curve. A new phase of Movida that after considerable growth in the last 12 months ended December '22 now is going through a period of resizing. That should prepare it for better returns as of the year of '24. On a positive side, we had a one-off contribution this quarter, irrelevant of our M&A activities that has been extremely important to create value for the group. As for numbers year-to-date, in the last 12 months we had, as a result of this effect, a total of BRL 576 million in the last 12 months comparable to the number of BRL 541 million of '22, a drop also explained by the same impacts that I mentioned in the quarter. On Slide 14, we talk a bit about our consolidated cash position. Here, you have the schedule of our indebtedness consolidated that is quite long with an average maturity of 5.1 years, for that, a coverage ratio of short-term debt of more than 3x or basically which is equivalent to a coverage until the year of '25. Liquidity position quite strong, BRL 14 billion, when we see revolving credit lines, the company cash and the actions that were completed after the end of the quarter. With that, net indebtedness of the group reached BRL 31.5 billion or closer to BRL 30 billion, if we consider them as follow-on that was settled 3 days after the end of the second quarter. The next slide has the same topic, but now we're just focused on the holding, the company's financial position. Top left we show that the debt amortization schedule is very long concentrated in 2031 and the company also has a strong liquidity, approximately BRL 3.2 billion, when we have the company cash and terms follow-on, as I mentioned in the previous slide. With that, the holding's net debt closes the quarter at BRL 4 billion. And if we include the benefit of the follow-on, it would be BRL 3.6 billion. It is indebtedness with an average maturity of 7.5 years, a coverage of short-term debt of 4x and covering all payments until 2030. Also worth mentioning, to your right, is that we have been quoting net indebtedness compared to value that is created. So, the value created so far measured by the stake that we have in our subsidiaries, altogether this has more than 3x the amount of our net indebtedness. With that, I'm going to Slide 16. Here, we are showing again that the market value of our assets is approximately BRL 40 billion, which gives us comfort compared to the net indebtedness of our subsidiaries. These assets are in our operating companies. So, we have a 1.4x coverage. And the quality of assets continues extremely healthy, with an extremely liquid secondary market. Since 79% are vehicles that are on average 1.5 year old and 16% trucks that are on average 2.7 years old, that is 85% of everything we have is extremely liquid and can be considered as an option for liquidity, if necessary and as demonstrated in other adverse periods in Brazil. The next slide, 17, talks a bit about CapEx. Our capital expenditure in the second quarter, net CapEx, that is purchases less sales, reached BRL 580 million. This is way below what we invested in the same period last year. In the first half of '23, we had net CapEx of BRL 870 million, in the half-year. That compared to approximately BRL 6 billion in the first half of last year, which is explained by some strategic moves, including the early purchase of equipment, especially in the case of Vamos, but also for logistics and also this new momentum in the rental car operation, specifically Movida, that after substantial growth delivered in 24 months ended December '22 is now through a period to improve operations and resize its asset base, so that in 2024 we can deliver a return on capital invested that is way higher than what we have today and that is part of our plan. Going on to the next slide, we here brought to you a comparison to previous years. What we see on this slide is basically the behavior of our net income along the years, starting in 2013, compared to the return on capital invested delivered by the group in several points of time, compared to the average Selic of each year. What we see now amid 2023 is very similar to the inflection period started in the end of '16. So, in the years '14, '15, '16 or '15, '16, '17, we had recession in Brazil because of an increased interest rate, and with specificities in the group that we were in the period of building the foundations of several of the companies we are now enjoying, specifically Movida and Vamos as well as the second most important investment. It's important to highlight because the average Selic in '16 was about 14% and our return on capital invested was 8.7%, precisely because we were building the foundations. We did not have any maturity in returns. It is a fact that the group, because of the characteristic of its investments, is never operating at full capacity, because it takes us 12 months, even 15 months to fully enjoy our cash flow and then calculate the result of the year. But at that point, you have a much higher volume compared to the size of the group in terms of investment to build the 2 companies. So, we saw an inflection of interest rates as of 2016, that also made us start maturing our returns. We had a relevant expansion of profit with the turmoil in 2020, but still an expansion, and then in the recent past we had again an increase in interest rate that seems to have reached its peak and now we are again witnessing an inflation. The thing that I wanted to draw your attention to is that the level of return on capital investment of the company normalized number is much higher. We are talking about 5 percentage points higher than what we had in 2016. And looking forward, we bring you an exercise of what a reduction of 1 percentage point in interest rates would mean when applied to the debt of the end of the second quarter. So, for each 1 percentage point, we would have a lower financial expense of about BRL 310 million. So given future interest rates curves, if this is confirmed, we are going to have a year of '24 very strong, again added to the new level of return that we expect to deliver in the case of the rental car business, specifically Movida. All that said, I would like to go to the next page where we show a bit of our leverage that we have been seeking to reduce since 2016. In 2022, it was a bit above what we expected, but partially explained by the early purchases of assets, strategic purchases, extremely beneficial to the group, given all the commercial conditions, changes in the profile of our assets that took place in the year of '23 and that we have already talked about. So here, we show there to with an average Selic of 13.8% in the second quarter, we had consolidated leverage measured by net-debt-to-EBITDA ratio of our covenants of 3.7. And here, we can apply some items to normalize the numbers and try to identify what the leverage would be in optimal circumstances, so what are the adjustments that we made that leads us to a lower leverage of 3.4. We adjusted indebtedness with the non-recurring early purchase that I mentioned for Vamos. We also made an adjustment based on Vamos follow-on which was settled 3 days after the close of June. All that combined, we show a leverage ratio that we call normalized of 3.4, which is lower the close of '22 and in line of what we had in '21. Now my last slide before turning back to Fernando. I'd like to draw your attention that our return on capital invested measured in the last 12 months was 13.2 percentage points, which is approximately 3 percentage points above the cost of the group's gross debt after taxes, but that compared to the previous year is 1.3 percentage points lower. Therefore, it's important to contextualize the circumstances. '22 had the benefit of non-recurring gains in the sale of used assets because of all the inflation that we witnessed. In '23, we are making operating adjustments in [indiscernible] to seek efficiency to adjust its mix, which gives us the confidence to believe that in '24, even with a low interest rate scenario, we can improve the return on capital invested. With that, I'm going to turn it back to Fernando. Fernando?

Thank you, Denys. On Page 21, after the building of all the foundations of our business, we have been focused on discipline in capital allocation, execution of strategic plans, focused on the long term to create value to shareholders and development that is sustainable for longer businesses. We have contributed to the development of our company, in the execution of their strategic plans, with constant evolution in operational efficiency, deliveries of quality, maximizing the values of existing assets and optimizing resources and investments made, and focus on operating excellence. Right now, we have our infrastructure and operating foundations built and now it's time to enjoy that, be it through acquisitions, gaining of scale, synergy between businesses and organic growth. The result certainly is going to be better returns and continuous value creation in the long term. Our team is the major asset of our business, our people aligned to our values, culture, not only to meet customer needs but anticipating the needs of our customers, that makes our relations and commercial license to be stronger, better and long term. We have a solid capital structure, strong cash, long maturity terms and disciplined implants. That gives us a balancing leverage, but we're also focused on reducing our debt and we want in a short period of time to reduce or zero the debt at our holding. That's part of our plan. We are committed with ESG practices aligned with the company strategy, expanding their capacity to position before emerging social environment challenges and for the sustainable development of our business and the society in which we are inserted, especially with our customers. We'll now open to your questions so that we can answer any of your questions. And I'd like to thank you very much for joining us today. Thank you.

[Operator Instructions] Our first question comes from Guilherme Mendes, JPMorgan.

Two questions. One, OEMs, a follow-up about what you mentioned. I would like to know negotiations for the second half of the year with OEMs for light and heavy vehicles. I see that with Movida you are a bit more conservative for growth. Since you're also waiting a bit in Vamos. So, I would like to know conditions, availability for purchases in the fourth quarter of the year. Second question about your portfolio, in recent years, you have a very consistent strategy. Are you considering selling any strategic assets or some move in this regard?

Good morning, everyone. This is Fernando speaking. How are you? Well, purchase of assets, it's important to say, I think that we have mentioned that, but anyway, I think this strategy of Movida proved to be very assertive. Remember, Vamos had very robust negotiations from '21 to '22. We had some acquisitions, bought more than expected. And with that, we started '23 with huge inventory and diversification of assets, at a purchase price that was quite different, which offset an increase in interest rates because of the good prices paid for it. So, I think this was very important. Another point in Vamos, the company was assertive, it waited for the first half of the year and now it's starting to negotiate with OEMs for the year of '24 and even '25. So, we don't have the pressure to buy because we have inventory and we are working strategically, and we are waiting for the movement. And we were assertive, why, because the market went down and the OEMs are revisiting prices and payment terms. And we believe that we are going to have very favorable conditions further here about heavy assets. I think that is really pickup. The sale of trucks and machinery is something funny. People postpone, but for a month, 6 months, even a year, but they do not fail to buy. It's different from individuals that they can decide not to change cars. Machinery trucks, to be productive they have to invest. So, the business is picking up and I think Vamos will have good opportunities. Talking about light vehicles, it is part of Movida's strategy to change its mix. We made it very clear. Movida bought cars, this is what we had to buy, 1.5 years, 2 years ago, and we brought important customers. But in the end of last year, Movida also had a bigger purchase at better prices and it is now selling these cars. And the idea is again to change the mix, resize the fleet to have better yield, better return, lower service costs. All that said, in the second half of the year, I think Movida is going to have lots of opportunities to negotiate with OEMs. It's important that OEMs make money and have results, but certainly some discounts are showing even with levels before the pandemic for '23, '24 and some of them even discussing discounts and terms for '25, which will help with our turnover, return and yields. So, the movement was very strategic, was very assertive, both Movida and Vamos light and heavy vehicles. M&As, we have opportunities to continue with the process. Automob has huge opportunities, logistics with JSL as well. JSL is having very strategic M&As that have contributed to its results. And we haven't even started, it's still very incipient, even better. As for divestiture, we don't rule out the possibility of perhaps generating liquidity by selling or divesting in an asset. This is part of our strategy, of our plan. It may happen, but it's not something that is our focus right now. It may happen. But again, M&A, consolidation, opportunities to grow, are much higher and we are going to look into what can create more value to shareholders and that can create more return in the long term. And that's it.

Our next question comes from Victor Mizusaki from Bradesco BBI.

Congratulations on your results. I have 2 questions. The first, I think they're a bit connected, but Fernando, thinking of the recycling of your portfolio, as Denys mentioned, you had Vamos follow-on, you sold stake in Consorcio Sorocaba. So, my first question is if you could talk a bit about what is your plan for the holding debt, if your plan is really to bring that debt to zero, what is the trend and if you see any subsidiary that perhaps still needs the holding support and this is not going to happen so fast? And with regards to that on Slide 18, if I'm not mistaken, Denys shows the historical investment of the Group compared to interest rate. If you take a look, SIMPAR decelerated the pace of growth. In -- for the future, should we do expect a lower interest rate scenario but differently from what we saw the past, a pace of growth that is a smaller but with strong cash creation? Is that correct?

Okay, I was trying to take notes. I think you asked like 3 or 4 questions. But if I forget something just let me know. First of all, SIMPAR's position today, well, tomorrow you can see some divestiture but you can also have someone that has a stake in the Port Aratu, for instance 2018, we are very positively surprised, even as a pre-operational asset. We might have a relevant shareholder in Ciclus, one of the largest waste treatment centers of the world. So, it's not only divestiture. You can have a stake that contributed to oxygenate the company, improve return and even make more investments in the activity. So, this is part of our plan. As a follow-on, you know, if it is for the good of the company, it's okay. It's not something that we are looking into. But the development of our business, thank God, has been so good, the opportunities are so huge, that at the right time the Board of Directors should assess alternatives. But it can be what you said. Now decreasing interest rates, if they go down faster, you know that the value of our assets is also transformed. You know, we have high quality assets and we have always alternatives. When you talk about the holding debt, and as a shareholder and member of the Board, our strategy is to decrease the debt and with no rush zero the debt. This is our strategic plan. Now, when and how, it has to be the best way possible, creating value to shareholders in the business, no rush at all. When you see the subsidiaries, Victor, we do not see any of our companies needing investments of the holding for their continuous growth, cash generation, everything, and all of them, for instance, Vamos that is even a clear case, you don't even half the assets that have already been paid for in operations. So, you see the debt, but you don't see revenue. So, all of them are quite independent and are perfectly able to develop without compromising their capital structure. As for investments, you'll see that they are lower, but they are lower because we had to loads of early purchase last year. Now, we are enjoying implementation. And you are certainly right, you can see growth of revenues and returns with less CapEx because the foundations are built, are installed. It's not only for certain stores, dealerships, people. What we did in the last 5 years, 6 years, we were building, hiring, making mistakes, getting it right and we worked a lot. But we're past that, we are at a different level of development, a different momentum, less CapEx, better returns and more revenues. I don't know, Denys, if I missed anything.

No, I think you covered everything, Fernando. But, Victor, indeed, the effort of CapEx when you are building the foundations is endless. From now on, I believe that cash generation compared to CapEx is going to be very different and a lot more positive, just to enjoy the opportunity. If you have the projects of CS Infra, they already have funding that is very competitive, long-term, assured to support the investments that we have for these 2 assets. We had an initial contribution, that's done. From now on, it is something that has already been raised. And as Fernando mentioned, we do not see the need to support our subsidiaries in terms of investments from SIMPAR.

Our next question comes from Luiz Capistrano from Itau BBA.

Congratulations on your results and thanks for taking my question. I'd like you to mention a bit about the tax reform. What do you see about the current proposal we have at the house? We see there are several variables. I understand the limitations of the topic. But what do you have in terms of visibility in the impact for vehicle prices? Do you think that the OEMs are going to have a lesser tax burden and that could translate in better prices and close negotiations that sometimes are hard to occur because of prices, so thinking a bit about your opinion on the tax reform. And an additional topics too about the industry, we saw Chinese cars, new products generating an impact of other players decreasing prices for electric cars. Do you think we're going to have an impact on prices or cars driven on fuel a BRL 100,000 to BRL 200,000 that may decrease also prices, or is it too soon? These were my questions.

Hello, Luiz, this is Fernando. Okay, first, the automotive industry with a tax reform at the market as a whole, I think that you'll have a draft that was sent to Senate, but this is going to be way revisited, some changes may happen. And you see that taxes are going to be easier, so it seems. But looking at the reform as it is, our tax people looking at it, we do not see a drop in prices because of a decrease in taxes. This is not what we see. What we see is that it's going to be easier to pay taxes, which already helps us a lot. This is one thing. When you talk about a drop in prices to sell more for more turnover, I think that has to do with interest rates, but it has to do with credit, it has to be to generation of job in the country. It's not only the price per se, because the car is a cycle. For you to have someone buying a car that is 7 years old, they have to sell their 10-year-old; 7, they have to sell the 4; 4, they have to sell, you know, so it's not only a matter of prices, this is how we see the market, and I think the tax reform is a bit too soon. I think it has to go through the Senate for us to understand what the guideline is going to be. Prices of electric cars, indeed it is going down faster than what we expected and so we are talking about cars that are above BRL 200,000, they are not close to BRL 100,000. Now, there's one of BRL 150,000 something, but with the BRL 150,000 it is still 60% above an economic car. And the problem with electric cars, I think that they are here to stay, but you know, perhaps, you know, if you're talking about BRL 200,000, it's okay, but if you're talking about people that need to use the car, you have to charge the car, where you're going to charge the car. So, I do not see it as a significant market. I see it in the market share of BRL 200,000 plus, but not in the market as a whole. I don't know if I missed anything. Denys, if you want to add something, but that's it.

No, that's great, Fernando.

Our next question comes from Matheus Sant'Anna from XP.

I have just one question. Thinking of the government incentive program, you have, I know, several variables in your operation in heavy vehicles, light vehicles. You have Movida's used cars. You talked a bit about that in the release. I would like you to give us color on the final balance of the program. I know that the light vehicles is already close, but also for the heavy vehicles I would like you to comment on the ups and downs of the program.

I'm sorry, we had a bit of an interference. You asked what you thought are the up-downs of the government program?

Yes, a final balance of the program.

Okay, let's go. Okay, Matheus, my opinion, in automotive, this is for individuals, cheaper cars and up to BRL 100,000 something, so I think the advertising brought flows to the stores, so it helped, but it did not solve the problem, because when people bought the car at discount they also had to sell the car at that discount. Legal entities were not included. And I'm not talking about rent-a-car companies, a company that has 4 cars to 6 cars could not join the program. So, it was a program that was more specific for individuals and because you have more difficult credit, it did not have much impact on cars. It did bring more people to the stores and that was good, but not exactly because of the government plan. And the OEM inventory, at the end of the program, were higher than in the beginning of the program. So, the production was higher. The sales were lower. That's about light vehicles. When you talk about trucks, then it is a different story. I think the government almost simulated what an ideal program would be, and no one had done that before, that is to have the opportunity of buying a car that is more than 20 years old, dispose of this truck with a credit and I think this is extremely important, not because the credit is going to be a huge profit, but because it gives truckers, independent drivers that have a truck of 40 years old, which is a terrible thing. They don't have filters of motors, the cabin is hard, you generate accidents, you pollute, it can kill people. So, I think it was an important program, it was incipient, but that will show that this channel to renew the fleet can contribute to the life of drivers, more productivity, less pollution. So, it's just going to be beneficial for the whole of society. So, I think that for heavy vehicles, it can be good. And if what I say can be proven, can become an effective program, not only Brazil but for the whole of the world.

Our next question comes from [ Luiz Muse ] from Banco Safra.

I'd like to explore a bit your long-term plans for CS Infra and if you should continue to compete in small, mid-sized concessions, what is our strategy to expand this operation?

Luiz, this is Fernando speaking. Yes, in our strategy, we are looking into small, mid-sized concessions that do not compromise our capital structure, whose vocation is more on services which returns compatible to what we have in our plants. And then you can see, the one-off operations going on. Governments in general are seeking to be more competitive in concessions with a focus on services to improve the lives of people, and this is exactly what we are looking into and have made investments in. This is how we see CS Infra, almost holding of several operating companies with fair return and focus on services.

Our next question comes from Jose Eduardo Daronco from Suno Research.

On my side, I just have a follow-up on leverage. We saw that Movida just closed this year several initiatives to reduce the cost of debt. I'd like to understand if on your side on the holding side we should see similar movements as we saw in Movida to reduce the cost of that eventually using the proceeds from Vamos follow-on?

Daronco, Denys is here. Yes, I think I had said that last quarter, it is true that now with all this positive move with the outlook for Brazil, that has giving us room to manage our liabilities better, but we are going to continue seeking that, yes.

Our next questions will come from the web. Well, as usual, I'm going to read some of the questions that were posted on the webcast. I have a list of questions coming from [ Hafiel ]. Hafiel, thanks for your questions. Okay, first question, company's comparable to you have a higher payout. Do you want to increase your payout?

I'm going to leave it to Fernando because this is a decision of the Board of Directors and Controller. But the strategy to reduce the holding's net indebtedness will certainly enable us to have more in the payout of dividends to shareholders. Now, the decision to change pace and intensity is on the Board. Fernando, I don't know if you would like to add something to that.

No, that's what it is. It is fast. We have commitment to the power companies. We can have a higher payout or a payout more regular. This strategy [indiscernible] to extend to other regions of the country. If I understood your question, you want to know if we are going to focus in Brazil as a whole or focus in some regions. Okay, our M&A is assessing business all the time. The last acquisition that we had, it was Toyota Guarulhos with the east side that is depending on the approvals of OEMs and CADE. Well, today, we already have some [indiscernible] so you have Toyota inside, which is the largest population in Sao Paulo, it is that region, and we have that dealership there. So, it's is extremely complementary to our business. In [indiscernible] today, we have more than 11 brands operating in the capital of the states. So, you have to have a rationale to go somewhere, not only the brand and the region, it's a combo of things that are assessed, that can bring scale, F&I opportunities and better results. And this is what we are doing with automotive. We want a different positioning in brands, regions, but it's not any region and it's not any brand.

Another question is, you mentioned that you had positive surprises this quarter with the ports. Can you give us a bit more color?

Ports 12 and 18, we expect about [ BRL 60 million, BRL 70 million ] in pre-operating phase, BRL [indiscernible] million a year in revenue. In the second quarter, we had BRL 50 million, in the second quarter alone, the last month BRL 20 million. So, that was the surprise. Again, they are pre-operational and our projection, when they are in full operation they are going to be a lot higher, but again the second half of '25. But we're are not looking in other port businesses, but we are very pleased, and why, because the supply is small and the demand is huge, especially for the agri business in Bahia. So, it's a huge opportunity.

Next question, you said that CapEx takes about 90 days to generate results. Is last year's CapEx already reflecting on the results since it's been six months? If not, when is it going to show?

Okay, Hafiel, what we have mentioned during the conference call in the introduction and even before that, there was a movement of early purchases, because of better commercial terms and the moment we are going through, at the turn of the year that was reflected in Vamos with a higher portion of that and at JSL. And now, we are going to continue following with our volume of quarterly allocation of these investments. So, it's a very specific situation that happened because of the time of the market and the early purchases.

Fernando, just to add to that, in addition to what happened being part of our strategy, you have JSL's logistics, that when it invests in CapEx, you have pre-operating costs, you have to train labor, you'll have to set up the business, and so it generates revenues. And remember, it starts to generate revenues but then it takes 15 months to 18 months for you to have the effect of the full year of deployed CapEx. So, this is the curve that we have. This is how we see results in full. And that's why we say that the company of the future is going to be much bigger with CapEx already invested and settled.

There's a question coming from Thiago now. Is it possible for us to give us some light in gross CapEx for the companies that are not public?

Well, Thiago, yes, Brazil gross CapEx BRL 45 million, more sales than purchases, so net CapEx was negative [ BRL 64 billion ] because, remember that at CS Brasil, you have contracts that were not able to be migrated when we had the merger CS Frotas into Movida approved by the minority shareholders and the best governance practices and these contracts are coming to end. That's why we had more sales than purchases. Automob improved facilities, expansions, we invested about BRL 96 million and net CapEx BRL 41 million. Here, we have this line of CapEx. And CS Infra, I'll give you year-to-date numbers. First is ports and highways, not this quarter, but so far we have invested BRL 180 million. And here, I'm going to enjoy opportunity because people ask me if the allocation is within expected and I would say, this is in line with what we had estimated, No deviations whatsoever, things are going as expected. Fernando, I don't know if you want to add something to that?

No.

We have our final question coming from Karolina. Good morning. My question is about the holding's rationale in terms of keeping control over its subsidiaries. Can we see other boxes under the holding and if so, in what areas?

Okay, we have a portfolio with an ecosystem in which we have the visibility of each company, CEOs, CFOs, completely independent regardless of different shareholders. The companies are separated and they're going to continue being like this. We truly believe in our ecosystem, without having to look into the business of others. We are focused on our business. All of them have the possibility of better returns, resilient. So, this is our focus. In terms of control, yes, it is in part of the strategy to have business in which we can have focus on management, with defined governance and agility of execution, we can take fast movements without losing our culture and foundations. We want to innovate, but our principles are something that we believe in and contributes to us in a sustainable manner. But we don't have to have more than a 50% stake. You can have less than 40% stake. You can have an alliance with someone. We've always been open to that. It has not happened, but if it is for the benefit of the company and for better results, if it is for us not to lose our characteristics, we're going to go for that.

I'm sorry, the company came from Pedro and not Karolina, I'm sorry. With that, we close our Q&A session. Fernando?

Well, on behalf of more than 45,000 direct employees in SIMPAR Group, I'd like to thank you very much for your attention. We have more than 180 people joining. Thank you. I'd like just to give you some takeaway messages before we go. I don't want you know to make statements, but this is how I see the business. At the end of '17 when we had the last cycle of increased interest rates, we left stronger than we started. And now, in '23, and you can talk about the triennium and you have a page showing these last 3 years and how the company developed and how we increased our EBIT, you see that today, we are stronger with governance, returns, extremely structured companies and people for a new cycle. And you see that we have CapEx more than 95% invested in machinery, trucks, cars. Most of it has not yet translated into revenue. Fourth quarter last year, we invested BRL 4.8 billion, you haven't seen the deployment of that in JSL, in Vamos, Movida. So, this is yet to show. You have depreciation. I don't say it is conservative, but gives us the comfort and it is conservative considering the price of assets and the way they're transforming. We are well positioned in the markets in which we operate, industries of great resilience. And in food, automotive, mobility, you have the need for our services and lots of things to generate value, the ports that we mentioned in this call, Transcerrados highway, things that are yet to come, you had scale that was built. More and more we have been selective in allocating capital, and our relationship with OEMs, that has always been important but even more so today to be together, develop together with commercial alliances and preferred suppliers and customers. So, this is what I would like to draw your attention to. We are now at a very different moment. Our company is prepared to grow with sustainability, operating foundations built, Movida stores, Vamos dealerships, et cetera, CapEx invested, settled for us to see returns from now on. On JSL Logistics, the transformation of this company, if you annualize revenues, it's close to BRL 10 billion. Six strategic purchases and still incipient. And Automob as well, the synergies that we can still to capture, so there was never a company this size in Brazil and we are doing that without integration risk. You have been following that. Administrative, financial areas are separate, the owner of the businesses stay and we consolidate the results of JSL. A very positive move of the way of having acquisitions and integration. Automob is a company that is growing. You're going to see numbers for the second quarter, which are negatively impacted because there are lots of things that were only delivered in July, an important increase of sales of companies that are being acquired by Automob by point of sale, which increases F&I and return. Synergies are huge. So, this is what we have been doing. And I think that for the future, you are going to see that the company does not need further structure, people CapEx, because most of it has is already done, and the transformation of prices in our assets. Leverage, all that said, we believe there is a trend for the leverage to go down, but in our plan the objective is to decrease and zero the holding leverage as soon as possible. Not in a rush, just considering the value of our asset, strategic movements to be stronger in capital structure generating value to our shareholders. All that said, in an environment where interest rates are going to go down and for our business this is going to be even more favorable. This is what I had to share with you. Thank you very much for your attention. And again, I believe that we have a business group going through a new cycle of development in a differentiated manner to reap the fruit and seeds planted in past years, with strong culture and value, and our people. That make a difference. Thank you. Once again, on behalf of our 45,000 employees and our teams, thanks for your attention, your trust. May you be with God, and have a good weekend.

SIMPAR's conference call is now closed. We thank you very much for joining us and wish you a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]