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

Good morning, and welcome to SIMPAR's Conference Call to discuss the Earnings Regarding the Third Quarter 2023. Today, with us, we have Mr. Fernando Simoes, CEO; and Denys Ferrez, Executive Corporate Finance VP and Investor Relations Officer. [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 assumptions and beliefs, 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 be materially differ from those in the forward-looking statements. Now we would like to turn the floor to Mr. Fernando Simoes. Mr. Simoes, you may go on.

Good morning, everyone. We are starting to disclose SIMPAR's Earnings for the Third Quarter of 2020 (sic) [ 2023 ]. I would like to thank all of our more than 47,000 direct employees for their work. They make the real connections to quality and execution of services with our customers. On behalf of our for the 7,000 employees, I'd like to thank our customers for the opportunity to work with us, and all of those were part of our ecosystem and contribute to our development. On Page 2, I'd like to share with you what we've been saying for a few quarters now that we are entering a new cycle of development, which is to take advantage of all this infrastructure CapEx already made and bring it to the operation, therefore, transforming our revenue EBITDA with much less CapEx than what we have had in the last few quarters. This is clear on Page 2, where we show you record gross revenue and the continued transformation of the group's companies. We had gross revenue of BRL 9.3 billion, which means growth of 24% per year. If you analyze the revenue, it would be BRL 37 billion. And net revenue from services alone was BRL 6.7 billion, which is growth of 26% year-on-year, and EBITDA of BRL 2.1 billion, which is up 8% over the same period of the previous year. We had a net loss of BRL 111 million, very much influenced by financial costs, but we and the team have been working very hard to reduce inventories, increase operational efficiency, deploy inventories into operations, turn overall assets quickly with the aim to close this loss as soon as possible. We ended the third quarter '23 with net debt-to-EBITDA ratio of 3.7x. Net CapEx in the third quarter of '23 of BRL 1.9 billion, which is 41% less than the same period last year, which again showed significant drop in capital expenses and increase in revenue and improvement in operating results, as I told you in the beginning. This is all based on pillars and on a management model with values and cultures that ensure the execution of our strategic plans and the strategic plans of our subsidiaries. This is only possible to our diversification in business and segments being within the real economy, growing organically and through acquisitions. And acquisitions made also grow and transform in an organic way. In all the segments, we have our part, not only logistics, which companies of bios have transformed improved the results, but also car dealerships, Automob, our point of sale and transformation of revenue and results have been significant, after acquisitions joining the Automob Group. Our selectivity of investments to enjoy CapEx basis already in place. It's exactly what I said a month ago. In other words, we increasingly have less inventory, reduced inventory, turnover assets quickly, not only deploying more efficiently, but also retiring and selling more quickly and for better value. This is reflected in the optimization of invested capital and operational efficiency. As you're going to see on the next page, the improvement of subsidiaries with less CapEx. This is very much based on solid commercial alliances, not only with our customers, our reason to be, but also with our suppliers who are a sensor for our development, low-cost operational efficiency to offer the serious price to our customers who use our services. We currently have more than 47,000 employees who make a difference in our business group. I would say they are our biggest barrier to entry, efficiency, people that have joined us over time and created truly differentiated teams, focused on customer needs and on return and development in a sustainable way, aligned with values and culture that permeates all our companies. Now moving on to Page 3. JSL is the largest logistics company in Brazil with the largest service portfolio. Even so, it's important to remember, it has a market share of less than 2.5% in an extremely fragmented segment, which gives us great opportunities for consolidation of acquisitions, but also organic growth. Here, we have some of its basic members, which show real transformation from the IPO to the third quarter '23, which ended with BRL 9.4 billion in revenue. EBIT, which was 7% in 2020 was up to 14% in the third quarter '23, ending with an EBIT -- EBIT, I'm sorry, if annualized of BRL 1.115 billion. So on Page 3, which show the transformation of the company's May figures from 2020 to the 12 months ended in the third quarter of '23. This is only possible due to JSL's diversification of service sectors and more particularly, it's team and people connected to customers that are within the real economy. Be it agribusiness, pulp and paper, food, health, which gives the company diversification opportunity for continuous growth and development. It's important to highlight the qualities of the acquired companies, which were acquired in complementary sectors to JSL, which have enjoyed great organic growth at joining our ecosystem, which makes us believe that the greatest development is yet to come due to the great opportunity the sector offers. On Page 4, we talk about Movida. Movida is starting a new development cycle with management very much focused on discipline and operational efficiency, improving its operational and administrative processes, which has contributed to reducing the time it takes to deploy and retire assets. This optimizes capital, improves return and certainly, we believe it will drive profitability. Some of the figures are starting to show. We closed the third quarter with BRL 10.475 billion in revenue, of which BRL 5 billion almost came from the rental of vehicles, from services. When we look at EBITDA, we had EBITDA of BRL 870 million in 3Q '23, now 95% of which came from vehicle rental and only 5% from the sale of used vehicles, which already is back to normal. So this operational efficiency swapped EBITDA from asset sales to services and rentals. When we look at some key features of '17 Movida's IPO, we see the true transformation when compared to the third quarter '23. What I think is important to emphasize is that Movida for many years was building stores, training people, improving processes, giving customers new experiences, which is Movida's great differentiation. It has not only transformed itself, it has contributed to the transformation of the sector, bringing more customers to the rental industry, providing the best services, simplifying relationship with customers making rental easier, this has given us the opportunity to grow and transform. And now with this new cycle, we have all stores built started trains. This undoubtedly lead to extremely sustainable development, better returns with the basis for continued growth and development to improved returns. On Page 5, let's talk about Vamos. Vamos has seen continuous development in scale, operational efficiency, focus on execution of strategic plans, which has reinforced to the resilience of its business model. Vamos in the business of machinery trucks and equipment rental, almost all in 5 year contracts, 85% of which of assets are trucks, 15% are machinery and equipment. It's still an extremely underpenetrated market in Brazil, which use opportunities for growth. Showing that in the last 3 years, the company has grown more than 55% a year, ending with BRL 3.55 billion in net rental revenue. When we talk about dealerships, both agribusiness and trucks, we had a significant downturn comparing '23 to '22. But in September, we start to see -- show signs of recovery. Thanks to the efficiency of Vamos' management. We quickly adjusted and balanced inventory and sought operational efficiency also in dealerships, increasing volume or reducing costs. When we look at Vamos as a whole since its IPO in 2021, we see on Page 5, the transformation of the main figures, whether backlog that went from BRL 3.1 billion in 2020 to BRL 16.8 billion in contracted future revenue. EBITDA of BRL 639 million to BRL 2.574 billion. which shows its ability to execute and transform insights. When we remember everything that has been happening with Vamos, it is ecosystem positioning dealerships used cars network. It has an unique positioning that gives a great opportunity for growth. The company ends '23, adjusting new inventory of new assets that are being deployed and will not only generate more revenue, but also free up cash by having new fewer trucks in its inventory. And also adjusting the dealerships inventory, which due to the reduction is a bit higher, and will be adjusted between now and the end of the year. This leads us to believe that with all that, we'll have more than BRL 1 billion in free cash flow for Vamos, which lead us to believe that we will start '24 with much greater operational efficiency, less inventory and enjoying an even greater scale. And more important than everything that has happened is the company's unique positioning in this new cycle of development with great operational efficiency and consequently, improved returns. On Page 6, we have Automob, a holding that is controlled by SIMPAR, which inside the strategic plans wants to develop and grow the light vehicle dealership business, both organically, but also through consolidation by acquisitions. We had annualized gross revenue of BRL 9.300 billion. We have already become one of the largest light vehicle dealership groups in Brazil, being the one that represents the largest number of brands, already 27 brands in 108 stores, 18 municipalities and 5 states. It seems that we are quite spread by municipality by state. We are consolidating in regions within the states and around some municipalities, which gives us great synergy in management. This transformation, when we look at pre-consolidation times in '21, I'm still on Page 6, you'll see some of its main figures and then compare to the third quarter '23. That is a huge transformation. Now one of the main highlights I'd like to share with you is that, we are very happy with what we have achieved in Automob. But the opportunity in light vehicle dealership business in Brazil is huge. When you reach scale, you have reached -- you have regional synergies, you have a complementarity of brands, high premium end. So we believe in transforming these businesses through our DNA, which is to provide services, building loyalty, bringing more customers to the business. And with this having an organic growth in sales per point of sale. In most of the companies that became part of the Automob system, we have increased the sales by point of sale as much as 40%, whether because of used cars, optimization scales, parts. And we believe that we still have great opportunities to extract synergy and continue growth organically or through acquisitions, creating Brazil, the largest network of light vehicle dealerships in Brazil and giving our customers a different experience in terms of services, how we provide services and build their loyalty, and therefore, synergies and compatible differentiated returns. We are very happy with what we have done with Automob, but we are certain that Brazil offers the opportunity for even greater growth and consolidation in the segment with better returns for shareholders and differentiated services for our customers. On Page 7. We have CS Infra, a holding company controlled by SIMPAR, which has invested and participated in concessions and PPP with the vocation of services, concessions that are mostly in social or logistic services, infrastructure logistics service. On Page 7, you'll see CS Portos, added to 12, and added to 18 ports in the state of Bahia. Although operational, they are already generating revenue, operating returns, EBITDA and are still being developed with great potential for revenues when fully implemented, which is to be completed in December '25, great potential, enormous demand. And we are sure that will bring 2 CS Infra and SIMPAR returned that are extremely compatible to the business and wonderful service opportunities. We have CS Rodovias in Piaui, very well located, beginning to have preoperational revenues. That will be completed soon. And remember, it is within the agribusiness industry with great potential for use -- for the use of highway services, generation of total revenue and also contributing to the development of the region and being useful to our customers. On Page 8, we have the continuity of some of CS Infra's main business. Ciclus the largest waste treatment center in Brazil, treating 209,000 tons of waste per month and is a benchmark in the management that technical quality of its engineering operations that generate biogas and biomethane, treating waste with excellence. We have BRT. We have a stake in BRT Sorocaba in urban mobility. CS Mobi, which is a concession in Cuiaba. We are revitalizing the historical center of Cuiaba, improving mobility services, were being parking, with shopkeepers in the region of the historic center of Cuiaba. That is CS Infra focuses on investing in concessions or PPP that will contribute to infrastructure, social services, mobility, logistics with the vocation of services, which is our G&A generating services by providing -- generating value by services. And we believe that states and municipalities will contribute to the quality of life of society through services. So this is what we are paying attention in terms of opportunities. We have a high-quality preoperational assets at CS Infra already generating revenue, but that will further contribute to our returns as soon as they are fully operational, which is the case of the ports added to 12 and 18 and the Piaui highway. On Page 9, we have CS Brasil, which has been centralizing fixed services and fleet outsourcing with drivers, where we provide the operations. So it has seen growth in development. As you can see, year-on-year, 16% growth, with some highlights below, net revenue, cash generation and has developed in a very sustainable way. On Page 10, we have BBC, which is our bank controlled by SIMPAR within our ecosystem with completely independent management, but complementary to our business. It's important to note that we had our first net profit for the quarter after becoming a multiple bank in '21. The bank has developed in an extremely sustainable way. We can see the growth in its credit origination, generating BRL 496 million of credit in 3Q '23, which is growth of 35%. Its portfolio accounts for BRL 648 million of credit, a growth of 39% compared to 2022, but development within our ecosystem. Financing the sale of our assets, potential customers, whether cars, trucks, truck drivers, in addition, to financing the sale of assets. We also have been paying our truck drivers through the BBC's digital account, giving truck drivers greater transparency and efficiency at the lowest cost, so that they can use the money they receive from [ JS Logistics. ] And this development of the bank has made us very happy. And we believe that we will enter this new site of development with sustainability, but creating profits with development in scale with more synergy, and of course, posing a lot of opportunities for us to improve return on capital. Now I'm going to turn to Denys, that will talk about SIMPAR's consolidated main financial highlights. Denys?

Thanks, Fernando. Good morning, everyone. I'm starting with Slide 11, talking about the financial highlights, consolidated basis. Third quarter '23, the group earned revenues of BRL 1.3 billion, which is 22% higher than the same periods of the previous year. Year-to-date in the last 12 months ended this quarter, the group's total revenue was around BRL 31 billion, a 27% compared to the full year of '22. This increase relates not only to the growth of the company's groups, but also the acquisitions made in the field of logistics and development of Automob. On the right-hand side, we have our EBITDA, the group's EBITDA in the third quarter of '23 was BRL 2 billion with margin of 31.2%. This is a nominal increase of 8% compared to the same period last year. And based on the last months ended in the third quarter, EBITDA totaled BRL 8.2 billion, with a margin of 33.5%. The figure is 17% higher than the full year of 22%. As for EBIT here in the bottom left-hand corner of the page, in the third quarter, it amounted BRL 1.368 billion, which is 4% down that in the same period last year. Over the last 12 months, ending the third quarter, EBIT totaled BRL 5.540 billion, which is 8% higher than the full year of '22. Net income on the right in the bottom corner of the page, showed negative results for BRL 111 million compared to a positive BRL 19 million in the same period last year. Net income for the last 12 months ended this quarter amounted to BRL 354 million, which is less than the BRL 941 million obtained in the full year '22. On this page, it's worth noting that both EBITDA, EBIT and net income reflects some specific aspects of our companies. For example, Movida continues on its path to make operational adjustments and such of greater efficiency and fleet adjustments, so that by '24, it will once again deliver a return compatible to invested capital. We believe we are on the right track to get that. As for Vamos, it's important to remember the adverse scenario faced by agribusiness, which impacted Vamos agricultural machinery dealership business. So 2 aspects that are embedded here and that somehow explains the impact of the numbers that we are showing. Remember that net income also includes the impact of the cost of carrying the liquidity that we usually maintain. This is in line with our financial policy and gives us a lot of confidence. Now I'm going to move to the next slide. As usual, we disclosed on a consolidated basis, the debt amortization schedule and liquidity position. Average maturity of net debt remains quite healthy, approximately 5 years. Total liquidity, BRL 12.9 billion when considering undrawn revolving credit lines are something equivalent to 3.3x the coverage of indebtedness for the short-term or else amortizations up to approximately the year of 2025. The group's consolidated net debt totaled BRL 31.6 billion. On the next slide, we'll make a specific comment on SIMPAR's debt payment schedule as a holding company and its position in liquidity. SIMPAR's strong liquidity as a strong company is preserved at around BRL 2.7 billion, and its maturities are mostly concentrated from 2031 onwards. Net debt totaled BRL 3.8 billion, and average maturity of this net debt is 7.4 years. And obviously, our coverage, that is liquidity, vis-a-vis amortization extends to almost 2030. On the right-hand side, with all scenarios that was compressed in terms of pricing in the stock market, but we see the value of our stake in listed companies is equivalent to BRL 10 billion, which is 2.6x greater than SIMPAR's that as a holding company. Moving on to the next slide. I'd like to show you the market value of our assets, assets that we consider to have strong liquidity. In the third quarter, our estimate says the [ PP&E ] was around BRL 41 billion. And when we compare them with the indebtedness of subsidiaries, operating companies and commitments to pay for this asset in a total of BRL 30 billion. It shows that we have a coverage of 1.4x, that is 1.4x in real net assets versus the financial commitments of BRL 30 billion. Remember that this is an extremely young fleet, as you can see on the right-hand side. You have an x-ray of the group's fleet in the third quarter, which was mostly made up that is around 96% of trucks and light vehicles. 225,000 light vehicles with an average age of 1.5 years and 49,000 trucks and trailers with an average age of 3.6 years. So these are the liquid assets in which we invest the funds raised from the market. On the next slide, we bring you 2 pieces of information. On the blue line, you have the volume of net quarterly investment that is quarterly net CapEx. The bars show the evolution of net revenue from services, because those investments are connected to net revenue from services given that the revenue from asset sales may not be so linear. We would like to emphasize that even with a more moderate investments, we still had an expansion of 14% of our net revenue from services, when we look at how it behaved from the end of '22 to the end of the third quarter '23. To put a number on it, you can see that in 2022, the average quarterly investment was around BRL 3.4 billion per quarter. This year of '23, although we amounted to approximately in the quarter, BRL 1.8 billion in investments. The quarterly average for '23 is much lower than '22, that is around BRL 700 million. So here in the right-hand chart of the total BRL 1.864 billion in net CapEx, Movida led the investment, because it was renewing fleet and Vamos had already prepaid most of its 2023 CapEx at the end of '22. This also happened to a lesser extent with JSL. So nothing more natural than having lower volumes than what we did in the past periods for this company. Moving on to the next slide, Slide 16. We have here at the end of the third quarter, our leverage was 3.7x. But here, it's worth pointing out that we still have some adjustments to bring this ratio to normal. What are the reasons? Again, the suppliers' line in the case of Vamos, which is still not operating as usual due to continuous rental and the early purchases made. So you have assets available for rental that have already been paid off and also the impact on Vamos agricultural machinery dealerships, where you ended up building a significant inventory of equipment that has already been paid for. This is not unusual for this time of business. We have already addressed this issue, and we should have this largely resolved by the end of the year. With these adjustments anyway, in our view, we have a normal leverage ratio of 3.5x, even in a scenario with high interest rates. The average for the third quarter was a select interest rate of 13.25%. On the next slide, 17, we show the historical return on capital invested consolidated basis. We had strong evolution towards the year of '22. And now based on the last 12 months ending the third quarter of '23 on a normalized basis, we had return on invested capital of 11.2%. It's important to mention that this level of return on capital invested already brings the normalization of the secondary light vehicle market and the adjustment phase, not only in terms of operations, but also in terms of fleet mix, Movida is going through, so that as of next year, it will have returns comparable to the level of capital invested in the business, which is about 40% of the group's total. With that, I'd like to close and turn back to Fernando Simoes.

Thank you, Denys. The group SIMPAR, we are part of the 7 companies that are completely independent of each other, with management, focus, mission, guidelines given by the Board of Directors of each one of them, those that are not listed by their management committee with clear focus and missions for the management to achieve. We at SIMPAR have a managed model within SIMPAR, that ensure the execution of strategic plans of this company, promoting high performance and sustainable development. Among several points we contribute to comes optimization of capital management of liabilities, operational efficiency, always enabling a sustainable basis for new cycles of development, profitability and growth for our subsidiaries. We have operational basis with clear definitions, whether for acquisitions, investments in high-quality assets, which bring larger scale, which have synergies that also contribute to organic growth and to the evolution of the businesses and return and long-term value creation. We are certain that it's only through a model of this kind, you have sustainable development and growth, this is what we do at SIMPAR, in the planning of acquisitions, M&As of JSL, the transformation of consolidation through Automob, CS Infra, where we carry out a very selective strict process of where to invest based on return and creation of long-term value. We contribute to the training and development of people who are aligned to us. We do not give away with people who are in line with our values and culture that are very clear, meeting customer needs, making operational efficiencies that work at low cost, generating long-term commercial relationships with our customers. We don't believe in short-term commercial relationships with customers or suppliers. We have a solid capital structure, a strong cash with very good strong discipline in financial planning to have the balance of leverage for each company we control, and we focus on reducing the net debt of our holding company. All those operations are supported by ESG practices aligned with the strategy of each companies, which expands the capacity of our companies and offer our customers extremely sustainable governance and development, often setting us apart from our competitors, before socioenvironmental emerging challenges we have. We at SIMPAR do not run company's operations. We contribute significantly as an active holding company, whether through communication, ESG, training people, financial planning, M&A, and in the way we see where we are going to invest or divest, always contributing to our development in an extremely sustainable manner. Once again, I'd like to thank you all for attending, and I will open to your questions so that we can make clear any points that were not so clear. Thank you very much again for joining us today.

[Operator Instructions] Our first question comes from Julia Orsi from JPMorgan.

I have two. One is leverage, you are at 3.5x, 3.7x. We see there is not a pressure in terms of covenants. But when do you think you're going to reduce your leverage? And if so, using what levers? And the second question is specific for Automob. What would be a normalized EBITDA level for Automob, and how much the ramp-up of latest acquisitions can increase the margin? So we just want to understand the upside that you have in the business.

This is Denys. I'm going to start first with leverage. And then Fernando is going to add the other points. Leverage stability, we always have to take into consideration that our leverage, what causes leverage is our speed of growth. So what I say is the following, we do an exercise of keeping the size of group as is. And you will still have an increase of cash creation because of the investments made and as they start generating post 12 months of cash. For instance, if you take a look at subsidiaries that have an average leverage of 3.1x, and you do the exercise for the year of '24, then you see it's considerably below 3x. And if we talk about below 3x, the subsidiaries that will free about BRL 2 billion in cash. If we are to respect to the limit of 3x, which is a number that we have been talking about. What exceeds that is what we say our focus, which is the reduction and elimination of the holdings net debt. So the option of leverage is also something that we can decide not to grow, so that we're going to have lower leverage. This is not something we want to do because of the positioning that we have in all the sectors and the opportunities each to unfold. But today we have a portfolio of listed unlisted companies that gives us the flexibility of addressing better the indebtedness of the holding. So I have been here for 15 years, and we have done that one way or another with a much smaller group. I'm going to turn to Fernando, but I would say that in a short period of time, thinking of program investments and the improvement of our numbers, I believe in stability of this indicator.

This is Fernando. I'm talking as an executive of SIMPAR, but also director and shareholder. Leverage; we work at SIMPAR with focus contributing to subsidiaries, not only to keep, but also to reduce leverage. And we understand this is very important to talk about. In the last 2, 3 years, CapEx was very strong. We were hiring people, constructing operational bases. So we had that mission. Now it is the mission of operational excellence that is improving the use of capital efficiency and management. What I mean is that we are going to keep and reduce the leverage of subsidiaries. And within SIMPAR, our objective is not only to reduce but 0 the holding's net debt. How? Well, Denys mentioned, we have listed and listed companies' assets, potential partnerships without creating expectations. This is what we want. In addition to operational excellence, coming from all the companies, as Denys talked within his presentation. So that's our strategic plan as SIMPAR. Talking about Automob, I would say the following. Automob, we are just starting. I would not see the results of last quarter, this quarter, or next quarters. What is going to be recurring from now on, without guidance or anything, the opportunities for improvement and synergy within the business are enormous, and we haven't even started enjoying that. You have the acquisitions, the responsibility of keeping business independent with the best people, the best management, but that is already showing. We are selling more by points of sale, but there are so many more synergies to come that I would say that will take at least 4 quarters for you to have an idea of what Automob mature in terms of results and margins is going to be.

Our next question comes from Gabriel Rezende from Itau BBA.

Just one, a bit broader question, given the very holistic view of the group for the automotive sector as a whole, if you could please share with us how you are feeling at JSL, Automob, Movida, and Vamos prices and volume trends for '24. Just as a context, what we have been feeling is that the compressed demand of '23, especially in trucks, suggests a strong improvement for '24 because people did not renew their fleets in '23 at relatively comfortable prices, light vehicles perhaps low 1 digit growth and adjustments close to inflation rates. I'd like to know if you think these assumptions make sense, if you are more optimistic, a bit more concerned, just for us to have an idea for used assets and also in terms of revenues of the group subsidiaries.

Gabriel, this is Fernando. Okay, trucks. It's true we had early purchases in the whole of '23, lesser demand because of the early purchases that were made before and high interest rates, so the demand is compressed. I don't think it's going to be a huge comeback for next year. If I were to estimate, I don't know, 15% to 20% over '23. I do not see a strong recovery for new trucks. Why? Because I think interest rates have to go down further and other signs. For you to buy trucks, you have to have services that pay off. Because trucks appreciated a lot, it's a bit harder, I think. So I believe that volumes are going to pick up more at the end of '24-'25. That's for trucks. Used trucks market, that is unbelievable. The average age in Brazil is 20, 21 years. In the first world, you're talking about 8 years. In '23, the average age deteriorated. So used trucks have huge market, and they were highly appreciated because everything that happened to new trucks, and even if it is a growth of only 15% to 20% growth, prices are stable. So I always say that I never saw truck prices going down. They always go up. So that's how we see trucks. As for light vehicles, you have a market that was probably closed in '23. And I think it is what you said, low-1-digit numbers. Again, very much related to high interest rates, credit, and within the scenario, I think, SIMPAR, the way it's positioned, it was very important for Vamos to carry the inventory, and the fruit is going to be reaped in '24, '25 due to the acquisitions made and the appreciation of inventory. Movida adjusted its mix and will have opportunities to focus on operational excellence. So I think it's a very good time for our ecosystem to develop and continue to adjust mix with opportunities to buy. That will improve its returns on the day to day. That's how I see it. With a huge used market, both for vehicles and trucks, that is very important at a completely different price level, because the appreciation from '22 onwards was amazing. That's it, Gabriel. I don't know if I can say anything else about that.

That's perfect, Fernando. That was it. Just a follow up. Recently we saw some data from the Central Bank and even in earnings releases of large banks that have exposure in car financing. And they were talking about better credit and low delinquency rates. I don't know if the group has been feeling that. Perhaps by the end of October, beginning of November, if you're already seeing signs of that.

We have. The banks are having more appetite for credits and margins. And some people say that this has been controlled, others say there are improvements to come. And that again, we'll have more the used vehicle market, because as new asset prices go up, used vehicles and trucks are appealing. Sometimes they don't have the credit for a new one, and being responsible, they are going to buy a used asset.

Our next question comes from Victor Mizusaki from Bradesco BBI.

I have 2 questions. The first about Ciclus results. In the release, you talk about a price adjustment of a contract. So my first question is whether this adjustment is already related to that rebalancing of the contract. And if not, if you can give us a bit color on how this is going to happen and when. The second question is about Vamos. When we take a look at Vamos bottom line results, we see truck rentals very strong, but we see volatility in the dealership business, which is part of the game. We know that truck sales are a lot more cyclic, but towards the future, what are you expecting in terms of Vamos results? Do you think the dealerships are too big? Given the size of the rental business, we should expect more capital allocation on rental to rebalance Vamos portfolio.

This is Denys. I'm going to start with Ciclus. What you see is the recognition of the biannual adjustment that we had in the original contract, in the original agreement. It's still not the rebalancing. It is on its final lap, we believe, but not completed yet. The other point, Vamos.

Yes, Vamos. This is Fernando speaking. Okay, Victor, agribusiness dealerships with everything that happened in agribusiness, and you know it better than myself, we had volumes and demands that I thought and continue to think was a natural demand. And we believe that. What happened this year is because of elections, interest rates up, credit when granted, the cost of agribusiness going up, commodities going down. So the industry came to a halt. So there was a ship coming, and we came to a halt. And therefore, Vamos decided to adjust its working capital and inventory levels at agribusiness dealerships. This is to be completed by the first quarter '24, maximum tops, January, February. But Vamos main focus is the rental of machinery, trucks, and equipment with 5-year contracts, 80%, 85% of the fleet trucks highly liquid. The dealership business, organically speaking, grew. It had a very good positioning, but they are completely independent. They are complementary, but they have directions, focus activities on their own. I'd just like to play around. We are a luxury franchisee. We have to make a difference to suppliers and customers. But we have an advantage. When we don't sell, we adjust costs, and we hold up a bit. So I believe that next year's margins are going to go back to normal regardless of the volume. Because you work on cost, you adjust your structure in terms of cost, working capital, and wait for the next cycle. And more important than that, we don't think we are losing sales. I think that sales are being delayed. They will come. And when you talk about investments on rental, because it had early purchases in '21, '22, that was very important for it to grow and bought Euro VI at much better prices than 2023. So it was the right strategy. So we are going to see growth in rental. It's still a very recipient market. Vamos is very well positioned and that is what I have to share with you. And you see that on a recurring basis, it has been deploying BRL 400 million to BRL 500 million. If that happens month after month, in 2 years' time we are going to have a completely different company and even better than we see today. I think that's the color I had to contribute to.

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

My question is about Euro VI, but I would like to think at SIMPAR levels, what kind of purchases you have. You did talk a bit about prices if you think they are going to accommodate better. So in terms of overall negotiations and what are you expecting for the market from now on? And then another question, more towards CS Infra. What is the focus from now on? Are you going to keep the projects you have or do you see new opportunities for the future? The government has a pipeline of highways for the future, port terminals. Do you have an appetite for other projects? And what's your main focus from now on?

Okay. This is Fernando speaking. I'm going to answer the second question and then the first question if you can ask again, we really couldn't hear well. CS Infra, we always say that CS Infra is a company that pays attention to concession opportunities. We want public-private partnerships, infrastructure, social, or logistics services. So under the management of CS Infra, we have specific businesses like the 2 ports that are preoperational but that are bringing returns. And after renovation, we can multiply port capacity by 6 with huge demand. So this is the example of our focus on logistics. Mobility, the BRT of Sorocaba. So CS Infra seeks for one-off opportunities with low CapEx that do not impact or affect our leverage as a whole and that are focused on services. That's what we want. So again, specific investments of [ Piaui ] and highways, PPP with very well-defined take or pay revenue floors. So again, specific businesses, and we do believe governments are to improve the quality of lives of people by concession services. Public private partnerships, this is what we are looking into. Returns without hurting the development of all our other companies that are controlled by SIMPAR. Sorry, we have missed your first question.

No, thank you. I was thinking about SIMPAR as a whole. And how are you considering purchases, prices for Euro VI and the scenario as a whole? If you could give us a bit more color on that.

We did start negotiations for the purchase of Euro VI, but we believe the market's positioning, unfortunately, because we would love to have a high demand, but the demand is not there. And if there is the demand, Vamos and JSL will always have differentiated position in the history of rental, for instance, rental car companies always buy at better conditions than small and mid-sized buyers. And in the truck, it's no different. So we are negotiating. We are sure that we are going to have better price and financial conditions than the market as a whole, that gives us our competitiveness. And again, there was an increase in prices. The consolidation of prices was very strong in '23. In '22, there was already an appreciation of prices in the expectations of Euro VI. Then in '23 they went up, then back to a normal level, and '24 I think that this is to be kept. But again, the appreciation of our assets in Movida, with vehicles in JSL, Vamos with heavy vehicles was huge. And you will see the transformation in the price of our assets when we are to sell them as used assets. Again, a unique positioning of our companies. If you have a 5-year truck, that's equivalent to a 2-year car and it's not only JSL, Vamos that have these assets, and we are prepared to sell, as we have shown in previous quarter. In our dealerships, we are ready to sell. That's what we have been feeling about the market.

Our next question comes from Pedro Pimenta.

Well, congratulations on your results. I have 1 question on my side about the net debt of the holding. I'd like to understand, to try to see it clearer, what kind of measures and guidelines you're going to use to reduce your net debt. We have seen a very active M&A strategy. So I wonder, looking to the future, '24, '25, and dropping interest rates, would it be a good time to decelerate and focus on the reduction of net debt and then generate more profit for the subsidiaries and benefit from the holding as a whole? I'm just trying to think together with you to try and understand guidelines for the future.

This is Fernando. Denys, if you want to add to that, go ahead. First, if you see the net debt, you do not see what is to be generated in cash by subsidiaries working with less inventory in agribusiness, as I mentioned in Vamos, with a lot less inventory of deployments because Vamos carried this inventory because of the purchases of Euro VI and that will generate revenues. That will happen in dealerships. You have a changing mix and focus on operational excellence for Movida and Vamos, which automatically contributes to cash generation and the decrease of leverage in the group as a whole. And also it just might be to decrease the net of the holding when the companies under it are more efficient. And you're going to see that in the coming quarters. Just to close the holding, and I'm talking as a shareholder, we have a strategy we cannot share with you, but we have several avenues to decrease debt. Perhaps very soon you're going to say that or not, but you see that our debt is going down if you see numbers of the third quarter. M&A; it's important to understand that M&A is not going to hurt any subsidiary to fix its debt. It's not going to [ barrier ] growth of subsidiaries to fix its debt. It will focus on subsidiaries having better returns because everything has been built. On a counterpart, when you see M&A growing, it is the subsidiaries using their capital, taking care of the capital structure. At SIMPAR, we also want to reduce the financial leverage of our subsidiaries. But we cannot not have an M&A because of the holding debt. These are different things, independent management, independent Board of Directors, so that we have 4 Board of Directors that will guide each one of the companies. So this is how we see that. But very soon, we hope you see a decrease and, in perhaps the short future, more liquidity at the holding level. This is our plan. Denys.

Pedro, I think Fernando gave you a thorough answer. I would just like to say that several of the M&As, if you take a look in detail, have a cost that is -- starting cost lower than the organic growth. So the levels of M&A we are making, we get companies up and running with an already built working capital. Many people ask even on the web whether we are going to go public or not going public. You all saw the [ rate A ] for Automob, but we are not in a hurry. We understand the value that is being created. It is an opportunity in Brazil. We've seen that in other countries. But the idea is to be transparent, give you the information so that people can understand the value and dynamics of the segment. And it is an option as other activities that we have today with our non-listed companies that sometimes are not so clear in terms of value for outsiders. This is all I had to mention.

And this is Fernando back here, Pedro. It's funny, we talk about Automob. Everybody thinks that the future for Automob is an IPO. I would ask you to take a look at CS Infra, Ciclus, take a look at the ports after modernization. You have value there. You have so much that has been already built. You have companies listed in the past that are smaller than Ciclus. So it's important for you to understand the value of things that you are not seeing. I think this is your homework to do, the companies we have. I'm very humble, and I work as if it were the first day. But it's important for you to understand the magnitude of opportunities we have. And we would never have any movement just to depend on Automob's IPO. That may be, but also may not, and life follows as usual.

Now we are going to move on to the questions that we received on the web.

This is Denys I'm going to read the questions that we get on the web. The first question has already been answered, but just for you to know. The question comes from [ Caio Cavalcanti ]. And he talks about 2 topics that Fernando has already addressed. That is, expectations of future IPOs and also how, if you are considering reducing stake at subsidiaries to reduce leverage. So, [ Caio ], I think Pedro's question addresses your points. A question from [ Lucas Cavalcanti ]. The question is Movida going to increase penetration of GTF to improve profitability?

[ Lucas ], in Movida's management, and they have been working very well under the leadership of Moscatelli with focus. They have a commitment to improve returns and adjust its fleet mix and several other activities. A consequence of that has been growing in GTF and adjusting the rent-a-car fleet. But that's not something that is going to be the only thing they're going to do in the future. This last quarter, they did improve their rental car fleet a bit. And they have the commitment of improving operational efficiency and returns at a rent-a-car. And that is going to be accomplished by improving occupancy rates, a better fleet mix, faster deployments and retirement. That also contributes to improve the rent-a-car. Always focus on return and operational excellence. Movida's time of opening stores, people is over. That demanded a lot of time. Now it has the size to do more and better. And you're going to see growth in the rental car business, thank God, very soon. And if you take a look at the quality of contracts in GTF, this is a company that really transformed results in recent quarters with very high-quality contracts.

The next question comes from [ Danilo ]. [ Danilo ] asks the following. The group has been growing strongly in the last 4 years. With a drop in interest cycles, do you see for '24 higher profits? I'm going to let Fernando answer, but we always work to improve profits. Fernando has just mentioned that 1 of the companies of the group that has an important share of capital invested is going through processes because we want it to improve better numbers. So not only because -- and much less, I would say, based on interest rates, just based on ongoing improvements, we hope to have better results. But Fernando, up to you.

You're right, Denys. What you said is very correct. We work, of course, watching interest rates. But regardless of that, we work very strong to improve returns of our company. This is what we focus on.

I have a question about net debt and financial expenses. The question is, the average cost of gross debt went down from the second to third quarter. Net debt grew a bit, about 0.5%, but financial results grew close to 5%, comparing the second to third quarters. I'd like to understand the dynamics of these numbers. All these numbers are a bit small, but what makes the difference is the number of business days. And the second quarter has less business days than the third quarter, which is an impact of 3%, 4%. Then you had some nonrecurring events, but very small. I would say the main effect is the number of business days in the quarter. Moving on to questions, we have 1 that asks the following. Lucas Barbosa from Santander has 2 questions. How excited are you for new M&A? I believe that you have a more favorable acquisition scenario. And 2, in Automob, what are the main opportunities for the future to consolidate used car sales and aftersales services. If you could give us some color on that for Automob, I would appreciate it.

Okay, Lucas, this is Fernando. 2 things, it's not only a matter of being excited for new acquisitions or not. With SIMPAR, we control, we have our Board of Directors, we have our team looking into opportunities. It's not being opportunistic but looking into opportunities. So sometimes some companies stop and think about whether they want to carry on or not. And that can pose good opportunities. But we also have to take into consideration capital allocation vis-a-vis opportunities. So, quite modestly, the quality of acquisitions is the most important thing. The acquisitions we made from JSL in the last 3 years, they almost double results in 3 years. Automob is the same. It's not just wanting to buy. You have to buy a company with quality, good management, that is in a good region with several brands that can be complementary to our businesses. So we are almost thinking of customized acquisitions. We have to see how complementary they are to our brands, regions, so we can continue movements. We have opportunities, and in terms of used vehicle sales, we want to have used vehicle network. But regardless of that, we are increasing 40% of the number of sales of used assets in the dealerships we acquire. So if you consider on average, they were selling 25 cars or vehicles a month. If you increase that by 10 cars, you do the math. So the same CapEx, the same investment, just working better at the places where we are already operating.

We have a question now from [ John Gabriel ] talking about Automob. What is the plan and execution of the new used vehicles brand at Automob? This is already working. We have a Seucarro.com platform. We are closing probably with 12 stores this year. We have 4 to 6 now. It's a complementary business for Automob as a whole, but that will happen through time strategically. It's not going to happen overnight. Now, execution, increase of sales [ per part ] of sale. That, yes, we are working in the short term. I'll give you a number. We have had a dealership business since '95. We sell 0.7, 0.8 used vehicles for each 1 vehicle. We acquire some companies that sell 0.3 used cars-new ratios, 0.3 to 1. If we increase to 0.7, we almost double size. So we are going to work with the online platform, but also transforming numbers in our current dealerships. On the web, we have no further questions. I'd like to thank you all for sending your questions here. Thank you. And turn back to Fernando for his closing remarks. Fernando?

Well, once again, I'd like to thank you. We have more than 160 people attending our earnings release. I think the takeaway message is to invite you to think of SIMPAR and the other companies. If you think of our subsidiaries in the last 2, 3 years, we had very strong capital investments, building stores for Vamos, Movida, in agribusiness, dealerships, branches and logistic operations, strategic inventory to go through difficult times and have a competitive advantage, which was very important. Training, building teams with differentiated people, which really sets us apart from the competition in the market. In the last 2 quarters, you already start to see lesser CapEx, revenue going up, EBITDA going up, and this is a trend from now on. We are in a time of operational excellence, and we believe the results are going to be delivered at better levels with low capital invested. And we believe you're going to see that as of the next quarter. As a holding company and our role, we have been working to create value for the group as a whole with completely independent company. But our role is to support our subsidiaries as they are to support their customers, ensuring agility, fulfillment of their strategic plans, making operational adjustments. This is our obligation as a holding, together with the Board of Directors, making adjustments fast when needed so that we can make sure everything is on track, as we have been doing with Movida, Vamos, Automob, JSL, an adjustment in working capital, better use of resources, Automob together with JSL really extending its footprint in the market, and certainly this is it. And we have still a huge potential to come, both for subsidiaries and about the group scale and this efficiency and synergy is something we want to focus on to improve our results. Today we are much stronger in scale, governance, in operations, in our people, and with our companies that make us believe that we want the best for the country. Interest rates should go down, but regardless of that, we are contributing for our companies to create value. Once again, I would like to reinforce that we are paying attention to company's leverage. We want to keep or even further reduce levels, reducing the holdings net debt, and even coming to a 0 in terms of debt. This is how we have been working, this is where we are at, and we are very pleased to understand we are on the right track with a unique ecosystem, the way that our companies are within the real economy, with essential services for society, and in the main sectors, with raw materials or distribution of products. So once again, thank you very much. That truly makes us believe we are going through a new cycle to enjoy everything we have built in recent years. I'd like to invite you all to be with us on SIMPAR Day on November 22. More to be released. It's going to be a pleasure to give you more color on each company, with the CEOs and CFOs of each company giving you more granularity on our strategy and next moves. It is clearly a unique position, and we are confident we allocated capital right and the best is yet to come. On behalf of our people, more than 47,000 direct employees, I'd like to thank you very much for your time, attention. Thanks for your trust, and we are going to work hard to try and please you all. Thank you and have a very good day.

Thank you. SIMPAR's call is now closed. We thank you very much for attending and wish you a good day.