Tegma Gestão Logística S.A. (TGMA3) Earnings Call Transcript & Summary

Good afternoon, and thank you for waiting. Welcome to the teleconference of Tegma, Logistics SA for the discussion of the results of the fourth quarter of '22. We have with us today MR. Nivaldo Tuba. Director and President; and Ramon Perez, Financial Director and Investor Relations. We inform that this event is being recorded. [ operator instructions]. This event will be available after its closing for a period of 7 days. In that case, we would like to pass the word over to Nivaldo, Director President of Tegma, who will start the presentation Sir Nivaldo please go ahead.

Good afternoon to everyone. I'm Nivaldo Tuba, CEO of Tegma. In name of the company, I'd like to thank you all for your participation in one more teleconference results. Today we have Ramon Perez, our Financial Director and IR Director, beyond Ian Nunes and Filipe [indiscernible] of the IR area. Starting our presentation with Slide #2. As usual, we start disclaimer regarding our declarations and perspectives. Going to Slide #3. About the highlights of the fourth quarter. The first highlight is with respect to the payment of additional dividends complemented dividends in reference to the results of 2022 -- the administration has proposed for the deliberation in the AGO to be done on the 12th of April and the payment of BRL 39 million in returns corresponding to EUR 0.60 per share. In this way, Tegma will distribute 60% of its net profit -- adjusted net profit in the period, and one have had a dividend yield of 8% for the year. Payment will be done on the 24th of April and the date -- the cutoff date will be on the 12th of April. The following point is an event, nonrecurring event in our results related to our controlled company, catalog. In this quarter, we recognized the tax credit, referring to the exclusion of ICMS from the base of calculation of the PESCO FINS tax, which impacted our EBITDA in BRL 5.5 million and our financial results in BRL 6.2 million and our net profit in BRL 8.2 million. In the third highlight, we showed an important conquest. We will be together with our joint venture, GDL, located in Victoria in the spirit of Southern State. One of the logistics operator of BYD, the Chinese brand who is handling electrification of vehicles in Brazil and the world. The car company has an aggressive growth plan, and we hope to help -- Tegma hopes to help with the growth of another brand of cars in Brazil. And finally, we like to mention a highlight from our IR area. We formed our valuation guide, and we did it this time in excel to make the process of planning easier for our analysts. This initiative is together with several others in our historical series, which has always been quite praised by our analysts. It's a motive of praise and pride one of us to have being one of the most complete in the market. Going to Slide #4, we have a tree with the analogy of our recent trajectory, symbolizing our continuous gradual and healthy growth, guaranteeing our pennies through the operations already established, and the new business which is growing and flowering. The logistics leaf of new vehicles is in a moment of recovery in its principal market, even though the economic uncertainties, which reduce the visibility of the near future. Even so, the division presented resilience in margins and growth in return together with their business structure. In the case of Integrated Logistics, we had a year with distinct results depending on the markets in which we operate. Even so, overall, the results were positive for the fourth year consecutively. The third leaf refers to GDL, our joint venture in the operation and logistics operations, which has presented a very positive behavior production. In 4 years, they more than doubled its sales revenue with an annual growth of 20%, live with strong -- with growing margins and expressive returns and an important diversity of clients. In relation to the smaller leafs, we started talking about fast line, our subsidiary responsible for logistics of used vehicles, which present today performance, which is also very solid for the second consecutive year providing solutions for the growing market and extremely needy quality services. And the fifth leaf, we look at our start-up take-up. After several cycles of growth, we have [indiscernible] finds innovative solutions, which resulted in competitive advantages and the open opening of new markets, new areas of business. But she mentioned a tegup has been responsible for the last leaf rabbot. This company, which does the management of fleets through algorithms, had another year of expansion of business expansion, which has been reflected in this revenue, which doubled for one more year. And with this new functions operate a great deal of growth in our base of users. On Slide #5, we've been at our principal initiatives in the environmental, social and governance realized in 2022. Talking about the environmental area in October 22, we published together with GHG Protocol of an inventory of gas of greenhouse gases in 2021. And with this publication, we have a history of 3 years publishing this report. In 2022, we also structured the area of ESG with the hiring of a specialist who would dedicate to this theme and pave the way for us to be able to report our first integrated report still this year in 2023. Also in the social aspect, we received the seals of great Place to Work and FIA-FEEx, with a base in the evaluation of our working environment, still in the social aspect, we realized our population census part of a process which wants to make the company more representative in relation to our society. Finally, and what touches the initiatives of governance, in May of 2022, Tegma signed together with the Ethos Institute of responsible companies. The business pact against for integrity and against corruption. Slide 6, we see the principal data from the vehicle market in Brazil. As you can see, domestic sales in 2022 were practically stable in comparison with 2021. This performance is a fruit a series of factors, which covered the difficulty of production due to the lack of components in the first half of the year as well as the adverse situation of national retailing, which felt the tightening of the monetary tightening in the second half of the year. Below that, in spite of that, we grew 11% in the third quarter compared to the year with a comparison of the better dynamics of national production and the performance of direct sales, which expanded greatly in the second half of the year. In 2022, sale of domestic sales, basically due to the strong exposure -- expansion of exports as we saw -- see. The exports in 2022 due to the agreement -- commercial agreement signed by Brazil, the exchange rate advantages and the commercial strategy of the car companies. On Slide 7, we see the principal indicators -- operational indicators of the logistics -- automotive logistics division. The number of vehicles transported in '22 was 11% higher when compared to the year and a market share started to grow at a normalized rate close to 25%. The recovery of our market share reflects the fact that in the second semester 2022, we did not suffer any production stops, which impacted more intensely the important clients of Tegma since 2021. In the fourth quarter of '22, the growth in the volume and recovery of the market -- of our market share also reflected the good performance of our principal clients of the company. The average distance of our trips was lower in comparison to the annual numbers due to the participation of exports in our trips and the mix of trips closer to the south, southeast. Among -- after these highlights, I would like to pass it over to Ramon Perez so he can talk about our results, our cash flow and the other indicators. And after that, we will open up for questions and answers. Ramon?

Thank you. Good night -- good afternoon to everyone. Going to Slide 8. We mentioned the results in the division of automotive logistics. We can see on the graph above that there was growth of 39% in net revenue in this division in 2022. Growth, which is explained principally due to the increase in the quantity of vehicles transported in the period. With the improvement of the market share of Tegma as well as the price readjustments in the transportation due to the increase in the price of diesel in 2022. Additionally, we have to highlight that the good performance of the vehicles, logistics of used cars and logistics services, which were benefited by the recovery of the stocks of the car companies and with the increase of sales to rent-a-car companies. The same tendency this year is repeated in the revenue of the quarter, which grew by 37% on a comparison, annual comparison. Below, we see an increase on both the EBIT as well as EBITDA as well as their respective margins. This performance is due to the reasons already mentioned previously. Which were affected -- positively affected our revenue beyond the efficient control of expenses, helping us to have a better dilution of fixed costs and expenses. On Slide 9, we show the results of the integrated logistics. We saw growth in net revenue in the division in 2022. Both in the annual comparison as well as in the quarterly comparison. And what occurs to the increase in the volume of chemical products, transported and stored. This growth has given us due to the fact that it's part of the fact that the operation in electro domestic and electro-electronics products has been trended due to the difficulties of retailing in Brazil and the lack of availability of parts and components. On the graph below, we can see that for the third year, the division has presented a margin -- EBIT margin of approximately 22%. When we observe the margins, EBITDA of the division we can see -- take into consideration that the year 2020 was an atypical year, very positive for integrated logistics, and that the increase of the margin in 2022 compared to '21 this reflects the growth of the operation in chemicals and the better dilution of fixed costs. In spite of the worst performance of logistics aimed at the sector of electro-electronics. The EBITDA margin for -- for the fourth quarter '22 was within the expectation of the division. Going to. Slide 10, we talk about the results, the consolidated results. We see that the net revenue of BRL 1.4 billion in 2022 and BRL 409 million in the fourth quarter of '22. Growth of 36% and 34% in the annual comparison and annual comparison year-on-year, respectively. As we mentioned previously, when we spoke about the operational divisions. Below, we see that both EBIT as well as EBITDA, adjusted EBITDA presented an expansion -- considerable expansion in comparison, on year-on-year comparison. Once again, the better dilution of costs aligned with the growth in revenue, but gave us these results. Finally, the net profit in 2022 was BRL 160 million, 48% on the annual comparison. This negative -- this positive result is anchored in the solid performance, operational performance of both divisions and the joint venture with GDL. Beyond the reduction of expenses -- financial expenses -- net financial expenses of the company, fruit average generation of cash and it's structure, it's deleveraged capital structure. In spite of this, we can -- we should mention that when we observe the net profit of the fourth quarter of '22, which was BRL 57 million. This was positively affected by the tax credit of the controlled company Catlog this quarter in the amount of BRL 8.2 million. Even if we exclude that effect of the nonrecurring effects of the fourth quarter, of '22 and fourth quarter '21, we have a net margin of 11.9% for '22, 1 percentage point higher than that of 2021. Looking forward on the next slide, on Slide 11, we see that the CapEx of the company increased for the third consecutive year, reaching BRL 45 million in 2022. This is the result of initiatives such as the renewal, both of our fleet of trucks of tractors -- truck tractors as well as the part of packaging for electro-electronics. An important part of the CapEx in the fourth quarter of '22 of BRL 20 million is a result of a purchase of 20 tractor trailers, part of which of the same plan mentioned previously. And this -- the cash cycle in 2022 in December '22 was 42 days, stable when compared to the quarter and significantly lower than out of December '21. Due to the regularization of commercial questions that impacted negatively in that period. As far as the cash flow on the side, the regularizaton of these questions commercial issues contributed positively to cash generation in 2022. Together with the good performance of the results and taking advantage of the tax credit already constituted in the previous years in the amount of BRL 29 million. In the fourth quarter of '22, in turn, beyond the good performance, operational performance, we had BRL 14 million of the same credits at tax credits. In Slide 12, we see the details of our capital structure. In the first graph, we see that the current cash of on hand of BRL 190 million is greatly superior to the payment of our short-term debt in the next few years, the gross debt in the next few years. In the graph on the side, the cost of debt has been reduced in comparison to September of 2022 being CDI plus 1.97% in December of 2022. This reduction comes from the hiring -- the contracting of BRL 32.5 million of financing through the BNDES and the FINAME operation for the acquisition of these truck trailers -- truck tractors at a rate of CDI plus 1.5 with due in December of 2032. In the table below, we can see that our position of net cash in December of '22 was BRL 89 million as a result of the generation of cash by the company. Finally, on the right, our rating was attributed by Fitch in April of 2022 is a local with prospective stable. Going to Slide 13. We see, first of all, the evolution of our returns, both return on capital invested as well as on net equity. We pointed out a ROIC of 25.3% and for ROIC in the fourth quarter of '22 in gray and 3.5% superior to that of the third quarter of '22 million due to the evolution -- positive evolution of the results of our operations. The same happens with the ROE on the orange line. In this case, to get looking at the positive impact of the good results of the joint venture with GDL and of the improvements in the results of our financial results. Below we show a new format for the presentation of the value -- economic value -- aggregated economic value or EVA. The graph presents the range of EVA considering the interval of the cost of capital attributed by the analysts, the sell-side analysts for Tegma in recent years, with the detailing of the calculation of this indicator is available in our file historic series on the tab indicators and can be accessed in our site of IR. We can see the evolution of the in the fourth quarter of '22 maintaining a tendency of recovery since the middle of 2022, reaching levels close to those at the end of 2019. This evolution demonstrates the generation of value by the company superior to the cost of capital. Fruits of the operational performance of both of our divisions, the resilience of our margins in automotive logistics and the result -- the positive results of fast line. On the right-hand side, we show the history of dividends and interest on capital paid by the company. On the gray line, we indicated the payout for the distributions which in 2022 was 60% of net profit and adjusted net profit. And on the orange line, the dividend yield, which corresponds 8.2% for the year. Finally, on the last slide, we see the performance of the company of our stock in comparison to the Ibovespa index. We believe that due to the macroeconomic scenario, which has been hit by the high interest rates, late payments and consequent impact on the automotive market, statement stocks have been negatively affected in 2023 in 2022. Consequently, the multiples below have been reduced to a level more discounted compared to the historic level. With this, I thank you all for your attention and open up for the section of questions and answers.

[Operator Instructions] Sir, Nivaldo will read the questions made via webcast. Thank you, and please wait while we retrieve more questions. [Operator Instructions]

Good afternoon to everyone. Ian, IR Manager from Tegma and I read the questions from the webcast. We have several questions so far. From Guilerme, how about the results. The market share of the automotive division will be maintained at an almost normalized level, what's the perspective going forward?

Thank you for the question. We can say that the perspectives are positive during -- for the rest of the year. We can point out that our 3 biggest clients closed 22 in the top 4 in the ranking. And among them, I can mention GM, which presented a good portfolio of models and among them, 3 models, which are recurringly among the top 5 in sales. We also have a new launch from GM, the Montana pickup which will occupy a market share, which has a lot of -- it's a strong bet in the success and the sale of this product. Other companies, which were mentioned Volkswagen due to a managed reorganization substituting the goal for the polo and Toyota, which has been performing very positively. On the other hand, not all -- not everything is flowers. GM stopped for a month now in February and the possibility of another 20 days of holidays between the end of March and beginning of April. This might bring problems for us beyond the fact that there's a possibility of firing of employees according to engines that have already been public and according to the cutting of worldwide of employees by this company. Nivaldo anything else?

Second question is from Victor.

Good afternoon with Nivaldo and Ramon, Ian and Filipe. Congratulations for your results. I would like to understand how do you evaluate the automotive industry in this first -- for 2 months of 2023. And maybe you could also give us a comment on the needs of automatical logistics. And still, if you could share with us your expectations of volume.

Thank you very much. Victor, thank you for the question. I'm going to tell you a little bit about what happened in this first 2 months when the new company of automotive logistics is making an idea, i can talk a little bit about it because it's not public knowledge. And I will give you a little bit of what we expect in the way of volume. In the question of the first 2 months, it was better in '23 than in '22 in terms of sales. However, we're still noting a crisis in semiconductors. For example, Volkswagen stopped in February, General Motors in Gravatai, was stopped for a long time in the month of February as well due to the lack of semiconductors. So in evaluation, a temporary evaluation, even though the month of January has been a good month. February was hit by the short being a short month due to Carnival and the factory closings -- so this evaluation is pretty much. It's not very accurate. It's a month, it's 2 months in terms of adjustments of the factories production lines. We have new products coming in into the market which will give us a better picture, a better, more faithful picture, what we expect for the year. But as much as the macro scenario is challenging, the companies are and they've been investing and developing. And in this first remaster, we had several attitudes in terms of financial marketing such as discounts, bonuses, offerings and legal offerings. This is all to try and improve our sales. In the case of the BYD today, it's a great client of Tegma in the automotive area. We do part of their transportation through an agreement. A public agreement that was launched. We were some of the -- all due to our controlled company in Espirito Santo where the vehicles come in and where the front-end loaders, pharmaceutical products we have in our portfolio of BYD, not only the automotive industry, but also a series of other products. We can mention BYD which, in general, is the biggest manufacturer -- vehicle manufacturer in China. Coming to Brazil, bringing electric vehicles with a great deal very strong way. And the item of cars, the definition of investment of BRL 3 billion of BYD in Salvador in a factory, which will possibly taking advantage of the infrastructure of the Ford factory which was located there. It also participated in 2 other [indiscernible] others in investments in the process of building a metro service transport in Salvador. It's also part of that consortium in electric metro, of course. And they're going to bring all the technology, where all the wagons will come in through BYG. In terms of volume, answering your question, Tegma works with good indicators of the market and existing markets, whether it be in the factory or if they be inputs that we receive from the car companies themselves, the symptoms of the market, we don't believe in a relevant growth of the industry, automobile industry in '233 relation to '22. We're working with a lot of adherence to the volumes, which were already practiced last year in '22. You was wanted to buy BYD starting. They have a planning -- internal planning with the opening of dealerships, which theoretically, they have a dozen dealers already were audacious in the country. Several other models would stay planned to transport. So what we can say is that in the next 2 or 3 years, there will be very actually accentuated growth with them.

We received a lot of questions about -- the question of Leonardo from BTG. He asks us if we can -- the expectation of margin.

Okay. Thank you for the question. It's a recurring question, but it's difficult for us to give any type of expectation in relation to that what I propose, what I suggest is that taken into consideration, first of all, due to our low level of leverage of operational leverage we have a resilience and a correlation, strong correlation in relation to these volumes. So we always suggest that the analyst pay attention to this in their projections in relation to the growth of revenue. Nivaldo made several comments in relation to that expectation. And we observed the recent history. There are very few points which are points outside of the curve in relation to this relationship, which I mentioned, I would take advantage to mention that we have the strong resilience as good image, and we're always working in the reduction of costs and expenses especially in the part of administrative expenses. When we look at the last quarter, we see at the year overall for 2022 and 2021, and excluding several extraordinary events. We also look at the maintenance of these costs, which showed a reduction in real terms, improving our margins. So this is my recommendation is that you -- we can't foresee exactly what the evolution of that market will be.

Another question, which is Luiz from Safra.

Can you mention -- can you comment on the perspectives of what we think for 2023?

Always, thank you for the question, Luiz. Tegma has been studying some alternatives. What I can say is in the year of 2022, we evaluated a series of possibilities, some of them being we're continuing an analysis within an adherent business adherence of success, which we already have. And when I say business, I'm referring to profitability, cash generation, the adherent commercial adherence. So these studies are ongoing.

Thank you, Nivaldo and the last question is from Leonardo also from BTG.

I think that part of the answer is for [indiscernible] was already answered by Nivaldo but I'll ask Ramon to complement as far as the perspectives for the allocation of capital, the company's allocation of capital.

The perspective is that we will utilize our capacity of cash generation in this plan for the plan of growth of organic growth, which we're working on. We have, as all know, a low level of leverage or financial leverage today, we have net cash on hand. So we understand that this is an advantage that we have a competitive advantage in its process. We can quickly raise resources to make any acquisitions that we may have in our inorganic growth plan is our plan, our strategy is to maintain this -- the level of payout that we currently have, of course, always with a margin that our plans are to maintain this level of payout, even with our process of acquisitions that we hope to be able to initiate at some point going forward.

[Operator Instructions] we now close at this point the session of questions and answers. And I would like to pass the microphone to Nivaldo for his final comments. Please, Nivaldo, please go ahead.

Okay. We hope that we have given to you clearly and objectively our results for the fourth quarter of '22 and accumulated for the whole year. These results have ratified our positive adherence in relation to the budget, which we had presented, pointing out principally that was the fruit of a commercial construction seeing good revenue and with a great deal of effort and controlling our operational cost and administrative costs. These measures and the -- we're certain will be ratified in 2023 in a way that's even more efficient or a Friday afternoon, Rainy Friday afternoon, thank you all for your attention for joining us and I desire you all -- I wish you all a very good weekend. Thank you all very much.

The audio conference of Tegma is now closed. We thank you for the participation of everyone, and have a good afternoon, and thank you for using Chorus Call.