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

Afternoon and welcome. Thank you for waiting. Please welcome to the Tegma Logistica Call Results from the first quarter of 2023. We have together with us today, Nivaldo Tuba, Director -- President and Director; and Ramón Pérez, Financial Director and Relations with investors. This is being recorded [Operator Instructions] This will be available for 7 days after the closing of the event. We'd like to pass the word now to Nivaldo, who is the Director of Tegma, who will start the presentation. Mr. Nivaldo, please go ahead.

Good afternoon, everyone. I'm Nivaldo Tuba, CEO of Tegma and the name of the company. I want to thank you once again for the participation in one more teleconference of earnings report of our company. With me, I have Ramón Pérez, our Financial Director and IR Director; and Ian Nunes and Filipe [indiscernible] of the IR area. Starting our presentation on Slide #2, as we usually say, we make a disclaimer about our perspective -- reasons about our perspectives. Now we'll talk about domestic vehicle market in Brazil. As you can see in the first graph, sales -- domestic sales in the first quarter of '23 were 16% above the same period last year. This performance is the fruit of acceleration of sale -- direct sales and retail sales after almost 2 years of falling. It's worth pointing out that in the first quarter of 2022, it's highly impacted by questions of supply chain issues with the car builders, it was the worst quarter since 2004. These are also the reasons why the production in the first quarter of '23 -- it's on the graphic below on the left, grew 11%. Finally, exports represent once again growth, reflecting the good performance of sales in countries such as Argentina and Mexico, where even though there has been a falloff in sales for Chile and Colombia. Going to Slide 4, we show this change which we realized in our methodology of calculating our market share in the division of logistics -- automotive logistics, trying to simplify this indicator. You can see on the graph below, which presents a comparative among the new and old methods of calculation. Our market share has been very close to the -- for annual periods independent of which criteria is used. The history of our market share was adjusted in a way to maintain its comparability -- our -- in our file of the historical series, which is available on the IR site. It's possible to see the memory of this calculation of those criteria in the tab -- analysis tab. On Slide 5, we present the principal indicators of the automotive logistics division. The number of vehicles transported in the first quarter of the year was 18% above compared to on an annual basis and the market share recovered to a level close to 25%, similar to the market share that we had in the recent quarters of last year and close to the normalized share of Tegma. Recuperation of the market share reflects the good performance of the principal clients of the company. And finally, the average distance for travel was slightly superior in the annual comparison due to the, principally to the growth of the average distance traveled and the participation in domestic travel. Having said this and after this highlights, I'm going to pass it over to our Financial Director, Ramón Pérez, so he can talk to you about our results, cash flow and other indicators. And after that, we'll be at your service for any questions and answers you might have.

Thank you, Nivaldo. Good afternoon, everyone. Going to Slide 6. We can talk about the results of the division, automotive logistics division, where you can see on the graph above that there was growth of 47% in net revenue of the division in the first quarter of 2023, explained principally by the increase of 18% in the quantity of vehicles transported in the period, an increase of 1.4% in the average distance traveled and by the readjustments of rates in transport done -- realized during 2022 and 2023. We also point out the good performance of Fastline, our unit of -- for logistics of used vehicles, which has presented an evolution -- an excellent revenue evolution. And this logistics service have been benefited by the special movement for the sale of stocks of used cars by the industry. Below that, we also see the growth of EBIT, as well as EBITDA. In the first quarter of '23, on an annual comparison, we, accompanied by the increment of the respective margins of both audits. This evolution is the fruit of the models mentioned above and reflects the growth in revenue, aligned with our discipline in the control of expenses, offering consequently a better dilution of fixed costs and expenses. On Slide 7, we've set the results of our integrated logistics. We have almost reached the stability in net revenue in the division in the first quarter of 2023 on the annual comparison and it was -- comes from the falloff in the quantity transported and storage for the chemical operation. It's also important to mention that the revenue from the chemical operation in the first quarter of '22 was positively impacted by the tying up of 2 extra ships. On the other hand, the operation of electro, domestic of electronics -- domestic electronics has recovered due to the recomposition of the prices realized for that division. In the graphs below, we see both the EBIT margin as well as the EBITDA margin have both retracted in the first quarter of '23 in comparison, on the annual comparison. These isolations are the reflection principally of the discrepancy of the revenue storage of the operation -- of the chemical operations originated by the tying up these 2 [indiscernible] ships in the first quarter of '22, even though there's been an improvement in the margins of the electronics division. Going to Slide 8, looking at the consolidated results. The net revenue was BRL 336 million in the first quarter of '23, increase of 39% on an annual basis, reflecting growth of the automotive logistics in the period. Below, we see both the EBIT as well as EBITDA represents a strong expansion in the annual comparison for -- of the growth of revenue of the logistics -- automotive logistics division, bringing better dilution of fixed costs. Beyond that, also our discipline in the control of costs and expenses in bulk operations. Finally, net profit for the first quarter of 2023 was BRL 34.7 million, [ 87% ] above the -- in annual comparison. This extensive growth comes from the positive operation -- performance of the logistics -- automotive logistics division, the resilience of the integrated logistics, the growth and expansion of the margins in the joint venture with GDL and the results -- the financial results -- positive financial results consequent to the generation of cash and the capital structure which is delevered, in our deleveraged capital structure. Going forward, on Slide #9, we show on the graph on the left that the cash cycle in March of 2023 was 44 days, at a level similar to that over the last 2 quarters, considerably below that of March '22 due to the regularization of commercial operations, which impacted negatively this period in the previous year. In relation to the CapEx of the company, it was BRL 5.5 million in the first quarter of '23, representing 1.6% of net revenue with no investment, no individual investment, which now to highlight. And finally, on the right, we see the cash flow -- the free cash flow of the company, which was BRL 59 million in the first quarter of '23. The fruit of positive operational performance and also even though it's below the cash flow, the free cash flow of the first quarter '22, which was positively impacted by the regularization of late receivables -- late payments. On Slide 10, which has the details of our capital structure, the first graph, we observe the actual cash position of BRL 242 million, which is well above that -- the payments of the net debt in the next few years. On the graph next to that, the cost of the debt was elevated in comparison to December '22, totalizing a CDI plus 2.7% (sic) 2.07% in March of '23. This increase in terms of the price -- actually the payment of it -- payment of BRL 10 million with a credit -- export credit bill which had a cost below the average cost of debt of the company. In the table below, we can see that our cash position -- net cash position in March of '23 reached BRL 152 million well above the position of December of '22 due to the generation of cash by the company in that period. And finally, on the right-hand side, our rating was reaffirmed by Fitch in April this year, as being A Local, a perspective, stable perspective in a scenario of great uncertainty in the automotive market and the credit crisis that has affected some sectors of the market as a whole. Looking at the next slide, we can look, first of all, at the evolution of our return on capital and our net capital. The ROIC of the first quarter of '23 in black was 27.4%, 2.1% points below the fourth quarter of 2022, fruit of the evolution of our positive results. Same is true for the ROE on the orange line, which shows expansion during the first quarter of 2023 is also due to the good results of the joint venture with GDL, which has improved our financial results. Below that, we observed the evolution of the EVA in the first quarter of 2023, maintained a tendency of recovery observed since the middle of '22. This evolution is a reflection of the generation of value by the company above the cost of capital and the fruit of its operational performance in both divisions and the resilience of our logistics margins in the automotive logistics division and the positive results of Fastline. On the right, we show the history of dividends and interest on capital paid by the company. On the black line, we indicate the payout of these distribution. In 2022 it was 60% of the adjusted net profit or 70% of the net profit without considering legal reserves and fiscal incentives. On the orange line, the dividend yield corresponded to 8.2% per year. Finally, on the last slide, we show the performance of our stock in comparison with the Bovespa Index. Tegma shares as we can observe in the first graph, presented a performance equal to the stock market in '23 in spite of the uncertainties in the automotive sector. As we look at the below -- graph below, the stocks -- the shares of Tegma are being sold at -- much below the average as happens with the most -- with the largest part of listed companies in Brazil, influenced by the macroeconomic scenario. With that, we thank you all for your attention, and we open for any questions and answers, which you might have.

Ladies and gentlemen, we now start the questions-and-answer session. [Operator Instructions] Nivaldo will read the questions during the webcast -- made during the webcast. [Operator Instructions] First question is from Victor from Vinci, the company Vinci.

Good afternoon. Can you hear me? Are you hearing my question?

Yes, go ahead, Victor. Can you hear us, Victor? Victor? Go ahead, Victor. Victor has been disconnected. [Operator Instructions] We will now start with the questions done during the webcast.

Good afternoon says [indiscernible] and I, again I am going to start with Lucas Daniel's question, who wants to invest. Congratulations on your results. Can you please comment on the operation of -- logistics of vehicle --logistics of used vehicles, semi new? And I'll pass it over to Nivaldo.

Lucas, thank you for the question. Yes, we're going to talk about Fastline. This market of used vehicles, semi-new vehicles works, this logistics works in Brazil in an informal way. With regards to Tegma, as a top tier operator will bring technology and a great deal of -- more -- much more legitimacy to this market. It's worth pointing out that the market of used cars in Brazil is approximately 6x larger than the new vehicle market in sales. Especially, Tegma can utilize all of its expertise and technology and all of its infrastructure that it has through the operation of new vehicles and apply it to used vehicles. This conjunction of factors has been bringing a favorable involvement -- development for us. Therefore, we've had a growth in revenue and in earnings.

Nivaldo, next question comes from Marcelo Audi. Your CapEx for '23, was below that of the recent years or is this semester or this quarter an outlier [indiscernible]

No, there is no reason to believe that we have an amount well below other years. We have a proposal from the administration with company, with management, which has been approved and which we mentioned BRL 51 million as a goal for CapEx. In the first quarter, we normally comment that we have a lowering of this value, which accelerate during the year. So there's no reason to believe that the amount would be lower than that, which we had indicated for our team here.

Next question from [indiscernible] Congratulations on your results. Can you give us a little more detail about the development, about the performance of GDL and how does this growth [indiscernible]?

GDL has been maintaining in the first quarter, the same speed, the same velocity and growth from the last year, at the end of last year, we [indiscernible] the maintenance of their clients, the maintenance of the domestic logistics and in fact, an increase in automotive logistics, whether it is [indiscernible] GDL, has an occupation of [indiscernible] vehicles which are well above than which we had last year. So with that, we can explain part of the good results, which we have earned in the first quarter.

The next question, Victor from [indiscernible]. Victor, in Tegma, analyzing the expenses and administrative expenses. The quarterly average is BRL 20 million per quarter. And the expenses in the first quarter of '23 was BRL 22 million. How do you explain this as the nominal stability or the real falloff in the follow-up in real expenses in this period? And can you also speak about the demand? We see in the first quarter, there was in effect a pent-up demand effect based on a small -- a lower base of comparison. But how -- going forward, how do you see your daily sales in April? The first question is for Ramón. And the second question is for Nivaldo.

Okay. In relation to the first part, it's difficult to say indicative factor [indiscernible] in relation to so many because we're able to maintain our expenses and our expenses are under control. But like, I mean, also affirm that we are obsessive in relation to this control of expenses. We have performance goals connected with these controls. And approximately 3 or 4 years ago, we implemented a system, as we reported, system to our matrix budgeting which helps us to control our expenses and also disseminate the best practices in the company. Very interesting. We have monthly meetings involves the entire company, not only the area of the controllership but the entire company, which I think is one of the secrets of our -- reaching these controls, our expenses, our expense control.

Continuing on your -- on the answer and complementing what Ramón said, during April, sales have been approximately 11% above compared to April of last year. It's important to mention that April, due to the lower number of business days, the daily sales were 17% higher than in the previous period. It was a positive performance. And we can say equaling or reaching the level of that reached in the middle of '21. As far as clients, there was no significant changes in market share versus the market share in March. But there was a small absolute increase in volume. Next question. [indiscernible] we believe that there's space for some type of return on capital through extraordinary dividends for the repurchase of stock repurchase. We can't mention -- we have to mention our strategy, current strategy which we have been following for some time of growth, inorganic growth to answer this question. The principal utilization of our resources is focused on this growth and inorganic growth on which we have been working with a great deal of energy. However, we have not given up on the idea of an eventual distribution of resources through the mechanisms which you mentioned, in case we do not have a success in our initiative from the standpoint of temporary -- this temporary initiative that we're looking at. Everything is on the table and there will be -- these questions are constantly under consideration.

We have a few more questions. The following is from [indiscernible] from BTG. Congratulations on the results. On the question from my side, how is the competitive environment for the new entries in the market, especially the Chinese companies? And how are they -- these stops of production in the first quarter have affected you? Production risk and I'm going to pass it over to Nivaldo.

As I said, as far as this Chinese competitor, you can talk about [indiscernible] BYD is already a reality in the Brazilian market. We received from GDL that -- their logistics. We received vehicles through Vitoria, which is run by GDL. There they are inspected and made available for sale in the market. So there's already a constant rhythm of receipt of these vehicles. Also, Tegma does this distribution for internal classification. We have the entire chain of these brands. As far as Great Wall, there is underway a process of bidding for the transportation needs of that company. These cars may also possibly come in through Vitoria port and will be handled by GDL. Speculation about factories exist in Salvador, [indiscernible]. We have -- we don't not have any effective information, any final information about those, information apart from this.

Next question comes from Luiz from Safra. Can you speak about the possibility of M&A in the short term?

What can I say? As I mentioned previously, we mentioned another amount of the [indiscernible] that we have been working on this a lot, in this sense. And we have counted on the support of a -- specific focus on this question, we have several M&As signed, NDAs signed with several potential targets. But we have nothing concrete or finalized yet but in contrary to report as of yet. We're working on these, that can -- nothing that can be announced. All I can say is ratified through NDAs, that this is our strategy to get to logistics, integrated logistics sector in which we can grow, maintaining our margins, creating value for our stockholders, with profitability -- with enough profitability as we can improve in the company the results of our logistics, our integrated logistics. So we see this sector as a blue ocean for opportunities where we can utilize our expertise and second thing is for acquisitions, which are harmonious with the type of business that we do today. We can utilize the capacity to leverage resources so that we can consolidate this sector.

Next question, which we received from Victor. Victor [indiscernible] and he sent it via chat. Can you please tell us how the principal clients must be referring to the sale of vehicle -- of new vehicles? And I'll pass it over to Nivaldo.

Thank you, Victor. Sales in April were 10% or 11% above what we had last year in the same time in April. And due to the lower number of days, there's been, these sales were actually better and our market share was very similar with the market share of March. And then the Chrysler brands, we can point out GM, Volkswagen, Toyota, 3 principal brands that we work with here among our consumers.

One more question from Gabriel from Santander. Congratulation on the results. Two questions from my side, about the methodology adopted that refers to the change in the methodology for calculation of market share after the benefits of FX. Despite these modifications in this market share, automotive market share, can you give us a little more color as far as the motivation for this operation? We believe that it's more faithful, more fruitful and what is finally your strategy in relation to markets there? I am going to pass this over to Ramón to answer.

In relation to the motivation, as we mentioned, it's -- we've utilized data that we then -- in some ways estimate where we didn't have real security about the real inventory of the car company, the position of stocks, of their inventory [indiscernible] made this number just a little bit -- it wasn't exactly 100% trustworthy. There is some uncertainty. So now we're utilizing a denominator of the number of licensing of new cars, it's more simple. And then in our database, we have adjusted in the past with a graph that we present here, shows the variations are small. It's important to be able to compare the evolution of this indicator. I think your question also, you asked something about our strategy in relation to market share. But in -- finally our market share is -- we don't have much view about it. It's connected to and it depends on the regions, which we've done recently, where we have our lines established and also the clients that we attend. We attend almost the entire market but some of them are well known by you all. They have a bigger participation than the average. So these clients are successful in the sales of their models. This affects our market share. On the other hand, if some of these clients have a -- are more affected for exact -- of the lack of components, also these shutdown of factories more than our business but also affect our market share. In the long term, it has been around 25%, 26% with several variations, but it doesn't have much oscillation in that, another aspect that's important. And also mentioned in previous question, [indiscernible] our capacity attempt new entries in the market. Therefore, I can ratify what we said and other opportunities that we have positioned ourselves really aggressively, participating in -- with the objective of taking part of this cargo, which is now being setup for us.

We have a question, one more question via telephone from Luiz Capistrano from ItauBBA.

Good afternoon, everybody. [indiscernible] of the market for new cars, I wanted to check with you how about the resetting that's still very weak. And if you had any discussions with the automotive manufacturers, if you can give an overview, a general overview of what is -- what's a more advanced step. There's a lot to be discussed. I wanted to see if you could give us an idea of what you think has the most chances of coming -- of happening? Do you think that the government is really able to implement these things, these updates in these discussions? And as far as the market of Fastline, if you can talk about the potential for that market, the view of growth, if there's a chance by the end of the year, you have seen this really taking up as a new separate business sector. Give us some more color about that segment. Thank you very much. Thank you for the opportunity.

Luiz, this is Nivaldo speaking. Let's go ahead. First quarter, despite all of these difficulties of sales that have happened and secondly form the fact that it's -- is set out to where [indiscernible] to regulate stocks. In other words, even though there were -- production stopped, vehicles were still being transported from the [indiscernible] through the sales to the distributors. So our movement continues to operate. Question of subsidies and possible incentives beyond those which are being given by the automotive dealers, not for the government but by the dealers themselves are in the discussion. The access that we have through the [ Fabian ] and other company, other organizations is fantabulous. We don't know exactly what may come ahead. The sales at retail have been -- have fallen off but at the same time, direct sales have grown quite a bit. When I say direct sales, [indiscernible] talking about sales aimed to the -- through the rental company. There is a change, a cultural' change in Brazil and which is the adoption of a vehicle -- rented vehicle is and a type of transformation, increasing its volumes. Fastline, as we mentioned, the market -- the used market has a huge potential for developing 6x or 7x times larger than the market of new cars. The possibilities of Tegma utilizing all of the expertise that it already has, all the infrastructure that we have, all the system infrastructure that we have, will bring to this market a new logistic mode. So there's a whole field of development in the Fastline situation.

[Operator Instructions] We are now closed at this time the session of questions and answers. I'd like to pass the microphone back to Nivaldo for his final comments. Mr. Nivaldo, please go ahead.

Wanted to give my special thanks to all of our employees, Tegma employees who worked, preparing these good results for the first quarter. And I also want to thank all of you who have participated in this video call. We hope to see you again soon in the next quarter. Thank you very much.

The audio conference of Tegma is now closed. Thank you for your participation. Please have a good afternoon and thank you for using Chorus Call.