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

Good afternoon, and thank you for waiting. Welcome to the teleconference of Tegma Logistics for the discussion of results in the second quarter of 2023. We have with us today Nivaldo Tuba, CEO, Tegma; and Ian Nunes, Manager of Investor Relations. We mentioned that this is being recorded. [Operator Instructions] The replay of the event will be available right after the closing of the event for a period of 7 days. Therefore, we'd like to start. Pass over the microphone to Nivaldo, President of Tegma, who will start the presentation. Senor Nivaldo, please continue.

Good afternoon to everyone. I am Nivaldo Tuba, CEO of Tegma. In the name of all the -- entire company, we thank you for your participation in 1 more teleconference results of earnings. I would inform you that exceptionally in the event today, we'll not have the participation of our Financial Director in relation with the investors, Ramon Perez. This absence was programmed due to his participation in a course in advanced management in the [indiscernible] overseas. With that, our Manager of Relations, Ian Nunes, will handle part of the presentation today. We also have the support of Felipe Fogaça, a member of our Investor Relations team. As is customary, we will start our presentation on Slide 2, where the participants can see the disclaimer with respect to our prospective declarations. In Slide 3, we'll talk about the highlights of the third quarter. The first point we'll mention about the approval of the payment of dividends and interest on capital. Reference to the first quarter -- first half of 2023, we will distribute BRL 37.6 million, equivalent to BRL 0.57 per share. This will correspond to 50% of the net profit of the first half of 2023 and 59% of the adjusted net profit for the constitution of the reserves for fiscal centers. These will be paid on the 17th of August. Benefiting those stockholders who have a tougher position as of Tuesday, the 8th of August. This [indiscernible] will depend -- will correspond to a dividend yield of 2.6%. Following that, we'll bring into considerations of the administration of Tegma with respect to the program of incentives for the government for the purchase of vehicles. This started on the 7th of June and continued for 1 month until the 7th of July. The discount on popular cars was BRL 2,000 to BRL 8,000 according to criteria of sustainability, economic sustainability, the environmental sustainability and the national [indiscernible] production. The management of the company identified negative and positive points in this program, which will be discussed in the earnings release of this quarter. Among the negative points, we point out that the announcement of the program was early, made on the 16th of May, which impacted negatively sales within the second half of May and the beginning of June. Beyond that strict sales, especially 2 [ rentals ] companies, which we're waiting to see if they were being included into the period of the exclusivity of discounts for individuals. Finally, the stock, the company stocks, due to the disconnection between the program production and sales, the production grew greatly in May and June. We understand that there's principal factors generate a production halt in the following months and not the question of structural demand. As we said previously, there are also positive points which are worth mentioning, and there's a discount -- spontaneous discount on some companies beyond the amount offered by the government for several models, in fact, for models which were not even eligible in the program. With that, we were able to observe a change in the mix of sales in the month of June, which [indiscernible] core price cars and detriment to the more valuable car -- higher-priced cars. It's important effect was that it was the maintenance and the reduction of prices and discounts for certain models, something that happened even after the end of the program in the month of July. As a third highlight, we've spoken about the cyber attack which hit the company, and its controlled companies suffered in May of this year. We entered quickly to reestablish our activities, being with [ the ] guarantee the maintenance of our services and our controlled companies without any impact on our results. And the fourth highlight, as was mentioned in the results -- earnings results call, we're very happy to communicate that we've conquered the third -- for the third time this certificate of Great Place to Work, GPTW, and which motivates us to continue with our initiatives aimed at creating a professional environment, more and more diverse, collaborative and innovative. Fifth and last topic, talked about the first integrated report of Tegma, which begins on the 14th of July this year. This marked transparency and integrity with respect to initiatives developed by the company and there is environmental, social and governmental -- governance areas, as well as the future goals established by the company. The report, the integrated report is available in the digital media of the company at the site, the regional site, RI site, by our site, LinkedIn, Instagram and Facebook. Now going to Slide 4, we're going to talk about the [ whole ] data of the vehicles market in Brazil. As you can see in the first graph, domestic sales in the second quarter of '23 were 4% above those compared on an annual basis. This is a reflection of the better availability of components such as semiconductors and also following the [ distribution ] tendency for the improvement in the auto market in Brazil, which could be noted. As we also mentioned previously in the highlights in the second half -- in quarter of '23, the federal government implemented a program of discounts for new cars up until BRL 120,000. This [indiscernible] was very well accepted by consumers and by the industry, however, it is difficult to quantify the effects of the programs of the vehicle sales in the quarter. Production, on the other hand, grew by 3% in the second quarter of '23 in comparison on an annual basis, as we show in the graph below in the left, with growth explained by the same motors of evolution in the domestic sales in the period and is impacted also negatively by the fall in exports. It fell 16% in the second quarter of '23. Looking to Slide 5, we have the principal operational indicators of the logistics -- automotive logistics division. The quantity of vehicles transported in the second quarter of '23 was 157,000 units, 14% above on an annual comparison, and our market share has recovered and reached the level of 26%. Recovery of this market share reflects the behavior of the principal clients of Tegma during this period, performance of the clients. And finally, the distance for trips was still lower than on [indiscernible] basis, mainly due to the maintenance of tenancy, recent [indiscernible] and increase in the participation of domestic sales in the south and southeast regions, which are -- where the biggest producers are located. The participation in these regions also represents 71% of all the licensing in the country. With this, I'm going to pass it over to our Manager of Investor Relations, Ian Nunes, who will talk about our results, our cash flow and other indicators. After that, we will open up for questions and answers. Thank you very much for your attention, and have a good afternoon.

Thank you, Nivaldo. Good afternoon to everyone. I'd like to go to Slide 6. We will talk about the results of the a lot of Automotive Logistics period. As you can see in the graph in the upper side, 24% of our net revenue [indiscernible] in the second quarter of '23, which can explain principally through the increase of 14% in the quantity of vehicles transported in that quarter. Beyond this performance, there was also a readjustment in prices, transport prices realized during 2022 and 2023. We also like to highlight the development of good performance of Fastline, our unit of logistics for used vehicles, which continues to pretend an evolution very positive revolution of revenue, as well as the logistics services of region benefited by the increase in industry stocks. We'll see the evolution of the EBIT and EBITDA in the second quarter of '23 in the annual comparison, accompanying their respective margins. A slight reduction in the margin EBITDA for '23 -- for the second quarter of '23 comes with discounts [indiscernible] discounts of clients related to the disconnection of their pass-through of the price of [ diesel ] in the previous periods. [indiscernible] the realignment of the prices in the division to levels in line with current fuel prices. On Slide 7, we present the results of the Integrated Logistics Division. We can see that the net revenue in even in the second quarter of '23 was reduced by 7% on the annual comparisons reduction, happened [indiscernible] the chemicals through the instability and the operational growth generated by the renewal of the fleet of silo trucks, [ bank ] trucks. This renewal happened in the quantity transported of chemical products. On the other hand, the operation of electro domestic of electrical products had a slight recovery in revenue, reflecting principally the recomposition of the prices which are practiced in that division. On the graph below, we see the growth in the EBIT and, as opposed, the EBITDA margin, represent growth in the second quarter of '23 in comparison to the annual [indiscernible] influenced; by the result of the operation of electrical products in the period and the disciplined control of cost and expenses in the operation of chemicals. In spite of the fall in revenue, margins had maintained close to the average levels -- historical levels of the division. On Slide 8, we'll talk about consolidated results of Tegma. The net revenue was BRL 367 million in the second quarter of '23, growth of 20% in comparison [indiscernible] comparison, reflecting the growth of the Automotive Logistics division in the period. You can see that both the EBIT as well as the EBITDA present expansion in comparison -- on annual comparison and a reflection of the growth of the revenue of the division of Automotive Logistics, bringing a better dilution of fixed costs that was disciplined and controlled costs and expenses in both operations. The stability of the margins in the quarter, despite of the growth of the Automotive division, comes from the commercial discounts previously mentioned and the realignment of prices in the transport on the same dynamic of division. And finally, the net revenue of the second quarter was BRL 39.9 million, 30% above on an annual comparison, an expansion of 0.9% of the net margins. The result is the fruit of the growth and the results of the operational division of the Automotive Logistics division. The financial results even more positive with a constant generation of cash and the structure of capital, which we've deleveraged. Also worth mentioning that the financial results of the second quarter '23 were positively impacted by the recognition of BRL 2.4 million of revenue, financial revenue, resulting from the [indiscernible] the monetary correction of tax credits recognized in recent years. In the Slide 9, we see on the graph on the left, the cash flow cycle was 41 days, which corresponds to 3 days less than in the cash cycle in the previous period, and greatly below that of June of '22. In relating to CapEx of the company, a total investment of [ BRL 5.2 million ] for the second quarter of '23 was BRL 5.2 million, 1.4% of our net revenue. No investment which is individually -- highlight individually. And finally, on the right, we see the cash flow -- the free cash flow of the company of BRL 33 million positive in the second quarter of '23. This generation of cash is as a result of the operational behavior, positive behavior performance aligned with a cash cycle that's improved and the compensation of BRL 5.1 million in tax credits contributed positively to the operational cash flow. On Slide 10, we present details on the structure -- capital structure of the company. In the first graph, we see the current cash situation, which is BRL 237 million, really superior to the amortization of the debt coming in the coming years. It's worth mentioning that in the 17th of July, we did the liquidation of a loan of BRL 40 million principal and BRL 3.1 million in interest rate and interest, in line with our program of amortization shown in the first graph. The graph on the side, the cost of the debt, has maintained at CDI plus 0.07 in June of 2023. Below, we can see that our cash position in June of '23 was BRL 146 million, below the position in March of '23. This reduction occurred, but even though we generated a great deal of cash at the time, to the payment of dividends and interest on capital referenced to the year 2023, which totaled BRL 39.6 million. Finally, on the right, our rating, which was reaffirmed by Fitch in April this year, has maintained at A Local, with Stable perspectives. And on Slide 11, we can see the evolution of our return on invested capital and also our net capital. In the gray line of 29.2%, 1.8% [indiscernible] above the first quarter, like the evolution -- positive evolution of the results of the company. The same is true with the ROE, return on equity, on the orange line, which expanded in the second quarter of 2013. Also contemplating a good result of the joint venture with GDL and the improvement of the financial results in that period. In the graph below, you can see the evolution of EVA in the second quarter '23. Maintained the tendency of recovery [indiscernible] the middle of '22. This evolution is a reflection of the good operational performance of both divisions, the resilience of logistics -- car logistics market and the good results of Fastline, our operation of logistics for used vehicles. On the right, we show a history of dividends and interest on capital paid by the company. On the gray line, we indicate the payout of the distributions. Anticipation of the profit for the first half of '23 corresponding to 50% of the net revenue or 59% of the net revenue, considering the reserves for fiscal incentives. At the orange line, dividend yields in the last 12 months corresponds to 8.1%. Finally, looking at the last slide. We see the; behavior of our stock in a [indiscernible] index. As you can see, they showed a performance above that of the stock market in spite of the uncertainties of the automotive sector. This performance is a reflection of the operational resilience of the company, as was shown in the graph below and the shares of Tegma are shown in multiples above the average, as well as occurred with a good part of the listed companies in Brazil influencing the scenario, macroeconomic scenario still in recovery. With that, I'd like to thank you all for your attention and I open for the section of questions and answers.

We will now start the question and answers period. [Operator Instructions] First question comes from Luiz Capistrano, ItauBBA.

I have 2 questions. [indiscernible] we saw the impact of the government's programs. And if that's over with or that will come back somewhat before that program started, which gave us -- we had -- is looking very poor, and we're finally seeing a fall of interest in relation to any type of reduction. [indiscernible] the audio here? I'd like to hear a little bit from you about perhaps its [indiscernible] in the coming months? And understand how is the market overall in relation to these new variables? The second question, in relation to the [indiscernible] which is the entrance of the [ GRD ], which show the price is very low. And all of the companies -- car companies have lowered their prices due to that, if this has an impact on the types of vehicles? So this might change the...

Luiz. As far as the perspectives of the industry, the stocks are still maintaining themselves a little bit above in the factories, above the expected levels in spite of the government program to accelerate sales. But it didn't really lower the stocks enough. On the other hand, we have several effects such as the fall of interest rates, better conditions for financing. And principally, the biggest companies are still maintaining their discounts, which is leveraging these deals again. So we believe that the humor of the market is more positive than negative due to these sequences of months going forward. As far as the BID, [indiscernible] arrived and they have a strategy in a market which is very strong, very, very aggressive. They have their sales underway, and we have participated directly in their process whether through the receipt of parts and distribution through the [indiscernible] with the reception of vehicles through -- via Tegma. So they're making noise in the market. This will affect the internal market as trade a little -- that it would change. These are -- they don't have hybrid cars. These are electric vehicles. These are exclusively electric vehicles, but they're making noise and they want to -- if we look at the sales of Great Wall and BYD of July, it was equivalent a little bit above what large traditional brands such as for Porsche or BMW are selling here. So they're arriving, and their perspective is that they have a factory, so there's good perspectives for these -- both of these companies.

Interesting.

Good afternoon. This is Ian from Tegma. I'm going to start with a few questions that we received through our podcast -- through our broadcast. First, from [indiscernible]. Congratulations on the results. In terms of market share, does that have to do with new clients? Or is it just more sales of current clients? And he also asked a second question. The gains in revenue of GDL, your joint venture of storage in the [indiscernible] that have to do with the BYD?

No, beginning of market share is not new client. There was an increase in the number of sales and a bigger concentration in those brands, which are already traditional clients of ours. I can point out which is public, such as GM. As far as BYD in the GDL effect, it's true. BYD is an old client of ours not just in the automotive area but also in other areas as well, and we received practically all of their imports BYD that coming through Victoria's Port and are nationalizing GDL and then are distributed through GDL. All the concentration of cars that are being imported by BYD are also coming in through Victoria's Port and having stored lie in GDL. So BYD has cooperated for the increase of revenue of GDL.

The second question comes from Lucas [indiscernible]. Congratulations on your results. I'd like to know, after the end of the government program of incentives, the purchase of vehicles is seeing a fall in the transport of new vehicles. If you're seeing that -- seeing a fall off in new vehicle transportation? Nivaldo?

No, we're not seeing that effect. The levels of -- are being maintained even because the cars are being sold, there's a delay in that and it's also relevant the fact that many of the dealerships of all our brands are still maintaining their -- the level of discount. So these are factors which are maintaining the level of volume up until current moments.

[indiscernible] Congrats on the results on a robust -- and recovery of market share. What is your expectation for your market share going forward? And how do you see the level of sales in the vehicle market in the second half of the year, [indiscernible] '23? Let me answer this. I think that, as everyone knows, our market share, we have no way to really control it. It's the conquest of new clients as we have done with BYD, and the evolution of our market share is a consequence of the evolution of the market share of our clients. So we have had a recovery in relation to '22, as Nivaldo mentioned, due to the recovery of the sales of GM. And going forward, it's very difficult for us to say what will happen. Depends exclusively on the performance of our clients. As far as the volume of sales in the market -- in the new vehicle market in the second half of '23, we have this -- we're looking at this -- at the beginning of the interest rates -- falling interest rates. And when we see the discounts of some vehicles, the [indiscernible] of vehicles on the part of some dealerships and companies. All of this makes it difficult to foresee but brings some positive impact so that we are confident that the second half will be even a little bit better than we expect. However, it's difficult to make any prediction in that sense. Another question from Richard [indiscernible]. Congratulations on the results. Can you please tell us about the perspectives of the financing conditions for new cars for retail sales of new vehicles, please?

Thank you for the question. I think this is a question which is a problem for the entire economy, not just -- the automotive sector is even more critical due to a high level of nonpayment of debt. And to pickup is still difficult to recover these vehicles from clients, so these are restricted points. But I think we can say that we're at an inflection point. The fall of the [indiscernible] straight indicates it's tendency. The association of the financial companies and the car companies, given that it was indicated that the second half of the year will be very positive, and that the car companies in the short-term plan to do a revaluation of the interest rates for their financing plan. And I think additionally, there are several points which are not yet possible to calculate. For example, the guarantees, which has a lot of potential for the financing of vehicles starting. So as soon as it was approved, which will improve the level of guarantees of the banks, helping the banks to have the [ real estate ] as guarantees. And a more relevant item for this sector, which is taking away the guarantees law, it's the different legal projects which are in Congress [indiscernible] dejudicialization of the recovery of these vehicles. So if this is approved as it is, it has a tremendous potential, a positive potential for the automotive sector. So answering your question, this is an inflection point, and we -- the things will improve going forward.

We have a question from Marcelo from BTG. Congratulations on the results. Can you please talk a little bit about Fastline? What are the difference in this operation between this operation and new cars? And how do you see this performing in the Fastline in the long term? How do you see the performance?

Marcelo, thank you for your question. Fastline is the transportation of cars, used cars. It operates nationwide. The biggest difference is that it can -- we operate with goosenecks in long trips, but for short trips in urban areas basically it operates on platforms or trucks. The client is a little bit different. The client from Fastline are principally rent-a-car companies, individuals, insurance companies and finance companies. It's an operation which has historically been performing with a constant growth, reaching volumes always above the numbers which are budgeted and gradually, with a growing margin, getting close to the margins that we have in the operation of new vehicles. It's an operation which has a horizon, the growing horizon. As an analogy, today, Brazil has a move of sales 6x bigger of used cars than in new cars, so you have a scenario of growth going forward.

Next question from Pedro [indiscernible]. Congratulations. I want to understand what is -- what we have to see in the incentives of the government in the operation of Fastline? And secondly, the market share which has covered its historic levels, is this due to growth? What's the normalized growth rate?

Fastline has been favored by this. Once there's more new cars being sold, then there is more sales of used cars as a consequence. As this transport of used cars consequently, would -- there was also a movement for Fastline. So we felt, yes, additional positive movement in Fastline. Whereas market share recovering its historical level, as we mentioned here, there was a growth which comes from larger sales by GM, which is a very, very relevant client for Tegma. As far as the normalized level, it's difficult to say. For us, the bigger the better, but we're seeing that historically that the recovery after this -- pandemic of this level.

We'll pass the next question. We already answered part of this, Eduardo. Two questions from my side. Can you comment how to evaluate the sales of vehicles in July? And how do you strategy of BYG, and what are the perspectives? The second, we've already answered -- Nivaldo already answered, so I'm going to go for the answer in the month in July for [indiscernible]. Eduardo, July was a surprise, month of July. We are working with a sales of 8,000 or 9,000 cars per day, and its level reached 10,000 cars per day. So effectively, there was positive performance in July. Difficult to quantify that how much of this was organic. We had a delay of approximately 15 days between the sale of a car and the vehicle being licensed. Part of the performance of July is the leftovers from the government program in June. In July, there was also a stock due to the fiscal situation. The rent-a-car company also cooperated very positively in the month of July since they were held back to the delay in the release on the part of the government. So this wound up concentrating sales for the rent-a-car company in the month of July. The highlight of the Volkswagen brand, which got close to Fiat in market share, and the Polo, which is a car which has its sale always in average levels, took off the level of sales. Several resellers maintained their discounts or offered special discounts for this government program, and these are measures which happened which wound up making it possible to have this growth in the month of July. And finally, as I said, these 2 Chinese entrants, BYD and Great Wall, were very surprising, overcoming the sales of BMW and others. Next question from [ Rodrigo Smitch ]. Can you please explain in more detail the question of the operational flow in relation to fleet operations?

This is the following, [indiscernible]. One of our big clients, our principal client in this line, came from a change, a rule from the time of the metal tank trucks would bring their products. In that way, we've had to change our fleet, which is a process which takes time. It's not something that we have to purchase and manufacture these tank trucks and put them in operation. So we have the first of these tank trucks with program deliveries, and so little by little, we're getting our fleet up to this new client -- for this new client. The tank trucks which are older will be utilized in other routes. That's a question of until we have the receipt, the effective receipt of all the tankers which have been purchased and are in production, and part of them have already been received.

[Operator Instructions] We now close this time of a period of questions and answers. We like to pass the microphone back to our CEO, Nivaldo, for his final consideration. Nivaldo, please go ahead.

Thank you very much for your participation. We hope to -- we have -- let me these reports in a satisfactory in the second quarter. We are starting the third quarter with strong. We are maintaining and optimizing the report results reaped in the first half of the year. Once again, thank you very much, and have a wonderful weekend.

The audio conference of Tegma is now finalized. We'd like to thank you for the participation of everyone. Have a good afternoon, and thank you for using Chorus Call. [Statements in English on this transcript were spoken by an interpreter present on the live call.]