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

Good afternoon, everybody. This is Ian Nunes. Welcome to the conference for the discussion of the results referenced to the fourth quarter of 2023. This conference is being recorded, and the replay can be accessed on the site of relations -- Investor Relations for the company. [Operator Instructions] For those listening to the conference in English, we make the -- in the chat a link for the presentation in the English version since we will be projecting only in Portuguese. I'd like to now pass the word to Nivaldo CEO of Tegma, who will start our presentation. Please, Nivaldo please go ahead.

Good afternoon, everyone, everyone. This is Nivaldo Tuba, CEO of Tegma in the name of the company, and thank you for your participation in our results call on the fourth quarter of 2023. Together -- I have Ian Nunes, Felipe Fogaça, of the IR. As is customary, our presentation will start with Slide 2, where the participations will see our disclaimer with relation to our prospective declarations. Going to Slide 3. I'm going to talk about the highlights of the fourth quarter. As the first point, we want to comment about the proposal for the payment of dividends and interest of -- on capital reference -- with reference to the -- for the year 2023, we proposed for the approval in the assembly -- general assembly, which will be held on 11th of April, the payment of BRL 47.5 million or BRL 0.72 per share, which, together with the anticipation from August and November, we correspond to 82% of the net profit adjusted by the constitution of legal reserves and fiscal incentives. We'd like to mend these if they are approved, will be paid on the 23rd of April, benefiting those stockholders who are in the stockholder list on April 11. The total amount paid is the highest registered in the company since the IPO. As the second highlight, we're talking about an important project of the gooseneck trucks, which we converted from diesel to a totally electric battery powered production. The vehicle will have an autonomy of approximately 500 kilometers. We have an initiative -- it's an innovative initiative and we utilized only the transport of new cars to Paraguay in one of the routes that Tegma passes through the Mercosur. Initiatives like this and our firm commitment to continue to evolve projects that mitigate the environmental impact of our operations. Our third highlight, we have a reformulation of the institutional presentation in the area of Investor Relations. The new version has sought to bring more information with respect to other initiatives of Tegma, beyond logistics for new vehicles, information about our joint venture with GDL, our startup Rabbot and the operational logistics of newly licensed vehicles. The Fastline, which will bring more information about the Brazilian market, automotive market. On Slide 4, we're going to talk about the principal data of the new vehicle market in Brazil. As we can observe in the first graph, domestic sales in the fourth quarter of '23 were 15% above the previous year. This performance comes from better economic conditions in the country, lowering of unemployment, improved income and as well as the improvement of the financing conditions for new vehicles in the country. Domestic sales in 2023 were 11% higher compared to the previous year. This number is much higher than those estimated by the market surprised came from the improvement of the economy, national economy and the better financing conditions and a better international competition with the comers -- with the entrance of Chinese players in the electric vehicle segment. As far as the production, it presented a reduction of 4% in the fourth quarter of 2023. As we can see in the graph in the lower left, this falloff can be explained by a strategy of sales of the car builders who decided to sell off their stocks at that time, something like 20%. They had caused an increase of 41% of the sale of imported vehicles in the country. The [ relevant ] participation of 18% in domestic sales in the fourth quarter of '23. Another important impact on the production can be observed in the graph next to it, which shows the exportation of vehicles in Brazil, which retracted more than 30% in the fourth quarter of '23 just due to the reduction in the market of several countries in Latin America beyond the competition for -- of the Chinese vehicles in these markets. On Slide 5, we show the principal indicators, operational indicators of the automotive logistics division, the number of vehicles transported in the third -- in the fourth quarter of '23 was 175,000 units, 6.3% higher than the previous year, a reflection of the growth of domestic sales, as we explained in the previous slide. Our market share remained practically stable when compared to the previous year at a level close to 24%. And having -- was affected by the performance below-normal of clients -- of important clients of the company. Finally, we like to say that the average distance of the trips was 4.8% higher than the annual comparison due to the increase of participation of domestic trips and long distance in the total. And also the growth of export trips via trucks to Mercosur countries. After these initial highlights, I'm going to pass it over to our Financial Director, Ramon Perez, who's going to talk about our results, our cash flow and other indicators. And we'll then open up for questions and answers.

Thank you, Nivaldo. Good afternoon to everyone. Looking at Slide #6. We're going to talk about the results for us division of us -- automotive logistics. Looking at the graph above, you see there's a growth of 11% in net revenue in the division in the fourth quarter of 2023, which is explained principally by the increase of 6.3%, a number of -- and 4.8% in average distance traveled by these cars. The growth of 18% observed in the end year of 2023 is principally due to the growth, the number of vehicles transported and to the readjustments of the tariffs for transport realized during the year. It's also worth remembering that the large oscillation in the price of diesel in the last 2 years has caused both positive and negative reduction -- changes in our prices. And finally, we point out the goods performance of Fastline, our unit of used vehicles, which has had a very positive effect on our revenue. Below, we see the evolution of the EBITDA in the fourth quarter of '23 in the annual comparison as well as in the margins. We can see that the margin in the fourth quarter of '22 is adjusted by the event -- the nonrecurring event, we reduced in BRL 5.5 million, our expenses of the division in that period. The reduction of the margin EBITDA in the fourth quarter of '23 of 16.5% to 15.1% reflects 3 factors. Discount -- commercial discounts conceded 2 clients related to disconnection between the pass-through of diesel prices from previous periods together, which add up to BRL 3.5 million, realignment of our prices in the division to current prices based on the current fuel prices as well as the increase in administrative expenses. This final has cause -- has several causes, which are detailed in our earnings release. In the year of 2023, the EBITDA of the division reached BRL 218 million with a margin of 15.3%, 0.7 percentage points below that of 2022. In the same way, the reduction on the margin -- EBITDA margin in the year comes from the commercial discounts mentioned in the fourth quarter, together with what happened in the second quarter. The realignment of tariffs based on diesel prices and the increase of administrative expenses also detailed in our earnings release. On Slide 7, we show results on the division of Integrated Logistics. We can observe that the net revenue of the division in the fourth quarter of '23, increased 9% due to the growth of our operations of chemicals and electro -- electronics, and the recovery of the volumes and a new contract as is explained in the last quarter or the stability of net revenue came from the operational impact from the renewal of the fleet of trucks of silo trucks, the consequently, loss of volume of transport and storage. In the graph below, we can see that the EBITDA margin was retracted in the fourth quarter of '23, impacted negatively by events, which even though they had characteristics nonrecurring were not adjusted to the EBITDA and added almost BRL 2 million in the fourth quarter of 2023. Altogether, these events are detailed in our earnings release. I'm going to pass the word back to Nivaldo, who's going to talk about our joint venture, GDL.

Thank you, Ramon. Looking at Slide where we've shown over -- a general overview of our joint venture with GDL. It was created in 2018 through the association with another important and traditional player in the market based on Espirito Santo, Silotec. GDL, the current logistic operator in that state with 1 million square meters of storage area, employing more than 500 peoples and attends a wide range of clients in different sectors. The principal services are; movement, storage, general storage and customs warehousing and the diverse cargoes. The company also has 2 distribution centers, offering services-as-a-management, patio management for vehicles and heavy machines as well as previous inspection to the delivery of those assets, the so-called PDI, predelivery inspection. On Slide 9, we show the highlights of GDL. We can see in the first graph, the net revenue in the fourth quarter of '23 grew 55% in the annual comparison, reaching BRL 48 million. While in 2023, the net revenue was BRL 160 million, a growth of 36% compared to '22, maintained the tendency of growth observed in the most recent years. This performance of net revenue is principally the fruit of the growth and the service of logistics and imported vehicles. We should point out that the sale of imported vehicles in Brazil grew by 42% in the fourth quarter of '23 when compared year-on-year. It was impacted by the aggressive strategy of the Chinese car manufacturers coming into the market as well as the importation of vehicle -- electric vehicles starting in January of 2024. On the graph below, we will show the evolution of the net revenue and the margin -- net margin of this joint venture. The growth of net profit, which was BRL 34 million, the increase of the net margin, both in the quarter as well as in the year reflects the growth of revenue, together with the efficiency -- operational efficiency of costs and expenses. With that, together with the low need for investments, and the dividends distributed by GDL reached BRL 29 million, the highest since it was created. We also point out that the ROE maintained a growing curve reaching 64% in 2023. I'm going to send it back over to Ramon, who will continue with the consolidated results.

Thank you, Nivaldo. Looking at Slide 10, we look at the consolidated results. The net revenue in the fourth quarter of '23 was BRL 454 million, which represents a growth of 11% on the annual comparison, reflecting the growth of both divisions in that period. In the same tendency, the net revenue of 2023 presented growth for the second consecutive year, reaching BRL 1.6 billion consequent principally of the recovery of the Brazilian recovery. We saw that in the fourth quarter of '23, the EBITDA margin retracted 1.5 percentage points, reflecting commercial discounts given and the realignment of tariffs prices to the actual current price of diesel, both in the automotive division as well as events, nonrecurring events, negative nonrecurring events in logistics -- Integrated Logistics area, which were not adjusted to the EBITDA. EBITDA for the year 2023 reached BRL 265 million, corresponding to a margin of approximately 17%. Finally, the net profit in the fourth quarter of '23 was BRL 51 million, 10% below the year -- the previous year due to a nonrecurring event, which impacted positively the net profit of the fourth quarter of '22 of BRL 8.2 million. If we don't consider that, the net profit of this quarter will be 5% above that with a reduction of 0.6 percentage points in the net margin. This fall in net margin is due principally to the retraction of the operating margins as was mentioned previously, [indiscernible] the very good financial results in the results of our joint venture with GDL. In relation to our net profit of 2023, which was BRL 182 million, we can state that the growth of 14% -- we can see a growth of 14% compared to 2022, an evolution in line with our revenue. Beyond the results, the operational results of the operators of the company, it's worth mentioning that the performance -- the recent performance of our invested company, GDL, as was previously mentioned. Looking at Slide #11, we present on this graph on the left, the cash cycle of December '23, which was 42 days, 6 days better than the cycle of September '23, but equivalent to a cash cycle of December. We did not identify any factor in our cash cycle that would not be habitually observed in our business. As far as CapEx of the company, the total investments in the fourth quarter of '23 was BRL 11 million or 2.3% of net revenue, principally with the acquisition of silo trucks for the renewal of our fleet, which totalized -- totaled BRL 4 million, an investment of BRL 2 million, which is part of the implementation of the new ERP. CapEx for the year of 2023, on its first part, totaled BRL 33 million, an investment that was most -- stood out in the [ many ] was the renewal of the fleet of silo trucks for the operation of chemicals and in the amount of BRL 9 million. Finally, on the right, we show the free cash flow of the company, which in the fourth quarter of '23 was BRL 2 million negative. This behavior close to 0 was principally due to the increase of our amount of accounts receivable from September to December of '23, [ fruit of ] the dynamics of the receipt at the end of each year of the car companies due to the final results of -- operational results of that period. The free cash flow of BRL 141 million in '23 was slightly lower than 2022, has a component -- a relevant component of the taking advantage of the tax credits in both periods. If they were expunged the free cash flow in 2023 would be BRL 127 million, 21% above 2022, reflecting principally the growth in the automotive market and the quantity of vehicles transported and the operational performance of both divisions. On Slide 12, for our story of capital structure. On the first graph, we can see the current cash of BRL 233 million, which is above the payments on our debt, gross payments on our debt for the following years. In the fourth quarter of '23, we hired -- we contracted BRL 5 million in a credit line of the FINAME, BNDES, the acquisition of silo trucks aimed at the transport of chemical products. You can see on the graph next to it. The average cost of the debt was CDI plus 1.6% in December '23. On the table below, we can see that our cash -- our net cash position in December of '23 was BRL 131 million, a reduction compared to September due to the increase in the cash cycle versus September '23. Finally, on the right our rating attributed by Fitch in 2023 is A local with a perspective -- stable perspective. Looking at Slide 13, we can see the indicators of profitability of the company. Return on capital invested in the fourth quarter of '23 in gray was 27.2% compared to 28.7% in the previous quarter. Again, in the case of ROE, on the orange line, we saw a decrease in the return calculated. These variations were due principally to the readequation of the operating margins of segment when compared annually. It has been seen since the previous quarter. On the graph below, we see the EVA in the fourth quarter of 2023 is also reduced compared to the level of the previous quarter, basically due to the same factors, which impacted negatively the ROE. On the right, we show the history of dividends and interest on capital paid by Tegma. On the gray line, we indicate the payout for distributions considering the proposal of payment of dividends and JCP to be approved in [ AGO ] in 11th of April in 2024. Tegma will distribute BRL 121 million referenced to 2023, which represents 82% of the net profit without considering the constitution of a reserve for fiscal incentives neither or the legal reserves. On the orange line, The dividend yield for the distributions with reference to 2023 corresponds to 7.6%. Finally, on the last slide, we show the performance of our stock compared with the Ibovespa Index. The shares of Tegma, as we saw in the first graph, had a very good -- a very close performance -- performance close to that of the Stock Exchange during 2024. This has impacted positively the operational resilience for the company and the tendency for the recovery of the automotive market and negatively by the reduction of the liquidity of our stock. As was seen on the graph below, the Tegma shares as occurs with many companies, listed companies in Brazil are traded at multiples slightly below their stock average, influenced principally by macroeconomic questions. With that, I thank you all for your attention and open for the question of -- the session of questions and answers.

[Operator Instructions] The first question that we have received is -- comes from [ Valcírio Volpato ].

This BRL 3.5 million that you said was not regular in the fourth quarter. Is it an amount that would have been received in previous quarters? And then that was compensated in this quarter, is that what you were saying?

This is Ramon speaking. In a certain way, yes, these commercial discounts can be considered as sort of a trigger, which is for the adjustments of the diesel price -- adjustment of diesel prices, which varies up and down. And we have to make these adjustments in our tariffs due to those prices practiced in previous quarters, months -- previous months based on the price of the diesel. So in a certain way, yes, it's the amount that had been received previously. And the prices were then readjusted -- our prices were then adjusted based on that.

We have a question in the Q&A from [ Eduardo Pillegio ].

A question of the distribution of dividends. The decision to have a pay -- to increase the payout from 70% to 82% in 2023, does that reflect the cooling for the growth -- of inorganic growth?

Again, this is Ramon. I'm going to answer your question, Eduardo. Thank you for your question. Thank you for joining us in our call. In truth, no, this decision was made to increase -- our payer was more connected to the capacity of the company to generate cash -- operational cash in a consistent way. And the recognition that our capital structure is quite leveraged -- has been quite deleveraged, which as you all know, this -- we think that this increase of the payout will have an effect -- a marginal effect on our capacity to -- on our leverage capacity, remembering that as we presented in [ RDS ], we closed the year with BRL 100 million in cash -- net cash above our net debt and EBITDA close to BRL 265 million just to show our capacity to accept financing to confront any inorganic growth that may appear. And I also would like to repeat in the name of the administration that we maintain our direction, our strategic direction of seeking out this growth through operation -- through M&A operations. And we believe that this flexibility necessary for the obtaining resources is a competitive advantage that we have. But all this needs to be done with the discipline, necessary discipline, which is a trademark of the capital discipline, which is a registered trademark of Tegma that we are disciplined in our -- with use of capital.

I have a question here from Guilherme Ávila from Tarpon.

Congratulations on the results. How do you evaluate the performance of the automotive market in the first half of -- in the first half of the year -- the first 2 months of the year?

Thank you. Yes, it was a very good 2-month period. We registered growth of domestic sales of close to 23% due to the -- on the productive side, we had a reaction in February and the production grew by 7% in this 2-month period. The sale of imported vehicles even with the return of part of the reimport tax, which happened in January this year, grew by 70%. On the other hand, the exports remain with their tendencies of -- to fall at 28%. In the second quarter of February, we had a slight reaction in the second half of February. I believe also that we've had lots of good news related to the investments were announced by the automotive manufacturers in Brazil. We're talking about investments of approximately BRL 100 billion in the auto industry by 2020 -- by 2030. And this is also accompanied by the predictability of the Mover program, which was set up by the federal government. Still with a -- as a positive aspect, we can say that the automotive credit, there is data, which is very positive in January of '24 where we saw a growth of 40% of the concessions, fall off in nonpayment and a lowering of interest rates -- average interest rates. So adding it all together, our evaluation by the administration of Tegma in this -- in this period was positive.

We're going to open the microphone now for Pedro.

Can you hear me?

Yes. Go ahead.

Congratulations on your results. I wanted to come back to the question of the discounts, to understand if these negotiations have been finalized or if there are still negotiations to be done, which can be done in the first quarter. That's the first question. And the second thing is to understand in the question of GDL where we saw strong growth this year. You commented that it was caused by the part of imported vehicles, but what would be the other areas of growth for GDL for the next -- for the coming years? What would be the area -- growth areas for GDL?

Thank you, Pedro. This is Ramon. I'm going to answer your first question. I'm going to pass it to Nivaldo to answer your second one. In relation to the discounts, the commercial discounts, these occurred due to the volatility in the price of diesel in the recent quarters. Currently, there is no other commercial discount of this type on the horizon. Obviously, it's a variable that we do not control. We cannot say with 100% of certainty that this won't happen because we don't control that. But I would mention that diesel prices has presented much less volatility. And that's what I can say about that subject. And there's nothing -- we don't see any big changes in diesel prices for this quarter. I'm going to pass it over to Nivaldo now to answer your question about GDL.

Yes, Pedro, the vehicles GDL was -- was the main lever of the evolution of GDL in 2023. And as far as the drivers for future growth, without a doubt, vehicles continue to be their biggest driver. And we have perspectives of short term and medium term -- medium term, at least until the beginning of '26 with very strong sales of vehicles. Not only when we talk about Chinese vehicles, which are coming into the market, but also multi-brand vehicles, important vehicles continue to use the Victoria port as their principal entry point in Brazil and will consequently utilize the logistics operations of GDL. Of course, before this boom of vehicles in 2023, we had the registration of growth of GDL with other logistics operations, where we saw clients -- multiproduct clients, and we dedicated to the operations of clients with high value, high added value and products which had the need for storage -- for special storage, and either it's refrigerated or air-conditioned storage. And these are the drivers which GDL bets on. We are -- we have a very good portfolio of clients, which is quite polarized. And even though there is a reduction in the -- within the vehicle market, it's something that we do not really foresee for the next 24 or 30 months, we still have -- and the rest of our products and the integrated logistics or these other products, sustainability of our corporation in Espirito Santo.

Now pass to our next question, Marcelo from BTG [indiscernible].

I wanted to mention 2 questions on my side. The first one is about Fastline. We talked to some of the rentals that the used car market has some difficulties. How do you feel this on your end? And also, you have registered your market share. We saw in the second quarter of '23 that your market share was hitting 26%. And this dynamic of fall has came -- started with the second quarter -- second half of the year. How did that hit you? And how do you see this number going forward?

Thank you, Marcelo. Fastline. You have to compare results, we see it growing quickly, quantitative growth. It's very much based on the rental market, the car rental market, a growing market in Brazil, so we see that this is a very large horizon. We also see the motorcycle market, the transportation of motorcycles -- smaller motorcycles from Manaus to Sao Paulo and other regions in the Southeast with a very high -- fast-growing volume. So we see Fastline as a horizon for growth, which is quite interesting. And when we talk about a reduction of the imported vehicles, this volume has occurred. However, with this dynamism in [ road ] and high turnover and the biggest facility of the purchase of new vehicles, the accompaniment of used cars will happen. So our expectations as far as Fastline are still quite positive as well as I mentioned for -- as was the case of the -- in first 2 months for new cars. Question on market share, we feel -- we felt this reduction since it was a lower concentration in our transportation in some of the brands, on the relevant brands in our share. So this also really did happen. And we understand that was a onetime situation. We should be reestablished and restabilized starting in -- at the end of the first half, first quarter. Although the Chinese entering our market who have been using our transportation as a growing movement and this will bring a rebalancing of our market share.

I am going to read next question, which you received from [ Lucas Javier ]. In 2023, there was a significant increase in expenses. Do you expect a decrease or stabilization in 2024? I'm going to pass that over to Ramon.

We don't expect a reduction. As we explained in our report, we made some adjustments in our headcount of the company and especially in the fourth quarter when expenses are not extraordinary, but are nonrecurring expenses from the standpoint of legal fees for different fees, different contingencies, which were sort of onetime expenses and the tendency towards stability, but we always maintain a very close control and are concerned with the discipline to keep our expenses at the right level in relation to our revenue.

Final question is a doubt, which is more of an accounting question, more than economic from Gustavo. Congratulation for the results. The PIS/COFINS credit, which was in '22 was BRL 92 and BRL 106 in '23. Can you comment on that line? And how long this credit should last? And how much do you still -- how much of it can still be applied to your results?

This was a decision made by the company a long time ago to register this credit of PIS/COFINS on the line of costs instead of reduction of gross revenues, some companies decide on this criteria, but this line comes from the proportion both our revenue as well as costs with freight. So this line, if you can accompany in the long term, it has a proportion -- a very constant proportion in relation to revenue and freight costs. This was the decision of the company to register this as a cost, and it will remain as such until such a time as we decide to reallocate it to the line of deductions of net revenue -- of gross revenue.

Okay. So I think that with that, we've answered all the questions. And with that, I'm going to pass the microphone over to Nivaldo for his final comments.

Guys, thank you very much for joining us, for your attention -- our explanations -- to our explanation and ratifying that we ended the year of 2023, complying with our mission, fulfilling our budget and attending the distribution of dividends. And we initiate 2024 with the series of challenges. The first 2 months -- we're very optimistic about the first 2 months. Within that was imagined and the market in general, bringing to us and to logistics operators optimism for the automotive market. So that optimism is not just Tegma. It's in our transport area, but it also covers our connected companies and especially Fastline and GDL, where operations are going ahead very well. So thank you all very much. Have a great afternoon.