Vamos Locação de Caminhões, Máquinas e Equipamentos S.A. (VAMO3) Earnings Call Transcript & Summary

Good morning, and welcome to the conference call of Grupo Vamos to discuss the earnings regarding the second quarter 2023. Today, with us, we have Mr. Gustavo Couto, CEO of Vamos; and Adriano Ortega, CFO and Investor Relations Officer for Vamos. [Operator Instructions] We would like to inform you that this conference call is being recorded and simultaneously translated into English. Before moving on, we would like to let you know that any statements made during the conference call relative to the company's business outlook, projections, operating and financial goals are based on Vamos' management beliefs and assumptions and rely on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions since they refer to future events and therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect the company's future results and lead to results that will materially differ from those in the forward-looking statements. We'll now turn the call to Mr. Gustavo Couto. Please, Mr. Couto, you may go on.

Good morning, everyone. Thank you for joining us in the conference call to discuss the earnings of the second quarter 2023. The second quarter was marked by major achievements in operations. We continue to grow consistently in a sustainable manner, improving the strength of Vamos ecosystem, a company that was created with several business gears that complement one another and generate value to our customers and shareholders, a company that in its DNA contributes to development society and preservation of the environment in which we live. That's right in a consistent manner along the years. And in the years to come, we are going to expand our customer base, coverage areas and continue to grow at high levels of profitability. Our outlook for the long term continues to be very positive. I'd like to thank the work of our teams, customers, OEMs and service providers due to the commitment of the work of our people, the trust of our customers and the long-term relationship with our suppliers, we continue to deliver consistent results and overcoming challenges. I also thank our shareholders, investors and financial institutions to support our development. The certainty that we can still do a lot more move tons for greater achievements and results. We are going to start with Slide 4, where we show the main highlights for the quarter in all our business segments. Our consolidated net revenue grew 22.5% in the quarter, adding to almost BRL 1.5 billion, driven by the growth of 73% in the Rental revenue compared to the second quarter '22. Our consolidated EBITDA had strong growth in the first quarter, reaching BRL 665 million, a growth of almost 48% compared to the second quarter last year. Net income was BRL 106.6 million, with increase in financial expenses resulting from the high interest rates and higher leverage of the company since we paid almost all the purchase of assets to build our inventory. That reinforces the trust that the best is yet to come. Because we'll certainly have a reduction in financial expenses as the interest curve goes down in Brazil and also benefit from the Rental revenue due to the investments made and assets that we've presented in the coming months. The return on invested capital, it's close to 19%, with an expansion of more than 4 percentage points compared to the second quarter last year. In the end of June, we had our third follow-on with net primary funding of BRL 841 million, which will positively impact the company cash as of the third quarter. The operation is in line with our Vamos growth brand, reinforcing our discipline in capital structure that makes us prepared for new market opportunities, particularly thinking of the cycle of growth of 2024. With Rental close to 40%, our shares had an important improving liquidity, getting to BRL 70 million, BRL 80 million of daily transactions in the stock exchange, which allows us to participate in the BOVESPA Index for the next portfolio as the preview announced by B3 itself. I'd like to also to call your attention to impressive results in Rental, BRL 773 million in net revenues, EBITDA even higher, growing 79%. We kept our EBITDA margin at 89%, way above last year and in line with the first quarter this year. Our backlog that is future contracted revenue had an increase of 50% in the quarter compared to the same period last year, adding up to BRL 16.2 billion in June 2023. We're already considering some important measures implemented in this quarter like the preventive retirement of lease assets that Adriano is going to talk about next. Deployed CapEx of more than BRL 1 billion in the quarter and 18% growth in the first half of the year compared to the first half of last year, totaling BRL 2.634 billion. Adding my main comments in Rental, I'd like to highlight the performance of used assets with gross margin on asset sales of 34.6% with revenue, 95% higher this quarter compared to the second quarter of 2022. The result reinforces the strong demand for our assets. Our inventory that is integrated in used car stores and dealerships with [indiscernible] and the strength of our digital channels. Dealerships, interest rates that are very high to our customers compared to the position of more expensive trucks with Euro 6 and the drop in price of farming commodities made us to have a recession in the purchase of trucks and foreign machinery. It was an expected effect, especially in the sales of new trucks. With that, we had BRL 642 million of net revenues in dealership and EBITDA of almost BRL 35 million. We have gained in market share in almost all regions of operation with the evolution of stores that were open along last year. The return of demand in our opinion, is replaced temporarily. We know that the fleet of truck has to be renewed. And in agribusiness, we had record crops in the contract with an extension in planting areas with the announcement of the new software plan and dropping fertilizer prices, farmers are not going to stop. We see a demand for machinery that is repressed and a good prospect for the next quarter. In the second quarter, we also announced the acquisition of Tietê Veículos. In June, we have got this approval for the acquisition and with this Vamos consolidated that their largest network of Volkswagen buses and trucks in Brazil. Since July 2023, we're also appointed as [indiscernible] dealers in [indiscernible] for the company with low capital allocation. It's important to say that we have been working in [ Guarulhos ] for many years. For stores of review, Vamos use asset sales stores and lots of Rental plants that is with [indiscernible] will have synergies and complementarity in between our heavy assets businesses. Now I'm going to go on to Slide 5, showing the evolution quarter-on-quarter of consolidated results. Here, I'd like to highlight how Vamos diversification enabled us to have sustainable results with excellent prospects for the long term. Consolidated net revenue reached close to BRL 1.5 billion in the quarter, growth of 22% compared to the last quarter -- the second quarter last year. Year-to-date, even higher than that, 47% above with a good performance in Rental and the sale of used assets with record numbers. Consolidated a bit in the quarter also showed positive events, adding up to BRL 524 million, a growth of almost 38% compared to the second quarter 2022 because of the organic growth in Rental, gains in scale and productivity. Year-to-date, EBIT was 57.6%, above the same period last year. Our EBITDA consolidated had strong growth in the first quarter, reaching BRL 665 million. That is an increase of almost 48% compared to the second quarter last year and 63.1% in the year-to-date comparison past year on half year. We are very happy with our evolution, showing that operating in different segments of the company gives us resilient results in the long term, overcoming volatility and economic environment at Vamos. We have solid basis to grow and huge opportunities. On the right part of the chart, we show our net income of BRL 106.6 million, with an increase of financial expenses. In our decision to advance the purchase of Euro 5 trucks have a temporary effect and is justified by the gains of these assets in the next 5 years when they are rented and then sold. This inventory will go back to normal very soon, and we are very happy with the investments made so far. In the first 6 months, the net income of the company grew by 4%, totaling BRL 276 million. Now I'm going to turn to Adriano, that will talk about our quarter performance in details. At the end of the conference call, I'll come back for the takeaway messages and join you in the Q&A session.

Thank you, Gustavo. Good morning, everyone, joining us in our conference call. I'm going to give a bit more color about our performance this quarter. On Slide 6, we show our ROIC and net income showing how profitability of a long time. In this quarter, in the last 12 months, ROIC totaled 18.6%, 400 percentage points above the second quarter 2022, a unique level of profitability in our segment. And here, we have the cost of debt after taxes. With the drop in interest rates, we started last slide, the spread tends to increase and improve our profitability. Also, the dynamics of the truck market showed an increase, which will show a better results long term. And also, we see net income in the bottom part of this slide. Even with an increase in financial expenses, we saw consistent results and resilience of our business model with a positive long-term outlook. Going to slide on Rental and going to color of numbers we showed the strong organic growth, proving the resilience of our business model, with growth of net revenues up 73% in the quarter, reaching BRL 773 million. Net revenue from services, BRL 649 million, an increase of 47% compared to the last quarter. When we compare '23, '22, we had an increase of 97.5% in net revenue. Heading here, you see net revenue for services with and without maintenance with consistent growth. EBIT reached BRL 494.6 million with an increase of 75.3% compared to the last quarter, we had in the last half year, we reached 87.4% EBITDA, with BRL 623 million, 79% above last year and 87% above the first quarter half of '22. The next slide, we show deployed CapEx. We implemented about BRL 2.4 billion of record in the quarter, growth of about 18% over the second quarter '22, showing our capacity of deployment. In the bottom part, we see our asset inventory fund Rental as of December '22. We started at 3.5%, then we had a record deployment of 2.4%, and we purchased assets of BRL 1.2 billion, getting to the end of June '23 with BRL 2.3 billion inventory for Rental. On the right, we talk about our fleet of 45,000 assets, growth of 33% compared to the previous year, with an important evolution in the use of our fleet with [indiscernible] breakup 95% compared to 82% in the second quarter '22. If you think of our historic fleet occupancy is 95%, we seek to normalize our inventory and to return to this level. On Slide 10, we have our contracted CapEx in the quarter, more than BRL 1.4 billion. Year-to-date, more than BRL 3.1 billion contracted CapEx, the same pace of the previous project, we're waiting for the sustainability of the Brazilian scenario and showing consistency of our business. The average yield was 2.65%, 2.73% in the second quarter '22. I liked fluctuation because of a lower number of contracts with maintenance, 15% with [ MAN ] vis-a-vis 23% last year. Giving more visibility, the metrics that Vamos used to approve processes, this spread was 11%. The IRR and the cost of debt in the end of the second quarter '22, that reflects our pricing purchase efficiency in fleet sales and et cetera. We also are very conservative with the depreciation of our assets. Considering the scenario, drop in interest rates as what we have in Rental, we believe that we are going to have additional profitability for the future. As for the backlog, we had a relevant growth of 50% compared to the same period last year, adding up to BRL 16.2 billion. Along the second quarter '23, we had a reduction of BRL 767 million backlog because of the retirement of rented assets and termination of contracts not implemented. That was very important to keep the integrity of our assets. And we had a record revenue of BRL 723 million and a backlog of BRL 2 billion of the assets that we had 75% were vesting for sales. Of the total, all those contracts were resumed in the quarter, and we have adopted measures to go back to model. Vamos is improving its processes, and we have been using technology to monitor our fleet. Now the next slide. We talk about our strategic asset base for Rental, generating long-term value. We closed the quarter with BRL 13 billion of fixed assets. If we consider our market value in inventory, we have a valuation close to what we see in the profitability of our contracts. The appreciation of assets considering payment terms with providers go past the information that we have. The continent assets are very important. The contract mix with or without services projects with or without tires, contract terms in different segments of operation may cause different yields without reflecting the profitability of our contracts, is still -- we have an additional breakdown of our fixed assets for you to understand the implied yield for you to understand what's available for Rental and also several assets that do not contribute to the revenue of the quarters, like the seasonality of the agribusiness, contracts to be matured in the quarter and also retirement of assets. So if you think of our base that really actually generate revenue. We have a unique IRR spread in the Rental sector in Brazil. Now I'm going to go to Slide 13 with a strong demand in used assets, reaching to at BRL 123.7 billion, with a margin 95.1% above the last quarter. If we consider our gross margin of 30%, we would have about BRL 3.7 billion of added value by the appreciation of assets in the company's balance sheet. In addition to 14 used asset stores, we have a strong potential sale and expansion of our popularity. We opened stores in cities of São Paulo. And also we are planning openings [indiscernible]. We sold BRL 500 million in assets sold vis-a-vis BRL 354 million last year with a growth of 44.4%. Inventory, we reached BRL 251 million in the period. Going to Slide 15, we see a temporary repression in the demand for truck agricultural machinery equipment. That's because absence of credit, high interest rates and high prices being tracked, which led to a drop in registration of trucks, the drop in commodities and the display of the [ Tratores ] plant also has a negative impact. We believe this repression in temporary ag business will continue to expand in our regions of coverage and the renewal of the fleet is absolutely necessary. In our dealership, we be BRL 642 billion in net revenue, a drop of 12.8% compared to the previous -- this quarter due to what I mentioned before, compared with the first half year of '23 and in '22, we have an increase of 9.3%, a bit, BRL 27 million, minus 71% in the same period last year. Year-to-date, the drop was 33%. EBITDA, BRL 35 million in the second quarter '23, a drop of 65% compared to the first quarter '22. In line with what Gustavo mentioned in the beginning of the quarter, we started working with [indiscernible] and completed the acquisition of Tietê expanding our popularity. In addition, after the condition precedent, we are going to add the deal to Valtra, and we are also appointed as standard dealers, the second farming market in Brazil, the state of Panama. Capital structure in the close of the second quarter '23, the net debt was BRL 9 billion with leverage of BRL 3.58 million, net debt EBITDA ratio because of the payment of the strategic inventories that we have in '22. The cash flow that will generate from those investments will decrease our leverage according to our financial discipline. As Gustavo mentioned, because of the primary follow on, we had BRL 400 million that are already in the company cash. Considering that our net debt goes back to 3.5 net debt-to-EBITDA ratio. On Slide 18, we closed the quarter with strong solid cash position to cover the [indiscernible] until 2025, BRL 1.4 billion or BRL 2.2 billion if we consider the follow-on. The average maturity is more than 5 years and cost them after taxes about 10.9%. Note that the interest rate is going down. We have a positive outlook for our debt after taxes, giving us opportunities to improve our profitability measured by the IRR spread. According to the hedge, we had EUR 323 million with an average contracted cap of 8.99 in addition to BRL 2 billion with prefixed rate operations. The current market information gives us opportunities to reduce the interest cap at competitive prices. Thank you very much, and I'm going to turn back to Gustavo for his final considerations. I'll be back for your questions.

Thanks, Adriano. Going to the next slide, I would like to talk about the fleet renewal program based on provisional measuring [ 1,175 ] of the Brazilian government. Our average fleet of truck is 20 years old on average, a lot more than the developed countries. A modern fleet reduces the use of fuel, has better air and also the health of the population, increasing the income of independent drivers and really fosters the economy. So we have to have newer vehicles on Brazilian growth. Independent drivers are really crucial for the operation of the country to supply our houses and for the comfort of our companies. And a year ago with a project similar to the government, [indiscernible] purchase old trucks that were written off in the Brazilian government and then recycle them with metal glass and other materials. Of the 50 professionals, 20% capital money, 14% invested in personal projects and 20% cap demand. But 28 truckers bought Euro trucks that they could afford. And after monitoring, followed by independent agencies, 100% said that they had better conditions in health and safety and also a better economic condition. This enables people to improve the income of their families with newer trucks that are better and also improve the quality of air and reduce respiratory diseases. Environmental impacts are basically used to have the right disposal of metal, glass and other materials and reduce particulate emissions. And in the economy, increase of income, greater efficiency, reduction in fuel consumption and even net discount according to the federal program of 4% to 5%. It's true that the program has still limited financial resources. But on a large scale, could bring great social benefits. Vamos will support this and other initiatives to renew the Brazilian fleet of trucks. We can use our stores and dealerships to acquire trucks to be written off and disposed. We can help truckers to buy newer trucks. They can send our new trucks and the banks that they prefer with installments that they can pay. The country needs a modern fleet and truckers are real important for the comfort of our families and for our supply. And to close our presentation, I'd like to go to Slide 20. We closed yet another quarter with strong earnings' growth in the Rental business and a very positive outlook for the long term. Our assets rented and to be vintage continue to be appreciated and that will lead to higher company profitability in the coming years. The appreciation of machinery and trucks is proven in our sales. We again proved our capacity to sell used assets in our own network and also dealerships that more and more are selling our used assets, 95% growth in revenue from used assets this quarter. Our third follow-on made the company even more prepared for the growth of '24, with cash reinforcement, increased liquidity and a possible entry into the IBOV, the next portfolio. The previous release in August confirmed the Vamos. We also talked about agility in recovering assets and appropriate addressing of assets within our ecosystem. We kept a high level of profitability that is unique in the sector. And the bias is even more positive as interest rates decreased. In dealerships, we expect a normalized demand for agricultural machinery and trucks in the second half of this year, reinforcing a positive outlook for all our sectors of operation. Finally, I'd like to once more thank the trust of all those we relate with and that supported us until here. We are leaders and pioneer in the Rental of trucks, machinery and equipment in Brazil with a unique business model, and we are going to keep an accelerated pace of growth, preserving profitability and discipline in the allocation of capital. With that, I'm going to close my presentation, and we are going to open for your questions. Thank you very much.

[Operator Instructions] Our first question comes from Daniel Gasparete from Itaú.

I have 2 questions. First, I'd like to thank you for the KPIs you disclosed in the quarter. We did the math with what you talked about the inventory in regard to a yield close to 2.5%, 2.52%, which is an evolution vis-a-vis the 2.7% last year, very much in line with what you presented. So I would like to understand, first, what you expect for the future? Do you still -- as these need to still have a [indiscernible] to improve your inventory of Euro 5? Again, thank you for the disclosure that you have this year. And the second question is to understand that they use the asset dynamics. We have, for 2 quarters, lower margin, and now we have an increase. So Couto, would like you to talk about this market for the long term.

So okay, the yields, we get to the same math when we have the huge -- as the market monitors and we believe that for the future, in terms of pricing, we have to consider that now the interest rate is going down, and that may naturally have the use fall a bit. But as we are always going to preserve the right spread. And with that, our pricing model and that we ensure competitiveness. Remember, the inventory has at least 40% appreciation when compared to the prices of trucks that are being sold in Brazil now. So we truly believe that we are going to continue to preserve profitability at this level that we showed you at about 11%, 12% compared to the marginal cost of debt. This is what we are going to focus on. Of course, they use as an important instrument of pricing may vary, but we indeed have an expectation of at least keeping the yields we have right now. As for margins of used assets, if you take a look, we had 34%, almost 35% this quarter. And when you compare with the same base of the margin for the last quarter, it was 31%. Remember again that the level that showed a bit lower in the first quarter, had the intent of that sale of new trucks to JSL as a related party and nonrecurring sales that was important to us at the time. Also to avoid that we would have address purchases and that when we set the price of a truck that was not still normalized, it's still in the process. So we continue to believe that margins are going to keep strong. You see that we almost doubled the sales compared to the last quarter -- the second quarter last year. Sales are still strong, even in a scenario that has still high interest rates and credit restrictions, but you see that we had a very strong volume that reinforces [indiscernible] our popularity and capacity to sell our used assets. And then as a reminder, today, if you reintegrate the inventory, you go to a dealership, you can see our used assets inventory integrated to our dealership. So we have 14 stores, but we also have 21 diligences that can also sell those assets. So that increases our capacity of sale. So we are preparing for the volume of used assets to grow in the coming years. So we are confident, margins are going to be preserved because our asset base is given the 3.7 billion when compared to our total fixed assets, you're talking about the margin of 30%. And we believe this is what is going to be shown in the coming quarters. Of course, this opens an opportunity for more profitable contracts. So we are very confident, and I think that things are going to stay at this level, okay?

Our next question comes from Lucas Marquiori from BTG Pactual.

I have also 2 questions, almost as a follow-up from the previous question. If you kick off your inventory of assets, we understood the dynamics you implemented almost BRL 2 billion. You bought assets, and we closed at BRL 2.3 billion. I'd like to understand your mindset in terms of timing, how -- and how fast you expect to decrease the inventory level? And what would be the normalized level of inventory from a -- at what point of time next quarter, next half year, last next year for you to get to this level? The second question to try and understand the scenario for dealerships. You had a drop in sales this quarter, everybody is monitoring the volatility brought by Euro 6. So if you can give us a bit color in terms of sales for July, August, if sales are picking up and if we should see dealerships performing better in the third quarter. These are my questions.

Lucas, thanks for your questions. Thanks for joining us. Well, inventory levels. We are happy with the volume implemented BRL 2.4 billion in the quarter. As we mentioned, is 18% growth compared to the last year. We are not changing the [indiscernible] to deploy our inventory because we obviously have to respect the time of the market. So in the second quarter, Lucas, as we have already to the market, we decided to have discipline in the allocation and deployment of this equipment. We have to retire some of this equipment because of the credit scenario. And because we delayed the speed of deployment of assets because we think this is our growth. We have to act with responsibility, understanding what was going on in the quarter. Of course, we expect the change for the third quarter this year. We can only think that until the end of the third quarter, the end of September or even a little beyond that, which is not a problem, they eventually get better. But for numbers of assets have been appreciated by more than 40% of the market. So even if I have to carry a bit more financial expenses as I did this quarter, that would not be a problem. What we want is to have good conference. I don't want to rush it. And obviously, we are going to respect what's going on in the macroeconomic scenario without failing to look at the financial health of the customers we work with. And when we think -- I always say that. What is the key competitor of Rental? It is purchase and purchase were expensive and people delaying purchases, it's natural that people are doing the best, and they are waiting for the best timing to make a commitment. So we are going to respect the market. We are not in a rush, but I think that will naturally do that along the next quarter without any difficulty because you see, we kept the level of deployment 18% above the second quarter and the first half of the year -- last year. So I believe that the level of normalization, I would say, 2.5 months of inventory or BRL 1.2 billion. That would be a normalized inventory and ensures that they can pay very well, even with accounts receivable and releasing cash a bit steady having lower inventory levels and financing most of the inventory at the suppliers' account. That's about inventory. Dealerships, we all expected a weak second quarter for the demand of Euro 6 trucks because prices of [indiscernible] need to be normalized. This is happening. We see that OEM are already reconsidering that high increase that was first announced of 25%. The price did not really hold itself, the market cannot afford that, especially considering the last years. So this happened. In firing machineries, there was a bit of a delay there. What happened is that there was a drop in the main commodities that changed the mood of owners because they have already placed it at a very high cost of inputs, fertilizers and others. And then they decided to pull back but that did not prevent the segment to continue growth. We had a hybrid crop, and agribusiness continues to perform as we have been seeing in recent years and that was going to be seen for the future. So machinery will be needed. So it gives a temporary repressor. It is not that we lost sales. They were retracted but demand will pick up. I cannot tell you when... [Technical Difficulty].

We are sorry to interrupt. This is the operator speaking. The line of the main conference has dropped. We are going to reconnect. Please wait while we reconnect the conference. I'm sorry, this is the start of the line dropped. I did not realize when. Look, I'm going to repeat -- you're talking about dealerships, Gustavo.

I did not realize that the line has dropped. So okay, so I'm going back to dealerships. Okay, dealerships. Naturally, we already expected that we would have a reduction in the number of trucks sold given that OEMs have announced a very high price -- too much of a high price considering the readjustments of last year and also considering that in century of Euro 5 that supported sales in the first quarter, added. So we had this drop, but we do expect the resumption to happen from now on, especially because those who need to renew their fleets are customers that have credit. They decided not to do that because the prices were very high, interest rates were very high. But as the prices of Euro 6 are normalized a bit below that we know we are having. And as interest rates go down, most probably those decisions are going to be recovered. So if you take a look at trucks, the number of registrations, and I'm not talking about our numbers, I'm talking about market numbers. The market numbers show that sales in July '23 were 5% higher registration -- sorry, higher than June '23. So that shows early signs that the demand is picking up. As for farming machinery, that was an important point, and I think that we were not expecting that. The price of commodities went down fast, soybean corn despite the demand but the agribusiness continues to expand to the planting area. So it is a repression. We are planting more corn, more soybeans in Brazil and machinery will be needed. So they were both stopped. Why? Because the Safra plant has not been released, and the farming sector is very sensitive to commodities. If price goes down and they had started planting with a high cost of fertilizers, they had to hold events, but they cannot hold forever. And now we have the Safra plant, and we already seen banks releasing more financing through the lines of incentive of the central government. So we see the recovery, it's going to be gradual, but it will happen naturally. And it has to happen along the next half year, but it has already started.

We now have a question from Pedro Bruno from XP Investments.

I just have a follow-up about your last answer. Just to understand your negotiations of Euro 6 for the future. You did say that in general, the initial increase of 5% did not pick up. So I would like to know what is our expectation of prices? And what is the current scenario of the market vis-a-vis til the end and also your position as our customers? This is my first question. I'll ask the second one later.

Pedro, thanks for your question. We are negotiating with OEMs. But we are not again in a hurry. We think that prices are still to be normalized for Euro 6. I talk around -- it's just a joke but I'm serious that freights won't pay everything. So the price of the truck that we have accumulated along this and this combination of a very high price with high interest rate is terrible. Even for OEMs, they are selling very little in the last quarter. So that naturally will have to be adjusted. Now Pedro, even for the new price to really consolidate, although the price is going down, the 20%, 25% is not going to be that. I think it's going to be 10% at the most. I think even less than that to [indiscernible]. So we are negotiating. We are not in a hurry because I have an inventory, I don't have to be in a hurry, but we are sitting down to discuss. And naturally, we think the price will have to be normalized. On the other hand, the price needs to be adjusted now. But next year, it will go up because inflation is going to come. And OEM did have an increase in the input of their [ province ]. So it is a matter of supply and demand now, again, that 20-plus percent was too much. That is going to be adjusted. I think it's going to be closer to 5%. I don't know. This is just a personal opinion. But the matter of fact is that if it gets to this level, probably next year, it will go up a little more at the turn of year. But again, we are not in a hurry, but are negotiating and waiting for the best time in [indiscernible].

And the next question, you should talk about cancellations on Rental. But on used stores and dealerships, do you have any cancellations that may be relevant? Just wanted to understand the difference between net and gross revenues. Just to try and understand if there is any footnote about that cancellations with dealership and used stores.

Cancellations in Rental, when we try to be very candid, were measures that were important to preserve the financial health of our customers. And this is something that we can do with a good agility. As for dealerships, they were also cancellation of orders, of course, in the second quarter. Sales were weaker for farming machinery. That happened. The dynamics for you to understand, generally, the client -- the customer post the order, which is just an administrative quarter, and then they ask for funds with the bank. If they -- those interest rate is too high, they can cancel it. If they think their prices for soybeans, for instance, not good, they can also cancel and that happened, and you saw the numbers for the second quarter. But that does not change what we expect for the future because, again, Brazil is going to be a powerhouse in agribusiness. It is not going to decelerate. That was a temporary movement of 1 quarter, and I think this next quarter is already showing signs of recovery. So we believe that, that is going to be naturally resumed because we are good to talking about the change for next year in the United States. So they will need more the soybeans and corn. So again, a positive outlook for, I don't know, a year period of time. In used assets, nothing of the kind. When we sell used assets, we have our own resources... [Technical Difficulty]

I'm sorry we lost connection again. We apologize. This is the operator. The line dropped again, please wait until we reconnect.

Well, we apologize, the main line dropped. The background line dropped. We are in the third line. We are having a problem with our program lines, we really apologize. So the side when the line dropped, I realized that in used asset sales, we don't have the problem. Sales are a lot more dynamic. The customer goes to the store, buys the product in 1,2 days, they have -- they're okay for credit. So we don't have that many cancellations. So if the agribusiness, yes, you saw the effect in the second quarter because between the placement of the order and the okay of credit, you have that is more or less when you buy real estate. You sign with the contractor, then it takes 15, 30, 40 days for credit to be okay, and then you close the negotiation. So in the agricultural bucket, this is what you sign in the second quarter.

We have Renata Cabral from Eleven.

I'm Renata Cabral from Citibank. And I have 2 questions on my side. The first is the appetite for growth in the mid-term by 2025, given that the company is absolutely there in the segment had strong growth until now. I'd like to understand your mindset in terms of growth for the future, CapEx, not only in numbers, but also real appetite for growth by 2025. Second question is, if you are considering changes with regards to depreciation, given the current scenario in terms of the price of used assets, specifically trucks and the new pricing of Euro 6 from what I understood is still undeterred. So my question about depreciation, it's also for the future '24. So what do you think it's going to be like vis-a-vis what you have today?

Thanks for your questions. Well, appetite for growth, we continue confident that opportunities for growth are huge for the future. Obviously, again, respecting the macroeconomic scenario, the credit scenario and what's going on in the country as a whole. I would like to remind you that we've removed the guidance of getting 400,000 assets. But the objective and even more than that remains. So not necessarily we're going to pursue that for 2025 because we just reduced the pace of growth given what I said, the macroeconomic scenario. So we see opportunities to reach the 100,000 assets for the coming years and even go beyond that because the opportunities are there. We have a unique business model. As you have yourself said, and very little use in the country still. So we believe without the shadow of a doubt, that 100,000 assets in the coming years is completely feasible, not necessarily for '25. It can be in '26 or '25, but we continue seeking those numbers and even past better. As for depreciation, I'd like to make 2 important comments. The first is that whenever we have a new project that we are discussing a project with the customer, we start with the theoretical depreciation rate, taking into consideration our history in a normal situation. But you're talking about depreciation rates that will go from 7% to 8% and just 9% at some point in time. So this is our basic math how we start depreciating. And when we assume and it has happened that there is an appreciation of our asset base as it's happening now. We can see the margin of used assets, but we can also reduce depreciation in a long time. And we do that in a very conservative manner. And that's what we have been to. So if you take a look at our depreciation base today, it is smaller because the price of our trucks went up by more than 30%, as you know. So naturally depreciation dynamics. All the assets that are contracted that were deployed 2, 3 years ago was reduced. Now the new contracts, they all start with the depreciation rate that is high and will remain as such as assets are priced as they are today. Where we see a new appreciation, then we can adjust depreciation more or less, but that's what happens from now on. And we know that depreciation of assets will enable us to have a lower depreciation rate thinking of these assets that have been already invested and [indiscernible].

Next question comes from Victor Mizusaki from Bradesco.

I have 2 questions. The first is thinking of our inventory for Rental. We tried to have a consolidation taking a look at the BRL 1.7 billion. If we remove the volume of the trucks, you have also equipment acquired in the second quarter. You would be talking about an inventory of assets that's being carried out since last year to today of BRL 1.1 billion, BRL 1.2 billion. My first question, is the calculation correct? And even considering that you had a bit of a deceleration in the third quarter where you have the consolidation, do you think you're going to be able to rent all those assets in the third quarter? And the second question, where do you think some accounts these people, suppliers and working capital, especially suppliers, do you have a relevant payment to be made in the coming quarter and in accounts receivable, giving this -- a tougher scenario with more restricted credit? As you mentioned, apparently, you made a provision of bad debt of about 4.7%, 4.9% of the gross revenue from services -- from Rental. Do you think you have to have a higher provision for the next quarter?

Thanks for joining us, your questions. I'm great to answer the first, and I'm going to let Adriano answer your second question. In inventory, I think that we buy or rent was in our inventory out of the BRL 1.2 billion, which was the CapEx for new acquisitions that we had in our slides. You have farming machinery that was deployed at the turn of the crop from March to April. So you have equipment. As you mentioned, sometimes when you buy the truck, tractor, for instance, this can have different applications and will need different equipment. So you naturally have assets that are not necessarily trucks. So they are complementary. So we continue with our [indiscernible] inventory above what we had planned, as I talked to you, especially during the follow-on, we had stopped and planned to get to the end of June with normalized inventory levels. But again, that's not much of a concern because the asset is very much appreciated. It has huge liquidity. So what we want is to have good contracts. So it's not a precise math. There was but 2 partners implemented partners inventory. So we have a significant reduction in the inventory of Euro 5, but not that strict correlation that are things still to be vended and will in the coming quarters. And I believe that by September, the numbers are going to be quite normal. I think it's natural. So I'm not very much concerned whether it's going to be September or October, but I want to have good clients, good contracts. This is our main commitment. I'm going to let Adriano answer the second question about accounts receivable.

Thanks for your question. When you take a look at suppliers' line, you had a significant drop of BRL 500 million approximately. And this is more of a continuity of retailers [indiscernible] than Rental. In Rental, it is a low number. And we expect it to be like this for this quarter at least, where the inventory goes back to normal when we resume purchases, then the supplier line is going to go up again, improving our working capital, financial results and with regards to provisions, we are making provisions according to company rules and delinquency rates. Because we already had some retirements, but we have levels very close to what we see with the Central Bank of Brazil. So we don't expect the provision for bad debt to increase. Last, I think it's going to be in line with what will happen now.

Now we have a question from Lucas Barbosa from Santander.

I had some follow-ups on the dealership. First, how do you see the approval of credit statement that we had a bit of a credit recession as a whole may be just for this quarter, perhaps in 2024, we're going to have better numbers. So this is my first question. How is the transit approval for now, if you think this is going to improve from now on? Second, in agribusiness, you already talked about the price of grain. You have also the delay of [indiscernible] made available opening into... My question is, is it obviously helping with judgment?

Lucas, thanks for your questions. Well, we did see -- we all did. I believe fortunately, for the large companies in Brazil did have processes credit on the retailers, and that led to a series of issues related to credit in a cascade effect. So all banks had a reduction of credit in the second quarter, and we saw that in the number of truck registrations on licensing. We do see it improve a bit. We're already seeing a change. You visited that the 5-year curve has a downward change and that starts to get better even before the coupon announcement. So it's a plan to start to show an improvement in numbers. Some volumes still [indiscernible] picking up. I'm talking about trucks. For farming machinery, the answer is yes. In the coming weeks, we are already seeing more credit with Safra plant and others. So we'll be already using results just after the announcement of the Safra plant. Remember, it was announced in the end of June. And the credit is target on July 19. So the effect in July are still small, but we did see a change in trend. And we believe, as I mentioned, that in the coming months, it's going to pick up because indeed, farmers will need machinery. There is no other alternative. Brazil will continue growing, planting and they believe, machinery. So there was a bit of a displacement in the demand of 3, 4 months, but it's picking up.

Question comes from Rogério Araújo from Bank of America.

I have 2 questions. Perhaps, if you could give us a bit more color on contract cancellation, especially on the operations of it. How does it work? What kind of contract clauses do you have for termination? Do you settle everything on a friendly manner? Do you have to go to court? And moving forward, do you have any expectation of more cancellations, or terminations or even retirement of assets? This is the first question. Second question, you talked about your -- the fleet modernization project. And you talked about a discount of 4% or 5% in new trucks. I suppose this is the discount that you have in taxes and the price you pay for the used truck. Is that it? And how long will the program last and how many trucks in Dubai with the net discount of 4%, 5%? That's it.

I'm going to start with your second question, the government program. We are not very much concerned with the number of trucks that we are going to buy. We have already thought about the 100 tractors, that's not a number. What we really would like, Rosario, it's heard the program to consolidate and something that is important. Public policy for us to indeed create opportunities to improve the income of our trackers, independent drivers and have the benefits I mentioned in the presentation. The country needs that. So what we are doing, even if it were a breakeven, the price we paid for the used cars or trucks, 25 years old and the discounts offered by the government, we would do it. And we'll do it because for us, it's important. We have to create alternatives for fleet renewal and urbanization in Brazil. It's good for the environment, for society, for the growth, for us as people, as human beings, the people that drive the roads, it's more safe. So we believe this is essential for the country. It's important for carriers because sometimes carriers have to have a lower freight cost because they have very old trucks that will accept, a, freight costs because they need to work, so it's important for the country. But your rent is perfect. 4%, 5% is the one-time thing for the truck. I sell the disposals for the government programs and the delta is the 4% or 5% depending on the model of the truck that we are buying. So your math is correct. But I just wanted to make clear that if and if it were a breakeven, we would do it because we do want to support the initiative of really having a renew modernization of fleet and remove the old, transform the road to improve the lives of trackers themselves. As for contract cancellations, thank you for the question. I would like to talk about that. It was a measure that was necessary. The team was very agile. In 2, 3 months, we are able to retire the assets. So when we saw that there was a payment delay, we sit down with the customer. We understand the situation, and we make a quick decision. If we are going to negotiate, if we are going to remove the assets, it is something that is resolved quickly. Most of these negotiations are settled on a friendly manner because it's lower truck and the contracts say that in case of the delinquency, we can remove -- retire the truck. So naturally, it is a friendly settlement. We have already been to court, which can be faster because when you as a bank finance an asset, remember that the asset is the proprietary of the debtor. So just it is a bit slower. But when it is renting, it is our truck. And there is a very clear clause on that. So recovering the truck in court is even better. Generally, when you have an agreement with customers. But it's not necessarily the customer return everything. They have 30 and they give us back 10. And then in a commercial negotiation, we have to seek some kind of compensation, sometimes with charge of penalty. It varies from case to case. But most times, we are not going to settle in court. And just to answer the last part of your question, I don't think this is going to be recurrent for the future. We worked very well to try and identify those cases that offered us a bit more frailty. Remember that we have the telemetrics in trucks, and we can even achieve the trucks operation because sometimes if they lost the service and the trucks, lot of the rating. We already have a red flag showing that the truck is not in operation. It is already an indicator that we may have a situation in the terms of the delay of payments and delinquency. So we have all this monitoring to avoid problems. I think that we're able to clear our base. Of course, we can have something for the coming months, but not at the same level. I think much, much below what you saw in the second quarter.

Our next question comes from Pedro Pimenta from [ PKI Research ].

Congratulations on your results. I have 2 questions on our side. Still talking about retirement and cancellations. I would like to understand the decision between the sale and Rental of those assets. You said that 25% were redeployed, 75% were vesting for sales. What was the average age of those assets? Were they close to the 5 years? Or what is a window of opportunity that you decided to go for to have better returns? And then what is the strategy for allocation of the follow-on capital? We see that the market is a bit more restricted, you've raised the bar with customers. Do you think that part of this capital are going to be capturing your cash just to control average?

I'm going to answer the first one and the second one, I'm going to turn to Adriano. As for the recovery or retirement of assets, we analyze asset by asset. What we do natural is you take a look at the equipment. If it has been implemented for a little period like a year, you redeploy it in [indiscernible]. So redeployed assets are very new equipment, 1 year, 1 year and a bit old. Equipment or assets that are from 2.5 years onwards, we believe they are truly used assets. And there's not a fixed rule for that, each case a different but we are going to consider it per sale. So we could have a 2-, 3-year old asset to be cast inventory. If I didn't have anything of the kind in inventory, but usually with that. So trucks 1 and 1.5 years are going to be rented more than 3 years old are going to be sold, exceptions will be analyzed on a case-by-case scenario. I'm going to turn to Adriano to answer about the follow-on.

Thanks for your question. The follow-on funds are in our cash position. As we mentioned, it is enabling us to have a very strong balance sheet to negotiate with OEMs that should take place in the coming months. We have already started but we are going to carry on the negotiations. So with the funding cost, our power of purchasing and our confidence in negotiations is a given. As we also mentioned in the suppliers line, we are going to have to carry that until next year in the suppliers line, and then next year, we're going to have an improved number.

We are now closing the Q&A session. I would like to turn the call back to Mr. Gustavo Couto for the final remarks. Please, Mr. Couto, you may go on.

Well, everyone, there were some questions on the webcast. We are going to answer them through our IR team. That is also here, your investors and analysts. Takeaway messages. We are very excited about our long-term prospects. We have very strong foundations. Brazil can go through volatilities, but it is a country that has solid fundamentals in our business model that has proven resilient in the coming years. I think organic growth of the company, the main operating indicators show that. One-off effects are natural in any company, but we are very confident that everything we're doing consolidate the path of growth with strong profitability with discipline in capital, very judicious in everything we do to continue growing and deserving the trust of our customers and shareholders. We are very pleased with the possibility of now joining the IBOV in the next portfolio. [Technical Difficulty]

We apologize, but we lost connection with the company. Wait while we reconnect. Thanks for your patience.

We are with the third bank of line. Okay. So we are very excited about IBOV that will have strong liquidity in our shares with higher demand. So we are very excited about that, and we see that the effects of the transformation in the matter of our actions has impacted positively our margins in used assets and also enabled us in rented assets to reduce the depreciation rate, and that will continue in the next years. That gives us the encouragement of even improving profitability. We're excited, encouraged. The market is volatile, but our business model is resilient, predictable and we assure of that. Once again, thank you very much for your trust, for your participation. Thanks for the Vamos team. And that we're done, we're very pleased with the results we ship. Thank you, and we wish you a good afternoon.

Vamos conference call is now closed. We thank you very much for joining us and wish you a good day. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]