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

Good morning, ladies and gentlemen. Welcome to the VAMOS conference call to discuss the results for the third quarter 2024. Today with us at this conference call are Mr. Gustavo Couto, Chief Executive Officer of VAMOS; and José Cezário, Chief Financial and Investor Relations Officer. This conference call will be recorded, and the replay will be available on the company's website, ir.grupovamos.com.br. The presentation is already available for download, both in Portuguese and English. [Operator Instructions] We'll then start the Q&A session when further instructions will be provided. Before we proceed, we would like to caution you that any statements that are made during this conference call regarding the company's business outlook, projections and operating and financial goals represent the beliefs and assumptions of VAMOS management and are based on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate 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 could cause results to differ materially from those in the forward-looking statements. We'll now like to hand over to Mr. Gustavo Couto, to begin the presentation. Mr. Couto, the floor is yours.

Good morning, everyone. Thank you for following our conference call to announce the results for the third quarter '24. I'll start with Slide 3, with the main highlights of the period. Then I'll hand over to Cezário for the usual details. We saw a 33% increase in the company's consolidated revenue in the third quarter when compared to the same quarter last year. We reached almost BRL 2 billion in net revenue in the period and BRL 5.6 billion in the 9 months to date, that is 20.5% more than in the same period last year. I'd like to draw your attention to the 35% growth for the rental segment and record sales of used assets with 46% growth also in the quarterly comparison. Dealership revenues grew by 31% in the same period, showing the good performance of truck dealerships. Cezário will talk about the business units in more detail later on. The company's EBITDA grew by just over 27% in the quarterly and year-to-date comparisons, with BRL 871 million in the third quarter '24 and BRL 2.567 billion in the first 9 months of the year. Operating profit, as measured by EBIT, also advanced consistently, another 23% in the quarter and year-to-date, almost BRL 2 billion at the end of September. Net income grew by 51% in the third quarter '24, with BRL 175 million compared to BRL 116 million in the third quarter '23. The year-to-date growth in the company's net income was almost 44%, reaching BRL 564 million at the end of the first 9 months of '24. Cezário will now continue with the presentation. I'll be right back.

Thanks, Couto. Good morning, everyone. Following on with the presentation on Slide 4, I'd like to talk about our ROIC performance in the quarter. As you can see, consolidated ROIC was 13.9%, a reduction compared to what we had in previous years. The drop is mainly explained by the still weak performance of the agribusiness dealerships. We can see in the chart on the bottom right, and the slight drop in rental operating profit due to the repossession of assets and related costs. I'll talk about them in the next slide. There was also a negative effect from the higher effective income tax in the quarter compared to the previous quarters. The slide also shows what ROIC would be excluding the effect of the ICMS subsidy benefits that we had in the dealer ship segment in '22 and '23, which positively impacted the consolidated return on invested capital in the period by approximately 2 percentage points. ROIC spread without the subsidy, in relation to the cost of debt after tax, remains at a healthy level, above 5 percentage points. At the top right, we present the ROIC by segment, measured at the end of the third quarter, '24, where we have rental ROIC, including industrial segment of 15.3% and a negative dealership ROIC of 2.3% because of the agribusiness scenario since '23. On the next slide, we talk about the performance of the rental segment. Here, I share with you the main financial indicators of the rental business, whose results confirm the resilience of our business model as well as the predictability of our growth. Both revenue, EBIT and EBITDA showed annualized growth of around 30%, with 67% growth in revenue from asset sales, which follows a consistent path of sales growth quarter-after-quarter. This quarter, we had 2 impacts on the results of rental. Net revenues grew very modestly compared to the previous quarter due to the peak in asset repossessions in the second quarter of this year and reached BRL 1.1 billion this quarter. This figure is made up BRL 923 million from rental service, BRL 207 million from asset sales and represents significant growth of 35% in relation to the total net revenues in the same quarter of the previous year. EBIT for the quarter amounted to BRL 655 million, up 21% in the same quarter last year, and EBITDA, BRL 843 million, up 25% from the third quarter last year. This quarter, EBIT margin was impacted by the loss of revenue from repossessed and to be repossessed assets, which amounted to BRL 20 million compared to the second quarter of this year and also related costs, legal fees, rates and cost to prepare the assets for the second cycle. As a result, EBIT margin stood at 66.8% and EBITDA margin, 87.2%. As highlighted in the bottom right-hand corner of the slide, the company has already suspended the recognition of rental revenue from repossessed assets and those that will be repossessed until the end of the year, thus minimizing the impact on asset returns planned for the fourth quarter. On the next slide, I'll give you a bit more color on asset deployment, backlog and average fleet occupancy. We continue with consistent [indiscernible] of deployment in line with the company's execution plan, with over BRL 1 billion CapEx deployed in the third quarter this year. In the year to September, almost BRL 4 billion, 12% more than the volume deployed in the 9 months of the previous year, including the important sales back operation carried out in the first quarter of this year. Of the volume of CapEx deployed this year, more than BRL 795 million were new assets, BRL 125 million to renew an extension of contracts and another BRL 87 million for the redeployment of Sempre Novo assets, which is gaining momentum, and Couto is going to talk about that later on. The bottom left chart shows the evolution of the deployed backlog. At the end of September '24, BRL 13.5 billion in future revenues, 11% above that of the end of December '23. This quarter, we also reduced the backlog by -- from BRL 358 million related to cancellations on the account of asset possessions -- repossessions in the quarter, in a total of BRL 270 million assets at the original CapEx value. This quarter, we also recognized the write-off of the backlog of BRL 263 million, about assets that were already in the process of reputation on September 30 and are expected to be completed by the end of the year. With this, we closed the quarter with 51,000 assets in the fleet, 89% of the rented fleet, a slight reduction on the previous quarter and reflecting the effects of the assets we repossessed as well as an improvement in the use of new asset inventories. Now I hand it back to Couto, who will comment in more detail the evolution of the Sempre Novo product.

Thanks, Cezário. On this slide, I'd like to share our first results following the launch of Sempre Novo, our product that aims to guarantee a second rental cycle for our assets. Although just launched, we already see the attractiveness of Sempre Novo to our customers who have the opportunity to rent assets in excellent condition and very favorable terms compared to the price of new assets, which are much more expensive. For VAMOS, it's an opportunity to generate value with new contracts, attractive profitability and a new rental cycle for liquid assets that have appreciated a lot in recent years. Remember that Sempre Novo assets undergo an analyst by our team and when necessary, refurbish and earmarked for rental. We all observed that many customers are already wanting to extend their current contracts, which can be done for customers with different applications, including with positive price adjustments in many of those contracts, given the appreciation of the new assets. With the scale we have reached, unique acquisition prices and the quality of our contracts, renting assets for a second cycle is an opportunity that only VAMOS has. This quarter, we went to -- from BRL 38 million in contracted CapEx for Sempre Novo to BRL 148 million in the third quarter '24, with an average IRR of just over 20%. In the third quarter, we deployed BRL 87 million, which again generated rental revenue. Sempre Novo is starting to take off and proving to be an excellent opportunity to support part of our growth for '25. Considering cancellations accumulated in recent months, we have about BRL 700 million in assets in our fixed assets. and another BRL 327 million made available for sale. In other words, we have around BRL 1 billion in very new assets and with a suitable profile for a second rental cycle. In an exercising theory, with an average yield of 2.5%, there is an opportunity for us to have monthly revenues of BRL 25 million as soon as the assets are contracted again. Last week, we had the largest logistics and transportation trade show in Latin America in Sao Paulo, and Sempre Novo was our highlight in our stand and digital market campaigns. Another equally important opportunity comes from contracts due to expire in '25 in a total of BRL 1.1 billion, considering the acquisition amount at the time and original capital invested. Our positive track record of renewal contracts above 80% can and should be done on at least 50% of the assets for another 2 or 3 years with the same asset and will be combined with price adjustments, given that the alternative of renting a new asset has become much more expensive. We'll talk about this later. But I'd like to emphasize that we have unique scale and positioning, allowing us to keep consistent pace of growth, lower volume of new investments and starting a new cycle of value creation. Cezário?

Thanks, Couto. On Slide 9, we show in the upper left corner, the volume of CapEx, we contracted in the quarter, which continues to have attractive yields in line with our track record, maintaining the average profitability of our contracts of the BRL 693 million CapEx contracted in the quarter, almost BRL 150 billion were Sempre Novo assets, as Couto mentioned on the previous slide. The contracts signed in the quarter have a profile of customers from different sectors, environmental services, agriculture, energy, food, beverages, industry transportation and others. The table below shows the gross fixed assets that generated revenue in the quarter were a better understanding of the contribution of our based to the results of the period. Fixed assets that do not generate revenues represented by new and used assets available for rental and those assets that have been already renegotiated to start a new rental cycle, but that are still under deployment. In the third quarter, this year's fixed gross rental assets, generating revenue represented 86.4% of gross vehicles and machineries, a slight improvement compared to the 85.5% of the previous quarter. To end the slide, I'd like to mention that in the quarter, we kept an average IRR of new contracts of more than 20%, which means that we are looking at healthy returns even in a more challenging interest rate scenario we have been facing in Brazil. With this, we are moving to this last slide for rental. On the slide, we bring what would be our best estimate for CapEx deployment for '25 development and strategy, considering that this is a future estimate, we made a material fact on the subject concurrently to this quarter's announcement as required by CVM rules. First, note that the deployed CapEx we are forecasting for '25 is basically at the same level that we presented in '23 and projected for the current year, '24. For '25 of this total BRL 5 billion in CapEx to be deployed, we are considering that around BRL 700 million will be in contract renewals with the same assets and BRL 1 billion in the redeployment of [ Sempre Novo ], which brings us to a projection for the purchase of new assets estimated at BRL 3.3 billion. If we consider our estimate of sales of BRL 1.2 billion used assets. We arrived a net CapEx of BRL 2.1 billion. We believe that this strategy is in line with our vocation to continue growing and capturing business opportunities. but also seeking -- optimizing our capital structure and coming to a more deleveraged company. We are focused on optimizing our fleet and monetize the assets we already have available. Our strategy for '25 is to pursue the 4 pillars that is mentioned on the slide, increase in occupancy rates evolution of Sempre Novo, making it possible to add revenue without new CapEx, reducing leverage and as a result of it all, improve the company's profitability. This is what we have in mind for next year. Next slide, I'll talk about used asset sales. We posted a 46% increase in net revenues this quarter compared to the same quarter last year in a total of BRL 207 million, with gross margin of 18%, affected by the effect of the asset mix sold, but still in line with market conditions. With this, I believe that we continue to show the potential for increasing the value of our fleet and the consequent profitability of our assets. In the year-to-date, revenue growth was even more significant, up 49% compared to the same period last year, in a total of BRL 540 million, excluding here the nonrecurring sales that took place in the first quarter of the previous year, which were excluded for comparison purposes. Our inventory of machine and vehicles available for sale at the end of September totaled BRL 681 million, reflects the higher volume of assets repossessed in recent months, but also mainly in the Sempre Novo assets, which are both available for sale and for a second rental cycle, which I have highlighted in gray in this chart and totaled BRL 327 million at the end of the quarter. On the right-hand side, the chart shows the percentage of used vehicle sales through the VAMOS dealership channel. As already reported, we are opening new sales channels to increase our commercial reach in the sale of used vehicles. On the other hand, as it is already the case today, we continue to sell used vehicles through VAMOS dealerships on a consignment basis and paying sales commissions. And we do not expect to change if the dealership decision -- spin-off proposal currently in the process of being approved is implemented. On the contrary, we believe that the spin-off could facilitate commercial agreements with dealerships from other brands. Following our presentation, we go to the dealership segment. On this slide, we can see a gradual improvement in sales and recovery of net revenues, which grew 30% this quarter compared to the same quarter last year. Our truck and construction and mining dealerships are operating and delivering results within expectations. However, agribusiness dealerships are still performing poorly and impact the profitability of the segment. Still, we can see an improvement of EBIT and EBITDA indicators over the course of the year. We remained focus on selling and seeking to normalize agribusiness inventories and consequently improving the working capital of dealerships. On the next slide, I'll comment on some important financial highlights. On the left, we show the evolution of our net debt and leverage for covenant purposes. We ended the quarter with net debt of BRL 10.7 billion in line with the second quarter this year and 23% higher than that of the third quarter last year, with leverage for covenant purposes of 3.21x, 0.2x below the second quarter in line with the third quarter last year. Our debt profile, we ended the third quarter with BRL 4.2 billion in cash and financial investments, but added to the [ step highlights ] we have contracted. We had right BRL 5.3 billion in available funds, which are equivalent to the maturity of bank debt obligations up to August '27. Our average debt maturity of debt at the end of the quarter was 4.8 years. Below, additional information on working capital as we continue to reduce our working capital indicators as show in this chart. In the third quarter '24, the company's working capital was BRL 1.4 billion, a reduction of approximately BRL 1 billion compared to the third quarter last year and up BRL 109 million compared to the second quarter this year. This is mainly due to the increase in inventory lines from dealership segments and assets available for sale as well as reductions in the suppliers line reflect a reduction in purchases. We continue to focus on greater efficiency in allocation of resources, especially in inventories related to agribusiness dealerships as well as repossessed assets available for rent or sale. We still have opportunities to continue optimizing the allocation of capital in an efficient manner, as I've said throughout this presentation. I'll end my comments on the third quarter results, and now hand the floor back to Couto for his closing remarks. I'll be with in the Q&A session to answer your questions. Thank you all very much.

Thank you. So let's go to our takeaway messages. First, let's talk about rental. The company has definitely entered at time of renting assets that are in our inventory, both new and used. With this, yes, we can expect CapEx to be deployed of BRL 5 billion for '25, BRL 1.7 billion of which referring to used assets, which therefore reduced the need for new purchases. Sempre Novo is starting to gain momentum and proving to be a great opportunity for customers and for VAMOS. Our attention will be focused on increasing occupancy rates, gaining efficiency and turnover in the sale of used assets. The company has been expanding its used vehicle stores and growing its commercial reach with new sales channels through the consignment of inventory and payments of commissions. If the spinoff of VAMOS is approved, we'll be able to accelerate commercial agreements with truck dealers of different brands, as we already have with Transrio and [indiscernible], which are currently VAMOS dealerships. On the dealership business, the momentum continues to be favorable for trucks with continued results, stable results and positive bias. The machinery scenario is already showing improvement compared to the second half of '23, but still below the potential of agribusiness and below the normalized scenario. Finally, I'd like to reinforce our commitment to deleveraging the company, a journey we have already started as shown by Cezário. Note that our net debt has changed directions and is stable at BRL 10.7 billion over the last 2 quarters. The opportunity for '25 is to continue along this journey with reduced leverage, efficiency gains and a healthy capital structure. The possible spinoff of VAMOS Locação and VAMOS Concessionárias will create 2 companies with huge opportunities. The development of these business units in recent years has opened up the possibility of them becoming even more independent and reflects the wishes of most of our shareholders. VAMOS Locação will be lighter, more focused on deleveraging value creation and growth. Our rental contracts continue to have a healthy spread compared to the marginal cost of our debt in view of recent market fluctuations. We have a clear opportunity to create value. At VAMOS Concessionárias, a unit that despite the challenging times, has great opportunities by merging with AUTOMOB and possibly creating the largest dealership network in the country with huge potential to gain efficiency, increase customer service revenues and better manage working capital. Finally, I'd like to say a huge thank you to our people, family members, customers, investors and suppliers who trust our leadership and support us to offer customized services to different business segments with unique advantages to our customers. Now I'll close the presentation, and we are going to open for the Q&A session. Thank you very much.

[Operator Instructions] Our first question comes from Guilherme Mendes from JPMorgan.

The first question is about the CapEx and leverage. How do you see the balance between leverage and growth in the mid and long term? In other words, you mentioned about leverage. But what is the level of leverage that would be good for you to operate in a more structural scenario? And in the scenario, how much should the company grow? And also expectation of prices of trucks and an eventual normalization of used truck prices.

This is Cezário. I'm going to answer the first question. I'm going to Couto to answer the second. CapEx and leverage guidance, this guidance that we mentioned -- that is projections of investments next year already include a certain level of deleveraging and should be below 3x until the end of next year considering the assumptions we disclosed. And we believe that deleveraging of about 3x would be quite reasonable and we consider good for us to continue growing the company as we have been doing so far. Obviously, with the current capital structure that we have today, without considering the spin-off transaction. As you know, this transaction will slightly increase the leverage of the new VAMOS, so to speak, but the direction is going to be the same. It's just the base point that is going to change because of the spin-off assets and liabilities, as announced.

Guilherme, this is Gustavo Couto. Thanks for your questions truck prices, they continue to be stable. We see that after the increase that we had in the last cycle from '22 to '23, truck prices continue to be stable. We believe that this is a time of stability, and that is both for new and used trucks. If you analyze the FIPE table, you get to the conclusion that prices are stable. So when we project used asset sales, what we see is the following: a natural drop of margin along the cycle of the asset, which is expected. Remember, when we had the price increase, we had margins above 30%. But we always said that along the cycle of 5 years, that would again convert to normal levels, which is to be close to a margin 0 in the sale of used assets. So that will happen in next years. So the gradual -- a gradual reduction will continue in view of the price stability. And the stability, Guilherme, is going to happen perhaps for 1, 2 years. That's what we believe. But as we know, there is a trend that capital goods trucks will go up annually according to inflation. So when you consider a longer period, prices will continue to increase considering the inflationary scenario of Brazil.

Our next question comes from Pedro [indiscernible] from Itaú BBA.

I have one question in the agribusiness area. We see some information on a slight improvement in terms of grain and the new crop. I would like to note if you expect improvements for the future? And if you're already feeling any of these impacts?

This is Gustavo Couto, Pedro. Thanks for your question. Well, agribusiness, we are going to split this into 2. First, yes, [ grains ] are back in the last 3, 4 weeks despite some delay, the [ grain ] did come, and this is quite positive, encouraging farmers a bit that started planting their crops. Remember, there was a delay, but it's been recovered. They resumed the planting of crops. And now they are at a quite accelerated pace. But that has not still reflected in the sale of agricultural machinery. It's important to remember that farmers generally buy machines. One of the incentives to buy a machine is whether they are going -- when they are to pay income tax when they have a bit of a higher productivity and profitability because then they can discount the paint machinery from income tax. But because the level of soy is still at relatively low profitability, remember that we did have a break -- a failure in the crop this year. So it's still not a very good timing for that. So we do not see a resume in sales. Now with a higher level of production, people are estimating record harvest in soy for next year. Then naturally, farmers will buy in '25, but there is still uncertainty about commodity prices. So there is some unpredictability because you also had good harvests in the United States, and China apparently still not buying larger volumes, pressuring the price of commodities down. So dealerships, it's still early to say we are going to see a recovering sales. For transportation and then going more into rental, then it's natural that with a higher production, you're going to have a higher amount of load for transportation for next year, which shows that we might have an increase in volumes transported and therefore, a higher demand for trucks in agribusiness for '25. What we are doing, and I have been saying that in several occasions, is a change in our commercial strategy. We are going to be much closer to the shippers with our agents in the chain that absorb better the sector's volatility. And this is going to be the changing strategy for us not to have in the future higher fluctuations with rented fleet in the Midwest as it happens with the company's recent past and led to the repossession. So 2 effects. The rent is always good. High production is always good, that can encourage further. And in the mid and long term we can certainly start selling machinery. But in rental, a higher volume is going to bring more demands for trucks in the region that can favor rental for '25.

Our next comes from Alberto Valerio from UBS.

If you could give us a bit more color about the guidance for '25, especially the Sempre Novo product. Are you still counting on more repossessions? I think this year, you are expecting BRL 1.2 billion. How would you expect for next year? And also, how do you see prices with increase in interest rates? Are you having demand? Are you increasing prices to offset the interest curve that is going up in recent months?

Alberto, thanks for your questions. It's a pleasure to talk to you. Okay. The volume of Sempre Novo products of BRL 1 billion, I want to make it very clear for everyone who's on the call. Today, in our inventory, we have an availability of assets of BRL 700 million as fixed assets and BRL 300 million available for sale. That's the BRL 1 billion we believe we can rent along next year. We do expect other repossessions for next year. I'll give you a reference. As much as -- if we combine the volume of sales of assets that we are going to have, plus the rental of used assets that we are going to have, and the extension of contracts with the same assets that are going to terminate last year and there are also an opportunity, we do see an opportunity to reduce total inventory levels at the company, both of new and used assets. And this is an opportunity that we are seeking for 2025. And that will make us leave from the current 86% of gross assets generating revenue to something about 90%. And the average occupancy that today is at 89%, considering what generates revenue, plus the CapEx that is under deployment that we also showed you on the slide, we expect to get to 95%. That will generate better returns, better margins and benefits that are quite significant and will contribute to our deleveraging. Now when you ask about the level of repossessions for next year, I'm thinking that if we do the math in a normalized scenario, we could have up to 5% of our gross assets being repossessed. Where does the 5% come from as a reference? The company reached a unique scale. We have approximately 18 million gross assets to date. So agribusiness is already addressed. Repossession of [indiscernible] are already in a descending trend, as I'm telling you. So next year, we are looking into some sectors and some customers, considering that this level of 5% of gross assets is an interesting proxy considering that. As the company grows, there is a certain level of repossessions. So we are considering the possibility of up to 5% of gross assets being repossessed. Considering the assumption, we reduced the company's inventory levels because we are expanding sales channels. BRL 1.2 billion should be sold next year '25 as the guidance that we have already posted. We are going to have an important volume of contract extensions of BRL 700 million. And with that, we are able to optimize the occupancy of our average fleet and reduce total inventory levels. As for prices, Alberto, as we know, we always look at the 5-year curve whenever we are pricing a new contract. And whenever we see the 5-year spend, we have to monitor fluctuations. And obviously, this is transferred to our pricing tools. So recent increases in the 5-year spend already include pass-throughs. And today, we are having an average IRR of our contracts above 20%, which gives us a very healthy spread compared to what we believe the future interest rate curve is going to be, including the Selic rate that impacts our embedded interest rates. So we believe we have a healthy position to continue generating value for shareholders and customers, with prices that are competitive and ensure a healthy spread, considering future interest rates curves. And the Selic rate, more in the short term. I hope I have answered your questions, Alberto.

Our next question comes from [ Penford ] Kennedy from Citibank.

I have some quick follow-up for the repossession -- asset repossession. You talked about BRL 800 million, if I understood it correctly, to '25 considering this 5% rate. If you consider a 5% as run rate, what do you think the normal cycle would be? Because in the last quarter, repossessions were BRL 270 million against BRL 448 million. I don't know if this is an improvement or it is just normalization because quarters are different. So I would like to know the actions for the future. And if the BRL 800 million is a run rate that is expected for the company? So talking about customers, what you see at the front end, you were at Fenatran trade show last year, what did you see new customers, new contracts? Could you give us a bit of color of what the trade show was like for you?

Kennedy, thanks for joining us and for your questions. I mentioned up to 5%, considering gross assets of BRL 16 billion, which would be about BRL 800 million. This is not guidance, okay? This is just an estimate that perhaps even a bit conservative of what we would consider a normalized scenario. We don't have a recent track record of repossessions. As you know, repossessions cancellations happened in a specific sector that went through huge fluctuations and volatility and is starting to go down because we got the amount of contracts that had some kind of frailty, and we have been addressing them very carefully and aggressively throughout the year. So you do see a reduction in the third quarter. We believe that this is going to continue happening, again, because the volume of contracts in agribusiness directed to Midwest commodities that were most of the repossessions start to be reduced. The volume of assets allocated in the region is reduced, and we are being a lot stricter in new contracts with regards to credit risk. So this is what we see. So for 2025, we are doing our best, considering up to 5% repossessions. We are going to work to have a lower number, and the new normal perhaps is below that. But for now, we are going to use the 5% as our perhaps conservative estimate. Again, not guidance, just an estimate that I'm sharing with you for you to understand our internal rationale. As for front-end demand, that's an important question, Kennedy. Fenatran was very easy. I thank investors and analysts that visited our stand. Lots of people visiting. We generated a lot of sales leads, proposals that we believe can be converted into new contracts still this year. So we are very encouraged with the results of Fenatran trade show. And we did feel customers willing to renew their fleets and more and more interested in rental. Those that were there could see that clearly. And we've already seen strong volumes of signing contracts in September and October with new leads coming to the company. So I'm feeling the market is interested, is heated, and we are going to continue growing in line with our track record. And you see this happened. We already released our guidance for '24 for BRL 4.9 billion of deployed CapEx. Another BRL 1 billion to what we had up to September. So realistically speaking, we see the end of the year very optimistically and also the year of 2025.

Our next question comes in writing by Andres Souza, investor. It says, what is the profile of Sempre Novo products? And who is responsible for the asset maintenance?

Andres, thanks for your question. Well, the customer profile is a customer that wants cost-effectiveness. Remember that Sempre Novo trucks have low mileage, good quality. Most of them repossessed before expected. So they are very new trucks, and they are good for customers for, I don't know, long-distance hauling, chemicals, fuels, agribusiness. So you have a large range of sectors, and these are fleet owners that want cost-effectiveness and want to avoid renting a brand-new truck. So the same customer profile that we have today. But today, that has an alternative of rental at a slightly lower price. So this is a profile of our consumers. And most of them, these -- the customers are responsible for maintenance in general. Sometimes we do offer the warranty to customers because they are very new assets. And sometimes, we do offer maintenance services as well. But as our investors know, most of the contracts, both for new and used assets, are generally contracts without maintenance services, which is the profile of customers for Sempre Novo as well.

Our next question comes also in writing from Antonio, an investor. Congratulations on your results. Sempre Novo operations seems fantastic to reduce your CapEx needs. Could you please compare the contribution margins of this operation vis-a-vis the deployment of a new asset?

Tony, thanks for your question. I'm going to answer, and then if Cezário wants, he can add to that. As we showed to you, today, we are operating with an average IRR, both for new and used assets above 20%. This is the main profitability indicator where we are to approve a contract. Remember, that Sempre Novo when rented, it's generally a contract with a lower term, 3 to 4 years on average. In new assets, generally, you have contracts that are closer to the 5 years, which brings a yield in the short term for Sempre Novo's assets a bit higher, but an IRR is slightly above 20% because it is a shorter contract. With a longer contract, you have a slightly lower yield, but you get the same IRR of above 20%. But I believe Sempre Novo is going to be an opportunity for improved profitability compared to new assets. I particularly believe that, but it's still soon to say that. But why? Because Sempre Novo is competing to a new truck, brand new. So for the customer, it is cheaper. And for us, it is an asset that we bought cheaper. So in this comparison, I think there is the possibility for the Sempre Novo assets have even better profitability than the profitability of a brand new truck. But again, it's too soon to say that because the product was launched 3 months ago. And as you said, we are really improving sales volumes. So I'm very happy with what we did this quarter, but there is still more to come. And I think that this product is going to improve even further and [indiscernible] was a good sign of that.

Our next question comes from [ Cleber ] Costa from Casa Economic of Federal.

I'm just joining now, and I have 2 questions. The first, the impact of book value of -- if you have the approval of the spin-off of VAMOS Concessionárias. And second, what is the objective of the increase of CapEx that you had this quarter? And what is the deployment process like?

Your audio is not very good to us. If you could please repeat your questions -- ask your questions again?

I'm just joining your conference call. So I have 2 questions. The first, the impact on book value of the company with the approval of the spin-off of VAMOS Concessionárias? And second, what's the objective of the increase of cash with increasing debtedness this quarter? And what is your deployment process all about?

[indiscernible] , this is Cezário. About your first question, the impact on the book value. As SIMPAR already announced, we are expecting a separation of all assets of dealerships that today are part of a taxpayer number that is different from VAMOS Locação. So the dealership business is going to be actually separated and merged into AUTOMOB. This business, we have to -- that with VAMOS Locação, a credit note and an intercompany payable with total of BRL 150 million, which is going to be canceled because this asset is also going to be a split. So it's going to get together to accounts payment, and it's going to get to 0. And then you have a debt before third parties and a cash amount that is already in the business. It's not being separated for that. This is the cash of the business that is going to go along with the spinoff. So this split business will take positive cash instead of negative debt. So with this, I think I answered your first point about the impact of the spin-off. The second question is talking about the increase of gross debt and also cash availabilities. So net debt this quarter compared to the previous quarter went up, if I'm not mistaken, 3%, so not significant. And the increase in net debt is generally because of the investments made on deployment. We have more gross debt and more gross cash in the comparison of this quarter and last quarter, basically because of strategies in the management of debt. We are always seeking for opportunities to lengthen our debt profile at the best cost possible. And sometimes, that makes us contract some debt until we are able to manage things and come to a cash position that meets our minimum cash parameters. What I'm saying, there is no change in strategy. It is just a snapshot of this quarter in terms of debt and availabilities.

Our next question comes from Rogério Araújo from Bank of America.

I have 2 on my side. First, the contracts that you expect to renew as they mature in '25. It seems that you are changing the cycle that we expected in the past, the cycle of 5 years. I would like you to talk about what kind of price you expected if it is higher than what you are charging or not? And if it is a bit of a one-time effect based on truck prices. And when the cycle normalizes, you would go back to the 5 years and no longer extends the period. So if you could share a bit of the strategy would be very good. And then I'll ask my second question.

Rogério, thanks for your question. Thanks for being here with us. Well, asset renewal and a contract renewal, I'm sorry, with the same assets has always been a reality for the company, but at the lowest scale that is not very representative when you consider new CapEx and the accelerated curve of growth that we had in recent years. So the share of the business was very small, but it has always happened because we've always had the opportunity of assets that were in relatively good conditions be extended for 1 or 2 years. That happened. But in the past, that was done with some discounts. Because it was good for us for the customer to stay with the asset for another 1 or 2 years. And the same time, we granted the discount to the customer because the asset was more depreciated. And because they would have higher maintenance costs, they would keep the assets with a discount. The scenario is different now. Because of the strong appreciation that you are aware of, the scenario is different because the alternative today is to rent a new asset that appreciated it a lot. So when we compare the possibility of extending a contract for another 2 years at the customer, even with higher maintenance prices, it's still a lot cheaper than renting a new one. So this is an opportunity for all our asset base. And we are able, now with a detailed analysis, customer by customer of that BRL 1.1 billion in assets. And I'm talking about acquisition prices, right, that were rented 4, 5 years ago. If you look at this asset, when your know customers' operations, you know the conditions of the equipment of the trucks, then we do see opportunities to renew more than 50%. We are estimating at least BRL 700 million out of the BRL 1.1 billion with price increases because, again, the alternative for the customer is renting a much more expensive new asset. So they have a bit less availability, a bit higher maintenance costs, but still an appealing price. The alternative, if we had -- if the customer does not accept the adjustment is to sell the asset with a very good margin because these were assets we depreciated, but is more than what we needed. And with that, we have an opportunity of very good margins. So we compare alternatives, the possibility of selling at very good margins or renting to customers with price adjustments. So it is an alternative to us, but specifically to our customers. So I think it's a win-win for both customers and VAMOS.

Very clear. I have my second question about level of depreciation for trucks. You did mention that a bit, normalization of used truck prices for the coming years. Could we also expect an increase in depreciation rates? Trucks, we are at 2.5% of the weighted purchase price. What is the level that you would expect the depreciation to go? And if you could share the timing of increases, where we are going to see the number going up and to what percentage?

This is Gustavo. Again, thanks for your question. Depreciation, we already mentioned that. And you are right to imagine that depreciation rates will go up for those assets that are new and are being purchased now. Because they already start with a projected depreciation rate of around 7%, if more severe usage, even 8%, but on average 7%. So new trucks, an average of 7%. Tractors, trucks that were bought in the past, and that appreciated a lot. We are going to continue using depreciation rates that are lower, and that will lead to the movements that you almost answered in your question. And you're right. You're going to see an average depreciation ratio that is higher. It's no longer at 2.5. For trucks, it's slightly higher, and it is going to continue going up until it reaches 7%. When we have, so to speak, normalized scenario for all new assets. That is a full cycle of the assets that have fully depreciated. So you're talking about 4 to 5 years when you convert to an average depreciation of 7% with an IRR of 20%, which is the contract that we are signing for new assets today. On the other hand, the margin. For the sale of used cars will reduce gradually -- which is already going on. And at the end of 4 or 5 years, also getting to historical levels of 2%, 3%, which is what the company has always delivered. So this is within our regular plan, the asset cycle that you are already acquainted with. And remember, all projections of new contracts has the assumption that the asset will be depreciated, for instance, the trucks. You mentioned 7% a year along 5 years. And in the end of the project, we sell at 0% margin. So I'm talking about a 5-year contract. These are our projections as naturally and already show, there is probable appreciation of assets. There is always the possibility of having slightly lower depreciation rates, but they're not the baseline, and this is not the usual scenario where project and start depreciating our assets. I hope I have answered the question, Rogério.

Our next question comes in writing, Claudio Bernardo from MacKenzie. Congratulations on the results. One question about Sempre Novo. What is the lifetime of these trucks? And how do you make the decision between renting or selling the truck in a new cycle?

This is Gustavo, thanks for your question. Generally our asset cycle is, on average, 5 years. But as we already seen in some places in the world, quite often, we see some extension cycles for less severe applications. And this is what probably is what we are going to see with regards to what is going to happen. So for cost-effectiveness, we might extend these contracts as we are projecting for this new contract are to mature this year. So generally, we sell these assets at 5 years. But we are going to go, I don't know, through an extension of perhaps 24 months going up to 7 years. How do we make the decision whether to rent or sell? Generally, the opportunity of rental, the IRR, taking a look at the value of this asset. So we calculate the IRR, and the 20% that we calculated for the Sempre Novo contracts, we don't calculate that on -- based on the residual value. We compare to our sales opportunities. So the IRR is based on the sales price of that people. If I recalculate the IRR with my book value, the IRR is even higher than 20%. So we are always looking at alternatives. I can sell the asset. What kind of margin I'm going to have? What's the financial result? If I sell it in the short term, vis-a-vis the alternative of a second cycle of rental. And there, we generally are going to put our best efforts on one or the other. Right now, we see there is a good opportunity for us to rent Sempre Novo trucks, and that's why we are prioritizing BRL 3 billion for rental. I hope I have answered your question, Claud.

This concludes our Q&A session. Now we are going to hand over to Mr. Couto for the company's closing remarks.

Well, I'd like to close by thanking VAMOS team for the excellent work. We are now going into a cycle that is quite important, in my opinion, which is the possible spin-off of the company and somehow that meets the needs of many investors with whom we have interacted in recent periods. This will create opportunities for both VAMOS Concessionárias working as a purely dealer, adding value to customers through services at the point of sale and a more business with more of a retail profile. And on the other hand, VAMOS Locação fully dedicated at its core business, which is managing the asset cycle and generating more value for our shareholders and customers. The company is going through an important phase of deleveraging. As Cezário mentioned, we are probably going to operate next year at very healthy levels, perhaps 3x net debt-to-EBITDA ratio, which will enable us to keep a pace of growth that is consistent as has been in recent years. If you see we had BRL 5 billion CapEx approximately -- currently in recent years. And if you consider leverage at 3x and project future results, imagine what the company can deliver an important growth, creating competitive advantage in the market given our unique scale, creating value in the relationship with OEMs because we are the largest buyer of trucks and equipment in the country. So we do believe the cycle is just starting. So we invite the shareholders to do their math of what this company would be like if we keep this pace of growth for the future? And keep a healthy leverage level with net debt to EBITDA ratio of 3x. That's my takeaway message because we believe there is still a lot of value to be created for the future. We are very happy with what we achieved, but even more encouraged about what we can do in the future. Thank you very much for joining us, and we are closing our conference for the third quarter results.

This conference call is now closed. We thank you very much for joining us and wish you a very good afternoon.