Movida Participações S A : 2Q21 Conference Call Transcription

TELECONFERENCE OF THE 2Q21 RESULTS

Operator:

Good morning and welcome to Movida conference call to discuss the earnings regarding the 2Q21. Today with us are Renato Franklin, CEO, and Edmar Neto CFO and IR Officer. Right now, all participants are in listen only mode. Later on, we are going to start the Q&A session when further instructions will be provided. Should any of you need assistance during the conference call, please reach the operator by pressing *0.

Before moving on, we would like to let you know that any statements made during this conference call relative to the Company's business prospects, projections, operating and financial goals are based on the beliefs and assumptions of Movida's management and rely on information currently available for 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 be to results that will materially differ from those in such forward looking statements.

Now, we are going to turn the call to Mr. Renato Franklin. Please, Mr. Franklin, you may start.

Renato Franklin:

Thanks, Priscilla. Good morning, everyone. Welcome to the conference call of Movida to talk about the 2Q21. Thanks all for attending. I will invite you to go to our presentation to talk about the highlights of the 2Q.

Here we are bringing a presentation that is slightly different in form because our main highlights are our results, record in all indicators that we are going to be showing you and we are going to show you how Movida have really changed the levels and it is now starting a new cycle. We are going to start on page three to talk about results.

First, the 2Q is a quarter of lower demand in terms of seasonality for Movida, when you talk about daily rent a car. And we also had the lockdown for the second wave in April, May and June. Even with this effect that we are not highlighting here, the results are very good and make us very excited about what is to come.

We improved efficiency, margins. We are able to deliver lots of growth and pros, when you are talking about doing away with margin, you are focusing on a much bigger company that is today with a much greater return. And we are going to deliver a second half much better than the first half of the year.

Our objective is continuous evolution quarter on quarter. So, indicators total fleet of 134,000 cars, 12,000 cars plus, that is 10% growth in one quarter. Organic, relevant, important growth for the Company. Total net revenue R$1.2 billion, EBITDA R$388 million, much higher than the 2Q20, that was much affected by the pandemic. But even compared to the pre pandemic times, very important growth for the Company.

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Net income R$174 million, a very strong growth, a completely different level of net income. We are talking about a four fold increase of the 2Q20, the whole of 2019. So, we are going to talk more about that later on, especially with the combination of CS.

Return on equity and invested company R$19.4 million. If you analyze the 2Q because of this important evolution, we are talking about a ROIC of 14%.

Of course, there is an effect of the Seminovos, which is passenger, but we still have a lot to do to offset the Seminovos market. Cash R$3.4 billion and we are talking about the maturity of the Company, evolution, better teams, people. The outlook of the combination of CS also makes a difference.

And yesterday, a new rating for the Company was approved to AA+, which is the fruit of the work of Movida team, that I thank very much. Your trust, your belief, the support of our shareholders that approved the combined business with CS, 100% approval. We are very happy that everybody understood, just like us, the potential of this combined business.

The new rating will certainly bring us opportunities for us to decrease the cost of capital for the future and continue to generate value.

On the right, we show proforma numbers with CS. As of the next quarter, CS numbers are going to be in our fleet management business and you are going to see the combined business as we are showing here proforma. Again, a completely different level, 160,000 cars, total net revenue, R$1.4 billion, EBITDA, almost R$500 million.

The rental car business was affected by the pandemic in the 2Q, but the 3Q is going to be very strong. July is much better, 200% growth year on year, annualized numbers of net income of R$198 million. That just makes the Company improve its margin, reduce costs because of gains of scales. And again, our ROIC really is a huge increase.

And then you will say, well Renato, Seminovos are going to take a little longer to recover and interest rates are going up. Yes, but we have contracted growths in all our levels and the Seminovos prices have a different mix with the digital growing and more retail.

So I can ensure we are in a new level, with much higher ROIC and cash of R$3.6 billion. So, strong values, liquidity and prepared for a new cycle of growth. It is, as I joked around, as if we had just closed a new IPO and we are prepared for a new cycle of profitability.

Slide four, also consolidated results just to show this new level. You will see the 2Q21, then you have the levels that will compare with you today to an annualized to see the 2Q21, we have R$1.4 billion in revenues, R$5.4 million annualized. EBITDA R$1.8 million. You are talking about half EBITDA already coming from fleet management, which is where the Company is growing the most, with more predictability.

EBITDA that is contracted with loads of predictability, which helps us to plan, to grow. And in our business plan, a bit even larger growth. If you get year to date with annualized numbers, we are talking about 70% growth. And then that is why we are getting to this new level of Company.

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We are going to have very important growth for Seminovos. And remember, all the assets were bought at the prices before the inflation. And for new cars, we are making very conservative estimates, but we believe that the market is going to stabilize for the next year or more. And fleet management will generate positive margins until we can stabilize the whole fleet, which is very important.

Now, we go to slide five. This is the same slide that we used on the road show with shareholders that were interested. We talked about the combination of CS, we held lots of meetings to try and explain the CS business. CS is a fleet management for light vehicles in companies that have public or private ownership.

We try to explain what it was just to reinforce the transparency of our Company that has good governance and really follows the good practices of Simpar that let the minority shareholders to choose.

What is CS? First is one of the six largest fleet management companies in Brazil. If you think of contracted growth, the pace of growth is 42% growth, much higher than the market average.

It is a company that is already big, grows very fast, is the leader in the marketing which operates, where knowhow and experience helps the company price well. That is why it has a very high success rate. When you do not know the business and you are going to price the service, you do not have competitive prices.

CS has the knowhow, they structure to provide services according to all the bids requirements and a highest level of governance, which is known for its good practices. It is a benchmark, one of the four chosen by the United Nations with good governance practice, and we want to replicate that to every one of our companies to use.

And then, operation fleet of 18,000 cars, you see 24,000 in total fleet because they had a backlog of 9,000 cars. Now, we already have 5,000 ready to be implemented. So, we are really seeing an operational fleet that is going to be very important for us to continue to grow R$452 million in revenues.

Lots of contracts at different levels, cities, states, federal governments, different sectors with an EBIT of 43%, 14% of ROIC and 91% tax renewal rate. In terms of EBIT and ROIC, the highest in the market. In terms of risk, depreciation and residual amount, it is much more similar to Vamos than Movida. So again, very high predictability that will contribute to Movida's new cycle of growth.

Now, we are going to slide number six to show the fleet evolution. If you take a snapshot instead of looking at all the cars, take a look. Before the pandemic 109,000, then 22% growth since 2019. Even with a challenging scenario, our strategy was different from the competitors.

We sold cars fast and purchased them faster. With that, we were able to receive cash, the 2Q we even bought more than the 1Q and you will see organic growth of 22%. And remember that now we have CS Frotas. When you put Organic and CS Frotas, you are talking about 36,000 cars over the next quarter, 45% over the pre pandemic time. Very relevant.

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Take a look at fleet management. Take a look at the amount of cars. People questioned the potential of growth, but we doubled our GTF. Today you are talking about 80,000 cars in our total fleet management.

There are still cars to be implemented that will bring revenues for the coming months, contributing to the Company's predictability. So, 106,000 cars, R$1.8 billion in EBITDA, that is a very strong growth guarantee for the future.

Now, Edmar is going to talk about our different business units.

Edmar Neto:

Hello, everyone. Thanks Renato, this is Edmar speaking. I am going to start with slide seven to talk about the rental car business. As Renato mentioned, we started the rental car business in April, weaker than expected. We had some preventive measures to prepare for the second wave. We started that in February. And the good news is that along the quarter, we saw recovery really showing very strong. And in June, we got to occupancy levels above 80%.

And that reflects on the rental car revenues and EBITDA. So, it grows well year on year because the 2020 was the worst, the quarter and the pandemic, and in 3Q also, it shows very important growth. If you take a look at all indicators in the last 12 months, revenue R$1.3 million, EBITDA about R$600 million and EBIT 308, all records with a very important recovery of margin.

When you take a look at the quarter in EBIT, we got to 30%. Preparing the third quarter to be a stellar quarter in terms of rental car business, net income growing. We are seeing a favorable market now, daily rates almost 19 million. And the ex-depreciation costs in line with other years.

Remember, maintenance costs consolidated for the Company have been stable in recent quarters, when you do the math per car, which is a fruit of all the efforts that we have taken to face inflation. Which is true, when you talk about the car market, but we really tightened our controls. We have a whole plan that our office supply is leading and indicators are very positive in terms of controls.

On the next page I talk about the fleet management business and the combination that led the Company to 80,000 cars. Net revenue of R$283 million growth of 127%, I am considering CS here as well. EBITDA R$200 million, again, considering CS. It would be a record without CS, but with CS it is a double record, so to speak.

And as Renato mentioned, it is the turnaround for the companies EBITDA with the fleet management being greater than a rent-a-car business, which will give us more predictability and will make our decisions for growth a bit easier.

EBIT 52% margin. And again, we go back to the 1Q and the maturity of brand new cars. We recovered margin in the quarter showing that the products are maturing and growing strongly. Growth revenue very strong, R$13,000 in the monthly revenues. We can even continue to grow at a number of daily rents of R$4.6 million, a record in the quarter.

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Now, I am going to talk about the Seminovos business, the used cars. Here you see we had a drop in revenues, which is substantially smaller than the dropping volume because average prices went up. More important than that gross margin with growth of 24%.

In the race that started two years ago, or even before, to bring Seminovos to the level of the competition, we got there, 24% of growth margin with an average ticket of R$54,500. We sold 12,000 plus cars, EBITDA R$120 million, an important increase compared to last year, margin of 18%, very much in line again with the market and EBIT 16%, a new record.

And here we show on the slide, the impact of CS, that is more relevant in the rental car business, but they also contribute here. Renato is going to talk about synergies further on.

I am going to the next slide, slide ten now, to talk about cash and our debt schedule. Last quarter, we mentioned that the issuance of bonds would be transformational in terms of the Company capital structure and results started to show.

We closed the quarter with R$3.2 billion, R$3.6 billion if we include CS and we do not have any pressure in terms of refinancing. Our cash covers the next four years and that again makes the Company change the levels.

In the first six months of the year, we already paid almost R$2 billion, R$1.6 billion prepaid, and we see a high likelihood of improving all credit metrics, especially when we work with the amortization profile.

Here on the slide, we also show the annualized EBITDA of R$1.8 billion, which is to fold, the EBITDA we showed six months ago. Of course, we have CS here, but once again, we are showing that we doubled the Company in a very short period of time. And again, that helps us making decisions in terms of growth in a very disciplined manner.

We are really transforming this timely benefit of Seminovos into cars. The Company is growing and it is the company that most grows in the industry.

On the next slide, here we have a highlight on our credit profile. The combination with CS, as I mentioned, brings more EBITDA in fleet management, more predictability of revenues, more predictability of EBITDA and higher resilience for the Company. That is already shown to be very resilient.

Also, the combined leverage goes down because part of the portfolio of the transaction is that CS is going to have leverage up 2.5x, which is going to improve our combined leverage by 0.1x or 0.2x. And we already see a benefit that was an important network movement based on everything that we did, combining the business with CS.

CS has R$600 million in debt. One of the synergies is to bring the cost of debt of CS to Movida, costs of debt. We are talking about a 50 bps to 100 annual bps of benefits that were not in the valuation, but that we are going to go after as of now.

With that now I am going to turn to Renato to talk about the synergies between Movida and CS.

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