Conference Call Transcript Simpar S.A. (SIMH3)
4Q24 Results March 27, 2025
Operator:
Good morning, ladies and gentlemen. Welcome to Simpar's conference call to discuss the results for the 4Q24.
This session is being recorded, and a replay will be available on the Company's website, ri.simpar.com.br.
Please note that all participants will be in listen-only mode during the presentation. We will then begin the Q&A session, at which point further instructions will be provided.
Before we proceed, I would like to remind everyone that forward-looking statements are based on the beliefs and assumptions of Simpar's management and on information currently available to the Company. These statements are subject to risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should be aware that macroeconomic conditions, industry trends and other factors may cause actual results to differ materially from those in such forward-looking statements.
Joining us today are Fernando Simões, Chief Executive Officer; and Denys Ferrez, Executive Vice-President of Corporate Finance and Investor Relations Officer.
Now, we will hand the call over to Mr. Fernando Simões, who will begin the presentation. You may go ahead.
Fernando Simões:
Good morning, everyone. We are now starting the earnings release for Simpar's 4Q and full year of 2024.
On behalf of our more than 57,000 team members, I would like to thank you all for joining us today, and also express our gratitude for the commitment and hard work of our people. And on their behalf, we thank our customers for the opportunities to give us work. Through the quality of our deliveries, we evolve and generate results. Thank you all for those who choose us to provide services.
Let's get started on page 3, the highlights of the 4Q and full year 2024. We reached a record consolidated gross revenue in 2024, R$45.2 billion. That represents a 27% increase over 2023. Net revenue from services reached R$32.6 billion, also a record, up again 27% year- over-year.
It's important pointing out that in 4Q alone, we posted revenue of nearly R$9 billion. If we analyze this picture, this would also be growth over 2023. And reported a record EBITDA of R$10.5 billion, up 28%, reflecting a slight margin expansion. Adjusted consolidated net income reached R$548 million for the year.
On page 3, still on the right-hand side, we share a few insights for you. When we talk about efficiency. EBITDA margin increased by 3.5 p.p. year-over-year, reaching 46.5% in 2024, that excluding dealerships and the retirement of assets. And why? Because dealerships now represent a larger share of the business and carry lower margins, so it would not be comparable to the previous year.
And in terms of efficiency, we reduced admin and selling expenses on net income from 10.2% to 8.6%. This reflects, again, scale and operational efficiency. We are entering a new cycle where scale plays a central role and costs will reduction relative to revenue.
Looking at EBITDA per employee, we saw a 12% increase year-over-year, reaching R$181,000 in 2024 per active, per operational employee. Basically, we are talking about quality of our assets.
We always say that the quality of our assets is very important. We always purchase thinking about the sale, thinking about the resale. In 2024, we reached record revenue from asset sales of R$7.8 billion, up more than 28% year-over-year. We have an asset base of R$42 billion, all of high quality and similar to the ones we sell, demonstrating our ability to sell and the liquidity of our assets.
We have strong cash position. This is part of our strategic plans. We continue to have broad access to a diversified range of capital sources, and part of our strategy is to have liquidity in our cash. Today, the consolidated group holds R$15.6 billion in cash, 3x our short term debt, and we raised R$13.7 billion in 2024, which reflects the capacity of our financial team to manage liquidity and anticipate opportunities.
With everything we did, we began a deleveraging process closed in 4Q with 3.6x net debt-to-EBITDA ratio. Also at the end of 2024, we completed our corporate reorganization at Vamos and Automob. This reorganization was approved by 92% of Vamos' voting minority shareholders.
With this move, in line with our plans, Vamos now focuses exclusively on truck machinery and equipment lease, and Automob has become the largest, most diversified dealership group in Brazil, listed on B3 as of December 2024 as AMOB3, the fourth listed operating company, and the fifth when we consider Simpar, in line with our strategic plans and creating major opportunities for both Vamos and Automob.
Now moving on to page 4, we show the consolidation of the foundations we have built over the past few years. In line with our strategic plans defined by our Boards of all companies, we have built scale, infrastructure and people that are prepared. And now we are entering a new cycle to extract value everything we built for each of the businesses.
On the left side, we show Simpar's evolution as an ecosystem from 2016 to 2020, when we had the major restructure, and then 2024, how we are today. Eight fully independent companies, 5 of which publicly traded, each with independent management teams, Boards and committees appointed by the respective governance structures.
More than 350,000 assets and a value of approximately R$42 billion. And revenue and business diversification with independent companies. In 2016, 75% of our EBITDA came from JSL. Now only 17% comes from JSL, the remainder generated by other companies.
What is important? Consolidated gross revenue from 2016 to 2024 grew more than 6x, and EBITDA more than 10x. EBITDA margin rose from 16.3% to 25.9% comparing 2016 to 2024. This is focused on business that generate better margin and cash to meet our commitments.
And when we look at leverage, in 2016 we got to 5x. Remember, Selic was higher than today. In 2024 we closed that 3.6x, even after everything we built in recent years, and that we still are not enjoying the full benefit of what has been built.
Still on page 4, again, we make some comments. We are now entering a cycle focused on extracting value from the foundations built across our companies, the consolidation of these businesses. Today, we have scale, networks, talent, creating a natural barrier to entering our system.
Over the past 4 years, we delivered average annual revenue growth of 43%. Without setting expectations, we believe we are now fully equipped to generate more cash from our businesses with less investment, not only due to greater efficiency, but because the foundations that are laid to unlock value. Value extraction will result in higher cash generation and lower investment needs, because investments have been made. Now it's time to cash generation.
Higher efficiency of our assets. We have the right asset mix, high utilization levels. We buy every day high-quality, highly liquid assets, and we have the modesty of our team to exceptionally manage these assets, which is good not only in deploying, but also in retiring the assets. And that shows our capacity to sell.
Disciplined contract management, both for existing and new contracts. And also with due modesty, we have technical operation capacity to renegotiate and realign contracts whenever needed, even beyond scheduled annual price adjustments, and we are working hard to reduce costs and expenses to offset inflation and interest rates.
As a reminder, across our companies, we have done this many times before. We do not pass through costs just for the sake of it, but when it is necessary, when we have to do that, we have always done that to have our companies healthy and sustainable in the long term.
Now I am going to move on to page 5, talking about JSL. JSL has already released its results, so just a few brief comments about the Company. This is a company that is over 68 years old. It has been market leader for more than 24 years, has 37,000 direct employees, an extensive ecosystem of contracted truck drivers.
And this ecosystem as a whole, although it has had transformational growth, if you compare 2023 to 2024, JSL grew more than 16% in revenues, including FSJ and IC, which are not fully consolidated in 2023. This reflects the ability to grow even in a challenging market, even being the largest company in Brazil.
And the capacity to generate cash, its EBITDA margin declined slightly due to pre-operational costs, and the lag between cost increases and price pass through to customers.
But we believe this will normalize soon. In other words, it has a lot more to be done, more than it did before.
On page 6, we have Movida. I would like to take this moment to congratulate the entire Movida team for everything they accomplished in the past 10 years. As you can see on page 6, we have some operational and financial metrics from rent a car, GTF businesses that lead us to believe that they are the best metrics in the sector.
Movida grew and developed on its DNA of serving customers. We believe that through this it contributes to the business of rent a car in Brazil. The execution of its strategic plan has significantly improved its performance across all business lines. And for the first time in 2025, Movida is starting a new cycle.
What is this new cycle all about? Today, Movida has scale. It has the stores, the infrastructures in place, it has team. It knows pricing very well, it has the necessary reach. And the auto industry has returned to pre-COVID levels. So we have availability of fleet, the right mix and fair pricing, and this creates a major opportunity for Movida now with scale and fully ready. We are proud of everything Movida has accomplished, but we believe that our team will enter an even further cycle of value creation.
On page 7, we talk about Vamos. Vamos completed its corporate reorganization, speeding up its truck machinery and agriculture business dealerships. Now it is only focused on the lease of trucks, machinery and equipment. And we believe this will result higher productivity, greater operational efficiency.
It starts 2025 with a significant portion of its CAPEX already execution, which will require less net investment, but still it will grow margin, improve revenue. And the capacity of selling assets showcases the quality of assets and sales capacity. In 2024, R$705 million, up more than 34% year-over-year, showing sustainable return profile, both in terms of ROIC and ROE.
So it starts focusing on leasing trucks, machinery, equipment, operational efficiency and optimize invested capital. And as a result, we expect continued deleveraging. We are very pleased with this new phase and the resilient path of Vamos, a market leader in its segment with a strong potential for continued growth.
Page 8, we have Automob. Automob, following the spin-off from Vamos with the dealerships, is now the largest and most diversified dealership of vehicles in Brazil. In line with our strategic plans for the upcoming quarters, the team is focused on operational efficiency, increasing productivity per location, per business or productivity and also spreading best practices across the network.
It's natural to see variations in the different dealerships and locations. So optimizing capital structure is a focus by improving working capital, reducing agricultural inventory and others. There is significant room for improvement in capital structure.
And I would like to invite you to think about that. Think of prepaid inventory in its balance sheet. I believe it's around R$1.5 billion. This more than covers the Company's debt. It is an extremely differentiated business with significant potential for both organic and inorganic growth through future acquisitions.
Now on page 9, we have CS Infra, with a portfolio of concessions, which focus is low CAPEX and service quality, providing services. We truly believe that the Company's biggest differentiator is our DNA of service, our people. So whether it's a public partnership or concessions, we focus on delivering high-quality services.
Based on these pillars, we have confidence that we will stand out in services, helping society, helping governance to better serve the population. We recently were awarded a new highway concession in the state of Mato Grosso.
We are very pleased with the strategic step for CS Infra. We have the right people in place, a CEO, a dedicated Executive Director for each business, giving us agility and focus. All these operations are almost preoperational with large part of CAPEX already executed. But as you can see, the returns from revenue and results are still to come.
Going to page 10, we talk about Ciclus Ambiental, also a concession but in waste management. Thanks to its focus in cost and expense control, and the contract rebalancing of the main concession in the city of Rio de Janeiro, Ciclus has seen an improvement in results, but it's just beginning.
Three key developments have been instrumental: reduction in cost and expenses, the rebalancing of its core concession contract, and also the rebalancing of a biogas contract, where we have a commercial alliance with a partner operating within our landfill. But these results have not had a full impact on 2024. They will partially impact 2025 and fully impact 2026, which will further improve the Company's capital structure and bottom line.
We are very optimistic and focused on operational efficiency, cost reductions, and revenue is already locked in through long-term contracts. It is a high-quality environmental asset.
Moving on to page 11. CS Brasil, specialized in fleet outsourcing with driver services. In 2024, it posted 15% revenue growth compared to 2023, and we see strong potential in this business as governments continue to seek more efficiency and productive service models. So there is room for logistics services that involve both fleets and operations in CS Brasil.
Now on page 12, we have BBC. Here, you can see the growth through new operations organically, the generation of new contracts, but more than that, the beginning to see initial contributions to results. If you adjust the upfront commissions typically paid at the start of the contract and you dilute those numbers, the results would be even stronger.
But anyway, we are operating within and outside our ecosystem, enormous potential of growth. But important, this is a niche bank, very judicious about credit spreads and developing products that offer down payments from 30% to 40% and fair spreads that reflect current financial costs and interest rate cuts.
More important, we have an outstanding asset quality with delinquency levels below market levels. So we are building a solid and safe credit operation.
On page 13, we have some of the main consolidated highlights. I am going to turn to Denys, who will give you more detail on that. Denys? Thank you.
Denys Marc Ferrez:
Thanks, Fernando. Good morning, everyone. Now I am starting on page 13, talking about consolidated financial highlights with both quarterly and annual comparisons.
Starting with net revenue in 4Q24, it reached R$10.7 billion, up 24% compared to the 4Q23. On an annual basis, total net revenue for the Group reached R$41 billion, up 29% year- over-year.
On the right-side, we see EBITDA and margin, R$2.7 billion in the 4Q, up 32% compared to the same period last year, growing faster than net revenue. For the full year, EBITDA reached R$10.4 billion with a margin of 25.9%. This is a 28% increase versus the previous year.
Operating profit measured here by EBIT totaled the quarter with R$1.6 billion with a margin of 15.4%, reflecting an improvement compared to the same quarter last year and growth of 38%. On an annual basis, EBIT reached R$6.7 billion, up 28% with a margin of 16.6%.
Adjusted net income, a key here, excluding non-recurring items and one-off items mostly related to the corporate reorganization that we had in the last quarter of the year and in the 4Q, we had R$82 million consolidated basis, reversing the loss we had posted in 4Q23. For the full year 2024, adjusted net income totaled R$548 million, also reversing the negative result from 2023.
Here on the right side of the slide, looking specifically consolidated EBITDA margin, in 2024 it reached 25.9%, which is 0.1 p.p. better than in 2023. But I would like to emphasize that when we exclude from this margin, the impact from dealerships, which operates on a retail model, our service EBITDA margin without dealerships was 46.5%. That represents on a comparable basis an increase of 3.5 p.p.
With this, I am going to move on to the next page, 14, where we discuss the Group's debt profile. First, on a consolidated basis, and then we will talk about Simpar as the holding company on a standalone basis.
Consolidated numbers. Total net debt reached R$40.7 billion with a cash and liquidity position of R$15.6 billion. Average debt maturity of 4.3 years and short-term debt coverage ratio of 2.7x. In other words, our available liquidity and cash today is sufficient to cover all amortizations through the year of 2027.
Over the course of 2024, we have raised a total of R$13.7 billion across the Group, at an average cost of CDI plus 1.7% a year, average, maturity of 5 years. Out of that total of R$13.7 billion, R$2.7 billion was raised in the 4Q24.
At the bottom-right corner of the slide, talking about some subsequent events this year, the Group raised R$1.9 billion in March, in a 3-year transaction. The original currency was USD, but it was swapped to BRL at a cost of 100% of the CDI.
Before closing the slide, I want to highlight one point. While we present consolidated leverage figures here, it's important to note that several of our subsidiaries, because they are publicly traded companies listed on Brazil's Novo Mercado, the highest corporate level in Brazil, and have different investor bases, that enables the view of the Group, reinforcing overall credit quality. But each of these companies' credit profile should be analyzed independently. There is no cross liability amount there, this is important to say.
So now turning to page 15, talking about Simpar as the holding company alone and its debt profile. We closed the year with net debt of R$2.7 billion, a cash and liquidity position of
R$3.5 billion, average maturity of 6.3 years and short-term debt coverage ratio of 12.7x.
As publicly disclosed, we had the corporate reorganization in the 4Q24, which resulted in a cash inflow of approximately R$1 billion to Simpar, and this helped to reduce the Company's net debt position, especially when you compare 3Q24 and the year-end figure. And with these proceeds, we repurchased Simpar's issued bonds and debt instruments in amount of R$510 million in the 4Q24.
On slide 16, we discuss our current strategic planning cycle, where we see a lower investment need and a higher cash generation capacity. In the chart at the center of the page, we show that we invested about R$10 billion in 2024, in line with the cash generation for the year. However, it's important to highlight that part of this investment was an acceleration of CAPEX plan for 2025. As a result, 2025 will benefit from this anticipation.
In previous years, when we were in an intense phase of scaling up the business, investment volumes exceeded cash generation by more than 2x. Now it's a new phase.
On slide 17, we show the different leverage ratio and the conceptual differences between them. The most commonly used and reported metric is net debt-to-EBITDA ratio based on the criteria for international bond issues. That closed the year at 3.6x, which is not only lower than what we reported in 3Q24, but also lower than the ratio at the end of 2023.
We also have 2 important metrics. One, net debt-to-EBITDA-Added, and the other, the business leverage. And these are very similar metrics. For net debt-to-EBITDA-Added, we have 2.3x, and business leverage, 2.5x.
Now remember, what is this business leverage? Basically, it is a scenario that considers all the Group's net debt plus payables to suppliers of vehicles and equipment plus for plan, plus acquisitions, plus any other credit rights, deducted from the present value of the expected residual value of the assets at the end of their contracts.
This is our business model, which is a convergence between business leverage of 2.5x and net debt-to-EBITDA-A of 2.3x, which is very different than the traditional net debt-to-EBITDA ratio of 3.6x, because the traditional metric does not take into consideration if we have mid-to long-term contracts, and therefore, are going to have an end, and that the assets with which we operate retain an important residual value at the end of contracts when they are going to be monetized. Therefore, we understand that this is the business leverage ratio.
And again, in our criteria this is at 2.5x.
On the next page, we talk a bit about return on invested capital. Remember that this is a key priority, and it's part of our executive compensation targets. We present here what we call productive ROIC, that is, calculated based on the portion of the capital base that is already fully operational and generating cash or adjusted for temporary distortions such as excess inventory. It was 13.3% in 2024, and if we compare it to after-tax cost of debt was 8.8%. That means our return exceeds the cost of debt by 4.5 p.p.
Now I am going to turn back to Fernando for his final remarks.
Fernando Simões:
Thank you, Denys. On page 19, we highlight how our companies are prepared to extract the maximum value from the foundations built. Today, we have more than 57,000 direct employees, all in line with our values and culture. More than 355,000 active assets. Governance, including 5 Boards of Directors for our listed companies. And in the others, we have 3 further committees that oversee the unlisted companies.
We manage over 1,500 service locations interacting with customers every day. More than 1.5 million m² of warehouse space operating for our customers or our own operations to customers. These are just a few numbers that were built over nearly 7 years of the Company.
And we had net CAPEX of R$40 billion in the last 4 years. That's why we believe the foundations are built, solid pillars that will contribute for us to extract more value through greater operational efficiency and profitability because the foundations were built along the years.
And now it is a phase of operations more than construction. With that, we will have lower investment needs and therefore, higher cash generation. And it also improves our EBITDA and overall cash flow by leveraging the structures we have built.
Greater operational efficiency includes tighter inventory management, shorter collection cycles because of financial costs and faster deployment and retirement of assets. And sales, which will certainly improve our operational efficiency.
With all due modesty, our team is highly skilled. We have strong governance and pricing capabilities, not just fair in the beginning, but also managing the contracts through well-defined adjustment clauses and also realigning prices together with customers whenever necessary. That is, the quality of the contracts we start and how we manage them plays a crucial role in our results, especially in an environment like this with higher inflation and rising costs.
Our capital structure, I will say it again, everybody see the CAPEX we make, but you do not see the revenue that CAPEX that has already been made will generate. This will come in the next few quarters. And with efficient operations, smart contract management and executed CAPEX, we will improve our capital structure and further deleverage our companies.
All our business are diversified by sector, by services, and also geographically. Our businesses are highly resilient and essential to the lives of people. As I always say, people may live without our companies, but they cannot live without the services we provide.
And quite modestly, we have assets that are high-quality for our customers to use with safety, for resale, and more than that, we have within our ecosystem, a truly service-oriented DNA. And we only purchase assets that we believe in, that we can operate, that we can manage and that we can sell. It's a full cycle that makes the difference in our business. That's our DNA.
And above all, most important is our people. It is through our people that we maintain long-term customer relationships, some which go back 68 years, one of our customers, many others with 30, 40 years. This is only possible because our greatest asset is not a hard asset. It is our people. It is the major differentiator of our Company that work with excellence, with confidence, everything the Board of Directors decides to do.
This gives us the confidence to say without no overpromising that we strongly believe in the results that will come in the coming quarters, both for the ecosystem as a whole and for each company.
Once again, I would like to thank you all for joining us today and open for your questions. On behalf of our 57,000 team members, thank you for your time and attention.
André Ferreira, Bradesco BBI:
Thanks for taking my questions. I have two. One, you talked a lot about operational efficiency in your presentation. So I would like to understand if you have a target or how much that can generate in terms of impact, thinking of absolute numbers or percentage of revenues?
And the second question is, looking at the EBITDA over net CAPEX ratio, because net CAPEX for Vamos is going to decrease, do you think you are going to have a record for this metric in 2025? Just doing a quick math, it would be something like 1.2x. Do you think that's a doable number for this year? Thank you.
Fernando Simões:
Thanks for your question, André. When we talk about operational efficiency, for the first time, we are going into a cycle in which all our businesses are built with the right scale and size, and now they are ready to enjoy and take actions with greater operational efficiency. And as a consequence, you have better returns, deleveraging, and you increase revenue with less CAPEX. This is in line with our strategic plans.
So when we say that we have a management model that is unique, very much based on our people, our main differentiator, with everything that has happened that we have been monitoring, we have our cost reduction program.
From September to December, we worked very hard to enjoy the benefits of this program this year. I am not giving you numbers, but just for you to think with us, every 1% of cost efficiency in our costs, we have R$500 million in the year. I am not creating expectations. I am just considering that with you. And we have a history of deliveries. And at times of difficulty, of volatility, as you see what happened, we had this in 2016, 2015, we are very fast and we take deep actions.
Another movement when you talk about improvement is realigning prices, regardless of price adjustments. It is really passed through prices to cope with the increasing costs of inputs of everything. And the Company has been doing that with excellence. It happened in Movida, JSL is talking about opportunities. And again, just think about it. If it's just 1% in terms of price realignment, and this is below of what we are having, and you can prove that, we would have again another R$500 million.
But when you talk about efficiency, with everything built in recent years, certainly, André, we have opportunities of having much less inventory of assets at Vamos, at Automob, of improving processes and prices in Movida even more than what's happening in the period of asset retirement, in the sale of used vehicles, the mix of used vehicle sales is higher in retail now than in the whole of our history. Movida mix for occasional daily rentals and monthly daily rentals has also contributed to better prices. This all, we consider operational efficiency.
JSL has been awarded contracts. It has been considering leasing or buying assets. So all this is operational efficiency, and we truly believe this will contribute to the improvement of our results.
So operational efficiency in practice, the example of Automob, the number of sales per store, new or used vehicles, you have a history that Automob showed and you had growth of more than 30% in the first year and in the second year. Of course, it's not going to be able to do that every year. But this is delivery, this is operational efficiency.
Again, without creating expectations, but you have stores with R$23,000 per productive employee, and others, R$16,000. If you level this difference with 2,000 employees, see the amount of revenue that you can get. So much to be enjoyed. And for the first time, the Group is focused on that after building all the foundations. And then synergies, F&I, there's a huge opportunity.
I am going to turn on to Denys. I am sorry, it took me a long time to answer this question, but it's very important that you understand that the opportunity of operational efficiencies are in every single company and will certainly show in this new cycle we are starting.
Denys?
Denys Marc Ferrez:
André, just to understand what you are asking, and if I am wrong, just let me know. You are asking EBITDA divided by CAPEX, and then you could have 1.3 and that would be a record. Is that it?
Without making any projections, but using the information we received from companies, in the case of Vamos, we have assets available in-house for lease, which will certainly benefit this metric for Vamos.
We have focus on efficiency in the case of Movida, as it was mentioned before, which also favors this metric. And at JSL, you have focus on operations that are asset-light. So without making projections, I think we should have something very positive in this line. That is, that
EBITDA compared to CAPEX based on everything that was disclosed, will be very different from what we experienced in the last 4 years, in which we were building the foundations that we want to enjoy from now on.
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