U.S. Markets closed

Edited Transcript of JSLG3.SA earnings conference call or presentation 8-Nov-19 2:00pm GMT

Q3 2019 JSL SA Earnings Call

Mogi Das Cruzes Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of JSL SA earnings conference call or presentation Friday, November 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Denys Marc Ferrez

JSL S.A. - Chief Administrative, Financial & Investors Relations Officer and Member of Executive Board

* Fernando Antonio Simões

JSL S.A. - CEO, President, Member of Executive Board & Director

================================================================================

Conference Call Participants

================================================================================

* Fernando Abdalla

JP Morgan Chase & Co, Research Division - Senior Analyst

* Lucas Laghi

Santander Investment Securities Inc., Research Division - Research Analyst

* Lucas Marquiori

Banco BTG Pactual S.A., Research Division - Research Analyst

* Victor Mizusaki

Banco Bradesco BBI S.A., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to the conference call of JSL to discuss the earnings regarding the third quarter 2019.

Today with us are Mr. Fernando Simões, CEO; and Denys Ferrez, CFO; and IR Officer.

(Operator Instructions)

We would like to inform you that this conference call is being recorded, and it has simultaneous interpretation into English. Before going on, we would like to let you know that any statements made during this conference call relative to the company's business outlook, projections, operating and financial goals are based on the beliefs and assumptions of JSL management and rely on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions because 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 future results of the company and lead to results that will materially differ from those in such forward-looking statements.

Now we'll turn the call to Mr. Fernando Simões. Please, Mr. Simões, you may go on.

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [2]

--------------------------------------------------------------------------------

Good morning, everyone. We are starting the release of our earnings for the third quarter '19 for JSL and its affiliates.

So we are going to start on Page 2. Starting with the main highlights of the third quarter '19. We had this consolidated net income of BRL 66 million in the third quarter '19, an increase of 22% year-on-year.

That reflects part of the operational transformation that resulted in independent management of all our businesses. We have had consolidated net revenue from services of BRL 1.8 billion, a growth of 5% year-on-year, with EBITDA increasing by 22%, totaling BRL 511 million, with margin of 28.9%, an increase of 4 percentage points compared to the same period last year.

Also, we had a decrease in our leverage. That went to 3.6x in the third Q '19, mostly organically, in that 18% lower than compared to that of the third Q rating and 10% lower than 2Q '19. Vamos reached a record net income of BRL 38 million, growth of 10% year-on-year, totaling BRL 107 million in net income in the first 9 months of '19. That is growth of 13% compared to the same period of last year. Vamos continues to combine growth and profitability in a unique platform of businesses in which in its operation.

JSL Logística has reached EBITDA of BRL 119 million, 7.5% up year-on-year as a result of the transformation of its operating model. And the company is ready to benefit from the start of economic recovery in Brazil based on our large portfolio of services, and be inserted in the provision of services to the main Brazilian industries. CS Brasil reached EBITDA of BRL 62 million, growth of 5.3% year-on-year, with an increase of 6.5% in fleet management and outsourcing.

It went from 62% to 67% in terms of its gross revenues from services if we compare 3Q '18 to 3Q '19, in line with its strategic plans.

Movida reached record EBITDA of BRL 191 million, growth of 61% year-on-year and EBITDA margin of 51%, a 12.3 percentage points above that of the last year. Thus, confirming their continuous operation in evolution in all its business lines. The EBITDA margin for used car sales reached minus 0.5%, an increase of 6.3 percentage points compared to the 3Q '18, which is the best results since the company's IPO.

Now we are moving on to Page 3 where we talk about the main numbers for JSL as a consolidated company. Net revenues, EBITDA and net income.

So in the bottom, upper part of the slide, you have net revenues. We have net revenues from services in the last 9 months of BRL 6.839 billion. Total revenues of BRL 9.186 billion. When we talk still in the bottom part, we have net revenue from services in the first 9 months of '18.

We have BRL 5.144 billion against, in the same period, BRL 4.723 billion, growth of 9% and of our net revenues from services in the first 9 months of the year. Still in that upper part to the right, we talk about our EBITDA.

In the last 9 months of the first quarter in '19, we had EBITDA of BRL 1.937 billion. The first 9 months of '18 was BRL 1.505 billion against EUR 1.165 billion in the same period last year, growth of 29% of our EBITDA. In the third quarter '19, we had BRL 512 million of EBITDA, with an expansion of margins by 4 percentage points against the third quarter '18 where we had 24.9% in EBITDA.

Still on Page 3, where we talk about net income in the bottom part. In the last 12 months in the third quarter '19, we had net income of BRL 259 million, which means a margin of 2.8%. When we compare to the year of '18, that means growth of 37%, an increase of margin of 0.5 percentage points. And just for us to understand the stage, in here we show growth of 9% of net revenues from services. And EBITDA in the same period, had growth of 29% and our net income, 54%.

Again, that shows our focus on selecting better services, and this has been contributing to the improvements in our results. Without creating any expectations, we believe these improvements of results is start to reflect all the operational transformation and the changes in the business model that we made in recent years.

Now I'm going to turn on to Denys to give you a bit more detailed numbers about each 1 of the company's and consolidated numbers. Please, Mr. Ferrez?

--------------------------------------------------------------------------------

Denys Marc Ferrez, JSL S.A. - Chief Administrative, Financial & Investors Relations Officer and Member of Executive Board [3]

--------------------------------------------------------------------------------

Thanks, Mr. Simões. Good morning, everyone. We are going to Slide #4.

When we talk about the investments made in the third quarter '19. Consolidated net CapEx reached BRL 551 million, BRL 1.5 billion gross investments, minus BRL 698 in the sale of our assets.

It's important to highlight that the net investment was to expand business mostly. And now we have the individual companies in the same period. In Vamos, net CapEx of BRL 71 million; logistics (sic) [Logística], BRL 46 million; CS Brasil, net CapEx of BRL 88 million; and Movida, net CapEx for the quarter, BRL 323 million.

So on the same slide, we have the highlights of the net CapEx year-to-date. The company, until September invested, BRL 2.282 billion. And again, I would like to highlight that logistics is a much more asset-light operation. Until September 19, we had only BRL 106 million.

So I'm going to go to the next slide to give you a breakdown about the gross debt amortization schedule and our cash position. So I'm on Slide #5. In terms of in debt fitness, you see our position of BRL 4.306 billion (sic) [BRL 4.360 billion] of cash that is going -- that is available at the end of the quarter. This amount is almost 12 -- 2x the debt that to be matured in the next 12 months. Also to reinforce is that this amount available, together with the firm guarantees that we have, are equivalent to the coverage of the whole of the amortization schedule until the year of 2021.

In this quarter, we had several instruments debentures. CRIs, CRAs and PNs in several companies of the group, with the raising of EUR 1.8 billion in bonds. In the year, it is BRL 3.6 billion. In this quarter, specifically, we advanced the settlement of debt with higher spreads in a total close to BRL 700 million.

Now talking about the cost of our gross debt. In the third quarter '19, it was 8.2%. But the next after these movements, we mentioned, in terms of management of liabilities, our previous advanced settlements and the drop of interest rates, we are probably going to go to a close [7.3%] almost 1 percentage points down. And in the third quarter, because of the cash carry was 9% and it will also benefit from the movement I mentioned to you. The net debt in end of the quarter totaled BRL 7 billion, a decrease of BRL 350 million compared to the previous quarter. As for the covenants of the companies that are connected to leverage ratio, we have those that are for Brazil and those that are for [approach].

In Brazil, we have net debt over EBITDA added, and we are at 1.7x, and our covenant is 3.5x. And the idea is maintenance here. The event is maintenance. Then also in Brazil, we have a bit added over net interest, we are at 5.6x. The minimum would be 2.0x, and we also follow under management. And leverage connected to bumps and international issuances, net debt over EBITDA, we are at 3.6x. The maximum would be 4.6x, so quite okay, and follows the concept of in current. As for the running rate of the leverage ratio, remember that our business, we always make investments in advance because of the financial flow. When you annualize the first 9 months of '19, just for you to understand the benefits of capital investments for growth, we are at 3.5x when we consider net debt over EBITDA.

So now I'm going to the next page, Page #6. And on the slide, we show our CapEx -- net CapEx of recent years, vis-à-vis our leverage. So to tell you a bit of the history of the slides of the company. The years of recession, '15, '16, '17, we invested in the development of Movida. And therefore, in '16, we had a net debt over EBITDA leverage of 5x. Since then, we have been bringing this indicator down to lower levels. And you see in the bottom of the graph that the investments for growth mostly that are in red did not stop being made. And that shows the assertiveness of investments made and consequence generation of cash, promoting continuous development of the company, and is still being able to gradually decrease our leverage.

Obviously, in the 9 months of '19, for you to have this record volume of net investments, it is already above the whole of the year last year of 93% connected to expansion. We had the follow-on of Movida that captured to BRL 500 million in primary and BRL 300 million in secondary. That shows our commitment to continue developing companies and gradually continue to reduce our leverage levels.

Now I'm going to move on to Slide #7. In Slide #7, we show the breakdown of JSL consolidated numbers. Profitability, again, the first 9 months of '19.

So starting on the left, we have Vamos. In the 9 months, it contributed with BRL 107 million, closing the third quarter with leverage of 2.4x and ROIC of 12.4%. Then Movida, below, net income of BRL 144 million, net debt-to-EBITDA ratio 2.3x and ROIC of 9.2% (sic) [10.2%] in the first 9 months, '19. And then CS Brasil, net income of BRL 54 million, leverage lower than 1x and ROIC of 8.2%.

On you're right, we have JSL Logistics with net income of BRL 78 million, leverage of 2.8x and ROIC of 9.3%. Original, our dealerships, net income of BRL 8 million and ROIC of 9.5%. And BBC Leasing, BRL 6 million and ROIC of 19.5%. And if you take a look at the slide and thinking of the contribution of each 1 of the companies, we have the total of BRL 396 million, what we call companies' income.

Then we deduct to the financial expenses on investments in companies after taxes, which is BRL 198 million, and the net result that we had in 9 months, year-to-date, BRL 198 million, a growth of 54% year-on-year. Consolidated ROIC for the 9 months annualized, was 9.4%. I'd like to emphasize that when we look at each 1 of the businesses, we know that we can improve our returns, either by introducing more services in some of these companies or based on the opportunity to continuously increase efficiency, change portfolios in some of them, focusing on new businesses with more profitabilities and also because some of these companies are ready to enjoy the recovery of the Brazilian economy.

So this is our commitment, the commitment of continue growing and seeking continuous improvement of our results. With that, I'll turn the call back to Mr. Simões. Please, Mr. Simões?

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [4]

--------------------------------------------------------------------------------

Thank you, Denys.

On Page 8, we are going to talk about the main results of the first 9 months, '19 compared to the same period last year.

Starting with JSL Logistics, net revenue from services, BRL 2.2 billion. And although it's almost the same as the period last year, EBITDA grew 27%, totaling BRL 390 million and net income, 60.7%, totaling BRL 78 million. That shows clearly the improvement of margins.

CS Brasil had growth in net revenue from services of 5.5%, totaling net revenue of BRL 554 million (sic) [BRL 544 million]. EBITDA grew 24.8%, reaching BRL 199 million. Net income had a slight drop, reaching BRL 54 million, because in this company, we allocated a higher debt because I had a higher financial costs.

Vamos, net revenues of BRL 889 million, growth of 24%. Net revenue from services grew 13%, reaching EBITDA of BRL 390 million and net income of BRL 107 million with net margin of 14.5%.

Original, we had growth in revenues of 19%. EBITDA reached BRL 27 million, growth of 66% and net income, BRL 8 million, 1.3%. BBC Leasing, our financial services, although in CTS, but extremely complementary and strategic to our business model, we view to net revenues of BRL 29 million, growth of 25%, EBITDA of BRL 10 million, a net income of BRL 6 million, net margin of 19.1%.

Movida reached a net revenue from services of BRL 1.059 billion, growth of 24%. EBITDA, BRL 496 million. That means growth of 46% and net income of BRL 144 million, growth of 33.1%.

When we look at the numbers of JSL, all consolidated, on the right part of this slide, we reached net revenue from services of BRL 5.144 billion. That means growth of almost 9%. EBITDA of EUR 1.505 billion, which means growth of 29% over the same period last year. And we've reached net income of BRL 198 million which is growth of 54%, and our net debt EBITDA ratio had significant reduction to 3.6x.

As we can see, all the companies show in their results, significant improvement in the amount of EBITDA net income, completely detached from their increasing revenues. That is, even in a market that is hard and a difficult time of Brazilian economy, we have been able to increase our net new revenues from services in most of our affiliates. And also a significant increase of EBITDA and net income, in line with our strategic planning that was communicated to the market in last years, that our management was changing, transforming some businesses, creating others and consolidated other operational and management models.

We are going to now open for your questions so that we can clarify any questions you so have. Once again, thank you very much for attending the call.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

Our first question comes from Lucas Marquiori from BTG Pactual.

--------------------------------------------------------------------------------

Lucas Marquiori, Banco BTG Pactual S.A., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Denys, Fernando, can you hear me okay?

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [3]

--------------------------------------------------------------------------------

Yes, loud and clear.

--------------------------------------------------------------------------------

Lucas Marquiori, Banco BTG Pactual S.A., Research Division - Research Analyst [4]

--------------------------------------------------------------------------------

Great. I had a bit of a technical problem, so I couldn't listen to -- hear parts of the presentation but I have 2 questions. First, Fernando, if you could give us a bit more color on Vamos, with some acceleration of used vehicles. I would like to know if that reflects a better market? And the truck market is showing some improvements? I would like to know what's your feeling about the used market for trucks. And then, it's the second question, you had a slight decrease in the returns of CS Brasil as we had the operation of São José dos Campos. What could we see from now onwards? Thank you very much.

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [5]

--------------------------------------------------------------------------------

Thanks, Lucas. This is Fernando, talking still about used vehicles. You know that Vamos has an arm of trucks, used trucks. It's still in a CTS market, but it has been creating a platform separates from [funnels] that also work with the purchase and sale of used trucks. And also, we are working very strategically to sometimes advance the replacement of trucks when you have a market that will purchase those assets. So these are the kind of things that you can see, look at some signs, a higher or a lower sale assets. Sometimes you'll have the assets available or because you advanced that or because you have a good market for used trucks. So Vamos now has a differentiated digital platform and I think that it's going to be a very important channel for Vamos in the future.

Another point. Our trucks and assets for some time, we have had very low inventory of sales. If we had more used trucks, we would even sell more. So the sale of assets is not a problem. And we are not really seeing a boom in the used trucks model. The market is going okay. If you know the market, you can develop and sell with no major problems.

I'm going to turn the call to Denys. And Denys, I can add to the answer. I'm here.

--------------------------------------------------------------------------------

Denys Marc Ferrez, JSL S.A. - Chief Administrative, Financial & Investors Relations Officer and Member of Executive Board [6]

--------------------------------------------------------------------------------

Lucas, this is Denys. Thanks for your question. As for the ROIC of CS Brasil, this is dilution of reattracted movement that we had in the second quarter. What's most important here is to look onwards precisely. This is a company that we are repositioning in terms of portfolio. As you mentioned very well, we divested a passenger transportation operation in the month of October. So it's not in the numbers of the third quarter because we wanted to increase returns. We also divested -- we're divesting another one in December, and we have accelerated its development in fleet management and outsourcing for the public sector. And in the release, what we say is that this is a unit that has been shown over cap -- return over capital invested, close to 11% and so that's why I have this personal belief that our returns will convert to fleet management and outsourcing in CS Brasil with higher returns close to 11%, okay?

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Our next question comes from Victor Mizusaki from Bradesco BBI.

--------------------------------------------------------------------------------

Victor Mizusaki, Banco Bradesco BBI S.A., Research Division - Research Analyst [8]

--------------------------------------------------------------------------------

I have 2 questions. The first is a follow-up about Lucas' question from CS Brasil. Denys mentioned that the marginal growth of CS Brasil has a ROIC of 11%. I would like to know the speed of this evolution, that is when we should see the renewal of the capital investment.

And the second question, with regard to leverage. We see an improvement, as you showed in the presentation, going from 5 to 3.5x. And that has to do with the Movida operation, but also a significant improvement in the group's stability. What I would like to know, if it makes sense for us to have another leverage, maybe an IPO for thermals to accelerate the deleveraging. And what level you would you consider ideal for the group?

--------------------------------------------------------------------------------

Denys Marc Ferrez, JSL S.A. - Chief Administrative, Financial & Investors Relations Officer and Member of Executive Board [9]

--------------------------------------------------------------------------------

Okay. Let's start from the end, Victor. We are sure that we are going to gradually deleverage the company, as we've said in the company, in an organic manner. We did not have the need to have any movements in the capitals market. And obviously, Fernando's next to me, he can even add to what I tell you. But let me tell you about CS Brasil first. CS Brasil does have lower leverage, indeed, but in the process from here to the end of the year of allocating the volume of debt that it has, which is about 3x and remove what you consider being an indebtedness of the holding and allocating things so that those units will have a suitable leverage.

So this is something that is going to be done. What I see for the future is that all investments that we made, as I mentioned in the presentation were very asserted to generate cash for the future.

Everything that is in contracts that gives a certainty of cash expansion, and that is why we are convinced that deleveraging will be gradual even looking at the volume of investment. I mentioned BRL 2.3 billion net CapEx. And this is basically for growth. And we haven't seen the benefits of that yet. We -- if you do the math, so only with 9 months, we should be -- instead of 3.6%, 3.5%, but some investments were made more to the end of this period than in the beginning. So we continue to see the leverage. And this is just a decision of the company in its discretion. We are not obliged to do that. We know because we believe we are going to create value with that.

I'm going to pass it on to Fernando to talk a bit about the strategy of the group.

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [10]

--------------------------------------------------------------------------------

Just to reinforce what Denys said. Part of our strategic planning is to have a gradual drop in leverage. You know we have Movida, and we have the result of the CapEx based on what we invested in previous years. What we are doing is that just reaping the truth of the previously invested CapEx. So our net CapEx is discretionary. We do it or not. And we continue to invest in the company.

And based on what has been invested yet, we can see a drop, again, much more based on organic movements growing from 5 to 3.6x.

And it makes sense to continue doing that. And our goal in the end of next year is, again, to have significant reduction, organic, without considering IPOs, follow-ons and et cetera. But we always say, and I would like to reinforce, having an IPO, a follow-on or not is a consequence, not an objection. The company's growth is not based on that.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Our next question comes from Lucas Laghi from Santander.

--------------------------------------------------------------------------------

Lucas Laghi, Santander Investment Securities Inc., Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

I have 2 questions, the first with regard to Vamos. If you could have additional color in terms of trends for Vamos and the potential of operating leverage. You take a look at revenues growth of EBITDA. Sometimes, we cannot capture the whole capacity of the company. And second, about JSL Logistics. From now on, how do you see the focus for the growth of revenues in logistics? Is it revenue minus contract? Is it adding new contracts? What is your mindset for logistics? So these are the 2 questions.

--------------------------------------------------------------------------------

Denys Marc Ferrez, JSL S.A. - Chief Administrative, Financial & Investors Relations Officer and Member of Executive Board [13]

--------------------------------------------------------------------------------

Lucas, this is Denys. Thanks for your question. Well, specifically speaking about Vamos. We believe Vamos will improve its returns. And there are some options. We can add more services or having more contracts -- contracts with small services or reversing contracts that now do not have services -- for contracts with services because that brings more returns. And also, because of the negotiation, purchase and sales of trucks, which is a differentiated know-how to target. And when you say you cannot see whenever you sell more assets, especially assets -- fixed assets and not commercialization assets, that can dilute the margin, but the return is there. And you see it, annualized numbers. In the quarter, return on equity in Vamos extended and reached almost 22%. That for a company that has low leverage, 2.4x. So regardless of that, we did believe in continuous improvement because of the levers I just mentioned to you. If you think I have answered your questions, I'm going to turn on to Fernando to talk about logistics.

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [14]

--------------------------------------------------------------------------------

Well, just to add to Vamos. What is very important, Vamos has a unique business platform and prices with lots of synergy. And our G&A that is in the group, which is provides services to our clients. So we know competition in the markets can be the more relevant. But in the segment of logistics, no market is more competitive. And now Vamos is starting to enjoy its capacity of scale and to buy and sell assets.

So I'm not going to say that margin is going to improve much more, not so much. But I know we still have a lot to do with Vamos, much more than what has been done so far. We are quite happy with its development.

Logistics, well, we believe that the economy in Brazil has not picked up that. We are all really hoping for that. But the logistics operation now is completely as satellite. We have developed a lot in the last 12 months, systems to work on a very large integration platform that is operational management and clients. So without creating expectations, I would say that we still have an idleness of 20%, 25% and what -- with what we are creating, because the industries are still affected. They need prices. And more and more, we understand that logistic margins are going to be pressured.

So what have we been doing? We're working on costs. We are working with systems so that we have scale, enjoy scale and with that, enjoy returns. And scale will come organically from the platform of systems that we have using differentiated intelligence and with the recovery of the company, making that help us. That will help logistics in growth, that we haven't lost focus. We are quite diligent with costs and in selecting new businesses, always trying to focus on perhaps not fantastic margins, but a sustainable and responsible business. And just going back to Vamos and talking about the operating leverage. So this is not exactly what I'm going to talk about, but looking at the results, sometimes, you cannot see the benefits of all investments made. You see an acceleration of contract origination in Vamos with 32% growth compared to the same period last year. Now when you take a look at the company numbers, this is coming in gradually. So that already gives you visibility of an expansion of results and the company's cash generation when you have the full benefits of previous investments made. Okay?

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Our next question comes from Fernando Abdalla from JPMorgan.

--------------------------------------------------------------------------------

Fernando Abdalla, JP Morgan Chase & Co, Research Division - Senior Analyst [16]

--------------------------------------------------------------------------------

Many of the questions were answered. I just would like to understand a bit of competition in the environment of CS Brasil. You have a specific platform for this segment and you compete with more traditional companies in this segment. How do you see the competition dynamics? You're talking about a ROIC of 11%, that seems very good. So what do you see in terms of growth in the competition environment? And in logistics, because it's still a very scattered market, I know that you still have a lot to deliver in terms of deleveraging. But today, it seems that you are in a much more comfortable scenario than you were 1.5 years ago. Do you have any possibilities of consolidation through M&A in the segment?

--------------------------------------------------------------------------------

Denys Marc Ferrez, JSL S.A. - Chief Administrative, Financial & Investors Relations Officer and Member of Executive Board [17]

--------------------------------------------------------------------------------

This is Denys. Thanks for your question. Well, starting with the competition in CS Brasil. Well, this is (inaudible) that has actual particularities. When you have bids that needs lots of certificates and rates, we tend to compete with companies that are less known. When you have other bids that do not have restrictions, then you compete with large operators in the sector that we all know. So when you look at Movida, Movida is among the three, we compete with the other two, with these kind of bids but nothing different from what has happened in recent years.

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [18]

--------------------------------------------------------------------------------

And just to add, this is Fernando speaking. More and more, you have companies that have mixed capital, public-private and are being privatized or not. So constant efficiency. And when the government helps improving the management of public services in safety inspections, traffic, there has been more demand for bids, more than we had in the past. And we compete with traditional companies, as Denys mentioned, but also with regional companies. But quite modestly, we have a cost of capital and our cost of purchase of assets that gives CS Brasil an advantage. CS Brasil was part of our commitment in the IPO to be part of this segment.

So I would say that CS is a combination of fleet management, of outsourcing with the contracts similar to Vamos that are 5 years, 60 months that really make this company be at a level that's completely differentiated. So Movida does not compete with Vamos and Vamos cannot compete with Movida, that was part of the agreement before the Movida IPO. This segment, although quite similar, but in the public segment, would be with CS Brasil.

So our difference has been the capacity to serve and our cost of money, cost of capital. Also to highlight in CS Brasil, more than 85% of the bids, it takes part in, have been public options like [big] systems and et cetera. Within governance, we created an extremely professional structure. We have an audited room, we have a whole governance process in our participation. We are very happy, and we are focused on that -- on fleets more than public transportation. Denys talked about that. It's a great business, and one of the returns that can be even better.

And to us and talking about logistics, now with the corporate restructuring of our group, we're having different companies with defined focus. We always look at possibilities and opportunities of acquisition. Our strategy is to develop organically, but we are always looking to our opportunities. Before, we didn't do that because we would always be diluted by a company that has this role of holding. Now as the group is structured, we can have one-off M&A. But again, we have systems, we have a base to do our growth organically and regardless of M&A, always complying with our commitment of improving leverage and indicators more and more.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Our next question comes from Pedro (inaudible) from company (inaudible).

--------------------------------------------------------------------------------

Unidentified Analyst, [20]

--------------------------------------------------------------------------------

I have a very quick question. I would like to know if now that you're finally diluting results as a holding, if you have any idea of having a follow-on in JSL.

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [21]

--------------------------------------------------------------------------------

Pedro, this is Fernando speaking. We -- this is not part of our strategic planning, thinking of a follow-on at the top at JSL. But again, being quite transparent. Today, we are very open. If we are going to improve indicators of the group, if we are going to contribute to generate value to shareholders and the development of our company, this is our priority. Again, the focus is to improve return to shareholders, have economic financial support of our business.

So under a feeling of responsibility, talking to the board, we will look in anything that can develop the company, have good return for shareholders and have sustainable development of our services. So tomorrow, if we feel the need to have the movements, we can consider it. And that is true for JSL as the holding, but to all other companies. What we don't want is to do away with our values, our culture and our way of doing business because we believe this is the greatest difference of our company. People that have been with us for so long. And those, not so much. The combination of all the new that are part of our history. Thank you.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

(Operator Instructions) [Genato Haguin] from Banco do Brasil would like to ask a question.

--------------------------------------------------------------------------------

Unidentified Analyst, [23]

--------------------------------------------------------------------------------

[Haguin] from Banco do Brasil. I have one question about the effective rate of income tax. It seems that in the third quarter, it was below the second quarter and year-on-year. Could you comment on that?

--------------------------------------------------------------------------------

Denys Marc Ferrez, JSL S.A. - Chief Administrative, Financial & Investors Relations Officer and Member of Executive Board [24]

--------------------------------------------------------------------------------

Yes. [Genato], this is Denys. Well, you have an option when you recognize price credits, especially in service taxes, [ICMs] and we changed the option on how to recognize that because this does not go through the financial balance sheet -- is in the tax balance sheet. This was the reason for us to reduce the bracket. It is the technical term -- is credit based on operation.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

(Operator Instructions) There are no more questions. So I'm going to turn the call to Mr. Simões for his final conversations. Please, Mr. Simões, you may go on.

--------------------------------------------------------------------------------

Fernando Antonio Simões, JSL S.A. - CEO, President, Member of Executive Board & Director [26]

--------------------------------------------------------------------------------

Well, once again, I would like to thank you all for attending. And to close, I would like to give you an overall picture of how we see our businesses.

Movida shows clearly, its capacity of management with recurrent deliveries and improvement. People talk about used cars. If you look at the recent quarters, we improved the sales occupation bracket, rental car rates that shows improvement of all its indicators and maturity that is quite differentiated for Movida. Movida's main difference is the focus on the customer and in provided differentiated services in a segment that is changing by individuals and companies. So it is crucial to work with people that like to serve people.

And with that, we are bringing results to shareholders, growing sustained -- in a sustainable way, and we are prepared to grow organically with a fantastic and strong cultural values, which is important for a company that is in retail and wants to, more and more, appeal to its clients and show better results to its shareholders. Fantastic management in the retail with so many opportunities in the rental car segment.

Vamos. Vamos is the only company that has a business platform with independent companies, but extremely complementary, like the truck dealerships. It is the largest Volkswagen truck dealership network in Brazil. It has the largest used truck network, buying and selling its own assets but also assets from third parties and it's main focus on the rental of machinery, trucks and equipment, but not a rental like a financial company. But using our G&A of services in the scale of purchases that is completely differentiated and our people that contributes to the growth that you see in Vamos and the improvement of its results. And more importantly, customer loyalty. When we look at logistics, which transforms the company in the last 3, 4 years, the company is practically completely asset light. It has improved the results.

We are investing a lot in systems that will contribute for the company to have much more scalability and much lower costs. And that makes us believe that we have a company with a unique positioning that will contribute to results, increase volumes and especially after the recovery of the company. We believe that we are starting to see signs of many clients that are listening to us. And in customized services, customers are preparing for the Brazil [resume shock] company.

CS Brasil, I talked a lot about that. But the focus is CS fleets, so CS Frotas, that is our company and in CS Brasil, is a public company with mixed capital. And fleet management and outsourcing, just like Movida, with contracts like Vamos of 6 months. So it is a mix that is fantastic for the predictability of its revenues.

Also important to highlight is, JSL Leasing is no longer called JSL Leasing, but BBC Leasing, which is our financial leasing arm. It's still in CTS, but it is complementary to the whole of the group, with great potential to growth and contribute to our companies by paying truck drivers, financing trucks from Vamos. And that can help with customer and client loyalty in any of the companies we control. (inaudible) Veículos, our dealership network, again, extremely complementary to our business with purchases sales and relationships with OEMs.

And to close, once again, I would like to tell you that all the improvements we are showing to you, results, better net income, better EBITDA, even with lower growth, but with better margins and the change of our portfolio, decrease of indebtedness, our transformation of business units into completely independent companies were part of our plan, developed by the management together with the Board. This is a result of planning and execution that was quite diligent in recent years and that we have commented with you during our earnings release. We are creating basis and management models that our customers -- are customized by company.

It's not that we just change and transform food companies. We have customized management operational models per company, and that enables us to go into a new cycle where we are going to reap the fruit of what we grew in better margins, better income and better scale in our companies without doing away with our culture, values and people. And a result of all this work, we will have the natural consequence of a drop in our leverage.

Just to close, on behalf of our team, JSL, CS Brasil, Movida, BBC, Original, we would like to thank you for your trust in all these years and reassure our commitment of working hard for the sustainable development of our businesses, looking at our shareholders, clients, suppliers in a sustainable manner. Once again, thank you very much, and on behalf of our team.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

JSL's conference call is now closed. We thank you very much for attending, and wish you a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]