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Edited Transcript of MOVI3.SA earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q3 2019 Movida Participacoes SA Earnings Call

SAO PAULO Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Movida Participacoes SA earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Edmar Prado Lopes Neto

Movida Participações S.A. - CFO & Chief IR Officer

* Renato Horta Franklin

Movida Participações S.A. - CEO

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Conference Call Participants

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* Joshua Milberg

Morgan Stanley, Research Division - Equity Analyst

* Stephen Trent

Citigroup Inc, Research Division - Director

* Victor Mizusaki

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

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for waiting. At this time, I would like to welcome everyone to Movida's 3Q '19 Results Conference Call. Today with us, we have Renato Franklin, CEO; and Edmar Neto, CFO and Investor Relations Officer. The amounts in this presentation, unless otherwise stated, are in millions of reals, adjusted for IFRS 16 as of the first quarter of 2019. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Movida management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the future events and, therefore, depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Movida and could cause results materially different from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Renato Franklin, CEO. Mr. Franklin, you may begin.

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Renato Horta Franklin, Movida Participações S.A. - CEO [2]

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Thank you. Good morning, everyone, and welcome to the conference call of Movida's results of the third quarter '19. We'd like to start the conference call talking about the important record marked on this quarter, but much more important than the number that we are showing here is the trend that the company is presenting, since 2 years ago, it's already 9 quarters in a row that the results -- the LTM results, have been evolving every quarter, improving margins, gaining operational efficiency and improving the profitability of the company.

The third quarter was marked by net income first that hit the all-time high of BRL 60 million and EBITDA of BRL 192 million, the highest ever reported by the company. And more importantly, this number, you get recorded expansion in EBITDA margins in all business units. Rent-a-Car, fleet management terminals, all of them, they are improving quarter-by-quarter.

And this quarter, the consolidated EBITDA margin reached 51%. Net margin was also a good highlight. Net margin was the best figure ever recorded, 2.6 percentage points above the same quarter in the 2018, reaching 16% net income over services revenue.

In addition, we have also gained -- surpassed BRL 1 billion marked in revenues. This means a 54% growth year-over-year. Our consistent growth -- this consistent growth has been based on higher operational efficiency, proving that the industry benchmarks are being built. We have been saying that since IPOs. The industry profitability bench -- benchmarks are still to be built.

Our daily routine and our strategy here is focused on customer satisfaction. We have been saying that since the beginning, too, and profitable growth. The numbers are showing that and all of this through our employees, special people, special employees that we have here that translate a high-performance team. I would like to thank all of them because the performance that we have been delivering and the results that we are -- have been showing, improving quarter-by-quarter.

Let's talk about each of the business units, just the highlights. All about Seminovos, the used car sales. Used car sales continuously improved, leading us to report the best EBITDA margin in Seminovos since the IPO, it would reach -- reached minus 0.5% in this quarter. It's an increase of 6.3 percentage points against the same quarter last year, 1.3 percentage points against the second quarter '19. And the volume was 14,500 cars, it's comparable with the current fleet turnover that we have today.

Saying that, if you look at the 9 months, '19, you can see that we sold 43,000 cars, more than 43,000 cars, a 69% increase against last year, confirming our capability of execution is still on Seminovos and all business units, giving the possibility to the company to resume growth, to accelerate a little bit more and capture more demand that we already have in this positive scenario in Brazil.

Talking about the services business units. First about RAC, Rent-a-Car. EBITDA margin in RAC reached 45.7%. It's an increase of 6.2 percentage points. It's much more operational efficiency, cost reduction initiatives already presenting results and, of course, fleet management, helping us to improve margins and improve revenue.

On Fleet Management, net revenue exceeded BRL 106 million, it's an increase of 35% compared to third Q '18. Due to the addition of more than 9,000 cars to the operational fleet, as -- this growth, both in Fleet Management and Rent-a-Car and the fuel -- Seminovos, it's only possible because of the strategy of Movida since beginning, our focus on the client. And we have been honored to receive lots of awards in the former quarters. This quarter, we were honored before an election (sic) [selection] as the Best National Car Rental Company by ABRACORP -- largest corporate travel agencies in Brazil.

And for the second consecutive year, by Melhores Destinos, it's a survey with individuals. Then today, Movida have awards from small and medium corporates -- large corporates and individuals as the best car rental company in Brazil. We are so grateful for this recognition. And we owe it to our employees, our team with the happiness, the passion and the dedication to serve our clients. .

Let's move on to page 3 to talk about our fleet evolution. Looking at the numbers here, we have 110,000 cars, an increase of 24% compared to third Q '18, reinforcing the positive fundamentals that we have in this market. What's more important than that is that you can see that we already have in RAC -- we have been growing a lot on individuals, this is our main focus. But this quarter, we saw corporate risk growing, too. What means -- that the economy is starting to show some positive KPIs. This will help us to capture additional profitability with more demand to car rental segment and, of course, growing Rent-a-Car even more.

Favorable fleet management, you can see that the total fleet is already 39,000 cars. Of course, here we have part of the cars in inventory but we already have a contracted growth in this business line. You have been seeing every quarter, representing total fleet much higher than the operational fleet. Into the next quarter, you'll see part of this total fleet already in the revenue, already capturing money into the company. This reinforced the positive scenario that we have been seeing in our business units.

Let's move on to Page 4 to give more details about Rent-a-Car. RAC business unit's revenue have grew 17%, in line with the fleet, but the highlight here is our revenue per car. Revenue per car per month has increased additional 1 percentage point, daily rate increased 2 percentage points, and this is even with the growth that we have with monthly cars for individuals, which presents lower revenue per and car and lower daily rate, of course, higher margins.

It's a very good business for us as a -- for me, the highest potential for growth for the business of Rent-a-Car, but we have been increasing price. When you compare price to price in the same segment and the same product, we have been increasing much more than this 2% that you have been seeing in the daily rate. This reinforced the healthy and rational competition that we have been seeing in Rent-a-Car market. Talking about costs. You can see in the bottom part of the page, the monthly cost ex-depreciation per car, and having seen the strong reduction that we have been delivering, 16% against last year.

Of course, we have dilution of the fixed structure, but the teams have been working on optimization, greater operational efficiency. Of course, we have our procurement structure, renegotiating all the sales lines that we have in the company. We have good negotiations that are improving these numbers. And that's why we reinforce here that the industry benchmarks in terms of profitability, we will -- still be written.

Then let's move over to Page 5 to talk about Fleet Management. In Fleet Management GTF, we remain with an equally positive scenario. The net revenue here you can see increased by 35% with the addition of over 10,000 cars. And you can see that the revenue per car is falling 5.6%, but it makes sense because of the new interest rates that we have been seeing in Brazil. Of course, it affected the price and the profile of the new contracts that we have been doing. We have been doing contracts -- under 2,000 kilometers per car, administrative fleets that with low usage. That means low depreciation and good cars to be sold on a resale basis.

In terms of cost, you can see in the bottom part of the slide, that the cost deck -- depreciation cost per car was stable, and we have been delivering a good margin on this business unit. It's contracted profitability, long-term contracts that helps us to dilute fixed costs and growth in company.

Let's move over to used car sales. In used car sales, you can see an important evolution since third Q '18. Remember that on third Q '18, we presented to the market the inflection point of this business unit and a big business plan, transforming this business unit with a new brand, new organizational structure, new pricing structure and new management team, with more technology and, of course, new retail model.

With that, you can see that the revenue increased by 93% against last year. It's a strong result, and you can see the volume increased 82%. And price, the average price per car, 5.4%, in line with our business plans that we presented last quarter. Remember that on last quarter, we showed the market a graph showing that we could capture margin because we will sell more -- newer cars with lower mileage costs and a better mix, a 2 percentage points to be captured until the end of the year in terms of mileage and age and 2 percentage points in terms of the mix. As you can see already, we have been delivering 4% of gross margin in used car sales.

Another good point is that we have been selling more cars on retail. This quarter, the numbers reached 40 cars per store per month, which is much higher than the 26 cars per store per month, the average of 2018, and '17 was a number of 2017, 17 cars per month. That is a huge evolution that reflects a healthy turnover of our assets.

Another good point is that the expense has decreased, and now they represent 6% against our revenue. Remember that during the IPO, we've shown the market that we could reach close to -- the business could run in this ratio, and now we have been, for 2 quarters, running the expenses with 6% over revenue in Seminovos.

That is an important evolution that enable the company to accelerate more and grow more. And of course, with the follow-on, we have been prepared. Edmar will talk about our balance sheet and this thing, and we are prepared to resume growth and accelerate more.

I will now hand over the presentation to Edmar, our CFO, to give more detail about each of these numbers. Ed, please.

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Edmar Prado Lopes Neto, Movida Participações S.A. - CFO & Chief IR Officer [3]

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Good morning. Thank you, Renato. Good morning, everyone. Let's move to Page 7, where we will go over the third quarter '19 results. I will start with the RAC EBITDA margin came very strong, beyond 41% before IFRS, with IFRS effect, close to $46 million. It was an improvement of BRL 21 million.

On the EBIT, the improvement was BRL 10 million on the RAC again. And again, the margins have contracted a little bit, primarily due to the higher depreciation levels, but I will talk over that a little bit later. On the fleet management, that's the yellow bar that we have -- the yellow bars that we have, EBITDA margin came at 67%, an improvement, again, of another BRL 22 million. EBIT, BRL 10 million improvement down the page. That's a 42% margin. Again, a very strong result.

As Renato said, I think that the highlight of the quarter is the improvement over the used car sales at Seminovos margin, minus 0.5% EBITDA with IFRS, minus 1.3% before IFRS effect and EBIT at minus 1.5%. That's an improvement of roughly 6 percentage points from 1 year to the other.

Let's move to Page 8, where I will go over depreciation. Depreciation per car increased from just over BRL 1,000 to BRL 1,400 on the RAC side, that's an improvement of 34%. In terms of value, nominal terms, it's BRL 346. On the Fleet Management side, that's the bottom of the page, the increase was 37%. That's over BRL 900 increase.

Depreciation has been increasing over the quarters due to the change of the rate we made just a year ago, the third quarter of '18, to the mix of the fleet, we are purchasing different than we were before, and also because of the value of the cars.

Moving to the next page, which is Page 9. We show here net income growth against depreciation increase. And again, we see that from the third quarter '18 to this quarter, the fleet increased by 24%. That alone explains some depreciation increase overall in our business.

But if you look at the numbers, and that's the bar below the line here, we see that there was, from one quarter to the other, there was an increase in depreciation in terms of BRL 21 million. That's BRL 26 million against the BRL 47 million we just showed. In the same time, net income moved from BRL 41 million to BRL 60 million, that's an additional BRL 20 million.

What is behind this slide here? The idea here is to show that, although depreciation has been increasing for the reasons I have just explained, the results, the operational gains that we are showing, have been good or big enough to deal with that. And looking forward, we don't see any change in the trends that, again, we are showing.

Moving to the next page, and that's Page 10, we'll go over consolidated results. Net revenue came at BRL 961 million. It was a 57% increase against the same quarter last year. Consolidated EBITDA, almost BRL 200 million. That's an expansion of 61% against last year, and a margin of services of just over 51%. And the quarterly EBIT, as I mentioned, moved to BRL 123 million, a 35% growth against like -- last year and the services margin of almost 33%.

More important than this is what we see on the right-hand side of the page, that's net income, last 12 months net income came at BRL 195 million, that's 14% margin over services. Again, on the quarter, 46% increase, BRL 60 million of net income, very strong, again, 16% of margin.

Moving to the next page. I will go over CapEx here. I would like to highlight the cash generated before growth at BRL 629 million. That's over 200% increase over the BRL 191 million that we had last year. That amount allowed us, again, as Renato mentioned, to resume growth. So again, we are starting a new growth cycle.

I also would like to point out what we call the other CapEx that went from BRL 26 million to BRL 92 million over the last 12 months period, and this is primarily investments that we are making over information technology, IT. That's helping us in terms of gaining operational efficiency in the company.

It's not only that, it's also the fact that we have been able to have some tax credit here, the Brazilian law allows that. And it translates into a 20% effective rate as for taxes over gains here. Again, it's something that Movida alone is doing in the marketplace. I don't see the other companies doing it.

Moving to the next page, that's Page 12, we roll over cash and that cash came with the highest level ever, that's BRL 1.6 billion. That's more than enough to cope with the debt that we have for the next couple of years, and this is also a result of the follow-on that we finished in July, when we brought into the company an additional BRL 500 million in terms of our primary.

That helps us in terms of the leverage, the leverage came as an all-time high against record -- all-time low against -- forgive me, 2.3 net debt over EBITDA. And with the recent EBITDA level that is BRL 500 million for the 9 months of the year, that gives us a lot of comfort in terms of resuming growth and starting a new investment cycle again in terms of the company. Having said that, I will turn the floor back to Renato for his final remarks.

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Renato Horta Franklin, Movida Participações S.A. - CEO [4]

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Thank you, Ed. Let's go to Slide 13, traditional [positional] slide that we show the improvement that we have in terms of profitability, the upper part of the page, in terms of net income, bottom part, the profitability with ROIC and ROE.

Talking about net income, the highlight here is not just the improvement for BRL 195 million against BRL 128 million. Of course, it's a good improvement, but better than that is the operational improvement, it's BRL 213 million that came from the operational efficiency and improvement on RAC, Fleet Management and Seminovos that allows us, as Edmar explained it on Page 9, to cover the additional depreciation that we have, that we will give comfort to ourselves to keep Seminovos in a breakeven level for next year, selling more cars with good margin, allowing us to grow RAC, and grow Fleet Management without any risk in terms of profitability and sustainability of the business. That is a good improvement that make us happy and confident to keep growing the company.

The bottom part of the page, the main profitability KPI measured by the spread of ROIC and then cost after taxes reached 5.4 percentage points. It's an increase of 1 percentage points against the same quarter of last year and compared to the second quarter, it's almost in line that we have here.

In terms of right ROE, we can see here that it's fallen to 10%. This effect is, of course, by the follow-on. The follow-on gives us additional money and additional equity. We expect this effect to be regularized in the next quarters due to the expansion and operational leverage brought by the offer. Then it's a good level, generating level -- generating value to the company, but of course, with a good trend and much more to be captured in the short and medium term.

Let's move over to Slide 14 for the closing remarks. We brought here this slide with the client in the center to remember everyone the main strategy of Movida. We get into the Rent-a-Car market in the end of 2013 with a different approach, we focus and put the client at the center of our [offer] strategy. Then people always see the competitive advantage of Movida in terms of innovation, we think, but our main competitive advantage is the focus on clients and devotion to serve.

And of course, [we deserve] exacting innovation and to value our people, invest our innovation to trade technologies, to reduce friction and improve the experience for our customers and to, of course, value our people and our team, so they can be happy to serve our clients and deliver the highest quality of our services.

The results have been presented in the last 2 years, proves that we are in the correct direction. In terms of NPS, the NPS is the best KPI to see the perception of our customers, our NPS has sequentially improved, proving this indication. In terms of price discipline, our discipline is maintaining a healthy competition, but ensuring the continuity of the demand expansion.

And we have, of course, ongoing initiatives in terms of cost reduction and optimization, operational efficiency, of course, optimization of the administrative structure that is helping us to improve profitability, that we are growing, improving the revenue and reducing costs to improve the margin of the company.

As we know that our clients enable ourselves when we are [kind] client, we have expectations, as we like everything perfect. And we always tell to our team that it's impossible to reach clients' expectations without focus on execution. The company today is in a different level or different maturity level, in terms of procedures, in terms of organizational structure, to ensure that we will deliver our mission.

Which is this mission? This mission is to create value for our clients through excellent execution, enabling us to grow with profitability. This is our main commitment. And now presenting these results to you, make us feel, of course, more excited to become and build here the best mobility platform in Brazil. We would like to thank you all. We thank, of course, always our clients and our employees, but also our investors, suppliers and other members of the chain, because you have been supporting us in different phases of Movida.

Now we are proud to show this conquest, but we believe that if we look at a map, and we have a path, we will see that mobility still was 1%. We still have 99% to build. The potential to grow this company, to build the different markets, build different profitability KPIs, rewrite the industry profitability benchmarks, is still there, and we will do that together with you and much beyond [cars].

Thank you very much for the support, and we are happy now to answer your questions you may have. Thank you. .

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Questions and Answers

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Operator [1]

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[Operating Instructions) Our first question comes from Josh Milberg, Morgan Stanley.

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Joshua Milberg, Morgan Stanley, Research Division - Equity Analyst [2]

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You guys touched on this now and also on the Portuguese call, but I was hoping you could just give a little more color on how you're seeing the different Rent-a-Car segments. And specifically, I know that individuals are your main focus, but wanted to just hear a little bit more on how you see the growth opportunity in the ride-hailing segment. And also if you could comment on where you are in developing a platform that would allow you to better integrate with Uber and other similar services? That's my first question.

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Renato Horta Franklin, Movida Participações S.A. - CEO [3]

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Josh, just give you more color about that. Of course, we have in Brazil, Brazil is a big country 250 million inhabitants and lots of people with driver -- driving license and a huge potential to grow. If you look at the numbers of the TGI, it's a marketing tool -- survey tool. They estimate, looking at the 2018 numbers, that just 3.5% of people that have driving license have rented a car yet. It is still a big potential market to keep growing the company. We will focus our strategy to keep growing on individual demand.

When we talk about new [zero] mobility, our main focus is individuals, getting a car when they need to go longer distance than 20 kilometers, because it makes sense to use a rented car instead of getting an Uber or another app. And we expect to grow a lot to on monthly -- car to individuals. This business line is growing in a good path and it delivers a very good margin. It's higher margin than Fleet Management, it's very low mileage, lower -- the average is close to 1,000 kilometers.

That is a good business, and for me, the highest potential to grow the market of Rent-a-Car because today, we have 60 million cars in Brazil. And I believe that we can have 10 million cars as a service in a few years, let's say. Then of course, for me then -- harder than the demand, the demand is already there, it's our capability and our balance sheet to grow as fast as the demand is already there.

Talking about the Uber and other apps for mobility. Our strategy is to keep the demand as in maximum 10% of our fleet. And why is that? Because it impacts depreciation first, then if I -- and the margin is lower than the orders' mix. Of course, we see a good demand here and it's easier to grow faster, but it's lower margin with higher depreciation. Then we see 300,000 drivers that would like to rent cars from car rental companies paying much more rational rates than they pay today, whether they rent from individuals or small companies.

But for ourselves, as we are seeing demand on other needs that are healthier, we will focus on that -- on these demands. It's helped well, it's easier to sell. It's lower depreciation. We can sell the cars on retail, it's much easier for ourselves. I believe that this is the color that we can give about the segment. If you would like more detail, just let us know.

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Joshua Milberg, Morgan Stanley, Research Division - Equity Analyst [4]

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Okay, very, very good. And my second question is just on your annualized per car RAC depreciation in the quarter. You highlighted that the 3 factors behind the sequential increase, one of which is the value of the car. I was hoping you could just talk a little bit more about that variable and also explain why you didn't see the need for a bigger increase, taking into account what's happening with new car inflation and perhaps the supply-demand dynamics in the Seminovos market itself?

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Renato Horta Franklin, Movida Participações S.A. - CEO [5]

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Okay. First, about new cars inflation -- new cars inflation is still in the same level. When we look at the numbers, they have a higher inflation than the other things in Brazil and it's still close to 5%. It's not affecting the used car price. The demand is already there. What we have been seeing is that the car rental consumers are gaining market share in used cars market. Used cars market is a big market, 10 million cars and Seminovos, 3 million cars.

And I believe that the population, the consumer, clients of these Seminovos cars, they are -- they will realize even more every year and every quarter that the issue here to buy a used car is, first, it's to trust the person or the company that is selling you the car. Every car rental segment is gaining visibility in Brazil, and they see a listed company, a public company here that is a big company, with post-sales area, focused on NPS and client experience, selling a car.

And we know the full history of the car. We did not get a car from a guy that bought a new car with ourselves. Then they can trust ourselves and they know that they can complain if something happens, because sometimes, something happens. And then so when these things start, we have been seeing our NPS in used car sales improving a lot. I think you can gain market share and consolidate this market, allowing ourselves to grow the company without any risk.

In terms of depreciation, Edmar can give more color, but just give you -- we have been buying -- more expensive cars. Of course, the depreciation depends. You see the average ratio, but we have a different ratio for each car model, each car group, if the car is running at Uber, you need to depreciate more than if it is running a low mileage in individuals and these things. And this mix changes every quarter, affecting our ratio that we have.

That's why we expect to see a little bit higher margin and because, of course, sometimes, we give some discounts and we make some -- we have some competition to gain market share. We are gaining market and market, consolidating our brand. And to date, the top of mind is this market is very low. We will be much stronger few years from now, allowing ourselves to capture even a premium price from our competitors, and selling cars in a more natural way.

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Edmar Prado Lopes Neto, Movida Participações S.A. - CFO & Chief IR Officer [6]

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Josh, it's Edmar here. Just to give you some color around that. If you look at the last couple of quarters, we have been increasing depreciation by BRL 150 million, BRL 200 million. We do expect this trend to go on, that it keeps increasing. But at the same time, as Renato mentioned, we are improving internally. So overall, we do expect that although depreciation should show some higher levels, the final number, the bottom line of the company should not be impacted.

This is how we see the market. It's challenging. It's more challenging than it was before. And we go back to 2018, when we mentioned that right after the truck drivers' strike. Again, this is -- I'd like to say that we are moving faster than the market at this point. Again, we're still improving, although the scenario outside is not what it used to be.

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Operator [7]

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Our next question comes from Victor Mizusaki, Bradesco BBI.

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

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I have 2 questions here. The first one, I want to take a look on EBITDA margin, the Rent-a-Car business, we can see a very big improvement to 46%. And one important driver here was basically the reduction in the cash cost per car by like 16%. So I'd like to know if you could give additional color on this cost reduction, and what else you're doing to further reduce this cost?

And the second question with regards to Seminovos. Can you comment about the sales mix. So how much was retail and if there's any target here?

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Renato Horta Franklin, Movida Participações S.A. - CEO [9]

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Victor, first talking about the cost reduction in RAC. As we have been telling, the company faced different cycles during its history. Then the first cycle was to build a company, build the market reach capillarity and grow the company. And, of course, to do that very fast, we did some contracts and some negotiations, focusing on agility and speed and not on price and costs.

Since 2018, we started a huge improvement in terms of cost reduction, we have already KPIs for each cost line for each store, and we have initiatives to reduce each of these lines. And of course, there are some structures in the company helping ourselves to do structural things that gives more relevant impact. Like, for example, the procurement area now negotiating national contracts for each line of spend. Then we started with the [A curve]. Then when you look at maintenance, the first negotiation was tiles, then windows.

And then, oh, you have some parts that you will change a lot and then negotiate the national agreement. In each of these agreements is more, of course, cost reductions, causing in average 30% of cost reduction. What gives us the standard, gives operational efficiency. We have more cars in the streets and helps us to improve the whole company.

We have some IT negotiations, links, telecom and other business lines. And some of these negotiations, when we finish the negotiation, we finish -- for example, the IT negotiations and links for our 250 stores last year. And then it started to be captured every month, some stores because they have an implementation plan.

Then we will start with some stores in November, other stores in December, others in January, and that's why the results have been improving every quarter, because this is just an example, as we have different teams working on different aspect in terms of cost. We have been negotiating the rental of the stores, the leases of some store leases, other negotiation maintenance, IT, marketing. And of course, with the speed that we build this company, we still see room to improve much more in terms of operational efficiency and cost reduction. This is a continuous drop in long term --

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Edmar Prado Lopes Neto, Movida Participações S.A. - CFO & Chief IR Officer [10]

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Let me add something here, and then I will join with a question that came over the web. And that is, what is the mix of sales of direct channels, indirect channels, how do they perform?

So recently, our direct channels, meaning our app, our website, they have been growing at least twice the pace of the indirect channels have been growing in terms of sales. That gives us 2 main advantage here. The first one being we can be very competitive in terms of the pricing, because they're fully, I would say, dynamic pricing. But at the same time, we do not pay commissions.

So it's good in terms of revenue, and it also helps a lot in terms of the cost, because commissions are high, as you know, for OTAs or travel agencies. Another aspect, which is important, is the dilution.

Growing -- resuming growth again, bringing new cars to the same-store helps us in terms of the unitary cost. Again, as Renato mentioned, it's a long-term strategy, and we should be seeing results on a quarter-by-quarter basis. Again, on the Fleet Management, just to give you another color, we're starting to deploy the same kind of agreements over to the Fleet Management side. So again, we should keep the cost either stable or even with, let's say, some gains over time here.

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Renato Horta Franklin, Movida Participações S.A. - CEO [11]

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Regarding your second question, the Seminovos mix in terms of channels. We have been growing retail. Of course, our main strategy is to grow retail. The retail channel grew from 17 cars per store per month on 2017 to 26 cars per month per store in 2018. And now this quarter, it's reached 40 cars per month per store in the third quarter of '19. This means 58% of our sales that we have been growing retail. And of course, it helps us deliver better gross margins.

Our strategy is to keep retail above 50% and, of course, grow this number. Of course, growing the company, we need to sell more cars. And then that's why we opened 6 stores in advance to have the stores capable to sell the amount of cars that we need to sell next year, without any risk or with much more comfort to keep Seminovos at breakeven level. The turnover of the assets, comparable with the fleet size, allowing us to keep a good growth pace, capturing more dilution in terms of fixed costs, more operational efficiency, more profitability, generate value to the company.

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Operator [12]

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Our next question comes from Stephen Trent, Citi.

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Stephen Trent, Citigroup Inc, Research Division - Director [13]

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I'm just curious, when you look at the Rent-a-Car segment on an historical basis, there's been kind of a dominant firm out there per se that could really use its Rent-a-Car pricing as a lever. And now that we're in the second week of November, I wanted to ask in the fourth quarter so far, if you've seen any pricing trends, primarily in the car rental segment, but also in fleet rental, which look aggressive to you? And that's my first question.

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Renato Horta Franklin, Movida Participações S.A. - CEO [14]

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Stephen, the macro fundamentals are still positive. And this is, of course, means a good demand for sales. As I mentioned, the corporate trends are growing too, then we already see the corporate segment growing. And of course, this is additional demand, because since 3 years ago, this niche was under pressure because of the macroeconomic scenario. Then we are seeing room to keep improving the price, increase a little bit the price and, of course, improving the use [deals] management that we have here, improving algorithms, much more granularity here.

We have -- today, we have much more robust. We are changing price per minutes and there are some stores full automatized in terms of field management. Then we see room to capture more price improvement. Remember that, again, what you see is their daily rate. It's different from pricing. If you look at the pricing at the same channel, let's say, an example, the price of an economic car on retail on our website for the same day, it has been improving and increasing much more than that.

And we believe that it will be increasing for the next year again. But we have some niche, like the monthly car contributors, that the daily rate is much lower, but a good margin. This is a business line that we want to grow a lot that will help us to improve our Rent-a-Car margin in the medium term and, of course, dilute fixed costs and other things. Then it's a positive scenario in RAC. This is the trend that we have being seeing.

In terms of Fleet Management, we have improved on very low usage cars, low mileage, administrative cost that -- and with the interest rate that we have been seeing, that means that we have been seeing this daily rate of the third quarter. We see room to improve a little bit to focus a little bit more in more expensive cars and premium cars for individuals, this as line is growing, but it's still much smaller than the relevant business, which is still compact and economic cars that have much more demand in Brazil.

But our strategy is to try to sell more contracts with more expensive cars that will impact the daily rate, but with the same margin. The only point here is that the main focus is profitability, then we will focus on the contract that delivers a good profitability with low risk.

So we have contracted profitability in our long-term view, allowing us dilute the fixed cost of the company and help the company to grow in a sustainable way, in a healthy way. We focus on the medium and the small companies here. And the trend in terms of daily rates, it's stable with a small -- increasing maybe.

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Stephen Trent, Citigroup Inc, Research Division - Director [15]

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Okay. That's very helpful. Edmar, Renato, just 2 very quick follow-ups. One, any sort of long-term view regarding what percentage of EBITDA you expect from the fleet rental segment?

And two, to what degree do you see private companies coming into the market, offering niche services? Wondering if you've bumped up against any of them? And that's it for me.

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Renato Horta Franklin, Movida Participações S.A. - CEO [16]

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Okay, first question. Our strategy is to keep Fleet Management close to that or so close to the number that we have today in terms of revenue.

Of course, in terms of EBITDA, the higher EBITDA margin means that we can have a little bit more participation of EBITDA coming from Fleet Management, but we have EBITDA margin RAC improving a little bit. We will see close to the level that we have today. In terms of growth of cars, we expect to grow the company, adding the same amount cars in Fleet Management in RAC for the following years.

Looking ahead, in terms of different competitors, private companies coming ahead in the sales, of course, the market is claiming the attention of the public because of the profitability level and the good fundamentals we see for the short, medium and long term, then I expect to see other players.

But remember that this business needs scale. This business is focused on service levels. We have been growing, delivering a different approach in terms of service level. Of course, the whole market is growing, but we have been growing majority in individuals, their focus is growing a lot on Uber and our other apps, mobility apps drivers.

And of course, you can see a huge demand there that a lot of people can grow. But we do not see competition with these small players, when we see authorized dealerships, for example, renting cars in the city. This happened since I was a child. All the mom and pop car rental companies, the majority -- lots of them came from the authorized leadership owners because they are already in this market, of course, they have used car selling and then rent some of them in this thing. But it's a different niche, different customers.

And as I mentioned before, just 3.5% of the -- our market is renting cars today. There is a big room to grow, with rational and healthy competition is our view for the next year, let's say.

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Operator [17]

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(Operator Instructions) Excuse me, this concludes the question-and-answer session. At this time, I would like to turn over the call back to the management of the company for closing remarks.

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Renato Horta Franklin, Movida Participações S.A. - CEO [18]

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I'd like to thank you all for the participation in this conference call and for supporting us in the different phase of the company. Today, I'd like to reinforce that much more important than the numbers that we have been presenting and the numbers that we presented today is the trend that we have been delivering and these macro fundamentals that we are seeing for all the business lines.

In Rent-a-Car, we have very good positive scenario, improving month by month. Every month has been better than the month before, even with seasonality, and we are very confident with the business lines. Fleet Management, we have been talking about the opportunities to grow the company since 2 years ago. Now you can see that the whole market is talking about these opportunities that Movida can set the trend of a different niche, and a new niche of growth.

Of course, IFRS help us -- ourselves to sell this service model, and we believe that we will continue this pace that we have been seeing in terms of growth in Fleet Management. In used car sales, with a different level today, different maturity level, much more mature, there's still some opportunities to be captured, but in a level that already allow us to resume growth, dilute more on the fixed cost, keep improving the profitability of the company and make us very confident with the following results that we will present this year and the year ahead.

Thank you, all, and count on us, and we are counting on you. When you came to Brazil, please rent a car with Movida, help ourselves and let's do much more and much beyond the class. Thank you.

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Operator [19]

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Thank you. This does conclude today's presentation. You may disconnect your line at this time. Have a nice day.