G
Grupo Traxion SAB de CV
BMV:TRAXIONA
Grupo Traxion SAB de CV
BMV:TRAXIONA
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Earnings Call Transcript
Other Earnings Calls
Greetings. Welcome to Traxion Fourth Quarter and Full Year 2022 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I will now turn the conference over to your host, Executive President, Aby Lijtszain. You may begin.
Thank you for joining. Welcome. As you can see, despite global macro difficulties, Traxion once again delivered a strong set of operating and financial results. Most important is that quarterly revenues and EBITDA came in as record high in the company's history. We're pretty in line with 2022 guidance. Traxion surprised its revenue figure, however, EBITDA margin came 130 basis points lower than our estimate.
It is very important to note that [indiscernible] grew more than 57% in the year. So given such large impact, 130 basis points compression in margin is not material. Quite the contrary, it represents a tremendous effort and achievement from traction management to reduce such adverse effect and still post a very good margin. We have increased our prices to reflect such impact.
Today, crude prices are virtually in the same level as one year ago. So I feel pretty comfortable this year. Having said that, -- and before passing on to the rest of the team, I want to discuss a matter that is being addressed in virtually every meeting, conference and event, the nearshoring trend. For us, nearshoring is a reality. We have been capturing many opportunities for some years now, and we expect a significant increase in volume derivate from such trend over the following years.
Currently, we estimate that approximately 50% of our revenues are related to nearshoring. Such phenomenon is a paradigm shift for Mexico as it was NAFTA back in 1994, and it's transformational for the country. Traxion [indiscernible] pure play. The company has a large logistics footprint, an extensive cargo solution portfolio and the absolute largest and most modern personnel mobility platform to move personnel from and to factories. Furthermore, Traxion has a deep understanding of the lay of the land, together with a strong know-how and know who were the partner of choice for foreign companies seeking nearshoring.
Finally, I just want to highlight our 2023 guidance. We expect to grow our revenue by 16%, with an 18% margin and approximately MXN 2.2 billion of CapEx. Wolf will give you more detailed breakdown shortly. We are very excited about the commercial opportunities we see ahead. Thanks for your attention.
I will now hand over to Rodolfo. Please, Rodolfo.
Thank you, Aby. Welcome, everyone. There are significant operating advances that I would like to discuss. First, we carry on with our strong dynamics in the Logistics and Technology division.
Traxporta, our digital cargo marketplace continues to penetrate and gain market throughout different avenues. One of them is to operate increasingly more services from Traxion regular base with third parties, which at the end of the day, turns a cargo business into a technology-driven one with an asset-light approach. This has 2 effects. First, it fuels growth of an asset-light technology-based platform via an organic chip of operations, serving the same clients. And second, it allows our traditional mobility of cargo segment to become more efficient by increasing the specialized services volume without the need to grow the fleet and improving expansion CapEx, which increases prices while keeping virtually the same volume. This is exactly where we wanted to be when we launched our apps.
We are running as planned and [indiscernible] our expectations. Moreover, as we have mentioned many times in the past, we expect the technology and asset-light business lines to become the majority of revenues in a few years. i.e., to contribute more than 50% of our revenues by 2025. As we always say, technology is our most significant competitive advantage and represents the highest value of entry in our sector. This is precisely what will continue to enable Traxion to keep seizing opportunities that will arise from the nearshoring trend.
Moving on, our 3PL Logistics division show a very relevant expansion of more than MXN 183 million, an impressive 57.7% growth compared to the fourth quarter of 2021, excluding the pharma operations. The recent 96,000 square meter growth of warehouse area, which was mainly driven by the integration of approximately 65,000 square meters of the pharma operations. While the rest is organic growth of our regular 3PL division. Indeed, it is an important milestone as we continue to gain market share and penetrate in this service.
Finally, there are other important highlights in the personnel mobility segment that I would like to discuss. We started operation totaling more than 300 new buses in the quarter while advancing in our pricing strategy and expanding our footprint.
Traxion also achieved a couple of technology milestones in the division. First, we launched an automatic billing system that is 100% linked to operations, which significantly increased transparency and expedites the payment process. And second, we improved our operator coordinator profiling mechanism to better monitor daily services. As you see, it was again a very busy quarter.
Well, with this, I have my remarks. Wolf, please go ahead.
Thank you, Rodolfo. Hello, everyone, and thanks for joining. First, I want to start by saying that Traxion's revenue figure is truly outstanding. Top line came over 20% higher in the quarter and 19% higher in the year compared to the same periods of 2021.
To achieve that, Traxion invested roughly MXN 3.4 billion of CapEx, slightly above our original estimate for the year. This was mainly driven by some additional opportunities we found in the Personnel Mobility segment. Together, with some investments needed to strengthen our infrastructure to properly serve the pharma vertical, and that were not considered in the beginning of 2022 when we released our guidance. However, the effect of the fuel cost softened such growth towards the bottom line.
We conducted strict cost and expense controls throughout the year to offset such a very large impact in our P&L. At the end, there's just a 130 basis point compression in margin compared to 19% of our original guidance figures, indeed, a positive feature given the size of the increase in fuel cost, which was over 50%. This represents an enormous effort from our team that as always, did a great job.
Our 3 business segments [indiscernible] healthy double-digit growth rates. Being the logistics and technology division, the one that posted the highest and contributed the most to revenue expansion. We are very excited about what we are seeing in such business lines.
Moving on. During the year, we experienced continuous hikes in interest rates, which, together with the additional debt we took during the year, basically doubled our interest expense. However, our leverage ratios are still in a very comfortable zone in line with our policies. All of that, together with the growth in fuel costs affected the bottom line.
Finally, let me go over 2023 guidance. As Aby said, we will invest around MXN 2.2 billion, of which approximately 70% will be for organic growth, mainly in the Personnel Mobility segment, while the remainder will be allocated to renew our cargo fleet, which as you know, is very important to keep it efficient and to conduct some investments to strengthen our technological infrastructure, which is of paramount importance for Traxion. We estimate that such investments will result in a top line growth of around 16% with an EBITDA margin in 18% area.
Well, thanks for your attention. With this, I end my remarks, and we'll hand over to Tonio. Please, Tonio?
Thank you, Wolf. I just want to briefly highlight some other important financial matters. First, we successfully conducted the pass-through to our clients and we expect to see a margin inflection point during the first quarter of this year. Second, growth in revenues is significantly higher than data for installed capacity, which basically means 2 things. One, our asset-light division is running efficiently as expected; and two, that growth was more driven by price rather than volume. Both are very good news, especially given the global market landscape. Third, operating cash flow increased MXN 685 million, which represents a 25% growth, mainly due to a better working capital management. The total figure came in at over MXN 3.4 billion, slightly above our CapEx figure.
The company made significant investments in 2022, both in growth and M&A. Those investments did not fully reflect their benefits in the reported period but we expect them to kick in 2023. And fourth, net income came in lower than expected and was mainly driven by a mixture of increase in fuel costs and interest expense. However, we expect this effect to be temporary as we continue the fuel pass-through and our new companies start contributing to both revenue and EBITDA.
Moving on, Traxion made significant advances in terms of ESG. There are several important milestones in 2022 that we discussed in previous quarters. But perhaps the most significant this period is that a program in rate education delivered its 51st middle and high school graduates. Also, in October, Traxion received Standard & Poor's CSA rating, which came in within the top 10% of companies assessed through a wide range of ESG metrics and indicators in line with the Dow Jones Sustainability Indices. Such rating positioned Traxion 30 percentage points above the sample average, indeed, a very important improvement. It was a very successful year in every front. Traxion made significant progress in its overall strategy, and we are excited about what we are seeing for 2023.
Well, with that, I'll wrap up my management remarks, and I will open the floor to Q&A.
[Operator Instructions] Your first question is coming from Juan Ponce with Bradesco BBI.
My question is on potential labor cost pressures in 2023 in Mexico, specifically on how you see the impact of these minimum wage hikes, the doubling of vacation days and the gradual increase of employer pension contributions impacting the way you think about pricing in 2023? And also related to this question, if you can give us some type of update or expectation, let's call it, on when you think you will pass through 100% of these fuel costs to your clients?
Juan, this is Aby. So I mean we see that the labor cost will increase related to inflation in Mexico. And we need to see that Mexico has a very competitive workforce. So I mean it increased every year. So we are used to that increase. And we see that it's going to be something similar that we have seen in the past years. And talking about the fuel cost is already passed through to the clients.
So 100% of this is already past, correct?
Yes, yes.
Your next question is coming from [indiscernible].
This is [indiscernible]. I have a question regarding the guidance and how you -- what are the plans for the company in terms of the source of money for CapEx and debt payments? And so I think I could summarize it in how are you guys defining on funding the CapEx and the operations going forward? Do you think there's more room to leverage? Or are you planning something in terms of giving additional capital just to -- or would it be from the source of the operations. Just to understand a little bit how are you guys thinking on capital allocation?
This is Wolf. In terms of our investment for this 2023, we're planning to use our free cash flow and also part of that, we usually [indiscernible]. So we -- so we're going to mix both lines, the credit facility that we have and also the cash flow of the company. So we're not seeing anything that it will mix in a different way for this 2023 than the previous ones. So we're planning to make it in a mixed way.
And so just to be very clear, this CapEx guidance does not include any M&A activity, right?
Right, correct. This is from the organic growth.
Your next question is coming from Alex Demichelis with Nau Securities.
One quick question on your margin guidance, I believe. Aby, you mentioned that fuel prices are virtually at the same level as one year ago. Antonio said first quarter of 2023 should have a inflection point of the margins. So trying to understand why should we say, 18% for this year versus the 19% that you were kind of indicating a year ago, if there is anything structural in the company that should prevent you from reaching that 19% to 20%?
No. I mean I think there are 2 factors. First, the Logistics and Technology division is growing. It's growing faster than the other divisions. And the second is we want to be cautious because, I mean, the world is rough. So that's why we decided to give a guidance of 18% margin.
If things continue as you're saying today without any kind of disruption or the world falling apart or anything like that. Is there a chance that we can see those margins going back to those levels then?
I think, yes. Yes. I mean, maybe close to it because as I mentioned, the Logistics and Technology division is growing. But I think that they can improve.
Your next question is coming from Pablo Monsivais with Barclays.
Actually, I just have a follow-up question to the previous one. To what extent do you think it's structural on the growth regarding the EBITDA margin guidance. To what extent do you think it's because of the growth of Logistics and Technology, and to what extent is just your -- you being cautious about your profitability levels? That's one.
The other is to have a sense of how much is going to be debt from the CapEx and how much is going to be free cash flow because you said it's going to be a combination of the 2. But I don't know if you can share a percentage there. And that's what it.
Pablo, this is Tonio. Thanks for your question. I'll answer the first part of your question regarding margin. We estimate that around 70% of the margin should be from the growth and expansion of logistics and technology. That's why we are cautious with that because obviously, that's the fastest-growing segment of the company right now. It is going to be so in this year and perhaps in the coming years as well. Remember that we said always that we expect this segment to be the majority of the business that is more than 50% of revenues by 2025. So we expect that to be a reality. And as this segment continues to grow faster than the other 2 traditional business lines, margins are going to be around 18% or perhaps between 18% and 19%, depending on the area.
The second -- I'll ask Wolf to answer the second part of your question.
Regarding the second question, we're planning to fund the CapEx for this 2023, around 40% with the cash flow of the company and 60% maybe about some credit facility that the company has. At the end of the year, we're planning, if you see these numbers, that the company will deleverage a little bit more by the end of 2023.
Perfect. I have one more question, if I may.
Sure.
Now given that you expect your Logistics and Technology segment to be more than 50% of your revenues by 2025, what's the run rate or your expected revenues for the other 2 parts of the business?
Can you please repeat the question?
Yes, you expect your Logistics and Technology segment to be more than 50% of your revenues by 2025, right? My question is on the other 2 parts, cargo and personnel, what is the expected growth that you are estimating for 2025 -- from here to 2025?
Yes, Pablo. In terms of the other 2 segments, we're seeing something around 15% growth in terms of the mobility and people segment. And usually, in the cargo side, we're trying to get more specialized in that segment. So we are growing a little bit slower in that division. So that's making the -- a little bit the mix that you're mentioning.
Your next question is coming from Martin Lara with Miranda Global Research.
I have 2 questions. The first one is what can we expect in terms of EBITDA margins by division in 2023? And the second one is where do you see your leverage by the end of the year?
Martin, this is Tonio. Thanks for your question. We are expecting in 2023 -- in terms of margins, we are expecting the personal mobility segment around 24-ish percent. Cargo is going to recover somewhat to be around 21% over 20%, which is a very good news indeed. And then Logistics should be around 10%. So at the end of the day, if you take into consideration that every business segment is going to wait around 1/3 for 2023, that should give you something in the 18% arena.
Okay. And the leverage, Tonio?
Martin, in terms of leverage, we're expecting something closer to 2x. So again, as I mentioned before, we're hoping to leverage a little bit more of the company in 2023.
Your next question is coming from Stephen Trent with Citi.
I actually just had a quick follow-up. So you mentioned logistics and technology as the fastest-growing area. When I try to match the relative growth of that segment with what you're seeing in nearshoring, is it fair to say that segment is seeing the biggest boost from nearshoring and maybe the personnel transport division is not seeing much of an impact? I wasn't sure if that's a fair characterization.
Stephen, this is Aby. So we're in boosting -- so we're seeing a boost in all segments. I mean, also logistics and technology because we do the warehouse management for these companies that are getting to Mexico to the northern part but also mobility of people because we take the employees from their house to these new factories and mobility of cargo because we move the cargo from Mexico to U.S.A. and we have a leadership in that arena. So we see the boost in all of them. But the company, it's pushing more the growth for Logistics and Technology because -- as we know, we don't do CapEx there. It's -- we see it more profitable. So that's why we are growing more in rent.
Okay. Great. I appreciate that, Aby. And just one quick follow-up question as well on the M&A side. Is it still the case that you guys would look at opportunities to do acquisitions? And if so, what sort of minimum returns are you thinking about in a potential acquisition?
Yes. So we're -- I mean, yes, we are seeing some acquisitions. The acquisitions that we are looking for are related also to nearshoring to add new services for nearshoring as, for example, a tax agency or I mean something to -- so we can do or improve our door-to-door service from Mexico to the States. And we are looking at these companies on the Logistics and Technology division. So the returns that we see there are very big because what we do is we buy a company because we see a lot of synergies. And the main synergy that we see in these companies is commercial or let's say, commercial and finance financial. So when we plug these synergies, the companies that grow a lot in the short term and then the returns that we see are very good. And most of the -- I mean, all of the time, the acquisitions are strategical that we can enter into a new service.
Your next question is coming from [indiscernible].
[indiscernible] how much of the revenue cost from specialized cargo. I would like to know also on this segment developed in the past? What do you expect in 2022?
This is Aby again. So the strategy of Traxion is to focus on specialized services and also to high-value products. So for example, when we transport, let's say, I will give an example as potatoes, the cost of transportation is high -- from a percentage of the total cost of the product, maybe could be 20%. But when we transport electronics, the cost of transportation, maybe it's around 1% of the total cost of the product. So we are focusing on transporting these high-value products that the companies prefer to have a good service or the best service and to save some in transportation. And going from that, we are also focusing in specialized transportation as the whole strategy of the company, where we are very good in international transportation from Mexico to the States.
Also to the ports and refrigerated cargo but also to the States. And those are the kind of services that we offer in Traxion. So I can say that the strategy is like when we use our own equipment, we do specialize. And what we are doing is the services that are not very specialized, we are sending to Traxporta and we offer the service transportation both through the app.
Okay. Very clear because of being most of the project segment shipment [indiscernible]?
Can you repeat it, please?
Yes, [indiscernible] on the cargo segment. With that being that most of the cargo segment is now the specialized transportation?
Yes, it's most of the cargo, I can say, at least, I don't know, 80%, 90% is specialized.
[Operator Instructions] Your next question is coming from [indiscernible] Group.
Two quick questions. The first one being on the Logistics and Technology segment. I know that you are going to start seeing the vertical operations on the Pharmaceutical segment [indiscernible] maybe just share how much are you expecting of additional EBITDA from this business?
And my second would be on the last mile segment. How much percentage of total sales of technology? Is that still at I remember what is at 60% of sales of Logistics [indiscernible]?
Can you repeat your first question, please?
On the -- sorry, on the Logistics and Technology segment, we are going to start seeing the pharmaceutical vertical integration for this year. And I was just wondering how much of additional EBITDA is that going to bring to the Logistics segment, like how much EBITDA growth are we going to see from this pharmaceutical coming in?
The first one is last mile weight approximately 41% this year in our revenue base total of the Logistics and Technology division. As of your second question -- regarding your first question, the one to the EBITDA contribution of the pharma vertical to total EBITDA. It's -- it's a tricky question because we are -- we started this year, the pharma vertical. We have the -- we know that such businesses have slightly higher margins than the average of other businesses. What we are focusing right now is into unplug and unleash the commercial synergies of such vertical of the pharma vertical. We always say that our intention is to double or triple revenues of the Pharma division that we acquired this year.
As of to EBITDA, it's hard to tell, but I'll ask Wolf to answer with more detail.
In terms of the Pharma vertical, we're expecting something around 7% to 10% of total EBITDA of the company, coming from this [indiscernible]. So we're working on this for 2023.
We have reached the end of the question-and-answer session. And I would now like to turn the call back over to Aby Lijtszain, Executive President and Co-Founder, for the closing remarks.
I just want to finish by saying that we are seeing very interesting opportunities this year, both organic and inorganic. Nearshoring will continue to push the growth for the company and Traxion is well prepared and ready to take advantage. The company has a strong balance sheet and one of the most powerful solutions in nearshoring in Mexico. Thanks for your attention, and have an excellent week.
Thank you. This does conclude today's conference, and you may disconnect your phone lines at this time. Thank you for your participation.