JSL SA

BOVESPA:JSLG3

Earnings Call Transcript

[Operator]

Good morning, and welcome to the conference call of JSL to discuss the earnings regarding the second quarter 2023. Today, with us are Mr. Ramon Alcaraz, JSL's CEO; Guilherme de Sampaio, CFO and Investor Relations Officer of JSL. [Operator Instructions] We would like to inform you that this conference call is being recorded and simultaneously translated into English. Before moving on, we would like to let you know that any statements made during this conference call relative to the company's business outlooks, 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 not occur. General economic conditions, industry conditions and other operating factors may affect the company's future results and lead to results that will be materially different from those in the forward-looking statements. Now we are going to turn the call to Mr. Ramon de Alcaraz. Please, Mr. Alcaraz, you may go on.

[Ramon Peres Martinez de Alcaraz, executive]

Good morning, ladies and gentlemen. It's a pleasure to be here with you to present the earnings of the second quarter 2023. Excellent results and the consistent of the results make us very fixed. Those that have followed our results since the first IPO have been a witness of that despite all diversities in recent years. That is not different in 2Q '23. We are very pleased with the results we are bringing to you. Compared to the same period '22, we grew almost 28%, BRL 2.2 billion in gross revenue, BRL 1.8 billion net revenue. And even better, we grew our EBITDA by 43%, with an improvement of 2 percentage points, BRL 359 million. Net income grew by 20.8%, getting to BRL 41 million, ROIC, 15.2%, more than doubled the number reported when we had our IPO, many ask, we have come to such substantial consistent results. Our answer is simple, resilient and discipline in our management strategy that we have the release since the IPO.

That is a strict management of cost and operational efficiency, right pricing of processes based on our expertise in already deployed processes, management and execution of projects for the reality to be even better than our prices in showing expansion of margins, unique model post-acquisition, keeping the independent company of each company acquired, but capturing the synergies of scale expansion of international operations, enabling growth in other markets and other very important points. Excellence in services demonstrated by the high percentage of cross-selling and several awards reported each quarter. In this quarter, the highlights are the operation was outstanding with one award in the category of service quality and innovation and also the Golden Helmet Award for our safe culture.

Now going to Page 3, we highlight the transformation of scale and profitability growth of 140% in net income since the IPO, BRL 201 million in EBITDA, improving margin from 16.7% to almost 20%, more than doubled ROIC from 7.3% to 15.2%. That is because the growth and of our organic business and acquisition. As you can see in the chart, since October 2020, since the IPO, we went through Transmoreno, Fadel [Foreign Language] just 2 months in our earnings of the second quarter and the last one, SCJ's still not reported in results. On Page 4, we show how our managed model and expertise probed a continuous cycle of organic growth, with average growth of 14% compared to second quarter '23 with the same period '22, 20% in acquired companies, again, comparing them to themselves. And here, just a note, when we have analyzed the preacquisition period of each acquired company, we have an average growth of 91%, some almost doubled in an average period of 2 years. In JSL growth was 11%.

Once again, I reinforce our model. Independent management of each contract agility in the making of decisions. Projects developed together with customers in acquired companies, post-M&A independent management, immediate synergies in the purchase of inputs and assets, financial structure to leverage growth and also dilution of indirect expenses with growth. We use cross-selling and add to new customers. On Page 5, we show how our competitive advantages insured business expansion, 972 million new contracts at close to this quarter average maturity of 51 months, 88% in cross-selling. With that, we add to the first quarter '23, 1.6 billion in new contracts with an average maturity of 45 months. And the main factors our consumer goods, 62%, Pulp and Paper 16%, Food and Barrage 14%, among others.

We have a unique difference, the largest logistic platform in the country. We do in several segments with huge capacity to invest and efficiency in capital allocation, quality and know-how, unique diversification and integrated service portfolio in all the logistics chain with experience in several sectors of the economy. We have a proven history of delivery, [indiscernible] deviations, which is crucial in the last 3 years, ensuring quality to our customers. On Page 6, we give you a breakdown of our business model. In projects with the customer, we have the understand to serve, which is our motto, involving all areas, not only commercial, operations, controls, finance, IT, you name it.

In execution, we have the owner of the business with autonomy and agility making decisions. The strategies are shared with our customers, exclusive management of contracts, evolution cycle, excellence in execution of what we propose to do. Delegating customer loyalty, cross-selling and recommendation to new customers. All that has generated in addition to substantial growth and natural hedge for the diversification of services and sectors, as you can see in the pie charts on the slide. Now to give you more color on our financial indicators. I'm going to call my friend, Guilherme Sampaio.

[Guilherme de Andrade Fonseca Sampaio, executive]

Hello, good morning, everyone. Another quarter with consistent results, keeping organic growth and expanding margins. This quarter, we closed the acquisition of [indiscernible] in the end of April, the longest company since the IPO. Now we have consolidated 2 months of the company in our results. FSJ Logistics that we announced a few months ago has not been closed yet and is not included in the numbers we are reporting. Net income closed at BRL 1.840, 21% better 2 quarter and 18% better than first quarter, already including the 2 months of [indiscernible]. 54% were in asset-light operations and 46% in assets have operations. As Ramon mentioned in the previous slide, 35% in dedicated operations, 46% in transportation, 12% in warehousing and 7% in urban distribution.

The breakdown already reflects the consolidation of numbers of transplant that focus on transportation and 70% plus in asset light. Operating margin closed at 14.5%, 1 percentage point above last year with BRL 258 million in the quarter vis-a-vis BRL 185 million last year, growth of 39%. This growth already excludes the impact of the market purchase of this year that we still have to -- that we had to visit in the end of the quarter this quarter. Without the bargain purchase, the EBITDA closed at 359%, 43% above second quarter and margin of 20.1%,1.9 percentage points above the second quarter '22. Remember that results or margins are impacted by the consolidation of DC that came to JSL with margins below the consolidated margin. The work to rebuild margins has already started, and we are going to see the development quarter-on-quarter. Net income close to BRL 41 million, excluding the effects of these sales and amortizations of press acquisitions.

The reported amount is BRL 25 million, BRL 232 million in the quarter, almost a fourfold increase of the first quarter last year. The amount is still impacted by approximately BRL 180 million of financial result recorded by the exchange variation of cash and accounts receivable in Argentina because of our international operations. This amount is already being negotiated with customers for reimbursement to keep the economic financial balance of our contracts, reported ROIC, 20.8%, already considering the results of 2 months of ES and additional interested capital of BRL 260 million, the growth running rate with the same adjustments that we present in paid CapEx that still has not generated revenues was capped at 15.2%.

Slide 8, net CapEx in line with the last quarter last year, and we closed the quarter with BRL 509 million CapEx the amount for expansion and 30% in our acquired companies. And to update the amount that we have reported quarter-on-quarter. Today, we have a residual amount of BRL 4.7 billion of assets like trucks, tractors, machinery equipment that is liquid for sale, that that market were considering to the margin of second quarter gets BRL 6 billion, 1.4x our net debt. Before going to the next slide, it's important to remind you that because of the profile of growth, we always have a substantial amount of CapEx that still has not translated into revenue. In this quarter, we are talking about BRL 24 million in net income because of the cost of CapEx already paid and the depreciation of assets in the quarter.

On Slide 9, I bring net debt that closed the quarter at BRL 4.3 billion, already with the impact of EC. EBITDA LTM, combined with the 12 months of IC is at 11.2 and added EBITDA of BRL 1.8 billion. With that, our leverage is 2.74% in EBITDA and 2.45% added EBITDA, which is our reference for covenants. If we exclude the effect of the park and purchase leverage would be stable compared to the first quarter, below the second quarter of '22, keeping our commitment to go beyond 3x. We closed with BRL 790 million in cash and also with available revolving credit line of BRL 569 million, also BRL 750 million of new lines that are in process of being fit. That would keep us in a position of BRL 2 billion of available cash.

Going to Slide #10, I bring you some information on FSJ that is still being approved by CADE for us to close the operation and consolidating our network. This is a company that is very much aligned in our history of acquisition with a very qualified team for mid-mile operations for retail and e-commerce clients that increased our portfolio of services and factors, 500 people from assets, 8 years of operation serving Mercado Livre, Jadlog, Magalu, among other large customers that are relevant in retail and in commerce.

Some important points that are available highlighting. First, it brings BRL 300 million of new revenue to JSL with CAGR of 133% from 2019 onwards. The founder and the team stay with us to keep the trajectory of growth, with JSL, FSJ starts to have the scale and robust balance sheet to improve its capacity to service customers. The transaction has an enterprise value of BRL 125 million active value of BRL 108 million, which takes us to a multiple of 3x with the synergies we expected. Based on the historic acquisitions, we can go to much 2.6x. We are very encouraged of what we can do together with FST. With that, I turn back to Ramon for his final remarks. Ramon?

[Ramon Peres Martinez de Alcaraz, executive]

Thanks, Guilherme. On Page 12, just to close, ladies and gentlemen, I highlight our unique position in the market to grow organically and via acquisitions. We are already a company of almost BRL 10 billion revenues when we combine our current revenues with the numbers of IC and FSJ, consistent, sustainable margins as you can follow even impacted by preoperating costs of projects under deployment that will support our development for the coming quarters. The start of the cycle of a decrease in interest rates, which will impact our net income directly.

People and managed model prepared to bring even better results, a robust balance sheet that ensures us a unique position to meet the demand of large industries that needs special services and quality services. Huge opportunities to grow in the logistics market is still very fragmented in the country. We are absolute leaders in the industry but have only the 2% market share. It's still way below the main global markets. Competitive advantages like execution, management efficiency, scale and access to capital puts us in a unique position in the industry to continue with our expansion and consolidation agenda. Thanks for your attention. And now we are going to open for your questions, both myself and Guilherme. Thank you very much.

[Operator]

Our first question comes from Luiz Capistrano from Itau BBA.

[Luiz Capistrano, analyst]

Guilherme, Ramon, congratulations on your results. I would like to talk about profitability of new contracts. This quarter, we had a margin that moved sideways compared to the first quarter. And we had the factor of the distraction of margins, talking about the consolidation of IC. And I would like to confirm with you and understand if when we look at contracts close to this quarter, the numbers that you announced if they will also continue to improve margins as they start operations in the third, fourth quarter, and they're going to have even higher profitability. That is if the margin is pointing upwards. So I'd like to confirm that. And the second question is to understand how do you see M&A? And if you think you're going to accelerate the process and your pipeline? Any comments that you have are most welcome. Thank you very much.

[Ramon Peres Martinez de Alcaraz, executive]

You're very right. Our margins of new contracts for several reasons are better. First, because our contracts are already priced at an updated interest rate that alone improves profitability. New contracts. We always have the expertise of past contracts. So there is a trend that they are better designed reality, always provides information to project areas for us to take more and more into account operating variables. So that alone of that makes new contracts better, be better designed. You're also right to say that in the second quarter, the margin was adversely affected because of a lower margin of IC Transporters. And Guilherme already said that we are already renegotiating several contracts, analyzing the company inside. So gradually, we are going to improve margins at IC.

As for your second question, the market is always favorable to M&A. This is not something that happens overnight. It is announced overnight, but it's a process that takes time. We have several options in our pipeline and for many reasons, sometimes, it becomes true as it happened this year with IC and FSJ. I agree with you relative drop in interest rates is advantageous to us. So we hope we can have good news for the future.

[Operator]

Our next question comes from Pedro Bruno from XP Investments.

[Pedro Bruno, analyst]

My question has to do with the answer that Ramon just protected. It's about the competitive environment and bridge. I'd like to understand a bit more conceptually. I think that we'll try to explain margin expansion. But I would like to understand your rationale for new contracts with the diesel policy, lower prices and how this goes into our negotiations. When you get a specific market like agribusiness, for instance, just because it is a very heated market. And it's a market in which we have data on road prices per route, we see an even higher transportation prices, even with lower diesel prices. So this is just an example, but if you can bring other examples or really put this in the context of your negotiations to for us to understand behaviors a bit and how we explain this phenomenon and how this perhaps can be translated into an opportunity in terms of profitability.

[Ramon Peres Martinez de Alcaraz, executive]

Well, since the IPO, and you are witness of that. This is something that I'm talking about many times. We bet on some pillars to improve our results, mainly operational efficiency and cost management. We cannot bet on prices on. And this is something that we have been gradually doing in terms of our homework. We have a plan that is very strict for us to reduce costs because at the end of the day, we have want to have better results and to be competitive. If you pass on everything to prices, then you were no longer competitive. So this is the first part of the answer.

The second part of the answer that is more directly related to your question. Obviously, when you have stability of inputs and diesel is more rightly known because of petrol, but not only diesel, tires, parts, vehicle values and the confusion that we had in the end of '22 and along '22, the scenario is almost in a turmoil. So it gives us more work to reprice and negotiate. Of course, in this environment, if you are faster, you take the lead as we quite modestly believe we did. In the year of 2023, the major advantage is that prices are more stable. And that gives us the comfort for us to do our management right.

The diesel you asked, it is not the most important item. First, because it is something that it is a price that is reported. So it makes negotiations easier. Then another part of the Agri business, the diesel is take by clients themselves. So it's even easier for us to adjust prices, the thinking of diesel. And of course, when the diesel price goes down, it's even better because then the negotiation is easier for both sides.

Now the other inputs that are less reported may be a bigger of a problem. But what is important is that we had a surprise at the end of '21/'22 which was annual adjustments that we were not really used to anymore, but we very fast adjusted to this dynamics, which enables us to be factored in any market fluctuations. This is part of the process and the companies that are more agile benefit from that, and that will reflect in margins. But again, it's not just a matter of crisis. Prices is part of it, but I have to bet on cost reduction and operational efficiency. Thank you very much. Very clear.

[Operator]

Our next question comes from Lucas Marquiori from BTG Pactual.

[Lucas Marquiori, analyst]

I have 2 questions. First, if you can give us a bit more color on elements, be it contract profile of customers of FSJ, that really drew your attention. That would be very interesting because you always had low exposure to e-covers because of the low protection of contracts in the segment. So I would like to understand what capture your attention for FSJ? What is different in e-commerce contracts that made you interested to go into this industry? So this is my first question. Second, if you could share with us, the asset acquisition program, thinking of all volatility that we are having in prices, especially machinery and tracks and the change from Euro 5 to 6. Are you waiting to buy trucks for the future? Are you enjoying the market is at the discount and buying them now. So if you could give us a bit more color there, it would be very interesting.

[Ramon Peres Martinez de Alcaraz, executive]

Lucas, thanks for your question. I'm going to start with the first. This is an acquisition that followed to the same model of any other acquisitions. So what is the rationale? This is a company that is well managed, well led with very good margin. And the second important hearable is that it is in a segment that we believe can reinforce some of our other segments or that might be interesting for us. We have always been asked even in calls, if you're not going to serve the e-commerce wave. And we've always said we like in commerce. It always brings sales. And because we are in the logistics chain, we benefit from that. But the less mild e-commerce is something that we are very cautious because margins are very tight, as you yourself mentioned.

But FSJ found this important niche, which is the mid mile, which is supply is smaller distribution center to the [indiscernible]. It's almost the pre last mile. And because you work with the supply, you work with consolidated loans, full truck loads. And because you have more concentrated logistics, you can have better margin. It's important to say that FSJ is a young company, 8 years old, but with lots of expertise. It has been growing very fast. It has customers with huge potential, Mercado Livre, Magalu and others with long-term contracts, very similar to JSL. So it is an acquisition that fits perfectly our portfolio. So that was the rationale for FSJ.

Second question that has to do with the change in technology that is Euro 5 from Euro 6. For us, indeed, it was good that we no longer have an Euro 5 inventory in the market. But helped us wait for the market to settle down. Euro 6 amounts are more close to reality in my opinion. And we only purchase a vehicle that is we only invest CapEx when you already have a contract and our contracts are priced with Euro 6 already. So for us, it's a good balance. It would be a problem to buy Euro 6 if the contract was priced at Euro 6, that's not the case. So we are quite comfortable. We are going to start buying Euro 6 as of this quarter, but fully planned price within our plans. Thank you, Lucas.

[Operator]

Our next question comes from Victor Misuzaki from Bradesco.

[Victor Mizusaki, analyst]

Congratulations on your results. I have 2 questions. The first about the growth of JSL, an important part of new contracts, as you mentioned, came from the company's capacity to cross-sell. If you could talk a bit about the market share of JSL in your existing customers just for us to understand potential for the future. And second question, also related to the purchase of assets. It's somehow JSL sees and opportunities of using the government program of incentives for fleet renewal to go into new customers.

[Ramon Peres Martinez de Alcaraz, executive]

Okay. First, I'm going to talk about cross-selling and market share. This is an important question because we have customers in the most different sectors. And the answer depends on sectors and plans. But we created a new management unit that is focused on new customers, #1; and #2, enjoying the capacities of cross-selling in existing customers. So this is exactly we want to know. What is our market share in existing customers? And we are quite surprising. Major customers have loads of business, but there is still not that there is a lot of room to grow in the existing customers. So this is a good answer that we are to the questions we are asking. So in the coming quarters, you will see an increase in cross-sell.

Now despite we are in several sectors, more than 17 industries, we believe that there is still lots that we are either very small or we are not at all like drugs, fuels, we have nothing. Now we have something with IC, agribusiness grains, fertilizers, we did it. We are just starting. So I just mentioned FSJ in the middle mile segment. So the market is so huge although JSL much larger than the runner up in the segment. We still have 2% or 3% market share in the logistics market. So opportunities are almost endless. They will depend on our capacity to be able to keep pace with the market that exists in Brazil. So that's the first good news.

The second question I forgot. I forgot to -- I'm sorry, Victor. It was the government program and like our clients that has no fleet can use the government program. And perhaps you could go into new customers because of the program. Thanks, Victor. I'm sorry. I forgot your question. Okay, government program for JSL per se, it's not a benefit because the program is based on the renewal of vehicles, more than 25 years old. Our trucks are an average 3.5 years old, and we have no truck above 7 years. It could be a benefit to our independent truckers.

So we try to work with truckers with an average fleet of 8 to 9 years old. Remember that the average age is 23 in Brazil, there are trucks that are 40, 50 years out. So we try to work with a younger fleet. The problem is if you have a tracker with a truck that is above 25 years old, they won't be able to buy a bread new truck, even with the benefit of ex thousand [indiscernible]. And I'm not saying that it is a good or bad benefit, but it's too much of a difference. So in practice, it's really not much of a benefit.

[Operator]

Our next question comes from Renata Cabral from Citibank.

[Renata Fonseca Cabral Sturani, analyst]

I have 2. One is a follow-up about IC Transportes. We have 2 months consolidation as of this quarter. You talked a bit about margin. But I would like to know because you talked about cost management and operating efficiency, which is natural in a merger acquisition due to revisit contracts. And I would like to understand how you...

[Guilherme de Andrade Fonseca Sampaio, executive]

Renata, this is Guilherme. We could not hear a part of your question. Could you please start all over again? I'm very sorry.

[Renata Fonseca Cabral Sturani, analyst]

Certainly, no problems. So again, my first question is about IC Transportes. Just a follow-up. You talked a bit about margins. But I would like to understand how you think the top line is going to evolve? I think it's natural in a merger acquisition to revisit contracts. So thinking about cost management and operational efficiency. I would like to understand the top line a bit better. My second question is about the leverage. I know that you are very comfortable with comparison to your covenants. Talking about leverage, except nonrecurring. I would like to understand how you see this number evolving from now to the end of the year.

[Ramon Peres Martinez de Alcaraz, executive]

This is Ramon speaking. Thanks for your questions. I'm going to start with IC and then Guilherme is going to answer about the leverage. IC Transportes, it was a slightly different acquisition compared to previous acquisitions because this is a company that was with the tighter, a bit more pressured margins because of its particular context. But as we have been saying, our acquisition model is a model in which we do not absorb the company. We let the company continue its operations. What we buy is the know-how. Even IC having tighter margins. This is a company that I've known for many years, even the owner. This is a company with a surface portfolio that is quite recognized by excellence by its customers. So it is a company that really cherishes its quality, which is very good even for us to renegotiate some contracts.

So what we have been doing as a support to the company and not as inside management is really to work with contracts, price analysis. And IC is working with its customers trying to find ways whenever necessary. And there's another part of IC in the agri business, which is a bit more longer-term contract that is being analyzed in terms of routes. So they are finding their way. That is not a concern. Our role is to support them strategically and in parallel to that support with any investments, fleet renews and et cetera. But we really have much confidence in the excellence that IC developed in its 40 years. As for your second question, I'm going to turn to Guilherme.

[Guilherme de Andrade Fonseca Sampaio, executive]

Just to add to what Ramon mentioned about IC, I think one important guideline of ours is that we'll certainly try to have a profitable operation and bring IC numbers to what they were historically. And for that, we have to understand the type and quality of revenues they have in the short term. What we are going to be able to do in the agribusiness, especially which is some more advanced areas, but with our focus to keep profitability at a healthy level. So just as a side comment.

Going to your question on leverage. You're quite right. We've always been comfortable but even now even more so because of the growth of EBITDA. So we are significantly comfortable compared to our covenants. You're talking about 2.4x leverage in our EBITDA ratio. But the market as a whole follows JSL using EBITDA picture as a reference. So if we exclude the effect of the IC acquisition, you're talking about leverage of 3.6x, which is in line what we thought what we talked that is still when the company around 3 back. So this is the commitment that we keep. We see leverage close to 3x, and now with this one-off effect, we know that we are going to live with it for the next 12 months, but IC stability.

[Operator]

Our next question comes from Ygor Araujo from Genial Investments.

[Ygor Bastos de Araujo, analyst]

Congratulations on your results. I have 2 questions also with a follow-on on IC margins. I would like to understand the margin of the first 2 months of IC operations and what is your target and ramp up for the future, thinking of a company that we absorb it now and that you expect to deliver in the coming years. And FSJ, you said that is an acquisition more related to cross-sell and margin ramp up. And also during the presentation, you said that you had 2%, 3% share in the Brazilian logistics market. So what do you see in the segment of Miami for the future... Thank you very much.

[Guilherme de Andrade Fonseca Sampaio, executive]

This is Guilherme speaking. I'm going to answer the questions on margins, and then Ramon is going to talk about the market as a whole. IC margins. It started very similar to what we had in the material fact, but the material fact have numbers of 2022. So margin up about 7% -- 7%, 8% EBITDA margin. This is what reported in the material fact. We believe that an adequate margin for the company would be 14%, 15% because it has an asset-light model.

So we believe this is a healthy adequate margin. Obviously, the time that will take to get to this margin is still not clear. We cannot give you a deadline because we have been working on a series of factors, trying to understand the profile of the operation, the location, the types of contracts. This is still ongoing. And after we understand everything, then we are going to start more specific one-off actions to recover margin a long time. So that IC.

When we look at FSJ, it already has the margins at 15%, 16%, which is also something we released in the material fact. This is also an operation that is about 55%, 60% asset light. So we believe that this is a margin that is also with lots of opportunities in other services in the chain and depending on the services, we are going to have a different EBITDA margin profile, which can bring it up or keep it stable. And talking about the markets in general, then I'm going to let Ramon answer it.

[Ramon Peres Martinez de Alcaraz, executive]

Just to add to what Guilherme mentioned, the case of IC, it's something that I also talked when Renata asked the question. It is IC excellence. Half IT market is the trade market and it has to do with agility to hire independent trackers. But other contracts, assets happy with customers. IC sometimes is the sole supplier or the most important supplier. And because of its recognized excellence, it makes it easier for us to renegotiate contracts because this is something that we believe the ramp-up is going to be relatively fast. Now IC is a company but with high revenues, we have to be more strategic in reworking margins. But FSJ is a young company in a young market with huge capacity to grow. And our investment capacity, it will enable us to seize opportunities the market will pose. We know retail, e-commerce have a higher chance of growth. Of course, they have accelerated growth during the pandemic, being stable, but this is a growing market. And I think FSJ found an is in the middle [indiscernible], which is quite interesting. So we believe that this is a company that has accelerated capacity to grow.

[Operator]

The next question comes from Julia [indiscernible] from JPMorgan.

[Unknown Analyst]

I have one question. Could you give us some bit more color about your international strategy from now on.

[Ramon Peres Martinez de Alcaraz, executive]

Julia, thanks for your question. I'm going to answer your question in 2 parts. The first is international transportation starting from Brazil. This is a volume that we grew a lot, especially with the carrying up parts from Brazil to Argentina. There are lots of OEMs in Brazil that assemble vehicles in Argentina with parts that are manufactured in Brazil. So this leads us to a transportation from Brazil to Argentina, there are on several contracts from last year onwards, which is nice. We were surprised with the situation in Argentina, the devaluation of the peso, more recently, difficulties to transferring funds from Argentina to Brazil that generated the financial cost in our numbers. So these are challenges. But these are one-off challenges, and we are already renegotiating with customers.

We see that still with an opportunity for growth along this line, again, originating in Brazil. I talked about the parts, but we have Marvell transporting goods to Argentina, Chile, Brazil, et cetera. So this area of going international, we believe has huge possibility to grow. The other part of growing international, that is going truly international that is having an operation abroad as it is the case of Paraguay and South Africa. We also think we have a huge possibility of growth, especially in Africa. We are already considering going to other countries in Africa. This is a continent that brings challenging, obviously, operational cultural. But as always, whenever there is a difficulty there is also an opportunity, and this is what we see. So we have a likely to close new contracts is still this year.

And there are other things that are ongoing. I've already mentioned that in previous calls, Mexico, we are looking into opportunities of other countries. So this is a channel that is interesting to us, but always being cautious having -- going abroad with negotiated contracts, we are not adventurous. We are not going to establish a shop in another country just you know to fish for business. This is not our thing. We want to go abroad with close deals.

[Operator]

Our next question comes from the web and is going to be read by Guilherme Sampaio.

[Guilherme de Andrade Fonseca Sampaio, executive]

Hello, everyone. We have received a question from Francisco Poronsis from FX. What is your expectation about the impact of fiscal benefits that are going to be removed from the payroll with an average impact of 2% on your results. I'm going to start answering your question and Ramon may carry on. First, we don't think the benefit is going to be removed. This is the first answer. And second, this is a cost that all our pricing models are based on. We are based on the cost of operation plus margins to operate.

Payable costs, especially in labor-intensive operations is part of it. So obviously, if there is a change in the tax law that impacts our payroll, this is going to be passed on and priced in contracts, increasing the cost of the system as a whole. So the calculation of the 2%, I don't know how you got to that. But if there is a change, this is going to be included in our pricing model. But anyway, we do not have the expectation of this to change by the end of the year.

[Ramon Peres Martinez de Alcaraz, executive]

Francisco, this is Ramon speaking. Just adding to what Guilherme mentioned, just a comment. Tax incentives do not benefit us as the company necessarily. But the system as a whole. It's just what Guilherme mentioned, if the benefit of the subsidy is removed, and we do not believe that, this is going to be passed on to our prices, which is that for everyone. Another important thing is that not all companies that are connected to JSL that have subsidies that is fully asset-light companies do not use those benefits. I don't know if you know, but this is optional.

Companies can use it or not. This is across subsidy. You don't pay 20% I&SS, but as a counterpart, you pay 1.5% on revenues. So companies that are more asset-light, they have little labor, it makes no set. So it's not all companies, and we do that when we have more labor. It would be a shame if it happens. If it happens, as Guilherme mentioned, automatically, it is going to be priced so that it can reflect the new reality in our prices. That's the only thing we can do. And the same thing applies for the tax reform, whenever there is a change in the law. This has to be adjusted to real life. But thank you Francisco for your questions. I hope we have been able to answer it accordingly.

[Operator]

Ladies and gentlemen, there are no more questions. So we are going to turn the call back to Mr. Alcaraz and Sampaio for their final remarks.

[Ramon Peres Martinez de Alcaraz, executive]

Well, excellent. My final remarks are that we are very optimistic about the second half of the year for 2 main reasons. First, because for seasonal purposes, the second half of the year is naturally better than the first half of the year.

[Operator]

I'm sorry, it seems that we have lost the main line. Ladies and gentlemen, please wait while we reconnect to the speakers.

[Ramon Peres Martinez de Alcaraz, executive]

This is Ramon speaking. I'm just going to carry on. I'm just saying that the expectation is good because seasonally, second half of years are better than first and also because of the drop in interest rates, which, apart from the effect, itself also creates an optimistic in companies turning the will of economy. Another important thing, everything that we talked about IC, FSJ, we are already a company of almost BRL 10 billion revenues a year, considering the combined companies. With that, we have the scale and strength to seize our opportunities that the market undoubtedly will bring. So thank you very much for your attention. I hope we have been able to answer your questions accordingly. And we are always here for you on the channels you're already aware of. Thank you very much. Thank you, everyone.

[Operator]

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

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