Localiza Rent a Car SA

BOVESPA:RENT3

Earnings Call Transcript 2021-Q1

[Operator]

[Interpreted] Good afternoon, and welcome to Localiza Rent A Car's conference call of the first quarter of 2021. Hosting the event today are Mr. Bruno Lasansky, CEO; Mr. Rodrigo Tavares, CFO; and Ms. Nora Lanari, Investor Relations Officer.

We inform you that the numbers in this presentation are stated in millions of BRL and based on IFRS. The presentation will be recorded. [Operator Instructions]

The conference call audio and the accompanying page presentation are being broadcasted simultaneously over the Internet at the address, ir.localiza.com/en. The page presentation can be downloaded at the same address by clicking on the banner, 1Q '21 webcast.

Before proceeding, I would like to clarify that any statements made during the conference call concerning the business outlook of the company, forecasts as well as operating and financial targets, represent the opinions and assumptions of company management, which may or may not occur. Investors must comprehend that political and economic conditions and other operating factors may affect the company's future and may lead to materially different results from those stated in this call.

To start the first quarter of 2021 teleconference, I'll turn the floor over to the CEO, Mr. Bruno Lasansky.

[Bruno Sebastian Lasansky, executive]

[Interpreted] Good afternoon, everyone. It's a great honor to open this earnings conference call. As was disclosed after a planned and careful succession process that began in 2016, on the 28th of April, I took over as CEO of Localiza. Eugênio Mattar takes over as Executive Chairman of the Board; and Oscar Bernardes as Vice Chairman of the Board. I thank the founders and the Board for their trust and Eugênio as well for his dedication over these years.

We are very proud of the high-performance team at Localiza and the results achieved so far. We are highly motivated to continue the path of success and transformation with passion for customers and generating value for all the company's stakeholders. 2020 was a year of many challenges, but many advances. Localiza demonstrated its ability to perform with excellence in any scenario. Always with a long-term vision, we expanded investments in technology through Localiza Labs, further strengthening our capacity for innovation and the development of new mobility solutions.

We launched Localiza Meoo, our subscription car, new digital channels, such as the new app for RAC and the other for ridesharing, Localiza Pass, which offers all the convenience in rentals tolls. And escalated Localiza Fast, the 100% digital rental solution where the customer opens and rents the car with just a selfie.

In addition, we are connecting our fleet using Internet of Things to improve our fleet mobilization, security and deactivation fleet processes. We announced the intention to combine our business with Unidas, which is being analyzed by CADE, the Brazilian antitrust agency. We evolved in the sustainability agenda with the neutralization of Scope 1 and 2 emissions. We launched the diversity and inclusion program and achieved ISO 37001 certification, maintaining the highest standards of corporate governance. We reinforced our role as a company committed to the community, and we're very active in the agenda of supporting communities and businesses that were weakened by the pandemic.

We took care of our team, achieving a high level of engagement with a record of ENPS of 88%. We also started the engagement process between the Board, the CEO and our investors to discuss issues related to ESG, bringing it even closer to the market. We started the year of 2021 on a trajectory of resumption of volumes. But this time, in the context of lower production and delivery of cars. With fewer cars available for growth, we maintain the strategy of reducing the deactivation of cars in the rent a car division, and we are being selective in allocating capital and managing our assets.

We are aware of the short-term challenges, but very confident in relation to the future, the perspectives for growth and our ability to execute and innovate.

To talk about the results, I will turn the floor over to our CFO, Rodrigo Tavares.

[Rodrigo Tavares Goncalves de Sousa, executive]

[Interpreted] Thank you, Bruno, and good afternoon, everyone. In the first quarter of 2021, we brought in solid results, although we began to feel the effects of the COVID-19 pandemic in the last weeks of March, affecting our volumes, especially in the Car Rental division.

The Fleet Management division has a robust pipeline with extended delivery time frame. Used cars or Seminovos have a good demand, and prices have reflected the increase in new cars. In April, we successfully concluded the issuance of BRL 1.2 billion in nonconvertible debentures, bringing in innovation in the term of 10 years and the IPCA plus compensation rate, which provided a high demand for the bond with relevant participation of individual investors. The final rate for the company after contracting a swap with CDI plus 2%.

With the inflow of these funds, we achieved a cash position of BRL 4.6 billion ready to resume growth. Another important development was related to the operation with Unidas, in which we carry out the final protocol of the process with the CADE agency, and we're absolutely committed to providing all the information necessary for their general superintendents analysis.

Following on with our webcast on Page 2, we can see the highlights for the quarter. Even in the context of car unavailability and the tightening of pandemic-related restriction measures in March, we managed to deliver 9.7% revenue growth to the Car Rental division in the annual comparison due to good price management mix and fleet occupation. The utilization rate in the division remains at a high level at 80.4%, while the tariff stands out, achieving BRL 80.3. The Fleet Management division revenue increased 9.6% in revenue year-over-year due to the combined effect of volume and growing prices, with the average daily rate achieving BRL 55.7.

On Page 3, we show the financial highlights of 1Q '21. In the first quarter, year-over-year, net revenue remained stable and EBITDA grew by more than 27%. The EBIT increased by approximately 63% and net income more than doubled, achieving BRL 482 million in the quarter.

To present the details of the first quarter results, I would like to hand the floor over to our Investor Relations Officer, Nora Lanari.

[Nora Lanari, executive]

[Interpreted] Thank you, Rodrigo. Good afternoon, everyone. Starting with the Car Rental division. As you can see on Page 4, in the first quarter, the number of daily rates decreased by 5.4%, and revenue grew 9.7% year-over-year. In the last 2 weeks of March, we felt in the rent volumes, the effects of the more restrictive measures of social distancing, which, although at levels lower than those observed at the beginning of the pandemic, we estimate to have affected our revenue by more than BRL 30 million.

Unlike the measures taken at the beginning of the pandemic, now in a context of car restriction, higher prices for new cars, higher maintenance costs and higher interest rates, we were cautious with the allocation of capital, pricing and management of our assets.

As we can see on Page 5, the efficient management of the mix among segments and pricing resulting in an average daily rate of BRL 80.3 in RAC, 16% higher than the average daily rate in 1Q '20. The utilization remained resilient despite the impacts in March, achieving 80.4%, which accounts for an increase of 2.2 percentage points year-over-year.

On Page 6, we show that the network of own branches was extended by 15 in the last 12 months from 427 to 442 branches. Out of those, 11 of the 15 were opened during 4Q '20, impacting the cost of this quarter. Moving on to Page 7. In the Fleet Management division, we see the average rented fleet increase by 4.6% and net revenue increase by 9.6% year-over-year. In this comparison, daily rates have increased by 4.7%, reflecting the pricing of new contracts in the context of rising car prices. In addition to the advances in sales Localiza Meoo, which has a more premium car mix, therefore, with a higher average rate.

We are excited about what we saw in these first 6 months of operation of Localiza Meoo after the official launch of the product, both from the demand perspective as well as from an operational and customer experience perspective. However, we're still being affected by the scenario of restricted production and delivery of new cars.

Moving on to Page 8. We show the balances of buying and selling cars. In the quarter, still with the restricted supply, we bought 26,360 cars and sold 29,032 cars, a reduction of 2,672 cars and a net investment of BRL 4.9 million.

On Page 9, we show the used car network or Seminovos. At the end of 1Q '21, we had 131 points of sale and had 29,032 cars sold, a reduction of 24.3% year-over-year. The average price charged was BRL 53,000, 23.3% higher than the prices charged in the same period of the previous year. These price increases reflect the context of a sharp increase in the price of new cars, which we were able to capture in our decommissioning.

On Page 10, we show the fleet at the end of 1Q compared to 4Q last year. In Car Rental, we ended the quarter with a fleet of approximately 209,000 cars, a reduction of 3.5%. The drop in the fleet at the end of the period reflects the lower number of cars being activated and deactivated in addition to the smaller number of vehicles available for sale. In Fleet Management, we already see the sequential expansion of the fleet by 6.4% at the quarter-over-quarter. At the beginning of the second quarter, we still see a difficult moment in car supply. However, we have a perspective of gradual recovery over the next quarters.

Moving on to Page 11. We see that the consolidated net revenue for the quarter remained stable year-over-year due to the opposite movement seen in Seminovos and rental revenue. Net rental revenues increased by 9.7%, while Seminovos dropped 6.6%, impacted by the reduction in the level of deactivations aiming to control the fleet reduction.

Moving on to Page 12. We can see that even with stable revenues, consolidated EBIT increased 27.4% year-over-year, mainly as a result of the increase in rental revenue and higher margins for Seminovos. The EBITDA margin of RAC decreased by 5 percentage points. In this quarter, we felt the impact of the second wave of the pandemic. We estimate a loss of approximately BRL 30 million in revenue. In addition, we're impacted by the increase in staff and network to prepare the company for the new growth cycle by the higher maintenance costs due to the increase in the prices of spare parts and the lengthening of the average age of the fleet by 5 months year-over-year, in addition to the increase in provisions for -- in bad debt in the context of the second wave.

These effects together resulted in almost BRL 80 million increase in cost and expenses. In addition, we completed the withdrawal of the Hertz brand from our network this quarter and maintained expenses related to the CADE agency. Fleet Management decreased by 6.8 percentage points of margin also due to the increase in maintenance costs and the increase in personnel and marketing costs, mainly associated with Localiza Meoo. These costs tend to be diluted as the car supply is normalized and volumes grow again at more robust levels.

The company is prepared for the new growth cycle and has been managing costs and expenses. Seminovos presented a margin of 13.5%, even higher than the one reported in the last quarter, even with the reduction in volumes sold, which impacts on the dilution of fixed costs. With the sharp rise in prices of new cars in recent quarters, it's natural to expect that this higher margin will continue until the cars purchased before the price hikes are deactivated and sold.

On Page 13, you see that, in RAC, the annualized average depreciation per car was BRL 526 in the quarter, still lower than the depreciation of the last quarter, which was already at a very low level. In the Fleet Management division, the average annual depreciation per car was BRL 1,393, 27% lower than the depreciation of the previous quarter.

On Page 14, we can see that the consolidated EBIT, 1Q '21 achieved BRL 708.4 million, representing an increase of 63.1% year-over-year. The EBIT margin of the Car Rental division was 53.3%, accounting for an increase of 22.1 percentage points year-over-year. In the Fleet management division, the EBIT margin was 66.5%, an increase of 5.8 percentage points year-over-year. Both margin increase are mainly due to the robust results of Seminovos and the reduction in depreciation in the period.

Net income for the quarter on Page 15 increased 108.9% year-over-year, which is explained by the EBITDA growth of approximately BRL 173 million, the reduction in depreciation by approximately BRL 101 million and the reduction in financial expenses by approximately BRL 105 million, partially offset by an increase in income taxes of approximately BRL 128 million.

On Page 16, we show cash burn of BRL 222.8 million before interest in 1Q '21, especially due to the reduction of approximately BRL 673 million in accounts payables to automakers.

As can be seen on Page 17, the reduction in the accounts payable to automakers was partially financed by the generation of cash from rent that impacted net debt, which ended the quarter at BRL 6.4 billion.

Now I'd like to turn the floor over to Rodrigo to present our cash position and leverage.

[Rodrigo Tavares Goncalves de Sousa, executive]

[Interpreted] Thank you, Nora. You can see on Page 18 that we ended the quarter with a robust cash and debt profile. But even so, we made a recent issuance to extend our debt duration even further. Accordingly, after the operation and the pro forma analysis, we had more than BRL 4.6 billion in cash, an amount that gives us the annual finance growth over the next quarters as vehicle production normalizes.

On Slide 19, we can see that net debt over EBITDA of the last 12 months ended the quarter at 2.4x, again, at a level that gives us the comfort to finance our short-term growth with third-party capital.

On Page 20, we show the evolution of the ROIC spread versus the cost of debt. In 1Q '21, considering the last 12 months and despite the adversities, we see an increase in our spread, which achieved 9.2%. Despite the high level of return in the short term, the current context reinforces the importance of decision-making with the complete rental cycle in mind, starting with funding going through allocating capital efficiently, generating cash from rent and recovering the residual value. Only through the proper combination of these steps, is it possible to generate value. That is why we're always very austere in the allocation of capital.

To conclude, I would like to present our advances in sustainability with some highlights on Page 21. In 1Q '21, we continue to advance on our sustainability agenda, reinforcing our role as a company committed to the community and started the process of engaging the CEO and the Board with our investors on ESG matters. In addition to the corporate goal of organizational climate, which measures the engagement of our team. We continue to strengthen our performance indicators related to sustainability using the UN Frameworks and the Sustainability Accounting Standards Boards as referenced as we include specific goals in the contract of management of the Executive Board and our employees. We know that we still have a long way to go on this journey, but we are certain that we're moving in the right direction. We are now available to answer some of the questions.

[Operator]

[Interpreted] [Operator Instructions] Our first question is from Pedro Bruno from XP.

[Pedro Bruno, analyst]

[Interpreted] I have 2 questions. So from the average rate of RAC, it's the second quarter that it grows expressively. It was 16% year-over-year in the first quarter. And that is considerably higher than the other players, regardless of the end results of revenues. So I'd like to understand if you can comment -- if there is a strategic component there in prioritizing price versus volume and to what extent? Obviously, there's a context that we know about the current car supply context. I know that's implicit in that. So I'd like to understand why you believe that rate is considerably higher?

And to what extent will this price increase move forward even in normalizing the purchase and sales scenario that implies in the challenge in the future of pricing, rental in relation to higher invested capital given the higher car price? Those are the 2 points in relation to average rate, then I'll ask my second question.

[Unknown Executive]

[Interpreted] Thank you, Pedro. Well, we have us to capital allocation. So in fact, given the scenario of demand and supply restriction, we're using our capital as best as we can. And the second point, as you mentioned yourself, we have a context of an increased car prices and an increase in interest rate curve, which impacts the rental car pricing in that period.

[Nora Lanari, executive]

[Interpreted] Pedro this is Nora speaking. We also price the competitive scenario, our availability of fleet and visitation rate. And the customers willing to pay elements and ROIC. So we're being very careful in allocating that capital during the restriction of supply.

[Pedro Bruno, analyst]

[Interpreted] Okay. Great. The second question is about margin, year-over-year of Fleet Management. You mentioned that the drop in margin was mainly for 2 reasons: the increase in maintenance and the nondiluted costs of Localiza Meoo. Can you comment on the attribution for each one of those 2 effects? Maybe 1 is higher than the other.

And is it correct to imagine that inside the maintenance effect, you have not only fleet aging, but also the increase in spare part prices. So maybe the second one is more structural and let's call it, recurring moving forward. Is my analysis correct?

[Nora Lanari, executive]

[Interpreted] Pedro, this is Nora speaking. Yes, that is correct. We have 2 effects here when we talk about maintenance. One is fleet aging, which when deliveries normalize that fleet should go back to usual age in Fleet Management. And the other is the increase in price of spare parts. So that's structural. And fleet aging should be better addressed as of the second half this year. On the other side, on the other hand, we have the effects of preparing the platform for the launch of the new solution, Localiza Meoo. And I believe that the maintenance costs have a relevant costs higher than the platform preparation. And we believe that, that cost is an investment to grow the product.

We do this investment in the future and that dilutes as growth comes. Or first, we have that investment first. And we launch in September, and then we'll have a better rhythm to deliver cars. So we have a robust backlog in fleet management, but in fact, we're growing under market potential given the delays in car deliveries. But as you well said, personnel costs, advertising and the structured regarded to Meoo should be diluted in the upcoming quarters.

[Operator]

[Interpreted] Our next question is from Mr. Rogério Araújo from UBS.

[Rogério Araújo, analyst]

[Interpreted] I have 2 on my side. The first one is about costs. Actually, 3 points. So bad debt, could you talk about what segments that comes from? So we can have an idea how one-off that movement was? Or if the pandemic continues, if it worsens, if we're going to see more of that in the upcoming quarters?

And then about the vehicle tax, the IPVA, there was a change in Supreme Court understanding or opinion. Are you provisioning the same thing more? What's your understanding on that? And a follow-up in maintenance.

I'd like to know if there's anything that's one-off in this quarter or if the average age continues for the next quarters, will we continue to see maintenance costs at the same level? So those are the 3. I'll ask the next question afterwards.

[Unknown Executive]

[Interpreted] Thank you, Rogério. Related to the IPVA, there were no changes in relation to our understanding in terms of provision for the IPVA tax for bad debt, differently than the first wave, that remain. We didn't have a strong reduction in rate. Since we maintained the rate in the second wave, and we did have a change in the pandemic context, what happened is that we were more conservative, anticipating any potential losses that we could have, especially in the segment of individuals and ridesharing.

In maintenance, there are some points that are worth mentioning. First of all, obviously, we do have an increase in spare parts prices, which has been following the increase in new car prices. Fleet aging, as we have said before, by 5 months. And we also anticipate -- advanced some of the maintenance as they were more idle at the end of March, we decided to carry out maintenance in some of them and lastly, we also had an increase in costs relating to car shipping costs because of the purchase mix.

[Rogério Araújo, analyst]

[Interpreted] Perfect. Very clear. My second question is about Fleet Rental growth. How are the bids going?

We've seen a discourse from your peers saying that they have been winning a lot of projects. And the problem is that the cars haven't been delivered. So I'd like to hear your opinion on that. How do you see the bids? Is there a lot of things being disputed? Is there a lot of things in-house that you've already purchased, but you're waiting for the cars to recognize that?

And can you tell me about how relevant the car inventory is? You're just waiting for the vehicles to be delivered, so some flavor on Fleet Rental, please.

[Unknown Executive]

[Interpreted] Well, the pipeline is very robust. In fact, we have a strong demand in Fleet Rental. Obviously, it is a very competitive environment, but the demand is still very robust. So our pipeline, as I mentioned, is very strong. And in Fleet Rental, it's taking long to receive the vehicles from the automakers, giving in the restriction of semiconductors in this quarter. But in terms of pipeline, and competitiveness, that's still robust.

However, Localiza is very disciplined. We have a scenario of future interest rate increase, car price increase. So we're very disciplined in pricing those contracts so that the contracts will generate value in the next 2 to 3 years for the company.

[Rogério Araújo, analyst]

[Interpreted] Perfect. Can you give me an idea of the relevance of what's already been purchased and you're waiting on deliveries?

[Unknown Executive]

[Interpreted] Rogério, no, we can't give you that type of guidance. But again, we do have a robust backlog for implementation.

[Operator]

[Interpreted] Our next question is from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

[Interpreted] I have a follow-up question relating to cost, but also in relation to Fleet Management. You mentioned the increase in maintenance costs, but at the same time, we also see a scenario of low depreciation. So I'd like to understand on your side if it makes sense or not? Even if you don't receive the number of cars that you'd like, if it makes sense to reduce in fleet because maybe that could pressure profitability? And in the opening remarks, you mentioned the merger with Unidas. So could you comment on that? We've seen a lot of news in the media about the main competition, challenging your merger. So could you comment on that?

[Unknown Executive]

[Interpreted] Thank you, Victor. Well, about the decommissioning, we've been reducing car decommissioning, but we also have long-term care with our reputation age and the experience that we offer our customers. So we are -- we currently are very cautious. We are decreasing the decommissioning. But combining that with our customer experience that will give us a long term return.

Depreciation scenario, you're correct. In the first quarter, we had decrease in cars of 6%, 7%. We believe that scenario will continue longer. So low depreciation scenario shouldn't go down for a period given that perspective of car prices increasing and the supply in next quarters.

In relation to the CADE, it's been 90 days, but they're still getting responses from companies that they have just notified. And recently, we answered the comments of the third parties that are interested. And the CADE agency is still trying to understand the supply offer the market. So I believe it's still a bit early. Considering the context of combining our 2 businesses.

[Operator]

[Interpreted] Our next question is in English from Mr. Stephen Trent from Citibank.

[Stephen Trent, analyst]

Two quick questions for me. One, are you seeing any indication -- longer-term indication that auto production in Brazil could start normalizing? And two, when we think about your new products, Localiza Meoo, Localiza Pass, could you also clarify whether you are rolling out these products to your franchisees inside and outside of Brazil?

[Rodrigo Tavares Goncalves de Sousa, executive]

[Interpreted] First of all -- this is Rodrigo speaking. First, about the vehicle's perspective. It is a challenging scenario. We currently have a lack of components, semiconductors at the global level. In Brazil, in the first quarter, it was a tougher quarter in relation to vehicle production and inputs. So that recovery will be gradual. We do not expect a strong recovery of auto production in the next quarters. That said, we still have elements to believe that we have chances that the second quarter will be better than the first quarter in terms of car supply.

[Nora Lanari, executive]

[Interpreted] Steve, Nora speaking. About your second question, Localiza Meoo and Localiza Pass, among others, we're still rolling out these products. In Brazil, we're testing them. We're adjusting them. And eventually, when we have a critical mass, we can assess the -- providing these products for our franchisees in general terms.

[Operator]

[Interpreted] Our next question is from Regis Cardoso from Crédit Suisse.

[Regis Cardoso, analyst]

[Interpreted] Congratulations on your results. Could you talk about and explore the mismatch in prices between the sale of Seminovos, of used cars, because the thing is we compare the used cars a lot. And they generate a relevant gain, and that has been shown in your Seminovos branch in the past quarters, but I'd like you to compare that to new cars because new car prices also went up. So would you see yourself in a cycle where the price that you sell the car didn't go up as much as the new car prices went up.

So my concern is if that cycle throughout the life looking forward, not back will still make sense, not only in used car prices, but also the discount and when buying a new car because I believe that in the context of capacity restriction, which is the current one, the automaker has a lot more incentive in granting discounts, right?

So I believe that the discounts are probably lower. Could you comment about that cycle in a more comprehensive manner?

[Rodrigo Tavares Goncalves de Sousa, executive]

[Interpreted] Thank you, Regis. Rodrigo speaking. Thank you for your question. So in fact, that's a point that we look into with a lot of detail. What you're basically saying is that the sale price compared to the replenishment price. So since the beginning, Localiza -- we've been saying that Localiza is very conservative and very conscious in relation to capital allocation, especially during times like these, where the supply, in fact, creates some incentives for the automakers.

But our perspective, we've been conservative in depreciation of cars that are already part of our base. And in the future cars, it's about an analysis and understanding of the return that we will have from that new investment cycle. So for the first quarter, we had lower car purchase, probably lower than what we wanted, but very conscious under the conditions that we were considering the replenishment price and future valuation of new car prices that will guarantee the return not only in rent a car, but also in Fleet Management will guarantee the investment cycle that we're making.

[Regis Cardoso, analyst]

[Interpreted] So Rodrigo, can you comment that -- do you see that pressure on any of the 2 sides? And has that had or will it have an effect on your cash flow? So if you're going to have net capital flow because the fleet would be more valuable, more expensive?

[Rodrigo Tavares Goncalves de Sousa, executive]

[Interpreted] Actually, we look at -- cash and financeability didn't have a relevant impact. So again, every new purchase is a new investment cycle, and that's what we focus on. So it's an individual decision of each type -- in each one of them in segments in Fleet Management and rent a car. So sometimes we're more conservative, but we are conscious that rent a car and Fleet Management are investment cycles that are constantly renewed, and that's what we've been doing.

[Nora Lanari, executive]

[Interpreted] Regis, this is Nora speaking. And the pricing will reflect that. So we're being very cautious with capital allocation and how we profitabilize that in the long-term because what we're planning today is the next cropper season, so to speak.

[Operator]

[Interpreted] We have a question from the webcast. I can read it here. Congratulations on your results. I'd like to understand the depreciation level per car for the cars that are entering RAC and they're already operating. Lucas Barbosa from Santander.

[Rodrigo Tavares Goncalves de Sousa, executive]

[Interpreted] Lucas, thank you for your question. Lucas, this is Rodrigo speaking. I'm not sure if I understood, but we have 2 car seasons. So the first one are the cars that were purchased last year before the pandemic, or even after or within the pandemic that had a lower public price than what we've seen. And that's why the depreciation is very limited. Cars that are entering now in this quarter and probably in the future quarters, have a more normalized depreciation, but it's not higher than what we were seeing in the past either in periods that were more normal.

So we have 2 seasons. One car -- 1 season that we're already depreciated, and most of them are no longer depreciated. They have been fully depreciated in the new season that comes in with a more normalized depreciation.

[Nora Lanari, executive]

[Interpreted] Lucas, Nora speaking. I would add saying that our cars are mark-to-market. Don't forget that because a variable relevant here is how much the price increase will be throughout this year, and we are already seeing that this first quarter, they're going up on average 7%. The ones in the fourth quarter already started with higher depreciation. And as the price goes up in the first quarter, we lowered the depreciation level. So it's hard to say -- talk about depreciation levels because it depends on variables that are not within our control. But it's important that our balance sheet reflects the prices, the market prices of these cars, the current market prices. That's important to mention.

[Operator]

[Interpreted] Our next question is from Mr. Bruno Amorim from Goldman Sachs.

[Bruno Amorim, analyst]

[Interpreted] I have a follow-up question based on the car price dynamic questions. So the accounting impact in the short term, the variation of new prices and used prices, that's well understood. We can see that happening in Localiza cycle, and then we see normalization. But thinking of that in a structural manner, looking at 2022 moving forward with higher car prices for the company to -- and to developing or delivering a ROIC similar to before. We would have to see an EBIT per car higher than what we had before, especially in relation to car prices. Unless there's relevant cost decrease, it has to come through price.

So my first question is that, does that make sense? And how does that imply in growth? I know that there's a lot of opportunities, but if things are more constant, I'd like to know if the price increase to bring ROIC back to what it was, would it slow down the growth trend in terms of volume in the upcoming years?

[Unknown Executive]

[Interpreted] So yes, that's correct. Your rationale is correct. So you have higher capital base, you need to deliver a higher EBIT to have the same ROIC. So it will come. There are revenue implications, but we also have expectation to have gains in efficiency, not only in scale, but also combining our business with Unidas that could offer us cost benefits that don't necessarily have to be transferred to price. In relation to growth perspectives, given a potential rate increase, in that case, we're more optimistic because the substitute of our products will feel much more than the rental rate. A person that's going to buy a car, the price is going to increase. So increased rates affect their financing costs that they're going to have to buy in installments.

So to have an impact to our rate in rental prices, it won't be completely because we expect to gain cost efficiency. Our substitutes, which is owning a car mainly, should have an even higher increase meaning that our product should win and not lose in competitiveness, and that's why we're optimistic that the growth perspectives in relation to rental cars will not change.

[Bruno Amorim, analyst]

[Interpreted] Perfect. And a follow-up question. This question may have been addressed before. But if we can explore the discounts that you have with automakers in a scenario of supply restrictions. Has that implied in lower discounts or not? I believe when car supply gets back to normal in the second half, then that discussion would be a little less relevant. But I'd like to understand if you see any changes in the historical discounts that you've had so we can understand is that will imply in the price spread purchase versus sale spread in the next cycle.

[Rodrigo Tavares Goncalves de Sousa, executive]

[Interpreted] Thank you, Bruno. Rodrigo speaking. I can say that we're extremely cautious and sensitive to price changes. We really understand the implication that, that has on our business. And that's why the capital allocation or the trade-off of growth versus profitability is high. And we're very conscious that, that -- this is not the time to grow by destroying value. We have to be conscious and we completely know the impacts that the price increase could cause or how it could affect the business. What I can say is that we're very -- we're paying a lot of attention to that point and very cautious in relation to how we bring in each car that comes into Localiza.

[Operator]

[Interpreted] Next question is from Fernanda Recchia from BTG Pactual.

[Fernanda Recchia, analyst]

[Interpreted] Congratulations on your results. I'd like to touch on 2 points. The first one is that last week, Valor talked about an interview that it had with Bruno and some trends. And at the end, he talked about some plans of internationalization if the deal with Unidas is concluded. I'd like to understand, in a scenario, if the deal is not concluded, would internationalization be an area for growth for Localiza or only if you close the deal with Unidas?

And the second point is I'd like to know what you think about the second half of April, especially in relation to RAC? Your main peers commented that they are seeing some recovery in the second half of April. So I'd like to know if you've seen that as well and what we should expect for Q2?

[Nora Lanari, executive]

[Interpreted] Thank you, Fernanda, for your questions. This is Nora speaking. I'll start with the second one first. In the second wave, we've seen volume leaving smoothly than the second -- than the first one, and then we see a reversal in the curve. About the first question, Localiza, when it announced the deal, it mentioned the hypothesis of internationalization. We believe that we still have a lot of opportunity for growth in Brazil. But the international expansion plan that is a plan that the company has regardless of the merger. Obviously, the merger places us in a position that's stronger for international expansion, even based on the point of view of team, scale and capability.

[Operator]

[Interpreted] [Operator Instructions] Our next question is from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

[Interpreted] It's just a quick follow-up about Meoo. Could you share about the contribution of the segment in fleets, maybe in number of cars and fleet? And what has been the average mix? Is it mainly focused on luxury cars or entry cars, just so we can have an idea of profitability for the first contracts?

[Nora Lanari, executive]

[Interpreted] Thank you for your question, Guilherme. This is Nora speaking. We are not going to talk about the figures. But it's already a relevant share of the company's Fleet Management. And again, with growth that is being held back by car deliveries. So far, we see more of a luxury mix, considering SUVs and some executive cars. And obviously, that affects the capital base invested, but also pricing. So a part of the average price ticket increase has to do with Meoo and Fleet Management. The profitability is good. But we still have to run a full cycle to sell the cars. But in general terms, we've seen good levels of bad debt and depreciation for the product, but it is a competitive market.

[Operator]

[Interpreted] [Operator Instructions] To conclude, I'd like to hand over to Mr. Bruno Lasansky.

[Bruno Sebastian Lasansky, executive]

[Interpreted] Thank you, everyone, for your participation. And as always, our IR team is available for any additional clarification. Good afternoon to everyone.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]