Localiza Rent a Car SA

BOVESPA:RENT3

Earnings Call Transcript 2019-Q3

[Operator]

Good morning. Welcome to the conference call of Localiza Rent a Car to release the results of the third quarter of 2019. Host of the event today are Mr. Mauricio Teixeira, the CFO; and Ms. Nora Lanari, Investor Relations Officer. We would like to inform that the numbers in this presentation are stated in million, BRLs and on IFRS. [Operator Instructions]. Then we are going to start the Q&A session for analysts and investors when further instructions will be provided. [Operator Instructions] The conference call audio and the accompanied page presentation are simultaneously broadcast over the internet at the address www.localiza.com/ir. So you can find the presentation that can be downloaded by clicking on the banner 3Q '19 webcast. Before proceeding, we would like to clarify that any statements made during this conference call relative to the company's business outlook, forecasts as well as operating and financial targets are opinions and assumptions of the company's management, which may or may not occur. Investors must understand the political and economic conditions, and other operating factors may affect the company's future, which may lead to results that will be materially different from those expressed in such forward-looking statements. In order to be comparable, all numbers are presented within the impact of IFRS 16 so that results can be compared. The summary in each line will be available in our press release. To open our conference call, I'll turn the conference over to Mr. Mauricio Teixeira, the CFO.

[Mauricio Teixeira, executive]

[Interpreted] Good afternoon, and thank you all for your presence here today. This quarter will continue on a strong growth base, reaching the level of 300,000 cars in the fleet. We continued to work and invest in our customers' experience and in a digital transformation process to increase satisfaction, to obtain productivity gains and to attain cost savings. Reinforcing our commitment to sustainability, we released an annual report for 2018. In it, we report significant advances, the environmental and social issues. We have been recognized by Interbrand as the 20th most valuable brand in Brazil, with the highest NPS among the top 25 companies in the ranking. Additionally, we have been recognized as one of the most transparent companies in Brazil by the Troféu Transperência and were included in the rankings: Empresas Mais from Estadão, broadcast companies '19 -- 2019, the best CEOs from Brazil by Forbes and most innovative companies in Brazil by Valor Econômico. As you can see on Page 2, the average rented fleet in RAC grew by 34.3%, while Fleet Rental grew by 25.7%. Semi-new cars hit record sales totaling 36,804 cars sold, up 22.3% over the same period last year. As I mentioned earlier, the end of period fleet was approximately 300,000 cars, up 35% over Q3 '18. On Page 3, you can see the financial highlights. Our net revenue grew 28.8%, and EBITDA grew 26.8% over the same period last year. In this quarter, we observed pressure on the prices and conditions practiced for the sale of new cars, which were reflected in the price of used cars. So consequently, our depreciation resulting in an EBIT growth of 15%. On the other hand, the decrease on basic interest rate and lower effective income tax rate enabled the net income to grow by 28.8%, reaching BRL 205.9 million. Now I'd like to turn the conference over to our Investor Relations Officer, Ms. Nora Lanari.

[Nora Lanari, executive]

[Interpreted] So giving more granularity on the results of the quarter, I would like to start with the car rental division. As you can see on Page 4, in the third quarter of 2019, the average rent -- rented fleet grew 34.3%, almost 132,000 cars rented on average in the quarter. Net revenue increased 29.7% when compared to the same period in the previous year. On Page 5, you can see that the average daily rate in RAC decreased by 4.2% in Q3 '19 compared to the same period in the year before, mainly explained by the mix of segments, competitive environment and lower interest rate. In the first 9 months of 2019, the average tariff fell 1.2%. In the year, the utilization rate remained stable in spite of the strong expansion of the fleet. On Page 6, we'll show the network of our own locations, which expanded by 17 branches as compared to the end of 2018. Localiza system operates 598 locations, and we completed the rental of cars for Localiza franchises, with operation of 6 locations in interior of São Paulo and the fleet of 2,715 cars, of which around 2,000 in RAC and the remaining in the fleet rental. On Page 7, our Fleet Rental division, we continued to show a strong growth base, with a 25.7% higher average lease fleet and net revenue increasing 20.5% over Q3 '18. The average daily rate of the -- of this division fell by 2.9%, mainly reflecting the pricing of new contracts and the renewal of existing ones in the context of lower interest rates. Now moving to Page 8, which show the purchase and sales figures for the period. In the quarter, we bought 59,794 cars and sold 36,804, an increase of almost 23,000 cars and a net investment of BRL 1.2 billion. Compared to 3Q '18, the volume of cars purchased grew 34.5%. In the first 9 months of 2019, the company bought close to 160,000 cars and sold more than 106,000 cars, with a net addition of 52,721 cars, roughly the same as the full year of 2018 in terms of net fleet addition. On Page 9, we closed the quarter with 113 stores in 73 cities and sales exceeded 12,000 cars per month, reaching 36,804 cars in the quarter. In the third quarter of 2019, as compared to Q3 of '18, there was an increase of 23.3% supported by the opening of new stores and sales efficiency. By the end of the year, 10 new stores are going to be opened. On Page 10, you can see the end of period fleet, reaching approximately 300,000 cars with a growth of 39% in Car Rental and 31.9% in Fleet Rental. Now turning to Page 11. We see an increase in consolidated net revenue of 28.8% when compared to the third quarter of 2018. Net rental revenues increased 27.3% in the quarter, while semi-new cars or used cars grew by 29.9% due to the 22.3% increase in the volume of cars sold in Q3 and an increase of 6.2% in average prices of the cars sold. Now moving to Page 12. The consolidated EBITDA gained 26.8% over the Q3 '19 over the same period in the year before. The margin increased 1.1 percentage points, reaching 36.2%. In Fleet Rental, margin was 61% in the quarter, down 5.7 percentage points as compared to Q3 '18. The reduction in margin of the Rental Fleet -- the Fleet Rental division reflects repricing of contract renewals and an increased expenses related to technology and process improvement. Used cars presented a margin of 2.6 this quarter, consolidating the margin recovery, reflecting the increase in the depreciation level observed in recent quarters. In the first 9 months of '19, the consolidated EBITDA was BRL 1.5 billion, a result of the growth and continuing work in cost and expense management, investment in process improvement and in productivity, with the aim of increasing competitiveness to capture growth opportunities in Car Rental and Fleet Rental market. The EBITDA margin of Car Rental grew 4.2 percentage points in the 9 months, and this represents a drop of 1.7 percentage points, reflecting the lower average rate impacted by lower interest rates. On Page 13, you can see the evolution of depreciation per car in business divisions. In RAC, the annualized average depreciation per car in the first 9 months of '19, was BRL 1,799, up 77.8% as compared to the average of 2018, impacted by the pressure on prices and conditions practiced in the sale of new cars, which reflects used cars sales. In Fleet Rental division, the average depreciation per car in the first 9 months of the year was BRL 3,921. The increase in depreciation was mainly due to car price dynamics and the use of SOYD methods to account for depreciation in this division. On Page 9 -- 14, sorry, the consolidated EBITDA for Q3 '19 reached BRL 345.5 million, representing a 15% increase compared to the third quarter of 2018, due to the 26.8% increase in EBITDA, offset by the 63.9% increase in cars and other assets depreciation. The EBITDA margin of the Car Rental division was 26.9% in the third quarter of 2019, representing a reduction of 0.9 percentage points as compared to Q3 '18. In the Fleet Rental division, EBIT margin was 46%, representing a reduction of 4.4 p.p. Y-o-Y. The decrease in EBIT margin in the Fleet Rental division reflects lower EBITDA margin and higher car depreciation. The decrease in interest rates allows for lower EBIT margins while maintaining a spread in healthy levels, which on a larger capital basis, results in an increase in our value generation. On Page 15, net income for the third quarter was BRL 205.9 million, an increase of 28.8% as compared to the third quarter of 2018, due to the increase of more than BRL 106 million in EBITDA, partially offset by the increase of BRL 61.2 million in cars and other assets depreciation, stable financial expenses and lower income tax rate. On Page 16, which show cash generation of BRL 898.4 million in the first 9 months of this year. In the year, the company consumed BRL 1.6 billion of cash due to the increase of 52,721 cars in the fleet, which demanded a CapEx for growth of about BRL 2.5 billion. As seen on Page 17, the capital increase or the follow-on completed in February was used to support much of the growth of the fleet in the first 9 months of 2018 -- '19, sorry. The net debt increase was 7.2% in the year. As you can see on Page 18, at the end of the third quarter, we had a comfortable debt profile, with approximately BRL 2.1 billion in cash. In Q3 '19, the company completed the raising of BRL 300 million, with the seventh issue of Localiza fleet debentures and also the promissory notes of Localiza worth BRL 500 million. The funds raised were used to recompose the company's cash after a strong or intense purchase of cars. On Page 19, you can see the net debt over EBITDA indicator in this quarter was 2.7x, a healthy level that allows us to maintain the pace of growth. Now I would like to turn the floor to Mauricio to talk about value generation.

[Mauricio Teixeira, executive]

[Interpreted] In closing, I would like to highlight the evolution of ROIC spread versus the cost of debt, which can be seen on Page 20. In this quarter, ROIC has reached 12.1%. When we compare the cost of debt after tax, which was 4.8%, the spread is 7.3 percentage points. This level of spread, combined with strong growth of the capital base, results in a growing value generation of the company. As always, it reaffirms our commitment to growth and value generation for our shareholders. We are now available to answer your questions.

[Operator]

[Operator Instructions] Our first question comes from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

[Interpreted] I have 2 questions about depreciation. The first one, I was wondering if you could give us slightly more detail on how we can compare depreciation of the fleet, a normal RAC fleet and the Uber model. Could you give us details -- if you could give us more details as to proportion, depreciation of an Uber car is 3 or 4x greater than a normal car and in terms of depreciation. So this level from now on will remain stable at the level of -- as we had in the third quarter.

[Unknown Executive]

[Interpreted] Victor, thank you for your question. So as to your first question, today, we rotate the fleet. There is not one fleet for Uber and one dedicated to either segments. So monthly rentals as a level of mileage, which is reasonable in terms of thinking of Uber operations. So we cannot say that depreciation at Uber is worse than depreciation of Car Rental. Of course, if we consider that these cars will stay with a driver all the time, the mileage is about 60,000 kilometers per month.

So this is not what we see. So we have cars with mileage well below that because we have this delusion of other segments that have been growing quite strongly. So we cannot justify the entire depreciation because of Uber.

As to your second question, the second question about depreciation -- future depreciation, the depreciation has 3 variables: discounted purchase, efficiency in sale and fixed cost to sell these cars, and we have visibility, and we can somehow expect and work on that. But then on the other hand, there is a third variable, which is the market price of these cars.

So the market of used cars is very large, and we sell at market prices. We try to get the best prices possible but there is -- but it is also influenced by other factors. And so this will depend much more on the behavior of the macroeconomic scenario with regards within [ CUM ] reduction of financing interest rates in the prices of new cars and, as a consequence, in used cars, so that we know exactly how much depreciation will be.

This market is very cyclic, but as I mentioned before, it will pick up at some point in time, when we don't know whether this is going to be this year or next year. So we always adjust prices to what we have today. So we are very conservative, and we have our margins that are at a very stable level. If our EBITDA margin is about 2.5% and showing that we -- our levels are agreeing in accordance with the market.

[Victor Mizusaki, analyst]

[Interpreted] Just following up the question about depreciation related to Uber, if we think and then try to compare, for example, Uber versus your fleet of airport stores, for example, can we try -- do we have any idea of proportions and how much one or the other one is bigger?

[Unknown Executive]

; [Interpreted] Victor, just as a reference, today we have been selling cars with about 32,000 kilometers. Uber cars would be 70 kilometers if they stayed with the same driver for the whole year. Can we say that depreciation doubles? No, not necessarily, but the expected depreciation in Uber is priced.

Our Uber rental prices already reflect the depreciation that we allocated to Uber, considering how they use the assets. Both depreciation and maintenance are priced there. I don't know whether it's fair to say that if as mileage doubles, depreciation also doubles at the same proportion.

[Operator]

Our next questions comes from Lucas Marquiori from BTG Pactual.

[Lucas Marquiori, analyst]

[Interpreted] There are 2 questions more relating to RAC. Can you talk about the tariff in this quarter? There's an effect of the mix and also conversion. Could you talk a little bit which one is stronger? How do you see tariffs? What has driven the behavior of the quarter? I think it's nice to clarify.

And the second point, also looking at RAC margins, whether the margin has all been explained by variations in tariffs, whether there is anything related to technology, processes to justify the RAC margin?

[Unknown Executive]

[Interpreted] Lucas, thank you for the question. As to the RAC average rate, most of it was mix. So there is also a lower revenue. But there is a higher aggressiveness, especially in terms of individuals. So there are 2 factors. But this is an effect of the average rental rate.

So as to margin, part of it is related to tariff or rate with an impact on margin, but there is a lot of investment in IT, process improvement, and we are always thinking in the long term and in the future. Just to help, when we look at maintenance, it's very much in line with the growth of the fleet. So we can see that it's not there. You see third-party services, commissions and advertising third-party services, IT is significant. So we are investing a lot internally in process improvement and, obviously, this is for the future. So we usually book these expenses as OpEx, and we are going to set this as we disperse. In advertising, there's also significant increase, so there are more assets in these two lines or items, especially in IT and advertising.

[Operator]

Our next question is in English, comes from Stephen Trent from Citi.

[Stephen Trent, analyst]

Some was -- some were already answered, but I was wondering if you could provide some color on the movement of your after-tax cost of debt as it seems to have lagged what's going on in the broader market as well as the movement that we've seen on a historical basis from the company's debt costs.

[Unknown Executive]

I'm going to answer your question in Portuguese. So Steve asked about the cost of debt and according to him, it's lagging in terms of the drop of the basic interest rate in Brazil. Well, Steve, 1/3 of our debt is prefixed. So it's 1/3 related to fleet management.

So we do not take the risk of the fluctuation interest rates, and we define the spread of the contract with a swap of part of the float that's to prefixed. So that's why you see this lagging effect. So historically, our impression is that the cost of debt will drop further. So you can see this effect in our debt, and these numbers will get better in the next quarter, hopefully.

[Operator]

Our next question comes from Rogério Araújo from UBS.

[Rogério Araújo, analyst]

[Interpreted] I have two questions to ask, two follow-ups, actually. One regards RAC. So you said that most of the drop in rates is related to the mix. Could you talk about the utilization? So there was a drop of 2.5 points year-on-year. So when you have lower rates, there is usually a higher utilization.

So when we look at numbers as a whole, both in terms of dropping rates and utilization -- and utilization too, can we see the industry as a whole, while lots of cars were bought this quarter, and there was not so much pressure. And how does it relate to the number of cars that were bought -- or is it related to utilization? This is my first question.

[Mauricio Teixeira, executive]

[Interpreted] Rogerio, thank you for your question. Your reasoning is perfect. So we grow slightly more in the mix of longer durations. On one hand, average rates should go down, but they could help in utilization rate. But there is a reasonable effect of car purchases. So there are many cars being activating and being prepared for rental, and there are many cars being decommissioned and being prepared for sale.

So this overlap has an impacting utilization rate in this quarter, but this is very much in line with the second quarter this year, which was very similar. So it's not necessarily worse. I think that this level is quite reasonable, because if we stretch the utilization rates too much, we lose businesses, too, on one end.

So I think that this is the effect. And we have good outlook in terms of growth. So we see the utilization rate potentially improving in the fourth quarter, which is usually a better quarter.

So you can see our franchisee from [indiscernible] incorporated the cars, too, and we are going to change those cars to renew the fleet of that franchisee, so there is a significantly small impact. We have already bought those cars, and we are in the process of decommissioning the active cars of our franchisees.

So this also has an impact in our utilization rate. So Rogério, just complementing, whenever we buy more than historical averages, this part that is related to the ends in terms of decommissioning and commissioning, so it's when the car is not available for rental.

[Rogério Araújo, analyst]

[Interpreted] Mauricio, I can't hear you. Your line is down.

[Mauricio Teixeira, executive]

[Interpreted] Can you hear me now?

[Rogério Araújo, analyst]

[Interpreted] Yes. I can hear you now.

[Mauricio Teixeira, executive]

[Interpreted] Well, the call is choppy, so it's on and off. So when we buy more, commissioning and decommissioning gets worse. So if cars are not available for rental so this gets worse. So there is an increase in the level of purchase utilization goes down and gets worse and then it goes back up again and normalizes. The second question is about used cars, these 3 pillars or variables that you have mentioned.

[Rogério Araújo, analyst]

[Interpreted] The third one are market prices, which, apparently, has gotten worse in terms of depreciation that you had in the quarter. So do you think that this worsening is related to the macroeconomic scenario because of Argentina oversupply of cars affecting used cars? Or this is related to an excessive offer or excessive supply?

And also along those lines, the third variable that you can't control, which are market prices. As all players are growing in one year, these cars are going to be -- are going to go to the market. Do you think the prices are going to go down? And are you including it in your forecast for depreciation? Do you think that market prices will go down because of a higher supply in one year's time?

[Mauricio Teixeira, executive]

[Interpreted] Well, Rogerio, our vision is related to the macroeconomic scenario. So this has not dropped as compared to the basic interest rate. You can see the problem in Argentina with Brazilian car makers, with bonuses, incentives to buy cars, reducing the prices again, and all of this is compared to used cars and puts pressure on used car prices.

So interest rates have not yet gone down. So the macroeconomic scenario is not really helpful in terms of recovery of prices. So this is much more attributed to the macroeconomic scenario than to the Car Rental because the used car market as a whole and new cars as a whole, people deciding what car they want to buy. And this does not play a significant role considering the whole market of secondhand cars.

[Operator]

Our next question comes from Bruno Amorim from Goldman Sachs.

[Bruno Amorim, analyst]

[Interpreted] I have a question, which is a follow-up in the line of depreciation. Do you see any concrete signs of deterioration in the prices of new cars? I understand that the interest rates regarding financing for new cars. We don't see it getting any significantly better or worse.

So what changed as compared to the second quarter? So with this change in depreciation, so why do you think this happened? Is it related to your mix and other issues? So do you see any concrete signs or is it just because you're being conservative in trying to anticipate what will happen in the market of new cars?

[Unknown Executive]

[Interpreted] Bruno, thank you for your question. So we are seeing some concrete signs. There is an effect of Argentina and this month was the first month of drop in retail sales year-on-year and there was a certain pressure there. And then with regards to the inflation rate, well, that is -- that considers the mix and we can't compare to ours, but this is a little bit of suggested prices. What we see is that car dealers are giving bonuses. They have discounts and they have markets and promotions. So the prices for new cars are now worsened. This reflects in the prices of used cars.

[Operator]

Our next question comes from Murilo Freiberger from Bank of America.

[Murilo Freiberger, analyst]

[Interpreted] Here, I would like to talk about depreciation and a little bit about the growth. In terms of depreciation and following up what has been asked before, just to understand from you because, obviously, you have a fleet stock. So when you see any worsening in the spread this high, is it high in 1 quarter to mark a fleet stock that had been marked in a different depreciation?

Now thinking in the future, what level of depreciation should we think for cars? Is it closer to the average of the last 12 months, 1,600 or 1,700? Or would it be closer to the levels that you've had this quarter? And still, in terms of depreciation, just to understand, what does the company has in terms of margin for used cars? Is this -- do you prefer to have a wider margin in terms of being more comfortable or?

[Unknown Executive]

[Interpreted] Thank you, Murilo. Thank you for your question. So when we think of market conditions in the calculation of depreciation, we apply it to the whole fleet. We average it out so we have this impact. And then in the future, it depends very much on the macroeconomic scenario. If the macroeconomic scenario stabilizes, depreciation will go down. The thing is that there was a deterioration now, we don't know what will happen.

So we prefer to be conservative to be on the safe side and to apply what we see today in the market to the whole fleet. And then as to our margin, we are okay with this level of 2% or 3% margin for used cars. And if we look at RAC, it's 2%, used cars is 7%. So depreciation of RAC has gone up, but depreciation of our fleet has gone down this quarter because the margin is at a level -- is above what it had to be. So we adjust that in order to convert, so that we have consolidated margin between 2% and 3%.

[Murilo Freiberger, analyst]

[Interpreted] Just to end the theme. Looking in terms of invested capital, today the average price is for new cars. Is it slightly below the budget that you had for the year, because obviously, what we see in the market, we are seeing the earning flow now with the marking is down. So you see your stock of cars and your invested capital, how much does it change? As to the purchase of cars, is it any better than you had thought it would be?

[Unknown Executive]

[Interpreted] Murilo, car prices are very much in line with our budget projections. It's not better. It's in line.

[Murilo Freiberger, analyst]

[Interpreted] And last question, just changing subject, looking at growth. So there was an acceleration in volumes now and, obviously, and you know we do not disclose this information for commercial reasons but I would just like to comment the different segments in the company and the performance of 35%, obviously, it's -- Uber is the main driver, but what's the behavior of retail of other segments that we look within RAC? Could you give us an idea of each one of the segments, please?

[Unknown Executive]

[Interpreted] As to growth, in fact, the segment that has grown, the most is sharing but individuals has grown a lot. And even other segments, they have all grown more than 2 digits. So we didn't have any single digit segments. It shows that our growth is consistent for all segments. So when we have ride sharing for individuals, they have all grown 2 digits.

[Operator]

Our next question comes from [ Pedro Bresser from Bresser Asset ].

[Unknown Analyst]

[Interpreted] Well, along the lines of my first question, if I understand correctly, the price that you purchased your cars is not below your forecast. But in my mind, I was thinking that as the price of new cars go down and invested capital goes down and if there is a spread between purchase and sale, the bottom line will be that new cars' prices will be slightly better and it could offset this drop in prices.

But is this applicable? Does it make sense to you? We thought -- we talked a lot about prices, but demand for used cars? How do you feel that? How do you see? How easy or difficult is it to put these cars out in the market? And do you see an increase in demand? So how do you see the numbers of cars you need to sell?

[Unknown Executive]

[Interpreted] [ Pedro ], thank you for your question. Well your logic is perfect. In theory, this pressure now, in the prices of new cars will be reflected in our purchases, but we have felt it more relevantly after August this year. So we might possibly -- we will be buying cars at lower prices too. So this is in theory at least.

And so once everything is more stable and going back to Murilo's question, so there is an effect between the one-off and then you need to adjust the whole operation of fleet and depreciation for the entire fleet. So we could accommodate at slightly lower level, but then again, we still depend on the macroeconomic scenario and the recovery. And that should be more consistent. We have seen financing rates going down for individuals, but it was about 25% a year, now it's 22% per year, but it's very small reduction.

So your rational makes sense and we think that we will be able to buy at better prices, because the prices of new cars will go down and then capital invested will also go down, it's favorable. As to used cars, [ Pedro ], we are confident that we will be able to sell the volume that we need to sell the markets. It's not easy, but it's okay.

So obviously, there is the challenge of sales and we will be opening at least another 10 new stores in the fourth quarter because to reach our target volume, we need to increase capillarity and reach of our network but we are confident that we will reach that volume with good prices.

[Operator]

Our next question comes from Alexandre Falcao from HSBC.

[Alexandre Falcao, analyst]

[Interpreted] I'm going to stick to the theme of used cars. I would like you to comment a little bit on how you are giving incentives to people on the front line to sell cars and considering that you have a problem both in the macroeconomic scenario, also in competition because you've been selling lots of cars over the past 2 years, how do you think you will be able to increase your volume even further, considering that apparently there is no indication that the macroeconomic scenario is going to improve? Do you think that from now on depreciation will keep going up? Or are you okay with the current scenario with this level of depreciation for your cars?

[Unknown Executive]

[Interpreted] Thank you for question. Well, this level of depreciation is a historical high, so we have adjusted depreciation reasonably to reflect what we are seeing today in the market as I said. So we think that there will be an additional volume of cars to be sold, increasing capillarity as I said.

So one example is Ribeirão Preto that we have just incorporated our -- a new franchisee and this will take on some new used car stores. And this market is thriving, really. So with that sense, we have a niche product. It's a 1-year-old market that has had a depreciation that is, we think that as we increase capillarity, the volume will be okay. So we don't think the depreciation is structurally higher.

We think that it is the effect of the current market condition rather than a bottleneck. As to your question in terms of other rental stores putting out 1 or 2 -year-old cars in the market, but this is true, but we have different mixes and different mileage. So different companies have different products, but they're still a small niche.

We think that we still lack offer. If there is an offer of 1 or 2 year old cars with good quality, the market will take on so long as we increase capillarity and increase the reach of our own stores.

[Alexandre Falcao, analyst]

[Interpreted] Okay. Any changes in terms of incentives on the front-end? So this is another lever that you could use to increase what you're doing. You're not saying that you will be doing it now, right?

[Unknown Executive]

[Interpreted] Well, we have implemented a few adjustments in the past, but there is an incentive model that is very much in line. We have a very competent team with very low turnover, but we feel there is a capacity to sell with the current incentives.

[Alexandre Falcao, analyst]

[Interpreted] And I just have another question, and I would like to talk a little bit about financing and financing alternatives. Are you considering changing? Slightly, I can see that today, you have your debt. This is very well equated, but if you look at what's going on in the market in terms of domestic that there's -- there are many opportunities going on. Do you think you will try to issue and place this slightly more of your corporate debt out in the market to get the market that is emerging in Brazil? Or how do you see that?

[Unknown Executive]

[Interpreted] We are always monitoring very closely the market, both for Localiza and in our fleet, we have issued quite a few, we've been talking to financial organizations, the market has been changing a lot. We are working with a lower scenario, lower price scenario, and we are paying attention at that and as we widely disclosed.

So we want to capture fixed incomes at the same levels that will involve Localiza with a reduction -- with a cost of our debt and we'll go on working both at Localiza and Localiza fleet to reduce costs at appropriate levels, considering that we are conservative in terms of our debt profile in order to support our growth too. We are paying attention at all of those factors.

[Operator]

Our next question comes from Mr. Barbosa from Morgan Stanley.

[Lucas Barbosa, analyst]

[Interpreted] Mauricio and Nora. I have a question about your used car stores. So you will be opening with a 15% growth in a number of stores if you consider the end of Q4 '19 and '18. On the other hand, the cars of RAC that you need to sell will grow by more than 30%, considering the expansion in your RAC fleet. So the number of stores that you will be opening in 2020 will follow this need to sell RAC cars or will retail be less relevant in the total of cars sold?

[Unknown Executive]

[Interpreted] Thank you, Lucas, for your question. No, we do not expect any changes in the mix, we don't think retail will lose space and I would like to correct the first part of your question. At least 10 new stores and we will be opening 10 new stores this year, not to mention next year and you can be ensured that next year we will be opening many stores to support our growth, without having to change channels in a significant way.

So, obviously, with all these channels, we think that we can navigate very well in these channels considering the macroeconomic scenario that we have, but we do not expect any significant variations with a healthy level of sales.

[Operator]

Our next question comes from Alberto Valerio from UBS.

[Alberto Valerio, analyst]

[Interpreted] So could you comment the competition with RAC? Have other competitors lowered their prices too? And what can we expect over the next few quarters? So will growth stabilize in RAC and in fleet?

[Unknown Executive]

[Interpreted] Thank you very much, Alberto. We have noted that the main competitors are more aggressive. And so on the whole, we have seen more aggressiveness. Can you please repeat your second question, Alberto?

[Alberto Valerio, analyst]

[Interpreted] It's about volume. Can we expect it to accelerate over the next -- in the next 3 months, both for RAC and fleet? So is it going to go down? How are you going to deal with that?

[Mauricio Teixeira, executive]

[Interpreted] Well for RAC, this increased aggressiveness will translate in higher volumes too. So the volumes are indeed stronger for 4Q and we have the effect of the summer vacations' seasonality, which is positive for the company, focusing more on individuals that will potentially help.

In fleet, obviously, we have the ambition to grow and now we have significant ambitions, so but it's smaller in terms of entry barriers and the comparison basis will be slightly tighter in the fourth quarter because this is when we started to detach growth last year. So we expect growth to keep at a strong pace but we cannot say whether it will accelerate.

[Operator]

Our next question comes from Lucas Barbosa from Morgan Stanley.

[Lucas Barbosa, analyst]

[Interpreted] So how do you see the monthly rental market for individuals? So are you structuring a product for this niche and how can it deal and how do you expect it to evolve over the next few years?

[Unknown Executive]

[Interpreted] Thank you, Lucas, thank you. For the investment, we really believe in that market, we were pioneers in having that sort of rental and we were always assessing and considering how we can improve customer experience to capture opportunities in terms of ownership and there is a big potential for growth, as I said in the beginning, for -- to provide to our customers a better experience.

[Operator]

Well, we have a question as through the webcast asked by Jose Eduardo. Along the quarter, has there been any changes in the director of car purchase?

[Unknown Executive]

[Interpreted] Thank you, Eduardo, for your question. Yes, there has been a change. There was a transition from [ Claudia Zatar ], our head of purchasing, and there is a sound team to make up for this vacancy and we are in the process of hiring someone else.

[Operator]

[Operator Instructions] To wrap up, we'd like to give the conference to Mr. Mauricio Teixeira.

[Mauricio Teixeira, executive]

[Interpreted] Thank you all very much for your attendance. Our Investor Relations team will be available to answer any other questions you may have. Have a nice day.

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