Localiza Rent a Car SA
BOVESPA:RENT3
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Good afternoon and welcome to the Localiza Rent a Car Conference Call of the Fourth Quarter of 2020. Hosting the event today are Mr. Eugênio Mattar, CEO; Mr. Rodrigo Tavares, CFO; and Mrs. Nora Lanari, Investor Relations Officer.
We inform that the numbers in this presentation are stated in millions of Brazilian reals and based on IFRS. The presentation will be recorded. [Operator Instructions] The conference call audio and the accompanied page presentation are being broadcasted simultaneously over the Internet at www.ir.localiza.com/en. The page presentation can be downloaded at this same address by clicking on the banner, 4Q '20 webcast.
Before proceeding, we 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 fourth quarter of 2020 teleconference. I'll turn the floor over to the CEO, Mr. Eugênio Mattar.
Good afternoon, and thank you all for your presence. In 2020, we faced enormous challenges in our businesses. But once again, we proved our resilience and adaptability, planning and execution. In the context of the pandemic, we acted quickly.
In March, we established our Crisis Management Committee, which handled important results on 5 main fronts: care for our employees; our customers; our operations; our liquidity; and society. We instituted the remote work policy and the new methodology to foster and measure team productivity, engagement and management during this period.
We're able to see that our employees were -- who inspire and transform once again proved their role and boldness in building the future of mobility. We took care of our partners and society around us, reinforcing our role as a company committed to citizenship. We contributed with approximately BRL 16 million initiatives to support the health care system, including hospital infrastructure and equipment as well in actions with small and medium businesses strongly impacted by the pandemic and vulnerable citizens.
We made the right decision to reinforce our cash with new funding instead of accelerating the reduction of our fleet in the period of low liquidity in car sales. Thus, we saw the increases in new car prices passed through to used cars resulting in smaller depreciation.
During the second semester, notably in the last quarter of 2020, the challenge became the temporary limitation of the capacity to expand fleet through the acquisition of new cars due to the reduced supply of vehicles in the national market, forcing us to reduce the pace of selling used cars in Seminovos.
We are confident that setbacks and challenges in the automotive supply chain will be resolved with the restoration of production and supply levels along the second quarter of 2021. Even in rough seas, with the reinforcement of the structures and the right decisions, we kept our planning for the future and continue to invest in important advances.
It's worth mentioning the launch of Localiza Meoo, a new way of having a car that represents the long-term subscription mobility model for individuals and small- and medium-sized companies. We created Localiza Labs, Localiza's technology and innovation laboratory, which with around 700 professionals leads our digital transformation, increasing our capacity for internal development of new solutions. We also looked around us and through careful choices, we took important steps. We acquired Mobi7, which brings us several opportunities for fleet monitoring, telematics and Internet of Things. We are connecting the entire fleet at a fast pace while adding several functionalities for our operation, our business and our customers.
We also announced the combination of our operations with Unidas, a transaction that can be transformational for the rental industry and generate a lot of value for all stakeholders. 2020 was, for the Localiza team, a year of great boldness and protagonism. The challenges demanded resilience, flexibility and a lot of agility to make the right decisions, which contributed to the quick recovery of volumes and prices, allowing the delivery of record results. We surpassed the BRL 1 billion net profit mark. This performance is a result of a solid culture that is strengthened with the evolution of time supported by a base of great trust and ethics.
Last year, we mentioned in our letter about the strong changes that the world of mobility was going through. We'd have -- having at the time, the visibility of the effects that quarantine and social distance due to the coronavirus pandemic could have in accelerating this process.
Today, we have the perception that changes in habits should further accelerate the adoption curve for new technologies and innovations in mobility. We seek these opportunities generated by cultural and social change, and we are absolutely focused on continuing to serve our customers with pleasure and fulfilling their needs in this environment of constant change.
In the past few years, our market has expanded considerably. And Localiza, the protagonist, and this expansion is the company that has the best service and solutions to the demands whose origins are the most diverse. This diversification makes our business highly resilient, adaptable and attentive to trends, allowing us to direct our efforts to the best opportunities in the market.
For the country, we contributed significantly with more than 11,000 direct jobs and collection of BRL 723 million in taxes, net of credits, in addition to approximately BRL 1.1 billion in taxes on the purchase of cars. In addition to this is the movement and promotion of an entire ecosystem of multiple businesses that involve from large industries to thousands of SMEs and service providers spread across all regions of the country.
This year that has inspired us even more to be careful with others. We evolved in our attention to diversity, an extremely relevant topic for the company with initiatives that include the launch of the diversity inclusion program. We have a mission to work continuously towards a respectful, plural environment that instigates creative and constructive debate for both our business and society. On the environmental front, we have made significant progress in neutral letters of the commitment to the climate program, in movement with the purpose of engaging and inspiring the private sector in climate responsibility actions.
In 2020, we were honored with the recognition by several communication medium in inclusion, international rankings for our investment in initiatives in the 3 pillars of ESG. To continue building the future of mobility, we maintain our focus on generating value and having a positive impact on society, our customers and partners. We continue to invest in the improvement of our processes and of our customer experience, valuing long-term relationships. We know that great challenges were overcome, but we are aware that others will come and will bring on new opportunities, which we will be prepared to embrace with boldness, innovation and agility.
I'm going to be the Executive Chairman working full time in the company, supporting Bruno Lasansky who was -- is going to be my successor as the CEO. He's absolutely prepared to take on my position and to spearhead Localiza for the upcoming years in a well-organized and planned process. And in a way, to preserve the experience of those who join us and the renewal with the new person that joins us. So I'll continue working together with Bruno as the CEO and our Chairman will be the Vice President of the Board of Directors in the next mandate.
Thank you. Now I'd like to hand over to our CFO, Rodrigo Tavares.
Thank you, Eugenio. Good afternoon, everyone. It's with great pleasure they inaugurate my presence as CFO in Localiza's earnings conference call and share with you the 2020 results of the company, disclosing record results.
Starting on Page 2, we can see a summary of Localiza's operating highlights for 2020. In car rental, we reached the average rented fleet of over 156,000 cars in the fourth quarter, consolidating the resumption of volumes with a growth of 4.1% year-over-year. The division ends the year with a volume growth of 8.9%.
The fourth quarter of car rental was marked by high-utilization rates and tariffs, a result from efficient fleet management and pricing in the context of vehicle unavailability. The utilization rate reached 84.5% in the quarter, reducing the impact caused by the pandemic in the second and third quarters of the year and 73.5% in the year, while the average daily rate was BRL 79.6 in the quarter and 68.5% over the year.
In fleet rental, in 2020, we had an increase of 11.7% in the average rented fleet, reaching more than 59,000 cars. Quarter-over-quarter, the average daily rate in fleet rental grew 0.7% and the year-over-year, it increased 2.3%.
On Page 5, we can see the financial highlights for the quarter and the year. In the quarter, consolidated revenue fell 2.2%, reflecting the company's decision to curb sales of used cars in the context of lower supply of new cars but with a 19.5% growth in EBITDA. While in the year, consolidated net revenue grew 1.1%, reaching BRL 10.3 billion, and EBITDA increased 11.5%. Driven by a lower depreciation, quarterly EBIT grew 56.6%, while annual EBIT exceeds BRL 1.8 billion with an increase of 21%. We achieved record quarterly and annual profits exceeding BRL 400 million in the quarter and BRL 1 billion in the year.
To present further details on fourth quarter results, I'd like to hand the floor over to our Investor Relations Officer, Nora Lanari.
Good afternoon, everyone. Thank you, Rodrigo. Giving you a little more detail about the results of the quarter end of the year, I would like to start with the car rental division. And would like to highlight that, from this earnings release, we now report the franchising division together with the income statement of the Car Rental division so that the numbers presented on Page 4 already reflect this change.
Going on to the highlights. In 2020, the average rented fleet of RAC grew 8.9%, an increase of more than 11,000 rented cars on average in the year. Net revenue increased 3.2% when compared to the previous year. In the fourth quarter, the revenue growth was 12.1% year-over-year, exceeding the mark of BRL 1 billion in revenue in a quarter, mainly due to the average daily rate practice in the period.
On Slide 5, we see that the average daily rate of BRL 79.60 in RAC increased 10.4% compared to 4Q '19, reflecting an efficient management of the mix and prices per segment. And the utilization rate achieved 84.5%, the result of an efficient fleet management in the context of scarcity in the availability of cars, which remains in the first quarter of 2021.
On Page 6, we show that the network of own branches was extended by 15 units compared to the end of 2019, of which 6 were branches previously operated by franchisees. In addition, several branches have been expanded or renovated to increase the capacity and enable fleet expansion.
Moving on to Slide 7 in the Fleet Rental division. The average lease fleet grew 5.1% and net revenue increased 7.7% compared to 4Q '19. In the same comparison, the daily rate rose 2.3%, mainly reflecting the pricing of new contracts that reflect higher car prices and pension of the Localiza Meoo, which brought a mix with a higher rate. In the year, the Fleet Rental division increased by 11.7%, the average rented fleet, and 12% in net revenue, which totaled more than BRL 1 billion.
Moving on to Slide 8. We show the balances of car purchases and sales. During the year, despite having delivered volume growth both in Car Rental and Fleet Rental reduced the fleet by 26,000 cars. The investment in the 2020 fleet achieved BRL 5.5 billion. The net result of the fleet reduction was a generation of BRL 585 million. In the quarter, we bought 42,748 cars. And even in a period of strong demand for used cars, we reduced the decommissioning pays and sold 31,857 cars to enable an increase of almost 11,000 cars in the current context of lower offer of new cars.
Referring to what we currently see in the beginning of the year, we pointed out that the automakers are working on restoring production levels and shipping volumes, but the context of restriction still remains with supply chain affected by the pandemic.
On Slide 9, we show the Seminovos network. In 2020, we opened 7 new stores. In the quarter, we limited the volume of cars sold by reducing the decommissioning pace, working with a smaller number of cars available for sale and thus, prioritizing car rental during the high season. As a result, we had a volume of 31,857 cars sold, a drop of 23%, partially offset by the strong increase in the sale price of 15.7% in the quarter, reflecting the increase in the price of new cars. We ended the year with 130 points of sale and 135,490 cars sold.
On Slide 10, we show the end-of-period fleet, which was reduced by 9.6% with over 292,000 cars, a reduction of 9.2% in car rental and 10.6% in fleet rental. The reduction in the end-of-period fleet, as already mentioned, was offset by the higher rate of use of cars with the average fleet rented in both divisions growing in the year.
Moving on to Page 11, we see that the consolidated net revenue for the quarter decreased by 2.2% year-over-year. Net rental revenue increased by 11.1% in the quarter, while that of Seminovos dropped 10.9% due to the reduction in sales volume partially offset by higher prices. In the year, consolidated net revenue grew by 1.1% when compared to 2019. In 2020, net rental revenue increased by 5.3%, being 3.2% in the Car Rental division and 12% in the Fleet Rental division.
In Seminovos, net revenue decreased by 1.6% when compared to 2019 due to the 8.4% drop in sales volume offset by the 7.4% increase in the average price of cars sold.
Moving on to Page 12. Consolidated EBITDA increased by 19.5% in 4Q '20 compared to the same period last year as a result of the higher-margin in used cars and the expansion of revenues in the company's business divisions. The EBITDA margin of RAC falls 4.3 percentage points compared to the margin of the fourth quarter of 2019, considering the same basis, especially due to the recomposition of leadership salaries that had been reduced in the period that the company adopted the government program to support employment due to the increase in tax provisions and allowance for doubtful accounts, and increase in the provision for profit sharing, reflecting a better-than-expected annual result for the year in the context of the pandemic.
Fleet Rental had a margin reduction of 2.6 percentage points, mainly due to the recomposition of salaries and the provisioning of profit sharing, as described for RAC.
Seminovos presented a margin of 10.1%, continuing the effect of the substantial increase in prices practiced in the sale of used cars, which reflect the increase in new car prices. The higher price levels should maintain a higher level of Seminovos' EBITDA margin in the upcoming quarters when we will still be decommissioning the vehicles purchased at lower prices.
In 2020, consolidated EBITDA was close to the BRL 2.5 billion mark, showing an increase of 11.5% when compared to 2019.
On Page 13, we show the evolution of depreciation. As a result of the expectation of increase in sale prices of cars in the fleet as a consequence of the general increase in prices practiced in the market, in the fourth quarter, we see a 48% drop in the RAC depreciation and in relation to the 3Q '20 reaching BRL 612 per car. In the year, the average annual depreciation per car reached BRL 1,707, a decrease of 11% when compared to 2019.
In the Fleet Rental division, the average annual depreciation per car was BRL 1,907 in the fourth quarter, 17.5% lower in relation to average depreciation in 3Q '20. In the annual comparison, there was a drop of 44% in the average annual depreciation per car, which is mainly explained by the change from the SOYD method to the linear method for calculating depreciation in addition to the increase in sales prices.
On Page 14, we can see that the consolidated EBIT in 4Q '20 reached BRL 645.4 million, representing a 56.6% growth compared to the same period last year due to the 19.5% increase in consolidated EBITDA combined with the decrease in depreciation of cars. The EBIT margin of the Car Rental division was 46.7%, representing an increase of 14.6 percentage points compared to 4Q '19, especially due to the reduction in depreciation and to the used car margin. In the Fleet Rental division, the EBIT margin was 63.4%, representing an increase of 15.1 percentage points compared to 4Q '19 in RAC, especially due to the reduction in depreciation and the used car margin.
In 2020, the Car Rental division EBIT margin was 35.1%, representing an increase of 1.4 percentage points compared to 2019. In the Fleet Rental division, the EBIT margin was 66.4%, an increase of 17.3 percentage points in the same comparison.
Net income for the fourth quarter on Page 15 grew 75.9% year-over-year, reaching BRL 401.8 million. The expansion of net income is explained by the growth of EBITDA of approximately BRL 123 million, combined with the reduction of depreciation of approximately BRL 114 million and financial expenses of approximately a BRL 47 million partially offset by the increase in taxes on profit of approximately BRL 107 million. In 2020, the company had a record accumulated profit of BRL 1 billion, representing an increase of 25.7% in relation to 2019.
On Slide 16, we show the cash generation before the fleet reduction of BRL 1.3 billion in 2020. The reduction of about 26,000 cars in the fleet generated about BRL 1.2 billion used to reduce the balance of accounts payable to automakers.
As can be seen on Page 17, there was an important generation of cash from rental activities, combined with the generation of cash from the reduction of the fleet, partially offset by the reduction in the level of accounts payable, interest expenses, repurchase of shares and payment earnings, resulting in a reduction of net debt by approximately BRL 500 million in the year.
I would like to turn the floor back over to Rodrigo.
Thank you, Nora. You can see they're [ not ] BRL 4 billion. We continue to actively manage the debt profile.
On Slide 19, we can see that the net debt over EBITDA ratio ended the year at 2.5x, the lowest leverage since 2016. We consider that a comfortable level to expand and finance growth without the need for equity in the short term, considering our leverage policy and environment of low interest.
To conclude, I would like to highlight the evolution of the annual consolidated ROIC spread versus the cost of debt that can be seen on Page 20.
In 2020, the year in which we had to face all the setbacks generated by the pandemic, we delivered a nominal spread of 7.4 percentage points higher than 2019, generating value for our shareholders in an extremely challenging year. We maintain our goal of delivering profitable growth. And we will leverage our competitive advantages to capture business opportunities and continue to develop and expand the car rental market in Brazil.
Before I conclude, on Page 21, we have our advances in sustainability with the evolution in the 3 dimensions. We are now open to answer your questions.
[Operator Instructions]. The first question is from Alex Falcao from HSBC.
I have 2 questions actually. The first one is about the used cars dynamics. I'd like to understand if what's happening is a decrease in the spread between the new cars and the used cars and the fact that there are practically no new cars available in the market. And when there are new cars available, again, the spread will come back or is it inflation and the new car prices also raised a lot, so the dynamic that we saw in the fourth quarter should continue for at least a relevant period?
And the second question is about subscription cars. I'd like you to talk about the size of that business and the perspectives for that. And if you have a relevant bet in relation to that, is the competition focusing on that as well? Talking about that, will that eventually be modeled in a different way in the future? And I'd like to know where you think that business will be in the next 2 years or 5 years, that would be very interesting.
Thank you. I'll answer first about the spread between the new cars and used cars and then Nora can add in relation to the subscription cars.
What we've seen is not a compression of the spread of the new car compared to what we can sell the used car for. We see historical levels of that difference. What actually happened is that the new car prices have gone up because of the exchange rate, lack of inputs and transferring that cost increase, and that has been transferring to used cars. But we don't see a compression in the spread.
Falcao, thank you for your questions. About subscription vehicles, we launched Localiza Meoo on September 22. And right after that, we went into the context -- the restriction of new car supply given that long chain of inputs for the automakers. So it's really hard to give you some exact numbers about the run rate for that business. But we're pretty optimistic about the product. The perception has been very good and so is the demand. To start, we don't have the idea of breaking that down into a subsegment as we don't with RAC.
I'd like to follow-up on the depreciation policy. Given all of that that's going on and new cars, prices are still going up, do you think that you would decrease depreciation given the car price dynamics? Or will depreciation eventually be adjusted? Apparently, it was a scenario last year. And now in the new scenario, if it stays that way, will it still drop?
About depreciation, we have to assess the seasons. So the cars that were bought before the pandemic, that had a different price before the new car price increase, then you see that already depreciated with low depreciation for the new cars that are being added to the fleet coming with the new prices. So the depreciation policy that we always have is the expectation of price realization and the expectation of going back to normal levels in buying those new cars. Composition of depreciation, we'll receive the interference from these 2 car seasons, so to speak, the older cars and the cars that were recently bought.
And Falcao, I'd like to add, I know that we're in, during a period of a restriction of car, we see -- so it's becoming 100% appreciated. We have more cars getting close to 0 depreciation. So I'd say it's 2 things. The first part, you have lower depreciation for these cars, as we mentioned. And as fleet renewal, and we recomposed the volume of delivery go up to average depreciation, then you'll see an increase of the average depreciation.
And the EBITDA of Seminovos will only be reflected in the future because throughout the year, we will sell the cars that has already been 100% depreciated and already have a positive margin. So the depreciation will go up throughout the year, but the EBITDA margin will still remain a bit higher for a longer period throughout 2021.
Next question is from Lucas Barbosa from Santander.
Congratulations on your results. My question is related to one of the previous questions about receiving brand-new cars. So you already -- I imagine that you plan to get a limited number of cars in the first quarter. But now how do you see, in fact, what was actually delivered? Was it in line with expectations, any positive or negative surprises? And when do you think things will come back to normal? And then I'll ask my second question.
Well, the expectation for the first quarter was to receive less cars, and it's within our expectations. So now we're waiting because as the beginning of the second quarter, and if production goes back to normal, I believe vehicle supply will come back to normal.
Okay. Second is about the average age of the RAC fleet. So I'd like to understand what the strategy is for the next quarters. If you can have a higher average age, as you'll be selling more cars because of the peak of leisure would have passed.
Lucas, thank you for your second question. Our business is car rental. It's not selling cars. So we will prioritize rental cars and fleet. And if there's additional possibility of selling, we can slow down the volume of sold cars, which we did in the third quarter. We sold 45,000 cars, and we can do more. But we slowed down to 30-some thousand in the fourth quarter. We base that on the demand of rental and then the receipt of new cars. That's how we base it on.
Thank you, Nora. That's clear.
Our next question is from Rogério Araújo from UBS.
Bruno, good luck to your new job position. I have 2 on my side. First, in Fleet Rental. One of your competitors has been saying or has been showing actually that they're closing new deals. And it's much higher than the fleet increase. So they've been accumulating a lot of contracted vehicles and just waiting for the vehicles to be delivered by the automakers to enter fleet. Is that also happening to Localiza? Have you been closing a lot of contracts in Fleet Rental, but we haven't seen that in your results because of the delay in car deliveries from the automakers? That's my first question.
Thank you, Rogério, for your question. During a crisis, we believe that more companies will be outsourcing and they will cash in their own fleet and become a client.
So we've seen that demand, but there is the context of restriction of car delivery. And there's also the new -- this new path of the subscription cars. So we're confident that demand will continue to be firm. But it's not outside the regular standards.
Thank you, Nora. My second is about the ICMS tax provision that was done. I'd like you to confirm the number. It's BRL 49 million in the cost breakdown, cost and expenses. But in the wording in the text, it says BRL 68 million, so I'd like to know the provision for the ICMS tax. And can you talk about the year-to-date period for that provision? So since when have you been -- is it a one-off provision? Will there be a cash effect? And what's the impact moving forward? I imagine that there will be a new policy for ICMS payments. So what's the impact? What's the recurring impact in the next quarters because of that?
We mentioned some extraordinary effects that have affected the margins, not only in car rental, but also fleet during the fourth quarter, and one of them were the tax provisions. In note #23, we have a breakdown, and it differs from '17 because 1 part is booked above the EBITDA and the other 1 is under EBITDA because it's accounted for as financial expenses. So you have a BRL 49 million impact to the EBITDA and the difference from the BRL 68 million to the BRL 49 million were booked as financial expenses. That's mainly a result of discussions from the last 5 years provisioned. And as they're written off, we reversed. Oh, I forgot. There's another part. U.S. moving forward, right? Moving forward, we don't see that risk.
Okay. Perfect. Very clear. And congratulations on your strong results.
Next question is from Stephen Trent from Citibank.
First of all, this is Steve Trent. First of all, my condolences on Roberto Mendes he was an amazing person. I have 2 questions. Why did Mauricio Teixeira leave? Can you -- I'd like to know for how long he was the CFO? Was it 3 or 4 years, is that correct?
Steve, thank you for mentioning Roberto. Yes, we do miss him. About Mauricio, I think it's worth asking him as well. He was with us for about 4 years. He's an executive that we truly respect and admire and, well, seen by the market as a personal decision. He decided to take on a new challenge and was announced as the CFO of Hapvida. So it was a personal decision. And he goes back to São Paulo, and he's taking on a new project at Hapvida. It was a personal decision. And we truly respect him and admire him and our home is his home. So we have open doors.
Thank you very much, Nora. Just one more question, please. Why is the spread between the ROIC and the cost of debt? Why did it drop from the third to fourth quarter? And why was -- is it because the invested capital increased?
Steve, when we look at the third and fourth quarter of 2020, if I understood the question, the spread increases. So -- but there are some ways to report that. In 3Q, we reported 9 months annualized, and we broke down the third quarter annualized. So the spread annualized was 9.5%. In the fourth quarter report, where we have 2020 closed, which is the ROIC that you saw of 10.2% with a 7.4% spread. If we calculate the spread, the ROIC spread fourth quarter annualized, the ROIC would have been 15.1%. So it's mainly because many competitors report in a different manner. So we want to have make this comparable. So our ROIC in 2020 was 10.2% with a 7.4% spread, and the fourth quarter annualized would have been 15.1%, a spread of almost 12, 13 percentage points.
Steve, and I forgot to mention the last part of the question. The capital base has been increasing because the price of new cars is going up. Note that since the exchange rate devaluation, and we saw a transfer of new car prices 15% to new cars, and that has been impacting the price of the cars that we buy.
And in Seminovos, we can capture the new car prices and we have a similar transfer to that price. So even though the capital base has increased, depreciation dropped. So NOPAT is better, and we saw an evolution of ROIC every quarter throughout 2020.
Okay. I understand. So part of it was the accounting interference in the period? Okay. I understand.
Next question is from Regis Cardoso from Crédit Suisse.
Congratulations on your results. 2 more specific topics. First, figures and then more general. So the specific about figures. I want to talk about margin. So on the margin, specifically, there's more than 1 subject, actually. So we saw a margin reduction relating to costs and expenses given that the price has gone up. And then cost and expenses, we already mentioned some. There was the ICMS provision. Could you also comment on profit-sharing provision and how much that impacted? Is it recurring or not? I'd also like to understand the comment about, if there's going to be another cost increase in the fourth quarter because of the comeback of people after the COVID issues?
And then about expenses and costs. So in marketing expenses, I've seen that, that's growing and in cost, there's maintenance. I know it's a very long question. I wanted to number the effects, but I'd also like to understand what happened in costs and expenses, that's putting pressure on the margin.
The other specific question is about the tax rate for this year. It seems like there's an issue about car depreciation in -- because of IFRS and the OCP payment couldn't have been higher to improve the rate. So we can start off with that.
Thank you, Regis. Let me try to summarize the effects. If we look at the effects that we consider extraordinary for the fourth quarter, we have profit sharing. Obviously, the expectation wasn't to achieve this result. And when we had that expectation, we adjusted the amount. And we also had the salaries going back to normal. We already mentioned that, and the removal of the Hertz brand from our branches. And if we combine all these factors, I can say that, that would impact the margin by 6.6 percentage points in rent a car and 2 percentage points in fleet rental -- or fleet management. So they're extraordinary costs, and they do affect the margin significantly, and that explains the part of the reduction.
Nora, would you like to talk about the tax rate?
Regis, just to remind you, we have the depreciation that we report, the 600-and-some per car, and we have the tax depreciation that's used to pay taxes. So it's 20% linear in 5 years. The main reason for the income tax rate is related to interest on owned capital. And since we had less profit throughout the year and interest on own capital is on the quarter. So we paid less than that. And the taxable profit grew with less leverage. So network was growing, but with -- or equity was growing with lower profits, though.
So the management post that in the shareholders meeting the payment of BRL 18 million in dividends to add to the minimum mandatory amount of 25%. So we don't expect that impact moving forward. There was an effect of profit volatility, especially in 2Q '20 given the pandemic.
Thank you, Nora, and Rodrigo I have a follow up on costs. So 2 expense lines that are volatile in 4Q, marketing, bad debt and maintenance. The fourth quarter, is that recurring levels for maintenance? And then on another note, there are 2 large avenues for growth, which is subscription cars and app drivers. I'd like to know if Localiza 2.0 has been helping you to increase your share even in the bigger horizon of drivers, if you consider profile and credit. So if the new product is helping to mitigate the credit risk and the addressable market.
Thank you, Regis, for your question. I believe that the marketing increase is a result of the high season, so more individuals and the sale of Seminovos in retail. In the context, when we are slowing down sales, we focus more on rental, but they do have a higher average rate, but you need more marketing efforts based on that.
So bad debt was higher year-over-year. So in 4Q '20, it was higher over 4Q '19, but it's always already showing a dropping trend. So 90 days "after" the worst effect of the pandemic for the company, and then you have a dragging effect from that, but it's already lower in 4Q over 3Q when we believe it will continue to normalize and go back to very historical low levels for the company. There are no evidences that it will remain high, quite on the contrary. After the pandemic is over, we believe that it will go back to more normal levels.
You mentioned subscription cars, and then you mentioned the app drivers. Let me start off with the app drivers, and then I'll understand your question, what you want to know about Meoo.
About incremental improvements in the product. We've been doing that across time. So the app, we've been adding new features to the app, and we believe that we'll get more granularity, more or less default rates. So I believe that we'll have benefits with these applications that are embedded in the app. That said, we're in the context of car restriction, right? So we can't really say that there's a relevant change, but it should be a competitive advantage for Localiza as we implemented. And we measure that by the Net Promoter Score. So we have some measures of general customer satisfaction. We break that down per segment and per touch points that the customer has with us.
About subscription cars, I got a little lost on that. I'd like you to ask about that again.
Actually, it's not really a specific question about the app cars and no worries about the subscription cars. It was just a general question. I'd like to know if you see that as an avenue for growth. Are those the 2 largest market where you can grow your share? Those 2, that's what I mean. If increasing the addressable driver scope, so increase the scope of app drivers? And the other was subscription cars because it's a market that competes with new car sales.
Okay, Regis. Thank you. We see the rental car market with low barrier of entry and a lot of growth. I wouldn't limit that to subscription cars or app cars. We have a low share in the individual segment. Even in the corporate segment, there is some migration of rental -- of owning a car to renting a car. So we still see a huge avenue for growth there in the most diverse segments that the company operates. So I wouldn't say that they're necessarily the biggest drivers.
Next question is from Julia Toledo from Citibank.
Congratulations on your results. And my question is that do you foresee any impact of Ford leaving Brazil?
Thank you, Julia. Well, of course, it's very unfortunate that Ford is leaving the country, a centenary company. There's an impact on jobs. So it's bad news, not only for the automobile market for automakers, it's also a bad news for the country. About the impact, we believe that it's a limited impact. They already had a very limited small share of the market, which was 7%. And given the idle capacity that the industry has, that volume should be absorbed easier by the remaining players in the country.
Next question is from Victor Mizusaki, Bradesco BBI.
Congratulations on your results. I have 2 questions. First one, Rodrigo. When we see the slide that talks about leverage and debt profile, Localiza has a very comfortable position. I'd like to understand if it would make sense for Localiza to use that flexibility to try to negotiate your working capital pay faster so to speed up the delivery process. And now in the succession process, given the negotiation between the Localiza and Unidas merger, why not now or after the demerger?
About the first question. We use all the levers in the negotiation with automakers. So we always look at negotiation in a very holistic manner. And if necessary, if we have to use the levers that enable us to have better conditions for competitiveness to purchase cars, we will use them and not only limited to liquidity. So we're always looking at the negotiation in a very complete manner and use everything that we have available to guarantee that we will have more competitiveness in cars.
About succession, Eugênio, would you like to comment?
Victor, thank you for your question. Localiza has prepared a well-structured and organized succession plan. Bruno has already been the COO of the company for a while. He really understands the business. So the company, it continues to act as an independent company. We won't be tied to future decisions of other instances. There was a process that would happen. And now this is the right moment because I'll remain in the company as a Chairman. Oscar as the current Chairman will remain as well. So there was no reason not for us to do something that was already mature to happen.
We have a question that came through the chat. I'm going to read it from [ Rodrigo Faria ].
Rodrigo, thank you for your question. Congratulations on your results in such a challenging year. I have 2 questions. Please comment on the strategy and execution, the prioritization of the segments in RAC and the strong tariffs in the fourth quarter. Are the rates offering a yield in line with the increase of brand-new cars? Or were you able to leverage the rate that was even better?
Rodrigo, thank you for your question. We took advantage of the high season of the summer vacation in Brazil this October, November, December and January. And given the context of a restriction of new car supply, we were very selective in our mix of the segments to offset the "lack of cars." So we had to use utilization rate higher, reaching 84.5% and increased the weight of the mix of individuals, which is a mix that usually -- a profile that usually rents more during summer vacation.
So that said, the mix in relation to 2019 compared to 2019 is still closer to the longer-term segment and lower rates. So the mix doesn't explain the yield gain. It was a selective pricing that we had in relation to the fleet. And a part of that increase helps to offset the increase in car prices, but we still have to see the increases that we'll have in 2021 given the context of the transfer of steel costs, and we still have scarcity in the supply and the automakers are still getting back to speed.
There's a second question. With the increase of the average age of fleet, does that impact the service level and a reduction in RAC rates to offset that?
The company is very careful in quality of service for our customers. So obviously, the fleet is aging, but we -- under -- the cars undergo maintenance and prepare the cars, and we're undergoing a supply scarcity. So we'll price accordingly. So in the first quarter, the peak of summer vacation drops. And historically, we have a comeback in the long-term segment. So that could reflect the average rates we'll see throughout the quarter.
The previous -- this was from [ Rodrigo ]. Bruno Oliveira now. Could you give further detail about new car delivery by the automakers? Last year, there were delays in deliveries. I'd like to know if that gap was normalized or is that still close to happen?
Last year, there was a restriction in supply, especially in the fourth quarter. And restrictions continue. In relation to the volumes that were offered in the fourth quarter, those were already delivered in 2021, so new volumes that were negotiated. There are still a lot of uncertainties. And we're waiting for gradual normalization in 2Q but especially in providing the semiconductors, that's the main issue. So we expect normalization from 2Q on, but there are still uncertainties that we can't be sure of.
We have one last question here in the chat. In relation to the ESG initiatives, what are the plans for 2021 to continue the incredible environmental, social and governance performance?
Well, thank you very much for the praise and the question. We will continue. We do plan on advancing in all fronts in relation to the sustainability. The company always has the perception of strong governance that was always perceived in the past 3 years. We've done relevant efforts on the social and environmental side, and we will continue on that trend of evolution.
[Operator Instructions] We have a question in English from Mr. Nathan Churchill from American Century.
I was wondering if you could help us understand how we should be thinking about the margins in RAC, in particular, in the context of the extra costs that you just had this quarter? So if there were some 600 basis points of added costs, should we anticipate that any of that carries into 2021?
Thank you for your question I'm going to answer your question. So the extraordinary costs, we see them as nonrecurring, and this shouldn't affect the year of 2021. Obviously, throughout the year, there should be other expenses and costs that we haven't planned. But those specific ones that have the fourth quarter in 2020, we don't expect that there will be effect in 2021.
We have one more question in the chat. What will Eugênio's work be like in the company's day-to-day with this change?
Thank you for your question. I will act as the Executive Chairman. Meaning, a chairman that will be fully dedicated to the company. I'll be handling future plans. I'll support the CEO in his activities. I'll be considering the company's strategy, acting strongly in governance and ESG and there'll be a coach for the CEO. While he's taking on his new position and focus on the institutional side of the company with the Class associations. I'll act on the institutional matters related to the industry, work with Unidas and the process with the Brazilian antitrust agency with CADE, not much in operational, focusing mainly on strategy of the company, working with the CEO to guarantee that the standard of governance and culture and investments in ESG are coherent and in line with our proposal and purpose.
Now I'd like to hand back over to Mr. Rodrigo Tavares.
Thank you very much for your presence. Our IR team is available for any further clarification. Have an excellent day.
The Localiza Rent a Car conference call is now over. Thank you for your participation, and have a good afternoon.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]