Good day and thank you for waiting. Welcome to Tegma Gestão Logística S.A. conference call to review second quarter 2022 earnings results. Today, we have Mr. Nivaldo Tuba, CEO, and Mr. Ramón Pérez, CFO and IRO. We would like to inform you that this event is being recorded, and that all participants will be in listen-only mode during the company's presentation. After Tegma's remarks are over, there will be a question -and- answer session, when further instructions to participate will be provided. Should you need assistance during this conference call, please dial star zero to reach the operator. The replay of this event will be available right after the end of the conference call for a period of seven days. Now, I will turn the conference call over to Mr. Nivaldo Tuba, Tegma's CEO, to start the presentation. Mr. Tuba, you may begin.
Good afternoon. Here's Nivaldo Tuba, CEO of Tegma. On behalf of the entire company, I would thank you once again for participating in another earnings conference call. With me here, I have Ramón Pérez, our CFO and IRO, as well as Ian Nunes and Felipe Silva from the IR team. Starting our presentation with slide two, as usual, we make a disclaimer regarding our forward-looking statements. Moving on to slide three, I'd like to talk about the third quarter highlights. The first highlight is the early payment of interim dividends referring to the results for the third quarter of 2022. The management approved the distribution of BRL 27 million in dividends corresponding to BRL 0.41 per share, 58% of the adjusted net income for the period, and 2% of dividend yield. Payment will be made on November 21st, and the cutoff date will be November 8th.
The second bullet item deals with an important reaction of the automotive market. As detailed in our earnings release, it is possible to note that the historic series of vehicle sales on a 12-month basis has been in decline since the middle of last year. In July 2022, it was possible to observe that this trend reversed and started to grow again, which can be attributed to the recent improvement in the supply conditions of parts and components in the industry. The third point concerns the demonstrations that have been taking place on the highways of several Brazilian states since the end of the elections on October 30th. As a result of these protests, some of Tegma's trips have been held up, and others that would have taken place on roads that had some problems had not been made, and some customers have reported supply problems.
During the week, we noticed that several routes, however, were cleared. So some trips were resumed again, and customers reported supply normalization. The fourth highlight deals with another important award that Tegma received in 2022. The 100 Open Startups awarded us for the fourth consecutive year in the transport and logistics segments as one of the companies most engaged in open innovation in the country. This award is the result of the active work of our startup accelerator, tegUP, which is always seeking opportunities to foster innovation in logistics. In the fifth topic on the slide, we would like to highlight that for the third consecutive year, we conducted Tegma's greenhouse gas inventory, and that it is on the public records of the GHG Protocol. This initiative reinforces our intention to always seek ways to reduce the impact of our operations on climate change.
Lastly, on this slide, we are pleased to announce two initiatives from our IR department, which reflect our constant search to get closer to the market. Recently, we launched a podcast called Teginvest. It talks about topics which are not so often addressed in the recurring conversations of investors with the company. As a reminder to foreign investors, these podcasts are in Portuguese. We hope that all of you, ladies and gentlemen, will take advantage of this content to further expand your knowledge about Tegma. We also have opened a WhatsApp channel on our IR website to facilitate analysts' contact with our company to clarify doubts. We hope it will work as a bridge for an even closer contact with those interested in the company. On slide four, we see the key figures for the automotive market in Brazil.
As you can see, domestic sales in Q3 2022 were 17% higher than those of the same period in 2021. This performance reflects the improved supply of parts and semiconductors to automakers. In addition to the fact that Q3 2021 was the worst quarter of the recent crisis. Vehicle production, in turn, was 34% higher in Q3 2022 year-on-year, also due to a weaker comparative base and the improvement of the situation in 2022. Another point, exports had a 55% higher performance for the same reasons of a weaker comparative base and for having been prioritized by automakers in 2022. On slide five, we show the main operating indicators of the automotive logistics division of Tegma. The number of vehicles transported in Q3 2022 was 46% higher year-on-year, and the market share returned to a level of 25%.
The recovery in market share reflects the fact that Q3 2022 was the first quarter since the beginning of the year in which no major customers suffered production stoppages. The average distance traveled was slightly lower year-on-year on the back of the increased share of export trips via the port. With these highlights, I now turn the floor over to our CFO, Ramón Pérez, so that he can talk about our results, cash flow, and other indicators, and then we will open the floor for questions. Thank you very much for your attention.
Thank you, Nivaldo. Well, good day, everyone. Moving on to slide six, please. Here, we see the results of the automotive logistics division. We can see in the top chart that there was a 92% increase in net revenue of this division versus the same period of 2021.
This result reflects mainly the 48% increase in number of vehicles transported, as well as transport tariff adjustments made throughout 2021 and 2022. It is worth highlighting the growth in revenue from the used vehicle logistics operation, which has seen a significant increase in number of vehicles transported, and which has generated interesting commercial opportunities. Also to be highlighted is the return of demand for Tegma's logistics services, such as yard management and the preparation and inspection of vehicles to be delivered to car rental companies. Below, we see that Q3 2022 EBIT margin had a significant recovery compared to the third quarter of 2021. This is mainly due to improvement in the automotive market and Tegma's market share, which led to growth in the division's volumes and revenue.
In the middle bottom of the slide, we see Tegma's EBITDA in Q3 2022, which was adjusted by the constitution of a provision for legal contingencies related to the sale of our former subsidiary, Direct Express, in the amount of BRL 6.6 million. The growth in both EBITDA and EBITDA margin in the year-on-year comparison is also due to the significant improvement in number of vehicles transported, combined with control of costs and expenses. On slide seven, we have the results of our integrated logistics division. We see growth of net revenue of this division in the year-over-year comparison, stemming from the increase in volume of chemicals transported and stored. This growth occurred despite the challenges that the operation of electronics and home appliances has faced due to the difficulties of the Brazilian retail market and the unavailability of parts and components.
In the charts below, we see recovery in the EBIT margin in Q3 2022 compared to Q3 2021. This is due mainly to higher volumes and higher revenues from the chemical's operation. The reduction in EBIT margin in the nine months of 2022 in the year-on-year comparison, in turn, results from the recording of a tax credit of BRL 12.9 million that was recognized in the nine months of 2021. If disregarded , we would have an EBIT margin expansion in 2022. In the middle of the slide, we see the evolution of the adjusted EBITDA margin that, in the annual comparison, is influenced by the same reason explaining the expansion of the EBIT margin. In the nine months of 2022, the margin gain reflects the good performance of the chemical's operation. Now moving on to slide eight, please. Here, we talk about the consolidated results of Tegma.
We can see that net revenue in Q3 2022 of BRL 416 million was 80% higher year-on-year. This increase comes mainly from the growth in number of vehicles transported, from growth in the chemical's operation and integrated logistics, and also from tariff adjustments made in both divisions, as previously mentioned. We also highlight the good performance of Fastline, our logistics operation for used vehicles, and the growth of logistics services in the automotive division. Below, in the third quarter 2022, both the EBIT of BRL 69 million and the adjusted EBITDA of BRL 88 million posted a great increase in the year-on-year comparison. The improvement in margins results from a better cost dilution of both divisions, which recorded an increase in revenue and with control of costs and expenses.
Lastly, on this slide, would like to highlight that net income for Q3 2022, which was BRL 53 million, increased 56% in the annual comparison. The net margin of 12.9% in Q3 was 1.9 percentage point lower than in Q3 2021. This retraction would actually become a 4.7 percentage point growth if we disregard the provision for legal contingencies in this quarter and the recognition of the credit in income tax in Q3 2021, both events that were previously mentioned. This result reflects the performance of the automotive logistics operations, as well as the company's wise decision to diversify, as shown by the positive results of the integrated logistics division and of the GDL joint venture. Added to this is the company's deleveraged capital structure at a time of high interest rates, which provided a sharp reduction in the company's net financial expenses.
Moving on, in slide 9, we show that the company's CapEx totaled BRL 8 million in Q3 2022, representing 1.9% of our net revenue. The most relevant investment in the period was the acquisition of six trucks, in the total amount of BRL 2.7 million for the automotive logistics operation as part of the plan to renew the company's own fleet. In addition, we made investments in maintenance of operations and investments in IT. Our cash- to- cash cycle in September of 2022 was 42 days, and this is a significant drop quarter-on-quarter due to the regularization of a commercial issue that had been dragging on since April 2021. The company's free cash flow in Q3 2022 was a positive BRL 41 million. This cash generation is justified mainly by the operational improvement of both divisions.
Other factors that contributed positively to Tegma's free cash flow in Q3 were the settlement of the aforementioned pending commercial issue, which contributed with BRL 13.5 million and the use of a tax credit in the amount of BRL 12 million. On slide 10, we see details of our capital structure, which has changed little compared with our June 2022 position. In the first graph, we can see that the current cash of BRL 137 million is much greater than the amortizations of the gross debt for the next two years, and that in 2022, there is no debt amortization to be performed. On the right of the slide, we see that the cost of debt remained at CDI + 2.2% in September 2022.
In the table below, on the left, we can see that our net cash position in September 2022 was BRL 71 million, thus reflecting the company's deleveraged structure. Lastly, on the right, our rating assigned by Fitch in April 2022 is A Local with stable outlook. Moving on to the last slide. Here, we first show the evolution of our return on capital invested, ROIC, and our return on equity, ROE. We highlight the ROIC of 21.8% in Q3 2022 in gray, 5.2 percentage point higher quarter-on-quarter due to the good performance of both divisions of the company, with a great control of expenses as well as working capital and investments. The recovery in ROE, in orange, is influenced by operating improvement with the good performance of the GDL joint venture in the period, as well as by the improved financial result.
Down below, we show the history of dividends and interest on equity paid by the company. In the gray line, we present dividend payout, which in the nine months of 2022 was 59% of the company's adjusted net income. In the orange line, dividend yield for the last 12 months, which corresponded to 7.2%. As shown in the quarterly highlights, the decision was made to distribute 58% of the adjusted net income of the third quarter of 2022. On the bottom right, we see our share performance compared to the Ibovespa index. Due to the recent improvements of expectations for the automotive market and the good results reported more recently, Tegma's shares have been performing better when compared with the Ibovespa index. Consequently, the multiples, as we can see below, have recovered. They have recovered to a level closer to our historical average.
With that, I thank you all for your attention, and I would like to open the question-and-answer session.
Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please dial star one on your touch-tone phone now. If you would like to remove your question from the queue, please dial star two. Mr. Tuba will be reading the questions coming from the webcast. Our first question comes from Luiz Capistrano with Itaú BBA.
Good morning and congratulations for the results. I would like to understand from you the expectation for the automotive industry in the coming months. I just want to understand what we should expect for the dynamics of the fourth quarter, particularly trying to understand your particularities in this dynamic. In other words, this market share is 25%. We would expect it to return, and we understand that the levels before were suboptimal, and that they were expected to increase again. Do you expect any volatility in the market share in the next quarters, given that the third quarter did not have a lot of problems? In Q4, does the trend remain? Can we expect stability in market share, volumes, and margins? I would be grateful if you could elaborate.
Luiz, t hank you for the question. This is Ramón speaking. There is a lot of information in your question, so I will try to answer, and then Nivaldo can add anything that he would like to add. First, speaking about the market in Q4. Obviously, it is very hard for us to be precise regarding the behavior of the market.
What I can tell you, though, is that October, in the month of October, in terms of registration of license plates, we saw a slight reduction of around 2% in the daily average compared to September. October had two business days less, and of course, that impacts a little. But the positive side is that we have consistently seen a reduction in our customers, in our major customers' operations stoppages, fewer stoppages. Some automakers have been choosing to reduce their shift instead of having a complete stoppage. Indeed, in the previous quarter, we saw that the automakers were a little more confident in the receipts of semiconductors, and then they chose to continue to manufacture unfinished vehicles. So that when they got the parts, they wouldn't have to stop and resume operation, so that when they finally received the parts, they would simply complete the vehicles that were semi-finished.
Our expectation for Q4 is kind of what is happening in October. You also asked about margins, right? As regard the margins, we saw a very positive improvement in margins in this quarter, Q3. This is explained by a number of factors. Of course, number one is volume, stronger volume. We were able to deal with this volume without needing to increase the costs and our expenses. There was also slight recovery of average distance traveled, and there is another aspect which contributes to this improvement, which is the recovery of some additional logistics services that also generate more revenue, such as yard management, pre-delivery inspection of vehicles, and transfer of vehicles. In addition to increase in our logistics services of used vehicles. You might be wondering, we also wonder about these margins, whether they will be maintained.
They depend on some factors that we do not necessarily have full control over, such as the mix between domestic market and external market, the mix of routes with different profitabilities. In a nutshell, we cannot guarantee that the margins will be maintained at the current levels. You also asked about 2023, right? Nivaldo will answer.
Hello, Luiz. This is Nivaldo Tuba. Thank you for your question. Regarding 2023, we are finishing our forecasting and budget for 2023 and getting information from ANFAVEA and automakers. I think the automakers tend to be conservative, and ANFAVEA tends to post slightly optimistic numbers. They understand that there should be growth of at least 5% in 2023. This 5% would be based on normalization compared to the first quarter of 2022, which was very much hurt by the lack of supply of semiconductors. However, there are other sources betting on a 10% growth.
Our position is very similar to what ANFAVEA is saying, which kind of matches what the automakers are saying. Regardless of the percentage of growth, there is consensus that 2023 should be a little better than 2022, with an expectation of reduced unemployment rate, reduction of interest rates, particularly in the second half of the year. There is an expectation of a small GDP increase. There are some one-time off facts with the automakers in terms of their sales expectations. Montana by GM, that will be launched, will compete with Strada. On the other hand, Volkswagen will stop manufacturing Gol and Voyage, and they will start producing Polo Track. Fiat, in recent years, launched the Fastback, which seems to be a great sales success. Luis, that is all we can tell and all we can say for now regarding 2023.
Perfect. Thank you very much, i t was very clear.
We will continue with the questions posed in the webcast.
Well, I am Ian, IR from Tegma, and I will be reading the questions that we get on the webcast. The first will be addressed to Nivaldo by Felipe Viana. 3R . Congratulations on the result. It was possible to see that you regained market share, normalized market share. How can you explain that?
Felipe, hello. Thank you for the question. Regarding market share, in this quarter, it was possible to see a strong growth in GM's volume. We also had a good performance of Volkswagen and particularly Tegma's greater market share in the volume of other automakers. How to explain that? Well, because there was a better sales distribution, more favorable in the regions where we operate the most. All of these factors contributed to increase our market share that returned to a more normal level. Looking forward, and perhaps you are wondering, it is kind of hard to say what is going to happen because the semiconductor crisis has not been totally over. Manufacturing stoppages cannot be disregarded and the mix of routes, which was quite favorable for us in Q3, is a variable that we cannot control for the coming quarter.
Felipe, if you have any further questions, we remain available. Now we will move to the question by Gui from Tarpon. Congratulations on the excellent results of the third quarter. What about the performance of the chemical's operation and household appliances? Question is addressed to Nivaldo.
Guilherme, thank you for the question. Well, the chemicals operation has been performing really well, very positively, particularly due to the increase in our transport operations and practically full storage of the products that we handle. On the other hand, the logistics of electronics and home appliances is suffering a lot, particularly depending on the macroeconomic condition of high interest rate, income and jobs still a little bit impaired, indebtedness of the families and restricted loans. Regarding Q3, we can see that our chemicals department is on budget and our home appliances, the white line areas we call it, is facing some difficulties.
Thank you, Nivaldo. Next question by Lucas. Considering the low leverage and a healthy cash position, does Tegma consider the possibility of increasing dividend payout? Ramón, this one is for you.
Thank you for the question. This is not our first option. As we have been saying in previous calls, we are pursuing a strategy to diversify, to increase our diversification of services. We have been making this very clear. It is important to have a differentiated portfolio. We are privileging the profitability of operations which are not linked to the automotive sector. They have been shown to be very positive. During the pandemic, we had evidence of the importance of diversifying, and so we have in mind a program of inorganic growth, and our first option is to use the financial leverage that we have to promote the inorganic growth that the company is pursuing. Having said that, no alternatives are completely disregarded, so this is just not our first option.
Thank you, Ramón. There is another question by Artur. The delayed receivables, have they been normalized? Can we still expect a positive impact on cash flow?
Thank you. Very good question. Past due receivables have been normalized. Those that were past due, sometimes there are administrative delays. As you know, we have a very differentiated credit condition compared to our customers. This has been regularized, but we don't expect any additional impact because the situation has been fully regularized.
Next question by Artur to Nivaldo. Could you give us more detail about the performance and expectation of GDL, and about the logistics operation of used vehicles? Nivaldo.
GDL is our joint venture in the Espírito Santo state. We provide integrated logistics services, and the results in 2022 were very positive. Very, very positive. There was an increase in the volume of cargo that was imported, stored, and handled. We have also seen a diversification of customers serving all kinds of segments, beverages, solar panels, the pharmaceutical industry, and so on and so forth. We had a favorable exchange rate and control of expenses and costs that have favored very adequate margins, and so GDL has had the ability to deliver positive margins very much on budget, and it has been able to distribute robust dividends.
The second question is regarding Fastline, our operation of used vehicles. Fastline has had a very positive performance in 2022. Very significant growth in volumes and particularly a diversification of the customer base. I am pleased to say that it is exceeding our expectations by far. In the second quarter, we started transporting motorcycles for specialized companies that rent motorcycles, and this is a market niche that has been growing in a very interesting way. That is it basically. Thank you.
Next question by Felipe Pinheiro. Good afternoon. Recently, there was news about a possible purchase of the Ford plant in Camaçari. Have you been contacted regarding that?
Well, we are following BYD, the relevant Chinese automaker, and I can say that through our subsidiary, GDL, in Espírito Santo, we receive vehicles that were used for prototypes, testing and approvals, and the vehicles that were sent to the stores. As regards transport, Tegma, our business area, through our management, Lucas is paying a lot of attention. We are working, we are participating in the operational process and the bid together with our competitors.
We will have a question asked by Pedro Pimenta. A verbal question.
Good afternoon. Can you hear me?
Yes, we can.
Congratulations on the results. One follow-up question regarding the roadblocks. Post-electoral results, are they impacting your operations? Other companies had trucks participating in the roadblocks. Can we expect any change in the market share that we saw in Q3? The second question about incentives. With the change in the federal administration, if we go back to previous years, we saw greater incentives to regions other than the southeast. Can we expect any upside as seen before?
Pedro, thank you for the question. Regarding the roadblocks, obviously we, just like all the other carriers, did suffer a little on Monday and on Tuesday. We tried to maintain a loaded fleet in-house, waiting for the roads to be freed. Those that were on the road, well, they ended up suffering a little. We had one day, one day and a half of operating interruption, but this is not going to have any impact on the market share. I can tell you that this morning, our radar has notified that all of our fleets are on the road. They are free to go.
Not only the vehicle transporters, but also the white line trucks and the chemicals trucks. So we are back to normal. You asked about the incentives. I think that it is a little too early to say what the Lula administration can bring in terms of incentives to the market. Still, Tegma is fully structured to supply any demand in the Brazilian territory that arises. Of course, we are paying attention to take advantage of all incentives that can benefit our operations, and particularly bring cost benefits to our end users, to our customers.
Perfect. Thank you.
As a reminder, if you want to ask a question, please dial star one. To remove your question from the queue, please dial star two. Please hold as we collect more questions. The question-and-answer session is coming to an end. I would like to turn the floor to Mr. Tuba to proceed with his closing statements. Please go ahead, sir.
Well, folks, thank you very much for joining us on this call. It is a Friday end of shift, but we had a lot of colleagues, investors, market analysts joining us, and this is very important for us. It is gratifying to see that you value our earnings conference call. On my own behalf, on behalf of Ramón, Ian Nunes, and all of Tegma's employees, and on behalf of the whole Tegma family, thank you very much for your attention.
This concludes Tegma's conference call for today. Thank you very much for your participation. Have a good rest of day, and thank you for using Chorus Call.