Fernando Antonio Simões of JSL explains how the company is commanding logistics
Brazil-based JSL prides itself in offering its clientele not only the most extensive portfolio of logistics services in the country but also the most competitive. The company proved a leader in its sector in terms of net revenue and has experienced impressive growth over the past year, predominantly in areas including steel, mining, agribusiness and consumer goods. In the first five months of 2011 the group announced new contracts totalling an estimated R$1.130bn. Nearly half of the new business falls within agribusiness, while the mining and steel sectors take up 13 percent and 16 percent respectively. JSL has a rock-solid history of successfully intensifying its services to serve its partners’ and clients’ logistics processes. The company attributes its success to its broad array of integrated services that provide cross-selling prospects, streamlined decision-making methods, and a strong reputation and economic positioning. The logistics group persistently rethinks its strategies and in an organic way adds new lines of services to its portfolio, expands the range of services and speeds up growth search for tactical acquisitions, to remain a frontrunner within the industry.
JSL recently reported 2Q11 results that showed that revenue increased by 36.7 percent to R$654.5m. Net income has also risen by 35 percent to R$9.1m. What in particular caused the improved performance and growth?
JSL’s gross revenue came to a total of R$1.210bn in the first half of 2011, a 33 percent increase on the same period in 2010. The second quarter of the year also followed this trend, with a 36.7 percent increase in revenue, resulting from a 21 percent gain in services, which had positive performance in all business lines, particularly dedicated services to the supply chain and management and outsourcing, which together represented more than 73 percent of JSL’s operations and are considered to be the most strategic business lines, given their high added value in the customer’s logistics chain. If we consider only the contracts that already exist, growth stands at 13.5 percent in the quarter. The addition and maturity of new contracts negotiated by JSL at the end of 2010 and during the first five months of 2011, which totalled R$3.6bn over the course of 10 years, also contributed R$95m in the quarter, most of which originated from cross-selling, which is the addition of services to existing customers. The resale of assets also contributed to the expansion of business, since this is made directly to the customer, via our network of 12 used vehicle stores, located in seven Brazilian states. This maximises the value of the sale of assets after their use in our services.
How does JSL finance this impressive growth?
As the majority of our assets are trucks, trailers, buses, machines and equipment, we mainly use special FINAME financing lines, which are offered by the Brazilian Development Bank (BNDES) at highly competitive rates. It is important to note that acquired assets are tied to long-term services contracts and, therefore, they guarantee future cash generation.
We are continuously working to improve our debt profile through corporate funding operations. These lengthen the amortisation timetable, including the issue of debentures with longer maturities, in order to support a constant cash balance to cover net debt in the short term and ensure comfortable levels of liquidity.
What is the expected revenue for 2011 and further ahead?
JSL posted gross revenue of R$2.3bn last year and formally released to the market its expected revenue growth of 25 percent in 2011. We are quite optimistic and believe that we can maintain current rates of growth due to the performance of existing contracts and revenue from the new contracts entered into in 2010 and the first few months of 2011. Furthermore, growth will be driven by new business, supported by a strong trend towards the outsourcing of logistics services by large corporations. There is a growing demand for logistic service providers with expertise, financial solidity and investment capability that can provide customers with tailor-made, quality services at the best benefit-cost ratio for their production chains.
By the end of May JSL had negotiated new contracts worth around R$1.13bn. Almost half of those were dedicated services within the Agribusiness sector. In which other sectors did you gain new contracts?
Aside from agriculture, other sectors are generating revenue, particularly the electric energy sector – the first agreement in that sector was signed in 2010. That saw an increase from 0.4 percent of service revenue in 2Q10 to 2.6 percent in the same period in 2011 after the management and outsourcing of fleets for distribution power lines maintenance. Furthermore, steel and mining also posted an increased share of revenue, from 7.4 percent to 12.2 percent of service revenue, between 2Q10 and 2Q11, with a complete service package that includes dedicated services, passenger transportation and management of fleets with drivers.
What are the key economic sectors in which JSL is currently growing?
We work across more than 15 economic sectors, including the paper and pulp, public services, passenger transportation, automotive, steel and mining sectors. Furthermore, a number of other sectors have generated opportunities for the outsourcing of logistics services, such as the dedicated services and equipment rent for agribusiness sectors to mechanise the sugarcane harvest, as a result of legislative requirements that eliminate burning. The mining sector also presents a number of opportunities spread throughout remote regions in which customers seek professional suppliers that are prepared to implement large projects similar to those we recently signed in Northern Brazil. This includes the chartering of buses to transport employees to mines, management and rental of light vehicles with drivers, and dedicated services such as road maintenance and loading, transportation and unloading of iron ore. Furthermore, we cannot forget all of the other sectors, such as the electric energy, chemical and food sectors, in line with our strategy to diversify revenue sources and ensure an improved balance in revenue distribution.
With regards to Capex, we have invested R$881.6m in the last 12 months, mainly focused on trucks, machines and light vehicles. In being tied to specific service agreements that often stipulate a minimum operational volume, these investments guarantee future cash generation.
What are JSL’s competitive strengths and strategies and how do you use them to benefit your clients? What sets you apart from your competitors?
We have proven our capacity for organic growth, which is sustained by efficient commercial and financial strategies, without forsaking the development of corporate governance.
Our leadership and history of strong growth has put us in a great position to take advantage of existing opportunities, developing and implementing customised logistics solutions with an extensive portfolio. This means that our customers can count on us to structure and maintain operations through our understanding of their needs. We also possess scale in the acquisition and management of assets, which guarantees the best negotiating conditions in purchasing and greater returns on resale. It is important to note that we have been quite successful in attracting and training human capital, our greatest asset.
Another advantage we have over our sector peers is our well-distributed presence in a number of sectors and a large number of customers, which helps to ensure reduced exposure to changes in scenarios and the market.
There are tremendous investment opportunities within logistics and infrastructure noticeable in Brazil currently. Explain how these can be turned into an advantage for JSL.
We believe that massive investment in infrastructure in the country, both current and planned, will result in opportunities for JSL. It is estimated that preparation for the World Cup alone will lead to direct investments of nearly R$22bn by 2014 in Brazil, which should lead to five times that in economic impact in several sectors and more than $14bn in direct investments for the Olympic Games, with the same multiplication of effects in the years to follow. As the largest logistics service provider in Brazil, we believe that JSL has a unique portfolio to take advantage of this growth, even though the company has thrived in the existing economy, independent of the impacts of these events. This is the result of a current customer base that is exposed to the growth of the domestic market in Brazil.
What is the nature of JSL’s corporate social responsibility? How closely does the company work with its community to achieve common goals?
JSL maintains Instituto Julio Simões, a non-profit organisation that seeks to strengthen social work and the development of communities in which it operates, investing in programmes aimed at traffic safety, professional education and the environment. In 2010, Instituto Julio Simões directly or indirectly benefitted more than 55,000 people in 65 cities that were served by its projects.
JSL is present in more than 15 Brazilian states, often in remote and underprivileged regions and small communities, meaning that our growth is a fundamental part of the social and economic development of these regions. We are the main employers in a number of locations, generating effects that multiply within local economies. An excellent example is our recent operation in the mining sector in Northern Brazil, where we hired more than 900 employees in less than two months. Furthermore, one paper and pulp operation in the Northeastern region employs 400 people in one of the poorest cities in all of Brazil, nearly all of which are local employees.
What will prove the biggest challenge to JSL in the coming years?
We are certain that we will continue to grow in the face of future demand for logistics services in the country and we are well aware that our greatest challenge is to keep up with development without losing what makes us who we are, such as the quality of our services. That’s coupled with our history of entrepreneurship and skills in customisation, flexibility and the capacity to predict and analyse our customers’ logistical challenges. All of this must be done while maintaining the objectivity and simplicity that characterises the company’s daily activities and constantly improving our processes, controls and corporate governance practices.
Being a company based on intensive human capital, we must continue to attract, train and maintain committed personnel, developing individual skills and organisational values in an environment that often lacks qualified labour during times of accelerated economic expansion.