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Oct 31, 2012

Getting the story straight

Localiza Rent a Car’s Silvio Guerra explains his principles of good IR

A lot of IR professionals talk about an investment story, but few can reel off a narrative as complete and coherent as head of investor relations Silvio Guerra does for Brazil’s Localiza Rent a Car.

He leads with consistency: profit growth for the last 15 years, reliable cash flow and a strong balance sheet.

LocalizaThen there’s Localiza’s simple but flexible business model: raising money, buying cars, renting cars, selling cars – no financing or insurance or adventurous M&A. If the wider economy grows, Localiza can ramp up its fleet; if it contracts, it sells some off.

Next up Guerra cites credibility and stability in management, with executives spending several decades in their jobs.

Corporate governance and disclosure are also assured because Localiza is listed on the Novo Mercado, the Brazilian exchange’s top-tier listing platform, and is typically the first Bovespa issuer to announce results, just 13 days after the end of each quarter.

Focus on the bigger picture

As for the macro picture, investors like the prospects of Brazil’s young and highly promising consumer sector, not to mention the country as a whole.

Plus, car rental is a young sector in Brazil compared with other countries, having begun as recently as the 1960s, and only 5 percent of commercial fleets today are outsourced, compared with 50 percent in many European countries.

Anyone meeting Guerra is offered an entire menu of options. If you’re a new investor and want the whole history, he’ll go over the company’s entire strategic playbook.

If you’re already familiar with the company but don’t know what to ask specifically, he’ll cover his latest list of frequently asked questions. Alternatively, you can cut straight to a Q&A session if that suits your needs.

Keep your eyes on the prize

Guerra makes no bones about his end goals – liquidity and valuation – or his success to date. Since listing in 2005, Localiza’s daily trading has grown to around R$32 mn ($16 mn) and its value has gone up 933 percent, putting it among the top 20 Brazilian firms in terms of shareholder return, according to the Economatica database of Latin American countries. ‘Those are my objectives; this is my performance contract,’ Guerra points out. ‘And that’s the result: liquidity and valuation.’

Guerra and his team also closely track Localiza’s operational performance, maintaining a document they call Car Rental 101, which benchmarks Localiza against worldwide best practices in the car rental business, including use, age of cars and other key performance indicators (KPIs).

Anyone working with Localiza’s IR team is a candidate for KPIs, too. For example, Guerra sets clear targets for every non-deal roadshow with one of the 18 brokers covering the company.

‘I want at least 1 percent increase in daily share volume and I want to meet new faces,’ he says. ‘I need to know whether a non-deal roadshow is a success or not.’

Stay lean and stay organized

Localiza’s investor relations team has one manager and three assistants in addition to Guerra, and standing policy dictates that every phone call or email gets answered within 24 hours. The team is always in training, Guerra adds, whether it’s at investor conferences or in seminars.

As a road map, the team has a color-coded ‘IR year planner’ and clear yearly quotas: 10 international investor conferences, 10 Brazilian investor conferences and two non-deal roadshows, one in the first half of the year and the other in the second.

Agent of change

Localiza’s head of IR Silvio Guerra is a busy man with an even busier mind that has produced an intriguing proposal: IROs could transform society by applying the principles they follow every day – transparency, fairness, consistency and corporate responsibility – to the public sector.

‘There are 5,562 cities in Brazil with City Halls that could adapt IR practices, practices that could transform the world,’ Guerra asserts. He even ventures to suggest that increasing transparency and following other IR rules in the public arena could contribute to solving the global economic crisis.

This novel manifesto was laid out in an article Guerra penned for the April issue of Revista IR, Brazil’s investor relations journal, entitled The IR professional as agent of change in Brazil today.

Factor in various other interactions – from conference calls and one-on-ones to site visits – and the investor relations team lays claim to 1,200 meetings a year, all carefully logged in the department’s customer relationship management system.

Localiza’s chief executive, CFO and COO are all heavily involved in the company’s investor relations program and Guerra promises investors that if they come to headquarters in Belo Horizonte (Brazil’s third-largest city and the capital of the state of Minas Gerais), they can talk to any of these C-suite executives, provided they are there that day.

Focus on the next rung

In fact, Guerra maintains an open-door policy 52 weeks a year, whether for site tours for individual investors or field trips for groups. Mostly it’s visits to headquarters, where the fleet rental business is managed, but investors can also visit any of Localiza’s 500 car rental counters scattered throughout South America.

‘As Warren Buffet would say, if you want to invest in a company, you need to buy the product or know the service the company is providing,’ Guerra says.

For foreign investors, Localiza holds an international day in London and New York every two years, while individual investors in Brazil are catered to in meetings set up by local brokers.

In the beginning, Localiza targeted Brazilian portfolio managers. Then it began targeting Latin American funds and emerging markets portfolios. ‘Today we’re talking to the global portfolio managers. The scope and amount of money at each step has become bigger,’ Guerra says.

On average, foreign investors buy more than 70 percent of Brazilian IPOs and, since listing, more than 80 percent of Localiza’s free float has been held by non-domestic investors, concentrated mainly in the US and Europe.

One of Guerra’s main challenges in 2012 has been to make the most of Localiza’s new ADR program, which was launched in June.

In September the company took the next step by joining OTC Markets’ OTCQX platform and has been busy doing non-deal roadshows aimed at ADR investors. ‘We’re going after ADR success,’ Guerra promises.

Reaping rewards

Localiza’s IR showed its colors right out of the gate, winning best IR for an IPO at the IR Magazine Brazil Awards 2006. Head of IR Silvio Guerra won best large-cap IRO in 2010, 2011 and 2012. Localiza also won the large-cap grand prix this year.

Awards survey respondent comments
‘Knowledge of business and consistent results are explained clearly and simply.’

‘The company has an IR team that is accessible for its size, making it extremely easy to set up a meeting or call with the CFO, IRO or other senior management. Moreover, the knowledge the IR team has about the company is substantially larger than most, taking a deep approach in all respects. The firm has been very well prepared with a huge presentation (comprising hundreds of slides) with the answers to all questions since the IPO, generating an accumulated knowledge base I’ve never seen at any other publicly traded firm. Finally, it offers a very high level of transparency in its numbers, with historical data in Excel dating back six years before the IPO on a quarterly basis, which helps a lot in the analytic process.’

Taken from IR Magazine’s Estudo de Percepcão do Investidor, Brasil 2012