SIMPAR S A : Conference Call Transcription 2Q23

Operator:

Good morning and welcome to the conference call of Simpar to disclose the earnings regarding the 2Q23. Today with us are Mr. Fernando Simões, CEO and Denys Ferrez, Executive Vice President of Corporate Finance and Investor Relations Officer.

Right now, our participants are in listen only mode. Later on, we are going to start with the Q&A session when further instructions will be provided. Should any of you need assistance during the conference call, please reach the operator by pressing *0. We would like to inform you that this conference call is being recorded and simultaneously translated into English.

Before moving on, we would like to let you know that any statements made during this conference call relative to the Company's business outlooks, projections, operating and financial goals, are based on Simpar's management beliefs and assumptions and rely on information currently available to the Company.

Forward looking statements are not a guarantee of performance, they involve risks, uncertainties and assumptions since they refer to future events, and therefore depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors, may affect the Company's future results and lead to results that will materially differ from those in the forward looking statements.

Now we are going to turn the call to Mr. Fernando Simões. Please, Mr. Simões, you may go on.

Fernando Simões:

Good morning, everyone. We are starting the release of Simpar's earnings. On behalf of more than 45000 direct employees we would like to thank you for joining us. Starting on page two, we talk about the main financial highlights for 2Q23. Strong operating performance in subsidiaries with record revenue and EBITDA. A record EBITDA of R$2,3 billion in the 2Q, which means an increase of 33% compared to the same period last year.

Here, still on page two, below, we have the main numbers and the variation of these numbers compared to the same period last year. Gross revenues in the 2Q23 was R$8,4 billion, annualized it would be R$33,6 billion. That means an increase of 42% when comparing the 8R$,4 billion over the same period last year. Net revenue of R$6 million, which is an increase of 46% and EBITDA, as already mentioned, above R$2,3 billion, with net income of R$100 million, a reduction of 53%.

A capital structure and leverage with 3,5x, but if normalized would be 3,4x. We had net capital expenditures of R$580 million, a reduction of 84% over the same period last year. That shows that our growth in revenue, our growth in EBITDA, with a lower CAPEX, means that we are enjoying all the investments that were made in CAPEX last year.

Remember that not all of them are already in operation, the CAPEX invested last year, and not all of them generate results, in revenue and EBITDA that will yet come in the next quarters, which means that you can see lower CAPEX in the next quarters, but higher revenue creation, better EBITDA, given gains in scale and optimization of resources. Return on invested capital, 30,3%, an increase of 16,5p.p., normalized 13,2%.

Now I am going to page three, in which I talk a bit about our positioning. We developed and created solid foundations in our businesses, leading to a new level for the creation of long term value. Without creating expectations, but inviting you to think about this.

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After these three years, the building of these bases and a potential drop in interest with all CAPEX executed, implemented and part that is still in operation with everything that we have to do based on already built developed foundations, we believe in a result of profitability and profits that it is really differentiated in the near future.

And remember, all this with people that are committed with strong culture and values, which was crucial, not only for our transformation but also for the development of the new cycle with business fundamentals with major resilience.

And the result of this you see on page three, to the right, with the EBIT of the last 12 months, the transformation of the 2Q23 compared to the 3Q20. Reminding that without the implementation of our inventory assets, without the revenue of the last 12 months, some of them only the last quarter, the two last quarters. So without creating expectations. I invite you to think about the potential of transformation, not only of our operating results, but also future profit.

Now, on page four, we talk about JSL, and I would like to bring you some highlights. JSL has had consistent evolution through organic growth, but also extremely strategic acquisitions with major potential to grow, all of them in markets of great resilience and alliances and logistics services within the main industries and sectors in Brazil, food, automotive, commodity. This is what brings major resilience and potential for growth.

You can see that the acquired companies grew more than 22% a year after acquisition. JSL Logistics itself grew more than 13% in the last three years. Year to date, that is growth of more than 25% a year from 2020 to 2023. Thus, thanks to strategic services and alliances with the major customers and sectors of resilience, as I said. That shows that sometimes you will have an acquisition with an EBITDA multiples of 4x and with the growth of two years, the multiple becomes 3x. So it is continuous and consistent value creation.

And it is even clearly when you see on the same page, on the right, that we had an EBITDA of 2020 of 432 million and EBITDA of the last 12 months of the 2Q23 is 1,283 billion, which means growth in EBITDA of 197% in the last three years, whereas revenues grew 137%. That shows gains in scale, synergies after acquisitions and the scale that brings a reduction in the cost of main inputs and improves margins.

And what is very interesting, in a market that is still fragmented with huge potential to grow and that the main industries want companies that are reliable to them. And the companies that have the opportunity to grow are not structured to transform and seek to be bought by a fair value, which contributes even further to a potential transformation to shareholders.

On page five, we talk about Movida. Movida started a new cycle of development, and its priorities are the mission of its excellence and operational efficiency. In the 2Q23 you see in Movida's main numbers the beginning of this transformation, but I would say that it is such an incipient start, you know, that it was already planned in Movida to start changing the fleet mix.

Remember that it was part of our plan to buy more expensive cars. With that, we have rented cars with an upgrade to customers. They paid for less and received more. It was what we had available to buy. But with the automotive industry already normalized, you have cheaper cars to buy.

So Movida is changing its fleet mix. It will keep or improve its revenues and daily rates. The change brings an improvement in yield, but more than that, you have more fleet availability because cheaper cars have less maintenance, less services. The cost of services is cheaper than more expensive cars. So you are going to see better results in the coming quarters.

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And also remember that the cars that are being bought today, in 12 to 18 months are going to be easier to sell which will create even more value to the Company. But you see with less cars in 23 than we had in 22, we had an increase in revenues and we have a growth in the generation of EBITDA through services and are less dependent on the sale of used cars.

In the 2Q22, 23% of EBITDA came from used car sales. In the 2Q23 it is only 11% from the sale of used cars, but the total EBITDA is almost the same, 890 million against 905 million. That shows transformation, an EBITDA creation, coming from services and not used car sales.

Still on page five with Movida you see the size of the Company in its transformation. From 2017 to 2020, the Company grew more than 50%, but from 2020 to 2023, in line with our plans and the excellent work that was performed, the Company went from 118 cars to 240,000 cars. It was a growth of more than 70%.

And still on the same page you will have in the bottom this comparison since the IPO. The net revenue of the Company in 17 to 23 grew 330 and EBITDA grew 988%. That shows the capacity of our teams to execute and create value and deliver.

Remember that from now on with this new cycle we do not have the need to expand and hire. The Company is ready with solid foundations, and from now on we are going to focus on efficiency, improved returns, more creation of value to shareholders and more customer loyalty.

On page six, we talk about the main highlights of Vamos. Vamos has had continuous increase in scale, operating excellence and focus on the execution of its strategic plans, ensuring growth and sustainable development. The Company's net revenue grew in the last three years, almost 50%, going from R$824 million to R$2,737 billion in the last 12 months in rental alone, which shows growth of 49% a year in recent years.

We had net revenue from dealerships with growth also in the last three years of more than 75%, with revenue in the last 12 months of R$3,673 billion, also a transformation in the dealership segment. All of that with a unique ecosystem, buying, selling, renting, buying and selling used assets.

And here you have some of the main highlights, which is the Company's backlog growth. More than revenue, the backlog has transformed. We have more than R$16 billion, the deployed CAPEX in the six months of 2023 was 2,4 billion, which increases even further our backlog. And we still have the strategic inventory of Euro 5 trucks that has been paid, you have seen that but it has not yet translated into revenues, which even contributes for better numbers.

And to close, when we compare the Company at the IPO in 2020 to 2023, you will have a transformation of 290% in net revenues and EBIT of 283. Remember that we had growth in dealerships with generally lower EBITDA, but still following the growth in revenue closing the last 12 months with R$2,440 billion, an net income of R$680 million.

Which shows a transformation of the Company numbers but more important, in a segment of queued opportunities, continued development in the future, which is the rental of trucks, machinery and equipment without services.

Now we are going to go to page seven when we talk about some of the main numbers of Automob, which is the dealership network we have developed, consolidated and is today one of the largest networks of cars and light vehicles. 91 stores, 18 cities, 26 brands.

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We have built one of the largest groups of dealerships in the country with a diversified portfolio of premium and economic brands, but also in several regions in the country with a unique positioning and huge opportunities in synergy and different strategy.

The Company went from 1,2 billion when it was Original, to R$6,3 billion net revenues combined in the last 12 months. We had important growth in the sale of cars in retail, a growth of 33% in the period, comparing 2Q23 to 2Q22. And in new vehicle sales, we grew 30%, used car sales, an important growth of 38%.

The numbers do not represent in full the growth of the 2Q23. Because of availability, a large part of cars were sold in June but only invoiced on July 23 and therefore will only show in the results of the 3Q. We have had extremely strategic complementary strategy, gained scale and significant brands as the last move with Toyota, where we acquired, depending on the consent of the OEM and CADE, the region of Guarulhos and the eastside of San Paolo, the largest region in Sao Paulo, to be representative of the Toyota brand.

We are very proud of this and we have already had a share in that, we are further increasing the share and relationship with such an important OEM as Toyota.

And we have the transformation we show on page seven to your right, in numbers, comparing 2021 to the last 12 months, 23. We grew in retail sales, 289% going from 2 to 26 marks, 42 a 91 stores, an increasing revenues from 732 million to 6,073 billion net revenues, EBITDA of 350 million, that is a 6% EBITDA margin.

Without creating expectations, we are still at a very incipient move being able to collect synergies of our companies. In all our mergers we have been paying attention to people keeping in management, efficiency of sales and consolidating administrative areas in a surgical way. But the potential for F&I, complementary sales, increase of sales per unit is still incipient and you are going to see in the future better synergies and margins.

Now on page eight, we talk a bit about CS Infra. We have a port, the Port of Aratu 12 and 18, a concession we won. It is still pre operational based on investments made. But you still see the strength of our revenue, of 50 million in the 2Q and we had expected a lot less when we took part in the bid.

We are refurbishing, transforming and rebuilding warehousing, but the port continues to develop, generating revenues above expected and creating with customers on prospects a long term commercial alliance. Consistent numbers, still, I believe it is pre operational, but in a market that has a huge potential to grow. TThe port will be in full operation in the second half of 2025.

Now on page nine, we talk a bit about the Piaui Highway, Transcerrados. This is a completely pre operational Company being developed, but already with two toll plazas, work is ongoing and should also be in full operation, according to our plans, as of the 2Q24.

On page ten, we talk a bit about Ciclus. We have the largest waste treatment center in Brazil, one of the largest in the world. We received more than 290,000 tons of waste per month. Today we sell 1,8 MWh of energy in Light's network. We have a potential of 8,4 MWh after the implementation of motor generators. We have the BRT of Sorocaba completed on December 23, fully operational, and we have the concession of CS Mobi, which is the building of 120 retail stores, 500 parking places.

But together with that we have the concession of all the parking area in the city of Cuiaba urban assets in concession with a vocation in the provision of service, which is our focus, less CAPEX, more services, creation value and to customers, resilient revenues and sustainable

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value to our shareholders, without ever impacting in a negative way the other mobility businesses that we have.

On page 11, we have CS Brazil our fleet outsourcing with drivers, in public and mixed ownership companies, a Company that grew 17% in 2022, or for the 2Q23 annualized, we reached R$316 million in net revenues from services. We sold the Consorcio Sorocaba, we kept the BRT, but we are no longer providing urban transportation services in the city of Sorocaba.

On page 12 we have BBC, our Bank. Remember that it is part of our ecosystem, it is part of the financing of our cars, trucks, truck van trailers and it is a business that is complementary to ours, thus contributing to the development of our ecosystem. In credit origination you see growth of 28% in the 2Q, 469 million in the last 12 months, year to date, 2Q23. A portfolio that grew 23%, closing the 2Q with a credit portfolio of R$570 million.

In the 2Q23 the highlights is that the financial intermediation revenues, 28 million, an increase of 85%, a funding balance of 514, an increase of 118 and a Basil index of 16,4. This is a Bank that is extremely focused on Simpar's ecosystem with a huge potential to growth without affecting the other business, but rather in a complementary manner. And as of the next quarters we are going to see its breakeven and more and more, its sustainable development.

On page 13, I am going to turn to Denys, who is going to talk about the main financial highlights of our Company's consolidated numbers. Denys

Denys Ferrez:

Thanks, Fernando. Good morning, everyone. On page 13, I talk about the financial highlights, consolidated numbers. To the left, net revenues in the 2Q23 totaled R$7,564 billion, an increase of 40% compared to the same period last year. Year to date, we are very close to R$30, R$29,168 billion when we talk about the last 12 months. And compared to the full year of 22, this is already an increase of 21%.

To the right, we talk about EBITDA. In the 2Q, EBITDA also had a strong increase compared to the same period, 33% up, totalling R$2,267. When compared to the last 12 months ended in June the 30th this year, the total EBITDA is R$8 billion, an increase of 14% compared to the total of the year 22.

A brief comment here, the EBITDA used for our covenants has the benefits of the last 12 months of EBITDA of the acquired Company. So this number of 8 billion would be a total of 8,254 billion when we add to this part, that is still not translated into results. EBIT amounted to, in the 2Q, R$1,6 billion, also strong growth compared to the same period last year, 23%, and year to date in the last 12 months, it amounts to R$5,6 billion, an increase of almost 10% when compared to the 12 months of 22.

To conclude net income in the 2Q, we had R$100 million. This is a significant decrease compared to the number presented in the same period last year. And there are some implied factors here: the increase in interest rates that we had in the period, which started a reversal cycle, apparently, if you think of the future interest rates curve. A new phase of Movida, that after considerable growth in the last 12 months ended in December 22, now is going through a period of resizing that should prepare it for better returns as of the year of 24.

On the positive side, we had a one off contribution this quarter irrelevant of our M&A activity, that has been extremely important to create value for the Group. As for numbers year to date, in the last 12 months we had as a result of this effect, a total of R$576 million in the last 12

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