SIMPAR S A : Conference Call Transcription 4Q22

Operator:

Good morning, and welcome to Simpar's conference call to discuss the earnings of the 4Q22. Today, with us we have Mr. Fernando Simões, CEO; Denys Ferrez, Executive VP of Corporate Finance and Investor Relations Officer.

Right now, all participants are connected in listen-only mode. Later on, we are going to start 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, operating, financial goals and projections are based on the assumptions and beliefs of Simpar's management 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, will 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.

We will now 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 for the 4Q22 and the year of 2022 consolidated figures. On behalf of all our employees, I would like to thank you all for joining us today. We would like to thank our customers for the opportunity of work fracturing the services of our companies, through which we have been developing and are presenting our results. Once again, thank you very much.

I am going to start with page 2. We had a record EBITDA of R$7 billion in 2022. That is growth of 67% year-on-year. We had gross revenue in the 4Q22 of R$8.2 billion. Annualized numbers would be more than R$32 billion. This is growth of 74% year-on-year, if we compare the 4Q22 and 4Q21.

EBITDA in 2022 of R$7.3 billion. In the 4Q alone, EBITDA reached R$1.8 billion. This is growth of more than 40% year-on-year, already showing significant growth as compared to the last year and previous quarters.

Net income in the 4Q reached R$288 million. This is a drop of 21% year-on-year. We closed the year with a leverage structure of 3.5x. And remember, there's a lot of the CAPEX that has been realized, but it's still not showing results. So when you see 3.5x, if you see the annualized numbers, we have a lower leverage.

Net CAPEX, by the way, it was R$13.5 billion in 2022, more than 99% invested in assets, cars, trucks and et cetera, R$4.1 billion in the 4Q. The R$4 billion of the 4Q has not started operations yet. So we are not enjoying revenues, EBITDA or cost reductions. This is what I always say. You see the EBITDA today, but CAPEX has already been executed for future results. And we had a return on invested capital of 17.7%, up by 4.5 p.p. These are the main numbers for Simpar consolidated for the 4Q and the year of 2022.

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Now we are going to go to page 3. Here, I would like to highlight some of the pillars and the sustainability of our growth and development with profitability and sustainability to cope with adversities that sometimes we cannot control.

On page 3, we have the context for 2022. Macroeconomic and political volatility in Brazil and in the world, you know that. Inflation that dropped with higher interest rates. And interest rate is something that we cannot control. But we have the obligation and responsibility of trying to be more efficient operation to cope with the rising of costs and seize opportunities that the moment poses, but seizing opportunities with responsibility. And that's what we have done over the last 6 years.

If you remember what Brazil has gone through in the last 10 years, 15 years, it's no different. But it is a wonderful country, with proportional opportunities to volatility, and that we can navigate and we have been able to do that. We have been listed for 12 years, and you know that, with pillars that allow us to grow with responsibility. Culture and governance, people aligned by our values and culture, independent companies with focus, but with the unique ecosystem, a diversification of sectors and services, long-term contracts, and most of our growth come current services and current customers. 70% of our EBITDA is in long-term contracts, which gives us cash flow visibility.

We really do not do away with correct pricing of new contracts that will ensure results for the future. So we want to have not only services but services that yield results and that bring sustainability to the business. A solid capital structure, a stable leverage, long-term debt profile and the responsibility of investing businesses with resilience, in assets that are highly liquid, and, quite modestly, we can buy at a differentiated manner.

And we have scale and capacity to execute new investments, focuses on customer needs, which contributes to resiliency in the long-term, cash generation regardless of the volatility in the economic scenario.

It's important to say, why is our development, so resilient, with such good margins that gives us the comfort for the future? That's it.

So on page 4, we show our companies. These are all companies of Simpar with combined growth of 32%. Acquired companies grew by 25%. In logistics alone, 35%. So you are talking about 11x GDP growth. We have, again, long-term contracts that account for 70% of our EBITDA in the year of 2022 alone, we signed contracts were R$16 billion with an average term of 4.7 years. And here, you have the breakdown with being net revenues in services in each one of our companies.

On page 5, we bring you a bit more color for JSL with robust growth, pricing discipline and good pricing and continuous operational improvement. And you see that we have transformed results. EBITDA year-on-year grew by 62%. In the 4Q alone, 45% compared to 4Q21. Net income of R$224 million.

What is important to highlight here? The acquired companies have been really transformed in size. They grew approximately 35% organically in 2022. Our EBITDA margin increased 2.8 p.p., And we have new contracted revenues in the 4Q alone of R$3.3 billion, with a return on invested capital of 15.1%.

This is organic growth of the logistics. That shows the opportunity of the segment in which we are inserted, a diversification of sectors and services. JSL is the largest road logistics company in Brazil, with the largest service portfolio, which enables us to grow, increase partnerships, thanks to the trust that our customers have on us because of the work that our team performs.

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On page 6, we have Movida. Movida is a company that reached a new level of scale, transforming its strike prices in a fair way, with agility to monetize its asset base. It's closing the cycle in a mission that it took 24 months ago for transformational growth.

Capture customers. We have more than 1 million new customers, and it really met its challenge with excellence. With that, we grew our revenue EBITDA. We had a drop of 32% in our net income, but that was part of our strategy for us to transform and execute. Today, we have a company with scale, capillarity and more important, with infrastructure in terms of structure, systems, used cars ready for a new cycle.

And what's this new cycle? A cycle of operational efficiency, excellence in services. We have all processes digital, the newest fleet in Brazil, which gives us flexibility, not only renewing at lower tickets for the average cost in the purchase of new cars, but also to delay renewal if we want, which contributes to cash generation. And with that, the need of building infrastructure because we already have the foundation ready.

So we are extremely excited and happy with the execution of the last 2 years of our strategic plans and getting ready for a new side of better return, more value to shareholders and, after the cycle, start a new cycle of growth that is no longer mandatory for us to have clarity, but it is optional.

Remember, we have 10,015 cars in the end of last year, additional to its need, because we are changing the average ad and ticket mix.

Now on page 7, we have Vamos' main numbers with robust growth, gains in profitability and ensuring a new cycle of transformation with new customers, services and sectors. Thanks to the execution of its strategic plans, today, we have capillarity, inventory and the largest base of assets by car and customers, which enable us to have advanced purchases for the new and customer loyalty. With that, we had growth of more than 70%, both in the 4Q22 compared to 4Q21, and in the whole of the year of 2022, with growth of 80% year-on-year, and the 4Q, 89% above 4Q21.

So that shows we are increasing margins due to scale, with net income of more than 66% growth year-on-year, closing 2022 with R$669 million. In the 4Q alone, R$254 million, 18% margin and 116% growth compared to the 4Q21.

And here on this chart, you see the growth and the rental backlog for the Company from 2019 to 2022, R$13.7 billion backlog future revenue for the Company. And as a reminder, you probably saw the numbers in the press release, dealership margins have really transformed, especially in the Midwest, with farming machinery that substantially contributed to Vamos' results.

On page 8, we have Automob, the holding that consolidates all our light vehicle dealerships. It comes from Original, but with all the mergers and partnerships that we had, today we have 73 stores, 16 cities and 25 brands. The net revenue was R$5.3 billion in 2022, EBITDA of R$385 million in the year 2022, and in the 4Q alone, R$84 million. That shows, in annualized numbers, our potential of growth. Net income 2022 in R$165, million against the 4Q22 of R$53 million, and annualized numbers also showing significant growth.

This is a company with mergers and acquisitions made. We are integrating companies, a huge potential for synergies, many to improve used car sales per point of sale. This is something that we have had know-how for many years. So this is a company with huge potential for organic growth in the current points of sales, but also further acquisitions and consolidation in the segment, which is a huge opportunity in Brazil.

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On page 9, we have BBC Bank. This is a multiple bank with new products and offering new financial services in the Simpar ecosystem. You see our credit portfolio, which grew 95% year- on-year, and credit origination, 123%. This is completely independent, and in the ecosystem, it has its own results. It is building a scale, but more finance costs, farm machinery, trucks, agribusiness, that is, it is in Simpar's ecosystem and it will hugely contribute to our customer loyalty and to the sale of our assets, again, helping us offering differentiated services within our ecosystem.

And then, on the next page, CS Brasil. Remember, CS Frotas belong to CS Brasil and was merged into Movida, today it belongs to Movida. CS Brazil focuses on mobility and fleet outsourcing services, with driver for public sector and mixed ownership companies.

The public sector wants better management and for that, they have to outsource services. CS Brasil has also shown growth in the 4Q22, total net revenue of R$145 million, in 2022, R$550 million and net income of R$0.4 billion.

Now on the next page, we have CS Infra that has been developing a portfolio of concessions whose vocation is services with synergies for the Group. I believe this is almost a preoperational company. Ciclus alone, the largest waste treatment center of the world, receives more than 280,000 tons of waste per month. Then we have CS Portos, 2 ports, Aratu 12 and 18 that we won the concession, preoperational yet, but we are already generating revenue, and we are going to transform the port.

I have to admit that the demand that we have, companies that have been contracting us, is much higher than expected.

Transcerrado, in Piauí, a highway that is starting its first toll plaza until April. Then we have the BRT in Sorocaba, and in Cuiabá, we won the concession to refurbish the downtown Cuiabá, with the building of a shopping mall parking lot and we are going to have the right to explore the parking space of the city of Cuiabá.

So CS Infra has been specializing surgically in concessions that are turned to services. This is our specialty. And once again, this is a company with all those businesses still preoperational, that is, it is still under development and the return will come in two years' time.

On page 12, we show some of our financial highlights. So I am going to turn to Denys, our Financial VP for Simpar. Denys?

Denys Ferrez:

Thanks, Fernando. Good morning, everyone. Talking about the consolidated financial highlights on page 12, I am going to be quick because Fernando already mentioned them in the introduction, but what you see is a strong growth of revenue, EBITDA and EBIT.

In the 4Q, we reached R$7.4 billion net revenue, growth of almost 80% year-on-year. In the year, R$24,382 billion of net revenue, growth of 76% year-on-year. EBITDA with a total for the year of R$7 billion, margin 36.6%. Just as a remind for the purposes of covenants, we bring EBITDA of acquired company, not consolidated in our accounting. But anyway, it is a significant increase year-on-year of almost 70%. And in the 4Q specifically, we delivered R$1.8 billion, 40% growth compared to 4Q21.

EBIT for the year reached R$5.1 billion, growth of more than 60% year-on-year, and in the quarter, R$1.3 billion, 27% higher than the 4Q21.

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And when we get to net income, because of the strong increase on interest rates, remember that interest rates in Brazilian economy in the year 2021 was on average 4.5%, and in the year of 2022 it was an average of 12.1%, and that led to the income for the year totaling R$941 million, 29% below the previous year. and the controllers' net income reached R$482 million. In the quarter, R$288 million, down 21% year-on-year for the same reason, and the net income of shareholders kept the same proportion totaling in the quarter, R$117 million.

Now going to the next slide, slide 13, we show you, again, consolidating the figures for our debt maturity schedule and liquidity. In the Brazilian economic scenario, historically we have been able, and it was no different in the period, to keep a high level of liquidity. At the close of the year, we have almost R$15 billion in liquidity, that were reinforced with some transactions that were performed in the 1Q.

For instance, we raised about R$1.5 billion, R$850 million at Simpar level and R$650 million at Vamos, with a very extended period, up to 2030. Still in the 1Q, we had some early settlements of debt, reaching R$1.3 billion, R$238 million of early settlements at Simpar and R$1.1 billion at Movida. In the interactions with you, you have not seen that.. These were settlements that were expected for the years of 2023 and 2024.

And we also repurchased our own bonds in this quarter, in a total amount of R$350 million, 2/3 of bonds for Simpar and 1/3 for Movida. When you take a look at this picture and you see the debt amortization schedule, we see that we have a very comfortable position, with no pressure for any rollover in the mid or short term.

So, in a very conservative way, due to our growth, we have always brought the cash position before our need. So this is a takeaway message to give you the comfort for those that have been investing with the Group.

On the next slide, slide 14, and still along the same lines, I would like to give you the view of the holding. You see that our liquidity position is also very healthy, about R$3 billion at the end of December, reinforced by the funds raised in the previous slide, so almost R$4 billion, R$3.8 billion.

Once again, with this, we also have a very long amortization schedule, more concentrated for 2031, and we removed everything that was in the short term that we settled before ahead. So that holding is also in a very healthy position, preventatively keeping a high level of liquidity.

And what I wanted to show you is that our indebtedness of R$3.6 billion originated in the creation of value for the different companies under development, and the valuation of these companies, the most relevant being listed companies, is R$12.6 billion, which is more than 3x the indebtedness of the holding. So, in cash flow or valuations, and value created by Simpar, we are in a very comfortable position.

Going to the next slide, and still talking about indebtedness, here I bring to you a picture of what we have in our subsidiaries. You know that funds are raised for the purchase of assets, light or heavy. Basically 90% are cars and trucks, with an average age of 1.3 years for cars and 3 years for trucks. So, a very new asset base.

These cars and trucks total, together with some other items at market value, R$140 billion. So when you get the liabilities associated to those assets, because it's not only the net debt of our operating companies, but also suppliers' vehicles and equipment, it shows a coverage of 1.5x. So again, a very solid position under the point of view of the creditors. So the money is being allocated in assets that are highly liquid, with coverage of 1.5x.

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