SIMPAR S A : Conference Call Transcription 1Q21

Operator:

Good morning! Welcome to Simpar's conference call to discuss the results for Q1'21. Today we have: Fernando Simões, CEO and Denys Ferrez, Administrative, Financial and IR Director.

At this time, all participants are connected as listeners only, and later we will start the Q&A session when further instructions will be provided. If you need any assistance during the conference call, please request assistance from an operator by pressing asterisk zero.

Please be advised that this conference call is being recorded and translated simultaneously.

Before proceeding, we would like to clarify that any statements that may be made during this conference call, regarding the Company's business prospects, operating and financial projections and goals, represent beliefs and assumptions of Simpar's Board of Executive Officers, as well as current information available to the Company. Future considerations are not guarantees of performance. These involve risks, uncertainties and assumptions, since they refer to future events and, therefore, depend on circumstances that may or may not occur. The general economic conditions, industry conditions and other operational factors can affect the company´s future results and may lead to results that are significantly different from those expressed in such future considerations.

Now I would like to turn the floor over to Mr. Fernando Simões. Please, Mr. Fernando Simões, it is your turn.

Fernando Simões:

Good morning, everyone. I want to thank all of you for participating. We are starting the release of Simpar's Q1'21 results.

Let's start with page two. On the left side, we had adjusted net income of BRL 204 million, 145% higher than the same period of the year, 7.8% margin, and if we take out the small non-recurring adjustments, the book net income is BRL 171 million.

We had a net service revenue of BRL 2.2 billion, which means an increase of more than 30%. An EBITDA of BRL 734 million, which means a margin of around 33%, with an EBITDA increase of 30.6% in the same period. And, very important, a transformation in the average term of our indebtedness, which went from 4.3 years to 8.4 in Q1'21.

We also had other highlights in Q1'21. Our results are solid, showing the resilience and fundamentals of our businesses and companies, demonstrating the capacity of our managers. We always say, and I would like to reiterate, our team and people make the big difference in our business and in these difficult times we are going through in 2020, and Q1'21 is no different, this is evidenced by our numbers.

We made our in succeeding as CEO of JSL, in line with our strategic plan. We acquired 25% of Fadel. With this, Ramon Alcaraz assumes the presidency of JSL Logística, in line with our planning, with a CEO in each company, with exclusive focus. Then, I remain as Chairman of Simpar and of the Board of JSL Logística.

I would like to take this opportunity to highlight the strength of our balance sheet of all our controlled companies. Our indebtedness with a longer debt amortization period, at a lower cost; the companies, each with its capital structure extremely prepared for the new development cycle. Remembering that we are always focused on decreasing our leverage even more.

It is important to emphasize that we are prepared for the new cycle of growth and development. In recent years, we have been building foundations with large investments in companies, transforming them into a unique and differentiated position.

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Today, the companies controlled by Simpar, all of them, have a great potential for development, either by replacing the property with the leasing of light assets in heavy machinery and truck equipment, and in consolidating the logistics market in Brazil.

With great humility, we start every day as if it were the first day we are working. But we have a team, a manager and companies in segments and sectors with great potential for growth and transformation.

We now move to page three, where we present Simpar, which is a listed company with six subsidiaries, three of which, JSL Logística, Vamos and Movida, are listed companies, we have approximately BRL 12 billion only with Simpar's participation in these three companies.

We have some goals and some of our main objectives at Simpar. Some of them are: directing, controlling and ensuring that the plans of goals and objectives directed by the board of each company are being executed, and, if necessary, Simpar also supports the growth and development of each of these companies in its business plan.

Once again, I would like to recall the positioning of these companies within the real economy of the main Brazilian industries, whether through the light vehicle rental service, machinery and truck rental, or in logistics, where we are inserted in the main industries and segments in Brazil.

And we work very hard on mobility with great added value, always looking for long-term contracts. This gives us a unique, extremely differentiated position, enabling us to enter this new cycle of growth and development in an extremely different way.

Now, on page four, we have, both on the board of each company and within Simpar itself, a very clear and defined strategic plan, which we do not share with you, even within governance, and also so as not to create any expectations with the market.

Here we have some of the strategic moves already implemented in Q1'21. At Simpar, we made two issues of ten- and seven-year bonds, which, together, amount to around BRL 3.8 billion, in which we assume a commitment to reducing emissions of greenhouse gases and thus having the recognition of a Sustainability Certificate, being the first company in the sector in the world to make a bond with a sustainability certificate.

When we talk about the strategic moves of each company in Q1'21, JSL Logística acquired TPC and Rodomeu. TPC brought, in addition to more stopovers in warehousing services, our beginning in the healthcare area, in healthcare product logistics. And Rodomeu, in addition to more scale in the agribusiness machinery transport and logistics industry, also brought us into the gas logistics transport.

We have Vamos, of which we held the IPO in Q1'21, extremely important for improving the capital structure of Vamos, of the Group and for the start of the new development cycle. Vamos acquired the Valtra dealership network, Monarca, in one of the main states of the Midwest, and was also appointed by the Fendt factory to represent the dealership in those same states, which gives greater scale, greater gain, and also the opportunity of cross-selling in these areas of the Midwest, where we rent machinery, trucks and equipment for agribusiness, which has greatly contributed to the development of Vamos.

At CS Brasil, as you know, and in line with our governance with the highest level of transparency, we announce that we are evaluating a proposal to integrate CS Frotas with Movida, which makes total sense to bring synergy gains and increase scale.

Here we have Movida, which was the first company in the world, also in the car rental sector, to issue a bond with a sustainability certificate, with a commitment to reduce the intensity of its emissions by up to 30% by 2030.

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As a result, Movida now has an average term of its debt of six years. Movida also acquired Vox, a company with 1,800 cars with great recognition for its quality in the fleet management and outsourcing sector, with good customers and long-term relationships, which also provides an opportunity for the development of cross-selling and Movida within these main customers through RAC, fleet management and outsourcing, and other services.

So now, I turn the floor over to Denys, who will detail the main financial highlights of our companies and Simpar. Please, your turn, Denys.

Denys Ferrez:

Thanks, Fernando. Good afternoon. Speaking of the financial highlights of Q1'21, on page five, we had net revenue in the last 12 months exceeding BRL 10 billion, and in the quarter totaling BRL 2.6 billion. A record in service revenue, which, within this amount, represents BRL 2.2 billion, a 30% growth in net service revenue in the Q1.

When we look at EBITDA in the last 12 months, it totaled practically BRL 2.5 billion, with a margin of 33.4%, and in the quarter it totaled BRL 733.7 million, also a record, with a margin of 32.9% and a nominal growth of 31%.

When we look at operating profit, EBIT totaled BRL 1.4 billion in the last 12 months, representing a nominal growth of 20% when compared to the full year 2020, delivering a margin of 19.4%. Operating profit in the quarter totaled BRL 525 million, a new record, representing a nominal increase of 84% when compared to Q1'20. And we now deliver a margin of 23.6% of operating profit, with an increase of 6.9 p.p. when compared to the same period last year.

Net income, which in the last 12 months totaled BRL 643 million, with a margin of 6.4%, represents 23% more than the total year 2020. And in the quarter, this number was BRL 204 million, a margin of 7.8%, which is an increase of 4.3 p.p. compared to the same period of the previous year, and a nominal growth of 2.5 times the profit presented in Q1'20 compared to what we delivered in Q1'21.

Moving on to the next slide, we talk about indebtedness, the gross debt amortization schedule in Q1'21. Fernando has already mentioned that we did a great deal of liability management in this Q1, with Simpar and Movida issues. The two companies were the first in the world, in their sectors, to issue bonds linked to sustainability and commitment to reducing greenhouse gases.

Therefore, our picture today is very comfortable, with an average term of net debt of 8.4 years, which is practically double the term we presented at the end of 2020.

The case is worth BRL 8 billion, which is enough to cover all the Group's amortizations until 2024, and a great part can still be entered in 2025.

It is important to say that, in 2004, the residue of the bond initially issued by the Company in 2017 expires, and that is what we intend to do with the call in July 2021, in the rounded amount of BRL 1 billion. So, as you can see, 36% of our debt is due in 2031.

All this represents a huge transformation in the Group's amortization schedule, thus leaving us in a very comfortable situation to develop all our businesses and the Group itself, obviously.

In the next one, continuing with the debt part, we have been working on optimizing cash, making several early settlements. Here, in the top left box, we present a summary of what we did, specifically in the Q1.

The holding company paid BRL 2.1 billion in advance, Movida, BRL 1.2 billion, Vamos, BRL 420 million, JSL BRL 69 million, and CS Brasil paid BRL 27 million. This totaled BRL 3.8 billion.

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And here, on the right side, we have some comments regarding financial expenses. We had launched this quarter the provision for the future premium on the exercise of the call option of 2024 bonds to be carried out in July 2021, totaling BRL 41 million before tax, and after tax would give an effect of BRL 27 million, and this was one of the adjustments made to net income.

We also had an impact in February and March from the cost of carrying the amount that we were unable to redeem referring to the 2024 bond, which is linked to the previous item. And then, in the case of Movida, it had impacts in the order of BRL 25 million, which involve since fee from prepayment to the write-off of the issuance costs that were deferred, and also the cost of carrying it to application, the use of funds raised abroad.

That said, we had a BRL 78 million impact of the nature described in the financial expense for this Q1'21. Remembering that the adjustment made to net income refers to the future premium of the bond call, which has a net tax impact of BRL 27 million on the result.

Covenants they are still quite comfortable. Net debt/EBITDA triggered, 1.9x, added EBITDA over net interest, a coverage is 11.6x, and net debt/EBITDA, 3.7x.

It is important to note that this quarter we repurchased approximately BRL 260 million in Simpar shares, very close to 3% of the capital. But I emphasize that our commitment to the gradual deleveraging of the Group remains, always measuring at the end of each year. So, we can have this volatility in the interim periods, but we will focus on reducing leverage at the end of the year, when compared to the end of the previous year.

When we look at the average cost of net debt after taxes, it ended the Q1 at 3.6% per year.

On the next slide, number eight, we talk about investments in Q1'21 and also in the last 12 months. Looking at the top left, the Company made a gross investment of BRL 1.3 billion and sold assets of approximately 400 million, resulting in a net investment of BRL 885 million.

It is important to emphasize that this investment has been made in assets with a strong secondary market in Brazil, such as light vehicles, trucks and horses. This accounts for most of our fixed assets. Fixed assets that are 95%, approximately, totally free of any encumbrances.

When we look at the accumulated figure for the last 12 months, the Group's investment totaled BRL

2.7 billion. And when we break it down by company, both in the quarter and in the accumulated, the biggest investments have been made in Movida, followed by Vamos and CS Brasil. And I highlight here JSL as a company with low investment volume due to the current operating profile, which is mostly light in assets.

Moving on to the next slide, I would like to talk about the return and leverage of the companies controlled by the group. Subsidiaries' returns, practically all of them improved when we look at the annualized Q1. All of this contributed to Simpar's annualized return of 12% in this Q1.

And the leverage of the subsidiaries is very comfortable, very well behaved, most of them around 3x, with the exception of Vamos, which, due to its IPO, is around 2x.

With that, then, I would like to return the floor to Fernando. Fernando, please.

Fernando Simões:

Thanks, Denys. Now, on page ten, we talk about the main operating and financial aspects of the subsidiaries in Q1'21. Before going into each company, it is important to point out that, on this page, we talk about the three listed companies, which had record profits in Q1'21, which shows the beginning of this new development cycle.

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Logistics with a profit of BRL 47.7 million in the Q1, Vamos with a profit of BRL 73 million in the Q1 and Movida with a profit of BRL 110 million in the Q1'21, which is 99% higher than the same period last year.

So, now, let's talk about each company. JSL Logística, and some of the main highlights. JSL Logística had record gross revenue of BRL 1 billion in Q1'21, which means a growth of 26% over the same period last year. We had an adjusted net income of BRL 47.7 million in Q1'21, 5x higher than Q1'20, and 56% higher than Q420, not including TPC and Rodomeu, which will be consolidated in the future.

When we talk about Vamos, we have a backlog of BRL 4.2 million at the end of Q1'21, which is 34% higher than the same period last year, with an EBITDA of BRL 200 million in Q1'21 and record net income of BRL 73 million also in Q1'21, which is twice as large as the same period last year, and 35% more than in Q420, which shows the growth, development and unique positioning of this company.

At Movida, we had record net revenue in the RAC, reaching BRL 365 million, with an EBITDA of BRL 169 million. Fleet management and outsourcing reached 54,000 cars, with an addition of 7,000 in Q1'21 alone. Record in the volume of 3.8 million nights sold in Q1'21, with net income of BRL 110 million, which means a growth of 99% over the same period of Q1'20.

Now, on page 11, we continue talking about the main operating and financial highlights of the parent company in Q1'21. We have CS Brasil with net revenue from fleet management and outsourcing services of BRL 189 million, growing 22% over the same period last year and 11% over 4Q20, which shows CS' great development in fleet management and outsourcing Brazil in the public sector and mixed capital companies.

CS Brasil had an operating profit of BRL 63 million, which means a growth of 52% over the same period last year, and a net profit of BRL 31 million in Q1'21, which means a growth of 91% over the same period, also from last year.

Original Veículos, the car dealership, had net income in Q1 of BRL 5 million, 21x higher than the same period last year, with ROIC of approximately 20%. The average sales ticket per vehicle was 23% higher, reaching BRL 72,000 per vehicle sold, and a retail sales volume of 2091 vehicles, 22% lower in the Q1 versus 2020. This is due to the unavailability of vehicles sold, but it shows the adequacy of our management in having a result with a lower number of sales, with a better margin and adequate cost. And you can see that this makes us believe, in recent quarters, that it has become a recurrence, a result of much better quality from our Original Veículos dealership network.

The BBC, a financial services company, as you can see, is still in its infancy, but even so, with growth in both credit, ROIC, and profit. It is an extremely complementary company to our business, and which also enters a new development cycle through the lease, but also the digital account, contributing even more to the loyalty of truck drivers and aggregates, and with the sale of used cars within our ecosystem, both for light and heavy vehicles, and in the loyalty of our main suppliers.

Now, on page 12, we talk about some strategic opportunities for our businesses. Our holding Simpar controls six companies, JSL Logística with great potential for organic growth and through acquisitions, consolidating the road logistics segment in Brazil.

Vamos has a unique and differentiated positioning, with great potential for growth in scale, today, throughout the national territory and in the entire segment, from food to agribusiness, to steel, and is very strong in logistics through truck leasing. I would say to you that this is just the beginning of a great development cycle for Vamos with its unique positioning.

Movida, a company that has contributed to innovation and transformation in the car rental segment in which more and more people are exchanging vehicle ownership for rental. So, it is a company with great potential for growth and development that have been shown, as you can see in its results.

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