CCR S A : Transcript 3Q21

Conference Call Transcript

3Q21 Results

CCR S.A. (CCRO3 BZ)

November 12, 2021

Operator:

Good afternoon, ladies and gentlemen, and thanks for standing by. Welcome to the conference call of CCR to discuss the results relating to the 3Q21.

We inform that all participants will be connected in listen-only mode during the Company's presentation, and later, we will begin the Q&A session when further instructions will be given. Should you require the assistance of an operator during the conference call, please press *0 to reach the operator.

Before proceeding, we would like to clarify that any forward-looking statements that may be made during this conference call, relating to the business outlook, financial and operating targets are based on beliefs and assumptions on the part of CCR's management and on information currently available to the Company. Forward-looking statements are not guarantee of performance, as they involve risks, uncertainties and assumptions, and have to do with future events, which depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the results of the Company in he future, thus conducting to results which differ materially from those expressed in such forward-looking statements.

I would now like to turn the floor over to Mr. Waldo Perez, CFO and IRO.

Waldo Perez Leskovar:

Good afternoon. I would like to inform that today in the conference with me are Ms. Flávia Godoy, Douglas Ribeiro and Caique Moraes, from our IR team.

Before speaking about 3Q21, we are going to talk about the results later on, I would like to make some considerations about this year of 2021, which was a very intense year, very challenging, but with many positive points for CCR.

I would like to recap our most relevant achievements. We started the year by signing two important amendments to ViaQuatro contract, which had a relevant impact for 2021, and have created new opportunities for investments in the remaining concessions.

In the 2H, we were winners of a round of airports, and this will allow us to have a larger scale. We have also won lines 8 and 9, which have synergies with our operations as they connect with lines 4 and 5, which we operate, and we are going to also achieve gains of scale.

In June, we signed the preliminary agreement with the state of São Paulo, and this was a major step in our strategy because it gives us legal certainty to continue to invest in the state.

More recently, we won the airport of Pampulha, and we also won the concession of Dutra. That is an asset which is very relevant to us, and will become the benchmark for technology, innovation, sustainability and safety for the whole of Brazil.

I am sure that all of this endorses our strategy to grow by winning new businesses, and by tapping opportunities that we identify in our current portfolio.

1

Conference Call Transcript

3Q21 Results

CCR S.A. (CCRO3 BZ)

November 12, 2021

I would like to talk a little bit more about the auction of Dutra. CCR made an offer, which was consistent with our capital discipline, and we allowed for ample space to create more value.

The extension of the term of Nova Dutra allows us to test in the field a series of innovations that we are going to implement in this new concession contract. CCR has analyzed the potential competitors and focused on differentials based on our knowledge of the highway, and we have also implemented specific partnerships to meet the demands of the project, thus mitigating the risks in its execution.

The economic and financial analysis show that we will have a good financial return, which means our financial discipline, especially when we consider our risk matrix, a matrix that we know well, we feel comfortable with, and is appropriate for our strategy.

We have also signed contracts with the Central Block and South Block on October the 18th and the 20th, and this is yet another important stage in implementing our strategic planning.

We have a robust platform and a sustainable one in the airport business, so that we can capture scale and efficiency to operate a complete network of airports, and this will also make us more competitive to grow even more in the same area.

I would also highlight our pipeline going forward. We will have opportunities for all the segments where we operate. In highways alone, there will be tenders for over 30,000 km in length at the federal and state level. These projects account for R$115 billion investments for Brazil according to BNDES.

There are different projects ahead of us for this year. We are going to have the auction for BR-381 for the 20th of December. Next year, we should have the Litoral highway, some packages of highways in the state of Paraná, and the Belo Horizonte ring road, amongst other projects. Additionally, in the airport sector, we await for the seventh round, which is scheduled for next year.

In terms of urban mobility, we are waiting for the auctions for the TIC Eixo Norte Campinas, including live 7, and lines 11, 12 and 13. We will continue to monitor possibilities of auctions for the underground. All of these opportunities endorse our optimism relative to the outlook ahead of us.

2021 is still affected by the pandemic, but in the 3Q, there was a significant improvement in the performance of our concessions, especially in the highway business, because of the relaxation of social distancing measures. As regard airports, we also saw an improvement in performance, especially because of the vaccination rate and the flexibilization of social distancing measures.

Our financial position is sound. There is plenty of space to capture new opportunities within our strategy. We closed the quarter with a very robust cash position, and our leverage, net debt over EBITDA is 2.4x, which is below 2.7x that we saw in 32Q0, and practically flat relative to 22Q1. This is a very appropriate level, in our opinion, to maintain the sustainable growth of the Company.

2

Conference Call Transcript

3Q21 Results

CCR S.A. (CCRO3 BZ)

November 12, 2021

According to our financial policy, we have space. To surpass 3.5x as our leverage ratio, as long as we come back to appropriate levels within 24 months. We think this is enough. If we should have to surpass the leverage ratio, CCR can tap credit in the banking market, and also nationally and internationally.

We will continue to pursue our capital discipline in a diligent way, and expanding the portfolio of the Company in a sustainable manner so as to create value for our shareholders and stakeholders.

The robust results of this quarter endorse the recovery of the Company, which we have seen since the beginning of the year. Flávia is going to make comments about 3Q, and you will see that there was an expansion in margin and a substantial increase in net income because of the recovery of the performance of our business, as we have been presenting in our weekly reports, and our discipline in terms of costs.

And finally, I would like to remind you all that we make available on our IR site a panel. With ESG indicators. ESG is a fundamental pillar for us and is embedded in our growth strategy, which has to be sustainable. So we are always looking at improvements in the ESG area. Very shortly, we expect we will be able to achieve the targets of our ESG strategy.

I will now turn the floor over to Ms. Godoy, who is going to present in greater detail the excellent results achieved in 3Q21.

Flávia Godoy:

Thank you, Waldo. Good afternoon to all. I would like to highlight the main numbers, IFRS, of 3Q21. Remember that for the same basis numbers, we have excluded new projects and non-recurring effects, as you can see in our release.

I begin with the highlights of the quarter, and the traffic of vehicles increased by 14.5% relative to 32Q0. If we exclude traffic on ViaCosteira, the growth was of 6.8% in the period. This performance of the traffic has to do with a growth of 14% in light vehicles and 2%. In heavy vehicles, relative to the same period of last year.

At the end of our results release, you can see a graph where you can see that, despite the impact of the pandemic, we are clearly recovering traffic levels in highways, and also in the other business lines where we operate.

The net revenue was R$2.6 billion in 3Q21. This was an increase by 15.4% relative to the same period last year. Adjusted EBITDA grew by 21% and reached R$1.6 billion. The adjusted EBITDA margin was 62.6%, a 2.9 p.p. increase relative to 22Q0.

Although this was a quarter where we saw the impacts of the pandemic, the robust results attest to the effort that CCR has been making to control costs and maintain operating efficiency.

As you know, our costs are mostly fixed, and we also suffered with the pandemic. Giving you a little bit more detail about the costs, we see that the total costs increased by 12.4% in 3Q21 relative to the same period last year, and achieved R$2 billion. This increase had to do with a greater cost of construction for the ViaOeste, Rodoanel Oeste, ViaCosteira and Viasul. The cash costs same basis increased by 4.4%.

3

Conference Call Transcript

3Q21 Results

CCR S.A. (CCRO3 BZ)

November 12, 2021

Considering the Brazilian companies, the reduction was by 8.7%. This again attests to our efforts to contain costs. For more detail, please, look for the section on costs on our release.

Net income same basis was R$180.9 million, 53.4% growth relative to the same period last year. As regards net debt, this was R$16 billion in 3Q21, a 12% increase, and 15% relative to 2Q21 and 3Q20, respectively.

In terms of leverage measured as net that over adjusted EBITDA, this was 2.4 times in 3Q. And as Waldo has said, this reflects a comfortable situation that will allow us to pursue our growth strategy whilst maintaining financial discipline.

And I end by saying that, despite the impact of the pandemic on this period, which directly affects our businesses, the Company has been able to deliver very sound operating results, as you can see when you analyze the release.

We will now open for the Q&A session.

Regis Cardoso, Credit Suisse:

Good afternoon. Thank you for taking my question. There are two topics that I am interested in. Thinking in strategic terms, what do you think will be the ideal size of the Company, the ideal size of CCR? You have won a very important project for the growth of the Company, but that also requires a significant allocation of capital, so it will consume a lot of your firepower.

And when we look ahead, we still have a huge pipeline. It is R$40 billion of CAPEX in Paraná, the next round of airports, which are the jewels of the crown. So I would like to understand how you see that, what is the size of your firepower? Are you going to be more selective? There was not a lot of competition in the former auctions. It was yourselves and EcoRodovias, not many foreign players came, unlike other auctions. Do you believe this is a good environment for you to continue to allocate capital? Are you going to raise equity to continue to grow? Can you give me more color about this?

I have two other topics, one about the cost pressure. What have you seen in terms of costs? And I am very concerned about asphalt, about tarmac and those costs relative to the original CAPEX that you have budgeted for.

And if you allow me a third question, what implications do you see if IG4 gives up getting into the controlling block?

Waldo Perez Leskovar:

Thank you, Regis. Let me take your questions one by one. In regard to your first question, which has to do with the Company's strategy, I think we are very happy, because we had defined our strategic plan for the midterm. We had identified all the opportunities that we could in the primary and secondary markets. It was very clear to us which would be the strategic and essential assets for us to seek, and how we should prioritize them, and what impact they would have in our capital structure.

4

Conference Call Transcript

3Q21 Results

CCR S.A. (CCRO3 BZ)

November 12, 2021

We won projects this year which were in our priorities. We made it very clear that we were looking to invest in the segments where we operate. And as I said at the start of this call, we won lines 8 and 4 mobility, the sixth round of airports and Dutra, as you very well said, which is a very important project for us.

At the end of 3Q, the leverage ratio is very appropriate. As I said, it allows us to look for relevant growth as the opportunities arise. We have been studying these opportunities, we have our priorities, and we will continue to analyze any opportunities that might come up. We are going to do a due diligence, and then we will define whether we should present a proposal or not.

We think about the level of return, and the proposal will also be analyzed vis-à-vis the risk matrix, our leverage, and the moment and our circumstances.

The benefit of Dutra for us is that it will add cash generation, EBITDA in the first three years. So most of the investment will be made as of the end of the third year, and that is when we are going to see the leverage grow. This gives us the certainty that next year, we will have a positive performance.

Additionally, next year, the airports will come on stream in February and March. There is going to be a growth in EBITDA, and lines 8 and 9 as well. The operation will come on stream probably in the beginning of the 2Q, and that will give us another tranche of

EBITDA.

We are confident that we can tap more opportunities. We will continue to analyze everything that comes up in the pipeline, and we have a lot of clarity about how we should prioritize these opportunities. We will analyze each one on a case by case basis.

The second point had to do with costs, and we as a Group, we always monitor the market. The pandemic has broken up supply chains worldwide. It has brought in inflationary pressures, which are temporary, and we were ready for everything that hit us.

As regards, for example, tarmac, we had strategies in place to mitigate against cost increases, we had diversified our suppliers, we had contracts for importing tarmac, and all of this allowed us to keep the costs more or less in check.

And for our new projects, the assumptions already take into account the forecast increase. The recent increases in commodities and in inflation are no news to us. These had been included in our business plan, and we feel very confident that we can deal with that.

When we won lines 8 and 9, and won Dutra, we had the right strategy in place to mitigate our CAPEX by having partnerships in lines 8 and 9. We partnered with Alstom to prepare the proposal, we defined the CAPEX together, and e hedged against the exchange rate risk, and we made sure that we could mitigate this risk in a very substantial manner.

As regards Dutra, we partnered with three construction companies. None of them is a shareholder of CCR, and in all cases, the proposals were discussed in great detail. The pricing and the CAPEX, all of this was established jointly, so as to mitigate the risk relating to the Dutra risk matrix. We are very confident regarding this project as well.

5