Grupo CCR S A : Transcript 4Q22

Conference Call Transcript

42Q2 Results

CCR S.A. (CCRO3 BZ)

February 16, 2023

Operator:

Good morning, ladies and gentlemen, and thank you for standing by. Welcome, everyone, to the earnings call for CCR S.A. to discuss results relative to 4Q and the year 2022.

We would like to inform you that all participants will be connected in listen-only mode during the Company's remarks. After that, we will start the Q&A session, when further instructions will be provided. Should you need assistance during the conference call, please request the help of an operator by pressing *0.

Before moving on, we would like to say that forward-looking statements made during this conference call concerning the Company's business outlook and also operating and financial targets are based on beliefs and assumptions on the part of CCR's management team and also on information currently available for the Company. Forward-looking statements are no guarantee of performance, as they involve risks, uncertainties and assumptions as they refer to future events, and therefore depend on circumstances that may or may not materialize.

Investors should have in mind that overall economic conditions, industry conditions and other operating factors might affect the future results of the Company, and thus lead to results that will differ considerably from those expressed in these forward-looking statements.

I would like now to turn the conference over to Mr. Waldo Perez, Interim CEO, CFO and IRO. Please, Mr. Pérez, you may carry on.

Waldo Perez Leskovar:

Thank you. Good morning, everyone. I would like to once again, thank you all for participating in our earnings call where we discuss results for 4Q22 and the whole year.

Here with me today, we have Flavia Godoy, our IR supervisor; Douglas Ribeiro, Cauê Esteves and Caique Moraes, also from our IR team.

It's with great satisfaction that I would like to communicate that we took important steps in 2022 towards new accomplishments around our strategic ambition, including growth, capital discipline, vigorous governance criteria, high engagement on the part of employees, a diversity and inclusion program, and also our social and environmental commitments. We have over 17,000 direct employees, focused on creating better, safer ways for society.

The year 2022 was marked by a recovery in the economy and an improvement in our operating indicators relative to human mobility. The worst of the sanitary crisis brought on by covid-19 is a page of the past, with the 3 modules where we operate reaching relevant numbers, our businesses showed to be resilient to make this crossing.

The choice of projects based on discipline in capital allocation was key in this journey. After important accomplishments, we now operate to consolidate our airport operations, also highways and urban mobility throughout the year 2022 that add up to over R$22 billion in investments across those 5 projects for the coming years.

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Conference Call Transcript

42Q2 Results

CCR S.A. (CCRO3 BZ)

February 16, 2023

We have concluded throughout the year, the divestment of 2 assets in our portfolio, and we have announced in December 2022 the sale of Samm, deals that reinforce our continuous focus on portfolio management, capital allocation and value generation.

In 2022, we also celebrated an agreement with the city of São Paulo, which brought to an end over 50 legal cases in favor of the concessionary company. With that, we understand that we have extended our term for AutoBAn through December 2027.

With that, we have made payments of R$1.2 billion to the state government of São Paulo, and also hired different high-scale works such as the Barueri junction, the Mairinque junction, which has been delivered, the Hospital Sorocaba junction, also delivered, in addition to the doubling of the marginal highways here and Castelo Branco and ViaOeste.

Those were measures to bring legal cases to an end as parties acknowledged the irrevocable way that those events happened.

Throughout 2022, we also signed important agreements with concessionary companies, named ViaOeste, Renovias, SPVias, VLT, Metrô Bahia and BH Airport, coming from negotiations that establish a very fine economic and financial balance, in addition to preserving legal safety and ratifying this long-term partnership with the Company and with the concession powers, and the commitment to build more infrastructure.

Additionally, we saw the arrival of 2 main economic groups in Brazil, Votorantim and Itausa, who have joined us, making our governance even more robust, putting an emphasis on long-term investments.

Our investment strategy remains geared towards Brazil and the models where we operate, which have received investments of R$2.7 billion in 2022. I would like to highlight that we have maintained our focus on training teams and also on investing in modernizing our structure, especially Lines 8 and 9 of metropolitan trains. As it has just been announced, we saw no surprise. It only showed the state of degradation of the lines as they were received in the past by us.

It's important to emphasize that we are still in the first year in the contract of a 30-year contract, and our objective is to bring the operation to CCR level so that our clients can receive quality service, predictability and safety.

The concession contract contemplates investments of about R$4 million to recover the infrastructure, and this will happen especially in the first 3 years of the contract. Those investments include the acquisition of 36 trains in the first block of 16 units that will arrive in February for testing. And about 2 months after the arrival of a series of trains, they will be incorporated to our current fleet.

It is also worth mentioning that in the first year of the concession, the amount invested added up to R$1.2 billion, in addition to the granting of another R$960 million.

A few important improvements are worth mentioning, so that you can understand the high complexity level of this operation. The maintenance window is only out 3 hours because we need to turn energy off during the night so that we can work.

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Conference Call Transcript

42Q2 Results

CCR S.A. (CCRO3 BZ)

February 16, 2023

Some interventions that were made with all those investments were the replacement of

2.5 km of rails, correcting 217 flaws detected through a distance of 34 km. We also inspected and fixed 100% of the aerial network, or grid, adding up to 187 km.

We also cleaned and fixed 848 air conditioning units inside the trains, which represent all the AC machines. And also, we cleaned the equivalent of 65 soccer fields in addition to the revitalization of elevators and station structures. That's just a bit of what we did. It's a long list of integrations. I just wanted to highlight all those improvements, because they were important in our portfolio of improvement.

For the RioSP, we have maintained excellence in service on Dutra Highway and for the BR-111 from Rio to Ubatuba, in addition to the recovery and strengthening the hillside. During this period when we have faced and struggled with heavy rains, we had dedicated our attention to better service, creating a hotline for users with traffic inspection and mechanical support, free hospital service, and also via WhatsApp.

We also closed the year with all the infrastructure ready to start operating in the Free Flow, the first payment system with no toll plazas in Brazil. The pilot operation has started in BR-101, and we expect to start charging in March 2023. That shows our pioneering spirit, and also our ability to innovate.

As for the airport front, after mobilizing the take of 16 airfields simultaneously in a never- before seen operation in the world, we continue to invest in what we understand to be essential for the cities and areas, or regions where we operate. We identified areas to faster local markets, we are also modernizing the respective infrastructure of the airfields. Investing in a year, we have brought about important innovations for airports and airfields. We have delivered 26 new destinations, including international destinations, including Buenos Aires, Santiago and Montevideo.

CCR airports already have 189 routes, and with the end of the pandemic, we see very positive outlook for this segment.

Because of this strong cash generation and robust financial position, in 2022, we paid out R$778 million in dividends, and we closed the quarter with a cash position which is quite comfortable, and we have presented a leverage as measured by the net debt/EBITDA of 4.7x, stable when compared to 1.6x of 3Q22.

With the purpose of optimizing the management of our debt and to increase the duration of our debt, it's worth mentioning that CCR has already started working to restructure the long-term financing lines for 2023 and 2024, especially those coming from products that were acquired in 2021.

Recently, we contracted a financing line of R$4.6 billion through BNDES for ViaMobilidade and Lines 8 and 9 of urban metropolitan trains. R$2.5 billion of that total will be cleared through infrastructure debentures, which will be sustainable with the certification coming from BNDES, once those resources will be applied in transportation models of low carbon emissions, the largest green infrastructure debenture issuance in the Brazilian capital markets so far.

The controlled leverage level allows us to continue to implement our growth strategy. We are optimistic about the outlook for new projects, which are in our pipeline. Any new

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Conference Call Transcript

42Q2 Results

CCR S.A. (CCRO3 BZ)

February 16, 2023

project will follow the usual due diligence we always apply to our studies, with rigorous criteria and discipline as we allocate capital for those projects.

From the social, governance and environmental perspective, we have conducted our first ESG forum to present results of our sustainability targets. The initiative reinforces a transparency level we want to impose in our environmental platform, which follows our ESG guideline and is structured across the Company.

As part of this agenda, I would like to invite you all to our second ESG forum, which will be broadcast online on March 30 at 10:00 a.m.

In line with what is expected from the Paris Accord in terms of climate change management, we have publicly committed to reduce our gas emissions and have submitted our proposal of decarbonization, targeted at the SBTI, Science-Based Target Initiative, and we have adhered to the Net Zero Emission, an initiative made by UN Brazil Global Pact. With that, we are now the only company in the infrastructure industry to be part of this movement so far.

Before I finish, I would like to comment on a subsequent event, which was the signing of the agreement at Barcas, which is in its final phases. The objective is mainly to continue providing services after the concession contract is over, given the deadline of 24 months to conclude the studies and conduct a new bidding process for a new concession. In addition, we are defining amounts and timing towards operating costs.

Lastly, as presented in the results release, as we are getting close to the end of the concession and there is an absence of future economic benefit, and that's a requirement, of course, for expenses to be qualified as an asset, investments on ViaOeste for 4Q22 were described in another line. So the Company will adopt the same accounting treatment for the balance of those investments we made.

I will now turn the floor over to Flavia Godoy, who will go into detail of our numbers for 4Q22.

Flávia Godoy:

Thank you, Waldo. Good morning, everyone. I would like to highlight the main figures for 2022 as for 4Q. Once again, for same basis numbers, we have excluded new projects and nonrecurring effects, as detailed in our press release.

As for quarter highlights, the traffic of vehicles on the same base saw a growth of 1% when compared to 4Q21. That traffic performance on the same basis is the result of the growth of 1.9% of light vehicles and a slight drop of 0.1% in the traffic of heavy vehicles when compared to 4Q21.

In terms of airports, excluding the South and Central blocks, the growth was 16.9% in the period for Urban Mobility, excluding ViaMobilidade. In Lines 8 and 9, the growth came out at 22.5%, this the same period for comparison. With that, net revenue on the same basis, reached the level of R$2.6 billion in 4Q22, accounting for an increase of 10.8% when compared to the same period of the previous year. Adjusted EBITDA on the same basis, excluding nonrecurring items, has increased 17.6%, reaching a level of R$1.6 billion.

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Conference Call Transcript

42Q2 Results

CCR S.A. (CCRO3 BZ)

February 16, 2023

Now a bit about costs. Total costs saw an increase of 28.4% in 4Q22 when compared with 4Q21, and reached a level of R$3.2 billion. At the same comparative basis, cash cost on the same basis, excluding all the nonrecurring effects and BOS reached R$1 billion, representing an increase of only 2.4%. And IPCA in the period came out at 5.8%.

Speaking a bit about EBITDA, the same basis EBITDA, we had an increase of 17.6%, with a margin of 61.1%, an expansion of 3.6% as for the EBITDA margin, excluding only the nonrecurring effect from VOS of R$470.9 million and the extraordinary provision for RodoNorte of R$340 million, concessions which have come to an end and divested, and therefore, we included in this calculation, concessions recently acquired, which have contributed to generate cash and will remain in our portfolio. With that, the adjusted EBITDA for IFRS, which you can call recurring EBITDA, will come out at R$1.9 billion for 4Q22 and R$7.2 billion for the year 2022.

I would like also to highlight the extraordinary effect that we had for ViaOeste because of the recognition of about R$470.9 million for expenses recognized in the Others line, and that were used to build improvement works that do not generate future economic benefits, and therefore are recorded as costs because they do not meet the criteria of intangible assets, and thus affecting the net profit.

That amount already includes the reclassification which happened in this quarter, for provisioning effects for impairment of about R$222 million. Because of the nonrecurring effects coming from RodoNorte and ViaOeste, CCR saw a net loss of R$217 million when compared to a loss of R$133 million in 4Q21. On the same basis, and excluding nonrecurring events or effects, net profit amounted to R$219 million in 4Q22, which represented an increase of 36.3% vis-à-vis the first period of the previous year.

In 4Q22, we have invested R$916 million in some concession companies. As a highlight, we could mention Rio São Paulo, ViaMobilidade Lines 8 and 9 and ViaSul. As for the RioSP, investments were focused on recovering payments and on implementation of safety devices. For ViaMobilidade Lines 8 and 9, we invested mainly in acquiring the new trains. For ViaSul, we invested mainly in doubling some sections in the 386 highways, and also in recovering the soil, and also installing safety devices.

We now have time for questions and answers. Over to you, Operator.

Guilherme Mendes, JPMorgan:

Good morning. Two questions about capital allocation. Number one, thinking about optimizing your portfolio, Waldo mentioned the sale of some smaller operations, and you also have a project pipeline at the PPI phase. How do you plan on balancing those investments, especially noncore activities?

And also, in terms of capital allocation, a bit about the buyback. How do you see buyback going forward? I think you are now at a good digit as an alternative to return resources to shareholders. Thank you, those are the 2 questions.

Waldo Perez Leskovar:

Thank you, Guilherme, for your questions. Both have to do with capital allocation. Number 1, as of recent, we have repeatedly revisited the performance of all our assets. Some are defined as noncore, and as I mentioned before during my presentation, we

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