Localiza Rent a Car S A : 4Q22 and 2022 Trasncription.

4Q22 and 2022 Webinar Transcription

Anna Branco

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Good afternoon, and welcome to the Localiza's earning´s release call referring to the results for the third quarter of 2022. Today with us are present, Bruno Lasansky, CEO, Rodrigo Tavares, CFO and Nora Lanari, Investor Relations Officer.

Please be advised that this webinar is being recorded and will be made available on ri.localiza.com/en, where the complete material of our Earnings Release is available. You can also download the presentation from the chat icon.

For the Q&A session for analysts and investors, we advise you to signal your interest in participating, through the Q&A icon, on the bottom button of your screens, indicating your NAME, INSTITUTION and LANGUAGE. When called, a request to activate your microphone will appear on the screen. For telephone participants, dial *9 (raise hand), once your question is announced, dial *6 to mute and then to unmute the audio.

To send questions in writing via the Q&A icon, at the bottom of your screens, we advise you to make them by indicating your NAME and COMPANY before your question.

We inform you that the values of this presentation are in millions of Reais and in IFRS. We emphasize that the information contained in this presentation and any statements that may be made during the videoconference, regarding Localiza's business prospects, operating and financial projections and goals, constitute beliefs and assumptions of the Company's Management, as well as information currently available. Forward-looking considerations are not guarantees of performance. They involve risks, uncertainties and assumptions, as they refer to future events and, therefore, depend on circumstances that may or may not occur.

Now, I will hand the floor over to Bruno Lasansky, the Company's CEO, to begin the presentation.

Bruno Lasansky

Good afternoon, everyone.

In 2022, we took big steps towards our purpose of building the future of sustainable mobility. The results achieved in the year, aftermath of our long-term vision and efficient capital allocation, reinforce our DNA of growth with the creation of value and the delight of our customers.

Continuing our transformation journey, we became even more prepared to soar higher, with the conclusion of the business combination with Locamerica. We carried out a divestment

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(carve-out) in just three months - which consisted of creating a company, with trained professionals, functional systems, 49 thousand cars and 200 branches - and we completed the sale of this company with the creation of value for our shareholders. Following robust planning led by our Integration Office, we concluded with agility and excellence the integration of teams, Car Rental agencies, Seminovos stores, sales and administrative teams and we continued to advance in the integration of systems, capture of synergies and initiatives of organizational culture and engagement. In addition, we equalized the accounting practices and made the necessary reclassifications. We are still moving forward with the integration, but we understand that the business combination places Localiza&Co in an admirable competitive position, with greater scale and even better positioned to capture profitable growth opportunities.

Still in the context of the combination, it was essential to reassess our business portfolio in order to rationalize and optimize the allocation of capital and the use of resources, focusing only on initiatives aligned with our strategy of growth with value creation. In this sense, we launched Localiza+, with solutions aimed at those who own a car, such as overhaul and maintenance, which already has more than 15 thousand customers. We also prioritized the Heavy Vehicles rental, a new avenue with high growth potential, leveraging the Company's skills, know-how and customers. On the other hand, we decided to discontinue the initiatives for buying and selling used cars, Acelero and Willz, taking advantage of technology and learning, but reducing investments and increasing our focus.

We have a world-class leadership team prepared for the challenges of our business, as well as an operational structure, technology stack, and portfolio of solutions built so that we continue to surprise our customers, with a lot of innovation and leadership.

The engagement of our team was recognized by the 4th best place to work in the country, by the Great Place to Work ranking. Also, the Company's organizational climate stood in the 90th percentile, putting the Localiza&Co between the 10% best companies evaluated by Korn Ferry. We were recognized by our passion for the customer with the NPS Awards and Reclame Aqui awards in the Car Rental, Seminovos and Suscription Car categories, for several consecutive years.

We are building our future supported by very clear strategic directions: 1) accelerated growth with value creation in the main business (core); 2) transforming the customer experience; 3) and selective investments in adjacent businesses. We will achieve these goals with a high- performance team and a solid culture, investing even more in innovation and technology, expanding our competitive edge. We also have our brand as fuel, which underwent a recent rebranding to communicate in a clearer and more modern way the portfolio of solutions we offer to our customers. We also launched our corporate brand, Localiza&Co, to improve our communication with our stakeholders, such as employees, investors and partners. In 2023, we have several value creation levers to offset the effects of the normalization of Seminovos margins, higher depreciation and the high interest rate environment with lower economic growth.

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The first refers to investment in the fleet: for 2023, we managed to close the purchase volumes of cars in better commercial and mix conditions, which will allow the renewal of the fleet and consequent reduction in maintenance costs. In addition, we will start to capture synergies resulting from the combination of businesses in costs and expenses, as well as several efficiency and productivity initiatives, including advances in processes associated with telemetry. Finally, we have the opportunity to generate additional revenues from mix and segment management, in addition to the new solutions developed by the Company such as subscription car, rent for application drivers (Zarp Localiza) and Localiza+, among others.

These levers, added to our diligence and discipline in the allocation of capital, will contribute to keep the ROIC-spread in line with the objectives of value creation outlined by Management.

We believe that 2022 was a historic year for Localiza&Co. We completed a business combination (still in a stage of integration) that positions us as one of the largest and most complete mobility platforms in the world; we continued to grow with value generation at high levels of return to our shareholders, even in a challenging market context; and moving forward with our ESG agenda, with deep recognition by the market and customers, leaving a legacy for future generations. In the coming years, we will reap the rewards of last year's investments and continue our journey of transformation, supported by our vision of the future, with great care, discipline in the allocation of capital and passion for our customers.

I would like to hand the floor to Rodrigo, our CFO, to talk about the results.

Rodrigo Tavares

Thank you, Bruno. Good afternoon, everyone.

Before going through the numbers, I would like to point out that the format of the results presentation follows the one used last quarter. The annual comparisons will be made over historical proforma numbers of both companies. In addition to that, considering the various effects which impacted this quarter, in addition to the 4Q22's actual results, we will bring the numbers adjusted by the business combination and the discontinuation of our car purchase and sale initiatives, which we believe better reflect our performance.

In summary, we have four main messages:

1. we grew substantially with adequate mix and purchasing conditions
2. even with impacts from the equalization of practices, not adjusted in the result, we presented robust margins in car rental and fleet management, even though we did not fully capture the benefits of fleet rejuvenation, variable expenses and synergies.
3. used car results were heavily impacted by specific issues related to the mismatch between the preparation and sale of cars through the auction channel, which we already overcame in the first quarter.

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1. Leverage, as expected, ends the year at a higher level due to the strong investment in fleet growth. We believe that over the course of the year the net debt/Ebitda ratio will reverse the trend as these investments mature.

On slide 4, we present the quarter highlights.

Sustaining a purchase pace similar to last quarter's and now capturing substantially better purchasing conditions, we were able to add more than 55 thousand cars, with significant reduction of the purchase price, to R$74.9 thousand in the car rental division.

Even with the carve-out sale, we were able to grow nearly 5 thousand cars in the quarter, recomposing 60% of the car rental revenue from the carve-out within one quarter. With that, we ended the year with 591 thousand cars, a 21% growth.

In Fleet Rental, with another strong fleet addition and further capture of prices, we delivered a net revenue growth of 59% year over year, highlighting the segment's excellent momentum.

We highlight that, our competitive position allowed us to negotiate cars with a more favorable mix and commercial conditions for the last quarter and for 2023 which, combined with important comparative advantage considering synergy gains and the reduction in maintenance costs from the fleet's rejuvenation, not yet fully reflected in the rentals margins, puts the level of return for this vehicle's cohort within the Company's profitability objectives.

To detail our result, I'll hand the floor over to our head of Investor Relations, Nora.

Nora Lanari

Thank you, Rodrigo. Good afternoon, everyone.

Getting into the results' details and reiterating that, as we did last quarter, the annual comparison will be made considering the 4Q21 proforma, in order to add up both companies. We start the presentation with the Car Rental Division, on page 5. In the annual comparison the net revenue grows 28.2%, with the quarter gaining 6.7% year over year, despite the carve- out divestment which reduced nearly 15% of the division's fleet. The volume, impacted by the carve-out, grew 4% in 2022 and decreased 7.3% in the 4Q22 year over year. On page 6 we bring the evolution of the average daily rental, which rose 23.6% in the year and 16.3% in the quarter, reflecting the segment mix and the prices passthrough needed in order to recompose the Company's profitability levels, in despite of a greater invested capital and higher cost of debt. Even with a higher average rental rate and a higher number of cars being prepared and decommissioned, we kept a healthy level of utilization in 77.9%, demonstrating our efficient price management and fleet allocation, in addition to highlighting the demand resiliency. We underline that this level of price attained, added to the commercial's conditions of car purchase, which reduce the expected depreciation; the efficiency initiatives for cost reduction, including maintenance costs reflecting the fleet renewal; fixed expenses dilution; and the synergies from the business combination which will be captured throughout 2023, giving us comfort for reaching the ROIC level expected for the newly acquired cars, above the Company's WACC.

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Moving to page 7, in Fleet Rental division, we sustained a strong sequential and year over year growth pace, with a net revenue rise of 58.9% and the number of rental days growing 30.1% regarding the 4Q21. In this comparison, as displayed in page 8, the rental rate rose 20.6% reaching R$74.7 per daily rental, reflecting new contract prices in a context of rising new car prices and higher interest rates, in addition to a mix of segments effect.

We keep on seeing a positive perspective in the demand with Fleet Rental results in multiple segments. Our trust is underscored by the perception of our product's quality, measured by the NPS level, but also by the operational perspective, analyzing the credit risk level and the quality of our portfolio and asset management. Even in a scenario of rising default levels observed in the market, we didn't identify material effect in our sheets.

Moving on to page 9, we show the car purchase and sales balances. As mentioned, we have a favorable scenario for purchasing cars, in which we see great volume availability and diversity of models, with a gradual increase in production with greater relevance of direct sales, now underscored by two consecutive quarters of strong purchases. Were bought 97,358 cars and sold 41,493 in the quarter, resulting in an addition of 55,865 cars in the period and a net investment of 5.4 billion reais, also considering fleet renewal.

Continuing to page 10, our car rental's average price of purchase was 74.9 thousand reais, reducing sequentially 7.9 thousand reais per car, highlighting the gradual return of a mix composed by a greater share of entry level cars in more favorable commercial conditions, comparably better than those being applied. The sales price decreases sequentially 3.7 thousand reais reaching 62.6 thousand reais in Car Rental, reflex of selling entry level cars with a higher mileage to rejuvenate the fleet. The lower price decrease in the selling price compared to the purchase price allows a sequential decrease in the car replenishment capex.

In Fleet Rental we also noted a decrease in purchase prices, coming from 98.3 thousand reais to 96.5 thousand. In this division, the smaller price decrease reflects the effect of a growing trucks and special vehicles mix. Excluding trucks, the purchase price was 92.7 thousand. The division sales prices, on the other hand, were stable in comparison to the 3Q22 at 62.9 thousand reais once there is no mix effect in this division sales.

On page 11, we highlight the evolution of the total fleet throughout the year, reaching 591,041 cars at the end of the period, an addition net of theft and loss of 152 thousand cars before the carve-out, or 102 thousand after the carve-out, a 21% growth.

Moving on to page 12, we see that in the year over year comparison for the fourth quarter, the rentals net revenue presented a 23.7% growth, 6.7% being in the Car Rental and 58.9% in the Fleet Rental, while Seminovos net revenue grew 61.8%. As a result, consolidated net revenue in the quarter rose 40.3% year over year, adding up to 5.9 billion reais.

On pages 13 and 14 we show the reconciliation of accounting EBITDA with that adjusted for one-offs related to the integration and effects of the discontinuation of purchase and sale initiatives. In 4Q22, adjustments totaled R$109.1 million, of which R$77.1 million related to the integration and R$32.0 million related to the discontinuation of car purchase and sale operations. In the year, adjustments totaled R$261.2 million.

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