Deutsche Bank Roadshow 15th Annual Latin America Conference Citibank
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Transcript of Deutsche Bank Roadshow 15th Annual Latin America Conference Citibank
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2006 Results presentation(R$ millions - USGAAP)
Localiza Rent a Car S.A.
Integrated business platform
As of December 31, 2006
This integrated business platform gives us superior performance
Synergies:
cost reduction
cross selling
bargaining power
182 agenciesin 9 countries6,730 cars
26 points of sale79% sold to final consumer
145 agencies31,373 cars1,000,000 individuals and14,000 corporations
15,265 cars(635 managed)350 clients
1.688 employees 156 employees
15 employees 350 employees
Overhead = 124 employees
2
Cor
e B
usin
esse
sSu
ppor
t
Increase market leadership maintaining high return
Create value taking advantage of the synergies of the integrated business platform
Add value to the brand by expanding the network in Brazil and South America
Strategy by segment
Add value to the businesses of the platform as a competitive advantage, reducing depreciation costs
3
Growth opportunitiesand
Competitive advantages
4
Growth opportunities
Air traffic
GDP elasticity
Consolidation
Credit cards
Replacement
Fleet outsorcing
5
Source: Bacen, Localiza
Accumulated growth rate – car rental
Growth opportunities: GDP
Source: Bacen, Localiza
Localiza – Daily volume GDP
7.7x
The average car rental division volume growth was 7.7 x GDP over the last 3 years
2003 2004 2005 2006
6
Number of travellers has increased 13% on the last 3 years
Localiza is the absolute leader in airport branches in Brazil
In 2006 Localiza Car Rental Division grew 2 times faster than the number of passengers
Air traffic evolution(Millions of passengers per year)
CAGR: +13%
Growth opportunities: Air traffic
7183
96 102
2003 2004 2005 2006
Source: infraero
7
Source: www.abecs.
CAGR: +18%
# of credit cards (million)
Growth opportunities: Credit cards
48 5368
78
2003 2004 2005 2006
78 million credit cards in Brazil
35.5 million potential Localiza customers
37% of car rental revenues camethrough credit cards in 2006
8
Localiza is very well positioned to capture this growth due to its geographic footprint
Growth opportunities: Replacement market
Replacement is a growing market in Brazil
Brazil has 34 million cars but only 9.2 million insured
The accident rate is 16.5% / year
The potential market is 10.6 million of daily rentals (2.5 x the car rental division in 2006)
Source: FENASEG -
9
Growth opportunities: Fleet outsourcing
Focus of corporations on their core businesses Focus of corporations on their core businesses
Fixed asset reduction by companies (increase their asset turnover)Fixed asset reduction by companies (increase their asset turnover)
Renting a fleet is more economic than owning itRenting a fleet is more economic than owning it
Large potential market with low penetration due to lack of habit Large potential market with low penetration due to lack of habit
10
DTG11%
Vanguard20%
Hertz28%
Avis Budget32%
Other2%
Enterprise7%
All others19%
Avis Budget7%
Hertz9%
Enterprise65%
US airport segment* US$10BN
US off-airport segment* - US$10BN
Source:*Avis presentation nov/06 - local segment share amounts are company estimates** National/Alamo prospectus, NYSE/SEC, September 20, 2006
USA: 5 companies hold 92% of market shareEurope: 6 companies hold 74% of market share**
US Market share 2005
Growth opportunities: Consolidation
11Source: ABLA
Growth opportunities: Consolidation
Localiza’s market share – Car and Fleet - Brazil
2004 2005
16% 18%
7% 4% 4%Local
players69%
Unidas Avis Hertz
2006E
20%
Localiza corporation grew 30.2% in 2006. ABLA estimated the market growth in 12%
Localiza grew more than 2x the market in 2006
12
1960Unidas
74
Avis83
Hertz86
Localiza203
Hertz33
Avis31
Unidas31
Localiza 76
Others48
Growth opportunities: Off-airport market
In the airports the market is concentrated in the hands of the networksOff-airport market is fragmented mainly among 1.960 small car rental companies
Source: 1964 companies as of ABLA’s report* Localiza as of 12/31/06**Each company website, 01/07/07*** Assuming that each local player has one agency
BR on airport segment* agencies
BR off-airport segment*agencies
Others***
Airport and off airport market - Brazil
Localiza is the consolidator in a fragmented industry!
*
**
*
**** **
** **
13
Growth opportunities: On airport and off-airport growth
14,3% 14,0%
1,5% 0,2%
27,2%20,4%
12,3% 9,8%
1T06 2T06 3T06 4T06
Consolidation is happening mainly on the off-airport agencies
Volume growth Revenue growth
Airport 17.2% 16.0%
Off-airport 49.6% 46.7%
2006 / 2005 Growth (Car rental division)
Elasticity on airport in 2006 was 2 times the growth of domestic deplanements
Domestic deplanements increase x Localiza (rentals on airports)
Daily rental volume on airportsDomestic deplanement
54% 59%
46% 41%
2005 2006
Of f- airport x On - airport share
On-airport agenciesOff-airport agencies
+5 p.p.
-5 p.p.100% 100%
2006
14
Bargainingpower
Highercompetitiveness
Market shareincrease
Gains of scale Integrated platform
Geographical distributionYield management
Credit with lower interest rateKnow-how
Strong brandState of the art ITBargaining power
Depreciation
Competitive advantages
15
Competitive Advantages: Integrated business platform
Franchising
Car rental Fleet rental
Used Car Sales
This integrated business platform gives us superior performance
16
International footprint
International footprint
Strategic locationsStrategic locations
Nationwidepresence
Nationwidepresence
Competitive Advantages: Largest distribution
327 agencies in 9 countries
17
Competitive Advantages: Largest distribution
279
86
83
74
Localiza Hertz Avis Unidas
243**279*
Localiza network is larger than
the second, the third and the fourth competitors combined.
(number of agencies in Brazil)
* As of December 31, 2006 ** As of January 29,2007
18
Yield management allows Localiza to be more competitive and profitable
Month of the yearMonth of the year
Day of the weekDay of the week
EventsEvents
CityCity
Volume per customerVolume per customer
Competitors’ monitoringCompetitors’ monitoring
Localiza adjusts its prices based on supply & demand
Competitive Advantages: Yield management
19
Competitive Advantages: credit with lower interest rate
Global ScaleLocaliza Rent a Car S.A. BB / Stable /--Hertz Corp. BB-/ Stable /--
Vanguard (National / Alamo) B+/ Stable /--
Avis Budget Car Rental BB+/ Stable /--
Enterprise Rent-Car Co. A-/ Stable / A-2
brAA-/ Stable /--Localiza Rent a Car S.A.
brAA/ Positive /brA-1Banco Citibank S.A.
brAA+/ Positive /brA-1Banco Itaú S.A.
brAA+/ Positive /brA-1Banco Bradesco S.A
brA+/ Positive /--CPFL Energia S.A.
brAA+/ Positive /--Gerdau S.A.
brA+/ Stable /--TAM S.A.
Local Currency
Standard & Poor’s as of January 2007
Localiza has the best rating among its international peers considering the debt currency
20
Deep knowledge of the businessState-of-the-art systemsOperational excellenceAdoption of best practicesStable management
Competitive Advantages: Know-how
15SeminovosMarco Guimarães
33Vice-presidentAntonio Resende (Founder)
21CFORoberto Mendes
22Total FleetDaltro Barbosa
26Car rentalGina Rafael
33
33
Eugênio Mattar (Founder)
CEO and Chairman of the Board Salim Mattar (Founder)
Experience in Localiza
ResponsibilityName
Vice-president
15Investor relationsSilvio Guerra
24Aristides Newton Franchising
We believe this experienced team will run the business for the next ten years
21
Top of mindTop of mind
High quality of services
Customer satisfaction
Strong nationwide presence
International franchising program
High standards of ethical behavior
Competitive Advantages: Brand recognition
22
Speed in transaction timeBetter operational controlCustomer satisfactionOn-line networkCost reduction
Competitive Advantages: State of the art IT
23
Localiza enjoys better price and conditions due to its large scale
Localiza purchased more than US$1,2 billion worth of cars from 2003-2006*
Localiza and its Franchisees represented in 2006
3,9% of FIAT internal car sales
2.7% of GM internal car sales
1,8% of the Brazilian internal car sales
*96.9 thousand cars between 2003-2006 calculated on average purchase price of 2006
Competitive Advantages: Bargaining power
15.062
22.182
26.105
33.520
2003 2004 2005 2006
24
When car prices go up more than inflation, depreciaton decreases
% over rental revenue 2000 2001 2002 2003 2004 2005 2006
Localiza (car rental division) 13.8% 11.9% 9.3% 9.2% 1.8% 2.9% 5.2%
Hertz (USA) - - - - 22% 23% 23% *
National / Alamo (USA) - - - - 22% 23% 23% *
Competitive Advantages: Depreciation
Depreciation cost over the car rental revenue
* Until Set/06Source: National/Alamo prospectus, Sep 20, 2006, p.11 Hertz prospectus, Nov 21,2006, p.12 and 17, Avis 2006 10K
Average depreciationper car
Real decrease in thenew car price
Real increase in thenew car price
3.617,7
2.142,51.656,2
1.752,3322,9 492,3
939,10,9p.p.
-4,1p.p.
-1,0p.p.
-5,1p.p.
4,7p.p.
9,8p.p.
3,7p.p.
(2.000,0)
(1.000,0)
-
1.000,0
2.000,0
3.000,0
4.000,0
2000 2001 2002 2003 2004 2005 2006
-6,0%
-2,0%
2,0%
6,0%
10,0%
Avis / Budget (USA) - - - - 26% 29% 31%
Average depreciation per year (R$1 thousand) over average price of purchased car in 2005 and 2006 (R$25 thousand) = 4% depreciation
25
Financials
26
6990,6
106,5
138,2
2003 2004 2005 2006
2006 highlights
Consolidated net revenues
CAGR: 29%
Consolidated EBITDA
CAGR: 27%
(R$ million. USGAAP)
1,8
44,5
75,6
57,4
2003 2004 2005 2006
EVA Net income
CAGR: 26% CAGR: 30%
313 286
210
152
2003 2004 2005 2006
532634
877
1,145
2003 2004 2005 2006
27
13 13
26
15
2003 2004 2005 2006
2006 highlights: Footprint expansion
Owned car rental agencies Used car points of sales
41%24%
100%
32*
24% increase in the number of owned car rental agencies
100% increase in the number of used car points of sales
* Until the end of 1H07
17%71
83
117
145
2003 2004 2005 2006
28
(R$ milhlion. USGAAP)
EBITDA margin per segment
Fleet Rental 69,4% 65.2% 63.6% 69.3%
Car Resale -9,2% 8.2% 10.5%
43,5%TOTAL
4.6%
42.4%41.7% 45.3%
28,6%
43,6%
2,9%
51,8%
27.3%
39.0%
4.6%
51.7%
32.6%33.1%TOTAL
47.6%41.5%Franchising
13.7%13.2%Car Resale
52.5%51.5%Rentals
Con
solid
ated
Flee
tRen
tal
20,7%
6,6%
38,1%
21.2%
4.6%
42.3%
27.9%28.4%TOTAL
14.4%15.3%Car Resale
46.3%42.6%Car Rental
Car
Ren
tal
2006200520042003
See addendum 1
29
2006 cash generation
Cash and cash equivalents in
01/01/06:
Cash and cash equivalents in
12/31/06:
See addendum 2
(R$ million. USGAAP)+313.7
70.8 30.1
Operating activities
Financing andother
activities
The cash generation of R$ 957 MM was larger than the needs to renew 23,174 cars (R$643.3MM) and also to grow 28.8% = 10,346 cars (R$287.0MM)
957.0
60.1
-127.5
Acquisitionsto renew
23,174 cars
Investment in Liquid securities
in short-term
-643.3
-287.0
Acquisitionsto growth
10,346 cars
-930.3
30
Investment in fleet(R$ million. USGAAP)
Net investment per car (R$ ‘000)
2004 2005 2006
Average price purchased carsAverage price sold cars
Net
% over purchase price
22,219,3
26,423,9
27,725,4
2,9 2,5 2,3
13.1% 9.5% 8.3%
Fleet growth (thousand)
+10.3+7.3+6.5
2004 2005 2006
690.0
493.1
930.3
448.2 303.0
590.3
2004 2005 2006
22.18226.105
33.520
15.71518.763
23.174
2004 2005 2006
Purchases Sales
Number - thousand Net investment - million
190.1
241.8340.0
Net investment per car to renew the fleet is declining from 13.1% to 8.3% due tothe fact that new car prices are increasing in line with inflation
Net investment per car to renew the fleet is declining from 13.1% to 8.3% due tothe fact that new car prices are increasing in line with inflation
31
Net debt (R$ million) USGAAPRating S&P – BrAA- / Stable
(R$ million. USGAAP)
Indebtness
2003 2004 2005 2006Net debt / fleet market value 22%
27% / 73%
0.57x
Net debt / EBITDA (BRGAAP) 0.61x 1.1x 1.5x 1.0X
46% 60% 36%
Net debt / equity 33% / 67% 50% / 50% 42% / 58%
Net debt / EBITDA (USGAAP) 1.34x 1.89x 1.42x
After the extraordinary dividend, the debt/equity leverage will return to a level (estimated 53% / 47%) that maximizes value for the shareholders
After the extraordinary dividend, the debt/equity leverage will return to a level (estimated 53% / 47%) that maximizes value for the shareholders
87
281
539443
2003 2004 2005 2006
2006 operatingcash flow was58% of the debtat the end of2005
See addendum 3
32
WACC
2003 2004 2005 2006 2007E*
WACC 24.1% 18.4% 15.8% 11.8%
10.7%
12.6%
42% / 58%
11.2%
8.7%
14.0%
53% / 47%
Third party cost of capital 16.6% 11.5% 13.5%
Cost of own capital 26.9% 21.8% 18.1%
Third party’s capital x equity 27% / 73% 33% / 67% 50% / 50%
The 4 p.p. WACC decrease was offset by the reduction of 4 p.p. in ROICThe 4 p.p. WACC decrease was offset by the reduction of 4 p.p. in ROIC
R$ / million
1,8
75,644,5
57,4
11,8%
24,1% 18,4%15,8%
19,8%
24,1%
29,3%
24,6%
-
25,0
50,0
75,0
100,0
2003 2004 2005 2006-5,0%
5,0%
15,0%
25,0%
35,0%
EVA WACC nominal ROIC
-4 p.p.
* 2007 Estimate considering the R$ 196.7 million extraordinary dividend
33
ROIC
2003 2004 2005 2006
ROIC 24.5% 29.3% 24.1% 19.8%
Average increase in the car price 14,0% 17,4% 9,4% 4,0%
IPCA – inflation index 9.3% 7.6% 5.7% 3.1%
The 4 p.p. decrease in the ROIC in 2006 was mainly due to the slow down of the asset turnover:• Stable tariffs in the car rental• 4% increase in the new car prices in 2006• Impact of inflation in operating costs
The 4 p.p. decrease in the ROIC in 2006 was mainly due to the slow down of the asset turnover:• Stable tariffs in the car rental• 4% increase in the new car prices in 2006• Impact of inflation in operating costs
R$ / million
1,8
75,644,5
57,4
11,8%
24,1% 18,4%15,8%
19,8%
24,1%
29,3%
24,6%
-
25,0
50,0
75,0
100,0
2003 2004 2005 2006-5,0%
5,0%
15,0%
25,0%
35,0%
EVA WACC nominal ROIC
-4 p.p.
34
1,8
75,644,5
57,4
11,8%
24,1% 18,4%15,8%
19,8%
24,1%
29,3%
24,6%
-
25,0
50,0
75,0
100,0
2003 2004 2005 2006-5,0%
5,0%
15,0%
25,0%
35,0%
EVA WACC nominal ROIC
Spread and EVA
2003 2004 2005 2006
Average invested capital – R$ million 323.5 410.8 689.4 937.8
Spread (ROIC – WACC) percentage points 0.55 10.83 8.32 8.06
EVA – R$ million 1.8 44.5 57.4 75.6
Localiza continues to present low spread volatility
In 2006 EVA grew 32% in accordance with the 31% growth in rented fleet
Localiza continues to present low spread volatility
In 2006 EVA grew 32% in accordance with the 31% growth in rented fleet
R$ / million
32%
35
Localiza and peers spread
Localiza Hertz* Avis* DTG*
8.0p.p.
-3.4p.p.
-6.9p.p.
-2.2p.p
2006
*Source: Morgan Stanley reports - Hertz 12/26/2006, Avis 09/05/2006 and DTG 09/28/2006
36
ROE – return on equity
OBS: ROE was calculated dividing net income by average equity of the year. excluding the income of the year
In 2006 Localiza equity grew R$ 156 MM due to the follow-on
Localiza was the 13th among the largest 500 companies in Brasilwith consistent ROE in the last 5 years, by 2006 FGV ranking
Localiza was the 13th among the largest 500 companies in Brasilwith consistent ROE in the last 5 years, by 2006 FGV ranking
39% 39% 37%29%
2003 2004 2005 2006
37
2007Perspectives
38
2007 perspectives
74% 74%67%
63% 61% 59%66%
70%
2000 2001 2002 2003 2004 2005 2006 2007
minimum 25% growth in volume minimum 25 new agenciesEBITDA margin of 42%utilization rate of 70%
Utilization rate - car rental division
Increasing the utilization rate will allow the increase of the asset turnover
minimum 15% growth in volumeEBITDA margin of 65%
39
2007 perspectives: Management proposals for RENT3
Extraordinary distribution of dividends
R$ 196.7 million that added to the sum already distributed of R$ 35.2 million (as of interests over own capital) reach R$ 3.45 per share or 12% over RENT3 quote beginning 2006
Split of the shares
Each one will be converted into 3 for the increase of the negotiability index
40
2007 perspectives: Localiza’s strategies to add value
ROIC – WACC = SPREAD
Gains of scale:• Organic growth
Increase revenue:• Increase volume• Keep flat rates
Reduce assets:• Increase utilization rate
Capital structure optimization:• Optimize capital structure(own vs third parties capital)
• To maintain proper leverage for fast growth
Margin x Asset turnover Low volatility
Operating income x (1- taxes) / revenue
Revenue / asset
Reduce income tax:• Quarterly payment of interest on own capital
41
Strategies
Short-term:
To maintain fast growth volume
To increase our geographical footprint
To maintain profitability through scale and productivity
Long-term:
To expand business scale mainly through organic growth
To add value to the shareholders through new dividend policy
Localiza’s compensation system is aligned with the short-term (variable remuneration) and long-term strategies (stock option with 3 to 11 years vesting)
42
Localiza’s recentrecognition
43
Recognition
Standard & Poor’s rating upgraded to ‘brAA-’ in national scale and ‘BB’
in global scale. same as sovereign risk. with stable outlook
Included in IBrX (between the 100 most traded shares)
Included in ISE – Corporate Sustainability Index (34 companies)
“Best Company for Shareholders” by Capital Aberto magazine. between
Companies of up to R$ 5 BI market share
The best subsequent public offer among the listed companies by
Infomoney, in a survey among the brokers registered in BOVESPA
44
Performance - RENT3
10
15
20
25
30
35
40
45
50
55
60
65
70
23-M
ay7-J
un21
-Jun
5-Jul
19-Ju
l2-A
ug16
-Aug
30-A
ug14
-Sep
28-S
ep13
-Oct
27-O
ct11
-Nov
28-N
ov12
-Dec
26-D
ec10
-Jan
24-Ja
n8-F
eb22
-Feb
10-M
ar24
-Mar
7-Apr
25-A
pr10
-May
24-M
ay7-J
un22
-Jun
6-Jul
20-Ju
l3-A
ug17
-Aug
31-A
ug15
-Sep
29-S
ep16
-Oct
30-O
ct14
-Nov
30-N
ov14
-Dec
2-Jan
16-Ja
n31
-Jan
14-F
eb2-M
ar
Pric
e
0
20
40
60
80
100
120
Vol
ume-
R$
thou
sand
Volume RENT3 RENT3 IBOVESPA
Performance: RENT3 2005 + 149% X IBOV + 38%RENT3 2006 + 124% X IBOV + 33%RENT3 since IPO + 403% X IBOV + 80%
Average daily trading volume in 2006: R$ 10,5 million
RENT3 X IBOV
From IPO until 03/08/2007.
03/08/07R$57.80
IPO: R$ 11.50
Follow-on: R$ 41.00
45
RENT3 performance
Localiza was the Best Company for Shareholders in 2006 (companies up to R$ 5 bi market cap)
Research by Economática. Stern & Stewart, IBGC, FEA/USP and Capital Aberto Magazine
Localiza was the Best Company for Shareholders in 2006 (companies up to R$ 5 bi market cap)
Research by Economática. Stern & Stewart, IBGC, FEA/USP and Capital Aberto Magazine Source: Capital Aberto magazine
Average daily traded volume (R$ million)
4,6
10,6
19,2
9,1
2005 2006 jan/07 feb/07
+130%
+111%
46
Thank you!
Localiza’s IR:www.localiza.com/riPhone: 55 (31) 3247-7039
47
Disclaimer - Forward looking statements
The material that follows is a presentation of general background information about LOCALIZA as of the date of the presentation. It is information in summary form and does not purport to be complete. It is not intended to be relied upon as advice to potential investors. This presentation is strictly confidential and may not be disclosed to any other person. No representation or warranty, express or implied, is made concerning, and no reliance should be placed on, the accuracy, fairness, or completeness of the information presented herein.
This presentation contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are only predictions and are not guarantees of future performance. Investors are cautioned that any such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environments of LOCALIZA and its subsidiaries that may cause the actual results of the companies to be materially different from any future results expressed or implied in such forward-looking statements.
Although LOCALIZA believes that the expectations and assumptions reflected in the forward-looking statements are reasonable based on information currently available to LOCALIZA’s management, LOCALIZA cannot guarantee future results or events. LOCALIZA expressly disclaims a duty to update any of the forward-looking statement.
Securities may not be offered or sold in the United States unless they are registered or exempt from registration under the Securities Act of 1933. Any offering of securities to be made in the United States will be made by means of an offering memorandum that may be obtained from the underwriters. Such offering memorandum will contain, or incorporate by reference, detailed information about LOCALIZA and its business and financial results, as well as its financial statements.
This presentation does not constitute an offer, or invitation, or solicitation of an offer, to subscribe for or purchase any securities. Neither this presentation nor anything contained herein shall form the basis of any contract or commitment whatsoever.
48
Addendum 1:Financial Cycles
49
Revenue per car sold** 102,20SG&A (7%) (7,15)Safety Margin (3%) (3,06) Book value after 12 months 91,99
Car rental financial cycle
115Financial payment
Financing
100
Car Sales Revenue
102
** Depreciation over list price: 100-(102.2/125)x100 = 18,2%
100Car acquisition
(List price net of dealers discount = 125)
Holding cost of cars after tax with 3% margin = depreciation + financial cost.Either the leverage is through third party financing or shareholder’s capital.
Principal 100,00Interest (CDI + 1 p.p.) 15,00Financial payment 115,00
Depreciation = estimated price of selling after one year, net of SG&A and safety margin minus price of purchase. Depreciation rate: 100-(102.2*0.9) = 8.02%
50
Car rental financial cycle
115Financial payment
Financing
100
Car Sales Revenue
102
Revenues = 114,58
Expenses = 62,84
100Car acquisition
(List price net of dealers discount = 125)
*
Consolidated net margin is 19,3% of car rental revenues (if 100% leveraged).
R$ % R$ % R$ %
Car rental revenue 114,58 100,0% 102,20 100,0% 216,78 100,0%Costs (46,00) -40,1% (46,00)SG&A (16,84) -14,7% (7,15) (23,99)Book value of car resale (91,99) -90,0% (91,99) -3,8%
EBITDA 51,75 45,2% 3,06 3,0% 54,81 25,3%Depreciation (8,20) -8,0% (8,20) -3,8%Interest (15,00) -14,7% (15,00) -6,9%Tax (30%) (15,52) -13,5% 6,04 5,9% (9,48) -4,4%
NET INCOME 36,22 31,6% (14,10) -13,8% 22,12 10,2%% over car rental revenue
Car Rental Car Resale (Seminovos) Consolidated
31,6% -12,3% 19,3%
Revenue per car sold** 102,20SG&A (7%) (7,15)Safety Margin (3%) (3,06) Book value after 12 months 91,99
** Depreciation over list price: 100-(102.2/125)x100 = 18,2%
Principal 100,00Interest (CDI + 1 p.p.) 15,00Financial payment 115,00
51
R$ % R$ % R$ %
Fleet rental Revenue 53,64 100,0% 102,20 100,0% 155,84 100,0%Costs (14,24) -26,5% (14,24) -9,1%SG&A (3,97) -7,4% (7,15) (11,12) -7,1%Book value of car resale (91,99) -90,0% (91,99) -59,0%
EBITDA 35,43 66,0% 3,06 3,0% 38,49 24,7%Depreciation (8,20) -8,0% (8,20) -5,3%Interest (15,00) -14,7% (15,00) -9,6%Tax (30%) (10,63) -19,8% 6,04 5,9% (4,59) -2,9%
NET INCOME 24,80 46,2% (14,10) -13,8% 10,70 6,9%% over fleet rental revenue
Fleet Rental Car Resale (Seminovos) Consolidated
46,2% -26,3% 20,0%
Fleet rental financial cycle
Financing
100
115Financial payment
100Car acquisition
(List price net of dealers discount = 125)
Revenues = 53,64
Car Sales Revenue
102
Expenses = 18,21
Consolidated net margin is 20% of fleet rental revenues (if 100% leveraged).
Revenue per car sold** 102,20SG&A (7%) (7,15)Safety Margin (3%) (3,06) Book value after 12 months 91,99
** Depreciation over list price: 100-(102.2/125)x100 = 18,2%
Principal 100,00Interest (CDI + 1 p.p.) 15,00Financial payment 115,00
*
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Pro-forma cash flow and
working capital
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Pro-forma cash flow: net cash provided by operating activities
Year Ended Year Ended Year Ended Variation Variation2.004 2.005 2.006 Acum 2006-2005 %
CASH FLOWS FROM OPERATING ACTIVITIES: Net income 90.568 106.519 138.233 31.714 29,8%
Adjustments to reconcile net income to net cash provided by ( used in ) operating activities:
Depreciation and amortization (including goodwill) 23.353 42.969 56.989 14.020 32,6% Vehicles written off as a result of theft 2.609 4.275 5.159 884 20,7% Cost of used car sales 248.651 361.171 530.439 169.268 46,9% Deferred income taxes (179) 11.275 7.950 (3.325) -29,5% Provision for doubtful accounts (236) 578 (446) (1.024) -177,2% Provision for contingencies 8.414 284 (2.012) (2.296) -808,5% Realized gains on derivatives 25 1.706 - (1.706) -100,0% Exchange variation, net (17.428) (31.987) (8.153) 23.834 -74,5% Unrealized (gain) loss on derivatives 49.030 504 23.016 22.512 4466,7% Compensation expense - Stock Options 12.404 7.828 1.704 (6.124) -78,2% Other 1.198 (2.465) (117) 2.348 -95,2%
418.409 502.657 752.762 250.105 49,8%
(Increase) decrease in operating assets: Accounts receivable (7.579) (39.091) (35.572) 3.519 -9,0% Escrow deposits (996) (3.498) (670) 2.828 -80,8% Accrued interest income on marketable securities - - (4.531) (4.531) Recoverable taxes (1.830) (8.986) (2.019) 6.967 -77,5% Other 6.169 (5.554) (7.879) (2.325) 41,9%
(4.236) (57.129) (50.671) 6.458 -11,3%
Increase (decrease) in operating liabilities: Accounts payable (22.917) (18.817) 220.256 239.073 -1270,5% Payroll and related charges 1.753 1.176 4.605 3.429 291,6% Income tax and social contribution 2.108 (134) 5.343 5.477 -4087,3% Taxes, other than on income (2.210) 481 387 (94) -19,5% Advances from customers 732 1.740 (1.109) (2.849) -163,7% Reserve for contingencies (483) (803) (334) 469 -58,4% Loans and debt and debentures - accrued interest expense, net 1.690 12.645 (6.766) (19.411) -153,5% Deffered revenues - - 22.008 22.008 Other 403 1.273 10.528 9.255 727,0%
(18.924) (2.439) 254.918 257.357 -10551,7%Net cash provided by operating activities 395.249 443.089 957.009 513.920 116,0%
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Pro-forma cash flow: investment and financing activitiesYear Ended Year Ended Year Ended Variation Variation
2.004 2.005 2.006 Acum 2006-2005 %CASH FLOWS FROM ( USED IN ) INVESTING ACTIVITIES:
Purchases of marketable securities - - (140.674) (140.674) Proceeds from sales of marketable securities - - 13.146
Sub-total (127.528)
Car purchase (493.109) (690.040) (930.318) (240.278) 34,8% Close out of derivatives contracts - - - Additions to property and equipment, net (10.209) (27.974) (31.185) (3.211) 11,5% Cash paid on settlement of derivatives contracts (4.034) (66.160) (3.074) 63.086 -95,4% Acquisitions of former franchisees - - (1.502) (1.502)
Net cash provided by investing activities (507.352) (784.174) (1.093.607) (309.433) 39,5%
CASH FLOWS FROM ( USED IN ) FINANCING ACTIVITIES: Long-term debt:
Proceeds 2.954 139.000 (139.000) -100,0% Short-term loans: -
Proceeds 332.791 971.945 361.425 (610.520) -62,8%Repayments (200.732) (1.177.803) (371.346) 806.457 -68,5%
Debentures: - Captações 350.000 (350.000) -100,0%
Transaction with related parties: - Capital increase 16.030 15.372 150.126 134.754 876,6%
Dividends (cash) (50.000) (4.000) (5.595) (1.595) 39,9% Dividends (interest on capital) (18.859) (12.016) (38.665) (26.649) 221,8%Net cash used in financing activities 82.184 282.498 95.945 (186.553) -66,0%
NET INCREASE IN CASH AND CASH EQUIVALENTS (29.919) (58.587) (40.653) 17.934 -30,6%
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 159.264 129.345 70.758 (58.587) -45,3%
CASH AND CASH EQUIVALENTS AT END OF YEAR 129.345 70.758 30.105 (40.653) -57,5%
(29.919) (58.587) (40.653) 17.934 -30,6%
Supplemental disclosures of cash flow information:
Cash paid during the year for: Interest 24.825 105.167 77.848 (27.319) -26,0% Income tax and social contribution 34.337 33.613 32.850 (763) -2,3%
59.162 138.780 110.698 (28.082) -20,2%
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Working capitalWORKING CAPITAL
Year Ended Year Ended Year Ended2.004 2.005 2.006
ASSETSAccounts receivable, net 54.821 93.334 134.786 Deferred income tax and social contribution 2.043 2.890 2.173 other 3.363 14.739 12.561
60.227 110.963 149.520 Escrow deposits 18.949 23.267 23.913 Deferred income tax and social contribution 13.865 11.191 11.387 Compulsory loans 83 83 83 other 254 2.820 2.034
33.151 37.361 37.417 subtotal 93.378 148.324 186.937
LIABILITIESTotal accounts payable: 58.753 39.398 264.156 Accounts payable to automakers 48.448 22.853 244.935 Other accounts payable 10.305 16.545 19.221 Payroll and related charges 13.315 14.491 22.397 Deferred revenues - - 1.280 Income tax and social contribution 1.793 1.659 3.633 Deferred income tax and social contribution 15.396 24.338 30.608 Taxes other tha income 2.380 4.693 5.476 Advances from customers 5.579 7.319 6.210 other 1.511 13.171 12.463
98.727 105.069 346.223 Reserve for contingencies 52.371 53.210 47.533 Deferred revenues - - 11.369 Deferred income tax and social contribution 5.734 6.246 7.402 Taxes other tha income 2.680 - 8.020
60.785 59.456 74.324 subtotal 159.512 164.525 420.547
WORKING CAPITAL (66.134) (16.201) (233.610)% OVER REVENUES -10,4% -1,8% -20,4%
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Working capital without account payable to automakers
Year Ended Year Ended Year Ended2.004 2.005 2.006
ASSETSAccounts receivable, net 54.821 93.334 134.786 Deferred income tax and social contribution 2.043 2.890 2.173 other 3.363 14.739 12.561
60.227 110.963 149.520 Escrow deposits 18.949 23.267 23.913 Deferred income tax and social contribution 13.865 11.191 11.387 Compulsory loans 83 83 83 other 254 2.820 2.034
33.151 37.361 37.417 subtotal 93.378 148.324 186.937
LIABILITIESTotal accounts payable: 58.753 39.398 264.156 Accounts payable excluding payable do automakers 10.305 16.545 19.221 Payroll and related charges 13.315 14.491 22.397 Deferred revenues - - 1.280 Income tax and social contribution 1.793 1.659 3.633 Deferred income tax and social contribution 15.396 24.338 30.608 Taxes other tha income 2.380 4.693 5.476 Advances from customers 5.579 7.319 6.210 other 1.511 13.171 12.463
50.279 82.216 101.288 Reserve for contingencies 52.371 53.210 47.533 Deferred revenues - - 11.369 Deferred income tax and social contribution 5.734 6.246 7.402 Taxes other tha income 2.680 - 8.020
60.785 59.456 74.324 subtotal 111.064 141.672 175.612
WORKING CAPITAL (17.686) 6.652 11.325 % OVER REVENUES -2,8% 0,8% 1,0%
WORKING CAPITAL WITHOUT ACCOUNT PAYABLE TO AUTOMAKERS
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Addendum 3:Third party x own capital cost
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Cost of third party capitalR$ / million
We estimated that the cost of third party capital will decrease 3 p.p. due to CDI rate decrease
59
Cost of own capitalR$ / million
In 2007 the difference between the cost of own capital and third party capital cost will be 5.3 p.p. .In 2006 this difference was 1.9 p.p.
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Addendum 4:Earnings Release