CVC Limited

Good afternoon, ladies and gentlemen, and welcome to CDC's conference call for the results of the first quarter of 2020. Today with us, we have Mr. Lionel Diaz de Abrave, CEO at Mauritimo Kia CFO and Investor Relations. This event is also being broadcast simultaneously over the internet via web. which can be accessed at www.cdc.com.br slash ri by clicking on the link for the first quarter of 2020 webcast. The presentation slides are available for download through the webcast platform. The information is available in reais and has been prepared in accordance with accounting practices adopted in Brazil. based on the statements, guidelines, and interpretations issued by the accounting standard CPC. Before starting, we would like to mention that forward-looking statements made during this conference call regarding CPC's business prospects, projections, and operational and financial goals are based on beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not guaranteed 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. Investors should understand that general economic conditions and industry and other operating pressures may affect CDC's future performance and may lead to results that differ materially from those expressed. Such forward-looking statements now I would like to give the floor to Mr. Lionel Andrade, CEO, who will begin the presentation. Mr. Lionel, you have the floor. Good afternoon to everyone. Thank you very much for your participation. Today, we have the presentation of a balance of six months. Here, our company is being updated regarding its reports in terms of obligations and investments. This reflects a reality and we will talk subsequently about this. There is a point that reflects the record. We want to show the public that we're being transparent And here we have on the bottom line a bad result of entries that are not frequent in our financial statements, but they have been recognized only one time. On the other side, We have a different view because of the pandemic. And now we have a strong operating focus. All the executive committee is in place. We integrated our business. together with our executives and our main businesses are being integrated in business to business Brazil. And this integration of the business is creating synergy and giving us competitiveness and we are reducing internal costs. We have around 1,200 stores operating. Before the pandemic, we had 1,360, so we have most of our stores working.

And some have been closed because of the pandemic. And now we have a good... We are 100% operational.

There is no product, no partnership that has been interrupted. And we have had no reduction in terms of personnel and business. The other way around, In this period, we have our entire structure that is new. Today, we have a company of high standard with a high level of governance in its fronts of internal controls, auditor, and governance by and large. We will be an example of organization. We concluded the review of our values and proposals, and I would like to highlight the commitment in terms of governance, sustainability, a new model with both that is sustainable from environment and from the business point of view. We are reviewing our strategy with the support of McKinsey, and this review is half the way done, and we will conclude it by the beginning and the middle of November. And this is an important effort so that we have all our business and all our people focused on the future. At the same time, we are reviewing our brands, carrying out a brand architecture effort in order to simplify the operation and to have a more relevant communication. Obviously, we have over 10 brands today. And today we are going to rationalize and simplify this. And this will be done together with our strategy. We are also reviewing our technology and process. We want to gain synergy, scale, process. We're integrating systems that were bought throughout the companies in the past years. This is something that is fully ongoing and everything will be done this year so that we end the year with the new company's view and resume our business more focused. Sales are growing rapidly. The resumption in the domestic market is solid. The company as a whole is is 45% of sales compared to last year's. If you consider that international sales are weak, the sales in Argentina are also very low. The Argentine market is undergoing a more difficult situation and the corporate sales are also very weak. So domestic is resuming and the company has 40, 45% sales But this is – and we are growing positively. We continue with all the investments in the digital market, the digital transformation that will be done in the upcoming weeks and months where we will launch things from the platform point of view and from the product point of view. We are investing a lot in innovation. We are going to launch like five new products this year. all of them for customers and focused on the end customer. We are also building a new model of distribution. We are investing in digitalization that we will see as of next year in our brands and our stores. And we have a robust cash flow today, as we already announced. This cash flow allows us to... to face the crisis and we continue sound and we will be able to continue with the capacity of resumption and to continue leading the tourist industry in Brazil and with the support of our shareholders. When something that we saw in the first stage of the capitalization, so we have support, we're going in the right direction. So this balance sheet, represents great losses but these are losses that were recognized and in a transparent fashion that we can see the future in our transparency is very strong in this management in our commitment to the future is strong so that we continue leading the Brazilian and the Latin American market of tourism. I will give the floor to Mauricio Monchillo, my colleague that will give you a better view of our figures. Mauricio, now you have the floor. Thank you, Leonel. Good afternoon to everyone. It's a pleasure being here today. Very briefly, I will go through a presentation because I believe it's more interesting to have more time to answer questions. On chart number four, Lionel showed us that we have a resilient business. Our cash position is interesting and relevant because we are at ease and we have time to adjust ourselves and to honor our commitments together with our customers. And we have the support of our shareholders that have invested more capital that has allowed us to create more funding to And we have had a resumption of sales during the first quarter and the second quarter are very relevant in the volume of businesses because many destinations were closed. And the next chart is a highlight of our capitalization that was very successful. And we also distributed an excess of funds. And there will be another stage between December and January of next year. And we believe that this will be an important process. The capitalization is to bring resources so that we can resume in the market. So we have this for the company to survive and to fulfill all the commitments of the company. And this capitalization has come in an adequate moment when we're resuming our businesses and we have the ability to finance these travels from here on. Now, when we go to the next slide, I would only like to mention something of the first semester, and this is something that all the companies are undergoing. We had to assess the value of some assets that we had, so we did have an impairment Regarding our goodwill, based on the increase of the discount, and there is an extension of the cash flow when you include the COVID, and you can see the value of the assets is lower than in the beginning. We also had a reversal of deferred tax assets. The company normally will be able to recover these tax assets due to the uncertainties. The company had to write off accounting and as soon as the uncertainty goes away when we negotiate the debt with the capitalization i believe that we will go back to our normal numbers and we will be able to credit this in the future but the good accounting practices Because of the change that COVID brought to us regarding the economy, in terms of available income and employment and for a portfolio, we have an estimated losses. And we registered these losses that we believe that will go until the end of the year. And this is in the balance of the first quarter. and we recognize them as effects of the pandemic. These are extraordinary adjustments and there are other things. We repatriated passengers that were in Europe and in Asia and other credits that we lost These are extraordinary adjustments. In this presentation, when we talk about adjusted net debt, these are extraordinary expenses that we believe will not appear in the future, as Lionel said. The market is resuming. I would like to highlight the system. And Lionel mentioned the booking of hotels. The resumption also means to us the importance of governance and control. We spend some time adjusting and representing the financial statements of the past and showing all the mistakes. We are operating at another level right now, but we have an important plan of governance in the company that has already started operating We have a management in charge of compliance, and we have a relevant and detailed program to improve controls, processes, everything that supports the financial management of the company. To us, this is very important when we resume businesses. What is important is to maintain a sound company from here on. Now, when we talk about the results in Brazil, Now we're on page eight. The pandemic is one of the most relevant impacts that we've had in our results. And the onset was at the end of the quarter, but we had a drop in volume due to the northeast. That was the oil spill. that reduced the season in the Northeast. That is very important to CVC. And there was a drop in prices, but it impacted the mix. And this impacted the first quarter. This would be, it went from 43 to 33, the boarding indexes. And this and the And in the Northeast, it dropped from 20 to 18. And international boarding, this also dropped a lot. Now, it is important to remember the domestic market represents 80%. 85% of our new businesses. This is something that we see during the third quarter, and in terms of quality of revenue, this is very important for TBC, and this is one of our great strengths. On this next page, page nine, during the first quarter, we couldn't react, and the expenses of the companies were lower than what we see generally. Nonetheless, this is an important matter and we are looking for operational synergies, commercial synergies in the businesses where we're present, especially B2B and these operational synergies among the group and we're also reviewing the activities of the company, something that we will continue And this is very important. We believe that during the first quarter, we didn't see any effects, but this is a very important issue during the second quarter. We had a significant drop of expenses, and we want these synergies and reductions to be permanent in our company. Now, on the next chart, this illustrates... our portfolio, and here you can see that the provisions increase because of the additional provision that is an expectation in terms of loss because of the future impacts of COVID. Important is that We are taking new actions because credit risk has changed between post-pandemic and pre-pandemic period, even for risk scores. We have greater upfronts than in the past, and we have also adapted our credit score to a new reality, so we are prepared for self-financing, and this is a better quality of what we saw last year. Now, Brazil, during the next chart, when we talk about EBITDA and net income, the main component of loss, there was a loss. We could not offset the lack of boarding. Now speaking quickly about Argentina, that is on page 13, Argentina is facing a similar situation than Brazil. We believe that the pandemic is impacting them more because the economic situation in Argentina was already deteriorated because of income and unemployment. there was an exchange variation that was important, and this also exerts pressure over the sales of international sales. So here we see a more accentuated impact in Argentina in terms of businesses. Now the consolidated results. Here we see the impacts. Here we had bookings. We had minus 31% and net revenue 36%, and there was a significant reduction of our EBITDA. because we couldn't adjust our cost base to the new reality. When we talk about cash generation, this period was very important, and throughout the cash generation in March, during the beginning of the pandemic, when we realized that the pandemic was going to adhere to state, we preventively, we We had $440 million of prepayment of credit card receivables. The first quarter is a period of negative cash generation because we have all the hotel payments. the hotels that were used during January and February. So the cash flow was according to what was expected, and even more positive because of the prepayment of cash. And this during a moment of uncertainty. We did not prepay anything anymore, and we had a positive working capital, The risk isn't ours.