The sale value of the vehicles used in the Company’s operations is essential for the expected return of its contracts, and its results may be affected by failures in the calculation of the sales price of the aforementioned vehicles.
The Company’s business model consists in a cycle that begins with the acquisition of vehicles to be rented to its customers and ends with the sale of such vehicles at the end of a period considered appropriate by the Company and considers factors such as market conditions, mileage criteria, vehicle conditions at the moment of demobilization, and loss ratio history.
Each vehicle’s rental and daily rental values take into consideration the sales value at the end of the aforementioned cycle, and the sale volume and price are essential to reach the minimum return expected from each operation. Furthermore, the prices practiced in the car rental market may also influence the rental value.
Credit crunch and rise in interest rates may directly or indirectly affect the secondary market of these vehicles and significantly reduce their liquidity. Market price volatility may also reduce the vehicles’ sale prices, increasing the discount compared to the price they are acquired. If the estimate of future effective depreciation is not properly conducted by the Company, its business, financial standing, and operating results may be negatively affected. Furthermore, as the Company cannot ensure the market behavior regarding the absorption of such vehicles, the calculation of the vehicles’ estimated depreciation, which consists of the difference between the acquisition cost of the vehicle and the market value estimated on the sale date, may be higher than the estimated calculation which, in turn, can adversely affect the Company’s business.
The financing of the Company’s growth strategy and fleet renewal requires intensive long-term capital.
The competitiveness and the implementation of the Company’s growth strategy depend on its ability to invest in, renew, and expand its fleet. To finance the fleet, the Company needs to raise funds to invest, either by incurring debt or by increasing capital. It is not possible to ensure that the Company will be able to obtain sufficient financing to fund its investments and finance its expansion strategy, or that such financing will be obtained at acceptable costs and terms, either because of adverse macroeconomic conditions, which can significantly increase the interest rates practiced in the market, the Company’s performance, or other external factors to its environment, which may significantly and adversely affect the Company. If the Company does not renew its fleet, its car rental business may become less competitive compared to those of its peers.
Moreover, the Company’s growth is focused on acquiring electric and hybrid vehicles to expand the fleet over the years, leveraged by the higher production of such vehicles worldwide, requiring more capital invested.
The Company does not contract insurance against certain risks.
Rent-a-car (“RAC”) vehicles are insured against third parties and have limited coverage for material damage, pain and suffering, and personal injury during the period in which they are rented by customers. The Company may be held liable for the compensation of damages to third parties if such damages exceed the contracted insurance amount.
Fleet Management and Outsourcing (“GTF”) vehicles, in turn, may not be insured against third parties or have limited coverage for material damage, pain and suffering, or personal injury during the period in which they are rented by customers, depending on the type of insurance contracted by customers, or if customers decide not to contract any insurance.
Therefore, the Company is exposed to responsibilities for which it may not be insured arising from pain and suffering, personal injury, or material damage to the vehicles, due to the use of vehicles rented above the amount covered by the contracted insurance or for vehicles not insured.
Moreover, the Company’s insurance policy may be adjusted to comply with regulations imposed by Brazilian authorities and maintain the financial balance of vehicle rental. If the Company is not able to recover such amounts from users/customers renting vehicles, its operating results may be negatively impacted.
The Company relies on automated and computerized systems.
The Company relies on automated systems to operate its business, including a computerized system for reservations, telecommunication systems, and an Internet website. The performance of Internet sales may be impacted in cases of system interruptions or failures, which may make the website unavailable or that prevent the reservations from being fulfilled. Significant failures in the reservation or telecommunication systems can reduce the attractiveness of services and may lead customers to rent from competitors. Moreover, information technology is essential to maintain the Company’s internal control systems.
Furthermore, information systems are exposed to viruses, malware, and other problems that may unexpectedly interfere in the operation, in addition to network control failures that may also affect performance, since servers are vulnerable to viruses, which may lead to stoppages or failures that may result in interruptions, delays, data loss, or inability to accept and fulfill customer reservations. Any interruption in the systems or their underlying infrastructure could materially affect business, such as financial losses, and higher costs, and cause general damage to the Company. For further information, see item 5.6 of this Reference Form.
Failures in personal data protection may adversely affect the Company.
The Company manages and retains information related to its employees and customers, identified or identifiable, in the regular course of its operations. Unauthorized disclosures or breaches in security may subject the Company to lawsuits and administrative sanctions and negatively impact its reputation.
The Company’s businesses are exposed to the risk of possible non-compliance with policies, misconduct, negligence, or fraud committed by employees, causing personal customer information to become available to third parties, which may result in regulatory sanctions and reputational and financial loss. Furthermore, the Company’s systems may undergo violations resulting in unauthorized access, misappropriation of information and data, deletion or change of customer information, denial of service attacks, or other interruptions in business operations. The Company may not be able to prevent or stop the misconduct of employees or third parties.
Given that the techniques used to obtain unauthorized access and sabotage systems constantly change and may not be known until they are launched against the Company or its service providers, the Company may not be able to anticipate or implement proper measures to protect against such attacks. If it is not possible to avoid such security violations, the Company could be subject to legal and financial obligations, as provided for in Law 13,709/18 (General Data Protection Regulation – “GDPR”), such as warning, obligation to disclose the incident, deletion of personal data, and fine of up to 2% (two percent) of the revenue of the company, group, or conglomerate in Brazil reported in the last fiscal year, excluding taxes, which may total R$50,000,000.00 (fifty million reais) per violation. It is worth noting that the GDPR became effective in January 2021. Finally, in case of an incident, the Company’s reputation could also be jeopardized, resulting in significant revenue loss from sales and customer dissatisfaction.
Currently, data processing in Brazil is regulated by several rules sparsely provided for in the legislation, such as the Federal Constitution, the Consumer Defense Code, the Civil Code, and the Civil Rights Framework for the Internet. The efforts to protect personal data processed in the Company’s systems may not ensure that these protections are adequate and comply with the rules defined in the legislation in force.
The GDPR became effective in January 2021 and transformed the personal data protection system in Brazil. The GDPR establishes a new legal framework that must be complied with in personal data processing transactions. Furthermore, among other matters, the GDPR establishes the rights of the holders of personal data, the legal bases applicable to personal data processing, the requirements for obtaining consent, the obligations and requirements related to security leakages, incidents, and personal data transfer, and provides for the creation of the National Data Protection Authority. Accordingly, the Company may have difficulties adjusting to the new legislation given the quantity and complexity of new obligations to be complied with.
Any events in which customer information may be compromised, subject to unauthorized access, and other security violations, may reduce the demand for the Company’s services and products, leading to a significant and adverse impact on its business and operating results, which may result in additional implementation investments.
We are subject to risks related to judicial and administrative disputes that may adversely affect our results.
We are (including our managers and affiliates), or may in the future be, a party in several administrative, judicial, or arbitration proceedings, or investigations involving civil, tax, labor, environmental, and criminal matters, in addition to administrative rectifying proceedings, within the scope of regulatory authorities, such as CVM, SUSEP, or the Brazilian Antitrust Authority (CADE), during our business. The amounts provisioned or retained may not be sufficient to cover all possible convictions that the Company may face.
Unfavorable decisions or settlements related to judicial, arbitration, or administrative proceedings may result in the payment of significant cash disbursement, restrictions on our rights, or adversely affect our reputation. For further information on judicial, arbitration, or administrative proceedings to which the Company is a party, see items 4.3 to 4.6 of this Reference Form.
Significant increases in the costs of inputs necessary for the Company’s activities may adversely affect its operating results.
The Company is subject to increases, by its suppliers and service providers, in the costs of inputs and services necessary for its activities, such as spare parts or labor. The Company cannot predict when the prices of such inputs and services will increase or be adjusted, including those caused by higher demand or the manufacturers’ sales policies. In case of higher demand or unfavorable change in the sales policy, the Company may face higher costs and, consequently, have lower margins. Given that the prices charged by the Company from its customers in the car rental activities take into consideration the acquisition cost of the inputs, if the Company cannot pass on cost increases to customers, its business, financial standing, and results may be significantly and adversely impacted.
The car rental and, especially, the fleet management business, have few or no barriers to entry. New competitors can enter the market at any time.
The car rental and fleet management businesses have few barriers to entry. In a highly dispersed market, competitors can invest to enter the business at any time. In the “2021 Brazilian Yearbook of the Car Rental Sector”, the Brazilian Car Rental Association (“ABLA”) pointed out that there were 11,053 car rental companies with active Corporate Taxpayer’s ID (CNPJ) at the Federal Revenue Office in 2020. The highly competitive environment and the competitors’ growth strategy may lead to a decrease in rental prices and adversely affect our operating results.
The Company is subject to the risk of not renewing fleet outsourcing contracts with its main customers or the non-execution of new fleet outsourcing contracts.
Fleet Management and Outsourcing (GTF) is an important activity and accounted for 19% of the Company’s net service revenue and sale of used assets in the year ended December 31, 2021. This segment is based on long-term contracts and the expansion and diversification of this portfolio is an important item in the Company’s business strategy. The long-term contracts executed by the Company under Fleet Management and Outsourcing (GTF) are valid, on average, for 30 months, which is also in line with the average sale age of the segment’s fleet, which, on March 31, 2022, was 31,1 months. For further information on the Company’s fleet outsourcing contracts, see items 7.1 and 7.2 of this Reference Form.
Accordingly, the unsuccessful implementation of its strategy for this segment may adversely impact the Company’s business. Main customers may not renew fleet outsourcing contracts and the Company may not be able to obtain new fleet outsourcing contracts, which may significantly reduce its revenue, affecting its business, financial standing, and operating results.
The Company’s results may be impacted by higher acquisition costs of new cars.
The Company’s fleet is periodically renewed, as necessary, due to wear and tear resulting from the use of vehicles available for rental and fleet outsourcing. Accordingly, the Company’s results are largely tied to the conditions for the acquisition of vehicles negotiated with its suppliers and the large scale of such acquisitions, either because of individual acquisitions by the Company or joint negotiations with the other companies of its economic group. For further information, see item 16.2 of this Reference Form.
If there is an increase in the demand for the acquisition of new cars that reduces the carmaker’s capacity to supply the market demand and/or leads to a price increase, if the Company is not able to maintain the current discounts negotiated with its suppliers, or in the event of an unfavorable change in the sales policy to car rental and fleet outsourcing companies, the Company may face higher costs and, consequently, have lower margins. Given that the prices charged by the Company from its customers in car rental and fleet outsourcing activities take into consideration the acquisition cost of new cars, the Company’s business, financial standing, and operating results may be adversely impacted.
The Company’s success depends on its ability to attract, train, and retain skilled professionals.
The Company’s success depends on its ability to attract, train, and retain skilled professionals to conduct its business. The car rental industry is competitive in terms of hiring skilled professionals and lacks specialized and trained labor. Even if it is possible to hire, train, and maintain skilled professionals, the Company cannot ensure that it will not incur significant costs in doing so. Moreover, the Company’s businesses highly rely on its senior management, who have been performing a key role in its development. Should one of them leave the Company, it may have difficulties in replacing them, which could jeopardize its business and operating results.
The Company is subject to covenants.
The Company is subject to covenants, under the terms and conditions of loan agreements, which include, among others, limitations on its ability to incur additional indebtedness. Furthermore, the agreements provide for early maturity and restrictions to new fundraising in specific conditions, such as the maintenance of certain financial indicators. Moreover, limitations on its indebtedness may prevent the Company from executing new agreements to finance its operations or refinance its existing obligations, which may adversely affect its business, operating results, and financial standing. Should it need to incur new indebtedness because of its expansion strategy or any other capital requirements, the Company may be prevented from contracting it, due to such restrictions, or be required to early pay the indebtedness subject to such restrictions, which may adversely affect its cash flow and operating results. For further information, see section 10.1 (f) of this Reference Form.
Difficulties in managing credit and liquidity risks may adversely impact the Company’s financial and operating performance and limit its growth.
The Company has receivables with varying terms and its customers have different levels of creditworthiness, which exposes the Company to the risk of not receiving such amounts or being subject to default regarding customer contracts and other agreements. If a significant number of customers default on their payment obligations to the Company, its financial standing, operating results, or cash flows may be adversely impacted.
Moreover, any difficulties the Company may have in obtaining working capital with investors and financial institutions for its operating activities may lead to a mismatch of terms or volumes to meet its operating requirements and, as such, limit or restrict the activity level in its operations to honor the commitments, adversely impacting the Company’s financial and operating results and, consequently, its growth.
The Company may have to obtain additional capital in the future through the issue of shares, which may result in a dilution of shareholders’ interest in its capital stock.
The Company may need to raise additional funds in the future through public and private issues of shares or securities convertible into shares to finance its growth initiatives. Any fundraising through the primary public distribution of shares or securities convertible into shares to be carried out without preemptive rights to the shareholders, according to applicable regulations, may result in the dilution of these investors’ interest in the Company’s share capital.
Part of the properties occupied by the Company is in the process of obtaining or renewing municipal, environmental, and fire department licenses.
The Company and its subsidiaries depend on several registrations with federal, state, and municipal public administration authorities, in addition to operating licenses and permits. Part of our units is in the process of obtaining or renewing licenses, and a few units have not yet started the process to obtain such licenses. Operating permits and permits from the Fire Department have an expiration date in several locations and must be renewed from time to time, which may or may not include payment of renewal fees. On the date of this Reference Form, the Company did not have 9% of its licenses and 19% are in the process of renewal.
Due to the difficulties and slowness of some administrative authorities, the Company and its subsidiaries may not be able to obtain all necessary licenses, permits, and authorizations or not obtain their renewals on time. The failure to obtain or renew such requirements may result in the units’ impossibility to operate and, as the case may be, interdiction and temporary closure of such units until such licenses and permits are obtained, as well as the application of fines. The Company’s strategy may be adversely affected in the event of the impossibility of operating such units and/or their interdiction or closure due to the failure to obtain or renew the registrations, permits, and licenses required, which may adversely impact the operating results of the Company and its subsidiaries.
The payment of dividends or interest on equity to the Company’s shareholders in the future cannot be ensured.
Any future decision to pay dividends to Company shareholders will be discretionary and must comply with the provisions in the Brazilian Corporation Law. The decision to pay dividends and/or interest on equity will depend on profitability, financial standing, investment plan, restrictions imposed by applicable law, as well as other factors. In addition, the Company’s ability to pay dividends and/or interest on equity will depend on its ability to generate net income. Therefore, there is no way to ensure that the Company will pay or will be able to pay dividends to its shareholders.
Failures in systems, policies, and control procedures may expose the Company to unexpected or unforeseen risks, which could adversely affect its business.
The Company’s internal control systems, policies, and procedures may not be sufficient and/or totally efficient to detect improper practices, fraud, dishonest behavior, or violations of laws by any party acting on its behalf, interest, or benefit, its shareholders, affiliates, employees, directors, executives, partners, managers, agents, and service providers, or that such persons do not take actions that violate the Company’s policies and procedures. Furthermore, suppliers and companies providing services to the Company are not subject to the Company’s internal policies.
If the Company is not able to maintain its internal controls effectively operational, it may not be able to precisely report its results or prevent the occurrence of improper practices, errors, or fraud. The failure or ineffectiveness of internal controls, such as those that may be pointed out by the Company’s auditors, may have a significant adverse effect on its business. For further information, see section 5.3 (f) of this Reference Form.
The measures adopted by the Company may not be sufficient to avoid violations of laws to fight corruption, fraud, and irregular practices by its managers, employees, and suppliers, which may lead to regulatory fines and damages to the Company’s reputation.
The Company may not be successful in its duty of preventing or detecting all improper practices, fraud, or violations of the laws or its internal policies, including anti-corruption laws and compliance regulations, by our affiliates, employees, managers, partners, agents, and suppliers or avoid that such persons practice actions that violate our policies and procedures. We are exposed to behavior inconsistent with our ethics and compliance standards, and subject to violations of our code of conduct as a result of unlawful business conduct, as well as to the occurrence of fraudulent and dishonest behavior by the aforementioned persons. Such non-compliance may result in penalties, contingencies, fines, with a consequent subsidiary or joint and several liability of the Company, loss of licenses, and impossibility to contract with the government, as well as damage to our reputation. All the aforementioned circumstances may adversely affect our business, operating results, financial standing, and image.
The Company may not be successful in the implementation of its acquisitions strategy.
We cannot ensure that the Company will be successful in identifying, negotiating, or concluding any acquisitions. Moreover, the integration of companies acquired may be more costly than expected.
The Company cannot ensure that it will be able to successfully integrate the companies acquired or their assets into its business, nor check the contingencies of the companies acquired since the financial information of most companies operating in the sector is not audited. The failure of its strategy to conduct new acquisitions may significantly and adversely affect the Company’s financial standing and results.
Moreover, any major acquisitions that the Company may consider may be subject to obtaining authorizations from Brazilian antitrust authorities and other Brazilian authorities. The Company may not be successful in obtaining such necessary authorizations or obtaining them on time to effectively and strategically integrate the companies acquired.
The Company has a direct controlling shareholder whose interests may conflict with the interests of its investors.
The Company’s direct controlling shareholder, SIMPAR PARTICIPAÇÕES S.A., currently holds the majority of its share capital. This controlling shareholder has the powers to, among other actions, (i) elect and remove the majority of the members of its Board of Directors, establish the Company’s administrative policy, and exercise general control over the management of the Company and its subsidiaries, (ii) sell or transfer shares representing the Company’s control, according to the Bylaws, and (iii) determine the outcome of any resolution by the Company’s shareholders, including in transactions with related parties, corporate reorganizations, sale of assets, including the sale of all or substantially all the assets, as well as partnerships, and the time of payment and distribution of any future dividends, under the requirements for payment of mandatory dividends imposed by the Brazilian Corporation Law.
The Company’s controlling shareholder may want to conduct acquisitions, sale of assets, partnerships, seek financing, or similar operations that may conflict with the interests of other investors and adversely affect its activities, financial standing, and operating results. For further information, see section 16 (f) of this Reference Form.
The Company is not subject to any risks related to its shareholders.
The risks related to subsidiaries and affiliates are similar to those related to the Company.
The Brazilian automaking market has a high concentration of automakers.
The Company’s main suppliers are automakers. The Brazilian light cars and car parts manufacturing sector is strongly controlled by six automakers, namely FCA, Volkswagen, Fiat, Hyundai, and Jeep, which, together, accounted for more than 76% of domestic market sales in 2021, according to data from the National Association of Automobile Manufacturers (ANFAVEA). In case of change in the installed capacity and policies and sales conditions by automakers, the Company’s ability to renew and expand its fleet and, consequently, its business, operating results, financial standing, and outlook may be adversely affected.
The Company’s activities depend on its relationship with suppliers.
The success of the Company’s activities regarding asset acquisition and sales mostly depends on the financial standing, reputation, marketing, managerial strategy, and, mainly, the Company’s business relationship with such suppliers and its suppliers’ ability to project, produce, and distribute assets demanded by the public.
The activities of the Company and its subsidiaries related to the car rental sector depend on their relationship with the automakers of such assets and suppliers of auto parts. Furthermore, the Company’s suppliers have great influence over part of its activities and may require us to meet certain standards of aesthetics, quality, customer satisfaction, financial criteria such as minimum working capital, and standards for maintenance and conservation of inventories, as well as restrict the Company’s freedom to associate its activities and products with their images and brands, which may lead to significant costs. Should its suppliers terminate or not renew contracts due to default, failure to meet satisfaction standards, changes in the Company’s internal management and corporate control structures not approved by them, or other criteria, the Company may not receive benefit programs and other advantages such as the consolidation of attractive inventory and, consequently, our activities and operating and financial results may be jeopardized.
The Company is exposed to credit risk in its operating activities, which may negatively affect its financial standing and operating results.
The Company is subject to credit risks related to the payment of its customers for renting vehicles and to fleet outsourcing contracts. Should the Company’s customers fail to meet their obligations and cause losses above expected, its financial standing and operating results may be adversely affected. The default rate of the Company’s customers was 1.1%, 1.3%, and 1.4%, respectively, in the fiscal years ended December 31, 2021, 2020, and 2019. On March 31, 2022, the default rate was 1.1%.
The deterioration of economic and market conditions in other countries, especially in emerging markets or the United States, can adversely affect the Brazilian economy and the Company’s business.
The Company’s growth is directly tied to the expansion of the Brazilian domestic market and its businesses are strongly integrated into the economy and its customers’ operations, distributed in various economic sectors. The Company’s operating results, especially those related to the car rental market, are strongly affected by the level of confidence and economic activity in Brazil. An economic downturn leads to reduced tourism trips, businesses, and investments, higher unemployment, and, consequently, reduced demand for car rental and fleet management. The slowdown in the pace of the country’s economic growth, with retraction of wholesale and retail demand, and fewer investments in capital goods and infrastructure can directly affect the Company’s operating and financial results. A reduction in economic activity typically results in decreased leisure travel and tourism activities, which may reduce car rental demand. Considering that part of the Company’s RAC activities is enhanced by touristic flow, a strong decline in tourism due to an economic slowdown may impact said activities.
In addition, the securities market and the Brazilian economy are affected by international economic and market conditions in general, especially the economic conditions in the United States. Share prices on the B3 S. A. – Brasil, Bolsa, Balcão (“B3”), for example, are traditionally sensitive to fluctuations in U.S. interest rates and the behavior of the main North American stock exchanges. Any increase in other countries’ interest rates, particularly in the United States, may reduce global liquidity and investors’ interest in Brazil’s capital market, negatively affecting the price of the shares issued by the Company.
The reduction in the demand for used vehicles may adversely impact the Company’s business.
The sale of used vehicles is an important aspect of the business cycle, given that this activity’s volume and price are important elements for achieving the expected return of each operation. A reduction in demand for the Company’s decommissioned assets, as well as restrictions on credit granting and higher interest rates on vehicle financing, may directly or indirectly affect the secondary market of these assets and significantly reduce its liquidity. Market price volatility may also reduce the price of the Company’s decommissioned assets or their sale value, leading to greater devaluation compared to their acquisition price. All these factors may affect the ability to sell these decommissioned assets at the initially estimated prices, which may adversely affect the Company’s business, financial standing, and operating results.
The strong competition in the car rental and fleet management segments may affect the Company’s operating results.
The car rental and fleet management segments are highly competitive and dispersed. According to the Brazilian Car Rental Association, in 2021, the car rental sector had 13,903 car rental companies, which recorded total revenue of R$23.5 billion, and a fleet of 1,136 million vehicles with an average age of 27.4 months. The fleet management segment has few barriers to entry and the rental tariffs are one of the important factors in the customers’ decision to contract these services. The highly competitive environment and the competitors’ growth strategy may significantly affect the Company’s operating results.
Changes in tax legislation may lead to increases in certain direct and indirect taxes.
The Brazilian government regularly makes changes in the tax regime, representing a potential increase in the tax burden of the Company and its customers and suppliers. Such changes include changes in rates, changes in the interpretation of tax levied, and, occasionally, the creation of temporary taxes, whose collection is tied to specific governmental purposes. Changes in the Brazilian tax legislation with specific purposes, such as the States’ regulation of matters related to the registration and licensing of cars and collection of Motor Vehicle Property Tax (“IPVA”), the reduction of Tax on Manufacturing of Goods (IPI) on new vehicles charged in 2012, or any incidence of Value-Added Tax on Goods and Services (ICMS) in the sale of used vehicles, may impact the depreciation of the fleet and the market value of the Company’s assets. Increases in the Company’s tax burden or effects of changes in tax legislation may limit operations regarding the free reallocation of the fleet, increase the tax burden, and adversely impact its business and operating results.
Part of our stores is not located in own properties. If we are unable to renew our store leases or if we renew them on less favorable terms, our operations may be adversely affected.
Most of the properties in which our stores are located are leased from third parties that are not related to us and over which we have no control, except for the rights provided for and safeguarded in the respective lease contracts. On the date of this Reference Form, of all properties used in the Company’s operations, 0.3% referred to own properties and 99.7% were leased, where 1.3% of which were leased from related parties and 98.4% from third parties. Moreover, the average term of the end of the lease agreements executed by the Company is 10 years.
If our lease agreements terminate and we are unable to renew them, or if the renewal implies unfavorable conditions to our business, we may be forced to change the location of our stores to other locations that may not have the same visibility or that may not be that adequate considering our target audience’s locations. The renewal of lease agreements in less favorable terms may reduce the profitability of our stores and adversely affect our operating revenue. The real estate market heating up may also make our expansion plan unfeasible or slow them down, as the lease for implementation of new stores becomes more expensive. Moreover, a small portion of our store lease contracts is valid for an undetermined period since the lease terms established in the agreements have already expired, which may lead to property vacancy if there is no agreement to renew the respective lease term.
The Company does not operate nor earn revenues from foreign countries.
The environmental and occupational health and safety laws and regulations may require expenditures greater than those the Company currently incurs to be complied with, and failures to comply with such laws and regulations may result in civil, criminal, and administrative penalties.
The Company is subject to federal, state, and municipal legislation, as well as to regulations, authorizations, and licenses related to the protection of occupational health and safety and the environment. Any failure to comply with such laws, regulations, licenses, and authorizations, or failures to obtain or renew them, may result in the application of civil, criminal, and administrative penalties, such as fines, cancellation of licenses, and revocation of authorizations, in addition to negative publicity and responsibility for sanitation or environmental damage. The Company has already incurred and will continue incurring capital and operating expenditures to comply with such laws and regulations. Due to the possibility of regulations or other unforeseen events, especially considering that environmental laws may become stricter in Brazil, the amount and time necessary for future expenditures required to maintain compliance with regulations may increase and adversely affect the availability of funds for capital expenditures and other purposes. Compliance with new laws or environmental laws and regulations in effect may increase the Company’s costs and expenses, consequently resulting in lower profit.
The intervention of the Brazilian government in the Brazilian economy through significant changes in its monetary, tax, credit, and tariff policies and rules may affect the Company’s business.
The recent past of the Brazilian economy shows several examples of measures adopted by the Brazilian government that significantly changed the way it conducts its policies to cope with the economic and political situations then imposed. We can mention interest rate increases or decreases, changes in tax policies, salary and price control, blocking to bank accounts access, exchange depreciation, capital control, limitation to imports, and interventions to the concessions in the electricity sector, among others.
Accordingly, the Company has no control over any measures or policies that may be imposed by the Brazilian government in the future. The Company’s business, its financial standing, operational results, and outlook may be significantly impacted by material changes in policies or rules that involve or influence factors, such as:
- monetary policy;
- tax policy;
- exchange policy;
- social and political stability;
- expansion or contraction of global or Brazilian economy, as measured by Gross Domestic Product growth rates;
- exchange controls and restrictions on remittances abroad;
- significant exchange fluctuations;
- changes in the tax regime;
- liquidity of domestic financial and capital markets;
- interest rates;
- inflation;
- changes in the criteria to define prices and tariffs practiced;
- power rationing;
- general fuel supply;
- strikes;
- intervention, change, or termination of government agreements and/or government authorizations; and
- other political, diplomatic, social, and economic events that may occur in or affect Brazil.
The adoption, by the Government, of policies or rules that may affect these or other sectors in the future may contribute to the economic uncertainty in Brazil, worsened by the impacts of the COVID-19 pandemic in 2020 and 2021, and increase volatility in the Brazilian securities market. The occurrence of any of these events may adversely affect the Company.
Furthermore, the Brazilian was affected by recent political events, which also affected the confidence of investors and the public in general, thus jeopardizing the Brazilian economic performance. Moreover, any lack of decision by the Brazilian government to implement changes in certain policies or regulations may contribute to the economic uncertainty of investors regarding Brazil and increase market volatility, which may adversely impact us and our actions.
Political instability may adversely affect the Company’s business and results, as well as the price of its shares and reputation.
Brazil’s economic environment has influenced and continues to influence the performance of the country’s economy. Measures that the government adopts or fails to adopt can also cause popular dissatisfaction, leading to strikes, such as the truck drivers strict started in all Brazilian regions in May 2018. Moreover, political crises have affected and continue to affect the confidence of investors and the public in general, which led to a slowdown in the economy and an increase in the volatility of securities issued by Brazilian companies.
The Brazilian markets are currently facing higher volatility due to uncertainties related to several ongoing corruption investigations. Such investigations have negatively impacted the Brazilian economy and political environment. Members of the Federal Government and Legislative, as well as senior employees of large companies, are being sued for corruption, among other crimes. The Company cannot predict whether the outcomes of investigations in progress or future investigations may cause damage or losses to the Company’s image and reputation, including its properties and/or activities, directly or indirectly, which may adversely impact the price of its shares.
It is worth noting that the possible outcome of the investigations on corruption is uncertain but the investigations have already adversely impacted the image and reputation of the companies involved and the general perception of the Brazilian market. The Company cannot predict if such allegations will lead to higher political and economic instability or if new allegations may involve the Company, its subsidiaries, subcontractors, or business partners, negatively impacting its image and reputation.
The development of these cases of unethical conduct has adversely impacted and may continue adversely impacting the Company’s financial standing and operating results, as well as the trading price of its shares. It is not possible to predict whether the ongoing investigations will lead to greater economic and political instability, nor if new allegations against employees and executives of the government and/or private companies will arise in the future.
Moreover, in April 2020, the Brazilian President was involved in political discussions that led to the resignation of the then Minister of Health, Luiz Henrique Mandetta, and the request for the resignation of the then Minister of Justice, Sergio Moro. The aforementioned former Ministers were a strong presence in the current Federal Government, and the ministerial changes led to more instability in the Brazilian economy and the capital market. It is not possible to guarantee that the outcome of these events will lead to additional adverse impacts on the political and economic situation in Brazil. Furthermore, the Company cannot guarantee that any other political events will not increase instability in the Brazilian economy, the capital market, and the price of its shares.
Until the date of this Reference Form, President Jair Bolsonaro was being investigated by the Federal Supreme Court for alleged improper acts informed by the former Minister of Justice, Sergio Moro. According to the former Minister, the President would have requested the appointment of employees of the Brazilian federal police. If the President has committed such acts, any resulting outcomes, including a possible impeachment process, could materially affect Brazil’s political and economic environment, as well as businesses operating in Brazil, including ours.
Several impeachment requests have been filed regarding the management of the aforementioned President’s response to the COVID-19 pandemic. Moreover, in February 2021, Bolsonaro replaced the President of Petrobrás with an Army general. This suggests a more interventionist agenda by the government, which adversely impacted the Brazilian capital market.
A Parliamentary Committee of Investigation (“CPI”) was installed on April 14, 2021, to investigate the misappropriation of funds intended to fight the effects of COVID-19. Supported by the issue of a provisional measure by the Minister of the Federal Supreme Court, Luís Roberto Barroso, for all the necessary measures to be taken for its creation and installation, the CPI is intended to investigate actions and omissions of the Federal Government to face the pandemic and the collapse of the health care system in the State of Amazonas at the beginning of the year. CPI concluded its works and issued a final report that culminated in the request for 80 filing for charges, including President Jair Bolsonaro and government ministers, for several crimes. The investigations were sent to several authorities, among which the Office of the General Council of the Federative Republic, which is responsible for investigating crimes committed by persons with jurisdictional prerogative.
Any outcomes of such investigations, including a possible impeachment process, could materially affect Brazil’s political and economic environment, as well as businesses operating in Brazil, including ours.
Historically, in election years such as this, especially those with a presidential election, foreign investments in Brazil reduce. Moreover, political uncertainty leads to greater instability and volatility in the economic and political scenario. Furthermore, the Federal Supreme Court recently nullified the criminal convictions related to Operação Lava Jato and restored the political rights of former President Luiz Inácio Lula da Silva, which may allow his participation as a candidate in the next presidential election.
Accordingly, the Company cannot estimate the impact of Brazilian and global political and macroeconomic developments on its business. Moreover, political and economic instabilities may lead to a negative perception of the Brazilian economy and greater volatility in Brazilian securities markets, which may also adversely impact the Company and its securities. Any continued economic instability and political uncertainty may also negatively impact the Company’s business.
Political, economic, and social developments and the perception of risks in other countries, especially emerging market countries and the United States, may jeopardize the market price of securities issued by Brazilian companies.
The market value of securities issued by Brazilian companies may be influenced, at different levels, by economic and market conditions in other countries or regions, including the United States, China, the European Union, and other Latin American countries and emerging markets countries. Investors’ reaction to developments in such countries may adversely affect the market price of securities issued by Brazilian companies. The prices of shares traded in the Brazilian capital market, for instance, have historically been susceptible to interest rate fluctuations in the United States, as well as to variations in the main U.S. stock markets. Although the economic conditions in the United States, China, and the European Union may significantly differ from those of Brazil, investors’ reactions to developments in those countries, or emerging market countries, may adversely affect the market price of securities issued by Brazilian companies. These events may include trade disputes, such as the recent dispute between the United States and China, which was recently expanded to other countries, including Brazil, after the announcement of the U.S. President to impose new tariffs on steel products exported from Brazil or disputes between the United States and Iran. Crisis in other Latin American countries and emerging market countries or the economic policies of other countries, especially the United States and countries in the European Union, may reduce investors’ interest in securities issued by Brazilian companies, including securities issued by the Company. This may make it more difficult for the Company to access the capital market and finance its operations in the future, either on acceptable terms or absolute terms. Any of these events may adversely affect the Company’s business and the market price of its common shares.
In the past, the development of adverse economic conditions in other emerging market countries generally resulted in the exit of investments and, consequently, in the reduction of foreign funds directly or indirectly invested in Brazil, impacting the capital market and Brazilian economy, such as fluctuations in the price of securities issued by listed companies, reduction in credit supply, deterioration of the global economy, fluctuation of exchange rates, and inflation, among others. The financial crisis originated in the United States in the third quarter of 2008 and led to a recessionary scenario on a global scale, which, directly or indirectly, adversely impacted the Brazilian economy and the capital market, such as (i) variations in market prices of Brazilian issuers; (ii) credit unavailability;(iii) lower consumption; (iv) economy slowdown; (v) exchange instability; and (vi) inflationary pressure. Moreover, financial institutions may not be willing to renew, extend, or grant new credit facilities in economically favorable conditions, or not be able or willing to honor their obligations. Any of these events may jeopardize the trading of common shares issued by the Company, and make it difficult for the Company to access the capital market and finance its operations in the future, either on acceptable terms or absolute terms. These developments, as well as possible crisis and political instabilities arising thereto, or any other unforeseen developments, may adversely affect the Company and the market value of its shares.
Furthermore, U.S. President Joe Biden has considerable power in establishing government policies and actions that may adversely affect the global economy and the world’s economic stability. We cannot ensure that President Biden’s government will maintain policies designed to further macroeconomic stability, tax discipline, and domestic and foreign investments, which may significantly and adversely affect the financial and securities markets in Brazil, Brazilian companies, including the Company, as well as securities issued by Brazilian companies, including the Company shares.
Furthermore, factors related to international geopolitics may adversely affect the Brazilian economy and, consequently, the capital market. The conflict involving the Russian Federation and Ukraine, for instance, leads to the risk of new fuel and gas price rises. If such rises occur at the same time as a possible appreciation of the dollar, they could increase inflationary pressure and make it difficult to resume the Brazilian economy. Moreover, the conflict impacts the global supply of agricultural commodities so that if there is an increase in grain prices due to high demand, demand for Brazilian production would increase, given the high production capacity and the consequent possibility of negotiating at more competitive prices; thus, export rates rise and increase domestic prices, leading to greater inflationary pressure. It is worth noting that a significant portion of Brazilian agribusiness highly depends on fertilizers imported from the Russian Federation and its allies (the Republic of Belarus and the People’s Republic of China); accordingly, a change in the export policy for such products may negatively impact the economy and, consequently, the capital market. It is worth noting that the invasion that occurred on February 24, 2022, led to hostilities not only between the directly affected countries but in many other nations indirectly interested in the issue, bringing a scenario of high uncertainty for the global economy.
These developments, as well as possible crisis and political instabilities arising thereto, or any other unforeseen developments, may adversely affect the Company and the market value of its shares.
Finally, these tensions may give rise to political and economic instability worldwide, impacting the market where the Company operates and the stock market.
Inflation and the Federal Government’s measures to fight it may significantly influence the economic uncertainty in Brazil and adversely affect the Company’s operating results.
Inflation and some Federal Government measures to fight it, together with speculation about possible government measures to be adopted, negatively and significantly affected the Brazilian economy, contributing to the economic uncertainty in Brazil and the higher volatility in the Brazilian securities market. According to the Extended National Consumer Price Index (“IPCA”), disclosed by the Brazilian Institute of Geography and Statistics (“IBGE”), the Brazilian annual inflation rates in 2014, 2015, 2016, 2017, 2018, 2019, 2020, and 2021, were 6.41%, 10.67%, 6.29%, 2.95%, 3.75%, 4.31%, 4.52%, and 10.06%, respectively. It is not possible to guarantee that inflation in 2022 will be lower than the inflation rate reported in 2021, or that it will remain flat. For 2022, the inflation target was defined at 3.50% (considering a tolerance interval of 1.5 percentage points).
The Federal Government’s measures to control inflation have often included the maintenance of a restrictive monetary policy with high interest rates, thus limiting credit availability and reducing economic growth. Future measures to be taken by the Federal Government, including interest rate increases or decreases, intervention in the foreign exchange market, and actions to adjust or define the value of the Brazilian real, may increase inflation. Furthermore, inflationary pressures and a possible policy adopted by the Federal Government to fight it may impact the cost of the Company’s indebtedness and the costs of obtaining new loans, as well as restrict the Company’s ability to access foreign financial markets, adversely impacting the Company’s business, financial standing, and results.
Moreover, any anti-inflationary policy adopted by the Federal Government may slow down economic activity and reduce the purchasing power of the population, which could also negatively affect the Company’s business, financial standing, and operations.
The Brazilian government has influenced and continues to significantly influence the country’s economy. Such influence, as well as Brazil’s political and economic conditions, may indirectly and adversely affect the Company’s business, its financial standing, and operational results.
The Brazilian government intervenes in Brazil’s economy and occasionally makes significant changes in policies and regulations. The Federal Government’s actions to control inflation and implement other policies and regulations usually involve, among other measures, interest rate increases, tax and monetary matters, price control, interference in the exchange market, limits on imports, non-renewal or changes in concession agreements and administrative contracts, among others. The Company has some stores subject to administrative concessions at airports directly or indirectly managed by the government. A change or non-renewal of concessions to which the Company is subject may lead to the need to change store locations. The Company cannot predict policies or regulations that the Federal Government may adopt in the future. Its business, financial standing, operating results, and overlook may be adversely impacted by such actions.
Any additional decline in the Company’s or Brazil’s credit rating may adversely affect the access and/or limit of financing lines for the Company’s investments.
Rating agencies regularly assess Brazil and its sovereign ratings, which are based on several factors, including macroeconomic trends, tax and budget conditions, debt metrics, and the outlook of changes in one of these factors. Similarly, the corporate credit ratings assigned to the Company and its controlling shareholder are regularly assessed.
Credit ratings affect investors’ risk perception and, consequently, the trading price of securities and yields required in a future issue of debt in the capital market.
Considering that the Company operates in regulated businesses and its corporate rating is pegged to Brazil’s sovereign rating, any downgrade in Brazil’s sovereign rating and/or any downgrade in the Company’s rating can increase investors’ risk perception and, consequently, increase the future cost of issuing debt and adversely affect the trading price of our securities.
Rating agencies started reviewing Brazil’s sovereign credit rating in September 2015. Subsequently, Brazil lost its investment grade status in the three main rating agencies.
- Standard & Poor’s initially downgraded Brazil’s credit rating from a BBB-negative to a BB-positive and then downgraded it again from a BB-positive to a BB, maintaining its negative outlook on the rating, mentioning a worse credit situation since the first downgrade. On January 11, 2018, Standard & Poor’s once again downgraded Brazil’s credit rating from a BB to a BB- with a stable outlook, given the presidential elections and the efforts of the pension reform. In April 2020, Standard & Poor’s updated the rating maintaining Brazil’s credit rating at BB- but once again downgraded the outlook due to the impacts of the COVID-19 crisis on the country’s GDP and tax performance. Also in November 2021, Standard & Poor’s reaffirmed the rating and the stable outlook, sustaining that the outlook for economic growth is moderate despite the economic recovery that happened faster than expected.
- In December 2015, Moody’s downgraded Brazil’s Baa3 issue and bond ratings and in February 2016, it downgraded the issue and bond ratings to below investment level, at Ba2, with a negative outlook, mentioning the prospect of further deterioration in Brazil’s debt indicators, considering an environment of low growth and challenging dynamic policies. On April 09, 2018, Moody’s maintained Brazil’s credit rating at Ba2 but raised the outlook to stable given the prospect of approval of fiscal reforms necessary to stabilize debt metrics in the medium term. In May 2020, the rating and the outlook were reaffirmed amid deteriorating expectations for the economic and fiscal policies, and the political scenario as the Coronavirus crises worsened.
- In February 2018, Fitch once again downgraded Brazil’s sovereign credit rating to a BB-negative with a stable outlook, mentioning, among other reasons, tax deficits, high and growing public debt burden, and the impossibility to implement the reforms that would improve the structural performance of public finances. On May 05, 2020, Fitch maintained Brazil’s credit rating at a BB- negative but downgraded the outlook to negative because of the worsening economic and fiscal outlook and the negative risks imposed by political uncertainty, and the duration and intensity of the Coronavirus pandemic. In November 2020 and May 2021, Fitch maintained the rating at a BB- with a negative outlook, in both cases based on the severe deterioration of the fiscal deficit and the high public debt that had been ongoing since 2020, as well as on the uncertainty regarding the consolidation of the economic and fiscal recovery. In December de 2021, these indicators were maintained, considering the situation of public finances, the credibility of the spending cap, the possibility of increased spending, fiscal uncertainties, inflation, and high currency volatility.
The relative volatility and lack of liquidity in the Brazilian capital market and/or the shares issued by the Company may limit shareholders’ ability to sell their shares at the price and time desired.
The Brazilian securities market is substantially smaller, less liquid, more volatile, and more concentrated than the main international securities markets. These market characteristics may substantially limit shareholders’ ability to sell their shares at the price and time desired, which may, consequently, adversely affect the market price of the shares. Furthermore, the market price of Company shares may fluctuate for various reasons, including the risk factors listed in this Reference Form, for reasons related to the Company’s operating and financial performance, as well as Brazilian and international macroeconomic conditions that cannot be controlled by the Company.
Outbreaks of contagious diseases on a global scale have led to several measures, whose effects may increase the volatility in the global capital market and a potential slowdown in the growth of the Brazilian economy.
Outbreaks of contagious diseases on a global scale, such as the recent outbreak of the COVID-19 virus, known as coronavirus, have led public authorities and private agents in several countries around the world to adopt several measures to restrain the outbreak, which may include a restriction on the movement of goods and people, quarantine of people who have gone to areas of higher risk, cancellation or postponement of public events, suspension of business operations, and closure of places open to the public, among other measures more or less severe.
These measures may impact companies’ operations and family consumption and, consequently, affect investment and savings decisions, leading to greater volatility in global markets and a potential slowdown of the growth of the Brazilian economy, which had recently resumed. These factors may materially and adversely affect the Company’s business and operating results, as well as the prices of the shares issued by the Company.
More specifically for the Company, there may be an interruption in the automotive parts/supply chain. The global supply is currently impacted and several equipment manufacturers have already reduced the supply of parts and/or inputs. Because of these interruptions, the inventories of the Company’s suppliers may be affected and, consequently, reduce our access to assets that are important to expanding our supply, which may materially and adversely affect the Company’s business and operating results.
Decreases in the number of airline passengers or the flow of people at airports could negatively affect us.
Our operations at airport terminals could be adversely affected by a reduction in the number of airline passengers or drivers passing through those facilities. The occurrence of any event beyond our control, such as terrorist attacks, hurricanes, and natural and pandemic disasters, such as H1N1 (swine flu) and COVID-19 (coronavirus), can reduce the number of airline passengers. Any event of a similar nature, even if not directly affecting the travel industry, or the fear of such an event, may significantly reduce the number of airline passengers. Furthermore, any interruption or suspension of services provided by airlines, as a result of financial difficulties, labor disputes, construction work, additional security, or any other relevant factor, could adversely impact the number of travelers. Trips to Brazil may also reduce because of the concern with high contamination rates. Increases in airline fares because of higher fuel prices may also reduce passenger traffic. In the fourth quarter of 2021, the Company had 50 service points located at airports. Revenue from products from these locations accounted for 33% of the Rent-a-Car (RAC) net revenue in the period. These reductions in passenger traffic would reduce our sales and significantly and adversely impact our business, financial standing, and operating results. Furthermore, store locations may lose attractiveness because of changes in pedestrian and/or automobile traffic, and demographic or economic conditions in the area, which could reduce sales in these places. The occurrence of any of these events could adversely affect us.