Ecorodovias Infraestrutura E Logística S.A. Parent Company and Consolidated Financial Statements at December 31, 2020
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(A free translation of the original in Portuguese) www.pwc.com.br EcoRodovias Infraestrutura e Logística S.A. Parent company and consolidated financial statements at December 31, 2020 and independent auditor's report (A free translation of the original in Portuguese) Independent auditor's report on the parent company and consolidated financial statements To the Board of Directors and Stockholders EcoRodovias Infraestrutura e Logística S.A. Opinion We have audited the accompanying parent company financial statements of EcoRodovias Infraestrutura e Logística S.A. ("Company" or "Parent company"), which comprise the balance sheet as at December 31, 2020 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, as well as the accompanying consolidated financial statements of EcoRodovias Infraestrutura e Logística S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2020 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EcoRodovias Infraestrutura e Logística S.A. and of EcoRodovias Infraestrutura e Logística S.A. and its subsidiaries as at December 31, 2020, and the financial performance and the cash flows for the year then ended, as well as the consolidated financial performance and the cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis for opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Parent Company and Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Key Audit Matters Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the Matters current year. These matters were addressed in the context of our audit of the parent company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Why it is a key audit matter How the matter was addressed PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054, T: +55 (11) 3674 2000, www.pwc.com.br EcoRodovias Infraestrutura e Logística S.A. Why it is a Key Audit Matter How the matter was addressed in the audit Recognition of revenue from toll collection (Note 3 (g)) The Company and its subsidiaries in the highway Our audit procedures included, among others, the concession segment recognize their revenues in understanding of the key internal controls accordance with the use of tolls by users. These established by management for the recognition of transactions are of high transactional volume revenue from toll collection, as well as for the (each transaction is recorded by vehicle and toll integration of information from the operating plaza) and are generated by proprietary operating system with the financial and accounting system. systems that record all transactions by booths and toll plazas. We carried out reconciliation tests between the revenue generated by the operating system during In relation to prices, these are agreed in the the year and the financial and accounting system concession contracts and undergo annual and the tax records of the Company. adjustments according to each contract. After the daily closing of operations at the toll booths, the We also applied confirmation procedures with system integrates the information with the third parties to validate the volume of automatic financial systems for the accounting record of the transactions generated during the year, and transactions. tested the documentation of the cash control of the booths and, on a sampling basis, the This area was considered as one of the key audit transactions carried out manually, when payment matters because the revenue recognition process is made in cash. involves a high volume of transactions in different locations and because of the materiality of the Our audit procedures demonstrate that the amount in profit or loss for the year. information disclosed is consistent with the data and documents obtained. Impairment of non-current assets (a) Port operation (subsidiary Among other procedures, and with the support of Ecoporto Santos) our internal business valuation specialists, we obtained an understanding of the internal As disclosed in Note 22 (e), the Company's controls for the preparation and review of the management is aware of the Concession assumptions adopted by management to Authority's final decision related to the non- determine the recoverable amount of concessions renewal of the Lease Agreement entered into and port operations. In addition, we tested the between Companhia Docas do Estado de consistency of the information and key São Paulo ("CODESP" - currently Santos Port assumptions used by the Company's Authority - SPA) and Ecoporto Santos S.A. management, including the traffic flow ("Ecoporto Santos"), a subsidiary of projections, extraordinary tariff adjustments, and the Company. estimate of investments and discount rate, by comparison with the budget prepared by As a result, the recoverable amount of management and public and internal data Ecoporto Santos was updated and and information. management recognized an impairment of R$ 745 million of its non-financial assets at We assessed the competence, objectivity and December 31, 2020, as shown in Note 1 (b) to capacity of external specialists hired by the financial statements. The recoverable management to assist in determining the amount was determined considering the traffic curve. discounted cash flow method. Furthermore, exclusively with respect to the As a matching entry, in view of non-renewal aspects related to the non-renewal of the port of the contract, financial assets of R$ 129 operation concession contract, we involved our 3 EcoRodovias Infraestrutura e Logística S.A. Why it is a Key Audit Matter How the matter was addressed in the audit million related to monetary adjustment and legal experts to analyze the technical remuneration of the portion of unamortized reasonableness of the professional judgments reversible assets were recognized, as adopted by management and contractual rights mentioned in Note 1 (c). arising from this non-renewal. (b) Concession intangible assets (Note 13) In the context of our audit, we consider that the valuation methodologies, judgments and The balances of concession intangible assets, assumptions adopted by management are represented by investments for the operation reasonable and the disclosures are consistent with of the concession, are non-financial assets the data and information obtained. recorded at amortized cost over the concession period. This balance, net of the provision for impairment described in item (a) above, amounts to R$ 8,088 million at December 31, 2020 and should not exceed the net realizable value. The recoverability of this asset is based on projections discounted to the present value of future cash flows, with an inherent high degree of judgment. The assumptions that have a most significant effect on traffic projections include extraordinary toll fee increases, investment estimates and the discount rate used. This topic was considered as one of the key audit matter due to the materiality of the amounts, associated with the fact that involves significant judgments by the Company's management. Capitalization of expenses related to concession assets (Notes 4 and 13) The concession contracts provide for the Our audit procedures included, among others, an Company to make significant investments for the understanding of the key internal controls construction of the necessary infrastructure for established by management to identify and the operation, which amounted to R$ 1,074 monitor the expenses incurred for each million in 2020. concession contract and the proper accounting classification according to the nature of the As the capitalization of these investments respective expenses. requires a critical judgment by management, and due to the materiality of the amounts involved, we We carried out reconciliation procedures between understand that this topic must be considered as the internal controls prepared by the Company a key audit matter. and the information included in accounting records. In addition, we applied documentation tests, through which we analyzed the contracts and, on a sampling basis, inspected the measurements, invoices and proofs of payment. 4 EcoRodovias Infraestrutura e Logística S.A. Why it is a Key Audit Matter How the matter was