2017 Financial Statements

2017 Financial Statements

(A free translation of the original in Portuguese) INDEX Management report Message from the CEO 3 Message from the Executive Chairman 4 Macroeconomic scenario 5 Business overview 5 Geographic distribution 6 Shareholding 6 Dividends and interest on equity 7 Investments in subsidiaries 8 Acquisition of Hertz Brasil and strategic alliance with The Hertz Corporation 8 Analysis of consolidated results 9 Analysis of consolidated balance sheet 12 Taxes 15 Main awards received 16 Sustainability 16 People management 20 Financial statements Independent auditor's report on the individual and consolidated Financial Statements 24 Balance sheets – assets 29 Balance sheets – liabilities and equity 30 Income statements 31 Statements of comprehensive income 32 Individual and consolidated statements of changes in equity 33 Statements of cash flows 34 Statements of value added 36 Notes to the financial statements: General information 37 Basis of preparation, presentation of financial statements and summary of significant accounting policies 37 Recently issued accounting pronouncements and interpretations 40 Cash and cash equivalents 42 Financial assets 42 Trade receivables 42 Other current and non‐current assets 44 Investments in subsidiaries and related‐party transactions 44 Property and equipment 52 Intangible assets 56 Trade payables 58 Payroll and related taxes 58 Loans, financing, marketable securities and swap 58 Other current and non‐current liabilities 65 Provisions and escrow deposits 65 Taxes on income – income tax and social contribution 69 Equity 71 Earnings per share 80 Division reporting 80 Net revenues 83 Nature of costs and operating expenses 83 Financial income (expenses) 85 Financial instruments and risk management 85 Rental commitments 92 Supplementary pension plan 93 Approval of the financial statements 94 Other informations Management’s statement on the financial statements 95 Management’s statement on the independent auditor’s report 96 Statement of the minutes of the meeting of the audit, risk and compliance management committee 97 Comments on the performance of business projections 98 Major highlights of 2017 99 1 ‐ MESSAGE FROM THE CEO Dear Investors, In 2017, our team set audacious goals for growth, value creation, customer satisfaction and brand positioning, even in an adverse macroeconomic scenario in a very competitive environment. The team embraced the challenge, innovated and achieved impressive results: We grew generating value. Our fleet reached 194 thousand cars (including franchisees), with 27.1% increase in rental days (Car Rental + Fleet Rental) and we sold more than 90 thousand cars. We increased our distribution by 51 corporate rental locations and 15 Seminovos stores. Our net revenues increased 36.5% and net income grew 37.6% as a result of our focus on operational excellence. The spread between ROIC and the cost of debt reached 8.0 p.p. and RENT3 was the 35th most traded share in B3 (Brazilian Stock Exchange) in 2017. Localiza has expanded its unquestionable leadership in quality and service thanks to our employees’ strong culture of customer focus and passion for serving. Localiza won several awards throughout the year, such as the best car rental company by Folha de São Paulo and Época Reclame Aqui awards, the latest for the third consecutive year. Localiza was one of the five Brazilian brands that appreciated the most in 2017, reaching the 24th place among the most valuable brands in Brazil by Interbrand Ranking. Localiza Fidelidade, Latin America's largest car rental loyalty program, has reached 7.6 million participants and has distributed more than 2.3 million free rental days to its members. We have reached 1.5 million fans on Facebook, the biggest fanpage of the category in the world. We are moving forward in innovation and digital transformation. The innovation was important in all segments of Localiza with significant improvements in the customer experience. We also invested in the digitization of internal processes, increasing our productivity to gain scale while also increasing control during the accelerated growth process. We have successfully conducted the integration of Hertz's operations in Brazil. Two months after the acquisition, Car Rental, Fleet Rental and Seminovos (used car sales) operations were fully integrated, ensuring business continuity and maintaining the highest standard of excellence in the relationships with our customers. By the end of 2017 our network of corporate and franchised locations, as well as all our reservation channels, already exhibited the new Localiza Hertz brand. At the same time, we have moved forward in the long‐term strategic partnership with The Hertz Corporation, making reservations worldwide through our reservation channels and displaying the Localiza brand at major international airports. All these results would not have been possible without the enormous commitment, sense of urgency, passion to serve and ownership mindset of our more than 7,700 employees. In the context of rapid evolution and transformation of technology, Localiza continues to invest in the development of its employees to weather future challenges, meeting the expectations of our customers. We closed 2017 satisfied with the achieved results in key aspects of the business, which makes us even more motivated for a 2018 that begins with a more positive economic scenario, despite the uncertainties of an election year. What does not change, regardless of the environment, is our clear vocation for sustainable growth and position to continue to expand our market leadership. We appreciate the trust of our customers, employees, investors, suppliers and partners and reaffirm our determination to write another chapter of growth and superior results in 2018. Eugênio Mattar – CEO 3 2 ‐ MESSAGE FROM THE EXECUTIVE CHAIRMAN The Brazilian economy fared reasonably well in 2017 compared to the previous year and ended the year with signs of some economic recovery. The current economic team demonstrated serious commitment to the fiscal policy and the Central Bank of Brazil kept inflation below target and reduced the interest rate. Unemployment rate dropped slightly. In this scenario of economic recovery, Localiza has been reaping the rewards of its long‐term strategies implemented in the previous years, registering strong growth, solid results and generation of value for its shareholders. The disciplined financial management, recognized by the market and by the main credit rating agencies, has been driving the Company’s sustainable growth, further strengthening our competitive advantages. The recent acquisition of operations and long‐term agreements with Hertz will help leverage business and expand our know‐how of the global car rental sector and its evolution. The process of succession in the Company has been conducted in a planned manner and according to the best market practices, maintaining the Localiza standard of excellence in the operations and in the outstanding business results. Running a business in a scenario of uncertainties is part of our culture and experience. Since its foundation 44 years ago, Localiza has faced and overcome diverse and difficult economic crises. And most probably this was not the last. The Company was born during the first oil crisis in 1973 and embarked on territorial expansion during the second oil crisis in 1979. We have faced adversities with determination, commitment and perseverance. We remain passionate about serving our clients and pursuing excellence in all that we do. We will maintain our reputation firmly grounded on strong ethical values, as well as high standards of governance and compliance. Top‐notch managers and employees will continue to lead us to new achievements! We are optimistic about 2018. We thank all of our clients, employees, suppliers, partners and investors who have been with us in this journey. I invite you to read the Annual Management Report so that you can better understand our organization, strategies and results. Cordially, Salim Mattar – Executive Chairman 4 3 ‐ MACROECONOMIC SCENARIO In 2017, there was a series of positive changes in the economic scenario, despite the uncertainty about reforms and the political scenario. For the first time in history, inflation was below target, the basic interest (Selic) rate fell to its lowest levels since the adoption of the inflation targeting regime in 1999 and the reversal of the declining trend in GDP brought a new perspective to 2018. Even though the labor reform was approved, other important reforms, such as social security and tax reforms, were postponed to 2018. The imbalance in public accounts is still an important issue for the country, which has been directly affecting government spending and, consequently, the sustainable growth of the country. The impact on the real economy was a boost to consumer confidence, which reflected in the growth in household consumption. Due to the vast idle capacity in the country after the crisis, this consumption is not yet matched by investments despite the reduction in the interest rate. However, the use of idle capacity has been increasing consistently and already reflects in better employment indicators across the industry. Brazil in 2018 Clearly 2018 is a year that will benefit from the change in the economic scenario back in 2017. Resumption of growth, lower interest rates, improved confidence and lower inflation are strong drivers of better prospects. The market expectation is a resumption of investments, reduction of the primary deficit

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