Risk Factors

A substantial part of our revenues is concentrated in a small number of customers of specific sectors.

In 2018, approximately 31%, 28% and 17% of our operating revenue resulted from services provided to the sectors of oil and gas, automotive, and mining, respectively.

In the case of a drastic retraction in any of these sectors, affecting our customers, our results may be impacted adversely.

In addition, in 2018, more than 50% of our revenue resulted from the provision of services to key customers, who operate in the mining, automotive, oil and gas, and steel industries, and more than 20% of the revenue resulted from services provided to only one of such customers. If the business or operating results of any of such customers are negatively affected, our business and operating results may be substantially and adversely affected. For more information on the concentration of our revenues per customer, see item 7.4 of this Reference Form.

In addition, we are subject to the claims by our customers for lower prices, when negotiating new contracts, which can reduce our profit margin and negatively affect our financial condition and our operating results.

Expenses with indemnity, insurance, accidents, robberies, damages, and other claims of any nature may negatively affect our results.

VIX has insurance, whose contracted coverage is deemed sufficient by the Management to cover eventual risk to its assets and/or liabilities:

(A) Cargo freight – coverage ranging depending on the nature and type of transport, coverage up to BRL 18.0 million for cargo in general and vehicles according to the carried model.

(b) Civil liability against third parties, material damages, bodily damages, mental distress, and personal accidents – coverage up to BRL 40.0 thousand.

(c) Other items of fixed assets, fire, lightning, explosion, qualified theft, electric damages, and other corporate coverage, of BRL 3.5 million.

Our success depends on our skill to recruit and withhold qualified professionals.

Our success is based on the professional capacity of our collaborators, including top management, managers and operating professionals, and, thus, depends on the maintenance of our top management, as well as on our skill to recruit and withhold qualified professionals to perform our activities, including drivers and equipment operators. There is substantial competition for qualified professionals in the logistics sector.

We cannot warrant that we will not have substantial costs with the contracting and maintenance of qualified personnel.

Our activities are highly dependent on our top executives, who, throughout our history have performed a fundamental role for its construction. In case any of the member of our top management or another key professional is no longer part of our executive staff, we may have difficulties to replace them, which may compromise our business and operating results.

We may not be successful in our procurement strategy.

We consider the possibility of buying other logistics companies, or that involve any form of mobility as one of our strategies of growth.

Acquisitions involve several risks, including difficulties of integration of the operations of the acquired company, participation in markets we have no expertise or with limited expertise, potential loss of customers, of key executives, and employees of the acquired company, and risk of exposure to responsibilities related to contingencies or liabilities incurred by the acquired company. All these risks may have an adverse effect to our businesses and operating results. In addition, we may be held liable for any contingencies not identified in advance in future acquisitions, in the quality of successors of the acquired companies. In case we have to incur costs or expenses associated with such contingencies, our financial condition and our operating results may be adversely affected.

In addition, any major acquisitions we may consider may be subject to the obtainment of permits from the Brazilian authorities of competition defense and other Brazilian authorities. We may not be successful in obtaining such necessary permits or in obtaining them on a timely basis.

Moreover, future acquisitions may require greater indebtedness, which may adversely affect our results. We may need to fund additional resources with operations of public or private issuance of shares or securities convertible into shares, which may dilute the interest of our shareholders in our capital stock.
In the case of future acquisitions, we may not warrant our capacity of integrating the acquired companies or their assets in our business successfully. The failure in our strategy of new acquisitions may have an adverse impact to our results.

Our business requires intensive, long-term capital to finance the renewal of our fleet and it may be insufficient to successfully implement our growth strategy.

The competitiveness and successful implementation of our growth strategy depend on the renewal and expansion of our fleet, which, on its turn, depend on our capacity to fund additional resources, with the contracting of new debts or other resource funding sources. Our capacity to fund resources depends on our operating performance and on our results. The cost of the services of our debt may increase substantially if the interest rate increases, restricting our capacity of making new borrowings to finance our growth strategy. Thus, it is not possible to assure that we will be able to obtain sufficient financing to fund our investments of capital and our growth strategy, or that such financing operations are available in acceptable terms. Our investments of capital related to the purchase of trucks, trailers, motor vehicles, and other vehicles, net of the fleet renewal result, corresponded to BRL 618.9 million in 2018. The lack of capacity of renewal of our fleet may adversely affect our competitiveness.

We contracted the credit offered by Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”), through the FINAME. As of December 31st, 2018, the debt with BNDES was of BRL 79.8 million, indexed by an interest rate ranging between 2.20% and 10% per year. If BNDES suspends the availability of this credit or changes the conditions for its obtainment in the same manner that is no longer eligible for this type of financing, the capacity of financing the operations or renewing the fleet in acceptable terms may be adversely affected, which consequently may negatively affect our operating result.

Unfavorable decisions in court or administrative proceedings may cause adverse effects to our Company.

The Company is involved in the ordinary course of its business in several court and administrative disputes, and we may become, in the future, defendant in civil, tax, labor, and criminal proceedings. We may not warrant that the results of these proceedings will be favorable to us, or that we will have partial or total provisions sufficient to all liabilities that may result from these proceedings. Additionally, on December 31st, 2018, we were a party in 1,138 labor claims, with a total claimed value, with risks of loss classified as possible and likely, of approximately BRL 71.2 million on this date, typically filed by former employees after their dismissal, usually claiming overtime. In addition, we are a party in certain collections claims questioning the work journey and outsourcing of activities by our customers, who may impose obligations that may result in a relevant increase of our costs. Decisions against our interests, which may impede the conduction of new businesses, as initially planned, or that eventually achieve substantial values and without proper provisions, may cause adverse effects in our activities and financial status. For more information on the relevant proceedings in which we are a party, please refer to items 4.3 to 4.7 of this Reference Form.

The resale value of assets used in our operations is important for the expected return of our contracts.

Our business model consists of a cycle that begins with the financed purchased of assets to be used in the provision of services to our customers and posterior resale at the end of the contracts. The pricing of these contracts takes into account the disposal of the asset upon the end of the cycle, with volume and price in the resale being important elements to achieve the expected return of each operation. The restriction to credit and increase of the interest rate, for instance, may affect directly or indirectly the secondary market of these assets and substantially reduce its liquidity. The volatility of market prices may also reduce the resale value of our assets, creating a greater allowance in relation to the price upon the acquisition. We may not warrant the behavior of the market in the resale of these assets, which may adversely affect our business.

Substantial increases in the structure of costs of our business may negatively affect our operating results and risks related to labor issues, third-party services, and lockouts may affect us adversely.

We are subject to risks related to the difficulty of transferring the increase of our costs to our customers, including the increase in the price of fuels, motor parts, tires, increase of labor costs and rental, through the increase in the price of our services. The increase in these costs may lead to an adverse material effect in our financial condition or operating result. The price and availability of our inputs depend on political and economic factors and the market conditions, which are beyond our control and we cannot foresee when the prices of these inputs will be changed.

Our activities may also be affected in the case of interruptions of work, lockouts, reduction of work hours of our service providers, including third parties.

Any interruption or reduction of the work hours or any other issues involving truck drivers or drivers in general may adversely affect our activities and our operating results.

Substantial part of our operations occurs in properties owned by third parties, and the properties occupied by our company are subject to the obtainment of operating licenses and permits.

We perform our activities in properties directly owned and rented. We have no warranty that the landlords will be interested in renewing the long-term lease agreements of these properties in the future. In addition, an eventual warmth of the real estate market may cause the rental prices to rise above our expectations, which may impact our result if we are not capable of transferring eventual increases of additional cost to our customers.

Moreover, the properties we occupy or that we may occupy to perform our activities are subject to the obtainment of municipal operating permits and authorizations by the fire department. We are not able to warrant that we will obtain the licenses or will renew them on a timely basis. The lack of the respective applicable licenses and permits may imply penalties that range from the application of fines to, as the case may be, the interdiction of the properties and interruption of the activities performed in such establishments. The imposition of these penalties may affect us adversely.

We have a defined controlling shareholder, whose interest may be different of the interest of other shareholders.

Group Águia Branca, through Águia Branca Participações S.A., has the controlling power over our company, including powers to: (i) elect and dismiss the majority of the members of our Board of Directors; (ii) establish our administrative policy; (iii) exercise the overall control of our management and our subsidiaries; (iv) sell or otherwise transfer shares representing our control held thereby, under the terms of our Association; (v) determine the result of any deliberation of our shareholders, including operations with related parties, corporate reorganizations, acquisitions and disposal of assets, submitted to the approval of shareholders, including the sale of all or of substantial part of the assets, and (vi) determine the time of distribution and payment of any future dividends. The interests of our controlling shareholder may not coincide with the interest of our other shareholders.

Our Articles of Association contains provisions destined to protect the shareholding dispersion of our Shares in case there is no controlling shareholder, which may impede or delay the operations that favor our shareholders.

Aiming at promoting the dispersion of our shares in the market, our Articles of Association contains certain provisions in case our company no longer has a controlling shareholder. The effect of these clauses is to make it more difficult the attempts of acquisition of substantial fractions of our outstanding shared by investors, which will become effective from the beginning of the negotiation of our shares at BM&FBOVESPA S.A. – Futures and Commodities Exchange (“BM&FBOVESPA”). Any shareholder or group of shareholders, representing the same interest, that becomes the holder of 20% or more of our capital stock will be compelled to file and request the registration of public bid for the acquisition of our shares within 60 days from the date in which such shareholder becomes the holder of 20% or more of our capital stock. Provisions of this nature may cause difficulties or restrict operations with our shares, which may be of interest of investors. These provisions will become effective upon the listing of our shares in the New Market.

The relative volatility of the Brazilian market of capitals may restrict considerably the capacity of investors in selling our shares at the desired price and at the desired time.

Investments in securities in Brazil, such as new shares, when listed, involve a higher risk than investments in securities issued in countries whose political and economic scenarios are more stable, and, in addition, such investments are considered speculative by nature. These investments are subject to economic and political risks, such as, among others: changes to the regulatory, tributary, economic, and political scenario that may affect the capacity of investors in receiving payment, in part or as whole, in relation to their investments; and restrictions to the foreign investment and the repatriation of the invested capital.

The Brazilian market of securities is considerably smaller, less liquid, less volatile, and more concentrated than any other international securities markets, such as that of the United States. In 2018, the financial operations of the Bovespa segment raised 40.8% before 2017, to BRL 2.894 trillion. The daily average was BRL 11.01 billion, representing an increase of 40.8% if compared to the previous year. A total 5,351.9 trillion was generated in business in 2018 in the same segment, a growth of 20.6% compared to 2017.

The daily business average achieved 81,639, an increase of 20% compared to the previous year. These market characteristics may restrict considerably the capacity of the holders of our shares to sell them for the price and on the date they desire, affecting negatively the selling price of our shares, after listing the shares of the Company in the New Market.

We may obtain additional capital in the future with the issuance of shares, which may result a dilution of the interest of our shareholders in our capital stock.

We may need to fund additional resources in the future with public or private issuance of shares or securities convertible into shares to finance our growth initiatives. According to the Business Corporations Act, with the observance of certain requirements, the funding of resources by means of public distribution of shares or securities convertible into shares may occur with the exclusion of the preemptive right to our shareholders, which may consequently cause the dilution of the interest of these investors in our capital stock.

The Company holds direct interest in four (4) companies, with 99.99% of the capital stock. Thus, part of its income depends on the income of these companies and, therefore, the unsatisfactory performance of these company may negatively affect the income of the Company.

The outsourcing of part of the services related to the supply chain and the freighting activities may affect us adversely.

Considering that we outsourced part of our activities in our Automotive Logistics and Dedicated Logistics services, the lack of continuity in the services provided by third parties may affect the quality and continuity of our services. In case any of these events occur, our operating results may be adversely affected.

We are jointly and severely liable before our customers for eventual failures in the provision of services by independent persons contracted or subcontracted and working with us, especially in the services of Automotive Logistics and Dedicated Logistics. The services provided by our independent contractors or subcontractors may not have the same degree of quality of the services provided directly. In addition, the turnover of subcontracted entities in the provision of the services may negatively affect the quality and continuity of our services. In case of occurrence of any of these events, our reputation will be adversely affected.

In addition, in case one or more outsourced companies as service providers fail to comply with their labor, tax, or social security obligations, we may be held jointly and severely liable for such obligations in default, with the possibility of being required to pay such obligations to the employees of our service providers. The employees of these companies may also claim that they have a labor link with us, which may make us directly liable for the labor, tax, and social security obligations

Since we are a service provider, our results depend on our base of customers and on the volume of activities generated by them.

Since we are service providers, our results depend on the contracts signed with our customers, among other factors related to our base of customers, including the maintenance of the relationship policies, as well as the maintenance of the demands and satisfaction with our services and the absence of substantial adverse effects to the activities of our customers. A reduction in the volume of our activities with our key-customers may result a reduction in our operating margins due to the reduction of scale and consequent reduction in the dilution of our fixed costs, especially in the sectors of mining, automotive, oil & gas, and steel. A substantial part of our customers has a profile of exporter of assets, so that circumstances that affect the capacity of our customers to export their production may affect them negatively and, consequently, affect our business and financial results adversely. Thus, if our customer suffers material adverse economic effects, our financial results may be adversely affected.

In addition, if the contracts with our suppliers are terminated or not novated, if the demand for our services is reduced or if our customers suffer adverse economic effects, our financial condition and results may be adversely affected, especially when considering the large number of fixed assets owned by our company.

Fluctuations in certain seasonal sectors in which our customers operate may have adverse effects to our activities

Some of our customers operate in seasonal markets, and the fluctuations in some of these sectors may have adverse effects to our activities. In addition, certain products carried by our company have presented a price seasonality standard typically influenced by the economic scenario and the capacity and demand of the sector. We cannot assure that our prices and the demand of these products will not be reduced in the future, affecting these sectors and therefore affecting our activities and financial results.

The transport and logistics sectors are highly seasonal, usually following the global economy cycles. Moreover, in addition to the exposure of the freight sector to macroeconomic conditions, each market sector may have its results affected by several specific factors.

The lack of conservation of the Brazilian roads or of improvements to the Brazilian road infrastructure may adversely affect our activities

Out Automotive Logistics activities depend fundamentally on road transport. We do not control the maintenance and preservation of the Brazilian roads on which we operate or the periodicity and nature of the improvements made to the Brazilian road infrastructure. The lack of conservation of a substantial part of the Brazilian highways increases the likelihood of the occurrence of accidents, damages, or loss of cargo, also increasing the time of transit and costs with the maintenance of our fleet.

In addition, during the rainy season, some Brazilian roads, especially those located in the southeastern region, may be blocked due to landsliding, causing accidents and delays. In the case of interruption of services on streets and roads or if the government or private utilities do not repair such damages with the due celerity, our activities and operating results may be materially and adversely affected.

If such occurrences are recurrent and the investments necessary in infrastructure are not realized by the Federal Government or by the road utilities, as the case may be, we may be subject to an increase of our operating costs, which may not be transferred and accepted by our customers, which may adversely impact our results.

We face substantial competition in the types of services we offer.

The logistics sector in which we act is highly competitive and pulverized. Our key competitors are companies that act in the road transport sector, historically the main cargo transport mode in Brazil. We have also suffered competition from companies engaged in railroad and water transport and other providers of integrated logistics services. The competition is based fundamentally on freight fees, available capacity, quality of service, reliability, transit time, and scope of the operations.

In addition, some of our competitors periodically reduce their prices to attract new customers, especially in these times of low economic growth, which may restrict our capacity of maintaining our operating profit margin. Some customers may also contract services from different logistics providers, which may cause a reduction to our prices so that we don’t lose customers to our competitors. We may also face competition of our own customers, who may no longer outsource their logistics needs.

In addition, we may face competition in the services of Fleet Service, Dedicated Logistics, Automotive Logistics, and Freight, in relation to the prices set forth by us and the scope of the services we provide. We may not be successful in meeting the demand of services or the collection of acceptable prices, similar to those of our competitors, and the results of our operations may be adversely affected.

The environmental laws and regulations and those applicable to occupational health and safety may require expenses greater than those currently incurred for their observance and the inobservance of these laws and regulations may result in civil, criminal, and administrative penalties.

Our activities are subject to the comprehensive federal, state, and municipal legislation, as well as regulations, permits, and licenses related to sanitary surveillance, protection of the occupational health and safety and of the environment. Any inobservance of these laws, regulations, permits, and authorizations, or failure in their obtainment or renewal may result the application of criminal and administrative penalties, such as fines, in addition to the negative publicity and liability for the sanitation or environmental damages, as well as civil sanctions to repair the environmental damage. We already incurred and will continue incurring expenses of capital and operating expenses to comply with these laws and regulations. Due to the possibility of regulations or other unforeseen events, especially considering that these laws become more restrictive in Brazil, the amount and terms necessary for future expenses for the maintenance of the compliance of the regulations may increase and adversely affect the availability of resources to capital expenditures and for other purposes. The observance of the new laws or with the laws and regulations in force may cause an increase to our costs and expenses, consequently resulting smaller profits.

The Company does not have substantial results in foreign countries.

Our sites are located in several regions of Brazil with activities of administrative, operating, and maintenance characteristics. In spite of the different locations, the factors regarding the exposure to the social-environmental risks are common once the intensification of the urbanization in the last stage of the modernity generated several issues related to the quality and conditions of human life in the cities, generating considerable challenges to the social-environmental management.

The lack of public planning and the absence of a greater social-environmental awareness constitute the urban environmental issues, such as pollution of the waters of rivers and lakes, the elevation of temperatures, the occurrence of acid rain (result of the emission of toxic gases in the atmosphere) generating climate changes.

The growth of the cities causes the impermeability of the soil and generates several problems with serious consequences, many of them causing changes to the urban drainage and consequently with negative impact to the health of the population. The problem related to the quality of the water and the management of water resources is a factor of relevant

impact to the organizations. Especially urban rivers, in their majority, are highly degraded, generating scarcity of water and a risk of negative impact to the operations, since the use of water is fundamental to assure the quality in the fleet wash, as well as primary use for the work force.

Climate forecasts performed by the Brazilian Panel on Climate Change (“PBMC”) and by the Intergovernmental Panel on Climate Change (IPCC) indicate that in the future Brazil may be impacted by the climate changes even more adversely and frequently. In this scenario, it is fundamental to take measures to avoid the emissions of Greenhouse Gases (GEE), which cause changes to the climate, and also initiatives to adopt to the climate events that are occurring and that will occur.

Evidences of climate changes may already be perceived, especially with the occurrence of extreme climate events. The increase of temperature, droughts, and floods may directly affect the yield and generation of results of the company. The risk of indirect impact of the climate changes may increase the pressure related to regulations, requirements of investors, customers, and suppliers.

The decisions involving the management of solid waste are fundamentally decisions on public health and therefore require the integration among economic, social, and environmental policies. There is a complex challenge to large cities in the management of solid waste with the objective of eliminating the risks to health and the environment, collaborating with the mitigation of climate changes related to human health.

Initiatives for the reduction of the quantity of material discarded in landfills, such as selective waste collection for posterior recycling, are still at slow pace.

The proper handling of waste is an important strategy of environmental preservation, as well as of promotion and protection of health. Once disposed in landfills, solid waste may compromise the quality of the soil, water, and air, and since these are sources of volatile organic compounds, pesticides, solvents, and heavy metals, among others. The decomposition of the organic matter present in the garbage results in the formation of a darkish liquid, leachate, which may contaminate the soil and surface waters or the underground waters with the contamination of the waterbed. Toxic, asphyxiating, and explosive gases may also be formed, which accumulate in the subsoil or are launched into the atmosphere, generating risk of contamination of the soil and water for consumption, proliferation of vectors and of other disease transmitting agents.