Direcional Engenharia S A : 4Q22 Earnings Release

EARNINGS RELEASE

4Q22

Belo Horizonte, March 13th, 2023 - A Direcional Engenharia S.A one of the largest homebuilders and real estate development companies in Brazil, focused on the development of low-income and medium-income projects, and operating in several regions of the Brazilian Territory, discloses here its operating and financial statements for the fourth quarter of 2022 (4Q22). Unless otherwise expressed, the information in this document is expressed in the national currency (Brazilian Reais - R$ or BRL) and the Potential Sales Value (PSV) demonstrates the value consolidated (100%). The Company's consolidated financial statements are prepared in accordance with accounting practices adopted in Brazil, which are based on Brazilian Corporate Law and on the regulations issued by the Brazilian Securities Commission (CVM).

4Q22 AND 2022 EARNINGS RELEASE

• ADJUSTED GROSS MARGIN¹ OF 36.3% IN 4Q22, A 1.3 P.P. INCREASE VERSUS 3Q22
• IN 2022, ADJUSTED GROSS MARGIN¹ OF 35.6%
• RECURRING NET INCOME2 OF BRL 206 MILLION IN 2022, A 24% GROWTH VERSUS 2021
• BRL 174 MILLION IN DIVIDEND DISTRIBUTION THROUGHOUT 2022, A DIVIDEND YIELD³ OF 10% IN THE PERIOD

HIGHLIGHTS

• Record-highLaunches in 2022: BRL 3.6 billion, growing 16%versus 2021.
• Best year in Net Sales in Company's history: BRL 3.0 billion, a 23%growth when compared to the previous year.
• Net Revenue totaled BRL 2.2 billionin 2022, 22%above 2021.
• In 2022, Adjusted EBITDA4 of BRL 437 million, a 16%increase in relation to 2021.
• Net Income of BRL 77 millionin 4Q22, best quarterly result in Company's history.
• Cash Generation of BRL 98 millionin 4Q22 and of BRL 78 millionin 2022.

RIVA

• Riva's Launches reached BRL 1.4 billionin 2022, 8%above the PSV launched in 2021.
• 2022 Riva's Net Sales came in at BRL 940 million, a 21%growth over 2021.

1 - Adjustment excluding capitalized interest for financing of production.

2 - Adjustment excluding non-recurring result under "Other Operational Revenues and Expenses" and "Financial Results" lines. 3 - Considering the quotation on 12/30/2021.

4 - Adjustment excluding non-recurring result under "Other Operational Revenues and Expenses" line.

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EARNINGS RELEASE

4Q22

TABLE OF CONTENTS
MESSAGE FROM THE BOARD	3
MAIN INDICATORS	6
LAUNCHES	7
CONTRACTED SALES	8
NET SALES SPEED (VSO)	9
Canceled Sales	9
INVENTORY	10
TRANSFERS	11
PROJECTS DELIVERED	11
LANDBANK	11
Land Acquisition	11
ECONOMIC AND FINANCIAL PERFORMANCE	12
Gross Revenue	12
Revenue from Real Estate Sales	12
Revenue from Services	12
Net Revenue	13
Gross Profit	13
General and Administrative Expenses (G&A)	14
Sales Expenses	14
Other Operational Revenue and Expenses	14
EBITDA	15
Financial Results	15
Net Income before Minority Interest	16
Net Income	16
Deferred Results from Real Estate Sales	17
BALANCE SHEET HIGHLIGHTS	18
Cash, Cash Equivalents and Financial Investments	18
Accounts Receivable	18
Indebtedness	19
Cash Generation1	20
DIVIDENDS	20
RIVA - Operating Highlights	21
CONSOLIDATED BALANCE SHEET	23
CONSOLIDATED INCOME STATEMENT	24
GLOSSARY	25

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EARNINGS RELEASE

4Q22

MESSAGE FROM THE BOARD

We are pleased to present the results for the fourth quarter and year of 2022. We ended 2022 with the confidence necessary to begin 2023 at a fast pace and with an optimistic view of the objectives we set for the year.

Considering the perspectives for the low-income household market, and, more specifically, the Programa Minha, Casa Minha Vida, we have new scenarios for the year to come and, with them, new possibilities for us to enjoy the opportunities ahead. With some improvements in the government's housing program - which, as of 2023, will be called Minha Casa, Minha Vida again - still to be implemented, in addition to new announcements that should affect the civil construction industry, we believe we are well-positioned to have another year of achievements.

In the closing of 2021, we reported that we managed to turn such a complex period in the best year of our history so far. Today, exactly one year later, despite all the new local and global challenges, we are very proud to affirm that we went beyond in 2022, and surpassed all the main figures we had achieved in the previous year.

Potential Sales Value (PSV) of Launches totaled R$ 3.6 billion in 2022, 16% above the results of 2021. This is the highest number reported by Direcional Group since its foundation. The figure represents over 14.5k units distributed in all markets we operate.

Likewise, the Company had its biggest net sales volume in history: R$ 3.0 billion, representing a growth rate of 23% in comparison with the previous year. Both Direcional and Riva brands were successful, with both reporting a two-digit growth. That translates into over 13,000 low-income and middle-income families that purchased a property relying on the assertiveness and quality of our products.

Continuous improvement and successful operations have dictated our performance year after year, as we can see in the graph below. The evolution of launches and sales shows the significant compound annual growth rate we had in the reported period: +28% per year in terms of PSV launched and +35% per year in terms of net contracted PSV between 2016 and 2022.

	Launches Track Record					Net Sales Track Record
		(PSV 100% - BRL million)					(PSV 100% - BRL billion)
			CAGR:							CAGR:
			+28%							+35%
					3.1	3.6						2.4	3.0
		1.9	1.9	1.8					1.5	1.3	1.7
0.8	1.1				0.9
					0.5
2016	2017	2018	2019	2020	2021	2022	2016	2017	2018	2019	2020	2021	2022

Over the 4Q22, we had two significant events in Brazil: (i) the Brazilian presidential election, which opposed two candidates from opposite sides of the political spectrum; and (ii) the men's World Cup, which mobilizes a significant part of the Brazilian population. In that scenario, we identified that these two events, as they took place in the same quarter, influenced the dynamics of the consumer market, and, consequently, affected our sales and revenue performance. In that sense, Gross Revenue totaled R$ 569 million in 4Q22, with R$ 534 million in Net Revenue, meaning a decrease rate of 6% and 7% when compared to 3Q22, respectively. Despite that, in 2022, we had the best figures in Gross and Net Revenue already registered in the Company's history: R$ 2.3 billion in Net Gross Revenue and R$ 2.2 billion in Net Revenue.

Direcional Group's Adjusted Gross Margin1 remained at an extremely resilient level during the year, ending at 35.6%, even with the inflation that prevailed during most of the year, further aggravated with the events of the Ukraine war. The assertiveness of our strategy for construction works execution, control and planning resulted in an increased Adjusted Gross Margin1 for the quarter. In 4Q22, the indicator went up and reached 36.3%, 130 bps above the margin reported in 3Q22.

General and Administrative Expenses totaled R$ 152 million in 2022. Despite the nominal growth in the comparison with the results of 2021, we manage to dilute the ratio over the Gross Revenue to 6.7%. Likewise, Sales Expenses totaled R$ 203 million

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Capital Structure

(BRL million and %)

EARNINGS RELEASE

4Q22

in 2002, presenting a nominal growth when compared to 2021; however, it had its ratio over the Development Backlog Revenue diluted to 9.2% in the period. In this way, we highlight the great work that has been done to make the operation more and more efficient, seeking to capture the scale gain that the Direcional Group business model allows, and growing revenue at a faster pace than the growth of the main expenses.

		G&A Track Record				Sales Expenses Track Record
13.5%		(BRL million and %)				(BRL million and %)
					11.0%	9.9%	10.8%	10.1%	10.4%	9.2%
	8.1%	7.3%	7.1%	6.9%	6.7%
108	100	112	116	133	152		105	146	158	191	203
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2017	2018	2019	2020	2021	2022	2017	2018	2019	2020	2021	2022
	G&A	% Gross Revenue		Sales Expenses	% Development Gross Revenue

In 4Q22, there was a sale of equity interest in some SPEs, aiming to capture value for our shareholder, mainly via cash generation, with the reduction of cash employed in developments whose land had already been paid for in cash. Additionally, the cash generated allowed the distribution of dividends in an amount equivalent to R$ 104 million during the quarter, maintaining Direcional as one of B3's best dividend payers, without affecting its growth capacity and maintaining a low leverage ratio. It is worth noting that the sale of Equity interest operation had a non-recurring impact on the result for the period, as described in the Other Operating Revenue and Expenses topic.

Direcional's Adjusted EBITDA2 totaled R$ 438 million in 2022, an amount 16% above the results we had in the previous year. It is the highest result achieved in this metric in our history. Adjusted EBITDA Margin2 was at 20.2% in the period.

Therefore, we ended 2022 with R$ 209 million in Net Income, representing a growth rate of 31% when compared to 2021. Net margin totaled 9.7% in the year, a gain of 70 bps over the margin reported in the previous year. Net Income totaled R$ 77 million in 4Q22, 22% above 3Q22, and 73% above 4Q21, resulting in a Net Margin of 14.4%, an increment of 340 bps over the margin reported in the previous quarter and 530 bps over the margin reported in the same quarter of 2021.

It should be noted that Adjusted Net Income2, disregarding the impacts considered non-recurring, totaled R$ 53 million in the quarter, adjusted by the following non-recurring effects: (i) positive income of BRL 28 million in "Other Operational Revenue and Expenses" line, mainly affected by the income obtained from the sale of equity interest, as described above, and (ii) loss of BRL 5 million in "Financial Results" line, as mentioned in the specific topics below. In this context, Adjusted Annualized ROE2 reached 16% in 4Q22. Considering also the adjustments with expenses with sale of receivables and swaps occurred in the other quarters of 2022, we had BRL 206 million in Adjusted Net

Income2, resulting in an Adjusted Net Margin2 of 9.5% in 2022.

Our cash generation totaled R$ 98 million in 4Q22. With that, we closed the year with R$ 78 million. Associated to that, with the objective of maintaining out capital structure always comfortable for us to take advantage of market opportunities securely, we sought to maintain our net debt historically at conservative levels, as shown in the graph beside. In that sense, at the end of 2022, the Company's net debt totaled R$ 202 million, with a leverage ratio (measured by the Adjusted Net Debt3 over Equity) of 12.9%.

A well-balanced capital structure and a vision always focused on the profitability of our shareholders allowed have historically made us one of the highlights of the Brazilian Stock Exchange when it comes to return of capital. In 4Q22, Direcional made the payment of interim dividends in the amount of R$ 0.70 per share, totaling BRL

19.0%	19.4%	25.6%
			13.4%	12.9%
			9.9%	7.4%
			7.3%
Cash and Equivalents
Gross Debt Adjusted by Swap			1,381
Adjusted Net Debt¹/Equity
	1,245 1,187
			998		1,024 1,049
	907	894		927
836	859	831
				729
499	568	484

2015

2016

2017

2018

2019

2020

2021

2022

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EARNINGS RELEASE

4Q22

104 million. With the payment of R$ 70 million made in June, we paid a total of R$ 174 million in dividends in 2022.

Our operation in the civil construction industry, over four decades, has always followed the purpose or becoming a major agent of social transformation in our surroundings and the several regions where we operate. In 2022, we reaped the benefits of an initiative we have sown for a long time: the publication of our first Annual Sustainability Report. Prepared with the contribution of many workers and diverse departments within the Company, and under the GRI (Global Reporting Initiative) standard, the report presents a little about us, our actions, and our vision on the ESG agenda, always considering our commitment to transparency and direct communication with our stakeholders, which were essential for preparing the report. We are sure this is an agenda in continuous evolution and that we have a long way to go. We invite everyone to read our report and see the actions and highlights the Direcional Group had in 2021 in the matter of sustainability (click heree and check our Annual Report). We will keep up with energy and engagement in preparing the report of 2022.

We ended another year and we are sure we delivered very positive numbers, which reflect the good assertiveness of our decisions and evidence that we are in favorable conditions to explore new opportunities, always seeking to add value to our business. We would like to thank the workers who made their best to put the Direcional Group to the level we are, laying the groundwork so that we have an even better year in 2023.

Thank You,

The Management - Direcional Engenharia S/A

1 - Adjustment excluding capitalized interest for financing of production.

2 - Adjustment excluding non-recurring result under "Other Operational Revenues and Expenses" and "Financial Results" lines. 3 - Adjustment by the balance of interest swap operations contracts.

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