Cosan S.A. ADS

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Cozum's second quarter of 2021 results conference call. Today with us, we have Mr. Luiz Henrique Guimaraes, Cozum's CEO, Mrs. Paula Kovarsky, Head of IR and ESG, Mr. João Arthur Souza, Head of Finance, and Mrs. Ana Luísa Perina, IR Manager. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After that, there will be a question and answer session for industry analysts. At the time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Today, we have a simultaneous webcast that may be accessed through the company's website, www.cozen.com, and a slide presentation may be downloaded from there as well. There will be also an audio replay for this call available on their website. Before proceeding, nominations and forward-looking statements are based on the beliefs and assumptions of Cozen Management and on information currently available to the company. They involve a risk, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand the general economic conditions and other operating factors could also affect the future results of Cousin and could cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mrs. Ana Luisa Perina, who will start the presentation. Mrs. Ana Luisa, you may begin.

Good morning, everyone, and thank you for joining COSAN's second quarter of 2021 Earnings Conference Call. Today with me, I have Luiz Henrique Guimarães, our CEO. Paula Kowarski, Head of IR and ESG, and João Arthur Souza, Finance Director. Before going to the results, I just want to highlight some important milestones that we achieved this past month. On slide 3, we always said that we wanted not only to have one single holding company listed, which we accomplished in the beginning of this year, but also that it makes sense for Cozante to have its subsidiaries listed as well at the right moment. So, successfully pricing high-easing was yet another very important step towards the ideal capital structure for the group. This will ensure the required level of independence that will allow the company to accelerate its long-term investment plan to increase the offering of renewable energy. Another important achievement was signing an R$ 810 million private placement at Compass at the end of May, bringing new investors who share our long-term view into the company and preparing it to capture opportunities that may arise, while maintaining adequate levels of leverage. Let's go now over the financial and operating highlights for business, starting with high easing. which also implemented its own corporate restructuring, officially becoming an integrated company from this quarter on. I think I even hosted its own conference call with the market last Friday. I will briefly go over the main topics of the quarter. Starting with renewables on slide four. We presented excellent performance and adjusted EBITDA more than doubled year on year, ethanol being the highlight. Despite the lower production due to the drier weather and to sugarcane harvest being a couple of weeks late, higher biofuel prices led to an increase in our own sales volume, allowing us to capture a significant improvement in returns. Moving on to sugar, on the next slide. This quarter we saw similar dynamics to that of renewables. focusing on maximizing profitability of the portfolio. High using posted greater sales of own sugar, supported by the commodity upcycle and by our strategy to increase our presence across the sugar value chain. The higher prices recorded this quarter are proof of the efficacy of our pricing and hedging strategy. Therefore, adjusted EBITDA came in more than twice as high, At the bottom of slide 5, we present the consolidated capex of high-easing's agro-industrial operation, in line with the plan. Quick disclaimer here. The crop setback effect on high-easing was lower than the market average, since we keep advancing on our journey to capture efficiencies and to recover agricultural yields. This also offset inflation and lower dilution impacts on unit costs of the period. On top of boosting profitability, higher sugarcane availability, and therefore biomass, will allow us to maximize Haising's long-term strategy of reshaping the future of energy. Aligned with that, we achieved important goals recently, with the successful closing of the BioSav acquisition, not yet reflected in our financial statements, and the announcement of our second E2G plant. And the return of this project is guaranteed, since we already sold around 1 billion liters of second-generation ethanol to be delivered over the next nine years through long-term contracts with fixed prices and considerable premiums. Now let's go into marketing and services. On slide 6, from now on, we will present consolidated results for the segment to better translate the value of our integrated platform. in line with the way we manage it. The resumption of economic activity, coupled with the advance of vaccination, boosted the demands for fuels, despite the challenges related to the pandemic still present in the quarter. We keep expanding our network and customer base, increasing our market share in both Brazil and Argentina, with adequate returns. Total adjusted EBITDA recorded robust growth getting closer to pre-COVID levels. The reduction quarter-over-quarter, however, is explained by lower gains from supply and commercialization strategy. Some additional highlights on our marketing and services platform. We keep the pace of our proximity network extension of both select and Knoxville stores, motivated by the above-expectations performance of the business so far. In Shellbox, the number of transactions keeps skyrocketing. On M&A, we announced the acquisition of the Shell Lubricants operation in Brazil to complement our portfolio and value proposition to clients. Also, we recently signed the acquisition of a leading fuels network in Paraguay, consolidating our presence in the Latin Southern Corn and further capturing synergies. Now, Compass. On slide 7, Azote de Bida was positively impacted by the boost in the demand for Congas natural gas driven by the economic resumption. For the third quarter in a row, Congas has posted growth in distributed volumes, this time with positive contributions from all segments. The main highlight comes from industrial consumption, leveraging on higher demand from several segments such as ceramics, steel and chemical-petrochemical industries. The recovery in volume sold to the commercial segment is due to the gradual reopening of establishments in the period, despite restrictions still being in place. The residential segment also presented quite a good performance over an already strong comparison base, leveraged by continuous customer base expansion. On top of volume growth, efficient management of expenses and capex at Comgas supported growth in adjusted EBITDA. In commercialization, however, Compass was negatively affected by the ramp-up of power prices due to the drier weather, recording a loss in the quarter. We adjusted our strategy towards this segment and therefore decided to substantially reduce our exposure to directional power trading, further focusing on gas and power sales to end customers. Thus, we neutralized our positions in this quarter, reason why this effect was adjusted on recurring EBITDA. Comfort investments in the period reflect Conga's regulatory business plan, bolstering network extension with the gross addition of more than 150,000 new clients in the last 12 months. Quick note here. As announced last Friday, we received the CAPEX guidance for the year, adjusting for the timing when the construction of the RIT gas terminal actually started compared to the initial plan. Before turning to MOVE, I'd like to highlight our significant progress towards further developing COMPAS business plan. First, at the beginning of July, our SESTI started the public consultation regarding the 20-year expansion of comGas concessions, as provided for by the concession contract. Second, we announced the agreement with Petrobras for the acquisition of 51% of gas petrol, subject to meeting preceding conditions. And finally, we started constructing the regas terminal in Santos. Moving on to slide 8, presenting movies results. We had yet another great quarter at our lubricants business, with relevant EBITDA extension supported by a significant increase in sales volumes across all geographies. The business continues to benefit from its successful commercial strategy and its focus on supply management. allowing the company to overcome challenges imposed by the strong pressure on raw material costs and the global market. It is worth noting that the better-than-expected performance on the first half of 2021 led the company to review its guidance, increasing EBITDA expectations for the year. Moving on to slide 9, let's talk about HUMU. Homo has already had their call with the market as well. I'll summarize the main topics here. Homo presented a good performance in all main KPIs in the second quarter. The higher adjusted EBITDA was supported by two main factors. First, an increase in transported volumes, especially in the north operation, driven by the performance of industrial products and the agricultural sector. also capturing additional volumes from central network. And second, a better market outlook and higher fuel prices, allowing for yield extension. Moreover, Humo has also recorded continued efficiency gains, but those effects were partially offset by the pressure on costs and expenses, mainly related to higher fuel costs and inflation. This explains the reduction in adjusted EBITDA margins year on year. investments were in line with the plan, according to which around 30% of total CAPEX was allocated to the central network. As announced last Friday, HUMU decided to discontinue its guidance for 2021, due to expectations of reduced corn production for the harvest year. Long-term projections, however, remained unaltered. Let's turn to slide 10, where I will present the consolidated figures for COSAN. on a Proforma basis. Combining the consistent performance posted by each business line, leveraged by the resumption of demand in the sectors in which we operate, and a better pricing scenario for renewables and sugar, Proforma EBITDA and net income posted quite strong growth, overcoming the challenges seen in the second quarter of 2020. On top of that, Cousin Corporate recorded a positive impact related to the exclusion of the ICNS from the PiscoFins import calculation base for lubricants activities held in previous periods. Moving on to slide 11, to point out the financial highlights of the second quarter. The higher EBITDA led to a leverage reduction to 2.8 times net debt to EBITDA, closer to ideal levels for the group, which is between 2 to 2.5 times. and it's worth noting as well that the capital injections in housing and compost were not yet accounted in the period. The better performance of the businesses also boosted operating cash flows, even considering that working capital in the second quarter is seasonally affected by the sugarcane harvest dynamics. On investing cash flows, The higher spending compared to previous year is in line with subsidiary's investment plan. And finally, on financing cash flows, we had lower debt issuance compared to second quarter 2020, when cash positions were strengthened due to the beginning of the pandemic. Therefore, Cozum Proforma ended the quarter with a free cash flow to the equity of almost R$ 800 million. A quick note here. We just concluded the issuance of R$ 2 billion in long-term debentures at COSAN, as part of our ongoing liability management process. Before concluding my presentation, I just want to point out the main highlights of our EESG agenda, which keeps improving on a daily basis. Please go to slide number 12. Raizen, Compas and Rumo recently released their 2020 Annual Sustainability Report, prioritizing the material aspects and reiterating the commitments established by each one of them. Also, COSAM was recognized for its good ESG practices and once again we were selected to be part of the FTSE for Good portfolio. On diversity, the group made considerable progress electing experienced women for HUMO and high-easing boards. This allowed for those companies to receive the Women on Board Association stamp. And finally, as mentioned in the beginning, high using becoming a publicly traded company is also consistent with our EESG strategy. Its investment thesis is based on paving the way to a greener future. And, in that sense, we have already made significant advances. fostering the renewables market by developing a guaranteed supply of second-generation ethanol and biomethane. At COSAN, we will remain focused and continue to do our homework to overcome the crisis and be prepared to capture the opportunities that will arise with the resumption of economic activity. With that, I conclude my presentation and we may move to the Q&A session. Thank you.

Excuse me, now I would like to turn the conference over to Mr. Luiz Henrique Guimarães to his opening remarks.