Cosan S.A. ADS

Good afternoon, everyone. Thank you for waiting. Welcome to Kuzan's early release presentation for the second quarter of 2023.

For those who need simultaneous interpreting, This is available on our platform. To use this service, just click on the Interpretation button through the globe icon at the bottom of your screen and choose Portuguese or English. For those listening in English, you can mute the original audio that's delivered in Portuguese by clicking on Mute Original Audio. Please note that this presentation is being recorded and will be made available on the company's IR website at kazan.com.br where you'll find all of the resources related to this earnings release. You can also download our presentation in the chat function including in English. during the company's presentation all participants will be muted then we'll have a q a session please remember that the information included in this presentation as well as any other statements that may be made during this call regarding cousins business outlook projections and operating and financial goals are based on the beliefs and assumptions of our board as well as on the information that is currently available to us. Any forward-looking statements are not guarantees of performance. They involve risks, uncertainty and assumptions because they entail future events and therefore depend on things that may or may not happen. investors should understand that general economic conditions, market conditions, and other operating factors may affect Colzano's future performance and lead to results that are significantly different from such forward-looking statements. Today we have Mr. Luis Enrique, Mr. Ricardo Lewin, and Ms. Ana Luisa Perina with us. I will now turn it over to Mr. Ricardo Lewin.

and welcome to COSAN's earning conference call for the second quarter of 2023. Before I begin my presentation, I would like to emphasize that we have been continuously working to improve the disclosure and simplification of information in our material, providing higher transparency and better analysis by the market. In this quarter, we have revamped our release to provide a deeper and more detailed analysis of COSAN corporate's earnings and cash flow movements. Now, regarding the main highlights, once again we are presenting robust operation quarterly results, driven by the strong performance of our businesses, which we will detail going forward. The Proforma EBITDA progress is an outcome of disciplined execution of our long-term strategy, which provides a sustainable combination between organic and inorganic growth throughout our portfolio. The group's investments have advanced in line with our annual plan, focusing on efficient maintenance of the operations and on structural projects that will ensure the next expansion cycle of our portfolio. Regarding KOSAN corporate net income, the growth is explained by the business performance on the top of the market-to-market of the total return swap of KOSAN shares and the positive effect of the perpetual note in reais terms due to the FX variation. In this quarter, as part of our liability management process to optimize our debt profile and capital structure, we successfully raised R$ 4.7 billion, ensuring liquidity for the company and guaranteeing the amortization of COSAN's debts until 2025, including the first installment of the color financing in October 2024. Moving on to our ESG agenda, in early June, we released our 2022 Sustainability Report, which introduced the ESG Vision 2030. MOVE and RAIZEN also published their reports, and I invite everyone to read these documents, which are available on the company's website. In this quarter, I am proud to share some recognitions we earned. Kazan's first inclusion in the ESG Interactive Yearbook, and we also were featured in the Merco ranking for ESG responsibility. Last but not least, we also received the Women on Board stamp, which recognizes organizations that have at least two women on their board of directors or advisory boards. This was a very relevant milestone in our diversity, equity and inclusion journey. Now, let's move on to the key financial and operational highlights of each business, starting with Raisin on slide number 4. This quarter marks the beginning of 23-24 harvest year at Raisin, which despite market challenges and volatile environment, remained focused on the expansion cycle in renewables. We achieved significant progress in the agro-industrial journey, with crushing acceleration and a potent gaze in agricultural productivity during the period, as you likely followed in Raisian's conference call earlier today. In renewables, the decrease in adjusted EBITDA was a result of lower volumes of ethanol sold at lower prices, in line with our marketing strategy for the harvest. On the other hand, the power business agenda significantly advanced in the quarter, scaling up and intensifying partnerships. As of E2G, or second generation ethanol, we continue to set production records at Costa Pinto plant, while expansion investments are progressing as planned, with five plants under construction. In sugar, the higher EBITDA is a result of greater sugar pricing in a favorable cycle. which offset the lower sales volume in line with the shipping strategy defined for the year. Moving to mobility, we remain focused on expanding our costume base. Adjusted EBITDA of the integrated platform decreased, impacted by circumstantial challenges. In Brazil, sales volume remained stable, and the operation was affected by few inventory losses in a more complex environment due to the diesel oversupply. LATAM operations results were impacted by the network growth and increased volume sold, offset by challenges in restoring profitability on the front end. Now, let's move to slide number five, where I present Rumo. As detailed in Rumo's earnings call, we achieved a record high quarterly volume and EBITDA, driven by the expansion of transported volumes and the consolidated average tariff, reflecting the structural competitiveness of the railways. It's worth mentioning that, in addition to strong demand for the transportation of key agricultural commodities such as soy, sugar and fertilizers, there was a sequential improvement in safety and traffic conditions in the Baixada Santista region. As for the extension project in Mato Grosso, Humo has made progress with the licensing process and is initiating the mobilization of works in a significant stretch. Now, let's move to COMPAS on slide number 6. We concluded the second quarter of 2023 with strong results in COMPAS, experiencing a 10% growth in EBITDA compared to the same period of the previous year. During the quarter, we distributed 13.8 million cubic meters a day, a 6% increase from the volume recorded in the first quarter, primarily driven by the recovery of the industrial segment. These results also reflect the richer mix of segments and inflationary adjustments on distribution margins, as well as the integration of COMIT in July 2022. We achieved a remarkable milestone of 94,000 new connections in the first half of 2023, expanding the distribution network in all GED geographies where we operate. As an example of this expansion, SUGAOS inaugurated a connection between the cities of Gramado and Canela in the Serra Gaúcha region, just two weeks ago. The goal is to continue investing in the region, focusing on the expansion of hospitality and culinary sectors, new residential developments, local industries and CNG . In the marketing and services, I would like to highlight the progress of our LNG Registration Terminal, the TRSP, which is near completion, with operations expected to start by the end of 2023. Lastly, about portfolio management, companies announced that they will form a partnership with Orison, to create a new company to be controlled by Compass, which will invest in a biomethane purification plant using biogas from Paulinia Landfill. This plant will have the capacity to produce 200,000 cubic meters a day, potentially reaching to 300 cubic meters a day, the largest one in the country and one of the largest in the world, expected to start up in 2025. This project will enable renewable gas offer to its customers, more complete and flexible solutions, in line with the company's ESG strategy. Now, let's move to slide number 7 to discuss MOVE. MOVE posted strong EBITDA growth once again this quarter, driven by volume expansion and an improved mix of products sold across all markets. It's worth to highlight their organic growth in Brazil throughout the year, with MOVE setting a new market share record, reaching 19.7% of the lubricants market. The integration process of regions, especially in the US, is ongoing and continues to offer promising opportunities to the business, particularly in building and solidifying strategic partnerships with partners and suppliers. MU has intensified investments in its operation to achieve higher levels of long-term efficiency and profitability. As of June, we have completed one year of managing the new portfolio, presenting an EBITDA exceeding R$ 1 billion in the last 12 months. This reinforces the expertise demonstrated in business integration, the quality of continuous improvement processes established in operations and moves execution capacity. Moving to slide number 8, where I present the land segment. The land segment reflects the agricultural property management business, composed of COSAN's direct participation in Radar, Telos and Janos. In this quarter, we once again saw an increase in EBITDA due to the specific appreciation of a portion of the portfolio, combined with the growth in lease revenues, which positively contributed to the results. In line with the portfolio management strategy, we completed the sale of a farm in PoE, resulting in no remaining properties in this state. Now, let's move to slide number 9 to discuss the corporate results. As I mentioned at the beginning of the call, we have restructured the way we present Kazan Corporate to better reflect the holding company's contribution to the portfolio. We have presented a significant improvement in adjusted net income for this quarter. In addition to the strong operational performance of the portfolio, several factors had a positive impact. including a favorable market-to-market of the total return swap of the company's shares and the appreciation of the perpetual notes due to the stronger BRL against the dollar. It's crucial to emphasize that the Kazan corporate perspective is not influenced by the investment in Vale, which we will detail shortly. Let's proceed to slide number 10. COSAN 8 is an intermediate holding company controlled by COSAN SE and is the vehicle that holds our investment in Vale, as well as the derivative instruments structured as part of the protection and funding strategy. With the depreciation of Vale shares in the period, the market-to-market effect in the shares held through direct ownership of 1.5% was negatively impacted at R$ 1.1 billion. In the stake with the caller of 3.4%, the loss of share value was mitigated by the appreciation of the derivative, achieving the initial objective of protecting part of Kazan's stake against potential declines in value share. The co-spread result was slightly negative. In other words, the net value of these three effects is very similar to that of the direct ownership, highlighting the effectiveness of the structure. Moving to slide 11, where I present the debt profile. In line with the P&L New Perspective, we have separated the debt profile in two views. The first one is the Cozum Corporate, which basically includes cash and debts of the parent and offshore companies, that is, bonds and debentures. And the second one is COSAN 8, which basically reflects the financing of part-of-value shares acquisition through the color financing and the fair value of the derivatives that compose the structure. Regarding the quarterly movements, the increase in gross debt at COSAN corporate is primarily explained by the issuance carried out in the local and international debt markets. We issued two new debentures of 1 billion each, in addition to a 2030 bond that raised 550 million dollars, at a very competitive cost when considering the swap to CEI. It's important to note that this was the first senior loans insurance among Brazilian high-yield companies after over one year without activity in this market. The rationale here was to extend our amortization schedule with liability management and balance the highest amortization towers. In this sense, near 250 million dollars of the bond proceeds were used to repurchase the bond 2027 in July, that is, after the end of the quarter and therefore still not reflected in the graph shown on the slide. We are prepared to meet our cash requirements for the next two years, thus being able to maximize the optionality and flexibility of our capital structure. In this context, last week, and therefore a subsequent event of the result, we unwind 20% of the first tranche of the caller financing, equivalent to R$ 300 million, or 4.5 million shares of Vale 3, increasing our direct exposure in Vale to 1.65%, thus capturing a great share of earnings, such as IOC and dividends. The increase in the net debt of Kozen Corporate compared to the first quarter of 2023 is due to dividend payments to Kozen shareholders, which occurred at the end of May, and to preferred shareholders of Kozen Novi. At the end of the period, the group's pro forma leverage stood at two times, within appropriate levels for the company. Let's now proceed to slide number 12, where I present the cash flow analysis. In order to improve the analysis of funds movement, we now present COSAN's corporate direct cash flow in this quarter in a managerial perspective. With this new form, it's possible to analyze the main cash impacts and to have a greater clarity of cash inflows and outflows at corporate level, such as receipt of new dividends from subsidiaries, dividends payments to shareholders, funds raised from asset sales and new funding, etc. The managerial cash flow reflects the balance of movements of sources and uses prior to capital allocation. The main movement in this period was the raising of 3 new debts, as mentioned before, in addition to the first dividend distribution to Cousin 9 preferred shareholders. A highlight here was the inclusion in the earnings release of the updated value of a potential redemption of Cousin 9 and Cousin 10 preferred shares. After updating and reducing the dividend spread, the value on June 30 was R$ 8.6 billion. Finally, as a capital allocation decision, we had dividend payment from Cozum, as I mentioned before, and we ended the second quarter of 2023 with net cash generation at Cozum Corporate of around R$ 4 billion. I want to emphasize to all investors and analysts that myself and my entire IR team are available to clarify any point of the new way of presenting the results. Feedbacks are always welcome. Before closing, I would like to reinforce the invitation to watch our Cozum Day, which will take place on September 12. The event will be broadcasted online and with simultaneous translation. Now we can start with the Q&A session. Thank you.