Cosan S.A. ADS

Good afternoon, everyone. Thank you for waiting and welcome to Kozan's earnings conference call for the third quarter 2023. Simultaneous translation will be available during the session. To use it, please click on the interpretation button at the bottom of the screen and choose your preferred language, Portuguese or English. Those listening to the video conference in English, you have the option to mute the original audio in Portuguese by clicking on mute original audio. The video conference is being recorded and will be available on the company's IR website at cosan.com.br where the complete material of our earnings call can be found. You can also download the presentation in English from the chat icon. During the company's presentation, all participants will have their microphones disabled. The question and answer session will start after the presentation. Please note that the information contained in this presentation and in statements that may be made during the earnings call regarding Cozum's business prospects, projections, and operating and financial goals constitute the beliefs and assumptions of the company's management, as well as information currently available. Forward-looking considerations are not a guarantee of performance. They involve risks, uncertainties, and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Overall economic conditions, market conditions, and other operating factors may affect Colzans' future performance and lead to results that differ materially from those expressed in such forward-looking statements. Today with us we have Mr. Luis Enrique Guimarães, Ricard Levin, and Ms. Ana Luisa Perina. I will now turn it over to Mr. Ricardo Levin.

Good afternoon, everyone, and welcome to COSAN's earnings conference call for the third quarter of 2023. I will start my speech in highlighting the stellar operational performance across all businesses, achieving several record high figures, which will be detailed throughout the call. The robust growth in the pro forma EBITDA in the quarter and evolution of net profit reflect the disciplined execution of our long-term strategic plan, combining organic growth with the maturity of business acquisitions. As for investments, they were in line with the annual plan directed to the efficient maintenance of operations in addition to the capital allocation in the portfolio's structural projects. ensuring the execution of the contracted growth. Regarding risk management that we reinforced on our last Cozum Day, we continue with our liability management process, always seeking to optimize terms, costs, and liquidity. Before going to the results of each company, I want to highlight the evolution of our brand that we launched during Cozum Day in September, in which we showed how Cozum, a portfolio manager that invests in business with irreplicable assets, makes it happen by investing in areas with the highest potential in Brazil. On the ESG journey, COSAN became part of the Idiversa B3 index portfolio, the first diversity index in Latin America, focused on the pillars of gender and race, in line with the evolution of the company's diversity and inclusion agenda. It's worth highlighting that COSAN has two women in the board of directors and one on the board of executives, in addition to public commitments at COSAN and businesses to increase and maintain the participation of women in the leadership. Despite it, I'm also proud to share some of the recognitions we received, which are the result of the strength of our business and the dedication of our employees. We were among the Melhores and Maiores in Exame Magazine, with Compass being chosen as the best company in the energy sector. Second place went to Raizen, and third place to Kozan. Kozan also won the sixth place as the country's largest company in the annual Valor 1000 ranking, also being highlighted in the oil and gas sector. I also would like to reinforce that, in line with the work we have been doing to improve the disclosure and simplification of information in our materials, we have published a template to support the calculation of COSAN's valuation using the sum of the parts method. The material is being on COSAN's website, as well as the COSAN corporate modeling guide. Now, let's move to the key financial and operational highlights of each business, starting with Raizen on the next slide. As detailed in the conference call held by Raizen, the greater mobility margins added to the relevant gains in agricultural productivity and the better profitability of sugar contributed positively to the quarter's strong results. In renewables, performance followed the slower pace of power and ethanol sales in line with the strategy for the crop and positioning of stocks for future sale, due to lower ethanol prices seeking to maintain a return higher than prices practiced in the local market. In sugar, the quarter's EBITDA specifically reflects the lower pace of sales of its own sugar, following the sales and shipment strategy for the crop. We see a very favorable sugar cycle with a price scenario remaining at high levels for the sixth consecutive year. In mobility, we had a significant increase in EBITDA. In Brazil, we had a very strong performance due to the higher volume sold supported by the evolution of the customer base and the expansion of the contracted network, in addition to improvement in profitability with adjustments in supplies and sales. In Latam operations, the solid result was impacted by the maintenance of margins, despite the political and economic scenario in Argentina, with expansion of market share and premium product mix. Finally, in line with the strategy of providing advanced solutions that contribute to a low-carbon economy, in the month of October, and therefore a subsequent event, I even began the commissioning of the second E2G plant in the Bonfim Bioenergy Park, in the city of Guariba, in the state of São Paulo. Now, let's move to slide number five, in which I present HUMU. Humu delivered the best quarterly result in the history of the company with record high transported volume, driven by strong demand for agricultural commodities transportation and the continuous improvement in safety and traffic conditions in the Baixada Santista region. The constructive moment in the logistics market reinforced the structural competitiveness of the railway mode. In the quarter, Humo registered an expansion in margins, which were leveraged by the increase in tariffs. The EBITDA was boosted by high prices and volumes. We remain confident with the strong market momentum. Now, let's move to Compass on slide number six. We recorded a robust increase in EBITDA in the quarter that reflects the diversification of Compass portfolio, combining resilience and growth opportunities in the gas distribution with a record number of connections, together with the start of the marketing and services operations now organized under the Edge brand, which was impacted by the results of the first LNG cargoes. During this period, we reached key milestones aligned with COMPAS' strategy. In the distribution area, we continued to drive efficiency and network expansion. At Comgas, we reached the mark of 2.5 million connected customers. While at Comit, we made progress in portfolio management with the split of the distributors in the northeast and the creation of Norgas. At EDGE, we advanced the biomethane agenda, announcing a purification plant in Paulinha, in partnership with Horizon, and establishing a long-term contract with São Martinho. Furthermore, we are in the final stage of the regas terminal construction, strengthening our portfolio and contributing to Brazil's energy security and decarbonization solutions. We inaugurated the segment with the sale of the first LNG cargo, highlighting the unique opportunities in our portfolio. As a result, COPA has revised its EBITDA guidance with an increase compared to the previous forecast. Now, let's move to slide number seven to discuss MOVE. In the third part of 2023, MOVE showed substantial EBITDA growth when compared to BOLF, the third quarter of 2022 and the second quarter of 2023. The result was driven by significant volume increase, combined with the improvement in the mix of products sold in all regions of operation. The integration process of companies acquired in the second quarter of 2022 continues to evolve, offering good opportunities on multiple business fronts. The company remains committed to its investment plan, aiming to achieve better levels of efficiency and profitability in the long term. EBITDA, over the last 12 months, has already exceeded R$1 billion, reaching R$1,130,000,000 at the end of the quarter, demonstrating the company's execution capacity. Let's move now to slide number eight, where I present the land segment, which comprises direct stakes in Radar, Delos, and Janus. We had a strong increase in EBITDA in the period, which was marked by the appreciation of the agricultural properties in the portfolio after market-to-market update, in addition to the increase in revenues from land leads from the consolidation of Delos and Janus. Now, let's move to slide number nine to discuss corporate results. On this slide, we present the evolution of Kazan Corporate's adjusted net income, which reflected the robust operational performance of the entire portfolio, in addition to the better financial results. It's worth noting that Kazan Corporate's results do not include the effects of Kazan's participation in Vale, which will be detailed below. Let's proceed to slide number 10. COSAN 8 is an intermediate holding company controlled by COSAN S.A. and is the vehicle that holds our investments in Vale, as well as the derivative instruments structured as part of the protection and funding strategy. In August, that is, within the quarter, COSAN 8 anticipated a 20% partial settlement of the first tranche of the color financing structure, equivalent to 0.10% of Vale's total shares on the date. As a result, the prepayment relieved 4.5 million shares, reducing the colorizing participation and resulting in a financial gain of about 30 million reais. As an outcome of this operation, in addition to the reduction of the colorized participation, direct participation increased to 1.7%. In the quarter, we received IOC from Vale, recorded as other operating income, part of which was passed on the color financing banks, affecting the financial results. Due to the appreciation in Vale's share price compared to June's closing price, the effect of the mark-to-market shares held via direct participation was positive. As for the colorized participation, the share value appreciation was offset by the negative mark-to-market in the derivatives, and the net effect of the call spread was moderately positive. In the , the net value of the total investment impact was positive at 351 million reais. In the month of October, and therefore a subsequent event, did the unwinding of another installment of the first range of the color financing structure, equivalent to additional 0.10% of the mining company's total shares on the date. Size and effects are similar to the movement in August. As a result of the operation, direct participation increased to 1.8%. Moving now to slide number 11. In line with how we present our results, we present the debt profile in two views. The first, Cosa Incorporate, which basically includes the cash and debts of the parent and offshore companies, that's bonds and the ventures. And the second, Cosa Noito, which reflects the financing of the acquisition of part of Vale's shares through color financing and the fair value of the derivatives that make up the share acquisition structure. Regarding movements in the quarter, the reduction in gross debt at COSAN Corporate is explained by the early partial redemption of the principle of the Senior Notes 2027 and the amortization of the first installment of the COSAN Logística de Ventures. As for net debt, we had a reduction in the quarter that highlights the company's discipline in liability management, in addition to a weak comparison base of the third quarter, 2022, impacted by the issuance of bridge loans to acquire a stake in Vale. At the end of the period, Cozum's pro forma leverage fell to 1.7 times within appropriate levels for the company. It's worth mentioning that the company has a very comfortable monetization schedule and a long average term of approximately five years. Let's now proceed to slide number 12. Here, we present a managerial perspective of Kozan Corporate's direct cash flow. Cash consumption in the quarter also reflected our liability management process, as I explained in the previous slide. which was partially offset by the receipt of interest on equity from Vale and dividends from Raizen and Land, the main sources of cash in the factory. With these movements, Kozan corporate ended the period with a robust cash position of around R$ 3 billion. Reinforcing the portfolio's capacity of generating liquidity for Kozan, We have an event subsequent to the third quarter, the announcement of extraordinary dividends by Vale and the distribution of R$1 billion in dividends by Compass. Finally, I want to reinforce to you that myself and the entire RR team are available to clarify any point about the materials released, including the modeling guide and the son-of-the-part template that were recently launched. Now, we can start with the Q&A session. Thank you.

Before we begin the Q&A session, I would like to turn it over to Mr. Luis Enrique Guimarães. Thank you, and good afternoon, everyone. It's a pleasure to be here with you today, and I'm very happy to open this call talking about people, a key point to our group in the last two years. As you've heard in our presentation, there are many talents being promoted and being moved from company to company in the holding company. And this has been well thought out, and it's focused on our priorities and focuses to execute our business plan and by allocating people's time as best as possible. It's also important to show you the strength of our partnerships, which have evolved in the last three years. and how happy we are to have been able to hold on to our talents in-house. We've made many movements within the holding, within our own teams. So Nelson, as Cozen's CEO, makes all sense given Nelson's results within the group. He's very familiar with our businesses. He has already worked at the holding company. So it only reiterates that he's the right person. We did a very similar thing in 2016 at Congress time. He has our full faith to lead Kuzan's business for the next two years, and we'll have an increased focus on our portfolio, including divestment in certain assets, as we've mentioned in a few calls and during Kuzan Day. So Rodrigo Araujo will become our CFO. He has vast experience in many of the sectors we operate in. watching him and during his time at Petrobras, I was on the other side of the table. And since he announced he was stepping down, we made sure he joined our group and now he's becoming our CFO with a huge responsibility to bring our portfolio and our team to a whole new level. I trust the team and the people we have chosen to run our businesses and full trust in Nelson and Rodrigo. I wish them the best of success in their new positions and I am here to support them and their journey to success. This is an extremely important move. We have announced it in-house and to the markets. And it involves the creation of other businesses within the company as marketing and services. And we also have the Metro. He was moved as well. So now we've had a very, robust quarter and we should meet our guidance. Some very important achievements. We've improved our mobility margins.