Ultrapar Participacoes S.A. (New) American Depositary Shares (Each representing one Common Share)

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to UltraPAR's first quarter 2020 results conference call. There is also a simultaneous webcast that may be accessed through UltraPAR's website at ri.ultra.com.br and MZIQ platform. Please feel free to flip through the slides during the conference call. Today with us, we have Mr. Fred Corrado, Chief Executive Officer and Mr. Andre Pires, Chief Financial and Investor Relations Officer together with the other executives of UltraPAR. 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 UltraPAR's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach an operator. We remind you that questions which will be answered during the Q&A session may be posted in advance in the webcast. A replay of this call will be available for one week. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of UltraPAR management and on information currently available to the company. They involve risk, Andres Mourão. Thank you very much. Thank you very much.

Well, thank you very much. Good morning, good afternoon, everyone. Well, we had a good first quarter in 2020, and the quarter was pretty much in line with our expectations, and all businesses, they showed good operational performance and also profitability, even Ipiranga, which was, of course, which EBITDA was impacted by the inventory losses, which were due to the abrupt and also an expected regressionary crisis towards the end of the quarter. Up to March, we were quite positive regarding our guidance, but of course we began to feel the effects of the crisis already in the last two weeks of March. And of course we had to withdraw the projections due to the uncertainties in the economy and society at large. We have been working diligently in managing the crisis, acting forefront. Firstly and foremost, the health and safety of our people. Second, the integrity and continuity of our operations. Thirdly, support to the extent that we can, of course, to our value chains and our sellers. And last but not least, social support during this pandemic. So, before I pass the floor to Andrea, let me just present to you an overview of the effects of the crisis on our businesses. This is the eighth week since the outbreak here in Brazil. So, firstly, our security and social isolation protocols, they have proven to be very efficient. All of our businesses, they are essential to society. and we have been able to maintain our operations without any interruptions or any discontinuities which is I think a very positive result. So our office staff is almost 100% something close to 95% working remotely and surprisingly I think this is the experience of many companies quite high efficiency based the IT infrastructure working and a lot of other people who have been doing an exceptional job with education, discipline and we have here in Brazil a lot of increasing mobility difficulties with mayors and governors changing rules everyday but they have really done the extra mile and all of our operations are ongoing and without any interruption. So far, I think we can say I've managed to overcome the difficulties quite well with the resilience and the relative success. But I'd like to comment as well a little bit on each of our businesses. So starting with doing for gas. We saw some reduction in LPG volumes in both segments. This is more to small and medium-sized enterprises. But on the other hand, we have seen growth in households, consumption in households. And margins have been quite stable. So far, it's so good for UltraGas. UltraCargo, similar situation, some reduction in movement of cargo, but for the take-or-pay and a few of our storage commitments that have remained firm. We have had negotiations, corrective negotiations to, you know, of course ease some payment conditions, but again, UltraTag has shown, as UltraGas has, a strong resilience throughout the crisis so far. At Citeno, we have seen a reduction in sales in some segments, specifically in paintings, oil and gas, and also automotive. On the other hand, the agribusiness and the HP market, they are quite solid, including some actual increases in volumes and good margins. So the company has also benefited from the failure of exchange rates. Costs in reais, of course, when translated to dollars, they are lower now. And also the drop in San Patrocinito's projects, more specifically Ethylene, which is a major raw material for Washington. So that's another business which has been quite resilient so far throughout the crisis. And speaking, talking a little bit about the Pyramid, This is clearly the business which has been most affected by the contraction of economic activity. We have seen a drop of 30% in volume, more concentrated in the oil-to-oil cycle with gasoline and ethanol. And those volumes, they are getting a little bit better in the last few days. But there is also some pressure on margins, especially in ethanol. that we have seen, of course, due to the strong regression in demand. So, Epidema has been working quite diligently to support its network of resellers, both directly. So, Epidema has shown some flexibilization of contractual conditions, direct contractual conditions with resellers, but also supporting them indirectly with the banks So they can really, you know, get some credit lines for working capital. So that support, I think, so far has been very, very efficient. And the network is still solid. And finally, commenting on extra pharma, we have about a little bit less than 10% of our stores, of our networks as stores are closed. Those are the stores which are In shopping malls, all shopping malls in Brazil, most of them are shut down. So of course there is a reduction in sales regarding those stores. On the other hand, we see higher demands in the 90-95% of our network which are in regular operation. So when you consider Regnus Per Store, actually you see actually better volumes, better sales than last year and solid margins as well. So I think it's that, you know, the strategy that you have been, you know, endeavoring for the last 12, 8, 15, 18 months, I think it's paying off now. So we have, you know, closed, you know, the low performance stores, a lot of actions towards cost reduction and and the improvement of our infrastructure. So, clearly positive results in that front. So, regarding liquidity, we have, you know, we have a very comfortable position at this stage. We did reinforce our cash with three lines of new loans, short-term loans of about 1.5 billion Riyals. So that's an extra cushion, safety cushion to face the crisis. As far as late payments go, we have seen some increase, which obviously was expected, but at acceptable levels, at manageable levels, and we are closely monitoring those levels. So again, so far so good on that front as well. And a final word on social support. A lot of initiatives we have concentrated our efforts in those communities in which we operate and also focusing on infrastructure of the health system. So we have co-invested with some other companies and always trying to have an operational partner. like a reference hospital City of the Baniers for example here in Sao Paulo to give one example in construction of field hospitals and also donations of products materials and equipment to those hospitals so beyond besides that we have also undertaken several ancillary actions like granting few discounts to health professionals or support truck drivers Donation of basic food products and health and digital privilege communities, among others. So, if I can sum up in short, a good first quarter. We're going through the crisis with, of course, a lot of determination, with preserving our workforce, not laying people off, seeking to sustain, of course, our results, and above all, of course, ensuring and the continuous supply of our services and products to the population of Brazil. So with that, over to André and of course I'll be available at the end for the Q&A. Thank you.

Well thanks Fred and good morning everyone. Before we discuss the performance of our businesses, I'd like to highlight some important aspects of our first quarter 2020 results. Last year was a period of transition with the implementation of the new IFRS 16 accounting rule and the disclosure of the holdings expenses. You may remember that we published our results in 2019 with and without these changes for comparability. As from this quarter, all numbers are reported according to the new IFRS 16 rule and the segregation of the holdings expenses both for 2020 and 2019. Moving on now to slide number five, talking about Ipiranga. Ipiranga reported a 2% decrease in sales volume in the quarter, the result of a 5% lower auto cycle sales compared with the first quarter of 2019, reflecting the impacts of the coronavirus pandemic on sales in the second half of March. During January and February combined, sales volume at Ipiranga went up by 0.7% on a year-on-year basis, while March sales were down by 6.4%. On the other hand, diesel sales increased by 2% relative to the first quarter of 2019. We ended the first quarter with a network of 7,106 service stations, a net addition of 16 during the quarter, and 2,373 a.m. p.m. convenience stores, a slight drop of four stores in the period. As anticipated, In our ultra-day presentation, since the end of last year, we implemented a number of company-operated EMTN stores and their performances have been better than planned. Oil prices during the quarter were extremely volatile, largely because of the sudden drop in global demand due to the pandemic and to the price war in the international markets, which caused significant reductions in fuel prices. Consequently, we incurred sharper inventory losses, impacting Ipiranga's margins. SG&A fell by 4% compared with the first quarter of 2019, mainly due to the initiatives for reducing SG&A, which Ipiranga has been implementing since 2019. Ipiranga's EBITDA amounted to R$480 million, a decrease of 20% compared with the first quarter of 2019. This was mainly the result of lower sales volume and the impact from the drop in prices I already mentioned. These factors are somewhat offset by the reduction in expenses. I would also like to mention that in April, for the sixth year in a row, Ipiranga and AMPM received from Folha de São Paulo newspaper the Best of São Paulo award in the service station and convenience stores categories. This is particularly important and Giorgio de Moura. We have seen a significant decline in motorcycle sales. Diesel sales have been less affected since a good part of the supply chain and therefore cargo transportation continues to operate normally. Volume trends are likely to be maintained while restrictions on the mobility of people and Social Distancing in Brazil remain in place. As to margins between ups and downs, since the end of March, fuel prices have fallen, directly impacting margins over the short term due to inventory losses. These losses may be greater or smaller depending on how fuel prices behave in the weeks ahead. Now moving on to slide number six, At Occitano, sales volume of specialty chemicals was stable compared to the first quarter of 2019. This was due to the increase in sales to the crop solutions and home and personal care segments, offset by a reduction of 6% in exports. Reduction is mainly due to lower solvent sales to Asian markets, already impacted by the pandemic during the quarter. We had a slight increase of 2% in sales volume of commodities given by exports. The Pasadena plant reported a 31% increase in sales volume in the quarter with the ramp-up of its operations. Occitania's results in the quarter benefited from improved contribution margins in U.S. dollars per ton and driven by the reduction in the cost of key raw materials and the devaluation of the rail. SG&A were 13% higher in the period due to increased expenses with freight and the impact from foreign exchange rate depreciation in our international operations, even considering the initiatives underway to reduce expenses at Occitane. Results were also boosted by a non-recurring tax credit of 71 million Reais booked in the first quarter of 2020. As a result, Occitane's EBITDA was 193 million Reais in the quarter. If we exclude the effect of the tax credit, EBITDA was 122 million Reais, an increase of 207% over the first quarter of 2019 for the reasons I have just described. Looking at Occitano's performance in this current quarter, prospects are for volumes reduction for some segments that are more severely impacted by the pandemic, such as coatings and oil and gas. However, other segments are more resilient, such as the home and personal care sector and crop solutions. Nevertheless, the positive effect of the foreign exchange rate appreciation on Oxterm's results in Reais combined with the resilience of unitary dollar margins indicate an expansion in EBITDA compared to the second quarter last year. Moving on to slide number seven, sales volumes at UltraGas in the first quarter of 2020 increased by 7% compared with the first quarter of 2019. Better than the market as a whole, where volumes were up by 5% in the period. Ultragas saw an improved market share in both bottled and bulk segments. In the bottled segment, volumes rose by 7% year-on-year, largely driven by stronger demand in the final weeks of March as a result of the pandemic. There was a particularly strong growth in sales to the Midwest and Southeast regions of the country. In the bulk segment, sales volume was up by 6%, with increased sales to industries, condominiums, and special gases. SG&E fell by 4% from the first quarter of 2019, largely due to the efficient expense control, and in spite of the increase in freight expenses. Ultragas EBITDA amounted to R$147 million. That's an increase of 34%, compared with the same quarter in 2019, Due to higher sales volume and SG&A reduction. For the current quarter, we are experiencing a reduction of sales volume for the bulk segment, mainly to the small and medium-sized companies, which are primarily affected by the pandemic. On the other hand, falling demand in the bulk segment has been partially offset by soaring demand for residential LPG. With this scenario, the trending results for the current quarter remains the same as in the first quarter of 2020. Let's move on now to slide number 8, talking about Ultracargo. Ultracargo reported an increase of 20% in average storage compared with the first quarter of 2019 due to the expansion in tankage capacity at the Santos and Itaqui terminals with greater fuel movement as well as greater handling activity at Suape and Arapu. As from this quarter, we are also providing data for cubic meters sold at Ultracargo. We have included this information to align the market disclosure with the KPIs we track internally, allowing a better visibility of the evolution of the results. Cubic meters sold is an important metric at Ultracargo since it captures information on the turnover of products in the tanks, more appropriate to fuel operations. Net revenue at Ultracargo was R$163 million in the quarter, 29% greater than in the first quarter of 2019 Due to TAF adjustments and new contracts with clients. We also had an increase in average storage following the capacity expansion in Santos and Itaqui. Regarding costs and expenses, we had a combined increase of 9% due to increased expenditures with payroll and maintenance, mainly due to the increase in capacity in Santos and Itaqui. We also had a positive impact from a R$4 million reimbursement of compulsory loans made to Electrobras in the past years. In the quarter, EBITDA amounted to 91 million reais equivalent to an expansion of 52% compared with the same quarter of 2019 due to greater handling activity and the rationalization and dilution of costs and expenses. EBITDA margins in the quarter were 55%. Over the course of the first quarter, Ultracargo brought on stream more than 18,000 cubic meters of tankage at the Itaqui terminal. The project's second expansion phase. With this, we see a continued trend of solid and consistent results over the forthcoming quarters. Moving on to slide number 9, talking about Extra Pharma. Extra Pharma ended the quarter with a network of 411 drugstores, a net reduction of 5 stores compared with the first quarter of 2019. Of the total stores in the network, 40% are currently in the ramp-up process. Gross revenue in the quarter was 521 million reais, 5% lower than in the first quarter of 2019 due to the decrease of 7% in the number of stores and to lower sales to the wholesale segment, impacts which were partially offset by ramp up in revenues of new stores. Gross profit was 145 million reais. That's a 2% year-on-year increase equivalent to a gross margin of 28%. Reflecting Better Overall Margins and Richer Sales Mix. SG&A were down by 6% in the quarter thanks to initiatives adopted to improve productivity, the reduced number of stores, and logistics improvements, notably the optimization of personnel expenses and the opening of the distribution center in the greater São Paulo region. With this, EBITDA extra-farm was R$9 million due to the operational improvements made over the past quarters and to better margins. It is worth remembering that in the first quarter of 2019, we had a non-recurring tax credit of 9 million reais. So, the increase in EBITDA was effectively 17 million reais in relation to the first quarter of 2019. Pharmaceutical sales tend to be more resilient in times of a crisis as drug stores remain in operation. Currently, about 30 extra-pharma stores, largely those located in shopping malls, are close and, therefore, are impacting our overall sales. However, we remain confident on the continuation of better results on a recurring basis versus the same period of last year. Moving on to the consolidated numbers of ultrafarm on slide number 10, net revenues was R21 billion, 3% higher than in the first quarter of 2019, with revenue growth across all the businesses but extrafarm. EBITDA reached R$ 880 million in the quarter, an increase of 12% compared to the same period of 2019. If we exclude the non-recurring tax credits of R$ 71 million at OXITENO, EBITDA was R$ 809 million, a 3% increase in the quarter due to the growth of EBITDA at OXITENO, ULTRAGAS, ULTRACARGO and at EXTRAFARMA. We posted the net financial expenses of 168 million reais in the first quarter of 2020 compared to a practically neutral financial result in the first quarter of 2019 when we registered important gain from a mark-to-market of exchange rate hedging instruments. Defects volatility in the first quarter of 2020 led to extremely atypical and important positive and negative impacts. The main impact came from a negative result of a mark-to-market of a zero-cost collar hedging instrument contracted in the first quarter of 2020 to protect Occitanos operating margins in Reais against the volatility of the U.S. dollar exchange rate. Net income was 169 million Reais, 30% less than in the first quarter of 2019 due to higher financial expenses despite an increase in EBITDA and the tax credits of Occitanos. CAPEX was 350 million Reais, an increase of 31% and the first quarter of 2019. These investments were made prior to the decision to cut our original investment plan by 30% announced in early April. So the trend will be for lower CapEx for the coming quarters. The highlight for the period was the cash generation from operating activities of 900 million Reais. Total operating cash generation was 781 million Reais, a 184% increase over the first quarter of 2019 Moving on now to slide number 11 to talk about our debt profile. We ended the quarter with a leverage ratio of 3.27 times measured by net debt to EBITDA for the last 12 months. It is worth mentioning the impact of the exchange rate variation of the bonds in the net debt equivalent to 730 million reais. Excluding this effect, the leverage would have been 3.06 times. To better explain this impact, we have issued bonds in the international market with protections via hedge accounting instruments based on future exports from Occitania. Consequently, this portion of the debt fluctuates according to currency variation, which generated an increase of $730 million in our net debt. However, this increase does not have a cash impact, since As exports are performed, they revert into cash in U.S. dollars accumulated abroad for the future settlement of these bonds in 2026 and 2029. As from the first quarter of 2020, with the introduction of the IFRS 16, we started to consider leases payable in the calculation of net debt contributing to an increase in leverage. It is worth to remember that these leases are not bank debts. We came to the end of the quarter with a cash position of R$7.2 billion. This was boosted by the cash generation during the period and additional credit lines. In addition to the preventive steps taken to mitigate the impacts of the pandemic and to which Fred has already alluded earlier, now in the financial parts, we announced in early April a 30% reduction in the 2020 CapEx plan as a measure to preserve cash. We're also optimizing expenses across all our businesses. In addition, we have strengthened our cash position by raising a further R$1.5 billion in credit lines. That's about R$200 million in bank credit lines, drawn in March, and R$1.3 billion in promissory notes, which was incorporated in our cash position in early April. Both lines mature in a year. This is a preventive step to help us navigate the spirit of uncertainty and At the same time, secure our financial liquidity. In addition, this cash support was crucial for putting together a comprehensive package for assisting our partners along Ipiranga's value chain. In turn, it gives additional soundness to the Brazilian fuel distribution system as a whole. With this, I conclude my presentation. We can now begin the Q&A session. Thank you.