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

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to UltraPAR's Q3 2023 Earnings Conference Call. That is also a simultaneous webcast that may be accessed on UltraPAR's website at ri.ultra.com.br and the MZIQ platform. The presentation will be conducted by Mr. Rodrigo Pizzinatto, UltraPars Chief Financial Officer and Investor Relations Officer. And in the Q&A session, we will also have the presence of Mr. Marcos Lutz, UltraPars CEO, and the CEO of the respective businesses, Mr. Tabajara Bertelli, Mr. Decio Amaral, and Mr. Leonardo Linden. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After UltraPAR's remarks, we will open the floor for questions, and at that time, further instructions will be given. Should any participant need assistance during the call, please press star zero to reach the operator. We remind you that questions which will be answered during the Q&A session may be posted in advance in the webcast. And a replay of this call will be available for seven days. Before proceeding, let me mention that any forward-looking statements made during this conference call under the safe harbor of the Securities Litigation Reform Act of 1996 are based on the beliefs and assumptions of UltraPars Management and on information currently available to the company. These forward-looking statements are no guarantee of performance. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry-related conditions, and other operating factors could also affect the future results of UltraPAR and could lead to results that differ materially from those expressed in said forward-looking statements. Now I'd like to turn the conference over to Mr. Rodrigo Pizzinatto. Mr. Pizzinatto, you may proceed.

Good morning, everyone. It is a pleasure to be here once more to talk about UltraPars results. And starting on slide number two, I remind you that both the earnings released in this presentation consider UltraPars data from continuing operations in 2023. As for 2022, the company's data is presented in the pro forma view, considering the sum of continual and discontinued operations, as disclosed throughout last year, unless otherwise stated. Moving now to slide number three with UltraPars consolidated result. As you can see in the chart in the upper left side, our recurring EBITDA from continuing operations totaled R$1,992,000,000 in the third quarter of 2023, 124% higher year over year. This increase is due to the higher EBITDA at all businesses, especially Ipiranga. Results I will go through in detail in the next slides. Ultrapartisan income was R$891 million in the third quarter, compared to R$83 million in the third quarter of 2022, mainly on the back of the higher EBITDA from continuing operations. Investments from continuing operations totaled R$380 million in the third quarter, 27% lower than that of the third quarter of 22 due to lower investments at Ipiranga partially offset by higher investments at Ultra Cargo. We had in the third quarter an operating cash generation of R$1,901,000,000. 609 million reais above that of the third quarter of 22. These increases are a result of the higher EBITDA partially offset by the reduction in draft discount balance and the investment in working capital in the third quarter of 23 arising from the increase in fuel prices. I remind you that in the third quarter of 22, on the other hand, there was a release of working capital as a consequence of the reduction in fuel prices in that period. If we exclude the reduction of R$294 million in the draft discount balance, the operating cash generation in this third quarter was R$2,195,000,000. Moving now to slide 4 to talk about our liability management. We ended the third quarter with a net debt of R$7.1 billion, a reduction of R$924 million compared to June 23. This decrease resulted from greater operating cash generation, partially offset by the payment of dividends and the reduction of R$294 million in the draft discount balance this quarter. In addition to these effects, during the third quarter, we received the second installment from the sale of Extra Pharma in the amount of R$198 million, and we disbursed R$210 million for the acquisition of Opla. Our leverage went from 2.1 times in June 23 to 1.4 times in September 23, the lowest level of the last 10 years, on the back of the higher LTM EBITDA from continuing operations with cash generation and consequently the reduction in net debt that I've just mentioned. I'd like to point out that the numbers of net debt still do not include pending receivables of R$ 932 million related to the sales of Occitano and Extra Pharma. We've included at the bottom of this slide a table with the total amount of draft discount and vendor lines. As well as pending receivables from the sales of Occitane and Extra Pharma, all lines highlighted in our balance sheet. The net debt of September 23 adding the draft discount, vendor and divestment receivables would be R$7.7 billion, which is R$1,746,000 lower than the balance of September 22, one year ago. Moving on to slide number 5 to talk about another excellent quarter of Ultragas. The volume of LPG sold in this third quarter was 1% higher year over year due to a 4% increase in the bulk segment on the back of higher sales to industries. The bottle segment in its turn remained flat. Ultragas SG&A in this third quarter was 15% higher than that of the third quarter of 22 due to two main factors, expenses with freight due to higher sales volume and higher expenses with personnel, mainly collective bargaining agreement and variable compensation in line with the progression of results and a larger headcount due to the acquisitions of Stella and Elgas. Ultragaz EBITDA totaled R$453 million, 36% higher year over year. This growth is mainly explained by efficiency and productivity initiatives implemented in the last quarters, by better sales mix, and by inflation pass-through despite higher expenses. For the fourth quarter, we expect a profitability measured in EBITDA per ton, similar to that of the third quarter, despite seasonally lower volumes. Moving now to slide 6 to talk about another great quarter of ultracargo. The company's average stock capacity was 1,059,000 cubic meters in the third quarter of 23, an 11% growth year over year. This increase results from three capacity additions carried out in recent months, 90,000 cubic meters coming from the acquisition of the 50% stake in Opla as of July. 12,000 cubic meters from the acquisition of the Rondonopolis base from Ipiranga in September and 10,000 cubic meters relating to the expansion of the Vila do Conde terminal. These capacity additions had no material impact in this quarter's results and should begin to gradually contribute to the upcoming month as operations ramp up. The cubic meters sold increased by 26% mainly due to higher handling of fuels in Itaqui, in Santos and in Suape, and the startup of operations in Opla. Tracargos Net Revenues were R$ 264 million in this third quarter, 18% higher year over year, as a result of spot sales, higher cubic meters sold, and higher tariffs. Combined costs and expenses were 8% higher than those of the third quarter of 2022, as a result of higher personnel expenses, mainly collective bargaining agreement and variable compensation, in line with the progression of results. We also had higher expenses with advisory and consulting services linked to expansion projects. Petrocargo's EBITDA totaled R$173 million in the quarter, a growth of 27% year-over-year, due to higher capacity occupancy with profitability gains, spot sales, higher tariffs, and productivity and efficiency gains despite higher expenses. Abyda Margin was 65% in this quarter, 5 percentage points above that of the third quarter of 2022. And for the current quarter, we expect Ultracargo to continue its good operating performance but with fewer spot sales marginally reducing its results. And to conclude this presentation, moving on to slide 7, let's talk about Ipiranga's results. Volume sold in the quarter decreased 2% year over year, with a 3% reduction in the auto cycle and a 1% reduction in diesel, mainly due to the strategy of lower sales to the spot market during this period. We ended this third quarter with a network of 5,816 service stations, 465 stations less than that of June 23. In September, we concluded the process of managing the legacy of service stations started in 2022. A total of 70 new service stations were added to the network. with an average volume contribution of 288 cubic meters per month. On the other hand, 535 service stations were closed with an average volume contribution of 57 cubic meters per month. The greater number of stations closed this quarter relates to the decision to also close service stations with commercial practices not aligned with business principles and in disagreement with contractual obligations. This increased level of closure of stations did not have a relevant impact on Ipiranga's market share or results. In addition, we ended the quarter with 1,542 A&P stores, with same-store sales growth of 9% year-over-year. Ipiranga's SG&A increased 27% in the quarter due to four main factors. Higher provisions for contingencies, higher provision for doubtful accounts, higher marketing expenses, and higher personnel expenses, mainly collective bargaining agreement and variable compensation in line with the progression of results. The other operating results line totaled negative R$178 million in the quarter, in line with the third quarter of 2022. The disposal of assets line totaled R$68 million, mainly due to the capital gain related to the sale of the Rondonópolis base to UltraCargo, in the amount of R$59 million, and the sale of three real estate assets. Ipiranga's EBITDA totaled R$1,513,000,000 in the quarter, 184% higher than that of the third quarter of 22. Recurring EBITDA was R$1,445,000,000 in the quarter, 199% higher year over year. The higher EBITDA mainly reflects two factors. First, margins benefited from the inventory gains caused by the increase in fuel costs throughout the quarter. I remind you that in the third quarter of 2022, we had reductions in fuel costs and inventory losses. The second factor was the normalization of the commercial environment in the third quarter of 23 due to a more regular product supply in the market, which affected the second quarter results. These two factors were partially offset by higher expenses. As you may As we have noted, the fuel distribution sector has had more volatile results in recent quarters. Therefore, we also highlighted on the slide the EBITDA per cubic meter of the last 12 months, helping to provide a better perspective of the results over time. In addition to the normalization of product supply, the third quarter result benefited from inventory gains. For the fourth quarter, considering the current scenario of product supply and no significant impact of inventories, We expect a profitability measured in EBITDA per cubic meter above that of the last 12 months and continued recovery of the return levels of the industry. With that, I now conclude my presentation. I appreciate your interest and attention and let's now move on to the Q&A session in which we are available to answer your questions. Thank you.

Ladies and gentlemen, we will now open the floor for questions. We will take questions from investors and panelists. To send a question, please press star one on your touchtone phone. And if at any point your question is answered, you may remove yourself from the line by pressing star two. Questions will be taken in the order they are received. We kindly ask you to, when you pose your question, Pick up your handset to provide optimum sound quality. Please hold while we poll for your questions. If you are following the conference poll via webcast, please click on question to the host to send your question. The first question comes from Monique Greco, Itaú BBA. Hello, everyone. Good morning. Can you hear me? Yes. Good morning, Monique. Good morning. Thank you for your presentation. Congratulations on your strong results. I have two questions on my side. Let me start from the end of your presentation, Pizzinatto. You talked about the dynamics expected in terms of margin for quarter four in the P&M. Can you please share with us A little bit more about what you are feeling in terms of the competitive dynamics imported for. We saw that in the first half of the year, this competitive dynamics was very linked with products imported from Russia. So can you please share with us what you see for the diesel dynamics imported for? And also, we have been talking a lot about and the Autocycle ends up staying in the background so I would also like to hear from you what this dynamics look like for the Autocycle and my question to Lutz is that in Ultra Day you talked a lot about some opportunities for growth with a strong focus on agribusiness and also energy transition Can you please talk more about this? What are the prospects and opportunities in this sector? What are the main criteria that you can see there when you're looking at these opportunities? Thank you. Hello, Monique. This is Linde. Your first question was about competitive dynamics. Of course, this is a never competitive market. And in quarter four, We are seeing a somewhat more balanced situation in terms of supply and demand. and the rest of the participants. Thank you very much. and this scenario is starting to change in quarter three and then we had some inventory gains and better market conditions and in quarter four I'd say the situation is more balanced but it is a transition quarter because we are also starting to see some parity opening up we start to see a higher appetite for imports So I think we will have a transitional quarter in quarter four. But as you heard in Rodrigo's explanation, we are looking at quarter four potentially with higher margins than what we saw in the past 12 months. And just an additional comment, Monique. In the first half, we had an excess of products in the market. and Retail Fuel is no different from other industries when you have excess product this will negatively impact your margins and what we had in quarter three and that should remain in quarter four is this return to normal levels, normal stock levels in the industry and that allows our margin to return to the levels expected. So now I'd like to hand the conference over to Marcos. Hello Monique, good morning. So let's start by the criteria, which I think is the most important point in your question. We will have to have huge discipline looking at the risk-return ratio of our projects. As we said, we want to be more exposed to our new business. We want to grow more in these regions in our three areas of business. Ultra Cargo, Ultra Gas, and Ipiranga are making all the effort to expand their operations in these markets. And we are considering multiple projects and companies that have a higher exposure to these markets. And the main criterion here is the return on investment, of course, combined with the risks of this investment. So these are more mature projects that give us slightly lower returns but have also lower risk, are very attractive and less mature projects have higher risk and that has to be justified. And also about risk return, it is important to note that even with the current return levels, The risk-return ratio of fuel distribution projects in Brazil is not yet appropriate. We have a volatility level that we think is here to stay in this segment, and this would warrant a requirement for a higher return from these projects. Today, we see, for example, that the price in Brazil is higher than the international price, so this Uh, Andres Alvarez. So we should have an inventory loss because we should see a price reduction in Brazil shortly in the future because it doesn't make sense to have a price which is that higher than the international price. So we will see this volatility taking place. It's what I said about seeing it as a movie versus a snapshot. We need to more and more focus on seeing the past 12 months and not just the past quarter to evaluate whether we are going in the right direction or not.