Cosan Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 2 speakers on the call.

Operator

Good afternoon, everyone. Thank you for waiting, and welcome to Cosan's Earnings Conference Call for the Q3 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.

Operator

The video conference is being recorded and will be available on the company's IR website at kozan.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 KOSAN'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.

Operator

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 Cozhan's future performance and lead to results that differ materially from those expressed in such forward looking statements. Today, with us, we have Mr. Luiz Enrique de Marais Riccardo Levin and Ms.

Operator

Ana Luisa Perina. I will now turn it over to Mr. Ricardo Levin.

Speaker 1

Good afternoon, everyone, and welcome to Cosan's earnings conference call for the Q3 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 form a EBITDA In the quarter, an 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 cause and day, We continue with our liability management process, always seeking to optimize terms, costs and liquidity.

Speaker 1

Before going to the results of each company, I want to highlight the evolution of our brand that we launched during Cosan Dei in September, in which we showed how Poznan, a portfolio manager that invests in business with replicable assets, Makes it happen by investing in areas with the highest potential in Brazil. On the ESG journey, Cosan became part of the IG Versa Betreze Index Portfolio, the 1st 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 2 women in the Board of Directors and 1 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, This quarter, 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 melores and mayores in Esahemio Magazine, With Compass being chosen as the best company in the energy sector, 2nd place went to Raizen and 3rd place to KOSAN.

Speaker 1

Cosan also won the 6th place as the country's largest company in the annual Valor 1,000 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 methods. 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, performances 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 Thinking to maintain a return higher than price is practiced in the local market.

Speaker 1

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 6th 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, we've adjustments in supplies and sales. In LatAm operations, The solid result was impacted by the maintenance of Marlinx 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, Raizen began the commissioning of the 2nd E2G plant in the Bulfin Bioenergy Park in the city of Guariba in the state of Sao Paulo.

Speaker 1

Now let's move to slide number 5, 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.

Speaker 1

Now let's move to Compass on Slide number 6. We recorded a robust increase in EBITDA in the quarter that reflects The diversification of Compa's 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 Compass' strategy. In the distribution area, we continue to drive efficiency and network expansion. At Comgas, we reached the mark of 2,500,000 connected customers.

Speaker 1

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 the purification plant in Paulina in partnership with Aurizon And establishing a long term contract with Sao Martinho. Furthermore, we are in the final stage of Terriguez terminal construction, strengthening our portfolio and contributing to Brazil's energy security and decarbonization solutions. We now rated the segment with the sale of the first LNG cargo, highlighting the unique opportunities in our portfolio. As a result, Kompas revised its EBITDA guidance with an increase compared to the previous forecast.

Speaker 1

Now let's move to Slide number 7 to discuss Move. In the Q3 of 2023, Moov showed substantial EBITDA growth when compared to both the Q3 2022 and the Q2 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 Q2 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.

Speaker 1

EBITDA over the last 12 months Has already exceeded BRL1 1,000,000,000, reaching BRL1.130 1,000,000 at the end of the quarter, demonstrating the company's execution capacity. Let's move now to slide number 8, where I present the Land segment, which comprises direct stakes in Rodar, Telos and Genos. We had a strong increase in EBITDA in the period, which was marketed by the appreciation of the agricultural properties in the portfolio after mark to market update. In addition to the increase in revenues from land lease from the consolidation of Telus and Genus. Now let's move to Slide number 9 to discuss corporate results.

Speaker 1

On this slide, we present the evolution of Cosan 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 Cosan Corporate's results do not include the effects of Cosan's participation in Vale, which will be detailed below. Let's proceed to Slide number 10. Cosan Oeto is an intermediate holding company controlled by Cosan SCA And is the vehicle that holds our investments in Bali as well as the derivative instruments structured as part of the protection and funding strategy. In August, that is within the quarter, Jose Luis anticipated a 20% partial settlement Of the first tranche of the collar financing structure, equivalent to 0.10% of Vale's total shares on the date.

Speaker 1

As a result, the prepayment relieved 4,500,000 shares, reducing the colorizing participation and resulting in a financial gain of about BRL30 1,000,000. As an outcome of this operation, in addition to the reduction of the colorect 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 Colours Financing Banks affecting the financial results. Due to depreciation in Vale's share price compared to June closing price, the effect of the mark to market shares held via direct participation was positive. As for the colorized participation, the Check value appreciation was offset by the negative mark to market in the derivatives and the net effect of the COVID spread was marginally positive.

Speaker 1

In the quarter, the net value of the total investment impact was positive at BRL351 1,000,000. In the month of October and therefore a subsequent event, Cosanway too deep the unwinding of another installment of the first range of the collar Financing structure equivalent to additional 0.10 percent 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.

Speaker 1

In line with how we present our results, we present the debt profile in 2 fields. The first, Cosan Corporate, which basically includes the cash and debts of the parent and offshore companies, debts, bonds and debentures And the second, Cosan Uyto, which reflects the financing of the acquisition of part of Vale's shares, Kufklar 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 1st installment of the Colosseum Logistica debentures. 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 Q3 2022, impacted by the issuance of bridge loans to acquire a stake in Vale. At the end of the period, Cosan's propharma leverage fell to 1.7x within appropriate levels for the company.

Speaker 1

It's worth mentioning that the company has a very comfortable amortization schedule and a longer average term of approximately 5 years. Let's now proceed to Slide number 12. Here, we present a managerial perspective of Cosan 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 quarter. With these movements, Cosan Corporate ended the period with a robust cash position of around BRL3 1,000,000,000, Reinforcing the portfolio's capacity of generating liquidity for Cosan, we had as events subsequent to the Q3 The announcement of the 3rd January dividends by Vale and the distribution of BRL1 1,000,000,000 in dividends by Compass.

Speaker 1

Finally, I want to reinforce to you that myself and the entire IRR team are available to clarify any point about the materials released, Including the modeling guide and the sum of the parts and plate that were recently launched. Now we can start with the Q and A session. Thank you.

Operator

Before we begin the Q and A session. I would like to turn it over to Mr. Luiz Enriquez Guimaraes. 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 2 years.

Operator

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 3 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 Cosan's CEO makes all sense given Nelson's Results within the group, he's very familiar with our businesses.

Operator

He has already worked at the holding company. So it only reiterates That is the right person. And we did a very similar thing in 2016 at Conga's timing. He has our full faith to lead Crozant's business for the next 2 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 Joseon Day. So Rodrigo Araujo will become our CFO.

Operator

He has vast experience in many of the sectors we operate in. I've been 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 is 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.

Operator

This is an extremely important move. We have announced it in house, enter the markets, And that involves the creation of other businesses within the company as marketing and services. And we also have the metro, have he was moved as well. So now We've had a very robust quarter, and we should meet our guidance. Some very important achievements.

Operator

We've improved our mobility margins. Some important results showing the strength The importance of our portfolio and sales, and you'll be able to see that in Compass' future results. Compass continues to be highly productive and to Work on the extension to Lucas de Rioverde, move with excellent results of surpassing EUR 1,000,000,000 and PetroChoice now move USA with very robust results and continuing our internationalization process. Radar Business is also with fantastic assets and continuing on the journey as predicted with Vale. So a very favorable quarter and a very strong year end going into 2024 very strongly as well.

Operator

Now we'll move to Q and A. Nelson and Rodrigo are here with us. And as of the 1st January, in the next conference call, They will be here running our businesses. Now we will begin our Q and A. And to ask questions, please click on the raise hand icon at the bottom of your screen Please ask one question at a time.

Operator

To ask questions in English, Please ask them in writing through the Q and A button. Our first question is from Isabella Simonato, sell side analysts, Bank of America. Please go ahead, Isabella. Hi, everyone. Good afternoon.

Operator

Before anything else, Congratulations on all the changes. And actually, my question is about that. Levin, I know you're going to a new VP position with a different perspective to KOSAN Investments. But as you always say, KOSAN, as the portfolio manager of the group, including your assets and the assets you might acquire down the line. So I'd like to hear What's on your mind?

Operator

What are your first thoughts in this new position? And Luis, You will be stepping down as an executive. You'll be devoting your time to the Board and Vale's Board, which I imagine will take up a lot of your time. And also, I'd like to hear from you how you see Your next steps. Is coming back as an executive An option?

Operator

You've always said that at Vale's Board, you are Keeping up with the operations on a daily basis. So how has that been? I'll start. Thank you for your questions. The first question About the organization, you're very familiar with how we do things, right, Isabella?

Operator

We always work as a team. And we have to give people the direction to make sure that we have discipline. And here at the holding company, we have always worked as a team. So Livin will be working with Marcelo, who has a key role in allocating capital and thinking about the future of the group. And he will be working with KOSAN Investments, Nelson, the rest of the Team, the Board, I'll turn it over to him in a minute.

Operator

But we have proven that we have The horsepower, the people we need to make it happen. We're not that worried about titles, positions, hierarchy, and I think that is what has set our group apart the last 2 years. We don't need to have any complex political dynamics. What matters is having people who trust each other, who work as a team and who have shared missions that are important. It's like Vale's deal.

Operator

We Put lots of resources together. LEO was leading that before Levin. We brought other companies together and set up a team to do it together. So it's much more about people working together as a team. And the same applies to me.

Operator

I'll be in a different role sitting at the boards, And I'll continue to work with the team. I'll be part of the corporate structure with my colleagues and helping however I can on specific matters. So don't think of us as a conventional multinational organization with the Different boxes and titles and positions. Think of us as a group of people working together, trusting each other with a common shared purpose and pursuing the best opportunities available. Lavin, yes, well said.

Operator

I think in the last couple of years, Leo, myself and the whole team have been working closely together. We complement one another, and we rely on each other to make decisions. We have been evolving in portfolio analysis in the last couple of years. We're not just saying that to the market, no. And we will continue to do that with Nelson, with Marcelo, Leo, myself, Maria Rita.

Operator

We'll continue to progress on our portfolio analysis and relying on each other to make the best decisions. Next question is from Thiago Duarte, sell side analyst from BTG. Please go ahead, Thiago. Thank you. Hi, good afternoon, everyone.

Operator

Thanks for taking my question. First of all, Congratulations to the 4 of you, the 4 of you who are taking part in the call and everyone else. After so many years, it's Wonderful to see the company's ability to generate, retain and promote talent. It's not the first time, and it's always wonderful to see that from our side. So my first question is about that.

Operator

Obviously, Isabella's question already covered most of it, but I'd like to talk about timing. Why now? We've just seen a considerable capital allocation cycle. You're buying a stake at Vale, Compass accelerated growth and Raising, so powerful. So everything is consolidated, and now we see that change.

Operator

I don't know if there's anything you can add. Hard to believe it's a coincidence. I don't know if there's anything you can add to that end. Why now? Why making such a big change now?

Operator

And to me, thinking about Louise without playing an executive role is quite curious, quite I'm intrigued. I don't know if you could talk about it from that perspective. And my second question is about results. I'd like to talk about Compass. I don't know if Nelson will be able to talk now.

Operator

Otherwise, my question is to Louise and Levy. Fantastic results, especially when it comes to marketing and services. And I think it surprised not only Us, but you as well, so much so that you've revised your guidance. So it's the Q1 where this Split has happened at this magnitude. Could you talk a little bit about the size of the opportunity?

Operator

Do you think this will happen again looking forward? And if so, why? And I think that's it. Thank you. Thank you, Thiago.

Operator

Well, I'll go straight to the timing point. We like to look at things in cycles. Many of you have talked to me in the past, and you know how I think about longevity when it comes to people and positions. There is no right time, But it certainly is too longer time because then you become unable to see new things, to question things, to do things. So End of the year is always a good time to close the results cycle to make sure the company is delivering results to start a new budget cycle.

Operator

Just to give an example, we'll have a KOSAN Leaders meeting. We'll have the top 100 leaders there. So it doesn't make any Since to make the changes in February or March when there is a much better time to do it. So I think it's the natural time to do it. We thought now was the right time, and it has to do with the fact that we've learned about how to best allocate people's time, the partners' time and so on.

Operator

I will sit at Vale's Board as well. So that takes away from COSN's CEO. It's a relevant considerable amount of time. Nelson We'll be devoting a lot of time to the controlled companies, coal controlled companies. So there are Many changes going on.

Operator

We'll be launching the marketing and services in a more structured fashion. And moving on to your second question, we know that We have established contract logistics position, sales positions, physical contracts. And yes, it is recurring. Obviously, margins and results will vary quarter to quarter depending on the market, but The possibilities are that we didn't revise the guidance this year. We knew that there was the chance of that happening, but there are uncertainties.

Operator

And as the year goes by, uncertainties become clearer. And now going into the Q4, we knew that we were going to go over the top end of the guidance. So we revised it. So the timing was a realization that now was the time people were ready. Nelson had a very important cycle in gas.

Operator

He's been in gas since 2016, end of 2015 when we had the last transition. And another important thing, people ask other groups, other companies about the transition challenge. Things have to move. Otherwise, you don't generate opportunities to people. Whether they're doing well are not in that position.

Operator

They have more to do, and we need to make sure that things move. And so that's why The group made that decision, especially with our Controller and Chairman. Timing. No, there's timing A, timing B, but we thought now was the right time, and that's why we did it now. Great.

Operator

Thank you, Luiz. Thanks. The next question is from Andre Vidal, sell side analyst from XP. Please go ahead, Andre. Hi, Louise.

Operator

Hi, Nelson. Hi, Levin. Congratulations On all the changes, the results and the guide, I think that's another stage, another step towards improving your disclosure to the market. I'd like to talk about Moov's Results, once again, great results, but we don't have a lot of detail about that business. We don't know What the details are that led to those results, to the increase in margin?

Operator

Was it driven by a specific region? Was it about synergies? Was it because of more macro results that affected the sector as a whole? Could you explain what led to these excellent results and how you're seeing the future. Now looking at 2024, Can we expect something similar to this Q3?

Operator

Or do you see any improvements taking place next year. And as a follow-up question, I'd like to hear about Compass. Next year, The terminal will go into operation and you'll have new supply to Congas. So Do you think there will be any room to keep the generic Trading volumes as you did this semester? Thanks, Andre, for your questions.

Operator

I'll start with Move. So there was a combination of many elements there. Let me take a step back. Move really set up a good management and Operation system, it's unique. It works very well across all geographies.

Operator

All plants have surpassed our goals and have grown compared to last year. Europe is the smaller region, but the U. S. Did really well, especially when it comes to Margin and Capturing Synergies and Volume. We're working hard on cleaning our portfolio, just like we did in Brazil, to remove low margin clients in adequate sectors going after quality, increasing our sales force.

Operator

It used to be quite a small sales force to make sure that we are doing the right segmentation and going after the best opportunities in terms of profit Products, more synthetic products to pursue better margins. So Brazil did really well in terms of volume and margin and Argentina as well. So again, we had the right business model With the distributors, our portfolio choices going from high volumes and low margins and concentrating our efforts and participating in semi synthetics and synthetics. And yes, you can Expect growth again in EBITDA for next year. And again, Great results across all geographies.

Operator

We are still looking at other opportunities to increase our share in the U. S, to increase scale and size in Europe. But obviously, those opportunities aren't always available. So we'll keep an eye out And we'll let you know if anything happens. About Comgas' volume, yes.

Operator

So that is recurring Result in Marketing and Services, that molecule will become more established when it comes to that model. And Yes, there is an opportunity for additional volumes. But again, that will depend on what happens in the market, price arbitration and the joint work we do with Total. Great. Thank you.

Operator

Thanks. Next question is from Gabriel Barra, sell side analyst from Citi. Please go ahead, Gabriel. Hi. Thanks for answering my question.

Operator

I'd like to reiterate the congratulations. There are many names to mention, but You've done a fantastic job. My questions are more about Compass and a couple of topics I'd like to hear more about, please. First, the Regas terminal. We're coming close to commissioning time now.

Operator

If you could update us on how that's going? How can we when can we expect the first cargoes? And what's the entry time line looking like? And about biogas also, the company has made a couple of moves on biogas, first with Aurizon, then with Sao Martinho, during the offtake for future production. So Can we expect that to be a trend?

Operator

Will Compas become a major offtaker of that biogas given its potential in that sector here in Brazil, especially when it comes to sugar and ethanol because there's a lot to be explored there. So I'd like to understand a bit more about the future of that business. And as a follow-up question about the monetization of your contract with Total. Could you explain how that monetization mechanism worked given that the Regas terminal is not in operation yet. And it looks like it's a small fraction of the whole.

Operator

So If we consider monetization calculation and looking forward to results and the EUR 12,000,000 contract you have with Total, those are my three points. Thank you. Okay. I'll start by the easiest one, which is the last one. So we took the molecule and sold it where the price was highest, given that the world has certain opportunities at certain times and being able to allocate that molecule at different times, in different geographies, for different price.

Operator

So it was just about an arbitration between the price you're buying it for according to your contract and the market price according to demand. And since all of Congas supplies is Guaranteed through contracts, it led to this opportunity. As for the biogas, it's a very promising market, very important To the distribution sector for natural gas, the same has happened to gasoline and diesel, so Ethanol and Biodiesel to guarantee the longevity and their carbon footprint, so it will do the same thing for natural gas. And Compass is exploring the different fronts, so landfill gas, sugar and ethanol gas and biogas coming from Animal Projects as well. COMET has operations in the south of Brazil, where That's happening to us.

Operator

So Compass, Comet and Comgas are major market developers, supporting producers, buyers, clients, helping to regulate the market because it's a free market. So it's important that it can develop with flexible rules so as to foster increases in production, and there's a huge potential for that. In Sao Paulo, Rio Grande do Sul, Santa Catarina, Mato Grosso do Sul, Parana, all the markets where we operate. So We see it very favorably, and that's why the team created that concept at Compass, a company that we'll be looking at this non regulated business separately so that we can focus on talent and resources. And we are concluding the Test cargo is ready to come to Brazil for the commissioning, and that should happen at the beginning of next year.

Operator

Once that's done, all the licensing processes, once the works are concluded, we'll be ready to start operations next year. Great, Luis. Very clear. Thank you. Thanks.

Operator

Next question is from Monique Grego, Salzied Analyst from Itau BBA. Please go ahead, Monique. Hi, everyone. Good afternoon. Thank you for answering my questions.

Operator

Congratulations on your new positions. I wish you success, and thank you for the Some of the parts template, it's very helpful. I have a question about Compass. Could you comment on EDGE's business model? That's the brand you've created to solidate your marketing and services activities.

Operator

What led the company to adopt that model? Why do you Think what kind of benefits do you think it will bring having a brand to consolidate those activities? And what kind of changes can we expect in the way Compass reports its results or guidance because of Edge. And a company about the holding Question about the holding company, about capital allocation. You've openly talked about your willingness to buy back shares given the discounts on share prices.

Operator

But We haven't seen any buyback records in your current program, so it would be great to hear about how you're thinking about buybacks. Thank you. Hi. Thanks, Monique, for your questions. Well, EDGE's model is The same thing we've done at Move and Raiz and Combosivos in the last few years.

Operator

So understanding the market, segmenting the market, Choosing the clients having the ability to distribute, having capacity, having a competitive product, infrastructure and the ability to source and meet the demand. That's basically it. Once things are regulated and conditions are right, then we can go to different places that don't have the infrastructure or won't have it in the next 2 years. So If you want to think about the kind of business we're doing, it's very similar to moves and raise and combustibles. The only difference is that there is no retail.

Operator

So it's a B2B business, But it does cover many different kinds of clients, small stores, large industries, A wide array of clients in a geography that isn't necessarily in places where we have regulated business, where COMET and COMES operates. So we know a lot about distribution. We have the capillarity. We now have the molecule With the terminal, the Brazilian market is opening up. There will be molecules from other producers, other suppliers, And the market is hungry for companies that can provide credit, can take risk, can select clients, Price things right and have the right profit, obviously, to provide the vast array of services we will be providing and have started to provide.

Operator

So Edge will be growing, and there are many different areas. We're very excited because It's not a very competitive market, and we can make the most of our Talents, as the business grows and we can grow edge, Then we'll have more distribution capacity. As for capital allocation, yes, we're still focusing on potential buyback. We have reduced our leveraging. The re gas program is still open, and We will execute on it when the time is right.

Operator

And considering our future commitments and considering the EBIT that was approved by the Board For buyback, we also include our total return swap amount. So you don't see any buyback, But you do see that. Next question is from Matthaus Enveldt, sell side analyst from UBS. Please go ahead, Matos. Hi.

Operator

Good afternoon, Louise and Lavin. Like everybody else, I'd like to congratulate you and wish you good luck in your new positions. In the revision process of the subsidiary assets and the holding company's stake At Vale, where are you in the process? Have you already looked at all the opportunities to raise Funds or to have a more active portfolio management? Do you think you'll be leveraging during the portfolio revision process.

Operator

And a more general question, considering the company's reach, How do you see the latest changes in regulations and legislation in the industry? The tax reform is an important point, but There's still a considerable amount of uncertainty. The gas market is developing, but there's still some regulatory obstacles. So What are your points of concern? What are you looking at more closely?

Operator

And As a follow-up question to Thiago's and Iza, the partnership's role in The management succession process and these recent changes, how do you see that? Will it bring more stability? Or will it give the group strategy more longevity? I'll answer the first question, Matheus, and then I'll turn it over to Luis. The way we analyze our portfolio is continuous.

Operator

So we are constantly assessing the portfolio both at the subsidiaries and the holding company. An example of that Are the acquired companies from Petrobras, 5 of them we have announced will be sold as part of our portfolio changes. And we will announce any other changes as they happen. I'll turn it over to Louise now. So let me talk about the regulatory issues.

Operator

Obviously, the tax reform is one step. We believe it to be a positive Same for the country. The simplification is positive. We are concerned about all the exceptions to the rule. It's important to the fuels.

Operator

Obviously, we're concerned about what was built and what's being discussed in terms of Imports via the Manaus free trade zone when it comes to fuels. And there seems to be a trend to increase taxes in general, and that obviously reduces companies' abilities to invest. But we do believe that the balance between the executive branch, the legislative and the Ministry of Finance Welcome to a conclusion that will lead to tax balance, The dollar has been helping inflation rate has been helping. So hopefully, A tax balance will bring interest rates down, but they're still around to the tax reform. As you know, Let's go back to the House for final adjustments, and then it will be submitted to the Congress approval during a joint session between the Senate and the House.

Operator

Obviously, we hope Any distortions in a democratic process will be dealt with. And hopefully, we'll have an IVA or VAT like we see in many other countries at a competitive rate. And hopefully, That will help the country to grow. And an important element is that it decreases the collection Hiatus. Up to 25% of taxes that should be paid, unpaid.

Operator

So there's a gap in the country, and hopefully, the tax reform will bring our industry and the country a reduction in that Tax gap and hopefully, the tax rate will be lower a few years from now because everybody will pay their taxes. And obviously, all the flexibility we have comes from the team working to make sure that KOSAN is successful, and KOSAN is its people. We're still learning. Our model is still evolving, but it's been proven that This model allows a group to work together without any bureaucracy, with a high degree of trust and fully focused on the group's results as opposed to individual results. Thank you.

Operator

Our next question is from Bruno Montanari, sell side analyst from Morgan Stanley. Please go ahead, Bruno. Good afternoon. Thanks for taking my questions. Congratulations, everyone, On all the changes, I have a follow-up question about Compas and a question about Vale.

Operator

At Compas, going back to The contract. There's practically no competition in the market right now, so it allows you to have great trading margins. I think that contract It's from a while back when the LNG price was at a completely different level. So do Do you think other cargoes will be able to have the same margin, not in the next few months, but thinking more about the mid to the long run, so we can think about what kind of return might be possible in that business. As for Vale, there have been 2 collar settlements, same size, 0.1%.

Operator

How has Kosen's investment in Vale been maturing? And Can we consider other settlements in the Colorize structure from now on? And will they be similar to the previous settlements? If you could give us some more color on that, that would be great. Thank you.

Operator

Thanks. First of all, Yes, there is competition. Just let's just make sure everybody is on the same page. The competition with other sources of natural gas in Brazil and abroad as well as other types of gas, diesel. It is a competitive business, but we do have the advantage of being able to look at Brazil and what's happening in the rest We have a great relationship with Total, a very relevant player in the global market, and that allows us to have a better allocation of this molecule throughout the contract as opportunities arise.

Operator

It's impossible to predict future margins, but now the company and the team are fully focused on finding the best opportunities to Allocate the molecule. I can't give you a figure, but you know that we'll always try to maximize results whilst at the same time making sure our clients are supplied and there are supply alternatives, be it through our product, 3rd party products or other terminals. To make sure that This is always growing. We need to develop the gas market in Brazil, and that will only happen through demand. There's more than enough supply considering the terminal's capacity in this country.

Operator

2nd question, yes, you're right. We've done part of our position. And Since the beginning, when Marcelo and I talked to you about this operation in October in 2022, we mentioned that The optionality was available, and we would exercise it when we thought the time was right. Obviously, The caller before October 24 means we trust we know what we're doing. So We were exposed to the share without protection downwards and obviously without the cap, which would affect our upside.

Operator

So we are increasing our trust in the long run, and that's why We did away from this part of the caller. We'll be looking at it over the next few months. We don't know how much percent will take place in a few weeks or in a few months, but we will continue to look at opportunities. If we still trust it, we'll continue to do it. Obviously, the settlement of the laws and Capital investment in that structure to make sure that we can own the share and be directly exposed to its appreciation, dividends and other resource payouts to shareholders.

Operator

Great. Thank you. We now conclude the Q and A session. I will now turn it over to Mr. Louis Enheke for his final remarks.

Operator

Before my final remarks, I'm going to turn it over to Nelson so he can say a few words So we can begin our transition and to introduce them to all of you. Over to you, Nelson. Good afternoon, everyone. It's a pleasure to be back here with you after close to 8 years being away from the earnings release conference calls. Obviously, KOSAN It's in a very different place now.

Operator

And now we are focusing on the transition. There are no changes in direction or strategy. We'll continue to focus on the safety of our people, compliance, internal processes and focusing on what we have to deliver until the end of the year. As of next year, Rodrigo and I will be here with you during our quarterly calls to continue to talk to you because it's really helpful to the success of our company. So see you in the next quarter.

Operator

Thank you, Nelson. I wish you success on your journey, and it will be a huge pleasure to go through this transition with you. So Another solid quarter, great results across the portfolio, very positive prospects For the end of the year, we'll be within our guidance, and we'll go into 2024 full steam ahead In all of our priority sectors, with all of our companies and a robust project for all of them, a highly qualified team, reenergized for the beginning of the year and very positive prospects betting on decarbonization and The comparative competitive advantages of Brazil. It's been a pleasure to be with you for the last 4 years. I'll be here with Nelson and the team in a different position, but I wish you Rodrigo and Nelson huge success.

Operator

Thank you for the partnership. Thanks, Marcelo, Rita. Thank you, Paula. She's not here during the call, but she is always with us in the work we do to take Ozan's agenda forward. Thank you to the market for your support.

Operator

Thank you for your criticism. Thank you for your suggestions, and thank you for all the conversations. I don't think we'll talk before the end of the year, so have a great end of the year. I hope all your funds, your investments and your analysis do well, and I wish you peace and happiness in 2024. Thank you.

Operator

KOSAN's Q3 2023 earnings video conference is now concluded. For further questions, please contact the Investor Relations department. Thank you so much for joining us, and have a great afternoon.

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Key Takeaways

  • Record performance: Cosan delivered stellar operational results in Q3 2023 with robust pro forma EBITDA growth and net profit gains, underpinned by its long-term strategic plan of organic growth and acquisitions.
  • Business segment strength: Raízen saw higher mobility margins and a favorable sugar cycle, Rumo reported record transported volumes and margin expansion, Compass hit a record 2.5 million gas connections and raised its EBITDA guidance after launching the EDGE marketing and services arm, while Moov and the Land segment both posted significant EBITDA increases.
  • Corporate and Vale gains: Cosan Corporate’s adjusted net income benefited from better operational cash flows and a BRL 351 million net gain from partial unwinding of collars on its Vale stake, boosting Cosan’s direct shareholding to 1.8%.
  • Stronger balance sheet: The group reduced gross and net debt, drove pro forma leverage down to 1.7× and finished Q3 with around BRL 3 billion in cash, reflecting disciplined liability management and liquidity.
  • Governance and ESG: Cosan announced a leadership transition effective January 2024 with Nelson as CEO and Rodrigo Araujo as CFO, joined the Latin American IGBV Diversity Index, and published a sum-of-parts valuation template to enhance disclosure.
A.I. generated. May contain errors.
Earnings Conference Call
Cosan Q3 2023
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