Cosan Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2023

There are 2 speakers on the call.

Operator

Good afternoon, everyone. Thank you for waiting. Welcome to Kusan's earnings release presentation for the Q2 of 2023. For those who need simultaneous interpreting, This is available on our platform. To use this service, just click on the Interpretation button through the globe icon at the bottom of your For those listening in English, you can mute the original audio that's delivered in Portuguese by clicking on mute original audio.

Operator

Please note that this presentation is being recorded It will be made available on the company's IR website at kazan.com.br, where you'll find all other resources related to this earnings release. You can also download our presentation in the chat function, including in English. During the company's presentation, all participants will be muted. Then we'll have a Q and A session. Please remember that the information included in this presentation as well as any other Statements that may be made during this call regarding COSAN's business outlook, projections and operating and financial goals are based on the beliefs and assumptions of our Board as well as on the information that is currently available to us.

Operator

Any forward looking statements are not guarantees of performance. They involve risks, uncertainty and assumptions because they entail future events and therefore depend on things that may or may not happen. Investors should understand that general economic conditions, market conditions and other operating factors may affect cozan's future performance and lead to results that are significantly different from such forward looking statements. Today, we have Mr. Luis Enrique, Mr.

Operator

Ricardo Lewin And Ms. Ana Luisa Porina with us. I will now turn it over to Mr. Ricardo Lu.

Speaker 1

Good afternoon, And welcome to Cosan's earnings conference call for the Q2 of 2023. Before I begin my presentation, I would like to emphasize that we have been continuously working to improve the disclosure and simplification of information in our material, Providing higher transparency and better analysis by the market. In this quarter, we have revamped our release to provide a deeper and more Analysis of Cosan Corporate's earnings and cash flow movements. Now regarding the main highlights, Once again, we are presenting robust operational quarterly results, driven by the strong performance of our businesses, Which we will detail going forward. The pro form a EBITDA progress is an outcome of disciplined execution of our long term strategy, Which provides a sustainable combination between organic and inorganic growth throughout our portfolio.

Speaker 1

The group's investments have advanced in line with our annual plan, focusing on efficient maintenance of the operations And on the structural projects that will ensure the next expansion cycle of our portfolio. Regarding Cosan corporate net income, The growth is expanded by the business performance on the top of the market to market of the total return swap of Cosan shares And the positive effect of the prepared notes in reals terms due to the FX variation in this quarter. As part of our liability management process to optimize our debt profile and capital structure, We successfully raised BRL4.7 billion, ensuring liquidity for the company and guaranteeing the amortization of Cosan's debts Until 2025, including the 1st installment of the COLOR financing in October 2024. Moving on to our ESG agenda. In early June, we released our 2022 Sustainability Report, which introduced the ESG Vision 2,030.

Speaker 1

Move and Raizen also published their reports, and I invite everyone to read these documents, which are available on the company's website. In this quarter, I'm proud to share some recognitions we earned. Cosan's first inclusion in the ESG Integrity Yearbook and we also were featured in the macro ranking for ESG responsibility. Last but not least, we also received the Women on Board stamp, which recognizes organizations that have at least 2 women on their Board of Directors or advisory boards. This was a very relevant milestone in our diversity, equity and inclusion journey.

Speaker 1

Now let's move on to the key financial and operational highlights of each business, starting with Raizen on Slide 4. This quarter marks the beginning of 2023, 2024 harvest year at Raizen, which despite market challenges and volatile environment, We remain focused on the expansion cycle in renewables. We achieved significant progress in the agroindustrial journey With crushing acceleration and the impact on gains in agricultural productivity during the period, as you likely followed in Raizen's conference call early today. In renewables, the decrease in adjusted EBITDA was a result of lower volumes of ethanol sold at lower prices, In line with our marketing strategy for the harvest. On the other hand, the Power business agenda significantly advanced in the quarter, scaling up and intensifying partnerships.

Speaker 1

As of E2G, our 2nd generation ethanol, we continue to set Production records at Costa Pinto plant, while expansion investments are progressing as planned with 5 plants under construction. In sugar, The higher EBITDA is a result of greater sugar pricing in a favorable cycle, which offsets the lower sales volume In line with the shipping strategy defined for the year. Moving to mobility, we remain focused on expanding our cost base. Adjusted EBITDA of the integrated platform decreased, impacted by sequestration challenges. In Brazil, Sales volume remained stable and the operation was affected by few inventory losses in a more complex environment due to the diesel oversupply.

Speaker 1

Latel Operations results were impacted by the network growth and increased volume sold, offset by challenges in restoring Profitability on the front end. Now let's move to Slide number 5, where I present Rumo. As detailed in Rumo's earnings call, We achieved a record high quarterly volume and EBITDA, driven by the expansion of transported volumes and the consolidated average tariff, Reflecting the structural competitiveness of the railways. It's worth mentioning that in addition to strong demand for the Transportation of key agricultural commodities such as soy, sugar and fertilizers, there was a sequential improvement in safety and traffic conditions in the Baixada Santista region. As for the extension project in Mato Grosso, Humu has made progress with the licensing process and is initiating the mobilization of works in a significant stretch.

Speaker 1

Now let's move to Compass on Slide number 6. We concluded the Q2 2023 with strong results in Compas, experiencing a 10% growth in EBITDA compared to the same period of the previous year. During the quarter, we distributed 13,800,000 cubic meters day, A 6% increase from the volume recorded in the Q1, primarily driven by the recovery of the Industrial segment. These results also reflect the richer mix of segments and inflationary adjustments on distribution margins As well as the integration of KOMIT in July 2022, we achieved a remarkable milestone of 94 1,000 new connections in the first half of twenty twenty three, expanding the distribution network in all geographies where we operate. As an example of this expansion, Sogales inaugurated a connection between the cities of Gramado and Canela in the Seragalucha region Just 2 weeks ago, the goal is to continue investing in the region, focusing on the expansion of hospitality and culinary sectors, New Residential Developments, Local Industries and CNG, Compressed Natural Gas Stations.

Speaker 1

In the Marketing and Services, I would like to highlight the progress of our LNG Regazification Terminal, the TRSP, Which is near completion, with operations expected to start by the end of 2023. Lastly, about portfolio management, companies announced that it will form a partnership with Horizon to create a new company to be controlled by Compass, Which will invest in a Biometan purification plant using biogas from Paulinia Landfill. This plant will have the capacity to produce 200,000 cubic meters a day, potentially reaching to 300 cubic meters a day, The largest one in the country and one of the largest in the world expected to start up in 2025. This project We will enable renewable gas offer to its customers, more complete and flexible solutions in line with the company's ESG strategy. Now let's move to Slide 7 to discuss Move.

Speaker 1

Move posted strong EBITDA growth once again this quarter, driven by volume expansion and an improved mix of products sold across all markets. It's worth to highlight the organic growth In Brazil throughout the year, we've moved, setting a new market share record, reaching 19.7% of the lubricants market. The integration process of regions, especially in the U. S, is ongoing and continues to offer promising opportunities to the business, Particularly in building and solidifying strategic partnerships with partners and suppliers. Moo has intensified investments in its operation to achieve higher levels of long term efficiency and profitability.

Speaker 1

As of June, we have completed 1 year of managing the new portfolio, presenting an EBITDA exceeding BRL 1,000,000,000 in the last 12 months. This reinforces the expertise demonstrated in business integration, the quality of continuous improvement processes Establishing operations and moves execution capacity. Moving to Slide number 8, where I present the Land segment. The Land segment reflects the Agricultural Property Management business composed of Cosan's direct participation in Radar, Telos and Genos. In this quarter, we once again saw an increase in EBITDA due to the specific appreciation of a portion of the portfolio Combined with the growth in lease revenues, which positively contributed to the results.

Speaker 1

In line with the portfolio management strategy, We completed the sale of a farm in PoE, resulting in no remaining properties in this state. Now Let's move to Slide number 9 to discuss the corporate results. As I mentioned at the beginning of the call, we have restructured the way we present Cozhan Corporate to better reflect the holding company's contribution to the portfolio. We have presented a significant improvement in adjusted net income for this quarter. In addition to the strong operational performance of the portfolio, several factors had a positive impact, including a favorable market to market of the total It's crucial to emphasize that Cosan corporate perspective is not influenced by the investment in Vale, which we will detail shortly.

Speaker 1

Let's proceed to Slide 10. Cosan Oyuito is an intermediate holding company controlled by Cosan S. A. And this is the vehicle that holds our investment in Vale as well as the derivative instruments structured as part of the protection and funding strategy. With the depreciation of Vale shares in the period, the mark to market effect in the shares held to Direct ownership of 1.5 percent was negatively impacted at BRL1.1 billion.

Speaker 1

In the stake with the collar of 3.4%, the loss of share value was mitigated by the appreciation Of the derivative, achieving the initial objective of protecting part of Cozansi stake against potential declines in Vale's share. The cost spread result was slightly negative. In other words, the net value of these three effects It's very similar to that of the direct ownership, highlighting the effectiveness of the structure. Moving to Slide 11, where I present the debt profile. In line with the P and L new perspective, We have separated the debt profile in 2 views.

Speaker 1

The first one is the Cosan corporate, Which basically includes cash and debts of the parent and offshore companies, that is bonds and debentures. And the second one is Cosan Oito, which basically reflects the financing of part of ValueShares acquisition Regarding the quarterly movements, The increase in gross debt at Cosan Corporate is primarily explained by the issuance carried out in the local and international debt markets. We issued 2 new debentures of BRL 1,000,000,000 each in addition to 2,030 bond that raised BRL 550,000,000 At a very competitive cost when considering the swap to CI. It's important to note that this was the 1st senior nurse insurance Among Brazilian high yield companies after over 1 year without activity in these markets, the rationale here was to extend our amortization schedule with liability management and balance the highest amortization towers. In this sense, nearly $250,000,000 of the bond proceeds We're used to repurchase the bond 2027 in July.

Speaker 1

That is after the end of the quarter and therefore is still not reflected in the graph We are prepared to meet our cash requirements for the next 2 years, thus being able to maximize the optionality and flexibility of our capital structure. In this context, last week and therefore a subsequent event of the result, We unwinded 20% of the first tranche of the collar financing, equivalent to BRL300 1,000,000 Our 4,500,000 shares of Valley 3, increasing our direct exposure in Valley to 1.65%, Thus, capturing a great share of earnings such as IOC and dividends. The increase In the net debt of Cosan Corporate compared to the Q1 of 2023 is due to dividend payments to Cosan shareholders, Which occurred at the end of May and to preferred shareholders of Cosanovy. At the end of the period, the group's pro form a leverage stood at 2 times We feel appropriate levels for the company. Let's now proceed to Slide 12, where I present the cash flow analysis.

Speaker 1

In order to improve the analysis of funds movement, we now present Cosan's corporate direct cash flow in this quarter in a managerial perspective. With this new form, it's possible to analyze the main cash impacts and to have a greater clarity of cash inflows and outflows at corporate level, Such as receipt of new dividends from subsidiaries, dividends payments to shareholders, funds raised from asset sales and new funding, etcetera. The managerial cash flow reflects the balance of movements of sources and uses prior to capital allocation. The main movement in this period was the raising of 3 new debts as mentioned before in addition to the 1st dividend distribution to Kusanovsky preferred shareholders. A highlight here was the inclusion in the earning release of the updated value of a potential redemption Of cosan 9 and cosan 10 preferred shares, after updating and reducing the dividend spread, the value on June 30 was 8,600,000,000.

Speaker 1

Finally, as a capital allocation decision, we had dividend payment from Cosan, as I mentioned before, And we ended the Q2 2023 with net cash generation at Cosan Corporate of around BRL 4,000,000,000. I want to emphasize to all investors and analysts that myself and my entire IR team are available to clarify Before closing, I would like to reinforce the invitation to watch our Joseon Day, which will take base on September 12. The event will be broadcasted online

Operator

Before we start the Q and A session, I would like to hand it over to Mr. Luiz Ijiqua, Guimaraes. Good afternoon, everyone. Thank you for being here for our earnings release presentation for the Q2 of 2023. Let me speak for a couple of minutes before the Q and A.

Operator

In this quarter, we had a number of highlights as Lubin was showing us. We had very robust performance from Move. We're growing. We have good performance from Compass and the Land business and the Renewable business With more productivity and the reduction in production costs compared to some of the biggest players in this market, We have already released their presentations. We've had lower costs than them.

Operator

At lowlights, We had our performance for Mobility in Brazil and the performance of Valley 3 stock. I would just like to say that as investors and shareholders at Cozum, as controllers of some of these, We have to take into account performance from different sectors and different parts of the company. We're now going to hold a Q and A session with myself, Marcelo And, Levi, thank

Speaker 1

you. We

Operator

now have our Q and A session. Please remember that to ask questions, you need to raise your hand through the button at the bottom of your screen to join the queue. When you're invited to speak, you see an invitation to turn your microphone on. Please Our first question comes from Isabella Simonato, A sell side analyst from Bank of America. Please, Ms.

Operator

Isabella Simonato, go ahead. Thank you. Can you hear me? Yes, loud and clear, Isabella. Thank you, Luis.

Operator

Hi, everyone. First, Congratulations on this earnings release and on your transparency. That's really helpful. My first question is related To dividends. I think it came as a surprise to us to see the dividends from Move in this quarter.

Operator

Moving forward, do you have any expectations regarding payouts or regarding this kind of flow from move? Are there any expectations for the total numbers for this year? Also, Comgas paid off dividends, but they are still at the early stages of Compass. Looking at the transaction that CompEx announced yesterday, what are the expectations to raise Comgas dividends to the levels of KOSAN In the Q3 or maybe even in the Q4 of 2023. Here's my second question regarding the Land Segment.

Operator

You've been able to monetize these operations, but Levin and Marcelo, could you please answer this one? Hi, Isabella. Thank you for your questions. Let me answer the one regarding payout expectations for both Move and Compass. Actually, Move didn't come as a surprise to us.

Operator

Move has been getting better and better Since its acquisition, please remember that this asset had an EBITDA of BRL 30,000,000 when we bought it. We made progress with this company. In the last quarter, We had big earnings for a move. So the last 12 months of EBITDA are over BRL1 1,000,000,000. So for us, these earnings in this payout are not a surprise.

Operator

Regarding payouts in the future, Of course, we don't have any specific guidance for that, neither for Move nor for Compass. Of course, for Compass, we have A big, big distributor of dividends, and we expect the same to happen in the future, but we don't have any guidance for its payout. Regarding the Lens segment, we hold stake in 3 big companies, Radhar and the funds, TELUS and GENUS. Overall, as the sum of it all, we hold 30% of the sum of these three businesses. We look at land as a big portfolio.

Operator

For the most mature lands, yes, we think about selling as we did in previous quarters. We sold a piece of land called Baranal, and you may remember that we talked about BRL 500,000,000. We also expect to sell and buy new land. It all depends on the level of maturity. Now when it comes to any restructuring to unlock value, I don't even think that's needed.

Operator

I think value is really clear right now. This land and this portfolio is worth over BRL 14,000,000,000, And our share is worth over BRL4 1,000,000,000. So its value is really clear. Also, when it comes to monetization, in this quarter, we sold land in the state of PLB, As we mentioned in our earnings release presentation. Very clear, Ricardo.

Operator

Thank you. Thank you, Isabella. Next, we have a question from Thiago Duarte, a sell side analyst From BTG Pactual. Please go ahead, Thiago. Thank you.

Operator

Good afternoon, Louise, Levin, Marcelo and everyone else. Here's my first question. It's striking to see your funding during this quarter and the cash position you've built recently. It is only natural for us to wonder about what this company is going to do. You have a number of options.

Operator

You have a number of triggers in a relatively short term. You have a due date Calendar for your options and for your direct stake at Valley. There's also the Cost of preferential stock and resin. Meanwhile, Last night, you also talked about a new share buyback program. So I think there was, And there still is this expectation that this company will go into the next quarter in a deleveraging cycle, Either because their investments are mature in subsidiaries or because of reducing interest rates Or because of options that you're building to allocate your very robust cash position.

Operator

So, of course, I have a very broad question, but also a very relevant question. What can we believe you're going to prioritize in the future for your cash allocation? So this is my question. And I have another one very quickly. You had an EBITDA for the cash or for actually the land operations.

Operator

How is this EBITDA connected to the appreciation of this portfolio for this specific quarter? Thank you. Levin, you're going to lead this call today. Yes, Marcelo and I are here. So let me talk about liability management, and Marcelo will be talking about capital allocation.

Operator

Thiago, this funding is very specific. You know the Kosen Group. We've always, always cherished Liquidity, especially before a volatile market, I believe we took the best advantage of our domestic market And a small window of the international market with DKK 2,000,000,000 in debentures or bonds and More from the international market. We also had the 100% swap operations of our bonds At a lower cost than usually, our swap was around 116 of the CDI rate, which we believe is a good cost for the holding. Some of this money was used for liability management for bonds For 2027, so we're talking about $100,000,000 $250,000,000 As you can see in our presentation, we were able to post Pwn, our towers for 2027,

Speaker 1

So

Operator

we were able to postpone our debt, and we're able to face our next Values that are due. We have our backlog debentures. And in 2024, we have our biggest towers. With this money in our hands, we have options. Of course, we can pay for these in 2024 And do liability management for our debt, and we can unravel the core or we can get to 2024 and actually post on this structure.

Operator

So we have these options now. Finally, please remember that some of this funding was used Recently, after we saw our earnings for a small settlement of our core, As stated in our release, so we settled 20% of the first installment of our core Due in October of 2024. So we have the option. We can make the most out of different momentums in this market to get the best return possible, and we can undo the structure that we put together to buy Veli. Let me now hand it over to Marcelo to talk about capital allocation.

Operator

Hi, Thiago. Levin talked about many of these points We did something that was important because this was interesting, as you can imagine. We had this option, and it made sense for us to undo a part of it. We're not necessarily going to keep undoing it. But in case this happens, it is very unlikely that right now, up until the due date in 2024, It's unlikely that we're going to undo more than the first share, which is around 15% of the full color.

Operator

We don't want to do more than that. And we're not necessarily even going to get to this number. Of course, when the color is in the money, It's appealing to undo it. But since we've always strived to create options Up until the point where we have more clarity on what we want to do regarding our stakes, This is going to happen gradually. So we shouldn't expect the undoing of very relevant number in these operations.

Operator

So I would say that the maximum would be the 1st installment due in 2024. Now having said that, something really relevant which draws questions Is our funding in companies from public equity? Because right now, we have a window of opportunity to take advantage of. We've clearly stated to the market based on our last meetings that we are not interested And follow on right now the IPOs for Compass or Move. We don't want to follow on, on both of these IPOs for 2023.

Operator

Of course, in 2024, anything could We could prioritize something else, but we have a capital structure in these companies that simply makes sense. We don't need more liquidity. They are generating cash. They are surprising us positively when it comes to revenue. And one of our highlights is Move.

Operator

Move is going above and beyond our expectations. They have record highs month after month. So we believe this path is very positive. We don't need an IPO this year. I want to make this clear because I don't I know there's a lot of speculation in our market regarding this topic.

Operator

Now regarding that, as Levin was saying, we're making the most out of our windows so that we can address our needs. And so that by 2025, we can have addressed everything else. So we don't need to raise any more Up until then. Hi, Thiago. This is Anna.

Operator

Let me answer your question regarding the Land EBITDA. As of last quarter, we opened our P and L for Lent in our release presentation, and you can see a line for expenditure, which was $82,000,000 in this quarter, most of it is related to our portfolio appreciation based on an EBITDA of $190,000,000 total. So can I assume that the other in other revenues is majorly coming from land appreciation? Yes, you can. Great.

Operator

Thank you, Anna. Thank you, Marcelo. And thank you, Levin. Great answers. Our next question is from Gabriel Barra, A sell side analyst from Citi.

Operator

Please go ahead, Mr. Barra. Hi, everyone. Hi, Luiz, Ricardo, Ana, Marcelo. Thank you for answering my questions.

Operator

Let me follow-up on the last question. Marcelo was mentioning the IPO of Compass. We've seen a number of questions regarding this and the possibility of seeing that this year. I remember that your hypothesis at KOSAN had to do with Making our structure simpler and making it simpler also had to do with listing these companies under the whole gene company. I understand what Marcelo is saying regarding 2023.

Operator

However, what could trigger this operation?

Speaker 1

In the

Operator

last Investor Day, we saw some food for thought regarding How to do portfolio management for the holding and the little boxes that KOSAN is participating in different businesses. We can also think about companies that might go private this year, and this could be a trigger for that. For example, we can think about Compagas. So what could trigger the IPOs? I know it's a tricky topic, but if you could talk about it, that would be great.

Operator

My second question related to Compass. It's this one. Let's talk about the progress with TRSP with the Sao Paulo regasification terminal, we've seen information about The mountain area, and we'd love an update on that. And finally, if you will allow me, Something you also mentioned in the Investor Day was partnerships. Could you please give us an update on that?

Operator

And if we think about the long term for the company, these are really important. So I'd love to hear an update. Thank you.

Speaker 1

Gabriel, Luiz Aquir, Desjardins. Thank

Operator

you, Gabriel. This is Luiz speaking. And please, Marcelo, feel free to jump in. Let me start with the second point. When it comes to the Sao Paulo regasification terminal, We're doing really well.

Operator

We're going to be operational by the end of this year. We're working on final details for these works, Especially to work on the last piece of piping, the city gate, Everything that is land related has been completed. The vessel is on route to Brazil. Everything is going well. And of course, this is one of the biggest points for any changes at the company for a potential IPO Our other potential operations, we want to make sure that the promises that we made a while ago When we didn't have the IPO, but we had the private placement are delivered.

Operator

We have the We have the commit, which is happening with the ones that are under us. We have the sales memorandum for the We expect to complete that by the end of this year or tops by the Q1 of next year, but we're pushing strongly to do it this year. And of course, we have the progress of SUGAIS, which are going really well, as Levin was saying at the beginning. So the maturation of our network and our partnership operations Mitsui in the States is really important So that we see an overall overview of our evolution and so that everything falls into place in our portfolio. Yesterday, we talked about the JV for biomethane, and this is really important for us in our product offering.

Operator

We signed a big contract with Petrobras recently for COM gas supply in the long term. We also now have more flexibility in different contract models, especially when it comes to potential clients in the free market And more flexibility in the Brazilian system, we also have biomethane coming in with more Relevant players in this field, which is Aurizon. When put together, all of this makes for a more robust offering for the future. Regarding partnerships, and this has been operational for over 2.5 years Since when we announced its expansion for the 8 partners that we have right now, And of course, we have our Founder, Controller and Chairman, which completes this partnership. Everything has been working really well, better and better by the day.

Operator

We're talking about company portfolio, capital allocation, Risks, people, management, robust pipeline, good succession at every company. So I think we've reached a good level of maturity. We're still learning, of course. There's no industrial or operating company with this model, either in Brazil or abroad. So we've been learning and we've been discussing other models of partnership so that we can learn from it.

Operator

But we're working. It works. We're operational. And as you could see in our discussions, many of our partners Are a part of the conversation, and they are responsible for different parts of the portfolio. They add to the conversation with this Organized perspective on things in order to lead to more results overall.

Operator

Let me add something to what Luis said. Regarding the funding of potential acquisitions, we don't need to have specific funding for this. Please remember that the leveraging for CompX is closer to this. So we could Make these acquisitions with our own funds. We're moving forward with our plans, but any potential acquisitions will be funded with our own resources.

Operator

Regarding the IPO, both for Compass and Move, it's important to say that these companies have shareholders Which are not Kosen, and of course, they are interested in leaving at some point. So yes, we want to hold an IPO for these businesses, But there's no urgency, and we don't need to do it without optimizing our valuation when we go to market. As for Compass, as Luis said really well, we have the Sao Paulo reclassification terminal. In 2022, when we didn't hold an IPO, we talked about this point. And this is the only one which hasn't been completed yet.

Operator

And we want to complete everything before we have an IPO. This is very significant for us. Regarding Move, Around a year ago, we acquired Petro Choice. We also believe it is important to deliver things and to show how much we can grow outside of Brazil Before we hold an IPO, they are doing really well. These deliveries look promising.

Operator

And after that, we can think about an IPO so that we can give An option for our shareholders to leave. There is no urgency. We're not worried about the window of opportunity right now, but we're Keeping an eye on the maximum valuation possible, we want to deliver on everything we promised, and we want to have good performance. And Marcelo, we've been educating the market on these two businesses with more and more disclosure for you. So we're going to tackle these companies as if they were listed so that you can see their results better and better with more complete information because they are becoming more relevant in our portfolios.

Operator

Wonderful, everyone. Thank you and congratulations on this presentation. Thank you, Gabriel. Next, we have a question from Mr. Luis Carvalho, a sell Side analyst from UBS.

Operator

Please go ahead, Mr. Carvalho. Hi, everyone. Thank you for answering my questions. I'm happy to see a few changes in your board too regarding the last elections.

Operator

Luis, let me piggyback on the question regarding Vale.

Speaker 1

You're a

Operator

member of their board. And recently, we saw news regarding a potential change in the CEO position. Could you please give us an update, not regarding mining necessarily, but regarding the company and any changes that we may expect? It's been a while since Coza joined. So what do you think about the business?

Operator

What do you think about the opportunities you have there? In around 6 to 8 months ago, I asked A question regarding your time allocation and your priorities. Given the complexity and the number of projects You have going on right now in your pipeline. So could you please talk about that? Piggybacking on what Levin said, how do you look into Move in this sense?

Operator

Because Move Has EBITDA above EUR 1,000,000,000? What Could we follow-up on from up close? What kind of opportunity could we expect? Regarding Vale, of course, I need to be brief. And as a board member, I must ask you that any questions regarding That company's performance should be asked to that company.

Operator

I face restrictions as a board member. Now what I can say is that we have a board that is working really well together. We had good elections. We didn't have Multiple votes. We saw many national and international shareholders on the same page, And this is working really well through the Nominating and Governance Committee with Benito, who is still on the Board And who did excellent work with the previous board to choose the current board.

Operator

So what I can tell you is that I'm a witness to how well this Another highlight is how important it is to segregate base metals. We're doing something structured and focused with specific goals. We have specific talents, values And cultures that are compatible with the challenges that we have ahead of us. And this frees up time for the team To focus on iron ore, should they be experts on that? And for the team who is an expert On other things, to also focus on other metals.

Operator

We have an Executive Chairman, Marco Tufani, with a lot of experience That's good for base metals. And we have 2 very important shareholders, Beef at 10%, Which is a very strategic partner, given the importance of the Middle East As a potential hub to build solutions for low carbon mining and AgenOne as well. This is a shareholder who is a leader in the energy transition in ESG. Many operations with the which really goes to validate our efforts as a company in the past few years for ESG, sustainability and to improving our relationships with communities. They are reviewing dams.

Operator

They are working on decommissioning projects, etcetera, etcetera. So in my opinion, these are the biggest highlights for this period. And I apologize for not going into more details, but You should forward your other questions to their Investor Relations and to Bartolomeo, their lead independent director, too. They have put together a very good governance in the past few years. They structured it really well.

Operator

They want to be faster. They want to be able to support everyone to deliver results. Regarding time allocation, we made a few important changes. We welcomed Leo Pontes Around 1.5 years ago, with the KOSAN Holding, he's working with myself, Marcelo, Levin, Paula helping us with people and culture. And we also have Maria Rita.

Operator

So this enabled us to split these efforts among ourselves to make sure we allocate enough time for each of these projects. I've been investing around 30% of my time to Valley. I've also been dedicating a lot of time to Raizen because we have big challenges for With a more integrated downstream, and we have Tel, La Croisi and Musa. As you were saying, we also have a big opportunity with Move and their agenda. We need to consolidate our operations in the U.

Operator

S. We see something very robust, very good progress, very high quality. Over time, we need consolidation in Europe as well, which is our next endeavor as we are able to absorb Petro Choice. We can also think about small regional acquisitions that add to our portfolio. Very soon, we'll be calling this Move USA.

Operator

So PetroChoice will be erased as a brand And Move will also become our branch in the U. S. The Pax and Mobile relationship is still evolving. It's more solid than ever. Very good things happening in the U.

Operator

S, in Europe and in Latin America. So we want the right opportunity to expand into Europe And to continue this beautiful growth by move, as we're saying, we have over BRL 1,000,000,000 in EBITDA.

Speaker 1

Let

Operator

me follow-up on what you said about move. You're thinking about Expanding regionally, does it make sense to go public abroad and not in We're doing research, Luis, to see our options. And of course, we're going to go public wherever we can attract the right investors. Move is very specific. I have a background in lubricants.

Operator

I worked a long time in lubricants for Shell. And right now, I don't know about any company in the world that has built what Move has built. So we're going to look at it dearly to choose the right place and the right circumstances for its IPO because we want to attract Specific investors for it. We have incredible cash generation, low need for recurring CapEx In a very high performance team with high quality brands, either proprietary brands Or through our operations with Axon Mobile, we're getting to Growth market, mixed market and very good profitability as well. So we can put together an expansion in our market share, our quality and our profit share.

Operator

We're expanding our total value and our cash conversion very efficiently. When we look at Move's earnings

Speaker 1

To

Operator

the end of the year, we only have to work on liability management for the recent acquisition basically. The rest of the company is balanced With a very robust cash position, and we're deleveraging after last year's acquisition basically. Would you like to add anything? No, thank you. Wonderful, thanks.

Operator

Thank you, Luis. Next, we have a question from Lucas Ferreira, a sell side analyst from JPMorgan. Mr. Ferrer, please go ahead. Hi, everyone.

Operator

I have a follow-up question regarding Compass. Do you have a minimum stake with which you'd be comfortable with for a future IPO? 30% for Rumo. Do you have anything similar to that? Also, at Compas, you have a very important shareholder, Mitsui.

Operator

Would you be comfortable with liquidity through Kosen Or through future purchasing at Compass, would you be able to increase your stake at the distributors? Regarding capital allocation,

Speaker 1

you just

Operator

talked about the share buyback program. How comfortable are you with capital allocation? Should we have capital allocation in the group's assets? Are you comfortable with the buybacks? What do you think about this whole thing?

Operator

And regarding capital allocation, finally, regarding Vale, Lubis was talking about the company. And in the past, They decided not to add the 1.6% to the results. That may have been strategic, but do you have any economic opportunities right now where Vale is at? Are you happy with your stake at the board? Why not at the 1.6%, which Once a possibility at the beginning.

Operator

Thank you. Let me start and then I will hand it over to Marcelo. First, let me make something clear. Mitsui is not a shareholder at Compass, it is a shareholder at Commit. Regarding a micro stake at companies like CompEx And Compass and Move, we will always have controlling rights, so over 50%.

Operator

We'd love to have a Larger share of Rumo right now. You know their history. We only have 30%. We'd love to have More for Rumo because it's a company that performs really well with a very robust horizon. Regarding Mitsui, we don't have anything at the table right now or on the table, so we can't speculate on that.

Operator

Regarding our stake for Veli, we're comfortable with 4.9%. It gives us a very comfortable position when it comes to exposure and derivatives. So we repeated the same thing we've said in previous earnings release presentations. We won't be increasing our stake right now. We think this is the responsible thing to do when it comes to exposure, our total debt and our capital allocation.

Operator

Marcelo, would you like to talk about the buyback program and capital allocation? Yes, of course. Lucas, regarding the buyback program, as we were saying before, yes, We intend on doing the buyback program. The right timing for it depends on a few things, but it could happen quickly. This is something we're going to determine soon.

Operator

But yes, we intend on doing it. Regarding Vale, we look at this operation according to 3 layers. We have 1.5 available to us Right now, and after undoing some of the color, we went to 1.6. We have 3.3 from the color and then 1.6. So it doesn't make sense for us to use the option to buy the 1.6% before solving the 3.3%.

Operator

So this is at the end of our line of our queue. We're going to get to it after working on the 3.3 In addition to 1.6, so this is not in our list of priorities. And we could maybe not complete it and just undo it, But it is an option after we tackle the 3.3. Okay. Thank you, everyone.

Operator

Our next question comes from Regis Cardoso, a Southside analyst from Credit Suisse. Mr. Cardoso, please go ahead. Thank you. Good afternoon, Luiz, Marcelo and Levin.

Operator

Let me echo my colleagues and thank you for your disclosure in the earnings release presentation On how much the recovery of these holdings would be worth? This is really useful information, so I'd like to echo their things. Let me touch upon a few things. Number 1, when interest rates went up, especially the CDI rate, We saw changes in the group. We saw a behavior that was more related to cash preservation and maybe De accelerating some investment plans because, of course, the debt burden became bigger.

Operator

So on this note, since we're seeing changes in interest rates, I would like to pick your brain on that. Does it have any impact on how this company is going to Have a different pacing on capital allocation?

Speaker 1

Compass.

Operator

Now more specifically, I have a question regarding Compass, more specifically, COMMIT. You've been exposed to different regulating models on natural gas in different states. So here's my question. Do you have good examples Of different options or different regulatory models that draw your attention? Do you have A best practice role model that could be replicated?

Operator

Is there a state where you feel more comfortable allocating more

Speaker 1

Cash?

Operator

Finally, if you will allow me, This is a question maybe for Luis, maybe for Marcelo. It's up to you. I remember that you invested in Vale. And at That time, you had a hypothesis on how to unlock value. 1 of the hypothesis was Basic metals, which hasn't come true.

Operator

So overall, I'd like to ask you About your investment hypothesis at the time and how it has changed up to now? Thank you. Thank you, Regis. Let me answer the first question, Marcelo will answer the second one. We have shareholders being represented by them, and I represent the Board.

Operator

When it comes The interest rate cycle. We are actually focused on actually executing our projects right now. So for Rumoh, We want to raise funds for each step. We want to work on better loads. We want to optimize things.

Operator

And of course, we want to increase profitability and the competitiveness of Rumo Going into Mato Grosso, meanwhile, as Beto has been saying, we, of course, will Once you look at bottleneck opportunities in Centos because we have higher volumes getting to Centos, and we need to process it properly. We have the terminal, and we have other improvements, and we have other opportunities we're looking into. So we don't have any other opportunities. The same thing for Commit and Compax. We can think about the acceleration of the expansion of operating models for these new companies.

Operator

Now regarding our second question, Regis. We're comfortable with different regulations, different regulatory bodies and different Renting authorities in different states. Of course, these legislations, these rules have their pros and cons And we have different levels of maturity in different states. Sometimes we have low levels of maturity.

Speaker 1

We see

Operator

that we need more base structure investments. In other states, we need to accelerate expansions. Of course, In Sao Paulo, we have a high level of maturity. For our next step, we need to understand how biomethane It's going to be added to the trading scenario. We also have negotiations with different The regulations for that, but as an industry, not only with distribution, but also with transportation and production, we need to create the right scenarios so that we can make for free clients.

Operator

We're comfortable investing in these states because we believe We have the right maturity and the right stance from regulators and granting authorities. They understand the nature of this business In this stage and where we're at regarding the cycle, in the future, natural gas could be a Key component for competitiveness in the power grid for each one of these states.

Speaker 1

In the

Operator

case of Move, we need to continue expanding into the U. S. We have a few opportunities with biotons, and of course, we could work with Europe. With Raizen, we need to complete our investments in E2G. They are transformational when it comes to cash generation and better earnings When it comes to renewables and better performance for mobility in Brazil, for the Lens segment, We need better portfolio turnover where it makes sense, and we need to keep on improving our opportunities with irrigation, where we're going to increase the value of land, Increased yield for our clients and therefore, improve lease prices.

Operator

We want to get better at that, and we want to look for new opportunities in lateral opportunities as well, including carbon credits. And with Vale, as he was saying, we need to continue our operations and we need to work on how to continue or undo the structures we have right now depending on the progress we see. However, our mindset It's that whenever possible, we need to drive this to deleverage our company. So even with Interest rates going down, we're not going to stop investing. You know our investments.

Operator

You know what we've planned for, for the next Few years for each one of these companies. Now let me hand it over to Marcelo, and he'll be talking about Vale. Hi, Regis. Regarding Vale, We believe this investment of the PIF in base metals was really positive. We believe the valuation was interesting.

Operator

We were happy with these results. We expect this to be good business, But it was even better than what we had anticipated. This is a valuation that should reinforce Our significant numbers for Vale, and there is no reason for us to be where we're at right now, so we expect some impact here. Our hypothesis is still being confirmed, but we haven't reached a decision. Our first results with base metals is really, really satisfactory, not only having investors for that, but also a separate governance.

Operator

When you have someone from this industry with a strong background, this also leverages a lot of value for the company looking forward. But we haven't reached a decision on our stake regarding Vale. And A quick reminder of the color mechanism. Every time we think we have enough gains to undo the color And when we think it makes sense to convert this stake in a share stake or An actual stake at the company, not a collar stake, we can do it. But that doesn't mean that we're going to keep this stake over time.

Operator

It's important to make this clear. A collar is a combination of derivatives and options. When you undo it, You have a stake at the company, which you could keep at the price that you have booked. You can undo it by immediately selling it or you can sell it in the future. So we decided to undo the color because it's really Appealing.

Operator

We are going to have significant gains, and that's it. But I don't want to give you any indication Either way, for Vale at the moment, I just reinforce that we're happy with what we're seeing right now, especially Operationally and strategically speaking, we're monitoring other factors before we make any further decisions regarding our stake in the future. And Marcelo, we're also keeping our 4.9% stake with the option for the future. Yes, exactly. This is the end of our Q and A.

Operator

Now let me hand it back over to Mr. Luis Enriquez for his closing remarks. I would like to thank everyone for the high quality questions and discussion. I believe it is important to Trust that we're focused on the execution of the specific plans for each one of these companies, and we've delved into them in detail. We're trying to optimize our capital structure.

Operator

We're looking at opportunities to generate value and to work on deleveraging our company. We're focusing a lot on reversing our results for mobility in Brazil. Of course, we also expect Valley to keep on going up with shares that show better performance.

Speaker 1

At the

Operator

end of the day, we're Focusing on execution, focusing on the areas we believe are promising and focusing on maintaining capital discipline. As Regis was saying, we want to make the most out of these low interest, but without increasing our exposure to new investments, Thank you, and we'll see you at our Investors Day in September. We're looking forward to continuing this conversation with you and with other Shareholders and partners at Cosan to talk about our opportunities and our challenges and to get your input. Thank you very much, and have a wonderful afternoon. This is the end of our earnings release presentation for the Q2 of 2023 at KOSAN.

Operator

Our Investor Relations area is available to you should you have any further questions. Thank you very much, and enjoy your evening.

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Key Takeaways

  • Cosan delivered robust pro forma EBITDA growth, driven by disciplined execution of its long-term strategy and a sustainable mix of organic and inorganic expansion across the portfolio.
  • The group raised BRL 4.7 billion through local and international debt issuances, optimizing its capital structure to secure liquidity through 2025 and extend amortization, including early settlement of the first Coller tranche.
  • Cosan advanced its ESG agenda by releasing the 2022 Sustainability Report with the ESG Vision 2030, earning its first inclusion in the ESG Integrity Yearbook, improving macro ESG rankings, and receiving the Women on Board diversity stamp.
  • Business unit highlights: Raízen set new 2G ethanol production records and benefited from higher sugar prices; Rumo posted record volumes and EBITDA while progressing the Mato Grosso extension; Compass grew EBITDA by 10%, nears start-up of its SP LNG terminal and formed a biometan JV; Move surpassed BRL 1 billion EBITDA with a 19.7% market share; the Land segment saw higher EBITDA from portfolio appreciation and a farm sale.
  • Cosan Corporate net income was bolstered by strong subsidiary performance, mark-to-market gains on its total return swap and FX effects, resulting in approximately BRL 4 billion of net cash generation in Q2.
A.I. generated. May contain errors.
Earnings Conference Call
Cosan Q2 2023
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