Cosan Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 29, 2024

There are 3 speakers on the call.

Operator

Good morning, everyone. Thank you for waiting, and welcome to KOSAN's First Quarter Earnings Release Video Conference Call. Simultaneous translation will be available during the session by clicking on the Interpretation button at the bottom of the screen and choosing your preferred language, Portuguese or English. Those listening to the video conference in English, you have the option to mute the original audio in Portuguese by clicking on mute original audio. The video The video conference is being recorded and will be available on the company's IR website at kozan dotcom.br.

Operator

You can also download the presentation through the chat icon, also in English. During the company's presentation, all participants will be on a listen only mode. The question and answer session will start after the presentation. Please note that the information contained in this presentation and in the statements that may be made during the conference 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. Forward looking considerations are not a guarantee of performance.

Operator

They involve risks, uncertainties and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Investors should know that overall economic conditions, market conditions and other factors may affect cosign's future performance and lead to results that differ materially from those expressed in such forward looking statements. I will now turn it over to Mr. Rodrigo Araucio.

Speaker 1

Good morning, everyone. Welcome to our earnings call for the Q1 of 2024. I'm Rodrigo Ravou, CFO of Cozan. And I'm here to go over the main highlights of the quarter and some details in terms of strategy and management priorities. So starting with our priorities for the year, as we've been constantly reinforcing, we were highly focused on discipline in capital allocation being of course mindful of our leverage at the Holdco level and the OpCos and also with the interest the high interest rate environment that makes our capital allocation decisions and discipline even more important.

Speaker 1

So we're focused on liability management and portfolio recycling throughout the portfolio. We've been of course highly focused on execution in our portfolio to make sure that we maintain our track record in terms of execution. We deliver what's been promised in terms of the different guidances and plans of the operating companies. Of course, making sure that we're always enjoying benefits of the talent pipeline of high quality people that we have and maintaining continuously high safety standards in the group. And finally, we're focused also on supporting and making sure that we execute the contracted growth that's coming from the operational companies.

Speaker 1

So the structural projects of Lucas the 2nd generation ethanol plants in Raizen and natural gas regasification terminal in Compas, for example. So going through our highlights of the Q1 of 2024, our EBITDA under management finished in BRL7.1 billion in the quarter. The difference when we compare to the Q1 of 2023 is mainly related to tax credits that were recognized in Raizen in the Q1 of 20 3 and were not recognized in the Q1 of 2024. In terms of net income, we had the negative result of BRL192 million compared to Q1 of 2023 that was negative in BRL904 million. Mainly the differences are the tax liabilities that we recognized in the Q1 of 2023 and also this was partially offset by the results of equity pickup, the negative equity pickup from Raizen in the Q1 of 2024 and the negative impact the mark to market of our TRIS in the Q1 of 'twenty four.

Speaker 1

In terms of safety, our results in the Q1 of 2024 are pretty well aligned with the acceptable limits that we have, even though it's slightly worse than 23. Fortunately, we had no fatality in this first part. We continue to be highly focused on maintaining a very high safety standards and improving our results focused on 0 fatalities and 0 accidents. In terms of dividends and interest on capital received, it's pretty well aligned with the Q1 of 2023. Our net debt, BRL22.7 billion, pretty aligned with the 4th quarter as well.

Speaker 1

And finally, in terms of interest coverage, that is, of course, a metric that, as you guys know, we've been following closer since the Q4 of 2023. We evolved from one time to 1.1 times for the last 12 months, so focused on improving our interest coverage in terms of sustainability of our leverage at the hold core level. Looking at the overall figures for the portfolio, in Humu, we increased transported volumes and had an important increase in the average tariff. We are also advancing in our project of Lucas Bujavir to connect Mato Grosso in the North of the Midwest of Brazil. In Compas, we had an increase in industrial consumption that was partially offset by the higher temperatures that reduced the residential consumption of natural gas.

Speaker 1

We had a negative mix impact given the fact that we had higher industrial volumes and lower residential volumes. We also had the positive impact coming from Edge, the company of marketing and services that we started up in the Q4 of 2023. And we also had the conclusion of our regas terminal in Santos in Brazil. Move had stable volumes of lubricant sales, but substantially higher EBITDA with much healthier margins, continuing its schedule and agenda to improve performance over time. In Hadar, our land business, the recurring EBITDA was pretty aligned with the Q1 of last year with respect to the leases of the agricultural properties in the portfolio.

Speaker 1

And the fair market value of our properties was R16.3 billion dollars annually we reassess the fair market value and this was done in the Q4 of 'twenty three and Khozan's stake is around R5 1,000,000,000. In Raizen, we had record sugarcane crushing levels, couple of years are showing important results in terms of recovering productivity in the sugarcane. We also had healthier margins in the fuel distribution segment in mobility and also higher sugar prices. They were offset by lower partially offset by lower ethanol prices. When we compare to the Q1 of 'twenty three, we had the negative impacts of tax credits that were recognized in the Q1 of 'twenty three and were not recognized in 'twenty four and also of lower ethanol prices.

Speaker 1

Finally, with respect to Vale, this was the Q1 that we consolidated the results, the equity pickup of Vale's results. We have also concluded the unwinding of our collar financing structure by the end of April. So we finished during the quarter the unwinding of part of the collar. And then in April, we sold around 0.78 percent of our stake in Vale, mainly focused on reducing the leverage at the holdco. So reducing the gross debt at the holdco level.

Speaker 1

So we concluded the unwinding of the entire structure and we also in May unwound the 1st tranche of the call spread, the forward synthetic forward structure that we had around 0.25% of optionality in terms of additional Vale stake. So overall, if you look at the figures in May, we have 4.15% of direct stake and 1.43 percent of the synthetic forward the call spread that we still maintain as an optionality. So looking at the EBITDA under management, the overall figures, as I mentioned before, the main changes here are the better results in Humu from higher margins and higher volumes and the negative results from the lack of recognition of tax credits in the Q1 of 2024 in Raizen

Operator

and the

Speaker 1

lower ethanol prices that were offset by sugar prices and volume. So we're getting to BRL 7,100,000,000 of EBITDA under management. Looking at our debt profile, as I mentioned, if you look at the green figures in the Q1 of 2024 and then April, we concluded the unwinding of the color structure that is pointed there as COS ANOITO and finishing the gross debt of R23.8 billion dollars in April. Looking at the net debt to EBITDA, the pro form a adjusted when we include the fair market value of Vale's share, it's pretty aligned with the 4th quarter. So coming down from 1.8 times to 1.7 times, the overall cost of our debt CDI plus 1.54%.

Speaker 1

In terms of the amortization profile, if you look at the figures in the lower part of the slide, we increased the average the duration of the portfolio from 5.8 years to 6.5, doing liability management and improving the profile. So basically, we substantially reduced the amortizations between 2024 and 2027 to better navigate the CapEx cycle in the portfolio. And finally, looking at the cash flows in the period, we received BRL911 million in dividends. So debt payments of BRL3.8 billion, we issued a bond in January 24, BRL3 1,000,000,000. So after interest and other expenses, we come down to an end balance of BRL2.6 billion.

Speaker 1

So we used part of the company's cash to reduce the overall gross debt. So those are the main highlights for the Q1 of 2024. Thank you for joining us today and let's move on to our Q and A session. Thank you.

Operator

We will now begin the Q and A session with Mr. Rodrigo Araujo and Mrs. Ana Luisa Perina. To ask questions, please click on raise hand at the bottom of the screen to join the queue. So our first question is from Luiz Carvalho, sell side UBS.

Operator

Luiz, you can now unmute your mic and go ahead. Hello, good morning. Thank you, Rodrigo. Thank you, Anna, for taking my two questions. Rodrigo, could you give us a bit more detail about your leveraging?

Operator

Have you got a leveraging target in terms of debt coverage? Or if I can rephrase my question, As of which point will you be looking at capital allocation or investments or accelerating dividends, buyback and still along the same lines. Would it make sense for Vale to wait for an additional reduction given the influence that you already have there with a member of the board? How do you see that? And my second question is about regulatory issues at the Holdco level.

Operator

KOSAN, OPKO's have some ongoing discussions about the concession regulations, the authorization for the regas terminal, the Subida da Terra, also surrounding Vale, renewing the tariffs at Congas. How do you see all these conversations? I know that this is essentially down to the companies, but how are you seeing all of those discussions at the Holdco level? Thank you. Hello, Louise.

Operator

Good morning and thank you for your questions. So I'll start with leveraging. Our set target, we don't really have a set target, but to be healthy is about 1.5 to 2 times the interest coverage. So that would allow us to cover the debt service while keeping the Holdco's commitment and our current dividend payout level with organic deleveraging over time. So we don't really have set time to get to that.

Operator

We do have levers we can pull to get to that coverage level. But that's what we consider to be healthy, as I said during the last conference call. The first tranche,

Speaker 1

which we'll do in November 24th,

Operator

we believe the data

Speaker 1

of the auction going against

Speaker 2

kind of scenario very well.

Operator

And what we

Speaker 2

did recently,

Speaker 1

now that he

Operator

has joined us, we have made our can gain increasingly more. Thank you for your questions. Very clear. The next question is from Thank you. Good morning, Rodrigo.

Operator

To do it. So what is the most relevant source of dividends to ramp up this de leveraging process. Are there any opportunities that are similar to what you're doing at the Holdco level at any of these hot coals that will allow them to be a major dividend payer so that this process can be accelerated? We need to make sure

Speaker 2

that the construction projects

Speaker 1

are in place.

Operator

What we

Speaker 2

have been discussing and

Operator

Based on the numbers, you'll

Speaker 1

more robust. You've seen that. And now we're going to

Operator

have And now we're going to have

Speaker 2

And what we're always also

Speaker 1

seeing that we're fostering And that comes

Operator

from the current scenario. Thank you, Isabella. Thank you, Rodrigo. Could I ask a follow-up question about Raizen? Or is it too then we will always consider them.

Operator

Very clear. Thank you very much. Next question is from Gabriel, Bara, Southside, Citi. We will now unmute you. Gabriel, please go ahead.

Operator

Rodrigo, hi Anna. Good morning. Thank you for answering my questions. I have a couple of follow-up questions. The first one additional adjustments?

Operator

Or are you comfortable

Speaker 1

with the

Operator

current situation? 2nd follow-up question is about listing. You mentioned move maybe in 20 64, Compass a little bit further down the line. I think Move's thesis has been working very well. You've had some company's current capital structure, could you consider capital allocation here or are you really deleveraging and thinking about adjusting capital structures or

Speaker 2

We have a lot to do in our portfolio. Major CapEx We have been moving forward. We have increased that.

Operator

So we have a lot to do. The state of Sao Paulo. So we

Speaker 1

have been making contributions

Operator

to that process, but I don't see any opportunities in the company's capital structure for any additional allocation. Thank you for your questions. Thank you, Rodrigo. Very clear. Next question is from Regis Cardoso, Hi, Anna.

Operator

Thank you for taking my questions. A couple of different subjects I'd like to touch on, please. First is Vale. Rodrigo, carryover costs at Valley, with your cost spread position right now, ultimately, do you think you could have just a financial settlement? But anyway, if you could say about the specific financial instruments

Speaker 1

has it

Operator

been materializing or not?

Speaker 2

The subject I'd like to touch on is

Operator

ability to pay and the conviction about the investment flows at the OpCos to service the hold costs. Thank you. Thank you, Regis. Thanks for the question. To give you an overview, the results we expect for the company.

Operator

Considering last year, Looking forward, I

Speaker 1

think, the company is going

Operator

and the strategies to make sure that that agenda

Speaker 1

is open. That will happen

Operator

this year. But we will be monitoring In broad terms,

Speaker 1

we're very happy with our portfolio. As I said earlier, I think

Operator

to that. Thank you for your questions. Thank you, Rodrigo. Can I ask another follow-up question, please? And considering the portfolio mix, where do you see goes on The next question is from Vicente Falendero Salside, Bradesco BBI.

Operator

We will now unmute you, Vicente. We didn't have a mark to market effect this quarter. So looking at the company's net income, it was about 126,000,000

Speaker 1

euros So

Operator

we're talking about 13%. Is this the metric we should be looking at? And if

Speaker 2

so, there seems to be

Operator

still good returns even in this high interest rate scenario. What would be

Speaker 2

the cash yield

Operator

that would accelerate selling land. And about move, could you give us some more detail about the strategy behind the margin

Speaker 2

exposure, considering the strong results? But there's also been

Operator

consider about working capital consumption. Are there 2 things related? And if not, is it seasonal? Can we expect that those things will be reverted this year? Over.

Speaker 1

So that's the strategy of the home. We have

Operator

a very clear increasing. Considering And the holding company. To management. Part of view, what has been using up management all getting

Speaker 2

organized and healthy, navigate the cycle.

Speaker 1

So that's it in broad terms.

Operator

And obviously, also takes

Speaker 2

time. Of management. So that's it.

Operator

Thank you, Bruno, for your questions. Ask your question. Please go ahead. Things in your answers to the many different things. So let me try and put the pieces together and come to a conclusion.

Operator

Do you think that to a 1.5 to 2 coverage

Speaker 2

level,

Operator

the guidance or as a level that you're comfortable with? To pay out. Do you think that organically speaking Assessing your stake and the dividend flows that you need to do. If nothing else is done, structurally speaking, you will be able to get level. And if so, when will you reach?

Operator

So that's the first part of my question. In a recent past, I think just before you joined the group. Portfolio recycling. To what point are you considering that in addition to these

Speaker 2

trivial moves such as the IPO, a

Operator

couple of companies, Some of the businesses

Speaker 2

are exposed to commodity cycles, so that needs to

Operator

be taken into consideration.

Speaker 2

So we don't have a set target in

Operator

terms of timing, but it is a combination

Speaker 2

Think about what we can do and do well simultaneously,

Speaker 1

but in a mutual macro

Operator

scenario. That's it. Thank you for your questions. Thank you. This concludes the Q

Speaker 2

Thanks, everyone, for joining us

Speaker 1

on this earnings release call.

Operator

Thank you for the questions,

Speaker 1

myself, Anna and the whole team. Financial team at Fazen

Operator

Thanks and see you next quarter.

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Key Takeaways

  • Management reinforced a focus on disciplined capital allocation, prioritizing liability management, portfolio recycling and maintaining high safety and execution standards across its OpCos.
  • Q1 2024 delivered EBITDA under management of BRL 7.1 billion and a narrowed net loss of BRL 192 million, largely reflecting the non-recurrence of Raízen tax credits and TRIS mark-to-market effects.
  • Net debt remained stable at BRL 22.7 billion, interest coverage improved to 1.1x and the company extended average debt maturity to 6.5 years with a cost of debt of CDI + 1.54%.
  • Across businesses, Humu saw higher volumes and tariffs, Compás completed its Santos regas terminal despite a residential dip, Move achieved stronger lubricant margins, and Raízen posted record sugarcane crushing with robust sugar and fuel distribution results.
  • Kozan finalized the unwinding of its Vale collar and call-spread structure, sold 0.78% of its stake to delever, and now holds 4.15% direct and 1.43% synthetic exposure.
A.I. generated. May contain errors.
Earnings Conference Call
Cosan Q1 2024
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