Ultrapar Participações Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 2 speakers on the call.

Operator

Welcome to Ultrapar's Q1 'twenty four results conference call. There is also simultaneous webcast that may be accessed through Ultrapar's website atri.ultra.com.br and through MZiQ platform. The presentation will be conducted by Mr. Rodrigo Pezzinato, Ultrapar's Chief Financial and Investor Relations Officer. And in the Q and A session, we will also have Mr.

Operator

Marcus Lutz, Ultrapar's Par's CEO and the CEO of the businesses, Mr. Tapajari Bertelle Mr. Desio Amaral and Mr. Leonardo Linden. We would like to inform you that this event is being recorded, and all participants will be in listen only mode during the company's presentation.

Operator

After Ultrapar's remarks are completed, there will be a Q and A session. At that time, further instructions will be given. We would like to remind you that questions will be answered through the Q and A session and may be posted in advance in the webcast. A replay of this call will be available for 7 days. Before proceeding, let me mention that forward looking statements are being made under Safe Harbor of the Securities Litigation Reform Act of 1996.

Operator

Forward looking statements are based on the beliefs and assumptions of Ultrapar Management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ultrapar and could cause results to differ materially from those expressed in such forward looking statements. Now I would like to turn it over to Mr. Rodrigo Pecinato, who is going to start our call.

Operator

Mr. Pecinato, you have the floor.

Speaker 1

Good morning, everyone. It is a pleasure to be here once more to talk about Ultrapar's results. And on Slide 2, I want to highlight that both the earnings release and this presentation consider Ultrapar's data from continuing operations in 2023 2024. With the conclusion of the sales of OXUSTENO and ExtraPharma throughout 2022, Ultrapar's consolidated data since has no longer included the results of these two companies. And moving now to Slide 3.

Speaker 1

As you can see in the chart in the upper left side, our recurring EBITDA totaled BRL 1,000,000,000 306,000,000 in the Q1 of 2024, 28 percent higher than that of the Q1 of 2020 3. This increase is due to the higher EBITDA of the 3 main businesses, especially Ipiranga, results that I will detail in the next slides. Ultrapar's net income was BRL 455 1,000,000, 66 percent higher year over year due to the EBITDA growth I've just mentioned and the lower net financial expenses. Investments totaled BRL438 million in the Q1 of 2024, an increase of 20% year over year, mainly as a result of greater investments at Ultracargo. We had an operating cash consumption of BRL 573,000,000 in the Q1 of 2020, BRL 138,000,000 lower than the consumption we had in the Q1 last year, mainly reflecting the higher EBITDA of the businesses and the increase of BRL 260 5,000,000 in draft discount operations in this Q1.

Speaker 1

These effects were attenuated by higher working capital at Ipiranga. Moving now to Slide 4 to talk about our liability management. We ended the first quarter with a net debt of BRL 7,800,000,000, an increase of BRL 1,700,000,000 in relation to December 23. This increase is mainly a consequence of the payment of dividends in March this year and the investment in working capital. We have a seasonal calendar effect in the Q1, as you can see in the chart, resulting from the bank holiday at the end of the year.

Speaker 1

Added to this, Ipiranga recorded a higher level of working capital in the 1st month of 2024, with the effect on prices of tax increases, higher inventories and lower supplies due to the reduction in imports, which have longer payment terms. Our leverage went from 1.1x in December 2023 to 1.3x in March 24 due to the higher net debt that I've just mentioned, attenuated by higher EBITDA in the last 12 months. I'd like to point out that the numbers of net debt for the first quarter of 2024 still do not include pending receivables of BRL 964 million related to the sales of Oxiteno and Extra Farm. As you can also see in the table at the bottom of this slide, the net debt in March 24, added to the draft discount, vendor and pending receivables of Oxiteno Extra Pharma is R8.4 billion dollars which is approximately R900000000 dollars lower than the balance of the same period last year. And moving now to the next slide, Slide number 5, talk about another good quarter for Ultragaz.

Speaker 1

The volume of LPG sold in the Q1 was 4% lower year over year due to the 6% reduction in the bottled segment on the back of lower market demand and a more competitive environment after the pass through of tax increases in some segments. The bulk segment remained stable with its growth offset by lower sales to condominiums. Ultragaz's G and A in the Q1 of 2024 was 1% lower than that of the Q1 of 2023 due to initiatives to increase operational efficiency and lower expenses with sales commissions, partially offset by higher personnel expenses, mainly resulting from collective bargaining agreements. Ultragaz EBITDA totaled BRL 401,000,000 in the quarter, 4% above that of the Q1 last year. This growth is explained by initiatives to increase efficiency and productivity implemented in the last quarters by better sales mix and by inflation pass through despite lower sales volume.

Speaker 1

And for the Q2, we expect Ultracargo to continue its good operating performance with EBITDA similar to that of the Q1 despite seasonally stronger volumes. Moving now to Slide 6 to talk about another great result of Ultracargo. The company's average stall capacity was 1,067,000 cubic meters in the Q1 of 2024, a growth of 12% over the Q1 of 2023, due to the capacity additions coming from Opla, Vila do Conde and Hondonopolis terminals throughout the second half of last year. These capacity additions still had a small impact on this quarter's results and should begin to gradually contribute to the upcoming months as operations ramp up. The cubic meter sales grew 21% year over year, mainly due to greater handling of fuels in Santos, Villa do Conde and Aratumo and a startup of operations in Nopla and Hondonopolis.

Speaker 1

Tracargo's net revenues were BRL263 1,000,000 in the Q1 of 'twenty four, 11% higher than that of the Q1 of 'twenty three as a result of the higher cubic meters sold and spot sales. Combined, costs and expenses were 8% above that of the Q1 of 2023 as a consequence of higher personnel expenses, legal advisory with contractual renewal and depreciation, in line with the capacity additions. Ultracargo's EBITDA totaled BRL 165,000,000 in the quarter, a 16% growth year over year due to greater capacity occupancy with profitability gains due to spot sales and productivity and efficiency gains despite higher expenses. EBITDA margin was 63% in this quarter, 3 percentage points above that of the Q1 of 2023. And for the Q2, we expect Ultracargo to continue its good results, with EBITDA levels close to those seen in the last quarters.

Speaker 1

And to conclude this presentation, moving on to Slide 7, let's talk about Ipiranga's results. First, I'd like to draw your attention to a change we made in our report. Abastesa Eci, which since the beginning of 2020 had been reported with the results of the holding company and other companies, is again consolidated into Ipiranga's results. To allow comparability between test periods, We added the results of Abastesa into Ipiranga's for 2023 as well. And on Page 3 of the earnings release, we have detailed the composition of these adjustments to allow a complete understanding.

Speaker 1

About the results, the volumes sold by Ipiranga in the Q1 grew by 2% over the Q1 of 2023, with a 7% growth in the auto cycle, driven by greater share of ethanol in the product mix, partially offset by a 3% decrease in diesel. We ended the Q1 with a network of 5,881 service stations, 4 more than in December 23. A total of 55 service stations were added to the network and 51 were closed during the quarter. Furthermore, we ended the quarter with 1532 AMPM stores with same store sales growth of 6% in the Q1. Ipiranga's SG and A increased by 5% over the Q1 of 2023 due to higher personnel expenses, mainly increased headcount and collective bargaining agreement, in provisions for doubtful accounts.

Speaker 1

These effects were partially offset by lower expenses with contingencies provisions. The other operating results line totaled a negative BRL165 1,000,000 in the quarter, a worsening of BRL26 1,000,000 year over year as a result of higher costs with carbon tax credits. The line of our results from the disposal of assets totaled positive BRL 36,000,000, resulting from the sale of 8 real estate assets. Ipiranga's EBITDA totaled BRL 819,000,000 in the quarter. Recurring EBITDA totaled BRL 783,000,000 48 percent higher year over year.

Speaker 1

The higher EBITDA reflects better margins, mainly due to commercial environment normalization and inventory gains in the Q1 of 2024, despite three negative effects: the higher level of inventories in the sector due to distribution companies positioning for the planned tax increases in the 1st month of the year due to tax distortions with emphasis on the AMAPA tax benefit, which was revoked last April and irregularities in the biodiesel mixture, which had a share increase from 10% to 14% in the mix in the last 12 months. And for the 2nd quarter, we do not anticipate significant inventory gains. On the other hand, we expect the normalization of the inventory levels in the sector and the reduction of the effect of tax distortions in Amapan. Therefore, we expect a profitability similar to that of the Q1. And with that, I now conclude my presentation, and I appreciate your interest and attention.

Speaker 1

And let's now move on to the Q and A session to answer your questions. Thank you.

Operator

We're going to start now the question and answer session for investors and analysts. The first question comes from Monique Grego, Itau BBA. Ms. Grego, please? Hello.

Operator

Good morning. Hello, everyone. Thank you very much for the opportunity to ask a question. And I have two questions. The first one concerns Ipiranga.

Operator

In the webcast of the previous quarter, you indicated that you expected Ipiranga to reach margins aligned with the recurring margins of 2023, but the results were below what was expected. Cisento has just highlighted that it was a quarter with higher inventory levels and competition due to irregularities and tax discrepancies. But despite these reasons,

Speaker 1

to

Operator

what extent do you think that the limited opportunities of trading may also have contributed to results below what was expected? The second question is the following. Could you please share with us I know it's early, but could you please share us more about the impact of everything that's happening with the floods in the south of Brazil, especially with Ipiranga and Ultragaz? And what kind of impact are you anticipating for upcoming months because of the floods in the south of Brazil? Thank you.

Operator

Hi, Monica. This is Lindon speaking. Let me tell you about the whole quarter. Arbitration started in January at breakeven levels, and gradually, it was closing. It was somewhat close by the end.

Operator

But at the same time, despite it, the diesel market had a excess supply for two reasons. 1st, because there was a perspective of gaining inventory with all the difference in taxes in January February. So everyone increased their inventory levels for a quarter that normally as part of the season is slower or is slower. And in the Q1, there was the adversity, which was widely discussed, which was the special regimen at AMAPA, which meant BRL 9.30 per square meter loss. That was inventory levels adjustment.

Operator

It was expected, but not a MAPA, MAPA. We didn't expect that tax discrepancies to be present, and it has

Speaker 1

impacted our margin forecast.

Operator

Because ultimately, we had forecast. Because ultimately, we had to really support and be able to compete. That impact on the tax exemption impacted our stations. Very important stations have lost volume and margins. So to preserve businesses, especially our own contracts with service stations, we've brought down our margins maintaining volume levels.

Operator

And that was the right decision in my opinion because if you analyze the Q1 over the Q1 2024, we can see a volume gain of 2% and very little impact in terms of market share. Therefore, it was a strategy to maintain our business. Now concerning opportunities of trading gain, I wouldn't say we have anything there. It's an important means to us. It has helped us And we are going to carry on with the same strategy, with the same beliefs about how trading can help us in our businesses.

Operator

Now concerning the South of Brazil. The material impact over Ipiranga is not relevant, but this is not a material discussion about relevance. I would like to emphasize that normally we have a high participation. I would like to say that Ipiranga, that's where Rio Grande do Sul is where Ipiranga started. Ipiranga is fully involved in the process of providing support to the population from the region, making donation, fuel, water, food, being part of some rescue activities.

Operator

Today, we've set up a new logistic to support physicians to take them to Rio Grande do Sul, carry medications and other extremely needed foods. We are also working with NGO, San Citadania, and everyone is invited to make a donation and then Ipiranga matches what is donated by the population. There is a link in Ipiranga's Instagram in my own personal account. Just click and I know I can count on everyone's collaboration. The state needs help.

Operator

And the sooner they can resume their lives, their activities in the state, the better to everyone. And this is what we should all focus on. The next question comes from Luiz Carvalho, UBS. Hello. Thank you very much for taking my question.

Operator

I have two quick questions. First to Lutz, we've been emphasizing that strategy of capital allocation of the company. You've had a very good turnaround in the main businesses of the company. And maybe now you can give us some more details about the recently acquisition of asset at HydroVillas Brazil, part of the interest of HydroVillas Brazil. So tell us what you expect in terms of synergy, return on investment?

Operator

What are the main metrics that should be considered when trying to understand the investment in HydroVieux? I would like to hear more about other opportunities as well. The deal of HydroVieux does not impact the leverage of the company and you have a very comfortable indebtedness level. Secondly, concerning Ultragaz, we've seen a recovery of the whole industry, especially with privatization of leaky gas. But speaking with other players in the area, we've seen some reduction of prices.

Operator

You've said that the ROIC of new entrants would be lower and limiting interested parts. I would like to understand, how are you understanding that ROIC dynamics for Autogas? Is it the same level as we've been observing? Or do you expect it to be reduced? Thank you.

Operator

Concerning Hydrovias, we've been as part of the process of increasing our shares, getting to a maximum of 40%. The asset has a number of market opportunities in our opinion. There is a synergy of knowledge, which is very relevant for Ipiranga, for Ultracargo. The North Region transportation the North region transportation is very relevant and the area will probably increase really using that crop and off crop period in Mato Grosso. So we think the investment has been very positive.

Operator

As I've told you before, I don't Hydrovis has a model where they grow in scale and operationally, and I believe we can help a lot. As it's a publicly traded company, I don't think it's on us to make any comments. They would make comments when the right time comes. Let me now hand it over to Tabarara to make the comments about Ultragaz. Thank you for the question.

Operator

In our opinion, we've maintained the strategy, still operating in the segments that we've prioritized, working on operational efficiency. The market has a number of cycles. We want to be closer to our clients, developing our network of resellers. We are expanding our network of resellers. There are situations going on in the market, as you pointed out.

Operator

But I think that we are on the right track, focusing on customers and relationships with the network. And we can see strengthening of commercial relationship and expansion of that in upcoming years. This is the best strategy to us. Great. Thank you.

Operator

If I can go back, Lutz, in this level of leverage, do you expect to mature the investment of EduVillas? Or are you already open for other opportunities concerning your level of leverage of the company? We want to expect and develop further the investment of Eduvias, but we are also open to other opportunities. Thank you. The next question comes from Gabriel Barra, Citi.

Operator

Thank you for taking my questions. There are 2 important points, which are follow ups to some extent of the previous questions. First about Ultragaz, we've seen lower volumes in bottled operations. And based on what Pisenato has said about the dynamic for the next quarter, maybe there are going to be higher volumes with stable results. That would be in line and similar to the previous quarter.

Operator

So I'd like to understand in the mid and long term, are there any initiatives that will get more matured throughout the years? What can we expect in terms of volume and margins looking ahead in recent conference calls? And Tabo Jarrah has said that maybe we shouldn't expect such high margins as we've had in previous years. But what can we anticipate for 2025, 26? Now thinking about Ipiranga and going back to the first question we had today, I recall Pisenato talking about the margins in the end of February, thinking about margins aligned with the average of the year.

Operator

But the negative impact was all concentrated in March, a month where there was not that much visibility. And this is why I decided to ask you. Amapa was one of the main detractors of margins in the quarter. And there was just most of the month of April has also been another effect until finally the injunction was passed in the court. So can you tell us something about the margins in the beginning of this next quarter?

Operator

How are you doing with that? I think the dynamics now is much better than what used to be in the past. But what can you anticipate in terms of short term and also midterm? Thank you. This is Tambajara speaking.

Operator

Based on what I've said before, we have the same strategic view. We have long term initiatives. You mentioned 1, capturing financial efficiency. We've met exactly what we have planned, But there is still room every single quarter to expand further. In terms of profitability, we can see a gradual improvement.

Operator

But in upcoming years, we believe we can go deeper and build something else in the long term. There is huge potential for the company in our opinion. You are right. March was the worst month, says Linden. There was an impact in January February, but things got worse in March.

Operator

And yes, it invaded the month of April until that special tax regimen was revoked. We expect now a natural recovery once it's over. The next question comes from Vicente Falanga, Bradesco. Hello, good morning. Thank you for taking my question.

Operator

I would like to insist once again on Ultragaz market. You've mentioned in the release that the competitive environment is somewhat tougher. Is there anything that concerns you? Has there been some players acting not very rationally? Have you lost market share?

Operator

And if yes, how are you planning to recover that? Is it only price? Are you going to do anything else? This is the topic that I would like to hear more from. And finally, about ethanol, which is part now of the tax reform.

Operator

It's going to go into effect as of 2027. Do you believe that it can be anticipated to some extent? Because this is a mechanism that have been considered for a while and it would be somewhat simple to implement. Let me start with Ultragaz, especially about the quarter. In our opinion, it was a competitive quarter.

Operator

There were some problems of taxes that has led to price increases in the market. We see increased competitiveness, especially in the bottled segment. And we still maintain our strategy of strengthening and protecting our network. We are expanding our network of resellers, having a stronger network, and we want to really expand it to be more and more competitive. And also a progression in operational efficiency.

Operator

If we have a strong position in the bottled area and expanded network, we can keep on competing at good level. The last point about that monophase tax understanding. It has proved to be very effective, improving tax rate, improving competition and everything. Now the industry is considering that it makes sense and just expand that to hydrated ethanol. And that makes sense.

Operator

Vol players, the government, manufacturers, distributors, everyone. What I can tell you is that there are some discussions of possibly anticipating that having a unified system for the whole process. In feel there is a difference at what level the taxes are collected. If it's at the consumption level or at the consumption point. These are just technical issues.

Operator

But as it's part of the tax reform, it's going to go into effect anyway. It does make sense to possibly anticipate that. We believe that's going to happen. The next question comes from Bruno Montanari of Morgan Stanley. 1st, level of inventory, especially for diesel.

Operator

Until the end of the quarter, do you expect to have inventory levels within your expected range and then be able to really compare things like Rauber. We've been hearing from different players about the importance of agribusiness and Ultrapar was one of the first players to focus on this industry. In your opinion, where can you really get differentiated concerning Agro Business and other business? How can you really stand out and set apart? What are the strengths that can really provide you an opportunity to really surf the wave expressly and successfully?

Operator

Thank you. Well, Bruno, the inventory levels are going down. Compared to the peak, there has been a decrease towards what would be a normal level. And yes, we believe that by the end of the quarter, these levels will be within the normal range. In a macro perspective, everyone says that agribusiness is more resilient.

Operator

It goes through economic crisis. It does not depend on domestic GDP. Agribusiness is top. Our investments in HydroVias, of course, means we want to have stronger links with agribusiness, but all companies have some strategies focused to all industries, but also with agribusiness. Ultracargo of going into field and terminals in the countryside area.

Operator

Saving provision of LLL, which is an Ibiranga company that provides really services to agribusiness, which has developed great customers and created very good relationships with large operators in the Central West. And Ultragaz has done a number of works in grain drying and others, bringing efficiency, low cost in regions that are historically involved with agribusiness. There is no silver bullet there, of course. Well, I can simply do it and everything will become just a company focused on agribusiness. No, of course not.

Operator

I wouldn't say there is not one single sentence to sum up our strategy. Thank you, Lutz and Linden, thank you for your answers. The next question is by Leonardo Marcondes, Bank of America. Hello, good morning. Thank you for taking my question.

Operator

The first question concerns Ipiranga margins, and I apologize, Lindon. But the margins of the second quarter will be similar to those of the Q1. Did I get that right? But it will be a healthier landscape, so to speak, right? Because of the revocation of the special regimen in Amapa and because of the market at large.

Operator

Can you tell us a bit more about that? Have you seen any other factors pressing down margins in the quarter? The second question concern your branded units. The your operation strategy ended in the end of last year. So how are you thinking about these new branded stations?

Operator

Do you expect it to be about 5,900 stations? Or would you like to get any higher share in this area? Well, yes, we expect to have similar margins in the second quarter because there is no gaining inventory. Even by improving the environment, there is not going to be the benefit that we expected in terms of tax. In terms of our branded stations, this is the strategy we've been sharing with you.

Operator

We keep on investing. We keep on doing business very selectively, and we are maintaining our plan. The sales we had to do are completed. Now it's just regular turnover of businesses. We'll keep on investing.

Operator

But nothing really abnormal, just fine. The next question comes from Regis Cardoso, XP. Hello. Good morning, everyone. Thank you very much for taking my questions.

Operator

Congrats on your efforts to help the people in the floods in the flooded area of Rio Grande to do so and also for your investments in HydroVillas. I'd like to ask about the echo story of Hipuranga going from the short term and looking ahead to a 5 year perspective. What do you think will be this? Sorry, will it there will be an expansion of profitability turnaround? Do you expect to grow volumes or have a diversification?

Operator

I would like to hear that from you. In the investments of Edrovia, there is a level of exposure to Agribusiness. Does it make sense for Ultrapar to consider additional assets in this area, expand its position to vegetable oils or grains, anything outside oil and gas? Thank you. Well, Regis, our story has been consistently told throughout the years, Working focused on the 4 pillars, which are essential to our business, it's not a turnaround story anymore because it has already done.

Operator

Now it's continuous improvement. The 4 pillars are going to keep on being emphasized so that we can gain in operational excellence or operating excellence. I'm not going to repeat what I've said in our calls, in UltraDay. So I think, yes, we are gaining operating efficiency based on the plan that you are all familiar with. Concerning exposure and other positions beyond oil and gas, we've been, what, considering maybe more than a dozen targets in the last 12 months.

Operator

Ultracargo going into solid bulk for grains, for fertilizer, for supply does make sense. A good strategy has to be designed in advance, but actions have to match the opportunities. Good morning. I'm speaking too far away from the microphone. Indeed.

Operator

We are not looking we do not want to only grow. We want to generate value. This is always going to be in our radar. So that's what we want. Good.

Operator

Thank you. The next question comes from Rodrigo Ameda, Santander. I'd like to go back to the topic of investment and capital and hear more about a piece of news saying that you were thinking about gas production and ultra gas that was not really excluded from your strategy. What can we anticipate looking ahead? And also, with your acquisition of Hydrovias and thinking about others, leverage is within controlled levels.

Operator

So what can we expect for shareholders? Yes, more dividends, but do you have any opinion about buying back? Do you discuss it internally? It also helps us. Let me answer the question about Ultragaz.

Operator

Our strategic path is what we've designed before. We've been trying to identify other synergies. We are just thinking about commercial relationship, using our brand and capillarity to bring more complete solutions to our customers and constantly looking for additional opportunities. For Ultragaz, we are paying very close attention and designing our strategy. Good morning, Rodrigo.

Operator

This is Pisenato speaking. Just to talk about dividends, We believe that our comfort level of leverage is 1, 1.5 times. And based on that, we can think whether there are projects that would make sense to maintain resources. If not, resources in cash. If not, we would share dividends.

Operator

That's it. Just a follow-up. Do you have any defined opinion about buying back shares? In Brazil, there is no tax benefit of purchasing buyback rather than sharing dividend. We prefer to share dividends and then our shareholders decide if they want to buy back or if they simply want to invest the dividend anywhere else.

Operator

As there are no further questions, I would like to hand it back to Rodrigo Pecinato for his closing remarks. Well, thank you all very much for your questions, for your attention once again, and see you in the next quarter. Questions which were not answered will be later answered to you through our Investor Relations Officer. Thank you. Our conference call is closed now.

Operator

Thank you all very much. Have a great day. Thank you.

Powered by Quartr

Key Takeaways

  • Ultrapar’s Q1 2024 recurring EBITDA totalled BRL 1.306 bn (+28% YoY) and net income reached BRL 455 m (+66% YoY) thanks to stronger performance at Ipiranga, Ultracargo and Ultragaz and lower net financial costs.
  • Ultragaz Q1 EBITDA rose 4% to BRL 401 m despite a 4% volume drop, driven by efficiency gains and price pass-through; Ultracargo delivered 16% EBITDA growth to BRL 165 m on 12% capacity expansion and 21% sales increase; Ipiranga recorded recurring EBITDA of BRL 783 m (+48% YoY) on margin recovery and inventory gains.
  • Net debt stood at BRL 7.8 bn at end-March (1.3x leverage), up BRL 1.7 bn since December due to dividend payments and working capital build-up but remains within the company’s 1.0–1.5x comfort range.
  • For Q2, management expects stable EBITDA at Ultracargo and Ultragaz and similar profitability at Ipiranga, although no further significant inventory gains are anticipated.
  • Ipiranga’s margins were pressured by tax distortions in Amapá and a higher biodiesel blend, leading to competitive pricing adjustments to defend volumes in a challenging market.
AI Generated. May Contain Errors.
Earnings Conference Call
Ultrapar Participações Q1 2024
00:00 / 00:00