Ultrapar Participações S.A. (NYSE:UGP) Q3 2023 Earnings Call Transcript

Ultrapar Participações S.A. (NYSE:UGP) Q3 2023 Earnings Call Transcript November 10, 2023

Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Ultrapar’s Quarter 3 2023 Earnings Conference Call. There is also a simultaneous webcast that may be accessed on Ultrapar’s website at ri.ultra.com.br and MZiQ platform. The presentation will be conducted by Mr. Rodrigo Pizzinatto, Ultrapar’s Chief Financial Officer and Investor Relations Officer. And then for Q&A session, we’ll have also have the presence of Mr. Marcos Lutz, Ultrapar’s CEO and the CEOs of the respective businesses, Mr. Tabajara Bertelli, Mr. Décio Amaral and 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.

After Ultrapar’s remarks, we will open the floor for questions and at that time, further instructions will be given. [Operator Instructions] We remind you that questions, which will be answered during the Q&A session, may be posted in advance in the webcast. And a replay of this call will also be available for seven days. Before proceeding, let me mention that forward-looking statements made during this conference call under the safe harbor of the Securities Litigation Reform Act of 1996 are based on the beliefs and assumptions of Ultrapar management and on information currently available to the company. They forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions because they relate to future events, and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry related conditions and other operating factors could also affect the future results of Ultrapar and could lead to results that differ materially from those expressed in such forward-looking statements. Now, I’d like to turn the conference over to Mr. Rodrigo Pizzinatto. Mr. Pizzinatto, you may proceed.

Rodrigo Pizzinatto: Good morning everyone. It is a pleasure to be here once more to talk about Ultrapar’s results. And starting on slide number two, I remind you that both the earnings release in this presentation consider Ultrapar’s data from continuing operations in 2023. As for 2022, the company’s data is presented in the pro forma view, considering the sum of continuing and discontinued operations, as disclosed throughout last year unless otherwise stated. Moving now to slide number three with Ultrapar’s consolidated results. As you can see in the chart in the upper left side, our recurring EBITDA from continuing operations totaled BRL1992 million in the third quarter of 2023, 124% higher year-over-year. This increase is due to the higher EBITDA at our businesses, especially Ipiranga results that I will go through in detail in the next slides.

Ultrapar’s net income was BRL891 million in the third quarter compared to BRL83 million in the third quarter of ’22, mainly on the back of the higher EBITDA from continuing operations. Investments from continuing operations totaled BRL380 million in this third quarter, 27% lower than that of the third quarter of ’22, due to lower investments at Ipiranga partially offset by higher investments at Ultracargo. We had in the third quarter an operating cash generation of BRL1901 million, BRL609 million above that of the third quarter of ’22. This increase is a result of the higher EBITDA, partially offset by the reduction in draft discount balance and the investment in working capital in the third quarter of ’23 and arising from the increase in fuel prices.

I remind you that in the third quarter of ’22, on the other hand, there was a release of working capital as a consequence of the reduction in fuel prices in that period. If we exclude the reduction of BRL294 million in the draft discount balance, the operating cash generation in this third quarter was BRL2195 million. Moving now to slide four to talk about our liability management. We ended the third quarter with a net debt of BRL7.1 billion, a reduction of BRL924 million compared to June ’23. This decrease resulted from greater operating cash generation, partially offset by the payment of dividends and the reduction of BRL 294 million in the direct discount balance this quarter. In addition to this effect during the third quarter, we received the second installment from the sale of Extrafarma in the amount of BRL 198 million and we disbursed BRL 210 million for the acquisition of Opla.

Our leverage went from 2.1x in June 2023 to 1.4x in September 2023, the lowest level of the last 10 years. On the back of the higher LTM EBITDA from continuing operations with cash generation and consequently the reduction in net debt that I’ve just mentioned. I’d like to point out that the numbers of net debt still do not include pending receivables of BRL 932 million related to the sales of Oxiteno and Extrafarma. We’ve included at the bottom of this slide, a table with the total amount of draft discount and vendor lines as well as pending receivables from the sales of Oxiteno and Extrafarma all lines highlighted in our balance sheet. The net debt of September 2023 adding the draft discount vendor and divestment receivables would be BRL 7.7 billion, which is BRL 1746 million lower than the balance of September 2022 one year ago.

Moving on to Slide number 5 to talk about another excellent quarter of Ultragaz. The volume of LPG sold in this third quarter was 1% higher year-over-year, due to a 4% increase in the bulk segment on the back of higher sales to industries. The bottled segment in its turn remained flat. Ultragaz SG&A in this third quarter was 15% higher than that of the third quarter of 2022, due to two manufacturers expenses with freight due to higher sales volume and higher expenses with personnel, mainly collected by gaining agreement in variable compensation in line with the progression of results and a larger headcount due to the acquisitions of Stella and NEOgas. Ultragaz EBITDA totaled BRL 453 million, 36% higher year-over-year. This growth is mainly explained by efficiency and productivity initiatives implemented in the last quarters, by better sales mix and by inflation pass-through despite higher expenses.

For the fourth quarter, we expect a profitability measured in EBITDA per ton similar to that of the third quarter despite seasonally lower volumes. Moving now to Slide 6 to talk about another great quarter of Ultracargo. The company’s average installed capacity was 10,59,000 cubic meters in the third quarter of 2023 and a 11% growth year-over-year. This increase results from three capacity additions carried out in recent months 90,000 cubic meters coming from the acquisition of the 50% stake in Opla as of July 12,000 cubic meters from the acquisition of the Rondonopolis base from Ipiranga in September and 10,000 cubic meters relating to the expansion of the Vila do Conde terminal. These capacity additions had no material impact in this quarter’s results and should begin to gradually contribute to the upcoming months as operations ramp up.

The cubic meters sold increased by 26% mainly due to higher handling of use in Itaqui in Santos and in Suape and the start up of operations in Opla. Truck cargo’s net revenues were BRL 264 million in this third quarter, 18% higher year-over-year as a result of spot sales, higher cubic meters sold and higher tariffs. Combined cost and expenses were 8% higher than those of the third quarter of 2022, as a result of higher personnel expenses mainly collective bargaining agreement in variable compensation in line with the progression of results. We also had higher expenses with advisory and consulting services linked to expansion projects. Truck cargo’s EBITDA totaled BRL 173 million in the quarter, a growth of 27% year-over-year due to higher capacity occupancy with profitability gains, spot sales, higher tariffs and productivity and efficiency gains despite higher expenses.

EBITDA margin was 65% in this quarter, five percentage points above that of the third quarter of 2022. And for the current quarter, we expect Ultracargo to continue its good operating performance, but with fewer spot sales marginally reducing its results. And to conclude this presentation moving on to slide 7 let’s talk about Ipiranga’s result. Volumes sold in the quarter decreased 2% year-over-year with a 3% reduction in the Otto cycle and a 1% reduction in diesel mainly due to the strategy of lower sales to the spot market during this period. We ended the third quarter with a network of 5,816 service stations, 565 stations less than that of June 2023. In September, we concluded the process of managing the legacy of service stations started in 2022.

A total of 70 new service stations were added to the network with an average volume contribution of 288 cubic meters per month. On the other hand, 535 service stations were closed with an average volume contribution of 57 cubic meters per month. The greater number of stations closed this quarter relates to the decision to also close service stations with commercial practices not aligned with business principles and in this agreement with contractual obligations. This increased level of closure of stations did not have a relevant impact on Ipiranga’s market share or results. In addition, we ended the quarter with 1,542 Am/Pm stores with same-store sales growth of 9% year-over-year. Ipiranga’s SG&A increased 27% in the quarter due to four main factors: higher provisions for contingencies, higher provision for doubtful accounts, higher marketing expenses and higher personnel expenses mainly collective bargaining agreement in variable compensation in line with the progression of results.

The other operating results line totaled negative BRL178 million in the quarter in line with the third quarter of 2022. The disposal of assets line totaled BRL68 million mainly due to the capital gain related to the sale of the Rondonopolis base to Ultracargo in the amount of BRL59 million and the sale of three real estate assets. Ipiranga’s EBITDA totaled BRL1513 million in the quarter, 184% higher than that of the third quarter of 2022. Recurring EBITDA was BRL1,445 million in the quarter 199% higher year-over-year. The higher EBITDA mainly reflects two factors: first, margins benefited from the inventory gains caused by the increase in fuel costs throughout the quarter. I remind you that in the third quarter of 2022, we had reductions in fuel costs and inventory loss.

The second factor was the normalization of the commercial environment in the third quarter of 23% due to a more regular product supply in the market which affected the second quarter results. These two factors were partially offset by higher expenses. As you may have noted, the fuel distribution sector has had more volatile results in recent quarters. Therefore, we also highlighted on the slide the EBITDA per cubic meter of the last 12 months helping to provide a better perspective of the results over time. In addition, to the normalization of product supply the third quarter result benefited from inventory gains. For the fourth quarter considering the current scenario of product supply and no significant impact of inventories, we expect a profitability measured in EBITDA per cubic meter above that of the last 12 months and continued recovery of the return levels of the industry.

With that, I now conclude my presentation. I appreciate your interest and attention. And let’s now move on to the Q&A session in which we are available to answer your questions. Thank you.

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Q&A Session

Operator: Ladies and gentlemen, we will now open the floor for questions. [Operator Instructions] The first question comes from Monique Greco, Itau BBA.

Monique Greco: Hello, everyone. Good morning. Can you hear me?

Marcos Lutz: Yes. Good morning, Monique.

Monique Greco: Good morning. Thank you for your presentation. Congratulations on your strong results. I have two questions on my side. Let me start from the end of your presentation, Pizzinatto. You talked about the dynamics expected in terms of margin for quarter four in Ipiranga. Can you please share with us a little bit more about what you are feeling in terms of the competitive dynamics in quarter four? We saw that in the first half of the year this competitive dynamics was very late with a products imported from Russia. So, can you please share with us what you see for the dynamics — the diesel dynamics in quarter four? And also we have been talking a lot about diesel and the Otto cycle dropped in the background. So, we also like to hear from you what the dynamics look like for the Otto cycle.

And — my question to Lutz is that in Ultra Day, you talked a lot about the opportunities [indiscernible] with a strong focus on agri business and also energy transition. So, can you please talk more about this [indiscernible] opportunities in this sector? What are the main criteria that you consider when you’re looking at these opportunities? Thank you

Leonardo Linden: Hello Monique. This is Linden. On your first question was about competitive dynamics. Of course this is a never competitive market. And in quarter four, we are seeing a more balanced situation in terms of supply and demand, which balances out the market. But we have to look at this market as a movie and not a snapshot. What we saw in quarter three was indeed a favorable scenario for our business, but we cannot forget that we were coming from a quarter one, which was very poor in terms of — we had some major inventory losses with a high supply of diesel as you said yourself. And this scenario started to change in quarter three and then we had some inventory gains and better market conditions. And in quarter four, I’d say this is more balanced.

But it is a transition quarter because we are also starting to see some parity opening up, we start to see a higher appetite for imports. So, I think we will have a transitional quarter in quarter four. But as you heard in Rodrigo’s explanation, we are looking at quarter four with — potentially with higher margins than what we saw in the past 12 months. And just an additional comment Monique in the first half we had an excess of products in the market. And retail fuel is no different from our industry so you have excess product that will negatively impact your margins which is what we and what we had in quarter three and that should remain in quarter four is this return to normal levels normal stock levels in the industry and that allows our margin to return to the levels expected.

So, now I’d like to hand the conference over to Marcos.

Marcos Lutz: Hello Monique. Good morning. So, let’s start by the criteria which I think is the most important point in your question. We will have to have huge discipline looking at the risk/return ratio of our projects. As we said, we want to be more exposed business. We want to grow more in these regions in our three areas of business; Ultracargo, Ultragaz, and Ipiranga are making all the efforts to expand their operations in these markets. And we are considering multiple projects and companies that have a higher exposure to these markets. And the main criterion here is the return on investment, of course, combined with the risks of this investment. So, these are more mature projects that give us slightly lower return but have also lower risk, are very attractive, and less mature projects have higher risk and that has to be justified.

And also about risk/return, it is important to note that even with the current return levels, the risk/return ratio of field distribution project in Brazil is not yet appropriate. We have a volatility level that we think is here to stay in this segment. And this would warrant a high — requirement for a higher return from these projects today. We see for example, that the price in Brazil is higher than the international price. So this increases the entrance of products, so we should have an inventory loss because we should see a price reduction in Brazil shortly in the future, because it doesn’t make sense to have a price which is not higher than the international price. So, we will see this volatility taking place. It’s what I said about seeing it as a movie versus a snapshot.

We need to bring more focus on in the past 12 months and not just the past quarter to evaluate whether we are going in the right direction or not.

Monique Greco: Perfect. Thank you.

Operator: The next question comes from Leonardo Marcondes, Bank of America.

Leonardo Marcondes: Good morning. Thank you for taking my question. I have two questions about Ipiranga. My first question is about the service stations. Can you please recap what are the effects that we can expect in Ipiranga after you finish this project with Ultragaz? And also what can you expect from the company in terms of the future or your brand strategy for the future. And also I have a question about Ipiranga’s business — Ipiranga’s margins. You already mentioned what you expect for quarter four. But looking at the mid to long-term, I think your market having a recurring margin of about BRL100 or BRL110 per cubic meter from you. In your mind, is this level of margin make sense or do you think you can have a stronger recurring margin for Ipiranga moving forward?

And still within this context considering the four pillars of the turnaround process of the company, is there still room for improvement in your opinion? And if yes, this improvement will come for each pillar — for which pillars? You remember that there was — I remember you mentioned that there were some improvements to be made in your network and logistics. So can you give us more color about that?

Rodrigo Pizzinatto: Hello Leonardo. Good morning. Thank you for your question. Well, about the close down of service station, I’d say that the effect will be a healthy effect both from the Ipiranga standpoint and also the reseller standpoint. This was a clearance of legacy service stations that we absolutely had to do, and as you said, we are coming to the end of this process and what we still expect to have in the future is a natural clearance of our network and service stations, which takes place naturally. But the bulk of this process is already finished. And you start to see the effect, for example, when you start seeing productivity gains or increased productivity of each Ipiranga service station. For the brand strategy, we will continue with the same strategy that we have been using so far.

We are making investments raising the bar of quality because of the reasons we mentioned before, because we won points of sale that have the highest potential. We are looking at our business prioritizing the highest returns on service stations, because this brings us a healthier relationship. And we will keep investing as we have been investing in the past years, as I said, with now a slightly higher level of quality. We are always raising the bar. Now as for the margin, we talked about this during Monique’s question, but you asked us if this makes sense. One thing is what we expect. And another thing is what we should have according to the compensation we will have expected for the business. For the next quarter or this quarter that is starting, now we’re expecting a margin higher than what we saw in the past 12 months.

But what we should have in this business is something that could provide us with a return of about 20%, which is what we are pursuing. So as an industry, I think we still have room to improve in terms of profitability and that’s what we have been working for.

Leonardo Marcondes: Just one follow-up question about service stations, I remember that it was the point of depreciation. And now with a healthier network, I imagine that there will be a positive impact on the receivables of Ipiranga overall. So can you please talk about this just to recap?

Rodrigo Pizzinatto: Hello Leonardo. This is Rodrigo. Yes, we should see a benefit in the reduction of amortization and depreciation for Ipiranga, but remember that we have other investments to make, so it’s the dynamics in our depreciation. But this standalone effect finished now in the month of September, so we should see this benefit of reduction in our depreciation and amortization. And I didn’t understand your question about the impact on non-IFRS.

Leonardo Marcondes: Now that you have a healthier network and more robust network of service stations is there still room to improve your receivables?

Rodrigo Pizzinatto: I don’t think that’s relevant, Leonardo. The effect on receivables reflects the best situation in terms of receivable now. So we don’t have any additional recognition – in the future or looking forward.

Leonardo Marcondes: Okay, thank you.

Rodrigo Pizzinatto: And Leonardo, to your last question about if there is any room for improvement

Leonardo Marcondes: And you talked about the four pillars.

Rodrigo Pizzinatto: Oh yes, the four pillars.

Leonardo Marcondes: Yes. In your Investor Day, you mentioned the four pillars. And the point that there’s still room to do more in terms of trade and logistics. So I want to know if you’ve seen any evolution since then that you can share with us.

Rodrigo Pizzinatto: So first just a general comment. I don’t like talking about turnaround anymore because I think they’re past that but I want to talk about improvement processes. And yes, indeed in line with the four pillars that we have been discussing for a long time now, we even said in Ultra Day, and we have our logistics pillar, which is more of a structural pillar and it will still take us some time until we can actually enhance and potentialize the improvement that we see for this pillar. We’re expecting to potentially gain by the end of 2025. But you’re right certainly we have room to improve further in Ipiranga’s operations.

Leonardo Marcondes: Very clear. Thank you.

Operator: The next question comes from Thiago Duarte, BTG Pactual.

Thiago Duarte: Thank you. Good morning. Let me bring back the discussion to Ipiranga. We already talked about the margin with some very good information. But I heard Linden talking about this. When we talk about your brand strategy because I think that these two things are related. But I want to go back to the topic of the share because until the first – the end of the first quarter there was as you said there was excess product in the market, excess molecules. So you had a consistent loss of share not just for Ipiranga but for the main – the three main businesses in the industry – in the three main companies in the industry. And now in the second half, there seems to be a recovery in the share and we talked about the imports from Russia but this loss of share also took place in the Otto cycle.

So I want to hear from Linden, I know that this is not the utmost goal of everything but I believe that we have better operations now in a more balanced market and your value proposition after the turnaround is finished and your value proposition is very consistent and positive. I believe that you are expecting a resumption or a recovery in your market share or your volume as a positive symptom of this turnaround. So do you think it makes sense to think of this evolution as a positive indicator looking forward? Also considering your brand strategy, I think this positive value proposition will increase the opportunity to explore your brand. And as you said, you’re raising the bar every time. This is my question. And my second question is for Marcos.

And we know that the company’s leverage today is much lower. You have a good cash generation and your results are improving more and more. So the market wants to know about your next movement. Have you discussed at a high level – you discussed this at a high level during Ultra Day and Marcos talked about this in this call. But my question is what format should we expect for your capital allocation movement in the future aiming at growing the company? I heard from Marcos during the Ultra Day, that company no longer has [indiscernible] of having to control 100% of the business. You’re thinking of partnerships or minority stakes. So Marcos, I don’t know if you can — well, after time has passed can you give us more information about what we can expect and what — if the company is willing to hold minority stakes or non-controlling stakes on other companies?

And what are the companies that you’re considering in this pipeline? Thank you.

Leonardo Linden: Thiago, let me answer your first question. First, in terms of market share, we need to break this for example if you look at the share of contracted volume in our own network, we don’t have any loss of share. If you look in the last two years there was an evolution in our share, where we actually lost share because of the market decision that made was in the spot market. And this is due to issues related with supply — the supply issues that we had in the first half of this year. Now the spot market represents a price-sensitive volume. So when you think you’re recovering as good start then you can go back and compete in that market. So the — we prioritize the supply to our own network, because we were more concerned with supply at that time.

So that’s why we made this a top priority. And we stopped temporarily the supply in the spot market. I’m not reconfirmed with the share the share is a consequence. What’s important is the scale to volume and the share is a consequence of the quality of your value proposition and the work that you do. If you make high-quality investments and you have high-quality operations the share will come naturally. And for the spot market we will work on the spot market as it goes back to making sense to the company.

Marcos Lutz: Thiago, first, I think that our role here as a, capital allocators, is to not be anxious or not to be as anxious as the rest of the market. We have to carefully look at the opportunities and we don’t control their timing. We have to be prepared for the opportunities. And this we have been doing really well. Our balance today is well prepared for any opportunities that may arise in the future. But having said this, indeed, our main drivers here are the risk and the return that we expect from those projects. And our three businesses have been making investments and have been looking for avenues of growth. In some cases we made some small acquisitions and organic acquisitions which is the case of Ultragaz which is now growing organically with the companies acquired.

Also in cargo, we have a project of exploring the inner part of the country and out of the capitals with a broader logistics offer. Now as for Ultrapar, I think that first in Ultrapar, we have a higher requirement or a high-return because the money is closer to the shareholders so we need to have higher return rates, for those projects. Now in terms of the format, which was your specific question, we have fewer paradigms today, but we will not make investments where we do not have a relevant influence and where that business is heading. So we are adding value with the strategy, the structure, the business model and we will not go for acquisitions where this cannot be leveraged. So I don’t have to acquire 100% of a company. I don’t need to be a controller, at least not initially, but I need to have a clear path in terms of the influence, I want to have on that business.

So for example, acquiring a minority stake is not something that interests us because there will be a controller in the picture. So at the end of the day, we have a high-level of clarity about what we want, but no we do not necessarily need to acquire 100% of another company. What we need is to have a good return on investment versus the risk. And we want to buy efficiently. It is better to go for those projects and just buy 100% of the company and trying to control the timing of a transaction which is not something that is under our control. I hope, I answered your question.

Thiago Duarte: Yes. Thank you.

Operator: Next question comes from Luiz Carvalho, UBS.

Luiz Carvalho: Hello. Good morning. Thank you for taking my question. Congratulations on the results. I have two questions, one for Lutz and one for Linden. And looking at things from a different angle in our last few calls, you shared a lot about this company strategy and capital allocation. But I want to know more details about the time frame and prioritization. So I want to understand how much you’re focused on diversification for capital allocation? And how much that is to be done in terms of operational improvements? I will no longer call it turnaround. So is there anything that you can do fill in terms of your management preparation and that initial plan of having just one position in your board. So how are you allocating time and what are the priorities in the next 12 months?

And my second question going back to Linden’s comment, it is very clear that there was an improvement in your competitive environment. I think it is unanimous that both small and larger players are more focused on profitability. And you mentioned a 20% return rate as an appropriate level for EBITDA that considering all the products [ph]. So how far — thinking of the margin, how far is Ipiranga from the rest of the industry? For example, you talked about diesel and then there’s ethanol do you think we will see a fast improvement in these fields? And how do you see the competitive environment looking forward and your probability of reaching the 20% return rate as you mentioned.

Marcos Lutz: You sound like my mother Luiz. But when you ask about my time allocation, I don’t have a very fixed routine. It will depend on the weeks and the demands on which we — Rodrigo and I, we have a monthly routine with our business. Maybe I’d say it takes 25% of our time and this is part of our routine. And the other 35% depend more on what’s happening during that month in terms of business and also other aspects. Rodrigo and I also dedicate some time to governance to the Board and the transition that is taking place and has been taking place in the Board and the major changes that we made in our governance and the generational transition. So I don’t have a straight answer for you. But I don’t think we have any time restriction if that is your concern for us to dedicate to new investments.

We have the capacity. We have built this capacity over time. So I don’t think there’s any problem in that sense. Luiz I think we have some positive points that allow us to believe that we can go back to the 20% return rate and the industry has been at a level before in the past. And what we also have missed. And it’s not just about — and returning to the 20% level is not just about the margin. It’s the margin, but it is also the environment. And specifically at Ipiranga as we have been saying we have some paths of improvement in our position that will help us get closer to the 20% return rate. Brazil has seen some advancement in the regulatory framework, you talked about some tax-related issues, which are positive. But there are also risks for this environment.

We have the regular trade. We have tax efficient. We have problems with counterfeit products that we need to fight together as an industry. So as I said, you’re looking at a snapshot. If we look at a snapshot of quarter three, we are not that far. But if you look at the movie there’s still a lot of work to be done until we can get to the 20% return rate, but we are in the right track. But it’s important we shouldn’t just wait for the margin to solve everything. We have to work also on the competitive environment and other business aspects and we also have some homework to do, some housekeeping to do to improve Ipiranga’s operations, as we have been doing in the past two years.

Luiz Carvalho: Perfect. Thank you. Very clear.

Operator: The next question comes from Rodrigo Almeida, Santander.

Rodrigo Almeida: Good morning, Lutz and the rest of the team. I have two questions. First, we already talked about this today we’re able to set a different angle. I want to talk about the company’s capital structure. Both in terms of energy and growth, the capital allocation and also the current capital of [indiscernible], so looking at the past six months, I know it is difficult to foresee which opportunities are for the future and in term [indiscernible] and in short-term, it is clear to us that you will continue to generate cash and we’re having — we have a relevant fresh entry expected for the quarter. So, I want to talk about the capital aspect of the company. How do you think the company had in terms of its capital and how we face this capital structure will be three or four quarters from now?

And what are the implications for dividend payout, buyback and inorganic growth? I understand that you have a dividend policy and wanted to understand, how the efficiency of your capital structure in the quarter can have an impact on that? My second question was also about [indiscernible] and you talked about your societal reorganization and how changing the leadership or from [indiscernible] to a holding. And I want to understand, what are your next steps? First, in terms of this reorganization, what can we expect to more capital strength for different business for example on [indiscernible], I don’t know if maybe you want to increase the leverage for Ultragaz and Ultracargo or maybe optimize your — maybe organize the liabilities [indiscernible]?

And also within the portfolio optimization, are you expecting something similar to what you recently did in Ultracargo? Are you going to be similar with Ipiranga? Thank you.

Rodrigo Pizzinatto: Good morning, Rodrigo. Thank you for your questions. Well, since the evolution in results in our cash flow, since we had this evolution in our results and cash flow, we can certainly are in a comfortable position in terms of cash generation. And we are using our cash for investment projects. We have concentration of investments in quarter four and we had a disbursement to acquire Opla [ph] in quarter 3 also the investments in NEOgas and Stella. And the way we look at our investments, Marcos talked about this is very risk sensitive. So, is there a business that we know well because in this place, the risk is much easier to measure and the lower the volatility of the company’s business, the best you can foresee your flow.

Ultracargo is a more stable business and Ultragaz is more volatile. And that’s why the return rate that should go back to the level of 20%, which is suitable to the risk of the business. Now, when we go from very well-known businesses to business that we do know that well, the level of return that we require is higher to the lack of knowledge in that business and the higher level of risk. So looking forward, if we don’t have good applications for the cash and good costs for mid to long-term projects, we will increase the payment of dividends, because we don’t want to be at a sub-optimal capital structure. Now, as for your question about the businesses capital structure, the capital structure for each of the business will reflect that of the holding.

But this is something that will be discussed timely at the right time when the time comes.

Rodrigo Almeida: Perfect. Thank you.

Operator: The next question is from [indiscernible], Citibank.

Unidentified Analyst: Hello everyone. Thank you for taking my question. I have two questions. My first question, I want to know more details about imports. I think, it’s a very unique dynamic what we saw in quarter three much different than what we saw earlier this year and a return to normal levels which we haven’t seen since 2020. And what I want to know from you is that at this point in the quarter, we have a little more fat to be trimmed in imports and maybe a more open window looking forward with a stronger lineup for November and December. So I don’t know, if maybe Linden can help us, but I want to understand how this dynamics will change considering this scenario? It seems to me that a great part of this relevant improvement that you had in your margin has to do with supply and how the market has behaved and changed the way it behaves since last year.

And I don’t know, if I missed this part but can you talk more about the import dynamics in quarter three, how much it helped your sourcing with more competitive prices compared with the [indiscernible]. Can you give us more clarity that will help us better understand the results of Ipiranga? And my second point in other industries in particular in the field industry the tax issues are included. Maybe this is the main topic being discussed in the industry today the tax reform and yesterday they had their first win their first vote and their first win for the tax reform and there’s an important point which is the point about ethanol. I think, the exchange that everybody is expecting maybe the most relevant point of this tax reform relative to fuel is the point about ethanal and this could be game changing.

And I want to hear from you, how relevant it is for you and how could this affect your margin levels? Because since last year this wasn’t the case there was an improvement in the industry but this will cause a structural change in how this industry operates and this will affect productivity particularly for the three or four top companies in the industry. And how do you see this looking forward?

Unidentified Company Representative: Hello. This is [indiscernible]. Thank you for your question. Let’s try to put this in perspective and take a few steps that, I mean, look at this past in Ipiranga investor or one of the Ipiranga’s shareholders it’s very important to mention that the mill today operates at very low margins compared to the rest of the world. And the main reason for this is not an inefficiency of the distributors. There’s a lot of efficiency, but the main point here, but there is a part of this model, which is not operating according to the rules established with the government in terms of taxes and regulations and mixes. And this is in fight for us for who are complying with the law and responsibly working.

And we are trying — they are also trying to change the loss to simplify the loss so that they can be better enforced and inspected. Of course, this will improve collection by the government and it will also improve the level play field. It will more easily establish a conversion model that will be more homogeneous. So this is my first point. What we did not see during this period you talked about the margin. But if we always import products, we will always source enough products to meet the needs of our clients. For example, if our market share for our B2B clients our largest clients will always be supplied by Ipiranga. And many months before we deliver we are already preparing many and sourcing products for these clients. So even if the product was a little more heated in quarter three, there was no stock out for our clients and — but of course we have this phenomenon where we had some optimistic players.

And in quarter three, these are the optimistic players left the market and this created an additional demand, which ended up being met by the largest companies which were better structured and had more inventory. So it’s important to mention this. So as you said, if we look at the snapshot today we have a huge arbitrage for import. We don’t believe that will last long. It doesn’t make sense, that internal prices charge that refineries in Brazil are much higher than the international price. So this is just a matter of timing. We believe that there will be an adjustment in the short of nature. And that adjustment will cause a major loss of inventory for distributors including ourselves. This is part of the business. This always happens, when the price drops, it seems like we always gain when the price increases.

This is part of the business. So, if you ask me, what do I think? If I think that regulatory improvement will be impacting your margin, I’d say, that the margin will give a better return to investments made by the companies. For example, if you look at this math, a while ago when companies were running at 2% 3% 4% 5% 8% return on investment, it doesn’t make sense now with a CDI of 12% and a company that has this volatility with a return on investment of 6% 7%. So, it is just natural for a well-structured company that has an infrastructure, a strong brand and the outlet they should have a return of about 20%. So these adjustments these regulatory improvements should bring us to this scenario that I just described. And for consumers, it’s — the change is marginal.

For example, you’re going to have a net result of BRL1 billion or BRL130 billion. This means less than 1%. If it’s BRL2 billion it’s less than 2%. And in the end price to consumers, the change is marginal, but it is a brutal transformation for the industry in their category to invest, how much they can grow, how much they can improve their supply capacity and so on and so forth. So of course, my answer is more macro focused, but I think it’s important that we all understand these points.

Unidentified Analyst: And just a follow-up question, about the regulatory changes. One of the discussions that were raised recently, so maybe have a national operation for a few different picture. I know, it doesn’t sound like a first, but how did you — how can you mitigate this range?

Leonardo Linden: Well, I think it’s early to say. But if this is to reduce tax evasion and increase the efficiency of tax collection in Brazil, we can see that in a good light. But it’s too early to say. I don’t think that anyone today can truly know, what’s being built for the future. I think there’s a dialogue between the industry and the government right now, and this could take me to the future or not it’s too early. Thank you.

Operator: The next question comes from Bruno Montanari, Morgan Stanley.

Q – Bruno Montanari: Good morning. I have a question about, what we comment about the seasonality. We know that you in the past [indiscernible] quarter 4? And fortunately that [indiscernible] seasonality is ever stronger. So we talked about BRL 2.2 billion in investments. So, how is the company expecting to close the year? Will you be able to make a — an investment in quarter four? Or will the numbers be lower than expected? And will this roll out into 2024?

Rodrigo Pizzinatto: Well our investment plan, we see it as a cap as a capital investments for the year. So I’d say, it is normal to have slightly lower numbers and that is an reflection — retraction in quarter four. So part of our investment may go over to 2024, but it’s not part of the plan. Maybe we’re talking about slightly lower numbers than what was planned.

Operator: If we have no further questions I’d like to hand the conference back to Mr. Rodrigo Pizzinatto for his final remarks. Mr. Pizzinatto, you may proceed.

Rodrigo Pizzinatto: Thank you for your questions. Our Investor Relations team will answer all the questions that were submitted to our webcast platform and we hope to see you in our next earnings call. Thank you.

Operator: Ultrapar’s quarter three earnings conference call is now closed. You may now disconnect your lines. Have a great day.