Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Cosan S.A.'s first quarter of 2020 results conference call. Today with us, we have Mr. Luis Henrique Guimarães, CEO, Mr. João Arthur Souza, Head of Finance, and Felipe Casali, Investor Relations Executive Manager. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Cosan's remarks, there will be a question and answer session for industry analysts. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. The audio and the slideshow of this presentation are available through the live webcast at ir.cosan.com.br. The slides can also be downloaded from the webcast platform.
Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Cosan's 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 Cosan's and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Mr. Felipe Casali. Mr. Casali, you may begin the call.
Good morning. Welcome to Cosan S.A.'s first quarter 2020 earnings conference call. It is impossible to begin this presentation without talking about the current situation. No one could have imagined a challenge such as we have been facing since March. We started 2020 with a positive outlook. It pointed to global growth and improved local indicators. Our results indicated the quarter would be in line with expectations. Everything changed. To recap, in one week, there was a sudden drop in oil prices, more than 30% in one single day, while at the same time, demand for the commodity fell, already a reflection of increasing social distancing around the globe. On March 11, Cosan suffered a criminal cyberattack that led to the temporary suspension of some of our operations.
On the same day, the World Health Organization declared the new coronavirus a pandemic. Since then, we have been focusing all of our efforts on making sure that we keep our operations, most of which are considered essential, up and running, while ensuring the safety of our people and the teams that need to be in the streets. During the conference call in late April, we had the opportunity to talk a little more about the impacts of the pandemic on our business and the measures we are adopting in line with our social responsibility efforts. Our earnings release also included a summary of the group's main initiatives to fight the pandemic. I think it's important to highlight a few of them here. As a group, we announced the donation of BRL 17 million to various initiatives fighting the pandemic.
We were pioneers in not laying off employees at this difficult time and have donated more than 1 million liters of 70% sanitizer alcohol, mainly to hospitals, healthcare teams, and local communities in the areas where we operate. We are using our management, implementation, and mobilization capability to establish partnerships and put our assets and infrastructure at the service of society. During this presentation, we will discuss the impacts of the pandemic in the quarter in each of our businesses, starting with slide four on Raízen Combustíveis. It is important to point out that we see our operations in Brazil and Argentina increasingly as an integrated one, a single and synergistic platform of value on the downstream. For proper comparison and given the current volatility, we have separated their results, and I will start with the operations in Brazil.
Raízen Combustíveis was the business most affected by the crisis in the period. Before we discuss the figures, let me remind you that Raízen has been strengthening its client and supplier relations since the beginning of the crisis. To support our resellers, we have launched a package that includes initiatives targeting our network liquidity and financial health at this time, which will strengthen our partnership even more in the long run. As for suppliers, Raízen has discussed and renegotiated almost all of its supply contracts, having updated terms and conditions to fit the current scenario. Regarding the figures for the quarter, demand plummeted in the last weeks of March as a result of social distancing measures, which had a direct impact on the auto cycle and aviation sales. Diesel volume sales increased by 2%, helped by demand in the agriculture and transportation sectors.
Total volume sold by Raízen this quarter was 3% lower year-on-year. The criminal hacker attack wasn't material vis-à-vis overall volume sold in the quarter, but did cause additional sales loss in March, especially in the spot volumes, which largely explains the market share variation. In other words, we needed to be more selective between segments, privileging our network. To put things into context, the market faced unprecedented March and April price drops. The beginning of the ethanol crop season increases volatility even more, leading to opportunities and challenges in our supply and commercialization strategy. Keeping the consistency, we navigated this period, keeping our usual balance between risks and returns in short and mid-term. We have already seen a gradual price and demand improvements in May, which will add to new business and contracts renewal agenda and Raízen's consistent performance.
Raízen Combustíveis adjusted EBITDA totaled BRL 568 million in the quarter, a 20% reduction compared to the first Q19, reflecting lower sales volumes and price reductions affecting all products and leading to significant negative effect on inventories. These effects were partially offset by product import gains in line with the supply strategy. In addition to the usual EBITDA adjustment, this quarter also included an accounting provision of BRL 45 million for the atypical and non-recurring ethanol inventory devaluation. We also continue adjusting for IFRS 16 accounting standards for comparison purposes with previous periods, but also to make it easier for the market to understand the comparison with other business models used in this industry. CapEx in the quarter totaled BRL 193 million, 30% less than the first Q19, resulting from some delay investments towards the end of March due to the pandemic and additional increase on rebate contracts.
We do not expect major investments decrease compared to last year, as the pace of renewal and gas station conversion look pretty solid for the rest of the year. Let's move to Raízen Argentina on the right-hand side of the slide. A quick reminder that results are in U.S. dollar, which is the functional currency used in the downstream operations in Argentina. Like in Brazil, the operation in Argentina was highly affected by the drop in oil prices and stricter lockdown measures adopted by the country. Let me remind you that inventory levels in Argentina are higher than what we are used to seeing in Brazil operation, as they include the crude oil and refined product volumes. Sales volumes fell by 13% in the quarter, and the adjusted EBITDA dropped to $33 million, posting a 47% reduction in the period.
Investments added up to BRL 21 million in the quarter, most of which on maintenance of the refinery complex. Let's return to the next two slides with Raízen Energia's result for the quarter and also for the crop season. The quarter-ending 2019/2020 crop was marked by a record BRL 1.5 billion EBITDA posted by Raízen Energia. The crop season's crushing had already ended the last quarter, I will go straight to the volume sold starting with sugar. Sugar volume sold in the first Q in 2020 rose by 29%, in line with the commercialization strategy for the crop year, while the average sales price reached BRL 1.2 thousand per ton, a 7% increase compared to the same period last year. Sugar volume sold in the crop year was 4% higher than last year. The average price rose by 14%. Moving to ethanol.
Different from sugar, ethanol sales volume dropped 12% in the quarter, especially during the last weeks in March, reflecting the decrease in auto cycle demand. Even with the significant oil drop in March, average sales prices went up by 15% compared to the first Q 2019, which is explained by higher export volumes and the economic hedging strategy or the proxy hedge for ethanol sales. Turning over to electricity. Own volume sold ended the crop year at 9% below compared to the crop of 2018/2019, having been offset by better average sales price. A brief comment on the dynamics of the unit cash cost, which has been normalized by the Consecana effect. There was a 2% reduction in the quarter, while the increase in the crop year was only 4% as a result of the production mix, which included more white sugar and the effects of inflation.
The increase in sugar and ethanol sales added to improved average product prices led to BRL 3.4 billion of EBITDA for the year, an increase of 19% compared to the previous crop. Regarding sugar hedges, Raízen has made progress on hedging the current crop, having covered approximately 80% of the sugar for export at an average price of BRL 0.61 per pound, nearly 10% more than in the previous crop year. For the 2021 crop, we have hedged close to 40% of the sugar. I'm sorry. For the 2021-2022 crop, we have hedged close to 40% of the sugar at an average price of BRL 0.64 per pound.
Despite the abrupt drop in sugar prices in U.S. dollar terms, values in BRL have presented good opportunities as we have continued to hedge, obtaining higher returns than in the previous crop, since the devaluation of the BRL has been increasing the competitiveness of the Brazilian sugar. The drop in ethanol prices has led to dramatic changes in the production scenario in Brazil. There's already a consensus that the current crop season will be of a significant increase in sugar production, which might keep the pressure on the U.S. dollar sugar prices in short and mid-term. On the other hand, several consulting firms are already indicating that other producing countries have reduced sugar output. Considering the main producing countries, India's climate has had a negative impact on agricultural yields, but there's a risk that demand might be threatened by the global crisis.
Thailand and the European Union have also reduced sugar output, especially due to cultural changes in those countries, added to a worsening of the climate conditions. To conclude on Raízen Energia, investments added up to BRL 1 billion in the quarter, and BRL 2.8 billion in the crop season, reflecting higher expenditures on crop management due to larger crop areas and adjustments made to the level of sugarcane crop renewal in certain areas, as well as mandatory investments associated to environmental, safety, and sustaining. On the next slide, we will discuss the natural gas. As announced during our Cosan Day, Cosan's new gas company, Compass Gás e Energia, was set up this quarter and now controls Comgás. This quarter, we also concluded the acquisition of Compass Trading, which is now part of the Compass holding portfolio. Let's discuss Comgás results specifically.
Total volume of distributed natural gas fell by 4% in the quarter due to lower demand in the period and the early impacts of the pandemic. Commercial volume dropped 2% as demand fell in sectors such as food and beverage. There was a 4% reduction in industrial volume owing to less activity in the period, as well as a stronger comparative basis in the first Q 2019. In the residential segment, volumes increased by 16% due to lower average temperatures in the period, in addition to the 99,000 new clients connected in the past 12 months. Normalized adjusted EBITDA totaled BRL 578 million in the first Q 2020, impacted by inflation adjustments and the mix effect on the margin. BRL 98 million from the regulatory current account balance was returned to clients, and the period ended with BRL 103 million in favor of them.
CapEx totaled BRL 222 million in the quarter, in line with the investment plan. Moving to slide nine, we'll discuss Moove, which is our lubricant business. Moove's adjusted EBITDA increased by 35% in the quarter, reaching BRL 110 million, despite a 3% drop in volume sold. Sales reduction reflects the initial pandemic effects on demand in all countries where Moove operates. The enhanced performance by the lubricant segment reflects the improved results seen in international operations, in addition to an accounting gain related to one of the international acquisitions. Let's turn to the corporate segment on the right-hand side of the slide. General and administrative expenses added up to BRL 40 million in the first Q, an increase of 8%.
The increase reflects a higher concentration of expenses in the period and the incremental costs associated to the migration of the stock option compensation plan to the stock grant plan. Other expenses comprise general and legal expenses and contingencies, and added up to a non-recurring effect of BRL 68 million this quarter, related to a contractual obligation regarding the assignment of credit rights that took place in December 2017. Let's turn to slide 10. Cosan's pro forma adjusted EBITDA rose to BRL 1.8 billion in the first Q20 as a result of Raízen Energia, Comgás, and Moove's improved results. Net income reached BRL 102 million in the quarter, especially due to the impact of Cosan's higher financial expenses. These higher financial expenses are mainly related to the devaluation of the Brazilian real, which affects the unhedged portion of the perpetual bond.
I would like to remind you that all other debt instruments are hedged against FX fluctuations, including both their interest flow up to maturity and the principal. Speaking of cash flow, BRL 566 million was consumed on a pro forma basis this quarter. Despite Raízen Energia's robust generation of operating cash, this quarter was affected by early withdrawal of debenture adding up to BRL 1.7 billion and BRL 284 million on Cosan's share buyback through the program we launched in March. Still, we concluded the first Q20 with a strong cash position of BRL 3.2 billion at Cosan and BRL 5.5 billion on a pro forma basis. Pro forma gross debt fell 4% in the first Q 2020 versus four Q 2019, as less funds were raised in the period related to the amortization of the principal.
The cost of debt stood at 107% of the CDI on a pro forma basis, or 112% of the CDI if we exclude Raízen. Pro forma leverage decreased to 1.9x that EBITDA after lease liabilities and Comgás current account adjustments. Before we conclude the presentation, allow me to remind you that the guidance for the year has been suspended due to the uncertainties of the current scenario. We may resume projection disclosures as soon as the impacts on our results become clearer. We will continue to monitor and assess the impacts of the pandemic on the local and global economy and prepare for the recovery, identifying risks and opportunities in a wide range of scenarios. This concludes the presentation. We can move on the Q&A session. Just one reminder here, especially this quarter, Luis Henrique, our CEO, will also be available to take some of your questions. Thank you.
Just one more thing here. Before we enter in the Q&A session, I would like to invite Marcelo Martins, our CFO, for a brief statement about the notice to the market that was released today. Please, Marcelo, you can move on.
Thanks, Felipe. Good morning, everyone. We released this morning a notice to the market in continuation to the transition process that was started in January of this year with the announcement of Marcos Lutz retirement of the board of directors of Cosan S.A. and Cosan Limited, as well as Cosan Logística. We have just now completed that transition process between Marcos Lutz and Luis Henrique Guimarães. From now on, as originally planned, Marcos will be focusing on his role as chairman of the board of Rumo Logística. In that role, he's going to be fully dedicated within the Cosan Group to the activities of the logistics company.
With that, as I said before, we just concluded the transition process. Luis will, from now on, as he originally started on the 1st of April of this year, he's going to keep on as is in his role of CEO of Cosan S.A. Again, we would like to thank Marcos Lutz for his great contribution to the group during his tenure as CEO and board member of the companies. We'll be 100% focused, along with Marcos, on the activities of Rumo Logística from now on. Thank you very much.
Now we can start the Q&A session, please.
Thank you. We will now begin the question- and- answer session for investors and analysts. If you have a question, please press star one on your telephone. If your question is answered during the session, you may remove it from the line by pressing star two. We ask that you use the handset when asking the question in order to maintain excellent sound quality. Please, we ask everyone to ask only two questions per person. Please stand by while we collect the questions. Our first question comes from Isabella Simonato, Bank of America.
Good morning, everyone. Thank you, Luis, Felipe, Marcelo. I have two questions. First, if I'm not mistaken, in mid-April, you provided a great update how we were seeing the situation, right, post after social distancing started. Now that we are more than a month after that, can you elaborate how you're seeing the trends during Q2 in terms of, especially for fuel distribution and Comgás, if there was an important change versus the trends you were seeing before? My second question is, we saw Petrobras raising prices of gasoline, right, in the past month. How can we think about your inventories and margins given this recent increase for the short- term? Thank you.
Isabella, thank you. I'll take the second question here in regards to Petrobras. One thing that is important to remember that this type of movements in the prices is kind of recurring. Of course, we are coming from a big drop in oil prices in March, and we are now seeing a gradual recovery on the prices and also in volumes, right? This is important to mention. As we have a big drop on oil prices and gasoline prices in March, and that impacted the inventories at that moment, whenever prices goes up, we probably can revert part of that loss, right? Let's see how that will behave. What I can tell you is that we are really seeing this second quarter of the year, a gradual improvement not only on volumes but also in prices following the market prices, right?
I will turn the first question about social distancing and how we are seeing the business going forward to Luis.
Good morning, everyone. Thanks, Felipe, and thanks, everyone, to be here with us to review the performance of the first quarter of Cosan. I will go to the first question. Let me start with fuels. We clearly see that April, it seems to be the lower point of the curve in terms of the impact on people, movements, and volumes in Brazil and the same in Argentina, especially given the big social distance of the main cities, the main capitals of the main states of the country. With the release of people, either promoted by the government or by themselves, we've seen the volumes in May trending up, especially on the auto cycle. The diesel has always been very resilient in terms of the trends.
Starting to increase as well, but the auto is probably the biggest difference we've seen between May and April, and we believe that this trend will continue as we are seeing more and more announcements of cities and states about the recovery plans or opening up commerce. Of course, aviation continued to be very grounded in terms of the volumes, so very low volumes in April and May. We also expect that in June, we'll start some opening, but we believe that aviation will take a longer course of recovery when compared to auto, cycle, and diesel. In regards to Comgás, we've seen some also increases of volumes in May, especially on the industrial side and some on the commerce commercial side.
We think the commercial side will start to increase again in June with the opening up and start of the authorization for cities to open on the interior as well as on the capital starting this week and picking up next week. Very strong continue on the residential side. Of course, with the low temperatures we've been observing in May, it also should fuel the increase on the residential side. This is basically April seems to us clearly was the bottom of the cycle in terms of the impact of social distance and other measures and all the volumes start to recover. The same is happening also when we compare May on the lubricant side on Moove with April.
That's super helpful. Thank you.
Our next question comes from Lucas Ferreira, JP Morgan.
Hi, gentlemen. Good morning. I have two questions as well. The first one is a follow-up to this discussion, Luis, and also a follow-up to the previous calls you guys made on to the clear impact of COVID. My question is, if you can give us more information on how your relationship with your resellers have been in the field distribution in Brazil. What sort of a support you guys giving, what sort of a feedback you've been getting, and how do you see the situation of these guys now in this crisis, and what are the measures they are taking? That's my first question. The second question is more of a technical one, maybe to Felipe about this adjustment in the ethanol inventory that you guys made this quarter.
I don't understand quite exactly why this was such a different scenario from previous fluctuations that we saw in fuel prices in the past. Obviously, the magnitude of the ethanol price decline was unprecedented, but I don't understand if there was something else that drove you guys do the adjustment on ethanol and what to expect in terms of also these sort of accounting adjustments for the second quarter. Thank you.
Hi, Lucas. Thank you for the question. I'll get the second one, and again, pass the first one to Luis here. As you all know, we don't adjust inventory effects on our EBITDA, right? Specifically this quarter, due to the significant ethanol price drop that you guys saw on the beginning of April, the International Accounting Standards instructs that the company must book the loss anticipated to the sale of the products through a provision, right? That's why this specifically happened at the ethanol, right? Not to the other products. This is the first time that ever happened. That's why we are adjusting that on the results. It's a provision of ethanol that will be sold, that was already sold actually in April. Okay?
In theory, Yeah, go ahead. You could see an upward revision, right, Felipe? In fact, you know, prices there are rebounding. Could you see also?
You actually-
this provision now?
Yeah, actually, it does when you sell the product, right?
Okay.
As you know, the inventories of the fuels runs an average of 8-10 days, right? It was already done in April, right?
Perfect. Thank you.
Okay, let me take the first question, Felipe. I think there's a couple of important things here to address, Lucas. First, as you know, we really praise our relationship with our retailers, the over 6,500 sites we have in Brazil with the Shell brand and the over 1,000 Select stores. We've been always very close to them, and during these times being no different. We have released some assistance package, and we've been, of course, very close to individual retailers that have had impacts because the impacts in different regions, in different cities were very different, and we've been very close to them. What we can see is that given that the prices and volumes have reduced together, the impact on working capital was not as big as we anticipated.
Therefore, some of the lines of reclaiming back some of the credit card receivables were not used as much as we anticipated, given that our network, given our selection over time, and our quality of the resellers were well-capitalized, and they could handle well this process. We have also worked with them very closely on using the package released by the government in terms of employee salaries and renegotiation of these terms and conditions. Again, achieving some savings in terms of operational and fixed costs. The quality of the network is good. We had a record year last year in terms of new contracts and renewals of our network. We just finished March with the number of contracts and the volume contract either new or renewal is a record on the last 10 years of Raízen.
Of course, now on the return to normality, we will be close to our dealers to support them and scale up the volume and regaining their throughputs through the sites. I think we all acknowledge that the big difference on this crisis was the big reduction of demand everywhere. Regaining that demand and being able to make sure that they are fit and well for this return is very important, and we are working very close to them. Nothing has changed in our consistent strategy, best dealers on the best locations with the best offer, with very strong logistic and supply infrastructure to be able to be a very competitive player on this market, and especially now that it's starting to return.
Thank you very much, gentlemen.
Our next question comes from André Hachem, Itaú BBA.
Thank you for taking my questions. Luis, if I could take advantage of you being on this call, I'd like to ask you two specific questions.
In regards to the big M&A and potential acquisitions that you guys had in sight looking forward, has your appetite at all changed when we look into the natural gas and all the opportunities at Compass and when we look into the downstream? Do you believe that all these opportunities are still there and you still have a lot of appetite going forward? Second question I'd like to ask is a big question we're seeing is how is the competitive environment evolving? We have been seeing the white flag players being very competitive during the past months, during the crisis. I would imagine that they would have lost a little bit of competition without having a bigger distribution company behind them. If you could comment a little bit on how the white flag competition has been evolving and what's been going on that front.
If I could ask a final question, in regards to Comgás, we've been seeing other concessions or other players seeking to get, let's say, exponential or let's say tariff revisions or some kind of rebalancing because of the coronavirus. Do you see this any kind of space for negotiations with the regulator in regards to Comgás, or is that not possible? Thank you.
Let me take the first and second questions, and Felipe will return on the third question. On the M&A, let's start with the original thinking about creating Compass. Compass was created as a long-term view of the group that we would have a major play on this market based on what we have created in terms of Comgás and the natural growth of the supply and opportunities with the supply of products and the offer of products in Brazil. Therefore, we have created that company, and the company have that different arms that we show to you on the Cosan Day, and we will continue to pursue them. Some will be delayed, like the issues on power generation, because there will be no auction this year. Doesn't mean that we're not going to be looking at opportunities and preparing for it.
On the opportunities that could arise on the distribution side, we will, of course, continue to look at, will depend on how they will play and what are the timelines relating to that. Also on our infrastructure projects, we will also continue to pursue them in terms of the license and work and making sure that we continue to progress them. Not necessarily are all M&A. There are also some organic investments that we'll be doing, partnership, in terms of the infrastructure and all these movements are the Compass team is work diligently to put in place, of course, depending on the final profitability and the market environment in terms of the approvals, et cetera. We continue to believe that Brazil will have a great space and be a great market for gas, and this will continue to evolve and will be part of that play.
In terms of the competitive environment, yeah, this is, I would say, André, it's a very different time in terms of the end of March and during the month of April, where we have a big shock in terms of reduction of demand and at the same time, a big decrease in price. As you know us, we are always very responsible in doing two things, managing our portfolio, and of course, during these times, also during the time we have the cyber attack, we need to focus and privilege our contracted network and our partners in terms of the sites we have, also on the B2B side. We have to forego some of the volumes that we didn't either have the capacity to deliver, given the short impact on coronavirus or profitability plan.
We've been very conservative, as you have seen in all our financial movements regarding cash balance, as well as management of inventory, as well as the management of our relationship with our network. We see that the market, as soon as the volumes and the demand recover, we don't foresee a big change. I think the dynamics of the market will be of players looking to fulfill customers that are looking for good service, especially now in terms of the way we are behaving our networks with the dealers, in terms of cleanliness of the network, safety of the employees, and all the procedures that have been implemented on our network regarding masks and ethanol and cleaning of the machines. Of course, things like Shell Box will be very important.
We are accelerating all the touchless opportunities, because consumers would like to have less interactions as they go. The same happening with our delivery offer and the growth of our delivery offer on the Select side. We are very comfortable that the model that we have will continue to work with our dealers, and we will continue to support and enhance our offers in terms of product services and overall relationship. One thing that it's important also is that the connection between the strength of the network and the quality of the dealers, I think will be more than ever playing and playing on this market, because we're going to see for some time volumes slightly or in some cities with a big decrease in relation to before the crisis.
Of course, the dealers that have a better capitalization and have stronger sides will benefit from that. This is our view on how we see the market going forward.
Andre, thanks for the question. Regarding a tariff review or rebalancing of the contract on Comgás, there is no discussion about this theme at this moment. The company Comgás is analyzing on a daily basis, seeking with your committees to align all the financials of the company in the current scenario. As of now, there's no discussion with the agents regarding that subject. We're seeking the alignment with the agency in all other matters, but no extraordinary discussion right now.
Perfect, guys. Very clear. Thank you.
Excuse me. As a reminder, we ask everyone to ask only two questions per person. Our next question comes from Thiago Duarte, BTG Pactual.
Thank you, guys. Good morning, everybody. two questions on my side. First, on clarifications on some lines within the results. Felipe already clarified the 45 million BRL provision in the ethanol inventory in Raízen fuels. Just wanted two more things there. Number one, you guys booked a 270 million BRL other operating gain in the Raízen Energia segment. It's not clear so much where that's coming from or even the recurrence nature of that line since you guys didn't adjust the EBITDA for that. If you just could clarify to us a little bit more on the recurrence and where that comes from, that would be helpful. Secondly, on the 68 million BRL expense related to contractual obligations at the holding level.
I understand that it's a non-cash expense, but I was just wondering why you guys had to book that at this quarter, and whether we should expect more adjustments for that obligation related to the sale of the receivables from the original agreement with the government. That would be helpful as well. The second question, also following up on that discussion related to Raízen fuels and the relationship with the dealers, I think that discussion is very important. Just Luis, if you could elaborate a little bit more on whether you think the situation with the dealers, not so much from Raízen, as you said, the dealers are in a good shape, at least they seem to be.
Whether you think that could represent an opportunity to speed up the conversion of white flags and even some of your competitors dealers into Shell brand going forward. If you look over the past years, you guys continue to grow the dealers base, but that pace has been decreasing consistently. A few years ago, we would be seeing 200, 300 conversions per year. This is down to close to 100 now. Just wondering whether you see the conversion speeding up again or not as a result of the COVID and even without the COVID, how you see that playing out going forward. Thank you.
Thiago, thank you for the questions. I'll get the first two ones and then see if Luis wants to elaborate on the third one. The first one regarding the BRL 270 million of other revenues in the sugar and ethanol. This quarter's gain is related, among other effects, to a bargain purchase accounting gain related to acquisitions made in the past. The disclosure of those effects usually comes on the Raízen Energia financial statement, which will be released on Friday. We'll get more of the disclosure about that. Those types of effects happens all the time, gains and losses on Raízen Energia. Not necessarily, it's a non-recurring and that's one of the reasons why we haven't adjusted.
Out of that BRL 270 million, around BRL 200 million is related to this bargain purchase accounting gain, right? This is the first one. On the second one, the BRL 68 million contractual obligation is related to the sale of the credit rights that occurred in December 2017. It's not against the government, it's against the contract that we have with those credit rights, which is the precatório, if you remember. This is a non-recurring one. There is no expectations that we're going to get another types of charges like that one or contractual obligations like that one. That's why we adjusted that one on the results.
Thiago, thanks for your question. Let me take that one. I think the first thing that I want to reinforce, Thiago, that I don't think the best indicator is the number of sites converted per year. I think the best indicator is the amount of either new volume that we bring to the table. As you know, we have been concentrating over the last few years in increasing the site throughput. As always, have listened from me, from Mussa, and from Leo, that we believe Brazil is over-pumped in terms of the number of sites. Somewhere, some way, and somehow, we're going to have some rationalization in terms of the site going forward. Therefore, the best located, best operated, and with the biggest sites are the ones that we believe are the long-term winners.
Therefore, we've been concentrated in getting better sites in locations that are expanding or in locations that we are complementing the network, because also we have a lower cannibalization effect as we do that. As I said in the beginning, I think now I'm sure that in 2019-2020 fiscal year, we have the best year in terms of the putting more volume, more new volume, during the year, which reflected on our average throughput of our new contracts that we have converted from the market ahead or above our average throughput, which should support our continuous improvement in our network. It will be normal to see every year with us, we're releasing some of the tail, some of the smaller sites, or the ones we believe are less effective in terms of the future, and putting new sites with a better throughput.
Answering your question, I think during this part of the COVID, of course, the physical interaction and the ability for the teams to be completely on the field reduces. Of course, April and May will not be good months in terms of these negotiations, but we expect that through the rest of the year, our team in the field and our approach will give us some good results going forward. We really believe that the ability to convert sites related to the quality of the offer, the supply and infrastructure position that we have built over the last few years, and the ability to be consistent over time.
I think it's during the good times and difficult times that we need to be there and supporting and working with our network to make sure that they continue to be healthy with a good value proposition to the customers and continue to win in the marketplace.
Thank you very much.
Our next question comes from Regis Cardoso, Credit Suisse.
Hi, guys. Good morning. Thanks for taking the questions. I'll probably take the opportunity since Luis is here, ask a question about the company's portfolio. I know you've already discussed Compass, I would maybe like to focus a little bit more on how do you see the fuel distribution business within Cosan's portfolio. Results have clearly become more volatile. Is it for you just an accounting matter because it offsets with a working capital? Do you see it as a lower margin business than it used to be? Is it a more mature business with still long-term growth, or now not as much long-term growth as we saw before? Just if you may, add a comment in regards to how does refining assets potentially fit into that portfolio view.
That's the first question, a general view, how do you see Raízen Combustíveis given all the changes in that specific market? After that one, I might have a few follow-up questions on specifics of the first quarter results.
Okay. Thank you, Regis. You talk about volatility, what we have seen over the last few quarters, a lot of volatility in term of international prices, right? The oil industry have experimented that, of course, Brazil, and this market being exposed, it has reflected. This is a consequence of the maturity of this market moving from a market where you had only one supplier to have the opening of the imports over the last few years, which we have been very strong in playing this market since the beginning. Creating strong positions, not only in terms of the relationship with international players and the ability to source products from different sources and using these opportunities and arbitrage that have been opened.
Also leveraging the infrastructure that we have created with the last addition in São Luís, a big terminal that just started, have the authorization to operate in May, which will add even more flexibility, strength to our portfolio on the north and on the.
I think probably Luis has some issues with the connection. We try to reconnect him, one second.
Felipe, while Luis reconnects, I'll maybe ask some of the specific questions. One is in regard to inventory losses. One of your peers mentioned they had an inventory loss of about BRL 100 million that I wanted to know just if your sort of order of magnitude was about the same. Also, in our view, at least, a lot of the inventory losses from the first quarter will have a carryover effect to the second quarter. Whether you agree with that view? That's the first one. Just a second one, if I may. If there is any accounting impact of the derivatives, be it either FX or commodities in particular, in your financial results that we would normally expect to be in the operating results.
Regis, regarding the second one, actually the main impact we have due to the effects is on the non-hedged portion of the perpetual bond, for an obvious reason. That's what led to the impact on the corporate segment, in regards to the corporate results, right? This is where we see the impact on the effects on the non-hedged portion of the perpetual bond only. All the other debts, all the other bonds that we have within the group are hedged, not only the interest up to the maturity, but also the principal of those dated bonds, right? In regard to the first question, as usual, we don't disclose the amount of the inventory's impact on our results. Of course, this was an extraordinary type of movement in the prices, right? On the oil price drop that we saw in March. April has a lot of volatility.
April, we're probably going to see also some impact, which will gradually improve throughout May and throughout the second quarter. At least that's what we have been seeing so far, right? This is the two points there, the two questions. Let me see if Luis has connected. Otherwise, if you can redo your question, I'd be more than glad and take it. Give me just one second.
No, I am back, Felipe. Hello? Can you hear me?
All right. Go ahead, Luis.
Yes.
Yes, we can hear. Go ahead, please. Thank you.
I was talking, I think, my last phrase was about the inauguration of our terminal in São Luís, which create to us even more capacity to import, as well as source that big area. We're connected by railroads and hydro as well. What we believe that the role of this portfolio is very important, because it's a large business. It's a business that, in our view, will continue to evolve in terms of services, in terms of technology applied to it. It's connected to one of our bets, as you know, the growth of the retail convenience and proximity with our JV, with OXXO. We believe also this pandemic has opened new possibilities in terms of delivery models as well as people buying close to their homes. We will continue to use this and leverage this business for the strength that we have been created.
Some volatility can occur, especially with prices, depending on how they will move and how big will be the movements. I think the real issue that we have seen in March and April was the magnitude of the moves. When you have things that come down in a slower pace, but still coming down and go up in a slower pace, it's very different from these very radical moves that we have seen in the prices of oil globally, starting with WTI and going to refinery price, coupled with a very strong reduction of demand. I think what we have seen, we never seen that before in any of the business that we have here in terms of the fuels, is the magnitude of the decline of the demand, and of course, impact on cost, impacts on reduction of certain segments.
We believe that this business is a business that everyone has to use, so mobility will come back. We need to see if it will come back like we have seen in China, in certain areas where big traffic days higher than pre-COVID, which indicates a change and sales of individual cars starting to grow. We don't know if this will be the same effect in Brazil. We know that we are essential business, essential business in terms of mobility for both the B2B and the B2C side, and people will continue to connect, potentially in different ways, but we'll be needing that essential service.
It's a very important part of the portfolio, and we will continue to have very strong people and very strong relations with our dealers and our customers, and all the time trying to innovate both in terms of our offer and retail and technology. I think very important levers that we will continue to improve.
Luis, if you can comment on the refineries as well, I would appreciate.
Sorry. On the refinery, as you know, the project has been delayed by Petrobras in terms of.
As we have stated all along since the beginning, we will continue to look at this as being part of this business or this industry. We haven't yet made our final decisions because it depends a lot on the analysis and the timing of this process.
All right. This is very clear. Thanks so much. Have a nice day.
Thank you.
Our next question comes from Christian Audi, Santander.
Thank you. Hello, Luis, Felipe, Marcelo. I had first a clarifying question, Felipe, on the $45 million and the $269 million items that you mentioned. It just wasn't clear to me. Can you talk a little bit about the recurring nature of those? Were these more one-offs or could we see them again going forward? My two questions were, Felipe, if we could go back for a second, Sorry, Luis, if we could go back for a second to your comments about white flags. We're seeing this challenging moment from an economic point of view in Brazil, which would tend to maybe benefit those low-cost, low-price business models as the white flags have and therefore argue that they could maybe gain some market share. On the other hand, these unbranded types of operations could come under financial pressure.
Just wanted to get your thoughts on that dynamic of market share gains or losses. Do you see the white flags who have been on the margin gaining some market share continuing to do so? You think that could revert itself as the year progresses? I don't know, in case we have Marcelo on the line, I was just wondering from a financial point of view, if he could comment on, obviously, you've kept very leverage, very under control at this 1.92x level mandate to be done. I was just wondering, given the stressful moment in the market, what does that do to the company's dividend payment outlook as well as repurchase of shares, be it CZZ buying Cosan Energia shares or Cosan Energia continuing to repurchase shares through their programs? Thank you.
All right. Christian, thank you for the question. Let me try to organize here. I'll get the first one here just to clarify the two one-off impacts on the results. The first one, the BRL 45 million in the ethanol inventory. It regards the significant price drop of the beginning of April, the accounting standards requires the company to book this loss anticipated because the sale happened in the future or happened in April, right? We do a provision in March of the loss that we're going to have in April. That's basically what happened in the BRL 45 million. In regards to the BRL 270 million, it's in other revenues on Raízen Energia. This is basically related to the bargain purchase accounting gain from acquisitions made in the past, right? A good chunk of those BRL 270 million is related to that.
Let me send to Marcelo your third question here regarding the leverage dividends and buybacks.
Thanks, Felipe. Christian, first, the leverage is absolutely under control. As part of our strategy to face the challenges of this moment, we decided to increase the leverage of the group overall, all across the board in every single business. It is a strategy that has proven to be so far very effective because the cost of new debt has come down pretty substantially since the beginning of the crisis back in early March. What we're seeing now is that we're reaching a point when it doesn't make much more sense to keep raising debt at the companies. Except for one of them, Raízen may be in a market soon for an additional debt raise. We're not sure through which instrument yet, but it should happen.
In any case, I think that the idea was to reinforce the cash position of all companies, and this is what we have done. We have, as you know well, also raised money from BNDES, but we're pretty much done in terms of the new money coming from BNDES as well. In terms of the share buyback, as you know well and recently disclosed, a buyback through a total return swap instrument, it's going to keep going on as part of the idea that the best possible investment for the cash of the company at this point in time, which there's still enough money to be used and that's going to keep doing it through the share buyback plan. We don't foresee any immediate conclusion for the buyback of the shares.
Just to clarify, as you know well, the total return swap is being done through CZZ, which is who's buying shares of Cosan at this.
Let me take the second question, Felipe. I think there's a couple of important points here to look at. There is always in this market
It's not only in Brazil, but everywhere in the world, a role of spot market, meaning that customers that can buy to anyone on any given day, and it's a part of the market. When these big variations of prices happen like it happened, also the total demand reduces. Different behaviors will emerge from people that need to realize cash to continue to operate, and people then can select better their portfolio and be more prudent in terms of margin, et cetera. Therefore, my suggestion in your analysis, don't look at one month to two month variations in market share when you have these big swings that will happen, and we never had before, being big demand variation or big price variation. Different players will take different actions in terms of the way they handle their inventories, their supply, and their portfolio.
We believe that, yes, you are right, the market for some time in this recovery will probably become more price sensitive in certain products, in certain areas. As before, you have seen, we will be there competitive, and we will be there playing on our strength and our scale in our work with our dealers and support. This is something that we know how it goes, and we have had it these times before. Again, Brazil, it's a very heterogeneous market, and certain areas will be more competitive sets of products, and other areas will be less competitive set of products. I think the beauty of this is the price system and the intelligence that we have put in place over the last years in terms of understanding the market and play between the two things, market share and profitability.
It's very easy to chase one instead of the other, right? We can chase market share, we can gain several points in two or three or four months, but of course, profitability will be impacted. It's very simple to chase profitability and increase a few BRL per cubic meter or overall on the short term, but then sacrificing market share. We will continue to look at these both variables. We'll continue to drive costs down, and again, never spare a good crisis to get more efficient. Mussa and the team in Raízen is working diligently on that, accelerating some of the programs that were already in the pipeline, putting new things on the table.
We'll continue to digitalize, being more efficient with our transportation companies and our depots, and ensuring that we'll be competitive where and intensive we need to be, because this is a long-term play, and we'll continue to preserve the quality of our network and the relation with our dealers.
Okay. Thanks, Luis. Marcel, Felipe.
Chris, I think there was one question that you asked that I didn't reply. Actually, there was a dividend. We announced the distribution of dividends from Cosan S.A. in the amount of BRL 576 million. It was recently announced.
Great. Thanks, Marcel.
Our next question comes from Pedro Medeiros, Citigroup.
Thank you, guys. Henrique, thank you so much for taking the questions. I think most of my questions were already answered. I have two follow-ups, a bit important. First one is quite an open question, but would you mind commenting on the recent regulatory changes in Argentina and how could they impact your business in the country, okay, whether positively or negatively? My second question is, if you don't mind to provide more details on the recent contract signed for natural gas supply with Bolivia. What are the conditions, and what was the rationale to do a three-year contract? Is there any tangible benefit we can estimate to your results in the coming 12 months coming from this new contract? Thank you.
Thanks, Pedro. Let me take the first one, and Felipe will answer the second one. The regulatory change, I believe you're talking about the Criollo crude price.
Yes.
Let me comment on that. First, as you have seen, there is no regulation about prices at the pump. The price at the pump continue to be market driven, at least there is no freezing. What is important to understand about Argentina on where we are today, April and May, is a tremendous drop in demand, right. Argentina was much more fierce in terms of the lockdown, and of course, the impact on the disease. You look at the number of cases and number of deaths, it's by far one of the lowest in the region and in the world. They have decided to go to a much more stringent and strengthened lockdown, which they started to release a few weeks ago outside Buenos Aires, but continue to be Buenos Aires until next week.
A major drop in demand, which means that we have crude in storage, that had been bought over the last few months, to be used until, let's say, depends on the pace of the return of the demand mid-June, end of mid-July, end of July. This is the first picture that's important for you to understand. The second picture is that the price fixed for Argentina is well above the international prices and well above the imported prices that the Argentina suppliers can obtain if they export, right? This is the second element that I think is important for you to understand.
The third one is that both from the supply side of crude and both from the supply side of finished products, Argentina has a little bit of excess supply of crude if the market is on the normal volumes and has a shortage of finished capacity of refined products. Therefore, we believe that the market will need to find an equilibrium, and this is where the industry is discussing with the government, et cetera, between passing prices into the pump to be able to adapt to a $45 barrel or have some taxes releases in terms of the pump prices or have a different type of arrangement between the suppliers and the refiners.
At the moment, we are discussing and working through the official chains, with both suppliers and Government in order to find this balance, given that there is no short-term pressure for the purchase of these products at these new prices. Given that we have enough inventory from finished products and crude that we have been buying over the last few months in order to fulfill demand for June and most part of July. As always, and we have seen that several times, Argentina, they will find a balance in order for the market to continue to be supplied, the producers to continue to be able to produce and the market to continue.
I think if there is one good thing on these things, because we don't think the intervention is the best measure, I think there's one thing that I think the government Argentina is clearly saying that Vaca Muerta and the production of crude oil is an important feature of their future plans and the recovery of the country. On the other hand, the balance of prices at the pump will need to be compatible to the prices of crude whenever they are done, either international price or the Criollo crude prices. At the moment is working together, as I mentioned, and ensuring that we're going to find this balance with the industry that has been fine on the last few years and in Argentina.
Pedro, thanks for the question regarding Bolivia and the gas supply. Actually, what we got is an authorization for imports, right? Different from the market of fuels where we get the authorization and we can or not import. On the gas, we have the pipes, right? There is no contract signed yet on that front for the transportation of the gas, right? Understand that as an optionality within the portfolio of Compass Gás e Energia, right? There's no contract signed yet in terms of volumes, okay?
If I could add on that, Felipe. Just one comment. I think it's important that as you know, Compass has been built to the portfolio Compass Trading commercialization, and therefore what they have very strong is about electricity trading, very successful company, very competent, and now together in the group with even more opportunities. We want to be prepared for the future gas commercialization market. This is part of this preparation in terms of people, skills, system, process, and contracts. This is where we believe in the future Compass will be a gas and energy trading company within the big Compass portfolio.
Okay. Well, thank you so much, guys. Very clear.
Our next question comes from Luis Carvalho, UBS.
Hi, Felipe. Hi, Luis. Hi, Marcelo. It's Luiz Carvalho here from UBS. Thanks for taking the question. I have two questions here. The first one maybe to Marcelo, taking the opportunity here. Marcelo, now after recent buybacks, we have close to 67% of CSAN3 . I'm just wondering if you can share a bit of color on how the potential, I don't know, simplification of the corporate structure could be expedited on top of this, or if there are any changes in terms of these plans. Second to Luis, we discussed it a lot during this call about the competitiveness on the fuel distribution segment and your comment about the refining, I don't know, the structure or strategy from the company. I'm just wondering how you're seeing the regional players' movement right now, right?
We have Total coming back to the market, the same for Glencore with Alesat and lots of competition, more from a regional perspective, rather than use it to be the white flag. Just would like to have a bit more comment on this. Thank you.
Hi, Luis. Well, there's actually no news from the Cosan Day. What we're doing is we're executing the plan to reduce flows of two years ago, actually. It's not even
Recent. We've been in the middle of this total return swap, I think that's the only news, the instrument that we're using basically to increase the stake in Cosan S.A. We're just moving towards that objective. No news, just executing the plan. Nothing changed. The idea is that at some point in time, it will naturally happen once we reach a certain stake in Cosan S.A. We're not there yet, but moving steadily towards that objective.
Okay. In terms of the regional players, they will continue, in my view, especially the large ones, to have some opportunities for consolidation within the other players. You mentioned some in your question. I think this will continue to evolve as these players look at some other assets from other independent players that have opportunities, as well as continue conversion of sites to the network. I think it's pretty much the same story that we have been talking, Luis. I think the refinery game will really depend on who will be the acquirers of this new infrastructure.
At the end of the day, as I think we also talk about, I think this will be really independent business from a profitability and market point of view, because there will be investments that are quite significant and any player that will acquire this or take these assets will look at the returns that they have established on their business plans. It will be, as we said, an opportunity for some of these regional players to consolidate some of the other smaller or less efficient players in gaining more strength on their local areas.
Sure. Thank you.
Thank you. With no further questions, I would like to turn the floor back over to Mr. Felipe Casali for final remarks. Mr. Casali, you may proceed.
Thank you everyone for joining our first Q 2020 call. Hope to see you all in the short term. We'll be able to take any further questions here through the IR team. Bye-bye.
Thank you.
Thank you. That concludes Cosan's virtual conference. Please, you may disconnect your line. Thank you.