Earnings Call: Q2 2021

Aug 13, 2021

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to CUSA's Second Quarter of 2021 Results Conference Call. Today with us, we have Mr. Luis Enriquez Guimaraes, Cosan's CEO Mrs. Paula Kovarski, Head of IR and ESG Mr. Joao Artorsoza, Head of Finance and Mrs. Ana Luisa Perina, IR Manager. 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 that, there will be a question and answer session for industry analysts. At the time, further instructions will be given. And a slide presentation may be downloaded from there as well. There will be also an auto replay for this call available on their website. Before proceeding. Nomination and forward looking statements are based on the beliefs and assumptions of Cozal Management and all information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depends on circumstances that may or may not occur in the future. Investors should understand the general economic conditions, industry conditions and other operating factors could also affect the future results of Cozen and could cause results to differ materially from those press in search for the looking statements. Now, I will turn the conference over to Ms. Ana Luisa Perina, who will start the presentation. Mrs. Ana Luisa. You may begin. Good morning, everyone, and thank you for joining Cosan's Q2 of 2021 Earnings Conference Call. Today with me, I have Luiz Enhiki de Marlin, our CEO Paola Kovarski, Head of IR and ESG and Joao Artur Souza, Finance Director. Before going to the results, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] I just want to highlight some important milestones that we achieved this past month on Slide 3. We always said that we wanted not only to have 1 single holding company listed, which we accomplished in the beginning of this year, but also that it makes sense for Cozan to have its subsidiaries listed as well at the right moment. So successfully pricing Raizen was yet another very important step towards the ideal capital structure for the group. This will ensure the required levels of level of independence that will allow the company to accelerate its long term investment plan to increase the offering of renewable energy. Another important achievement was signing an BRL 810,000,000 private placement at Compas at the end of May, bringing new investors who share our long term view into the company in preparing it to capture opportunities that may arise while maintaining adequate levels of leverage. Let's go now over the financial and operating highlights for business, starting with Raizen, which also implemented its own corporate restructuring, officially becoming an integrated company from this quarter on. Since Raizen hosted its own conference call with the market last Friday, I will briefly go over the main topics of the quarter. Starting with renewables on Slide 4. We presented excellent performance and adjusted EBITDA more than doubled year on year, Espanol being the highlight. Despite the lower production due to the drier weather and to sugarcane harvest being a couple of weeks late, Higher biofuel prices led to an increase in now our own sales volume, allowing us to capture a significant improvement in returns. Moving on to sugar on the next slide. This quarter, we saw similar dynamics to that of renewables, focusing on maximizing profitability of the portfolio. Raizen posted greater sales of own sugar, supported by the commodity upcycle and by our strategy to increase our presence across the sugar value chain. The higher prices recorded this quarter are proof of the efficacy of our pricing and hedging strategy. Therefore, Adjusted EBITDA came in more than twice as high. At the bottom of Slide 5, we present the consolidated CapEx of Raizen Zagor Industrial operation in line with the plan. Quick disclaimer here. The crop setback effect on Raizen was lower than the market average since we keep advancing on our journey to capture efficiencies and to recover agricultural yields. This also offset inflation and lower dilution impacts on unit Covance. On top of boosting profitability, higher sugarcane availability and therefore biomass will allow us to maximize Raizen's long term strategy of reshaping the future of energy. Aligned with that, We achieved important goals recently with the successful closing of the BioServe acquisition not yet reflected in our financial statements and the announcement of our second E2G plant. And the return of this project is guaranteed since we already sold around 1,000,000,000 liters of 2nd generation ethanol to be delivered over the next 9 years through long term contracts with fixed prices and considerable premiums. Now let's go into Marketing and Services on Slide 6. From now on, We will present consolidated results for the segment to better translate the value of our integrated platform in line with the way we manage it. The resumption of economic activity, coupled with the advance of vaccination, boosted the demands for Fios. Despite the challenges related to the pandemic still present in the quarter, we keep expanding our network and customer base, increasing our market share in both Brazil and Argentina with adequate returns. Total adjusted EBITDA recorded robust growth getting closer to pre COVID levels. The reduction quarter over quarter, however, is explained by lower gains from client commercialization strategy. Some additional highlights on our marketing and services platform. We keep the pace of our proximity network expansion of both Select and Noxo stores, motivated by the above expectations performance of the business so far. In Shell Box, the number of transactions keeps skyrocketing. On M and A, we announced the acquisition of the Shell Lubricants operation in Brazil to complement our portfolio and value proposition to clients. Also, we recently signed the acquisition of a leading fuels network in Paraguay, consolidating our presence in the LatAm Southern Colon in further capturing synergies. Now Compass on Slide 7. Adjusted EBITDA was positively impacted by the boost in the demand for Comgas natural gas driven by the economic reception. For the Q3 in a row, Comgas has posted growth in distributed volumes, this time with positive contributions from all segments. The main highlight comes from industrial consumption, leveraging on higher demand from several segments such as ceramics, Steel and Chemical Petrochemical Industries. The recovery in volumes sold to the commercial segment is due to the gradual reopening of establishments in the period despite restrictions still being in place. The Residential segment also presented quite a good performance over an already strong comparison base, leveraged by continuous customer base expansion. On top of volume growth, efficient management of expenses and Compass at Comgas supported growth in adjusted EBITDA. In commercialization, however, Compas was negatively affected by the ramp up of power prices due to the drier weather, recording a loss in the quarter. We adjusted our strategy towards this segment and therefore decided to substantially reduce our exposure to directional power trading, further focusing on gas and power sale to end customers. Thus, we neutralized our positions in this quarter. Reason why this effect was adjusted on recurring EBITDA. Compa's investments in the period reflect Comgas' regulatory plan, bolstering network expansion with the gross addition of more than 150,000 new clients in the last 12 months. Quick note here. As announced last Friday, we received the CapEx guidance for the year, adjusting for the timing when the construction of the re gas terminal actually started compared to the initial plan. Before turning to Move, I'd like to highlight our significant progress towards further developing Compass business plan. First, at the beginning of July, Arcespi started the public consultation regarding the 20 year extension of Covance concession as provided for by the concession contract. 2nd, we announced the agreement with Petrobras for the acquisition of 51 percent of Gas Petro, subject to meeting preceding conditions. And finally, We started constructing the regas terminal in Santos. Moving on to Slide 8, presenting Movie's results. We had yet another great quarter at our lubricants business with relevant EBITDA expansion supported by a significant increase in sales volumes Covance. The business continues to benefit from its successful commercial strategy and its focus on supply management, allowing the company to overcome challenges imposed by the strong pressure on raw material costs in the global market. It is worth noting that the better than expected performance on the first half of twenty twenty one led the company to review its guidance, increasing EBITDA expectations for the year. Moving on to Slide 9, let's talk about Humu. Since Humu has already had their call with the market as well, I'll summarize the main topics here. Como presented a good performance in all main KPIs in the 2nd quarter. The higher adjusted EBITDA was supported by 2 main factors: first, an increase in transported volumes, especially in the North operation, driven by the performance of Industrial Products in the agricultural sector, also capturing additional volumes from central network and second, a better market outlook and higher fuel prices, allowing for yield expansion. Moreover, Humu has also recorded continued efficiency gains, but those effects were partially offset by the pressure on costs and expenses, mainly related to higher fuel costs and inflation. This explains the reduction in adjusted EBITDA margins year on year. Investments were in line with the plan, according to which around 30% of total CapEx was allocated to the central network. As announced last Friday, Humu decided to discontinue its guidance for 2021 due to expectations of reduced corn production for the harvest year. Long term projections, however, remained unaltered. Let's turn to Slide 10, where I will present the consolidated figures for Cosan on a pro form a basis. Combining the consistent performance hosted by each business line, leveraged by the resumption of demand in the sectors in which we operate in a better pricing scenario for renewables and sugar. Pro form a EBITDA and net income posted quite strong growth overcoming the challenges ICMS from the Pisco Fins import calculation base for lubricants activities held in previous periods. Moving on to Slide 11 to point out the financial highlights of the 2nd quarter. The higher EBITDA led to a leverage reduction to 2.8x net debt to EBITDA, closer to ideal levels for the group, which is between 2x to 2.5x. And it's worth noting as well that the capital injections in Raising and Compas were not yet accounted in the period. The better performance of the businesses also boosted operating cash flows, even considering that working capital in the second quarter is seasonally affected by the sugarcane harvest dynamics. On investing cash flows. The higher spending compared to previous year is in line with subsidiaries' investment plan. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And finally, on financing cash flows. We had lower debt issuance compared to Q2 2020 when cash positions were strengthened due to the beginning of the pandemic. Therefore, Cosan pro form a ended the quarter with a free cash flow to the equity of almost BRL800 1,000,000. A quick note here, we just concluded the issuance of Before concluding my presentation, I just want to point out the main highlights of our EESG agenda, which keeps improving on a daily basis. Please go to Slide number 12. Raizen, Compas and Humu recently released their 2020 Annual Sustainability Report, prioritizing the material aspects and reiterating the commitments established by each one of them. Also, Cosan was recognized for its good ESG practices, and once again, we were selected to be part of the FTSE for Good portfolio. On diversity. The group made considerable progress, electing experienced women for Humu and Raizen's boards. This allowed for those companies to receive the Women on Board Association stamp. And finally, as mentioned in the beginning, Raizen becoming a publicly traded company is also consistent with our ESG strategy. Its investment thesis is based on paving the way to a greener future. And in that sense, we have already made significant advances, fostering the renewables market by developing a guaranteed supply of 2nd generation ethanol and biomethane. At Cozan, we will remain focused and continue to do our homework to do the to overcome the crisis and be prepared to capture Covance. With that, I conclude my presentation, and we may move to the Q and A session. Thank you. Excuse me. Now I would like to turn the conference over to Mr. Luiz Enriquigimaraes to his opening remarks. Good morning, everyone, and thanks for being with us on this Q2 call. I just want to reinforce a couple of message that came from the presentation. First, a big prize to be leading this team here who has delivered a lot on the Q2 and the subsequent months of July, where we have done very important structural actions that will perform in the future and will continue to deliver strong performance from the group. So first start with Compas, so the startup of the terminal of LNG here in Santos, the progress on the acquisition of Despetro, the discussion of the extension of the concession Sao Paulo that is on the concession contract and a lot of activities about forming the team and ensuring that we are well prepared for this next phase of geographical expansion. So, a lot of things happening on the group with Raizen. We Cozens. I talked about the IPO, but also lately the acquisition of Paraguay and the new contracts that will allow us to build new Etanal's 2nd generation plants, the expansion of OXXO very sharply into Campinas and now entering Sao Paulo in the last few months. The same with Humu. A lot of new performance done in Santos with the conclusion of some important construction that will reduce our lead time within the port, the implementation of the Rioverti terminal ahead of the schedule, which was very important for the central network, as well with Movie, where we continue to search for new areas of Cozumel's expansion around the globe and we expect to have some news in the future as we perform very strong results. Also, when you look at our funding, A lot of activities as well. We have done some funding related to sustainability performance in Humu, some refinancial and the whole all preparing the company to continue to have a strong liability management, as well as on the people side, where we have increased the diversity in our boards, in Cozans, in Compas, in Raizen, etcetera. So what I want to convey here for you investors that We haven't stopped with the COVID. In reality, we have accelerated, and we continue to build strong foundations for the future. We have Some setbacks, like you know, on the electricity trading, directional electricity trading, we took decisive action as always to control the damage as well as to reposition ourselves to the future. So, it's a lot of learnings on that, but as well as action in terms of our way to perform in the future. All in all, in our view, a very strong quarter from a financial result. But more important, I believe, It's the energy of the team and the ability of the team to deliver even on adverse conditions in the market as well as on the COVID. We're very excited about the vaccination processing in Brazil and the opening of the markets, which are translating in higher volumes in all our business and expect that to continue. Of course, the delta variations is caused also of concern, But we are optimistic given that Brazil has definitely turned the corner in terms of the acceleration of the vaccination. So with that, I'll turn back for the question and answer. Ladies and gentlemen, we'll now initiate the question and answer Our first question comes from Mr. Thiago Duarte with BTG Pactual. Well, hello, everybody. Hello, Luis, Paola, Ana. I have two questions. The first one is a broader one related What we should think of the group in terms of growth and capital allocation going forward, I think more towards Luis that question. I mean, as you mentioned, you guys reached Pretty important milestones this year with the simplification, rising IPO. So just if you could comment, Luis, a little bit on What do you expect or how should we expect, especially in terms of timing, the next moves, right, either with regards to the IPO of Compas or the IPO of Move or even in terms of further investments for Cozza, the possibility of entering new segments and generating new investment ideas. So if you could comment a little bit on those, I think it would be helpful. And the second question, it's more related to Compas and especially the acquisition of Gaspetro. My understanding is that there's still some variables that are not in your control, right, especially in terms with the right of first refusal for Gas Petro minorities as well as State governments, from what I read in the press, some of them are willing to exercise their right of first refusal there. So If you could comment on which developments you expect to happen for the acquisition to make sense or Which of these variables that you don't control would be deal breakers for Compas and Cozans for the acquisition. I hope that was clear. Thank you so much. Very clear, Thiago, and thanks for the questions. So regarding the first one, I think when you look at the plans of each of the companies or each of the 4 verticals we have, They are very solid, right, from an inorganic and inorganic point of view. So I think each one of the CEOs and the management teams Really busy around delivering what they have projected and what they have approved with the boards and specifically the ones we mentioned there. So strong growth on Raizen, strong growth on Compass, strong growth on Rumor and a lot of opportunities for further geographical extensions for Move, which of course we need to find the targets and execute on them. But so I'm very easy around that because I think we have solid teams and very solid plans, well financed and well funded for them. Of course, you always have the execution risk, and you always need to deliver. But I think over the last Couzens. Couple of years, we have concentrated a lot in building efficiency as well as ways to develop that. Regarding your broader question around where Could we go from there? I think you have seen us expanding a lot of time, both internally on the organizations, but also Cozens on the group as a whole in 3 big areas. 1 is finding synergies between the companies, meaning things that we could do better together. One example I think I gave to you guys on the last teleconference was around information safety, information security, a big topic for corporations, a big topic for business and boards. And we have worked well together as a team to develop our increase our walls and increase our protection. This only was possible because it was an effort combined with the companies. Another one was joint procurement of items that we buy everywhere in the company like services, car rentals or truck rentals, equipments, etcetera. We also you will see a deliver of savings and more efficiency on that front. The second one is on the journey of helping our customers and partners of decarbonization. So all our companies have a lot of opportunities to help customers and suppliers and the value chain to reduce their cargo impact that we believe is a big value going forward in terms of generating more value from the products and sales we provide. So all the companies are with a strong agenda on that area. And the third one is digitalization. So, there's a lot of efforts specific in each company, like the number of transactions that Conga is doing Cozens. With their companies that have moved from telephone or personal to online and to the application, the Shellbox growth, CorVel's exponential growth every month in terms of volume and number of transactions. Trisie, which is a small investment we have with a partner on the trucker side, again, every month getting records of transactions and so on. So We will continue to look at the opportunity to maximize the value we see on our ecosystem as we have a lot of connections within Brazil, meaning we have probably one of the more dispersed groups in terms of points advanced around the country, a strong customer base and a lot of recurrency. All our business, the customers use some several times a month, some several times a week. So unlike Congas and the future gas petro every day. So we believe there's a lot of value Cozens. On being close to the customer with a lot of knowledge in what they do and how they are served, and we are looking about how can we increase that. So Thiago, this is how we are playing. Of course, we are always looking for opportunities to deploy what we believe will do better, which is capital allocation, execution, bringing efficiencies to business and deploying strong management teams and supporting the management teams that have been incorporating in our journey via acquisition or other means. So this we will continue to do. And if there is a good opportunity, we will, of course, communicate the market and give the full transparency on what we are aiming for. In terms of Compas and Gaspetro, Your question is completely correct. So we have 30 days first right of first refusal for the states and the other shareholders on each of the individual concessions that are part of the Gaspetto portfolio. And we have 90 days for Mitsui, which is the partner COSA's at Gasperto level. And of course, we already have done the first file with CADE, which will, Of course, we adopted depending if any of the right of first refusal are exercised. Our view on that is, of course, we cannot predict which the others will do. But if you look at what I believe is the agenda of most of the States and Brazil in general, which is to go to a more liberal privatized sector. We expect that will be good news that a company like us together with a solid investor and a solid partner like Mitsui will be able to do with the concessions on that. But Again, it's too early to give a forecast. There is nothing there that's at the moment a show stopper. We continue to be very enthusiastic about These investments, we've always said that would be a long journey, right? There's a lot of work to be done to get to the final right structure and to be able to replicate completely the model that was very successful at Comgas in terms of sales, execution, marketing and all of the other elements that have made Comgas grow so much since 2012 and have accelerated over the last few years. But we continue to be enthusiastic, and we think that the state governments will be good partners, and they will work for the benefit of generating more value for the society and for the concessions itself. At the end, they will continue to be the owners anyhow, given the concession model, which the state is the ultimate beneficiary of all the progress done on the concession. Great. Thank you, Luis. Our next question comes from Mr. Luis Carvalho with UBS. Hi, Louise, Juan, Paula, Ana, thank you for taking the questions. Louise, if I may also I'll make kind of a broad question. Last week, you had I think last Friday, you had a meeting with management Energy Minister, Bento, in Rio. And lots of, let's say, the company businesses are facing somehow significant regulatory discussions in May front, right? There's a discussion about the natural gas and of course, that's the last question about gas petrol and also the discussion between the A and P and our CSP regarding the distribution transport pipelines, for example, in Sao Paulo. Recently, we had this provisional measure signed by the federal government talking about the feed distribution business. So If you can basically share a bit of a light in terms of what are the main discussions and what are the main concerns the group has in terms of each of the businesses from a regulatory perspective and where you're working in order to try to Make that not for the company specifically, but basically for the sector less impactful, if I may. COSA. The second question, you recently signed an agreement in to buy a company, a few distribution company in Paraguay. You already have assets in Argentina. So just trying to get a bit more sense in terms of The potential path in terms of internationalization of the company, if you see other Geographies that might be of the interest of the company as Moove already have assets outside of, I would say, Latin America. And if I may, a last one here. Despite of the leverage of the company that you just announced, close to 2.8 times, When we assess the recent IPOs, both Compas and Raizen, the initial Numbers that you presented publicly are way above what the market is priced in. So Would that make sense to try to look to buybacks at some point and as the reference that we see in Cozzens listed is way below what you guys thought in terms of value for both IPOs. Thank you. Thank you, Luis. Thank you for the questions. Let's take in the order you mentioned. So of course, we work in markets, both in the energy and logistics, that have strong regulatory frameworks, and this is not privilege of Brazil. I think it's a global phenomenon in markets that are so important for the day to day of the population and strategic in terms of the impact on the society and on the ability to the country to have lower costs and to serve well the consumer. You guys know my opinion about these two measures from last conversations we have, so it's not new for you. We believe that these measures are not very relevant in terms of the objectives they have in terms of Reduction or reduction in terms of the level of competition on the industries, because these industries are already very competitive. If you look at the number of retail sites, you look at the number of distribution companies, or you look at the number of production gas companies, where you look at the number of mills, the challenge of Brazil is creating infrastructure of high volume in all the business. We are talking about fuels, we're talking about gas, we're talking about so we need to create pipelines, we need to create more railcars, we need to create more harbor access, We need to create higher volumes in terms of everything, but this is what's going to drive costs down. And the only way to do that is to have regulatory certainty and judicial guarantees, right? So nobody can invest BRL 1,000,000,000 of reals in a pipeline being Fuels being gas, so that if you don't know that you're going to be able to exploit it and have sufficient returns or the legislation will be stable, Covalent. So our whole advocacy is on that level. We have no issues with competition. We are very respectful to good competitors and competitors that push us forward in terms of ability for us to be better with customers, lower cost, etcetera. What we don't accept and we fight all the time is about 2 things. 1 is opportunistic that we are trying to get a free ride on investments that companies that are putting money on the ground are doing. And second is about tax evasion, right? So As long as all these measures are connected to strong measures to reduce tax evasion and to avoid free ride, we will be very supportive. And the discussions we are having with the ministry and all the governments around these 2 topics, And this is where we are concerned on both on the direct sales of ethanol and the other measures. In terms of the brand side of the measures or on the ability Cozens. For sites to have other brands, in our view, and it's very explicit On the MP, I'm very pleased with the announcement the government said that NME did on Friday night, almost midnight Friday, clarifying that contracts are to be followed, contracts are to be agreed between private parties, And this is just another model that could be used by companies that want you to use, right? So we have 2 models in Brazil today, a model where A retailer have a contract with a brand, and he used that brand on their Canopy. And for that, he has exclusivity contract to use their products, right? It's very traditional on any licensed business or franchise business. So, if you go to McDonald's, you're going to have McDonald's sandwich. [SPEAKER JOSE RAFAEL FERNANDEZ:] If you go to a VW workshop, you're going to have a VW car, a new VW car being sold. You're not going to have a Fiat, you're not going to have a Renault, Not have a mortabella sandwich on a McDonald's outlet. And this is the same that happened today. You have a second model, which is the retailer brand. So you can have your own retail site, you have your own brand, and you buy from whoever you want. And you just want to identify The product that you are reselling on that side, and you can change that more often as you wish. So what the MP has created is a 3rd model in case the license company will allow the licensee to sell a different product than theirs. He could do it, which today is not allowed. A and P would find a retail outlet that would have a brand from a 3rd party and would not sell 100% third party. So there is no obligation. There is no mandate. It's a private relationship. So if someone wants to do that, it's okay. Just to be very straightforward, and I think Musa has made it very clear on the Raizen call. Under the Shell Canopy and the Shell brand license, we only have Shell products because this is the way we believe is the value for the consumer. We differentiate with better fuels, with digital solutions and other service requirements that attract more customers that have been proved by the way Raizen has been gaining market share since its inception 10 years ago. The same has happened in Argentina and the same will happen in Paraguay. So it's not a matter of when. It's a matter that we will stick to our model that we believe is the most successful. And by the way, it's the one used in 100% of the markets in the world, Right. So our only plea there, Luis, is about equality of competition, economy of competition. Brazil and the regulators and the government needs to understand that the legislature need to understand that without that certainty, investment will not come. And we desperately need investments in all the areas of infrastructure, energy, etcetera. So we will continue to fight against that. We will continue to be very vocal about that. We will continue to take the Instituto Combustivo L'egal more equipped because it is around $24,000,000,000 that the government is losing, and we are doing a lot of reforms, reducing cost of the states and other measures that some of them don't get close to EUR 24,000,000,000 per month per year, sorry. So we need to take that serious, and this is what we believe. So no free rides and no tax evasion. The only things we had, the rest, we love competition, we'll continue to compete, we'll continue to be Trying to be ahead. We love good guys that will push our teams further because this is what makes market better. Moving to your second question regarding Paraguay and the portfolio, I think we have said in a couple of years now that we are looking for Good opportunities outside Brazil, and Paraguay is a good market. It's a small market, but profitable with good structure, where the Shell brand has been out for several years now and have a very strong recognition. And we believe that by the JV we did with the best retailer in Paraguay and a very solid family business with people that are very competent that we have been discussing for a long time, we will be able to do good inroads on that market, Cozens. Benefiting from the infrastructure of Argentina because the trading in all the market comes from the same logistic route. And As you asked for the future, we will continue to look for opportunities in other markets, not necessarily on Raizen only, but as you know, Move is our most international market most national company, sorry, and we will continue to look for opportunities there. Think it's good for us to have a balanced portfolio. Of course, Brazil always going to be our lead market, but having other markets is important to differentiate from all the competitors that we have and be able to have different cycles of results and ability to invest. Regarding your third question, we were always going to look for when we believe that the market is discounting our share, We will look for that as one of the ways to invest on. We have done that a lot over the last few years, Each one or each time, and Thiago has asked the time is for Move and Compas. When the time comes, Thiago, sorry to not be precise, it will come. But we are very happy with the partners we have. As you know, CVC is our partner in moving. We have Atmos as our partner Cozens in Compass and already treat and manage this company as open companies, enlisted company anyhow from the point of view of governance, board, etcetera. So They will be prepared to do that when the timing is correct. So if I may just add a couple of points here in the leverage question, Luis. As you all know, our target is to be between 2 to 2.5 net debt to EBITDA as a group. So we'll always seek for investing our cash positions in a balance between opportunities on gross debt amortization, doing our liability management process. This is a recurring process for us at This is a recurring process for us at Cozan. As we said in the presentation, we just issued debentures BRL2 1,000,000,000 worth of local debentures to do liability management. So these opportunities will be always analyzed by our teams and we'll always seek for the best capital allocation within this range that we believe is comfortable for the company. All right. Thank you very much and very clear. Thanks, Luis and Ana. Thank you. Our next The question comes from Mr. Andre with Itau. Hello. Thank you for taking my questions. So I have two questions. The first one was specific to this quarter's results on Compass. You registered on the trading business a loss close this position. Could you comment on this, if these positions, which led to this loss, have already been closed down and these are the costs of holding these positions or you still have active exposure on this trade. So that's my first question. My second question is relating to synergies between Encompass and Raizen. As we think about the future of renewables and we think about transition energy, gas could also play an important role, right, especially when we think about the heavy vehicle fleet. How do you expect or how will it be possible to construct synergies between Raizen and Encompass going forward as they move, let's say, with different shareholder base, until they have Cozum as the the controlling shareholders. Thank you. Okay. Andreas, I was not totally clear your voice, But I think I got it. If I don't respond to what you have asked, please intervene. But regarding The commercialization process or the trading directional trading business in Compass and if you Your question was if we will have more numbers on the next quarter or the following quarters. The answer is no. So what you have seen is basically the positions for the future are neutralized. It doesn't mean that there is no position, but they are balanced between short and long. So there is no effect in terms of price variation going forward, okay? In Cozens. In terms of synergies between Compas and Raizen, yes, there is a lot of, I'll call, markets that could have been accessed by both companies. And as you know, as we look at these companies, we look at them what's best for each individual company. So you could see in some business, Eventually, the 2 companies competing in a certain market or in a certain offer, and we will not Intervene on that, just to be absolutely clear. It will be what's best for the companies. But also there are opportunities for them, of course, to do things together if the opportunity arise. As you said, there is a lot of biomethane that will be able to go through the natural gas network. There will be a lot of distributed energy combination of renewals and natural gas stabilization, but they will do the business as makes sense For each of the companies not looking that Cozans is a shareholder in both of companies, but as you rightly said, we have different shareholders in different companies and you will not benefit one of shareholders in relation to the other. But we believe, As you know, it's our DNA in our company's under holding to do partnerships, to work together. We never believe that it's best to do it ourselves. If there is opportunity to do it, someone that has complementary skills, complementary customer base and complementary people that will be able to do it faster, better and do it bigger. So could happen some joint projects or joint activities between the 2 companies, but again, always looking for the interest of each individual companies and at the end, the customer. Perfect. Very clearly. Thank you. Our next question comes from Mr. Regis Cardoso with Credit Suisse. Good morning, Luis, Paola, Ana. Thanks for taking my questions. A quick follow-up on the previous Regarding Compas and then a second one on capital allocation. So first one on Compas, I mean, there was quite a significant loss in this quarter, nearly BRL380 1,000,000,000. And I wanted to understand first if that led that was the trigger to your decision COVID-nineteen of neutralizing those directional exposure. And also related to that, how and whether that changes the business plan you had previously set for Compas because I believe you were very ambitious about expanding in the natural gas business, but we're still a player in the electricity sector, right? So how does that change? So that's the follow-up on COMPASS. Then the second question, and I think that's more for you, Luis. How do you see Cozzens' role going forward now that the companies are, let's say, You're good on their standalone basis. And most importantly, they've recently raised capital, right? That's true for Rumu. That's true for Raizen. Compass might be on the road to raise capital for themselves as well. So what will be Cozzens' role? I mean, is it a role of Cozens. Paying down debt to increase efficiency from a fiscal perspective at the holding level, Is it a play of, let's say, buying back stocks to further increase the stake of the existing shareholders? Is it a play of distributing dividends or is it allocating that capital to something else, something new? Thanks. Thank you, Regis. Regarding the directional trading, Yes, we saw tremendous volatility in the market given the weather patterns and a very different behavior if you look at the history of this market over the last 30 years. Of course, this has triggered us to take decisive action And the team, led by Nelson and the Compas management team, took decisive actions to neutralize the position and also to think forward how we would deal with that what seems to be potentially a different pattern of this market going forward. So we always be on this market for the expansion of the trading of natural gas, as you have seen by the pre agreements with Roger and Iara announced over the last few weeks there. We're going to move customers from the captive market to the free market, which we are very supportive and is already Very well regulated on the congas areas area, but we believe that it will evolve to the Brazilian market in the order concessions and as we move with Casperto, we will work hard on that with the local regulators to achieve that, because we believe it's good for the development of the markets, good for the growth of The volume, which is the big challenge of this market. So we have done that to create that knowledge, ability, etcetera. And also, of course, we believe that on the buying and selling of energy on a common market base or common customer base with electricity and gas has value, Right. So we created, but of course, the directional business over the last couple of months quarters was very, very Volatile and implied on the loss that we already discussed. So we are concentrating now going forward the team on the long and short business, not on the directional business, which we still believe that there is good opportunities on the electricity side. But of course, our main focus has always been and continue to be on the natural gas and on the biogas opportunities for this marketing and trading and commercialization is an important part of the Compass model. This has not changed. What has changed is our risk and focus appetite on the directional commercialization, directional training. Regarding the role of Cozans, I think I don't think that changed much of what we have been doing over the last Few years, Regis, because I think, of course, you are seeing the progress that we said that we're going to do the collapse. We did the collapse. You see that's going to open The company is underneath, so we are in the progress of that. So I see you say, what's next, right? So what's so we will continue to have a small team at the holding level to work together with the companies. So in terms of the culture, in terms of the support, In terms of the challenging management looking at people, looking at capital allocation that we always have been doing over the last 20 years or 15 years. We will continue to look at opportunities around the business. If there is other opportunities that are not natural for the business to do it themselves that we could contribute doing ourselves and supporting the business going forward. We'll continue to advocate the 3 pillars that we talked earlier, the ESG on our side and pushing Cozens. The company should be even more aggressive in terms of decarbonization and how they together can leverage relationships with other big groups in Brazil that we can deliver logistics and energies at a lower carbon intensity. We'll continue to push the people agenda and the digital agenda around that. So And in the meantime, of course, we're going to look for buybacks, if it makes sense. We're going to look at liability management. But it's a role of trusting a lot on the management teams of each companies, empowering them a lot to do what they need to do on the day to day and on the movements they are doing, but ensuring that they have the support to do the big moves and the big dreams they have in all the companies that like they have very recently as we talked before. So on the high leasing path on both distribution, marketing and services and Renewables on the path on Compass on increasing their geographical footprint, but also entering new business on LNG and potential power generation, move to its international business and Rumu with its expansion and reduction of lead times. So it is what we're going to continue to do. Clearly, if I may, a third question here about Compas. Just wanted to make sure when you revised downward The CapEx for Compas that it did not affect the investments for the regulated business for Comgas. It was 100% related to the LNG terminal. And if I may, just a second one there. What do you reckon will be the competitive advantages of Coorsa's. Advantages of Compass over other suppliers of natural gas. I think being fully integrated with the Comgas network. Looks like it's going to be one of them to have a lower cost of transportation for the gas. And if you believe that, let's say, having the route 4 connect directly in Sao Paulo, is that to get in the city gate of Comgas without necessarily going through the transportation network. Cozens. And if that happens, if that gas would be constrained to the state of Sao Paulo? Thank you. Regis, on your first question, the CapEx numbers of Congas are not changed for these years, so we continue to follow our regulatory commitment with the state and the agency. What has happened that the startup of the terminal here in Santos was a little bit delayed. So this is why you're seeing an adjustment on our expectation of CapEx, but we will continue to build our network in Sao Paulo, continue to connect over 100,000 customer a year and continue to grow our base of commercial and residential and of course industrial customers on the Sao Paulo concession, which has proven very successful as you've seen from the numbers on the last few quarters and going forward, right? So We create a lot of resilience on this business to have a lot of less dependence on the, I'll call, more seasonal business that can be the industrial business and very much more reliable on the commercial that we'll have, we believe, a good recovery on the next quarters going forward, But more important on the residential segments, what we could observe during the COVID and the lockdowns, how important is this business from a point of view of profitability of the company and reducing our exposure risk. So this is what we'll continue to do. And again, as I'm replying myself, but what we expect to do on the concessions under the Gaspetto that we will be doing. Regarding the competitive advantage of Compas, I think there is several. It's one that's important because there will be an alternative of competition of the local gas supply. So we're going to have a kind of a marker to the local suppliers to be competitive. And And of course, we're going to buy from the local suppliers. We're going to buy from Bolivia. Compass will buy from the terminal, but will depend on who will be more competitive at the time. And in terms of the routes, we are looking for routes that we expect that several Companies, we would love them to do more routes. So the reason we are involved in route 4, we always said, is to Be a kind of leading agents that are doing the work for this to happen. You know how long things take in Brazil, right? So from projects, from The speaker will be back soon. Excuse me, Mr. Luis, you may proceed. So, Regis, I hope you are back here. So talking about the gas and the projects and the ability for us to have and more gas in a market that we believe Brazil has, as you know, a type of type of type of in terms of reinjection. So We would love these guys to come to the market to be able to develop the market, get Brazil more competitive on an industrial basis. And of course, it will benefit Compass, but will benefit the whole society and our other business that are related to GDP. So the Route 4, we are the kind of the leading player to motivate others to join. We have no intention to be the biggest check on this. We have no intention to have control over this investment. We are really doing that because we believe that in Brazil things takes a long time. Cozens. And if there is no one that's pushing that, spending a little of the initial money, especially having the right people developing that, it never happens. So it will be connected to the infrastructure that exists in the country, transport and all other infrastructure. So Our competitive advantage will come for our ability to source better, our ability to serve customer better, our ability to do the different, how you call the different verticals we have, so the distribution verticals, the infrastructure vertical, the commercialization verticals and the power generation vertical in a way that's better than our competitors on that. So we believe that this portfolio that we have created and is creating It's differential from the other markets. But as you know, the gas market is huge if it goes right, right, so in terms of The increase of demand is not a problem of supply. There's enough gas in Brazil, in Bolivia and in the world. What we need to do is to develop demand, and we believe that Compas has been the leading company in developing demand. So we are the company that's spending more time on the demand side, where most of the other players are spending more time on the supply side. And this is what we are trying to create, an important capacity with partners, channels and our own sales force and marketing force to develop applications, solutions continue to convert customers from different energies, like from diesel, from biomass, from other source of energy to gas where it makes sense. So this is our great differential. We are focused on developing the gas market, and we will do that based on our Strong experience that we have developed over the last few years. Very clearly. Thank you so much for the very complete answers. This concludes the question and answer section. At this time, I would like to turn the floor over to Mr. Luis for his closing remarks. Over the last 6 months, as I said, starting to the collapse, going through the private placement with Atmos and Encompass, going to the IPO Causa's and also on the debt market, a lot of action. So we'll continue to value your support and be very responsive the way we allocate capital, looking for synergies, looking for efficiency within our portfolio and be able to deliver strong results over the course of the next months. We are, as I said in the beginning, enthusiastic about the recovery of the Brazil with the vaccination progress. Of course, there is some challenges on the environment, but we are very confident that our teams and our company is well position to continue to deliver and be able to achieve the guidance we have given to the market for these years and the years going forward. So thanks for your time and have a great week. Bye bye. Thank you. This does conclude today's presentation. You may disconnect your lines at this time and have a nice day.