M&A Announcement

Aug 16, 2021

Slides

Good morning, and thanks for waiting. Welcome to the conference call of Utapar to announce the signing of the sales agreement for Occitanum. This event is also being Saibouten's webcast. And you can follow it on the company's website, ri.uta.com br or on MZiQ platform. This conference is going to be led by Mr. Rodrigo Pizzenato, CFO and IR Officer for Utaparco. We would like to inform you that this event is being recorded and that all participants are going to be in listen only mode during the company's presentation. After the presentation, we'll start the Q and A session And further instructions will be provided. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] performance, they involve risks and uncertainties since they refer to future events and depend on circumstances that may or may not occur. Investors should understand that general conditions and other operating conditions may affect the future performance of the company and lead to results that will materially differ from those in such forward looking statements. Now we are going to turn the call to Mr. Rodrigo Pisenato, that will start the presentation. Please, Mr. Pisenato, you may go on. [SPEAKER JOSE RAFAEL FERNANDEZ:] Good morning, everyone. It's a pleasure and thank you for attending this conference call in such a short time. You will find the presentation on our website. I'm going through it. There are just a few slides, but I'm going to start on Slide 3. I am pleased to announce another important step in our process to revisit our portfolio. We announced today the signing of the sales agreement of Axtenuto to Indorama at Thai Petrochemical Company. With the sale, we conclude the stage of rationalization of portfolio, which we started with the announcement of the sale of Estras Farm in May and then our share in connected car in June this year. These divestments are related to our strategy of building a more complementary and synergistic portfolio, which we have been discussing with you for some time. With the inclusion of this portfolio move, we'll be better positioned to advance in the businesses where we have more structural advantages in terms of scale, competitive differential, sector knowledge and others with a more robust and better starting point for the growth in the coming years. I also reinforce our view that we are in a unique time of investment opportunities in the energy and infrastructure sectors. In the oil and gas area, besides the ongoing investments for expansion and productivity of Jabiranga and Ultragaz, we have been evaluating potential investments in refining and natural gas, as you know. In infrastructure, we have been making growing investments in Ultracargo. In March, we had the specific event of the company to highlight the growing opportunities we have seen there. We also have been studying how to leverage businesses and competencies to actively participate in the energy transition process, both in natural gas that I mentioned, which is a transition fuel with a smaller cabin footprint, but also in renewables. In addition, we also see opportunities to create value in other businesses that are adjacent, such as the profitable growth of AMPM and in the development of Abastasia AI. As you know, it is the largest loyalty program in Brazil. They have the Abastasia AI app, which is a digital payment method. Thus, the sale of Axiteno today will allow us to improve our capital structure. With the sale, our leverage that was 2.8 times net debt to EBITDA ratio in June. If we exclude Axiteno's results from EBITDA and include the cash expected from sale, our leverage would be around 1.7 times. And with this, this transaction strengthens our financial strategic and management capabilities to better seize the opportunities ahead of us in the coming years with a more robust complementary and synergistic portfolio. Now I'm going to Slide 4, and I'll talk about the transaction with a bit more details. Intorama is one of the large petrochemical companies in the world with operations in more than 30 countries in products such as PET, polyester and integrated oxides. In addition to the benefits of the geographic expansion and Oxtenin's position in Latin America, Indorama's current scale with revenues about US10 $1,000,000,000 is specific knowledge of the industry and the company's operation in the United States, where it is one of the largest producers of ethylene oxide, will provide relevant synergies in the business combination in Dora Maoxitene. From Multipar's point of view, recent results with an extraordinary combination of strong volumes, high margins and devaluated exchange rate increased the value processions of the business. The enterprise value of this transaction is US1.3 billion dollars Oxiteno has results, as you know, that follows certain industry cycles. Considering the average EBITDA of the last 3 to 5 years, which was about US20 dollars, US130 $1,000,000 that normalizes the cyclicality of the business. The EV EBITDA multiple of the translation is 10 to 11 times for Ultraparks, which is higher than the trend in multiple of other companies in the industry and also above the average multiple of Ulta Parx itself. This transaction was made at this level due to the relevant synergies for Indorema in the transaction. Now we are going to the next slide before our Q and A. Just with further details, the payment will be US1 $150,000,000 at the closing of the transactions and $150,000,000 on the 2 year anniversary of closing. Given that the transaction value higher than Axtelnu's book value, we'll have a capital gain on the transaction. And our expectation is that income tax on the capital gain will be less than $70,000,000 which is obviously subject to closing and foreign exchange adjustments. Condition precedent are usual for the type of transition. The main ones involve the approval by Brazilian regulatory agencies as well as in the U. S. A. As well as this conclusion of the preemptive right process for Ultrapar's shareholders. And talking about that, this transaction also gives rights to preemptive rights to Intrapar shareholders since Oxiteno's shares were merged in 2002 when it became a wholly owned subsidiary of Ultrapar. This process, as I mentioned, is similar to the one we had with ExtraPharma sale and aims to meet the Brazilian laws in line with Article with Section 253 of the Brazilian Corporation's Law. Thus, each shareholder of Alto Pal will have the right to acquire instantaneous shares in proportion to its stake. We will call a general meeting in a few weeks, which will consign the beginning of the period to exercise the preemptive rate. All the details of the operation will be made available at the time of the call. I emphasize that Oxiteno is a private company and will have a foreign controlling shareholder. Therefore, whoever acquires Oxiteno shares will not have liquidity to negotiate these shares in the future. The exercise of preemptive rights and financial settlements will occur before the closing as it is a condition precedent to the completion of the transaction. However, the transfer of the shares will be subject to the fulfillment of all conditions precedent and may suffer price adjustments. Well, with this, I conclude my presentation. And now we can start the Q and A session. Thank you. We'll now start the Q and A session. Our first question comes from Andrea Hagen from Itau. You may go on. Good morning. Thanks for taking my questions. I have two questions on my side. First, could you please talk about the total amount of the transaction? How much is equity and how much is debt that is coming along? Or is the amount is just equity? That's the first question. 2nd question, I would like to understand a little better. Last week, you talked about 2 movements. First, expansion and then revisiting your current portfolio. With the sale of Oxiteno, it seems that you have more room to take the next step. So could you give us a bit more color about your structure movements? What kind of that you're going to have? But what do you think your next step is going to be now that you seem to have completed your portfolio review? And also, you can have a mismatch timely between the money coming from Oxiteno and the payment that you have to make. How do you see this mismatch? And could you see that during this mismatch period you could have a higher leverage ratio? [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Thanks, Andrea, for your questions. I'm going to start with the equity debt question. The amount of BRL 1,300,000,000 will come in as company cash, but inside Oxiteno, we have an intercompany debt that will go with the translation about $750,000,000 So we are going to receive $1,300,000,000 in cash depending on the closing date, as I mentioned, and closing conditions. As for that, as Fred mentioned last week, we have ongoing questions about the acquisition of Pape and other projects of expansion at different points of maturity. And these funds that come in with the closing of this transaction increase our financial capacity to advancing these processes. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We and answering your next question about the interim mismatch, we don't control time of expansion projects. But the divestments announced including Oxiteno is the largest. We hope that the closing of the transaction will be in the beginning of 2022, which is going to be before the disbursements for these other projects that are ongoing and under assessment. So we are going to get paid before we start paying if we decide to move on with the projects that are ongoing. [SPEAKER ANTOINE MAILET CORCOVERA:] Thank you. Our next question comes from Gabriel Baja from Citibank. Rodrigo, thanks for your time. Congratulations on the translation. I have two questions on my side. First, thinking of tax payment alone, it's important in this transaction. When you take a look at the book value of Oxiteno inside Ultrapar, you see that there is a relevant capital gain. I might be wrong, but in my calculations, it would be a much higher amount of income tax than you announced. Could you talk a bit more about these taxes? Because I think there is a relevant impact for us to know how much the company is going to have in its cash in the end of the transaction. That's the first question. Second question, time line. If you could give us a bit more color and what the transition process is going to be for Oxiteno and even Ultra Pharma, making a follow-up of the previous question, would be very interesting to understand how much when the company is going to receive the whole investment amount. And as for the amount that you're talking in terms of leverage, 1.7, given the amount that you disclosed in the presentation, you could get to a lower leverage ratio. So I would like to understand this 1.7 a bit better. Thank you very much. [SPEAKER CANDIDO BOTELHO BRACHER:] Hello, Gabriel. Thanks for your questions as well. Well, let me start with the rationale of the income tax to be paid. You're right, the book value of Axiteno is about BRL1.7 billion. And together with the transaction, we are going to transfer to the buyer a prepayment of exports that today is intercomitant of Oxiteno and a subsidiary of Ota Para abroad. And with the transfer of this debt, this reduces the equity amount and therefore the tax amount on capital gains. In addition, there is an allocation of transaction expenses and other effects that will enable us to have an estimated disbursement of income tax on capital gains that is below US70 $1,000,000 That obviously also subject to the closing adjustments and the exchange rate. As for the time of the ongoing transactions, well, we have the lowest transaction which is Connect Card that is to be completed in the coming months is still in 2021. Then Astra Pharma, as we have a bit of a longer process because of the Brazilian antitrust agency, we expect to complete it in the first half of twenty twenty two. We still do not have a clear visibility of when the process is going to be because again the greatest uncertainty in terms of time is regarding the Brazilian antitrust agency and its final decision. And in Oxiteno, we estimate a relatively lower time for the antitrust agency because this is a transaction that involves a company that has very little activity in the regions in which we operate except for the U. S. But given the size of the American market, this is a transaction that should not face much time for decision of American regulatory agencies. But the estimate in terms of times for the final decision of our regulating agency is about 6 times. But again, we do not control the time. And obviously, it can be extended legally speaking up to 11 months total time. With that, we will probably have in terms of receivables of the highest portion of Axtenu, €1,000,000,000 in the beginning of 'twenty two, following the final decision of the antitrust agency and other conditions precedent. So we should receive €1,000,000,000 in the beginning of 'twenty two connected card this year and the 1st installment of Extrafarma also in the first half of twenty twenty two. With these transactions we are looking into right now, in the best case scenario, if we move on with the acquisition of Refaba, it would be payment to be made in the second half of twenty twenty two. As for leverage, which was your last question, the rationale of leverage is very simple. We considered in our calculation data from June 21, in the EBITDA, we removed the EBITDA of the last 12 months of Oxiteno. And in net debt, we added the estimates of receivables of cash free of tax. That is the calculation that went from 2.8x to 1.7x, 2.8x engine. Okay. Just a quick follow-up. Talking about Ultrafarma, the amount that you are using somehow to deduct term taxes. So yes, the loss that we just disclosed of impairment in the Astra Farm operation is going to be used in Ipiranga to reduce the disbursements imposed in Ipiranga. Okay, disbursements of taxes on Ipiranga. Okay, thank you very much. The next question comes from Luis Carvalho from UBS Bank. Thanks, Rodrigo, for taking my question. I would like to try and recap your math here. €1,250,000,000 of equity, €750,000,000 of debt. So you're talking about taxes on the difference between these two amounts and the book value that you have today. So my question is, first, to know if this is correct. And the second question in the conference call, the previous conference call, it was very clear that you are in a process of revisiting our portfolio. But could you give a bit more color about other recurring revenues that the company is looking into for the future? [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA DE OLIVEIRA:] Carlos, also thank you for your questions. Well, first about taxes. I'm going to use the reference amounts in dollars just to make it easier. Enterprise value, enterprise value, dollars 1,300,000,000 Oxiteno's PL in $330,000,000 and debt of $750,000,000 net debt. That altogether would have a net amount of BRL 221,000,000 with 34% gives BRL 75,000,000 And then we have some transaction expenses, the possibility of using credits in the balance sheet to also reduce the disbursement. And that's why we were thinking of an amount below $70,000,000 for income tax due to the transaction. As for other projects, well, we have been talking about the transaction in the refinery. I think this is very clear. Natural gas, Fred himself mentioned recently the opportunities we are looking into, both in investments in GNL and distributors. I think these are the most tangible projects right now. And we also have been analyzing opportunities in renewables, but that is still in the beginning. And what we have been doing is accelerate the expansion of Ultracargo and the opportunities have been increasing in Ultracargo in addition to other expansions that are ongoing, especially infrastructure in Ipiranga, Ultragaz infrastructure and also MPM. These are the main projects, and we are going to give you more disclosure as they materialize. Next question comes from Chiara Uduachi from BTG Pactual. I have one more question here. I would like, Rodrigo, to talk a bit about the synergy of the remaining portfolio in Ultra. Strategic wise, it's very clear you're talking about the energy business with the Piraka Ultracas infrastructure with Intracargo, but that is very much co related to wet fuels. But I would like to hear from you, Rodrigo, about the capacity to capture synergies as the portfolio is given today. And why do I ask that? In the past some time ago, we discussed with you about the need of the group to simplify the decision making process and bring management closer to business units to enable synergies to be truly captured. Today, the impression that we have is that businesses are still somehow managed in a very independent way. So I would like to hear from you how you see that these 3 main businesses that will remain can indeed deliver synergies in between themselves, Ipiranga, Ultracargo and Ultragaz, if you please. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Good morning, Thiago. I also thank you for your question. Well, if we take a look at the remaining portfolio, Ipiranga Ultracazza and Ultracargo. First, as you know, sectors in distribution of fuels, GLT and infrastructure, you have immediate investment opportunities that can be optimized. Instead of Ipiranga making an investment in a terminal or Ultragaz, you can have Ultracargo and you have a benefit of scale, better use of employed capital because the same asset can be operated with other players. And you also have trading benefits that are integrated. You have a market of gas itself that is opening and that consolidated with the fuels obviously brings benefits in terms of intelligence and scale. And a very relevant effect of the simplification, and I think that's a very good word. It's a simplification of portfolio because we have very different businesses. If you consider a pharmacy chain with a breastochemical industry with ConnectCar, which is a tall company. So that will give the management a lot more focus, agility in its processes and also bringing more focus to the verticals in which we are operating and in which we are going to have exclusive dedication. As a Bastesi, it was competing between Utra Par and Connect Card, but no longer the same thing with NPM that is having now more focus in our business portfolio with the simplification. So focus, simplicity, agility, the faster decision made process, everything gets simpler. Although we are a very complex company that is present in several countries with operating units, but there is also a difference in between the operation of the remaining businesses now. So I think these are the main benefits, opportunities of investment, better use of capital, trading, FOCO, agility, simplicity, in addition, obviously, of this rationalization that enables us to have a much more robust, better capital structure to pave the way of investments for the coming years. [SPEAKER CARLOS ALBERTO PEREZ DE SOLAY:] Thanks, Rodrigo. But trade is something that really draws our attention and has to do with the discussion that we had last week about Ipiranga. Do you believe that to capture this efficiency in fuel trading between Utrapara and Ipiranga are given the way that the portfolio is going to be structured from now on? Or do you need to change something in the way the structure is put together? This is an ongoing process. The benefit has to be built. And here, the benefit with directional trading, for instance, will enable us, for example, to use Ultracargo terminals to help in this kind of positioning. This is the kind of benefits that you will have, but that has to be built. It's not given right now. Okay. Thank you very much. Very clear. We now have Vicente Falanga from Bradesco BBA. Good morning, Rodrigo. How are you? I just would like to understand one thing. The net debt that you mentioned, dollars 750,000,000 Does that include the leasing detail or not? And if not, could you tell us what the present value is just for us to calculate the amounts? [SPEAKER CANDIDO BOTELHO BRACHER:] Thank you for your question as well. If you can repeat your question, your voice was a bit cut off. If the debt of $750,000,000 includes the GTL of leasing and if it is in IFRS 16, no it does not. The VTL of the leasing is about BRL 40,000,000, right? So it's a very, very small amount. Okay. Thank you very much. Well, thank you. I have a question that was posted on the webcast. So I'm going to ask the question and answer it. It comes from Alejandro from Nao Securities. And the question is the following. If this business will have a breakup fee and what is the size of it and if the second payment is conditioned to terms. And there is another question from Rafal Sommer from Logos Capital that has a very similar question to Alera dos, if the BRL150 1,000,000 is an earn out clause. So answering the two questions, yes, we do have a breakup fee in the transaction. It is irrelevant, but we are not going to make it available due to the confidentiality of the transaction and of the contract. And the condition of the breakup fee obviously is the fulfillment of agreement terms or eventual and unlikely disapproval from the Brazilian antitrust agency. As for the US150 $1,000,000 in the second installment, no, it is not a one out. It has no other terms other than time. After 2 years of the closing, the payment is going to be made at US150 $1,000,000 No other conditions, it's deferred payment. One more question from an individual investor, which is how do you see the valuation of this transaction in addition to the multiple or beyond the multiple. Well, one way to think this valuation above the multiple, as we mentioned, is to think how we see the return on capital invested. If you consider the results of 2021 of Oxiteno with an average between the peak and valley that was given to the market in 'twenty one. And you consider the average amount, the profit of Oxitel divided by the employed capital and the amount of the transaction, BRL1.3 billion, you're talking about return on invested capital of 2.5%. Obviously, for the mire, the ROIC is much higher than that because you're going to have synergies. But for us, we have a return profile that is much above the 7.5%. And remember that this reference that I'm giving to the return is a record historic EBITDA for Oxiteno. And finally, in terms of returns for the transaction, I will remind you 2 things. First, Oxiteno's EBITDA 2 years ago was $70,000,000 And also remember that the sale is taking place in an exchange rate that is very favorable to the transaction. So if you take a look at reais, the multiple is much higher than that of the dollar rate. Do we have one more question on the webcast? You can go on. We have a question on the phone. We have a question on the phone by Jesus Cartoloso from Credit Suisse. Most of it has already been answered, but I would like just a quick follow-up about Oxiteno's EBITDA. I understand that this is at a higher level than in the past. The question is, do you see this level that the company was keeping at a higher because it moved to a specialty mix? If the buyer saw some benefit in having more specialties or if the suitable comparison is just the average of 3 to 5 years and the product mix is more or less the same. Just to understand the profile from now on between specialties and commodities. Hi, Regis. Good morning and thanks for your question as well. Well, from now on, the profile of specialties and commodities is responsibility of Indorema. Of course, the Occitan's specialty mix is what attracted the company and enabled us to have a higher perception of valuation. When we look at the moment we are going through, as I mentioned in the presentation, we have a very good mix of deep value exchange rates and historically high margins. So it was a right timing and therefore this value enabled the transaction now. The buyer has a position in the United States, which is 10 times greater than ours in the United States, Oxiteno. So certainly, they have very relevant synergies in the U. S. Operation that we wouldn't have if we kept Oxiteno. And therefore, we can have a transaction that generates values to sellers and buyer because there are loads of synergies for the buyers to take from this operation, especially in the U. S. And because they are a player that operates in more than 30 countries, optimizing the capacity of production in the different geographies due to the different clients they have is also something that can bring relevant logistics savings and others. So that's an important synergy in addition to the use of benefits of having greater scale. I mean, fixed cost, plant maintenance, technology and R and D. So I think that's in a nutshell why we got to this amount that was quite interesting for Utrapar and for the buyer themselves. [SPEAKER CANDIDO BOTELHO BRACHER:] Thank you, Rodrigo. Very clear. Now we are going to turn the call to Mr. Pizinato for his final remarks. Well, I thank you very much once again to attend this call. It was a very short time between the material notice and the call. And remember that our team are here for any further questions you might have. Thank you very much and have a good day. Thank you. The conference call is now closed and we wish you a very good day.