Earnings Call: Q2 2021

Aug 12, 2021

and thank you for waiting. Welcome to Ultrapar's Earnings Conference for the Q2 of 2021. This meeting is also being simultaneously cast to Ultrapar's website, ri.ultra.com.brandmzqplatform. Please feel free to flip through the slides during the presentation. With us today are Ultrapar's CEO, Mr. Federico Corrado Ultrapar's CFO and IRO, Mr. Rodrigo Pizzanato and Ipiranga's CEO, Mr. Marcelo Araujo, joined by the group's other executives. Please be advised that this event is being recorded and all participants will be connected in listen only mode during the company's presentation. After Ultrapar's remarks, the floor will be open for questions, at which time further instructions will be provided. We would like to remind you that questions for the Q and A may be posted on the webcast page at any point during the call and that a recording of this conference will be available on replay for 1 week. Before we proceed, let me mention that the company's forward looking statements are being made under the Safe Harbor of the 1996 Securities Litigation Reform Act. These statements are based on the beliefs and assumptions of Ultrapar's management as well as information currently available to the company. They involve risks, uncertainties and assumptions seeing as they relate to future events and therefore depend on circumstances that may or may not materialize. Investors should understand that general economic conditions, the state of the industry and other operating factors could also affect Ultrapar's future earnings and could lead to significantly different results than those expressed in said forward looking statements. Now, let me turn the conference over to Mr. Federico Corrado. Mr. Corrado, you may now begin the conference. Hello and good morning everyone. Thank you for participating in our earnings call. Let me kick off saying that we made good progress in the Q2, particularly in our strategic agenda, but also in cash management and the gradual reduction of our indebtedness. So the 3 transactions I would like to talk about. In May, we signed the contract to sell Extrafarma to Pagimemas. And this transaction now awaits the approval of CADE to be finalized. We also announced the sale of our 50% stake in Conectar, in this case, to Porzinguro. This operation has already attained approval of CADE, and the only pending condition is now the clearance from Brazil's Central Bank once, of course, Conestica is a financial institution. And finally, we announced negotiation on an exclusive basis with Indurana, Fabrizio of Axiteno, our expectation is that we should finalize this rather soon. Speaking now briefly about our businesses, which Rodrigo will cover in detail in a few minutes. We had another excellent quarter in Ultracargo and Oxiteno. In both cases, the Capres recorded new quarterly records, so great progress there. I would also like to highlight the advancement of the anticipation of Utakarga's expansion projects, both in Viro do Conde and Itaqui. And this early engine to service will provide an increase in revenues towards the end of this year. Speaking about Extrafarma now, the company achieved another quarter of sequential improvement. It is facing competitive pressure in its main markets, but continues on its trajectory of recovery. Ultragal had another solid quarter despite the challenges in margins imposed by the continuous increases in the price of raw materials. Just to give you a perspective, in 2021 alone, raw material has risen something in the order of 40% 40%. And finally, Ipiranga, we had good volumes in Ipiranga, but we experienced a strong competitive pressure and ended up with margins, which are slightly below what we expected. This, of course, is our main point of attention, and the company has been structuring itself for a gradual margin recovery and market share recovery. To that extent, as we have announced previously, Piranga has changed its organization and has also implemented a transformation agenda, which has 4 large sets of strategic initiatives. So given the relevance of this matter, I actually invited Marcelo Araujo to join us at the end of our conference and the ideas that he will be able to share with you this agenda in further detail. Now back to Ultrapar Consolidated. Our net profit, if we disregard the impairment of Extrafarma was approximately BRL300 1,000,000 and that supports the advanced distribution of dividends in the order of BRL280 1,000,000, which we announced. And finally, let me just highlight the release of our second integrated report, the 2020 integrated reports. And this year, the report had the certification of GRI and for the first time, some cross references with the SaaS standards, which it is our intention to provide information in both standards. We continue to advance in the definition of our ESG goals for 2,030. And obviously, those rules, they will be integrated in our strategy and our idea is to disclose them by year end. So let me make a pause here. Thank you again for your presence. I'll pass the word to Rodrigo, and I'll be back in the end for the Q and A. Thank you very much. Thank you, Fred, and good morning, everyone. It's a pleasure to be here once more to talk about Ultrapar's quarterly results. So let's start with Ultrapar's consolidated results on Slide number 4. As you can see in the upper right graph, our recurring EBITDA totaled BRL 898,000,000 in the 2nd quarter, a 50% increase over the Q2 of 2020, the quarter most affected by COVID, especially due to the significant drop in fuel consumption that affected the Piranga. We also had in the Q2 the signing of the sale of our ExtraPharma, which generated asset impairment that negatively affected EBITDA by BRL395 1,000,000. I remind you that this impairment does not have any cash impact. Our net income, excluding the impairment effect, was BRL290 1,000,000, a BRL240 1,000,000 growth over the Q2 of 2020 as a result of an increased EBITDA and better financial results, especially on the back of BRL73 1,000,000 of tax credits and positive temporary effects of mark to market currency hedges, which partially offset the negative effect that we had in the Q1 of 'twenty one, as you should recall. We recorded BRL150 1,000,000 cash flow generated from operating activities in the Q2 compared with BRL 871,000,000 in the Q2 of 2020. The improvement in cash generation was driven by the higher EBITDA despite greater investments in working capital on the back of higher prices of oil derivatives and raw materials that in 2020 were in a downward trajectory. Moving now to Slide number 5, let's talk about the progress in liability management. We ended the quarter with a net debt of BRL10.900 billion, which is BRL1 billion less than that of March 2021. This reduction is explained by the increased operating cash generation that I just mentioned and by the exchange rate variation effect on the net debt portion of bonds designated for hedge accounting. I highlight that during the Q2, we settled with cash resources the remaining portion of the emergency debt contracted during March April of 2020 at the beginning of the pandemic. These debt had higher costs and shorter term maturities. Therefore, such liquidation contributes to the reduction of the debt carrying costs without losing flexibility and financial security. The combined improvement in operating cash flow in the last 12 months EBITDA, excluding the impairment, resulted in the reduction of our leverage from 3.3x in the Q1 of 2020 to 2.8x in the Q2 of 2021, as you can see in the graph, which is the lowest level in the last 2 years. It reinforces our commitment to financial soundness and demonstrates the resilience of our portfolio. It is worth pointing out that since the Q1 of 2020, as a result of IFRS 16, we have been adding the leases payable line item to the net debt calculation. This inclusion contributed to the increased leverage even though these leases are not financial debt. Moving now to Slide number 6 to talk about Ultragaz quarter. Volumes sold in the Q2 were 1% higher than those in the Q2 of 2020 with 17% growth in the bulk segment and a 4% reduction in the bottle segment. The growth in the bulk segment is driven by increased sales to industry commerce and services segments, which were the most affected by the restrictions imposed during the pandemic last year. The drop in the bottled segment is explained by the strong demand during the Q2 of 2020 on the back of social distancing measures. Ultragaz's EBITDA was BRL137 1,000,000 in the quarter, a 34% reduction over the same quarter of 2020. Despite the increased sales volume, the EBITDA reduction reflects a strong comparison basis and the subsequent increases in LPG costs. In addition, we had higher expenses with personnel and freight due to higher sales volume and higher digital prices. For the Q3, the perspective is seasonally stronger volumes as well as more stable LPG costs, allowing an important evolution of results in relation to the Q2 of 2021, although lower than that of the Q3 of 2020, which was also more benefited by the Santander. Now let's move to Slide 7 to talk about Ultracargo. The average installed capacity reached 859,000 cubic meters in the 2nd quarter, a 3% growth over the Q2 of 2020, a result of expansions in tank capacity when implementing the EBITA key over the last 12 months. Cubic meters sold increased 7% year over year, mainly due to the full handling increased EBITA key allowed by such expanded capacity. Net revenues for Ostravcargo totaled BRL176 1,000,000 in the 2nd quarter, 30% above that of the Q2 of 2020, mainly the result of the expansions and contractual readjustments. Combined costs and expenses increased 10% in the quarter, mainly due to increase in product handling and increased expenses in rent readjustment and depreciation resulting from the capacity expansions as well as an increase in expenses with information technology and engineering services to support expansion projects, productivity gains and digital transformation. Therefore, Ultracargo's EBITDA reached a new record level of BRL100 million in the quarter, 9% above the Q2 of 2020, the result of increased sales, partially offset by increased costs and expenses. Ultracargo continues to follow its path of expansion with profitability. EBITDA margin, excluding non recurring effects, as you can see in the graph, reached 57% in the Q2 of 2021 compared to 51% in the Q2 of 2020. For the current quarter, we expect Ultracargo's operational performance to continue, the EBITDA reaching a similar level to that of the Q2 of 2021. I'd like to call your attention to the new anticipation as highlighted at the bottom of the graph of the start of operations in the new terminals. We anticipated 5 months on average in Itaqui that concluded this July. We will also anticipate about 3 months the Villa do Condi terminal that should conclude in the Q4 of this year. As already mentioned by Fred, both of these new terminals contribute to results still in 2021. It reflected the education and evolution of Ultracargo's team in managing these expansion projects, reducing both the initially planned CapEx and anticipating the start up of operations. Now moving to Slide number 8 to talk about another excellent quarter for our Oxy panel. Volumes sold during the Q2 of 2021 were 15% stronger than that of the Q2 of 2020. Volumes of specialty chemicals were 15% higher due to increased coating sales, segment most affected at the beginning of the pandemic and crop solutions segment that has maintained its strong performance. We also registered sales volume 36% higher in the United States. The volume of commodities also grew 16% due to the demand drop last year as a result of the pandemic. The EBITDA of Octitenor has also reached a record level of BRL274 1,000,000 in the quarter, a 69% growth over the EBITDA of the Q2 of 2020. This performance results from the increased sales volume and better margins, which were negatively impacted in the Q2 of 2020 by the 0 cost collar hedging, which linked Oxiteno's upside from exchange rate depreciation. These effects were partially offset by higher costs and expenses with 4 main effects: freight and storage due to higher volumes and unit costs in real personnel expenses in line with the progression in results and maintenance mainly related to the Mala plant schedule shutdown this quarter. For the Q3 of 2021, the outlook remains positive with volume growth more normalized and a level of results similar to that of the Q2 of 2021, assuming the current level of exchange rates. Let's now talk about Extra Pharma on Slide number 9. We ended the quarter with 400 stores, a network 2% smaller than that in the Q2 of 2020, which reflects a greater selectivity in expansion and increased rigor towards underperforming stores. It is also worth noting that 17% of the stores are still in the ramp up space. Gross revenues were BRL 542 million, 5% above that of the Q2 of 2020. We registered same store sales growth of 10%, excluding mobile sales, partially offset by the number of stores 2% lower and the strong comparison basis in mobile sales in the Q2 of 2020 due to the temporary closing of nonintention commerce at that quarter. Recurring EBITDA for Extra Pharma totaled BRL22 1,000,000 in the quarter, a 58% growth over the Q2 of 2020, resulting from the closing of underperforming stores and the increased profitability at the existing network. These effects were partially offset by the inflationary impact on personnel and services and by the contingency expenses carried out in the Q2 of 2020. With the signing of the contract to sell Extra Pharma to Pagemeno this quarter, already mentioned, we also recognized assets impairment in the amount of BRL395 1,000,000, representing the difference between the book value and the value announced in the transaction. I reinforce this impairment does not have a cash impact and is still subject to closing adjustments. We expect results from this current quarter to be similar to the levels achieved in the Q2 of 2021. Moving now to Slide number 10, let's talk about the Piranga. Volumes sold were 21% stronger than those in the Q2 of 2020 with a 25% growth in the Otto cycle volume and a 17% growth in diesel. There has been an important volume recovery as you can see in the upper graph. We are also we were also able to recover most of the market share loss during the pandemic, getting closer to the pre pandemic levels. We ended the Q2 of 2021 with our network of 7,110 service stations, practically flat when compared to the Q1 of 2021 with 66 new service stations and 63 service stations closed during this quarter. The average volume contribution of new service stations is between 250300 cubic meters per month, while the closed ones had volumes below 100 cubic meters per month. SG and A increased 36% over the Q2 of 2020 with 3 main effects: higher freight and lubricant expenses due to higher sales volume, expenses contingency in the Q2 of 2020 and higher one off contingency expenses in the Q2 of 2021 and the growth of AMPM company operated stores. The other operating results line shows a BRL52 million increase over the Q2 of 2020, mainly due to tax credits net of write offs of BRL97 1,000,000 in the Q2 of 2021, partially offset by the costs with new carbon tax relating to Renovaville targets of BRL32 million in the quarter. Therefore, Equinor's EBITDA was BRL122 million during the Q2, 1 136 percent higher than that of the Q2 of 2020 on the back of stronger sales volume improved of other operating results, partially offset by pressured margins, especially ethanol and diesel and higher expenses. Looking at the prevailing Q3, we anticipate higher sales volume returning to pre pandemic levels of the Q3 of 2019 with recovering margin levels, but still pressured. I would like also to call your attention to AMPM on this slide. As mentioned in the recent events of the series with Ultrapar's Leaders, we will begin to disclosure the total GMV sales figures for AMPM to improve visibility of the progress in planning and results. These sales correspond to the total sales of franchised and company operated stores. We ended the Q2 of 2021 with 101 company operated stores and already have over 120 company operated stores in operation. And with this, I conclude my presentation And I will pass to Marcelo Araujo, who will update you on the many initiatives of Ipiranga's Transformer Evangelioni. Marcelo, now it's up to you. Thank you. Thank you, Rodrigo, and good morning, everyone. I made an effort here to summarize in a single slide, which is Slide 11 of this presentation, an update on the progress of initiatives that we have to increase our competitiveness and profitability with Baukim and as I presented in the Ultragenyx. There, we have defined 4 avenues for growth and profitability that summarize our strategic priorities. What I will do here is retain some of these initiatives and revenues and give you an overview of the contribution to the results we expect for the entire program. We selected the 2 most relevant initiatives at this stage. First one is that we call what we call the reintegrated strategy. While the main 12 logistics corridors in which we operate today have already management committees integrating commercial area with Avon business to business customers with the pricing, trading, logistic and operational structures for each corridor. So this integration has allowed a decentralized management implementing strategies and decision in a much more agile way, reflecting the demands of the market in each region. This is very, very relevant for us since it is really the biggest change in Verano's operating model in many, many years. What we see is, while we are advancing this redesign of the managing and operating systems to support this the greater granularity of these corridors, we already expect to capture some quick wins in the coming months. But in particular, we had already identified opportunities, some logistical flows and the optimization of the take or pay contracts for storage and transport, which we expect those opportunities to have an impact of BRL15 1,000,000 to BRL20 1,000,000 still in the second half of twenty twenty one. Here in August, this month in August, when we started our planning cycle for 2022, which will be built bottom up by logistic corridor, each one of these logistic corridors and after all consolidated at a preventive level. Each corridor nowadays has already defined its competitive strategy and they will also have its own expansion plan, its investment plan and of course its own P and L, complete P and L. The second front is still in the competitiveness pillar and the competitiveness avenue is the trading competence that we are fully implementing at the Piranha nowadays. While the focus until 2020 was to supply products on an efficient manner to serve our network and corporate customers at a national level, today, we are moving on and already carrying out some operations supported by our existing structure, which is called as asset backed trade. And also, we have started to operate as an intermediate of products to third parties. So this movement that we are doing or we're experimenting these days, the last months are expanding our trading area expertise, gaining knowledge and improving our process along the way. To perform so, we formed a complete trading and supply and demand intelligence teams. And we also are implementing a new model for governance and risk management. We have already started testing the dedicated system for managing trading operations and cooperating the value at risk for each operation. Once we have defined the parameters and integrated that methodologies into the systems, we will be able to ensure that they're monitoring of our positions and increasing our visibility towards opportunities and risk control. And so we really have the check and balance of the whole trading operation. So for 2022, with the systems already in full operation, we will start to adopt new trading strategies for the commodities we operate and their financial instruments as well. Going forward, as the team process and controls mature, we'll start doing some proprietary trading by taking directional positions, seeking to maximizing guidance, which is the main objective of the trading area. Well, these were the 3 strategic issues to detail on today's conference call as they presented the highest potential contribution on the results for the next 3 years. But we cannot forget about another very relevant front, which is strengthening the relationship and the recovery of the financial thousands of our retail network. This is a non negotiable priority for us as we have been notifying you all and the market in the last conferences. In this case, I think it's worth highlighting, well, the rollout and evolution of the new pricing system, which by September this year, we already be operational throughout the whole user network. An important recent development as well was the fact that the Brazilian antitrust authority, CADE, approved our consultation for a new process to suggest reference prices for our network. This, for sure, will make much more effective the competitiveness of each service station in its area of influence in its trade area. Well, finally, the other initiatives are on schedule, in particular, the spin off of AMPM, which we have presented here in a very recent event. Wrapping up in the ending line, which we have presented at Unsra Day, we have a firm commitment to defend our current market share, especially in the branded network and business to business main customers. While in parallel, we are advancing in this transformational journey and these initiatives begins to bear fruits more consistently in the next few years. Our expectation is that the combination of these initiatives will contribute to increase our annual EBITDA by BRL200 1,000,000 already in 2022. When we look ahead at the next 3 to 4 years, the quotation for an incremental gain calculated by those initiatives in the EBITDA is at least BRL400 million when we will have all these strategies mature. As we react to the benefits of the greater cost efficient and increased competitiveness of those initiatives coming from those initiatives, we will then be able to accelerate market share gains. So this is the gradual recovery of market share as we've been talking with you recently. So I now conclude my presentation in this first part of our meeting. Now let's move on to the Q and A session where Fred, Rodrigo and I will be available to take your questions. Thank you. Thank you. The floor will now be open for questions only for investors and analysts. Our first question comes from Andre Rocher from Itau. You may proceed. Thank you for taking my question. I'd like to start my question talking to Marcelo. I think that considering the record this your historical series, this was maybe the lowest result that we've seen. Could you please talk a little bit about the effects that pressured your margins? And especially talk about what you're seeing especially this quarter at issue? And what are the adjustments that you expect to see over the second over the first half of the year? It seems like the low end of your gain seems a little bit too reach. Good morning, Andrea. This is Marcelo Araujo speaking. Thank you for your question. I think that your question was very much on point and touched on the core of what our challenges are. So, I will try to go over every aspect of our vision for everyone listening. This was a very challenging quarter for our gross margins, and we saw a very distinct evolution from 1 quarter to the other. We had not foreseen such a contraction in our margins because of the pandemic lockdown. And this lasted a long time between March April. And this really pressured our margins, especially in ethanol with a momentarily drop in prices and also a decline in sales volumes. But right after that, the market returned to its steadier levels. And also, we saw a number of restrictions with raw materials, an unexpected surge in oil prices, especially ethanol prices. And that made it very difficult for us to recover our regular margins. Consumer sales were very much pressured. And then in the Q2, they went up as did ethanol and diesel prices, which went up over 75%. So it was a massive impact on consumer sales. And even though our volumes went up, again, the level of prices made it more challenging for us to recover our margins. But we were able to sustain our strategy, which we had already shared with you, which was to stand up and defend our market share, even though we had to sacrifice our margins to do that. That maybe prevented us from capturing the return in the PISCOFINS contributions. We had some made some headway in the diesel market. But ultimately, our inventory levels were slightly below our average. And we weren't able to enjoy that return of the fiscalFINS tax levels. But the question is, margins were very pressured in the entire market. But we are looking forward now. And it's very clear, even recently in a live stream, I've made it very clear what our vision was for the second half of the year. We are very optimistic. And our forecasts show that the energy company in Brazil is projecting very high levels and very high volumes, which is what we are projecting as well. So we will be able to broaden our margins and recover a little bit of what we lost in the first half of the year. And we may even see some impact for consumers, which may pressure the system for resale and distribution across the country. So it really is a major challenge what we saw in the Q2. And we are now seeing a little bit of recovery that is likely to continue moving forward. So now with regard to what you mentioned about our guidance, we still can reach the targets that we established. We do not plan to review our figures at this point. And the expectations that were included in that guidance haven't changed as much and we expect seeing as we expect some recovery. So I hope I was able to cover all of the points that you had in your question. Yes, your answer was very clear. Now if you could please or if I could please ask my second question to Rodrigo. There was a spec hard continent last year about bottled gas, but the costs seem to be following a trend that affected the margins for Ultragaz. If you could talk a little bit about that pressured margin or those pressured margins and your expectation for the second half of the year, that would be great. Of course. Well, what most affected Ultragaz's results in the Q2 were LGP costs and the passing on of prices. And with those adjustments that we considered for the Q2, we expect to see our margins return to normal or to what we had been seeing at Ultraguya's until then. Perfect. That was great. Thank you. Our next question comes from Gabriela Barra from Citibank. Fred, Rodrigo, Marcelo. Thank you for taking my question. I have two questions. The first one for Marcelo. And this is actually some of a sort of a follow-up on Andres' question. I'd like to talk a little bit about the regulatory aspect. We saw something in regard to sales at service stations and also with regard to ethanol. And also, how do you see these changes? And also, going a little bit broader, this is sort of a wider scope than what was approved by Congress yesterday. So I'd like to hear a little bit how do you see this change and what impacts do you expect to see in the contractual relationships you have with your network? I think that would help us to understand that dynamics. If you could answer that first and then I have a second question. Thank you. Good morning, Gabriel. What you mentioned is very important, even because this is something we've been talking about since last night, this executive decree. Well, first of all, this executive order will not come into effect immediately. The one regarding direct sales of ethanol is expected to come into effect in a few months. And the one with regard to loyalty service stations, which is very controversial, has 90 days to be regulated. But it's important that we make it clear and the very executive order does it and it's one paragraph states it's very clear that this new provision will not will have no prejudice to existing contract clauses in this clause or in this on the state or for the future. So what the government is doing is proposing another alternative to the existing models where you have maybe a commitment to a specific brand and that you can maybe operate independently charging what you want from customers and taking responsibility for the quality of the product that you're delivering. So these two models coexist in the Brazilian market sort of fifty-fifty. And both with regard to the quality of services or with prices, this new alternative that the government is proposing, we believe is not neither relevant nor a priority for us right now. But I think it's valid to discuss it. We were a bit taken by surprise by it. And I think that you must have heard what companies were saying as they came out and stood out to talk about it. Even with regard to the transparency in the analysis of regulation impacts, as it should be in an industry that's so important for the economy as a whole. But we were very surprised by the executive order. It doesn't seem to us the most appropriate way to move forward in a regulated sector such as ours. I think regulatory progress must follow a few aspects. They must be well understood and they must be well planned and thought out so that every player can prepare for those impacts and understand them well. So anything in that direction concern us to some degree. But the fact is we do not expect any material impact. Apparently, this will not change the business model in place, seeing as the executive order says that every contract disposition remains as is. And the market will react as it will react, which as it does in any business. Now, with regard to direct sales of ethanol, this is something we have never been against. I think we are all in favor of more freedom among players. One thing that we think about is the very complex regulatory system in Brazil, which is probably the most complex in the world. And when you have something that creates greater tax asymmetries or imbalances, it tends to create more opportunity to evade taxes. There was even a segment in our market that was concentrating most of the tax evasion problems that we have today in the industry. We even saw 1 company evading BRL14 1,000,000 to BRL 27,000,000. And what concerns us now is what we should be discussing is having a text model for the industry that was simpler and easier to follow. And that's something the government is looking into with the ALLETE 116, something that will bring a convergence of tax rates across every state. Now, the executive order establishing free sales has a very limited is very limited in scope in our opinion. So we don't expect it to have substantial impact. And we think that it will be more difficult for the government to oversee these negotiations. So the government addressed in the executive order the fiscalFINS issue, but we still don't know how the ICMS issue will be settled, which is even more pressing. But we don't expect to see significant impacts, Gabriel. Yes, that was very clear. Thank you. Now, I have a second question. And perhaps Rodrigo could give us a little bit more detail. Looking at the production processes within the company, we saw the ExtraPharma sale and then ExtraPharma sale in Oxyteno. And perhaps the endpoint of this restructuring would be the refap situation. And my question is, with the postponements that we're seeing with the sale, what risks do you see to this sale process? Seeing as we are now approaching an election year where uncertainties are greater, how do you see this scenario moving forward where the actual sale could not materialize? Would that be possible that refap sales do not come through? What are the risks you see to this entire process? Thank you. Hello, Gabriel. This is Fred. How are you? Well, I'm trying to give you a more encompassing answer. We are in this process, which we also inform in 2 processes, one that's to inform and the other to rationalize this investment process. So talking about Ipiranga Ultragaz and Ultracargo, These are companies we have a lot of scale in and a great market share. And in the second stage of development, we plan to look into the consumer side with regard to AMPM. And we also want to move forward in terms of integration. And that's where the opportunity for a new refinery comes. This is an industry where we see the possibility of substantial returns on our investment and we want something that makes sense evidently. So, the consultation that Petrobras looked at gives this risk or return and risk balance. So what we have is an adequate deadline to finish negotiations, which are ongoing. Still about the development of our portfolio, we are looking into the energy transition aspect, both in terms of energy per se and infrastructure. Our LNG operation is something that we're trying to reshape and try to operate on that side of the industry as well. We have processes in place to deal with state and local distributors, which is something we have made headway in recent months. And here, we're talking about a much cleaner energy. And lastly, with Ultra Cargo, we are looking into expanding their operations. This is a company that has potential to grow not only in what it already does, but we also have no haul and the expertise to operate in different sides of the market. So as with everything, it's always a matter of risk and return opportunity or risk return balance, and it will continue to be so moving forward. Our next question comes from Luiz Carvalho from UBS Bank. Hello, Fred, Rodrigo, Marcelo. Thank you for taking my question. I'd like to go back a little bit. I was reading your earnings release yesterday, and I was really impressed by the fact that the negative margin of BRL52 per cubic meter at Paperama. And for the last year, the last time we saw something like this was 2019. And since then, your volume specifically has grown to 35%, nearly 40%. And we have had significant discussions, especially after the attempt to buy El Atuk, which the antitrust authority ultimately blocked, talking about obviously the position of the company in terms of challenges for the competition. And even looking at your last slide, I'm very struck by how late you were in the few steps. I think ever since Petro Porrente entered Petrobras in 2016, the import market is already moving forward, it's already thriving. And I'd like to understand, perhaps this is a rhetorical question, but I'd like to understand with this BRL200 to begin next year or even BRL400 in the next 5 years, obviously, the market has these figures in mind. And the ability for the company to deliver results of that level is seems small. It's literally twice as much as what you've been able to deliver. So what I'd like to understand is what is going on? I mean, I'd like to hear an analysis of precisely where the company is losing or getting out of step, so to speak, and how you plan to recover from that? So that's my first question. My second question has to do I think with the previous question with regard to refining. If you could give us a little bit more detail about where that negotiation is standing right now. Obviously, CADE gave you until October to finish. And what are the topics in terms of contract negotiations that you're maybe stuck in? And do you believe this negotiation will be concluded by October? Thank you. Hi, Luis. This is Marcelo speaking. Thank you very much for your question. Very thoroughly our strategy early this year, late last year and early this year, prioritizing those four avenues for growth that we talked about, competitiveness in our network, our cost competitiveness and the recovery of our market shares and also the preparation of the Company for the future. So these were like the 4 main avenues for growth, all of which are really priorities for us. So, emancipating the INPM. But I think the strategy, the path is very clear for us. We have no major question. This is a plan that's been approved and is being monitored by our administrative board very thoroughly and very regularly. So we are already on track to reach those goals. Now, you mentioned imports. We're not late in our import game. Our imports have been material and comparable to the levels of our competitors. In the Q2 of this year, we went back a little bit because of the regulatory issue, but we have already rebounded from that. The question is, how much you're using that short in terms of supplies to be able to make better use of the volatility of this market and find opportunities to add more value to our brands. That's the trading initiative that I tried to speak in greater detail today. This even includes the new risk management policy that we have in place and the new system to implement those policies that have been detailed to our governing bodies. So we are already on track to all of that, to doing all of that. And as I highlighted very clearly in the previous part of our meeting, we are firmly determined not to budge on in terms of market share, because for a long time, we were defending our profitability and losing market share because of that. Now, we have a clear plan and we have initiatives that will need time to mature, obviously. But during that time, it makes no sense to budge on market share, understanding that we will need those margins in the future. Now, as I said in my answer to Andre, this was not your typical quarter. We had nonrecurrent impacts that were significant. The ethanol crops and also the changes in diesel prices. But if volumes remain flat for the next few quarters and if we manage to sustain our market shares and recover volumes or sales volumes, we believe that we will be able to remain on track to gradually recover over the next few months. So that is our view and we are absolutely confident that our plans are robust. And I'm sure that you've seen our presentation in Ultra Day that we've made a substantial adjustment in our organization. We streamlined our organization in June July, which was precisely to become more confident that we will be able to deliver those values that we summarized in the material that you have in your hands. I hope that that was enough to help you understand where we stand. Yes, obviously, I'm sure I know that Fred wants to answer about refining, but I'd like to pose a third question, even picking up on what Marcelo just said. Considering the recent changes in the company's Board, could you really please give us a little bit more color in terms of what the relationship looks like right now, especially considering the main challenges and the main points that have come up in terms of questions for you as executives? Thank you. Hi, Luis. Well, let me talk about refining first. Of course, the pace is not as fast as what we expected. But negotiations by definition involve 2 parties. And obviously, what we expected is not exactly what is going on and what they expected. So we understand and this is a complex negotiation. There are several contracts being looked at. And perhaps this is not going at the same pace as we wanted, but it's being conducted with a lot of respect and in a very clear way. So, the risk return balance that we established in our original proposal, we is something that we're trying to respect and also pursue obviously. So once again, the deadline that we established is absolutely adequate and sufficient for us to achieve that. But once again, these are 2 parties negotiating. So it's not just up to us. Now with regard to your other question, we have our committees in place and the structure that was created about 2 or 3 years ago with these committees makes it a lot easier for everyone to do their jobs. So you have no relevant issue that is not really looked at in detail. So Marcelo mentioned a while ago that something that everyone is looking at more closely right now is Ipiranga's. So, the Board and the work that they're doing obviously reflects that as well. And their work will obviously depend on the ultimate earnings results. The relationship has been very positive. The adjustments that we made, not only the last one, but all of the adjustments that we've had relied on very significant contributions from the Board. And that's something that should be strengthened over time. Our next question comes from Vicente Valanda from Bradesco BBI. Good afternoon, guys. Well, I had two questions. First of all, do you have an estimate of the margins for Ipiranga going out of the quarter? Or could you quantify how pressured the margins were for Ipiranga? And how much of that was caused by the change in prices by Petrobras? How it affected your industry targets and how it affected the company as a whole? And my second question, we've been reading recently that the Poremix Group is building a terminal to export oil and handle byproducts in the state of Espiritu Santo as well. So I wanted to know whether that poses a business opportunity for you, especially with Ipiranga moving forward? Thank you. Hi, Vicente. Let me start with your first question with regard to our margins and the impact that this might have caused to prices. Well, it's important to have in mind that the industry where we operate gasoline and ethanol, which is not does not has not there's no share in aviation fuel, for example. So it's just a share of the market as a whole. So our cycle during this quarter is one that started with the rise in ethanol prices with good recovery and very substantial challenges in general, especially with ethanol and diesel. But we have seen recovery to start and we expect it to be even more substantial moving forward because of the volumes that we're seeing. When the volumes grow, the demand is naturally greater. And we see this the costs in the market settling as well. So considering how much they've gone up 60%, 70% in the last few months, The challenge to pass that on to your consumers is very difficult without pressuring your entire value chain in the middle. So it's a great challenging isn't to be consistent to our other strategy, which is to strengthen not only our relationship with our network, but also to recover the financial robustness of that network, which had been very much pressured because of the pandemic in this past year. So a very important indicator for us in this sense is the consistent decline in delinquency that we've seen since 2019. This is a very important indicator for us to understand how the robustness, the financial robustness of our network is doing. So how our partners or how competitive our partners will be moving forward. So these are important indicators that give us an idea of what things are looking like. Perhaps we are still far from the ideal. So our network is not as robust as it's been in the past with the ability to invest and grow organically. But we are starting to see some recovery. And the decline in delinquency rates is one of the main indicators that are showing us that. So we are seeing very positive things in that sense. And if the rebound comes and we become more competitive and our network becomes more competitive as well, we are able to better defend our market share and that's what we plan to do. Now with regard to Polymix's project, the Polymix project in the state of Espiritu Santo, as you know, we won a bidding process in 2019 to build a new terminal in the city of Victoria in that same state. And that's already underway. Construction is already underway. This is a significant investment. We did not expect to have a deficient storage capacity. But now, we are seeing a greenfield terminal being built as well, but we are monitoring opportunities with that project. That project will perhaps be more efficient for crudes than byproducts. But it might be also good to receive large vessels and also operate this new market in Bahia as well. So these are things that we're looking at. Yes, just adding to that, Vicente, we are not looking in particular to those operations in Espiritu Santo. We're looking more to the North and Northeast regions of the country where we see a clearer increase in demand. That was perfect. Thank you, Fred and Marcelo. Our next question comes from Bruno Montanari from Morgan Stanley. I just have some quick follow ups. In terms of Ipiranga's competition, when you talk about defending the company's market share, is that more about the peers your direct peers or your white lines. Now with regard to total purchases, I'd like to understand whether it will be possible to pass on the entire cost to make up for the price increases and how that will affect especially the bottle segment? And if you could talk a little bit about the refinery, is it more about prices or in terms of contracts, is it more about operational aspects? And I'd like to understand whether it has to do more with your assets or liabilities within your negotiations. Thank you. Hi, Bruno. This is Marcelo. I'll start by answering the first part of your question. When we talk about defending the market share of our company operated stores. As you see in the document, it has to do with the volume that I sell with my Ipiranga brand and the volume I sell with the, what we call the white flag brand. So these are sort of spot markets that we operate in a few locations where we have greater competitive edge and where we sell a little bit more. On average, that's sort of 17% of our sales, which go to these spot markets. But that is all about competitiveness. And it depends on where we are because some places in Brazil, we do not have a large market share. So we can't grow our market share in these places, but we can have a good relationship with these non proprietary brands. Now, what we are most concerned with is the Ipiranga brand network. That's the network where we want to defend the market share from the entire market. We want the proprietary brand market to continue to grow, which comes from the number of service stations and their productivity. And right now, we are very much focused on increasing productivity and sales volumes in each of our service stations. And that will only occur if they're more competitive where they're located. So when I talk about defending our market share with the Ipiranga brand stations, I'm talking about the network of service stations and defending their market share from the rest of the market. Good morning, Bruno. With regard to Ultragas, you're right. The share of the increase makes it more difficult to pass on the costs. But what we expect for Q3 is to recover our margins with a more stable price level. Yes, the market is very non elastic. But with regard to refining, Bruno, unfortunately, I can't give you more granular details. And I don't want to be elusive. I'd rather say that we are still negotiating. I mean, if I go into greater detail here, I will be crossing the line and I can't do that. No, that's fair enough. Thank you, guys. Our next question comes from Regis Cardoso from Credit Suisse. Good afternoon, guys. Thank you for taking my questions, Fred, Rodrigo and Marcelo. This was definitely a challenging quarter. So I have two questions and they're more focused on the future than the past. So considering this very challenging quarter, I'd like to know if you understand that the impacts were restricted to that second quarter or whether there will be some leftover challenges to the following quarters in terms of the trend of your margins, considering the levels that we've seen? And being a little more clear in what I mean, in terms of margin, would you need to reach something like 90%, 95% EBITDA margins over the course of the Q3 to reach the target that you've established in your guidance. And I'd like to know if you've had or if you expect to have full recovery starting in Q3. And I'd like to hear from you whether that was a specific effect and restricted to that quarter or whether recovery will be slow and gradual and if we should expect to see something like what we saw in Q2 and Q3 as well. Now my other question is with regard to the gains that you pointed out in your slides considering a challenge for the next year. And my question is what comparison basis should I adopt to understand those figures? Is it the current quarter normalized and whether I should make some sort of adjustment, for example, over the current basis, there were maybe some non recurrent effects considering asset sales and tax impacts. I just wanted to understand what basis should I adopt to understand those figures? And if you could give me a little more details about where those gains are coming from, whether it should be increments in your gross margins, for example? Thank you. Hi, Regis. This is Marcelo. Those were excellent points that you raised. Obviously, in terms of our margin trend is something that we expect to continue trending positively. Obviously, we do not expect to see a great leap from 1 quarter to the other, but the level of prices should be high considering the recovery in our margins at a time when demand is still recovering. It's not yet a very a booming recovery, so to speak, because our economy is still recovering from the pandemic. But we expect margins to trend very positively. And we continue to believe the targets we set in our guidance. With regard to those $200,000,000 in gains that we expect, that's good because perhaps it was not very clear. This is the expectation that we had for this year's results. Considering the regular results of 2019, even because the results in 2020 were very much off the curve. So the methodology we used to calculate that was our own plans and the plans that sort of originated our guidance. So the two strategies I talked about here are the 2 that would have the greatest impacts on those results. Here, we're talking about operational costs and margin impacts. If you look at the regional operations, that's where we see more opportunities to make good use of our infrastructure and to grow our business. So growing our business and growing our marketing are the strategies that we will adopt for those regions. And trading adds value to that and allows me to use all the volume from those transactions with Esperanda to capture additional margins and enjoy the volatility in commodities using more sophisticated instruments to capture gains from that. Obviously, there's still room for gains, but they should be marginal gains from now on moving forward. So we've already captured BRL240 1,000,000 with the company. It's in our SG and A. That's a very competitive level for today, even compared to our volumes in the past. So, we are in we are fastly moving in a trend of capturing value. Thank you. Thank you for your answer. Have a good day. Our next question comes from Pedro Soares from BTG Pactual. Good afternoon, everyone. My first question has to do with your CapEx, specifically with Ipiranga. So currently, your CapEx is 19% of what your guidance has, which is significantly lower than your historical average for this time of the year. And the results in service stations was also the lowest since 2019. So if you could talk a little bit about how those sectors are connected and whether you have any cautions associated with those variables or any specific challenge with regard to that. That would be very interesting information. And now going back a little to refinery and your price strategy moving forward, if you could give us a little bit of how you see these refineries fitting the development of those operations? And a third quick question, we usually ask this in every call, we've asked this in previous calls. If you could talk about service stations that still have to receive a brand, you used to talk about 1.5% of them. I would like to know whether they are still at that level. Thank you. Hi, Pedro. This is Marcelo again. Thank you for your question. You touched on a very interesting point. And I think it's important to make it clear that we have no reservation about being conservative in our CapEx applications and investments. This has to do with the moment that we're living in. We've talked about extensively here today. Our CapEx is low not because the lack of branding stores or anything like that, it was actually lower or actually higher than what we had forecasted for the first half of the year, which was over 100 stations. Also, our backlog is up over 200 stations. And our target is obviously to surpass 250 stations this year. And this is our actual plan. We no longer expect and this should be very clear to have a large number of service stations of company operated service stations. We are looking into stations of over 300 cubic meters and we will be replacing those with the sort of long tail of our network. And when we look into the future, some of these smaller ones will have a greater challenge surviving in the long run. So, we are absolutely on track with our budget and our plans in terms of operating those branded stations. Now, this does not reflect especially on our CapEx, but we have negotiations that are very advanced. We have contracts that have already been signed. And some are expected to be signed in the second half of the year. So there's no major challenge. Obviously, the market is very competitive. It's not a bright blue sky. But we are not seeing any challenge in our ability either to attract or to conclude our negotiations with those stations, quite the contrary. We are seeing something that we hadn't in a long time, which is a growing demand of entrepreneurs coming to us to join our network, which is very positive and shows how accurate and well guided our strategy is. Pedro, I think you mentioned something else about refining. Would you like to touch on that again and expand on your question? Yes, sure. It was about how would it be possible to purchase refact and develop going from there? Yes, perfectly, obviously, Pedro. Now, every change in commodities, as is the case for us, will benefit on the intelligence of the producer. So, whether it's oil byproducts or anything else, looking how right the market is doing is very important for me to operate. So, we have to look at how prices, those that commodity prices are trending in the market. So the intelligence of these two businesses really complement each other, both on the demand side and the supply side is something that would help us really make the most of this change in prices. I hope I was able to answer all of your questions, Pedro. Yes. Thank you. That was perfect. Thank you. With no further questions, I would now like to turn the floor back to Mr. Rodrigo for his closing remarks. Great. Thank you to everyone for your questions. If there is any question that was asked via webcast that we couldn't answer, our team will be answering those via email. Thank you very much, everyone. Thank you. This concludes today's Ultrapar earnings conference call. You may now disconnect your line. Have a great afternoon.