Cosan S.A. (CSAN) on Q2 2022 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the Cosan’s Conference Call to discuss the Results of the Second Quarter of 2022. Today with us, we have Mr. Luis Henrique Guimarães, CEO; Mr. Ricardo Lewin, CFO and IRO; and Ms. Ana Luisa Perina, IR Manager. We would like to inform you that this event is being recorded and it has simultaneous translation to English. During this event, all participants will be able to listen to presentation. Afterwards, we’ll begin the question-and-answer session and further instructions will be given. Before proceeding, let me mention that forward-looking statements that may be made during this presentation regarding the company’s business projects, operating and financial projections and goals are based on beliefs and assumptions of the Cosan’s management as well as on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they relate to future events, and therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect the company’s future results and may lead to results that differ materially from those expressed in such forward-looking statements. Now, I would like to turn the conference over to Mr. Ricardo Lewin. Please Mr. Ricardo Lewin, you may proceed.
Ricardo Lewin: Good morning, everyone, and thank you for participating in Cosan’s earnings conference call for the second quarter 2022. With me today, I have Luis Henrique Guimarães, our CEO and Ana Perina, our IR Manager. Before starting the presentation. I would like to point out that we achieved the strong results this quarter consistent with our strategy. Let’s now go through the main financial and operational highlights of each business. Let’s start on Slide 4 with Raízen. This quieter that marks the start of 2022, 2023, raisings crop year delivered strong operational performance and [indiscernible] in adjusted EBITDA in line with our guidance. In renewable. the quarter was leveraged by the combination of higher sales volumes and better pricing. In the sugar segment, EBITDA also grew in the quarter supported by greater sales of third-party products and by the better average price, reflecting the effective pricing strategy and higher share of direct sales to destination. Meanwhile, the marketing and service segment delivered very robust EBITDA growth. In Brazil, Raízen quickly adjusted its supply and sales strategy to ensure the sourcing and competitiveness of its clients. In the LatAm operations, the record result in the quarter was driven by stronger demand operating efficiency gains and are recovery in profitability at the pump. In addition, Raízen continued to advance in new businesses such as incorporation of Shell Lubricants business, and leverage its renewable agenda delivering a record E2G production. Let’s turn now to Slide 5, which shows Rumo’s figures. The better EBITDA’s performance was due to transported volumes growth in the North Operation, which was naturalized by adverse effects of soybean crop setback on the South Operation. Rumo also captured market share in grain exports from the Port of Santos, reflecting competitiveness gains and the ramp-up in volumes in the Central Network. Fixed costs and expenses lagged inflation in the period, attesting the company’s commitment cost control discipline. Margins improvement compared to the first quarter 2022, but still showed our traction year-on-year, due to the highly fuel prices that were not fully offset by tariffs increase. In July, their foreign event after the reporting period, Rumo announced the divestment of port assets as part of its portfolio management process. Let’s turn to Slide 6, which shows the highlights of Compass. In Compass, Comgás and Sulgás, our natural gas distribution operations posted higher volumes in the residential, commercial and automotive segments, which offset the decline in the industrial segment due to scheduled maintenance, stoppage that were a red expected and lower activity. Once again, we recorded EBITDA expansion leveraged by higher margins as a result of the adjustment by inflation, as well as the continuous efficiency gains and the consolidation of Sulgás results. In July, after the end of the quarter, we had another great achievement with the closing of the acquisition of 51% of Commit Gás, the current name of Gaspetro. Considering this, we revised our EBITDA guidance for the year, raising our expectations, cap exposure actions remain and change it. Also in July, Commit concluded a sale of minority interest held in certain distributors as a result of the exercise of preemptive rights of other shareholders. We remain confident in our journey of building an increasingly free gas market. Moving on Slide 7, shows the result of Moove. Moove delivered record high EBITDA in the quarter driven by higher sales volume and profitability increase. It’s worth noting that in June, we consolidated the results from the acquisition of PetroChoice in the United States and of Tirreno in Brazil. These moves where in line with the portfolio expansion strategy. Moove’s performance continues to demonstrate success and excellent execution of its supply and operational strategies. Turning to Slide 8, you can see the consolidated results of Cosan. At Cosan Investimentos, the highest contribution to EBITDA came from [indiscernible] this quarter was occasionally leveraged by the mark-to-market adjustment for the price appreciation of its agricultural properties. At Cosan Corporate, G&A expenses fell, but we had again when compared due to the second part to 2021 due to discussion of recent FX from the calculation base of PIS/COFINS taxes on imports for lubricants operations from that period. We posted record high pro forma adjusted EBITDA driven by the excellent operational performance of all companies in the portfolio led by Raízen. The adjusted net income was affected by the additional no cash financial expenses at Cosan Corporate and the higher debt cost at all companies in the group, following the cumulative increase in interest rates regarding Cosan’s consolidation investments. We continued with our usual capital discipline. We had a CapEx increase compared to the prior period, which is mainly explained by Raízen with the incorporation of Biosev and construction of a new E2G plant, which offsets the lower CapEx at Rumo already forecasted by the guidance. Let’s go to Slide number 9, where we present the group’s financial highlights. We continue to carry out our usual liability management actions in the quarter. The increase in gross debt is expanded by the new debt insurance at Raízen by the funding transaction at Moove for the PetroChoice’s acquisition and by the new debentures issued at Cosan Corporate, as well as by the effect of exchange variation due to the weaker Brazilian Real in relation to the U.S. dollar. The free cash flow to equity can be explained mostly by seasonal effects on Raízen’s working capital and by greater investments that were partially offset by the higher operational cash generation at the other businesses. Leverage ratio fell to 2.4 times within the ideal range for the group and reflecting the significant EBITDA growth in the last 12 months. Although it’s not related to the quieter, I went to highlight that despite of our capital management process, we redeemed all of the 2023 bonds at the beginning of this month. Before closing, I went to go over some recent developments in our EESG agenda, which are advancing every day. Let’s please turn to Slide line number 10. In May, we reelected the members of our strategy and sustainability committee, which shared by a woman independent member. We also published the sustainability reports of Rumo, Moove and Raízen, reporting achievements, such as Rumo’s inclusion in the portfolio of 2022 corporate sustainability index of the B3. Moove becoming our final priority of the UN Global Compact and Raízen figuring on the A list of this CDP. In June, Comgás and Raízen were recognized by the Israeli guide best in ESG 2022. Comgás was recognized for its actions on valuing people, increasing its consumption of clean energy and expanding its infrastructure. And Raízen was featured for promoting the carbonization of various sectors in Brazil and the world. Lastly, Cosan was once again selected for the FTSE4Good portfolio, an important international sustainability index. That concludes my presentation, and we can now move on to the Q&A session. Thank you very much.
Operator:
Operator: Thank you. We will now start the Q&A session. [Operator Instructions] Our first question comes from Ms. Isabella Simonato from Bank of America.
Operator: Our next question comes from Thiago Duarte from BTG Pactual.
Operator: Next question comes from Vicente Neto from Bradesco BBI.
Operator: Our next question comes from Luiz Carvalho from UBS.
Operator: Next question is from Bruno Montanari from Morgan Stanley.
Operator: Next question is from Gabriel Barra from Citi.
Operator: Our next question comes from Mr. Regis Cardoso from Credit Suisse.
Operator: Next question comes from Lucas Ferreira from JP Morgan.
Operator: Thank you. This concludes the question-and-answer session. I will now turn the floor to Mr. Luis Henrique for his closing remarks.
Luis Henrique Guimarães: Thank you, everyone for joining us. Thank you for your questions. It’s always wonderful to hear what you have to say to hear your questions, because it’s food for thought. It makes us think about new opportunities that we can make the most of as you can see, it’s been a great quarter for all companies and quarter results. Most of our all are important to reiterate our conviction about what we’re doing and many structural things have been concluded. So we are keeping our agenda for growth consolidation and execution, and that’s what drives us forward. Continue to be bullish, considering the world’s pure political changes, our portfolio does have the comparative and competitive advantages because we’re in Brazil and not only in our current portfolio, but portfolios we’re bringing in as well and we do have the ability to execute on those projects on time, on budget, with more efficiency, less cost, and ensuring our penetration in various segments. You saw that we have reiterated the guidances for the rest of the year. It’s not an easy year. It’s quite volatile. We’re going into elections now. As of tomorrow, campaigns will be taking place. So there will be volatility, but we will be monitoring things closely to make sure that we don’t only look at opportunities, manage risks, but also continue with our purpose to generate opportunities and driving an energy transition that will continue to accelerate the decarbonization of the companies in our portfolios, our clients, and our partners. Thank you so much for the last few months for being there with us. And we’ll definitely have the 2022, we promise to the market with some positive surprises to come. Thanks and have a great day.
Operator: Thank you. This concludes Cosan’s conference call. Thank you and have a nice day. Good bye.
