Ultra(US:UGP)2021-04-29 18:43Foreign Exchange and Economic Risks - A significant portion of the company's sales is denominated in Reais, but costs in the chemical business are benchmarked to international prices in U.S. dollars, exposing the company to foreign exchange rate risks [171]. - In 2020, the Real depreciated 29% against the U.S. dollar, primarily due to low interest rates and the impacts of the COVID-19 pandemic [173]. - The Brazilian Central Bank reduced interest rates in 2019, which, along with geopolitical instability, led to a 4% depreciation of the Real against the U.S. dollar [173]. - The company has contracted hedging instruments for part of its U.S. dollar debt obligations to mitigate exchange rate fluctuations, but there is no guarantee these will fully protect against further devaluation of the Real [174]. - Economic and market conditions in the U.S. and other emerging markets can materially affect the Brazilian economy and the company's financial condition [177]. - The ongoing COVID-19 pandemic has resulted in significant financial market volatility, adversely impacting the company's operations and financial condition [181]. - The Brazilian government may impose restrictions on remittances of proceeds from investments, which could negatively affect the company's ability to pay dividends to non-Brazilian investors [192]. - Changes in Brazilian tax laws could impose withholding income tax on the disposal of the company's American Depositary Shares (ADSs) by non-residents [193]. - The company is exposed to inflationary pressures due to the depreciation of the Real, which may negatively affect its financial performance [176]. - The company may face difficulties in enforcing judgments against it in jurisdictions outside Brazil, potentially impacting investor confidence [182]. Shareholder and Corporate Structure - Ultrapar's shareholders, Ultra S.A. and Parth, own 34.5% of the outstanding shares, which could lead to a decrease in share price if a substantial number of shares are sold [194]. - Ultrapar does not expect to be classified as a Passive Foreign Investment Company (PFIC) in the foreseeable future, which could have adverse U.S. federal income tax consequences for U.S. holders [195]. Subsidiary Operations and Market Position - Ultragaz, a subsidiary of Ultrapar, has expanded its operations nationwide in Brazil, distributing both bottled and bulk LPG, and holds a 24% market share in the LPG sector [200]. - Ultracargo, the largest provider of liquid bulk storage in Brazil, doubled its size in terms of EBITDA after acquiring União Terminais, enhancing its operational scale [202]. - Ultracargo is expected to invest approximately R$300 million in the construction of a new terminal in Vila do Conde, with a minimum storage capacity of 59,000 cubic meters, starting operations in early 2022 [205]. - Oxiteno, a subsidiary of Ultrapar, has expanded its international presence, including the acquisition of a specialty chemicals plant in Pasadena, Texas, to serve local markets [210]. - Ipiranga, another subsidiary, became the second largest fuel distributor in Brazil with a 14% market share after acquiring the Ipiranga Group in 2007 [214]. - Ipiranga's convenience stores, AmPm, began a comprehensive project to review their business model, aiming to strengthen the franchise model and boost profits [223]. - Extrafarma, a leading drugstore chain, became a wholly owned subsidiary of Ultrapar after the acquisition in 2014, with Ultrapar assuming Extrafarma's net debt of R$106 million [224]. - Ultrapar issued 24,042,200 new shares in exchange for all shares of Extrafarma, increasing total issued share capital to 1,112,810,192 shares [226]. - As of the annual report date, the remaining subscription warrants could lead to the issuance of up to 3,567,069 additional shares of Ultrapar [227]. Financial Performance and Investments - As of December 31, 2020, the company's net debt was R$10,537.3 million, with a net debt to EBITDA ratio of 3.0 times [308]. - Net revenue from sales and services in 2020 was R$81,241.1 million, a decrease from R$89,298.0 million in 2019 [310]. - Adjusted EBITDA for Ipiranga in 2020 was R$1,693.9 million, down from R$2,486.6 million in 2019 [312]. - Ultragaz's net revenue in 2020 was R$7,408.3 million, showing growth from R$7,094.8 million in 2019 [310]. - The LPG distribution market in Brazil is regulated by the National Petroleum Agency (ANP), with Petrobras supplying 73% of the LPG sold in 2020 [319]. Operational Highlights and Innovations - In 2020, Ultragaz delivered a total of 1,732.3 thousand tons of LPG, a slight increase from 1,706.0 thousand tons in 2019 [349]. - The total bottled LPG sales in 2020 were 1,197.9 thousand tons, compared to 1,174.2 thousand tons in 2019, showing a growth of 2.0% [349]. - Ultragaz plans to requalify approximately 2.2 million LPG bottles in 2021, down from 2.5 million in 2020 [332]. - The total recordable accident rate decreased by 49% in 2020 compared to 2019, reflecting improvements in health, safety, and environmental (HSE) performance [338]. - Ultragaz has expanded its sales channels, including the introduction of a smartphone app for ordering LPG, enhancing customer convenience [351]. - The company has developed new technologies such as lighter LPG cylinders and a vending machine for LPG cylinders, aiming to innovate in the market [351]. - Ultragaz's bulk LPG distribution includes contracts typically ranging from two to five years, which stabilize sales and limit fluctuations [352]. - The company has strengthened its presence in the North and Northeast regions of Brazil, where it previously had limited operations [343]. - Ultragaz's marketing strategy focuses on protecting market share and strengthening its position in regions with less presence, especially in a mature market [344]. - The company has engaged in social initiatives to promote inclusion, education, and culture in remote communities across Brazil [353]. - Ultragaz's distribution network includes 5.1 thousand independent resellers and a fleet of 92 vehicles for bottled LPG delivery and 306 for bulk delivery as of December 31, 2020 [356]. - As of December 31, 2020, there were 24.4 million 13 kg bottles stamped with Ultragaz's brands in the market [357]. - 97% of Ultragaz's bottled LPG sales were made through resellers in 2020, with agreements requiring the use of the Ultragaz brand [358]. - In 2019, approximately 3.9 thousand resellers participated in the Desafio Lapidar program, with 65% qualifying as bronze or above [360]. - In 2020, Ultragaz created a digital relationship channel called MAP, providing resellers with access to order status, invoices, and training programs [363]. - Ultragaz's sales to independent resellers and industrial users have average payment terms of 20 days [366]. - The company has a formal contract with Petrobras for LPG supply, with no significant interruptions reported since 1995 [369]. - LPG prices in Brazil have been adjusted quarterly since 2018 to reflect international price volatility and exchange rate variations [370]. - In 2020, Ultragaz donated 650 thousand bars of biodegradable soap and 6 thousand basic food baskets to communities impacted by COVID-19 [354]. - The Ultragaz Cultural project served over 279 thousand children in Brazil from 2000 to 2019, although it was paused in 2020 due to COVID-19 [354].