Ultra(UGP) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Ultrapar's EBITDA reached BRL 888 million in Q3 2019, an increase of 4% compared to Q3 2018, driven by EBITDA growth in all businesses except Oxiteno [46] - Net earnings were BRL 321 million, virtually flat compared to Q3 2018, but 153% higher than Q2 2019, primarily due to the increase in EBITDA [48] - Total investments year-to-date were BRL 1.1 billion, a 30% decrease from the same period in 2018, reflecting greater selectivity in capital allocation [49] - Net debt at the end of the quarter was BRL 8.6 billion, an increase of BRL 482 million from Q2 2019, mainly due to dividend payouts and FX variation [50] Business Line Data and Key Metrics Changes Ipiranga - Ipiranga's sales volume was flat compared to the same period last year, with a 4% growth in Otto cycle and a 4% decline in Diesel [21] - EBITDA increased by 24% compared to Q3 2018, reaching BRL 676 million, driven by improved margins and reduced SG&A [27] - SG&A fell by 10% in Q3 2019 due to cost reduction initiatives and improved credit portfolio [27] Oxiteno - Specialty chemical sales volume fell by 5% in Q3 2019, while commodities volumes declined by 4% compared to Q3 2018 [29] - EBITDA was BRL 74 million, a decrease of 58% year-on-year, but a 91% increase compared to Q2 2019 [32] Ultragaz - Ultragaz's EBITDA increased by 9% year-on-year, reaching a record BRL 174 million due to improved gross margins and higher sales volume [35] - Recent cuts in LPG prices are expected to contribute to continued sales volume increases [35] Ultracargo - Ultracargo's EBITDA reached BRL 36 million, with an increase of 12% compared to the same period last year, mainly due to greater handling of products [38] Extrafarma - Extrafarma's gross revenues grew by 5% in Q3 2019, but EBITDA was BRL 5 million negative due to competitive pressures and store closures [42] Market Data and Key Metrics Changes - Ipiranga ended the quarter with a total network of 7,151 service stations, a net reduction of 35 stations compared to the last quarter [22] - The am/pm business unit had 2,386 stores, a net reduction of 23 stores, focusing on quality over quantity [24] - The number of participants in the loyalty program Km de Vantagens reached 32 million, representing 34% of service station sales [26] Company Strategy and Development Direction - The company is focusing on improving management models, governance, and operational efficiency across its five businesses [14][15] - Ipiranga is enhancing its pricing models using artificial intelligence and optimizing logistics to improve cost structures [5][58] - Oxiteno is prioritizing execution and adjusting its cost structure to adapt to the current commodity price environment [8][9] - Ultragaz is positioned to benefit from potential privatization of Petrobras assets, which could enhance competitiveness in the LPG market [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of the Brazilian economy and its positive impact on business performance [86] - The company anticipates continued improvements in market dynamics and operating results in Q4 2019 [28][96] - Management highlighted the importance of strategic partnerships and potential acquisitions in refining to enhance value creation [105] Other Important Information - The company has undergone significant leadership renewal, with a 45% turnover in the first two levels of management over the past 18 months [19] - The company is implementing a new pricing system and focusing on operational excellence to drive future growth [96] Q&A Session Summary Question: Cost performance at Ipiranga and sustainability of improvements - Management noted that cost reductions were due to various initiatives and a reversion of provisions for bad debt, indicating sustainability in improvements [55][56] Question: Competitive environment and market dynamics - Management acknowledged strong competition from independent distributors but expects improved competitiveness with economic recovery and potential privatization of refining assets [60][61] Question: Petrobras' downstream assets and potential synergies - Management sees potential value creation opportunities in acquiring Petrobras' assets, emphasizing the strategic alignment of Ipiranga, Ultragaz, and Ultracargo in the value chain [72][105] Question: SG&A tariff reversion and Oxiteno's U.S. operations - Management confirmed ongoing SG&A improvements with a potential of BRL 150 million to BRL 200 million annually, and expects U.S. operations to reach breakeven by mid-2020 [82][83] Question: Diesel market trends and sales expectations - Management believes that improving market dynamics will continue into Q4, with expectations of recovering market share in the diesel segment [96][97]