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Edited Transcript of CSAN3.SA earnings conference call or presentation 12-Nov-19 1:30pm GMT

Q3 2019 Cosan SA Industria e Comercio Earnings Call

Piracicaba Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Cosan SA earnings conference call or presentation Tuesday, November 12, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Phillipe Casale

Cosan S.A. - IR Executive Manager

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Conference Call Participants

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* Christian Audi

Santander Investment Securities Inc., Research Division - Head of Latin America Equity Research, Agribusiness & Oil, Gas and Petrochemicals

* Gabriel Fonseca Francisco

XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Research Division - Research Analyst

* Gustavo Allevato

Santander Investment Securities Inc., Research Division - Research Analyst

* Luiz Carvalho

UBS Investment Bank, Research Division - Director and Analyst

* Pedro Soares

Banco BTG Pactual S.A., Research Division - Analyst

* Regis Cardoso

Crédit Suisse AG, Research Division - Research Analyst

* Vicente Falanga Neto

Banco Bradesco BBI S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Cosan S.A. Third Quarter of 2019 Results Conference Call. Today with us, we have Mr. Phillipe Casale, Investor Relations Executive Manager; and Mr. João Arthur Souza, Head of Finance.

We would like to inform you that this event is recorded (Operator Instructions)

The audio and slide show of this presentation are available through live webcast @ir.cosan.com.br. The slides can also be downloaded from the webcast platform.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Cosan's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Cosan and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Phillipe Casale. Mr. Casale, you may begin the call.

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Phillipe Casale, Cosan S.A. - IR Executive Manager [2]

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Good morning, everyone, and welcome to Cosan S.A.'s Third Quarter 2019 Earnings Conference Call. Cosan's consolidated results grew once again this quarter despite challenges posed by the devaluation of Brazilian real against the U.S. dollar as well as fluctuations in international oil and agricultural commodity prices. Macroeconomic environment is improving in Brazil. The GDP increase has been mild so far.

Let me start the presentation on Slide 4, discussing the results of Raízen Combustíveis Brazil. Raízen posted a solid operational performance. The total volume sold by the company grew by 5% this quarter compared to a 4% growth in the Brazilian market, considering the ANP figures. Otto cycle volume measured in gasoline equivalent grew 7%. The ethanol mix in the Otto cycle remained at around 35%, and gasoline sales grew after a few quarters in decline. Diesel volume was strong, again, reflecting higher demand from clients, particularly those in the agribusiness sector. Aviation sales was 1% down on back of the winding up of Avianca's operations in Brazil. Raízen Combustíveis' adjusted EBITDA totaled BRL 640 million, or BRL 772 million if we exclude the adjustments.

Compared to the 3Q '18, adjusted EBITDA fell 6%, but compared to the second quarter of this year, Raízen posted a 13% increase as an evidence of sequential improvement of market conditions. Sales volume grew, but fuel price fluctuations brought challenges to supply management. Worth mentioning that the substantial increase in ethanol sales in Brazil over the past few years enabled some increasing informality, requiring greater rationality in balance when managing the business.

The pillars of Raízen's performance include the continued focus on long-term relationships with our clients, expansion and renewal of contracts with the service station network, supply and the commercialization strategy, optimizing the logistics infrastructure and a constant seek for cost efficiency.

Investments this quarter totaled BRL 250 million dedicated to the maintenance, conversion and renewal of contracts as well as investments in logistics infrastructure. There were good business opportunities throughout 2019, and will likely result in bringing nearly 1 billion liters of additional volume to our base.

Now let's move to Slide 5 to discuss Raízen Argentina's results. Remembering that results are in U.S. dollars, which is the functional currency of the downstream operations in Argentina. The quarter was marked by a worsening political and economic scenario after primary presidential elections in the country. Skyrocketing inflation and a strong currency devaluation aggravated the recession scenario. To lessen the impact of these economic crises, federal government unveiled relief measures, which included freezing fuel and oil prices. The price freeze caused a negative effect of $55 million in the inventories. As a result, Raízen's EBITDA ended 3Q '19 at $6 million total.

Prices have been frozen in a gradual and rational way, reducing the discount in relation to international prices. The volume of oil processed by Raízen fell 4% with a utilization rate of 73% due to scheduled maintenance this quarter. Despite the adverse scenario, diesel and gasoline sales rose by 7% year-over-year as a result of the commercial efforts. Aviation sales performance reflects higher demand in this sector. Investments totaled about $28 million, most of which towards maintenance of the refining complex.

Let's move to the next slide, and we present Raízen Energia's results. Second quarter of '19/'20 crop year was marked by a higher volume of sugarcane crushed, which rose by 10% year-over-year. Agricultural yield, improving 4% compared to the same period last year, and the production mix continues to prioritize ethanol, which came in at 50% of the mix.

Speaking of sales, starting with sugar. The sales volume fell 48%, but in line with the commercialization strategy for the crop year. The higher storage capacity brought flexibility to manage sugar sales, focusing on when returns are higher, in line with the hedge strategy. Average sales prices in BRL were 16% better this quarter compared to the same period last year, and this increase is in line with the best prices, had they been in BRL. On the ethanol, the sales volume rose by 19% driven by high demand in both domestic and export markets. Average price came in 24% higher than 3Q '18 due to higher exported volumes and economic hedge for ethanol sales. It's worth noting that domestic prices are trading at a better level compared to last year.

Moving to electricity. Remember that results are impacted by WX, Raízen's electricity trading company. Own volume sales fell 6% in the quarter, reflecting the delay in production, which should be normalized by the end of the crop year. Sales average price was negatively affected by the price drop in the spot market.

Before discussing the EBITDA, I could comment here in the cash costs. When normalized by the constant currency effect, unit cash cost increased by 10%, reflecting inflation, seasonality in the production mix and a lower dilution of fixed costs. This will reduce the volume of sugar equivalent produced this crop.

Adjusted EBITDA came in 32% higher, reaching BRL 848 million, in line with the higher volume of own ethanol sales and better prices of sugar and ethanol. Important to highlight that this year the sugar commercialization strategy will concentrate a higher volume in the second half of the crop, taking the benefits of the hedging. As for sugar hedges, Raízen has designated its entire volume for sugar to be exported this year at an average price of BRL 0.55 per pound. For the next crop, 2021, we hedged nearly 55% to 60%, with an average price of around BRL 0.60 per pound, which is almost 10% higher than the current crop. Although sugar prices in U.S. dollars remain depressed on the back of high global inventory, we see good opportunities to have an improved profitability in BRL. Several consulting firms are already indicating that main producing countries should reduce the sugar output over the coming months. [So] climate in India have impacted negatively agricultural yield and the production of ethanol has increased despite subsidies for sugar. The mix of ethanol in Brazil remained strong, reflecting the solid demand for the biofuel at the service stations.

Sugar global demand have a relatively steady decrease of around 1.5 million tons per year, and in this scenario we should expect the sugar prices should be traded above the level that we have been seeing recently.

Lastly, investments totaled BRL 541 million, reflecting higher expenditures in planning and land treatment in addition to asset integrity investments.

Now let's move to Slide 7, and we'll discuss Comgás. Volume of natural gas sold in the 3Q '19 fell 5%, mainly impacted by the industrial segment, which faced a lower activity from large clients from specific sectors, such as ceramics. The sales volume of commercial segment was also depressed by lower demand. In the residential segment, sales grew by 5% driven by new connections. Normalized EBITDA totaled BRL 653 million, impacted by inflation adjustment on margins and better sales mix.

Regulatory current account ended the period with an active balance of BRL 132 million in favor of Comgás. Investments reached BRL 219 million, in line with the CapEx plan for the year, focused on maintenance and customer base expansions.

Now moving to Slide 8. Moove's EBITDA rose by 33% in the quarter, reaching BRL 80 million. Better performance of Moove is explained by consistent sales growth across all countries, reaching a record-high volume this quarter. Besides expanding international operations, we increased our profitability by focusing on building a high-quality portfolio of products and efficient sales strategies.

Let's move to the right-hand side of the slide. In Cosan's Corporate segment, we reported an expense of BRL 80 million, mainly impacted by a one-off effect related to the replacement of the share-based compensation plan to stock grant plan, in line with the best practice of retention and governance. Other revenues were positively impacted by the sale of credit rights totaling BRL 363 million, and again, relating to tax claims after a final in an appealed court rulings. The cash effect from the sale of the credit rights will be recorded in 4Q '19.

Now let's move to Slide 9. Cosan again delivered solid consolidated results on the back of its business portfolio. Recurring EBITDA grew by 30% to BRL 1.6 billion, while accounting EBITDA reached BRL 2.2 billion. Net income totaled BRL 819 million, reflecting the improved performance of the businesses in the quarter, especially Comgás and Raízen Energia, combined with positive results in the corporate segment. Free cash flow to equity also increased in the quarter to BRL 1.6 billion, 87% higher than the same period last year. The main effect here was the operation -- operating cash flow, where cash generation increased at Raízen and at Comgás due to the improved normalized result and the regulatory current account refund. In the cash flow from investments, Raízen and Comgás, also invested more in the period, but in line with the CapEx plan for the year.

Pro forma gross debt rose by 4% in the quarter due to fund raising at Raízen with the issue of BRL 1 billion in agribusiness receivables certificates, or the CRAs. The cost of the debt stood at 109% of the CDI and on a pro forma basis 119% of the CDI, which is excluding the Raízen. The pro forma leverage ratio after the usual adjustments ended the period at 1.9x net debt-to-EBITDA.

Now let's move to Slide 10 to discuss our guidance for the year. And here, I would like to point out the following reviews.

At Raízen Combustíveis Brazil. Let me start by reminding that we do adjust nonrecurring effects, which had positive contributions to results. Having said that, we are reviewing the adjusted EBITDA guidance, while the accounting EBITDA would have been preserved within the original range. The main reason for the review is the worsening market environment seen in the second quarter of the year. And worth noting that the guidance was based on a GDP growth estimate of about 2%, but reality was quite different. For the fourth quarter of 2019, the seasonality effect and gradual improvement of the business environment should result in a stronger quarter compared to the previous 2 quarters. At Raízen Argentina, the EBITDA review reflects the negative impact of the price freeze mentioned before and a worsening political and economic scenario. At Moove, the improved performance in their international operations performance drove EBITDA in the year, resulting in an increase in our estimates. The guidance for Comgás remains the same, but with a view towards the upper end or even slightly higher. As mentioned earlier, the projections were based on a stronger industrial activity for Brazil. We observed some segments of the industry with weaker-than-expected activity as well as higher temperature that may impact residential unit consumption.

Despite those adjustments, we maintain our initial guidance for Cosan's pro forma consolidated EBITDA.

So this concludes the presentation, and we will now take any questions you may have in English. Thank you.

And just one thing before we start the Q&A session. Please note that we just filed our correction to our earnings release specifically in the calculation of the free cash flow to equity pro forma. The corrected number is BRL 678 million, a reduction of 18% compared to the 3Q '18, and not BRL 1.6 billion, as I mentioned in the presentation. So just this quick correction. We have already filed this correction in our website as well.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Christian Audi, Santander.

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Christian Audi, Santander Investment Securities Inc., Research Division - Head of Latin America Equity Research, Agribusiness & Oil, Gas and Petrochemicals [2]

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I had 3 questions. The first one on -- in Brazil, for your distribution business. Can you talk a little bit about market share dynamics and competition, particularly from white flags? And also on the demand front, are you seeing an improving Brazilian dynamic overall, or do you think it's still kind of moving sideways? The second question related to your Argentina operations. I know it's a difficult macro political dynamic. So I'm just wondering, what can you do as an operator to defend yourself or try to minimize the impact from these disruptions, if you will? And then finally, on the sugar and ethanol space, can you just talk a little bit more about the price environment and your outlook for both ethanol prices and sugar prices?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [3]

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Christian, thank you for your questions. I'll try to address all of them here. So first, on the dynamics in fuel distribution in Brazil, and I'll focus more on the performance of Raízen here, which, by the way, has been pretty consistent and balanced between volume expansion and adequate returns. So we think throughout the year, specifically in the 2nd Q '19, the fuel price fluctuations brought a lot of challenges. And a part of that price situation is reflected in July, specifically. So this brought to the 3Q '19 some impact on our inventory management or basically the supply management. But it quite showed a gradual improvement on the market conditions and the market environment, as expected. So first, volume grew back again, right? And this is important for market environment. And second, we have some relevant players in the industry that is still -- that were still adjusting their strategies. So it's important also to mention that in the second quarter, Petrobras price policy was also changed. And players were adjusting their supply to this new dynamic. So it was a gradual improvement on the market environment since the second Q, and we also expect an improvement in the 4Q. So this is basically what we are seeing now in terms of the market environment in the fuel division.

In your question about the macro political environment in Argentina, as we mentioned in the call, so -- the prices have been gradually -- in a very steady way adjusting -- increasing the prices actually, right? So we are seeing also the market not suffering a lot in volume. So this is what we show in terms of the volume expansion in Argentina, right? So let's see how this new environment will reveal. But I mean, the operations of Shell in Argentina have been performing quite well in different scenarios. And they'll work here, of course, to optimize the operations in any type of -- American political scenarios.

Just for your question about the sugar and ethanol and the pricing environment. So as I mentioned, in terms of the sugar, we still see high inventories in the global market. There are some consulting agencies stating about a possible [dearth] in the year, but still inventories are higher than -- and prices are not reflecting those -- that scenario. So we should expect prices to behave better. But meanwhile, we'll focus our strategy here on maximizing the return and we've got quite efficient hedging strategy. So this is one of the reasons why our prices have been behaving better. We have already accelerated the hedge for the next crop as well. So we have hedged about 50% of the next crop, as I mentioned, and the price is already 10% higher. So our strategy here is focusing on maximizing the returns, and of course with an efficiency hedge strategies.

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Christian Audi, Santander Investment Securities Inc., Research Division - Head of Latin America Equity Research, Agribusiness & Oil, Gas and Petrochemicals [4]

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And on the ethanol front, in terms of pricing, Phillipe, what's your outlook, please?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [5]

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I mean price of ethanol, we have also been able to capture a better price. Of course, this is linked to the ethanol prices, and the demand for ethanol in Brazil is quite high even though the production is increased as well. So we are getting close to the end of the crop. That's the period when usually prices react better. We accelerated the sales in the third quarter of the year, the second quarter of the crop, but we still have volumes to capture and to sell throughout the next 2 crops -- I'm sorry, the next 2 quarters of this crop, right? So price should improve throughout the next 2 crops until the end of the crop season.

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Christian Audi, Santander Investment Securities Inc., Research Division - Head of Latin America Equity Research, Agribusiness & Oil, Gas and Petrochemicals [6]

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Great. And just a follow-up. In Argentina, what's your expectation in terms of the price freeze that it will continue? It will -- once it expires?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [7]

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Christian, at this point in time, we don't have the information of what is going to happen. As I mentioned, the price control started to begin unwinding in a gradual and rational way, even we see that growth in Argentina. So we don't know if -- what is going to be the political decision in terms of price freeze.

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Operator [8]

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The next question comes from Regis Cardoso, Crédit Suisse.

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Regis Cardoso, Crédit Suisse AG, Research Division - Research Analyst [9]

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Two quick questions from my side. First one is related to the guidance in Raízen Combustíveis. Phillipe, it looks a bit stretched in the sense that it would require nearly BRL 120 per cubic meter, if our calculations are correct, for you to reach the low end of the guidance in the fourth quarter. So what I wanted you to discuss is whether you're really seeing a fourth quarter that is really strong and allows for that level of excitement, or, I mean, if there was something else you were -- you had in mind when you put together the guidance? And then conversely, in Comgás, it appears to be the contrary of that. It would require a level of result that is much below current level. So if you could just comment on those 2 guidances?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [10]

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Regis, thank you for your questions. So in Combustíveis, usually the 4Q is the strongest in terms of performance, right, and -- as we said in the speech here. So we are expecting -- we're seeing a gradual improvement on the market environment. And that should -- that's what we expect, actually, for the 4Q. We adjusted the guidance. And by the way, this is the adjusted guidance, right, excluding all the nonrecurring effects that we usually do adjust, right? We would preserve the range if we consider the account EBITDA. So in this scenario, we expect to be within the range here. So that's what I can tell you right now about Raízen Combustíveis.

And in Comgás, as I mentioned, we are looking towards the upper end of the guidance. And there's a slightly chance that we even surpass that. But we're probably being more conservative here based on the activities we are seeing in the industry in the past few months. We are seeing also higher temperature that impacts the unit consumption of residential clients. So we're probably a little bit more conservative here, but we are still aiming to deliver on the upper end of the guidance here for Comgás.

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Regis Cardoso, Crédit Suisse AG, Research Division - Research Analyst [11]

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Okay. Got it. Phillipe, if you allow me just a second question on refineries? We've seen some other distributors becoming more, let's say, outspoken and aggressive in commenting how integration in the fuel distribution space with refineries is going to be a defensive move and very important for this sector. So if you could discuss whether you think the same, it'd be great.

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Phillipe Casale, Cosan S.A. - IR Executive Manager [12]

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Regis, I mean, we discussed this in the past few conference calls. So Raízen is the second largest player in fuel distribution in Brazil. We must understand any and all change in opportunities in the supply dynamics, and we'll follow up with the process here and make a decision if it makes sense or not to invest in the refineries. But we are always and constantly looking into business opportunities that may bring efficiency and profitability to the operations, and analyzing deeply this opportunity of buying refineries is part of the strategy we take here.

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Operator [13]

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The next question comes from Pedro Soares, BTG Pactual.

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Pedro Soares, Banco BTG Pactual S.A., Research Division - Analyst [14]

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I have 2 questions here from my side. The first one, again, in the new guidance, if we consider the midrange in all business units, this downward revision on Raízen Combustíveis and Raízen Argentina means a lower EBITDA of around BRL 400 million, more or less, even considering the upward revision at Moove. But your consolidated figure you have kept unchanging, which seems, as you said, to imply stronger results on Comgás. So I just wanted to have more color on Raízen Energia, if it makes sense to expect that you will reach the high end of Raízen Energia's guidance as well? And the second question on Raízen Combustíveis. We saw once again your gas station productivity improving in the quarter. So just wanted to know whether you're already reaching some level of confidence to increase gas station conversion? Or if we should still expect some conservatism on this front?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [15]

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Thank you for your questions. So first on Raízen Energia, we haven't adjusted the guidance. We are aiming here to probably hit the low range of the guidance, which is around 61 million tons of crushing, right? We saw a decrease here in productivity throughout the year, as we showed, which impacted the fixed costs, right? So this will lead us to a number in between the midpoint of the guidance to the low end of the guidance, which is around BRL 3.4 billion, BRL 3.5 billion, or BRL 3.6 billion. So this is where you should look for Raízen Energia for the year, right?

And on the fuels. In terms of station productivity, this has been something that have been a focus of Raízen Fuels since the formation of this company. We are focusing on building and having the best network in terms of efficiency, in terms of productivity. We convert stations that usually have a higher throughput per station to be part of our network. And this is what we have been seeing in the recent movement here at op expansion at Raízen Combustíveis. So we have committed here to 1 billion -- 1 billion liters of additional volume for 2019, and we are fully aligned with that number as of now. So we saw good opportunities of business throughout the year. We are even converting a little bit less in terms of number of stations, but as you mentioned, the quality of those stations are higher. So this is what you should expect for us in a consistent way here in terms of expansion and renewal of contracts at Raízen Combustíveis.

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Operator [16]

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Our next question comes from Luiz Carvalho, UBS.

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Luiz Carvalho, UBS Investment Bank, Research Division - Director and Analyst [17]

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Phillipe, basically, 2 questions from my end. The first one is related to Argentina operations. Comparing actually your results with YPF's. I mean there was a big discrepancy in terms of the performance of one of the 2 largest fuel distribution companies in the country. I just would like to understand because at the end of the day, the freezing actually happened, I mean, towards the end of the quarter. So I just would like to try to understand if there was any one-off or any particular impact that you saw during the year, through the quarter, that drove to, I would say, a weaker performance, something that we might need to consider looking forward? And the second question is related to Comgás. Looking to the numbers, there was a positive NPV in favor of the company as something close to BRL 900 million, basically, on the back of the review of the previous cycle. And I would like to understand if this reimbursement to the company would be through tariffs? Or how is this going to be play out?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [18]

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Luiz, thank you for your question. So in Argentina, we have -- we saw the biggest impact in August and September inventory. So the number around $50 million that we stated, if we put that back on the EBITDA expected for the year, we will give it in the guidance. So this was the main impact we saw effectively in that business, right? Of course, the economic and political scenario bring some pressure on demand, but even though, volumes kept growing, so what led us to look here mainly at this one-off effect in terms of the price freeze.

In Comgás, I'm not sure I got your question, but if you -- unless you're considering U.S., the tariff review process that was concluded in May and was effectively through this quarter, right? I don't know if that's related to your question, I'm not sure I got it. And if you could repeat it?

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Luiz Carvalho, UBS Investment Bank, Research Division - Director and Analyst [19]

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Yes. I mean looking through the numbers, there's a positive NPV in the numbers of something close to BRL 900 million, to be more precisely BRL 917 million, on the back of the past tariff review. So I would like to know if this reimbursement to Comgás would be through the tariff or not? I mean how is this going to be reimbursed to the company? That's the question. Is that clear?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [20]

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Yes, yes. Now it's clear. I'm sorry. So regarding the third tariff review process, it's still under public consultation until November 18. We have a final publication scheduled for December. And as part of the public consultation, Comgás is contributing to the process and will be partnership-ed by the regulatory agency. There's no numbers or anything we can discuss at this point in time.

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Operator [21]

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Our next question comes from Gabriel Francisco, XP Investimentos.

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Gabriel Fonseca Francisco, XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Research Division - Research Analyst [22]

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Sorry, everyone. My questions were already answered. You can pass to the next one.

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Operator [23]

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The next question comes from Vicente Falanga, Bradesco BBI.

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Vicente Falanga Neto, Banco Bradesco BBI S.A., Research Division - Research Analyst [24]

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I just -- I had a follow-up question on Luiz Carvalho's. Do you maybe sell less in Argentina to wholesale clients when compared to YPF? Because I understand you mentioned their inventory losses, right? But YPF did not report such significant inventory losses, and the downstream result was actually pretty solid, right? And we were thinking that maybe because whole -- prices to wholesale clients weren't frozen in Argentina, maybe your mix made you report more losses when compared to YPF? And then my second question, also in Argentina, we should see prices officially unfreezing as of November 13, right, which is tomorrow? Do you expect the companies to gradually start raising prices? Based on our calculations, refiners would still need to increase prices by about 17% to be in line with [parity]? And do you think that there will be room for that?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [25]

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Thank you. Now Vicente, I answered Pedro and I thought it was you. I'm sorry, Pedro.

But Vicente, regarding your question in Argentina and the comparison with YPF, we have to take a deeper look here of -- if we're separating the downstreams itself and what is the effective impact here. I mean, we did recognize this 55 -- $50 million of inventories impact, which impact [of freezing], of course, also with the final profits, right? But we need to take a closer look into the -- what the competition said. So in terms of the price -- freezing of the prices, it started to be unwinded in a gradual -- and again, in a rational, very rational way. It will depend on market conditions and how the market will behave. This is part of the recurring operations of [fairly] downstream, focusing on the supply and the commercialization strategy, the pricing strategy, and this will be related to the market conditions. So it's tough to say now when we're going to be able to narrow the discount.

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Operator [26]

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(Operator Instructions) The next question comes from Gustavo Allevato.

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Gustavo Allevato, Santander Investment Securities Inc., Research Division - Research Analyst [27]

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I have one question on fuel distribution. So can you quantify the inventory losses that you mentioned in the release? And the second question is also the shift in Argentina's operations. So if you can give sort of an overview how was the margin in October? If the company was posting a positive margin in that business or not? So it will be very helpful to try to quantify the results going forward.

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Phillipe Casale, Cosan S.A. - IR Executive Manager [28]

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Gustavo, thanks for your question. As you know, we do not disclose inventories -- recurring impact of the inventories in our business. What I can tell you, and you can see that by the price fluctuation, is that the July was the point where we had the biggest impact here, negative impact. So that was concentrated more in July. That's what I can tell you as of now. Regarding the fourth quarter, I will repeat myself here. We are seeing a gradual improvement on market environment. Fourth quarter usually is the strongest one in a year. That has been the case in the past few years. And in our guidance, we should and we actually do expect an improvement on the market environment and then an improvement on the results. So that's what I can tell right now about the Raízen Combustíveis.

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Gustavo Allevato, Santander Investment Securities Inc., Research Division - Research Analyst [29]

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And how about Argentina?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [30]

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In Argentina, we cannot -- it's just to guide now on the 4Q, we narrowed the guidance based on the loss of $50 million. And again, we'll see how the market conditions will be for us to, at that point in time, try to narrow the discount.

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Operator [31]

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The next question comes from Luiz Carvalho, UBS.

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Luiz Carvalho, UBS Investment Bank, Research Division - Director and Analyst [32]

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It's just a follow-up on my previous question. Looking to the (inaudible) presentation from -- I mean, 5th of November, so 1 week ago. They clearly mentioned there's difference of BRL 917 million in favor to Comgás? But I mean any chance that you can provide any color in terms of how this -- I would say, this reimbursement now be given to the company. And when we can expect that? And then any views on this? I'm sorry to insist on this one, right?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [33]

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No, Luiz, no problem. And thank you again for the question. But again, the process is under public consultation right now. So the final schedule -- or the final publication is scheduled for December 16. We are participating actively in this process -- in these discussions. So we cannot anticipate what will be the decision and what will be the outcome. So we are contributing and following up with the process and the decision, again, will come in December.

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Luiz Carvalho, UBS Investment Bank, Research Division - Director and Analyst [34]

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So in the schedule that you provide in the presentation that -- I mean, the decision on the analysis of the public consultancy contribution will be given by 16 of December. But then the final decision, it's going to be given by 31st of March, right? So -- 31st of May, sorry, by next year. So only by 31st of May that we're going to have any visibility on when or how the company might be reimbursed? I mean should we expect anything earlier than that?

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Phillipe Casale, Cosan S.A. - IR Executive Manager [35]

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Luiz, unfortunately, don't know, but probably we're going to have to follow up with the schedule after May 31. And you're right, it's -- the date is May 31.

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Operator [36]

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(Operator Instructions) With no further questions, I would like to turn the floor back over to Mr. Phillipe Casale for his final remarks. Mr. Casale, you may proceed.

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Phillipe Casale, Cosan S.A. - IR Executive Manager [37]

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Thank you, everyone, for joining this conference call. We will see you in the next opportunity. Just one quick reminder here. We're going to have our Cosan Investor Day. It's scheduled for March next year. We'll send a save-the-date shortly, and hope to see everyone there. Thank you very much.

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Operator [38]

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Thank you. That concludes the question-and-answer session for investors and analysts and the conference call of Cosan S.A.