Ultrapar Participações S.A. (NYSE:UGP) Q2 2023 Earnings Call Transcript
Ultrapar Participações S.A. (NYSE:UGP) Q2 2023 Earnings Call Transcript August 10, 2023
Operator: Good morning. Thank you for waiting. Welcome to our earnings presentation of Ultrapar to present the results of the Second Quarter 2023. There is also a simultaneous webcast that may be accessed through Ultrapar's website at ri.ultra.com.br and MZiQ platform. The presentation will be conducted by Mr. Rodrigo de Almeida Pizzinatto, Ultrapar's Chief Financial and Investor Relations Officer. And then for Q&A session, we'll have also with us Mr. Marcos Lutz, Ultrapar's CEO and the CEOs of the businesses, Mr. Tabajara Bertelli, Décio Amaral and Leonardo Linden. We would like to let you know that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After Ultrapar's remarks, there will be a question-and-answer session.
At that time further instructions will be given. [Operator Instructions] We remind you that questions, which will be answered during the Q&A session may be posted in advance in the webcast. A replay of this call will also be available for seven days immediately after it's finished. Before proceeding, we would like to emphasize that forward-looking statements are being made under the Safe Harbor of Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ultrapar 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 Ultrapar and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'd like to turnover to you Mr. Rodrigo Pizzinatto. He is going to begin the conference. Please Mr. Pizzinatto you have the floor.
Rodrigo de Almeida Pizzinatto: Good morning, everyone. It is a pleasure to be here once more to talk about Ultrapar's results. Starting on slide number 2, I remind you that at this moment both the earnings release and this presentation consider Ultrapar's data from continuing operations in 2023. As for 2022, the company's data is presented in the pro forma view considering the sum of continuing and discontinued operations as disclosed throughout last year unless otherwise indicated. Moving now to slide number 3 with Ultrapar's consolidated results. As you can see in the chart in the upper left side, our recurring EBITDA from continuing operations totaled BRL933 million in the second quarter of 2023, 15% lower year-over-year due to the lower EBITDA of Ipiranga, partially offset by higher EBITDAs of Ultragaz and Ultracargo.
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Ultrapar's net income was BRL239 million in the second quarter, 48% lower year-over-year due to the lower EBITDA from continuing operations, the capital gain of $289 million from the sale of Oxiteno in the second quarter of 2022 and the higher depreciation and amortization. These effects were attenuated by lower net financial expenses despite the higher CDI, mainly due to the positive one-off result of BRL47 million in mark-to-market of hedges in this second quarter of 2023 compared to the negative one-off of BRL272 million in the second quarter of 2022. Our Board of Directors as we have already informed approved the payment of BRL274 million in interim dividends referring to the year 2023, equivalent to BRL0.25 per share. Investments from continuing operations totaled BRL385 million in this second quarter, 5% lower than that of the second quarter of 2022 mainly due to lower investments at Ultracargo and Ipiranga, partially offset by higher investments at Ultragaz.
We had an operating cash generation of BRL898 million in the second quarter compared to a generation of BRL376 million in the same period of last year, resulting from lower investments in working capital on the back of fuel price reductions. The operating cash generation in this second quarter was BRL1,199 million if we exclude the reduction of BRL301 million in the draft discount balance. And moving now to slide 4 to talk about our liability management. We ended the second quarter with a net debt of BRL8 billion, a reduction of BRL252 million compared to March 2023 due to the operating cash generation even if we consider the reduction of BRL301 million in the direct discount balance in the second quarter. Our leverage remained practically stable at 2.1 times net debt-to-EBITDA in June 2023 on the back of the lower last 12 month EBITDA from continuing operations despite the reduction in net debt that I've just mentioned.
I'd like to point out that the numbers of our net debt do not include pending receivables of BRL1.1 billion related to the sales of Oxiteno and Extrafarma. We raised BRL1,018 million in agribusiness receivable certificates at the cost of 104.8% of the CDI of that BRL 618 million in June and BRL 400 million in July which extends our debt profile at the yearly lowest cost for equivalent issuances in Brazil. We've included at the bottom of this slide a table with the total amount of draft discount and vendor lines as well as pending receivables from the sales of Oxiteno and Extrafarma all lines highlighted in our balance sheet. The net debt as of June 2023 adding the draft discount vendor and divestment of receivables would be BRL 8.8 billion which is BRL 1,746 million lower than the balance of June 2022 and one year ago.
And moving now to the next slide number 5 to talk about another excellent quarter of Ultragaz. The volume of LPG sold in the second quarter was 4% higher year-over-year, due to the 2% increase in the bottled segment on the back of greater market demand. The bulk segment in turn grew by 8% with higher sales, mainly to the two industries. Ultragaz SG&A in the second quarter of 2023 was 15% higher than that of the second quarter of 2022, due to three main factors. The first refers to higher expenses with personnel mainly collective bargaining agreements and variable compensation in line with the progression of results and a larger headcount due to the recent acquisitions. The second factor is the higher expenses with freight resulting from higher sale volumes.
Additionally, we also had higher expenses with sales commissions. The disposal of assets line totaled BRL 7 million in this second quarter, as a result of the concentration of operating asset sales. With that, Ultragaz EBITDA totaled BRL 405 million, 55% higher year-over-year. This growth is mainly explained by efficiency and productivity initiatives implemented in the last quarters, by higher sales volume with better mix and by inflation pass-through despite higher expenses. For the current quarter we expect Ultragaz to maintain its good operating performance with seasonally stronger volumes. Moving now to Slide 6 to talk about another great quarter of Ultracargo. The company's average installed capacity was 955000 cubic meters in the second quarter of 2023 stable in relation to the second quarter of 2022.
The cubic meters sold increased by 6% due to increased handling of fuels in Santos and Itaqui, mainly resulting from higher spot sales, especially diesel as a consequence of greater supply in the market, in addition to higher handling of chemicals in Aratu. Ultracargo's net revenues were BRL 257 million in this second quarter, 19% higher year-over-year, as a result of higher cubic meters sold the spot sales I've just mentioned and higher tariffs. Combined cost and expenses were 14% higher than those of the second quarter of 2022. As a result of higher personnel expenses, mainly collective bargaining agreements and variable compensation also in line with the progression of results. We also had higher expenses with advisory and consultancy services linked to expansion projects and maintenance costs.
In the second quarter of 2023, Ultracargo concluded a sale process of its stake in Uniao Vopak at the Paranagua terminal which resulted in a positive effect of BRL 8 million in the share of profit of subsidiaries joint ventures and associates line. Ultracargo's EBITDA with that totaled BRL 161 million in the quarter, a growth of 24% year-over-year due to higher capacity occupancy with profitability gains, higher tariffs, productivity and efficiency gains and the share of profit of subsidiaries result I've just mentioned. EBITDA margin was 63% in the second quarter, three percentage points above that of the second quarter of 2022. And for the third quarter, we expect Ultracargo to continue its good operating performance with results similar to those of the previous quarters.
And to conclude this presentation moving now to Slide 7 let's talk about Ipiranga's results. Volumes sold in the quarter remained stable compared to the second quarter of 2022 with a 7% growth in the Otto cycle with greater share of gasoline to the detriment of ethanol in the product mix. On the other hand, diesel fell by 5%, mainly due to the strategy of lower sales to the spot market during the period. We ended the second quarter with a network of 6,281 service stations, 245 stations less than that of March 2023 which is in line with our strategy of managing the legacy of low-potential service stations to review that should be concluded in this third quarter. A total of 76 new service stations were added to their network with an average volume contribution of 366 cubic meters per month.
On the other hand, 321 services stations were closed with an average volume contribution of 43 cubic meters per month. Despite the reduction of the number of services stations, the net volume effect was positive, reinforcing our strategy of higher density and improve the standards of our service station network. In addition, we ended the quarter with 1,553 AmPm stores with same-store sales growth of 13% year-over-year. Ipiranga's SG&A decreased by 5% in the quarter mainly due to lower freight expenses on the back of reduction in diesel prices and logistics optimization after the vehicle fleet reduction partially offset by higher provision for doubtful accounts. The other operating results line totaled negative BRL 211 million in the quarter compared to a negative BRL 130 million in the second quarter of 2022 mainly reflecting higher costs with Brazilian carbon tax credits and the constitution of extemporaneous tax credits in the second quarter of 2022.
The disposal of assets line totaled BRL 31 million in the quarter resulting from the sale of six real estate assets. Ipiranga's EBITDA totaled BRL 479 million in the quarter, 43% lower than that of the second quarter of 2022. Recurring EBITDA was BRL 448 million in the quarter 41% lower year-over-year. The lower EBITDA reflects two main factors. First, margins pressured by fuel cost reductions throughout the quarter and consequently inventory losses. I remind you that in the second quarter of 2022, we had few cost increases and inventory gains. The second factor was the worst commercial environment in the second quarter of 2023, due to the oversupply of imported products and higher local production. For this third quarter, we expect seasonally higher volumes and then gradual recovery of profitability as the market normalizes.
And with that I now conclude my presentation. I appreciate your interest and attention. And now let's move to the Q&A session in which we are available to answer your questions. Thank you.
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