Cosan S.A. Q3 FY2020 Earnings Call

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Cosan S.A.'s Third Quarter of 2020 Results Conference Call. Today with us, we have Mr. João Arthur Souza, Head of Finance; and Phillipe Casale, Investor Relations Executive Manager. We would like to inform you that this event is being recorded. And all participants will be in a listen-only mode during the company’s presentation. After Cosan’s remarks, there will be a question-and-answer session for industry analysts. At that time, further instructions will be given. The audio and the slideshow of this presentation are available through live webcast at ri.cosan.com.br/en. These 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'll turn the conference over to Mr. Phillipe Casale. Mr. Casale, you may begin the call.

Good morning, everyone, and welcome to our earnings call for Cosan S.A. Great challenges marked our business over the past month during the pandemic. However, the Brazilian macroeconomic figures in the third quarter demonstrated an upward trend in economic recovery. As social isolation measures gradually loosen, we observed an increasing demand for fuels, lubricants, and natural gas. This slightly demonstrates this upward trend in the macroeconomic data that relates directly to our business. At the onset of the crisis, we were swift to adapt to this new business scenario. More than that, we prepared in advance for when the economy will be picking up speed again so that we would be well-positioned to capture such opportunities in the market. Our teams are focused on execution and value generation whereby the results lead to an increase in the consolidated adjusted EBITDA measures year-over-year and quarterly, confirming once again their dual nature of our business portfolio. The pandemic continues to affect people's lives and businesses. We remain aware of the uncertainty posed by the new waves of contagion around the world. Regardless of this pandemic scenario, which we understand is dynamic in nature, we will keep prioritizing our team's health and safety to ensure our operational efficiency and sustainability. Moving along to the numbers, you will notice on Slide 4 that, in addition to the previously mentioned EBITDA growth, we achieved solid net income for the period. I would like to point out the progress in accumulated EBITDA over 2020 compared to the nine months to date in 2019. The main negative variations here are related to the businesses that were most affected by the crisis in the second quarter of this year. However, these businesses are already showing performance levels much closer to pre-crisis levels throughout the second half of the current year. Proceeding to the next slide, we will discuss each business's results, starting with fuel distribution. Let's begin with Brazil on the left-hand side of the slide. The recovery that hinted at the end of the second quarter in demand for fuels has consolidated during this quarter. Relaxation of social isolation measures and the resumption of economic activity were drivers for the gradual improvement of sales in the quarter. The main highlight has been the demand for diesel, which grew both consecutively and year-over-year, and here, the largest shares of sales continue to be supported by agribusiness demand. Additionally, the return of industrial activities is also playing an important role in diesel performance. Despite the expected improvement in Otto cycles, sales continue to be affected by the lower levels of consumer activity during the pandemic when compared to each year-over-year. In the aviation sector, recovery will be slower, but we are already seeing sequential progression. That being said, adjusted EBITDA was R$611 million, reversing the downward trend from last quarter. Expanded sales volumes, improved operational efficiency, and the gains from our supply strategy supported the EBITDA recovery. We observed a market improvement in the business environment; as a result, profitability is back to historical levels. Let me remind you of what we outlined during the previous call: this scenario of volatility with no sudden fluctuations in fuel prices, combined with a normalized demand environment, enabled a return to pre-pandemic levels. In addition to the lower volumes of sales, I would like to point out three important factors in contrast to the third quarter of 2019. We no longer consolidate the results from convenience stores. This segment ceased the reform, the joint venture with FEMSA, Grupo NÓS, and the results of this segment are now recognized as an equity pickup in the proportion of our 50% stake. The volumes of sales from the aviation segment were directly affected by the reduced number of flights taken. Additionally, we adopted a more disciplined management of our credit risk considering the current scenario. Finally, the costs associated with the RenovaBio program impacted our results by R$25 million in the quarter. CapEx during the quarter totaled R$173 million. Despite the reduction in investments, we have maintained consistent progress in renewing and converting service stations throughout the year. Before moving to Argentina's operation, I would like to update you on two key initiatives here in Brazil. First, the NÓS Group, our joint venture in the convenience and proximity stores segment. Following a period of intensive planning and development, we are now positioned to open the first store of our own with the OXXO brand this year, while opening new Shell Select stores at service stations, mainly under the standard franchisee agreement. For this first year of operation, the plan is to grow around 10% in the number of total stores, and we will probably close the year-end with over 1,100 stores. Adding to this expansion, we will open our first distribution center in São Paulo state this year. The second update is Shell Box. The last time we spoke about the Raízen client relationship platform was in March during Cosan Day. At that time, we presented a number of 600,000 transactions a month. Since then, considering the pandemic outbreak in Brazil, this transaction metric has doubled, and we have currently surpassed 1.5 million transactions a month, demonstrating high rates of usage and strong consumer loyalty to the V-Power products. Let us now move on to Raízen Argentina on the right-hand side of this slide. Just to remind you that results are in U.S. dollars, which is the functional currency for that entity. Similarly, with Brazil, demand for fuel has also demonstrated a strong recovery as compared to the second quarter despite the extended lockdown in Argentina. The adjusted EBITDA was $56 million, reverting the loss from the previous quarter. In addition to the increase in demand, the lower unit cost of inputs and products sold and the gradual increase of sales prices have also contributed to this improvement in results. Investments during the quarter totaled $10 million, a reduction in line with the investment expected for the year. Moving along to the next slide, we will discuss Raízen Energia's earnings. The acceleration of sugarcane crushing marked the second quarter of the 2020-2021 crop year. Dryer weather in the recent years combined with investments resulted in the expansion of agricultural yields, and the mix continues to be dedicated to maximizing sugar output, which reached 54% of our production, a clear signal of sugar's higher profitability compared to ethanol. Now let's move along to more detailed information on the main products sold, starting with sugar. The own volumes sold nearly doubled over last year's in line with our sales strategy for the harvest which will result in a more balanced sales between the last two quarters of the year. Since the beginning of the harvest, we have been increasing third-party sugar origination operations, leveraging our expertise in infrastructure to capture increased value within the supply chain for both our own and third-party products. Sales prices improved by 22%, in line with the hedging instruments contracted for the year. Moving on to ethanol, own sales volume was 14% lower year-over-year due to the lower levels of biofuel production and the sales strategy for the harvest. Average prices rose 5% over the third quarter of 2019, supported by increased exports and also the ethanol proxy hedge strategy. Now on to electricity; our own electricity sales volume was in line with the previous quarter, with average prices being 6% higher. Moving to the sugar hedging strategy, as mentioned in prior conference calls, Brazilian sugar's competitiveness increased due to the depreciation of the Brazilian real, leading to great hedge opportunities. The price in reais for sugar has been breaking historical highs, stimulating an acceleration of hedging with growing returns for the coming years. Considering the current harvest, Raízen has hedged 100% of its sugar target for exports at an average price of R$0.62 per pound, which is more than 10% above the previous harvest's average price. For the 2021-2022 harvest period, we have hedged a little over 70% at an average price of R$0.65 per pound weight. And for this 2022-2023 harvest, we have hedged a good portion of the sugar production volumes at a price near R$0.74. Now let's move to the results. The accelerating sales of sugar combined with improved prices for all products and improved cost efficiency led Raízen Energia to a 15% growth in adjusted EBITDA. We continue to build sugar and ethanol inventory for future sales in line with our strategy focused on taking advantage of better price return ratios. To conclude, investments totaled R$422 million in the quarter, a decrease explained by higher investments in projects in the third quarter of 2019. Let's carry on to the next slide and discuss the natural gas segment. Before we begin with the highlights for the quarter, one quick comment about our decision to suspend the Compass Gás e Energia IPO. Given the substantially worsening market conditions compared to the moment we launched the operation, and our capital allocation discipline, the best decision was to postpone the IPO to a future opportunity. I want to emphasize that nothing changed regarding the business plan for Compass. In line with this plan, last October we announced that the company submitted a proposal for the acquisition of 51% of Gaspetro's equity, which is included in the Petrobras divestment program. This process is advancing under confidentiality, restricting what we can disclose or discuss at this time. Now let's move to the quarter's results. Adjusted EBITDA was R$646 million in the quarter, boosted by a recovery of natural gas distributed by Comgás, which we will discuss in more detail now. Natural gas sales for the quarter experienced a sizable increase compared to the second quarter of 2020, returning to very close levels of those before the crisis. The industrial segment was the key driver of volume growth in line with the gradual recovery of production. The commercial segment is also gradually recovering but at a slower pace since many of our clients are still facing restrictions on their operations, such as hotels and restaurants, for example. The residential growth continues to expand in line with an increasing customer base. As a result, Comgás EBITDA was substantially higher compared to the second quarter of 2020. The year-over-year comparison posted a slight decrease explained by lower demand from segments still affected by the pandemic. The efficient management of expenses and margin adjustments by inflation in May this year drove the good financial performance of Comgás. Regarding CapEx, we are keeping the pace of investments aligned with the regulatory plan. Going over to the next slide, starting with Moove, our lubricants business. As with fuels and natural gas, lubricants demand strongly recovered during the third quarter across all countries where we operate. It is worth mentioning that seasonally, the third quarter is the best in terms of demand in the sector. And in the case of lubricants, a portion of the demand that was withheld during the second quarter due to the pandemic shifted over to the third quarter of 2020. As a result, Moove posted a record EBITDA of R$177 million, supported by our commercial strategy and our product portfolio that allows us to seize opportunities, especially in Brazil. Improvement in operational indicators reflects operational efficiency combined with economies of scale, management of expenses, and optimization of our supply strategy. Now on the right-hand side of the slide, we present Cosan Corporate. Adjusted expenses for the third quarter of 2020 were in line with the same period last year, and the other expenses totaled R$20 million in the quarter. Following the presentation on Slide 9, we will discuss the main consolidated financial indicators. Pro forma gross debt reduced by 2% in the quarter, reflecting the decrease in Raízen. As for cash flow, we had some specific factors that impacted the quarter which I will detail. Operational cash flow was seasonally affected by sugar and ethanol inventories at Raízen Energia. In the cash flow from investments, there was the investment of R$290 million by way of Rumo's follow-on participation. In other financing lines, Raízen amortized a greater amount of debt, offsetting the funding raised during the second quarter of 2020. As a consequence of these effects coupled with the lower last 12 months EBITDA, pro forma leverage increased to 2.7 times net debt-to-EBITDA. As the company resumed its normalized levels of results, we expect the leverage ratio to return to its historical range of 2 times to 2.5 times net debt-to-EBITDA. Before concluding our presentation today, I would like to give you an update regarding our ESG journey. One more important step in our commitment to sustainable development was taken this quarter. We signed the United Nations Global Compact, and this pact is responsible for encouraging businesses worldwide to adopt sustainable and socially responsible policies. This means not only reiterating our engagement with our stakeholders but also learning and exchanging valuable knowledge with other members of the compact. Concerning ESG indicators, we once again responded to questionnaires from the CDP and ISE as well as the Bloomberg Gender-Equality Index. Our active participation in these rankings and indexes is key to increasing our transparency, allowing improved communications to our stakeholders. Another important initiative is the integration of Raízen's first biogas plant, the world's largest with gas production based on sugarcane derivatives. This plant reinforces the group's pioneering spirit in the sector's development and consolidates Raízen's position as an integrated energy company that invests in innovation to ensure long-term sustainability. Before closing the call, a word about the corporate reorganization process we announced back in July. We are currently in the assessment and negotiation of the exchange ratios phase which is being conducted by the independent committees. The process is on schedule and as planned. The company will keep the market posted regarding the next steps as they arise. With that, I conclude the presentations, and we can now start the Q&A session. Thank you.

Our first question comes from Mr. Gabriel Barra.

Hi, Phillipe, thanks for the question. So first on Compass. As you know, and you have mentioned during the call, the company presented an offer for this 51% of authorized debt. And we have some news about Mitsui's evaluation to sell its 49% stake investment. So my question here is what could be the potential impact from this potential sale of 49% from Mitsui? If there is any change in the company's strategy regarding that schedule? The second one on Raízen Combustíveis. I looked to the numbers on the gas stations in the third quarter. The company had decreased 30 gas stations compared with the previous quarter. Regarding investments, what is the company's flagging strategy going forward in the medium term? In addition, if you could discuss a little bit more about the company's strategies in finding acquisitions and how it fits the company downstream business in Brazil? And if I may, I have a very quick question here about Raízen Energia. The company had a good level of hedge for this crop and for the next one, but prices have increased a little bit after the remainder of the second part in the crop year. So if you could give us an update if you have accelerated these hedge positions in 2022-2021 and 2022-2023 crop, it would be very helpful for us. So that's my questions. Thank you.

Gabriel, thank you for your questions. I'll try to address all of them here. Starting with your first one. In Compass, we are focusing on the Petrobras stake, which is what we announced, and we are concentrating on doing the 51% stake that we have announced as a proposal that was sent to Petrobras. So there is no intention or decision about any other movement other than this one. The second question in terms of the gas station growth. We always tend to bring you guys to look at the volume growth because there is a difference in terms of the numbers of stations that each player announces, and we also have the Sindicom EAP number that usually comes out as well. So, we always encourage you to focus on the volume growth. And here, we are seeing a pretty good year actually, even though in the second quarter, we faced some challenges in terms of finalizing some contracts. But we are on track to deliver this year, aiming somewhere around the 1 billion liters that we have been historically bringing to our network. So we will keep focusing here on the quality of the assets, location, and so on when bringing new stations to our network. Regarding the hedges, as for your last question, we have advanced this crop and we are fully hedged already, as you saw. For the 2021-2022 crop, we have around 70% hedged, and the price is around R$0.66 per pound. As we mentioned during the last call, we started hedging the 2022-2023 crop year. We have a little less than half of that crop or the sugar that we intend to export hedged, and the price level is extremely high at R$0.74 per pound. From a returns perspective, for us, hedging is simply hedging the return; we are not speculating here. It makes total sense to advance a little bit. So that's where we stand now in terms of the hedges.

Okay. Great. Thanks, Phillipe.

Our next question comes from Mr. Andre from Itaú.

Thank you for taking my questions. I have two questions on my side. The first thing is relating to RenovaBio. I understand the program was just implemented by the end of the third quarter, so there wouldn't have been time to pass through prices. However, when we look into the fourth quarter numbers and consider more recent pricing, we haven't been seeing a pass-through to fuel prices. Do you think there is a chance that the distribution companies could have absorbed a part of these costs? Or do you think it will be the full pass-through to the client? I'll ask this question and then I'll ask my second question after this.

Andre, thanks for the question. Let me explore our view about RenovaBio without discussing directly in terms of price and so on. First, it's important to celebrate that the program is up and running. This is something that Brazil created, and there is a target and cap for each distribution company and each player in this industry. We view the program as a market-regulated system with no need for government interference to incentivize the consumption of biofuel by pre-filling versus cost differentiation. Everyone wants to be pleased with what Brazil created, as I mentioned. The program creates cost depreciation or should enable a cost depreciation for fuels compared to cleaner fuels. So that's our view here, and we are celebrating that the program is up and running. Naturally, there is a long way to mature the program.

Okay. Perfect. My second question, Phillipe, is on Compass. Could you just cover a little bit of how the regas terminal in São Paulo has evolved? How have the discussions been? When should we start seeing construction effectively start? And then also on Compass in the marketing business, could you explain a bit about how the new contracts are evolving? When do you think the commercialization business will start reporting EBITDA? When do we start seeing effective volumes being negotiated? So if you could give us a little bit of a granular update on how these two businesses are evolving, that would be really good.

Andre, thank you again. Regarding the license of the terminal, we already got the installation license and we are continuing to work on the contractual arrangements prior to the start of construction of the terminal. So any time in the near future, we will probably start construction of that. In terms of the Compass commercialized border, it's important to separate the Compass trading contracts. We are working to form a portfolio of gas supply contracts for customers supported by contracts to new suppliers to access infrastructure. There is no update in terms of contracts at Compass right now, and we will inform you as soon as we have those signed contracts to announce.

Perfect. Thank you very much, Phillipe.

Our next question comes from Mr. Thiago Duarte from BTG Pactual.

Hello, Phillipe; hello, everybody. Thanks for the opportunity. Just three questions on our side. First one, Phillipe, could you talk a little bit more about the corporate restructuring? You mentioned in the presentation that it is going according to plan. Just if you could, since the original plan had a pretty wide target regarding the conclusion of restructuring, if you could give us a more precise update of the next steps and when you expect it to happen in terms of the conclusion of the restructuring, that would be nice. The second one is regarding cane availability. We saw a significant drought that impacted the center-south of Brazil this year, possibly explaining why crushing has been strong so far. But do you have a sense of whether this could affect the cane availability for Raízen Energia for the next year crop or not, or maybe it's too early to tell, but just if you could progress a little on the quality of the cane that you expect to harvest from now on, that would be nice as well. The third question relates to the gas stations. It's actually a follow-up from the first one that you answered on gas stations. If you could open how many units were added versus how many units were lost in this particular quarter, that would be nice to see as well. Thank you.

Thiago, thank you for your questions. Regarding the reorganization process, we are currently in the phase of waiting for the independent committees to define or negotiate the ratio of exchange after they complete their assessments of each company. That is the phase we are in now. Anytime soon, they will inform us of this ratio of exchange, and we will follow up with the market with all notices and material facts that we need to keep the process transparent. After that, we will call for a general meeting to vote on those ratios of exchange. In terms of cane availability, it's a good question because it's still a little early to have a clear scenario for the next crop due to the dry weather this year affecting sugarcane development in the beginning of this crop. The crucial time for us to assess cane availability will be from December to March during the intercrop season, where we need the right amount of rains to gauge the situation. Regarding the gas stations, unfortunately, I don't have those numbers at hand. We can follow up later; however, I can say that we are focused on delivering around 1 billion new liters of fuel demand for Raízen Combustíveis in 2020.

Thank you. And if I could, just one follow-up on the cane availability side of the discussion. Does that change to any extent the guidance that you provided? I know the guidance is no longer in place, but if we look back at the guidance for the 2021 year crop, I think it was between 2.85 billion to 3.05 billion. Is that going to be any different when we look at the end of this year's crop and how the investments, the CapEx, will look like? Is there any change to your cane replanting schedule or anything like that?

Thiago, we are in a journey of investments, as you know, to improve our agricultural yields, which is part of what was embedded in that guidance. As I mentioned last quarter, Raízen Energia was much less impacted by the pandemic, so probably the assumptions embedded in that number would be preserved if we still had the guidance. That considers the investment. So we don't see a view of changing the level of investments to improve agricultural productivity. We'll probably maintain our pace and are looking at a new phase of agricultural risks, which, of course, depend on climate conditions that impact agricultural yields. In terms of gas stations, we'll have to follow up on that. I don't believe I have the numbers here. I'll add that we are aiming to bring around 1 billion new liters of fuel for Raízen Combustíveis in 2020.

Our next question comes from Mr. Guilherme Palhares from Bank of America.

Hi, Phillipe, thank you for taking my question. Also talking about Raízen Energia. In September, we know that the company was in talks to acquire another player in the same business division. If you could provide some update in terms of growth for that segment for the Raízen Energia business, being organically or not, it would be great to update us.

Guilherme, thank you for your question. We confirmed back in September that we entered discussions for a possible operation's completion, and that's where we currently stand. If we proceed with this transaction, keep in mind that it fits into Raízen Energia's renewable strategy. But I assure you that capital discipline is absolutely key in any deal, and this one is no different. We are still in the discussion phase with no definitive conclusion.

Our next question comes from Mr. Regis Cardoso from Crédit Suisse.

Hi, Phillipe, thanks for the time and for the questions. I'll say two from my side. Can you comment on the impact that inventory gains and replacement margins had during this quarter for Raízen Combustíveis? If you could also comment – I believe inventory has also played a role in Argentina, so I'm mostly interested in Brazil, but if you could also talk about Argentina quickly, that would be great. The second question is about the many initiatives you have in place. So I wanted to know how have each one of them advanced, in particular, the LNG terminal, the thermal power plant, the contracts with BBG, and any other initiatives in Compass specifically. I believe you also have a few in Raízen, for instance, the potential negotiations with Biosev, projects for second-generation ethanol. If you could comment on those future projects, please.

Regis, thank you for your questions. In terms of margins in Raízen Fuels, starting with Brazil, without breaking up the margins gained from supply and commercialization strategies, which includes inventory gains, imports, and so on, we did experience an inventory gain. However, the price action's recovery during this quarter was quite different from the price drop faced in the second quarter as you know. Hence, the size of the inventory gain in the third quarter of 2020 was in line with historical levels but significantly lower compared to the loss recognized in the previous quarter. It's also essential to analyze margins considering each player’s portfolio; for instance, aviation has not significantly contributed to our results. Fuel stores do not consolidate in the fuel anymore since we formed a joint venture with FEMSA, and we only have 50% of net income through equity pickup now. Another important point when analyzing margins is accounting standards, primarily IFRS 16, which we continue to disclose and adjust to our EBITDA. I recommend comparing results using EBIT per cubic meter or ROIC, which remain the best metrics for analyzing our margins in comparison to other players. Moving to Argentina, the quarter saw better performance due to volume improvements and gradual sales price increases that helped boost EBITDA and rebound from the previous quarter's loss. The main challenge remains the timing of getting prices close to international tariffs, which is what we should look ahead for until year-end and into the next year at Raízen Argentina. Regarding investments and prospects for our business, we discussed Compass and our proposal for acquiring Gaspetro, and that's where we stand. Biosev also ties into this. On the renewable side, Raízen has significant initiatives, including the second-generation ethanol. The first plant is fulfilling its capacity, and we just inaugurated our biogas plant, which is crucial for our ESG agenda. As I mentioned earlier, it's a big renewables agenda that we will pursue at Raízen Energia with good prospects for the near future.

All right, thank you.

Our next question comes from Mr. Cristian Audi from Santander.

Thanks, Phillipe. I had two questions; one on fuel distribution and the other on leverage. On distribution, as you were mentioning just now, Phillipe, it's between the inventory gains and now the fuel adjustments, sometimes it's difficult to ascertain what the recurring EBITDA per cubic meter margin is for – if we look at Brazil fuel distribution. I was wondering if you could, for example, take these third quarters as an example, if we remove all these nonrecurring items, what do you think the recurring EBITDA per cubic meter margin was for this quarter? And what are the main drivers, in your view, that could help you improve that margin going into next year? The second question is regarding leverage, if you could just add a little color. You explained that you reached this 2.7, but your goal is to go down to the 2 to 2.5x net debt-to-EBITDA. Is that more of an end of this year or end of next year target? If you could provide a little bit of your expectations on timing, that would be very helpful.

Cristian, thank you for your questions. Regarding the nonrecurring items, I must say that we are navigating a volatile year in the fuel division. Prices of fuels, along with volatility and demand impacts, significantly change what a recurring margin would look like. However, I can affirm that my previous statement still stands: the second half of 2020 should align with our original plan pre-crisis. It's challenging to make predictions given the ongoing pandemic uncertainties, but the fourth quarter could resemble the third quarter with possible demand upsides. The business environment has improved, and other formal players are returning to historical profitability levels. Raízen has consistently delivered solid performance, combining volume growth and profitability. Regarding leverage, we reached 2.7x net debt-to-EBITDA this quarter. One reason I mentioned is Raízen Energia's inventory buildup dynamics, which will stabilize or decrease as we sell through this inventory over the next two quarters leading to the end of the crop year, which is March 2021. Expectations point toward a trend back to historical levels before that time frame, but I can't put a specific date.

Great. Very helpful. And Phillipe, regarding the first point you made, what are the main tools you have at your disposal to keep improving these margins for fuel in Brazil? Is it SG&A reductions? Is it gross margin improvements? Because you're already so efficient, I'm trying to understand what else you can do to improve margins from your perspective?

Cristian, to be honest, Raízen has done the heavy lifting in terms of infrastructure and operational efficiency, having an efficient supply and commercialization strategy (which also pertains to our pricing). There’s always more work to do, but historically, we've returned to a robust historical profit level. Opportunities will arise again based on the supply and commercialization strategy, which is something that has helped us in the past few years. Other opportunities lie in the convenience stores and the aviation segment, which is currently struggling with the overall aviation market. Should that recover, we would capture more markets in that segment to return profitability to historical levels.

Our next question comes from Mr. Alejandro Demichelis from Nau Securities.

Hi, good morning, gentlemen. Thank you very much for taking my question. Alejandro Demichelis from Nau Securities. I think you were mentioning your aim to reduce the gearing level. But I'm just thinking. You're saying also that you are pursuing the Gaspetro acquisition, you're also bidding for the refineries in Petrobras, and you have financing on the Comgás project, also the RenovaBio initiative. So trying to square both things, if all those projects come to fruition, how do you expect to lower the gearing level?

Alejandro, thank you for your question. Each business line or company has its own capital structure and ways of funding investments and accessing the market. You should consider how each business would fund its projects and investments. Accessing capital markets is an ongoing option. One example is the IPO for Compass we attempted last quarter; we could revisit that in the future. Of course, accessing capital markets is an avenue we've consistently pursued, as has cash generation from ongoing operations, which helps fund new investments. Just one quick note about the RenovaBio aspect; you mentioned that it doesn't directly impact leverage. It would affect the P&L, but not leverage, so it wouldn't influence the overall debt position.

Okay. No, that's clear. But there's still quite a lot of things that either you at the cost and the sale level or the subsidiaries may have to finance here.

Yes. Yes. And just one more point here: that 2 to 2.5x debt-to-EBITDA is what you should think about long-term. Yes, we can go beyond that. We are at that level right now, but that’s temporary. You should see us return to 2 and up to 2.5x with those projects and investments we’re pursuing.

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

Thank you all for joining us in the call. I hope everyone stays safe and has a good end of the year. Thank you.

Thank you. That concludes the question-and-answer session for investors and analysts.