Cosan S.A. Q2 FY2021 Earnings Call

Good morning, everyone. We welcome you to Cosan’s Second Quarter of 2021 Results Conference Call. Present with us are Mr. Luis Henrique Guimarães, Cosan’s CEO; Mrs. Paula Kovarsky, Head of IR and EESG; Mr. João Arthur Souza, Head of Finance; and Mrs. Ana Luisa Perina, IR Manager. Please note that this event is being recorded, and all participants will be in listen-only mode during the Company’s presentation. Following this, there will be a question-and-answer session for industry analysts, with further instructions provided at that time. Today, we have a simultaneous webcast available on the Company’s website www.cosan.com, where the slide presentation can also be downloaded. Additionally, an audio replay of this call will be accessible on the same website. Before we begin, I want to highlight that forward-looking statements are based on the beliefs and assumptions of Cosan management and on information currently available. These statements involve risks, uncertainties, and assumptions, as they pertain to future events and rely on circumstances that may or may not occur. Investors should be aware that general economic conditions, industry factors, and other operational elements could affect Cosan's future results, leading to actual outcomes differing significantly from those stated in such forward-looking statements. Now, I’ll hand the conference over to Mrs. Ana Luisa Perina to start the presentation. Ana Luisa, please go ahead.

Good morning, everyone, and thank you for joining Cosan’s second quarter of 2021 earnings conference call. Today with me I have Luis Henrique Guimarães, our CEO; Paula Kovarsky, Head of IR and EESG and João Arthur Souza, Finance Director. Before going to the results, I just want to highlight some important milestones that we achieved this past month, on slide 3. We always said that we wanted not only to have one single holding company listed, which we accomplished in the beginning of this year, but also that it makes sense for Cosan to have its subsidiaries listed as well at the right moment. So, successfully pricing Raízen was yet another very important step towards the ideal capital structure for the Group. This really ensured the required level of independence that will allow the company to accelerate its long-term investment plan to increase the offering of renewable energy. Another important achievement was finding an R$810 million private placement at Compass, at the end of May, bringing new investors who share our long-term view into the company and preparing it to capture opportunities that may arise, while maintaining adequate levels of leverage. Let’s go now over the financial and operating highlights for the business, starting with Raízen, which also implemented its own corporate restructuring, officially becoming an integrated company from this quarter on. Since Raízen hosted its own conference call with the market last Friday, I will briefly go over the main topics of the quarter. Starting with renewables on slide 4. We presented excellent performance, and adjusted EBITDA more than doubled year-on-year, ethanol being the highlight. Despite the lower production due to the drier weather and sugarcane harvest being a couple of weeks late, higher biofuel prices led to an increase in our sales volume, allowing us to capture a significant improvement in returns. Moving on to sugar on the next slide. This quarter, we saw similar dynamics to that of renewables, focusing on maximizing profitability of the portfolio. Raízen posted greater sales of own sugar, supported by the commodity cycle and our strategy to increase our presence across the sugar value chain. The higher prices recorded this quarter are proof of the efficacy of our pricing and hedging strategy. Therefore, adjusted EBITDA came in more than twice as high. At the bottom of slide 5, we present the consolidated CapEx of Raízen’s Agroindustrial operation, in line with the plan. Quick disclaimer here. The crop setback effect on Raízen was lower than the market average, since we keep advancing on our journey to capture efficiencies and to recover agricultural yields. This also offset inflation and lower dilution impacts on unit costs of the period. On top of boosting profitability, higher sugarcane availability, and therefore biomass, will allow us to maximize Raízen’s long-term strategy of reshaping the future of energy. Aligned with that, we achieved important goals recently with the successful closing of the Biosev acquisition, not yet reflected in our financial statements, and the announcement of our second E2G plant. The return of this project is guaranteed since we already sold around 1 billion liters of second-generation ethanol to be delivered over the next nine years through long-term contracts with fixed prices and considerable premiums. Now, let’s go into Marketing and Services on slide 6. From now on, we will present consolidated results for the segment to better translate the value of our integrated platform in line with the way we manage it. The resumption of economic activity, coupled with the advancement of vaccination boosted the demand for fuel, despite the challenges related to the pandemic still present in the quarter. We continue expanding our network and customer base, increasing our market share in both Brazil and Argentina with adequate returns. Total adjusted EBITDA recorded robust growth, getting closer to pre-COVID levels. The reduction quarter-over-quarter, however, is explained by lower gains from supply and commercialization strategy. Some additional highlights on our Marketing and Services platform. We keep the pace of our proximity network expansion of both Select and OXXO stores, motivated by the above-expectations performance of the business so far. In Shell Box, the number of transactions keeps skyrocketing. On M&A, we announced the acquisition of the Shell Lubricants operation in Brazil to complement our portfolio and value proposition to clients. Also, we recently signed the acquisition of a leading fuels network in Paraguay, consolidating our presence in the LatAm Southern region. Now for Compass on slide 7. Adjusted EBITDA was positively impacted by the boost in demand for Comgás natural gas driven by the economic resumption. For the third quarter in a row, Comgás has posted growth in distributed volumes, this time with positive contributions from all segments. The main highlight comes from industrial consumption, leveraging on higher demand from several segments, such as ceramics, steel, and chemical industries. The recovery in volumes sold to the commercial segment is due to the gradual reopening of establishments in the period despite restrictions still being in place. The residential segment also presented quite a good performance over an already strong comparison base, leveraged by continuous customer base expansion. On top of volume growth, efficient management of our expenses and CapEx at Comgás supported growth in adjusted EBITDA. In commercialization, however, Compass was negatively affected by the ramp-up of power prices due to the drier weather, recording a loss in the quarter. We adjusted our strategy towards this segment and therefore decided to substantially reduce our exposure to directional power trading, further focusing on gas and power sales to end customers. Thus, we neutralized our position in this quarter, reason why this effect was adjusted on recurring EBITDA. Compass investments in the period reflect Comgás’s regulatory business plan, bolstering network expansion with the gross addition of more than 150,000 new clients in the last 12 months. Quick note here, as announced Friday, we received the CapEx guidance for the year, adjusting for the timing of when the construction of the Regas terminal actually started compared to the initial plan. Before turning to Moove, I’d like to highlight our significant progress towards further developing Compass's business plan. First, at the beginning of July, ARSESP started the public consultation regarding the 20-year extension of Comgás concession as provided for by the concession contract. Second, we announced an agreement with Petrobras for the acquisition of 51% of Gaspetro subject to meeting preceding conditions. And finally, we started constructing the Regas terminal in Santos. Moving on to slide 8, presenting Moove’s results. We had yet another great quarter at our lubricants business, with relevant EBITDA expansion supported by a significant increase in sales volumes across all geographies. The business continued to benefit from its successful commercial strategy and its focus on supply management, allowing the Company to overcome challenges imposed by the strong pressure on raw material costs in the global market. It is worth noting that the better-than-expected performance in the first half of 2021 led the Company to review its guidance, increasing EBITDA expectations for the year. Moving on to slide 9. Let’s talk about Rumo. Since Rumo has already had their call with the market as well, I’ll summarize the main topics here. Rumo presented good performance in all main KPIs in the second quarter. The higher adjusted EBITDA was supported by two main factors: First, an increase in transported volumes, especially in the North operation, driven by the performance of industrial products and the agricultural sector also capturing additional volumes from Central Network; and second, a better market outlook and higher fuel prices, allowing for yield expansion. Moreover, Rumo has also recorded continued efficiency gains, but those effects were partially offset by the pressure on costs and expenses, mainly related to higher fuel costs and inflation. This explains the reduction in adjusted EBITDA margin year-on-year. Investments were in line with the plan. According to which, around 30% of total CapEx was allocated to the Central Network. As announced this last Friday, Rumo decided to discontinue its guidance for 2021 due to expectations of reduced corn production for the harvest year. Let’s turn to slide 10, where I will present the consolidated figures for Cosan on a pro forma basis. Combining the consistent performance posted by each business line, leveraged by the resumption of demand in the sectors in which we operate and a better pricing scenario for renewables and sugar, pro forma EBITDA and net income posted quite strong growth, overcoming the challenges seen in the second quarter of 2020. On top of that, Cosan Corporate recorded a positive impact related to the exclusion of the ICMS from the PIS-COFINS import calculation base for lubricants activities held in previous periods. Moving on to slide 11 to point out the financial highlights of the second quarter. The higher EBITDA led to a leverage reduction to 2.8 times net debt-to-EBITDA, closer to ideal levels for the group, which is between 2 to 2.5 times. It’s worth noting as well that the capital injections in Raízen and Compass were not yet accounted for in the period. The better performance of the businesses also boosted operating cash flow, even considering that working capital in the second quarter is seasonally affected by sugarcane harvest dynamics. On investing cash flows, the higher spending compared to the previous year is in line with the subsidiary’s investment plan. And finally, on financing cash flows. We had lower debt issuance compared to the second quarter of 2020, when cash positions were strengthened due to the beginning of the pandemic. Therefore, Cosan pro forma ended the quarter with a free cash flow to the equity of almost R$800 million. A quick note here, we just concluded the issuance of R$2 billion in long-term debentures at Cosan as part of our ongoing liability management process. Before concluding my presentation, I just want to point out the main highlights of our EESG agenda, which keeps improving daily. Please go to slide number 12. Raízen, Compass, and Rumo recently released their 2020 Annual Sustainability Report, prioritizing the material aspects and reiterating the commitments established by each one of them. Also, Cosan was recognized for its good ESG practices. Once again, we were selected to be part of the FTSE4Good portfolio. On diversity, the group made considerable progress collecting experience agreement for Rumo and Raízen’s Boards. This allowed those companies to receive the Women on Board Association stamp. Finally, as mentioned in the beginning, Raízen becoming a publicly traded company is also consistent with our EESG strategy. Its investment thesis is based on paving the way to a greener future. In that sense, we have already made significant advances, fostering the renewables market by developing a guaranteed supply of second-generation ethanol and biomethane. At Cosan, we will remain focused and continue to do our homework to overcome the crisis and be prepared to capture the opportunities that will arise with the resumption of economic activity. With that, I conclude my presentation and we may move to the Q&A session. Thank you.

Now, I would like to turn the conference over to Mr. Luis Henrique Guimarães to his opening remarks.

Good morning, everyone, and thank you for joining us on this second quarter call. I want to emphasize a few key points from the presentation. Firstly, I am proud of our team who has achieved a lot in the second quarter and in July, where we have undertaken significant structural actions that will enhance our performance in the future. To start with, Compass has initiated the LNG terminal in Santos, made progress on acquiring Gaspetro, and is engaged in discussions regarding the concession extension in São Paulo. These activities reflect our efforts to prepare for the next phase of geographical expansion. With Raízen, we previously discussed the IPO, and recently, we expanded into Paraguay and signed new contracts to develop new second-generation ethanol plants. We are also rapidly expanding OXXO into Campinas and have recently entered São Paulo. Rumo has made substantial progress in Santos, completing important construction that will streamline our operations within the port, and we are ahead of schedule in implementing the Rio Verde terminal, which is crucial for the Central Network. Moove is also actively looking for new expansion opportunities worldwide, and we anticipate sharing exciting updates as we deliver strong results. In terms of funding, we are actively pursuing sustainability-related financing within Rumo and refinancing efforts organization-wide, all aiming to enhance our liability management. Moreover, we have made strides in increasing diversity on our boards across Cosan, Compass, Raízen, and others. I want to assure you, our investors, that we have not slowed down because of COVID-19. Instead, we have accelerated our efforts and are laying strong foundations for the future. While we faced setbacks, particularly in electricity trading, we took effective measures to mitigate the impacts and reposition ourselves for future growth. Overall, we view this as a very strong quarter in terms of financial results, but more critically, the resilience and energy of our team have shone through, enabling us to perform even in challenging market conditions as well as during the pandemic. We are optimistic about the vaccination rollout in Brazil and the subsequent market recovery, which is increasing volumes across all our businesses, and we anticipate this trend to continue. Although the Delta variant raises concerns, we remain hopeful as Brazil has made significant progress in accelerating vaccination efforts. With that, I will now turn it over for the question-and-answer segment.

Our first question comes from Mr. Thiago Duarte with BTG Pactual.

Hello everyone. I have two questions. The first pertains to the group's growth and capital allocation moving forward, directed more toward Luis. As you mentioned, you achieved significant milestones this year with the simplification and the Raízen IPO. Could you share your expectations regarding the timing of upcoming moves, specifically related to the IPOs of Compass or Moove, further investments for Cosan, and potential new segments or investment ideas? Your insights on this would be helpful. The second question is related to Compass, particularly regarding the acquisition of Gaspetro. I understand some factors are beyond your control, especially concerning the right of first refusal for Gaspetro's minority stakeholders and state governments. I've read that some are considering exercising their rights. Could you discuss the developments needed for the acquisition to proceed smoothly and any variables that could be deal breakers for Compass and Cosan? Thank you.

No, very clear, Thiago, and thanks for the questions. Regarding the first one, when you examine the plans of each of our companies across the four verticals, they are very solid both from inorganic and organic perspectives. Each of the CEOs and management teams is focused on delivering their projections and Board approvals. Raízen, Compass, and Rumo are all showing strong growth, and Moove has many opportunities for geographical expansion, although we need to identify and execute on those targets. I'm confident in our teams and plans, which are well-financed. While execution risk is always present, we've concentrated on building efficiency and development capabilities over the past couple of years. In response to your broader question about future directions, we have been expanding internally within our organizations as well as across the group in three main areas. First, we're finding synergies between the companies to enhance our operations. An example of this is our collaborative work on information security, which has helped us strengthen our defenses through combined efforts. Additionally, we're achieving savings through joint procurement of items like services and equipment. The second area is assisting our customers and partners in decarbonization efforts. Each of our companies has significant opportunities to help reduce carbon impacts across the value chain, which we see as increasingly valuable in delivering our products and services. The third area is digitalization. Each company is engaged in specific efforts, such as Comgás moving transactions online, the exponential growth of the Shell Box in transaction volume, and the increasing transaction records from our investment with Prezi in the trucking sector. We will continue to explore ways to maximize value within our ecosystem, leveraging our extensive networks across Brazil and our strong customer base, many of whom use our services frequently. Our businesses remain customer-centric, with some clients using our services several times weekly or even daily. We see considerable value in understanding our customers more deeply to enhance our service delivery. This is our strategic approach. We are always looking for opportunities to allocate capital effectively, enhance execution, improve efficiencies, and support our management teams, whether they joined through acquisitions or other methods. If a compelling opportunity arises, we will communicate it to the market transparently. Regarding Compass and Gaspetro, you are correct that we have a 30-day right of first refusal for states and other shareholders concerning the individual concessions in the Gaspetro portfolio, along with a 90-day period for our partner Mitsui. We've already filed with Cade, and the outcome will depend on whether the right of first refusals are exercised. While we cannot predict local government actions, the trend among many Brazilian states is toward a more liberalized privatized sector, which is a positive sign for us as a company alongside strong partners like Mitsui. That said, it’s too early to provide a forecast. Currently, there are no significant obstacles. We remain enthusiastic about these investments and recognize it will be a lengthy journey, requiring significant effort to establish a final rights structure that replicates the successful model we achieved at Comgás in terms of sales and execution. We believe it's essential for the concession model to enhance overall societal value.

Our next question comes from Mr. Luiz Carvalho with UBS.

Luis, I’d like to ask a broad question. Last week on Friday, you met with the Mines and Energy Minister, Bento, in Rio. Many of the company's businesses are currently engaged in significant regulatory discussions across various areas. There are ongoing talks about natural gas, including the situation with Gaspetro, and discussions between A&P and ARSESP regarding the distribution and transport pipeline in São Paulo. Recently, the federal government signed a provisional measure concerning the fuel distribution sector. Could you shed some light on the main discussions and concerns for the group regarding regulatory matters across different businesses and your efforts to address these issues for the sector? Additionally, you recently signed an agreement to acquire a fuel distribution company in Paraguay and you already have assets in Argentina. I’d like to understand more about the potential path for international expansion and whether there are other regions of interest, considering Moove already operates outside of Latin America. Lastly, despite the company’s leverage being close to 2.8 times, the recent IPOs for both Compass and Raízen have shown initial numbers that exceed current market valuations. Would it make sense to consider share buybacks, especially since the reference for Cosan listed is significantly lower than your valuation expectations for those IPOs? Thank you.

Thank you, Luiz. Thank you for the questions. We work in markets, both in the energy and logistics that have strong regulatory frameworks. This is not a privilege of Brazil. I think it’s a global phenomenon, where markets are critical for day-to-day operations and strategic in terms of their impact on society and the ability of the country to have lower costs and to serve well the consumer. You guys know my opinion about these two measures from last conversations we have. It’s not new for you. We believe that these measures are not very relevant in achieving cost reduction or a reduction in competition in the industries because these businesses are already very competitive. If you look at the number of retail sides, the number of distribution companies or production gas companies, or how many mills we have, the challenge for Brazil is creating high-volume infrastructure in all these businesses. We are talking about fuels, gas, etc., so we need to build pipelines. We need more rail service. We need to build more harbor access. We need to create higher volumes in terms of everything, but this is what’s going to drive costs down. The only way to do that is to have regulatory certainty and judicial guarantees, right? No one can invest billions of reals in a pipeline or fuels or gas if they don’t know that you will be able to exploit it and make sufficient returns or know that the legislation will be stable enough for you to understand. Our entire advocacy is on that level. We have no issues with competition. We’re very respectful to good competitors and competitors that push us forward in terms of our ability to perform better for customers with lower cost, etc. What we fight against are two things. One is opportunists getting a free ride on investments being made by companies. The second thing we fight against is tax evasion. As long as all these measures are connected to strong measures to reduce tax evasion and to avoid free rides, we will be very supportive. We’re having discussions with the ministry and all the governments around these two topics to ensure that whatever is done is looked at from the angle that the people fulfilling them. In terms of the brand side of the measures, or the ability for sites to carry other brands, we believe it’s very explicit on the MP and the announcement made by the government and MME on Friday night clarifying that contracts are to be followed. Contracts are to be agreed upon between private parties. This has created a third model if the license company wishes to allow the licensee to sell a different product than theirs. Otherwise, they could maintain the model that they prefer. I want to be straightforward, and Mussa has made it very clear on Raízen's call, under the Shell Canopy and the Shell brand license, we only have Shell products because this is the value we believe we provide to the consumer. We are differentiating ourselves with better fuels, digital solutions, and other service offerings that attract more customers, improving Raízen's market share since its inception 10 years ago. The same is happening in Argentina and will happen in Paraguay. So, it’s not a matter of when; we will stick to our model that we believe is the most successful, which is used in 100% of markets worldwide. Our only plea, Luiz, is about equality of competition and isonomy of competition. Brazil and the regulators must understand that without regulatory certainty, investment will not come. We desperately need investments in all areas of infrastructure, energy, etc. We will continue to fight against that. We will remain vocal about it. We need to take this issue to the legal forefront because it relates to R$24 billion that the government is losing. We are making extensive reforms to reduce costs at the state level and other measures. The measures that some are suggesting don’t even come close to R$24 billion per year. We need to take this seriously. So, no free rides and no tax evasions are the only things we have. The rest, we love competition. We will continue to compete. We’ll keep trying to be ahead. We love good competitors who push our teams further because it makes the market better. Moving to your second question regarding Paraguay and our portfolio, we’ve stated for a couple of years that we are looking for good opportunities outside Brazil, and Paraguay is a good market. It’s a small market but profitable with a good structure where the Shell brand has been out for several years now, gaining strong recognition. We believe the joint venture we did with the best retailer in Paraguay and a very competent family business that we’ve been discussing for a long time will produce good inroads into that market, benefiting from Argentina’s infrastructure since the trading and market operates through the same logistic route. As for the future, we will continue looking for opportunities in other markets, not just for Raízen but also for Moove, which is currently our most internationally-focused company. We will keep our balanced portfolio, as Brazil will always be our lead market, but having assets in other markets is important to differentiate us from competitors and to have different cycles of results and investment opportunities. Regarding your last question, we will always look for buybacks when we believe the market is undervaluing our shares. We've done that a lot over the past few years. We will continue our journey to have the companies beneath Cosan open for each time. Thiago asked the timings for Moove and Compass. When the time comes, Thiago, it will come. However, we are very happy with the partners we have. As you know, CVC is our partner in Moove, and we have Atmos as our partner in Compass, both treated and managed like open companies from a governance and Board perspective. They are prepared to act accordingly when the right time arrives.

So, if I may just add a couple of points here on the leverage question, Luiz. As you all know, our target is to be between 2 to 2.5 times net debt to EBITDA as a group. So, we’ll always seek to invest our cash position in a balance between opportunities on gross debt amortization, doing our liability management process. This is a recurring process for us at Cosan. As we said in the presentation, we just issued R$2 billion worth of local debentures to manage our liabilities. So, these opportunities will always be analyzed by our teams, and we’ll seek the best capital allocation within this range that we believe is comfortable for the company.

Our next question comes from Mr. André with Itau.

So, I have two questions. The first is more specific to this quarter’s results on Compass. You registered a loss of R$380 million in the trading business, if I’m not mistaken. Could you comment on these positions which led to this loss, have already been closed down, and are these costs of dispositions, or do you still have active exposure on this trade? So that’s my first question. My second question is relating to synergies between Compass and Raízen. As we think about the future of renewables, gas could also play an important role, right, especially when we think about the heavy vehicle fleet. How do you expect or how will you pass the contract synergies between Raízen and Compass going forward, considering they have different shareholder bases but Cosan is the controlling shareholder? Thank you.

Okay. Andre, your voice was not entirely clear, but I think I got it. If I don’t respond to what you’ve asked, please intervene. Regarding the commercialization process or trading - directional trading business in Compass, and whether you will have more numbers on the next quarter or the following quarters, the answer is no. What you’ve seen is basically the positions for the future are neutralized. It doesn’t mean that there is no position, but they are balanced between short and long. So, there is no effect in terms of price valuation going forward. In terms of synergies between Compass and Raízen, yes, there are numerous markets that could be accessed by both companies. As you know, as you look at these companies, it will be what’s best for each individual company. You might see some businesses, the two companies might compete in a certain market or offer. We will not intervene on that, just to be absolutely clear. It will depend on what’s best for those companies. However, there are opportunities for joint projects if the opportunities arise. As you said, there’s a lot of biomethane that can go through the natural gas network. There will also be a lot of distributed energy, combinations of renewables and natural gas stabilization. But, they will do the business as it makes sense for each of the companies without Cosan's controlling interference. We believe it’s our DNA to create partnerships and encourage collaboration. We never think it’s best to operate independently if there’s an opportunity to collaborate better.

Our next question comes from Mr. Regis Cardoso with Credit Suisse.

I have a follow-up regarding Compass and another question about capital allocation. First, concerning Compass, there was a substantial loss this quarter, nearly R$380 million. I would like to know if this influenced your decision to neutralize the directional exposure. Additionally, how does this affect the business plan you previously established for Compass? I recall you were quite ambitious about expanding in the natural gas sector while still participating in the electricity market. How does this shift the strategy? Now, moving on to my second question aimed at you, Luis. What do you envision as Cosan’s role moving forward, with the companies recently becoming stable and raising capital? This applies to Rumo and Raízen, and Compass may also be in a position to secure capital. What role will Cosan play? Are you considering using the capital to pay down debt to enhance efficiency at the holding level? Is there a plan to buy back shares to boost existing shareholders' stakes? Will there be dividends distributed, or are you contemplating allocating that capital to new opportunities? Thank you.

Thank you, Regis. In terms of directional trading, we experienced significant volatility in the market due to unusual weather patterns and behavior that deviates from the last 30 years. This prompted us to take decisive action. The team, led by Nelson and the Compass management, moved quickly to neutralize our position while also considering how to address the potential for a new market pattern going forward. We have consistently aimed to expand our trading in natural gas, as evidenced by our recent pre-agreements with Raja and Yara, which focus on transitioning customers from the captive market to the free market. We actively support and are regulated in the Comgás area, believing it will evolve across the Brazilian market and all concessions. As we collaborate with Gaspetro, we will engage with local regulators to promote this, as we see it as beneficial for market development and growth, which is a significant challenge. Our priority is to enhance demand, as supply is not an issue—there is sufficient gas available in Brazil, Bolivia, and worldwide. We need to cultivate demand. We will continue to find value in the buying and selling of energy on a unified market and customer base, which we expect to remain active. Regarding Cosan's role, I believe it has not changed much from what we have been doing in recent years, as you can observe the progress we promised with the collapse. We are making strides with that initiative. I envision our holding level maintaining a small team to collaborate with the companies, focusing not only on cultural integration but also on providing strategic insights for capital allocation. As for our approach to managing debt, we will persist with our liability management and look for ways to enhance operational efficiencies across each enterprise.

Clear. Luis, if I may, a third question here about Compass. I just wanted to make sure, when you revised downward the CapEx for Compass, that it did not affect the investments for the regulated business for Comgás, which was 100% related to the LNG terminal. And if I may, just a second one there, what do you reckon will be the competitive advantages of Compass over other suppliers of natural gas? I think being fully integrated with the Comgás network looks like it’s going to be one of them to have a lower cost of transportation for the gas. And if you believe that, let’s say, having the route for Connection directly in São Paulo could get to the city gate of Comgás without necessarily going through the transportation network, and if that happens, if that gas will be constrained to the state of São Paulo? Thank you.

Regis, on your first question, the CapEx numbers of Comgás are unchanged for these years. We will continue to follow our regulatory commitment with the state and agency. What has happened is that the startup of the terminal here in Santos is a little behind schedule. So, this is why you’re seeing an adjustment in our expectation of CapEx. We will continue to build our network in São Paulo, connecting over 100,000 customers a year, and continue to grow our base of commercial and residential customers, and of course, industrial customers on the São Paulo concession, which has been proven successful as you’ve seen from the numbers in recent quarters. We have created a lot of resiliency in this business, having much less dependence on seasonal business that could be the industrial business, and more reliable on commercial, which we believe has been very important for profitability in how we are looking to reduce exposure risk. This is what we will continue to do. Again, as I said, we have big aspirations for our concessions under Gaspetro moving forward. Regarding the competitive advantage of Compass, I think there are several. One is the ability to source gas from different sources. The terminal in São Paulo is essential because it will provide alternative competition to the local gas supply. We will source gas from local suppliers, from Bolivia, and from the terminal, but it will depend on who is more competitive at the time. Additionally, we want several companies to join the network. The reason we are involved in Route 4 is to be a leading agent to ensure others join. You know how long these processes take in Brazil, right? From project initiation to execution, there's a lengthy timeline. We would love to see gas that can help develop the market, generating a positive impact on Brazil's industrial competitiveness. Our advantage will also come from the ability to provide quality service, skillfully executing vertical strategies across distribution, infrastructure, commercialization, and power generation in a cost-efficient manner. We believe this portfolio we create will differentiate us from other markets. However, as you know, the gas market has the potential if it’s executed properly. It's not a supply problem; there is sufficient gas in Brazil itself, in Bolivia, and across the world. Our focus is on fostering demand. We believe Compass is a leader in developing consumer demand, thus, we will continue assimilating market share, focusing on nurturing a strong customer base.

This concludes the question-and-answer section. At this time, I would like to turn the floor over to Mr. Luis for his closing remarks.

I just want to thank you all for being with us today. Thanks for the support you have been giving the company as investors. So, very important movements we did over the last six months, where we started the collapse, going through the private placement with Atmos and Compass, going to the IPO of Raízen, also on the debt market, a lot of action. We will continue to value your support and be very responsive to our capital allocation, looking for synergies, looking for efficiency within our portfolio and being able to deliver strong results over the course of the next months. We are, as I said at the beginning, enthusiastic about the recovery of Brazil with the vaccination progress. Of course, there are some challenges in the environment. But, we are very confident that our teams and our company are well positioned to continue to deliver and achieve the guidance we have given the market for this year and the years going forward. So, thanks for your time. Have a great week. Bye, bye.

Thank you. This does conclude today’s presentation. You may disconnect your lines at this time and have a nice day.