Cosan S.A. Q4 FY2021 Earnings Call

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Cosan’s Conference Call to discuss the results of the Fourth Quarter and the Full Year of 2021. Today with us, we have Mr. Luis Henrique Guimarães, CEO; Mr. Marcelo Martins, Chief Strategy Officer; Mr. Ricardo Lewin, CFO and IRO; and Ms. Ana Luisa Perina, IR Manager. We would like to inform you that this event is being recorded and simultaneous translation into English is available. During this event, all participants will be able to listen to the presentation. Afterwards, we’ll begin the Q&A session when further instructions will be given. Before proceeding, let me mention that forward-looking statements that may be made during this presentation regarding the company’s business prospects, and operating and financial projections and goals are based on Cosan’s management beliefs and assumptions as well as on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they relate to future events, and therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect the company’s future results and lead to results that differ materially from those expressed in such forward-looking statements. Now, I would like to turn the conference over to Mr. Ricardo Lewin. Please Mr. Lewin, you may proceed.

Good morning, everyone, and thank you for joining Cosan’s fourth quarter and full year of 2021 earnings conference call. I’m Ricardo Lewin, CFO and IRO. For the past four years, I held the same position at Rumo, and prior to that, I spent nearly ten years leading the M&A department at the holding company. Marcelo Martins has transitioned to Chief Strategy Officer and will focus on capital allocation for Cosan and its invested companies, while I will handle the financial and IRO responsibilities. Since this is our yearly figures call, we are also joined by Luis Henrique, our CEO; Marcelo Martins; and Ana Perina, our IR Manager. Before we begin the presentation, I want to recap the group's main achievements for 2021. We initiated corporate restructuring and optimized our capital structure, notably with Raízen’s IPO and Compass private placements. Additionally, we repurchased shares through TRS and distributed R$1.2 billion in dividends throughout the year, continued our liability management process, and invested in new projects across the group, all while maintaining a focus on the long-term returns of our business portfolio, which has once again demonstrated its solid balance and exposure to sectors where Brazil holds significant competitive advantages. Let's move to the numbers, as both Raízen and Rumo have held their own conference calls already. I will go over the main topics of these businesses briefly. I will start with the key financial and operational highlights of each business, beginning with Raízen. On Slide #4, regarding renewables, we saw a strong expansion in results driven by increased revenues from renewable products. In ethanol, we capitalized on opportunities in our operations and especially in commercialization under favorable pricing conditions in both the local and international markets. However, the volume sold was lower during the period due to our sales strategy for the year and decreased product availability stemming from crop failure in the Center-South region of the country. Now moving to Slide #5, we talk about sugar. In the quarter, this segment posted lower sales volume due to a drop in production and its commercialization strategy, which will concentrate higher sales volume over the next months. This was partially offset by better prices captured by maximization of Raízen’s pricing strategy. On the bottom right side of Slide #5, we present Raízen’s Agroindustrial Operation CapEx. The higher amount was mainly due to the impact of inflation on agricultural and industrial inputs, the crop dynamics and investments matching improved agricultural efficiency. It’s important to mention that this quarter we have already started investing in the new E2G plant located at Bonfim Bioenergy Park. On Slide #6, let’s talk about marketing and services. We posted a robust result in the quarter reaching record EBITDA leveraged by our supply strategy in Brazil, which includes import and inventory gains from price movements. The healthcare operational environment created opportunities to capture efficiency and gains from the optimization of our logistic infrastructure, maintaining the focus on the return on capital. In addition, the volume of fuel sold expanded in the period, especially in Argentina. It should be noted that the numbers from Paraguay have already started being consolidated in Raízen. Regarding the other important pieces of our marketing and services integrated platform, here are some updates. In proximity, we kept the same pace of opening, adding 157 new stores to our network in the last 12 months. In Shell Box, the digital payment and loyalty platform continues developing at an accelerated pace. In the last 12 months, there were more than 36 million transactions that represented more than R$5.4 billion flowing through the EPP. Continuing this presentation with Compass Gás & Energia on Slide 7. EBITDA in the period was leveraged by an increase in demand for natural gas from Comgás and by the inflation pass-through on distribution margins, which took place in May. On top of that, fourth quarter 2020 was negatively affected by the mark-to-market non-cash effect of energy trading agreements. In 2021, Compass posted record EBITDA in line with the guidance. We accelerated volumes distributed across all segments of activity, mainly reflecting the economic recovery and execution of the business expansion plan. About the CapEx, both in the quarter and in the year most of it was Comgás investment and the rest was allocated to the construction of São Paulo Regas Terminal in accordance with the investment plan revised in August. Finally, at the beginning of January, we concluded the acquisition of 51% of Sulgás capital. This movement aims to expand access to the benefits of piped natural gas and contributes to the energy security required for the region’s economic development. Now moving on to Slide 8 to present Moove results. EBITDA in the period was mainly impacted by the normalization of demand, which explains the lower sales volume. Know that in the second half of 2020, the company captured additional demand leveraging the gradual resumption of economic activity and market supply dynamics, even though in the year we posted the record EBITDA in line with guidance. The robust results for the year demonstrates the assertiveness of the pricing and supply strategy capable of neutralizing the strong cost pressure and raw material supply restriction in the global market. Moving on to Slide #9 to talk about Rumo, which saw its EBITDA in the period and in the year harshly hit by the corn crop failure due to lower volume transported, mainly in the South. Also, margins were pressured by higher variable costs more significant than the increase in tariffs. Despite the challenge scenario, Rumo gained market share at the Port of Santos reflecting the commercial strategy focusing on maximizing its operational capacity. Besides that, we diversified cargo mix and started the operation in the Central Network at full capacity already reaching our relevant share. In addition, the investments both in the quarter and in the year are evidenced of Rumo’s capital discipline in the more adverse environment for cash generation. Let’s go to Slide 10, where we present consolidated figures for Cosan on a pro forma basis. This quarter, we kept consistency in delivering sustainable results with a balanced portfolio exposed to sectors in which Brazil has important competitive advantage. The reduction in adjusted EBITDA in the period reflects the lower contribution from Rumo. Meanwhile, net income excluding nonrecurring effects was driven by Compass. In the year, we reached record EBITDA and net income levels aligned with the subsidiaries' growth plans. Moving on to Slide 11 to discuss the financial highlights for the group. Regarding the debt, we maintained our usual liability management process across the group, fundamental to face potential market fluctuations in 2022. Leverage stood at 2.1 net debt-to-EBITDA in the end of the period, within ideal levels for the group, driven by better results in the last year. Free cash flow to equity increased due to the higher operating cash generation at Raízen; settlement of the second round of private placement at Compass and the debenture issuance at Rumo. In this quarter, Rumo received dividends and JCP from Compass and Raízen. And at the end of December, Cosan distributed R$700 million in entering dividends to its shareholders based on the net income accumulated until September, totaling R$1.2 billion, I expect throughout the year. Although there was no cash impact, we also reached almost R$700 million in Cosan’s share buybacks using total return swaps. These were the main subjects related to our portfolio for the fourth quarter and 2021. We achieved important milestones in addition to delivering robust and consistent results. For this year, given the worsening macro scenario with increasing capital costs and inflation, we adopted a more conservative guideline in relation to the group’s investments in 2022. We will maintain our usual capital discipline seeking to further optimize CapEx, improve supply and cost synergies, and have more efficiency in the approval of new projects, ensuring the long-term success of the portfolio while maintaining leverage at adequate levels. Before concluding my presentation, I will go over the recent developments on our ESG agenda on Slide #12. In November 2021, we signed a partnership with Braskem to join forces in a sustainable development agenda, supporting the circular economy and carbon neutrality. Also last year for the second consecutive year, Cosan was selected as a component of the Corporate Sustainability Index, ISE, of B3. And Rumo also joined 2022 ISE portfolio. Besides that, all companies from Cosan Group achieved solid improvement in the year CDP climate change score. The highlight here is Raízen. We joined the select 'A List' in order to strengthen the governance in January recreated at Cosan, the Strategy and Sustainability Committee. On top of that, the people committee was changed to people and nomination committee including among its attributions, the nomination of administrators. Important to note that both committees have the participation of independent board members. Finally, the company was once again selected to be part of the Bloomberg Gender-Equality Index, GEI, reinforcing the way in which Cosan has consistently pursued the construction of an increasingly diverse and inclusive workplace. We have made significant progress in the participation of diverse individuals at the leadership level. But aware that we have a lot to improve, this topic is a priority on the agenda of our sessions. With that, I conclude my presentation and we may start the Q&A session with Luis, Marcelo, Ana, and myself. Thank you very much.

Before we start the Q&A session, I would like to pass the floor to Mr. Luis Henrique Guimarães. As we prepare for the Q&A, I want to briefly highlight some key points the Board deemed important. While you have seen the results, I want to emphasize our confidence in the structural data we've gathered over the years and the decisions we are making for 2022. Ricardo has already discussed this, but I would like to revisit our safety agenda. This year has been crucial for reducing accidents and incidents related to projects, personnel, and systems, which aligns closely with our ESG goals. This commitment is part of our corporate culture and is driven by significant improvements in information security. Our score improved from 1.2 to 2.77, reflecting structural changes that will enhance our future results. Now, let me just touch on the progress that we’ve had in terms of our sustainable results and value generation. Let’s start with Compass. First, we’ve extended our construction, which is very important to get another 20 years, so we can continue to invest in Comgás and the figures that we have achieved in the past with over 140,000 clients being connected. So there is still a lot of expansion room for natural gas. We’re going to have our proof-of-concept of our geographical expansion. The first couple of months are in line with what we expected with potential upsides and great potential for turning the state company into a private company, and onboarding Comgás technology, which will definitely help us achieve our objectives. Our TRSP, the São Paulo Regas Terminal, that’s also an important part of the company’s strategy. We’re moving forward with that and it’s very important. It’s a complex project, but it is very, very important to the company. The private placement, as Ricardo mentioned, has high-quality partners, and we now have the platform to ensure that we have the right resources for our investments. And, of course, in electricity commercialization, some downsides, we lost some money there, but we recovered very quickly, reassessed and focused 100% on developing gas commercialization. So, the team, our management team, and Compass, is focusing on learning, recovering, and doing what we do best, so that’s Compass. Now, for Moove, we’ve been improving our ability to generate results even in adverse and complex scenarios such as the last couple of years regarding supply chain base oil challenges. And Filipe, our CEO has been able to spend more time abroad with a very solid team in Brazil running the operation. He now has the ability to spend more time developing international markets, which is Moove’s natural path forward. Now that we have more time and we’ve hired more people abroad to go through the process of international expansion by Brazilian company understanding the local culture, but in line with our way to operate. Now, Rumo, our EBITDA line wasn’t satisfactory, obviously we weren’t happy because that was affected by the crop failure. But we continue to make the best of our efforts to overcome the goals for the year, but there were some things that were very important that will unleash value for the company. Our North Operation will allow us to continue to expand our operation with better yields considering also the truck freight prices. What we have been seeing in terms of MRS is very important in terms of operational elements considering the Port of Santos and also tariffs, which will imply a major reduction and increase in efficiency. The huge transformation at the Port of Santos has gone through considering the investments, decreasing bottlenecks and allowing us to improve rail management at the existing and new terminals. We’re ahead of time with our project and we have achieved considerable volumes. And last but not least, the considerable reduction in transit time. We were at about 70 turnaround hours considering Rondonópolis to Santos, so considering all the pass-through of truck freight costs in the second half of the year, inflation on fuels, the cost of labor, and cost of capital, that has all allowed us to be ready to capture the upside. Not to mention the toll on BR-163, maybe not this year, but definitely 2023, some important structural changes and achievements not only for the short-term and 2022, but looking forward as well. At Raízen, the consolidation of E2G technology, the market now has proven that not only it’s there, but it’s bigger than we had expected. So that will give us huge opportunities. And all the contracts, the integration of Biosev quite large and complex assets. But considering the industrial assets, we’ve achieved results that were better than we expected. In marketing and services, some important progress considering the results, making the most of renewables and batching on Shell Box, convenience and proximity, and also the change in behavior in terms of structure by Petrobras in the way that it supplies the market and the way that it fulfills orders and the implications that it has on company sourcing and pricing. Not to mention the IPO, which was very important in terms of making a raise in robust to deal with upcoming investments and our entry into Argentina and Paraguay. So they prove our brand management thesis through the expansion of our sales and sellers. And lastly, on structural issues, at Cosan investments, the EBITDA was better than we expected. The consolidation of the board, an important investment report was completed, and so improving logistics. Last night, we made an announcement and I’ll be talking about while we take a little bit more that has to do with our vision for the future investments. And not as a specific business, but I will be talking a bit more about that. And we’re going into 2022, where the cost of capital about inflation rate, interest rates, so we’ve revised our businesses project allocation, business efficiencies, and CapEx optimization. We had R$1.4 billion CapEx, I didn’t mention that. And we’ve had another two quarters of R$1.4 billion CapEx. So it’s lower, but it hasn’t affected growth or productivity. And if it’s consolidated, it may be transferred to the future, which will be great for cash generation and capacity. That was Raízen, we’re doing the same thing with all of our companies. We have some priority investments, but there is some rationality when it comes to CapEx. And that implies our decision not to move forward with Mobitech, we love our partner Porto Seguro; he is an important partner in our Shell Box journey. And we’re going to think about things to see if there’s a different way we can take part in our business, but it wouldn’t have been prudent to make the investment that this business required, and it wouldn’t be fair to our partner to keep up because we have other priorities with other businesses and ongoing investment. So that’s it. Some changes you’ve been seeing the buyback movement; the buyback authorization live has the mandate to buy back in our invested companies Cosan and Rumo. And we will continue to check if things are compatible with our current and future business. So I just wanted to recap what was talked about during the board meeting. It’s been a great year. Obviously, some areas have delivered more than others. There have been some challenges considering climate phenomena, but there have been some important structural progress, portfolio continuity, and the fact that 2022 is extremely important in terms of capital allocation. That’s it. And we can now move on to the Q&A session.

Thank you. This concludes – we will now start the Q&A session. Our first question comes from Mr. Luiz Carvalho from UBS.

Hello everyone, Luiz here. Hi, Ana, Lewin, and Luis Henrique. I could ask you a lot of questions, but I want to focus on capital allocation and Porto Seguro’s press release. There are some additional details there, and they mentioned a revision of the continuity of some of their investment projects. I’d like to hear your thoughts on capital allocation and whether the Porto Seguro revision is a one-off. Are you considering other assets? Are you reevaluating your capital allocation process? If so, how should we view that in broader terms? Also, Compass and the other mining company you invested in are not listed. Can you provide some insights on Compass’ development? You’ve made progress in some areas, but faced challenges in others. How will the law be interpreted at the federal versus state level? Can you discuss Gaspetro a bit more? Please share more details about mining, including the next steps and progress. Thank you.

Hi, Luiz, this is Marcelo Martins. I’ll be answering your first question, and Luis will address the second. It’s evident across all our businesses and at the holding that we consistently assess our portfolio. Given the current situation with rising interest rates, the cost of capital has changed significantly, and we must be thoughtful about our capital allocation. We have a track record of maintaining capital discipline, allowing us to act quickly when necessary. We have previously decided to enter certain businesses because we believe in their potential. However, based on our capital allocation framework, it doesn’t make sense to invest heavily in those areas right now. It’s not only about the initial investment to acquire our share, but those businesses require ongoing capital. We made the decision to scale back because pursuing such an investment plan would be unfeasible in light of Brazil’s current conditions. Unfortunately, this was a timing issue, which influenced our decision. Considering other projects, our decision to review our capital allocation is across the board. But in the case of mining, considering the nature of the project, there are many hurdles that need to be considered over time. So we’re not going to jump the gun and say we’ve decided not to allocate that capital to mining because the way that operation has been structured, and the time we’ll have to make that capital allocation decision will give us that flexibility naturally. So we’re happy with the time we have to make decisions. We’re happy with the assets we have acquired because it’s a very strategic asset. It also gives us the possibility to look at this project and make the most of it with time and peace of mind. And as we go over the stages, we can decide on how much capital we want to allocate? How much our final share will be? We already have that flexibility automatically now, so that means we don’t need to make any changes to the current agreement. As for the third business, we have invested in Radar. Yes, we are extremely happy with the payments we’ve made with the assets, we’ve brought into the company, and how they are going to appreciate our portfolio. So in terms of portfolio management, these are very natural movements, considering the changes in the scenario, considering our vision, and there is no doubt that our desire to use our liquidity to buyback the group’s shares when the price is right. Our objective right now is to buy Rumo, to buy Raízen, and to buy Cosan. That is a clear mandate for us, and it includes the three listed companies in the group. If there were others, they would also be a part of that. So our priority has been and will continue to be the group’s own shares, because they provide better value generation. If we have to move capital from other businesses that don’t have the same valuation and don’t generate the same value to do it, we will do it. Just like we’ve done, and we’ve just announced. I’ll turn it over to Luis so he can take the second question.

Yes. The company's ability to respond swiftly relies on our decisions regarding priorities and capital allocation, along with the exceptional quality of our partners and team. Compass is still progressing on this journey, as we previously mentioned, by exploring geographical expansion to replicate Comgás's success. Template Gaspetro is going through CADE’s process, it’s on time; we’re very optimistic about the decision’s outcome. But we need to wait until the process comes to an end, because it’s an important change to the market. 100% of the gas activity are with Petrobras, and for other companies such as Compass that are in the market are going into a highly regulated area at state level, and now with a federal framework considering free clients and so on and so forth. So we are working hard on this interaction and this articulation, and nothing changes in the market. The market always has forces going in every direction. But the opinion of the investment creating infrastructure will prevail; because there is enough supply, the issue is demand. So we need to create the infrastructure and the demand, Comgás has proven. They can build a network that will take on all the distributors or the transporters in Brazil to connect more clients than the existing clients of all existing distributors. And there is no other way forward, other than efficiency, free clients and gas competition with other energy elements. So we’re very excited. Obviously, opinions diverge. But we hope that facts and technical elements will win, as opposed to market protection instead of market development, which is the best outcome for the market and clients.

Great. Just a quick follow-up. Luis, do you have any insights on operating gains and synergies? Marcelo, regarding Porto Seguro’s decision, which may also apply to other businesses, is it primarily an issue of priorities due to capital restrictions and high interest rates? Are you focused on what you want to acquire?

Yes, exactly. That’s it, Luiz. That’s exactly it.

What about Sulgás? Luis, do you have any idea there?

Well, what we observe is that we can implement similar operational techniques and business model approaches as we did with Comgás. Some clients are already considering the network based on this. However, in terms of scale, these new businesses are significantly smaller than Comgás. There are smaller distributors that can be developed over time. What I can say is that we have a high-quality team, valuable assets, and an opportunity for growth. Our team is very positive about this approach after being involved for two months. We have a lot of foundational work ahead, including cultural optimization, but the initial 60 days have been very encouraging.

Fantastic. Thank you so much.

We now have a question from Isabella Simonato from Bank of America.

Hi, everyone, how are you?

We’re doing great. Thank you.

Thanks, Luis. Good morning, everyone. I have a question about the leverage of the controlling companies. You mentioned the high-interest rates and inflation. What opportunities do we have regarding liability management at the controlling company, and is there anything relevant about the subsidiary companies? Focusing mainly on Cosan, what can be done in light of this new scenario and the changes in the cost of capital? That’s my first question. Thank you.

Hi, Isabella, this is Lewin, how are you?

I’m good. Thank you.

In terms of leverage, we are adjusting our capital expenditures across the group, and all segments have demonstrated consistent discipline. Therefore, we are now prioritizing our investments throughout the organization. This is the key point regarding leverage. Regarding liability management, we have already made partial payments on our upcoming Bond 2023 maturity, and our amortization schedule is looking strong. Our next significant payment will be for Bond 2027. We are always on the lookout for opportunities to extend our debt duration and lower costs. We have completed the prepayment for 2023 and are exploring market opportunities to potentially refinance the 2027 liability.

Thank you, Lewin. The next question concerns the buybacks. Marcelo mentioned that you’ve been consistently engaged in those. Given that Raízen has a smaller float in comparison and considering its liquidity, how are you approaching the size of the float and Raízen’s liquidity in relation to buybacks?

This is Marcelo, Isabella. We spoke to B3 to request an exception that would allow us more flexibility for shareholders to buy back shares, along with a commitment to increase our float in the long term. At some point, that paper needs to return to the market, and we will need to boost the company’s float. This is our commitment to B3 in the mid to long-term. B3 has kindly granted us the flexibility to proceed with the buyback now. As market conditions improve and prices become favorable, we will start selling again, and over time, we will work towards achieving the required minimum float. Yes, we are still quite unhappy with the average liquidity of that paper, and our goal is for liquidity to increase over time. We don't have a clear answer at the moment about how we will achieve that, but I can tell you that our current objective is to buy those shares to immediately impact the volume. However, that will involve returning to the market. We will be both buying and selling those papers as well. And considering the share class, will you be unifying that? Have you been discussing it in relation to selling papers or new shares? What kind of price are we discussing? No, we're not delving into that right now. Perhaps we will in the future. Our current goal is to ensure increased liquidity for those papers. Shareholders will work together to boost liquidity when the market conditions are favorable, so we can avoid the compression we are currently experiencing. We communicated to B3 that by buying back those papers, we are enhancing liquidity over time and ensuring that the paper retains its sustainability based on fundamentals. Sometimes, performance is influenced more by liquidity than by fundamentals. Currently, our focus is on repurchasing these papers, and while unifying classes could be a possibility later, it's not something we're considering at this moment.

Very clear. Thank you so much.

Our next question is from Thiago Duarte from BTG Pactual.

Hi, Luis, Ricardo, Marcelo, Ana, and everyone on the team. I would like to revisit the topic of leverage and possibly rephrase my question. In your release, it's evident that you are taking a cautious approach due to high inflation rates, elevated interest rates, and increased capital costs. How did these factors influence your decision to terminate your contract with Mobitech and also to maximize the CapEx regarding the assets in your portfolio? We're discussing a leverage of 2.1 times, which was particularly challenging this quarter, especially considering Raízen due to seasonal effects. My question is, given the higher cost of capital and your decision to concentrate on current assets, does this alter your perception of the ideal leverage for the company or the target leverage? Your current leverage is not markedly different from historical levels of the holding company, but with your new cautious stance, should we expect a different target leverage level than what we are currently observing?

I’ll address the first part of your question and then pass it to Lewin. There has been no change regarding our structural debt. However, if interest rates increase, we need to adopt a more cautious approach, weighing what offers a better return. Currently, the focus on opportunity costs leads us to conclude that discontinuing our deal with Mobitech was a challenging but necessary decision. The capital that would be needed for that project at this time does not align with our current conviction that it is more beneficial to repurchase more shares. We will not be using the exact same amount of value over the next few years. The resources allocated for Mobitech may exceed what we need for share buybacks, so we won't be making that decision right now. As a holding company and portfolio manager, we act swiftly in our decision-making. Currently, it makes sense to redirect capital from these projects to ensure that the holding company can buy back shares. While we may achieve long-term savings, our immediate focus is on utilizing our capital for share buybacks. Our company is dedicated to growth, and we do not intend to halt that progress. We do not want the market to interpret this movement as a shift away from our focus on growth. That is not the case. This is a temporary situation due to the current circumstances. The market expects us to respond quickly and adapt because the current environment is challenging for anyone looking to grow. It makes sense for us to consider buying back shares, especially since the value in our portfolio has diminished, and there is significant value in doing so. But out of everything you said to me, and I think your comments make sense, please do not think that we’re going to stop growing. Not at all, we will continue to make investments when they make sense for the current scenario, considering interest rates and the cost of opportunity for the company in terms of our portfolio management. So this is a very conscientious decision for right now given the complex situation. However, as this situation changes, as interest rates decrease and we gain more predictability regarding the political climate, we can refocus on growth again. This also applies to the portfolio since our current CapEx reduction is based on the same mindset. The costs for the company mean we need to reconsider other projects that are not as attractive as they once were, and that is our short-term objective. We will continue to rethink our strategy and clearly communicate everything to you. Regarding your second question, nothing changes with the holdings portfolio since it’s a listed company. We are preparing companies that are not listed, such as Moove and Compass, to go public when the market conditions are right. They have different levels of readiness for an IPO; Compass is better prepared while Moove may take a bit longer, but it is also being prepared for an IPO. Our strategy remains unchanged. In terms of Cosan’s leverage, our target is between 2 and 2.5, and we’re comfortable as long as we stay within that range. We may choose to reduce it a bit if we decide to lower our leverage at any time, but our target range remains unchanged. It continues to be the same. Thank you.

Our next question is from Regis Cardoso from Credit Suisse.

Hello, everyone, thank you for answering my question. Can you hear me okay, Luis, Marcelo, Lewin?

Yes, we can, Regis.

Thank you, Ana. I have a couple of questions. The first one is still about Mobitech. Was the decision to cancel the investment yours? Will there be any fines or penalties? I would also like to ask about the holdings SG&A level, which is a bit higher at around R$100 million per quarter.

Thanks, Regis. I’ll take the first question. Let me be very clear. Marcelo has already discussed this. Yes, the decision about Mobitech came from us, as we have been reviewing our investment priorities given the current scenario. They are a great partner, and we truly admire the quality of what Porto does as a company and the quality of the project. We still believe in the project. Sometimes in life, you have to make tough decisions. They’re not easy, but they are necessary to maintain the integrity and quality of our management. There is nothing wrong with the project; in fact, we wouldn’t have been able to invest considering the impact of inflation, interest rates, and the increased cost of capital. We must ensure that we continue to invest in ongoing projects and complete them. Therefore, we had to make that decision. There were some preceding elements that had to be concluded. We wanted to be transparent with our partner, so we came to a model that made sense for them to continue with the project as they see fit. There was no question about the position or the ethical quality of our current partner. They will continue to be our partners for many years to come. And now let’s talk about SG&A, Radar, the debt, and the operating flow. So SG&A, nothing different from what was expected, there was an increase in the rationale Cosan Investimentos, lots of additional investments this year. Radar, Porto is what we always tell the market, about R$250 million. I’ll take the last question, and then Ana can discuss the land valuation. If I understood your question correctly, we’ve already mentioned our debt amortization schedule, which aligns with our asset flow and everything we do. We feel very confident about the debt amortization schedule and our capacity to manage both the interest and the principal.

Regis, still under debt, last year we issued a couple of debentures at the holding. We’ve completed the necessary preparations and are holding part of those resources as previously announced during the issuance. We will continuously seek the best opportunities. Last year, we fulfilled our obligations to preferred shareholders, and managing our liabilities is an integral part of our ongoing process at the holding company. I want to highlight two impacts on our results. We have a monthly estimate of potential planned valuation effects, which will be reflected in our revenue and expenses at Radar. However, the actual accounting is confirmed in an annual report, which took place this year in October, just before the acquisition but after the deal was finalized, resulting in a different effect. We experienced an appreciation in our portfolio compared to last year. In the profit and loss statement for the two months that we have been with them, we generated between R$30 million and R$40 million in lease revenue, along with another R$20 million from other sources such as land valuation and appreciation. While we disclose these figures every quarter, we have a comprehensive annual report that confirms the overall numbers.

Okay, great. Thank you.

We ended the agreement. It was a mutual decision to terminate the contract, so both parties agreed to it.

Fantastic, Luis. Thank you.

The next question is from Gabriel Barra from Citi.

Hello, Luis. Hello, Marcelo. I have a couple of questions.

I'm sorry, Barra, we can't hear you. That's better. Thank you.

I have a couple of follow-up questions, please. The main one is about Compass. You’ve discussed Mobitech extensively, so I won’t take up your time with that. Do you think that business could continue operating without the cash expense, since that seems to be the issue? There were some interesting synergies there, so could you manage that operationally without incurring cash expenses? That might be a solution for your capital allocation issue. The second question is regarding Gaspetro. Can you share what the CADE timeline might look like? How long do you anticipate that discussion will take? I understand it’s a complex issue, but is there any remedy that could make the deal unappealing to you in relation to Compass?

Yes, Mobitech, we have the operational conditions in place, and Raízen and Porto will continue on the same course. If there are synergies, they will persist because the group companies are aligned with the strategy. Gaspetro and CADE will follow the usual timeline. The deadline for the authority to provide its opinion is at the end of June, and we expect that to happen within that timeframe. So the time for questions and answers is on schedule, so we just need to wait. As for the remedy, well, we don’t see the need for that. These are not for monopolies; there’s regulation to ensure that there aren’t any review cases. At the same time, that has happened with other companies and privatizations across Brazil. The distribution market is different. It’s a natural monopoly. It’s regulated with a rite of passage for any buyer, seller, or trader, which creates a lot of confusion. Many people are confused about that. A chemical company can purchase the molecule from a producer and utilize Comgás’ network for transportation, paying Comgás according to the tariffs set by the regulator for free clients in that segment at that volume. The structures are entirely competitive and open. Comgás is working to connect producers with free clients through commercialization, but the market still needs to mature. Competition will always exist, but some companies must ensure market liquidity by taking on risks to purchase wholesale and sell at retail, which is a typical function in sectors like electricity, fuels, and food. That’s what happens in all these industries. There is significant confusion in the gas sector, but it's essential work that carries risks, involves people, and includes competition. We are working to develop that market, but it is challenging due to a monopolistic trend with Petrobras. Therefore, it will require time. There is no alternative gas supply for that. However, we are collaborating with our team to develop the market by engaging with neighboring countries, exploring different terminals, and purchasing from third parties to attract new free clients in the market, as there is almost none in Brazil. We are making efforts and are leading many of these initiatives. I'm not sure if I addressed your question.

Yes, you did indeed. Thank you very much.

We now have a question from Bruno Montanari from Morgan Stanley.

Good afternoon, everyone. Thank you for answering my question. You're taking a very cautious approach, which is understandable given the current situation. What would lead you to alter your strategy and begin investing a bit more, particularly in relation to the group's companies at this time? What potential upside surprises do you foresee in your 2022 results? And what concerns you the most regarding this year's results?

Well, first of all, any sudden changes like the ones we are experiencing with inflation and interest rates require adjustments. We have discussed this in previous conference calls; the translation of all that into pricing is occurring and will continue to occur. Let’s not deceive ourselves into thinking that the cost of capital will not influence prices, products, and tariffs, but there will be a time for that to take effect. The advantages and disadvantages for different companies will vary. The competition is also affected. However, there are different pass-through rates and transition times. We are all experiencing high interest and inflation rates, which have increased sharply in Brazil from 2% to 10%, and then to 12%. This clearly requires an adjustment, and as we gain more visibility, it will become clearer. Then the other confidence behind our buyback initiative is our strong positioning in Brazil’s primary value drivers such as agriculture, electricity, and renewables. We are a large company with a vast population and an average purchasing power. Our beliefs about the market remain the same, and our project management approach has not changed. However, we are now more aware that the circumstances have shifted. Therefore, we need to observe and be patient. We will continue with our E2G plant projects and remain committed to the second half of this year. We are also moving forward with the expansion of the North Network. However, we may reduce our share and divest from non-core assets. We do not expect interest rates to stay at their current levels; we anticipate that they will decrease, which is especially important for Brazil given the inflation situation, and this will alter our position once again. We’re being cautious, not panicking. We’re not slowing down on essential actions. We're exploring opportunities regarding operating and capital expenditures; we aim to accelerate, create synergies, and act responsibly. In light of significant changes in inflation rates, the cost of capital, and commodity prices affecting construction costs and supply chains, we are taking all this into account. Our goal is to ensure that we build assets that will remain profitable and competitive in the short, medium, and long term.

Thank you, Luis.

Next question is from Gustavo from Bradesco BBI.

Good morning, Luis, Marcelo, Ana. I have a question about Comgás. There was significant cost pressure this quarter. Could you discuss the pass-through and diesel, as well as Petrobras' policy? It seems to be a bit more cautious when it comes to passing costs through. My second question is about mining. You made a crucial first step by concluding the purchase of the St. Louis Port. There are clearly many steps in the process. Could you provide more details about that and what the next step will be? Will it involve the joint venture with Paulo Br, or will there be further investments before taking that step?

Okay. I’ll address the question regarding Comgás, the fuel prices, and pass-throughs. When we negotiated the terms with the São Paulo government, the regulatory agency for the concession, there were some fines and additional issues that we needed to discuss. The advantages to the granting authority considered the concession and expansion changes from IGPM to IPCA, along with the tariffs in December 2022, which carried over into the fourth quarter, so none of those are recurring. They are nonrecurring; it relates to the extension of the concession for another 20 years. Regarding fuel, it's similar to what I mentioned about the cost of capital, interest rates, and competition. Diesel is more expensive, fuel oil is more expensive, and gas will also be more expensive. The regulatory authority and the granting powers need to recognize that this will result in higher prices and challenges in the future. So we’re not concerned about that. However, this could potentially result in a decrease in overall consumption, which is a broader economic issue. It's important for us to stay competitive, prioritize our clients, and be the best option considering the concessions in São Paulo, Rio Grande do Sul, and any future concessions that may arise. Well, in terms of mining, in 2022, the main events were the purchase of the additional port stretch, some capital expenditures for the port, and low capital expenditures for mining itself, resulting in reduced expenses for that project this year. We will continue to evaluate the mineral potential, and next year we will need to make several significant decisions. Based on feedback from our technicians, we will determine the actual potential and the amount we will invest depending on the project's final status. This is the plan for 2023. We have focused on the most important aspects for this year. Therefore, we need to go through several phases, and our capital allocation will be minimal initially, although it will gradually increase over time. We will have the flexibility to make decisions as needed and will keep you informed about the next steps, but don't anticipate much activity in 2022. It will be a relatively quiet year for that project, with more progress expected next year.

Thank you. That’s very clear.

Next question is from Sebastian Hickman from JPMorgan.

Hi, everyone, this is Lucas. Can you hear me?

Hi, everyone, this is Lucas actually. Can you hear me?

Good afternoon. I have a couple of questions. The first one is regarding your portfolio management strategy. Will you be divesting from any assets? Would that make sense? You’ve had several rounds with Compass, and Compass’ capitalization is doing well. I don’t think it needs additional capital. But do you think this year? Or are there any other assets? I mean, you bought back Radar. Are there other assets in your portfolio that you’re considering selling?

Well, let’s start with potential investments. Our current goal is not to divest from our portfolio, as we mentioned. We might have Compass’ IPO, which should lead to some dilution but not divestment. We will continue to list our companies, with Compass being the next one. Currently, we don’t feel the need to pursue an IPO since the company’s capital is strong and its debt levels are low. The company tends to be more conservative. However, when the right market opportunity arises, we will proceed with Compass’ IPO, and Moove will also become a publicly traded company. Is there another investment level? We can discuss that further if you’d like. In terms of relative business dilution, we don’t see any divestments. We have acquired Radar, and we’re very pleased about that. If there's an opportunity to purchase any additional stake, we will consider it. In general terms, we are still actively seeking investment opportunities, but we are reallocating capital within the group. That’s important, and we will continue to do so. While we navigate the current capital situation in Brazil, Moove would serve as our vehicle to pursue international opportunities. We intend to increase our exposure to stronger currencies outside Brazil and are excited about our operating model, company culture, and management. We believe we are ready to scale up when opportunities arise. Filipe and the team are actively seeking opportunities in the Americas, North America, and Europe, as we see similarities with Brazil and potential for growth. Asia could be a great opportunity if feasible, but it has a very different culture. We believe it's more relevant to focus on areas where we have more familiarity. We have small operations in Europe that are growing, and there are also opportunities in the U.S. If we identify suitable targets, we will pursue them as we are actively searching. Moove currently has a strong cash position, which is quite healthy, and we plan to utilize that for acquisitions, ideally within the next year.

Thank you. That’s very clear.

Thank you. This concludes the question-and-answer session. I will now turn the floor to Mr. Luis Henrique Guimarães for his closing remarks.

This is Ana. Thank you so much for participating in our call.

Thank you for your questions. It’s always great to hear what you need clarified. As we mentioned, we did achieve our targets, and while there is room for improvement in our results, we are addressing it. Our teams at the holding are dedicated to ensuring that we succeed. Structurally, we have been performing very well. Each of our assets is positioned favorably, and all business trends are positive in areas like renewables, distribution, agricultural growth, and global supply, among others. Not to mention our significant ability to reduce our carbon footprint in relation to our businesses and partners. The situation is quite complex. In the short term, we've observed high interest rates, high inflation, and overall increasing costs. This situation requires us to adopt a more cautious approach than usual. However, it also presents us with opportunities and the chance to make necessary adjustments quickly. We are very enthusiastic about the opportunities ahead, and we anticipate costs integrating into different value chains and segments, which will enable us to become a more competitive and efficient player, allowing us to capture additional value in both the short and mid-term. You will continue to hear from us, and we will remain transparent. Our teams are focused on delivering what we outlined in our guidance. Raízen will be announcing this year’s crop year results. Thank you and take care.

Thank you. This concludes Cosan’s conference call. Have a nice day.