Cosan S.A. Q1 FY2023 Earnings Call

Good morning, everyone. Thank you for waiting. And welcome to Cosan's Earnings Conference Call for the First Quarter 2023. This video conference is being recorded and will be made available on the Company's IR website at cosan.com.br where the complete material of our earnings call can be found. You can also download the presentation in English from the chat icon. During the Company's presentation, all participants will have their microphones disabled. The question-and-answer session will start after the presentation. Please note that the information contained in this presentation and in statements that may be made during the earnings call regarding Cosan's business prospects, projections and operating and financial goals constitute the beliefs and assumptions of the Company's management, as well as information currently available. Forward-looking considerations are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Overall economic conditions, market conditions and other operating factors may affect Cosan's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Today, with us we have Mr. Luis Henrique, CEO; and Mr. Ricardo Lewin, CFO and IRO. I will now turn it over to Mr. Ricardo.

Good morning, everyone. And thank you for participating in Cosan's earnings conference call for the first quarter of 2023. We started the year with strong results in the portfolio with contributions from all businesses. Let's now go through the main financials and operational highlights of each business, starting with Raizen on Slide number 3. Since this quarter closes the 2022-2023 record year and Raizen has already held each conference call, I will focus on the highlights for the year. Raizen ended their crop year with expansion in all segments, achieving record global income and adjusted EBITDA of BRL15.3 billion. The year was also marked by the focus on operational excellence, continuity of the renewables expansion cycle and record E2G production in the pilot plant, reaching 30 million liters. In the renewables segment, EBITDA increase reflected the sales expansion, highlighting the increasing global customers for both industrial and fuel applications. We have also significantly advanced in the power agenda. We became the fifth-largest energy trader in Brazil with more than 24,000 connected customers. In sugar, the year’s result was boosted by the greater volume sold with higher prices due to better pricing amid a more positive scenario for the commodity, which compensated the pressure on margins due to higher costs. Marketing and service EBITDA also presented growth considering the impact of the tax credit in the period. In Brazil, sales remained stable and the operation was affected by better operational margins besides pressure from the business environment due to greater supply of products on the market and inventory losses. In Latin American operations, the year was marked by an increase in volume, market share, and profitability despite a complex macroeconomic scenario and a scheduled stoppage of the refinery in Argentina. Let's now move to Slide number 4 to present Rumo. We had a quarter with growth in EBITDA and margin due to the increase in yields reflecting the greater competitiveness of the railroad model. The transported volume, on the other hand, decreased mainly due to a higher frequency of criminal incidents in Baixada Santista region that have already been controlled by the public authorities. Despite this drop, as already published, Rumo had a record volume in April, a 30-day month, showing the efficient use of the company's capacity. The strong crop will allow Rumo to capture solid transported volumes during the coming months this year. It's worth mentioning that the Mato Grosso expansion project is on schedule and on budget as already highlighted in Rumo's conference call. Going now to Slide number 5 to talk about Compass. We had another robust operational and financial quarter with EBITDA growing 36% above the same period last year. All of our natural gas distributor companies performed strongly despite the downturn in industrial activity. This reflects the continuous work on the mix of segments and efficiency, driven by Comgás and our new assets, Commit and Sulgas. In the residential segment, there was intense work on expanding connections. There were more than 160,000 in 2022, which is equivalent to 400 new ones per day, made with great operational efficiency using technology and solid processes. Commit’s consolidation work continues at full speed, and this quarter we began to see concrete results from the new business model. We can highlight the expansion works of Sulgás in the region of Gramado in the south of the country. The concessionary is about to complete the connection of the city, which until now has not been served by natural gas. It is yet another competitive supply alternative being offered to the region with high growth potential. The construction works of the São Paulo regasification terminal continue to advance and are closer to completion, with the start-up operations scheduled for the second semester of 2023. Despite the negative effect of the recent decision on a tax benefit that impacts Comgás accounting net income, Compass's portfolio has leveraged to preserve its ability to grow and distribute dividends to its shareholders during the 2023 financial year. In addition to prior year profit reserves, Compass remains capitalized after the disposal of equity interests carried out in 2022, and the divestment process in five other distributors is still ongoing in accordance with the portfolio management strategy. Compass also had other assets that continue to grow, such as Commit and the marketing service segments. Let's go to Slide number 6 to talk about Moove. At Moove, this quarter the EBITDA was leveraged by the increase in sales volume in its operation. We grew 1.4% in market share in Brazil when compared to the same period of the previous year, reaching a participation of almost 20%. Global growth occurred while preserving the EBITDA margin of more than 10%, reinforcing the company's commercial and supply strategy. It's worth mentioning that the result was also impacted by the consolidation of PetroChoice and Tirreno acquisitions made in the second quarter of 2022, both of which grew compared to the same period last year. Finally, we remain focused on the integration of PetroChoice, which is proceeding as expected and is in line with our international expansion strategy. Moving to Slide number 8, let's discuss the land segment. The land segment reflects the agricultural property management business represented by the company's direct stake in Radar, Tellus, and Janus. In order to provide more transparency about this business, this quarter we made a more detailed section in the earnings release. First quarter 2023 EBITDA presented relevant growth of almost four times compared to the first quarter of 2022, explained by the first full quarter of Tellus and Janus consolidation. The land portfolio ended the quarter with around 318,000 hectares of old land with a total market value of BRL14 billion, which means the market value for Cosan of BRL4 billion adjusted for our respective stake in each fund. The main crops are sugar cane, grains, and fibers, which represent 98% of the total market value of the portfolio, predominantly located in the Southeast, Northeast, and Midwest regions. We can go now to Slide number 8 to talk about Vale. On this slide, we present the effects of acquiring the stake in Vale on Cosan's results. During this quarter, we received BRL402 million in dividends from Vale related to our 4.9% stake, which had a positive impact on our EBITDA. Of the amount received, we transferred BRL215 million referring to the adjustment of the cost of derivatives to the banks involved in the operation that impacted our financial expenses. Considering the price movement in the period, the equivalent mark-to-market impact on the results was negative while the shares were positive. As shown in the graph on the slide, the net result in this quarter of all transactions related to Vale’s structure was negative at BRL207 million. In addition, our CEO, Luis Henrique was elected in April as an Independent Board Member of the Company's Board of Directors. Let's go to Slide number 9, which shows Cosan's pro forma results. At Cosan Corporate, operating expenses, excluding the dividends from Vale, increased due to the exercise of long-term compensation plans. In the consolidated results, the increase in pro forma adjusted EBITDA was driven by solid expansion in all segments. Net income for the quarter decreased due to the negative impact of mark-to-market updates of Vale and also Cosan’s shares due to the total return swap in the financial result and also due to the impact of the provision related to the exclusion of the tax on the circulation of goods and services, the SME asset benefit in the corporate income tax and social contribution on net income calculation basis recorded until then at Comgás and Moove. It's important to highlight that these are non-cash effects. Recapping the tax incentive history, from the beginning of 2021, these companies began to recognize exclusion of tax benefits from the corporate income tax and social contribution on the net income calculation basis in line with the opinion of their external legal advisors and based on all the prevailing jurisprudence at that time. In March 2022, the first panel of the Superior Court of Justice reaffirmed their understanding from 2017 about the non-application of corporate income tax and social contribution on presumed SME asset credits, which included over 50 decisions in that sense. A month later, in April 2022, the second panel decided otherwise, unfavorable to taxpayers. Since then, we have reclassified the probability of loss from remote to possible as disclosed in the financial statements since the second quarter of 2022. More recently, at the end of April, there was a trial at the first panel with an unfavorable result for taxpayers. In view of this, the company decided to set up a provision for the amount used, approximately BRL1.5 billion. Bear in mind that the provision in this quarter has no cash effect. Having said that, I want to reinforce a few important points. First, as you can see in the financial statements, the recurring results of Compass and Moove, companies that were affected by the provision remain robust and growing. In addition, so far, the judgment has not been published yet. That is, although we have made the provision for all the past effects, we need the judgment to conclude on the applicability and the real impact on the companies. Finally, in addition to the possibility of appeals, this matter can be analyzed by the Federal Supreme Court. Cosan Group is willing to work with the authorities to address the past issue fairly and to consider the central purpose of the tax benefit, which was to stimulate investments made digitally by the companies. In any case, we will keep the market informed about the developments in this matter. Moving on with the presentation, regarding Cosan's consolidating investments, we had an increase compared to the same period of 2022, which is mainly explained by expenditures at Raizen with second-generation ethanol, Rumo with the Mato Grosso extension project, and Compass, based on business planning and in line with their guidance. Let's go to Slide number 10, which shows our group's financial highlights. Regarding the indebtedness, the reduction in gross debt is expanded mainly by net amortizations at Raizen. Highlighting our capital allocation agenda, during this last quarter, we resumed our movement of increasing the total return swap position of Cosan shares. Leverage was 1.7 times EBITDA at a great level for the company, and its reduction of 0.3 times compared to the same period of 2022 is due to the increase in accumulated EBITDA in the last 12 months, in addition to reducing net debt, mainly due to the cash flow generated at Raizen. If we adjust the effects of the stake in the Vale acquisition, the net debt to EBITDA ratio would be 2.1 times. Cosan has a comfortable debt principal amortization schedule, especially considering the flexibility and optionality that we have in the financing structure for the acquisition of a stake in Vale. The duration of our debt is approximately five years. Even though it's not related to the first quarter, I would like to reinforce all other subsequent events. First, we approved at the Shareholders Meeting the distribution of BRL800 million in dividends, which will be paid on May 31st. We also had the election of Board of Directors members, which I would like to highlight a change in the composition. Now with 50% of independent members, including two women, which reinforces our evolution in governance and diversity agenda. In addition, we had the issuance of a debenture in the amount of BRL1 billion, with payments of the principal bullet in five years, showing the company's access to liquidity and a lowering increase in debt duration. Before closing, I want to go to the ESG agenda on Slide number 11. In March, we signed the letter of commitment to the 100% transparency movement, an initiative of the UN Global Compact Brazil network that works to engage companies in combating corruption, which reaffirms the company's position of adopting the best corporate governance practices. Regarding our business, both Rumo and Compass published their 2022 sustainability reports. Among Rumo highlights, we expanded energy efficiency in railroad transport and mitigated climate change-related impacts, in addition to ensuring safe railroad operation. Compass brought several achievements, such as the review of its ESG strategy and the definition of public commitments that should be met by 2030. In addition to the milestone of 36% of leadership positions being held by women in the company's businesses, still in relation to ESG, we will soon publish Cosan’s sustainability report, which will bring important advances in this journey. Finally, I would like to invite everyone to participate in Raízen Day, which will take place on May 24th, and inform you that our Cosan Day will take place on September 12th. With that, I finish my presentation here, and we can start the Q&A session. Thank you.

Our first question is from Pedro Soares, a sell-side analyst from BTG Pactual.

I have a couple of questions, please. To Luis and Ricky, they're about Vale. Could you give us some more color on how much you would say you're devoting to Vale? What was the situation you found at the company like? How different was it to what you imagined when you acquired the asset? And another question on the same topic is, have you got any additional information for us about the 1.6% additional stake that could or could not have been exercised? Have you made any decisions on that?

Considering what we shared with you when we made the investment, one of the main points was to be part of the company's Board with other board members and shareholders. So I'm very happy because the company led this initiative very well. The governance committee did it very transparently and clearly; there was a Shareholders Meeting, and there were no major issues. In my opinion, we have elected some very solid members of the board with diversified expertise. So I have been a member of the Board since the 1st of May. What we'll do from now on is share with you on the sell side, buy side. We have Leo Pontes, who's responsible for Cosan's investments in Vale and will cover shareholders’ issues. It's important to clarify governance, and my role as a member of the Board and the company's opinions regarding that will be exercised by the person who manages that investment, which is Leo, and company issues will be managed by the company itself. But generally speaking, we're very excited. We're still very excited. This is a very important stage for us. Having a Board and a team working together to make sure that we are all working for the best and to generate value for the company. So in short, nothing has changed in terms of our conviction of when we made this investment six or seven months ago. Now as a Board member, we'll have the opportunity to make closer contributions to the management together with other members of the Board. Right now about your second question, we won't exercise. We are very happy with the 4.9 that we have currently. As stated from the beginning, our position includes different optionality triggers, among which we will be proving our thesis along the way, and there are stages still to come. So far, we have kept with the stages we had proposed, and we’ll be part of the Board, and we will be part of other committees that will be set up by the Board, sharing that with you over the coming days.

Next question is from Guilherme Palhares, sell-side analyst from Bank of America.

We have a couple, a little more on the financial side. Lewin, you talked about the provisions for this half of the year. And looking forward, what are those reserves like? What can we assume, and what are the implications of that on the dividends flow from Comgás all the way to Cosan, considering the Supreme Court of Justice’s ruling? Could we say that the company would rather pay taxes on full results considering the tax benefits instead of creating that legal reserve for the tax benefits to make sure that those dividends continue to flow all the way up to the holding level? And the second question about the dividends flow as well. To understand those dividends you have received from Vale from Raízen this quarter, how much of that has gone up to the holding so far, and how much of the subsidiaries are under Cosan? 8 or 9, which are the main ones to be affected by that?

Could you take that, Lewin? Would you like to take that?

Yes. I'll start with the second. Actually, Vale is very clear. We received about BRL400 million, BRL215 million of which were passed on to the banks that were part of the operation structure. Why? If we had kept the dividends that the strike price would have changed; in theory, there would be a change in the strike price of the derivative. So we prefer to pass that on to the banks and keep the strike prices of the derivatives the same. In terms of the preferential, there is a grace period of six months in the dividends payout. So dividends will flow up to the two holding companies, Cosan 9 and 10, but they haven't gone all the way up to the holding companies. So all dividends have stopped at Cosan 9 and 10. With regards to your first question, it's interesting because our intention is to go back to the way things were before 2021 when we took advantage of these tax benefits, that's what everybody was used to seeing at Comgás. We believe dividends will flow as per usual; obviously, if the tax benefits can't be used, then there won't be an effect on the dividends going up. But the idea is to continue to take those dividends up, respecting the tax benefits decision, because we need to pay for our preferred structure for Cosan 9 and 10 and to take up the dividends to the holding company in order to pay for the principal and interests. I hope I've answered your questions. If you have any more, please feel free to ask them.

Yes, that was very clear, Lewin, thank you. So let me just make sure I got it right. The dividends flow will continue. And at the same time, as we look at the dividends, dividends have stopped at Cosan 9 and Raízen, now Cosan 9 and 10, 10 from Compass. Actually, let me take this opportunity to reiterate this, because I think it's important to all investors. These tax benefits and provisions will not affect Comgás’ fundamentals. Comgás has always been a strong dividends payer, the business has been growing in terms of volume and in terms of sales mix. And let's not forget that it has a very strong portfolio with Commit, Sulgás as part of the portfolio. As I said, during the presentation, there are many dividend payout levers that can be used inside Compass. I just wanted to reiterate that as a segue.

Our next question is from Luiz Carvalho.

I also have two questions. Last time we met in person, Luis, at the end of last year, you discussed many of the group's challenges. If we examine all the company's projects, including those at Vale, Rumo, Compass, and Raízen, you indicated that the primary challenge for the company was to complete these projects on time, within budget, and with high quality. Can you provide an update on what the current priorities are, what you and your executives are focusing on, and what the main challenges are in this process? My second question is more macroeconomic. Since the new administration has been in place for about five months, I’m not looking for a political opinion, but there have been discussions regarding the tax framework. Which aspects of that framework do you anticipate will be impactful? We've noted the tax on oil exports and a potential increase in the administration's willingness to impose additional taxes. Ongoing tax negotiations are taking place, so I would appreciate your insights on key issues, such as the discussion around mining royalties. How do you view the macroeconomic landscape, and what impact, if any, do you foresee this having on the group?

Well, I'll start by talking about our projects and our time allocation, because that's very relevant. As you know, we've shared with you over the past few years; we've reiterated the importance of the partnership among the group's executives and the connection with our chairman, the founder, and shareholder of the company to continue to take leaps, both in terms of the sizes of the operations and opportunities to complement our portfolio in the five areas that are key to this company, to the future of Brazil and the world. As you can see in terms of becoming a member of the Board, I have left Rumo and Compass, and Leo Pontes has taken on that responsibility. So he's devoting some quality time to that, all of us, myself, Rita, and Leo, are required at the holding company, and Musa at the company, Nelson, Phillipe, and Peto at the companies to ensure that we have the right time balance, obviously, supported by Marina, Lewin, and Paula, playing their own roles. So we have rebalanced that in order to free up some time so I can devote more time to Raízen and to Vale. Obviously, always looking at Moove’s international expansion and providing support to Leo at Cosan Investments. But myself, Marcelo, and we’ll have rebalanced our time so that we can devote more time and energy to each of our investments. As to your second point about the projects, they are on track. Obviously, you know that we spoke to you, but I will reiterate it. Engineering is still a challenge in Brazil. The installed capacity in this country for works is a challenge. So we're using different strategies in our projects; obviously, major construction companies that were around in the past have been greatly reduced and so has their capacity. So there are several companies of different sizes, some of which are local, sharing projects, which means it requires more management effort on our side, but does combine risk, cost, and return. So we've been able to make progress on our three main projects: E2G, the regas terminal in Santos, and expanding the north network in terms of size and complexity. But they are moving forward, considering that challenge, right? There is no surplus capacity in terms of engineering execution, sometimes something as simple as soldering or welding. But we do have a very solid team. We are dedicating specific resources to that to ensure that we are supervising things closely. As for the Santos terminal, we also have a dedicated team that Peto has allocated to the expansion of the north network, and Musa is fully focused on managing multiple sites. So we have an eye on all of these three projects. If you look at them, in terms of sales, E2G has contracts with Rumo. We have annual contracts, but there is clear demand and capacity. As for the regas terminal, there is a contract to supply 3 million cubic meters with Comgás. So the challenge is the execution for them to be ready on time and to meet the demand that will help us with monetization. As you know in terms of cash generation, these are very important projects because once we have the CapEx for the E2G plants or the terminal or the north network, then cash generation and the conversion from EBITDA to cash is quite strong at all of them without any major recurring costs or CapEx. So as of '24, in terms of value and deleveraging, we have a great trajectory ahead of us. So that's the priority, Luiz; nothing has changed. We are on track but we are always concerned with making sure that our partners, our team, and our suppliers have their eyes on the ball and are delivering. From a micro point of view, obviously, it's been five months, and it's been a significant change in administration, I'd say. This new administration has chosen to replace a great deal of people at the ministries, which obviously led to a slowdown and challenges. So our main concerns, and what we see as positive, in terms of concerns, there are questions concerning legal security, especially regarding taxes. That’s a key topic. There are some major discussions going on in Congress, as we speak, in terms of CARF and many other topics, the structural points of the tax reform, the transition of tax credits. Brazilian companies have considerable assets in terms of tax credits in terms of PIS/COFINS, ICMS, so it needs to be looked at very carefully. The minister of mines and energy and the minister of finance have already talked about how to use tax credits and debits from the Federation's balance sheet to encourage investments in the green economy, and we think that's very positive. They have been inspired by the American IRA and the green deal in Europe. So we're already seeing some signs from minister Alexandre Silveira and minister Haddad. We believe that would be extremely positive for Brazil, how can we use this tax to speak to this function and associate that with the VAT, a better direction, and to use those rights and responsibilities to encourage the green agenda? That’s a very positive agenda. In terms of the framework, the wording was published last night; it's hard to express an opinion on it. But it's better to have some kind of compass than nothing. So I think it's positive; you’ve seen the interest, the future interest curve coming to an interesting outcome. The real is appreciating in terms of foreign exchange. It’s too soon. But my concerns are basically to make sure that this administration will ensure legal security, because some past issues may lead to insecurity; we would like that and also, we must recognize this country's green opportunity. The president and the ministers must do that; that can lead to different licensing agendas, not only for mining but for oil. I think the government needs to really go from words to practice and create responsible and sustainable mechanisms that will unlock Brazil's potential. I think there is good intention, but it needs to be put into practice and to take the tax reform forward so that it can simplify and use this huge asset as part of the government's balance sheet, 0.8 trillion worth of credits and 2.7 trillion worth of tax disputes that could be turned into investments and encourage major private investments. I think we need to keep an eye out for these tax issues. There are positive signs in terms of expanding the green agenda, which will drive a lot of our investments. And now with all these new members and the new ministries, in our case, the Ministry of Mines and Energy and Transportation, so that our gas, infrastructure mining and rail agendas can move forward and unlock Brazil's huge potential. As you know, it requires a lot of discussion. We need to be present, discuss, but the role of the private sector, associations, and businesses is to make a contribution with concrete proposals. It's not just about raising issues; we also need to make concrete proposals. That's what our institutional relations team has been doing, myself, Tiago, and our shareholder are taking part in open discussions about this country's future opportunities, obviously, always trying to create a regulatory environment and legal security in order to attract investments. We also need foreign investments together with local investments so that we can move this agenda forward.

That's very clear. It was almost like a lesson.

Our next question is from Gabriel Barra, sell-side analyst from Citi.

I have a question along with two quick follow-up inquiries. Firstly, regarding our discussions about Cosan, we've observed significant changes in the company since the simplification of its corporate structure and capital allocation, including your investment in Vale. I believe, Luis, that you have a long-duration portfolio with substantial investments. Given the current higher interest rates, we need to consider the company's regular updates to its portfolio. Could you share the discussions taking place within the company regarding this? Additionally, with the IPO market being somewhat constrained this year due to certain uncertainties and a challenging market environment, how might we approach portfolio management through private placements like you did at Compass, or possibly a direct M&A investment through another player? What are the current discussions within the company regarding this matter? Now for my two follow-up questions: first, concerning the 1.5 billion provision, I would like to clarify its impact moving forward. What part of that 1.5 billion will be recurring on a monthly or annual basis to help us understand its effect on results and the monetization of that impact? As you mentioned, this is an accounting provision rather than a cash provision, but it could potentially become cash in the future. Is there a timeline for that? For my second follow-up, could you elaborate on the decision related to Compass? There have been many discussions regarding regulatory agencies, particularly about transportation and gas distribution pipelines. Any additional insights on that would be appreciated.

I'll start with the last point and then pass it over to Lewin. The discussions among the regulatory agencies are still ongoing. The agencies in São Paulo and Rio are working on a harmonization process and trying to reach a definition based on the recent developments, including legal proceedings and public hearings regarding investments and gas supply issues. There are currently no updates, but the agencies are diligently seeking the best solution. The investment and construction phases are progressing as announced in the 2019 tariff review, and the company is adhering to all regulatory agreements. The terminal is expected to be completed in the second half of the year, which is a crucial element for both state and national gas supply flexibility. This will enhance competitiveness and support a free gas market. We trust that both agencies will act competently and responsibly to address the infrastructure challenges in Brazil. Progress in Brazil often takes time to achieve at all stages, but Comgás and Compass are exemplary companies that have been making significant investments and positioning themselves to ensure their clients, and consequently the gas market, continue moving in a positive direction. There are no significant news items to report. We believe these discussions between the agencies are very important. Concerning the portfolio, you are absolutely correct, Gabriel. We frequently discuss this; Compass and Moove are always prepared for an IPO or private placement. Our teams are highly skilled. If you attended the conference in New York last week, Moove was present to engage with investors and present their case while also learning from the market. Given the quality of both assets, we are confident that at the right time, we will be ready to proceed through either an IPO or private placement, depending on the use of proceeds for the business. The primary focus regarding the portfolio is the ongoing discussions within each company. Marcelo, Lewin, and I are keeping ourselves updated. Each company possesses assets that can be monetized, which can provide more value to third parties. Our intention is to capitalize on these assets to enhance the capital structure and enable more profitable investments. I often reference Rumo's terminal as an example, but there are also other opportunities at Rumo, Raízen, and Compass, as Lewin pointed out during the presentation. We are still in the process of divesting from five gas distribution companies, and this will take place. We will be generating additional funds through these divestments, whether by inviting partners at the top level or by selling complete or partial assets at the lower end, as we have done before and will continue to do if we determine that these assets hold more value for third parties or need to be monetized, similar to what we are doing with Rumo to enhance the northern network within our financial and value structure. Regarding the provision, as Lewin mentioned, this is a right based on our legal counsel and judicial precedents. Although changes occurred within the following weeks, we will actively pursue our rights. This is a solid right, not merely a theoretical concept. We have taken the necessary steps and will keep monitoring the situation closely. You are familiar with accounting principles; we needed to establish that provision since legal matters have progressed. It is essential to be transparent with you about our decision to set up that provision. However, we do not have a fixed timeline or monetization schedule because we will continue to pursue our rights through all available means as long as we believe they are accessible to us. We will keep discussing this issue across various forums available for such discussions. Lewin, do you have any additional comments?

Yes, let me share the figures with Barra and the investors. It's important to say that there have been no losses. We will not have an upside that we used to have from the additional credit that we used to take out. So considering Compass and Moove, we're talking about roughly BRL200 million a year at the companies. Then you need to do the math to go all the way to Cosan because the cash impact on Cosan would be less than that; not in accounting terms, cash impact. And just to reiterate what Luis said about monetization. The Supreme Court of Justice has not made a ruling yet, so it's hard to know what of that will actually materialize. Our legal counsel is monitoring the situation, and we will share any news with the market as soon as we have it.

Next question is from Bruno Montanari, sell-side analysts from Morgan Stanley.

If we can go back to Vale please. We know that this is a long-duration structure; it's well protected with derivatives. But could you give us some idea about what you'll see happening over the years to make the decision to convert that into an effective stake outside the derivatives or unbundling the operation? What are the decision-making factors that you will consider over the year so that this investment can be realized? Second question is, could you give us more color on the final stages of the regas terminal and what will be the early ramp-up for this project?

With regards to Vale, as we've been saying since October last year when we made the announcement, it will be checking if our value-unlocking thesis comes to fruition, and as a minority shareholder of the company, we are in constant dialogue with the Board, with other shareholders, and that will take the company in the direction that will unlock the most value potential. It's a different model from what we've done in the past; it’s control or co-control, as is the case of Raízen. But given the size of the company and the size of the opportunity, in our opinion, we had to choose a different tack to work collaboratively and align our objectives for the company. To see if that works and if production value generation through agreements that need to be signed progresses, also value generation through new technologies, there's a whole set of attributes that the company does have based on the quality of the assets and everything it has to offer. So we'll see if they evolve at the speed we believe they can, as investors, obviously, not as members of the Board, and so we have the option to do that. If they do, then we'll turn that into a direct stake. If not, we'll take the required time and then we will undo the operation. As for the regas terminal, as I said, the latest good news is that we have drilled on both sides to connect the terminal underwater all the way through to the coast, to the receiving point, which is the integration gas pipe connecting the terminal to the city gate. That's a key stage, and it was concluded a few weeks ago. So we're now moving to the final stretch. We'll be commissioning it in the second half of the year, and the ramp-up stage will start at the beginning of next year. That will be the agreement with Comgás, and Compass' team is negotiating with other clients, three clients, other gas suppliers, other trading companies so that we can ramp up the terminal based on our optionality agreements with the product availability. Everything is on track. This drilling was a bit harder than we had expected in terms of geology, but projects like that are always the same; there's always a surprise. But we did have time available in terms of monetizing part of the contract that happened in that period, whilst it's still not in operation, and the physical ramp-up will begin at the end of this year, beginning of next year. We'll be using the second semester of this year to run tests, configurations, to train the team and to commission so that it can deliver on Comgás’ contract, which is key to complement the offer and for Comgás to comply with regulatory requirements.

Next question is from André Vidal, sell-side analyst from XP.

The first one is to Luis. The market has been saying a lot about potential Petrobras changes in the last two weeks in terms of derivative pricing. Today, there was an official announcement of the new policy at the end of the day; not much has changed. But not many people talk about gas, and that's another topic the government has been talking about. It's been saying that it wants to use Petrobras to reduce the price of gas in the country, and it's much harder to have a gas benchmark in the market than for diesel or gasoline. So how do you see that possibility of Petrobras reducing the price of gas and what kind of benefits and risks do you see on Cosan's different businesses? My second question is to Lewin. How do you see the company's need for funding in your opinion? Please correct me if I'm wrong, but you have raised debentures in '23, so everything seems to have been addressed. But in '24, maybe to address Vale's maturing installment, you may need to raise some funds in the markets or to sell assets? How do you see the company's need for funding over 2023 and 2024?

To your first question, there is not much to add than what we have heard from the company itself and what they have said to the press. It's always a controversial subject, and it needs to be translated into practice, into a pricing policy that will allow Petrobras to send a signal to the market as to what the model will be. Minister Alexandre Silveira wants to grow the gas market and has captured Brazil's potential in that segment from the pre-salt. The challenge now is how to turn that into a pricing policy. You always need to instruct the market, because if you don't, it won't encourage investments. We don't believe in miracles. They need to ensure that there is the right infrastructure for transportation and distribution. The LNG pipes need to be created along the Brazilian coast to provide options, flexibility, and competition. If you consider import prices and opportunities in the market, we went through a war last year. The market is only now getting back to normal; people are thinking prices are going to be terrible, it's never going to go back to normal. There are cycles; sometimes prices are competitive, sometimes they are not. The infrastructure needs to be created to ensure supply to your clients and value generation optionality so that you can move margins and optionalities posed by the market. I feel very optimistic about the whole conversation about gas. The secretaries, the Ministry of Mines and Energy, which has made this topic a priority, and Petrobras will, at some point, have to do define something as they've done for diesel and gasoline. They're saying they will compete with the best alternative for each of these supply areas, which in my opinion, is the right way of looking at it. Each administration will have its own mechanisms, and it's an important position for distributors because in this case we offer service optionalities, but we don't run the molecule risk, which is great because it means we can make the most of opportunities as they appear. In fuels, at Compass, all the time, there are molecule opportunities, parachute opportunities, from suppliers, from clients; that's the beauty of being involved in fuel and gas distribution in our opinion.

You saw that we issued a five-year debenture with a bullet principal worth BRL1 billion just about two or three weeks ago. The clear message here is that we haven't exercised any firm bank guarantees; everything was done through the market. So it goes to show that the companies have good credit, a good debt profile, and therefore, access to liquidity. We shared a debt amortization chart with you during the presentation. This year, we have BRL6 million of the principal to be amortized. And in addition to that, there are the second logged debenture installment and the Vale installment. The first point is that we have set up this finance structure because it reinforces our flexible structure and provides us with optionality. So this structure can be brought forward if the time is right or delayed if it's convenient when amortization time comes. So there's a lot of flexibility; there's no pressure in 2024. But obviously, we want to have options; we want to have the optionality. And to do that, we have some capital sources, as we said during the call about Vale. The first one is the land management through the local market or the external international bond market. So that we're ready whenever there's a window we can access those markets. The other alternatives, as Luis said, companies constantly look at their portfolio management so that they can invest and pay out more dividends. A classic example of that is the sale of 80% of T16 and 19 at Rumo. If there is a window, we might manage our portfolio at our main portfolio as long as we don't lose control over any of the companies. But I just want to reiterate that the structure we have set up allows us not to be pressured by the market.

Next question is from Regis Cardoso, sell-side analyst, Credit Suisse.

Could you provide an update on Compass, particularly regarding Commit? What potential do you see for replicating Comgás' experience in various regulatory frameworks? A general update would be appreciated, and can you also share insights on the other distribution companies? Additionally, regarding ICMS and the provision, can you confirm that the projected recurring effect will be BRL200 million on a pretax basis? On Vale, would it make sense to convert the BRL1.6 billion into a structure that gives you voting rights, considering the cost difference between the two structures? Also, taking into account the maturity in 2024, is renewing that structure a net cost or net premium? It seemed like you might be foregoing potential gains at a higher price and that it was a net premium to receive this as a receivable rather than a payable. What is the instrument to roll over that if necessary?

So an update on Commit and then I'll talk about the BRL1.6 billion, and Lewin can talk about the ICMS, the provision and the maturity. Everything is going well at Commit; we have all the teams in place. Obviously, they have different models in the different geographies; we have Sulgas, we have the other distribution companies, which have the state's stake involved. We've been welcomed by Mitsui and all the states where we're present. We do see a clear potential that we mapped when we made the acquisition to grow among the residential and commercial segments, considering the regulatory framework, and that is reflected in the company's figures. Their ability to solve existing problems in the many different states, pending issues with clients, and regulatory issues are all being addressed by Commit’s team, and obviously, the opportunity to replicate the technology model to reduce the cost of connection by using more modern material, different methodologies, suppliers, and safety practices. We are very confident and very excited, obviously. Realities and speeds will be different depending on the corporate structure we have at each of the companies below. But so far, so good. I think this quarter's results were very good. The profitability is in line; actually, it's above our business case when we approved the investment. Considering the company's spin-off and exercising our preference, our idea is to conclude that divestment still in 2023. Obviously, it's not just up to us, but it's part of our portfolio management to monetize on these five distribution companies. As for the BRL1.6 billion, if we convert that into a different structure, it then becomes a debt. Right now we are carrying a smaller debt than most of you had projected when we made the acquisition. We don't think now is the right time to do it. We feel comfortable with the 4.9% from an economic and stake point of view with other shareholders. So, so far, as I said, so good. We will continue with our 4.9% because we don't want any more debt pressure; we believe that to be a comfortable position right now on all aspects, economic, governance, and stake.

I'll start with Vale's structure. Obviously, if we want to renew that, there is a negotiation of the strikes. We could keep the same strike values, but it might generate a premium to be paid or received depending on the market. So I couldn't tell you now whether that's a net cost or net price. There will be a premium to be paid or received depending on what the market looks like down the line. What we are renewing is the financing. In order to be a risk-free operation, the put option net present value is the value of the debt, so they will be making that adjustment. In terms of the provision, you are talking about the BRL200 million recurring effect. Yes, that's precisely it. But as I said on a different question, it's not that we are giving up something. If you look back, we didn't have that benefit. So we are not using that benefit anymore. Therefore, the BRL200 million isn't before tax; it is the tax, so it's BRL200 million. And let me take a wild guess; let's say it's roughly BRL150 million to BRL180 million at Compass and the rest at Moove. But that's at the company base. As I said, the cash relates to Cosan, and you need to do the math to get to that. This is the consolidated accounting effect on the companies at the top. Is that clear?

Yes, that's great. Thank you, Luis. Thank you, Lewin, for your answers.

The Q&A session is now concluded. I will now turn it over to Mr. Ricardo Lewin for his closing remarks.

I just want to say thanks to all the investors and all the sell-side investors for joining us. If there is any news, we will be sharing it with the market. Otherwise, I'll see you during our next earnings call. Thank you and have a great week.

Cosan's first quarter 2023 earnings video conference is now concluded. For further questions, please contact the Investor Relations Department. Thank you so much for joining us and have a great day.