Cosan S.A. Q3 FY2025 Earnings Call

Good morning, everyone, and thank you for waiting. Welcome to Cosan's Third Quarter 2025 Earnings Release Conference Call. The conference call is being recorded and will be available on the company's IR website. Please note that the information contained in this presentation and in statements that may be made during the conference call regarding Cosan's business prospects, projections and operating and financial goals are based on beliefs and assumptions of the company's Executive Board as well as information currently available. Forward-looking considerations are not a guarantee of performance as they involve risks, uncertainties and assumptions and refer to future events that depend on circumstances that may or may not materialize. Investors should bear in mind that overall economic circumstances market conditions as well as other operating factors may affect Cosan's future performance and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn it over to Mr. Rodrigo Araujo.

Hi, everyone. Welcome to our earnings call of the third quarter of 2025. Here, we have the disclaimers about future projections and future assumptions with respect to the company's results. Next slide, please. So looking at the financial highlights of the third quarter of 2025, you can see that we had an EBITDA under management of BRL 7.4 billion, which is about BRL 1 billion less than 2024 and mostly impacted by the results of Moove, Radar and Raizen that we're going to detail later on. We also had a lower net income in the period, negative BRL 1.2 billion. Our net debt was relatively stable in the quarter, slightly higher than Q2 2025. We had a quarter with lower dividends received. Of course, we have a concentration of dividends in the beginning and end of the year. So that's reflected in dividends for Q3. In that sense, we also have our debt service coverage ratio of 1x. This is, of course, one of the main reasons why the company needed to improve and enhance its capital structure and did the transactions that we announced recently. In terms of safety, we continue to have positive metrics, low metrics in terms of incidents. Of course, there's an increase compared to Q2 2025, but still highly efficient ratios. We continue to have safety as a priority for the company and continue our journey of improving safety over time. Next slide, please. In terms of operational performance for Q3 2025, in the case of Rumo, we had an increase in transported volumes but also a reduction in the average tariffs that resulted in an increase in EBITDA of 4%. The company has been repositioning itself over the course of the year to improve its competitiveness in the Brazilian logistics market. In the case of Compass, we had higher distributed volumes in the quarter, an increase in the participation of the residential segment that has healthier margins and it's quite accretive for the company as well. We continue to see the increase in the volumes sold by Edge in the unregulated market in Brazil, seeing a growth of 6% in Compass EBITDA in the quarter. In Moove, we already see the company having stable volumes compared to 2024. When we compare to the second quarter of 2025, there was a 13% increase in the volumes sold. The company is gaining back its track in terms of volume, even though the EBITDA was 7% lower, and we are working on eliminating the logistics and tax inefficiencies of the new production settlements following the fire at the Rio de Janeiro plant. We continue with the CapEx for the reconstruction of the plant. In terms of insurance, the company has already received approximately BRL 500 million of proceeds in insurance until October. In the case of Radar, we had the sale of properties that impacted positively the results in 2024 but did not occur in 2025. This is the main reason for the difference year over year, and we will conduct the land appreciation review in the fourth quarter. We expect an increase in the value of the portfolio given the current market environment. Finally, in Raizen, we have an increase in the pace of harvesting that was favored by weather conditions, though we had lower sugar prices affecting EBITDA. Also, we have an overall lower volume given the drought and fires that affected the company's production this year. However, in the fuel distribution segment, we see a very healthy environment, with operations of the federal police in Brazil and the crackdown on irregular players translating into higher and healthier margins. So we have quite relevant margins in the fuel distribution segment in Raizen. Next slide, please. In terms of liability management, gross debt remains relatively stable, and net debt is slightly higher, with an interest coverage of about 1x. Regarding the amortization schedule, we continue to have a duration of roughly 6 years with an average cost of CDI plus 90 basis points. There is no relevant change in terms of the debt structure of the company. Finally, when we look at the cash position throughout the quarter, we have no relevant events in terms of liability management. We only have the dividends received and interest payments in the quarter. These were the only events that happened this quarter compared to the second quarter. This is the main reason for the changes in the cash balance. So next slide, please. Thank you for participating in our earnings call of the third quarter of 2025, and we continue with the remainder of our earnings call. Thank you for joining.

Before we begin the Q&A session, Mr. Marcelo Martins would like to say a few words. Please go ahead, Mr. Martins.

Good morning, everyone. Thank you for joining us at our earnings release conference call. Before we move on to the Q&A session, I'd just like to make a few comments because this is a key time for the company. I'd like to talk about what Cosan is going through right now. Since there's been a change in management at Cosan, more specifically when Nelson stepped down as CEO and went to Raizen and I joined as CEO, roughly 12 months have gone by. A year after that change, we started discussing our objective to improve Cosan's capital structure very objectively, and we discussed different alternatives. We've always made it clear that we wanted to preserve the portfolio as efficiently and constructively as possible and look for an encompassing solution that would definitively provide a positive perspective for the business and for Cosan. All of you who have taken part in conversations with us here at Cosan or at other events will know that we've always made it clear that our first option was to divest from some assets, but we also wanted to preserve the quality and integrity of our portfolio to continue to be a compelling company for future investments. We identified a few potential investors and I am completely confident that we ended up with the best investors possible for Cosan's future. We were able to significantly increase capitalization, thereby substantially reducing the company's issues. Even if we still have residual divestment balances, we can reduce Cosan's debt to 0 or close to 0 in the near future, which is another commitment I've made to investors. We sought a relevant transaction with the contribution of these new shareholders as the main factor. I'm very happy to say, and I can speak for myself and for Cosan and Rubens, as a controlling shareholder of Cosan, that we are extremely pleased to have highly valuable shareholders who have credibility in the market, are successful, and are fantastic risk managers and familiar with the infrastructure sector. Considering our current portfolio, they will contribute significantly to the company's future. I wanted to thank the commitment of Boston and the level of involvement they've shown in the process. Looking ahead, we will focus on integrating the new shareholders, helping them understand the companies in depth, and knowing the level of contribution they'll be making. The objective is to engage this group of shareholders, looking at future investments that should bring the company's debt to 0 or close to 0. We have divestment priorities, but this plan will be executed at the right pace so that we can create value without any pressure to sell assets at any price. That is not going to happen. We will focus on our portfolio, identify the priorities at Cosan looking forward, and divest so that we can execute our plan efficiently. We're seeking growth options down the line once we have clarity on the way forward, then we'll look at assets that will become part of this portfolio in the future because we want to unlock value and use the levers we've used in the past, which haven't been possible until now, as we'll focus on rebalance our capital structure. That's the main change now. We have a completely open horizon, whereas a while back, there was a high level of uncertainty. These are my opening remarks, and we can now begin the Q&A session so that Rodrigo and I can answer any questions you might have about our results.

We will now begin the Q&A session with Mr. Marcelo Martins, Mr. Rodrigo Araujo, and Ms. Camila Amorim. Our first question is from Gabriel Barra from Citi.

My first point based on what Marcelo said is about supply. What was the allocation rationale in terms of supply and the outcome? I know Marcelo touched on it, but if you could provide us with a bit more detail, it would be really interesting to hear about that. And the second question, also touching on what Marcelo said, is after this capitalization, the company is a bit more comfortable and can now think about restructuring the portfolio and selling assets. If we could talk specifically about Raizen, even if the company is in a more comfortable position now with a better capital structure, Raizen has been burning cash and you've changed the perspective of the second offering to strengthen the subsidiary company's capital structure. So could you tell us about Cosan's strategy considering the subsidiary companies? Will there be a third entrant? What are the options on the table? Could you tell us about that? Those are my two questions.

Thanks, Barra. I'll start with your first question, and Marcelo can answer your second question. About the offering, this transaction was big enough to be relevant for the company's capital structure and for new partners to come in with expertise in infrastructure in Brazil, with a long-term strategy. That can be seen in the stats of the offering. The first offering was 10x the demand. The second offering was also significant. We had two very successful offerings. An interesting challenge in terms of allocation. For the first offering, we prioritized existing shareholders, allocating to long-term strategic investors and the remainder to the existing base. The second offering had a priority offering but we allocated 2/3 of the offering to the existing base. We've managed to prioritize our long-term shareholders who've been with the company during our recovery journey. In summary, we had two successful offerings where we kept our commitment to prioritize existing shareholders. I'll turn it over to Marcelo so he can talk about our capital structure.

Well, Gabriel, adding to what Rodrigo said, we were very happy with the level of interest and demand for our first and second offerings, which clearly shows the market is betting on the company's future and recognizes this was the best solution considering the available alternatives. That’s why it was crucial to deliver on all these elements within 2025. Regarding Raizen, solutions for the company's capital structure are urgently required. I am very happy with what the company's management has been delivering. They complied with our expectations this year, 100%. Despite the challenging scenario, the deliveries have been very positive. Management has addressed many points during the call on Friday. We view this as a favorable direction, although capital structure challenges remain. Our talks with Shell have progressed considerably, and while we haven't reached a conclusion on the way forward, the direction is much clearer than it was a few weeks ago. This remains a massive priority for me and Cosan's team. After Cosan's capitalization, we know we need to focus on this, working with a sense of urgency closely with Shell to reach a conclusion. However, I cannot share any specifics at this time as we are still working on it. What we did announce recently during the second offering was that we might utilize proceeds from that offering to capitalize companies broadly speaking, and Raizen is included in that. We haven't decided on the terms yet, but we remain committed to potential capital contributions.

You touched on many different points, including the new shareholders and Raizen's process. On Friday, during the call, you also announced several Board changes to the directors. I would imagine that comes from a shareholders' agreement that was signed. If we could also talk about the context of the changes in directors, which have an impact on Raizen at a crucial time — when they are working on the balance sheet. Could you provide us with more color about that?

Yes, those changes to the Board are a consequence of the new partners coming in. We agreed those changes would take place and they align with the new partner’s contributions. Not only were we expecting those changes, but we also believe they are extremely positive for the future of the company. Before I address the financial changes, I want to mention that we have been making significant changes at Cosan to streamline the team and the company. This streamlining process will bring more efficiencies, something we've been thinking about for a while and now is the time to do it. I think this will be very accretive in terms of value for Cosan. The holding company is focusing on the portfolio, the partnership with newcomers, and that's key to bringing in someone who can hit the ground running. Bergman has been with us for a long time, has vast experience within the group, so he is highly qualified for the job.

If I can have a follow-up question, please. Looking at the shareholders' agreement, it's clear that the new shareholders can join the Board, and it's slightly different at Raizen. Did Shell have an opinion? Also, congratulations, Rodrigo, on the last two years. I wish you success in your next stage.

The new shareholders' agreement maintains the same terms as the pre-existing agreement, including for Raizen. We agreed with the new partners to keep it unchanged as there was no reason to alter it. Thus, Raizen was the exception. We have kept the approval of Board members according to the ongoing shareholders' agreement. We will appoint someone to replace Rodrigo at Raizen soon. I want to clarify that it won't be anyone appointed by the new partners for the reasons I have provided.

If we can go back to Marcelo's opening remarks about the role the holding company has to play in this new context. Historically, Cosan has gone through different holding company formats — diversification, simplification. Given that, what will be the role Cosan as the holdco will play in the future?

I'll start with your second question, Thiago, and then I'll turn it over to Marcelo to talk about the holding company. Yes, you're right in terms of how the funds will be used. Substantially, they will be used to pay down the debt, which we had announced during the offerings. Regarding priorities, there is a cost order to be tackled since duration is compatible. The trade-off will ultimately be positive, utilizing both high cost and duration contributions. In terms of duration, there is a first stage where reduction effects will be evident, but as the credit improves, there will be more opportunities for tactical operations long term. We currently don't have anything maturing by 2028, so in terms of that kind of pressure, there isn't any. I'll turn it over to Marcelo to discuss the holding company's future.

The last capital increase at Cosan was in 2007, around 18 years ago. That increase occurred before we diversified our portfolio. All financing for the acquisitions took place over the last 17 years. Hence, leveraging the company over time wasn’t efficient and became challenging especially as interest rates skyrocketed. Resolving the company’s capital structure required either a significant sale in the portfolio or this recent capital increase. The holding company will no longer serve as a leveraging tool for future growth. The focus will be on creating efficiencies and streamlining operations.

Based on what Marcelo said about timing. It seems that there is urgency to resolve investments and reduce the company's balance sheet in the short term, differing from the notion that you now have time to do it gradually. How do you perceive this timing difference?

Thanks for the questions. Let me start with your question about Moove. In terms of volume, the company is well covered. When you compare to the same period last year, there's been a significant volume recovery, and the reconstruction CapEx is underway. We are eliminating tax and logistics complications in the setup. We have significant cash flow coming in, with BRL 300 million in the second quarter and another BRL 200 million in October. I think that's it, and I'll turn it over to Marcelo.

There is definitely urgency regarding Raizen’s capital structure. The sense of urgency is aligned with a timetable much closer to 6 months than 2 years. We'll start executing on the strategy with Shell as soon as possible. The clarity around our direction has improved greatly. While I communicated that we need to focus on resolving indebtedness without a fire sale of assets, we do have a sense of urgency to act promptly.

I have questions regarding the streamlining measures and the timeline for that. Have you mapped them? Have you started implementing them? Also, could you provide your view on the divestment agenda?

Yes, we have mapped a process to streamline the structure at the holding level and are focusing on what will remain in the portfolio. For next year, we anticipate saving about BRL 30 million through this streamlining process. Cutting costs in half is feasible as we aim to implement these measures quickly to capture value.

Divestments will follow the capital allocation priority within the portfolio. We should start with Radar, so if you look at our portfolio, Radar is the asset we might consider selling a more considerable share in. The rest will follow based on the size of the divestment and our strategic investment considerations. This means Radar is currently the priority for potential divestment.

Marcelo, Rodrigo, congratulations on the offerings. Would it make sense to sell more assets or a stake in Radar? And could you discuss Rumo's position on this as well?

Regarding Radar, there is a combination of factors. We can either continue to sell properties or sell part of Cosan’s stake. We’ll make decisions based on what adds the most value. As for the other businesses—each of them is considered valuable for the portfolio with the potential to create significant value. Decisions regarding potential stake sales will depend on understanding our long-term strategy and opportunities as they arise.

What about capitalization at Raizen? Is there a maximum amount you would be willing to contribute?

That is currently under discussion, but regarding past offerings, the general range has already been communicated to the market. It will depend on our conversations with Shell and several other factors. We have stated the thresholds we would consider for any capital contribution. Thank you again for joining us. This has been an exciting journey. Our aim is to resolve Cosan's capital structure and, broadly speaking, all the group's companies. We are thrilled with our current position and optimistic about the group's prospects. We will focus on resolving the capital structure before we embark on further construction. Thank you to Rodrigo and everyone at Cosan for your professionalism, especially during challenging times. I want to express my gratitude to my team and everyone in the portfolio. Thank you for joining us.

Cosan's Third Quarter 2025 Earnings Release Video Conference Call is now concluded. For further questions, please contact the Investor Relations department. Thank you so much for joining us, and have a great afternoon.