Ultrapar Participações S.A. November 2018 Considerations
Forward-looking statements
This document may include “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “estimate,” “plan,” “outlook,” “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of Ultrapar Participações S.A. (“Ultrapar”) are based on current expectations that are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Ultrapar is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise. For this reason, readers should not place undue emphasis on these forward-looking statements.
Standards and criteria adopted in preparing the information
The financial information presented in this document has been prepared according to International Financial Reporting Standards (IFRS). The financial information of Ultrapar corresponds to the company’s consolidated information. The financial information of Ipiranga, Oxiteno, Ultragaz, Ultracargo and Extrafarma is reported without elimination of intercompany transactions. Therefore, the sum of such information may not correspond to the consolidated financial information of Ultrapar. In addition, the financial and operational information presented in this document is subject to rounding off and, consequently, the total amounts presented in the tables and charts may differ from the direct sum of the amounts that precede them.
EBITDA — Earnings Before Interest, Taxes, Depreciation and Amortization, Adjusted EBITDA — adjusted for the amortization of contractual assets with customers – exclusive rights, and EBIT— Earnings Before Interest and Taxes, are presented in accordance with CVM Instruction No. 527, issued by CVM on October 4, 2012.
As from 2018, the IFRS 9 and 15 standards were adopted, amendments to the IFRS rules and interpretations issued by the IASB. In order to provide a comparative basis for the financial statements, the information for the first and fourth quarter of 2017 shown in this document incorporates these accounting changes, consequently differing from the values previously reported in the respective publications of results. Additional information can be found in note 2.y of the quarterly financial statements of September 30, 2018 and in the financial spreadsheets, available from the Ultrapar website (ri.ultra.com.br). Ultrapar
One of the largest Leader in specialty Largest LPG Largest provider of Leadership fuel distributor in chemicals derived distributor in Brazil storage for liquid position in North Brazil of ethylene oxide in bulk in Brazil and Northeast Network of 6 Latin America regions thousand 6 terminals located 8,018 service independent in the main Brazilian 414 stores in 13 stations 12 production resellers ports different states facilities in 5 Largest countries 11 million 784 thousand m³ of 2 distribution convenience store households attended storage capacity centers network in Brazil 54 thousand costumers in the bulk segment
Ultrapar is the 5th largest Brazilian group in terms of revenues¹ 17 thousand employees
¹ Source: Valor 1000 2018 edition
3 Ultrapar
Leadership position, with long-term competitive advantages
Resilient businesses, leveraged on the Brazilian economic growth
Strategy of differentiation and innovation
Best Corporate Governance practices
o True Corporation with reference shareholder
o Compensation as a key driver for value creation
Key shareholders¹
Ultra S.A. Participações 22%
Parth do Brasil Participações LTDA 8%
Standard Life Aberdeen PLC 8%
BlackRock Inc. 5%
Outros 57%
¹ As of 10/31/2018
4 Ultrapar – Financial highlights
Financial results
R$ billion Net revenues EBITDA Net income CAGR CAGR CAGR 9% 4% 0%
88.6 Payout¹ 75.7 77.4 79.2 61% 67.7 60.9 4.2 53.9 4.0 4.0 2.9 3.2 3.1 2.4 1.5 1.6 1.5 1.0 1.2 1.3 1.0
2012 2013 2014 2015 2016 2017 3Q18 2012 2013 2014 2015 2016 2017 3Q18 2012 2013 2014 2015 2016 2017 3Q18 LTM LTM LTM ¹ Weighted average payout ratio from 2012 to 1H18
Debt profile
Debt Amortization profile breakdown General information 9M18 R$ million 6.429 Net debt R$ 9,191 7% (R$ million)
Net debt/ EBITDA LTM 2.94x 61% 39% 3.642 3.585 32% 3.456 Average cost of debt 96.2% 2.368 (% of CDI) 1.577 994 Duration 4.4 (years) National currency Non-hedged Cash and Up to 1 1 to 2 2 to 3 3 to 4 4 to 5 Thereafter Hedged Foreign currency equivalents year years years years years
5 Ultrapar and strategy of its businesses Ipiranga – Solid operation and geographical capillarity
Continuous investments in the network and distribution infrastructure
# of service stations CAPEX EBITDA Scale and operational excellence
CAGR CAGR 101 77 logistics facilities* across Brazil CAGR 7% 4% 61 8,018 10% ~ R$ 1 billion CAPEX for expansion 6,086 CAGR 9% 2,361 $ and construction of storage terminals 1,148 since 2011 1,330 3 million m³ handled per month 591 > 4,000 daily deliveries 2011 3Q18 LTM 807 thousand m³ capacity +9% EBITDA (R$ million) Dec-11 Sep-18 2011 3Q18 LTM CAGR (2011-17) EBITDA margin (R$/m³) Under construction/expansion: +30 *28 owned, 25 pooled storage terminals and 24 leased storage in third parties Diversification in products and services offered thousand m³
“A complete service station The strongest brand in the fuel market³ waiting for you” KM de Vantagens: 28 million members 905 bakeries / 528 beer caves am/pm – largest convenience store Relationship with Marketing campaigns network New products launches (DT Clean and resellers and final o “Ask at Ipiranga’s Octapro) costumers service station” o 2nd largest franchise network in Brazil¹ Connected station: 864 stations with o Clube do Milhão o Marketing plan electronic panels and 1,083 with beacons o o Top 20 largest franchisee Clube VIP networks based on sales² “Abastece Aí” app: 2.5 million downloads o Ipiranga’s Convention o 2,468 stores o Penetration: 31% ³ Source: Valor Econômico, January 18, 2016 (CVA Solutions consultants)
¹ Source: Ranking ABF 2017 ² Source: Ranking Abras 2018
7 Oxiteno – Investments in innovation and expansion
Leadership position Sales mix Sole producer of ethylene oxide in Brazil and oleo-chemicals in Latin America Deep knowledge of surfactants technology 20% Scale comparable to the largest players in the world 9M18 o 3rd largest ethoxylation company in the world o 80% Camaçari unit: one of the world’s largest ethylene oxide production units Specialties Current capacity allows growth in Brazil without significant new investments Glycols
Segments of operations USA investments
Cosmetics Oil Detergents The largest ethoxylates market in the world Access to ethylene oxide derived from natural gas, more competitive than naphtha Annual capacity: 120 kton Texas: 30% of the total US refinery capacity and Beginning of operations: 40% of the petrochemical output Sep-2018 Hydraulic Agrochemicals Coatings fluids A state with an excellent logistics infrastructure
8 Ultragaz – 80 years of constant evolution
Innovation and investment in technology increase productivity and the services portfolio
Mature and highly dynamic market Growth Uses for LPG still not permitted in Brazil opportunities Constantly renewing company
Use of digitalization for future growth Delivery Generators Water trucks Sauna o In the relationship with the end consumer: greater customer satisfaction and pumps loyalty
o In internal processes: greater responsiveness and productivity Swimming Car wash water o Through the combination of data to maximize opportunities Vehicles pool heaters pressurizer
Bottled Expanding scale, geographical coverage and capillarity
Volume (tons) CAGR 1,729 ~ 6,000 resellers in 2017 2% 534 Training of more than 500 resellers 1,242
428 Bulk 1,196 815
1999 3Q18 LTM Filling plants New uses of LPG: > 400 clients and additional 7.5 kton in Bottled Bulk Satellite plants, affiliates and similar 2017 Geographical reach of Ultragaz network
9 Ultracargo – Strengthening of port operations
Competitive advantages along with positioning in strategic locations
The largest provider of storage for liquid bulk in Brazil Potential for ~30% increase in capacity
Operational excellence: flexibility, agility and quality over the next 3 years
Storage capacity of 784 thousand m³ Santos Aratu
Handling of 5.9 million ton of liquid bulk in 3Q18 LTM Capacity: 307 thousand m³ Capacity: 218 thousand m³ o 47% of fuels Products handled: chemicals, Products handled: chemicals, o 36% of chemicals/corrosives corrosives, fuels, lubricants and petrochemicals, fuels and vegetable oils vegetable oils
Itaqui Suape Itaqui Capacity: 55 thousand m³ Capacity: 158 thousand m³
Suape Products handled: chemicals, Products handled: chemicals, petrochemicals, fuels and petrochemicals, fuels and Aratu vegetable oils vegetable oils
Paranaguá Rio de Janeiro Rio de Janeiro Santos Capacity: 28 thousand m³ Capacity: 17 thousand m³ Paranaguá Products handled: vegetable Products handled: corrosives oils and chemicals and lubricants Area of influence of ports where Ultracargo has operations
10 Extrafarma – Accelerated expansion and retail pharmacy management
Extrafarma in Brazil 414 Leader: Pará, Ceará and Maranhão drugstores (3Q18) Vice leader: Pernambuco
Expansion: São Paulo 77 openings LTM New regions: Sergipe, Bahia, Paraíba and Tocantins Presence in 13 2 distribution centers: Pará and Ceará states
Network expansion
406414 401394 401406 394 Large share of maturing 366 stores 341 366 Short-term: curbs EBITDA 321 315 341 293 margin 315 321 Significant and 293 Long-term: significant revenue accelerated expansion of 280 100 100 100 88 86 growth with large impact on 7888 86 the drugstore network 7176 7678 77 operational leverage and 6071 5260 growing EBITDA margin Initiatives on productivity 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 and quality StoreStore openingopening LTMLTM NumberNumber ofof storesstores
11 Financial performance Ipiranga – 3Q18 performance
Gradual recovery of volumes
000 m³ Total Diesel Otto cycle
+2% +5% -1% Diesel: higher sales in the service 6,059 6,200 stations segment 3,156 3,301 2,814 2,780 Otto cycle: sharp growth of ethanol 2,814 2,780 592 led by favorable parity in relation to +50% 891 gasoline
-16% 3,156 3,301 2,159 1,811 Gains in Plural’s market share both in Otto cycle and Diesel in relation to 3Q17 3Q17 3Q18 3Q17 3Q18 3Q17 3Q18 Diesel Otto cycle Others Gasoline Ethanol NGV
Network expansion Adjusted EBITDA
YoY -47% QoQ +24% R$ million Network expansion 935 29% 31% and strengthening 497 402 +3% 497 8,018 7,814 204 new services stations 163 new am/pm 3Q17 3Q18 2Q18 3Q18 stores 101 new bakeries Strong comparison base – import gains Gradual recovery in margins and more favorable fuel costs in 3Q17 3Q17 3Q18 79 new beer caves Higher sales volume Inventory loss due to the truckers’ # service station strike Penetration of am/pm stores
13 Oxiteno – 3Q18 performance
Volume
000 ton Total Specialties Commodities
-2% -7% +18% Commodities: greater demand for products 211 205 mainly in Brazil 18% 21% 173 162 Specialties: 54 44 -5% 52 37 Brazil: lower volumes in the 82% 79% agrochemical and distribution segments -8% 119 110 International Markets: lower exports to Argentina, partially offset by higher 3Q17 3Q18 3Q17 3Q18 3Q17 3Q18 volumes in the USA Specialties Commodities Brazil International Markets
Exchange rate EBITDA
R$/US$ average R$ million 213 +25% 111 Real devaluated against US Dollar – R$ 3.96 0,79/US$ 173
+135% Higher unit margins in US Dollars 100 3.16 26 Lower sales volume
74 Impairment at Oxiteno Andina (R$ 7 million)
3Q17 3Q18 3Q17 3Q18
Weaker Real against US Dollar EBITDA Non-recurring¹ EBITDA US$/ton ¹ Problems in the restarting of the Oleoquímica plant and inventory loss of PKO in the 3Q17
14 Ultragaz – 3Q18 performance
Volume EBITDA
000 ton R$ million -2% 0% 460 450
143 -1% 141 159 159
317 -3% 309
3Q17 3Q18 3Q17 3Q18 Working 78 77 days Bottled Bulk
Volume EBITDA
Bottled: volume reduction lower than in LPG market Continued initiatives for reducing costs and expenses
Bulk: fewer working days Lower sales volume
15 Ultracargo – 3Q18 performance
Effective storage – monthly average EBITDA
000 m³ R$ million
+5% +10%
765 729 44 40
3Q17 3Q18 3Q17 3Q18
Volume EBITDA
Growth in ethanol handling Growth in average storage
Decrease in fuel handling Increased productivity at the terminals with greater share of ethanol in the sales mix
Higher average prices
16 Extrafarma – 3Q18 performance
Number of stores Gross revenue EBITDA
R$ million R$ million +13% +3% 414 7 366 26 2 24% 501 515 53% 28% 51% 30% 23%
49% 47% (24)
3Q17 3Q18 Non- 3Q18 ex-non- Sep-17 Sep-18 3Q17 3Q18 recurring¹ recurring Up to 1 year Abrafarma 2 to 3 years +8% Mature stores
Gross Revenue EBITDA 9% revenue growth in the retail segment with Increased share of maturing stores: increased number of stores (Abrafarma +6%): 3Q18: 53% up to 3 years (51% in 3Q17) 77 openings YoY 21 openings QoQ ¹ Non-recurring: Annual readjustment in medicine prices: +2.4% Investments write-off due to higher churn ratio Lower market growth Stabilization of the new retail system
Non-recurring events – stabilization of the retail system implemented in June/18 17 Ultrapar – 3Q18 performance
Adjusted EBITDA Net income
R$ million R$ million -30% -41% 1,221 545 850 323
3Q17 3Q18 3Q17 3Q18
Leverage¹ and net debt Investments²
R$ million R$ million 2.9x +1% 1.7x 9,191 1,511 1,533 6,767
3Q17 3Q18 9M17 9M18
¹ Net debt/EBITDA LTM ² Net of divestments and repayments
18 Priorities and outlook Priorities and outlook
Growth and greater value generation for the shareholders
Ipiranga o Strengthening of the relationship with resellers o Recovery in volumes and margins o Differentiation and innovation o Operational excellence o Higher selectivity and discipline in capital allocation
Oxiteno o Ramp-up of the new plant in the USA o Innovation / R&D for new products development
Ultragaz o New uses for LPG o Ongoing differentiation process
Ultracargo o Capacity expansion o Scale and operational flexibility
Extrafarma o Higher selectivity and discipline in capital allocation o Operational excellence / customer experience o Expansion opportunity on e-commerce
20 Priorities and outlook
Growth and greater value generation for the shareholders
Reduce financial leverage
Succession process
Renewed focus on the development of talents and leadership
Strengthening of the strategic planning process
ROIC improvement
21 Ultrapar Participações S.A. Investor Relations 55 11 3177-7014 [email protected] ri.ultra.com.br