Cosan S A : 3Q21 Teleconference Transcript

Conference Call Transcript

3Q21 Earnings Results

November 16, 2021

Good morning everyone and thank you for joining Cosan's third quarter of 2021 earnings conference call. For the Q&A session, are also present Luis Henrique, our CEO, Marcelo Martins, our CFO & IRO, Paula Kovarsky, head of IR and ESG, and João Arthur, finance director. Since this is the last public conference of the year, we have a full house here.

I'll start my presentation going over the financial and operating highlights per business, beginning with Raízen. Last Friday the Company already hosted its own conference call with the market, thus I will briefly go over the main topics of the quarter. Raízen posted record results in a proforma basis, i.e., considering Biosev's figures from April 1st 2021, and also adjusting previous quarters, for a fair comparison.

Slide 4 - Raízen - Renewables

First, Renewables, on slide 4. Once again, we posted significant EBITDA growth, driven by an improved pricing environment, especially for ethanol. We offer a unique ethanol portfolio of diverse applications, therefore addressing different markets and sustaining competitive advantages.

Lower sales volumes of own products, however, reflect our sales strategy for the crop as well as the drop in production, following the relevant crop setback at the Center South region in Brazil, impacted by the intense draught, besides fires and frosts.

Nonetheless, Raízen's efficiency journey continues steadily on track, represented by a higher agro-industrial performance compared to the market, partially offsetting the climate issues.

In addition, the atypical volatility of PLD spot prices has contributed to our improved results in bioelectricity.

Slide 5 - Raízen - Sugar

Now let's move on to Sugar, on slide 5.

The segment faced similar effects in the quarter compared to Renewables, posting lower volumes sold yet with improved prices. Most of sugar production

this year will be shipped along the second half of the crop year, according to our sales strategy, leveraging on our infrastructure and efficient pricing to maximize profitability and protect cash flows.

On the bottom hand side of the slide 5we present consolidated CAPEX of Raízen's agro-industrial operation. The expansion was driven mostly by higher inflation on costs of inputs, on top of additional investments targeting productivity recovery.

Slide 6 - Raízen - Marketing & Services

Now let's go into Marketing & Services, on slide 6.

Higher sales volume year-on-year and quarter-on-quarter reflect a stronger recovery in demand, reaching pre-pandemic levels.

Adjusted EBITDA was aligned to previous year, implying decent profitability. The slight drop compared to previous quarter is due to lower gains from our supply strategy, affected by atypical price movements in the period.

Regarding the other important pieces of our Marketing & Services integrated platform, here are some updates:

In Proximity, we continue to accelerate the pace of openings, adding 138 new stores to our network in the last 12 months.

In Shell Box, numbers keep skyrocketing up to almost 4 million transactions in September.

And as already announced, we closed the acquisition of Paraguay's leading fuel station network, so we will start to consolidate it beginning on next quarter.

Slide 7 - Compass

Continuing this presentation with Compass, on slide 7.

EBITDA was positively driven by economic activity, boosting Comgás' natural gas demand. The pass-through of inflation last May also contributed to record results in the quarter.

Once again Comgás posted impressive distributed volume growth across all segments. Besides the macro scenario boosting performance, the commercial segment benefited from the lower restrictions. And residential consumption was leveraged by lower average temperature plus consistent customer base expansion.

In terms of CAPEX, the increase is mostly due to the startup of the Regas Terminal construction in São Paulo, in line with guidance.

Before moving to the next slide, I'd like to highlight the relevant milestones achieved by Compass during the quarter.

First, Comgás and the State of São Paulo signed the extension of Comgás' concession until 2049, as provided for by the concession contract. This will allow us to continue making investments to ensure gas supply, competitivity, safe operations, and customer satisfaction. Second, in line with the Gaspetro's acquisition strategy, we have acquired 51% of Sulgás equity, taking all of our experience to Rio Grande do Sul. And not necessarily in this order, aiming to ensure the right capital structure and enable Compass' expansion, we've placed a second round of private investments.

Slide 8 - Moove

Now moving on to slide 8, to present Mooveresults.

We had yet another great quarter at our lubricants business, posting decent EBITDA. The drop between quarters, however, implies a strong comparison basis, once it captured additional demand from initial lockdown period.

Even though, the business continues on track to deliver above expectations, capturing benefits from the commercial and supply strategy, influencing the company to review its guidance, increasing again the EBITDA forecast for the year.

Slide 9 - Rumo

Moving on to slide 9, to talk about Rumo.

Since Rumo hosted their conference call with the Market as well, I'll quickly recap the main effects of the quarter.

EBITDA was harshly hit by the corn crop setback.

The lower demand for grain freights reduced transported volumes on both North and South Operations. This also pressures margins, due to its lower weight in sales mix.

Even in this challenging scenario, Rumo gained 17 bips of market share in the Port of Santos (SP) in the period, reflecting the commercial efforts to maximize the utilization of its operational capacity.

Although average tariffs expanded year-on-year, it wasn't enough to offset variable cost increase (i.e.: diesel) and lower dilution of fixed costs.

Investments were lower in third quarter, evidencing capital discipline during the though short-term environment.

Looking to the long-term, we are confident that the business' strategy is on track. We have taken an important step by signing the contract to build Brazil's first state railway with the State of Mato Grosso, thereby connecting us to Cuiabá and Lucas do Rio Verde, providing further support to the flow of agribusiness exports.

Slide 10 - Cosan Pro forma

Let's go to slide 10, where we present consolidated figures for Cosan, on a pro forma basis.

Even though our portfolio faced many challenges related to climate issues on Brazilian agribusiness and macro volatility, we kept our consistent track record to deliver above market average and posted record high EBITDA in the quarter. The levers were the structural recovery of economic activity, a more favorable scenario for renewables and sugar prices, the consolidation of Biosev, adding to our ability to generate sustainable returns.

Besides, the extraordinary effects related to Raízen's IPO boosted net income for the period, reaching the highest mark on Cosan's history.

Slide 11- Cosan Pro forma - Financial Highlights

Moving on to slide 11, to discuss the financial highlights for the group.

Regarding debt, we did liability management across the board, with important issuances mainly at Cosan Corporate, Rumo and Compass.

Leverage reduced to 2.1x net debt to EBITDA, within ideal levels for the group, driven by greater EBITDA on the last twelve months.

On cash flows, the better net operational performance of the businesses was offset by the buildup of inventories and working capital pressure at Raízen, reducing operating cash flows on the quarter.

Investing cash flows includes the payment of Biosev's acquisition and a higher spending aligned with subsidiaries' investment plans.

Financing cash flows, however, recorded significant expansion boosted mostly by the proceeds from Raízen's IPO and Compass' private placements, supporting a free cash flow to the equity at Cosan north of R$ 8 billion.

Those were the main topics from last months for our permanent portfolio. We achieved important milestones, besides posting consistent results.

Slide 12 - Corporate Structure

Going to slide 12.

At the holding, the main highlight is the creation of Cosan Investimentos, a new vehicle for the sustainable capital allocation process of the group. The goal is to invest in new business models that can be scaled up by our ecosystem, focused on sectors where we have competitive advantages, track record, and opportunities that connect with digital and innovation.

To lead this new initiative, we designated Leonardo Pontes, former Raízen's VP for Marketing & Services.

Among the contributions from Cosan Investimentos, we announced to the market the Mining JV; the purchase of an additional stake at Radar; the investment in the Climate Tech Fund; and more recently we entered into mobility, with the Mobitech JV, partnering with Porto Seguro.

Slide 13 - EESG Highlights

Last but not least, before concluding my presentation, I will just go over the recent developments on our EESG Agenda, on slide number 13.

Cosan, represented by our CEO, along with over 100 other entrepreneurs, has joined the "Business Manifesto for Climate Action", an initiative led by the CEBDS to position Brazil as a true green power.

Also, as I mentioned earlier, we contributed through Cosan Investimentos to the Climate Tech Fund, a fund managed by Fifth Wall, one of the largest venture capital managers specializing in technological innovation. This fund invests in companies that promote technology and solutions to tackle climate change. This allows us to partner with entrepreneurs, startups and investors who, like Cosan, are committed to decarbonizing the economy.

Rumo issued another Sustainability-Linked bond, strengthening its commitment to reduce GHG emissions, with ambitious targets as classified by Sustainalytics.