Vibra Energia S A : Conference Call Transcript 2Q22

Vibra Energia S.A.

Conference Call Transcript

2Q22 Results

August 16th, 2022

Operator:

Welcome to Vibra's video conference to discuss the results of 2Q22.

This video conference is being recorded, and the replay can be accessed through the Company's website, ri.vibraenergia.com.br. This presentation is also available for download.

Please note that all participants are on listen-only mode. Right after the presentation, we will hold a Q&A session, when further instructions will be provided.

Before proceeding, let me highlight that forward-looking statements are based on beliefs and assumptions of Vibra's management and current information available to the Company. These statements may involve risks and uncertainties because they relate to future events, and therefore, they depend on circumstances that may or may not occur. Investors, analysts and journalists must take into account that events related to the macroeconomic environment, the industry and other factors may affect results, which can turn out to be materially different from those expressed in such forward looking statements.

With us today are Mr. Wilson Ferreira, Jr., Vibra's CEO, and Mr. Andre Natal, CFO and IRO. Now I would like to give the floor to the CEO that will begin the presentation. Mr. Wilson Ferreira, Jr., you have the floor.

Wilson Ferreira Jr.:

Good morning. Thank you for participating in our conference call for the results of 2Q. I do this with high satisfaction. And I want to share the historic results of the Company, the best since we opened this company. This has been a quarter which, obviously, was seasonally challenging. We have to remind you that the 2Q, because of the seasonality of Brazil, it would be the worst quarter. So, we are very fortunate to see that our results have not been strongly affected.

And here, we can show you a historic result, the EBITDA margin of R$175 per m³. This is a growth of 52% vis-à-vis the same quarter last year.

Here, on the right, you can see a trend of margin recovery. It is important to say that the conflict between Russia and Ukraine has given us more margins because we are using more capital. But I believe that the numbers below show us how the Company has dealt with these challenges. We have sales growth of 4%. Our market share continues growing consistently and gradually. This is the fifth result that I share with you since the beginning. Here, we are showing a growth in market share. This quarter, we totaled 28%, a growth of 4.4% vis-à-vis last year. Our expenses totally controlled, R$64 per m³, and growing our network. This quarter we had almost 200 new gas stations. So, this is excellent for one year.

Now, with the highest EBITDA of R$1.6 billion, it is important because this is a company of lower expenses, and obviously, this is a result of the economic activity, which is thriving. This is why we have greater margin. And it is important to highlight this is a company that has

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evolved in governance, all our market indicators show this. This is a company that is totally engaged with integrity, with company's governance evolving, especially with the change in our Board. Therefore, this is a company that historically has consolidated itself in operations with lower expenses.

And since we carried out our follow-on last year, creating a corporation listed in the Novo Mercado, participating with the indicators and consolidating. Something that is important, that is high level governance. Therefore, I wanted to highlight these points.

On our next slide, you can see the trajectory throughout time. This is a company that operated 2017, 2018, before becoming public. And this was done through the capital markets. This was our objective. And now we have tripled the margin of the Company throughout time. Here, you can see the trend. During the 1H compared to the 1H last year, a growth of 23%, totaling R$149 per m³. Expenses totally under control. There was a growth of 7% nonetheless, strongly affected by inflation.

But nonetheless, this is a company that operates with lower cost, R$62 per m³. And there is a growth of 11% vis-à-vis last year, as our growth in volumes, 2.5%. And our market share, as I had already stated beforehand, totaling during this quarter 28%. And when we compare it to the 1H of last year, there's a growth of 0.1%. So very consistently, we are increasing volumes, we are increasing gradually our market share, maintaining our expenses under control and growing in EBITDA per m³.

On the next slide, here, you have the context of this quarter, that continued being very challenging. Here, you can see the Brent chart. At the end, we totaled US$99.60, totaling US$128 per barrel. We were operating below this level domestic prices. Here, we are at a high. We believe that this will drop. But here, we have a trend, September up till the date. Here, you can see an increase of domestic prices, and this is something that we have seen throughout the year.

USD also highly volatile. It went to R$5.74. It went to R$4.59. And now, it is, more or less, R$5.15. This is the exchange rate, close to R$5. And the CBIOs, that was a major challenge. But it was a challenge of the government that was able to contain this high process, and now, it is around R$90 per CBIO unit.

Here, you can see the peak that characterized these two quarters, but this, especially, with high volatility. And the team had to deal with the situation. I believe that our report clearly shows you what we had to do in order to deliver good results to our shareholders, also to deliver a value proposition to our customers B2C, B2B in order to guarantee differentiated quality service that we offer.

On our next slide, I see that the analysts are concerned regarding our prospects when we see energy transition, they believe that our volumes and the fuel that we use may drop. We must have to always remember, and I like to remind you of this, in Brazil, regarding energy, it is the second cleanest matrix in the world, and in terms of absolute figures, it is the cleanest matrix. Therefore, the challenges regarding decarbonization of the economy, the greenhouse gas effects, 70% are to generate electricity. As I said, today, we have absolute numbers, and we are the cleanest electric matrix.

The second volume, it is transportation. Also, in the world it is 14%, and in Brazil is slightly below. And this is because of characteristics of Brazil. One, because our gasoline is mixed with 27% of ethanol. We have a fleet with 70%. We can use ethanol, as we used during this

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quarter, because of the prices in cargo transportation, we use diesel. Our diesel is mixed with biodiesel.

And in this chart, we want to show you the EPE data 10 years forward. Here, we see the final consumption of energy by all sources. There is a CAGR growth of 2.5% up to 2031. I eliminated from this chart the two energetics that we do not use that will be important, also wood, mineral coal and byproducts. And Vibra is growing 2.6% a year.

I would like to highlight in terms of electricity, and we are growing 3.5% a year during this period that we are showing you here. This is a market that we believe will be resilient. And the decarbonization does not affect Brazil because Brazil has a consistent position, be it in electricity generation or the use of fuels in the case of biofuels for your cargo transportation and electric transportation.

This shows you what happens when we see the Brazilian market in terms of m³, growing at 3.9% a year, 2.5%, when we compare to the 4Q. These are important values because of the need of using this fuel. But we have a different characteristic, and we are contributing significantly regarding the two main issuers of carbon in the environment. It is important to see this consumption. We will not be affected as other countries because we have already done a lot in this area.

So here, we have important matters regarding our progress in logistic and supply, which strengthened our competitive advantage. It is important to say that Vibra Trading that is responsible for the greater part of volumes of diesels and gasoline imported on 2Q. On the lower chart, you can see the relevance of this initiative. This is a company, 100% Vibra, that already operates with slightly higher volumes than last year. Therefore, we are able to supply our work of the B2B consumer.

Now, the operation of Evolua Etanol as of August 1, with 100% of the volume originated through this platform and until the end of 2022. This is a company that already went through the antitrust agency. It already has a Board of Management with Independent Members, as I always mention governance in all our operations, in addition to a professional management and a Board that has the representation of the shareholders. But we have Independent Board Members. And this shows how concerned we are with governance because we want our decisions to be taken quickly, taking into account the interests of the Company.

We evolved our Tower Control, always analyzing new technologies in order to have extremely safe operation. This is very important for us. And the asset divestment, we concluded the negotiation of the sale of Betim's pool. This transaction was approved by the antitrust agency, and we believe that we will make an announcement throughout the next quarter.

Regarding logistics and supply, the Company is making progress according to the strategy of differentiation, efficiency so that we can be autonomous and to continue consolidating our leadership in the market.

Here, we can see our gas station network. Here, it is important to mention the Vem operation that started in February. We have around 1,500 stores, that is a partnership with Lojas Americanas.

It is important to mention centralized supply. We have over 800 stores of BR Mania, which is very competitive, and I am going to mention this at the end. Now, we have positive EBITDA.

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There is growth regarding last year in all values, with differentiation, and this has allowed us, together with our loyalty program and fuel cash back.

I mentioned this on the follow on, of this new image, and we have over 1,500 gas stations, and we are also training our team. We want people to see our product as something of good experience, of excellent service.

And here, it is important to highlight a strong concern regarding something that differentiates Vibra, that would be the quality of our fuels. Therefore, as a result of technology, as development, we had BASF, we developed Grid and Podium gasoline. And here, we are leaders in the sales of these brands. So here, our market share continues growing gradually, nonetheless, consistent throughout all the quarters, totaling 24% here.

Here, we added 197 stations in 1 year and 59 gas stations during this quarter, and sales increasing 3.8% when we compare it to 4.5%. So the value proposition is being perceived, and naturally, generating growth and efficiency and profit to our gas station network.

Here, the same thing in our B2B business, where we have over 23,000 customers that are connected to our Company. And here, in terms of diesel, because there has always been a concern because of the war, we are operating consistently. And our import here, there was a growth of 4.6%; the annual base, 3.9%. Market share consolidating, here, trending to 29.6% to 30.4%.

Now, we would like to highlight that resiliency of aviation segment that had already significant growth until last quarter of 70%. Now, we have a market share of 66%. And basically, the 1Q to the 2Q is stable. That would be 2.7% lubricants.

Here you can see that we have a challenge, that would be the reformulation of sales channels with authorized distributors. 80% of our volume under this new distribution system that is exclusive for authorized distributors and our prospect. Now, we have concluded all of our effort. We have all of our sales channels ready, coming through these distributors. And our new plant will become operational until October this year.

Now, we are leaders in lubricants. So, this is an important quarter in B2B and all the segments where we operate. And here, I highlighted the aviation and lubricants that are leaders in both.

Now, let's continue here. Here, speaking of two growth drivers throughout this quarter. The consolidation of the ZEG transaction, we have created a JV that will give us ability to generate 2 million m³ a year a of biomethane gas. It is important to highlight that biomethane is an energetic that can drop up to 96% the CO2 emissions in transportation. A number of brands, especially of heavy trucks are operating.

With using this, we have a competitive advantage because of the connection that we have with our ethanol consumers and direct access to all the ethanol producers. And especially, our partnership with Evolua, because our biomethane comes from vinasse. That is the residue that will give us more competitiveness. And we will be able to generate this new product so it can be traded for the industrial consumption network, especially vehicles and cargo.

Now, once again, this gives us a differential vis-à-vis our competitors because this is an additional biofuel that we have in our portfolio that will be on our multi-energy platform.

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EZVolt is important. During this quarter, we launched our CBC with up to R$350 million. One of the applications would be EZVolt. EZVolt today is the greatest cargo supplier for vehicles, of around 300 electro charging station in eight states of Brazil. So, this is a consolidated partnerships with the vehicle industry. And during this quarter, we launched something that had already been requested by the industry.

We have one of the identified needs not only for vehicle fleets, where we already carry out the quick charging, but now the ultra-quick chargers are necessary in the highways, because of some people supplying end stations and households. And now, the ultra-rapid charging services are available in the highway gas stations. We have created a strategy in order to have an electric corridor so we can charge 99% of our fleet.

The first one has already been installed in Roseira in Dutra on Kilometer 82. We have three ultra-rapid charging stations, and we will install an additional 70 charging stations up till the end of next year. So Vibra offering this ultra-rapid and rapid charging station. So, we will supply this to our consumers, Comerc.

This quarter, we concluded the payment of R$1.2 billion in May. We approved this in our latest extraordinary meeting here, Comerc-Vibra, this JV partnership.

During this quarter, we had a cross-selling of over 260 business with electric energy closed with Vibra clients. The Company during this period traded 2.2 average gigawatts and is already amongst the three greatest traders in Brazil with good results.

The EBITDA of the 2Q was almost R$33 million. This is a growth vis-à-vis last year of R$47 million mark-to-market of our contracts that are long-term contracts. This is a growth of R$560 million, 10x more than what we had last year, already R$654 million. This is a result guaranteed by contract, operational cash generation, R$64 million. Last year, we had R$7 million of EBITDA and this year, R$53 million.

As you know, this is an accelerated growth, like 1.8 gig under construction for the upcoming three years. And for this, investments of R$900 million during the 1H and R$2.2 billion in funding. That will allow us to install all of these projects.

Here, we have showed all these prospects of centralized and distributed generation and the impact of this business and our efficiency. And here, we have a case, Helio Valgas. That is the biggest project in our portfolio, where our tier increased regarding the original project.

So we are highly optimistic with our prospects regarding the Comerc business, I believe the important part of the multi-energy platform. Because as you know, this has been mentioned. The free market is going to grow and it has a perspective of growth of 60%. Today, what we are debating in Congress is PL 414, which will benefit the free consumers, and this is distributed generation, and they can offer this in a competitive fashion. And both renewable- certified energies have a comparative advantage regarding the market.

Now here, bringing my presentation to an end, I mentioned our commitment together with a sustainable future. Here, we have our ESG targets. We are committed to drop 60% our emissions of Scopes 1 and 2. In 2026, we will reach a net zero result, the reductions of energy consumption in our distribution bases. Our commitment is a drop 10%, and water also captured.

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