Vibra Energia S A : Conference Call Transcript 4Q22

Vibra Energia S.A.

Conference Call Transcript

4Q22 Results

March 22, 2023

Operator:

Good morning, ladies and gentlemen. Welcome to Vibra's videoconference to discuss results regarding 4Q22.

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

We would like to inform that the participants attending the conference call will be in listen-only mode during the Company's presentation, and we will then open the Q&A session, when further instructions will be provided.

Before proceeding, we would like to clarify that any forward-looking statements are based on the beliefs and assumptions of Vibra's management and current information currently available to the Company. These statements may involve risks and uncertainties as they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists must understand that events related to the macroeconomic environment, industry and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. This video conference is attended by Mr. Ernesto Pousada, CEO; and Mr. Rodrigo Galvão, Finance Director at Vibra, in addition to the presence of some of the Company's executives. I would now like to turn the call over to Mr. Ernesto Pousada, who will start the presentation. Please, Mr. Ernesto Pousada, you may proceed.

Ernesto Pousada:

Good morning, everyone. It's a pleasure to be here in my first video conference with you. I have here with me, beside me, Mr. Rodrigo Galvão and some vice presidents, some executives are also here with me in the room. It's an honor to share the presentation with you and then open the Q&A session.

Moving on to the first slide of the presentation. We are going to discuss the 4Q22. We delivered solid results with EBITDA margin of R$157 per m³, maintaining our level of market share at about 28.2% and with an addition of service stations of more than 59 units. And following our strategy, we had a 4Q which was very important.

Talking about the full year of 2022, it was a very volatile year. Many changes happened during the year. However, we were able to maintain our growth pathway in our EBITDA, adjusted EBITDA of R$5,260 billion, a total volume of 38.5 million m³, stable in relation to the previous year. It was a year when we did not have any thermal dispatch so there was a relevant drop in our B2B business related to the thermal energy. Our adjusted EBITDA margin was R$137 per m³. Our normalized margin stood at R$158 per m³, and this is a margin where we try to eliminate the nonrecurring effect of our results.

Operating expenses, the adjusted ones were R$64 per m³, and we had an addition of 182 service stations in our network. Talking about our core business, the Company is ever more focused on improving results and the margins of our core business. I would like to draw your attention to the EBITDA margin as we have seen many oscillation, fluctuations. But when we look at the full year, we can see the perspective in a clearer way. We see that in 2022, as we

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can see on the top right-hand side, we had 137. In other words, we had this pathway of growth in spite of all the volatility that we saw quarter-on-quarter.

And along the year, we can see that one would offset the other, and we can see a margin which is much more normalized along the year when we observe a longer period. So this is the growth I would like to draw your attention to. And we added this graph, which is very interesting to show you the effect of hedging the inventories and the volatility related to the business. The green, we see the stock effect and the gray is the hedge. They tend to be in opposite directions. We have a disproportional effect in the 3Q22, which was mainly driven by a drop of prices when the taxes were evade or removed in the 3Q. So the impact was quite significant on our results.

If you look at 1,732, when we compare to the whole year, we see a drop of 864 in terms of inventory loss, this would offset all the loss in inventory because this is double of what we see for the year. If we remove this extemporaneous effect, and we see that there was a reduction of taxes in a period which was very turbulent in the 3Q, we can see that, considering the year as a whole, we would have had the same balance. The inventory bar would have balanced results. So this was a very strong effect in the 3Q22.

In the 4Q, we see a repetition of that to a lesser degree. But this tends to be normalized along the quarters to come. So it's important to point out this effect, which was very strong in the 3Q22 and was having some effects in the later periods.

And talking about our network of stations, we continue making headway in our proposals, and we have a new image, more than 2,500 stations across Brazil. This is a number that we reported in February, so we see more volumes in our stations. We are going to be ever more focused on our line of Grid, Podium gas and all the lubricants products. We are going to talk about them soon. And these are products that bring in additional margins to our business. These are all very interesting products, and our idea is to continue including those more added value products.

So we have now 1,238 stores. We are growing the market share of stores. We are managing to create value, considering all those franchise stores to our network of stations and ever more bringing in these loyalty programs so that this can generate value to the consumers and attract this flow of consumers to our stations.

Down there, I would like to talk about the closing of branded gas stations. And of course, we always look at the regions which are interesting for us, all the regions where it would make sense to be investing and having more branded stations so that we can have the profitability expected.

In the next slide, we are going to discuss the B2B business. I would like to draw your attention to the EBITDA for the 4Q in this business, which was strongly affected by the variation of the stock of diesel. The B2B has some different characteristics because it's more focused on the diesel fuel, and the impact was very relevant in the last quarter, especially because of those variations in relation to the hedge inventory.

Volumes to the right, we can see the volume without the thermal dispatch. So we see an important growth in the B2B business when we compare the 4Q22 in terms of m³ to what we reported in 2021. So there was a growth in the volume when we exclude the volume of the thermal energy. And also aviation, there was a recovery that went back to the pre-pandemic levels. The EBITDA was very important in the last quarter of R$211 million, and the volumes are going back to pre-pandemic levels.

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Now about lubricants. This is something that we have been discussing a lot and we have been focusing a lot on. We can see the growth of our margin in the past few years. We almost tripled, so we reached 1447. So this is the margin, so we are focusing on this business. We reached EBITDA of R$372 million last year. And on the graph to the left, we are going to be discussing our work on the channels of distribution.

So the lubricant is way ahead. We have a newer structure of all the network across the country. There are still some states that need to be affected, and we have a new discipline that is improving our image. Lubrax is a very strong brand. We want to continue growing our business across Brazil. It's an opportunity of transforming this business into a franchise, which is more important with good results.

In terms of renewables, especially talking about Comerc, we can see a more relevant EBITDA. Last year, the proforma EBITDA was 48.7%, and ours is R$141 million for 2022. Synergies are becoming stronger. So we have 26 energy businesses, and it's a B2B business, which is all embracing and increasing the synergy with Comerc. Centralized operations also growing. It's important to say that the products are making headway within the deadline and according to the budget. So we are really managing to invest in Comerc and make headway in energy. The same happens in energy distribution. We have several projects being implemented, and many projects have already been delivered.

On the next slide, we can see some of the plants that started operating. Castilho, Coromandel. So these are all very imported plants, these are very relevant units, which are already operating, generating cash to Comerc. And the wind farms, which are also starting operating.

The same happens in distributed generation. Comerc follows this process of making headway, evolving, delivering projects on time, on budget, and this brings a lot of value to our Company as we move on into the synergies that we are applying to our business.

In 2022, we had an important evolution with our partners. Last week, I got to meet the Evolua's team. We already have been generating a very important volume, and this is going to bring in a lot of value to our business of ethanol, or biofuels in Brazil.

Zeg Biogas, we have 2 new plants, and Jambeiro is a highlight for us because it's already in the phase of commissioning and it's going to start operating with 30,000 m³ a day, and it will soon be operational. It's a biogas plant that's made in a landfill.

Ezvolt has also been advancing, providing solutions for recharge and for corporate fleets also. So our energy platform is searching for consolidation. We have been making a lot of progress together with our partners, and we have made good headway along 2022, and we are going to continue going for this consolidation with renewable energy.

And finally, in the last slide, I would like to talk about ESG. The Company continues receiving awards, a lot of recognitions, which are very relevant, showing how seriously ESG is approached by our Company in terms of sustainability.

And we continue reaching our goals related to the emissions, reducing emissions of Scopes 1 and 2. I would like to draw your attention to the diversity and inclusion in the Company. So we have affinity groups that we are creating. We have specific goals for new leadership and management, and we had achievements in 2022, and we have important targets for 2023 so we can increase the diversity of the Company, and also the inclusion of different groups within our team.

And in the social area, we had the corporate volunteering program in different social projects, allowing us to be ever more bringing in return to the society to Brazil as a whole.

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I conclude my presentation here, and we are now going to start the Q&A session.

Christian Audi, Santander:

Thank you. First of all, Ernesto, congratulations on your new position as CEO. I wish you the best of luck process. It's very important to listen to your comments, the positive comments in relation to the recurring EBITDA margin, which is being maintained, and this is so important for the Company.

I have 3 questions. First, when we look at the EBITDA margin per m³, we saw that there were some adjustments related to the PIS/COFINS taxes and also related to the divestment of the assets, and somehow helped to offset the negative pressures related to hedge and everything else. My question is, is this PIS/COFINS tax adjustment something that we could expect to be recurring down the road? And also, how should we look at all those other properties, and also the taxes. So how can we look at that in the future?

The second question is related to Comerc. You have already shown the slide and that helped us a lot to understand how the projects are going, Castilho and Helio Valgas. I would like to know if the project is according to the schedule, or is it impacted by the inflation? So if you could give some idea of what's happening, or when we are going to see the EBITDA growth. Is it expected for the 2H23?

And one related to allocation of capital related to dividend and the leverage. Considering the cash generation of the Company, can we expect any dividend that is significantly higher than we have been seeing so far, or not necessarily? And how do you see the leverage of the Company for 2023, considering that we reached this point of 2.5x net debt to EBITDA? Thank you.

Ernesto Pousada:

Christian, thank you very much for the question. Answering your questions related to the PIS/COFINS taxes and the sale of assets, we had some extemporaneous in relation to PIS/COFINS taxes. We can expect something recurring but at a lower amount. The sale of properties, we still have some properties, some assets to be sold down the road. But again, the amount is likely to be lower because there were some factors that made us have relevant amounts. That made us offset some of the negative results related to the variation of hedge and variation of the inventory.

For both cases, we would not expect this to be recurring and the intensity that happened. PIS/COFINS taxes effects are going to happen but at are lower levels. In relation to Comerc, in relation to the impact, we have the long-term price agreements, so everything is very comfortable. There will be no impact. So we are going to see a constant growth in EBITDA as those plans are implemented. And we are going to see an accelerated growth in the curve, especially after the second half of 2024.

And in relation to your last question that was related to leverage and dividend, may be to follow our dividend policy. And we are going to make all the efforts to distribute 40%. I think this is the best guidance or guideline that I can provide you with. And all the management of the Company is focused on cash generation. We understand that cash generation is something very relevant, which is going to generate the reduction of our leverage.

So we understand that the leverage along 2023 is going to reduce as we improve our margins, as we look at the working capital. And we are going to have a different level of leverage, and this is going to be very positive for the Company.

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Christian Audi:

And what about decision related to the PIS/COFINS taxes? Why did you decide to make this decision just now? Was it something strategic?

Rodrigo Galvão:

We had some favorable decisions that made us comfortable to make this decision for the 4Q. Basically, this was the reason.

Christian Audi:

OK. Thank you.

Thiago Duarte, BTG:

Good morning. Thank you for the opportunity. I would like to focus my question, it's very important, this breakdown that you provide us with so that we can understand how we are going to reach a more normalized and recurring result. What happened in this quarter is not the fact that those events happened, but the magnitude, especially when we look at the other major players who have already announced their results.

So I would like you to provide more color on how you feel you did different in relation to your major competitors along the quarter, considering all the scenario of volatility, all the elections' situation. And I would also like to know how you think we should look at this in the future. Of course, I do not think I am judging anything, but it seems to me that you are taking more risks now, especially in relation to diesel. So I would like to talk a little bit more about diesel, so we can understand the level of volatility that the Company is willing to take in terms of risks. Because I think this is a very essential question looking at the results of the 4Q.

And in addition to that, I would like to understand your views on the network of service stations, because the relationship seems to be very healthy when you look at the resellers and how you are adding stations and the net sale per station. So do you think it's going to be possible to continue adding stations at the same level of last year? Do you believe that the franchise system has the strength of growing at this level of magnitude? And what level of growth can we expect? So you have mentioned bonification, the conversation for the resales. So what's the order of magnitude that we can expect?

Ernesto Pousada:

Thank you for the question. Now talking about what happened with Vibra last year, what we can say is that in October, we believe that the market would be stronger, so we imported a higher level of products. And right after that, we reduced some of the volumes in a significant manner.

This also helped increasing the volatility in which is something natural that was already happening. But we went in the opposite direction because we see a high level of imports up to October. The demand was not as expected and this led us to reduce imports. And that added to the volatility that was already present, and this may have impacted our results of last year.

So what are we going to do in the future? We have a strategy that has already been defined with the team. So we are going to normalize our imports basically. We are going to avoid considering the market is so volatile, and we are going to try to always to find a balance in the

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