Ultrapar Participações S.A. (UGP) Q1 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Ultrapar's 1Q'19 Results Conference Call. There is also a simultaneous webcast that may be accessed through Ultrapar's Web site at ri.ultra.com.br and MZiQ platform. Please feel free to flip through the slides during the conference call. Today with us, we have Mr. André Pires, Chief Financial and Investor Relations Officer, together with other executives of Ultrapar. We would like to inform you that this event is being recorded, and all participants will be in a listen-only mode during the company's presentation. After Ultrapar's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions] We remind you that questions which will be answered during the Q&A session maybe posted in advance in the webcast. A replay of this call will be available for one week. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor and Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ultrapar management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results for 4Ultrapar and could cause results to differ materially from those expressed in such forward-looking statements. Now I'll turn the conference call over to Mr. Pires. Mr. Pires, you may begin your conference. André Pires: Well, thank you very much. Good morning, everyone. It's a pleasure to be here with you to discuss Ultrapar's fourth quarter 2019 results and our perspectives and priorities for the next quarters. With me today are the officers from our businesses as well as our Investor Relations team. Before I begin, I would like to draw your attention to slide number two where we some criteria adopted for preparing the quarterly numbers, changes that are effective from 2019 on. Starting in the first quarter, we have adopted a new IFRS 16 on a prospective basis which has some impacts on the reporting of operational leases in our financial statements. In addition to the IFRS 16, we have decided to report the corporate segment separately from the business units. Thus providing greater transparency on our expenses as well as improving comparability among peer companies. The corporate line includes expenses related to the structure of the Ultrapar Holding Company. These two changes are described in detail in our earnings release together with comparative tables. In order to keep comparability since these changes have been made on a prospective basis or without changing past figures, we continue to present in this discussion the results according the previous criteria already known to you. Moving on to slide number three. During the course of the first quarter, signs that the expected economy recovery was becoming more difficult became increasingly apparent with diminishing GDP forecast for the year as well as weaker industrial performance. In the table in the upper right-hand side, we can see some market indicators related to the sectors we operate in. Data published by the Brazilian Association of Pharmacies, Abrafarma, show a significant increase in competition in retial pharmacy sector with a strong expansion of Abrafarma members over the past few quarters in all geographic regions in Brazil. In the LPG distribution sector, there has been also a decline in domestic consumption. Among our businesses segment, the only one to report year-on-year growth was the fuel distribution business. We have recovery of volumes in recent quarters. More specifically, in the first quarter of 2019 sales volumes of diesel and Otto cycle increased by 2% and 3% respectively. Looking at Ultrapar results in the quarter, adjusted EBITDA was BRL782 million after the adoption of the IFRS 16. If the impacts of the new accounting standards were not to be considered, adjusted EBITDA was BRL698 million. A growth of 37% over the amount reported in the first quarter of 2018. However, when adjusted for the Liquigás breakup fees settled last year, there was a 12% reduction in adjusted EBITDA. We will provide greater detail for its business during the presentation. Ultrapar's net earnings were BRL251 compared to BRL73 million for the quarter in the first quarter of 2018, this again a reflection of the Liquigás line. Cash flow generated operation activities was BRL462 million in the quarter well above the first quarter of 2018. Let's now move on to Ipiranga's performance in slide number four. Continuing along the path of late 2018, sales volume in the first quarter of 2019 was 5.6 million cubic meters, an increase of 2% compared with the first quarter of 2018. There was an increase of 3.2% in Otto cycle which was likely above the market. Diesel sales volume rose 2% in line with market growth. We ended the first quarter of 2019 with a network of 7,218 service stations. That's a net addition of a $138 units compared with the first quarter of 2018. Hence, stable in relation to the fourth quarter of 2018. In addition to the service station network, we continue to pursue our strategy of differentiation and innovation, including the expansion of our franchise network. Ipiranga [indiscernible] continues to gain customer traction reaching 7.7 million transactions in the first quarter of 2019. There was also an addition of 700,000 new customers in the quarter, totaling 2.2 million registered vehicles with transactions to date. Ipiranga recorded a reduction of 8% in expenses compared with the first quarter of 2018. This is firstly due to a reduction at ICONIC related to higher initial expenses leading to the integration of the businesses in 2018. Another factor was the reduction of expenses particularly with advertising and marketing while provisioning for losses was also lower in line with an improvement in customer credit ratings. Therefore, adjusted EBITDA amounted to BRL538 million, a reduction of 8% compared with the first quarter of 2018. This performance was due to lower gross margins in Otto cycle partially offset by greater sales volumes and lower expenses in the period. Profitability indicators continue to show a recovery from the past few quarters and unitary EBITDA was BRL96 per cubic meter, our sequential evolution over the first quarter of 2018 despite the seasonally negative effects between periods -- sorry, despite the seasonally negative effects between periods considering the previously mentioned adjustments of IFRS 16 and the separation of the corporate segment, Ipiranga's adjusted EBITDA was BRL594 million. The increase in international oil prices and its derivatives over the past few months combined with a less favorable outlook for the economic environment in both challenges for faster recovery. With a more cautious approach in the short term, we continue to work on various forms to optimize operational efficiency and the capital allocation including initiatives to reduce expenses. In addition, we are placing a greater focus on the development of convenience and digital initiatives restructured with structures dedicated to each of these activities. For the current year, we are maintaining our forecast of sales volume growth above GDP as well as a recovery in EBITDA on a year-on-year basis. Moving on to Oxiteno now in slide number five, Oxiteno's total sales volume in the first quarter of 2019 was 180,000 tons stable compared to last year. Commodity volumes rose 12% compared to the first quarter last year, thanks to new sales agreements. On the other hand, specialty chemical volume was down 2% against the same quarter due to the slowing of the Brazilian economy, impacting the mix of volume sold by Oxiteno. Consequently, sales volumes in the domestic market reduced 2% year-on-year. However in the international market, the ramp up at the new Pasadena plant contributed to an increase of 4% in sales volume particularly in the USA. This was an atypical quarter for Oxiteno probably the lowest profitability recorded in a quarter in many years. Regarding margins, the speed and intensity of the decrease in reference prices for petrochemicals particularly related to the increase in this product supply and high levels of inventories in international markets significantly impacted Oxiteno's profitability as you can see in the graph on the lower left hand side. Therefore Oxiteno recorded an EBITDA of BRL34 million in the quarter, a decline of 33% when compared with the first quarter of 2018. Factors driving this result were the lower level units of unitary margins endorsed. The sales mix with a greater share of commodities as well as the higher cost of the Pasadena plant despite the 60% devaluation of the real against the dollar. Considering the previously mentioned adjustments of IFRS 16 and the separation of the corporate segment, Oxiteno's EBITDA was BRL39 million, we should see an increase in volumes in the second quarter. On the other hand, we are still facing pressure on margins of commodities. The combination of these effects should lead to a gradual improvement in their results although lower than the same period of 2018. We are working on initiatives to reduce expenses in capital in face of the more challenging environment. Moving on to slide number six and the performance of Ultragaz, during the first quarter, sales volume of Ultragaz was down 4% year-on-year, while sales volumes for the market reduced approximately 2% in both segments. Bottled segment volume was 4% less also when compared with the first quarter of last year. This was due to a decline in consumption and to a temporary current of supply in LPG by some refiners. In the bulk segment sales volume was down by 3%. Here there was a reduction in consumption on the part of investor clients. Any line with the Tennessee, we have seen in industry activity as a whole. Despite Ultragaz customer and costs discipline, we saw BRL33 million rise in SG&A expenses, due to greater provisioning for loan losses, higher expenses, labor indemnifications related to adjustments in the organization and legal contingencies in the first quarter of 2019. With this at EBITDA with regards to BRL97 million in the quarter 70% last -- 17% last, then the EBITDA reported in the first quarter of 2018. Adjusted for the Liquigas high considering the previously mentioned adjustments of IFRS 16 and the separation of the corporate segment Ultragaz EBITDA was BRL108 million. The issues to rounding the supply of LPG, which I just mentioned will result in April. So we do not expect any further significant impact. The outlook is for a gradual resumption in the moderate growth trajectory expected for the full-year. Going on towards our cargo now in slide number seven, in the first quarter of 2019 Ultracargo's average storage increased by 5% in relation to the first quarter of 2018. This result is due to a greater movement at the Centers terminal, combined with additional ethanol handling activities, more than of settings declining fuels handling at the terminals. In the quarter, Ultracargo's EBITDA was BRL52 million. There's 27% higher in relation to the same period last year, a combination of greater average storage, contractual readjustments, at the terminals and an increasing operational efficiency. Considering the previously mentioned adjustments of IFRS 16 and the separation of corporate segments, Ultracargo's EBITDA was BRL59 million. For the year, we expect the current market dynamic to continue in a trajectory similar to the first quarter of 2019. In addition, we announced yesterday the outcome of an agreement with the public prosecutor's office about the firing incident of the southeast terminal in 2015. The total amount of the agreement is BRL67.5 million to be disbursed up to September 2020. We had a provision of BRL6 million related to this matter and we will complement this provision in the remaining amount during the second quarter of 2019. Let's move on now to slide number eight and talk about Extrafarma. Extrafarma ended the first quarter of the first -- of the first quarter of '19 with 440 drugstores, a global edition of 65 stores in the past 12 months and nine stores in the quarter. At the end of the period 54% of the stores have been open for less than three years, the same level as the first quarter of 2018. Extrafarma's gross revenue in the first quarter of 2019, increased by 1% compared to the first quarter of '18. This represents a 3% increase in retail sales and reflects a larger average number of stores and the annual adjustment in pharmaceutical prices. However, these effects were upset by the need of intensification in the competitive environment. The expression of competitors in our main market has reduced its margins. Therefore, EBITDA for the quarter was a negative BRL21 million, mainly reflecting the impact of an intensely competitive market and expansion of the network. Considering the previously mentioned adjustments of IFRS 16 and the separation of the corporate segment, Extrafarma's EBITDA after adjustments was BRL1 million. In the current quarter, we see no significant change in the competitive environment, which continues to be tight. But these effects should be gradually offset over the next quarters with the maturing of gross revenues and the annual adjustments of medicine prices, better service arising from the stabilization of the new retail system, better management of expenses and closing of poorly performing stores. To conclude, I would like to comment on some of the initiatives we have been taken at the beginning of the year as well as our priorities and perspectives for 2019. We were successful in some important session's actions organized by the government early in the year through a consortium Ipiranga was successful in bids to invest and operate last at the ports of capital in the state of Pará and Victoria in the state of 3% for a minimum of 25 years. .: Ultracargo on the bid for a terminal in the Port of Ville do Conde also in the state of Pará for a minimum term of 25 years. The terminal will have a minimum capacity of 59,000 cubic meters and operations are scheduled to begin in 2023. This will be Ultracargo's seventh terminal and a strategic initiative in an era with a growing demand for fuels. Investment in these concessions will be disbursed over the next five years. We held our annual general meeting on April 10th and our shareholders approved some important matters including the election of the Board of Directors for the next two years, with the entry of four new members. This will bring additional experience in a complementary way to the board and the adjustment of the company's corporate bylaws for the new regulation of the Ultracargo segment two years ahead of the deadline. In spite of an operational performance, which is too below historical levels, we are committed and taking steps to improve the profitability indicators of the businesses and maintaining our financial soundness. This will involve initiatives to various expenses, and focus on capital allocation without sacrificing the company's long-term growth. With this, I conclude my presentation for today. Thank you all for participating on this call. We can now begin the Q&A session, thank you very much.

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from Fernando Kunal [Ph] from Citibank. Please go ahead with your question.

Hi, good afternoon, everyone. Thank you for taking my questions. Some of my questions are going to be on the follow-up of the Portuguese call. So the first one is related to the sequential sales you have seen in Ipiranga, when we look at month over month, this quarter, that means January against December 2018, February against January and [indiscernible]. We see that sales volumes are performing behind your top two fierce competitors. Can you comment why this has happened and what do you expect in upcoming quarters in terms of volume growth, and also if you could provide a rough number of fuel station openings for 2019? The second one is related to SG&A in Ipiranga. You mentioned in the last call that SG&A improved 10 highs [ph] per cubic meter, but when we tried to exclude the impact of ICONIC expenses it seems that on a recurring basis, it has only improved around 5 PIS, could you help us quantify it, how much you have achieved in SG&A cost cutting initiatives? And the third one is if you could comment on the returns expected in which you took the decision to participate in the port concessions auctions, given that you'll be spending around BRL500 million in expansion Capex for the next couple of years, I'm just wondering what drove that decision and what can we expect in terms of better returns on this decision? Thank you. André Pires: I'm going to start with the third question Fernanda, thanks for the questions, but starting with the port concessions, basically the vision for this concessions was basically the same type of vision we have for Ultracargo and for Ipiranga, which is the fact that structurally, we see Brazil as a country that will in the long run be short on refined fuel products. Therefore, it's very important that you're having the logistic infrastructure to be able to provide for this increasing movement of fuels throughout the country. These investments, I mean that the prices that we ended up committing both for Ipiranga and for Ultracargo, something that I can see that the end of being below what we were considering the maximum amount that we were that we would be willing to pay for this auction. So clearly the returns that we were already expecting were obviously above our weighted average cost of capital. Obviously, this is an information that we do not disclose but we ended up paying like this. We need the price for this bid was below what we were expecting. So therefore our expected return will be higher, so, significantly higher than to our weighted average cost of capital for Ipiranga and Ultracargo, just a question about a second above the volumes. Okay, if you look at the volumes and we tend to look at the volumes more on a year-on-year basis, on a longer term basis, if you take the first quarter of 2019, right. Our volumes grew by 2.3% on a consolidated basis basically Otto cycle plus diesel, while the overall markets grew by 2.3%, so we grew exactly the same level as the total market. If we compare our growth, we've moved out which is basically the Association of the three largest players, total volume on a consolidated basis in the first quarter of 2019 compared to the first quarter, grew by 0.5%, we grew by 2.3%. So, and if we look this on a sequential basis, quarter-by-quarter but on a year-on-year basis, we've been growing either in line or slightly above the market, so I don't think we should look at these numbers on a month by month basis. We should look at these numbers on a more longer period of time and if we look at market share, our market share has been stable over the last few quarters. And Ipiranga has been maintaining its position comparing with its peers and comparing with the market in general terms. As for the SG&A let me just take a look here on the breakdown separating ICONIC just a second please. You're correct. So the BRL5 per cubic meter belongs to ICONIC. So the recurring is BRL5. But something that I mentioned in the morning in the Portuguese call is that looking at the last three quarters, Ipiranga had been even excluding ICONIC right, it is reducing its SG&A while keeping it stable, so this quarter particularly there was a reduction and we see this trend continuing towards the year. So the focus is in some of the levers that we can control. One of these levers is definitely SG&A, so there is a lot of initiatives within Ipiranga to keep this type of performance on the following quarters.

Okay, thank you very much for the answer.

Our next question comes from Leonardo Marcondes from Itaú BBA. Please go ahead with your question.

Hi, André. Thanks for taking my question. So last year, we saw global companies joining the Brazilian Food distribution market through acquisitions and in the last few months, we've seen export players increasing their volumes even with reduction in imports. So I would like to know, if you could evaluate the competitiveness on both pricing and branding new gas station France in this new environment. Also on this, I would like to know if you guys track those stations that are not renewing with Ipiranga, I mean if there are, if most of them are going to do all big fuel distributors or if they are choosing more original or local distributors, if they're choosing to become white flags or even if they are shutting down. So that's my question. Thank you. André Pires: All right. So, Leonardo, thanks for the questions. In terms of the competitive environment with the new players that came into the market, I think you were referring to the new let's say international traders that ended up investing in distribution, we haven't seen any major change in their behaviors that we could interpret as a significant change in a competitive environment. The competitive environment remains let's say very tight under pressure. You're right. I mean the white flag gas stations that I think everybody anticipated that when petrol does reduce the arbitrage potential of the spread between local and international prices this would let's say reduce their competitive advantage but they've been proven very resilient especially in a market where we do not see growth coming from the side of the consumer. So I think the business model has been proven resilient in an environment like that. But both ourselves and our competitors remain also very competitive although we have not seen that such a strong market share gain from the part of independent or white flags as we saw when we had this big arbitrage opportunity. So I think we're on holding on fairly well. But the competitive environment remains under pressure. As for the stations that are not renewing the contract with us, I mean basically their destiny it is basically the three different batch study that we follow, some of them basically leave the business. We eventually sell their real estate or invest in the real estate to do something else parking lot or real estate development, something like deposit or something like that, similar others or most of them they go back to be a white flag divest minority of this churn goes to our peers. I mean traditionally and then it continues to be the case in most part of the churn is due to going back to white flags or leaving the business something else with the plot of land and there's not. I mean it's a vast minority of these players that are branded by our competitors.

Okay, that's perfect. Thank you.

Our next question comes from Gabriel Francisco from XP INVESTIMENTOS. Please go ahead with your question.

Hi André, thank you for the call. It's going down in the last question a little bit from my colleague. But if you are seeing lower arbitrage opportunity then I agree. We all agree with that. Where does this resilience in the white flags and players that used imports it's coming from because we would expect is that this ruling at the end of the day benefit, those who are the traditional big players and who have scales and why are we what's keeping you from expanding market share and expanding margins if your competitor has a lower advantage. That's my number one question. My second question regards it's a little bit of a Oxiteno and Ultracargo, we have seen disruptions in our skiing operations and some have mentioned disruption that could affect the [Indiscernible] conflicts in terms of the supply chain. Are any of Oxiteno's operations indirectly affected by the disruptions with them or Ultracargo, Ultracargo they started the business in the region? That is my second question. Thank you. André Pires: Hi, Gabriel. Thanks for the questions. The question number one about the competitive moves of the white flags, well, they have a business model that is efficient especially in an environment that we do not see a lot of growth from the part of the consumer, the wallet the fact in the fuel distribution business in an environment where unemployment remains high, disposable income remains low. It's very, very efficient for players that do have a business model that are more lean, they had some scale in the areas that we operate. They have basically lower overheads, less investments in their gas stations. So when the main decision making impact is price, I mean they have a business model that remains very resilient and very competitive. We structurally believe that a gas station that offers differentiation through convenience to innovation over time tends to recover this market share. But for that, we need an economic dynamic that is different in the economic dynamic we are living in. So to answer your question, the expected recovery in terms of market share from the big players versus the white flags I think are very dependent today on the recovery of economic activity, as for the issue with [indiscernible] there is no impact for Oxiteno whatsoever and neither there is an impact for the Ultracargo, so this is not related to any of our two businesses.

Thank you. That was very clear.

Our next question comes from Frank McGann from Bank of America. Please go ahead with your question.

Okay, thank you very much. Yes, just continuing with Ipiranga, it appears that you did not add any stores in the quarter. And also for the company as a whole, CapEx is quite low. So I was just wondering what your thoughts are in terms of growth, in terms of service stations this year as well as in the other businesses and an overall CapEx if you could provide a little bit of a view on that? André Pires: Okay. Hi Frank. Thanks for the question. Well, yes I mean basically when we look at the first quarter of 2019, we have the same number of gross additions and churn. So we added 43 or inaugurated 43 new stations. And the churn was coincidentally also 43 and the reason, I mean there are few reasons for that. First as you know there is a seasonality in terms of inauguration of gas stations in our business to reimburse you as well. Normally this is analysis more towards the second semester of the year, so it was a weaker quarter in terms of inaugurations. Nevertheless, we reduced our backlog from 300 to 250, 250 gas stations that had been already contracted for, paid for and has to be inaugurated. When you look at CapEx, the CapEx was really below what we would, we were expecting for the first quarter take into consideration our budget, also partially due to some seasonality impact and partially due to waiting for the right moment and looking for the ideal returns in terms of the investments we were making. It's important to mention that normally doing a regular year at Ultrapar, there is a catch up after the first and the second quarters towards the end of the year as well. However, it doesn't mean that we're necessarily going to basically have exactly the same number in terms of CapEx as expected in our budget. There's a few changes in assumptions. The first change is related to the auctions, the box that I mentioned during my speech. And we want to beat which represent a commitment of around a BRL1 billion for the next five years but for 2019 specifically there is a commitment on additional commitments of BRL96 million, BRL51 million for Ipiranga, BRL45 million for Ultracargo, which were not budgeted to begin with. So that we're going to accommodate this BRL96 million into the budget originally approved. But the second assumption is more related to the speed of the economic recovery and the way, the economy is performing in 2019. So that also might eventually entail some potential reductions if we see that the economy is not reacting the way we will expect, the focus is to continue to generate to have better generation of operating cash flow, also in 2019. And because of that one of the important leverage, we have to prove is CapEx. The other important lever is working capital. Just to give you an example, we had a very good performance in terms of working capital in the first quarter again, as we get into the fourth quarter of 2018. Only in Ipiranga, our cash conversion cycle was reduced by three days compared to the first quarter of 2018. So, three days for Ipiranga is BRL 200 million each day right to BRL 600 million of working capital improvement, despite the increasing prices, despite the pressure in terms of inventories. So we are using the levers of CapEx, using the levers of working capital to keep on increasing our operating cash flow generation. So, making a long story short and if we had to be a little bit more conservative in terms of CapEx in order to achieve this objective, we will.

Okay, great. Very, very interesting. Thanks. If I could follow-up to just a kind of a bigger picture question, in terms of how you're seeing the downstream business, I mean, you're obviously in a key portion of that with distribution and you've mentioned that potentially you could look at Petrobras refinery offerings, but whether you would do that or would end up doing anything or not on that front, do you see the opening up of the refining business to potentially include more players as having is potentially affecting the business in a way that would positively or negatively potentially impact Ipiranga? André Pires: It's a very good question Frank. I think conceptually an environment where you do not have a monopolistic supplier, right? Being the -- being among the largest retail players in the market like that would give us very important bargaining power when we're talking to a supplier, right? So a more diversified supply base. I think it's positive for a large distribution company such as ourselves is also positive for the end consumer, it will become a more fluid competitive environment. Obviously today, I mean, we are in an environment where the fact that we are very important, a large player and eventually send specific regions of the country like the South or southeast, we are very big business users, any advantage from a cost point of view, right, so, an environment with very clear rules and more players. I mean, it's basically technically or conceptually more positive for players such as Ipiranga. Obviously, as I mentioned before, I mean we have like an obligation, right, to be very close to this process to investigate if it makes sense for us to participate or not. But in any case, from a distributor point of view, conceptually, a change such as this one is very close.

Okay. Thank you very much.

Our next question comes from Luiz Carvalho from Banco UBS. Please go ahead with your question.

Hi, André. Thanks for taking the question again. I just like to make one, actually two additional questions. One question and then one follow-up, the first one in about Oxiteno, I remember in the past you mentioning that for every sense of real appreciation, which should see it around BRL 40 million of additional EBITDA in the company right? I just like to chat -- to check with you if this correlation is still valid now because despite of a weaker Real, we did not see -- how can I say this offset on the results as of now. And the second one, I like to come back to one question made in the Portuguese call maybe in a different way, in terms of the comparison, on EBITDA growth for 2018. What numbers, what the number you're using for the achieve for the -- for the let's say 2018 verses 2019, can we use the feature for the number or should make the DNA adjustment? Thank you. André Pires: Hi, Luiz. Thanks for the questions. No, in terms of Oxiteno, yes, for each BRL 0.10 of currency devaluation, you can estimate BRL 40 million to BRL 50 million of additional debt [ph], this is absolutely -- remains absolutely the case. But what happened in the first quarter was that the acceleration of the devaluation happened more towards the end of the first quarter, if you compare to the first quarter of last year, and this impact was not enough, was not sufficient when compared to the impact of the very strong drop of the glycol or the price of the glycol or the margins of the commodities, but this remains the case and this should help the results in the second quarter definitely even with the pressure on glycol margins, the currency devaluation should benefit the results on the second quarter. As for your second question that's a very, I mean, basically, I'll try to repeat to answer the question the same way but essentially trying to extend a little bit more. We see growth in our consolidated EBITDA comparing apples-to-apples, right? I mean you saw in 2018. We had one-offs that some of them impacted negatively the EBITDA, some models impacted positively EBITDA, so if you take out these non-recurring items, we will see growth on the EBITDA is our expectation track to see EBITDA growing 2019.

Okay. Thank you very much.

[Operator Instructions] Our next question comes from Lilyanna Yang of HSBC. Please go ahead with your question.

Hi, thanks for the opportunity. You mentioned the active portfolio management and sometime in eyes of growth opportunities, right? So give your leverage as a 2.65 times today the slowly improvement in the economic environment. And could you give more color on the growth opportunities, it does not seem to be on refining. It looks like it could be more on logistics, is there something out there and help, would you from that growth meaning. Yes, how sizable that could be? And any color on that would be helpful. And a second question is more on Ipiranga. So is it possible to see Ipiranga closing the profitability gap to rise in combined seaways and how they think Ipiranga could achieve that? Thanks. André Pires: Hi, Lilyanna. Thanks for questions. In terms of vision for the portfolio, we see some opportunities that we started in a way to execute with the auctions that we want recently for terminals import. So basically, we see in the short-term in Brazil opportunities that are related to logistics infrastructure. So we are focusing on and executing on the earth. And we see and we follow-up very closely the initiatives that Petrobras and that has been in a way, either announced or commented by Petrobras as its objective to reduce some of its exposure in some sectors. So obviously refining is one of them that we are following up and I mentioned during the Portuguese call and we consider ourselves a pure distribution company. It's not part of our regional strategy to become a producer of refined fuel, but eventually, if the opportunity makes sense, we are going to investigate. Actually, we're going to investigate other opportunities that are eventually available related to some other Petrobras assets. Now in terms of funding this growth and basically, we've been already de-leveraging till the end of last year we continued to see a stronger, let's say, cash flow generation that will help under the de-leveraging phase. And again, if we have an opportunity that makes sense that will generate important returns to our shareholders that can generate returns from synergies as well. We consider even going a little higher in terms of leveraging out to take advantage of these opportunities. But in any case in the short term, we don't see any reason to increase any opportunity that would require these increasing leveraging. This I think is much more towards the long term than the short term. I think it is important also to mention in addition to the issues related to logistics infrastructure or Petrobras assets to the initiatives at Ipiranga and ourselves have been dedicating to let's say the other digital and convenience initiatives of Ipiranga. As mentioned in my speech that we are dedicating time and specific structures to evaluate these initiatives both in the case of the am/pm convenience store or the other digital initiatives as mentioned in the speech, the traction that our [indiscernible] has been gaining and also the increase in the number of participants of our loyalty program. So this is also something that we are dedicating a lot of time and that we can obviously give more focus now and in the future.

Okay, thanks. Maybe on the Ipiranga question and the profitability gap to [indiscernible] if you can comment. André Pires: Yes, in terms of the profitability gap, well, basically I mean as I mentioned before, I mean we've been improving our unit value SG&A per cubic meter, with this sequentially improving our EBITDA since the second semester of last year, we don't have a focus specifically in closing the gap. Our focus is to keep on improving our profitability. So we think that we are track for that for stability has been improving. EBITDA per cubic meter has been improving as well. And we see that this trajectory should continue. Obviously this will happen more consistently and a more strongly if we see the economy healthy, right, if we see some headwind, some tailwind from the economy. So unfortunately for the beginning of this year, this hasn't happened. But then we are focusing on this improvement, and we are very consistent in working towards that.

Okay. Thanks, André.

Ladies and gentlemen, this concludes the question-and-answer session. At this time, I would like to turn the conference call back over to Mr. Pires for any closing remarks. André Pires: Well, thank you all for the participation on the call. As always our IR team is available to answer some of your other questions. Thank you very much. And hope to see you all on the second quarter results call in August. Thank you.

Thank you. This concludes today's Ultrapar's 1Q '19 results conference call. You may now disconnect your lines at this time.