Ultrapar Participacoes S A : 3Q20 Transcription conference call

Local Conference Call

Ultrapar Participações S/A

Third Quarter 2020 Earnings Results

November 5th, 2020

Good morning ladies and gentlemen. At this time we would like to welcome everyone to Ultrapar's 3Q20 results conference call.

There is also a simultaneous webcast that may be accessed through Ultrapar's website 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. Frederico Curado, Chief Executive Officer and Mr. Rodrigo PIzzinatto, 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 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. Should any participant need assistance during this call, please press *0 to reach the operator. We remind you that questions, which will be answered during the Q&A session, may be 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 of the 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 of Ultrapar and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I'll turn the conference over to Mr. Curado. Mr. Curado, you may now begin the conference.

Speech 3Q20 - Frederico Curado

In the 3rd quarter we already saw a recovery of economic activity in the country, with all businesses presenting good operational and financial performance. Our companies have demonstrated great competence in the management of its operations during the crisis, both from the point of view of the safety of our people and the service to customers and consumers.

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We have had, so far, 744 confirmed cases of covid since the beginning of the pandemic, of which 720 have recovered and returned to work, with the others fulfilling the expected quarantine period. Our security protocols have proven very effective and, as economic activity recovers, our businesses have had agility in seize opportunities, including resuming investments that were on hold until greater clarity of the economic scenario.

All this with the usual financial discipline, proven by our cash performance year to date, allowing us to reduce the leverage of our debt by 14 bps, in the quarter

Briefly commenting on the businesses, Ultragaz had another great quarter, historical record, with volume recovery in bulk customers (small and medium-sized enterprises) and sustained margins in both segments - bulk and households.

Ipiranga also experienced a good recovery of volumes and margins, and it would have been even better if it were not for the margins of ethanol, which are still under pressure.

Extrafarma is on track on its continuous improvement process, with another a good quarterly result, by the way, the best since we acquired the Company in 2014.

Oxiteno also had another great quarter, with the recovery of those sectors that had suffered the most from the crisis. In addition, the company has benefited from the devalued exchange rate and managed to sustain a healthy level of margins.

Finally, Ultracargo also had a good quarter and has been accelerating the projects of its new base in Pará (port of Vila do Conde) and also expansion in Itaqui, state of Maranhão, - (those two projects have full capacities available by 2022, so that is why we should [garbled - audio failure] from the full capacities of both projects)

In short, all of Ultrapar's businesses had a strong third quarter, of course, after the negative impact of the crisis in the 2nd, confirming the resilience of our portfolio and the quality of our companies, in our point of view.

As for strategic initiatives, we continue dedicated to the analysis of the refining assets that Petrobras intends to sell, as well as to the growth of our new business - Abastece Aí, there is new app is fully operational now and does have digital wallets and digital account and by the way in those few months since we introduced that feature app we've already accumulates 1.8 million active digital accounts so that's a very sound start.

Finally, words on as you certainly followed in our press releases, first we had election of Alexandre Saigh to our Board of Directors, we also have the appointment of Rodrigo Pizzinatto to the position of CFO and we hired in the market Marcelo Bazzali as CEO of Extrafarma

Briefly, Alexandre Saigh brings a solid business view and very solid experience to our Board, and of course has been part of shareholders agreement thats strengthening the position of our reference shareholder - Ultra S.A.

Rodrigo is an Ultra born and bred individual is been with us for 20 years now and has deep knowledge of the various processes of the financial area. And of course with you take that combined with the experience he acquired as CEO of Extrafarma, that combination gives him a privileged condition for the exercise of the new function

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Finally, Bazzali is an executive with extensive experience and proven success in retail, and will be of great value for the consolidation of Extrafarma as a profitable business, the path we've been in your journey in the last couple of years

Well, this is the first earnings call with Rodrigo as our CFO it is a good quarter, a good start, detailing for you a quarter with very good results. Thank you and will be available for the Q&A session at the end

Speech 3Q20 - Rodrigo Pizzinatto

Thank you, Fred and good morning or good afternoon everyone!

It's a pleasure to be back to Ultrapar holding. That's where I began my carrier as an intern 21 years ago, in the same year of Ultrapar's IPO, and where I spent my first 15 years in the treasury, M&A, corporate planning and investor relations. My last six years were dedicated to Extrafarma, where I was the chief executive in the last two years, focused on the strategic review and turn around. I'm really glad to reconnect with friends and colleagues. And, without further ado, let's begin the presentation of the third quarter results of Ultrapar, on slide number 4.

Ultragaz - Slide 4

Ultragaz sales volume in this third quarter fell 1% year-on-year, due to a reduction of 2% in the bottled segment, a result of lower sales in the Southeast region. On the other hand, volumes in the bulk segment grew by 1%, influenced by sales to the industrial and special gas segments, as a consequence of the economic recovery underway in Brazil, despite the lower demand from the commerce and services segments, which were the most impacted by the pandemic.

Ultragaz SG&A remained stable compared to the third quarter of last year. We had an increase mainly in variable compensation, which is in line with the company's earnings progression, and we also had increased expenses with consultancies to pursue further operational efficiency gains. On the other hand, we were able to implement several reductions with initiatives to control expenses, including some related to the pandemic, such as travel expenses.

As a result, Ultragaz's EBITDA was a record R$ 222 million in the quarter, 18% higher than that of the third quarter of 2019, on the back of better sales mix and improved operational efficiency.

Looking ahead, the outlook is for similar levels of results compared to the previous year, having in mind that the fourth quarter is seasonally weaker, for Ultragaz

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Ultracargo - Slide 5

Moving on to slide number 5...

We will now talk about the third quarter of Ultracargo. As you can see on the chart, the average capacity reached 838 thousand cubic meters. That's a growth of 11% compared to 3Q19, due to the capacity expansion we made at the Santos and Itaqui terminals over the past 12 months. The cubic meter sold increased by 14% in the period, mainly as a consequence of the capacity expansion I mentioned, of the growth in spot and fuel handling revenues and of new contracts, for both the previously existing and the newly added tankage capacity.

The quality and reliability of Ultracargo's services allow a large part of the new capacity to be sold during the investment period, even before the start-up of operations. This accelerates the tank utilization ramp-up and the profitability of such investments, as we can see in these recent earnings.

Ultracargo recorded net revenues of R$ 160 million in the quarter, 18% higher than the third quarter of 19. This was driven by the increased cubic meter sold I mentioned, as well as by readjustments to existing agreements and the signature of new contracts.

We had an increase of 2% on costs and expenses combined, on the back of larger tankage capacity in Santos and Itaqui, and increased expenditures with insurance policies and IT systems for productivity gains. It's worth mentioning that, as seen in the previous quarter, the costs and expenses per cubic meter sold reduced by 10% year on year, showing an increase in productivity resulting from economies of scale and improved operations.

EBITDA at Ultracargo was R$ 78 million in the quarter. If we exclude the non-recurring expenses of R$ 13 million in the third quarter last year, EBITDA growth was 35%, due to increased revenues, as well as an optimization and dilution of costs and expenses. The EBITDA margin in the quarter was 49%.

For the current quarter, we expect to maintain the same level of earnings growth presented in the third quarter.

I would also like to mention here the capacity expansions underway in the port of Vila do Conde, in the state of Pará, and in Itaqui, in the state of Maranhão. These expansions will start operations over the next 18 months, sooner than initially planned, once again increasing the scale, allowing productivity gains for Ultracargo and, consequently, for its profitability.

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Oxiteno - Slide 6;

Moving now to slide 6, to Oxiteno, which had another quarter of great results.

The volume of specialty chemicals rose 8% in the quarter compared with the third quarter of 19, due to increased sales to the home and personal care segment, which is directly involved in the prevention of COVID-19. We also increased exports from Brazil, specially to China, due to a faster economic recovery in this country. In addition, sales from our unit in the United States grew 41%, with the ramp-up of the plant, though still partially impacted by the pandemic. However, commodity sales volume was down 13% due to lower demand for these products. To summarize, the sectors benefiting from or less affected by the pandemic grew and continue to grow, while the sectors initially more affected have shown a recovery in recent months.

In addition to the good performance of the sales volume, I would like to remind you that the Real devaluation has a positive effect on Oxiteno's revenue and margins.

SG&A in the other hand rose by 20%, due to three main factors: (i) higher sales volume impacting freight and storage expenses, (ii) Real devaluation affecting expenses of the international units (iii) and higher variable compensation, which is in line with the growth in results.

As a consequence Oxiteno's EBITDA was R$ 169 million in the quarter, an outstanding 110% growth over the third quarter of 19, on the back of higher sales volume, the ramp-up of the US plant and the Real devaluation.

Looking ahead, although the fourth quarter is seasonally weaker, the trend is for a level of volumes and margins similar to that of this 3Q of 20.

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Ipiranga - Slide 7

Now moving to slide number 7, we will talk about the third quarter of Ipiranga.

Where sales volume dropped 11% year-on-year, a direct result of the pandemic and the major impact it had on fuel consumption. The Otto cycle segment, as shown in the chart, was the most affected by the restrictions imposed and by lower car traffic, thus recording a drop in sales of 17% year on year. Diesel volumes were less affected and fell 5%. The decrease was significantly smaller than that of the 2Q of 20, confirming the gradual recovery of vehicle traffic.

We ended the third quarter of 20 with a network of 7,107 service stations, a gross addition of 72 stations and a churn of 70 units in the period. Ipiranga has focused its investments on adding stations with greater throughput in order to grow volumes without necessarily increasing the total number of stations.

In this quarter, price volatility of oil derivatives, combined with ethanol price increases, contributed to a recovery in Ipiranga's margins.

In addition, Ipiranga posted a 12% reduction in SG&A compared to the third quarter of 19, as a result of lower expenses with payroll, provisions for defaults and with freight expenditures due to weaker sales volume. Part of this reduction came from the effects of the pandemic, either due to contingencies or the effect of the volume drop, and part comes from initiatives to reduce costs and expenses implemented since 2019.

The line item "other operating results" was down R$ 91 million compared to last year. This was due to the provision for the decarbonization credits of RenovaBio program, the so-called CBIOs, in the amount of R$ 66 million in this quarter. In the same line item, we had also booked extraordinary tax credits of R$ 32 million in the third quarter of 19.

As a result, Ipiranga's EBITDA was R$ 566 million, 17% down year on year, but an increase when compared with the second quarter, demonstrating the recovery I mentioned before.

I would also like to talk briefly about our convenience stores AmPm's new management model and store concept, a project we started in 2019, with two main stages. The first was the review of the physical store, where we developed a new layout that provides a more fluid journey with greater space for consumption of products inside the stores, in a more pleasant environment. In the second stage, we reviewed the brand positioning, exploring concepts of proximity marketing and new consumer habits, with a review of the product mix and expansion of food services, grocery and hygiene and beauty products offered. The initial tests of this new model have been promising, with higher sales and better margins. In this review, we identified 486 stores that did not fit in this new business model and, in addition, we closed 81 stores during the quarter due to the pandemic. As a consequence, AmPm ended the 3Q of 20 with 1,778 stores.

Looking forward, in Ipiranga, the outlook for the current quarter is for continued gradual volume recovery, with commercial margins relatively stable when compared to the third quarter of 20. However, so far, fuel cost increases in the fourth quarter have been lower than those in the third quarter.

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Extrafarma - Slide 8

Moving on to slide now 8...

Presenting now Extrafarma's results. We ended the quarter with 408 stores, 4% below the 3Q of 19 network, reflecting greater selectivity in the expansion and the increased rigor to underperforming stores. The network is practically from the same as that of the second quarter. I also highlight that 32% of the stores are still at the ramp-up phase.

Gross revenues were R$ 523 million, 3% below that of the third quarter of 19, as a consequence of the smaller network and the reduced flow of people in stores located in shopping malls. However, if we exclude stores located in shopping malls, Extrafarma recorded a 3% growth in same-store-sales, driven by the annual readjustment in medicine prices and sales growth through digital channels. The gross profit was R$ 147 million, down 2% year-on-year, equivalent to a gross margin of 28.2%, 0.3 percentage points better than of 3Q of 19.

SG&A expenses fell 14% in the quarter, thanks to the smaller network, contingency initiatives, productivity gains and logistics optimization.

Consequently, EBITDA came in at R$ 28 million in the quarter, record earnings for Extrafarma since Ultrapar's acquisition in 2014, as Fred mentioned at the beginning, 52% growth over the third quarter of 19. It's important to highlight that we recorded R$ 15 million of extraordinary tax credits in the 3Q of last year. If we exclude this effect, the EBITDA for the third quarter of 20 would have been R$ 25 million greater than that of the same period of 19, on the back of operational improvements in recent quarters, despite the impacts of the pandemic.

At Extrafarma, we continue the operational improvement initiatives and digital journey underway and, as a consequence, we maintain the perspective of continued strong growth in recurring results compared to the previous year.

Ultrapar - Slide 9

Moving to slide number 9, we will now present the consolidated results for Ultrapar...

Net revenues in the third quarter were R$ 21 billion, 11% less than that of the third quarter of 19, mainly due to lower revenues at Ipiranga. EBITDA amounted to R$ 1 billion and 38 million in the quarter, a 6% growth over the same period of 19, or 5% growth if we exclude non- recurring items. As we presented in the previous slides, we reported EBITDA growth across all businesses, except for Ipiranga, which was the most affected by the pandemic.

Net income was R$ 277 million, 10% lower than that of the third quarter of last year, mainly due to higher costs and expenses with depreciation and amortization, despite the EBITDA growth in this quarter.

CAPEX was slightly above R$ 1 billion on September year to date, a 5% decrease compared to the same period of 19, mainly due to measures for cash preservation and greater selectivity in capital allocation, which has been more strict during the ongoing pandemic. Nevertheless, the current CAPEX includes expansion, maintaining the perspective of continued growth for our businesses.

We had another quarter of strong operational cash generation, reaching the mark of R$ 2 billion year to date, 22% above that of the same period of 19, as a result of better

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management of working capital and EBITDA growth. This cash generation also underscores our commitment to financial discipline, and the resilience of our portfolio

Debt profile - Slide 10

To conclude our conference call, going on to slide number 10, the cash generation in the quarter and the higher EBITDA that I just mentioned enabled us to end this third quarter with a leverage ratio of 3.1x measured by net debt EBITDA of last 12 month. That's a slight reduction compared with the leverage in the second and first quarters of this year, as you can see in the chart.

I would like to recall you that, since the first quarter this year we have been including leases payable in the calculation of net debt, following the implementation of the IFRS 16. This has also contributed to an increased leverage, even though these leases are not financial debt.

We ended the quarter with a cash position of R$ 9.8 billion, boosted by the cash generation in the period and by new funding. In July, we announced the issuance of US$ 350 million in notes with a coupon of 5 and a quarter % per year through the retap of our 2029 notes. As a result, the average duration of our debt increased from 4.4 years in the second quarter to 4.8 years in this third quarter. US$ 220 million of these proceeds were used to pay down bilateral debt with financial leverage and interest coverage covenants. Consequently, from the third quarter onwards, we are free from any relevant financial covenants' restrictions in our debt.

With this, I conclude my presentation. I appreciate your attention and we may now begin the Q&A session.

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Q&A - Questions and Answers

Operator: The floor is now open for questions, for investors and analysts only. If you have a question, press *1. If your question is answered, you may remove yourself from the queue by pressing *2.

Questions will be taken in the order they are received. We do ask you to kindly remove your handsets from the cradle when asking a question. This will provide optimum sound quality. Please hold while we poll for questions.

If you are watching via webcast, please click "ask the speaker" to send a question to the company's executives. The questions and answers session will close at noon.

Our first question comes from Mr. Luiz Carlos, with UBS. Please, go ahead.

Luiz Carlos: Hi, Fred, Rodrigo. This is Luiz Carvalho with UBS BB. Thank you for your time. I have three quick questions. First, Fred, you talked - I think this our question at the 2Q conference call - you talked about Patria's Saigh's entry into the Ultra S/A shareholders agreement. I would like to understand how these moves might contribute to the Company's capital allocation process. Could you comment about the handoff strategy in connection with Oxiteno, Extrafarma, perhaps Abastece Aí, and how this relates with leverage still close to 3X. You mentioned before that it no longer made sense, for example to hold 100% of Ipiranga or perhaps businesses that make no sense over a longer horizon, or maybe lock value in through Abastece Aí. I would like your comments on this.

Second, and still on capital allocation, we have been going on and on about the Petrobras's latest two privatizations in natural gas refining, and I think there are concerns that you may bid on your own for one of Petrobras's refineries. So I would also like to understand your strategy in this case, if in fact it makes sense to set out alone for one of those units, or if a partner will be there as well. Also, could you offer some comments on your natural gas strategy?

Last, as concerns Ipiranga, we have seen it recover margins, by looking at the volume year- to-date, it is comparatively lower than the main competitors and the, say, "white flag" dealers group. It would be helpful if you could comment on this strategy. Thank you.

Frederico Curado: Well, thanks for your questions, Luiz. Rodrigo, I will take the first two and maybe you can handle Ipiranga.

First, on the admission and election of our new Director, Alexandre, well he is a Director in 11, so, well, the job...... in fact, the Board of Directors is a collegiate body whose main

responsibility, or one of them, is precisely to allocate capital, to set the company's strategy in governance terms. So this is the framework for him or any other Director. This is not a majority- controlled company, right, its stock is pulverized, but there is a benchmark shareholder in Ultra S/A, and now this reinforcement with the capital injection and the admission of Alexandre himself.

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So, like I said in response to a question in the previous conference call, I think him coming in is very positive, not just for his experience, but for how he joined the company in a constructive way that means we are associated with a benchmark shareholder. That is, [garbled - audio failure] stability and continuity for our initiatives.

Now, on strategy going forward, we have, what we have been plotting since 2018, that is, we have a massive results recovery effort that I think has been working out. Obviously, the pandemic affected us, particularly on the fuel distribution area, because of the lockdown and mobility, which was all affected, of course, not just us, but the entire sector. The overall portfolio, however, was generally quite Covid resistant in this sense.

Our capital allocation still stands, in fact, investment levels are similar to last year's, we are not stopping investments in our business. T the contrary, we are maintaining it, but I think we assigned greater importance to the Extrafarma investment strategy, which should post rapid expansion and pay out as it had been until 2018. We changed this to a chain maturity vision, condensing our presence in locations where we can make a greater difference and putting lots of chips on multichannel. So we are investing in the digital area, which is beginning to show results already this year, but will perhaps more relevantly contribute next year.

Finally, as concerns Oxiteno, we have not major expansions, there's hidden capacity there, right, the US plant still has room for growth, to gain productivity, improve occupancy, right, more or less in continuation of what we have been saying.

And diversification in this [garbled - audio failure]... look, let me just say this: I do not recall saying that I thought we should not hold 100% of Ipiranga. I may have said something at some point about us having flexibility in the future to consider some sort of partnership in the business, in a way, say, that was completely hypothetical and theoretical, but we do not have it at this point. Let me just deny any talks, ideas or actions in the sense of us having...

letting a partner into Ipiranga. There is really no such thing, ok?

That said, as concerns refining specifically, we would see even what Mário did as something positive, seeking out some kind of partnership, in particular a strategic partner to bid with us, but brought in by us directly.

Let us keep one thing in mind: in-between signings - assuming we are the winners, of course - and closing the deal there is some lead-time. So the potential is there, I would even say that it would be... we would see it as desirable, but we are not conditioning our participation in the process to the presence of a partner. We think it would be desirable, but we certainly have strategies in place to do it independently, to do it autonomously, and we think we have the capacity [garbled - audio failure] needed. This, then, is our position clearly stated.

As for gas, finally, we are naturally in a very preliminary studies phase, we are analyzing the value chain, giving it a hard look, not a superficial one, but we have not come to any conclusions and, if and when we enter the sector, what link in the chain it will be. This item is also on the agenda [garbled - audio failure], we are analyzing it.

Well, Ipiranga, the volume part, Rodrigo, I think you make be better able to handle it.

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Rodrigo Pizzinatto: Sure, Fred. Hi, Luiz, thank you for your questions. Well, as you can see from the [garbled - audio failure] market, April was the worst month in terms of the pandemic's effects on vehicular traffic and, as a consequence, on Ipiranga's volumes. We have since then been looking at a gradual recovery of Ipiranga's sales volume for all fuel types, and our focus has been on defending our own-brand chain, and we had some share loss in markets with narrower margins, which are the white wood markets, I mean, white flag markets, and TRR as well.

These, then, are the effects we endured in our share of volume. This market has unique traits and we have to keep watching it; if an opportunity for good margins arises there, we will act as well.

Luiz Carlos: Right, Fred and Rodrigo. Thanks a lot.

Operator: Let us remind the audience to limit themselves to two questions per turn.

The next question comes from Mr. Tiago Duarte, with BTG Pactual.

Tiago Duarte: Hello, good morning everyone. Thank you for the opportunity. Good morning, Frederico, good morning, Rodrigo. I will stick to the two questions. Two questions about Ipiranga.

First, about the approximately R$ 66 million in cost that you have booked in connection with CBIO. If you could just explain a little more how this is taking place from the angle of... I understand that at least some of that is like a provision for the 2.9 million CBIOs that you must buy this year according to the target set at the ANP. So, just so we can understand, since this is the first quarter, I imagine that those 66 million concern, let's put it this way, three quarters out of the four quarters of this year that you must, say, provision for.

So, just to see if this rationale is correct, that is, almost irrespective of the number of CBIOs that you have already bought, if those 66 million concern the first nine months and there should be another tranche coming for the last quarter this year. Just so that I can understand how we must look at how this will influence Ipiranga's earnings in the fourth quarter and in the coming years, right?

The second question has to do with the process of, first, pruning the service stations chain. You opened up 72 stations added, 70 stations lost. Just to see if you believe that this process...

you always say that it is an ongoing process, but I would like to know if this brisker pruning process that we have been seeing in recent quarters is close to an end or not yet. Just so know when we should begin to see net stations added pick up pace. This would be part one.

Part two has to do with the pruning of AMPM, the 24% of stores that you removed from the chain, just so we know how to read into this going forward in the sense of a model shift, or even how this is expected to impact the return on the business and even for Ultrapar's Holding Company. Thank you.

Rodrigo Pizzinatto: Hi, Tiago, let me take your questions beginning with the CBIOs. This is our first year of operations in this market and, in this first year, by the way, the targets have just

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been set for 2020 due to the pandemic-related revision. Trading, the pricing of CBIOs, takes place in an open market and the price is non-linear, it varies, as you could see.

The amount we have booked, the 66 million in the third quarter, is a large portion of what we needed to buy in the period. The amount covers a just under half of our requirement for 2020, but I will not go into additional detail because this is part of Ipiranga's strategy, including for the purchase of CBIOs. What I can tell you is that this amount is a little less than half of the total we must buy this year. The bulk of it, of the CBIOs volume, we have already bought for the year and we booked a little less than half this quarter, the remainder will be booked in the fourth quarter.

About the second question, the one about chain additions, as we have been disclosing to you, the incoming stations have far greater gallonage than the outgoing ones. So we are pruning off lower-gallonage stations and gaining others with greater gallonage, so there is a throughput gain for the Ipiranga chain.

Looking bit farther down the road, the focus when it comes to stations is not the number of locations, but the volume they provide. So we anticipate no big changes going forward. This is a natural oscillation, it is natural chain churn.

As for AMPM, the pruning is done. We have, as shown in both the [doubtful term - ANIS] and the presentation, revised the AMPM management, operations and stores model. We ran initial trials for the model and the results have been very positive. It has been bringing in additional sales, largely in relation with food service and, when we looked at our chain, we spotted the stores that do not fit in with the new model, so we are cleaning out the entire chain all at once in this quarter.

Looking forward, as with the stations, we have no big changes coming, except for the natural chain pruning process.

Frederico Curado: Rodrigo, just to supplement Rodrigo's answer to the AMPM question, what we plan to do is increase chain penetration, that is, there is room to increase the percentage of stations with AMPM stores. Just to supplement.

Tiago Duarte: Perfect. Just a quick follow-up question on the stations. You sporadically disclose a number to us during conference calls that is like a backlog of stations that have already signed up but are not yet operating, are not yet active. Early this year, the figure was close to 2%, if I am not mistaken, when we talked in 1Q's conference call.

I do not know if you have this number available, just so we can have a sense of stations that will join your base in the coming months.

Rodrigo Pizzinatto: Around 100 stations, Tiago.

Tiago Duarte: Perfect. Thank you, Rodrigo.

Operator: Our next question comes from Mr. Christian Audi, with Santander.

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Cristian Audi: Thank you. Good morning, Fred and Rodrigo. Rodrigo, good luck with your new CFO duties.

I have one question for each of you. Fred, on the portfolio side, can you just shed some light on where the project is at... I know that you placed a bid for Repar as announced by Petrobras, but there has been no closing so far. What is the timing like for it? Do you believe that it will close this year, or more like next year?

As for Oxiteno, it is an asset that has proved itself highly resilient, particularly during these Covid days, but it is also an asset that requires a lot of capital, and you already invested much capital in this business in the past. I just want to know your mind given this dynamics of it being on the one hand a resilient business that you would like to keep in the portfolio, but, on the other, a business that requires lots of capital.

Then, Rodrigo, looking forward to October, November, you said that market conditions are improving. Still, I would like to know how you see the fourth quarter in the sense that it will be atypical, right, in the sense that December was previously a month in which things move more slowly, factories shut down temporarily because of vacations, but maybe it will not be the case because of the Covid.

So, do you believe we might have a positive surprise in the sense of the fourth quarter, which is seasonally weaker, might perhaps not be this year? Thank you.

Frederico Curado: Hi, Christian, how are you? Thank you for your question. Well, on the portfolio, on the matter of the [garbled - audio failure], Petrobras's view of refining, I am afraid I cannot comment because of confidentiality. We released a material fact reflecting what Petrobras disclosed and it is obviously public knowledge that we are at the final stages for it, but I cannot comment on timing, except that, of course, the pandemic scenario slowed down the process a bit.

Like I also mentioned, this is not a process where between [garbled - audio failure] and the closing is a lot of work, including Petrobras's carve-out of its own assets. That is, it is not something for the very short term, it is more like a medium- and long-run project. This has not changed, it has been since way from the beginning.

S, please forgive me, but I cannot comment more specifically than that lest I cross the non- disclosure line in view of the process, ok?.

About Oxiteno, you are obviously right, it is a company with rather large integrated capital, and we have been making an effort in recent years to add to the return on the invested capital. It saw massive expansions in recent years, with projects in Bahia, an expansion project in Mauá, and in particular this project [garbled - audio failure], so the focus, we joke around internally that there are three key focal points at Oxiteno: execution, execution and execution. And they have been quite competent doing it, so the results are not due to liberality, they are associated with improving the asset's return and [garbled - audio failure] with a huge range of actions to this end, before we think about a new investment cycle.

Will you take the fourth quarter question, Rodrigo?

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Rodrigo Pizzinatto: I will. Christian, how are you? Thanks for the kind wishes.

Before we get to 4Q, and just looking back for a while, the pandemic threw the economy into imbalance, as you have been seeing in different sectors: some sectors are carrying on strong, others have been hit harder. So we look at our business and sees manufacturing, for example, with a positive effect on bulks at Ultragaz and on the volume of [doubtful term - viga] at Ipiranga, which saw a substantially smaller drop than during the Otto cycle.

Looking a little bit forward into the fourth quarter, it is hard to anticipate the seasonal effects typical of the fourth quarter because of these imbalances, but we continue to see volume recover gradually at Ipiranga and a strong volume at Ultragaz, boosted by manufacturing, and bulk gas as well recovering and growing at Ultragaz.

Christian Audi: Ok, thank you.

Operator: The next question comes from Mr. Regis Cardoso, with Credit Suisse.

Regis Cardoso: Hi, Fred, Rodrigo. Good morning and thank you for taking questions. Rodrigo, welcome, I wish you great success in your new position. I have two questions from my end. Both are mainly intended to enable understanding the recurring results, which were rather good.

One thing that caught our attention was the level of expenses, both sales and G&A. G&A, in particular, had already dropped significantly in 2Q and increased sharply from 2Q to 3Q, but is still below last year's. I am thinking mostly of Ipiranga as I ask the question, but I guess it applies to Ultrapar in consolidated terms.

So, the question more generally is as follows: this level of expenses that we saw in 3Q, does it still come from contingency measures, so that the expenses should go back to the original levels in coming periods, or do you think the current levels may be recurring? For Ipiranga, in particular, if you can comment, it seems to me that there has been a reversal of PBC, which may have helped the selling expenses line.

Then, on the other two topics, and still in terms of recurring results, can you comment on whether the quarter's inventory effects contributed to Ipiranga's earnings, and on how far the zero cost collar has been having a negative impact on Oxiteno? I mean, come next year, when the instrument matures, one should expect even higher EBITDA from Oxiteno, I suppose. Those are my questions, thank you.

Rodrigo Pizzinatto: Hi, Regis, I will take your questions. Thank you for the kind wishes, also.

On the SG&A expenses level overall, I think there are four main factors behind the reduction. One is the volume effect: when volume lies below the previous period's (and this is more pronounced at Ipiranga), volume-related expenses, and freight in particular, will drop; as you recover sales volumes, the expense recovers hand-in-hand with it, so it partly varies with billings and sales; it is partly due to rising results themselves, as we pointed out, particularly at Oxiteno, at Ultragaz, increased provisioning for profit sharing, for the bonus, due to the earnings increase we have been seeing at the company. This depends on the prospect of keeping this growth going next year. If I keep getting consecutive growth rates, we will also

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continue increased variable income; a third effect is the pandemic contingencies effect. This, too, affects the bottom line, with a time effect, given that expenses increase as the contingency measures decrease. There is a part of it that is time-related, but there is also a structural part that is the product of optimization efforts. And Ipiranga, as Marcelo discussed at length on Ultra Day, Ipiranga has been working on a structural reduction of its expenses level, and some of this reduction reflects this process.

About the PBC, to answer your Ipiranga-specific question, I think that it is good news for the third quarter, which is us returning... There was a concern with the pandemic's effects, Ipiranga acted quickly to support its resellers chain, including advances on credit from sales through the Abastece Aí app, postponed lease payments and financing payments, and temporary suspension of some volume-performance clauses under the reseller agreements.

This is reflecting in this good news for the third quarter, which is delinquency returning to regular levels. So I think it is good news, but affects the third quarter because there has been this provisions reversal.

As for inventories at Ipiranga, what we have seen this quarter, as you have been watching, were price increases from Petrobras, which positively affected, had a positive effect, on Ipiranga's bottom line. Add to this the inventory gain effect, the imports effect, the CBIO effect, we are talking about a combined positive effect from these three factors around R$100 million in the third quarter.

As for the effects of the zero cost collar that you asked about in connection with Oxiteno, in the third quarter it had a negative effect of around R$100 million on Oxiteno's EBITDA, on its results.

Regis Cardoso: Excellent, you have been very clear. Thank you, guys. Have a good day.

Operator: The next question comes from Mr. André Hachem, with Itaú.

André Hachem: Thank you for taking my questions. I have two very simple ones. Last month it was three years since Fred became Ultrapar's CEO. In your term, and I think this question comes not in one of the most critical times, but at a turn-around point for the company, you took charge of Ipiranga in what was perhaps a far more adverse moment because of the teamsters' strike, then came Covid, so there was a very adverse moment as a baseline. During your tenure you have also brought about big changes so far, a large turnover at every level of officerdom, that is, a succession process that you have been carrying out over the past three years, probably.

Could you comment on how Ultrapar three years ago, when you took over, differs from Ultrapar as you see it now?

Now, asking Rodrigo specifically, how do you regard the new challenges? I imagine that, going forward, much of Ultrapar's history will be abut new acquisitions that we see in the market at large and refineries. How do you see this in terms of funding, how do you see it in terms of the capital markets, how to you plan to access the market?

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Then, please discuss what you think changed in the past three years, both in terms of all of your actions within the group and in terms of how you are looking at the challenges of the coming three years or so?

Frederico Curado: A simple question, like you said, right, André? [laughter] But look, well, yes, it was three very intense years, they have been very intense, with one focal point precisely on the issue of the natural renewal of Ultrapar's officerdom, a renewal brought about by a very simple reason, right, that is, there were six people there that had been officers for quite some time, they had had lengthy tenures, a long time in their positions, and there was even an age issue, right?

So the process is very much along the lines of Grupo Ultra's cultural style, done in a planned way, respecting the phases peacefully, and I am even pleased to say that, when I came in, I was the second or third youngest officer, and now I think I am the oldest, the average age has been decreasing, I am at least one of the two oldest. So it has been very positive.

The group has very good values, very solid ones, business values, behavioral values, integrity values, it is able to attract people (in fact, one of the reasons why I attracted as well) of a very high level thanks to this.

What we have been pursing, really, is to add dynamism to the business, add agility, a business model that emphasizes the autonomy and accountability of each business's CEO. That is, it is no accident that we no longer call business leaders Officers and Superintendents, the job title is old and even inappropriate, I would say, failing to represent was is expected of a company's chief executive. So we now have CEOs, the CEO of Ipiranga, the CEO of Extrafarma, the CEO of Oxiteno, Officers and Superintendents as business leaders.

Ao, I thing that this business model of additional responsibility and accountability for business, growth, responsibility for developing teams and business, ends up forming a... magnifying, as I see it, the power of management, the power to create value, compared with a small group at Ultrapar, the Ultrapar Holding, trying to play every instrument at once.

I mean, I think it is easier to try to organize an orchestra, well, not easier, it is not, but far more promising to try to organize an orchestra that can carry a tune, but with each instrument entrusted to the respective musician.

Of course, I believe that our main responsibility as Officers and Directors of the company lies in capital allocation. So I guess we have two phases there, right, a phase of results recovery and perhaps a few course corrections, and actual preparation for a different cycle.

We have, obviously, a highly important and material project that is our potential entry intro refining, we see this as an opportunity that appears very seldom, we have rather large downstream synergy within the industry with Ipiranga, with Ultragaz, with Ultracargo itself. So I think the main challenge before us lies precisely in identifying these opportunities in having the skill and ability to take advantage of these opportunities, and, of course, to execute as well, later on.

So, in very summary terms, I think this is a bit of the vision, and, yes, it has been three years, I did not even quite realize, but they really just flew.

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André Hachem: Perfect, thank you very much, Fred.

Rodrigo Pizzinatto: I think all that is left is to answer the leverage question, André. Well, as you have been saying in the past few quarters, we have been able to reduce leverage, despite our EBITDA weakening a bit in the second quarter, but our businesses are generating cash, generating good cash, which enabled, despite the weaker EBITDA, reducing leverage, which improves our ability to fund potential acquisitions out of our own balance sheet.

If a good investment opportunity comes up, we will have fast deleveraging visibility, we will make the call, but always looking at rapid return with a more comfortable recurring baseline leverage, and we believe that the current level needs to decrease a bit to become comfortable.

Bear in mind, also, as mentioned before, we are not bound to keep every business with 100% controlling stakes, and if a good investment opportunity emerges that requires a call like this to become feasible, we will make that call as well. All of this is under review.

André Hachem: Perfect, Rodrigo, crystal-clear. Thank you very much for your answers.

Operator: Our next question comes from Ms. Fernanda Cunha, with Citibank.

Our next question comes from Mr. Bruno Montanari, Morgan Stanley. Please, go ahead.

Bruno Montanari: Good afternoon, thank you for taking my questions. They have mostly been answered, but I have two more.

Could you comment on what your fuel imports book looks like today, in terms of Petrobras price, exchange rate? What do you have in mind for the coming month and quarters?

And a specific Extrafarma question. I would like to understand, see, we are now looking at wider margins, between 5% and 6%, is this the normal, expected level, or what is the potential margin for the drugstores business under the new structure. And, having reached this level, would it make sense to go forward with a potential partial or complete sale of this specific business? Thank you.

Rodrigo Pizzinatto: I think I will take the first question and leave Fred the second.

Well, we have been maintaining a recurring level of imports at Ipiranga that is in the range of 15% to 20% of our needs, and the window is a bit tighter right now. These oscillations are natural, the windows open and close over time. At this point, the windows are a bit tighter.

And now I yield to Fred for the second question.

Frederico Curado: Our focus has been [garbled - audio failure], and Rodrigo was the main leader of the process since 2018 when he took over the company, we have been working together to really bring the company to a level of return and cash generation apart from where we were, so this significantly involved a strategic reversal, an actual reversal, but also involved a management process, right, I would say that, I would not say that [garbled - audio failure] complete, but something along these lines.

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I do not think the process is fully complete, we must go on, as Rodrigo said, we have 30%, if I am not mistaken, of the chain still maturing, we have a Distribution Center in the North that will open late this year/early next year. That is, we still have recovery and return tasks to complete, so, yes, there is room to expand margins, and the main growth lever for the business, as we see it, will be digital.

This has been the focus: team building, too. Today's team is far stronger, the one that came from [garbled - Basali] is also a great addition to our team, he has great retail experience, which ends up adding to our, well, business skill with the specific retail skills he has.

Obviously, in terms of stock control, it is something that we as a company with a structure and a business portfolio are constantly looking out for opportunities, trends, etc. but the real focus is to stay the course of earnings recovery and cash generation.

Bruno Montanari: Thank you very much.

Operator: We now conclude the questions and answers session. I would like to turn the floor back to Mr. Rodrigo Pizzicato for his closing remarks, Please, go ahead with your closing remarks.

Rodrigo Pizzinatto: Well, thank you everyone for your interest and questions, and I hope to see you all again when we release our fourth quarter results next year. Till next time, guys. Bye.

Operator: Thank you. This concludes Ultrapar's results conference call. Please, disconnect your lines at this time.

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