Ultrapar Participacoes SA

BOVESPA:UGPA3

Earnings Call Analysis

Ultrapar's Strong Q3 Performance

Ultrapar's Q3 2023 was remarkable, with EBITDA surging 124% year-over-year to BRL 1,992 million, led by Ipiranga's noteworthy 184% increase. Net income skyrocketed to BRL 891 million from BRL 83 million in Q3 2022. The firm's prudent investment approach led to a 27% reduction in capital expenditures and an operating cash flow jump by BRL 609 million. Robust cash generation and the sale of Extrafarma enabled a dramatic net debt decrease to BRL 7.1 billion and a historic 1.4x leverage ratio. Ultragaz reported a subtle 1% LPG volume boost and a strong 36% EBITDA increase. Ultracargo's capacity expanded by 11%, while its EBITDA grew by 27%. Despite a marginal 2% dip in volumes, Ipiranga's strategic maneuvering of service stations solidified its market position without impacting its share or EBITDA, which impressively surged to BRL 1,513 million.

Earnings Recovery and Operational Highlights

In the recent quarters, the company has navigated a volatile fuel distribution sector, marked by reductions in fuel costs and an inventory loss. The third quarter of 2022 saw a normalization of the commercial environment due to a more regular supply of products in the market, which affected the second quarter results. These two factors were mitigated by higher expenses, but the third quarter also benefited from inventory gains. This resulted in an expectation of EBITDA per cubic meter for the fourth quarter that would surpass the last 12 months, indicating a continued recovery of return levels for the industry.

Competitive Dynamics and Market Conditions

The fourth quarter is expected to be more balanced regarding supply and demand, a refinement from the surplus of product and major inventory losses experienced in the first quarter. This equilibrium is anticipated as a transitional phase with a likely increase in import appetites, as the market adapts to price parity dynamics. Further, a return to normal inventory levels is expected to bolster the company's margins. Exploring growth prospects, particularly in the agribusiness and energy transition sectors, continues to be a strategic focus. However, investment decisions are strictly examined based on risk-return ratios, emphasizing the need for lucrative yet secure projects.

Service Station Network and Impact on Financials

The company anticipates a healthy effect on its network following the completion of a cleanup of legacy service stations. This will likely lead to increased productivity and improved receivables status. While the effort on network improvement is acknowledged, the exact impact on receivables is not anticipated to be substantial going forward. Ipiranga's branding strategy remains consistent, emphasizing investments in high-return service stations and enhancing quality standards. Discussions around the four pillars reveal long-term opportunities for operational enhancement, particularly within logistics—the full benefits of which could be realized by the end of 2025.

Investment Strategy and Capital Allocation

The company's solid balance sheet positions it well for future investment opportunities. Current strategies involve selective project investments and growth avenues such as organic acquisitions, with a disciplined risk-return approach. This has been demonstrated by the purchase of Opla and investments in NEOgas and Stella. The target return rate is aimed at 20%, deemed appropriate for the risk level inherent in the business. If suitable investment channels for cash are not identified, the company is prepared to increase dividend payments, maintaining an optimal capital structure.

Prospect on Returns and Market Strategy

With improvements in results and cash flow, the company eyes a return to a 20% return rate, a level previously seen in the industry, driven not solely by margins but also by a conducive environment and potential improvements in operations. Regulatory advances in Brazil, alongside the management of trade and logistic challenges, suggest a constructive outlook. The company positions itself for a reinvigorated margin after tackling counterfeit product issues and capitalizing on a more standardized tax regime, which promises to level the playing field for law-abiding entities.

Approach to Future Acquisitions and Dividends

Continuing to nurture growth, the company evaluates acquisitions through stringent criteria of influence and strategic fit. While full ownership is not always necessary, having a significant say in the business direction is paramount. If investment opportunities offering adequate returns do not present themselves, the company is poised to enhance shareholder returns through improved dividend payments, aligning with its objective of avoiding a sub-optimal capital structure.

Earnings Call Transcript 2023-Q3

[Operator]

[Operator Instructions] 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'd like to turn the conference over to Mr. Rodrigo Pizzinatto. Mr. Rodrigo, you may now begin the conference.

[Rodrigo de Almeida Pizzinatto, executive]

Good morning, everyone. It is a pleasure to be here once more to talk about Ultrapar's results. And starting on Slide #2, I remind you that both the earnings release in this presentation consider Ultrapar's data from continuing operations in 2023. As for 2022, the company's data is presented in the pro forma view considering the sum of continuing and discontinued operations as disclosed throughout last year unless otherwise stated.Moving now to Slide #3 with Ultrapar's consolidated results. As you can see in the chart in the upper left side, our recurring EBITDA from continuing operations totaled BRL 1,992 million in the third quarter of 2023, 124% higher year-over-year. This increase is due to the higher EBITDA at our businesses, especially Ipiranga, results that I will go through in detail in the next slides.Ultrapar's net income was BRL 891 million in the third quarter compared to BRL 83 million in the third quarter of '22, mainly on the back of the higher EBITDA from continuing operations. Investments from continuing operations totaled BRL 380 million in this third quarter, 27% lower than that of the third quarter of '22 due to lower investments at Ipiranga, partially offset by higher investments at Ultracargo. We had, in the third quarter, an operating cash generation of BRL 1,901 million, BRL 609 million above that of the third quarter of '22. This increase is a result of the higher EBITDA, partially offset by the reduction in draft discount balance and the investment in working capital in the third quarter of '23 and arising from the increase in fuel prices.I remind you that in the third quarter of '22, on the other hand, there was a release of working capital as a consequence of the reduction in fuel prices in that period. If we exclude the reduction of BRL 294 million in the draft discount balance, the operating cash generation in this third quarter was BRL 2,195 million.Moving now to Slide 4 to talk about our liability management. We ended the third quarter with a net debt of BRL 7.1 billion, a reduction of BRL 924 million compared to June '23. This decrease resulted from greater operating cash generation, partially offset by the payment of dividends and the reduction of BRL 294 million in the direct discount balance this quarter. In addition to this effect, during the third quarter, we received the second installment from the sale of Extrafarma in the amount of BRL 198 million, and we disbursed BRL 210 million for the acquisition of Opla.Our leverage went from 2.1x in June '23 to 1.4x in September '23, the lowest level of the last 10 years. On the back of the higher LTM EBITDA from continuing operations with cash generation and consequently, the reduction in net debt that I've just mentioned. I'd like to point out that the numbers of net debt still do not include pending receivables of BRL 932 million related to the sales of Oxiteno and Extrafarma. We've included at the bottom of this slide, a table with the total amount of draft discount and vendor lines as well as pending receivables from the sales of Oxiteno and Extrafarma, all lines highlighted in our balance sheet. The net debt of September '23, adding the draft discount vendor and divestment receivables would be BRL 7.7 billion which is BRL 1,746 million lower than the balance of September '22, 1 year ago.Moving on to Slide #5 to talk about another excellent quarter of Ultragaz. The volume of LPG sold in this third quarter was 1% higher year-over-year due to a 4% increase in the bulk segment on the back of higher sales to industries. The bottled segment in its turn remained flat. Ultragaz SG&A in this third quarter was 15% higher than that of the third quarter of '22 due to 2 manufacturers, expenses with freight due to higher sales volume and higher expenses with personnel, mainly collected by gaining agreement in variable compensation, in line with the progression of results and a larger headcount due to the acquisitions of Stella and NEOgas.Ultragaz EBITDA totaled BRL 453 million, 36% higher year-over-year. This growth is mainly explained by efficiency and productivity initiatives implemented in the last quarters by better sales mix and by inflation pass-through despite higher expenses. For the fourth quarter, we expect a profitability measured in EBITDA per ton, similar to that of the third quarter despite seasonally lower volumes.Moving now to Slide 6 to talk about another great quarter of Ultracargo. The company's average installed capacity was 1,059,000 cubic meters in the third quarter of '23, and a 11% growth year-over-year. This increase results from 3 capacity additions carried out in recent months, 90,000 cubic meters coming from the acquisition of the 50% stake in Opla as of July, 12,000 cubic meters from the acquisition of the Rondonopolis base from Ipiranga in September and 10,000 cubic meters relating to the expansion of the Vila do Conde terminal.These capacity additions had no material impact in this quarter's results and should begin to gradually contribute to the upcoming months as operations ramp up. The cubic meters sold increased by 26%, mainly due to higher handling of use in Itaqui, in Santos and in Suape and the start up of operations in Opla. Truck cargo's net revenues were BRL 264 million in this third quarter, 18% higher year-over-year as a result of spot sales, higher cubic meters sold and higher tariffs. Combined cost and expenses were 8% higher than those of the third quarter of '22, as a result of higher personnel expenses, mainly collective bargaining agreement in variable compensation in line with the progression of results.We also had higher expenses with advisory and consulting services linked to expansion projects. Truck cargo's EBITDA totaled BRL 173 million in the quarter, a growth of 27% year-over-year due to higher capacity occupancy with profitability gains, spot sales, higher tariffs and productivity and efficiency gains despite higher expenses. EBITDA margin was 65% in this quarter, 5 percentage points above that of the third quarter of '22. And for the current quarter, we expect Ultracargo to continue its good operating performance, but with fewer spot sales marginally reducing its results.And to conclude this presentation, moving on to Slide 7, let's talk about Ipiranga's result. Volumes sold in the quarter decreased 2% year-over-year, with a 3% reduction in the Otto cycle and a 1% reduction in diesel mainly due to the strategy of lower sales to the spot market during this period. We ended the third quarter with a network of 5,816 service stations, 565 stations less than that of June '23. In September, we concluded the process of managing the legacy of service stations started in 2022. A total of 70 new service stations were added to the network with an average volume contribution of 288 cubic meters per month.On the other hand, 535 service stations were closed with an average volume contribution of 57 cubic meters per month. The greater number of stations closed this quarter relates to the decision to also close service stations with commercial practices, not aligned with business principles and in this agreement with contractual obligations. This increased level of closure of stations did not have a relevant impact on Ipiranga's market share or results.In addition, we ended the quarter with 1,542 AmPm stores with same-store sales growth of 9% year-over-year. Ipiranga's SG&A increased 27% in the quarter due to 4 main factors: higher provisions for contingencies, higher provision for doubtful accounts, higher marketing expenses and higher personnel expenses, mainly collective bargaining agreement in variable compensation in line with the progression of results.The other operating results line totaled negative BRL 178 million in the quarter, in line with the third quarter of '22. The disposal of assets line totaled BRL 68 million, mainly due to the capital gain related to the sale of the Rondonopolis base Ultracargo in the amount of BRL 59 million and the sale of 3 real estate assets. Ipiranga's EBITDA totaled BRL 1,513 million in the quarter, 184% higher than that of the third quarter of '22. Recurring EBITDA was BRL 1,445 million in the quarter, 199% higher year-over-year. The higher EBITDA mainly reflects 2 factors: First, margins benefited from the inventory gains caused by the increase in fuel costs throughout the quarter. I remind you that in the third quarter of '22, we had reductions in fuel costs and inventory loss.The second factor was the normalization of the commercial environment in the third quarter of 23% due to a more regular product supply in the market, which affected the second quarter results. These 2 factors were partially offset by higher expenses. As you may have noted, the fuel distribution sector has had more volatile results in recent quarters. Therefore, we also highlighted on the slide the EBITDA per cubic meter of the last 12 months, helping to provide a better perspective of the results over time.In addition to the normalization of product supply, the third quarter result benefited from inventory gains. For the fourth quarter, considering the current scenario of product supply and no significant impact of inventories, we expect a profitability measured in EBITDA per cubic meter above that of the last 12 months and continued recovery of the return levels of the industry.With that, I now conclude my presentation. I appreciate your interest and attention, and let's now move on to the Q&A session, in which we are available to answer your questions. Thank you.

[Operator]

[Operator Instructions] The first question comes from Monique Greco, Itau BBA.

[Monique Greco, analyst]

Congratulations on your strong results. I have 2 questions on my side. Let me start from the end of your presentation, Pizzinatto. You talked about the dynamics expected in terms of margin for quarter 4 in Ipiranga. Can you please share with us a little bit more about what you are feeling in terms of the competitive dynamics in quarter 4. We saw that in the first half of the year, this competitive dynamics was very late with a products imported from [indiscernible]. So can you please share with us what you see for the dynamics, the diesel dynamics in quarter 4?And also, we have been talking a lot about diesel and the Otto cycle dropped in the background. So we also like to hear from you what the dynamics look like for the Otto cycle. And [indiscernible] is that in Opla, you talked a lot about the opportunities for today with a strong focus on agri business and also energy transition. Can you please talk more about this, what the prospect in opportunities in this sector? What are the main criteria that you consider when you're looking at these opportunities? Thank you

[Leonardo Linden, executive]

Hello, Monique. This is Linden. On your first question was about competitive dynamics. Of course, this is a never competitive market. And in quarter 4, we are seeing a more balanced situation in terms of supply and demand, which balances out the market. But we have to look at this market as a movie and not a snapshot. What we saw in quarter 3 was indeed a favorable scenario for our business, but we cannot forget that we were coming from a quarter 1, which was very poor in terms of -- we had some major inventory losses with a high supply of diesel as you said yourself. And this scenario started to change in quarter 3 and then we had some inventory gains and better market conditions.And in quarter 4, I'd say this is more balanced. But it is a transition quarter because we are also starting to see some parity opening up, we start to see a higher appetite for imports. So I think we will have a transitional quarter in quarter 4. But as you heard in Rodrigo's explanation, we are looking at quarter 4 with -- potentially with higher margins than what we saw in the past 12 months.And just an additional comment Monique, in the first half, we had an excess of products in the market. And retail fuel is no different from our industry, so you have excess product that will negatively impact your margins, which is what we -- and what we had in quarter 3, and that should remain in quarter 4 is this return to normal levels, normal stock levels in the industry, and that allows our margin to return to the levels expected.So now I'd like to hand the conference over to Marcos.

[Marcos Lutz, executive]

Hello, Monique. So let's start by the criteria, which I think is the most important point in your question. We will have to have huge discipline looking at the risk return ratio of our projects. As we said, we want to be more exposed to a business. We want to grow more in these regions in our 3 areas of business, Ultracargo, Ultragaz and Ipiranga are making all the efforts to expand their operations in these markets. And we are considering multiple projects and companies that have a higher exposure to these markets. And the main criterion here is the return on investment, of course, combined with the risks of this investment.So these are more mature projects that give us slightly lower return, but have also lower risk are very attractive and less mature projects have higher risk, and that has to be justified. And also about risk return, it is important to note that even with the current return levels, the risk return ratio of field distribution project in Brazil is not yet appropriate. We have a volatility level that we think is here to stay in this segment. And this would warrant a high -- requirement for a higher return from these projects today. We see, for example, that the price in Brazil is higher than the international price. So this increases the entrance of products, so we should have an inventory loss because we should see a price reduction in Brazil shortly in the future because it doesn't make sense to have a price which is not higher than the international price.So we will see this volatility taking place. It's what I said about seeing it as a movie versus a snapshot. We need to bring more focus on in the past 12 months and not just the past quarter to evaluate whether we are going in the right direction or not.

[Operator]

The next question comes from Leonardo Marcondes, Bank of America.

[Leonardo Marcondes, analyst]

I have 2 questions about Ipiranga. My first question is about the service stations, can you please recap what are the effects that we can expect in Ipiranga after you finish this project with [Technical Difficulty]? And also, what can you expect from the company in terms of the future? And your brand strategy for the future. And also I have a question about Ipiranga's business -- Ipiranga's margins. You already mentioned what you expect for quarter four. But looking at the mid to long term, I think your market having a recurring margin of about BRL 100 or BRL 110 per cubic meter from you.In your mind, is this level of margin make sense or do you think you can have a stronger recurring margin for Ipiranga moving forward? And still within this context, considering the 4 pillars of the turnaround process of the company, is there still room for improvement in your opinion? And if yes, this improvement will come for each pillar -- for which pillars? You remember that there was -- I remember you mentioned that there were some improvements to be made in your network and logistics. So can you give us more color about that?

[Rodrigo de Almeida Pizzinatto, executive]

Well, about the close down of service station, I'd say that the effect will be a healthy effect both from the Ipiranga standpoint and also the reseller standpoint. This was a clearance of legacy service stations that we absolutely had to do, and as you said, we are coming to the end of this process and what we still expect to have in the future is a natural clearance of our network and service stations, which takes place naturally. But the bulk of this process is already finished. And you start to see the effect, for example, when you start seeing productivity gains or increased productivity of each Ipiranga service station.For the brand strategy, we will continue with the same strategy that we have been using so far. We are making investments, raising the bar of quality because of the reasons we mentioned before because we won points of sale that have the highest potential. We are looking at our business, prioritizing the highest returns on service stations because this brings us a healthier relationship. And we will keep investing as we have been investing in the past years, as I said, with now a slightly higher level of quality. We are always raising the bar.Now as for the margin, we talked about this during Monique's question, but you asked us if this makes sense. One thing is what we expect. And another thing is what we should have according to the compensation we will have expected for the business. For the next quarter or this quarter that is starting, now we're expecting a margin higher than what we saw in the past 12 months. But what we should have in this business is something that could provide us with a return of about 20%, which is what we are pursuing. So as an industry, I think we still have room to improve in terms of profitability, and that's what we have been working for.

[Leonardo Marcondes, analyst]

Just one follow-up question about service stations. I remember that it was the point of depreciation. And now with a healthier network, I imagine that there will be a positive impact on the receivables of Ipiranga overall. So can you please talk about this, just to recap.

[Rodrigo de Almeida Pizzinatto, executive]

Hello Leonardo, this is Rodrigo. Yes, we should see a benefit in the reduction of amortization and depreciation for Ipiranga, but remember that we have other investments to make, so it's the dynamics in our depreciation. But this standalone effect finished now in the month of September, so we should see this benefit of reduction in our depreciation and amortization. And I didn't understand your question about the impact on [ non-IFRS ].

[Leonardo Marcondes, analyst]

Now, that you have a healthier network and more robust network of service stations, is there still room to improve your receivables?

[Rodrigo de Almeida Pizzinatto, executive]

I don't think that's relevant, Leonardo. The effect on receivables reflects the best situation in terms of receivable now. So we don't have any additional recognition [indiscernible] in the future or looking forward. And Leonardo, to your last question about, if there is any room for improvement --

[Leonardo Marcondes, analyst]

And you talked about the 4 pillars.

[Rodrigo de Almeida Pizzinatto, executive]

Oh, yes, the 4 pillars.

[Leonardo Marcondes, analyst]

Yes. In your Investor Day, you mentioned the 4 pillars. And the point that there's still room to do more in terms of trade and logistics. So I want to know if you've seen any evolution since then that you can share with us.

[Rodrigo de Almeida Pizzinatto, executive]

So first, just a general comment. I don't like talking about turnaround anymore because I think they're past that, but I want to talk about improvement processes. And yes, indeed, in line with the 4 pillars that we have been discussing for a long time now, we even said in Ultra Day and we have our logistics pillar, which is more of a structural pillar and it will still take us some time until we can actually enhance and potentialize the improvement that we see for this pillar. We're expecting to potentially gain by the end of 2025. But you're right, certainly, we have room to improve further in Ipiranga's operations.

[Operator]

The next question comes from Thiago Duarte, BTG Pactual.

[Thiago Duarte, analyst]

Let me bring back the discussion to Ipiranga. We already talked about the margin with some very good information. But I heard Linden talking about this. When we talk about your brand strategy, because I think that these 2 things are related. But I want to go back to the topic of the share, because until the first -- the end of the first quarter, there was, as you said, there was excess product in the market, excess molecules. So you had a consistent loss of share, not just for Ipiranga but for the main -- the 3 main businesses in the industry -- in the 3 main companies in the industry.And now in the second half, there seems to be a recovery in the share and we talked about the imports from Russia, but this loss of share also took place in the Otto cycle. So I want to hear from Linden, I know that this is not the utmost goal of everything, but I believe that we have better operations now in a more balanced market and your value proposition after the turnaround is finished and your value proposition is very consistent and positive. I believe that you are expecting a resumption or a recovery in your market share or your volume as a positive symptom of this turnaround.So do you think it makes sense to think of this evolution as a positive indicator looking forward? Also considering your brand strategy, I think this positive value proposition will increase the opportunity to explore your brand. And as you said, you're raising the bar every time. This is my question.And my second question is for Marcos. And we know that the company's leverage today is much lower. You have a good cash generation and your results are improving more and more. So the market wants to know about your next movement. Have you discussed at a high level -- you discussed this at a high level during Ultra Day, and Marcos talked about this in this call. But my question is what format should we expect for your capital allocation movement in the future, aiming at growing the company? I heard from Marcos during the Ultra Day that company no longer has [indiscernible] of having to control 100% of the business. You're thinking of partnerships or minority stakes.So Marcos, I don't know if you can -- well, after time has passed, can you give us more information about what we can expect and what -- if the company is willing to hold minority stakes or non-controlling stakes on other companies? And what are the companies that you're considering in this pipeline?

[Leonardo Linden, executive]

Thiago, let me answer your first question. First, in terms of market share, we need to break this, for example, if you look at the share of contracted volume in our own network, we don't have any loss of share. If you look in the last 2 years, there was an evolution in our share, where we actually lost share because of the market decision that made was in the spot market. And this is due to issues related with supply -- the supply issues that we had in the first half of this year.Now the spot market represents a price-sensitive volume. So when you think you're recovering as good start then you can go back and compete in that market. So the -- we prioritize the supply to our own network because we were more concerned with supply at that time. So that's why we made this a top priority. And we stopped temporarily the supply in the spot market. I'm not [ reconfirmed ] with the share, the share is a consequence. What's important is the scale to volume and the share is a consequence of the quality of your value proposition and the work that you do.If you make high-quality investments and you have high-quality operations, the share will come naturally. And for the spot market, we will work on the spot market as it goes back to making sense to the company.

[Marcos Lutz, executive]

Thiago, first, I think that our role here as a capital allocator is to not be anxious or not to be as anxious as the rest of the market. We have to carefully look at the opportunities, and we don't control their timing. We have to be prepared for the opportunities and this we have been doing really well. Our balance today is well prepared for any opportunities that may arise in the future. But having said this, indeed, our main drivers here are the risk and the return that we expect from those projects.And our 3 businesses have been making investments and have been looking for avenues of growth. In some cases, we made some small acquisitions and organic acquisitions, which is the case of Ultragaz, which is now growing organically with the companies acquired. Also in cargo, we have a project of exploring the inner part of the country and out of the capitals with a broader logistics offer. Now as for Ultrapar, I think that first, in Ultrapar, we have a higher requirement or a high return because the money is closer to the shareholders, so we need to have higher return rates for those projects.Now in terms of the format, which was your specific question, we have fewer paradigms today, but we will not make investments where we do not have a relevant influence and where that business is heading. So we are adding value with the strategy, the structure, the business model, and we will not go for acquisitions where this cannot be leveraged. So I don't have to acquire 100% of a company. I don't need to be a controller at least not initially, but I need to have a clear path in terms of the influence I want to have on that business.So for example, acquiring a minority stake is not something that interests us because there will be a controller in the picture. So at the end of the day, we have a high level of clarity about what we want, but no, we do not necessarily need to acquire 100% of another company. What we need is to have a good return on investment versus the risk. And we want to buy efficiently. It is better to go for those projects and just buy 100% of the company and trying to control the timing of a transaction, which is not something that is under our control.

[Operator]

Next question comes from Luiz Carvalho, UBS.

[Luiz Carvalho, analyst]

Hello. Congratulations on the results. I have 2 questions. One, for Lutz and one for Linden. And looking at things from a different angle, in our last few calls, you shared a lot about this company strategy and capital allocation. But I want to know more details about the time frame and prioritization. So I want to understand how much you're focused on diversification for capital allocation? And how much that is to be done in terms of operational improvements? I will no longer call it turnaround. So is there anything that you can do fill in terms of your management preparation and that initial plan of having just one [ position ] in your board. So how are you allocating time and what are the priorities in the next 12 months?And my second question, going back to Linden's comment, it is very clear that there was an improvement in your competitive environment. I think it is unanimous that both small and larger players are more focused on profitability. And you mentioned a 20% return rate as an appropriate level for EBITDA that considering [indiscernible]. So how far -- thinking of the margin, so far is Ipiranga from the rest of the industry? For example, you talked about diesel and then there's ethanol, do you think we will see a fast improvement in these fields? And how do you see the competitive environment looking forward and your probability of reaching the 20% return rate as you mentioned.

[Marcos Lutz, executive]

You sound like my mother, Luiz. But when you ask about my time allocation, I don't have a very fixed routine. It will depend on the weeks and the demands on which we [indiscernible] we have a monthly routine with our business. Maybe I'd say it takes 25% of our time, and this is part of our routine. And the other 35% depend more on what's happening during that month in terms of business and also other aspects. Rodrigo and I also dedicate some time to governance, to the Board and the transition that is taking place and has been taking place in the Board and the major changes that we made in our governance and the generational transition. So I don't have a straight answer for you. But I don't think we have any time restriction if that is your concern for us to dedicate to new investments. We have the capacity. We have built this capacity over time. So I don't think there's any problem in that sense.Luiz, I think we have some positive points that allow us to believe that we can go back to the 20% return rate and the industry has been at a level before in the past. And what we also have missed. And it's not just about -- and returning to the 20% level is not just about the margin. It's the margin, but it is also the environment. And specifically, at [indiscernible], as we have been saying, we have some paths of improvement in our position that will help us get closer to the 20% return rate. Brazil has seen some advancements in the regulatory framework, you talked about some tax-related issues, which are positive. But there are also risks for this environment.We have the regular trade. We have tax efficient. We have problems with counterfeit products that we need to fight together as an industry. So as I said, you're looking at a snapshot. If we look at a snapshot of quarter 3, we are not that far. But if you look at the movie, there's still a lot of work to be done until we can get to the 20% return rate, but we are in the right track. But it's important, we shouldn't just wait for the margin to solve everything. We have to work also on the competitive environment and other business aspects and we also have some homework to do, some housekeeping to do to improve Ipiranga's operations as we have been doing in the past 2 years.

[Operator]

The next question comes from Rodrigo Almeida, Santander.

[Rodrigo Reis de Almeida, analyst]

I have 2 questions. First, we already talked about this today, we're able to set a different angle. I want to talk about the company's capital structure. Both in terms of energy and growth, the capital allocation and also the current capital of [indiscernible] so looking at the past 6 months, I know it is difficult to foresee which opportunities are for the future and in term [indiscernible] and in short-term, it is clear to us that you will continue to generate cash and we're having -- we have a relevant fresh entry expected for the quarter.So I want to talk about the capital aspect of the company. How do you think the company had in terms of its capital and how we face this capital structure will be 3 or 4 quarters from now? And what are the implications for dividend payout, buyback, and inorganic growth? I understand that you have a dividend policy and wanted to understand how the efficiency of your capital structure in the quarter can have an impact on that?My second question was also about [Technical Difficulty] and you talked about your societal reorganization and how changing the leadership or from [indiscernible] to a holding. And I want to understand what are your next steps? First in terms of this reorganization, what can we expect to more capital strength for different business for example on [Technical Difficulty] I don't know if maybe you want to increase the leverage for Ultragaz and Ultracargo or maybe optimize your -- maybe organize the liabilities [Technical Difficulty]? And also within the portfolio optimization, are you expecting something similar to what you recently did in Ultracargo? Are you going to be similar with Ipiranga?

[Rodrigo de Almeida Pizzinatto, executive]

Well, since the evolution in results in our cash flow, since we had this evolution in our results and cash flow, we can certainly are in a comfortable position in terms of cash generation. And we are using our cash for investment projects. We have concentration of investments in quarter 4 and we had a disbursement to acquire [ Opla ] in quarter 3, also the investments in NEOgas and Stella. And the way we look at our investments, Marcos talked about this, is very risk sensitive. So is there a business that we know well because in this place, the risk is much easier to measure and the lower the volatility of the company's business, the best you can foresee your flow. Ultracargo is a more stable business and Ultragaz is more volatile. And that's why the return rate that we under should go back to the level of 20%, which is suitable to the risk of the business.Now when we go from very well-known businesses to business that we do know that well, the level of return that we require is higher to the lack of knowledge in that business and the higher level of risk. So looking forward, if we don't have good applications for the cash and good costs for mid to long-term projects, we will increase the payment of dividends because we don't want to be at an sub-optimal capital structure.Now as for your question about the businesses, capital structure, the capital structure for each of the business will reflect that of the holding. But this is something that will be discussed timely at the right time when the time comes.

[Operator]

The next question is from [indiscernible] Citibank.

[Unknown Analyst]

I have 2 questions. My first question, I want to know more details about imports. I think it's a very unique dynamic what we saw in quarter 3, much different than what we saw earlier this year and a return to normal levels, which we haven't seen since 2020. And what I want to know from you is that at this point in the quarter, we have a little more fat to be trimmed in imports and maybe a more open window looking forward with a stronger lineup for November and December. So I don't know if maybe Linden can help us, but I want to understand how this dynamics will change considering this scenario?It seems to me that a great part of this relevant improvement that you had in your margin has to do with supply and how the market has behaved and changed the way it behaves since last year. And I don't know if I missed this part, but can you talk more about the import dynamics in quarter 3, how much it helped your sourcing with more competitive prices compared with the [indiscernible]. Can you give us more clarity that will help us better understand the results of Ipiranga?And my second point in other industries, in particular in the field industry, the tax issues are included. Maybe this is the main topic being discussed in the industry today, the tax reform and yesterday, they had their first win, their first vote and their first win for the tax reform and there's an important point, which is the point about ethanol. I think the exchange that everybody is expecting maybe the most relevant point of this tax reform relative to fuel is the point about ethanal and this could be game changing. And I want to hear from you how relevant it is for you and how could this affect your margin levels? Because since last year, this wasn't the case, there was an improvement in the industry, but this will cause a structural change in how this industry operates, and this will affect productivity, particularly for the 3 or 4 top companies in the industry. And how do you see this looking forward?

[Unknown Executive]

Hello. This is [indiscernible]. Let's try to put this in perspective and take a few steps that, I mean, look at this past in Ipiranga, investor or one of the Ipiranga's shareholders, it's very important to mention that the mill today operates at very low margins compared to the rest of the world. And the main reason for this is not an inefficiency of the distributors. There's a lot of efficiency, but the main point here, but there is a part of this model which is not operating according to the rules established with the government in terms of taxes and regulations and mixes. And this is in fight for us for who are complying with the law and responsibly working.And we are trying -- they are also trying to change the loss to simplify the loss so that they can be better enforced and inspected. Of course, this will improve collection by the government, and it will also improve the level play field. It will more easily establish a conversion model that will be more homogeneous. So this is my first point.What we did not see during this period, you talked about the margin. But if we always import products, we will always source enough product to meet the needs of our clients. For example, if our market share for our B2B clients, our largest clients will always be supplied by Ipiranga. And many months before we deliver, we are already preparing many and sourcing products for these clients. So even if the product was a little more heated in quarter 3, there was no stock out for our clients and -- but, of course, we have this phenomenon where we had some optimistic players. And in quarter 3, these are the optimistic players left the market, and this created an additional demand, which ended up being met by the largest companies, which were better structured and had more inventory. So it's important to mention this.So as you said, if we look at the snapshot today, we have a huge arbitrage for import. We don't believe that will last long. It doesn't make sense that internal prices charge that refineries in Brazil are much higher than the international price. So this is just a matter of timing. We believe that there will be an adjustment in the short of nature. And that adjustment will cause a major loss of inventory for distributors, including ourselves. This is part of the business. This always happens when the price drops, it seems like we always gain when the price increases. This is part of the business.So if you ask me, what do I think? If I think that regulatory improvement will be impacting your margin, I'd say that the margin will give a better return to investments made by the companies. For example, if you look at this math a while ago, when companies were running at 2%, 3%, 4%, 5%, 8% return on investment, it doesn't make sense now with a CDI of 12% and a company that has this volatility with a return on investment of 6%, 7%. So it is just natural for a well-structured company that has an infrastructure, a strong brand and the outlet, they should have a return of about 20%. So these adjustments -- these regulatory improvements should bring us to this scenario that I just described.And for consumers, it's -- the change is marginal. For example, you're going to have a net result of BRL 1 billion or BRL 130 billion. This means less than 1%. If it's BRL 2 billion, it's less than 2%. And in the end price to consumers, the change is marginal, but it is a brutal transformation for the industry in their category to invest, how much they can grow, how much they can improve their supply capacity and so on and so forth. So of course, my answer is more macro focused, but I think it's important that we all understand these points.

[Unknown Analyst]

And just a follow-up question about the regulatory changes. One of the discussions that were raised recently, so maybe have a national operation for a few different picture. I know it doesn't sound like a first, but how did you -- how can you mitigate this range?

[Leonardo Linden, executive]

Well, I think it's early to say. But if this is to reduce tax evasion and increase the efficiency of tax collection in Brazil, we can see that in a good light. But it's too early to say. I don't think that anyone today can truly know what's being built for the future. I think there's a dialogue between the industry and the government right now and this could take me to the future or not, it's too early.

[Operator]

The next question comes from Bruno Montanari, Morgan Stanley.

[Bruno Montanari, analyst]

I have a question about what we comment about the seasonality. We know that you in the past [Technical Difficulty] quarter 4? And fortunately that [Technical Difficulty] seasonality is ever stronger. So we talked about BRL 2.2 billion in investments. So how is the company expecting to close the year? Will you be able to make a an investment in quarter 4? Or will the numbers be lower than expected? And will this roll out into '24?

[Rodrigo de Almeida Pizzinatto, executive]

Well, our investment plan, we see it as a cap, as a capital investments for the year. So I'd say it is normal to have slightly lower numbers, and that is an reflection -- retraction in quarter 4. So part of our investment may go over to '24, but it's not part of the plan. Maybe we're talking about slightly lower numbers than what was planned.

[Operator]

If we have no further questions, I'd like to hand the conference back to Mr. Rodrigo Pizzinatto for his final remarks. Mr. Pizzinatto, you may proceed.

[Rodrigo de Almeida Pizzinatto, executive]

Thank you for your questions. Our Investor Relations team will answer all the questions that were submitted to our webcast platform and we hope to see you in our next earnings call. Thank you.

[Operator]

Ultrapar's quarter 3 earnings conference call is now closed. You may now disconnect your lines. Have a great day.