Ultrapar Participacoes SA

BOVESPA:UGPA3

Earnings Call Analysis

Ultrapar Posts Strong 2023 Growth, Expands Investment

In 2023, Ultrapar's consolidated EBITDA soared by 122% in Q4 and 55% annually due to robust results across main businesses, with Ipiranga, Ultragaz, and Ultracargo showing record figures. Ultracargo's Q4 EBITDA rose by 19%, with yearly EBITDA up 24%, benefiting from occupancy capacity and efficiency gains. Ipiranga's EBITDA surged to BRL 1.117 billion in Q4, marking a 270% yearly increase, driven by a normalized commercial environment and expanded service station network. Ultragaz's new energy ventures added negligibly to earnings in 2023 but are expected to grow. Looking ahead, Ultrapar's 2024 investment plan is set for BRL 2.670 billion, a 47% increase from 2023, emphasizing expansion, especially in Ipiranga's infrastructure and branding efforts.

Strong Financial Performance with Record EBITDA

Ultrapar presented a striking improvement in their financial performance by the end of 2023. Year-over-year, their recurring EBITDA from continuing operations saw a notable increase of 122%, reaching BRL 1.66 billion for the fourth quarter, and culminated in a 55% growth for the year, amounting to BRL 5.615 billion. The primary contributors to these record results were their leading businesses; Ipiranga, Ultragaz, and Ultracargo, causing net income to escalate by 37% to BRL 2.518 billion for the year.

Liability Management and Deleveraging Strategy

The company's focus on managing liabilities also has lead to favorable outcomes. Net debt reduction was approximately BRL 1 billion from September to December 2023, resulting in a net debt of BRL 6.1 billion. Financial leverage has decreased to 1.1x, the lowest in 15 years, thanks to the substantial EBITDA augmentation and net debt tapering.

Sector-Specific Highlights and Forecasts

The segments within Ultrapar each portrayed strengths that contributed to its overall success. Ultracargo's EBITDA for the quarter spiked by 19%, with an overall annual increase of 24% compared to 2022, signaling sustained superior performance into the first quarters of 2024. Ipiranga's volumes exhibited modest growth, but dramatic surge in EBITDA both quarterly (270%) and annually (68%), indicating a normalized commercial environment with anticipation of continual profitability akin to 2023 levels moving forward. Moreover, the company's investment plan for 2024 is markedly ambitious at BRL 2.670 billion, focusing on brand enhancement, infrastructure expansion, and incorporation of new energy solutions, signifying a strategic growth drive.

Brand Strategy and New Business Initiatives

Ultrapar will persist with their methodical branding strategy and selective investments in quality, which, although negligible in its 2023 EBITDA contribution, is forecasted to gain significance in the coming years. The partnerships with brands like Krispy Kreme and the introduction of new energy solutions like NEOgAs and Stella reflect the company's adaptive and innovative mindset to bolster its network and diversify offerings.

Capital Expenditure and Expansion Strategies

The company has earmarked 40% of its expansion-related CapEx for maritime operations, indicating a balance between inland and coastal growth strategies. With resolute capital allocation discipline, the company maintains a balanced stance that could potentially lead to additional dividend payouts if suitable investment opportunities do not materialize.

Market Dynamics and Competitive Outlook

Ultrapar revealed a cautious optimism for market conditions. This is based on positive market dynamics like the opening of the market for international imports and improvements in tax simplification, albeit challenges such as inventory level arbitration and combating fuel fraud remain. The expectation is to maintain competitiveness through enhanced efficiency and process improvements.

Further Insights into Margin Dynamics and Tax Credits

The margins for the initial quarters of 2024 are projected to be better than the first quarter of the last year but closely aligned with the average of 2023. When it comes to using tax credits, the company has a conservative, long-view strategy with about BRL 1 billion in balance. The continuance of this approach through upcoming fiscal tests implies a consistent leveraging of such credits in line with legal developments and forecasted profitability.

Long-term Project Development and Capital Utilization

There's an emphasis on improving efficiency, especially in logistics and distribution, where significant opportunities for value release remain. Similarly, the premium product sales mix boosting and branding revitalization are parts of ongoing initiatives that may yield further results enhancement.

Logistics Infrastructure and Future Investment Trajectory

Ultracargo is focused on long-term projects to address the shortage of logistics infrastructure in Brazil. With a clear strategy of expansion, particularly inland, the commitment to such projects is pronounced for 2024 and likely beyond. This underlines the company's intent to continuously explore new markets and to capitalize on the infrastructure demand within the country.

Closing Remarks

The executives at Ultrapar concluded the earnings call with gratitude, ensuring that the comprehensive analysis provided a deep insight into their operational success, strategic direction, and buoyant outlook for the future.

Earnings Call Transcript 2023-Q4

[Unknown Executive]

Good morning. Thanks for waiting. We would like to welcome everyone to the conference call of Ultrapar's Fourth Quarter '23 Results. There is also a simultaneous webcast that may be accessed through the Ultrapar's website at ri.ultra.com.br and MZiQ platform.This presentation will be made by Rodrigo Pizzinatto, Ultrapar's, Chief Financial Officer and Investor Relations Officer. During the Q&A session, we will also have Mr. Marcos Lutz, Ultrapar's CEO; the CEOs of Ultragaz and Ipiranga. Mr. Tabajara Bertelli, and Leonardo Linden; and also, the CFO of Ultracargo, Mr. Andre Zaia.We would like to let you know that this event is being recorded and all participants will be in listen-only mode during the company's presentation.After Ultrapar's remarks, we will start our Q&A session. At that time, further instructions will be given to you. We would like to remind you that all participants in the webcast may submit their questions through our website questions that will be answered during the Q&A session. The replay of this call will be available for 7 days once it's completed.Before moving on, we would like to like to know that forward-looking statements that are made during this conference are 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. Therefore, they 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 can also affect the future results of Ultrapar and can cause results to differ materially from those expressed in such forward-looking statements.Let me now turn it over to Mr. Rodrigo Pizzinatto. He is going to start by giving us the presentation. So please move on.

[Rodrigo de Almeida Pizzinatto, executive]

Good morning, everyone. It is a pleasure to be here once more to talk about Ultrapar results. I will start with a brief retrospective of 2023. Last year, we had significant improvements in the company even with an environment of volatility and uncertainties.Ipiranga, Ultragaz, and Ultracargo, our 3 main businesses reached record results. The strong operating cash generation allowed the company to achieve the lowest financial leverage level of the last 15 years and contributed to the recovery of our investment-grade rating by Standard & Poor's.We completed the acquisitions of Stella and NEOgAs by Ultragaz and the acquisitions of Opla and Rondonopolis base by Ultracargo.We also announced the construction of the first liquid bulk terminal in this Tocantins state. Additionally, we obtained the approval of the antitrust authority CADE for the partnership between Ultragaz and Supergasbras for sharing operating assets. And we also continued our ESG journey, making public commitments to the 2030 goals.I will now go through our earnings presentation for the fourth quarter and the year of 2023. And on the Slide #2, I remind you that both the earnings release and 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, unless otherwise indicated.Moving on 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 1.66 billion in the fourth quarter of 2023, 122% higher year-over-year. This increase is due to the higher EBITDA of the 3 main businesses, particularly Ipiranga results that I will detail in the next slides.Looking at the year's results, our recurring EBITDA from continuing operations totaled BRL 5.615 billion, a 55% growth over 2022, with record results registered at Ipiranga, Ultragaz, and Ultracargo.Ultrapar's net income was of BRL 2.518 billion in 2023, 37% higher than that of 2022 due to the EBITDA growth and the lower level of net financial expenses. These effects were partially offset by the lower recognition of extraordinary tax credits for BRL 108 million below the level of 2022.Our Board of Directors, as we have already announced, approved the additional distribution of BRL 440 million in dividends, equivalent to BRL 0.40 per share. It will be paid as from March 15 in addition to the payment made in August last year, totaling a distribution of BRL 713 million in 2023.Investments from continuing operations totaled BRL 1.949 billion in 2023, 11% above 2022 due to higher investment at Ipiranga, Ultragaz, and Ultracargo.We had a robust operating cash generation of BRL 3.8 billion in 2023, BRL 1.8 billion above the cash generation of 2022. This increase is due to the higher EBITDA and the lower investment in working capital due to the decreases in fuel prices throughout 2023. These effects were partially offset by the BRL 1.6 billion reduction in the draft discount line.If we exclude this reduction, the operating cash generation in 2023 would have been of BRL 5.5 billion. You can also see in the chart in the lower right side, the recovery of the company's profitability in the last 5 years measured by ROIC.And moving now to Slide 4 to talk about our liability management. We ended the year with a net debt of BRL 6.1 billion, a reduction of nearly EUR 1 billion in relation to September 2023. This reduction was a consequence of the greater operating cash generation despite the concentration of investments in the fourth quarter last year and the reduction of BRL 135 million net debt draft discount balance in the quarter.Our financial leverage was reduced in the last 12 months and went from 1.7x to 1.1x in December 2023, the lowest level in the last 15 years, as I have already mentioned. The decrease is due to the higher EBITDA with cash generation and consequent reduction in the net debt.And I'd like to point out that the numbers of net debt for the fourth quarter still do not include pending receivables of BRL 924 million related to the series of Oxiteno and Extrafarma. You can also see 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.The net debt of December '23, adding the draft discount, vendor and divestment receivables would be BRL 6.5 billion, which is BRL 2.2 billion lower than the balance of December '23.And moving now to Slide #5 to talk about another excellent quarter for Ultragaz. The volume of LPG sold in the fourth quarter was 2% lower year-over-year due to the 5% reduction in the bottled segment on the back of lower market demand, attenuated by an increase of 3% in the bulk segment, mainly reflecting higher sales to industries.In 2023, the volume of LPG sold was 2% higher year-over-year as a result of the 6% growth in the bulk segment due to greater sales to industry, while the bottled segment remained stable.Ultragaz SG&A in the fourth quarter was 3% lower than that of the fourth quarter of '22 due to lower expenses with personnel and with the expansion and productivity projects.Ultragaz EBITDA totaled BRL 406 million in the quarter, 11% above the fourth quarter of '22. If we look for the year, Ultragaz EBITDA was BRL 1.648 billion in 2023, a growth of 41% over '22.Both annual and quarterly growth are explained by the initiatives to increase efficiency and productivity implemented in the last quarters by better sales mix and by inflation pass-through. And for this first quarter, we expect the continuity of the good results with profitability levels similar to those seen in the fourth quarter of '23.And moving now to Slide 6 to talk about another great quarter of Ultracargo. The company's average installed capacity was 1,067,000 cubic meters in the first quarter of '23, a growth of 12% over the fourth quarter of '22 due to the capacity additions coming from Opla, Vila do Conde, and Rondonopolis throughout the third quarter of '23. These capacity additions still had no material impact on this quarter's results and should begin to gradually contribute in the upcoming months as operations ramp up.The cubic meters sold grew by 16% year-over-year, mainly due to greater handling of fuels in Santos, Vila do Conde, and Itaqui, and the start-up of operations in Opla and Rondonopolis.Ultracargo's net revenues was BRL 257 million in the fourth quarter of '23, 13% higher than that of the fourth quarter of '22. In 2023, Ultracargo's net revenues was BRL 1.016 billion, a 17% growth over 2022. The growth in both comparisons reflects their higher cubic meters sold and spot sales.Combined costs and expenses were 6% above that of the fourth quarter of '22 as a consequence of 2 main factors: higher personnel expenses, mainly collective bargaining agreement and variable compensation, in line with the results progression; and higher depreciation costs due to the capacity additions.Ultracargo's EBITDA totaled BRL 155 million in the quarter, 19% higher than that of the fourth quarter of '22 due to greater capacity of occupancy with profitability gains through spot sales and productivity and efficiency gains, despite higher expenses. EBITDA margin was 60% in the fourth quarter of '23, 3 percentage points above that of the fourth quarter of '22.For the year 2023, Ultracargo's EBITDA totaled BRL 631 million, a 24% growth over 2022 for the same reasons that I just mentioned. EBITDA margin was 62%, 3 percentage points above that of 2022. And for the first quarter, we expect Ultracargo's good operating performance to continue, with levels close to those seen in the first quarter of '22.And moving now to Slide 7, let's talk about Ipiranga's results. Volumes sold in the quarter increased by 1% over the fourth quarter of '22, with a 1% growth in both Otto cycle and diesel. For the year 2023, Ipiranga's sales volume remained stable year-over-year with an increase of 2% in the Otto cycle and a drop of 1% in diesel.We ended the fourth quarter of '23 with a network of 5,877 service stations, 61 more than in September 2023, a total of 147 new service stations were added to the network with an average volume contribution of 301 cubic meters per month. On the other hand, 86 service stations were closed with an average volume contribution of 143 cubic meters per month.We concluded in September the legacy management process of service stations that in the last 2 years registered a net service station closing of 1,227 service stations. At the end of this process, we have now a more robust and healthier network. And besides that, we ended the quarter with 1,540 AmPm stores with same-store sales growth of 8% in the fourth quarter of '23.I take this opportunity to draw your attention to a partnership that AmPm and Krispy Kreme has just established. We will have exclusivity to sell Krispy Kreme products in our convenience stores in Brazil, which is aligned with the strategy of associating AmPm with iconic brands.Ipiranga's SG&A increased by 36% over the fourth quarter of '22 due to 4 main factors. Higher personnel expenses, mainly collective bargaining agreement and variable compensation, in line with the results progression.One-off expenses related to the conclusion of the service station closing process of the legacy network, higher marketing expenses and the one-off positive net effect of credits and provisions of BRL 69 million registered in the fourth quarter of '22.The other operating results line totaled a negative BRL 131 million in the quarter, or worsening of BRL 22 million over the fourth quarter of '22. As a result of higher costs with carbon tax credits attenuated by the higher constitution of extemporaneous tax credits. The line of results from disposal of assets totaled BRL 40 million due to the sale of 6 real estate assets.Ipiranga's EBITDA totaled BRL 1.767 billion in the quarter. The recurring EBITDA totaled BRL 1.117 billion in the quarter, 270% above that year-over-year. The higher EBITDA mainly reflects the continued normalization of the commercial environment in the fourth quarter of '23 compared to the highest supply of products and inventory losses in the fourth quarter of '22.These effects were partially offset by higher expenses in the fourth quarter of '23. For the year 2023, Ipiranga's EBITDA totaled BRL 4.354 billion. Recurring EBITDA totaled BRL 3.6 billion, a growth of 68% over 2022, reflecting the normalization of the commercial environment, partially offset by higher expenses.For the first quarter, with the continuation of the normalized commercial environment, we expect profitability levels higher than those of the first quarter last year. However, given the current scenario of higher inventory levels, we expect profitability levels getting close to the ones we saw in 2023.And to conclude this presentation, moving on to Slide #8, let's talk about the investment plan we just released yesterday. In 2023, the main variation in relation to the plan was at Ipiranga. The greater allocation to expansion with higher investments made to brand services station and to increase our logistics infrastructure was more than offset by divestments, such as the Rondonopolis base and the sale of assets besides the postponement of some investments.The investment plan for 2024 totaled BRL 2.670 billion, which is more than BRL 700 million above the investment plan in 2023. The allocation of investments to expansion is the main highlight of growth, 47% above that of 2023.At Ipiranga, investments will be mainly directed towards branding stations and expanding logistics infrastructure. At Ultragaz, the investment focus mainly on new customers in the bulk segment, on revitalizing and opening point of sale, on optimizing operations due to the consortium with Supergasbras and on expanding into new energy solutions following the acquisitions of NEOgAs and Stella.At Ultracargo, investments will be mainly focused on the construction of the railway branch at Opla on increasing the stock capacity of Itaqui, Santos and Rondonopolis, and on building the Palmeirante terminal in the state of Tocantins.The portion of the investments for maintenance will be directed to sustaining the businesses and mainly includes investments in assets, maintenance, renewal of service stations and points of sale, operational safety and information technology.And with that, I now conclude my presentation. I appreciate once more 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 very much.

[Operator]

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

[Monique Greco, analyst]

First, congratulations on the results and everything that you've done throughout the year of 2023. I would ask you a question. I have 2 questions actually.First, for Ipiranga, we can clearly see through your data, the inflection point of that change from closing down stations to opening stations. There were nearly 60 -- you reduced your units, you close down units in 60%. So tell us more about your strategy of branding, what kind of, let's say, response you've got from the point of sales? And how does it interact with the CapEx plan you have for 2024, because there was a reduction over the numbers from 2023? So we're really wondering, how it's all ordinated with your branding strategy for the year?Secondly, a question to Ultragaz. How much of the EBITDA of Ultragaz in 2023 came from the other business. Stella, NEOgAs, biomethane, could you please tell us the breakdown of all these businesses in 2023? And what do you expect to get results from them in upcoming years?

[Leonardo Linden, executive]

This is Linden speaking. Thank you for your question. Concerning the strategy of branding, it's not changing. We cannot separate branding and a closing down of stations. We are going to maintain the guidelines that we have been sharing with you for a while, making appropriate selective investments with quality -- to improve the quality of our network at large, and we are going to maintain the investments in 2024, just adding businesses that we think make sense that can really add value. So it's not going to change compared to previous years when we talk about branding specifically.About the question concerning Ultragaz, you've talked about all the different energy options for 2023. It's negligible what it has added to the results of the company, but we wanted to keep on expanding in the upcoming years. Nothing very significant for 2024, but we just expect it to be much more relevant in upcoming years.

[Operator]

Our next question comes from Thiago Duarte, BTG.

[Thiago Duarte, analyst]

I have 2 questions. First, could you please share with us the information about the expansion of Ultracargo? Rodrigo has provided some details about the expansion of the CapEx and how it's going to be used in 2024 and very much aligned with what you've discussed in the Ultra Day and your understanding as a holding. We can see an internalization of the platform of the assets in Ultracargo and in private entities.But I understand that the dynamic of the business is somewhat different compared to the main basis of Ultracargo, which is storage by the shores, by the coast and the dynamic of profitability of these assets is somewhat different when we think about going more inland rather than being limited by the coasts.So tell us a bit more about profitability and payback of the marginal investments you've been made also competitively speaking, what is your reference to try to really have an improved profitability. I don't know if you were using ROIC or TIER, what is exactly you are analyzing to think about generating growth at Ultracargo in line with the CapEx investments.Now from a broader perspective and thinking about the holding and based on the retrospective description that Rodrigo made, I think there has been an important element, which was margin expansion. So Ipiranga, in the second half of the year, Ultragaz and Ultracargo, you've got margin expansion that impacted profit and all your results.So thinking about the beginning of '24, the margins seem to be aligned with what you had experienced in '23. But they don't seem to be expanding as much as before. So really thinking about growth from now on? Would it make sense? Do you anticipate growth of Ultrapar your 3 business units resulting more from increased volume. Each business, its own characteristics, of course, where do you expect to have an expansion of profit from now on, considering the very high level of margins that all the 3 units have already achieved.

[Marcos Lutz, executive]

This is Marcos speaking. I'm going to start by answering the second question. Ultra, our holding cannot be simplified by giving you a simple, direct answer. So we just don't want margins, we just want volume. No. We have to see the businesses differently.Ultragaz has some segments where we can get expansion of volume, going into different regions with different results. The go-to market produces different margins. We have increased volume in areas where we could obtain also margin expansion -- but there are some segments which tend to be more static. And we are also building path towards new business lines where we can expand in volume. And we can see a potential ahead.In Ipiranga there is improved margin, but maybe we can have a normalized margin, something that we've been saying for a while. The margin in the industry, it's not something that we think it's fair, something that really pays back the investments of investors. Therefore, we can see space and opportunity do you expand further. Ultracargo probably would need to make investments to increase its capacity, its volume.And it's starting to embedding technology, logistic knowledge, added services. We want to really offer a complete asset. We are not going to reproduce the model that we used to have at the coast operations. We want to offer more integrated service lines.Said it all, speaking of margins, this is a simplification isn't it? it's an oversimplification. If you improve efficiency in a number of things, you improve margin. And there are a number of things that end up influencing it all.In distribution, specifically, fuel distribution -- the new model that has been in place of having distributors selling their own products have brought in technology, knowledge and dynamics what is bought from Petrobras, not on 100% of the demand. So we have created a trading model, so to speak, a sophisticated trading model of supply of managing the demand, the offer requiring logistic rearrangements, it brings margins. But in all cases, it also brings more volatility. And this is something that we have to understand.Well, Thiago, let me emphasize that the investments that we have made are not just inland in the countryside areas. We are also strengthening our maritime terminals. And it has really improved the results of Ultracargo and being expansions, they have better return on investment rates.In the countryside area, as you said, the dynamic is really different. We are speaking about providing logistics solutions. We are speaking about connections with the railway system. It's not only in tanking really. It is a dynamic of using more the assets, but in terms of profitability of static tanking, we have a ramp-up curve and this is going to give us a profitability according to the standards that we have set at Ultracargo.

[Thiago Duarte, analyst]

Of the BRL 635 million that is going to be used in expansion. How much of that is involving the maritime operations? How much of that is inland.

[Marcos Lutz, executive]

60% countryside, 40% coast operations.

[Operator]

Our next question comes from Luiz Carvalho, UBS.

[Luiz Carvalho, analyst]

And I have 2 questions. The first one, which is a question that I constantly ask about capital allocation. Now you've got to a level of leverage that is very comfortable, close to onetime. The company is generating cash.And I would like to know, how we can anticipate things in 2024. We've seen some assets available in the market, assets that might have some level of synergy and alignment with the company strategy. But I would like to see the perspectives for the future, especially in terms of portfolio diversification or if you have excess cash, would you go more aggressive and then work with investors?

[Unknown Executive]

Now concerning field distribution I don't want necessarily to speak only about Ipiranga. But let's hear -- I would like to hear about the market. In the past 10 years, we've seen a number of initiatives that had somewhat masked the market evolving carriers and so on.And now talking with distributors and resellers, I think the market seems to be more favorable because the GDP has been increasing maybe or because there is better coordination of the initiatives, just focusing on more profitability in terms of volume. So maybe Linden can tell us more about his expectations, about the market and margins for 2024.

[Unknown Executive]

I wouldn't be able to tell you anything that you would like probably. We do have a strategy, but I cannot tell you anything about future capital allocation. The company has a balanced position that provides additional movements. We constantly analyze possibilities of capital allocation in other verticals. And we also consider that if there is no capital allocation required, we can maybe share more dividends. I wouldn't be able to tell you more than that.What I can tell you is that we have discipline in the use of our cash, because we know, how hard it is to generate cash during daily operations, loading trucks and ships and delivering. We are not simply allocate capital for no specific reason. We really do it accordingly and looking for businesses of quality that are aligned with our initiatives. If nothing shows up as a potential opportunity, we would share additional dividends.

[Leonardo Linden, executive]

Linden speaking. Concerning the expectations for the market. I am optimistic, but carefully. I think you were right. There are factors that are somewhat standardizing the market, so to speak, what Marcos has just said about the opening of the market for imports for international players. It brings a favorable dynamics to the market combined with supply by Petrobras. I think it brings positive elements to the market, also tax simplification, not in all products. We still have more to cover, but it has improved already.The level of competitiveness will always be high. This is something we are knowledgeable of. We know we have to work by improving our efficiencies, to ensure appropriate competitiveness. But there are also challenges, of course margins will always suffer the impact of arbitration of inventory levels in the country, and we have to be able to deal with them.In Brazil, there is also the chronic problem of the falsification of fuel of the regular fuel market. But I'll say that I am optimistic, but always with care. Business normalization anticipates really a more stable environment for fuel distribution.

[Operator]

The next question comes from Gabriel Barra, Citi.

[Gabriel Coelho Barra, analyst]

I have 2 questions. First, I'd like to understand the margins of the first quarter. So better than the first quarter last year, but very similar to the average of the year, which was 155, 160 per cubic meter.When we see the situation of the first quarter, we've seen the market trying to capture some gains in inventory levels because of increase in tax. But the fourth quarter, there was a loss of inventory levels. The market was -- had an over demand because of some of the strategies of traders, which tried to carry over the inventory levels to better price scenario in the first quarter of the year.I would like to hear more about that. I don't know if not gain of margin is part of this number or if it's not. Was the fourth quarter very good in trading? And this is not there because of its recurrence. Please tell us more about this dynamic because this is something, which is not clear to me.Secondly, I'd like to talk about your tax credit, BRL 560 million in the fourth quarter. I know it also includes internal tests that you run in the end of the year, and this is going to be done in the end of this year as well. But I would like to know how much space and credit you still have to use in upcoming tests. And there is another situation that is also being brought to the courts in terms of judicialization, so tell us more about this number. What else can we expect to be monetized in upcoming years?

[Rodrigo de Almeida Pizzinatto, executive]

I'm going to start with the second question about tax credits. We've defined a methodology of having annual analysis based on the forecast of profitability, which is very conservative, and it's a 5-year perspective. Based on this conservative forecast, we account for the [ extemporaneous ] elements or not. We still have got a balance of about BRL 1 billion. And the amount that is brought to the court is close to the total number of records.Now concerning your first question we are here sharing with you our earnings release. And I just focus everything on the sentence that I used. If you go back there, you will see how we think it, right? This was shared during my presentation.

[Gabriel Coelho Barra, analyst]

One last point, and I apologize if I insist, but I want to understand more about trading. Could you explain how it has influenced the results of the fourth quarter? Did it have any more relevant impact that we should not consider to be present from now on? I don't know if you can talk about that. If you can, that would be most helpful.

[Leonardo Linden, executive]

This is Linden speaking. There was nothing extraordinary of trading in the fourth quarter. Good supply activity improves results, but this is part of your distribution businesses. There was nothing extraordinary. This is the work that we've been doing, the natural evolution of our supply, something that we've been discussing in our interactions. So it's just life as it is. There was nothing extraordinary.

[Gabriel Coelho Barra, analyst]

And congratulations on the excellent results.

[Operator]

The next question comes from Bruno Montanari, Morgan Stanley.

[Bruno Montanari, analyst]

I have one question and some follow-up. The first question, I guess, to Linden, I think everyone has just been focusing at Ipiranga to improve profitability of the business. And I recall you telling us all the points for attention, all of them being addressed. So now let me pick your brain. Looking in the mid and long term of Ipiranga, what would be the next steps? What else can be done to improve further the results of the company from now on.Second question about tax credits as well. Can you give us some color about the cash effect of these recoveries during 2023. We can go back to the explanatory notes, which was BRL 900 just to see whether you had really used that throughout the year.And one last question for Ultracargo. There has been a significant growth of CapEx for 2024. What can we expect for '25, '26? Do you think there will be some years where we are going to -- you'll be investing more than the average? Or should we expect that in '25, you would be expecting at the same levels as you used to in previous years?

[Leonardo Linden, executive]

Well, Bruno. I'm going to be consistent with the pillars that we've been discussing for a while. We still see opportunities. And when we look back to the 4 pillars. As I've mentioned in previous occasions, in logistics and distribution, we anticipate still a path to be taken to release some value. So improvement of processes, optimization of exchanges, optimization of our basic operations. I think there are a number of ongoing initiatives at Ipiranga, which are structural initiatives and this is why they take longer than the others to be effectively reach it and to reach the level that makes sense.Now speaking of the other 3 pillars, competitiveness, supply and brand, there is always room for improvement. We have progress significantly. We caught up to the level that we needed, and they provided short-term results, but there is always room to evolve. We've seen a change to Ipiranga brand. There are other initiatives in place. We've been working qualitatively, if we look at the profile of sales and the volume of Ipiranga, the premium product in our sales mix has been increased.So I think there are a number of open fronts of action that can bring enhanced efficiency. Once again, logistics and distribution are the areas where we can see more room for improvement.

[Unknown Executive]

Bruno, let me answer your 2 other questions about the use of tax credits in 2023, we used close to BRL 800 million in the year. About the question of Ultracargo, just to give you some more information. Ultracargo expands based on long-term projects. In Brazil, there is a clear shortage of logistic infrastructure. And there, we can see the major potential of expansion in opening new markets, such as going, for example, more inland.As the projects become a reality, you know Ultracargo terminal tends to be contracted right from its inception. Then we make investments and tell you. We will let you know as the projects become a reality in 2024, we have the expansions that I've already mentioned in my presentation that will be completed during the year. And the more the projects get mature and completed, we will let you know.

[Operator]

If there are no further questions, I would like to hand it back to Rodrigo Pizzinatto for his closing remarks.

[Rodrigo de Almeida Pizzinatto, executive]

Thank you all very much for your attention this morning, and hope to see you all in May.

[Operator]

With that, we conclude our conference call. Thank you all very much for being part of that. Have a great day.[Statements in English on this transcript were spoken by an interpreter present on the live call.]