Vibra Energia SA
BOVESPA:VBBR3
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Vibra Energia SA
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Good morning, ladies and gentlemen. Welcome to BR Distribuidora Second Quarter 2021 Earnings Conference Call and Webcast with analysts and investors. [Operator Instructions] Joining us today are Mr. Wilson Ferreira, Jr., CEO; Mr. Andre Natal, CFO and IRO. We would like to remind you that this meeting is being recorded.
This presentation may contain forward-looking statements. These statements are the expectations of the company's executives about future economic conditions in addition to the sector where we operate, the performance and financial results of the company, amongst other things. The terms predict, believe, expect, forecast, intend, plan, project, objective, should and other such terms are used to identify such forward-looking statements, which evidently involve risks and uncertainties seen or not seen by the company and do not therefore provide an assurance as to the company's future results.
These future results may therefore differ from current expectations, and readers should not solely rely on the information set out herein. The company undertakes no obligation to update the projections in the light of new information of future developments. The figures informed for 2019 onwards are estimates or targets. Now I hand the floor over to the CEO of BR Distribuidora, Mr. Wilson Ferreira, Jr., who will deliver his presentation. The floor is your, Mr. Ferreira, Jr.
[Technical Difficulty]
Ladies and gentlemen, please hold while we reconnect the speaker's line. Ladies and gentlemen, please hold while we reestablish the connection. Yes, Mr. Wilson, you have the floor.
I apologize to everyone. Good morning. I would like to thank you all for joining our earnings conference call for the second quarter of 2021. I will start with a brief conversation -- a brief presentation with 9 slides.
Let's start with the first slide with the highlights of the company for the second quarter of 2021. We have an EBITDA of BRL 115 per cubic meter, and we also achieved our lowest level of expenses of BRL 51 per cubic meter. We have also been expanding the number of service stations. 312 new service stations were added compared to the second quarter of 2020. And we also added 1.6 percentage points in market share compared to the second quarter of 2020.
Now let's move on to the next slide. The most important event in the quarter was our follow-on offer. This made BR Distribuidora a true corporation. Here, you can see the results of this work that changed our base as of August 2, 2021. 1.165 billion shares is our total number of shares, 70,584 different shareholders and 2,621 funds. More than 50% of our base consists of long shareholders -- long-only shareholders, and we have almost 68,000 individuals in our shareholder base. You can see the pie chart showing the number of individuals and legal entities in our shareholder base as well as the domestic and foreign participation. 43% of our shares is in the hands of domestic shareholders and 57% -- I'm sorry, 43% in foreign shareholders and 57% in domestic shareholders.
Our liquidity almost doubled, reaching almost BRL 400 million per day. That was a very important transaction for BR Distribuidora and also very significant for Brazil and for Petrobras itself. On the right-hand side, you can see that, that was the largest transaction in the capital market in 2021, over BRL 23 billion of demand and 160 orders in our book. Petrobras was able to monetize BRL 11.4 billion with its participation of 37.5%. And you can see the evolution here in the chart showing how BR Distribuidora has become a true corporation.
Now I'm going to share the data for our quarter. First, we'd like to reaffirm our commitment to becoming one of the most efficient companies in terms of expenses. We have had a decrease of almost 40% in expenses, getting to BRL 51 per cubic meter compared to 2019, the year before the pandemic because that's a fair comparison, considering all the events that happened in 2020 with the pandemic. Our EBITDA is BRL 115 per cubic meter, a 47% increase and our debt over leverage was 1.4x in the second quarter of 2021.
In the next slide, you can see data about our market and BR's participation. In fuel and sales in April and May, actually more April than May, we still suffered the impact of the second wave of the pandemic, so there was an increase of 20% compared to the second quarter of 2019 -- actually, compared to the second quarter of 2020 and a 3% reduction compared to the second quarter of '19. In terms of liquid fuel, BR recovered from '20 to '21. There was a 28% increase but there was also a drop of 3% compared to 2019.
In the last 12 months, there was an increase of 2% in the Brazilian market and 7% in the markets served by BR Distribuidora. So BR Distribuidora has had a better performance here in this market. And here in the right-hand side, you can see the months of April and May that the Brazilian market was hit hard, but there was an increase of 26% in the trajectory of BR's market share in the quarter. We went from 26.9 million in April to 29 million in June. So we see important signs of a recovery in the economy because of the vaccination rate and the economic recovery that the fuel market is keeping up with. BR Distribuidora has benefited from that, growing in volumes and market share.
Now on the next slide, you see numbers of the market impacted by COVID-19. We can see the Otto cycle, the diesel. In the chart, we see that 2021 was better than 2020 but the months of April and May were worse than in 2019, which is the most important reference base that we have. Now if we look at BR total sales, including the month of July, we saw that the months of March, April and May were harder hit. In terms of seasonality, that's the lowest quarter of the year, but there was a good recovery in terms of total sales as well as market share.
At the bottom of the slide, you can see the Otto cycle growing from April to July by 14%, actually considering both Otto cycle and diesel. And the benefits that we shared with our follow-on with a greater thermal dispatch in Brazil, we have reached 350,000 cubic meters of fuel oil in June '21 compared to the months of April and May. These numbers more than doubled. Now the same behavior can be seen in aviation. There was a 70% increase in market share so a recovery in the Aviation segment as well. So in terms of total numbers and in fuel, you see that our company is well positioned and also for aviation. But there were significant variations in all volumes, as you can see.
Now in our next slide, you can see the main projects of the company. We talked about both during our follow-on offer. We have forecasted a reduction of BRL 250 million for 2022. There's additional reductions to be implemented in 2021. More than 200 action plans were established with more than 50% of them already complete with expected additional recurring savings of BRL 250 million.
Now in terms of transportation, our target is of BRL 90 million to be fully implemented in 2022. This is an expansion of the program started in 2019. We have implemented an optimization system called Control Tower using artificial intelligence, and this is now being expanded. 45% of the logistics railway network has already been covered. We have already captured BRL 10 million in savings. And by the end of the year, we expect to have the transportation of dark products, QAV, chemicals and nonwheeled forms to get to another -- to those BRL 90 million.
Now there are also some important aspects related to the package of retiring 250 assets in our property portfolio, with a partner already selected at the final stage of due diligence, and this partner will make an important action in this. We have made direct sales of 6 stations amounting to BRL 29 million and we expect to sell another 8 service stations in the third quarter.
In terms of logistic assets, we have identified 25 opportunities of optimization either through sharing, retirement or other types of negotiations. We have a potential generation of BRL 130 million by the end of 2021, and we already have 1 asset negotiated at around BRL 22 million of cash. ESGAS was also included in the privatization program by the government of the state of Espírito Santo with divestment earmarked by BR for 2022. With this type of actions, we'll have BRL 640 million in additional annual EBITDA.
Now on the next slide, you can see our trading. We had already seen in the market this need to complement trading. And we are structuring a ethanol trading company, which is near completion and also a derivatives trading company, which is near completion. In terms of convenience stores, this process is being concluded at CADE, and we understand that starting in September, we will be able to have our joint venture with Americanas starting operations.
Lubricants, we have modernized our lubricant factory with an increase of 70% of the productive capacity. 80% of those modernization and expansion has already been completed. We are reformulating our sales channels, establishing authorized dealers. 25% of the schedule has now been completed, and we are improving the sourcing of base stocks imported directly by BR. We also have partnerships with additive suppliers to add more than [ BRL 120 million ] in 2022.
In terms of pension plans, we have a new plan structured and communicated to the workforce being analyzed by PREVIC. We expect members to start joining in January 2022. This could bring us a potential reduction in actuarial liability that we currently have. With these 8 measures that I have just shared with you, we can add around BRL 640 million additional annual EBITDA to be fully achieved in 2022.
Now on the next slide, I would like to mention that in this quarter, we implemented 2 important actions: the first one, the approval of a payout of our interest on capital for our shareholders. And that was in addition to the BRL 700 million already stated that will be paid and the BRL 1.1 billion that was already paid this year. So we have been remunerating our shareholders strongly and working hard to maintain value creation, considering the perspective of the company, BRL 614 million also in our share buyback program.
I would like to confirm by saying that in 16 weeks, we have been developing our strategic review and our ESG vision. We have held 3 workshops with all of the directors and executives of the company with our Board of Directors taking part as well. We have reassessed the context and the scenario of our industry. The second workshop focused on reformulating the strategy, detailing the main strategic portfolio choices, looking at the BR of the future and validating a strategic path. And 10 days ago, we concluded the reformulation of our strategy, defining our ESG vision and the changes to the organization and governance, breaking down our macro indicators and targets. And we are now defining our equity story.
And on BR Day 2021, on the 1st of September, we would like to share that with the market. We'll have then the opportunity of sharing our long-term vision for BR with all of you. I would like to thank you once again for joining us in our earnings conference call. And together with Natal, we are now available for questions.
[Operator Instructions] Our first question is by Regis Cardoso from Credit Suisse.
Hello. Can you hear me?
Yes. We can hear you.
Congratulations on your presentation. You were talking about the direct sales of ethanol, but I'd like to hear from you about this broader regulatory discussion. Your pertinent topics today within this context of changing the rules of flagging for service stations, do you have exclusivity clauses in your contract? And what are the effects that you expect from the direct sales of ethanol in terms of collection of distribution taxes? And also, the public consultation about the reduction of penalties in cases of fraud in service stations. And that there was also something about removing 1 decimal from the prices in the pump. Can you please tell us about these regulatory issues in a broader way, please?
Sure. I'll try to give you a broad overview on this and then Natal and [ NV ], our Legal Director, can give you further information. This was an announcement that surprised all of us in the market and it's probably happening as we speak. But in general, this process has been able to sell. It's something that can happen today. Consumers have the option of buying from white flag or no trademark service stations. But the choice of consumers buying from these white flag stations is already possible that BR is the network that grows the most because of the top of benefits that we offer to consumers.
Consumers can rest assured about the quality of the product that's being sold in our service stations. There is a lot of confidence in terms of the quality of the products and services provided by our service stations. You also have convenience services available, loyalty programs. In all of that, not only fuel is something that's part of the value proposition and consumers are very sensitive to that. And our goal is to offer a network that makes available to consumers not only the best product but also the best service and the confidence for consumers when it comes to taxes and tariffs that are paid and so on.
Despite the value proposition, we'll create a new business model. It's a very clear one. And the relationship that we have with the dealers is a contractual relationship. This is an option that dealers do, a choice they make to offer to their consumers the differentiated value proposition in terms of quality of products and services. But this is a bilateral negotiation that is guided by a contract with financial clauses that remain unchanged.
If you look at official data today, the difference in prices of fuel sold by white flag service stations and trademark stations was at less than BRL 0.01 last month. And for diesel, less than BRL 0.04. So once again, both is the consumer's choice. They may choose to go to a white flag service station in order to save money, but that's not what they are choosing. They're choosing trademark service stations because they offer higher quality products and services. And of course, we respect all contracts that have been signed, and we have been signed to guarantee the offer of products and services of high quality, the services that we offer and the management of the network.
We have a program of surveillance of deals to guarantee high quality of products offered to consumers. And of course, there will be a lot of debate about these provisional measures, which will only be put in force 90 days after the announcement with all of the debate that will happen in the Congress. And for BR, we have a competitive edge because we have high quality of products and services offered. So we respect the contract, and we'll keep the same growth perspective for our network. We intend to keep our network differentiated and completely set apart from other white flag service stations. Natal, do you have any comments about the direct sales issue?
I think Wilson mentioned the most important points already, but I'd like to draw your attention to the fact that we've been gaining traction in trademark service stations. We had an addition of 302 new service stations in the first half of the year. So our network is growing, and we have been outperforming the market. And this link has happened not because of legal obligation, but because there is a perception of value on the part of dealers and consumers.
So dealers want to be connected to BR. It's about image, convenience payments and so on. So this perception of value from the part of peers is also based on the perception of values from consumers. Consumers see the trademark. They know that it's high-quality product that is being offered. So we want to keep the line of contracts along the same lines that we have had with exclusive contracts. So we don't think this is going to change. And the law does not forbid the priority of [ lag ]. So it will probably not interfere in bilateral contracts.
About the direct sales, there has been many studies from the logistics perspective to understand the implications of that. But we understand that it doesn't make sense for most of the cases, the vast majority of cases, except for very specific cases of a service station that is maxed by a plant. But from the logistic perspective, the operations today have much more scale. The ethanol creates a base, and then it will be transported in the smaller vehicles that will deliver both gasoline and ethanol. So when it comes to logistics, we don't see any direct benefits for the price or cost of fuels with the direct sales.
We don't think that it's going to become a business of having the plants delivering fuel directly to the service stations because it doesn't make sense from the logistics perspective. Now of course, in cases in which it makes sense, this can happen. But these will be only a few exceptions. And we're working for everyone to understand the tax implications. This is really important. Today, ICMS and PIS/COFINS has been addressed in the provisional measure. But there are other taxes that are not being addressed, and we need regulatory changes to make it extremely monophasic or monophasic, at least in the cases in which the direct sales is happening.
In terms of delivery, we have no objections. This is something experimental. There is no scale yet. And we don't know whether this is seen as a value by consumers. There might be a market niche, but we don't think this is going to be extremely relevant, at least in the foreseeable future.
We always express our concern in terms of the safety of this type of supply. We have a whole set of licenses and inspections in service stations to guarantee safety during the delivery. If you start making deliveries for households, you cannot make sure that this is going to happen with the right safety conditions in terms of emissions and other safety concerns because we're talking about an inflammable product. So any type of measure addressing that should take that into account.
Now in many countries around the world, they have businesses they sell per liter. We have a strong opinion about that, but we don't see any relevant direct implication of that. We would think it would be best to keep it as it is because that's the practice in the sector. Consumers and dealers are used to that, and that is something widespread throughout the world as well, but that's not going to have direct impact on our business as it is today.
I would just like to add something. I'd like to remind you that this whole effort on the part of the government is to try and increase competition and to decrease prices. The expectation is that this will lead to price decreases. Now when we look at the price composition of fuels, we see that we need to address this. The President just insisted on reducing the tax burden, but we have around 9% to 10%; effective ICMS to 7%; PIS/COFINS, 11%. And on diesel, ICMS is almost 16%.
And when we talk about logistics, guarantee of supply origins and so on, this impact is not so great. So I think the concern here is about taxes. Now Natal has mentioned that direct sales, tax collection and monophasic, this market has a lot of tax evasion. It was BRL 24 billion last year alone, so greater efficiency in tax collection can also help us decrease the tax burden in the sales of fuel, and that would make the fuel more affordable for consumers.
[Operator Instructions] Our next question is by Luiz Carvalho from UBS.
Wilson, I have a few questions here. I think that your comments during this first question were great, but I would like to hear more about your buyback program. Can you do the buyback today already? That's my first question. After this conference call, will this be enabled already?
And my second question. This quarter, we talked to many players, not only your main competitors, and we've seen greater competition for volume. Starting with industry players, have you been able to sign a contract with a major player in the region of Campinas with a rebate of almost BRL 0.10 per liter? I mean, this is something we've heard about. So when we look at these numbers from other companies, it concerns me, the level of provision in your balance sheet about these contractual rebates. It seems to me that this rebate amount is growing a lot. So what is your take on that, on the rebate issue vis-à-vis short-term volume sale?
Thank you, Luiz. I will start and maybe Natal can add to my answer. Yes, the buyback can already be done with a limit of BRL 1.5 million, with a volume that has been established already. So this is being done to protect shareholders from any type of volatility. Up to 1 year, these are the values that will be used.
Now about the competition, you're right. We cannot be influenced by the month of April and May because that's when we had the second wave of the pandemic, and there was that volume reduction as we saw in the chart that I shared with you. When that happens, there is fiercer competition and pressure on prices. We have a business rationale that is to grow, creating value to our dealers. So of course, we try and do that with a lot of caution using our PDI tools because we want to act correctly.
I'm not aware of that rebate operation that you mentioned in Campinas. That's not something that's part of our rationale. We are gaining market share but our focus is always on business sustainability because if you start with practices like that, you will impact your quality and credibility, and that's not our strategy. Natal, do you have anything else to add?
Now Luiz, you're right. Throughout the second quarter, we saw a few movements happening, but it was a quarter that was hardly hit by the pandemic. There was a significant reduction in volumes. In terms of seasonality, we would expect the second quarter to be stronger than the first quarter in terms of volume. So you would expect diesel seasonality to make diesel grow around 6%, and it did not grow even half of that.
In the Otto cycle that is more affected by mobility restrictions, you would expect a volume increase compared to the first quarter, but there was actually a decrease in the volume in the Otto cycle. And aviation is a very sensitive area. When the pandemic gets worse, people don't want to get into airplanes and that has an impact on volumes as well, which is something that we felt. It was something around 23%.
So when we see the market contracting, we expect players to become a bit more competitive, so to speak. They all want to compete for this decreasing volume. That's a natural trend. But during our presentation, we showed you the evolution month by month. We were hardly hit in April, but in May, June and July, we saw an upward trend in all segments. Otto is growing well, diesel is growing well. It was already expected to grow because of the seasonality, but it is actually growing due to the relief in the lockdown measures, and the aviation in June was 63% higher than in April.
So it was indeed a challenging market in the second quarter and that affects everyone. It affects margins as well because the players want to keep their positioning. In June and July, we saw a reversal of that dynamic. The dynamic is more positive not only in terms of volume generating economies of scale but also in repositioned margin that also entered this more positive dynamic.
For dealers and consumers, PRR or industrial, for them, it doesn't matter if you call this rebate or something else. What they want is a more competitive price. And we can offer discounts via rebate or via pricing. It doesn't matter which, but that will not generate any type of provision. We use the term provision, but we don't do any type of provision. We disclosed the rebate that we've been offering through our time. In more competitive markets, the rebate tends to go up and the other way around in less competitive markets.
But except from the situation we went through in April or May, we don't see a structural change in the market in terms of more rebate. When it comes to the service stations of our trademark, we've been trying to set the conditions beforehand. And what matters the most is the total ROI of the operation, that is the commercial and risk management strategy for those transactions. But we don't see a greater pressure for rebates. What we've seen is that in more competitive markets, you use this type of mechanism to become more competitive or to maintain competitiveness, but these are not structural or permanent area.
Please hold while we solve some technical issues.
[Technical Difficulty]
Our next question is by Andre Hachem from Itaú.
I'd like to talk about 2 issues. First, about ethanol. The market is very heated, the price is evolving. So I'd love to hear about your supply strategy for ethanol. And is there any chance that the government will reduce the numbers temporarily? And now about diesel. We've seen higher prices but the government has lowered the prices. What do you expect from now on in terms of acquisition of biodiesel for the rest of the year?
And now about green coke. When we look at major consumers, there was a negative effect of green coke offset by a nonrecurring factor. Now thinking about the medium-term horizon, how can you offset this negative coke effect? How can you supply the sales of green coke and keep your results level?
I will ask Andre to answer these questions. I just have an observation about fuel oil that you mentioned. Indeed, we've been going through a lot. The Ministry of Mines and Energy has been acting with CNPE in a prudent way, and I believe that we're going to -- it's going to take us about 2 years to recover from that. In the medium term, we can expect that and we showed that in our presentation.
There's also some gas limitations defined by [ Enel ] so fuel oil and diesel are competitive when we look at the price of gas. But I would like to hear from Natal. You also mentioned ethanol, and when you look at the Otto cycle, you see an important addition, an important growth of gasoline consumption and an impact on ethanol volumes. And biodiesel, you have a very high value. And we still have localized operations. If you open for imports, I'm sure that the prices would decrease. The reduction happened because of the aggressive price increases in biodiesel. Now I think Andre can give you further information about that.
Thank you for your question. Now about ethanol, we have created a market intelligence area in order to better understand the price movements. In the beginning of the harvest this year, we had a typical movement with higher prices differently from what we usually see. Our strategy has been to anticipate purchases in order to create this inventory effect within the month. But the coke strategy as a whole hasn't changed much. What we want is to increase our focus on ethanol and we've been evolving a lot. In fact, we've had significant gains and an important share evolution linked to that.
But about ethanol sourcing, the trader is key and we've been evolving a lot in that. We understand that the short position of a distributor like ours with the long -- joined with the long position of a relevant player could create significant synergies in terms of possibilities for geographical carriers and arbitrage of different types also in the international market. And we also want to have greater scale for purchase and sales of ethanol once we start operating and trading this commodity, considering the short position of BR and the long position of this company with whom we have been having a close conversation. So that should change our competitiveness in terms of ethanol sourcing.
In terms of mandate changes, we haven't seen this discussion prosper for now, so we keep the level at around 27%. So now about coke. As you know, we talked about this in other conference calls. Part of the volume of coke, Petrobras decided to sell directly to some clients, and the other part was sold through bidding processes. And some of them, we did not win. So we had the whole volume of coke but now these contracts are expiring, and now we need to compete with the market. Half of the market is out of hand because it's in direct sales or in biddings that were already completed, and we can compete for the other 50% approximately.
So we think we'll have a certain percentage. We wanted to become the more relevant -- as relevant as possible of this remaining volume, but it is a much smaller volume than we used to have. But that was all part of our business plan. All of the targets that we shared with you in other opportunities in terms of EBITDA growth and other prospects for 2021 and ahead already presupposes this contraction of the coke market.
The fuel oil market was not foreseen. We could not predict the water crisis we've been having but that offset part of the impact. I would not say we were helped by that, but the oil fuel is only a partial mitigator during a pandemic when you have decrease of many products -- of the sales of many products. So this oil fuel impact was good but it did not affect the whole volume decrease that we had.
Looking ahead, this is something that -- this help only came in June, but we expect it to last until the end of the year at least. And the consumption levels of oil fuel, because of the impacts in June were already higher than in April and May, the levels of June and July that you saw in the chart that we shared with you earlier are the levels that correspond to this additional demand that was unforeseen and compensated part of the coke effect that you mentioned. But the volume expansion will happen in spite of the coke reduction.
But it's not one single product that will be able to do that. We have ambitions for the rest of the year and for the following years for us to recover part of this market. We believe the market will grow back again as the economy recovers, and we have expansions that are earning expansions. This -- our earnings will expand because of different sources. And we've had the best second quarter in the history of our company. The first quarter also had a very high EBITDA. And I think that we've been able to neutralize the coke effect, neutralize more than offset the coke effect, but that's not for one single factor but many factors.
I would just like to add a comment. The company has been strengthening because of new businesses like electrical energy. We have an extraordinary growth potential in this segment because we now have consumers in the free market. And our results have also been impacted by EBITDA coming from convenience. And on our BR Day, we want to be able to share part of our vision for the future with all of you. We are now focusing on other fuels and other energy sources, considering all of these changes that we've seen in the market, including in the oil fuel that you mentioned.
Our next question is by Bruno Montanari from Morgan Stanley.
I have a follow-up on the provisional measure. Has anyone expressed interest in installing a white flag pump in your network just so we have an idea of the movements that are happening? Now about trading margins, the second quarter was weird because of the pandemic. And I would like to hear from you about whether you expect better margins in the trading market in the third quarter. And now about working capital. Looking at the last 4 quarters, we would say it is a whole EBITDA in terms of working capital. What do you expect for the next 4 quarters?
Okay, I'll turn the floor over to Natal, but I will be honest with you. If you look at the perspective, it's not only about installing a white flag pump, but you have a significant additional investment to sell a product that will be cheaper or of lower quality. So I don't think anyone would want to do that.
Now considering the benefits for consumers, it would be almost the same as going into a McDonald's store and buying a cheap sandwich from another brand. That's not going to happen. If you work with a brand, you incorporate attributes to the brand and the consumers relate to the product, relate to the quality, the sourcing, the services. It's much more than just offering something cheap in a place where you sell standardized products. So I think that economically speaking, that's not going to be feasible because it may cost more than your previous promises.
Now in terms of margins, as you asked, if we look at the second quarter, it was very atypical. And there was a -- the economy of scale and the margins were affected because of costs that we couldn't share with you, that what we usually show in our presentation is that this volume will certainly increase and will recover part of the margins of the economies of scale. And as the market grows, the level of competition becomes more reasonable than when you have a lower level of inventory and more competition. Now oil fuel and diesel for using thermal electrical plants is another issue. Now I'd like to turn the floor over to Natal to talk about the working capital question you asked.
Okay, thank you. You talked about the margins, and the second quarter, as you well know, is seasonally speaking weaker than the first quarter in terms of margins. It's better in terms of volume but it's worse in terms of margin. So the pandemic generated these conditions. And I'd like to establish a connection with the working capital that you asked.
When you're in a pandemic and you have volume decreases, the sales estimates that affected inventory and the other issues will actually affect our inventory levels. That will be higher. And with higher inventory levels, you have a fiercer competition and that will affect our margins. So in addition to the scale effect that Wilson mentioned, there's also the repositioned margin per se.
Although this is not your main question, in terms of resale margins, in the first quarter, we have had an important inventory gain and we shared these numbers with you in the first quarter. And this inventory gain goes through the gross margins only. And the gross margins alone is therefore influenced by the gains or losses of inventory. So in the first quarter, we had better dynamics. In terms of volume, it was before the second wave of the pandemic, and we had a very relevant inventory gain with resales that were above BRL 50 per cubic meter in the first quarter. And now we had a slight loss of inventory in resales, almost BRL 70 difference from 1 quarter to another, just related to price variation and not margins per se.
So this is related to the competitive dynamics. But once we see the volume recovering, this will be mitigated. If we look at the July numbers, we can see completely different margin dynamics. Not only the volume is much higher but the margin will also reacting positively to that. And with regards to working capital, there is a bit more than BRL 1 billion in inventory accumulation. I'd say that around 60% of that inventory is related to this drop in volume internally. We were not presupposing a pandemic. So when the pandemic hit, we had this inventory accumulation.
For most of the products, we went to a higher band of inventory. Diesel was hardly affected by that and that accounts for about 60% of the whole variation. But the primary cause was the volume decrease, which is related to this whole scenario, and there is also a price movement. And I'd say that once we overcome that situation and volumes go back to normal levels, this excess in working capital will go back into the business. So it was just a slight mismatch but that is completely temporary.
Our next question is by Pedro Soares from BTG Pactual.
I have a question about the company's capital structure and the investments expected ahead. You talked about an increase in leverage to 2.5x, and that's going to give us a better possibility of paying dividends and growing. So I think you'll probably talk about that during the Investors Day. But I'd like to hear from you, do you think that these potential investments to be made can be more significant in the short and medium term or it's something for later on? I would like to understand the dividend's potential since there has been a relevant cash generation and that might impact the leverage level. So can you talk about the timing of investments?
Indeed, the capital structure defined at 2.5x is so that we can perform our growth process. We see a lot of space to grow not only in electrical power but also consolidation of operations and natural gas and the growth of our convenience network. We chose this because we understand that this is something gradual and that will enable us to grow when the conditions are favorable and we have M&A opportunities. So we want to prepare for that and that will create opportunities for shareholder compensation that we want to strengthen the company.
Now we've talked about oil, fuel and coke itself. And there has been a reduction in those areas but we are now investing in other long-lasting fuels. So in general, we want to do things gradually, considering the M&A opportunities that arise in those areas that I mentioned. And that will open opportunity to generate cash and pay out dividends. But I think Natal has something to add to that.
Yes, you're completely right. With a very robust cash generation that we've had, as you know, and with the possibility of using a higher leverage band, we think that the cash that will be available to be allocated in the next 5 years is very significant. So we expect our business to demand about BRL 1.5 million per year for the contract with the service stations -- BRL 1.5 billion, not million. So we have CapEx to maintain our infrastructure, for logistics expansion going from BRL 500 million to BRL 700 million per year. So we're talking about some billions that are needed for our organic expansion. This is something that we require to maintain and grow about BRL 2 billion total allocation per year, BRL 2 billion to BRL 2.5 billion per year.
Now having done that, we expect around BRL 15 billion to BRL 20 billion to be allocated and added to the organic allocation. We'll give you further details about that during our BR Day. And this investment will give us opportunities for organic growth, as Wilson mentioned, in our energy transition with gas, electrical power and others, that it will probably be enough for us to make payments to shareholders as well because of the significant cash generation that will happen during that period of time.
So the choice between dividends or buybacks and others will depend on other issues that are not in our hands such as the tax reform and other parameters that we'll need to take into account. What matters is that we have the tools in our hands to make the choices that make more sense for shareholders at different points in time. So if we have different M&A opportunities or value generation opportunities, we will study them, and then we'll distribute cash or buy back shares when we can. And we want to have all those levers in hand.
The context changes and we need to adapt to that. But my main message is, yes, there will be enough cash generation. In 2021, we paid dividends in April and we have already announced other payments for September and December, and there are also other dividends to be paid by the end of the year with a total distribution of BRL 2,850,000,000, rounding these numbers. These numbers are very relevant and I'm not considering any buyback here. And we have around BRL 1.5 million for buyback.
So if we consider that, we would go above BRL 4 billion if we do all of that by the end of the year. But we're doing that, making sure that this is not going to affect our ability to allocate capital. We're working on M&A projects and other organic allocations that will be made. We'll not lose any opportunity for paying all of that. There is possibility for us to balance all of these levers, and we want to be able to use all of them.
[Operator Instructions] Our next question is by Gustavo from Bradesco.
I have 2 quick questions. The first is we saw an increase in savings. Is that something recurring?
I apologize, Gustavo. We are having some technical issues with your audio and we cannot understand you.
Can you hear me better now?
Yes, it's better now.
Okay. So my first question is about the BRL 100 million increase that you shared during the presentation. Where is that coming from? Is that something recurring? And is there a possibility to increase the sales to thermals?
Well, when it comes to thermals, the numbers we've had in our last quarter is very close to what we consider to be a stable position. We are the distributor of oil fuel and diesel for most of those thermal electrical power plants. So we think that considering the dispatch level that the government has defined, this will probably be kept at least until the end of next year. Now the first question, I still don't understand what you said, the audio was chopping up. So maybe Natal has understood and maybe he can answer that.
We believe that these volumes have already achieved the levels of stability. But in the quarterly comparison, oil fuel distribution in the second quarter was higher in June for the thermoelectrical power plants, but we expect to see gains in the next quarter because the dispatch levels will be the same for the whole quarter. And in the second quarter, this level was only seen during 1 month. So we expect a contribution that is about twice as high as what we saw this quarter. But about your first question, I apologize, we were not able to understand.
Well, we saw that this quarter compared to the previous quarter, there was BRL 100 million increase in terms of anticipated bonus. Why is that?
About anticipated bonus, okay. You're talking about bonus. All right. These are amortizations that we make, and they have a direct relationship with the validity of contracts. And right now, we have shorter-term contracts that concentrates amortizations more in the quarter than they usually do. So we have contracts for the trademarking of service stations that are long like 7 years, and now we have contracts of only 3 to 4 years. And the level of amortization differs because of that, depending on the validity of the contract.
Now if this is recurring or not in the long term, we don't think that we will have a different contract duration. Our average is around 5 to 6 years, but of course, you can calibrate longer or shorter-duration contracts depending on the context. But we don't think this is going to be relevant in the long term.
Okay. We are now closing the Q&A session. I'd like to turn the floor over to Mr. Wilson Ferreira, Jr., for his final remarks.
Okay. Once again, I'd like to thank you all for joining our earnings conference call. And since this conference call was made almost at the same time as the launch, I would like to share with you our position and the position of the other players, including Petrobras. The IBP Institute defends the current rule for market positioning that enable us to have exclusivity contracts, ensuring fuel consumers all over the country the guarantee of the products of the service station being sourced from the distributor with whom the service station has a contract. That is an assumption for a just and fair competition.
So the provisional measure announced this Wednesday would enable service stations to offer products of different brands at their service station. We believe that the proposal will not bring benefits in terms of prices and information to consumers, and it will increase regulatory and tax costs. In Brazil, service stations already have the option of having a trademark or not, the so-called white flag service stations account for about 47% of the market, which shows a lot of competition between these 2 models.
Now dealers can choose a trademark, ensuring consumers where the products come from, and consumers, therefore, can choose a brand they trust. In addition to operational difficulties, if we segregate tanks and pumps with products from different sources and the impossibility of separating in person and virtual services that can be added, the quality of communication with consumers will be jeopardized. We believe that in benefit of consumers and contracts, we should look at the contracts that are key for fair competition and to supply the very large national territory.
So I wanted to mention that to you because this is something that will be discussed in the National Congress. It needs to be accepted by the regulatory agency. And it might be a coincidence but it's something that will affect all of the commercial relationships in which consumers that are defended by the Consumer Code -- Consumer Defense Code. And they establish a relationship with a brand that works on quality of products, innovation, payment terms and so on. So we would like to mention that our model is based on the trust that we have built in our relationship with consumers and the brand attributes that we added to the BR brand to all of our products and services. And this is our main differential and the strategy we're going to keep in the future.
This country is growing. And we believe that we'll be able to reinforce our differentials in the following months and years by doing that. So I would like to invite you to take part in our event on September 1. We will be able to share further details with investors, analysts and shareholders and the fruits of the work we've been doing at our company and how we're going to reinforce our competitive differentials in the future. So please join us on September 1, and we're going to talk about the future perspectives of BR Distribuidora in Brazil. Thank you very much, and have a great afternoon.
Ladies and gentlemen, the audio of this conference call and the slide deck will be available at the website at ri.br.com.br. Thank you very much for joining.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]