6-K 1 MainDocument.htm 6-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

Form 6-K

 

 

Report Of Foreign Private Issuer

 

Pursuant To Rule 13a-16 Or 15d-16 Of

 

The Securities Exchange Act Of 1934

 

For the month of March, 2021

 

Commission File Number: 001-14950

 

ULTRAPAR HOLDINGS INC.

(Translation of Registrant’s Name into English)

 

Brigadeiro Luis Antonio Avenue, 1343, 9th Floor

São Paulo, SP, Brazil 01317-910

(Address of Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F ____X____     Form 40-F ________

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes ________      No ____X____

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes ________      No ____X____

 

 









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Annual and Extraordinary General

Shareholders’ Meeting

of April 14, 2021

Digital-only meeting

 


 

 

 

 

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Ultrapar – Shareholders’ Meeting Manual



3 Message from the Chairman of the Board of Directors
4 Invitation letter
5 Call notice
8 Additional procedures
10 Management proposal for matters to be discussed in the Annual and Extraordinary General Shareholders’ Meeting, including:
17 Exhibit I - Report on the source and rational for the proposed amendments to the bylaws of Ultrapar Participações S.A.
18 Exhibit II - Financial statements referring to the fiscal year ended on December 31, 2020, including (i) the Management Report of the fiscal year ended on December 31, 2020; (ii) Report from our Independent Auditors and (iii) Report from our Fiscal Council
19 Exhibit III - Management discussion and analysis on the financial conditions of the Company, under the terms of item 10 of the Reference Form
77 Exhibit IV - Allocation of net income proposal for the fiscal year, pursuant to Annex 9-1-II of CVM Instruction 481/09
81 Exhibit V - Information about the candidates for members of the Board of Directors and the Fiscal Council indicated or supported by the management, under the terms of items 12.5 to 12.10 of the Reference Form
101 Exhibit VI - Information about the management compensation, under the terms of item 13 of the Reference Form

Model for power of attorney


 

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Ultrapar – Shareholders’ Meeting Manual


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Dear Shareholders,

In 2020, our businesses began the year on a promising note, driven by the positive macroeconomic outlook in Brazil. However, as from March, the novel coronavirus pandemic brought severe consequences for the global economy, strongly affecting Brazil.

We were quick to adapt our operations at the first signs of the pandemic, allowing us to continue our role as a provider of essential products and services to the society, with no interruptions or discontinuity. We supported our resellers and business partners, took care of our employees’ health and safety, maintained our financial soundness, contributed to the national effort of providing a social safety net on different fronts, and we will continue to endeavor our best efforts to fight the pandemic in Brazil.

The year 2020 underscored the resilience of our portfolio, with growing results at all our businesses with the exception of Ipiranga, whose activity was directly impacted by social distancing measures and restrictions on mobility. We took important steps to accelerate the Company's growth and value creation and we started the year 2021 well positioned for the future. On the one hand, we believe that our strategic goal to prioritize the allocation of capital in the oil & gas downstream enables us to develop opportunities due to the opening of the refining market to private companies and the expansion of the natural gas chain in Brazil. On the other hand, we have improved our management and governance model, with businesses increasing their autonomy and accountability for results, with greater integration between the Executive Board and the Board of Directors, and a more agile and sound decision-making process.

It is worth highlighting that we have increased management attention and resources to environmental, social and governance (ESG) issues. In 2020, we developed our materiality matrix, approved our Sustainability Policy and issued our first Integrated Report following the GRI guidelines. In 2021, the ESG front gained momentum with the creation of the Sustainability and Corporate Affairs Executive position, which will accelerate and integrate the efforts and actions of the various businesses of the Ultra Group in a unified and objective agenda, including clearly defined goals to be released until the end of 2021.

For this year's general shareholders meeting, we present a slate of candidates to the Board of Directors with three new members, in continuity to the renovation initiated in the last election, in order to strengthen the skills, experiences and qualifications appropriate to the Ultra Group's growth and value creation strategy. Throughout this year, we will also start the transition, in a planned manner, in the leadership of our Board of Directors.

To conclude, we invite all our shareholders to participate in our meeting, whose details regarding attendance, as well as the necessary information for voting decisions, may be found throughout this Meeting Manual. 

 

 

PEDRO WONGTSCHOWSKI

Chairman of the Board of Directors

 

 

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Ultrapar – Shareholders’ Meeting Manual


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Dear Shareholders,

It is a pleasure to invite you to participate in the Annual and Extraordinary General Shareholders' Meeting ("Meeting") of Ultrapar Participações S.A. ("Ultrapar" or "Company"), to be held on April 14, 2021, at 2:00 pm (Brazil time), exclusively in digital form, pursuant to the terms of the respective call notice.

All Ultrapar shareholders (including holders of common shares in the form of ADRs) will be able to vote on all matters on the agenda. Each common share gives the right to one vote in the Meeting’s deliberation. ADR holders must vote as determined in a communication to be released by the depositary under the terms of the deposit agreement.

This document aims to clarify and guide the resolutions to be taken and the procedures necessary for your attendance or representation in the Meeting.

Ultrapar's Investor Relations department is available for further clarification on the e-mail invest@ultra.com.br or by phone +55 11 3177-7014.

We count on your participation.

 

 

 

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

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ULTRAPAR PARTICIPAÇÕES S.A.

Publicly Traded Company

CNPJ No. 33.256.439/0001-39

 NIRE 35.300.109.724

 

ANNUAL AND EXTRAORDINARY GENERAL SHAREHOLDERS’ MEETING

 

The Shareholders of Ultrapar Participações S.A. (“Ultrapar” or “Company”) are hereby invited to attend the Annual and Extraordinary General Shareholders’ Meeting that shall be held on April 14, 2021, at 2:00 p.m., exclusively in digital form, pursuant to the terms of CVM Instruction Nr. 481/2009, as amended, and by CVM Instruction Nr. 622/2020 (“ICVM 481”), without prejudice of use of remote voting form (“Meeting”), to discuss the following Agenda:

In Annual General Shareholders’ Meeting:

1. Analysis and approval of the report and accounts of the Management, as well as the financial statements of the fiscal year ended on 12.31.2020, together with the report from the Independent Auditors and the opinion from the Fiscal Council;

2. Allocation of net income for the fiscal year ended on 12.31.2020;

3. Setting of the number of members to be elected to the Board of Directors;

4. Election of the slate that will compose the Board of Directors;

5. Establishment of the Management's global compensation;

6. Election of the members of the Fiscal Council and respective alternates, given the request for the installation of the Fiscal Council made by a shareholder representing more than 2% (two percent) of the voting shares issued by the Company, under the terms of Law No. 6,404/76 and CVM Instruction No. 324/00; and

7. Considering the item above, the establishment of the compensation of the members of the Fiscal Council for the term of office that begins in April 2021.

In the Extraordinary General Shareholders’ Meeting:

1. Ratify the change in the number of common shares into which the Company's capital stock is divided, due to the partial exercise of the rights conferred by the subscription warrants issued by the Company as of the approval of the merger of shares issued by Imifarma Produtos Farmacêuticos e Cosméticos S.A. by the Company, approved by the Extraordinary General Shareholders’ Meeting held on January 31, 2014.

 

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Ultrapar – Shareholders’ Meeting Manual

 

Election of the Members of the Board of Directors - Procedure to request the adoption of cumulative vote

The minimum percentage of voting capital necessary for requesting the adoption of cumulative vote for the election of members of the Board of Directors is 5% (five percent) of the voting shares, according to CVM Instruction 165/91, amended by CVM Instruction 282/98.

Pursuant article 21 of the Company’s Bylaws currently in force, and article 141, paragraph 1 of the Brazilian Corporate Law, such option shall be exercised up to 48 (forty eight) hours prior at the Meeting.

Attendance at the Meeting

The shareholders, including holders of American Depositary Receipts (“ADRs”), of the Company may attend the Meeting in person or represented by proxies, upon the fulfillment of the requirements for attendance provided for in the Company’s Bylaws, presenting the documents listed under items Individual Shareholder, Corporate Shareholder and Investment Funds below.

Shareholder capacity will be evidenced upon submitting of the statement issued by the institution providing book-entry services or the custodian institution, with the number of shares included therein within up to three (3) days before the Meeting.

The Company will adopt for this General Shareholders’ Meeting the remote voting system in accordance with CVM Instruction 481, allowing its shareholders to send, through their respective custody agents or bookkeeping institution or directly to the Company, a remote voting form, as provided by the Company together with other documents to be discussed at the Meeting. The Company informs that the instructions for the exercise of the remote voting are described in the Annual and Extraordinary General Shareholders’ Meeting’s Manual. The remote voting forms submitted by the shareholders by virtue of the first call of the Meeting shall be deemed valid for the second call, pursuant to the terms of ICVM 481.

Considering the current scenario and the restrictions to the agglomeration of persons in effect by virtue of the COVID-19 pandemic in Brazil, the Meeting shall be exclusively held by digital means, pursuant to the terms of ICVM 481, through a digital platform (“Platform”); accordingly, the shareholders shall attend at the Meeting solely by means of the following:

(a) through remote voting form, which detailed guidelines with respect to the necessary documentation for remote voting are included in such form; and

(b) through digital platform, in person or by attorney-in-fact duly appointed, and the shareholder: (i) may solely attend at the Meeting, regardless of the submission of the form; or (ii) attend to and vote at the Meeting; in this case, provided that the eventual votes issued by the shareholder through the remote voting form shall be disregarded.

Holders of ADRs will be represented at the Meeting by the custodian of underlying shares of the ADRs, pursuant to the deposit agreement dated as of September 16, 1999, as amended (“Deposit Agreement”). Voting procedures with respect to the ADRs shall be specified in a communication to be sent to ADRs holders by the depositary, pursuant to the Deposit Agreement.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Under the terms of ICVM 481, in order to obtain the Company's authorization for virtual participation in the Meeting through the Platform, shareholders or their legal representatives or attorneys-in-fact must send an email to the Company at invest@ultra.com.br, on or before 2:00 pm on April 12, 2021, requesting participation, specifying the contact phone number and email address of the participant, and submitting the documents listed below:

Individual Shareholder

  • Copy of ID document with photograph (ID, driver´s license, foreign national’s residence ID, officially recognized professional class ID or passport, for foreigners); and
  • Copy of the power of attorney, if applicable, and identification document with picture of the attorney-in-fact.

Corporate Shareholder

  • Copy of the last restated bylaws or articles of association and the corporate documents granting representation powers (officers’ election minutes and/or power of attorney);
  • Copy of ID document(s) with picture of the legal representative(s); and
  • Copy of the power of attorney, if applicable, and identification document with picture of the attorney-in-fact.

Investment Funds

  • Evidence of capacity as manager of the fund granted to individual or legal entity representing the fund in the Meeting or who granted power to the attorney-in-fact;
  • Corporate act of the corporate manager granting powers to the representative attending the Meeting or to whom a power of attorney was granted; and
  • If the representative or attorney-in-fact is a legal entity, the documents listed on item “Corporate Shareholder” related to them shall be presented to the Company.

In addition, on an extraordinary basis, the Company may accept that the shareholders submit the necessary representation documents, as referred above, solely in digital means, without registry before the notary office or notarized copies, in PDF format. Ultrapar shall accept the powers of attorneys physically or digitally signed through digital certificate (ICP-Brazil).

Access to the Platform of shareholders who do not submit the necessary participation documents within the period provided herein will not be admitted.

Upon receipt of the request, accompanied by the necessary documents for the Meeting Attendance, the Company shall submit to the email indicated by the shareholder the link and the instructions to access the Platform to the shareholders or, however the case may be, the legal representatives or attorneys-in-fact thereof. Such information is personal and not transferrable, and shall not be shared, subject to attribution of responsibility.

Ultrapar shall not be responsible for any operational or connection issue faced by the shareholder, legal representative or attorney-in-fact, which would hamper or prevent his/her attendance at the Meeting.

Availability of Documents and Information

Under the terms of the Ultrapar’s Bylaws and CVM Instruction 481, the documents and information relating to the matters to be deliberated upon, as well as the Annual and Extraordinary General Shareholders’ Meeting’s Manual, the remote voting form for Meeting and other relevant documents for the exercise of the voting right at the Meeting were filed with the Brazilian Securities and Exchange Commission (“CVM”) and are available at the website of CVM (www.cvm.gov.br), Company’s head office, website of B3 – Brasil, Bolsa, Balcão (www.b3.com.br) and Company’s website (ri.ultra.com.br).

 

São Paulo, March 15, 2021.

 

PEDRO WONGTSCHOWSKI

Chairman of the Board of Directors

 

 

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Ultrapar – Shareholders’ Meeting Manual


 

Ultrapar, aiming to facilitate the representation of its shareholders at the Meeting (excluding holders of common shares in the form of ADRs), provides in the end of this Manual a power-of-attorney model, through which shareholders may appoint the lawyers thereby indicated to represent them at the Meeting, at no cost and strictly in accordance with the powers granted. To the extent shareholders (excluding holders of common shares in the form of ADRs) opt to be represented at the Meeting using the model provided by the Company, the power of attorney must include all the attorneys-in-fact listed in the draft of the power-of-attorney .

Considering the current scenario and the restrictions to the agglomeration of persons in effect, due to the COVID-19 pandemic in Brazil, the Meeting shall be exclusively held by digital means, pursuant to the terms of article 21-C, paragraphs 2 and 3 of ICVM 481, through a digital platform (“Platform”); accordingly, the shareholders shall attend the Meeting solely by means of the following:

 (a) through remote voting form, which detailed guidelines with respect to the necessary documentation for remote voting are included in such form; and

 (b) through digital platform, in person or by attorney-in-fact duly appointed, and the shareholder: (i) may solely attend the Meeting, regardless of the submission of the form; or (ii) attend and vote at the Meeting; provided that, in this case, the eventual votes issued by the shareholder through the remote voting form shall be disregarded.

On an extraordinary basis, the Company may accept that the shareholders submit the necessary representation documents, as referred on the Call Notice, in digital means in PDF format, without registry before the notary office or notarized copies. Ultrapar shall accept the proxies physically or digitally signed through digital certificate (ICP-Brazil).

We clarify that in the case of non-Brazilian investment funds and shareholders, a sworn translation of the documents shall not be required if the documents are originally in English or Spanish.

Pursuant to the terms of article 5, paragraph 3, of IN CVM 481, the Platform shall not be accessed by the shareholders that have not provided the necessary documents specified in the Call Notice within the deadlines set forth on that document. 

Upon receipt of the request, accompanied by the necessary documents for the Meeting attendance, the Company shall submit to the e-mail indicated by the shareholder the link and the instructions to access the Platform to the shareholders or, however the case may be, the legal representatives or attorneys-in-fact. Such information is personal and not transferrable, and shall not be shared, subject to attribution of responsibility.


 

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Ultrapar – Shareholders’ Meeting Manual

 

The shareholder who participates through Platform will be considered present at the Meeting, being able to exercise his/her respective voting rights, and sign the respective Minutes of the Meeting, pursuant to article 21-V, Paragraph 1 of IN CVM 481.

If the shareholder who has duly requested his/her participation does not receive from the Company the e-mail with instructions for accessing and participating in the Meeting at least twenty four (24) hours prior to the Meeting (that is, until 2:00 p.m. on April 13, 2021), he/she must contact the Company by phone on number +55 (11) 3177-7014, in order to receive (by telephone or e-mail) their respective instructions to access.

Ultrapar shall not be responsible for any operational or connection issue faced by the shareholder, legal representative or attorney-in-fact, which would hamper or prevent his/her attendance to the Meeting.

Additionally, the Company asks for shareholders who will participate through the Platform to access the Platform at least thirty (30) minutes in advance of the time scheduled for the beginning of the Meeting in order to allow the validation of the access.

The Company reserves the right to use any information contained in the recording of the Meeting to: (i) registration of the shareholders’ statements and also for viewing the documents presented during the Meeting; (ii) registration of the authenticity and safety of communications during the Meeting; (iii) registration of the shareholders' attendance and votes; (iv) compliance with any legal orders from competent authorities; and (v) safeguard of the Company, its administrators and contracted third parties, in any judicial, arbitration, regulatory or administrative sphere.
 

Remote Voting Forms

If the shareholder opts to send the remote voting form of the Extraordinary General Shareholders’ Meeting to the Company, the Company requests that such voting form and other supporting documents shall be sent to the e-mail Invest@ultra.com.br or be filed at the Company within 7 days from the Annual and Extraordinary General Shareholders’ Meeting date, that is, until April 7, 2021.

 

 

 

 

 

 

 

 

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ULTRAPAR PARTICIPAÇÕES S.A.

Publicly Traded Company

CNPJ nº 33.256.439/0001-39  

 NIRE 35.300.109.724

 

 

Dear Shareholders,

The Management of Ultrapar Participações S.A. (“Ultrapar” or “Company”) hereby presents to the Company’s Shareholders the following Management Proposal, regarding the matters to be decided at the Annual and Extraordinary General Shareholders’ Meeting, to be held on April 14, 2021, at 02:00 p.m.

 

1)       In the Annual General Shareholders’ Meeting:

 

1.1) Analysis and approval of the report and accounts of the Management, as well as the financial statements of the fiscal year ended on 12.31.2020, together with the report from the Independent Auditors and the opinion from the Fiscal Council.

The Management’s Report and financial statements for the fiscal year ended on December 31, 2020 were filed with the Brazilian Securities and Exchange Commission - CVM on February 24, 2021 and published in wide-circulation newspapers on February 26, 2021. The Management's Report summarizes relevant information about the Company in 2020, including environmental, social and governance performance (ESG), information on innovation, people, operational and financial performance.

Such documents (i) were recommended by the Audit and Risks Committee for approval by the Board of Directors; (ii) obtained a favorable opinion from the Company's Fiscal Council at a meeting held on February 24, 2021, the respective minutes of which were also filed with the CVM on February 24, 2021; and (iii) were approved by Ultrapar's Board of Directors. 

In addition, the financial statements were audited and obtained an unqualified report by KPMG Auditores Independentes. Such documents are available in Exhibit II to this Proposal. Management’s comments on the financial situation of the Company, pursuant to item 10 of the Reference Form, can be found in Exhibit III.

Management Recommendation: approval of the Management’s Report and accounts, as well as the Company's financial statements.


 

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Ultrapar – Shareholders’ Meeting Manual

 

1.2) Allocation of net income for the fiscal year ended on 12.31.2020

Management proposes that the allocation of net income attributable to Ultrapar's Shareholders for the year ended on December 31, 2020, in the amount of R$893,383,505.12 (eight hundred ninety-three million, three hundred and eighty-three thousand, five hundred and five Reais and twelve cents), be as follows:

a) R$44,669,175.26 (forty-four million, six hundred and sixty-nine thousand, one hundred and seventy-five Reais and twenty-six cents) allocated to the legal reserve;

b) R$368,966,038.86 (three hundred and sixty-eight million, nine hundred and sixty-six thousand, thirty-eight Reais and eighty-six cents) allocated to the statutory reserve for investments; and

c) R$479,748,291.00 (four hundred and seventy-nine million, seven hundred and forty-eight thousand, two hundred and ninety-one Reais) allocated for payment of dividends to shareholders holding common shares, equivalent to R$0.44 (forty-four cents of Reais) per share.

We provide detailed information regarding the proposal for allocation of net income for the fiscal year ended on December 31, 2020 in Exhibit IV, under the terms of ICVM 481, as amended.

Management Recommendation: approval of the net income allocation proposed.

1.3) Setting of the number of members to be elected to the Board of Directors

The definition of the number of members of the Board of Directors, when the Bylaws provides for a minimum and maximum number, should be subject to a decision of the General Shareholders’ Meeting, in accordance with the understanding of the CVM. Article 18 of the Company’s Bylaws states that the Board of Directors is composed of at least 5 (five) and at most 11 (eleven) members. Therefore, shareholders must first vote on the number of members that shall compose the Board of Directors for the next term of office, and subsequently elect the Directors.

In April 2019, there was an important renewal in the Board of Directors, with the election of four new members, who brought further experiences and skills to the Company. In addition to the People Committee, which exists since 2011, the Strategy Committee was created and the Audit and Risks Committee was restructured. As from September 2020, the Board of Directors now has 11 (eleven) members. Such structure allowed a better organization of the strategic agenda and a deeper understanding of issues for the decision-making process.

Therefore, we propose maintaining the number of 11 (eleven) members to compose the Board of Directors for the term of office that shall begin at the Meeting.

Management Recommendation: approval of the maintenance of 11 (eleven) members to compose the Board of Directors of Ultrapar for the term of office initiating in April 2021.

 

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1.4) Election of the members of the Board of Directors

We propose the election of the following slate of candidates as members of the Board of Directors, with a term of office of 2 (two) years, under the terms of article 20 of the Company's Bylaws:

Graphics

This slate combines candidates who are currently members of the Board of Directors, preserving the knowledge of the businesses and of Ultrapar, with three new candidates, who bring relevant and supplementary experiences to the Board. Mr. José Luiz Alquéres, independent member, and Messrs. Marcos Marinho Lutz and Otávio Lopes Castello Branco Neto, non-independent members, are included by Management for the first time in the proposed slate.

The Board of Directors identified the most relevant experiences and skills for representing and composing the Board, based on Ultrapar's strategy and future needs. The table below summarizes how such experiences and skills are related to the main characteristics of our business.

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Ultrapar – Shareholders’ Meeting Manual

GraphicsWe believe that the proposed slate provides a balanced composition of candidates' qualifications, based on skills that together are relevant to the Company, and will contribute to the establishment of an active and skilled Board of Directors to decide on Ultrapar strategic issues. In addition, the proposed slate maintains the majority of independent members in its composition. The chart below summarizes the main experiences and qualifications of candidates to the Board.

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The adherence of each candidate as member of the Board of Directors, to the Corporate Policy for Nomination of Members to the Board of Directors was analyzed and confirmed by the Board of Directors, which also verified the characterization of independence of each of them, considering the provisions set forth on the Regulations of the Novo Mercado and in the statement of independence presented by each candidate. The characterization of independence of the members shall be confirmed by the General Shareholders’ Meeting. 

 

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Ultrapar – Shareholders’ Meeting Manual

 

The information regarding the candidates' professional experience is available in Exhibit V, items 12.5 to 12.10 of the Reference Form.

The possibility of adopting a cumulative vote process for the election of members of the Board of Directors is also emphasized, as long as requested by shareholders representing at least 5% (five percent) of the voting shares, and provided that they do so, in writing, up to 48 hours prior to the Meeting, in accordance with CVM Instruction No. 165/91, as amended by CVM Instruction No. 282/98. In this case, there will be no election per slate as described in article 21 of the Company's Bylaws, and each voting share shall have as many votes as there are vacancies to be filled on the Board, and shareholders may cast their votes to one or more candidates.

Management Recommendation: approval of the slate proposed by Board of Directors.

 

1.5) Establishment of the Management’s aggregate compensation

The proposal for the annual aggregate limit on Management compensation for the period between May 2021 and April 2022 is R$78,000,000.00 (seventy-eight million Reais), of which R$12,000,000.00 (twelve million Reais) for members of the Board of Directors, and R$66,000,000.00 (sixty-six million Reais) for members of the Board of Executive Officers, including R$20,835,425.00 (twenty million, eight hundred and thirty-five thousand, four hundred and twenty-five Reais) for expenses with stock-based compensation plan and post-employment benefit.

The proposed amount is 4% higher than the amount of R$75,000,000.00 (seventy-five million Reais) approved by the Annual and Extraordinary General Shareholders’ Meeting held on April 15, 2020 (“2020 Meeting”), for the period from May 2020 to April 2021. Such increase arises from (i) periodic adjustment for inflation, market conditions and meritocracy, (ii) an increase in the average number of members of the Board of Directors, as approved at the Extraordinary General Shareholders’ Meeting held in September 2020, and (iii) changes in the Corporate Executive Compensation Policy of the Statutory Board of Officers, which increase the long-term variable portion of the compensation, reinforcing the alignment of interests between executives and shareholders. These effects were partially reduced by the exclusion – pursuant to a guidance under Official Letter/CVM/SEP/Nr. 1/2021, of February 26, 2021 – of social charges payable by employers that comprised the annual management compensation limit. On a comparable basis, that is, by removing such social charges from the limit approved at the 2020 Meeting, the proposed amount would be 18% higher year on year, explained by the effects mentioned above.

The aggregate compensation actually realized in the period between May 2020 and April 2021 is estimated at an amount 24% lower than that approved by the shareholders at the 2020 Meeting, mainly due to (i) the change in the Board of Executive Officers, which generated a reversal of expenses with the stock option plan, and the temporary reduction in the average number of members of such body, and (ii) variable compensation amounts below the maximum estimated amount, aligned with the results below expectations at Ipiranga, which were affected by the pandemic in 2020. For a better understanding of the rationale for this Proposal, we provide detailed information about Management's compensation policies and practices in Exhibit VI, under the terms of item 13 of the Reference Form.

Management Recommendation: approval of the proposal of Management’s aggregate compensation limit.


 

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Ultrapar – Shareholders’ Meeting Manual

 

1.6) Election of the Fiscal Council members and respective alternates, given the request for installation of the Fiscal Council, made by a shareholder representing more than 2% (two percent) of the voting shares issued by the Company, under the terms of art. 161 of Law No. 6,404/76 and CVM Instruction No. 324/00

We propose the election of the following candidates as members to the Company's Fiscal Council, as well as their alternates:

- Flávio Cesar Maia Luz (effective) / Márcio Augustus Ribeiro (alternate)

- Geraldo Toffanello (effective) / Pedro Ozires Predeus (alternate)

- William Bezerra Cavalcanti Filho (effective) / Sandra Regina de Oliveira (alternate)

 

The detailed information regarding the candidates is available in Exhibit V, items 12.5 to 12.10 of the Reference Form.

Management Recommendation: approval of candidates to members of the Fiscal Council.

 

1.7) Considering item 1.6 above, the determination of the compensation for the members of the Fiscal Council for the term of office that begins in April of 2021

We propose the approval of the aggregate compensation of the Fiscal Council members for their term of office (between May 2021 and April 2022) in the amount of R$64,750.00 (sixty-four thousand, seven hundred and fifty Reais) per month, being R$27,750.00 (twenty-seven thousand, seven hundred and fifty Reais) per month for the president of the Fiscal Council, and R$18,500.00 (eighteen thousand and five hundred Reais) per month for the other members. Such amounts include the guidance under Official Letter/CVM/SEP/Nr. 1/2021, of February 26, 2021, which determines that the social charges payable by the employer are not included in the aggregate compensation amounts, subject to approval by the general meeting. On a comparable basis, that is, without social charges payable by the employer in both periods, the proposed amount is 14% higher than the amount approved at the 2020 Meeting, for the period between May 2020 and April 2021. The proposed increase aims to bring the body’s compensation closer to market benchmark, according to research that includes companies in size, complexity and performance comparable to Ultrapar. The aggregate compensation for members of the Fiscal Council actually recorded in such period was in line with the approved amount.

For further information on compensation for the Board of Directors, the Statutory and Non-Statutory Board of Executive Officers and the Fiscal Council, see Exhibit VI (item 13 - Compensation of Managers). We highlight that the amounts included in this compensation proposal differ from those of Annex VI as a result of different reference periods of the documents.

Management Recommendation: approval of the proposal of Fiscal Council compensation.


 

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2)       In the Extraordinary General Shareholders’ Meeting:

 

2.1) To ratify the change in the number of common shares into which the Company's stock capital is divided, due to the partial exercise of rights granted under the subscription warrants issued by the Company as of the approval of the merger of shares issued by Imifarma Produtos Farmacêuticos e Cosméticos S.A. by the Company, approved by the Extraordinary General Shareholders’ Meeting held on January 31, 2014.

Due to the partial exercise of such warrants on August 12, 2020 and on February 24, 2021, 157,917 (one hundred and fifty-seven thousand, nine hundred and seventeen) common shares were issued within the authorized capital limit, as provided for in article 6 of the Company's Bylaws. As a result of such issuance, the Company's capital stock is now represented by 1,115,076,651 (one billion, one hundred and fifteen million, seventy-six thousand, six hundred and fifty-one) common shares, all nominative and with no par value. In view that no additional payment is due for the exercise of subscription warrants, the issuance did not result in a change in the stock capital value.

In order to reflect the issuances already effected as mentioned above, we also propose the ratification of the amendment to the language of the caput of Article 5 of the Company's Bylaws, according to the comparative table of the Bylaws contained in Exhibit I to this Proposal.

 

Access to documents and information

Under the terms of Ultrapar's Bylaws and ICVM 481, as amended, the documents and information relating to the matters to be approved, including the remote voting ballots for the Annual General Meeting and the Special General Meeting, and any other matters relevant to the exercise of the right to vote at the Meeting, were filed with the CVM, and are available on the CVM website (www.cvm.gov.br), at the Company's headquarters, on the B3 website (www.b3.com.br) and on the Company website (ri.ultra.com.br).

 

São Paulo, March 15, 2021.

 

 

PEDRO WONGTSCHOWSKI

Chairman of the Board of Directors

 

 

 

 

 

 

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Ultrapar – Shareholders’ Meeting Manual


 

EXHIBIT I - REPORT ON THE SOURCE AND RATIONAL FOR THE PROPOSED AMENDMENT TO THE BYLAWS OF ULTRAPAR PARTICIPAÇÕES S.A.

 

Current version

Proposed version

Amended version

Comments/Justifications on Proposed Changes

CHAPTER II

Capital Stock and Shares

 

Article 5. The subscribed and paid-in capital stock is R$ 5,171,751,608.08 (five billion, one hundred seventy-one million, seven hundred fifty-one thousand, six hundred and eight Reais and eight cents), represented by  one billion, one hundred and fourteen million, nine hundred and eighteen thousand, seven hundred and thirty-four (1,114,918,734) nominative common shares, with no par value, and with no issuance of preferred shares or founder’s shares permitted.

CHAPTER II

Capital Stock and Shares

 

Article 5. The subscribed and paid-in capital stock is R$ 5,171,751,608.08 (five billion, one hundred seventy-one million, seven hundred fifty-one thousand, six hundred and eight Reais and eight cents), represented by one billion, one hundred and fifteen million, seventy six thousand, six hundred and fifty one (1,115,076,651) nominative common shares, with no par value, and with no issuance of preferred shares or founder’s shares permitted. 

CHAPTER II

Capital Stock and Shares

 

Article 5.The subscribed and paid-in capital stock is R$ 5,171,751,608.08 (five billion, one hundred seventy-one million, seven hundred fifty-one thousand, six hundred and eight Reais and eight cents), represented by The subscribed and paid-in capital stock is R$ 5,171,751,608.08 (five billion, one hundred seventy-one million, seven hundred fifty-one thousand, six hundred and eight Reais and eight cents), represented by one billion, one hundred and fifteen million, seventy six thousand, six hundred and fifty one (1,115,076,651) one billion, one hundred and fourteen million, nine hundred and eighteen thousand, seven hundred and thirty-four (1,114,918,734)    nominative common shares, with no par value, and with no issuance of preferred shares or founder’s shares permitted.

Change of wording and to reflect the issuance of shares effective as of February 19, 2020, due to partial exercise of the subscription warrants issued by the Company as of the approval of the merger of shares issued by Imifarma Produtos Farmacêuticos e Cosméticos S.A., by the Company, approved by the Extraordinary General Meeting held on January 31, 2014.

§1 All of the Company shares are in book-entry form and held in a deposit account with a financial institution authorized by the Brazilian Securities and Exchange Commission – CVM, in the name of their holders, without certificates issued.

§1 All of the Company shares are in book-entry form and held in a deposit account with a financial institution authorized by the Brazilian Securities and Exchange Commission – CVM, in the name of their holders, without certificates issued.

§1 All of the Company shares are in book-entry form and held in a deposit account with a financial institution authorized by the Brazilian Securities and Exchange Commission – CVM, in the name of their holders, without certificates issued.

N/A

§2 The transfer and record cost, as well as the cost of the services relating to the book-entry shares, may be charged directly to the shareholder by the bookkeeping institution, as set forth in the stock bookkeeping agreement.

§2 The transfer and record cost, as well as the cost of the services relating to the book-entry shares, may be charged directly to the shareholder by the bookkeeping institution, as set forth in the stock bookkeeping agreement.

§2 The transfer and record cost, as well as the cost of the services relating to the book-entry shares, may be charged directly to the shareholder by the bookkeeping institution, as set forth in the stock bookkeeping agreement.

N/A

 

 

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Ultrapar – Shareholders’ Meeting Manual

 



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Ultrapar – Shareholders’ Meeting Manual

EXHIBIT III - MANAGEMENT DISCUSSION AND ANALYSIS ON THE FINANCIAL CONDITIONS OF THE COMPANY, UNDER THE TERMS OF ITEM 10 OF THE REFERENCE FORM

 

10.1 – Management discussion & analysis:

Introduction

The following comments should be read in the light of our consolidated financial statements, filed with the CVM on February 24, 2021, including the note thereto and other information included elsewhere in this document.

 

  1. General financial and equity conditions

 

Company overview

Ultrapar’s origins goes back to 1937 when Ernesto Igel founded Ultragaz, a company which pioneered the use of Liquified Petroleum Gas (LPG) as cooking gas. Since then, Ultrapar has grown and expanded its markets transforming into one of the largest corporate groups in Brazil. The businesses of the Ultra Group occupy an outstanding position in all their respective segments of activity: the Oil & Gas sector through Ipiranga, UItragaz and Ultracargo, specialty chemicals through Oxiteno and retail pharmacy with Extrafarma.

 

Ultragaz is a pioneer and leader company in the domestic market for LPG distribution, besides being a reference in innovation and in the development of applications for the use of the product. It also has a modern research and development laboratory for special gases, a segment in which it also has a leadership position. Ultracargo is the largest private company of liquid bulk storage in Brazil and it is present in strategic locations in the Northeast, Southeast and South with six port terminals. In 2022, it is scheduled to begin operations at the new terminal in the port of Vila do Conde, Pará state, expanding its geographic spread to the North region of the country. Oxiteno is a leader company in the production of surfactants and specialty chemicals in Latin America with about 20% of the ethoxylation capacity in the Americas. It has eleven industrial units: six in Brazil, three in Mexico, one in the United States and one in Uruguay. Oxiteno also has commercial offices in Argentina, Belgium, China and Colombia and research and development centers in Brazil, Mexico, and the USA. Ipiranga is one of the largest fuels and lubricant distribution companies in the country, incorporating a network of more than 7 thousand service stations, each one of them increasingly more complete and digitized, in addition to the largest convenience store franchise, the AmPm network with 1.8 thousand stores. Extrafarma is a retail pharmacy network with its origins in the North region of Brazil, today with a presence in ten Brazilian states with 405 drugstores and four distribution centers. abastece aí, a digital payments company that has more than 2.3 million digital accounts, was established in 2020 to leverage the benefits of the Km de Vantagens (Km of Advantages Program) and the abastece aí (“fill up here”) app through the development of an ecosystem of advantages and benefits to the clients, focused on car drivers.

2020

In 2020, our businesses began the year on a promising note, driven by the positive macroeconomic outlook in Brazil. However, from March, the novel coronavirus pandemic brought severe consequences for the global economy, strongly affecting Brazil. In addition to the economic impacts, precautionary measures of social distancing and restrictions on personal mobility accelerated the tendency towards structural changes, among them remote working and virtual interconnectivity among people.


 

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Ultrapar – Shareholders’ Meeting Manual

To ensure the maintenance of a high level of liquidity in light of the uncertainties caused by the pandemic in the first few months, we adopted greater selectivity in our investments, raised new lines of financing and negotiated more elastic payment terms with our suppliers. On the other side, we worked with our partners and clients, negotiating measures to ease pressures on their working capital, thus contributing to ensure the integrity and continuity of the value chains we are part of.

The year 2020 underscored the resilience of our portfolio, with growing results at all our businesses with the exception of Ipiranga, which the activity was directly impacted by social distancing measures and restrictions on mobility. The net revenue amounted to R$ 81.2 billion, 9% less than 2019, and was directly affected by the pandemic. Despite this, the Company recorded an EBITDA of R$ 3.5 billion, or 4.3% EBITDA margin, representing an improved margin compared to the 3.1% in 2019.

Net income increased from R$ 402.9 million in 2019 to R$ 927.7 million in 2020, R$ 479.7 million of which were distributed via dividends to the shareholders. The operational cash generation (after investments) was a record, totaling R$ 2.1 billion and contributing to the gradual reduction in our financial leverage in the year. We ended 2020 with a cash position of R$ 8.7 billion and duration of our debt standing at 4.6 years.

Finally, we have intensified our acting and dedication of resources to themes related to ESG. In 2020, we developed our materiality assessment, approved our Sustainability Policy, and published our first Integrated Report following the GRI guidelines.

2019

We began the year with an optimistic view in relation to the economic growth of Brazil and its positive effects on the business environment, an outlook which already proved unrealistic in the first few months of the year given the delay of executing the federal administration’s reform package. Despite this, even with lower growth than initially anticipated, there were important signs indicating a more dynamic macroeconomic environment, with lower interest rates, inflation under control and further announcements of additional privatizations and tender bids.

We ended 2019 with an Adjusted EBITDA of R$ 3.1 billion, practically stable in relation to 2018, with an operational cash generation after investments of R$ 1.7 billion and a net income of R$ 906.3 million, of which R$ 478.9 million were paid out via dividends to our shareholders. These amounts exclude IFRS 16, the impairment of R$ 593.3 million with respect to the goodwill generated on the acquisition of Extrafarma, and a further write down of R$ 14.0 million on the sale of Oxiteno Andina and the Conduct and Adjustment Agreement (“TAC”) of R$ 65.5 million at Ultracargo. Ultrapar closed 2019 with total assets of R$ 29.7 billion and total equity of R$ 9.9 billion, both excluding the effects of IFRS 16.

In 2019, we extended our debt profile, raising US$ 500.0 million in notes in the international market with a ten-year maturity, and using the proceeds for liability management. The reduction in our financial leverage remains an important objective and, in this context, we continue to be selective in the allocation of capital, albeit without sacrificing growth.

 

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Ultrapar – Shareholders’ Meeting Manual

2018

A series of atypical events characterized 2018, reducing the stability and predictability of operations in several sectors. Our results in the first quarter of 2018 were impacted by the contractual fine following the Brazilian Anti-Trust Authority’s (CADE) rejection of the Liquigás acquisition. In addition, competition in the trading environment for the fuels distribution sector continued intense given fuel imports during the period. The second quarter saw both the truckers’ strike - which brought the country to a standstill and affected almost all the sectors of the economy weakening confidence among both consumers and business. However, following the outcome of the general elections, confidence levels resumed growth.

Economic recovery prior to the strike was enough to allow two further reductions of 0.25 p.p. each in the basic rate of interest, which was 7.0% at the end of 2017 and has remained stable at 6.5% per annum since March 2018. The average Real/Dollar rate in 2018 was R$ 3.65/US$ compared with R$ 3.19/US$ in 2017, a 14% increase.

The decision of members of OPEC+ to cut oil production was sufficient to drive up prices until September. From October, oil prices began to decline with the announcement of increased output in the United States and continuing high inventory levels. At the end of the year, a barrel of oil was priced at US$ 53/barrel (Brent), a 20% drop in the year.

In 2018, the number of registered light vehicles resumed growth totaling 2.5 million, a year-over-year increase of 14%. ABIQUIM data for chemicals for industrial applications recorded a drop of 1% in 2018 in National Apparent Consumption. In the retail pharmacy sector, Abrafarma members’ data shows that sales grew by 8% in 2018.

To meet this scenario of challenges and uncertainties, Ultrapar revisited its investment plan seeking to be more selective and assertive in capital allocation, preserving its cash and adjusting its existing structures in readiness for a resumption in growth. As a consequence, the Company ended the year with increased liquidity ratios compared with 2017 and a reduction in leverage compared to the peak of 2.9x recorded in September 2018.

 

 

2018


2017


2016

Current liquidity ratio

2.6


2.2


2.4

Quick liquidity ratio

2.0


1.7


1.9

Net debt/ Adjusted EBITDA

2.7x


1.8x


1.4x

 

  1. Capital structure and possibility of redemption of shares

 

Capital structure

The Company's capital stock subscribed and paid up on December 31, 2020 was R$ 5,171.8 million, composed by 1,115,005,712 common shares, without par value. On February 24, 2021, 70,939 new common shares were issued as a result of the partial exercising of the subscription warrants for the acquisition of Extrafarma, approved by the extraordinary general shareholders meeting of January 31, 2014. As a result, the Company’s capital stock is now divided into 1,115,076,651 common shares with no par value.

2020

Ultrapar reached year end 2020 with R$ 17,376.2 million in gross financial debt and R$ 8,672.2 million in total cash, getting to R$ 8,704.1 million net financial debt, practically in line in relation to 2019. Considering leases payable (IFRS 16) of R$ 1,833.3 million, the total net debt was R$ 10,537.3 million. On December 31, 2020, Ultrapar’s shareholders’ equity amounted to R$ 9,910.3 million, resulting in a net financial debt (ex-IFRS 16) to shareholders’ equity ratio of 88%.

 

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Ultrapar – Shareholders’ Meeting Manual

2019

Ultrapar reached year end 2019 with R$ 14,392.7 million in gross financial debt and R$ 5,712.1 million in total cash, getting to R$ 8,680.6 million net financial debt, an increase of R$ 468.9 million in relation to 2018. Considering leases payable (IFRS 16) of R$ 1,588.7 million, the total net debt was R$ 10,269.3 million. On December 31, 2019, Ultrapar’s shareholders’ equity amounted to R$ 9,835.2 million, resulting in a net financial debt (ex-IFRS 16) to shareholders’ equity ratio of 88%.  

2018

Ultrapar reached year end 2018 with R$ 15,206.1 million in gross financial debt and R$ 6,994.4 million in total cash, getting to R$ 8,211.7 million net financial debt, an increase of R$ 991.1 in relation to 2017. On December 31, 2018, Ultrapar’s shareholders’ equity amounted to R$ 9,800.0 million, resulting in a net financial debt to shareholders’ equity ratio of 84%.

 

(R$ million)

2020

% of
shareholders’
equity

2019

% of
shareholders’
equity

2018

% of
shareholders’
equity

Gross financial debt

17,376.2

175%

14,392.7

146%

15,206.1

155%

Cash and financial investments

8,672.2

88%

5,712.1

58%

6,994.4

71%

Net financial debt

8,704.1

88%

8,680.6

88%

8,211.7

84%

Leases payable

1,833.3

18%

1,588.7

16%

n/a

n/a

Total net debt

10,537.3

106%

10,269.3

104%

n/a

n/a

 

  1. Capacity to honor our financial obligations

 

Our main sources of liquidity derive from (i) cash, cash equivalents and financial investments, (ii) cash flow from operations, and (iii) loans, financings, debentures, and international bonds. We believe that these sources are sufficient to meet our current funding requirements, including, without limitation, working capital, investments, debt amortization and payment of dividends.

We periodically review acquisition and investment opportunities. We consider different types of investment, both directly and through “joint ventures” or affiliates, and fund these investments with cash from operations, debt financing, capital increases, or a combination of the foregoing.

 We believe we have sufficient working capital to meet our current needs. In addition to the cash flow from operations during the year, as of December 31, 2020, we had R$ 7,694.8 million in cash, cash equivalents and short-term financial investments. Gross debt maturing from January to December 2021, including estimated interest on financings, totals R$ 3,620.5 million. In addition, the 2021 investment plan is R$ 1,890.8 million.

 We expect to spend approximately R$ 15.2 billion to meet contractual obligations over the next five years, including amortization and interest payments on existing financings.


 

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Ultrapar – Shareholders’ Meeting Manual

 

(R$ million)

2021-2025

2021

2022-2023

2024-2025

Financings and interest on financing contracts (1)

12,082.2

3,620.5

6,716.2

1,745.5

Hedge instruments(2)

328.9

133.1

88.9

106.9

Leases payable

1,605.1

396.0

668.1

541.0

Low-value asset leases (3)

7.3

0.4

6.5

0.4

Estimated funds for financing the pension plan and other post-retirement benefits (4)

121.7

22.8

47.9

51.0

Procurement obligations – raw materials(5)

910.5

411.9

469.7

28.9

Procurement obligations – utilities(6)

138.1

36.4

71.9

29.8

Minimum handling obligations – load(7)

33.5

8.2

13.1

12.2

   Total 

15,227.3

4,629.4

8,082.2

2,515.7

 (1)  Includes estimated interest payments on short- and long-term debt. Excludes information on derivatives, whose fair value is disclosed in Note 31 of the Company’s financial statements. Calculation of the estimated interest on financings makes certain macroeconomic assumptions, including, averaged for the period: (i) DI at 2.29% in 2021, 3.74% in 2022 and 4.84% in 2023; (ii) Brazilian Real-to-US Dollar exchange rate at R$ 4.86 in 2021, R$ 4.33 in 2022, R$ 4.17 in 2023, R$ 4.20 in 2024, R$ 4.22 in 2025, R$ 4.24 in 2026, R$ 4.26 in 2027, R$ 4.28 in 2028 and R$ 4.30 in 2029; (iii) TJLP at 4.39%, and (iv) IPCA at 3.6% in 2021, 3.3% in 2022 and 3.0% from 2023. (Source: B3, Focus Bulletin, financial institutions).

(2)  Hedge instruments were estimated based on US Dollar forwards and the forward curves of DI x Pré and Pré x IPCA contracts, at the B3 quote on December 31, 2020, and the LIBOR forward curve (ICE – Intercontinental Exchange) and commodities heating oil and RBOB contracts quoted at the New York Mercantile Exchange (“NYMEX”) on December 31, 2020. The table above considers only hedges with a negative forecast result upon liquidation.

(3) Subsidiaries Ultragaz, Bahiana, Extrafarma, Ipiranga, Serma and Oxiteno S.A. have low-value, short-term leases with variable payments associated with plant equipment, information technology equipment, vehicles and commercial real estate. The subsidiaries have the option to purchase information technology equipment at a price equivalent to fair value on the strike date and management does not intend to exercise the option. Recognized expenses in 2020 were R$ 17,749 thousand.

(4)  The estimated payment amount was calculated based on: (i) 3.25% inflation assumption, (ii) average participant age on December 31, 2020 (39 years) and (iii) the Company’s contribution in December 2020.

(5)  Oxiteno has a supply agreement with Braskem S.A. that stipulates a minimum annual level of ethylene consumption and conditions for the supply of ethylene until December 2021 at the Camaçari plant. The minimum purchase obligation is 205 thousand annual tons of ethylene and, if noncompliant, Oxiteno will owe a fine equivalent to 40% of the going price of ethylene times the amount not purchased. Oxiteno also has a supply agreement with Braskem S.A. at the Mauá plant that expires in 2023. The agreement provides and sets conditions for the supply of ethylene to Oxiteno based on the international market for the product. Minimum purchase obligation is 44,100 thousand annual tons of ethylene. If the minimum purchase obligation is noncompliant, Oxiteno will owe a fine equivalent to 30% of the going price of ethylene times the amount not purchased. In both cases, the minimum purchase obligation is subject to pro-rated reductions in the event of scheduled stops at the supplier’s and/or Oxiteno’s facilities.

(6) The purchase obligation refers to long-term contracts under which Oxiteno is required to purchase a minimum amount of energy annually.

(7)  Tequimar has agreements with Companhia de Docas do Estado da Bahia, with Governador Eraldo Gueiros Industrial Port Complex, with Empresa Maranhense de Administração Portuária and with Companhia Docas do Pará, in connection with port facilities in Aratu, Suape, Itaqui and Vila do Conde (operational startup scheduled for 2022), respectively. The agreements provide for minimum cargo handling of (i) 397,000 annual tons until 2031, and 900,000 annual tons until 2022, in Aratu; (ii) 250,000 annual tons until 2027, and 400,000 annual tons until 2029, in Suape; (iii) 1,222,377 cubic meters annually until 2049, in Itaqui; and (iv) 343,625 annual tons starting in 2023, in Vila do Conde (quantity varies annually). If annual handling lies below the required minimum, the controlling entity must pay the difference between effective handling and the minimum per the agreement, based on the port fees in force on the agreed payment date. On December 31, 2020, these fees were R$ 6.21 and R$ 3.20 per ton in Aratu. In Suape, they were R$ 3.34 per ton for fuels and R$ 1.72 per ton for chemicals. In Itaqui, the price was R$ 0.78 per cubic meter.

 

See “Item 10.1.f. Indebtedness level and debt profile”, “Item 10.8.b. Other off-balance sheet items” and “Item 10.8.a.i. Quantitative and qualitative description of investments in progress and estimated investments”.

We expect to meet these cash needs by means of a combination of cash from operations and financing, including new debt financing and the refinancing of some of our debt.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

  1. Funding sources for working capital and investment in non-current assets

We reported cash flow from operations of R$ 3,138.1 million, R$ 2,924.9 million and R$ 2,889.0 million in 2020, 2019 and 2018, respectively. The 7% increase in 2020 compared to 2019 is manly a result of lower working capital consumption in the period. In 2019, the continuation of initiatives adopted to optimize working cash contributed to cash flow steadiness from 2018, despite the reduced income. The increase in 2018 from 2017 reflects initiatives to optimize the businesses’ cash flow as well as increased usage of tax credits that year, partially offset by payment of a contract penalty for not acquiring Liquigás.

Cash flow from investment activities was R$ 2,136.4 million in 2020, of which R$ 1,116.8 million concern financial investments net of redemptions and R$ 1,019.6 million concern investment in fixed and intangible assets and capital injections into jointly controlled projects, all net of divested assets. In 2019, cash flow from investment activities was R$ 1,835.3 million, of which R$ 555.4 million concern financial investments net of redemptions and R$ 1,279.9 million were invested in fixed and intangible assets, capital injections into jointly controlled projects, and direct startup costs of right-of-use assets (associated with bids for port terminals that Ultracargo and Ipiranga won), all net of divested assets. In 2018, cash flow from investment activities was R$ 3,177.6 million, of which R$ 1,669.9 million concern financial investments net of redemptions (increased migration from cash equivalents to financial investments, which continue to offer immediate liquidity) and R$ 1,507.7 million were invested in subsidiary acquisitions, fixed and intangible assets, and capital injections into jointly controlled projects, all net of divested assets. In addition, in 2020, 2019 and 2018, R$ 356.0 million, R$ 330.1 million and R$ 390.2 million, respectively, were invested in contract assets with customers – exclusive rights.

Cash flow from financing activities produced cash consumption of R$ 592.3 million, R$ 2,922.2 million and R$ 801.0 million in 2020, 2019 and 2018, respectively. In 2020, cash consumption by funding activities was down R$ 2,329.9 million compared to 2019, due mainly to funding from new loans, especially preventive fundraising carried out at the beginning of the pandemic in Brazil, and reduced interest and dividends payments. In 2019, cash consumption by funding activities was up R$ 2,121.2 million compared to 2018, due mainly to reduced funding from new loans and increased interest payments, particularly in connection with the financing taken in 2013, which featured a bullet payment upon maturity. In 2018, cash flow from funding activities was down R$ 1,141.3 million compared to 2017, due mainly to increased financing amortization.

Accordingly, cash and cash equivalents totaled R$ 2,661.5 million in 2020, R$ 2,115.4 million in 2019 and R$ 3,939.0 million in 2018.

 

  1. Funding sources for working capital and investment in non-current activities to be used in the event of liquidity shortfalls

We had no liquidity shortfalls in 2020, 2019 and 2018. We believe that Ultrapar has sufficient own resources and operational cash generation to finance its needs for working capital and investments estimated for 2021. In addition, if necessary, we have access to third party financing resources.

 

  1. Indebtedness level and debt profile

 

Total debt in 2020, including all current and non-current liabilities, was up 24%, from R$ 19,771.6 million on December 31, 2019, to R$ 24,506.6 million on December 31, 2020, excluding the effects of IFRS 16. Considering the effects of IFRS 16, the growth of the total debt was 23%, from R$ 21,360.3 million on December 31, 2019 to R$ 26,339.9 million on December 31, 2020.

Gross financial debt was up 21% in the fiscal year from R$ 14,392.7 million in the fiscal year ending December 31, 2019, to R$ 17,376.2 million on December 31, 2020. Considering IFRS 16 effects, the increase would have been 20%, from R$ 15.981.4 million in the fiscal year ending December 31, 2019, to R$ 19,209.5 million on December 31, 2020. Short-term financial debt was 19% of our gross financial debt (ex-IFRS 16) in the period ending December 31, 2020, and 8% in the period ending 2019.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

The table next shows our financial debt in the indicated periods:

 

Loans

Currency

Weighted average
financial charges
on December 31, 2020

Principal and interest accrued as of

 

 

 


12/31/2020

12/31/2019

12/31/2018

Foreign currency denominated loans:

 

 

 

Foreign loan (*)

US$

LIBOR (1) + 1.0%

261.3

608.7

582.1

Foreign loan (*)

US$

+ 3.9%

1,047.6

1,057.4

985.3

Foreign loan

US$

LIBOR (1)

-

243.8

234.4

Financial institutions

US$

LIBOR (1) + 1.4%

312.2

604.7

620.6

Advances on foreign exchange contracts

US$

+3.7%

105.6

-

11.7

Financial institutions

US$

+2.5%

154.8

132.4

127.3

Foreign currency advances delivered

US$

-

-

-

1.5

Financial institutions

MX$ (2)

+8.4%

39.4

41.2

27.8

Financial institutions

MX$ (2)

TIIE (2)

-

-

4.0

BNDES

US$

-

-

0.2

2.6

Notes in the foreign market (*)

US$

+5.3%

7,267.7

4,213.7

2,889.6

Brazilian Reais-denominated loans:

 

 

 

 

 

Debentures – Ipiranga

R$

105.0% of DI

1,679.0

1,868.6

2,039.7

Banco do Brasil floating rate

R$

110.9% of DI

407.4

611.3

2,614.7

Debentures – 6th issue

R$

105.3% of DI

1,734.1

1,752.1

1,757.0

Promissory note – Ultrapar

R$

DI + 3.1%

1,038.5

-

-

Debentures – CRA

R$

95.8% of DI

2,037.6

2,036.6

2,029.5

Debentures – CRA (*)

R$

IPCA + 4.6%

1,000.8

941.6

833.2

Debentures – Tequimar

R$

+6.5%

92.5

89.3

-

BNDES

R$

TJLP (3)

-

62.6

147.9

BNDES

R$

SELIC (5)

-

30.4

51.5

Financial lease

R$

IGP-M (5)

-

-

46.1

FINEP

R$

-

-

12.8

22.6

FINEP

R$

TJLP (3) + 1.6%

29.8

41.3

53.2

Bank credit bill

R$

DI + 3.5%

50.7

-

50.1

Banco do Nordeste do Brasil (4)

R$

-

-

10.0

15.8

BNDES

R$

-

-

3.9

14.1

FINAME

R$

TJLP (3)

-

0.0

0.0

Total loans

 

 

17,259.1

14,362.7

15,162.2

Currency and interest-rate hedging instruments (**)

 

 

117.2

30.0

43.9

Total

 

 

17,376.2

14,392.7

15,206.1



(*) Operation designated for hedge accounting (see Note 33.h of the 2020 consolidated financial statements).

(**) Accumulated losses (see Note 33.i of the 2020 consolidated financial statements).

(1) LIBOR – London Interbank Offered Rate.

(2) MX$ is the Mexican currency (Mexican Peso) and TIIE is the Mexican equilibrium interfinancial interest rate.

(3)  TJLP (Long-term Interest Rate) is the basic cost of financing for BNDES and is set by the National Monetary Council. On December 31, 2020, the TJLP was set at 4.55% per year.

(4) Contract linked to the rate of FNE fund (Northeast Constitutional Financing Fund) whose purpose is to promote the development of the industrial sector, managed by Banco do Nordeste do Brasil. As of December 31, 2020, the FNE interest rate was 10% per year, on which the FNE offers a non-delinquency bonus of 15%.

(5) SELIC = Sistema Especial de Liquidação e Custódia, the Central Bank of Brazil’s funds rate

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Changes in loans, financing and debentures are shown below:

Balance as of 12/31/2019

14,362,7

New loans and debentures with cash effect

3,591.6

Interest accrued

757.2

Principal payments

(2,795.0)

Interest payments

(740.9)

Monetary and exchange rate variation

2,048.7

Change in fair value

34.7

Balance as of 12/31/2020

17,259.1


Our consolidated debt as of December 31, 2020 had the following maturity schedule:

 

Year

Maturity

 

(R$ million)

2021

3,255.9

2022

2,702.6

2023

3,091.6

2024

784.8

2025

231.3

2026 and later

7,310.0

Total

17,376.2

 

See “Item 10.1.c. Capacity to honor our financial obligations”.

 

  1.  Relevant loan and financing contracts

Notes in the foreign market

On October 6, 2016, the subsidiary Ultrapar International issued US$ 750 million (equivalent to R$ 3,897.5 million on December 31, 2020) in notes in the foreign market, maturing in October 2026, with interest rate of 5.25% per year, paid semi-annually. The issue price was 98.097% of the face value of the note. The notes were guaranteed by Ultrapar and its subsidiary IPP. Ultrapar has designated hedging instruments for this transaction (see Note 33.h.3 of the consolidated financial statements).

On June 6, 2019, the Ultrapar International subsidiary issued US$ 500 million (equivalent to R$ 2,598.4 million as of December 31, 2020) in notes in the foreign market, maturing in June 2029 with an interest rate of 5.25% per year, paid semi-annually. The issue price was 100% of the face value of the note. The notes were guaranteed by Ultrapar and its subsidiary IPP. Ultrapar has designated hedging instruments for this transaction (see Note 33.h.3 of the consolidated financial statements).

On June 21, 2019, subsidiary Ultrapar International repurchased US$ 200 million (equivalent to R$ 1,039.3 million as of December 31, 2020) of the notes in the foreign market maturing October 2026.

On July 13, 2020, subsidiary Ultrapar International reopened sales of the notes in the foreign market issued in 2019, in the amount of US$ 350 million (equivalent to R$ 1,818.8 million on December 31, 2020) maturing in June 2029 and at an interest rate of 5.25% p.a., paid semi-annually. The issue price was 99.994% of the note’s face value. The notes were secured by Ultrapar and its subsidiary IPP.

Because of the notes issued in the foreign market, Ultrapar and its subsidiaries are subject to certain commitments, including:

  •     Restriction on sale of all, or substantially all assets of Ultrapar and its subsidiaries Ultrapar International and IPP.
  •     Restriction on encumbrance of assets exceeding US$ 150 million (equivalent to R$ 779.5 million as of December 31, 2020), or 15% of Ultrapar’s consolidated tangible net assets.

Ultrapar and its subsidiaries are in compliance with the levels of covenants required by this debt. The restrictions imposed on Ultrapar and its subsidiaries are customary in transactions of this nature and have not limited their ability to conduct their business to date.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Foreign loans

1) Subsidiary IPP has foreign loans in the amount of US$ 235.0 million (equivalent to R$ 1,221.2 million as of December 31, 2020). IPP has hedged against floating interest rates in U.S. dollar and exchange rate variations, replacing the charges on foreign loans for an average 104.1% of CDI. IPP designated these hedging instruments as a fair-value hedge (see Note 33.h.1). Therefore, loans and hedging instruments are both recognized at fair value from inception, with changes in fair value recognized as profits or losses. The foreign loans are secured by Ultrapar.

The maturity of the foreign loans is distributed as follows:

 

Maturity

US$ (million)


R$ (million)


Cost as % of DI

Charges¹

16.9


87.7


Jul/21

60.0


311.8


101.8

Jun/22

50.0


259.8


105.0

Sep/23

60.0


311.8


105.0

Sep/23

65.0


337.8


104.8

Total / average cost

251.9


1,308.9


104.1



 ¹ Includes interest, transaction cost and market-to-market


In 2020, Subsidiary IPP carried out an early redemption of these financing in the amount of US$ 160.0 million. Starting from 2020, subsidiary IPP no longer has foreign loan contracts with covenant clauses.

2) Subsidiary Global Petroleum Products Trading Corporation (“GPPTC”) took a foreign loan in the amount of US$ 60.0 million, maturing on June 22, 2020 and financial charges at LIBOR + 2.0% per year, paid quarterly. Ultrapar, through its subsidiary Ultragaz, took a hedge against floating interest rates in US Dollars and foreign exchange variations, replacing the financial charges on foreign loans with 105.9% of DI. The loan was settled on maturity by subsidiary GPPTC.

Debêntures

1) In November 2019, the subsidiary Tequimar made its first issuance of debentures, in a single series of 90,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:

Quantity: 90,000

Face value util: R$ 1,000

Final maturity: November 19, 2024

Payment of the face value: Lump sum at final maturity

Interest: 6.47%

Payment of interest: Semi-annually

Reprice: Not applicable

The subsidiary Tequimar contracted hedging instruments subjected interest rate variation, changing the debentures fixed for 99.94% of the DI. Tequimar designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized in profit or loss.

 

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

2) In December 2018, the subsidiary IPP carried out its eighth issuance of debentures in the amount of R$ 900.0 million, in two series, being one of 660,000 and another of 240,000, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Vert Companhia Securitizadora. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary IPP. The debentures were subscribed with the purpose to bind the issuance of CRA. The financial settlement occurred on December 21, 2018. The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:

First serie

Quantity: 660,000

Face unit value: R$ 1,000

Final maturity: December 18, 2023

Payment of the face value: Lump sum at final maturity

Interest: 97.5% of DI

Payment of interest: Semi-annually

Reprice: Not applicable

Second serie

Quantity: 240,000

Face unit value: R$ 1,000

Final maturity: December 15, 2025

Payment of the face value: Lump sum at final maturity

Interest: IPCA + 4.61%

Payment of interest: Annually

Reprice: Not applicable

 

The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 97.1% of DI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.

 

3) In March 2018, the Company made its sixth issuance of public debentures, in a single series of 1,725,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:

Quantity: 1,725,000

Face unit value: R$ 1,000

Final maturity: March 5, 2023

Payment of the face value: Lump sum at final maturity

Interest: 105.25% of DI

Payment of interest: Semi-annually

Reprice: Not applicable

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

4) In October 2017, the subsidiary IPP carried out its seventh issuance of debentures in the amount of R$ 944,077 thousand, in two series, being on of 730,384 and another of 213,693, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Vert Companhia Securitizadora. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary IPP.

The debentures were later assigned and transferred to Vert Créditos Ltda., that acquired these agribusiness credit rights with the purpose to bind the issuance of Certificates of Agribusiness Receivables (CRA). The financial settlement occurred on November 1, 2017. The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:

First serie

Quantity: 730,384

Face unit value: R$ 1,000

Final maturity: October 24, 2022

Payment of the face value: Lump sum at final maturity

Interest: 95.0% of DI

Payment of interest: Semi-annually

Reprice: Not applicable

Second serie

Quantity: 213,693

Face unit value: R$ 1,000

Final maturity: October 24, 2024

Payment of the face value: Lump sum at final maturity

Interest: IPCA + 4.34%

Payment of interest: Annually

Reprice: Not applicable

 

The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 97.3% of DI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.

 

5) In July 2017, the subsidiary IPP made its sixth issuance of public debentures, in one single series of 1,500,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:

Quantity: 1,500,000

Face unit value: R$ 1,000

Final maturity: July 28, 2022

Payment of the face value: Annual as from July 2021

Interest: 105.0% of DI

Payment of interest: Annually

Reprice: Not applicable

 

6) In April 2017, the subsidiary IPP carried out its fifth issuance of debentures, in two series, being one of 660,139 and another of 352,361, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Eco Consult – Consultoria de Operações Financeiras Agropecuárias Ltda. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary IPP.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

The debentures were later assigned and transferred to Eco Securitizadora de Direitos Creditórios do Agronegócio S.A. that acquired these agribusiness credit rights with the purpose to bind the issuance of Certificates of Agribusiness Receivables (CRA). The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:

First serie

Quantity: 660,139

Face unit value: R$ 1,000

Final maturity: April 18, 2022

Payment of the face value: Lump sum at final maturity

Interest: 95.0% of DI

Payment of interest: Semi-annually

Reprice: Not applicable

Second serie

Quantity: 352,361

Face unit value: R$ 1,000

Final maturity: April 15, 2024

Payment of the face value: Lump sum at final maturity

Interest: IPCA + 4.68%

Payment of interest: Annually

Reprice: Not applicable

The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 93.9% of DI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.

 

7) In May 2016, the subsidiary IPP made its fourth issuance of public debentures, in one single series of 500 simple, nominative, registered debentures, nonconvertible into shares and unsecured, which main characteristics are as follows:

Quantity: 500

Face unit value: R$ 1 million

Final maturity: May 25, 2021

Payment of the face value: Annual as from May 2019

Interest: 105.0% of DI

Payment of interest: Semi-annually

Reprice: Not applicable

 

The debentures have maturity dates distributed as shown below (includes accrued interest through December 31, 2020):

 

Maturity

R$ million

Charges¹

205.5

May/21

166.7

Jul/21

750.0

Apr/22

660.1

Jul/22

750.0

Oct/22

730.4

Mar/23

1,725.3

Dec/23

660.0

Apr/24

352.4

Oct/24

213.7

Nov/24

90.0

Dec/25

240.0

Total

6,544.1



¹Includes interest, transaction cost and market to market.


 

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Ultrapar – Shareholders’ Meeting Manual

 

BNDES

Ultrapar’s subsidiaries had BNDES financing for some of their investments and for working capital needs.

Ultrapar’s subsidiaries settled these loans in full early in 2020.

 

Financial institutions

The subsidiaries Oxiteno Mexico S.A. de C.V., Oxiteno USA LLC (“Oxiteno USA”) and Oxiteno Uruguay have loans for investments and working capital.

Subsidiary Oxiteno USA’s loans are at an average cost of LIBOR + 1.4% and mature as shown below:

 

Maturity

US$ (million)


R$ (million)

Charges¹

0.0


0.0

Mar/21

60.0


312.2

Total

60.0


312.2



¹ Including interest.

Proceeds from this loan were used for working capital funding and the construction of a new alkoxylation plant in the state of Texas.

Subsidiary Oxiteno USA carried out early settlement of US$ 70.0 million from these loans in 2020. From the third quarter of 2020, subsidiary Oxiteno USA has had no loan contracts including financial covenant clauses.

Banco do Brasil

Subsidiary IPP has floating rate loans with Banco do Brasil intended for the trading, processing or industrialization of farming products (ethanol).

The loans mature as follows (includes interest accrued as of December 31, 2020):

 

Maturity

 

May/21

204.3

May/22

203.1

Total

407.4

 

  1. Other long-term relations with financial institutions

In addition to the relationships mentioned in items “10.1.f.i. Relevant loan and financing contracts” and “10.1.g. Limits of use of contracted loans and financing”, Ultrapar maintains long term relationships with financial institutions (i) in connection with the ordinary course of the business, such as the payroll of its employees, credit and collection, acquisition, payments and currency and interest rate hedging instruments and (ii) through a long-term contract between Ipiranga and Itaú Unibanco for the provision of financial services and management of the Ipiranga-branded credit cards.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

  1. Subordination of debt

For financing, real guarantees in the amount of R$ 75.0 million are maintained in 2020. Except for secured debt, there is no subordination among our existing debt contracts.

 

  1. Any restrictions on the obligor, in particular as concerns indebtedness and contracting new debt, distribution of dividends, assets disposal, new securities issues, and disposal of a controlling equity stake, and whether or not the issuer has been in compliance therewith

Ultrapar and its subsidiaries have accepted covenants in connection with loans taken. The covenants applicable to Ultrapar and its subsidiaries are ordinary for operations of this type and have not limited to the companies’ ability to conduct their business to date.

Because of the notes issued in the overseas market, Ultrapar and its subsidiaries are subject to certain covenants, including:

  •     Restriction on sale of all or substantially all assets of Ultrapar and its subsidiaries Ultrapar International and IPP;
  •     Restriction on encumbrance of assets exceeding US$ 150 million (equivalent to R$ 779.5 million as at December 31, 2020), or 15% of Ultrapar’s consolidated tangible assets.

Ultrapar does not have loan agreements with financial covenant clauses.

The company abides by the covenants as provided in its loan contracts.

 

  1. Limits of use of contracted loans and financings and percentages already used

 

Not applicable.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

  1. Main changes in each term of the financial statements

 

Ultrapar – Consolidated

 

12/31/2020

IFRS 16

12/31/2019

IFRS 16

12/31/2019

12/31/2018

12/31/2020

vs.

12/31/2019

(IFRS 16)

12/31/2019

vs.

12/31/2018 

ASSETS





Cash, cash equivalents and financial investments

7,694.8

5,205.6

5,205.6

6,792.1

48%

-23%

Trade accounts receivable and reseller financing

3,868.1

4,072.0

4,072.0

4,436.6

-5%

-8%

Inventories

3,846.2

3,715.6

3,715.6

3,354.5

4%

11%

Recoverable taxes

1,410.9

1,447.7

1,447.7

896.9

-3%

61%

Contractual assets with customers – exclusive rights

478.9

465.5

465.5

484.5

3%

-4%

Other

190.2

151.8

197.8

247.2

25%

-20%

Total Current Assets

17,489.1

15,058.1

15,104.1

16,211.7

16%

-7%

Investments

167.5

181.6

181.6

129.1

-8%

41%

Property, plant and equipment

8,005.9

7,572.8

7,578.9

7,278.9

6%

4%

Intangibles assets

1,782.7

1,762.6

1,871.1

2,369.4

1%

-21%

Right to use assets

2,150.3

1,980.9

0.0

0.0

9%

n/a

Financial investments

977.4

506.5

506.5

202.3

93%

150%

Trade accounts receivable and reseller financing

491.5

418.4

418.4

429.8

17%

-3%

Deferred income tax

974.7

653.7

634.7

514.2

49%

23%

Taxes recoverable

1,736.0

872.3

872.3

747.2

99%

17%

Escrow deposits

949.8

921.4

921.4

881.5

3%

5%

Contractual assets with customers – exclusive rights

1,227.4

1,000.5

1,000.5

1,034.0

23%

-3%

Other

298.0

266.6

600.9

701.3

12%

-14%

Total Non-Current Assets

18,761.1

16,137.4

14,586.5

14,287.7

16%

2%

 

 

 

 

 

 

 

TOTAL ASSETS

36,250.2

31,195.5

29,690.5

30,499.4

16%

-3%

LIABILITIES





Loans, financing and debentures

3,255.9

1,117.4

1,117.4

2,271.1

191%

-51%

Leases payable

260.2

206.4

3.2

2.8

26%

14%

Trade payables

4,040.7

2,700.1

2,700.1

2,731.7

50%

-1%

Salaries and related charges

468.6

405.6

405.6

428.2

16%

-5%

Taxes payable

286.0

269.9

269.9

268.0

6%

1%

Other

929.4

495.6

495.6

634.9

88%

-22%

Total Current Liabilities

9,240.8

5,195.1

4,991.9

6,336.8

78%

-21%

Loans, financing and debentures

14,120.3

13,275.3

13,275.3

12,888.9

6%

3%

Leases payable

1,573.1

1,382.3

43.7

43.2

14%

1%

Provisions for tax, civil and labor contingencies

854.4

884.1

884.1

865.2

-3%

2%

Post-employment benefits

257.6

243.9

243.9

204.2

6%

19%

Other

293.7

379.6

379.6

361.0

-23%

5%

Total Non-Current Liabilities

17,099.1

16,165.2

14,826.7

14,362.6

6%

3%

TOTAL LIABILITIES

26,339.9

21,360.3

19,818.6

20,699.4

23%

-4%

EQUITY





Capital stock

5,171.8

5,171.8

5,171.8

5,171.8

0%

0%

Reserves

5,006.7

4,542.3

4,542.3

4,646.2

10%

-2%

Treasury shares

(489.1)

(485.4)

(485.4)

(485.4)

1%

0%

Other

(155.6)

229.5

266.3

115.5

n/a

131%

Non-controlling interests

376.5

376.9

376.9

351.9

0%

7%

TOTAL EQUITY

9,910.3

9,835.2

9,872.0

9,800.0

1%

1%

TOTAL LIABILITIES AND EQUITY

36,250.2

31,195.5

29,690.5

30,499.4

16%

-3%

 

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

As from January 1, 2019, the Company adopted the IFRS 16 standard issued by the IASB. The Company chose the modified retrospective approach transition method, with the cumulative effect of the initial application of this new accounting pronouncement registered as an adjustment to the opening balance of shareholders’ equity but without restating comparative periods.

As from 1Q19, the Company adopted a new form of reporting for the holding company’s expenses, that include areas which expenses were previously recognized in the five businesses, enabling through the new form of reporting more transparency and comparability with peer companies. The separated expenses of Holding concern Ultrapar’s main governance bodies (including the Presidency, Board of Directors, Fiscal Council, and advisory committees to the Board of Directors), in addition to areas specific to a holding-company framework, such as investor relations and M&A.

As from January 1, 2018, the IFRS 9 and 15 standards issued by the IASB were adopted. In order to provide a comparative basis for the financial statements of 2018 compared to 2017 shown in this document, the numbers of 2017 incorporate these accounting changes, consequently differing from the values previously reported in the respective publications of results. In order to understand the effects of the new accounting rules, item 10.4.b contain explanations of the impacts on the principal accounts of the financial statements for fiscal year ended on December 31, 2017. Additional information can be found in Note 2.y of the financial statements of December 31, 2018.

 

Main changes in the consolidated balance sheet accounts as of December 31, 2020 compared to December 31, 2019.

To maintain comparability between the 2020 and 2019 information, profit/loss discussions are provided with adjustments in connection with IFRS 16 and segregation of the Holding expenses.

Assets

Current assets

Current assets totaled R$ 17,489.1 million on December 31, 2020, up R$ 2,431.0 million from December 31, 2019, due mainly to an increase in cash, cash equivalents and financial investments.

Cash, cash equivalents and financial investments (current assets)

Cash, cash equivalents and financial investments as part of current assets were R$ 7,694.8 million on December 31, 2020, up R$ 2,489.2 million from December 31, 2019, because of increased preventive funding in the period, mainly for the purposes of liquidity reinforcement in the face of the uncertainty arising from the pandemic.

Non-current assets

Non-current assets totaled R$ 18,761.1 million on December 31, 2020, up R$ 2,623.7 million from December 31, 2019, due mainly to an increase in property, plant and equipment, financial investments and taxes recoverable.

Property, plant & equipment

Property, plant & equipment totaled R$ 8,005.9 million on December 31, 2019, up R$ 433.1 million from December 31, 2019, due to investments made in fiscal year 2020, intended for production units maintenance and safety. These investments were partly offset by depreciation and amortization in the period.

Financial investments (non-current assets)

Financial investments totaled R$ 977.4 million on December 31, 2020, up R$ 470.9 million from December 31, 2019, due mainly to the appreciation of dollar on currency hedges.

Taxes recoverable (non-current assets)

Taxes recoverable totaled R$ 1,736.0 million on December 31, 2020, up R$ 863.7 million from December 31, 2019, due mainly to the constitution of extraordinary PIS/Cofins credits at Oxiteno and Ipiranga over the course of 2020.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Liabilities

Current liabilities

Current liabilities as of December 31, 2020 were R$ 9,240.8 million, up R$ 4,045.8 million from December 31, 2019, due mainly to an increase in loans, financing and debentures, and trade obligations.

Loans, financing and debentures (current liabilities)

Loans financing and debentures totaled R$ 3,255.9 million on December 31, 2020, up R$ 2,138.5 million from December 31, 2019, due mainly to a transfer of amounts coming due in 2021 from non-current to current liabilities and to new short-term funding.

Trade payables

The trade payables account was R$ 4,040.7 million on December 31, 2020, up R$ 1,340.6 million from December 31, 2019, with increases at Ipiranga and Oxiteno arising from initiatives embraced to lengthen trade payables periods and improve working capital.

Non-current liabilities

Non-current liabilities were R$ 17,099.1 million on December 31, 2020, up R$ 933.8 million from December 31, 2019. The increase in non-current liabilities reflects that in long-term loans, financing and debentures.

Loans, financing and debentures (non-current liabilities)

Loans, financing and debentures totaled R$ 14,120.3 million on December 31, 2020, up R$ 845.0 million from December 31, 2019, due mainly to new long-term funding arrangements and the devaluation of the Real on foreign financing.

Equity

Ultrapar’s equity totaled R$ 9,910.3 million on December 31, 2020, up R$ 75.1 million from December 31, 2019, due mainly to the effect of foreign exchange rate variations on overseas subsidiaries, and an increase in capital reserves and profit reserves. These effects were mitigated by the exchange rate variation of the cash flow hedge (equity income adjustment) and a reduction in additional dividends to the minimum required.

 

Main changes in the consolidated balance sheet accounts as of December 31, 2019 compared to December 31, 2018.

To maintain comparability between the 2019 and 2018 information, profit/loss discussions are provided without adjustments in connection with IFRS 16 and segregation of the Holding expenses.

Assets

Current assets

Current assets totaled R$ 15,104.1 million on December 31, 2019, a decrease of R$ 1,107.6 million in relation to December 31, 2018, principally due to a decrease in cash, cash equivalents and financial investments and trade receivables, partially offset by the an increase in inventories and recoverable taxes.

Cash, cash equivalents and financial investments (current assets)

Cash, cash equivalents and financial investments of current assets totaled R$ 5,205.6 million on December 31, 2019, a reduction of R$ 1,586.5 million in relation to December 31, 2018, mainly due to an increase in cash used to the amortization of loans in 2019.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Trade receivables and resellers’ financing (current assets)

Trade receivables amounted to R$ 4,072.0 million on December 31, 2019, a decrease of R$ 364.5 million in relation to December 31, 2018, mainly a function of a reduction in Ipiranga and Oxiteno.

Inventories

Inventories amounted to R$ 3,715.6 million on December 31, 2019, an increase of R$ 361.0 million in relation to December 31, 2018, largely a function of an increase in the levels of fuel inventory at Ipiranga.

Recoverable taxes (current assets)

Recoverable taxes amounted to R$ 1,447.7 million on December 31, 2019, an increase of R$ 550.8 million in relation to December 31, 2018, largely a function of an increase in non-recurring credits and credits to be compensated.

Non-current assets

Non-current assets totaled R$ 14,586.5 million on December 31, 2019, an increment of R$ 298.8 million in relation to December 31, 2018, largely a function of an increase in property, plant and equipment and intangible assets.

Property, plant and equipment

Property, plant and equipment amounted to R$ 7,578.9 million on December 31, 2019, an increase of R$ 300.0 million in relation to December 31, 2018, a reflection of investments undertaken during 2019, principally in Ultracargo, allocated to the expansion of the Itaqui and Santos terminals. These investments were partially offset by depreciation and amortization in the period.

 

Liabilities

Current liabilities

Current liabilities on December 31, 2019 were R$ 4,991.9 million, a decline of R$ 1,344.9 million in relation to December 31, 2018, mainly due to the payment of loans.

Loans, financing and debentures (current liabilities)

Loans, financing and debentures totaled R$ 1,120.7 million on December 31, 2019, a decline of R$ 1,153.3 million in relation to December 31, 2018, largely  due to the amortization of loans due in 2019, besides the amortization in advance in the amount of R$ 400.0 million of  loans with Banco do Brasil, and a lower amount of loans maturing in 2020.

Non-current liabilities

Non-current liabilities were R$ 14,826.7 million on December 31, 2019, an increase of R$ 464.1 million in relation to December 31, 2018. The increase in non-current liabilities is due to an increase in long-term loans.

Loans, financing and debentures (non-current liabilities)

Loans, financing and debentures totaled R$ 13,319.0 million on December 31, 2019, an increase of R$ 386.9 million in relation to December 31, 2018, principally due to new funding of long-term loans and lower transfer of loans from long-term to short-term.

 

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

Equity

Ultrapar’s equity totaled R$ 9,872.0 million on December 31, 2019, an increase of R$ 71.9 million in relation to December 31, 2018, due to an increase in additional dividends to the minimum mandatory, partially offset by the lower profit reserves and FX variation of the cash flow hedge.

 

Main changes in the consolidated balance sheet accounts as of December 31, 2018 compared to December 31, 2017.

 

Assets

Current assets

Current assets totaled R$ 16,221.7 million on December 31, 2018, an increase of R$ 721.6 million in relation to December 31, 2017, principally due to increased cash, cash equivalents and financial investments and trade receivables.

Cash, cash equivalents and financial investments (current assets)

Cash, cash equivalents and financial investments totaled R$ 6,792.1 million on December 31, 2018, an increase of R$ 506.6 million in relation to December 31, 2017, mainly due to increase in operating cash flow.

Trade receivables and resellers’ financing (current assets)

Trade receivables amounted to R$ 4,436.6 million on December 31, 2018, an increase of R$ 288.7 million in relation to December 31, 2017, mainly a function of an increase in net revenues.

Non-current assets

Non-current assets totaled R$ 14,287.7 million on December 31, 2018, an increment of R$ 1,493.5 million in relation to December 31, 2017, largely a function of increases in property, plant and equipment and intangible assets, as a consequence of investments made, and recoverable taxes.

Property, plant and equipment

Property, plant and equipment amounted to R$ 7,278.9 million on December 31, 2018, an increase of R$ 641.0 million in relation to December 31, 2017, a reflection of investments undertaken during 2018 principally in Oxiteno, which unveiled its new plant in the United States in September 2018. These investments were partially offset by depreciation and amortization in the period.

Recoverable taxes (non-current assets)

Recoverable taxes amounted to R$ 852.8 million on December 31, 2018, an increase of R$ 539.5 million in relation to December 31, 2017, mainly due to the increase in extemporaneous credits and credits to be offset.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Liabilities

Current liabilities

Current liabilities on December 31, 2018 were R$ 6,336.8 million, a decline of R$ 672.9 million in relation to December 31, 2017, mainly due to the decrease in loans, financing and debentures, albeit partially offset by increases in trade payables.

Loans, financing and debentures (current liabilities)

Loans, financing and debentures totaled R$ 2,274.0 million on December 31, 2018, a decline of R$ 1,229.7 million in relation to December 31, 2017, largely  due to the amortization of loans falling due in 2018, partially offset by the transfer of an amount due in 2019 from non-current liabilities to current liabilities, and preserving Ultrapar’s debt profile. See “Non-current liabilities – Loans, debentures and financial leases”.

Trade payables

Trade payables amounted to R$ 2,731.7 million on December 31, 2018, an increase of R$ 576.2 million in relation to December 31, 2017, mainly due to increases in suppliers accounts at Ipiranga and Oxiteno, consequence of increase in costs during 2018 and an increase in days payables outstanding in Ipiranga and Oxiteno.

Non-current liabilities

Non-current liabilities were R$ 14,362.6 million on December 31, 2018, an increase of R$ 2,711.9 million in relation to December 31, 2017. The increase in non-current liabilities is due to a higher figure for loans, financing and debentures.

Loans, financing and debentures (non-current liabilities)

Loans, financing and debentures totaled R$ 12,932.2 million on December 31, 2018, an increase of R$ 2,845.2 million in relation to December 31, 2017, principally due to new funding, but attenuated by the transfer of an amount falling due in 2019 from non-current to current liabilities, Ultrapar’s debt profile being preserved.

Equity

Ultrapar’s equity totaled R$ 9,800.0 million on December 31, 2018, an increase of R$ 176.0 million in relation to December 31, 2017 due to the increase in profit reserves, reflecting 2018 earnings.







 


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Ultrapar – Shareholders’ Meeting Manual

Main change in the consolidated income statements for the fiscal year ending December 31, 2020 compared to the fiscal year ending December 31, 2019

 

 

Year ending December 31, 2020 IFRS 16


% of revenues net of services


Year ending December 31, 2019 IFRS 16


% of revenues net of services


∆(%) 2020 vs. 2019

Net revenue from sales and services

81,241.1


100%


89,298.0


100%


-9%

Cost of goods and services sold

(75,628.2)


93%


(83,187.1)


93%


-9%

Gross profit

5,612.9


7%


6,110.9


7%


-8%

General, administrative, sales, and commercial expenses

(4,098.4)


5%


(4,366.6)


5%


-6%

Other operating results, net

221.4


0%


179.6


0%


23%

Proceeds from the disposal of assets

76.1


0%


(30.0)


0%


n/a

Impairment

-


n/a


(593.3)


1%


n/a

Operating income

1,812.1


2%


1,300.6


1%


39%

Financial results

(269.4)


0%


(506.9)


1%


-47%

Equity income

(43.6)


0%


(12.1)


0%


259%

Income tax and social contribution

(571.4)


1%


(378.6)


0%


51%

Net income

927.7


1%


402.9


0%


130%

Net income attributable to

 


 


 


 


 

Shareholders of Ultrapar

893.4


1%


373.5


0%


139%

Non-controlling shareholders of subsidiaries

34.3


0%


29.4


0%


17%

Depreciation and amortization ¹

1,556.6


2%


1,500.0


2%


4%

Adjusted EBITDA

3,478.5


4%


2,800.3


3%


24%

                             

¹ Includes amortization of contractual assets with clients – exclusive rights

EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization; Adjusted EBITDA – adjusted for amortization of contractual assets with customers - exclusive rights and results of cash flow hedge from bonds; and EBIT – Earnings Before Interest and Taxes, are presented in accordance with CVM Instruction 527, issued by CVM on October 4, 2012. The calculation of Adjusted EBITDA from net income is shown below:

 

(R$ million)

2020 IFRS 16


2019 IFRS 16


∆(%) 2020 vs 2019

Net Income

927.7


402.9


130%

(+) Income tax and social contribution

571.4


378.6


 

(+) Net financial revenue (expense)

269.4


506.9


 

(+) Depreciation and amortization

1,267.2


1,144.7


 

EBITDA

3,035.6


2,433.1


25%

Adjustments

 


 


 

(+) Amortization of contractual assets with clients – exclusive rights (Ipiranga)

287.8


355.1


 

(+) Amortization of contractual assets with clients – exclusive rights (Ultragaz)

1.6


0.2


 

(+) Cash flow hedge (bonds)

153.5


11.9


 

Adjusted EBITDA

3,478.5


2,800.3


24%

 

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

The purpose of including Adjusted EBITDA information is to provide a measure used by the management for internal assessment of our operating results, besides being a directly or indirectly related measure to a portion of our employee profit sharing plan. It is also a financial indicator widely used by investors and analysts to measure our ability to generate cash from operations and our operating performance. We believe Adjusted EBITDA allows a better understanding not only of our financial performance but also of our capacity of meeting the payment of interest and principal from our debt and of obtaining resources for our investments and working capital. Our definition of Adjusted EBITDA may differ from similarly titled measures used by other companies, and may not be comparable, thereby limiting its usefulness as a comparative measure. Because Adjusted EBITDA excludes net financial expenses (income), income tax and social contribution and depreciation and amortization, it provides an indicator of general economic performance that is not affected by debt restructurings, fluctuations in interest rates or changes in income and social contribution taxes, depreciation and amortization. Adjusted EBITDA is not a measure of financial performance under accounting practices adopted in Brazil or IFRS. Adjusted EBITDA should not be considered in isolation, or as a substitute for net income, as a measure of operating performance, as a substitute for cash flows from operations or as a measure of liquidity. Adjusted EBITDA has material limitations that impair its value as a measure of a company’s overall profitability since it does not address certain ongoing costs of our business that could significantly affect profitability such as financial expenses, income taxes and depreciation and amortization.

Overview of sales volume

 

2020


2019


∆ (%) 2020 - 2019

Ultragaz (000 tons)

1,732


1,706


2%

Ultracargo (000 m³)

12,244


10,779


14%

Oxiteno (000 tons)

753


734


3%

Ipiranga (000 m³)

21,461


23,494


-9%

Extrafarma (stores at yearend)

405


416


-3%

Sales volume at Ultragaz was up 2% in 2020, reflecting market growth in the period. In the bottled segment, volume was up 2% because of increased household consumption, which was boosted by pandemic-related restrictions. In the bulk segment, volume remained steady, with increased industrial and special gases (propellants) sales, mitigated by a reduced volume of sales to retail and services, which were hit hardest by pandemic-related isolation measures. Ultracargo’s cubic meters sold was up 14%, due to capacity expansions at Santos and Itaqui in 2H19 and 1H20 and to improved efficiency using the existing tankage. Oxiteno’s sales volume was up 3% in 2020. Specialty chemicals volume was up 6%, due to strong sales to the hygiene & cleaning and agribusiness segments on the domestic front, increased sales in the United States, and increased exports. The commodities volume was down 10% YoY, due to reduced market demand. Ipiranga’s sales volume was down 9% in 2020 because of the effects of the coronavirus pandemic, which had a material impact on fuels consumption in Brazil, particularly in the second quarter of 2020, with a gradual recovery since then. For additional information on the pandemic, see “Item 10.9. Comments on other material facts affecting operating performance”. The Otto cycle, which was the hardest hit segment, was down 14% in the fiscal year, whereas Diesel was down 3%. Extrafarma opened 2 new stores and closed down 13 in 2020, a 3% reduction to the chain, which reached yearend at 405 stores. At yearend, maturing stores (those in operation for up to three years) represented 25% of the chain, due to more selective expansion and increased strictness regarding poorly performing stores.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Net revenues

(R$ million)

2020


2019


∆(%) 2020 - 2019

Ultragaz

7,408.3


7,094.8


4%

Ultracargo

644.2


540.8


19%

Oxiteno

5,210.7


4,254.2


22%

Ipiranga

66,133.0


75,452.5


-12%

Extrafarma¹

2,106.4


2,174.2


-3%



¹ Gross revenue


Ultrapar reported net revenues from sales and services of R$ 81,241.1 million in 2020, down 9% from 2019, due mainly to decreasing revenues at Ipiranga. Net revenues at Ultragaz were up 4%, due mainly to the increased sales volume and LPG price adjustments on the part of Petrobras. Ultracargo’s net revenues were up 19%, boosted by increased fuels handling because of expansions and spot handling jobs, as well as higher fees arising from contract readjustments. At Oxiteno, net revenues were up 22%, due to the average 31% depreciation of the Brazilian Real (R$ 1.21/US$) and increased sales volume, partially offset by the 6% decrease in average US Dollar-denominated prices, following the drop in the international prices of petrochemicals. Ipiranga’s net revenues were down 12%, due mainly to the reduced sales volume and shifts in average fuel prices. Gross revenues at Extrafarma were down 3%, due to the smaller number of stores (-3%) and the temporary closing of 7% of shopping-mall stores in some months of the year and reduced customer flow because of the pandemic. These effects were mitigated by increased sales at the same stores while operational (+4%), driven by the increased average ticket and the reinforcement and expansion of online channel sales.

Cost of goods and services sold

(R$ million)

2020 IFRS 16


2019 IFRS 16


∆ (%) 2020 - 2019

Ultragaz

6,310.2


6,105.0


3%

Ultracargo

270.0


261.0


3%

Oxiteno

4,188.7


3,537.6


18%

Ipiranga

63,609.9


71,962.7


-12%

Extrafarma

1,399.1


1,462.3


-4%

Ultrapar´s cost of goods and services sold was R$ 75,628.2 million in 2020, down 9% from 2019 because of reduced costs at Ipiranga and Extrafarma. Ultragaz’s cost of goods sold was up 3% because of the increased sales volume and LPG cost readjustments on the part of Petrobras, in addition of increased freight expenses because of the need to collect LPG in more remote supply points and of increased storage costs. The cost of services provided at Ultracargo was up 3% because of YoY capacity increases. At Oxiteno, the cost of goods sold was up 18% because of the average 31% depreciation of the Brazilian Real (R$ 1.21/US$) and increased sales volume, partially offset by the 12% decrease in average unit costs in US Dollars. Ipiranga’s cost of goods sold was down 12% because of the smaller sales volume (as a result of the pandemic) and of shifts in average fuel prices. The cost of goods sold at Extrafarma was down 4% due mainly to reduced sales.

Gross profit

Ultrapar recognized R$ 5,612.9 million in gross profit in 2020, down 8% from 2019, because of Ipiranga’s decreased gross profit stemming from the reasons discussed above.

General, administrative, sales and commercial expenses

 

(R$ million)

2020 IFRS 16


2019 IFRS 16


∆ (%) 2020 - 2019

Ultragaz

620.2


636.5


-3%

Ultracargo

129.9


133.4


-3%

Oxiteno

819.6


724.2


13%

Ipiranga

1,707.7


2,002.1


-15%

Extrafarma

653.6


738.5


-11%

 

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

Ultrapar recognized general, administrative, selling and commercial expenses of R$ 4,098.4 million in 2020, down 6% from 2019, due to reduced expenses at Ultragaz, Ultracargo, Ipiranga and Extrafarma. At Ultragaz, general, administrative and selling expenses were down 3%. Despite the increase on freight expenses as a result of increased volume and inflation, and higher expenses with consulting for operational efficiency gains, Ultragaz adopted several initiatives to reduce expenses, particularly as concerns the payroll line, in addition to reduced materials expenses and reduced provisions for doubtful accounts. Utracargo’s general, administrative and selling expenses were down 3% because of reduced payroll expenses, mitigated by increased spending on information systems to strengthen the technology platform, and conceptual engineering plans for expansion studies. At Oxiteno, general, administrative and selling expenses were up 13% because of increased freight spending (increased volume and exchange rate effect on overseas freight), the effect of foreign exchange variations on the expenses of international units, and expense-reduction efforts. Ipiranga’s general, administrative and selling expenses were down 15%, due mainly to reduced payroll and freight spending (lower sales volume), and smaller provisions for doubtful accounts and withholding expenses on several fronts. Extrafarma’s general, administrative and selling expenses were down 11%, reflecting the reduced number of stores and initiatives in the areas of expense withholding, productivity gains, and logistics optimization.

Depreciation and amortization

Total costs and expenses with depreciation and amortization in 2020 were R$ 1,556.6 million, up 4% from 2019 because of investments made over the period and increased software amortization.

Other operating income

Ultrapar recognized net operating income of R$ 221.4 million in 2020, up 23% from 2019, reflecting the constitution of tax credits at Oxiteno and Ultracargo in 2020. This was partly offset by the appropriation of costs associated with Renovabio targets at Ipiranga in the same period. In addition, 2019 had the Consent Decree recognition at Ultracargo and tax credits at Extrafarma.

Income from the disposal of assets

The R$ 106.2 million increase in the income from the disposal of assets line is mainly due to the sale of Ipiranga real estates in 2020, the pruning of Extrafarma stores, and the write-off of Oxiteno Andina assets in 2019.

Impairment

The R$ 593.3 million entry on this line in 2019 concerns impairment associated with the Extrafarma goodwill acquisition premium.

Operating income

Ultrapar posted R$ 1,812.1 million in operating income in 2020, up 39% from 2019, due mainly to the 2019 recognition of impairment at Extrafarma.

Financial results

Ultrapar’s financial results were a net expense of R$ 269.4 million in 2020, down 47% from 2019 due mainly to the appropriation of interest on non-recurring tax credits in the amount of R$ 238.3 million that year.

Net income for the fiscal year

Ultrapar’s consolidated net income was R$ 927.7 million in 2020, up 130% from 2019, due mainly to the period’s increased EBITDA and reduced financial expenses, partially offset by higher taxes and higher depreciation and amortization costs and expenses.

 

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

Adjusted EBITDA


Reported (R$ million)

2020 IFRS 16


2019 IFRS 16


∆ (%) 2020 - 2019

Ultragaz

729.1


586.7


24%

Ultracargo

337.5


164.8


105%

Oxiteno

784.9


221.6


254%

Ipiranga

1,711.7


2,486.6


-31%

Extrafarma

84.3


(565.9)


n/a

 

 

Ex- non-recurring (R$ million)

2020 IFRS 16


2019 IFRS 16


∆ (%) 2020 - 2019

Ultragaz

729.1


586.7


24%

Ultracargo

325.7


230.4


41%

Oxiteno

629.2


235.6


167%

Ipiranga

1,711.7


2,486.6


-31%

Extrafarma

84.3


27.4


208%

For better comparability between 2020 and 2019 results and an analysis of the effective performance of Ultrapar and its businesses, we have excluded the following non-recurring effects: in 2019, the impairment of Extrafarma, in the amount of R$ 593.3 million; the Consent Decree at Ultracargo, in the amount of R$ 65.5 million; and the write-off of Oxiteno Andina assets in the amount of R$ 14.0 million; and, in 2020, tax credits in the amount of R$ 155.7 million and R$ 11.7 million at Oxiteno and at Ultracargo, respectively.

Ultrapar’s adjusted EBITDA was R$ 3,478.5 million in 2020, up 24% from 2019. Ex- the non-recurring effects above, Ultrapar’s Adjusted EBITDA would have been R$ 3,311.1 million, down 5% from 2019. Ultragaz’s EBITDA set a new record, totaling R$ 729.1 million, up 24%, due mainly to the increased sales volume, improved operating efficiency, and reduced expenses. Ultracargo’s EBITDA also set a new record, at R$ 337.5 million, up 41% ex the effects named above, due to capacity expansions and efficiency gains at the terminals, contract readjustments, and productivity gains. Oxiteno was the third business to post new record EBITDA levels, at R$ 784.9 million, up 167%, ex non-recurring effects, due mainly to (i) increased sales volume, (ii) improved US Dollar-denominated contribution margins, (iii) ramp-up of the US Plant, and (iv) average 31% depreciation of the Brazilian Real (R$ 1.21/US$). Ipiranga’s EBITDA was R$ 1,711.7 million, down 31% because of the lower sales volume and narrower margins, aggravated by oscillating fuel costs and the reduction in other operating results. Extrafarma’s EBITDA was R$ 84.3 million, up a sharp 208% ex the 2019 impairment, due to (i) the maturity of chain elements in the past 3 years, (ii) the pruning process and improved return on the chain, (iii) improved margins; and (iv) initiatives for productivity gains and expenses reduction.

 

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

Main change in the consolidated income statements for the fiscal year ending December 31, 2019 compared to the fiscal year ending December 31, 2018


(R$ million)


Year ending December 31, 2019 IFRS 16



% of net sales and services


Year ending December 31, 2019



% of net sales and services


Year ending December 31, 2018



% of net sales and services


 Percent change   2019-2018 

Net revenue from sales and services

89,298.0



100%


89,298.0



100%


90,698.0



100%


-2%

Cost of products and services sold

(83,187.1

)

93%


(83,201.4

)

93%


(84,537.4

)

93%


-2%

Gross profit

6,110.9



7%


6,096.6



7%


6,160.6



7%


-1%

Selling, marketing, general and administrative expenses

(4,366.6

)

5%


(4,421.3

)

5%


(4,296.7

)

5%


3%

Other operating income, net

179.6



0%


179.6



0%


57.5



0%


212%

Income from disposal of assets

(30.0

)

0%


(31.7

)

0%


(22.1

)

0%


243%

Impairment

(593.3

)

1%


(593.3

)

1%


-



n/a


n/a

Operating income

1,300.6



1%


1,229.9



1%


1,899.4



2%


-35%

Financial results

(506.9

)

1%


(380.2

)

0%


(113.5

)

0%


235%

Equity in earnings (losses) of affiliates

(12.1

)

0%


(12.1

)

0%


(14.8

)

0%


-18%

Income and social contribution taxes

(378.6

)

0%


(397.7

)

0%


(638.7

)

1%


-38%

Net income

402.9



0%


440.0



0%


1,132.3



1%


-61%

 

 



 


 



 


 



 


 

Net income attributable to:

 



 


 



 


 



 


 

Shareholders of Ultrapar

373.5



0%


410.1



0%


1,150.4



1%


-64%

Non-controlling shareholders of the subsidiaries

29.4



0%


29.8



0%


(18.1

)

0%


-265%

 

 



 


 



 


 



 


 

Depreciation and amortization²

1,500.0



2%


1,206.5



1%


1,184.3



1%


2%

 

 



 


 



 


 



 


 

Adjusted EBITDA

2,800.3



3%


2,436.2



3%


3,068.9



3%


-21%

                      

¹ Includes amortization of contractual assets with clients – exclusive rights

 

EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization; Adjusted EBITDA – adjusted for amortization of contractual assets with customers - exclusive rights and results of cash flow hedge from bonds; and EBIT – Earnings Before Interest and Taxes, are presented in accordance with CVM Instruction 527, issued by CVM on October 4, 2012. The calculation of Adjusted EBITDA from net income is shown below:

 

(R$ million)

2019 IFRS 16


2019


2018


∆(%) 2019 vs 2018

Net income

402.9


440.0


1,132.3


- 61%

(+) Income and social contribution taxes

378.6


397.7


638.7


 

(+) Financial result, net

506.9


380.2


113.5


 

(+) Depreciation and amortization

1,144.7


851.2


812.5


 

EBITDA

2,433.1


2,069.0


2,697.1


- 23%

Adjustments

 


 


 


 

(+) Cash flow hedge from bonds

11.9


11.9


-


 

(+) Amortization of contractual assets with customers – exclusive rights (Ipiranga and Ultragaz)

355.2


355.2


371.8


 

Adjusted EBITDA

2,800.3


2,436.2


3,068.9


- 21%

 

The purpose of including Adjusted EBITDA information is to provide a measure used by the management for internal assessment of our operating results, besides being a directly or indirectly related measure to a portion of our employee profit sharing plan. It is also a financial indicator widely used by investors and analysts to measure our ability to generate cash from operations and our operating performance. We also calculate EBITDA in connection with covenants related to some of our financing, as described in item 10.1.iv and in Note 16 of the financial statements. We believe Adjusted EBITDA allows a better understanding not only of our financial performance but also of our capacity of meeting the payment of interest and principal from our debt and of obtaining resources for our investments and working capital. Our definition of Adjusted EBITDA may differ from similarly titled measures used by other companies, and may not be comparable, thereby limiting its usefulness as a comparative measure. Because Adjusted EBITDA excludes net financial expenses (income), income tax and social contribution and depreciation and amortization, it provides an indicator of general economic performance that is not affected by debt restructurings, fluctuations in interest rates or changes in income and social contribution taxes, depreciation and amortization. Adjusted EBITDA is not a measure of financial performance under accounting practices adopted in Brazil or IFRS. Adjusted EBITDA should not be considered in isolation, or as a substitute for net income, as a measure of operating performance, as a substitute for cash flows from operations or as a measure of liquidity. Adjusted EBITDA has material limitations that impair its value as a measure of a company’s overall profitability since it does not address certain ongoing costs of our business that could significantly affect profitability such as financial expenses, income taxes and depreciation and amortization.

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

Overview of sales volume

 

2019


2018


∆ (%) 2019 - 2018

Ipiranga (000 m³)

23,494


23,680


-1%

Oxiteno (000 tons)

734


769


-5%

Ultragaz (000 tons)

1,706


1,725


-1%

Ultracargo (000 m³)

782


757


3%

Extrafarma (stores at yearend)

416


433


-4%

 

Ipiranga’s sales volume fell 1% in 2019, reflecting greater competition in the market, especially in the large customers segment, with a decline in diesel volumes of 4%, attenuated by an increase of 3% in fuel for light vehicles (Otto cycle). For Oxiteno, specialty chemicals sales volume dropped 4% with lower sales across various segments due to the modest performance of the economy in Oxiteno’s Latin American markets, in addition to a decrease in exports. Commodities’ sales volume was 7% lower compared with 2018, when Oxiteno posted above average sales in this segment. Ultragaz’s total sales volume fell 1% in 2019, reflecting weaker demand and the temporary interruption in the supply of LPG, partially offset by the addition of new resellers and growth in the sale of special gases. Ultracargo’s average storage in 2019 increased 3% year-over-year mainly due to greater fuel handling at Suape, Itaqui and Santos terminals. Extrafarma opened 29 new stores and closed 46 in 2019, a reduction of 4% in the network. At the end of the period maturing stores (with three years or less of operations) accounted for 45% of the network, a reflection of the pace of expansion in recent years.

Net revenues

(R$ million)

2019


2018


∆(%) 2019 - 2018

Ipiranga

75,452.5


76,473.4


-1%

Oxiteno

4,254.2


4,748.4


-10%

Ultragaz

7,094.8


7,043.2


1%

Ultracargo

540.8


493.6


10%

Extrafarma¹

2,174.2


2,141.0


2%



¹ Gross revenue

Ultrapar reported net revenues from sales and services of R$ 89,298 million in 2019, a decline of 2% compared with 2018, mainly the result of a decrease in revenues at Ipiranga and Oxiteno. Ipiranga’s net revenues fell 1% in 2019, principally due to lower sales volume. Oxiteno reported net revenues 10% lower due to a 13% decline in average dollar prices, combined with lower sales volume and in spite of the 8% devaluation of the Real against the US Dollar (R$ 0.29/US$). Net revenues at Ultragaz increased 1% in 2019, mainly due to LPG price readjustments. Ultracargo’s net revenues grew 10% in 2019, driven by the increase in handling and contractual readjustments. Extrafarma’s gross revenues increased by 2% in 2019 as a result of sales growth both in the wholesale and retail segments due mainly to the annual readjustment in medicine prices and a greater average number of stores, partially offset by the intensely competitive trading environment and the closing down of underperforming stores.

Cost of products and services sold

(R$ million)

2019 IFRS 16


2019


2018


∆ (%) 2019 - 2018

Ipiranga

71,962.7


71,962.7


73,053.2


-1%

Oxiteno

3,537.6


3,538.9


3,757.7


-6%

Ultragaz

6,105.0


6,107.6


6,153.0


-1%

Ultracargo

261.0


271.3


245.1


11%

Extrafarma

1,462.3


1,462.3


1,421.1


3%

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Ultrapar’s cost of goods sold and services provided was R$ 83,201 million in 2019, a reduction of 2% in relation to 2018, due to the decrease in costs at Ipiranga, Oxiteno and Ultragaz. Ipiranga’s cost of goods sold was also down by 1%, due to oscillations in the average unit prices of fuels. The cost of goods sold at Oxiteno decreased 6% in 2019 due to a decline in US Dollar costs of raw materials particularly ethylene and palm kernel oil combined with a reduction in sales volume, attenuated by the 8% devaluation of the Real against the US Dollar (R$ 0.29/US$). Ultragaz’s cost of goods sold registered a reduction of 1%, due to lower sales volume in the period. The cost of services provided by Ultracargo was up 11% due to higher one-off expenditures with maintenance, materials, services and payroll linked to the expansion in capacity at the Santos terminal. The cost of goods sold at Extrafarma rose 3% in 2019 due to sales growth and the annual readjustment in medicine prices.

Gross profit

Ultrapar registered a gross profit of R$ 6,097 million in 2019, a 1% reduction compared to 2018, due to lower gross profit at Oxiteno and Extrafarma.

General, administrative, sales and commercial expenses

 

(R$ million)

2019 IFRS 16


2019


2018


∆ (%) 2019 - 2018

Ipiranga

2,002.1


2,092.5


2,149.8


-3%

Oxiteno

724.2


738.2


735.5


0%

Ultragaz

636.5


654.4


575.7


14%

Ultracargo

133.4


137.7


116.7


18%

Extrafarma

738.5


762.9


716.7


6%

Ultrapar’s general, administrative expenses with sales and marketing recorded an increase of 3%, due to the effects of inflation on expenses and specific factors of each one of the businesses. Ipiranga’s selling, general and administrative expenses fell 3%, due mainly to management initiatives to reduce costs and expenses, notably freight, provisioning for losses on doubtful accounts and marketing programs in addition to lower expenses at ICONIC, where additional expenses were incurred in 2018 with the integration of the businesses. Oxiteno’s selling, general and administrative expenses were flat in 2019, due to lower payroll expenses and international freight charges, in line with the decline in volumes in the period, attenuated by the effect of the 8% devaluation of the Real against the US Dollar on expenses of the international operations. Ultragaz’s selling, general and expenses recorded an increase of 14% in the year due to provisions for losses on doubtful accounts in 2019 compared to a reversal in 2018. Ultracargo’s selling, general and administrative expenses were 18% up due mainly to higher payroll expenses and the non-recurring effect of receipt of credits in 2018 relating to the incorrect collection of a port management fee in the amount of R$ 8 million. Extrafarma’s selling, general and administrative expenses increased 6% in 2019, reflecting higher levels of depreciation, following investments made in recent years and the impact of closing down underperforming stores.

Depreciation and amortization

Total costs and expenses with depreciation and amortization in 2019 was R$ 1,206 million, a growth of 2% compared with 2018, due to investments in the period.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Other operating income

Ultrapar reported net revenue of R$ 180 million in 2019, an increase of 212% compared with 2018, reflecting the booking of tax credits, attenuated by the TAC at Ultracargo.

Income from the disposal of assets

A total of R$ 32 million with expenses on the sale of plant, property and equipment due mainly to the write-off of investments due to the closing of stores in the amount of R$ 19 million and to the asset write-off at Oxiteno Andina of R$ 14 million in 2019.

Impairment

A total of R$ 593 million related to the impairment of the goodwill generated on the acquisition of Extrafarma, with no cash effect, a function of lower results than initially planned.

Operating income

Ultrapar posted R$ 1,230 million in operating income in 2019, down 35% from 2018 because of the lower operating income reported by Ipiranga, Ultragaz and Extrafarma.

Financial results

Ultrapar’s financial result was a net expense of R$ 380 million in 2019, R$ 267 million greater than recorded in 2018, due principally to the booking in 2018 of interest on tax credits with respect to the exclusion of ICMS from the PIS/COFINS tax calculation, in the amount of R$ 153 million, and the effects of FX variation.

Net income for the fiscal year

For a better comparability of 2019 and 2018 results and an analysis of the actual performance of Ultrapar and its businesses, we excluded the following non-recurring items: in 2018; penalty fee of R$ 286 million following the rejection of the proposed acquisition of Liquigás and tax credits due to the exclusion of ICMS from the PIS/COFINS tax calculation base at Oxiteno for the net amount of R$ 186 million in EBITDA and R$ 153 million in financial result; in 2019: TAC of R$ 66 million at Ultracargo, impairment at Extrafarma of R$ 593 million and asset write-off at Oxiteno Andina of R$ 14 million. Excluding these items, Ultrapar posted net income, of R$ 906 million in 2019, a year-over-year reduction of 13%, mainly reflecting the reduction in EBITDA in the period and higher financial expenses. Considering IFRS 16, Ultrapar’s net income excluding non-recurring items in 2019 was R$ 869 million.

Adjusted EBITDA

(R$ million)

2019 IFRS 16


2019


2018


∆ (%) 2019 - 2018

Ipiranga

2,486.6


2,231.1


2,052.4


9%

Oxiteno

221.6


196.6


625.4


-69%

Ultragaz

586.7


535.8


258.1


108%

Ultracargo

164.8


130.1


178.5


-27%

Extrafarma

(565.9)


(660.3)


(46.8)


na

 

Adjusted EBITDA excluding non-recurring items (described above) was R$ 3,109 million in 2019, a reduction of 2% in relation to 2018. Considering the IFRS 16, Adjusted EBITDA excluding non-recurring items in 2019 was R$ 3,473 million.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Main change in the consolidated income statements for the fiscal year ending December 31, 2018 compared to the fiscal year ending December 31, 2017

(R$ million)

   Year ending
December 31
    % of net
sales and services
     Year ending
December 31
    % of net
sales and services
     Percent change
2018-2017
 
     2018      20171         

Net revenue from sales and services

     90,698.0       100%        79,230.0       100%        14%  

Cost of products and services sold

     (84,537,4     93%        (72,431.5     91%        17%  

Gross profit

     6,160.6       7%        6,798.5       9%        -9%  

Selling, marketing, general and administrative expenses

     (4,296.7     5%        (4,062.9     5%        6%  

Other operating income, net

     57.5       0%        59.4       0%        -3%  

Income from disposal of assets

     (22.1     0%        (2.2     0%        885%  

Operating income

     1,899.4       2%        2,792.7       4%        -32%  

Financial results

     (113.5     0%        (474.3     1%        -76%  

Equity in earnings (losses) of affiliates

     (14.8     0%        20.7       0%        -171%  

Income and social contribution taxes

     (638.7     1%        (813.3     1%        -21%  

Net income

     1,132.3       1%        1,525.9       2%        -26%  

Net income attributable to:

            

Shareholders of Ultrapar

     1,150.4       1%        1,526.5       2%        -25%  

Non-controlling shareholders of the subsidiaries

     (18.1     0%        (0.6     0%        2729%  

Adjusted EBITDA

     3,068.9       3%        3,981.0       5%        -23%  

Depreciation and amortization²

     1,184.3       1%        1,167.6       1%        1%  

¹ Information for 2017 restated according to accounting standards IFRS 9 and 15 issued by IASB (International Accounting Standards Board) and adopted from 2018. Readjustment of 2017 figures made for comparability with 2018 figures

² Includes amortization of contractual assets with clients – exclusive rights

 

EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization; Adjusted EBITDA – adjusted for amortization of contractual assets with customers - exclusive rights; and EBIT – Earnings Before Interest and Taxes, are presented in accordance with CVM Instruction 527, issued by CVM on October 4, 2012. The calculation of Adjusted EBITDA from net income is shown below:

 

(R$ million)

2018


2017


∆(%) 2018 v 2017

Net income

1,132.3


1,525.9


-26%

(+) Income and social contribution taxes

638.7


813.3


 

(+) Financial result, net

113.5


474.3


 

(+) Depreciation and amortization

812.5


704.5


 

EBITDA

2,697.1


3,518.0


-23%

Adjustments

 


 


 

(+) Amortization of contractual assets with customers – exclusive rights (Ipiranga)

371.8


463.0


 

Adjusted EBITDA

3,068.9


3,981.0


-23%

Information for 2017 restated according to accounting standards IFRS 9 and 15 issued by IASB (International Accounting Standards Board) and adopted from 2018. Readjustment of 2017 figures made for comparability with 2018 figures

 

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

The purpose of including Adjusted EBITDA information is to provide a measure used by the management for internal assessment of our operating results, besides being a directly or indirectly related measure to a portion of our employee profit sharing plan. It is also a financial indicator widely used by investors and analysts to measure our ability to generate cash from operations and our operating performance. We also calculate EBITDA in connection with covenants related to some of our financing, as described in item 10.1.iv and in Note 15 to the financial statements. We believe Adjusted EBITDA allows a better understanding not only of our financial performance but also of our capacity of meeting the payment of interest and principal from our debt and of obtaining resources for our investments and working capital. Our definition of Adjusted EBITDA may differ from similarly titled measures used by other companies, and may not be comparable, thereby limiting its usefulness as a comparative measure. Because Adjusted EBITDA excludes net financial expense (income), income tax and social contribution, depreciation and amortization and amortization of contractual assets with customers - exclusive rights (Ipiranga) it provides an indicator of general economic performance that is not affected by debt restructurings, fluctuations in interest rates or changes in income tax and social contribution, depreciation and amortization. Adjusted EBITDA is not a measure of financial performance under accounting practices adopted in Brazil or IFRS. Adjusted EBITDA should not be considered in isolation, or as a substitute for net income, as a measure of operating performance, as a substitute for cash flows from operations or as a measure of liquidity. Adjusted EBITDA has material limitations that impair its value as a measure of a company’s overall profitability since it does not address certain ongoing costs of our business that could significantly affect profitability such as financial expenses, income taxes and depreciation and amortization.

Overview of sales volume

 

2018


2017


∆ (%) 2018 - 2017

Ipiranga (000 m³)

23,680


23,458


1%

Oxiteno (000 tons)

769


790


-3%

Ultragaz (000 tons)

1,725


1,746


-1%

Ultracargo (000 m³)

757


724


5%

Extrafarma (stores at yearend)

433


394


10%

 

Sales volume at Ipiranga rose 1% in 2018, with diesel increasing 2%, in line with the gradual recovery in the economy. Conversely, fuel volume for light vehicles (Otto cycle) was 1% less year-over-year, declining until July before resuming growth during the second half. Record ethanol production in 2018 contributed to the reduction in its prices and, consequently, drove the 45% increase in sales while gasoline sales volume recorded a decline of 14%. For Oxiteno, an increase in the demand for commodities, whose volumes rose 8%, together with the 5% reduction in specialty chemical volumes, resulted in an overall reduction of 3% in sales volume compared with 2017, a year Oxiteno reported record sales. Despite the increase in sales volume from the new plant in the USA following its startup in September, export volumes fell 4% in 2018 due to reduced demand from Mercosur countries, notably Argentina. Sales volume in the domestic market also fell 2% compared with 2017. Ultragaz’s total sales volume was down 1% in 2018, in line with the decline in the overall Brazilian market. While volume was flat year-over-year in the bottled segment, the bulk segment posted a reduction of 3%, principally due to the programmed reduction of an industrial client. Total average storage at Ultracargo was up 5% due to increased handling activity in Santos, reflecting a partial resumption of its operations in June 2017, and increased ethanol handling in Brazilian ports, notwithstanding the reduction in fuel imports in 2018. Extrafarma opened 68 new stores and closed 29 in 2018, a 10% expansion (a net increase of 39 stores) in the network.

Net revenues

(R$ million)

2018


2017


∆(%) 2018 - 2017

Ipiranga

76,473.4


66,950.5


14%

Oxiteno

4,748.4


3,959.4


20%

Ultragaz

7,043.2


6,071.0


16%

Ultracargo

493.6


438.4


13%

Extrafarma¹

2,141.0


1,980.5


8%



¹ Gross revenue

 

 

Image2

Ultrapar – Shareholders’ Meeting Manual

 

Ultrapar reported net revenues from sales and services of R$ 90,698 million in 2018, a year-over-year growth of 14%, as a consequence of the increase in revenues at all businesses. Ipiranga posted an increase of 14% in net revenues, due principally to: (i) movements in the average costs of diesel and gasoline which recorded consecutive increases from January through September, in line with international benchmark prices and the devaluation of the Real against the US dollar; (ii) an increase in fuel value-added taxes (PIS/COFINS) in July 2017; and (iii) the strategy of constant innovation in services and convenience at the service station, creating greater customer satisfaction and loyalty. Oxiteno’s net revenues were up 20%, principally due to the 14% devaluation in the Real against the US dollar as well as an increase in the average price in US dollars of 8%, in line with the year-over-year increase in the cost of raw materials. These factors offset the effect of lower sales volumes and the greater share of commodities in the sales mix. Ultragaz’s net revenues were up 16% in 2018, largely due to readjustments in bottled and bulk LPG costs in the refineries and the differentiation and innovation strategies adopted. Ultracargo’s net revenues rose 13% in 2018, due to: (i) increased average storage following the partial resumption of activities at the Santos terminal; (ii) improved productivity at Ultracargo; and (iii) contractual readjustments for inflation. Extrafarma’s gross revenues were up 8% in 2018 due to an 11% increase in retail sales, the result of an expanded store network and the higher average number of stores. This growth was partially compensated by a 21% drop in revenues from the wholesale segment and an increase in competition in the sector. In June 2018, the Company replaced its retail IT system, temporarily affecting both retail and wholesale operations during the implementation and stabilization period.

Cost of products and services sold

(R$ million)

2018


2017


∆ (%) 2018 - 2017

Ipiranga

73,053.2


62,697.2


17%

Oxiteno

3,757.7


3,200.3


17%

Ultragaz

6,153.0


5,096.5


21%

Ultracargo

245.1


218.5


12%

Extrafarma

1,421.1


1,277.3


11%

 

Ultrapar’s cost of goods sold and services provided was R$ 84,537 million in 2018, up 17% from 2017 as a result of growth in all businesses. Ipiranga’s cost of goods sold was up 17%, due mainly to shifts in the costs of diesel and gasoline. The cost of goods sold at Oxiteno rose 17% in 2018, due to: (i) the increase in the cost of raw materials, principally ethylene; (ii) the 14% devaluation in the Real relative to the US dollar; and (iii) costs relating to the startup of the new industrial unit in the USA. Ultragaz’s cost of goods sold was up 21%, mainly due to the higher cost of LPG in the refineries. The cost of services provided by Ultracargo was up 12%, principally due to higher expenditures with rentals, payroll, contracting of third party services in Santos and tankage maintenance services at the terminals in addition to the payment of higher property taxes in 2018. The cost of goods sold at Extrafarma increased by 11% in 2018, mainly due to higher sales volume and the annual readjustment in pharmaceutical prices authorized by the CMED.

Gross profit

Ultrapar posted a gross profit of R$ 6,161 million in 2018, down 9% compared with 2017 due to a decline in aggregate gross profits at Ipiranga and Ultragaz.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

General, administrative, sales and commercial expenses

(R$ million)

2018


2017


∆(%) 2018 - 2017

Ipiranga

2,149.8


2,018.0


7%

Oxiteno

735.5


668.0


10%

Ultragaz

575.7


644.5


-11%

Ultracargo

116.7


112.7


4%

Extrafarma

716.7


623.3


15%

Ultrapar’s general, administrative, sales and commercial expenses totaled R$ 4,297 million in 2018, 6% up on 2017 due to the effects of inflation on expenses and specific factors from each business unit. Ipiranga’s selling general and administrative expenses rose 7%, principally due to the consolidation of expenses relating to ICONIC (addition of expenses from Chevron’s lubricants operation and extraordinary expenses relating to the startup of the joint operation itself), which initiated in December 2017. If the expenses with the ICONIC business were excluded then sales, general and administrative expenses would have remained flat compared to 2017, as a result of initiatives adopted for reducing expenses in the light of the unfavorable operating environment in 2018. Oxiteno’s selling, general and administrative expenses increased 10%, principally due to the effect of the devaluation of the Real on expenses with international operations as well as higher payroll expenses. Ultragaz’s selling, general and administrative expenses fell 11% in 2018, the result of initiatives for reducing expenses and improved efficiencies such as lower marketing and freight expenses, mainly due to the gradual shift from CIF to FOB delivery method among its clients, as well as lower expenses with strategic consultancies and lower loss provisions. Ultracargo’s selling, general and administrative expenses were up 4% in 2018. The increase reflected: (i) higher payroll expenses due to annual salary adjustments and increased variable remuneration, in line with improved results; and (ii) higher outlays with strategic consultancies and operational safety, but attenuated by reimbursement of an incorrectly charged port management fee in previous fiscal years. Extrafarma’s selling, general and administrative expenses were up 15% in 2018, due to the 19% greater average number of stores. Excluding the effect of the new stores, sales, general and administrative expenses would have declined by 3%, principally due to the Company’s initiatives implemented for productivity gains and reducing expenses, notably in payroll and travel expenses as well as acquiring fees.

Depreciation and amortization

Total costs and expenses with depreciation and amortization in 2018 amounted to R$ 1,184 million, up 1% from 2017 due to the investments made in the period. The above-mentioned amount includes amortization of contractual assets with clients – exclusive rights.

Other operating income

In 2018, Ultrapar recorded net revenues of R$ 58 million, 3% down on 2017, due to: (i) the break-up fee due after CADE’s rejection of the proposed acquisition of Liquigás, and (ii) recognition of tax credits in favor of Oxiteno with respect to the exclusion of the ICMS sales tax from the calculation base for PIS and COFINS taxes.

Income from the disposal of assets

In 2018, Ultrapar registered a net expense on property disposals of R$ 22 million compared to a net expense of R$ 2 million in 2017, the result of the writing down of IT assets at all the businesses and a more rigorous selection of non-performing drugstores at Extrafarma for closure, attenuated by the sale of real estate by Ipiranga.

Operating income

Ultrapar posted R$ 1,899 million in operating income in 2018, down 32% from 2017 because of the lower operating income reported by Ipiranga, Ultragaz and Extrafarma.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Financial results

Ultrapar’s financial result was a net expense of R$ 114 million in 2018, down R$ 361 million from the net expenses registered in 2017 despite the increase in net debt, due mainly to (i) the lower Interbank (CDI) interest rate in the period, (ii) the financial income from the constitution of tax credits at Oxiteno with the exclusion of the ICMS sales tax from the PIS/COFINS taxes calculation base, and (iii) the effects of the depreciation of Ultrapar’s share over the subscription warrants issued in the association with Extrafarma.

Net income for the fiscal year

Ultrapar’s consolidated net income in 2018 was R$ 1,132 million, a reduction of 26% in relation to 2017, principally due to the decline in EBITDA for the period, partially compensated by the lower net financial expense.

Adjusted EBITDA

(R$ million)

2018


2017


∆(%) 2018 - 2017

Ipiranga

2,052.4


3,066.8


-33%

Oxiteno

625.4


295.9


111%

Ultragaz

258.1


440.0


-41%

Ultracargo

178.5


124.3


44%

Extrafarma

(46.8)


23.1


na

Ultrapar’s consolidated Adjusted EBITDA reached R$ 3,069 million in 2018, a reduction of 23% compared to 2017. Ipiranga’s Adjusted EBITDA in 2018 amounted to R$ 2,052 million, 33% lower than 2017, principally due to: (i) the truckers’ strike and its impact on sales volumes, variation in margins and higher costs and non-recurring expenses in the period; (ii)  the extraordinary expenses with consolidation and startup of the ICONIC operations; and (iii) the movements in fuel costs during 2018. Oxiteno’s EBITDA amounted to R$ 625 million in 2018, an increase of 111% compared with 2017, in spite of lower sales volume. The increase is largely explained by (i) the constitution of tax credits, with a net effect of R$ 186 million in EBITDA, and (ii) the depreciation of R$ 0.46/US$ in the average Real/US dollar exchange rate in 2018. If the tax credits were excluded, Oxiteno would have still reported 48% growth in EBITDA in 2018. Ultragaz’s EBITDA was R$ 258 million, 41% lower than 2017. Excluding the impact of the above-mentioned break-up fee and TCC, the Company’s EBITDA would have grown by 4%, largely reflecting the initiatives for reducing costs and expenses despite lower sales volumes. Ultracargo’s EBITDA was up 44% to R$ 178 million in 2018 due to: (i) greater handling activity at the terminals; (ii) contractual readjustments; and (iii) residual effects of the fire in April 2015 at the Santos Port terminal with a negative impact of R$ 39 million in 2017. Extrafarma recorded a R$ 47 million negative EBITDA compared with R$ 23 million in 2017 due to: (i) the impacts caused by the implementation and stabilization of the new retail management system; (ii) the non-recurring event involving a more rigorous selection of stores for closure in the third quarter of 2018; (iii) the greater number of new and still maturing stores and (iv) increased competition in the sector.

10.2 – Comments on:

  1. Company’s operating results, especially:

 

  1. description of major components of revenues

Over the past three years, more than 90% of consolidated net revenues of Ultrapar was generated by the fuel and LPG distribution businesses. Therefore, the main components of these revenues come from diesel, gasoline and ethanol sales by Ipiranga and from LPG sales by Ultragaz. See “Item 10.2.c. Effect of inflation, changes in prices of main inputs and products, foreign exchange and interest rates on the Company’s operating results and financial results”.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

  1. factors that materially affected operating results

See “Item 10.1.h. Main changes in each item of the financial statements – Main changes in consolidated income statement”.

 

  1. Changes in revenues attributable to changes in prices, exchange rates, inflation, changes in volumes and introduction of new products and services

See “Item 10.1.h. Main changes in each item of the financial statements – Main changes in consolidated income statement” and See “Item 10.2.c. Effect of inflation, changes in prices of main inputs and products, foreign exchange and interest rates on the Company’s operating results and financial results”.

 

  1. Effect of inflation, changes in prices of main inputs and products, foreign exchange and interest rates on the Company’s operating results and financial results, if relevant

LPG business

Between 2003 and the end of 2007, LPG prices charged to LPG distributors in Brazil have been stable, despite increases in oil and LPG prices in the international markets, which were partially offset by the appreciation of the Real compared to the U.S. dollar. Since 2008, Petrobras has increased LPG refinery price for commercial and industrial usage sporadically and, from 2017, LPG refinery prices readjustments started to be more frequently. The table below shows the readjustments made in the past two years: 

 

 

Jan/19


Feb/19


Mar/19


Apr/19


Jul/19


Aug/19


Oct/19


Nov/19


Dec/19

Commercial and Industrial LPG (% adj.)

-3.4%


-3.0%


6.0%


6.0%


-9.8%


-13.5%


3.0%


0.6%


5.0%

 

 

Feb/20


Mar/20


May/20


Jun/20


Jul/20


Aug/20


Oct/20


Nov/20


Dec/20

Commercial and Industrial LPG (% adj.)

-2.9%


-18.9%


5.0%


10.6%


5.0%


10.3%


5.0%


5.0%


5.5%


The LPG prices for residential use remained unchanged from May 2003 to September 2015, when Petrobras increased prices by 15%. In recent years, Petrobras’ practice was not to immediately reflect volatility of international prices of oil and its derivatives in the Brazilian market. However, from June 2017, the dynamic of LPG prices supplied to distributors was modified to reflect international price volatility and exchange rate variation. To smooth out the peaks and troughs in international prices, in January 2018, the pricing dynamic was adjusted. The determination period for international prices and exchange rates, which define adjustment percentages, was set as the average of the 12 preceding months, and price changes became quarterly.

The pricing policy for residential use was terminated in August 2019. No formal LPG pricing policy exists for commercial, industrial or residential use.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Until November 2019, Petrobras had a policy of different LPG prices for residential use and commercial and industrial use. In November 2019, Petrobras began charging the same price for all segments, ceasing the price differentiation policy.

Any abrupt change in the LPG prices charged from distribution companies can affect Ultragaz’s results if the operational margins or sales volume cannot be maintained. Sales to the bulk segment are correlated with economic growth. Therefore, the pace of the Brazil GDP growth may affect sales volume, as the segment represents approximately 30% of Ultragaz’s sales volume. Bottled LPG is an essential good and therefore has a relatively low correlation with economic performance.

Chemical and petrochemical business

The specialty chemicals volume in the Brazilian market correlates with economic performance. Therefore the Brazil GDP growth pace may influence sales volumes as specialty chemicals sales from Oxiteno in Brazil represent 54% of the total volume sold by Oxiteno in 2020. In Brazilian market growth periods, Oxiteno aims to (i) increase its domestic market sales, as the logistics costs are generally lower than for exports, and (ii) increase its sales of specialty chemicals, with higher value added than commodities. In 2020, sales of specialty chemicals represented 83% of the total volume, versus 80% in 2019.

A significant portion of Oxiteno’s prices and variable costs of the products are linked to U.S. dollar. Therefore, a sharp appreciation or depreciation of the U.S. dollar can have an impact on Oxiteno’s contribution margin in the future. In 2018 and 2019, the Brazilian Real lost 17% and 4% against the US Dollar, respectively. In 2020, the Brazilian Real’s depreciation was 29%.

Oxiteno’s main raw material is ethylene, which is produced from naphtha in Brazil. Generally, naphtha prices in Brazil fluctuate with oil prices. In 2019, oil prices ended at US$ 66/barrel, up 23% from 2018. In 2020, oil ended at US$ 52/barrel, down 22% from 2019. We cannot predict if oil end ethylene prices will remain on the same trends. A sharp change in ethylene prices would affect Oxiteno’s results if the company is unable to maintain operating margins. Oxiteno’s second most relevant raw material is palm kernel oil, whose international reference price increased from US$ 753/ton in December 2019 to US$ 1,255/ton in December 2020, up 67%.

After two consecutive years posting decreases of 7% and 1%, respectively, in 2019 and 2018, demand for chemicals and petrochemicals in Brazil was up 11% in 2020, according to ABIQUIM apparent consumption data. As a consequence, an increase in the consumption of chemicals and petrochemicals could have a positive effect on the future volumes sold by Oxiteno and on the company’s results.

Fuel distribution business

In the recent past, the combined sales of gasoline, ethanol and natural gas (Otto cycle) in Brazil have been correlated mainly to the growth of the light vehicle fleet. According to ANFAVEA, in 2020 the light vehicle fleet added 2.1 million new units licensed in Brazil, for a total of 43 million. Additionally, we believe that the current penetration of light vehicles in Brazil remains low compared with that seen in countries at a similar development level.

In 2020, according to ANP data, the domestic Otto cycle volume was down 10% from 2019, due mainly to the effects of the pandemic, which had a significant impact on fuel consumption in Brazil since late March. Diesel sales, which were 52% of the volume sold by Ipiranga in 2020, historically correlated with the Brazilian economy’s performance, especially its agricultural and consumer goods industries. In 2020, the domestic market for diesel fuel according to ANP data remained practically unchanged from 2019. An increase in fuel consumption have a positive effect on the company’s sales volume and, therefore, on its results. For more information, see “item 10.9. – Comments on other relevant factors that influenced operating performance”.

In 2018, fuel costs increased in Brazil as oil prices rose globally and the Brazilian Real depreciated against the US Dollar. As a consequence, at the end of May 2018, truck drivers went on a nationwide strike demanding reduced diesel prices, exemption from tolls on no-freight legs, and reformed legislation, among other measures.

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

The strike caused fuels and other consumer goods shortages all over the country. Therefore, the Brazilian government reacted by establishing some emergency measures, such as minimum freight price table, reduction of R$ 0.46 per liter in diesel price, of which R$ 0.16 per liter in CIDE and PIS/Cofins taxes and R$ 0.30 per liter by a subsidies program implemented by the government until December 31, 2018. Initially, prices remained flat for 60 days, and after this period, they were monthly adjusted according to a parametric formula established by the ANP. The subsidies program ended on December 31, 2018 and Petrobras returned to the previous policy adjustment according to the international market. Gasoline and diesel prices have therefore been influenced by international prices and exchange rate variations. However, Petrobras has not set a price-adjustment interval. In 2020, Petrobras maintained its policy of adjusting gasoline and diesel prices in line with international benchmarks. In the final months of 2020, however, Petrobras’s prices were adjusted at wider intervals and domestic prices remained below international parity.

The graphs below show the changes in the price distribution companies pay for gasoline and Diesel at the refineries.

 

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Graphics




Source: Petrobras

 

 

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Ultrapar – Shareholders’ Meeting Manual

 

Effects of inflation over our operational costs and expenses

Ultrapar’s operational costs and expenses are substantially in Reais, thus influenced by the general price levels in the Brazilian economy. In 2020, 2019 and 2018, the variation of IPCA (Consumer Prices Index), the index adopted by the Brazilian government to set inflation targets, was 4.5%, 4.3% and 3.8%, respectively.

Financial result

The main macroeconomic factors that influence the financial results of Ultrapar are the foreign exchange and interest rates.

Exchange rate

Most of the transactions of Ultrapar, through its subsidiaries, are located in Brazil and, therefore, the reference currency for currency risk management is the Real. Currency risk management is guided by neutrality of currency exposures and considers the risks of the Company and its subsidiaries to changes in exchange rates. The Company considers as its main currency exposures the assets and liabilities in foreign currency. Ultrapar and its subsidiaries use exchange rate hedging instruments (especially between the Real and the U.S. dollar) available in the financial market to protect their assets, liabilities, revenues and disbursements in foreign currency and net investments in foreign operations, in order to reduce the effects of changes in exchange rates on its results and cash flows in Reais within the exposure limits under its Policy. Such foreign exchange hedging instruments have amounts, periods, and rates substantially equivalent to those of assets, liabilities, revenues and disbursements in foreign currency to which they are related. Assets and liabilities in foreign currencies are stated below, translated into Reais as of December 31, 2020, 2019 and 2018:

 

Assets and liabilities in foreign currencies

 

R$ million

12/31/2020



12/31/2019



12/31/2018


Assets in foreign currency

 



 



 


Cash, cash equivalents and financial investments in foreign currency (except hedging instruments)

1,413.3



455.6



254.2


Foreign trade receivables, net of allowance for doubtful accounts and advances to foreign customers

307.8



213.5



235.1


Other assets

1,767.6



1,445.0



1,384.9


 

3,488.7



2,114.2



1,874.2


Liabilities in foreign currency