Phillipe Casale - IR João Arthur Souza - Head of Finance.

Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Cosan S.A. Third Quarter of 2018 Results Conference Call. Today with us, we have Mr. Phillipe Casale, Investor Relations Executive Manager; and Mr. João Arthur Souza, Head of Finance. We would like to inform you that this event is recorded.

And all participants will be in a listen-only mode during the company’s presentation. After Cosan's remark, there will be a question-and-answer session for industry analysts. At that time further instructions will be given [Operator Instructions]. The audio and slide show of this presentation are available through the live webcast at ir.cosan.com.br.

The slides can also be downloaded from the webcast platform. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Cosan’s management and on information currently available to the company.

They involve risks, uncertainties and assumptions because they relate to the future events and, therefore, depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Cosan and could cause results to differ materially from those expressed in such forward-looking statements. Now I’ll turn the conference over to Mr. Phillipe Casale. Mr. Casale, you may begin the call..

Good afternoon, everyone, and welcome to Cosan S.A. Third Quarter 2018 Earnings Conference Call. I’d like to open this call by discussing our recent announcements, as you know we are constantly analyzing ways to simplify our corporate structure and to create value for shareholders.

With this in mind, on October 24, we released the material informing the market that we have initiated studies to assess the feasibility of incorporating [indiscernible] into Cosan S.A. Immediately after this announcement, we were asked to address the lack of the sales regarding the expansion and potential efficacy of these proposals.

We acknowledge that the lack of additional information hindered the market's understanding as to how this transaction would assist in the simplification process. Out of respect for the interest and concerns of shareholders, investors we decided to cancel this transaction.

I’d like to emphasize here our commitment to best governance and practice to any corporate action we take going forward. Let’s now move to slide four to discuss the business results starting with Raizen Combustiveis.

And before entering into Raizen's figures, I would like to remind you that we concluded the acquisition of Shell’s downstream asset in Argentina on October 1, therefore these operations had no impact on our 3Q, 2018 results.

The distribution segment also faces some challenge this quarter, remaining effects of the truckers strike was a temporary re-optimization of our supply dynamics given the lower diesel imported truck business.

Beside we have also have the work of effecting construction in July, this challenge demanded additional efforts from our team to again deliver above the industry average results. Let’s look at the numbers. Total sales was up 1.5% compared to the same period last year.

The highlighting of the field was diesel which continues to enjoy above GDP and above industry average growth due to the higher demand from our business clients coupled with new contracts signed over last year.

The order cycle remains below expectations driven by factors such as the high level of unemployment rate in Brazil affecting family's income and high prices at the pump specially for gasoline in line with the international oil prices and currency increases. In this environment, we saw again strong growth in ethanol consumption.

Sales volume of the aviation segments grew 9% in line with the sector's resumption. Adjusted EBITDA came at BRL 683 million through 3Q '18, 26% higher than 2Q '18 but lower than the same period last year.

Remind you that the 3Q '17 per person basis is strong since it was positively impacted by inventory gains and also prices being adjusted more frequently by Petrobras.

Similar to what we did last quarter, we highlight that in 3Q '18, we have negative impact of around BRL 20 million specifically related to the truckers' strike which includes the impact of average diesel inventories and one-off logistics costs.

As I mentioned before, despite several challenges faced in the quarter, once again, we delivered consistent results sustained by our strong relationship with our customer base. Investments in the quarter came at BRL 188 million including maintenance, conversion of new stations and renewal of existing contracts.

We ended the quarter with 6.444 Shell-branded stations and have additional 306 stations in the last 12 months and 84 in the quarter. Our expansion plan remains in line with the expectations for the year.

Now let's move to Raízen Energia on Slide 5, and this is, this was a second quarter of 2018-19 crop year, it was marked by rainfall volume higher than expected reducing the crushing by 14% year-over-year.

With drier weather during the intercrop season impacted the sugarcane productivity index which reaches 9.6 kilos of TRS per hectare and we continue to prioritize ethanol production over sugar due to higher biofuel profitability and demand this year. Therefore, the ethanol mix which is 51% in the 2Q '18 versus 43% in the same period last year.

Let's review sales for each product and we start with sugar here. As you can see in the chart on the right hand side, sales volume came in 28% lower than 3Q '17. We concluded few sugars storage projects in our mills which provides as with higher flexibility and enables us to maximize the [indiscernible] strategy for sugar.

Average sales price in Brazilian Reais came in 30% lower compared to the same period last year following the sharp drop in commodity prices. The ethanol sales came in 8% higher compared to 2Q '17, driven by higher demand increased production in the period.

Average price improved 10% versus same period, same period as crop year but was in line with the previous quarter. Now moving to Co-Generation, I like to point out that starting this quarter [indiscernible] is consolidating the result of WX or W Shield our energy trading Company.

This operation adds even more value to our portfolio by increasing our offering of integrated energy solutions.

For this reason we are, we are now breaking down volumes between own volumes and with field and trading likewise in sugar and ethanol as these operations results in revenue increase but with margins substantially lower than the sale of energy generated by high yield.

That being said, all volumes sold weres 8% lower reflecting lower biomass availability due to reduced crushing in this period. Before discussing EBITDA, I would like to comment on the quarter’s cost dynamic.

Sugar equivalent cash cost excluding [indiscernible] effect was up 9% effected by higher diesel cost, lower agricultural yields and inflation in the period. [Indiscernible] adjusted EBITDA reached BRL641 million a drop compared to the same previous crop year mainly due to lower volumes in price of sugar sold.

As we mentioned in our last conference call, our sugar and ethanol sales strategy this year is focused on a higher concentration of sales during the last two quarters of the crop year. Well certainly sugar has [indiscernible] advanced our protection leveraged by improved prices in Brazilian Reias for the third quarter.

For the current crop in '18-'19, we are nearly 100% hedged at an average price of BRL0.50 per pound. For the next crop '19-'20, we hedged approximately 30% to 35% of the total sugar to be exported with an average price of BRL0.53 per pound.

Finally, CapEx totaled BRL465 million in the quarter reflecting the higher investment in planting and renovation of sugarcane fields in line with our schedule for the year. Let’s move to Slide 6. Comgas released its results in Q3 so let’s go straight to highlights. Total sales volume excluded thermal power grew 9% this expansion came in all segments.

In residential and commercial we maintained our customer base growth. In industry segment group sales performance was a result of renegotiation or negotiations to increase volumes in the current customer base. EBITDA normalized by regulatory current account grew 14% this quarter reaching BRL546 million mainly driven by higher volume sold.

We ended the quarter with a BRL161 million balance in the regulatory current account recovered from clients. Thus IFRS EBITDA came in 60% more due to the gas cost dynamics. On gas investment totaled BRL139 million in 2Q, 2018 in line with the year’s guidance. Let’s move to Slide 7 and starting talking about move.

Present initiatives of our international expansion plans and improved sales performance in Brazil effected a 4% growth of [indiscernible] lubricant sales volumes. These other sales volume, the raw material for lubricant manufacturing dropped in this quarter.

An improved sales mix in international operation result in BRL grew 34% EBITDA growth which came to BRL60 million in 3Q, 2018. Now let’s turn to the right side of the slide. General and administrative expense came in respectively 19% and 16% lower than the same period last year.

Further expense increased but in line with expectations for the year this item is proposed of legal expense and various legal claims. Moving to Slide 8 to present consolidated results of Cosan S.A. on a pro forma basis considering 50% of Raizen results. Cosan pro forma EBITDA came in 25% more versus 3Q '17 reflecting [indiscernible] result in a period.

Year-to-date pro forma adjusted EBITDA totaled BRL3.6 billion. Net income in 3Q '18 reaches BRL44 million and beside the effects, other effect of the operational results or the operating results, Cosan's financial expense were negatively impact by Brazilian Reais appreciation against the U.S.

dollar, specifically on the unhedged portion of the perpetual bond. It's worth mentioning that this effect does not impact the cash generation in the period and the year-to-date net income totaled BRL324 million. Now let's move to Slide 9 where I will highlight the cash flow in the quarter.

The lower operating cash flow reflects the impact we already mentioned that [indiscernible] energy in line with our strategy of building 2.5 long inventories.

In addition to that it should be noted that Raizen Combustiveis we had an impact of approximately BRL100 million referring to the diesel subsidy program which was approved by the federal government after the truck drivers' strike.

Out of that, out of the total to be received, only 10% was paid and the remaining part is to be disbursed by and [indiscernible] in the coming weeks since all the necessary information and document has already been sent and processed by the agency. The effects of the operating cash flow in Raizen were partially offset by the improvement in Comgás.

And cash flow from investment there was a higher expenditure of Comgás and please note that the comparison base impacted by the acquisition of [indiscernible] by Raizen Energia in 3Q '17. In cash flow from financing, the highlight was the funding operations at Raizen to pay the $370 million related to the acquisition of Shell's assets in Argentina.

The settlement of this excision was held only on October 1, not impacting cash flow this quarter. Pro forma growth investments was up 8% in 3Q '18 to BRL 16.9 million. As a result of the funding operation at Raizen. The average cost of investment on a pro forma basis including Raizen stood at 109% of CDI.

Cash balance remains strong, but increase in gross debt lead the leverage from 1.8 times net debt-to-EBITDA to 2 times pro forma net debt-to-EBITDA normalized by Comgás current account effect.

Now let's move to the last Slide and to conclude today's presentation, we are following up again, with our guidance for the year without changing the consolidated figures.

Comgás adjusted the normalized EBITDA range to between BRL1 billion and BRL900 million to BRL 1 billion and BRL950 million due to higher volume sold so far in the year and efforts to control expense.

In Raizen Energia, we are maintaining the initial EBITDA projections but we have to adjust the sugar volume produced in line with the reduction issue again crushing and the higher ethanol mix.

In co-generation we are now showing the volume produced is no longer the volume sold versus the volumes of WX or W Shield our new trading company is our consolidated in the results. At Raizen Combustiveis we decided to adjust EBITDA guidance to share with your best estimate. This is a typical and challenging year.

We've had a major strike through election uncertainties and lower economic recovery. We have seen a gradual improvement in results during the second half of the year, after the strike but there is few challenge, the behaviour on all cycle, recent diesel and gasoline price means, not to mention issues related to the diesel subsidy program.

Therefore we decided to narrow the range keeping the low end of the original projection which is BRL2.850 billion. At the mid point of the new estimates as this remains our goal and note that we are not adjusting the negative effects of the truckers' strike, otherwise we would be on track with the previous range.

As a reminder the projections of Raizen Combustiveis will now include Shell’s operation in Argentina. This concludes my remarks. Thank you all. And let’s move now to the Q&A session..

I’d like to invite Mr. Casale to proceed with his closing statement..

If you have any questions, our IR team is more than available here to take any questions from our investors. Thank you very much..

That does conclude Cosan's conference for today. Thank you very much for your participation. And have a good day..