Andre Covre - IR and CFO Andre Pires - CFO.

Cristian Audi - Santander Frank McGann - BOA Merrill Lynch Andre Sabrera - Credit Suisse.

Good morning, ladies and gentlemen. At this time we would like to welcome everyone to Ultrapar's 2Q '15 Results Conference Call. There is also a simultaneous webcast that may be accessed through Ultrapar's Web site at www.ultra.com.br/ri. Please feel free to flip through the slides during the conference call. Today with us we have Mr.

Andre Covre, Ultrapar's Executive Officer, together with other executives of Ultrapar. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Ultrapar's remarks are completed, there will be a question-and-answer session.

At that time further instructions will be given. [Operator Instructions] We remind you that questions which will be answered during the Q&A session may be posted in advance in the webcast. A replay of this call will be available for one week.

Before proceeding, let me mention that forward-looking statements are made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ultrapar Management and on information currently available to the Company.

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

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

Covre, who will present Ultrapar’s results in the quarter and discuss about perspectives. Mr. Covre, you may begin the conference..

Good morning to everyone. It’s a great pleasure to be here with you once again. And as you already know for the last time as the CFO of Ultrapar. Next September I will complete 12 years with Ultra, eight of which as Chief Financial and Investor Relations Officer.

Throughout these years I have had the pleasure and the privilege of being able to develop significant and transformational projects for the company together with corporate centre team with the permanent goal of doing what's in the best of interest for Ultra. I'm very proud to look back to this history and now I'll be facing new challenges.

As announced on July 25th, I took over as the CEO of Extrafarma. I will remain part of Ultra's Executive Board and will continue to contribute to development of the company's strategy as a whole. In February of 2014, my predecessor Paulo Lazera assumed the responsibility of leading Extrafarma's integration for a management model and so it was done.

The next stage is to speed the growth in order to position the company among the market leaders. Paulo stepped down from the executive position in Extrafarma but he will remain with Ultra as a consultant, sharing his knowledge of the retail pharmacy sector and also as a shareholder of Ultra.

The CFO position at Ultrapar was assumed in July 20th, by Andre Pires, he's here with me today. Since Pires joined Ultra, both of us have been engaged on a planned, comprehensive integration of transition process. Second quarter earnings release process is a great example of that.

In order to allow adequate time for Andre Pires to get familiar with Ultra's processes I'm leading this earnings release season and he's following all the steps. During the next few weeks, we will conduct a series of meetings with our shareholders and potential investors in Brazil and abroad.

And after completing that Pires will lead the relationship with the capital markets. We are applying a similar process now the critical matters where the corporate sponsor is involved. I am very proud of the highly capable team I've worked with and to whom I have contributed to professional development.

Some of them assumed relevant positions also in our business units. Currently we'll continue to contribute to Ultra's development now under Andre Pires leadership. I'd also like to take this opportunity to thank you for all these years of partnership and learning.

Willing with the capital markets that seems your demands and be constantly challenged by our shareholders than grow both personally and professionally. Now, let's move to what brought us here, the performance in the second quarter and as usually to have me answer the questions I have the IR team and executive directors of other business units.

Starting with Slide 3, we've consolidated performance. Brazilian economic scenario followed the worsening trends since the beginning of the year. The forecast for the Brazilian GDP decline in 2015 became even more pronounced as shown by the central banks focused research and unemployment rate has been increasing.

Inflation and interest rates are currently high and rising levels, increasing respectively our operating expenses and financial expenses. Even with is worsening of the microeconomic environment we presented this quarter EBITDA growth of 13% mainly driven by Oxiteno and Ipiranga.

Additionally we now have noticed that the difference between the some of the parts of our business units EBITDA and Ultrapar’s consolidated EBITDA was bigger than the usual level. After this difference $30 million referred to the non-recurring gains recorded directly in Ultrapar.

14 million of those 30 correspondents to the complement of the working capital and the debt net adjustment relating to the Extrafarma transaction. The other 16 million referred to the favorable outcome of the lawsuit were of the former Ultrapar subsidiary were indemnified for unauthorized use of our trademark.

On the other hand during this quarter we incurred expenses of 75 million related to the fire accident occurred in April in the terminal operated by Ultracargo in Santos.

If we exclude these extraordinary gains and losses we would have seen a normalized growth of 19% in our EBITDA compared to the second quarter, which we consider very solid results and especially in this environment of weak demand and inflation pressure over costs and expenditures.

We also consider the normalized level of 19% a good indication for the trend for the next quarters. Following the reported EBITDA growth of 13% we had 10% growth in net earnings for the quarter, such growth could have been higher, we haven't seen decrease of 3 percentage points in interest rates year-over-year.

The size of our land the interest rates rising cycle we should no longer burden earnings growth. Our consistent earnings growth and the resulting cash generation has allowed the company to pay increasing dividends.

The Board of Director approved the payment of 437 million in dividends for the first half of the year which is 12% higher than the dividend declared for the first half of 2014.

The dividend per share is 13% higher than the first half of 2014 slightly higher than the growth of the absolute value due to the share buyback made during the first half of the year. Finally dividend yield was kept at the same level as previous years around 2.5% to 3% on a annualized basis. Moving now Slide 4, comment on Ipiranga's performance.

As we've seen in previous periods the volume of fuels for light vehicles and reseller segment continued to be visited by the increase in the light vehicle fleet and the strong and constant investments made over the last years to expand Ipiranga's service station network.

As you can see on the top left of the chart, the Brazilian vehicle fleet is estimated to grow 4% in the year even with an estimated drop of 21% in power sales, which is five year current estimate.

During the last five years we've increased -- we've invested almost R$2 billion in the expansion of Ipiranga's network and its additional services such as am/pm convenience stores and Jet Oil lubricant service shops. We finished the second quarter this year with 7,096 stations 4% above last June.

In the Northern regions of Brazil the growth was 10% while in the South and Southeast it is 2%. These investments have allowed the company to grow above the market in the resellers segment which are the sales to service stations, and therefore get an improved sales mix.

In the reseller segment we find higher potential for our strategy of differentiation to constant innovation and services and convenience helping to increase the flow at our service station increase the customer satisfaction and loyalty.

With this strategy, customers have higher value-added products and services our resellers are provided an additional source of revenue and differentiated positioning, therefore maximizing the value creation of the chain as a whole including the profitability of Ipiranga.

With these elements we had a 2% volume growth in the second quarter of 2015 compared to the same period of 2014. As you can see on the graph on the top right, the growth in sales fuels for light vehicles was 6% concentrated in ethanol.

Diesel sales and current sales 1% following the downturn of economy but at a lower level is decline in the overall market.

EBITDA totaled 576 million in the second quarter 10% growth over the second quarter of 2014 due to the creating sales volume improvement in sales mix with a greater share of the reseller segment both elements boosted by investment in the service area network.

And finally we would help by our strategy of constant innovation in services and convenience in the service station. Looking now to the current quarter to talk about our expectations. I would like to remind you again that these are not specific projections but rather trends level and orders in magnitude of evolutions.

In Ipiranga market trends and the weak economic conditions that influence the second quarter have not changed and are still present in the third quarter and therefore our outlook for the current quarter is an evolution of both of volume and EBITDA similar to the levels that we had in the second quarter.

Moving to Oxiteno on Slide 5, overall volumes grew by 1% volume of specialty chemical fell 6% influenced by the retraction in economic performance in Brazil which led to an 8% drop in sales with specialty chemicals into the domestic market.

In the prior market the volume of specialty chemicals is down 1% with lower sales in Argentina market and the decision to discontinue aligned our product for the latter market earlier in this year. On the other hand volume growth like sort by 54% significant percentage that was not unusual in this case in the case of this commodity.

Such increase was mainly due to worst pricing conditions during the second quarter last year and scheduled stoppage in the Camacari plant in March this year causing the postponement of sales to the second quarter. The real depreciation over the last 12 months contributed to a significant earnings progression.

The average real to dollar increased around $0.80 as compared to the second quarter last year. Added to that the lower level of prices of our remained raw material ethylene due to the decline oil prices also contributed to the growth in EBITDA.

The volume factor is Oxiteno at average BRL203 million an all time high for the quarter and more than double with regards to second quarter last year leading to an EBITDA margin of $343 per ton. Now looking to the third quarter the downward trend in specialty chemical volume should remain present due to the economic recession in Brazil.

Evolution of glycol sales volume intern should be lower than second quarter year-over-year due to the fact of the scheduled stoppage in March which postponed volumes to second quarter.

For EBITDA we expect to keep the pace of growth in the second quarter compared to last year with a weaker performance of glycols being offset by the currently weaker real. Moving to Ultragaz on Slide 6, Ultragaz volumes in the second quarter reached 430,000 tons in line with the second quarter of 2014.

In order to accept the fact on economic downturn on the bulk segment we have implemented a number of commercial initiatives to add new resellers in the bulk of segment and to capture new customers mainly to small medium size companies segment.

As I mentioned during the last conference call in May and this quarter we also conducted a marketing campaign bringing attention to the market of the more convenient and services attribute of our current strategy focused on the proximity to customers. Expenses related to such campaign in the market 11 million were concentrated in this quarter.

We also had a concentration of legal expenses which amount to 3 million which contributed significantly together with the marketing campaign the 25% increase in expenses. Ultragaz EBITDA was slightly below second quarter last year, but excluding the one-off expense related to the marketing campaign, Ultragaz EBITDA would have grown approximately 14%.

Similarly, similar to our comments in Ipiranga, market trends and economic conditions that influenced the second quarter has not changed and before we expect for the current quarter a progression similar to the one we had in the second quarter both in volumes and EBITDA. In the case of EBITDA excluding the one-off marketing expenses.

On to Slide 7, to talk about our liquid bottle storage business Ultracargo, it's presented an average storage in the quarter 16% lower than the second quarter of 2014 with the partial interruption of operations in the Santos Terminal resulting from the fire accident of early April this year.

In other terminals we have an increase of handling of fuels and fuel oil for terminal for power plants particularly in the slot in Itaqui terminals. Excluding Santos operations average storage in other Ultracargo's terminals increased by 2% as compared to second quarter 2014.

Ultracargo's EBITDA was negative by 49 million in the second quarter due to the lower storage and expenses related to the fire accident in Santos. These expenses amounted to 75 million mainly related to fire fighting and containment. For example, they include the purchase of liquid foam generator and rental Cobalts for water pumping.

Excluding Santos Ultracargo's other terminals reported an EBITDA of 26 million, an 8% growth compared to the second quarter of 2014. Ultracargo's operations at Santos remain partially suspended. Expressed with the authorities are working to determine the causes of the accident.

The unavailable portion in terminals corresponds to 185,000 cubic meters capacity, 55% of the capacity was created by Ultracargo and Santos -- 22.5 of the total capacity out of the company. Ultracargo has obtained the necessary authorization to start the process of removing, transferring and disposing the products and waste in the affected area.

This will allow the execution of the second phase of the process, with the renewal of equipment and infrastructure of the portion affected by the fire.

At the end of that, the terminal area is not affected by the fire which corresponds to approximately 60% of the package currently unavailable could return -- could resume operations which we believe will cure around mid 2016.

In parallel we started the process of claiming the indemnification values from the insurance company that only expect to receive the portion of the indemnification sometime in late 2015 this year. Looking at the short-term trends as I mentioned during the second quarter Ultracargo's terminals Santos generated 26 million of EBITDA.

And they continue to operate at similar levels. The expenses related to the fire accident were concentrated in the second quarter and we should see much lower amounts in the third quarter of an order and magnitude to 15 million. As such we should again see positive EBITDA in the third quarter for Ultracargo.

Extrafarma ended June with 234 stores, 15% growth compared to the 203 stores in June 2014 and rate that is above the 9% market growth as published by the industry association Abrafarma. Gross revenue increased by 17%, also above the 14% growth in the market.

Such growth was mainly due to the increased average number stores and the 12% growth in same-store sales. EBITDA in the second quarter amounted to 9 million, 5 million below second quarter last year, mainly to adding the expenses for structuring the company for more accelerated pace of growth.

This includes the new distribution center in this Jedi state adding expansion and operations teams, strengthening the support areas and implementing new systems. The benefit of these initiatives will be produced in the next few years.

As part of this growth acceleration process in the second half of the year we should the see first Extrafarma stores opened in Ipiranga service stations and Ultragaz resellers. For the current quarter the trend of positive quarter-over-quarter EBITDA progression is expected to complete.

In other words as we saw a second quarter EBITDA positive progression over the first quarter we also expect to see growth in the third quarter compared to the second quarter. Moving now to the last slide. As you can see on the left hand side of the slide Ultrapar's average growth since the IPO has been around 20% per year in EBITDA and net income.

The growth recorded through the various economic cycles. The growth in the first quarter of the year and the trends that I've just mentioned in the current quarter leads to maintaining for the year 2015 to the long-term performance levels since the IPO including for the third quarter.

This outlook is the result from the resilient of the company -- resilience of the company and investments made over the years in expansion and strengthening of our business, and work priorities remain focused on these investments.

At Ipiranga we’ll continue to invest in the expansion of the network of stations of franchises with the focus on comment the fastest growing region of Brazil that’s namely the Northeast the Midwest and the North part of the country. Our investments also include the expansion of the logistics infrastructure to meet the growing demand improvements.

From the marketing standpoint we’ll continue to move forward with our differentiation strategy decrease in the office product service and convenience. It helps to increase the flow of customers at the service station as well as customer satisfaction and loyalty.

At Oxiteno we will continue to focus on innovation to proximity while customers and development of new products and applications.

The company will continue to active maximize the benefits from maturing the investments and production capacity expansions and specialty chemicals made in Brazil in the previous years now in a even more favorable exchange scenario.

At Ultragaz we’re investing to capture new customers focusing mainly residential small, medium size companies segments in which we have increasing and more differentiated proposition in the greater potential to add value.

At Ultracargo our priority continues to be in analyzing and managing the impacts to transact at Santos at the same time we’ll continue to assess opportunities for growing demand the liquid bulk storage in Brazil.

Finally at Extrafarma the focus is to introduce the more accelerated expansion stores with quality and sustainability and from now on I'll be leading Extrafarma and directly involve them.

With this I'll conclude what we have prepared, with a positive outlook for the remaining of the year and the whole year in line with other track record since the IPO and before I turn to you for questions I would like to give the floor to Andre Pires for summary..

Thank you Andre, hello everyone. Today I'm finalizing my third week share income. And as I mentioned by Andre we've been participating together in the integration and transition process. As being positively impacted by the outstanding professional capacity of the people and their deep knowledge of the various issues related to our business.

I also feel extremely aligned with the core values of the company especially to the corporate government spectrum which I believe to be one of the most important pillars of our successful track record.

For now I've been more focused on internal matters but soon I'll be with all of you to further develop the accent relationship between Ultra and the market. I look forward to talking to you in our next earnings in November. Thank you very much and Andre..

One of the benefits of having Andre Pires is my successor you can continue to call the CFO Andre and this will be your last chance to ask me questions as CFO list on earnings conference call. So far away..

Ladies and gentlemen thank you. The floor is now open for questions. [Operator Instructions]. Our first question comes from Cristian Audi from Santander. Please go ahead with your question..

Andre I wanted to echo the words from the Portuguese call in saying, congratulations for a job extremely well done.

I think that with your leadership Ultrapar who has always been a source of best practices for the markets improved even more, best practices in delivering consistently high quality results, best practices in generating value for shareholders and best practices in corporate governance.

So, congratulations you will be missed, very happy to know that you just around the corner with Extrafarma and looking forward to working with Andre Pires going forward. I just have three follow-up questions.

First, on CapEx where the company as a whole given this continually challenging macro-environment in Brazil, you still remain committed to the CapEx for this year or could we see adjustments to reflect as weak economic activity? Second on Ipiranga, are you feeling given again the difficult macro conditions that it's becoming maybe easier for you to convert and branded gas stations giving maybe the more difficult situation that smaller player, smaller distributors you have in the market.

And then thirdly, was just a quick clarification on Ultracargo on the Santos terminal the 45% of the terminal whose operations are not -- have not stopped. I just wanted to double check that part of the terminal is in fact generating EBITDA. Those were the three questions..

Cristian thanks for your warm words and I repeat what I mentioned in the Portuguese conference call being a great pleasure to have the dialogue with the market from which I have learn greatly and I have to leave to help Ultra do a better company.

As we said I'll be just around the corner or actually beyond the corner drug stores if you're looking from that trying to sell some medicines. I am also very pleased to have Andre Pires to replace me. He is an excellent track record on his carrier and has decline that our useful hand to continue the great job for Ultra.

The important thing that we have already focus from Ultra is people are very important particularly when you with people going to institution and Ultra is an institution that will carry on relationship with the market with Andre Pires and the team that is here.

Into your three questions on CapEx I'll take that business by business because the answer is not this time fully trend.

In the case of Ipiranga for the making significant expansion investments we using to reduce them because the process of opening a new gas station or switching and the flat switching of the gas station is both driven by growth of economy and capturing market share from the white flag and to flow in a moment of weaker growth of the market we should carry on with the same speed and having into that carrying more market share that we would otherwise of economy and the market will boost.

In the case of the ethanol Oxiteno having finished four years ago a very meaningful cycle of production capacity expansions in Brazil we moved basically to maintenance CapEx was from some occasion expansion to [board].

And this year we're doing basically maintenance CapEx and spend some money in the first half of the year with the extension in Mexico which was finished in July. In the case of Ultragaz the pace of growth in volumes were the growth CapEx is also relatively small and before not a great scope through reducing that.

From a case of Ultracargo have included in our budget the possibility of an extension in new [Ultra] by which the licenses process is taking a long period and therefore we might now spend out money this year might be next year.

And Extrafarma the amount that we had in mind was slightly focusing on newer stores and improving our logistics in my view that will come abounded a year somewhat of a smaller amount is in the pace of working into stores.

So overall coming to summary, we have reasons to continue to invest in the expansion areas and there might be some areas that are linked to slightly lower CapEx than the budget for the year, which is actually quite common because the budget is the limit approved by the board, we don't have and if we don't need we don't stand up.

In terms of converting our white flags, whether or not has becomes easier because of the weakening of the economy that might have some effect, it is at the moment at least not very pronounced yet and what really matters in terms becomes converting the white flag is improvement in formalizing the market.

And as you know we have had significant improvements over the last few years -- recently the Brazilian adjacencies strengthening the controls over environmental licenses for gas stations and we see that because it will be another step in formalizing the market and things like that tend to be more important on the long-term for our ability to convert white flag.

Finally, the 45% of the terminals in Santos is operating and generating EBITDA but I believe the fixed costs for the entire terminal remainder between non operational rather 55% and the fixed costs the net of Santos is basically a neutral EBITDA this month..

Our next question comes from Frank McGann from BOA Merrill Lynch. Please go ahead with your question..

Two questions, kind of following up on Cristian's questions.

One just in terms of service stations, the increase in the expansion, how many stores or service stations are you expecting to add this year and then next year now and how are you seeing the market overall for acquisitions of smaller chains currently? And then in terms of Santos, it's unclear to me exactly when you get to mid next year will Santos be fully back or will it only be a portion of the area that is not shut down and if so what are the plans for potentially expanding capacity there back to where it was or perhaps adding capacity as well?.

We have added -- on your first question, we have added over the last several years between 300 and 500 gas stations depending on the year and our outlook for this year is around 350 gas stations.

In terms of market conditions for acquisitions, this is an area where maybe the economy is starting to have in effect breaking on the question of question about conversions. We have started to -- some people will be willing to have more reasonable prices and discussions with us. So, we could have some positive news in the next 12 months.

Then on Santos, let me see if I can help clarify. 55% of the terminal is currently non-operating. Only a small portion of that was affected but a bigger part of the land has to be suspended. About 60% of the 55% is unaffected by the fire event.

The region, the other 40% where the fire's entered place is owned by a customer of ours and we operate for them. So we can respond about that 60%, that is under our control, for that part we will do what it's called in English, a term decommissioning, removing all the materials from there and then being able to resume operations in that.

The other 40% is up to our customer owns that part to make the decision. So I can't speak about what they will do, so we'll do on the 60% that we control the process of renewing everything, and we expect to be back operationally on that mid next year..

So, it's the customer decides say not to renew with you or to not to continue to operate in some way, the business itself will be somewhat smaller than, then it has been prior to the accident..

That is correct, the impact of that will be different than leasing capacity because given that terminal belongs to a customer, our remuneration was basically a fee for a service, therefore the impact is not proportional, impact in EBITDA and et cetera is not proportional to the reduction in the capacity..

[Operator Instructions]. Our next question comes from Andre Sabrera from Credit Suisse. Please go ahead you’re your question..

I have two questions if I may, first on Ipiranga, Andre we have seen increasingly over the recent months trade for Ipiranga to gain share over competitors high even but specially BR, and I was wondering if you think there is anything that has changed within the competitive dynamics between the three players and with a potential upcoming of the public markets.

Do you think the competitors dynamics changes, will they fight for share with you or will they fight for share with against the white flags that will be my first question.

And the second one is in Extrafarma, how do you feel about the mix in people with the business between people that come from of Extrafarma itself and people that were formerly from Ultra and are now with Extrafarma, how is that mix today and what you think is the optimal mix going forward given the growth perspectives?.

First on the Ipiranga, gaining market share from [pricing] and BR is more a consequence than anything else.

We are focused on capturing market share from the white flag, I mean with my depend on the pace that we do investments and our competitors do investment on a quarter-to-quarter basis, we might gain a little bit of market share but we might lose in the next quarter. So that shouldn't be an important trend and we haven't felt any change in dynamics.

Along with same lines, an IPO of BR we don't see as relevant event for the market dynamics. So, we don't expect any improvement or worsening of the trends. On Extrafarma, the mix of people you called actually have two parts.

The people were currently in Extrafarma, the people that Ultra can bring and the people that we might bring from the market to strengthen our retail knowledge. We are making a combination of these three things to create a company that has best in class profitability. So that's well underway and I feel good about it, to answer the way..

[Operator Instructions]. You have a follow-up question from Frank McGann from BoA Merrill Lynch. Please go ahead with your question..

On Ipiranga, in terms of volume trends, you indicated that third quarter would be similar to the sort of trends you saw in the second quarter.

I just was wondering how -- if you see any worsening overall in some of the mix trends, diesel gasoline, has there been any variation as you come through the second quarter into the third quarter that might suggest or be a reflection of perhaps a greater weakness in the economy.

And then in terms of the mix between gasoline and ethanol, how are you seeing that, how do you see that affecting your profitability now and over the next 6 months to 12 months?.

In terms of mix we've seen an important growth in ethanol expense of gasoline. In this past this was important because difference in gross margins of ethanol and gasoline was a very large given that ethanol had a significant [opportunity].

Over the last several years a lot of that has improved and ethanol margins today are approximately 60% of gasoline margin which is very close to energy content equilibrium point of 32%. So the shift between ethanol and gasoline happening at the moment doesn’t have a meaningful impact in profitability anymore.

In terms of interest of economy obviously due to sales of economy is contracting diesel sales decline and the average diesel margin is smaller than average of the cycle margin the margin is potential for a mix gain there in an environment of weakening volumes.

So not as fairly I wonderful, think to preferred volume is growing but that sort of a silver lining of it but overall the more important thing is how fast we can grow the volume that we're selling to reseller segment.

That is the one element of mix that is in our hand and has a meaningful impact on profitability if we can make it fast and therefore that strengthens important of investment increasing the reselling network. Another reason why we should continue to do that..

Ladies and gentlemen at this time this concludes the question-and-answer session. I'd like to turn the floor back to Mr. Andre Covre for any closing remarks..

I like to close emphasizing that the growth resilience of Ultra came to cash at the end in the first half of this year.

And in the second quarter of the year we actually exclude three non-recurring items that I mentioned EBITDA doing 11% and that is in line with our 15 years of track record since our IPO and is a very good indicator of one can expect for the third quarter and for the whole year.

Therefore demonstrating that again when past this dilute economy the engineering of resilience of Ultra continues to grow and therefore the company is able to deliver results at the level of the last 15 years is low. It is a great pleasure that I leave you now in the hands of Andre Pires for the next earnings release.

It's been a great pleasure to work with you and I shall see you next time probably as the CEO of Extrafarma as I said some closing compile selling medicine and beauty product. Thank you very much..

Ladies and gentlemen this concludes Ultrapar’s 2Q '15 results conference call. You may disconnect your lines..