André Pires - Chief Financial and Investor Relations Officer.

Frank McGann - Bank of America Merrill Lynch.

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Ultrapar's 4Q 2017 in 2017 results conference call. There is also a simultaneous webcast that may be accessed through Ultrapar's Web site at ri.ultra.com.br in MZiQ platform. Please feel free to flip through the slides during the conference call.

Today with us, we have Mr. André Pires, Chief Financial and Investor Relations Officer together with other executives of Ultrapar. We'd like to inform you that this event is being recorded and all participants will be in 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 being 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 the 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 over to Mr. Pires. Mr.

Pires, you may now begin the conference..

Okay. Thank you very much. Good morning everyone. It is great to be here with you to discuss Ultrapar's fourth quarter results and our consolidated result for 2017. Here with me are the officers from our businesses as well as the Investor Relations team to help answering your questions.

Going to Slide number 3 before looking Ultrapar's performance during the fourth quarter of 2017, I would like to highlight some aspects that reflect our outlook for the businesses. Let me begin by stating that Ultrapar concluded one more year of consistent consolidated results despite the persistently challenging business environment.

In our last conference call, we were expecting a more positive second half and this has indeed been the case as shown by the positive evolution in our indicators.

Our businesses resilience, the execution capacity of our teams, the investments made and the focus on differentiation and innovation have all been instrumental in allowing us to continue our long-term growth. In 2017, we reported consolidated EBITDA of BRL400 billion and net income of BRL1.6 billion.

It excluded one-off effects throughout 2017 both of them shows stability compared to 2016 even with the challenging environment in place by three years of recession in Brazil. The return on equity was 17% and we maintain our financial soundness, one of the hallmarks of the company which has been cultivated over many years.

The net debt to EBITDA ratio has remained at comfortable levels of 1.78x, that we have been able to pay increasing dividends thanks to a consistent performance of our businesses and our cash generation. Approval was given for the payout of BRL489 million in dividends with respect to the second half of the year and a equivalent to BRL0.90 per share.

As a result dividend declared on profits for 2017 as a whole were BRL951 million and growth of 5% over the dividend declared for 2016. It represents an annualized dividend yield of 2.4% on the average price of the shares in 2017 and a 60% payout on net earnings for 2017.

Therefore maintaining the levels of recent years an indication of our confidence that this good performance will continue. In addition to the various initiatives in organic investments, we're also involved in two important strategic transactions during the year.

The first in the LPG distribution business, once the agreement signed in 2016 to acquire Liquigás. This is still under [examination] [ph] by the antitrust authority CADE. We have final ruling expected for next year. We maintain our efforts for the approval.

The second project is the joint venture with Chevron for the creation of our new lubricants company name Iconic, which started to operate in the end of 2017. We are confident of the benefits that these transactions will bring to Ultra and to Brazil.

We continue to pursue expansion of the Ipiranga service stations, Ultragaz retailers and Extrafarma goods stores networks as well as a startup in Oxiteno's new Texas-based alkoxylation unit in Pasadena and the capacity expansion in Ultracargo. In 2018, we intend to continue implementing a robust CapEx plan focusing organic investments.

This is indicative of the good opportunities still available for growth in scale and productivity as well as for modernization of the existing operations. Let's now move on to Slide number 4 on the performance of Ipiranga.

[Designation] [ph] last quarter one of the key growth levers at Ipiranga continues to be the accelerated expansion of our service station network to which this -- to which we expect to obtain greater benefits as the service stations reach maturity.

We ended 2017 with 8500 service stations growth of 6% year-on-year, with the addition of 592 units gross and net of 442 new service stations throughout the country. This reflects our focus on the development of an attractive business model for our resellers.

Confirming the recovery trend already seen in previous quarter's sales volume in 4Q 2017 increased by 4% compared to fourth quarter of 2016. Improvement in economic indicators as well as increased new vehicle licensing contributed to growth in total volume notably to a 6% increase in diesel volumes sold during the period.

The 1% increase in sales to the auto sector volume still reflects persistent levels of unemployment although these are expected to improve during the course of 2018.

In addition it is important to highlight that the number of new vehicle license in January 2018 was 22% better than the same period of last year which is a good indicator of the auto sectors performance for 2018.

Total annual volumes for Ipiranga was 23,458,000 cubic meters stable when compared to 2016, but showing a positive progression in the second semester. Ipiranga's differentiation through the combination of innovation and offer of convenience is a strategy aligned with an accelerated expansion of the network.

A good portion of the almost 600 service stations open in 2017 already bringing differentiation initiatives which strengthened our brand name with our resellers and consumers. In 2017, our strategy was reflected in an investment in 215 new AMPM franchises, now present at 30% of the network.

And in addition to the 141 jet oil units 179 bakeries and 116 beer case besides Iconic, the joint venture with Chevron in lubricants. With that Ipiranga posted a consolidated EBITDA of BRL3.1 billion in 2017 an year-on-year growth of 2%. In the fourth quarter the EBITDA was BRL895 million, 4% increase compared to the same period of last year.

This can largely be explained by higher sales volumes and to the strategy of innovation and convenience at our service stations. Even with the challenges related to the volatility in the cost of fuels. Talking about this last subject, I would like to make some remarks.

Since the end of 2016, the Brazilian fuel market has been going through change with pricing dynamics that strengthened the market as a whole. We had three changes since October 2016, which brought over the necessity of tactical adjustments in our business model and leads to greater volatility during this period of settlement.

The last modification in December of 2017 reinforces the increased correlation between local and international price. We recall that if you then focus in the organic expansion through accelerating the pace of service station openings.

We expect that the strategy has a positive impact on volumes growth for 2018 especially considering the gradual improvement in the economy and in the market as a whole. This will allow Ipiranga to keep rewarding results similar to those seen before 2017.

For the current quarter, the market is still more challenging than expected which should impact the level of EBITDA variation in the short-term. Moving on now to Oxiteno on Slide number 5.

Oxiteno closed 2017 with a year-on-year growth of 7% in sales volume and reached 790,000 tons by year end for the fourth quarter of 2017, the volume was 16% better than the same period in 2006 in a record for fourth quarter sales at the company. Volume in 2017 was higher than in 2016 both in specialty chemicals as well as commodities.

If we break down volumes there was a 5% growth in sales of specialty chemicals for the year and a 16% growth in commodities. In the fourth quarter of 2017, the highlight was an increase of 69% in commodity sales driven by higher prices and product demand as well as scheduled stoppage at the Camacari plant in the fourth quarter of 2016.

After six quarters of year-on-year decline, Oxiteno's EBITDA amounted to BRL76 million in the fourth quarter of 2017 an increase of 68% when compared with the fourth quarter of 2016 due to higher sales volume. In 2017 Oxiteno's EBITDA amounted to BRL295 million down 36% year-on-year.

Looking to the months ahead and for the year of 2018, our expectation is that volumes should continue to grow hold to trade economic recovery and this fact that in the operations at new alkoxylation plant in United States expected for the second quarter of 2018.

For the current quarter, we expect a similar level of EBITDA to the one seen in the same period of last year excluding the non-recurring effect that we had in the first quarter of 2017.

We recall that some indicators outside Oxiteno's control have caused significant volatility over the last two years assuming a certain degree of stability in the same years and taking into account the continuation of growth in volumes. We can expect Oxiteno to report a positive evolution in results for 2018.

Let's now move on to Ultragaz in Slide number six, where sales volume for the fourth quarter reached 426,000 tons, 3% lower when compared to the same period in 2016. In annual terms, volume was slightly down as compared to the level of 2016.

In the bottled segment volume was impacted by price volatility in raw materials as well as fewer business days in the quarter. In the bulk segment a greater volume base in 2016 combined with the migration of some industrial clients to the Natural Gas segment impacted a comparables for 2017.

Together with disciplined cost management along the years, Ultragaz has been successful in developing a more differentiated approach through initiatives which delivered greater quality of services and convenience to consumers.

In this quarter EBITDA in Ultragaz reached BRL52 million impacted by the sudden effect of BRL84 million relative to the cease and desist agreement signed with antitrust authority CADE in November 2017.

The agreement totaling BRL96 million to [indiscernible] 80% of the annual installments relates to an investigation from 2009 with an impact on EBITDA of BRL84 million and our financial result of BRL12 million. Not considering this extraordinary item Ultragaz that would have grown 11% compared to the same period 2016.

In 2017, Ultragaz annual EBITDA was BRL453 million, a growth of 1% over 2016 and 20% if we factor out this extraordinary effect help the agreement with guidance. Our outlook for 2018 is for further growth. For the current quarter we still see the same effects on volumes and therefore on EBITDA.

In the short-term, we shall continue to pursue the approval process on the acquisition of Liquigás which is still pending a solution from CADE with a ruling expected by the end of this month. Let's now go to Slide number 7 to talk about our liquid bulk storage business Ultracargo.

Ultracargo's average storage area increased by 9% compared with the fourth quarter of 2016. This was largely due to increased fuel handling activity and there are two handling ports, terminals as well as centers where there was a partial recovery in capacity from June onwards.

Average monthly storage utilization in 2017 recorded an increase of 8% compared to the same period in 2016. In the fourth quarter of 2017, Ultracargo's EBITDA was BRL37 million, a decline of 50% year-on-year due to an insurance claim received and booked on the fourth quarter of 2016.

Excluding all the now recurring impacts related to the fire incident, Ultracargo shows an EBITDA increase of 87% compared to the fourth quarter of 2016. This performance is the result of the average increase in storage handling activity, the partial resumption of operations at the Santos terminal and greater productivity during the period.

Taking the year as a whole, Ultracargo posted an EBITDA of BRL124 million. For the current quarter, we see continued growth in the demand for bulk storage facilities impacted positively the EBITDA.

In this context Ultracargo's focus will be on efforts to expand capacity and to use the company's leadership position as a growth lever to achieve few more positive results in 2018. Moving on now to slide number eight, let's talk about our pharma retail business Extrafarma.

Extrafarma saw a 25% increase in the number of drugstores in its network and ended the year with 394 stores a net addition of 79 units. At the end of the quarter, 55% of the stores had been operating for less than three years compared with 45% in the fourth quarter of 2016.

This reflects the accelerated pace of network expansion notably in the case of San Paulo, where Extrafarma stores opened in the quarter maintaining the continued consolidation of the business in the state.

Fourth quarter gross revenue at Extrafarma was 30% higher compared to the fourth quarter of 2016 resulting from the greater average number of stores and growth of 15% in retail sales.

It is important to highlight that in addition to the strong comparison basis of the fourth quarter of 2016, when retailers sales presented 32% growth, Extrafarma's gross revenue was also affected by a declining growth of the market as a whole and a more intensive promotional activities in new regions.

For the year of 2017, Extrafarma's gross revenue was up by 80% compared with market data published by the Brazilian pharma's association [indiscernible] which reported respected growth of 8% in the quarter and 9% for the year.

The declining growth pace of retail sales a larger number of maturing stores and a concentration of inventory losses in the quarter let to 3 million EBITDA in the fourth quarter of 2017. In 2017, as a whole, Extrafarma's EBITDA amounted to BRL24 million.

For the current quarter, we shall maintain our strategy of organic growth, which will impact profitability on the short-term. The gradual maturing of the stores will drive EBITDA growth for 2018. With this, I come to the end of what we prepared for you today.

We remain positive with positive prospectus for 2018 despite all the challenges that lay ahead. We see growth in all the businesses along this year and remain optimistic with the economic scenario. Once again I appreciate your attention and we can now begin the Q&A session. Thank you..

The floor is now open for questions. [Operator Instructions] Our first question comes from Frank McGann from Bank of America Merrill Lynch. Please go ahead..

Hello. Thank you. Two questions if I could. One is just in Oxiteno with the Pasadena operation.

I was just wondering how you were thinking of that from an earnings standpoint in 2018/2019, what kind of contribution should we expect? How rapidly do you see that growing? And then, secondly, in Extrafarma, you mentioned that the gradual maturing of the stores should drive EBITDA in 2018.

Are we at the point now that the improvement that you have from the stores that are maturing will be more important than the drag that comes from new store openings or if not when do you think we get to that point so that we could start to see perhaps a more consistent performance in terms of earnings generation..

Hi, Frank. Thanks for the question. First one regarding Oxiteno there should not be any material contribution from Pasadena plant 2018 results, marginal one for 2019. So still not a major contribution.

Basically just taking a step back when we announced this project our expectation was that over time these operations would represent anywhere between 15% and eventually 20% of Oxitena's EBITDA over time, right? But this is not -- this is -- we maintain this expectation but this is not -- this is not going to happen either in 2018 or 2019.

So the ramp up is between 1.5 to 3 years. And after that we expect that the contribution should start to become more important. For Extrafarma, yes, we believe that gradually the more rapid in maturing stores should continue to impact -- should start to impact EBITDA positively. So this should allow an important growth of EBITDA for 2018.

But obviously, this will reflect on the overall economic activity. We will continue for the next two or three years to have an important portion of the stores that are still not mature. This can sweep back the short-term profitability, but over time this impact should become less important.

Just keep in mind that 55% of our stores did not mature, I really would like to see that level below 40% to 30%. But, it's going to take some time until this happens..

Okay. Thank you very much..

[Operator Instructions] I'm not seeing any further questions, so at this time, I would like to turn the floor back to Mr. Pires for any closing remarks..

Okay. Thanks everybody for participating in the call. And hope to see you again on our call for the first quarter of 2018 results. Good afternoon everybody. Thank you..

Thank you. This concludes today's Ultrapar's 4Q 2017 results conference call. You may now disconnect your lines at this time..