Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Ultrapar Second Quarter 2019 Results Conference Call. There is also a simultaneous webcast that may be accessed through the Ultrapar's website at ri.ultra.com.br and MZIQ platform. Please feel free to flip through the slides during the conference call.

Today with us, we have Mr. Andre Pires, Chief Financial and Investor Relations Officer, together with other executives of Ultrapar. We would like to inform you that this event is being recorded and that 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 in the Q&A session may be posted in advance on 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 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 would like to turn the conference over to Mr. Pires. Mr.

Pires, you may begin your conference..

Thank you very much. Good morning, everyone. It's a pleasure to be here with you to discuss Ultrapar's second quarter 2019 results and our perspectives and priorities for the upcoming quarters. With me today are the executives from all of our businesses as well as our Investor Relations team.

Before moving on to the discussion of the second quarter of 2019 results, I would like to draw your attention again to the changes in accounting rules that we are going through this year. As this is a transition year, we are reporting results in two forms -- before and after IFRS 16 -- so that we can maintain comparability of numbers.

In addition, we now separately report a corporate line, providing more transparency regarding our expenses, especially from Ultrapar's corporate structure.

These two adjustments are presented separately in the financial statements available on our earnings release and on the company's website and the IR team is available at any time to answer any questions regarding the disclosure format.

Starting next year, if there are no relevant new accounting rule changes, we would be able to present all numbers in a single format. Let's start now with Ipiranga's performance, Slide No. 3.

We ended the second quarter of 2019 with a total network of 7,186 service stations, a net additional 44 units compared with the second quarter of 2018, and a net reduction of 32 units in relation to the first quarter of 2019. This decline is due to a more selective approach of the commercial area through the renewal of contracts.

During the quarter, we continued implementation of our new model for am/pm and jet oil contracts, both of which are being managed as business units since the beginning of the year.

We ended June with 2,409 am/pm stores, a net year-to-date reduction of 84 convenience stores that have been performing below expectations or stores that recently ceased operation as a consequence of lower growth in the retail sector. Ipiranga has also discontinued the jet oil motors, which provided services exclusively for motorcycles.

We ended the quarter with 1,500 jet oil units. They serve both light vehicles and motorcycles. This initiative is aimed at preparing the franchise business for a new phase of sustainable growth. Sales through the Abastece Ai app represented about 10% of the service station Otto cycle sales volume, maintaining strong frequency.

During the quarter, we added 600,000 new customers, reaching 2.7 million registered individuals with at least one fuel purchase and 9.3 million transactions.

Ipiranga closed the second quarter of 2019 with sales volumes of 5.6 million cubic meters, a decrease of 4% compared with the second quarter of 2018, mainly concentrated in the B2B business segment. Otto cycle volume rose by 2% year-on-year, driven by ethanol sales growth.

Diesel sales volume was down 9% year-on-year, largely due to lower sales of the TRR segment where we are facing increased competition. Ipiranga's SG&A increased by 2% compared with the second quarter of 2018.

Such increase was mainly related to payroll and service station maintenance, as well as higher provision for bad debts impacted by the B2B segment. This effect was mitigated by lower expenses with ICONIC compared to the second quarter of 2018 when we recorded non-recurring integration costs.

Ipiranga also took some initiatives to rationalize expenses, most notably with marketing and advertising. Adjusted EBITDA was BRL447 million. That's an increase of 11% versus the second quarter of 2018 when results were impacted by the truckers' strike. Unit EBITDA was BRL80 per cubic meter in the quarter.

If we take into account the adjustments of IFRS 16 and the separation of Ultrapar corporate's expenses, Ipiranga's post-adjustment EBITDA was BRL508 million for the quarter. For the second half of 2019, we expect a volume recovery in relation to the past months, with a continuous improvement in results year-on-year.

The volatility in oil costs and its derivatives and strong competition levels continue to harm a more consistent recovery in profitability. We are committed to restoring Ipiranga's margins and are adopting initiatives both in our core and ancillary businesses, along with the development of new projects, that will produce results over time.

Moving on now to Oxiteno in Slide No. 4, Oxiteno's sales volume in the second quarter of 2019 reached 183,000 tons, a reduction of 5% compared with the second quarter of last year. The 9% drop in commodities sales volume is mainly due to the strong comparison basis of the second quarter of 2018.

Specialty chemical sales to the domestic market also fell 3% year-on-year, with sales volume declining across various segments due to the weak performance of the Brazilian economy, despite the impact of the truckers' strike in the second quarter of 2018. Export volumes fell by 6% due to the decline in sales to Asia and Mercosur, especially Argentina.

In the lower left-hand corner of the slide, we show a graph with the international prices for ethylene, palm kernel oil, and monoethylene glycol, or MEG.

MEG's international prices kept declining throughout the second quarter of 2019, with an even worse spread compared with ethylene, which presented a slight increase quarter-on-quarter, narrowing commodity margins in relation to the first quarter of 2019.

This dynamic was offset by a sequential improvement in specialty chemical margins, as well as initiatives taken to reduce costs and expenses.

Oxiteno's EBITDA in the quarter was BRL39 million, a decline of 68% when compared with the second quarter of 2018, due to the reduction in commodity margins and lower sales volume despite the 9% Real in the period.

In relation to the first quarter of 2019, EBITDA rose 13% due to the increased sales volume, a fast devaluation, together with better specialty chemical margins and initiatives to reduce costs and expenses. After IFRS 16 adjustments and the segregation of Ultrapar corporate expenses, Oxiteno's post-adjustment EBTIDA was BRL44 million in the quarter.

For the second half, we expect an improvement in both volumes and margins in the specialty chemical segment compared with the first half, thus mitigating glycol's performance, which is likely to keep the current dynamics going forward.

In addition, we are adjusting Oxiteno's cost and expense structure to this market reality, taking actions to prioritize cash generation through more selective investments and working capital management. Let's move on now to Slide No. 5 and the performance of Ultragaz.

Sales volume at Ultragaz was down by 5% compared with the second quarter of 2018, following the market decline of 3%. The bottled segment volume was 7% lower year-on-year due to weaker demand in regions where Ultragaz has a larger market share. The bulk segment was down by 1%, in line with the market.

The quarter's SG&A increased by 17% due to the greater provisioning for loan losses and higher freight expenses in the second quarter of 2019. With this, EBITDA at Ultragaz BRL111 million in the quarter, 25% less than the EBITDA reported in the second quarter of 2018.

After IFRS 16 adjustments and the segregation of Ultrapar corporate expenses, post-adjustment EBITDA for Ultragaz was BRL121 million in the quarter. The recent reductions in LPG price are contributing to a recovery in the bottled segment demand and an improvement in the bulk LPG.

It is important to highlight that the LPG shortage faced in the first half of 2019 is gone. In addition, we are working on improving operational margins and reducing G&A expenses. Moving on to Ultracargo on Slide No.

6, in the second quarter of 2019, Ultracargo's average storage fell by 5% compared with the second quarter of '18 due to the lower handling of ethanol and fuels, which is partially offset by the growth in chemicals. The reduction in volumes was concentrated at the swaps and at our two terminals.

As already mentioned during our last conference call in May, Ultracargo has entered into an agreement, or THC, which the state's attorney's office for the implementation of actions to compensate for impacts caused to the Santos estuary following the fire in 2016.

The amount of this agreement was BRL68 million, of which BRL15 million have been previously registered in our balance sheet. Therefore, during the second quarter, the remaining BRL53 million of this agreement was recorded and Ultracargo reported a negative EBITDA of BRL3 million.

If we exclude the effect of the agreement, EBITDA would have reached BRL50 million, a reduction of 8% compared to the same period last year, mainly due to the non-recurring credits in the second quarter of '18 worth BRL8 million. These factors were mitigated by better contract prices.

After IFRS 16 adjustments and the separation of Ultrapar corporate expenses, post-adjustment EBITDA for Ultracargo was BRL6 million in the quarter. In the second half of 2019, we expect an increase in the storage volume due to the expanded capacity at the Santos and Itaqui terminals, which have started operations this month.

With that, we expect the continuation of the returning profitability we reported in the first half of the year. Let's now move on to Slide No. 7 and talk about Extrafarma. Extrafarma ended the second quarter of 2019 with 133 drug stores. Over the last 12 months, it opened 63 stores and closed 36.

Compared to the last quarter, Extrafarma opened six stores and closed 13, which endorses our strategy of greater selectivity in investments, as well as a more straight approach to underperforming stores. At the end of the period, 53% of stores were still at this immature stage or under three years of operational life.

Extrafarma's gross revenues remained stable at BRL559 million in the quarter compared with the second quarter of 2018. The results reflect the continuation of the stronger competitive environment and a higher number of store closures.

These effects were offset by the growth in the number of stores, as well as the annual readjustment in medicine prices in April. At the table now is the performing of our stores during the year. We expect to conclude the process of closing down poorly performing drug stores by the end of the third quarter.

EBITDA for the quarter was a negative BRL5 million, mainly reflecting the impacts of the competitive market. After IFRS 16 adjustments and the separation of Ultrapar corporate expenses, post-adjustment EBITDA for Extrafarma was positive BRL18 million in the second quarter of 2019.

For the second half, we will maintain the selectivity in capital allocation, growing our network in certain relevant states. We are also prioritizing investments in logistics to ensure greater operational efficiency and to improve profitability.

The distribution center in Sao Paolo will start operations in the next few weeks and it will service more than 50 drug stores in the region. Over the coming quarters, we expect a consistent year-on-year improvement in Extrafarma's results. Now, looking at the consolidated figures for Ultrapar in Slide No. 8, Ultrapar adjusted EBITDA was BRL589 million.

Excluding the agreement signed by Ultracargo, the adjusted EBITDA was BRL642 million, 11% less than in the same quarter of 2018 as a result of a reduction in the EBITDA at Oxiteno, Ultragaz, and Ultracargo. Considering IFRS 16, post-adjustment EBITDA was BRL677 million in the second quarter of 2019.

Net earnings were BRL127 million, down by 47% compared to the second quarter of '18, due mainly to the reduction in EBITDA. During the quarter, the Board of Directors approved a payment of BRL217 million in dividends for the first half of the year. That is equivalent to BRL0.20 per share and a 60% payout ratio.

In view of the lower than expected operational performance, we are being more selective in our investments, as shown in the graph at the bottom left corner. Year-to-date capex reached BRL604 million, 42% less than the same period in 2018.

Although investments are seasonally higher toward the second half of the year, we expect to end the year beyond the total capex plan approved of BRL1.76 billion.

Despite the lower EBITDA in the period, operating cash flow in the last 12 months after investments and working capital was BRL1.9 million, two times the operating cash flow in 2018, reaching the same levels of 2015 and '16 as shown in the chart.

Moving on to the next slide to talk about our debt profile, in early June, we concluded an offering of bonds of BRL500 million in international markets, due in 2029, with a coupon of 5.25% per annum. As part of this liability remanagement, we repurchased BRL200 million of our bonds due in 2026, extending the duration of our debt from 4.3 to 5 years.

This transaction was oversubscribed, which allowed the company to secure a highly satisfactory coupon rate, both for ourselves and for our investors, maintaining the average cost of our debt below the CDI, and the company's financial leverage reduced to 2.6 times, aligned with our expectations. Now, moving on to Slide 10.

To close our presentation, I would like to highlight some of the initiatives we have been taking, as well as our priorities and perspectives. Despite the continuation of a weak economy in the quarter, we are optimistic about the undergoing process of the structural reforms as well as the economic agenda.

In addition, the government initiatives to attract investments to the oil and gas sector will contribute to the development of the value chain, as well as create more opportunities to invest in infrastructure and distribution of fuel and gas in Brazil.

These structural changes present new opportunities for Ultrapar, such as the refining and natural gas segments, with potential to leverage our growth and the long-term value at Ipiranga, Ultragaz, and Ultracargo.

At Ipiranga, we are now managing the company by business units, increasing the focus on the retail activities and digital initiatives, both of which have great potential to generate value based on our wide popularity and the direct relationships we have with the end consumer to our loyalty program and Abastece Ai app, not to mention our nationally recognized brand names.

At Oxiteno, we continue to invest in research and development for launching new products and the ramp-up of our investments in the U.S. At Ultragaz, we remain alert to the opportunity that may come from the new regulation of the new uses of LPG.

We also envision improved results at Extrafarma through the store and our network maturing process and greater logistics efficiency. Meanwhile, at Ultracargo, we are monitoring the next concession of auctions to support terminals, with reduced spending in our operations.

While these opportunities still have to materialize, we continue working on internal restructuring and we remain committed to improving the operational efficiency of our businesses.

We also maintain the focus on cash generation through greater selectivity of capital allocation and adjusting the pace of investments and initiatives to optimize our working capital.

We reiterate the perspective of reducing our financial leverage over the next quarters, which will allow us to increase our investment capacity and pursue new opportunities in our oil businesses. We are convinced that we are taking all the necessary measure to create value for our shareholders and stakeholders. With this, I conclude my presentation.

Thank you all for your participation in the call and we can now begin the Q&A session..

Thank you. [Operator Instructions] And our first question today comes from Frank McGann with Bank of America. Please go ahead..

Okay. Thank you very much. Two questions. One, just focusing on Ipiranga a bit, one thing I was surprised at, I guess, was the real weak performance of volumes in what should, you would have thought, have been a pretty easy comparison against a very weak quarter last year.

So, I just wondered if you could just provide a little bit more color on that and the size of the change, particularly with diesel, with the loss of some of the business that you have there.

And then, secondly, just to follow-up on some other questions that you've been asked about the potential to invest in refining and what you see as the key benefits, if you were to make such a decision. I know it's probably not made yet, but if you were to make such a decision, what you see could be the positive effects of such an investment..

Okay. Hi, Frank. Thanks for your questions. Starting with Ipiranga, clearly the weak volumes -- I mean, they were obviously relative to a still weak environment from an economic point of view. But if we break down those volumes, in diesel and Otto cycle, we see that the underperformance was much more on the diesel segment.

Of the 4% of volume decline, we had a 9% diesel volume decline and a 2% increase in Otto cycle. So, the decline in diesel was basically somewhat a decision that Ipiranga ended up having to not clearly agree with a strong deterioration in prices in the B2B segments.

So, consciously, we decided not to do some deals in the B2B segment, especially what we call the TRR segment, which are some further retail players that sell to small consumers or other consumers. And the deals in these sectors were well below what we consider rational for that market.

So, consciously, we decided to stay out and this clearly impacted, significantly, our volumes. So, that's the reason why you see that our deterioration, in terms of margins, kind of outperformed our peers. Right? I mean, our deterioration was lower than the deterioration of our peers.

And this was a consequence of a conscious decision to not do some deals in this segment. But this is not clearly the way we see the performance going forward and we are committed to retake some of this market share. As you know, the B2B business is essentially a spot business. So, clearly, if we have competitive prices, we'll be back in those markets.

I think that the recent weakness of international oil prices tend to help and, therefore, we believe that performance is more a one-off, especially the difference between ourselves and our competitors are a one-off in this quarter. And the vision that we have for the second semester is a recovery in terms of volumes.

Talking about refining, I mean, I think you noted very well in the end of your question, it's something that we have not made any decision as of yet. However, we believe that it is something that we have to follow very closely.

Our vision is that, if the market changes in a way that it becomes more vertically integrated in a way, whoever has a significant presence in a certain region in refining plus logistics infrastructure plus distribution can take benefit of this vertical integration and can be more efficient in terms of the value chain as a whole.

And that would be something more similar to what we see in some of the international markets. In the U.S., certainly, that's the way it works. In Argentina, that's the way it works as well. So, if Brazil moves toward this type of dynamic, this is something that whoever has a good hold on the refining plus logistics plus distribution tends to benefit.

We have to keep in mind that if we look at the assets that are for sale, in addition to the refining assets, it's coming along significant capacity in terms of logistics, both with pipes and tanks as well, for crude and for refined products. So, there is that.

It's not simply a refining business but it is a more integrated business that eventually could make sense..

Okay. Thank you very much..

And our next question comes from Pedro Medeiros with Citigroup. Please go ahead..

Okay. Thank you so much for taking the questions. Andre, I have two questions just to understand a little bit more about opportunities ahead and how your strategy is evolving. Okay.

The first one is do you mind to give extra color and comment on the ongoing debate to promote regulatory changes in LPG distribution in Brazil and vertical integration provisions -- liquid fuel distribution.

How is Ipiranga and Ultragaz positioning themselves for these potential changes and can you walk us through whether they pose any threats to volumes, margins, or any opportunity as well? The second question is, in the presentation, you mentioned considerations to add value on your am/pm convenience store base. Okay.

Do you mind to give us some extra color and any more objective goals in how you add value from your convenience store base? Maybe perhaps in terms of the number of new store openings you're planning to perform this year or throughout 2020? And how is this strategy evolving considering that your peers are crafting partnerships with retail-dedicated companies and are looking to even expand operations outside the service station network? Okay.

And I have a couple other very objective questions.

Okay? The first one is do you mind to give us a more objective financial leverage goal, if you do have any, or any potential cap to financial leverage and the evolution of financial leverage? And the second one is, within the presentation, when you mentioned you're exploring opportunities on the oil and gas business in Brazil and the divestments that are taking place -- this is more of a confirmation and a theme that is relatively unexplored -- but considering that shareholders of other petrochemical operations in Brazil have publicly stated an interest to divest from control of these assets, is Ultrapar in any way willing or considering to participate in this process? These are my questions.

Thanks..

Okay, Pedro. Thanks for the questions. I'll try to go over them according to the sequence that you mentioned. For the first one, related to the regulation changes, I think we have two different, let's say, approaches or two different phases of these discussions, both for LPG and for liquid fuels.

Starting with LPG, basically what is happening right now, it is like a public audience in the sense that the CNPE and some other government bodies have been basically raising questions about potential changes to simplify the LPG distribution segment.

Today, obviously, it's not available for the English-speaking people, but there is a very good article on the Valor newspaper about this situation, trying to organize a little bit the information.

Clearly, we think that what CNPE is alluding to, which is to fill up gas bottles on a fractionable way -- I mean, having many different players able to fill up a single gas bottle. Right? LPG bottle. This is one. And the second one talking about the possibility of other distributors filling up bottles from someone else.

We believe that those two things are maybe not viable for many reasons. I think the first reason is about, let's say, the reliability on the quality of the products and the bottle that someone is acquiring. So, if you do not have a single responsible for that possibility, the reliability goes away.

And second, and most importantly, on filling up bottles in the street or on a fractionable way, then there's an issue of safety that is very -- it's something very complicated to go around. Only three countries in the world have this type of regulation -- Nigeria, Ghana, and Paraguay. All other countries operate similar to the way we operate.

So, I think there has been a very positive evolution, in terms of the regulatory framework, on the LPG market in Brazil for the last 30 years. I think we are kind of a benchmark when we compare with other countries. In addition to that, Brazil has a statistic.

In many parts of the country, for a bottle of gas for residential use, the average time from a request for an exchange of a bottle of gas to the time that the person receives this bottle of gas, the average time the Brazil -- the whole country -- 17 minutes. So, I think we have evolved very much. We are kind of a benchmark.

So, all these discussions are kind of taking us back to 30 years ago, which I think is not what we should look for.

But, again, I think there has been -- now, I think the discussion is much better organized and I suggest that -- I mean, of course, you can do that because you read in Portuguese, but if you can read the article in the Valor magazine, I think it's very well-organized and explains the whole situation there.

On the liquid side, on the fuel distribution business, I think things are a little bit more evolved. But there is somewhat a recommendation that the sale of ethanol from ethanol mills directly to the gas stations be approved, provided that there is a proper tax structure to replace the distribution companies that are coming out of this chain.

So, again, this is something that we're going to have to wait until we have the proper tax framework in place. It's not simple. We do not believe that this will bring a significant impact.

We think a minimal impact because we've been talking about a handful of ethanol mills in the northeast of the country for a handful of gas stations in that region over there. I mean, our resellers will continue to have exclusivity contracts with us so they would not be able to acquire this ethanol from those ethanol mills.

We believe that this is going to be something negligible from a market point of view. Second question, in terms of unlocked value per am/pm, basically, as you know, since the beginning of the year, we started to manage the am/pm as a different business unit. Obviously, integrated with Ipiranga but as a business unit.

We have a new head for am/pm that joined us, I guess, a couple of months ago or three months ago. We are starting some pilot operations. One, managing some am/pms directly. As you know, by regulation, we can manage the am/pm ourselves. It's different than the regulation for gas stations.

But we haven't been doing that and now we are assuming the management of some am/pms as a pilot project. And we are also having pilot projects to have am/pm outside of the gas stations. I mean, we do not have a specific goal at this point. We are testing these models.

But, clearly, compared to what we saw recently from our competitor, we believe that our strategies to maintain the am/pm as our brand, and a very strong brand, and managing it ourselves. So, we do not consider partnering with someone else in the strategy of the convenience store.

But in addition to the convenience store, as I mentioned as well, we have also been developing our digital initiatives. Our Km of Advantages loyalty program has over 31 million customers to date, 31 million individuals. Our Abastece Ai app already represents 10% of the Otto cycle volume and it's gaining a lot of traction.

So, we believe there is acquisition, I'll say, created by Km of Advantages and Abastece Ai has a potential value in itself that is not, I'll say, unlocked. And we are working toward alternatives to unlock this value at some point. Third question about the financial leverage. I mean, we do not have a target.

We would like to be closer to 2 times than to 2.5 times, which is where we are today. There is no cap. I mean, we do not have significant covenants. For example, the bonds that we issue or even the tax incentive bonds that we did in the domestic market, they do not have covenants.

In any case, I mean, we would like to be around 2 times and we'll be working toward that. As I mentioned, EBITDA hasn't been growing the way we were anticipating but initiatives in working capital and being more selective in capital expenditures have been allowing us to maintain our net debt in line with what we had at the end of last year.

So, we have reduced, significantly, that debt throughout 2018 and we have maintained our net debt relatively stable. Just to give you an example, in terms of working capital, Ipiranga reduced its working capital in the last 12 months by five days of cash conversion cycle, which cash conversion cycle at Ipiranga is BRL200 million.

So, that's BRL1 billion of less working capital deployed in the business that helped to maintain the net debt and the control and also reduced the capital deployed in the business in a significant manner. And the fourth question, in terms of the oil and gas, this is not -- you mentioned the petrochemical.

Basically, our vision for this market is what I explained to Frank. I mean, trying to follow up the changes that are happening in the oil and gas value chain by Petrobras exiting the refining business, but also exiting some of its responsibilities in the natural gas value chain as well.

As you know, Petrobras will have to divest for some of its participations in natural gas, will have to give up some of its participation in natural gas infrastructure as well. This will have an impact for Ultragaz and for Ipiranga and for Ultracargo that we have to follow up.

I'm not saying that we're going to be a major investor in these areas but basically something that we need to follow up very closely..

[Operator Instructions] I'm going to move to the next question, which comes from Christian Audi with Santander. Please go ahead..

Thank you. Hi, Andre and team. A couple of questions. The first one on the ethanol distribution space. The white flags continue to show resilience, competitiveness, but we know that one aspect of it is their reliance on ethanol and then there's tax evasion related issues. But this keeps happening.

Is there anything taking place from a kind of government movement point of view to address this more strongly? Or is this the same as we've seen in the past? In other words, is there anything, a new initiative or anything, that could maybe address this dynamic? Because otherwise, obviously, given the strong demand for ethanol, this is likely to continue and therefore help the white flags.

My second question has to do with volume growth.

Should we expect the second quarter to have been the worst for the year? In other words, are you seeing any signs that July and August of the Brazilian economy truly accelerating or not yet, whether it's in chemicals or in distribution? Or it's been too early to really make a statement that you're seeing an improvement in economic conditions? Thanks..

Hi, Christian. Thanks for the questions. First question -- I think you're correct. I mean, the white flags, they've continued to show resilience. I think there are many reasons there. I think the first reason is the overall weakness of the economy.

The fact that if you have a value proposition which is low price, this keeps an advantage for people that have -- or for places that are discount players. Other than that -- and then you mentioned, you talked about tax evasion.

That's one of the reasons, or maybe the main reason, why most part of the players of the market have been strongly against the direct sales of ethanol to gas stations. Just to mention that, basically, everybody -- well, obviously the Association of Fuel Distributors has been clearly against.

But also the Association of Resellers -- I mean, the owners of the gas stations -- have been against that. The IRS has been against it, obviously, not only on the federal level but also on the state level.

And last but not least, the Association of Ethanol Producers has also been against that and has been trying to show that that would not be a very good idea. But even so, I think this is going forward. And, again, especially because the CNPE has recommended its application. But, obviously, we have to have a significant change in the tax structure first.

But, again, we're going to have to keep on dealing with that. Obviously, again, if we see an improvement in the economic activity, I think their competitive advantage starts to reduce. Right? In terms of jumping to the second question, I think, yes, the second quarter is the worst, is the bottom.

We've been seeing in all of our businesses in the beginning of the third quarter a recovery in terms of volumes. I think this is true for Ipiranga. It is true, certainly, for Ultragaz. It is true of Oxiteno, especially when we see agro performing very well.

In fact, Oxiteno has been somewhat marred by the glycol business, by the MEG business, but in some segments of Oxiteno, especially agro, if we were able to produce more, we would be selling more. Right? The demand is very strong on the specialty chemicals and on the agro side. But, again, the sheer drop in the MEG price has been impacting results.

But on the other segments, we see a consistent recovery in the third quarter..

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Pires for any closing remarks..

Okay. Thanks, everyone. Thanks for the participation and we will see you again on our third quarter conference call next November. Thank you very much and have a good afternoon..

Thank you. This concludes today's Ultrapar 2019 Second Quarter Results Conference Call. You maybe disconnect..