Cosan S.A. (NYSE:CSAN) Q3 2022 Earnings Conference Call November 14, 2022 4:00 PM ET
Company Participants
Luis Henrique Guimarães – Chief Executive Officer
Ricardo Lewin – Chief Financial and Investor Relations Officer
Conference Call Participants
Thiago Duarte – BTG Pactual
Bruno Montanari – Morgan Stanley
Regis Cardoso – Credit Suisse
Luiz Carvalho – UBS
Operator
Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Cosan’s Conference Call to discuss the results for the Third Quarter 2022. Simultaneous translation will be available during the Q&A session. To use the translation tool, please click on the interpretation icon at the bottom of the screen and select your language of choice, Portuguese or English. Participants listening in English can mute the original audio in Portuguese by clicking on mute original audio.
This conference is being recorded and will be made available on the company’s IR website at cosan.com.br where you can also find all the material regarding our earnings release. [Operator Instructions]
Please note that the information contained in this presentation are forward-looking statements regarding the company’s business prospects and operating and financial projections and goals are based on Cosan’s management team’s beliefs and assumptions as well as on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the company’s future results and lead to results that may differ materially from those expressed in such forward-looking statements. Today, we have here with us Mr. Luis Henrique Guimarães, CEO; and Mr. Ricardo Lewin, CFO and IRO. I would now like to turn the conference over to…
Ricardo Lewin
Good afternoon everyone and thank you for participating in Cosan’s Earnings Conference Call for the third quarter of 2022. With me today I have Luis Henrique, our CEO. Before going to the numbers, I want to highlight that despite the highly volatile economic scenario, we ended the third quarter with strong results and took important steps on our group’s growth journey. Let’s now go through the main financial and operational highlights of each business.
On Slide 3 you can see Raízen’s results. In Renewables, revenue growth and higher bioenergy sales volume were not enough to neutralize the decline in own sales volume and the inflationary pressures on costs and expenses that adversely affected the period’s result. In Sugar, Adjusted EBITDA more than doubled, reflecting the higher share of direct sales and greater prices.
In Marketing & Services, Adjusted EBITDA fell in the quarter. In Brazil, the operation was mainly affected by the dynamics of the fuel market, with successive and atypical declines in prices, which affected inventories, and by the price of CBIOS.
Meanwhile, the result of the Latin America operation was in line with the same period last year, reflecting the greater sales volume and operating efficiency gains, which were partially offset by higher pressures on inflation and the exchange rate.
As you probably followed it in the earnings conference call last week, Raízen continued to advance in its product strategy. I want to highlight the announcement of the sales contract with Shell, jointly with the construction of five additional new plants to meet this demand.
Let’s turn now to slide 4, which shows the results of Rumo. Rumo delivered a quarter of record EBITDA and volume, driven by growth in the transported volumes in the North operation and better operational performance.
Rumo gained market share in grains in Mato Grosso and registered strong volume growth in grain exports from the Port of Santos. Even so, we lost market share in relation to the third quarter 2021, a period marked by weaker logistics demand due to the corn crop setback in 2021. The expansion in EBITDA margin is explained by the higher consolidated tariff and our usual cost discipline.
Looking to the long term, in November, therefore an event after the reporting period, Rumo announced the beginning of the execution of the Extension in Mato Grosso project which involves the section between the cities of Rondonópolis and Campo Verde.
Let’s turn to slide number 5, which shows the highlights of Compass. Compass delivered yet another quarter of consistent results, with excellent operational performance at Sulgás and consolidation of Commit’s results. These effects offset the lower sales volume in the industrial segment, given the scheduled maintenance shutdowns, despite the recovery in the commercial segment and resilience in the residential segment. We remain dedicated to the integration of Commit, with a focus on replicating our business model and working to conclude the divestments already announced.
Let move on to slide 6, with the results of Moove. We reported another quarter of EBITDA growth at Moove, which was leveraged by the more profitable portfolio and sales growth, and also because it was the first quarter with the full consolidation of PetroChoice and Tirreno.
We delivered strong operating cash flow in the quarter, which was more than double the amount of EBITDA, in line with our sourcing and pricing strategy, which supported deleveraging in the period. Lastly, we remain focused on the integration of PetroChoice, which is advancing in line with the planning.
Let go now to slide 7 to talk about Vale. In early October, we announced the acquisition of a minority interest of 4.9% in the capital of Vale and a second operation was structured, which corresponds to an additional financial exposure of 1.6% that could be converted into a direct interest in Vale. The financial structure guarantees optionality and flexibility for Cosan and reaffirms our investment thesis for the asset, protecting the interests of our shareholders and limiting losses.
Vale is a unique and irreplaceable asset that’s positioned in an industry in which Brazil holds a major competitive and comparative advantage with exposure to strong currencies. The transaction is aligned with our strategy of capital allocation and portfolio diversification, as well as with our EESG values.
Remember that Vale has the world’s best iron ore and promising reserves of base metals, which positions it as a key company in the global energy transition and decarbonisation
Moving on, slide 8 which show the consolidated results of Cosan. The result of Cosan Investimentos is composed mainly by Radar from the leasing of agricultural properties, with this quarter registering a slight decline in the result versus the second quarter 2022 due to the mark-to-market adjustment for the appreciation in the properties comprising Radar’s land portfolio in the last quarter.
Here, I would like to mention that as an subsequent event of this quarter we also increased our interests in Tellus and Janus, which, like Radar, are agricultural property managers. In the Corporate segment, the structure’s expenses declined in the third quarter, since the same quarter last year was affected by changes in the long-term compensation plans.
As a result, Adjusted EBITDA grew in the quarter, leveraged by the record result at Rumo, supported by the greater volumes transported and higher average tariff. Meanwhile, adjusted net income declined in the period, due to the impact from non-recurring items in the comparison periods, and by the decrease on Raízen’s result, reflecting the higher debt balance, which was partially offset by the higher EBITDA in most companies of the portfolio.
Cosan’s consolidated investments increased compared to the third quarter of 2021, which is mainly explained by the Biosev merger and the E2G plants at Raízen, and by the construction of the TRSP at Compass, which was neutralized by the lower CapEx at Rumo.
I want to reinforce that, independent of these recent transactions with Vale, the entire strategic expansion plan for the companies already in our portfolio is being maintained.
Let’s go to slide 9, which shows the group’s financial highlights. The growth in gross debt was mainly due to the contracting of a bridge loan for acquiring the shares in Vale. In addition, Raízen carried out the issue of a new Agribusiness Receivables Certificate and Cosan prepaid the 2023 Bonds.
Cash generation for shareholders in the quarter was lower year-over-year, mainly due to the proceeds from Raízen’s IPO and the private funding at Compass last year. Finally, as a result of everything mentioned before, financial leverage increased versus second quarter 2022 due the non-recurring items at Cosan Corporate related to the Raízen IPO and the Biosev acquisition in third quarter 2021.
Before concluding, I want to reinforce that sustainability is part of our corporate DNA and a key driver of our growth, and it will continue to guide our vision of the future and decision-making. Sustainability also is reflected in our pioneering efforts to develop renewable products from sugarcane to the development of efficient logistics, and also can be seen in the recent transactions I commented on today.
We continue to seek the generation of sustained value by offering clean energy, secure energy transition, efficient logistics, focus on and respect for people and a solid corporate governance structure.
In closing, I would like to point out that in September, we were named Best Company of the Year by a leading business magazine in Brazil, which was made possible by the dedication of our team that builds and participates on each step of this journey.
I conclude our presentation, and I now invite you to participate in our Q&A session. Thank you
Operator
We would now like to turn it over to Mr. Luis Henrique Guimarães.
Luis Henrique Guimarães
Good afternoon, everyone. Thank you for joining us on this call to discuss the third quarter 2022 results. I just want to highlight a few points that Lewin raised during the presentation. You saw in the company’s operations that we are still pursuing the avenues of growth that we’ve been sharing with you. So in Moove our international expansion and improving business efficiency in more mature regions, such as Brazil, Argentina, South America and part of Europe with excellent results and promising future prospects, increasing our position in both American and European markets.
As for Compass, we are concluding the work on the Sao Paulo terminals so that its ready in the first half of next year, when we’ll start operations and to continue to integrate, improve results and transfer technology investment practices in our Commit operation in the new geographical regions where we have expansion of these areas. And to conclude the investment, which has partly happened in the distribution of operations of our portfolio.
At Rumo, full focus on transporting a record crop with very good seasonality. Our figures were better distributor, and we were able to achieve maximum capacity in many areas. And we started our expansion towards Lucas do Rio Verde and concluded the sale of our Santos terminal. So our company is now focusing on expanding and growing capacity so that we can bring on this volume, especially in the Midwest.
At Raízen, focusing on excellence and productivity. We’ve had excellent signs in the first and second cuts of the sugarcane. We’re also announcing new plants, so 9 plants, 5 of which have been recently announced and full focus on execution and implementation and marketing and services. It’s been a challenging quarter due to the continued price reduction, but with good prospects when you look at the gross margin and the underlying, we see more healthy margins than in previous quarters.
And obviously, concluding the turnaround in Argentina, which had a huge impact, the inventory increases in September to deal with the downtime at the refinery. So that had an effect on Raízen’s . Leveraging seasonally speaking and the group’s total leveraging level, but in nonrecurring parameters that should go back to normal levels.
At Cosan Investimentos, we had the investments in Janus and Tellus, increasing our land portfolio and the Vale operation, reiterating our investment thesis, we have Brazil’s competitive and comparative advantages and renewable energies through Raízen oil and gas through Raizen and Compass and food through Rumo and Radar, credit – carbon credit generation through Radar and Raízen and now mining with our initial investment at the Maranhão [ph] port and now in Vale.
So we believe we now have a fully dedicated portfolio to generate new benefits through this new global dynamic and Brazil’s position, which should continue. So a very good quarter. We continue to focus on execution, and we believe that these initiatives will continue to generate value to shareholders and looking forward, there will still be volatility globally speaking, as well as in Brazil.
So there will be instability in terms of cost, CapEx allocation, and we’ll be able to continue to attract the best talent to deal with the challenges that lie ahead. And now we will start our Q&A session.
Question-and-Answer Session
A – Luis Henrique Guimarães
[Operator Instructions] Our first question comes from Thiago Duarte from BTG Pactual. We will now unmute your microphone, so you can ask your question Thiago. You may proceed.
Thiago Duarte
Hello, everyone. Hi, Lewin. Hi, Luis. It’s a pleasure to be here with you. I have a couple of questions about the element of the groups that we haven’t discussed yet? The first question actually, is not so much about what Luis mentioned, but more about what we see in your report, in Luis’s opening letter.
I’d like to draw your attention to an important change in tone when we compare – this led to the letter at the beginning of the year about the last quarter, last year. The tone of that letter was a lot more cautious. And when you announced the cancellation of your joint venture with Porto and now things sound much more constructive for next year, especially after you announced you’ve bought some interest in Vale. So Luis could you talk a little bit about the context that you’re seeing and the basis for your initial message, I’d like to understand the mindset of the group as a whole.
And the second question is, when you announced the Vale transaction, you talked a lot about the need and the willingness to work on the company’s portfolio. And you mentioned your permanent portfolio, more specifically with a more mature businesses. So could you talk a little bit about what we should consider as more likely? Considering the more mature companies in our portfolio. Would it make sense to think about Compass’ IPO, something involving Raízen, Rumo, Moove has become a lot more representative than it used to be not too long ago. So it would be interesting to hear about that, too. Thank you.
Luis Henrique Guimarães
Thank you, Thiago. Well, I’ll start by your first question. So the main change well, actually, it’s not a change. It’s progress. If you remember, at the end of last year, we had many important projects for 2022, but they required some materialization.
And one thing is looking at assets from the outside. It’s a whole different thing to be within the asset. So at the end of 2021, we had the prospect to conclude the Gaspetro deal. It had to happen, we had to go into the company to understand how it worked and what their potential was.
Now in November 2020, two things are very different. The Gaspetro deal went through. We are now in the companies. Our relationship with our partner, Mitsui is extremely productive and positive, and there’s been huge progress in the companies since our acquisition, starting with Sulgás and then May and June with Commit.
So we now feel much more confident than we did. We knew that we had a R$2 billion investment obligation then. We didn’t know if we were going to be able to sell part of the portfolio, which we have now sold and we’re moving towards selling the rest. So we didn’t know what the operation was going to be like. We had our thesis, we had our beliefs, but it’s a whole different thing when it actually comes through. So that’s one point.
And the same applies to Rumo. We had the Lucas extension, but there were a great deal of uncertainties concerning licenses and processes. Our Lucas extension land movie started last week. So again, no, the certainty that is going to happen, and coupled with Rumo’s fantastic recovery this year. Remember, we said there is a play we could go for to position ourselves as a price setter and it has now become true. So we’re at a different point than we were last year.
Raizen with the IPO and the E2G prospects. But again, we hadn’t sold it yet. We were having great conversations about demand. But now Raizen has 9 contracted plants with long-term agreements in hard currency and lots of buyers. Again, we are much more confident now.
Moove, great prospects. We didn’t know whether the transaction was going to happen. And if it did, we didn’t know if we were going to find 100% what we thought we were. So we made the acquisition, we did find it, very positive prospects and the results are now coming through. So what is the main change we see in terms of progress?
We had an excellent project portfolio, with great quality, but they were all yet to happen. Now a year has gone by. They have all materialized with great prospects based on the asset qualities, the people quality and what actually happened in terms of E2G, which speeded things up much more than we had thought. So that has made us feel very confident and confident enough to take other steps, obviously, within our strategy and our vision to be a relevant player in renewables, especially these five areas where we see Brazil having great comparative advantages.
As for your second question. The way you should think about that, Thiago is that each of our companies has its own business portfolio. Rumo has the south network, the central network, the north network. Raizen has the power portfolio, the marketing and services portfolio in Brazil and Argentina, sugar and ethanol, renewables and so on and so forth. And the same if you look at Moove and Compass.
So you could divest from specific businesses in each one of them, more specific assets as we saw recently when Rumo sold the warehouse or going public, as you mentioned, which could happen to Moove and to Compass, which are definitely on our plans. We haven’t changed that. We announced that to you. Our goal is to have the four platforms in our portfolio listed so that shareholders can choose which portfolio they would like to join or to join the holding as a portfolio manager as a whole. So that’s it.
We are going to look at opportunity selectively. It will depend on the market. And we’ll see if we should reposition a part of an asset or the whole company, but we will always want to keep the control to be able to do what we want on these platforms and to support the investment plans of each of these platforms, which are extremely well structured.
And here is a very short time. Everything that happened this year, we had lots of promises and we’ve kept all of them since last year, since the end of last year. So there are no changes. And as we have announced, I think Marcelo also reiterated this during the Vale call. We have a financial structure that will not allow us to be guided by the market. We will find the right opportunity, and our portfolio will follow that.
Sometimes it’s time to acquire things, sometimes it’s time to divest so that you can generate good market opportunities such as an IPO, where there’s an important element of future growth of two companies that we really believe and we believe in their ability to create value, Compass and Moove. I hope I’ve answered your question.
Thiago Duarte
Yes, you definitely did. Thank you so much.
Luis Henrique Guimarães
Our next question comes from Bruno Montanari from Morgan Stanley. We will now unmet you so that you can ask your question. Go ahead, Bruno.
Bruno Montanari
Thanks for answering my questions. First, about Vale, I’d like to hear about the talks you’re having with shareholders, the company managers about this closer partnership between Cosan and Vale. And how should we think about holding dividends and buybacks now that you’ve acquired this stake in Vale? Because whether you like it or not, it will require a bit more financial room for maneuver in the holding.
And about Compass, could you tell us about your plan of attack to change the distribution companies that are in your portfolio, such as Comgás and other success stories? And in terms of the gas open market, we see some upstream companies taking a bite from these bilateral agreements, which is very, very welcome. So I’d like to hear how Compass might be able to leverage that open market? Thank you.
Luis Henrique Guimarães
Okay. Let’s start with your first question about our transaction with Vale. Well, we are following the usual governance processes. So we were in touch with the Chairman of the Board, Board members, and we’re learning about the company. As I said in my previous answer, it’s one thing looking at an asset from the outside. We believe that we should make an investment because we believe this is a very valuable company and has huge potential for the future.
And we believe we are a complementary shareholder. We have a more industrial and operating perspective. So we can complement each other, and that will lead to success in better results. So we’re having the usual interactions. And we’re taking all the steps. We’re talking to them. Our team visited Brumadinho and Mariana to understand the impact and what’s being done. And we came back very happy about how professional there being, they are treating this as a major priority. It’s very important to them.
So if I can summarize what we see in the company right now in one word, obviously, as far as what we can be exposed in terms of governance, our interaction with the Board has been very positive, and it has reiterated our thesis that this is a irreplicable and unique asset with huge potential for the future. As to your second question, again, each distribution has its own reality, I’m not going to go into detail about each one of them, but we had, we see – mix, they have a potential to grow.
And what we did at Comgás was to expand our commercial and residential base, which gives the company resilience and the ability to adapt to moments of recession or a pandemic like the one we went through to be less exposed and more resilience and to have less operating risk. So it’s completely feasible to transfer know-how, technology processes, systems, applications so that these companies can progress and continue to work to provide even better service to the gas market.
I’m not sure I understood what you meant by bilateral agreements, but I’ll try and answer your question, if I’m not answering it, please interrupt me. We see some upstream players that want to bring their products to the market regardless of the agreements they had beforehand by Petrobras. So that’s why the companies with their own sellers in the market encompass [ph]
Obviously, there are tax issues, swap issues, but we see that as a very positive thing. It will allow Compass and Commit and their distribution companies to provide their clients with more competitive gas solutions through different companies and producers in the market to the distribution company.
Gas is a pass-through. Distribution companies don’t make any money when gas prices go up or down, which is great because it allows free clients or those that want to become free or the distribution companies make [ph] to be more competitive and by being more competitive, they can sell more at better rates and better profit. So it’s a positive cycle.
We, as Cosan, as shareholder of Commit see this as a very positive thing because it will make the market more competitive. And by doing that, we’ll have more volume, and it will encourage clients with the potential to become free clients because the distribution companies have lots of obligations such as take-or-pay and lots of other things, which again improves the distribution company’s potential results.
So we’re very happy about the acquisition of Gaspetro. We’re very happy to see what’s happening with Commit. Our partnership with Mitsui, we have a management in place. We have Commit’s CEO. We have a management team and the CEO of each of the companies below that, new processes, which are progressing. So we really believe this investment will bear great results in the future. And soon, we’ll be able to see that in Cosan’s P&L.
And last but not least, your question about buybacks and dividends. Well, we do have the mandate to do buybacks at Cosan, but we’ll see what the opportunities are. We’ll make the most of relevant opportunities. In terms of dividends, we will keep our usual practice to pay out 25% of the company’s results to its shareholders.
So our portfolio and cash position regarding the company structure and the way that we have set up the Vale operation will allow us to be able to continue with our priority investments to pay out dividends regularly. And to make the most of buyback opportunities when it makes sense and the holding company will pay out 25% of its results.
And obviously, as we said, to Thiago, we’ll look at opportunities to change the portfolio wherever it makes sense and creates value. And that will allow us to change our position in derivatives and turn that into equity, as we have announced when we bought a stake in the company.
Bruno Montanari
That’s great. Thank you, Luis.
Luis Henrique Guimarães
Our next question is from Regis Cardoso from Credit Suisse. We’ll now meet you so that you can ask your questions. Please go ahead, Regis.
Regis Cardoso
Hi, everyone. Good afternoon, Luis and Lewin. There was some additional information about Vale’s acquisitions parameters. More specifically, there was the paid amount and the acquired stake. So can we infer an average purchase price of the shares? Or is there anything we should have in mind in terms of option premiums or any other adjustments?
And following along the same lines, is there anything else you can disclose about the options or the premiums paid for the options or even the stake at Raizen or Compass? Because I remember you gave us an approximate stake, but it was different in ’23 and ’24. So it wasn’t very clear exactly what the structure is. So that’s my question about the parameters of the structure of your stake in Vale.
And my second…
Luis Henrique Guimarães
Okay, Regis. Let me answer the first question because I nearly forgot your first question already. So Vale’s acquisitions parameters, average price. So this is from December, we’re not disclosing this now. So this is a subsequent event. So we’re not going to disclose that for the time being. About the strides and options, we’re not required to disclose that, and we’re not going to because once we do, there may be arbitration on Cosan or on Vale, and that’s the last thing we want. So the strike is confidential, and we will keep it confidential.
Could you repeat the other part of your question because we didn’t really understand it?
Regis Cardoso
Can I just rephrase that about the average price in your thesis, it says R$16 billion and 4.85 of the equity. Should I just divide that by the average and that will give me the average price? And the other one was about the stake of the preferred shares in Raizen and Compass?
Luis Henrique Guimarães
Yes, you divide it by the number of shares 485, well, that’s not really how you do it because when we took out the bridge loan, we use this amount – sorry, I’m answering your question, and I’m thinking out loud here. So we took the equity and the parity. It’s not that different, actually. So I am just doing the math, its not going to be that different. Yes, you can do it that way. Something like that will work. It will be completely accurate, but it will be very close. Because some of the parity was spent and then there were premiums. There are a few other elements, but it’s not going to be too different from that.
Can you repeat your third question, the stake in the purchase structure at Compass and Raizen. Was that it? I’m sorry. I don’t really – can you ask the question again, please?
Regis Cardoso
Well, you didn’t mention what the stake of the preferred shares were in the companies and the dividend, you mean? Yes. And on Monday, after the announcement, you said, well, x percent of the dividends are 23 and y are 24, but we didn’t see those numbers in the period. So it wasn’t very clear to me whether you have like a minimum preferred dividend and rise per share or well, why did we release this data for ’23, ’24?
Luis Henrique Guimarães
It’s because we want the market to understand that we don’t have any cash pressure in ’23, ’24 or ’25 because the first payment, if we unwind the structure will only be at the end of ’25. So we announced that, we released that. So the market would understand that there is no pressure. Now in the proxy, the number varies. It’s the net income of each company. So that varies. And this isn’t concrete. It’s a forecast. If you want to do a proxy, just repeat what we had last year, that will be a proxy, and we will disclose more information over time as we know more and also as we know what the company’s forecast are. Okay.
Regis Cardoso
Okay. Great, clear. So the other topic is I’ve had a lot of meetings recently in the U.S. and a very frequent question is what is the implication of Vales of Cosan’s stake in Vale and you made it very clear that this will not affect the company’s investment plans. But the way I see it, it’s very likely that the companies will have a follow-on to increase capital because there will be less liquidity or should I think about it the other way around? I’m just sharing with you the questions I have been asked in the market. Maybe it would be a good thing for you to comment on that.
Luis Henrique Guimarães
Oh, that’s great. Thank you, Regis. Okay. Let’s take a step back. As I said, the basic assumptions for our joining these five platforms, including Cosan investments with shares in Radar and Vale are first. We do not want to lose control in any of the companies.
Second, we want to support the company’s investment plan in high performance and high profitability businesses as we see in the growth of E2G distribution companies and so on and so forth and Moove’s expansion – international expansion and so on.
The dividend payout will continue. It will be business as usual as you know it, and also looking at opportunities to go public with the two companies. When we collapsed the holding, you remember, the idea was to have all four companies listed. Each company is a different platform or different businesses. So we need to look at their portfolio and consider more relevant businesses and/or new corporate structures or new companies that will allow the company to have more liquidity or reduce third-party investments in the company.
So none of the companies need a follow-on. That’s not part of their investment plan. As I said, no stake is being sold other than potentially listing the companies. So that’s the answer to your question. And the last commitment was that we were not going to decrease Cosan’s shareholder – shareholding because our ability to realize those investments.
If you look at the company’s future cash flow, it’s all very positive. And in ’26, ‘7, ’28, if we don’t consider the investment in Vale, we would have a huge deleveraging at Cosan, and we believe we’ll have superior returns by doing what we did with Vale. Did that answer your question, Regis?
Regis Cardoso
No, that’s great. Yes. Great. Thank you. Thank you, Luis.
Luis Henrique Guimarães
Next question is from Luiz Carvalho from UBS. We will now unmute so you can ask your question. Luiz please proceed.
Luiz Carvalho
Hi, Luis. Hi, Lewin. Thank you for taking my questions, good evening. I have a couple of questions about topics you have already touched on. But you’ve talked about capital allocation, dividends, buybacks and the IPOs of the companies that aren’t listed yet. So despite rising seasonal effect, this higher debt of close to R$70 billion and considering the interest rate we see in the market. How will that affect some of those lines looking to the next 12 to 18 months? So that’s my first question.
The second question is you’ve just mentioned and we know that this is one of the group’s main characteristics. So having control over the companies or being in a position that is relevant in terms of the decision-making process. And the way we see it, obviously there might be an opportunity at Vale for Cosan to become a relevant player, maybe by building an agreement – a shareholder agreement with other relevant shareholders.
So where are your thoughts on that? Looking at other companies like Rumo, can we maybe think about something similar? Or do you have a different objective for Vale?
Luis Henrique Guimarães
Thanks, Luiz. I’ll start with your second question. Well, the way we’ve been thinking about this since we made the decision to start looking at mining and then buying a stake at Vale was the realization that the investor profile we see in this company because it’s a fantastic company. It’s a fantastic asset with top quality people in it, a very financial profile. So we complement each other. That was the first thing we thought.
And then when we looked into it, we realized that we were on the same page in terms of the churn. We all expect the same thing for the future of this company. So again, a shareholders’ agreement works for some types of operation, but a company – for a company as large as Vale, we really want to make sure that we’re all under the same page in terms of our vision for the future. That’s the most important thing.
So right now we’re not considering shareholders agreement because we see a convergence in terms of where we think the company should be moving to and especially what lies ahead over the next few years. We need to have important recovery in terms of what happened in the past, in terms of accidents, the portfolio. There’s a great deal of divestment going on, cleaning up the portfolio and understanding what the best play is considering a more streamlined portfolio, the differences among the different businesses to try and create more value.
So we are hoping to help the company do that with our competence. We’re an industrial group, we understand Brazil, we understand the regulatory framework, and we also know a lot about logistics and operations. And we’ll also be able to make a contribution in terms of the energy transition and decarbonization. So we see a lot of complementarity in terms of assets and shareholders.
As for the debt, obviously, Luiz, we’ll be looking at that regularly. But when you look at the cash flow that was generated by the companies and the ability to allocate CapEx to the right projects with returns well above the cost of capital, we feel very comfortable. When something happens at a specific company or at a specific business or if the situation gets worse in Brazil, we will act and will act swiftly as usual. But our projections and forecast for the next few years, is that rates will not decrease or decrease very slowly. So we feel comfortable with that.
Given the structure of the company portfolio that can pay out more dividends and Vale’s dividend and the profitability of the new businesses we’ve been investing in, we will be able to work with this portfolio complemented by selective divestments and for more capital inflow into the companies through the market. This was highly emphasized when we made the decision to go in. We looked at all the different scenarios, and we feel very comfortable.
We know that we have a different Brazil, a different world right now. So we’re almost paranoid about being as efficient as possible in the companies and about improving results. And you can see that. So we need to continue to perform. We need to continue to deliver. And like Radar, for instance, it’s great in terms of dividends and results so that we can have a balance between growth, profitability and at the same time, be able to make divestments at the right time to strengthen our position.
Luiz Carvalho
This is very clear. Thank you.
Luis Henrique Guimarães
And now I would like to turn it over to Ms. Camila Amarin [ph] to continue with the Q&A session. We’ve received a question in English, and they’re asking about how they can interpret the consolidated leverage metrics and the potential for dividend to the HoldCo to be impacted by financing at the OpCo levels in the future. Can we give them an update how we’re thinking about that, how we’re planning for that?
Luis Henrique Guimarães
Thank you, Camilla. Well, we’ve discussed that a little bit. But in terms of leverage, let’s not forget that our policy is to be roughly 2 times EBITDA. And obviously, that might go up. And if it does, we do have a plan to deleverage. We’re concluding the quarter with a 3 time EBITDA leverage. This is a seasonal effect of Raízen’s operations and the pro forma consolidated results.
And let’s not forget that the effect of leveraging, considering Vale’s deal is zero. We have R$8 billion in debt. That’s the bridge loan and part of that is cash, and part of that is property deed. So it’s actually a bit positive when it comes to our net debt in relation to our net debt. And for the future, you should also consider that our leverage level should be closer to 2 times.
And as for the dividends we’ve been asked if we’re going to increase our operating dividends. And we’re not. We’re not the only partners in the companies. There are other partners. And secondly, companies need to continue to make their investments as Louis [ph] they need to continue to invest in strategic projects. The only difference is that Raizen’s dividends encompasses dividends.
When they go up, part of that will go to preferred shares, when we have the preferred share structure, and part of that will go through ordinary shares, which will go to Cosan. So that’s the only difference. We now conclude our Q&A session. Questions in writing, which have not been answered will be answered by e-mail by our IR team. Now Mr. Luis Henrique will make his final remarks.
Luis Henrique Guimarães
Thank you, everyone. Have a great evening, and it’s a simple message really. Lots of implementation. Once again, we’ve been able to build a business platform that have very challenging projects, especially in the current global scenario, you know, Brazil does have a comparative advantage. We have carbon credit projects. We also mentioned the company’s projects. We have an agenda to provide support to Vale.
So there are lots of opportunities, and we’re very excited because each of these projects over the last few years, every time we go into a company or make an acquisition or an expansion or a new operation, we have always had great results sometimes or mostly better than we had imagined. So I just wanted to take this opportunity to thank you, thank you for your support and to thank Cosan’s team because they have been working tirelessly to make these projects concrete and to make sure that Brazil can become a great food provider, oil, iron ore, carbon credit, that’s the agenda, and that’s Brazil’s potential to become a green powerhouse. Thank you and see you at the next conference call.
This conference call for the third quarter 2022 is now concluded. The Investor Relations department is available to answer any additional questions. Thank you to all participants, and have a great evening.
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