Business context and reporting period
Ultrapar Participações S.A. (NYSE: UGP; B3: UGPA3) filed this annual report on Form 20-F on April 25, 2023, covering the fiscal year ended December 31, 2022. Financial statements are prepared under IFRS as issued by the IASB and reported in Brazilian reais (R$). The “2022 Q4” metadata does not match the filing’s annual reporting period.
After selling Oxiteno (closed April 1, 2022) and Extrafarma (closed August 1, 2022), Ultrapar’s continuing core businesses were Ipiranga (fuel distribution), Ultragaz (LPG and energy solutions), and Ultracargo (liquid-bulk storage). Abastece aí was no longer reported as a separate segment in 2022.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net revenue from continuing operations | R$143.6bn | R$109.7bn |
| Gross profit | R$7.36bn; 5.1% margin | R$4.90bn; 4.5% margin |
| Operating income before financial result and equity-accounted results | R$3.34bn; 2.3% margin | R$1.79bn; 1.6% margin |
| Net income from continuing operations | R$1.54bn | R$819m |
| Net income, including discontinued operations | R$1.84bn | R$884m |
| Net cash from continuing operating activities | R$1.97bn | R$1.60bn |
Revenue increased 31% year over year, largely reflecting higher fuel and LPG prices passed through to customers and increased Ipiranga volumes. Gross profit rose 50%; operating income rose 87%. Higher interest rates and hedge fair-value effects contributed to net financial expense increasing 93% to R$1.47bn. Continuing-operations net income rose 88%. The filing does not provide a clear consolidated EBITDA value in the supplied text.
Segment revenue (unconsolidated, before intercompany eliminations): Ipiranga R$131.3bn (+32%); Ultragaz R$11.5bn (+18%); Ultracargo R$867m (+22%). Ipiranga sold 23.1 million m³ of fuel, up 3%; Ultragaz sold 1.706 million tonnes of LPG, broadly flat; Ultracargo handled 13.589 million m³, up from 12.545 million m³.
Cash and cash equivalents were R$5.62bn at year-end; cash, cash equivalents, financial investments and derivative instruments totaled R$6.585bn. Disclosed gross debt was R$11.75bn; net debt, a company-defined non-IFRS measure that includes leases payable, was R$6.689bn, down from R$13.263bn. Net debt/equity fell to 54.9% from 126.7%. Debt and estimated interest due within 12 months totaled R$3.744bn. Continuing-operations investing cash flow was a net inflow of R$8.12bn, primarily reflecting divestiture proceeds; financing cash flow was a net outflow of R$6.73bn.
Material changes versus prior period
- Oxiteno generated initial sale proceeds of US$1.326bn (R$6.284bn at closing); a further US$150m is due in April 2024. Extrafarma sold for R$737.7m, with two remaining R$182.7m installments due in August 2023 and August 2024.
- Discontinued operations contributed R$302m of 2022 net income. The year-over-year comparison also reflects a R$427.5m Extrafarma impairment recorded in 2021.
- Higher costs and revenue largely reflected commodity-price pass-throughs. Supplementary Law 192 PIS/COFINS credits of R$971m were recognized in 2022; CBio decarbonization expense rose substantially.
- Portfolio expansion included the acquisition of Stella, a distributed-renewable-electricity platform, for a minimum R$63m. The NEOgás acquisition closed February 1, 2023 for R$165m, subject to customary adjustments.
Outlook, risks and unusual items
Management did not provide earnings guidance in the supplied filing text. It outlined a 2023 investment plan of approximately R$2.2bn, excluding mergers and acquisitions and net of disposals, focused on Ipiranga’s network and logistics, Ultragaz’s bulk customers and energy diversification, and Ultracargo terminal expansion and maintenance. Management expected a stagnant Brazilian economy with elevated inflation and interest rates, while noting uncertainty around domestic and global conditions.
Key risks include reliance on Petrobras for fuel and LPG supply, commodity and foreign-exchange volatility, competition and potential inability to pass through costs, Brazilian political and regulatory uncertainty, interest-rate and refinancing exposure, climate and environmental regulation, and operational, cyber and safety incidents. Petrobras supplied 86% of Ultragaz’s LPG purchases in 2022; fuel distributors also had to source some requirements internationally.
At year-end, provisions for tax, civil and labor risks were R$1.040bn; additional claims assessed as possible, and therefore not provisioned, totaled R$3.602bn. Ultracargo’s 2015 Santos terminal fire remains subject to potential environmental indemnity discussions; the R$67.5m conduct-adjustment payment was made, while other alleged damages could require further unprovided payments. Management assessed the February 2023 Brazilian Supreme Court tax ruling as having no relevant financial-statement impact.
The independent auditor gave an unqualified opinion on the 2022 IFRS financial statements, but an adverse opinion on internal control over financial reporting. Management identified a material weakness in review controls for complex transactions involving customer financial liabilities and interest on escrow deposits. Related errors were corrected before issuance; remediation was planned for completion by the next annual assessment. Management also concluded disclosure controls were ineffective as of December 31, 2022.
Important facts for investors to verify
- Reconcile the large reported revenue growth with changes in fuel and LPG prices, volumes, gross margins and working capital.
- Review the quality and recoverability of R$971m in 2022 PIS/COFINS credits and the timing of remaining Oxiteno and Extrafarma sale installments.
- Track debt maturities, interest costs, hedging exposures and liquidity against the R$3.744bn due within 12 months.
- Assess progress in remediating the material weakness and whether subsequent reporting demonstrates effective controls.
- Monitor possible litigation outcomes, including the R$3.602bn possible-loss claims and unresolved environmental matters related to the Santos fire.
- Compare planned 2023 investment spending and acquisitions with execution, returns and leverage; assess exposure to Petrobras supply, CBio costs and Brazilian macroeconomic conditions.