Business context and reporting period
Ultrapar Participações S.A. (NYSE ADS ticker UGP; Brazilian ticker UGPA3) filed this Form 20-F on April 23, 2024, reporting the fiscal year ended December 31, 2023, with 2022 as the primary comparable period. This is an annual report, not a standalone 2023 Q4 earnings filing. Financial statements are audited and prepared under IFRS as issued by the IASB.
The continuing portfolio comprises Ipiranga (fuel distribution), Ultragaz (LPG and expanding energy solutions), and Ultracargo (liquid-bulk storage and logistics). Oxiteno and Extrafarma were sold in 2022 and are reported as discontinued operations in the comparative results.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net revenue | R$126.0bn | R$143.6bn | -12% |
| Gross profit | R$9.32bn | R$7.36bn | +27% |
| Operating income before financial result and equity-method earnings | R$4.57bn | R$3.34bn | +37% |
| Net financial expense | R$1.00bn | R$1.47bn | Expense decreased 32% |
| Net income from continuing operations | R$2.52bn | R$1.54bn | +64% |
| Net income attributable to Ultrapar shareholders | R$2.44bn | R$1.80bn | +36% |
| Operating cash flow from continuing operations | R$3.85bn | R$1.97bn | Higher by R$1.85bn |
| Capital expenditures and other investments, net | R$1.95bn | R$1.76bn | +11% |
| Gross debt (company-defined non-IFRS measure) | R$11.77bn | R$11.75bn | Broadly unchanged |
| Net debt (company-defined non-IFRS measure) | R$6.12bn | R$6.69bn | -8% |
| Cash, cash equivalents, financial investments and derivative instruments | R$7.17bn | R$6.58bn | +9% |
Gross margin improved to approximately 7.4% from 5.1%; operating income before financial result and equity-method earnings was approximately 3.6% of revenue versus 2.3%. Net income from continuing operations was approximately 2.0% of revenue versus 1.1%. These percentages are calculated from reported figures.
Cash and cash equivalents alone were R$5.93bn at year-end. Short-term cash, equivalents and investments totaled R$6.22bn, compared with R$2.36bn of debt due within 12 months, including estimated interest. Net debt-to-equity declined to 43.6% from 54.9%. Lease liabilities were R$1.52bn. Financing cash outflow was R$2.49bn; investing cash outflow was R$1.02bn. The company reported a R$304m increase in continuing-operations cash and cash equivalents during 2023.
Material changes and business performance
- Ipiranga: Revenue fell 13% to R$114.4bn, mainly reflecting lower fuel prices passed through to customers; sales volume was nearly flat at 23.1 million m³. Gross profit increased 35% to R$6.44bn and operating income increased 55% to R$3.14bn. Market share for diesel, gasoline and ethanol decreased to 17.7% from 18.4%.
- Ultragaz: Revenue decreased 7% to R$10.7bn as LPG prices declined, partly offset by 2% higher volume to 1.738 million tons. Gross profit rose 7% to R$2.19bn. Bulk volume grew 6%, while bottled volume was broadly stable.
- Ultracargo: Revenue increased 17% to R$1.02bn and gross profit increased 25% to R$660m, supported by more spot sales, higher throughput and tariffs. Volume handled rose to 15.7 million m³ from 13.6 million m³.
- Revenue and costs both declined mainly with lower fuel prices, but costs fell faster, supporting improved gross profit. Higher SG&A—up 16% to R$4.27bn—and higher decarbonization-credit costs partly offset the improvement.
- Net income from discontinued operations was zero in 2023 versus R$302m in 2022. The 2022 figure included results from Oxiteno and Extrafarma before their sales closed.
Outlook, risks and unusual items
- Management’s 2024 investment plan totals R$2.7bn, excluding mergers and acquisitions and net of disposals. Planned amounts include R$496.9m for Ultragaz, R$804.1m for Ultracargo and R$1.345bn for Ipiranga. Expansion projects include new and expanded storage terminals, railway links, Ipiranga logistics infrastructure, and growth in bulk LPG and other energy solutions.
- Management highlights fuel-supply uncertainty and pricing as important near-term drivers of competitive conditions and margins. Petrobras remains a significant supplier, while its 2023 pricing approach replaced import-parity pricing as the sole reference. Ipiranga also relied on imports; Russian-origin diesel became Brazil’s leading import source in 2023. Management describes continued development of Ipiranga’s pricing, logistics, supply/trading and reseller-engagement turnaround initiatives.
- Brazil’s tax reform, fuel and LPG tax changes, and RenovaBio decarbonization-credit obligations may affect costs, compliance and margins. The year-end provision for decarbonization credits was R$742m. Ultrapar recognized R$109m of SUDENE income-tax incentives in 2023.
- Recoverability of PIS/COFINS tax credits is a significant judgment and was the auditor’s critical audit matter. Such credits totaled R$2.76bn at year-end; management recognized R$563m of credits related to Supplementary Law 192/22 in 2023. Realization depends on legal interpretation and future utilization or refunds.
- Provisions for tax, civil and labor risks were R$1.30bn. Possible-loss contingencies not provided for totaled R$4.01bn, including R$3.15bn for tax and social-security matters. The filing also describes continuing indemnity negotiations related to the 2015 Ultracargo Santos terminal fire; the amount of any additional payment is not clear.
- Control weakness: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2023, because controls over privileged IT access were not designed and implemented effectively. Deloitte issued an adverse opinion on internal control, while giving an unqualified opinion on the IFRS financial statements. Management reported no known financial-statement misstatement from the weakness and plans remediation by the next annual assessment. The prior-year material weakness concerning complex transactions was reported as remediated.
- Other material risks include competition and potential unfair fuel-market practices; dependence on Petrobras and transport infrastructure; commodity, interest-rate and foreign-exchange volatility; Brazilian political, economic and regulatory uncertainty; environmental and operational hazards; cyber risk (the company reported no cyber insurance as of the filing); and potential limits on passing cost increases to customers.
- After year-end, Ultrapar received the final US$150m Oxiteno sale installment on April 1, 2024. The R$182.7m Extrafarma installment was due in August 2024. A proposed Hidrovias do Brasil share acquisition, subject to conditions including CADE approval, could increase Ultrapar’s stake to approximately 26.9% if completed; it was not part of 2023 results.
Most important facts for investors to verify
- Review the reconciliation and definitions of non-IFRS gross and net debt, including derivatives and leases, and the maturity schedule for debt and leases.
- Assess the quality, legal basis and expected timing of recovery of the R$2.76bn PIS/COFINS tax-credit balance, including the R$563m recognized in 2023.
- Track remediation and independent testing of the privileged-IT-access material weakness, and whether internal controls return to effectiveness.
- Examine the R$4.01bn possible-loss contingency disclosures, the R$1.30bn provisions, and potential unprovided costs from the Santos fire and divestiture indemnities.
- Monitor fuel and LPG supply sources, Petrobras pricing and allocation, import economics, market share, and the ability to preserve margins amid commodity-price and tax changes.
- Compare execution and funding of the R$2.7bn 2024 investment plan with operating cash generation, and confirm the status, approvals and financing implications of the proposed Hidrovias investment.