Cosan SA (CSAN) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Cosan S.A. Fourth Quarter and Fiscal Year 2017 Results Conference Call. Today with us we have Mr. Guilherme Machado, IRO; Mr. João Arthur Souza, CFO; and Mr. Phillipe Casale, Investor Relations Manager of Cosan S.A. We would like to inform you that this event is recorded. (Operator Instructions) The audio and slide show of this presentation are available through live webcast at ir.cosan.com.br. The slides can also be downloaded from the webcast platform.

Before proceeding, let me mention that forward-looking statements will be made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Cosan's 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 Cosan and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Machado. Mr. Machado, you may begin the call.

Good morning, everyone, and welcome to Cosan S.A.'s fourth quarter and full year 2017 earnings conference call. As usual, I'll start this presentation talking about each of Cosan S.A.'s business lines and then address the consolidated results.

Starting with the highlights in Chart #3. Cosan increased its interest stake in Comgás to 80% after exercising the option held by Shell against Cosan Limited. Cosan Limited [in its turn,] [showed the interest stake] to Cosan S.A. under the same terms and conditions.

So now let's move on to Chart #4, where we'll discuss the results of Raízen Combustíveis. Despite the scenario of changes in the market, Raízen Combustíveis presented positive results in 2017. We remain focused on product supply and sales optimization, along with the expansion and renewal of our service station network, reflecting solid results in sales performance in both the market average.

Talking about the fourth quarter of '17, volumes sold was 4% higher than the fourth quarter of '16, an increase driven by ethanol and diesel, which grew by 34% and 9%, respectively. It's worth mentioning that ethanol gained competitiveness due to price adjustment of gasoline in the domestic market, which increased the demand for ethanol. In diesel, the agribusiness upturn and new B2B contract signed by Raízen resulted in higher volume sold. Sales volume in the aviation segment was also noteworthy with growth of 3% year-over-year. In 2017, total volume sold by Raízen grew by 3% year-over-year, while volumes sold in the country based on ANP figures, grew by 1%.

Looking at the Plural basis, formerly Sindicom, which concentrates the industry's 3 largest players, total volumes sold shrank 1% in 2017. This growth reflects Cosan's consistent expansion strategy and sustainable relationship with Shell-branded service station network besides our exposure to relevant industry and agribusiness segment.

Now let's discuss our adjusted EBITDA and EBIT, which reached BRL 806 million and BRL 653 million in fourth quarter '17, respectively, down by approximately 10% year-over-year. This decrease is due to lower gains from Raízen supply strategy in the period. I also like to remind you that the comparison basis were positively impacted by significant import gains in the fourth quarter of '16 and inventory gains in the third quarter of '17, both considered recurring parts of our operation. In 2017, adjusted EBITDA was again in line with the guidance, reaching BRL 2.9 billion, up 5% year-over-year. Improved results in 2017 reflect higher volume sold and greater efficiency of our supply and sales strategy.

Looking to the first Q of '18, we still see price fluctuations from diesel and gasoline nearly every day. In addition to the situation in ethanol prices, bringing higher volatility, which may bring opportunities in the quarter. Now referring to Raízen Combustíveis CapEx, BRL 781 million was invested in 2017. We had 6,272 Shell-branded service stations in our network, a net addition of 245 stations in the year. We continue capturing good and selective opportunities for network expansion through the conversion of new stations. And as importantly, the renewal of existing contracts which have ensured the sustainable growth of [total volume sold.]

Now let's move into Raízen Energia on Chart #5. And I'd like to remind you that this is the third quarter of the '17/'18 crop season, so we will not refer to the full year results of Raízen Energia. So the cane crushing volume grew 17%, reaching 13 million tons in the fourth quarter of '17, on the back of the extended crushing period in December, which was due to greater sugarcane availability and dry weather. Sugarcane productivity was 8.4 tons of [TSR] per hectare, a 4% drop due to a lower concentration of rainfall in the period, which negatively affected the TCH and was partially offset by an improvement in TRS.

With the conclusion of the main crushing period of current crop, Raízen Energia crushed approximately 61 million tons of sugarcane, up 2% compared to the same previous crop period. Raízen production mix totaled 55% of sugar in the 9-month period of the '17/'18 crop year, compared to 57% of the previous crop.

As we mentioned in the last conference call, this mix is an effect of continued profitability [analysis by products], which means that at current price levels, the anhydrous and hydrous ethanol offer a better return than sugar; thus, resulting in a mix optimization opportunity.

Increased production, coupled with the company's business strategy enable higher volume sold during the fourth quarter of '17. So looking through the products, let's start with sugar. Sugar sales were up 2% in the quarter. Average sugar sales prices in reais adjusted by the hedge account effect and currency hedge on sugar exports decreased 18%, already reflecting the drop in the commodity prices.

Looking to the ethanol, sales volumes was in line with the fourth quarter of '16. With higher volumes produced at this quarter, we ended up stocking more products targeting to take advantage of better prices in the crops' last quarter. Although ethanol gained a competitiveness against gasoline in the period, ethanol's average price was 11% lower than the fourth quarter of '16.

And lastly, the cogeneration of energy. We had a higher bagasse availability enabling higher electricity production, which added to higher trading volumes resulted in the exports of 49% higher than the fourth quarter of '16. Average energy price sold was BRL 280 per megawatt hour, 59% higher than the fourth quarter of '16.

Before discussing the EBITDA, I would like to point out the results obtained with Raízen cost savings efforts. In the fourth quarter of '17, unitary cash cost of products in sugar equivalent went down 16% to BRL 601 per ton. This reduction is due to continued focus on capturing our efficiencies in the agriculture and industrial operation, as well as higher dilution of fixed costs and the lower CONSECANA average price in the fourth quarter of '17. When we excluded the CONSECANA price effects, even so, unitary cost -- unitary cash cost was 7% lower than the fourth quarter of '16.

Raízen adjusted EBITDA went down 11% to BRL 891 million in the fourth quarter of '17, mainly due to lower sugar and ethanol average prices in reais. This quarter, the average export foreign exchange rate was BRL 3.61 per $1 versus BRL 3.24 per $1 of average shipments foreign exchange. Thus, we had a positive effect of BRL 94 million record in our financial results, referring to current hedge instruments [contracted] to calculate revenue in Brazilian reais. I also want to remind you that the basic target of hedging [for the company] is to protect the exchange rate and the commodity, always looking to the pricing in reais.

Now let's look to the sugar hedge graph. Yearly, all of the '17/'18 crop sugar is hedged with an average price of BRL 0.65 per pound. Looking at the next graph, we still see short-term price pressured by an expected surplus in global inventories than the higher potential supply from other producing countries. Therefore, at the end of December, we had approximately 20% of the total sugar to be exported in '18/'19 crop, hedged at an average price of BRL 0.52 per pound. This price is at the level lower than previous crop, but within our hedging policy.

We believe that the crop with less available sugarcane in the Center South region and a more favorable ethanol mix could bring a positive effect in global sugar prices this year. We remain focused on having a more efficient operation. We think good management on -- invested in working capital as well continuously seeking to maximize business return regardless what the price levels are.

Let's see our last graph, to discuss the CapEx. Raízen Energia's CapEx totaled BRL 520 million, in line with the [crop] year's guidance. The 4% -- the 14% increase reflects higher expenses relating to sugarcane field renovation and maintenance due to the increased harvest; mandatory investments in health, safety, and environment; and investments in the renovation of agricultural equipment.

Now moving on to the presentation, let's go to Chart #6, talking about Comgás. Since Comgás already reported its results yesterday, we will only touch on the main points of this business. Following the upturn seen over the last quarter in the 4Q of '17 and in the 2017 year, Comgás record 4% growth in total sales volume excluding thermal generation. A gradual improvement in economic activity in Brazil enabled the industrial segment growth in 2017.

In residential segment, the addition of 105,000 clients over the last 12 months drove a 5% higher volume sold in 2017. In the commercial segment, a combination of improvement indicators and 900 new customers resulted in 6% volume growth in 2017. Comgás EBITDA normalized by the regulatory period account effect was BRL 416 million in the fourth quarter of '17 and BRL 1.7 billion in 2017, an increase of 16% and 19%, respectively. The EBITDA result ahead of 2017 guidance is the result of a higher volume distributed, margin adjustment due to inflation in May 2017 and operating expenses efficiency.

In 2017, Comgás record a net return of BRL 193 million of the regulatory current accounts funds to clients. As a result, IFRS EBITDA went down 23% to BRL 1.5 billion. Although normalized EBITDA is the best metric to monitor our business operational performance, the return of regulatory accounts funds in 2017 impacted operating cash generation as [was the sales we had]. Comgás investment totaled BRL 152 million in the quarter and BRL 460 million in 2017 full year, in line with announced guidance and reflecting Comgás efforts toward network saturation.

Now moving to Chart #7, I'd like to start with Moove, our lubricants business unit. Despite the recovery seen in the first quarter, the Brazilian lubricant markets is still challenging and recorded 1% decrease in the fourth quarter of '17. At Moove, total sales volume was in line with the same period of last year and finishing lubricant sales in Brazil and international markets increased in the fourth quarter of '17. In the full year of 2017, total volume sold by Moove grew by 6% year-over-year, reflecting our consistent business strategy. Moove's EBITDA was BRL 34 million in the quarter, and BRL 175 million in 2017, up approximately 30% year-over-year. This results reflect higher sales volume in all the markets in which the company operates and a better product mix.

Now let's turn to Cosan Corporate on the right-hand side of the chart. General and administrative expenses reached BRL 44 million in the quarter, slightly above the fourth quarter of '16, and BRL 159 million in the full year 2017, down 4% year-over-year, reflecting the company's continued efforts to control costs and expenses.

On the other hand, other operation revenue was positively impacted with BRL 973 million in the fourth quarter of '17, with nonrecurring effects of BRL 1 billion referring to the sale of credit rights as announced to the market. It's worth mentioning that the impact of these sales on net income for the year was [BRL 780 million].

Moving on to Chart #8, we will present the consolidated results for Cosan S.A. on a pro forma basis, which considers 50% of Raízen results. First, the consolidated EBITDA. Despite a 7% drop of adjusted EBITDA this quarter, 2017 was marked by record results as we achieved a 10% growth, reaching BRL 5.1 billion in EBITDA. Again, our business portfolio was resilient and all operations record an increasing EBITDA. Net income, also adjusted by nonrecurring effects mentioned above, grew by 12% (sic -- see press release, "53%"), reaching BRL 693 million (sic - see press release, "BRL 953 million"). Improved operational performance and lower financial expenses in the year contributed to net income's growth.

Moving on to Chart #9, starting with the investments. Pro forma gross indebtedness including 50% of Raízen results was up 10% in the fourth quarter of '17, highlighting the BRL 700 million raised in agribusiness receivables certificate; and BRL 1 billion in export prepayment, both at Raízen; as well as the issuance of BRL 400 million in debentures at Comgás.

Pro forma net debt, which include obligations with preferred shareholders, was BRL 11 billion at the end of the fourth quarter of '17, up 2% -- 12% quarter-over-quarter. This was impacted by Cosan cash disbursement of BRL 833 million, for the acquisition of the equity interest stake in Comgás, previously held by Shell as we have mentioned before.

The company's pro forma leverage dropped from 2.1x to 2x net debt to pro forma EBITDA, as a result of improved EBITDA and the company's effort to maintain a healthy working balance in its capital structure. The pro forma average cost of debt was 107% of CDI. And if we consider the accounts figure, excluding Raízen, the average cost increase to 112% of CDI. It's worth mentioning that we have predicted that mainly in Comgás, which are now compared to an even smaller CDI.

Free cash flow to equity totaled BRL 643 million in 2017. It's worth noting that we have a few relevant impacts to 2017 -- 2016 and 2017 cash flow. I'll just say all this. In 2016, first, the divestments of Radar which impacted fourth quarter of '16 with a cash inflow of BRL 1 billion, and the interest -- and the sale of the interest held by Raízen Combustíveis in STP of around BRL 200 million. And the dynamics of the Comgás regulatory current account, which favored cash integration in 2016.

2017 was impacted in its turn, first, by the cash disbursement due to the acquisition of Tonon mills at approximately BRL 400 million, and the acquisition of Comgás shares as already mentioned totaling BRL 833 million. I would like to note that the BRL 1.3 billion cash referring to sale of credit rights was record only at the end of January 2018, and did not impact the fourth-quarter 2017 cash flow.

Moving on to Chart #10. Before presenting our guidance for 2018, we will make the account for the following. 2017 results several -- revealed several signs of economic recovery in the country after 2 consecutive years of decline, but was still marked by relative volatility. And despite of this, our business portfolio has [evidenced again] not only its resilience, but also its capacity to grow despite an adverse environment. For the 8th consecutive year, we achieved our target and we delivered Cosan's pro forma EBITDA guidance. Our continuous focus on management, rationality and efficiency resulted in EBITDA growth and investment in line with the budgets in all businesses. I would like to quick remind that Raízen Energia will end its current '17/'18 crop year at the end of the first Q '18, but we expect to be in line with the guidance.

Now let's turn to the next and last slide of our presentation, Chart 11, to discuss our guidance for 2018. First, I'll talk about the projection by business line and then the consolidated forecast. Given Raízen's budget process continues during the crop year, Raízen Energia and Raízen Combustíveis figures are preliminary. Let us start with Raízen Combustíveis. For 2018, depending on the economic scenario and the industrial and agricultural activity during the crop year, we may expect certain fuel consumption growth, I'm talking about low to mid-single digit, and we can split the dynamics into the main sectors.

At the Otto cycle, we have been monitoring sales increase in light vehicles and the recovery of economic indicators, relevant for consumption upturn. In diesel, we are well positioned to capture the resumption of industry activity. Our exposure to agribusiness also should positively impact sales. And in the aviation segment, we have seen some improvement in this sector, which may result in increased sales volume.

Referring to EBITDA, we foresee repetition of the market volatility that marked the past 2 years. The new fuel and important price policy already consider recurring part of our business will be present anyway. For 2018 we estimate an adjusted EBITDA range from BRL 2.85 billion to BRL 3.15 billion. And here we don't have any change in our strategy. We will remain focused on business profitability through optimization of our supply and sales strategy, which are higher or lower depending on the market dynamics; expansion of the offering of service station; and continued efforts to reduce cost and expenses.

Talking about investments and the CapEx. We still see good conversion opportunity in the market. Here we are targeting net addition of approximately 300 service stations in the year. The CapEx range includes the possibility of speeding up conversion, renewing contracts with current service station network dealers and investment in infrastructure.

Now referring to Raízen Energia in the table highlighted on the bottom of the chart. I would like to first talk about the current crop year ending March 2018. We ended the main crushing period with the year -- of the year with 61 million tons of sugarcane crushed. Sugar production volume should be closer to the range lower level due to prioritization of ethanol production at the end of the crop, which means a change in product mix prioritizing the relative profitability of products. Electricity sales, expectations should be above guidance due to the prediction of inflation and greater trading opportunities within the crop. We remain confident we will deliver EBITDA within the midpoint of the guidance for the '17/'18 crop year.

Now looking to the estimates for the '18/'19 crop year that starts in April. Although it is too early to have a precise estimate of crushing as we are in the middle of the inter-harvest period, we have seen regular good rainfall volumes in the main producing regions. Our base scenario is crushing in line with the current crop results, only adding crushing expected from mills acquired from Tonon of approximately 3.5 million tons. Therefore, of the '18/'19 crop year, crushing should stand between 63 million to 67 million tons. We expect next crop's productivity to be similar to the '17/'18 crop year. We remain performing our daily analysis of [product] profitability. And as a result, we should have a mix mainly composed of ethanol when compared to previous crops.

Referring to prices, let's start with the sugar dynamics. India and Thailand crops shooting through, and Europe should sell production surplus volumes in line with the market expectations. On the other hand, a few consulting firms predict a decreased outlook for the Brazil's crop. And we may have a third year in crop disruption in Brazil, still a low range; but possible there is a disruption with reduced TRS and the relevant ethanol mix.

Funds are still active in sugar trading, bringing more volatility to price. And in line with our hedging policy, we are seeking the sugar hedge properly timed to fix our sales. Referring to ethanol, the domestic equation of supply and demand has been impacted by Petrobras' pricing policy. Ethanol gained competitiveness and we saw higher demand. Price has been rising since the mid-2017 following gasoline price increases. We believe that when the crop starts in April, the price adjustment may occur due to the preliminary signs of a more ethanol mix in the crop in Brazil, but we still see very healthy market scenario.

Referring to Raízen Energia EBITDA, we estimate the range between BRL 3.4 billion and BRL 3.8 billion. We forecasted Brazil below the previous crop EBITDA already taking into account lower sugar prices than those of the previous crop; partially offset by better estimate ethanol prices, sales activity, energy sales and trading and continuous efforts to reduce costs and expenses through the process and technology we have been implementing in our operations.

CapEx ranges between BRL 2.4 billion and BRL 2.7 billion, mainly impacted by higher level of recurring investment mainly connected with operations recently acquired from Tonon, projects resulting in greater cane availability and adequate renewal of sugarcane fields, new logistics infrastructure projects for sugar and ethanol and the impact of inflation.

Moving on. At Comgás, we estimate the volume excluding thermal generation between 4.4 million and 4.6 million cubic meters supported by the addition of new residential and commercial clients, assuming some recovery of economic activity. The normalized EBITDA range is between BRL 1.77 billion and BRL 1.87 billion, reflecting volume growth and the lower expectation of inflation in 2018, which is basing towards the annual tariff adjustment -- adjustment to our tariffs -- to our margins, I'm sorry.

Finally, we maintained a CapEx guidance for Comgás, the same over the last 2 years, in line with the expansion strategy, network saturation and continued discipline in cost management.

Moving on to Moove guidance. The EBITDA range for 2018 should stand between BRL 200 million in BRL 230 million, and taking to account higher volume in Brazil. We're talking about low single-digit growth in line with improvement already seen in 2017. The expansion and performance of our international operations will keep contributing to EBITDA growth as well.

So summing up and as we have discussed in the business outlooks, when we look to the consolidated results is that Cosan pro forma EBITDA, the range is between BRL 5 billion to BRL 5.4 billion, representing an increase compared to 2017.

With this, I conclude my presentation regarding the fourth quarter of '17 and 2017 results. I would like to thank you all for joining us. And now let's move to the Q&A session. Thank you.

In fact, before going to the Q&A session, I would like to make a correction. Instead of considering BRL 693 million as the net income adjusted for 2017, the correct number is BRL 953 million, an increase of 53%, already considering the credit sales that we made as of the end of 2017.

So now I conclude the presentation, and I would like to move to the Q&A session. So thank you again for joining us.

(Operator Instructions) Our first question comes from Vito Ferreira with BTG Pactual.

First of all, regarding the guidance provided for 2018. We could see a slight increase in the stated EBITDA for the fuel distribution business, while your CapEx increased approximately 15% based in the middle of the guidance range. I would like to understand, where do you intend to employ such higher CapEx for this year?

And my second question is regarding the sugar and ethanol business. I'd like to have a higher sense of your sugar price expectations for the coming crop year. In summary, what do you expect for prices, mainly taking into account the strong shift of Brazilian producers towards ethanol and the potential decrease of sugar supply in a global context? Do you believe that such production shift in Brazil is able to significantly reduce the global sugar supply-demand?

Vito, thanks for your questions. First, talking about the guidance towards the CapEx for fuel distribution. So this is almost like the same CapEx guidance that we have provided to the market over the last -- at least last year, it's the same. The top of the range of the guidance considers, for us, to speed up the conversion of white flag stations to our network. So we have targets of volume in this business. And the number of [views] that we're going effectively achieve depends on the pipelines of transactions that we're going to have. So we have guided the market for approximately 300 new conversions over the year. But it's important to remember that this not only includes the conversions, but also the maintenance of the current network; it includes supply and the logistics. And at the end of the day, it's the full package of Raízen in order to supply and to source our short that we have -- as we have made over the last years.

Talking about the mix of production. Our view in terms of price is for the sugar ethanol business, I think this is a very tough question. At the end of the day, what we can guide the market is that markets are much more connected than ever. Now that Petrobras is following international parity and then moving up the price of gasoline, increasing the attractiveness of the price of ethanol domestically.

We -- what we can say is that we have been hedging less than we have hedged at the same period of last year. This is almost a view that prices have a potential upside with a changing mix in Brazil, offsetting good productions in the other producing countries. So at the end of the day, we're going to monitor this marketing very closely. And within our policy, we're going to hedge at the most attractive levels we can have over time.

The next question comes from Alexandre Falcao, HSBC.

Quick question on the cash flow generation. With the BRL 1 billion that is probably going to come in the first quarter and of course, the offloading of the inventory, you're going to grow to a very comfortable leverage position. Can you tell us what your [plug] the natural cash flow for the year? What are you going to do with that cash? Can you give us -- it's more deleveraging, more dividends, can you talk a little bit about that?

Falcao, thank you for the question. Well, regarding the usage of the cash, certainly the company will keep the track record of dividend payments in line with the previous years. And on top of that, we have -- to serve our G&A, the corporate expenses, but there is an opportunity here for a liability management. If you remember we have the 18 months debt maturity here and we have potential on other opportunities on this sense. And also important to mention that we have a share buyback program that is open. We haven't been active in this program, but we certainly -- it's a very accretive use, actually, of these cash over the year. So these are the main buckets that we're going to address the usage of this cash.

Okay. But you can -- what is the ideal leverage that you guys want to have?

Yes. As we have guided the market for the past quarters, the ideal range is between 2 to 2.5x EBITDA. Currently we are at 2x. We don't see that changing that much. We're going to be around these levels, which we consider to be a very comfortable leverage position.

Okay. And anything below 2, probably is going to be buyback or dividends, right?

Yes. We don't foresee. This is the target that we have. So we're going to optimize the structure to be within this range.

Okay. Just one more follow-up question on the hedging policy. When do you throw the towel and just hedge your 50% exposure according to your hedging policy, at least for your own cane? I know you guys have a policy view on the price of sugar going forward. But when you will be -- you're going to have to hedge at least your own cane for the hedging purposes?

Well, Falcao, as you mentioned, so we have the policy, minimum 20%, the maximum 80% over the next 12 months. It's to open the strategy when we're going accept the market and then when we're going to have to be within the policy. It's almost like opening our full strategy. So I'd rather prefer to keep that on an internal information. But at the end of the day, we're going to look to the curve, and we believe that prices have more upside than downsides in looking through the fundamentals. So we're going to monitor that. So at the end of the year, when prices went up to USD0.155 per pound we increased our position. So these are the type of opportunities that we're going to pursue over the year.

Our next question comes from Fernanda Cunha with Citibank.

I have two follow-up questions. The first one is regarding the CapEx for Raízen Combustíveis. Would you be able to break down exactly how much is maintenance CapEx and how much is expansion CapEx? I just wanted to understand if you are at the high point of your range, how many net -- I mean, how many (inaudible) fuel stations are you aiming to add to your portfolio? I guess the 300 of net fuel station in that midpoint CapEx; I just wanted to understand what is the maximum goal?

And the second one is regarding production cost in Raizen Energia. One week for the CONSECANA prices and the fourth quarter results were 7% below year-over-year. I wanted to get the view of how much exactly -- what were your initiatives to bring down this cost? And how much can we see this on a recurring basis?

Fernanda, thank you for your questions. Talking first about the CapEx for the fuel distribution business. I would say in the general terms, 80% of the CapEx is towards the -- renewing the current contracts with our dealers. And also the conversion of white flag stations to our network. And the remaining 20% is related to infrastructure: so investments in our depots, terminals, logistics and so on. So basically, this is what we have in broader terms, the usage of the CapEx of the fuel distribution business.

Relating to the initiatives at the sugar ethanol business, Raízen Energia, yes, we are frequently and I would say obsessively looking for cost cutting or optimizations in the business. We have implemented several strategies and initiatives that have been, I would say, already yielding results. And I would say efficiencies, the journey of efficiencies includes centralizing the logistics, which monitoring the cost loading and transportation initiatives. We have been optimizing the clusters. We have been implementing CapEx for the maximization of the availability of sugarcane and several initiatives. And I haven't mentioned the technology initiatives that we have been developing in order to monitor the shape of our sugarcane field.

So at the end of the day, these are initiatives that, together, compounds all the efficiencies that you see in the figures, you'll see in the numbers. And we'll keep doing that over time in the best way possible.

Okay, but if I may just follow-up. So should we be looking at next quarter's the same productions cost excluding CONSECANA site for your 2018/2019 crop?

That's our challenge and we'll keep on pursuing that. So we have the integration of the Tonon mills that was very well accomplished, and this potentially is going to reflect in results. So the targets here and the main objective here is to improve the return regardless if it's the prices; and this also links to the efficient way that we manage our cost.

Our next question comes from Petr Grishchenko with Barclays.

I guess, first, can you please provide an update on the strategical permits regarding Comgás. You announced that you might hire financial, legal advisors. Basically, has there been any progress since you made the announcement?

Sure, Petr. Regarding Comgás, there's nothing much to say at this point. So the company has been evaluating potential scenarios for the structure, but nothing that we can disclose so far. For the time that we reach a structure, if we reach some -- we're going to communicate to the market properly.

Okay. Maybe just to elaborate, you said there were a couple of scenarios. Can you give at least the indication of what are the possibilities that you're thinking of?

Unfortunately not. It's internal materials that we -- we're going to disclose to the market when we are prepared. Sorry about that.

Okay. My next question was on the financing for Shell Argentina purchase. Can you elaborate like how you're going to from -- how Raízen is going to fund the acquisition?

Well, we are participating in the process. We have made our binding offer and we have communicated the market. And just to remember, this is Raízen Combustíveis, which is the fuel distribution arm of Raízen that is participating on the business, not Cosan. Just to be clear. So at the end of the day, this is a process that now is in the hands of Shell. And we are -- as we are in a competitive process, we are waiting to hear what are the conclusion of these process whenever Shell is ready. So in other words, there's no definition as of now.

Okay. And can you tell us what's the -- sort of based on the purchase price that was announced, what's the implied EBITDA multiple on that asset?

We haven't any official information on this. And we haven't officially communicated anything of these figures to the market so far. So there's nothing -- or there's nothing much to share at this point.

Okay. So I guess what I'm trying to say is directionally you would expect leverage at Raízen to increase following the acquisition, right? Because I don't think there was any announcement that the company might use equity, right?

Yes. What we can say at this point is that as a policy, Raízen will not compromise its investment grade rating through any deals or any acquisitions, including this one. So at the end of the day, financing strategy or other figures of any potential deal at Raízen taking into consideration this criteria.

Understood. And then my next question is on the perps. I think there's a footnote that says the company hedged interest on the perp notes for 18 months. Is there a specific reason for this? And is it wrong to maybe imply that you might call the bonds in 18 months?

So we -- for the hedging of the interest payment of the perp, we -- the properly statement is that we hedged the payment between 24 to 36 months.

And I will hand over to João, who is the Head of Financial of Cosan for additional comments.

In reality we hedged for 36 months. But -- and we re-hedged to maintain the 36 months when we get close to 24. So it's basically between 24 and 36 months.

Okay. And -- okay, 24 to 36. I mean, it's still questionable. Why does this footnote in the presentation say 18 months? Or is it just -- like a shorter lag because there are several hedges, I guess?

Well, Petr, I ask you to just understand what is -- the proper figure. But I assume that the current hedge is up to 18 months, but I will check later.

Okay. And my last question, if I may. Have you spoken to the rating agencies recently? And do you have a sense of where the metrics need to be to get upgraded or potentially get [so IG] is coming to Raízen?

Well, this is a broader discussion. It includes the sovereign rate of Brazil that caps the ratings of some corporate names, including ourselves. But we have been discussing with them in a frequently basis in order to give what are the forecasts and projections of the company. So it's -- we have, I would say, an agenda with them. But this is the scenario that we will -- we are living today.

We discuss with them frequently this situation. The reason of our credit position is that we are in a good situation. But as Guilherme mentioned, we are kept by the sovereign rating.

Our next question comes from Alexandre Falcao with HSBC.

I just wanted to know, since you guys were so successful on integrating the Tonon assets. And I just wanted to know if there would be any chance of you looking for opportunities in the marketplace, specifically on the ADM-Bunge deal, if that goes through. ADM clearly states that they don't want anything to do, first, on the trading side, second on the sugar production side. Would any of those assets interest you in any way, shape or form?

Well, Falcao, what can I say is that Tonon was a very unique opportunity for Raízen. And if you remember, this was the first deal after the merge between Cosan and Shell assets for the formation of Raízen. So it met several criterias. I would say it was a very tough firewall to go ahead with this transaction. And I would say that we are not in the mood of consolidation in the sector. So we -- as we are one of the largest, I would say, largest player in this sector, we -- it comes to us every single deal, but we have been very selective as we made the acquisition of Tonon mill.

So the straightforward answer is that there is almost very low interest to go ahead with consolidation in this business. As we saw in Tonon a very good opportunity, we made it. Any other deals, we don't have in our radar so far.

The same applies with the trading business that they have or that would be the interest for a little bit more?

Can you repeat that again, sorry.

Would you be -- the same applies on the sugar trading business that they have and they're putting up for just sale or -- same rationale applies?

I think same rationale applies. So we have a very strong, I would say, trade intelligence in our operation. So I would say that it would make little sense to go ahead in this transaction with these motivation, I would say.

That does conclude our question-and-answer session for today. For investors and analysts, I'd like to pass the floor to Mr. Guilherme for his final remarks.

So I would like to thank you again for joining us for the earnings call for the year of 2017. I would like to highlight that we have our Cosan Day, our Investor Day on the -- next month. It will be in New York. It will be in the 16th of March. And in São Paulo in 19th of March. So we are going to be very pleased to meet you all and discuss the strategy of the company for the future, so join us. Thank you very much for the presence in the call and we'll talk on the next earnings. Bye-bye.

This concludes Cosan's audio conference for today. Thank you very much for your participation. Have a good day.