Ultrapar Participacoes SA (UGP) 2020 Q1 法說會逐字稿

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to Ultrapar's First Quarter 2020 Results Conference Call. There is also a simultaneous webcast that may be accessed through Ultrapar's website at ri.ultra.com.br and MZiQ platform. Please feel free to flip through the slides during the conference call.

Today with us, we have Mr. Fred Curado, Chief Executive Officer; and Mr. André Pires, Chief Financial and Investor Relations Officer; together with the other executives of Ultrapar. We would like to inform you that this event is being recorded. (Operator Instructions) A replay of this call will be available for 1 week.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ultrapar management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ultrapar and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Curado. Sir, you may now begin the conference.

Well, thank you very much. Good morning, good afternoon, everyone. Well, we had a good first quarter in 2020, and the quarter was pretty much in line with our expectations. And all businesses, they had showed good operational performance and also profitability. Even Ipiranga, which was, of course -- which EBITDA was impacted by the inventory losses, which were due to abrupt and also unexpected reduction in oil prices towards the end of the quarter. And up to March, we were quite positive regarding our guidance. But of course, we began to feel the effects of the crisis is already in the last 2 weeks of March. And of course, we had to withdraw the projections due to the uncertainties in the economy and the society at large.

So since the last week March, we have been working diligently in managing the crisis and acting forefront. Firstly and foremost, the health and safety of our people. Second, integrity and continuity of our operations. Thirdly, support to the extent that we can, of course, to our value chains and our resellers. And last, but not least, social support during this pandemic.

So before I take the -- give the floor to André, let me just present you an overview of the effects of the crisis on our businesses. This is the 8th week since the outbreak here in Brazil. So firstly, our security and social evaluation protocols that have been proven -- they've proven to be very efficient. All of our businesses, they are essential to the society and we have been able to maintain our operations without any interruptions or any discontinuities, which is, I think, a very positive result.

So our office staff is almost 100% -- something close to 95% working remotely. And surprisingly, I think this is the experience of many companies, quite high-efficiency based the IT infrastructure, I think, beyond better than what we expected. So it's doing quite well.

And of course, our operational staff, they have been doing it -- they -- those guys, they are in the frontline. They have been doing an exceptional job, dedication, discipline. And we have here in Brazil, a lot of increase in mobility difficulties with mayors and governors changing rules every day, but they have really gone the extra mile. And all of our operations are ongoing and without any interruption.

So far, I think we can say, we've managed to overcome the difficulties quite well with the resilience and relative success. But let me comment as well a little bit on each of our businesses. So starting with Ultragaz. We saw some reduction in LPG volumes in the bulk segment, this is more too small and medium-sized enterprises. But on the other hand, we have seen growth in households, in consumption households. And margin has been quite stable. So far, so good for Ultragaz.

Ultracargo similar situation, some reduction in movement of cargo, but the take-or-pay storage commitments, they have remained firm. We have had negotiations, proactive negotiations, I know, of course, with some payment conditions, but again, Ultracargo has shown, as Ultragaz has, a strong resilience throughout the crisis so far.

Oxiteno, we have seen a reduction in sales in some segments, specifically banking, oil and gas and also automotive. On the other hand, the agribusiness and the HPC markets, they are quite solid, including some actually increases in volumes and good margins. So the company has also benefited from the favorable exchange rate. So all the cost is in reais, of course, and translated to dollars, they are lower now. And also the drops in some petrochemical products, more specifically ethylene, which is a major raw material for Oxiteno. So that's another business which has been quite resilient so far throughout the crisis.

And talking a little bit about Ipiranga, this is clearly the business, which has been most effective by the contraction of economic activity. We have seen a drop of 20 -- sorry, 30% in volume, more concentrated in the Otto cycle with gasoline and ethanol. In these -- those volumes, they are -- get a little bit better in the last few days. But there is also some pressure on margins, especially in ethanol that we have seen, of course, due to the strong reduction in demand.

So Ipiranga has been working quite diligently to support its network of resellers, both directly, so Ipiranga has shown some flexibilization of contractual conditions, direct contractual conditions with resellers, and also supporting them indirectly with the banks, such as -- so they can really get some credit lines for working capital. So that support, I think, so far, has been very, very efficient, and the network is still solid.

And finally, commenting on Extrafarma. We have about -- we have a little bit less than 10% of our stores of our network as -- the stores are closed. Those are the stores which are in shopping malls, all shopping malls in Brazil. Well, most of them are shut down. So of course, there is -- we have -- there is a reduction in sales regarding those stores. On the other hand, we will see higher demand in the 90%, 93% of our network, which are regular operation.

So when you consider revenues per store, actually, you're seeing actually better volumes, better sales than last year and solid margins as well. So I think it's the strategy that we have been endeavouring for the last 12, 15, 18 months. I think it's paying off now. So we have closed the low performance stores, a lot of actions towards cost reduction and improvement of our infrastructure. So clearly, positive results in that front.

So regarding liquidity, we have a very comfortable position at this stage. We did reinforce our cash with 3 lines of new loans, short-term loans of about BRL 1.5 billion. So that's, let's say, an extra cushion, safety cushions to fix the crisis. As far as late payments go, we have seen some increase, which obviously was expected, but at acceptable levels at manageable levels. And we are closely monitoring those levels. So again, so far so good on that front as well.

And for final words on social support, a lot of initiatives. We have concentrated our efforts in those communities in which we operate. And also focusing on infrastructure of the health system. So we have invested in the -- co-invested with some other companies and all always trying to have an operational partner like a reference hospital, Sírio Libanês, for example, here in São Paulo, to give you one example, in construction of field hospitals and also donations of products, materials and equipment to those hospitals.

So beyond -- besides that, we have also undertaken several similar reactions like granting fuel discounts to help professionals and support to our drivers, donation of basic full products and LPG to unprivileged communities, among others.

So if I can sum up in short, a good first quarter. We're going through the crisis with, of course, a lot of determination. We're preserving our workforce, not laying people off, seeking to sustain, of course, our results and, above all, of course, issuing the continuous supply of our services and products to the population of Brazil.

So with that, over to André, and of course, I'll be available at the end for the Q&A. Thank you.

Well, thanks, Fred. And good morning, everyone. Before we discuss the performance of our businesses, I would like to highlight some important aspects of our first quarter 2020 results. Last year, it was a period of transition with the implementation of the new IFRS 16 accounting rule and the disclosure of the holdings expenses. You may remember that we published our results in 2019, with and without these changes for comparability. As from this quarter, all numbers are reported according to the new IFRS 16 rule and the segregation of the holdings expenses, both for 2020 and 2019.

Moving on now to Slide #5, talking about Ipiranga. Ipiranga reported a 2% decrease in sales volume in the quarter, the result of a 5% lower Otto cycle sales compared with the first quarter of 2019, reflecting the impacts of the coronavirus pandemic on sales in the second half of March.

During January and February combined, sales volume at Ipiranga went up by 0.7% on a year-on-year basis, while March sales were down by 6.4%. On the other hand, diesel sales increased by 2% relative to the first quarter of 2019. We ended the first quarter with a network of 7,106 service stations, a net addition of 16 during the quarter and 2,373 am/pm convenience stores, a slight drop of 4 stores in the period. As anticipated in our Ultra Day presentation, since the end of last year, we implemented a number of company-operated am/pm stores and their performances have been better than planned.

Oil prices during the quarter were extremely volatile, largely because of the sudden drop on global demand due to the pandemic and to the price war in the international markets, which caused significant reductions in fuel prices. Consequently, we incurred sharper inventory losses impacting Ipiranga's margins. SG&A fell by 4% compared with the first quarter of 2019, mainly due to the initiatives for reducing SG&A, which Ipiranga has been implementing since 2019.

Ipiranga's EBITDA amounted to BRL 480 million, a decrease of 20% compared with the first quarter of 2019. This was mainly the result of lower sales volume and the impact from the drop in prices already mentioned. These factors were somewhat offset by the reduction in expenses.

I would also like to mention that in April, for the sixth year in a row, Ipiranga and am/pm received from Folha de São Paulo newspaper, the best of São Paulo award in the service station and convenience stores categories. This is particularly important recognition for us and is indicative of the efforts we make to offer high-quality products and services to the society.

Given the impacts of the pandemic on Ipiranga's volumes up to now, we have seen a significant decline in Otto cycle sales. Diesel sales have been less affected, since a good part of the supply chain. And therefore, cargo transportation continues to operate normally. Volume trends are likely to be maintained, while restrictions on the mobility of people and social distancing in Brazil remain in place. As to margins between ups and downs since the end of March, fuel prices have fallen, directly impacting margins over the short term due to inventory losses. These losses may be greater or smaller depending on how fuel prices behave in the weeks ahead.

Now moving on to Slide #6. At Oxiteno sales volume of specialty chemicals was stable compared to the first quarter of 2019. This was due to the increase in sales to the crop solutions and home and personal care segments, offset by a reduction of 6% in exports. Reduction is mainly due to lower solvent sales to Asian markets, already impacted by the pandemic during the quarter. We had a slight increase of 2% in sales volume of commodities driven by exports.

The Pasadena plant reported a 31% increase in sales volume in the quarter with the ramp-up of its operations. Oxiteno's results in the quarter benefited from improved contribution margins in U.S. dollars per ton and driven by the reduction in the cost of key raw materials and the devaluation of the real.

SG&A were 13% higher in the period due to increased expenses with freight and the impact from foreign exchange rate appreciation in our international operations, even considering the initiatives underway to reduce expenses at Oxiteno. Results were also boosted by a nonrecurring tax credits of BRL 71 million booked in the first quarter of 2020. As a result, Oxiteno's EBITDA was BRL 193 million in the quarter. If we exclude the effect of the tax credit, EBITDA was BRL 122 million, an increase of 207% over the first quarter of 2019 for the reasons I have just described.

Looking at Oxiteno's performance in this current quarter. Prospects are for volumes reduction for some segments that are more severely impacted by the pandemic, such as coatings and oil and gas. However, other segments are more resilient, such as the home and personal care sector and crop solutions. Nevertheless, the positive effect of the foreign exchange rate appreciation on Oxiteno's results in reais, combined with the resilience of unitary dollar margins indicate an expansion in EBITDA compared to the second quarter last year.

Moving on to Slide #7. Sales volumes at Ultragaz in the first quarter of 2020 increased by 7% compared with the first quarter of 2019. Better than the market as a whole, the volumes were up by 5% in the period. Ultragaz saw an improved market share in both bottled and bulk segments.

In the bottled segment, volumes rose by 7% year-on-year, largely driven by stronger demand in the final weeks of March as a result of the pandemic. There was a particularly strong growth in sales to the Midwest and Southeast regions of the country. In the bulk segment, sales volume was up by 6%, with increased sales to industries, condominium and special gases.

SG&A fell by 4% from the first quarter of 2019, largely due to the efficient expense control and in spite of the increase in freight expenses. Ultragaz EBITDA amounted to BRL 147 million. That's an increase of 34% compared with the same quarter in 2019, due to higher sales volume and SG&A reduction.

For the current quarter, we are experiencing a reduction of sales volume for the bulk segment mainly to the small and medium-sized companies, which are primarily affected by the pandemic. On the other hand, foreign demand in the bulk segment has been partially offset by soaring demand for residential LPG. With the scenario, the trend in results for the current quarter remains the same as in the first quarter of 2020.

Let's move on now to Slide #8, talking about Ultracargo. Ultracargo reported an increase of 20% in average storage compared to the first quarter of 2019 due to the expansion in tankage capacity at the Santos and Itaqui terminals with greater fuel movements as well as greater handling activity at Suape and Aratu.

As from this quarter, we are also providing data for cubic meters sold at Ultracargo. We have included this information to align the market disclosure with the KPIs we track internally allowing a better visibility of the evolution of the results. Cubic meters sold is an important metric at Ultracargo since it captures information on the turnover of products in the tanks, more appropriate to fuel operations.

Net revenue at Ultracargo was BRL 163 million in the quarter, 29% greater than in the first quarter of 2019 due to tariff adjustments and new contracts with clients. We also had an increase in average storage following the capacity expansion in Santos and Itaqui.

Regarding costs and expenses, we had a combined increase of 9% due to increased expenditures with payroll and maintenance mainly due to the increase in capacity in Santos and Itaqui. We also had a positive impact from a BRL 4 million reimbursement of compulsory loans made to Eletrobrás in the past years.

In the quarter, EBITDA amounted to BRL 91 million, equivalent to an expansion of 52% compared with the same quarter of 2019, due to greater handling activity and the rationalization and dilution of costs and expenses. EBITDA margins in the quarter were 55%. Over the course of the first quarter, Ultracargo brought on stream more than 18,000 cubic meters of tankage at the Itaqui terminal, the project's second expansion phase. With this, we see a continued trend of solid and consistent results over the forthcoming quarters.

Moving on to Slide #9, talking about Extrafarma. Extrafarma ended the quarter with a network of 411 drugstores, a net reduction of 5 stores compared with the first quarter of 2019. Of the total stores in the network, 40% are currently in the ramp-up process. Gross revenue in the quarter was BRL 521 million, 5% lower than in the first quarter of 2019 due to the decrease of 7% in the number of stores and to lower sales to the wholesale segment impacts, which were partially offset by ramp-up in revenues of new stores.

Gross profit was BRL 145 million. That's a 2% year-on-year increase equivalent to a gross margin of 28%, reflecting better overall margins and richer sales mix. SG&A were down by 6% in the quarter, thanks to initiatives adopted to improve productivity, the reduced number of stores and logistics improvements. Notably the optimization of personnel expenses and the opening of the distribution center in the greater São Paulo region.

With this, EBITDA at Extrafarma was BRL 9 million, due to the operational improvements made over the past quarters and to better margins. It is worth remembering that in the first quarter of 2019, we had a nonrecurring tax credit of BRL 9 million. So the increase in EBITDA was effectively BRL 17 million in relation to the first quarter of 2019.

Pharmaceutical sales tend to be more resilient in times of a crisis as drugstores remain in operation. Currently about 30 Extrafarma stores, largely those located in shopping malls, are closed and, therefore, are impacting our overall sales. However, we remain confident on the continuation of better results on a recurring basis versus the same period of last year.

Moving on to the consolidated numbers of Ultrapar on Slide #10. Net revenues was BRL 21 billion, 3% higher than in the first quarter of 2019, with revenue growth across all the businesses, but Extrafarma. EBITDA reached BRL 880 million in the quarter, an increase of 12% compared to the same period of 2019. If we exclude the nonrecurring tax credits of BRL 71 million at Oxiteno, EBITDA was BRL 809 million, a 3% increase in the quarter due to the growth of EBITDA at Oxiteno, Ultragaz, Ultracargo and at Extrafarma.

We posted a net financial expenses of BRL 168 million in the first quarter of 2020 compared to a particularly neutral financial results in the first quarter of 2018, when we registered important gains from our mark-to-market of exchange rate hedging instruments. The FX volatility in the first quarter of 2020 led to extremely atypical and important positive and negative impacts. The main impact came from a negative result of a mark-to-market of a 0 cost collar hedging instrument contracted in the first quarter of 2020 to protect Oxiteno's operating margins in reais against the volatility of the U.S. dollar exchange rate.

Net income was BRL 169 million, 30% less than in the first quarter of 2019 due to higher financial expenses despite an increase in EBITDA and the tax credits of Oxiteno. CapEx was BRL 350 million, an increase of 31% compared with the first quarter of 2019. These investments were made prior to the decision to cut our original investment plan by 30% announced in early April. So the trend will be for lower CapEx for the coming quarters. The highlight for the period was the cash generation from operating activities of BRL 900 million. Total operating cash generation was BRL 731 million, 184% increase over the first quarter of 2019.

Moving on now to Slide #11 to talk about our debt profile. We ended the quarter with a leverage ratio of 3.27x, measured by net debt-to-EBITDA for the last 12 months. It is worth mentioning the impact of the exchange rate variation of the bonds in the net debt equivalent to BRL 730 million. Excluding this effect, the leverage would have been 3.06x.

To better explain this impact, we have issued bonds in the international market with protection via hedge accounting instruments based on future exports from Oxiteno. Consequently, this portion of the debt fluctuates according to currency variation, which generated an increase of BRL 730 million in our net debt. However, this increase does not have a cash impact, since as exports are performed, they revert into cash in U.S. dollars accumulated abroad for the future settlement of this bond in 2026 and 2029.

As from the first quarter of 2020, with the introduction of the IFRS 16, we started to consider leases payable in the calculation of net debt, contributing to an increase in leverage. It is worth to remember that these leases are not bank debts.

We came to the end of the quarter with a cash position of BRL 7.2 billion. This was boosted by the cash generation during the period and additional credit lines. In addition to the preventive steps taken to mitigate the impacts of the pandemic and to which Fred has already alluded earlier, now in the financial part, we announced in early April, a 30% reduction in the 2020 CapEx plan as a measure to preserve cash. We're also optimizing expenses across all our businesses.

In addition, we have strengthened our cash position by raising a further BRL 1.5 billion in credit lines. That's about BRL 200 million in Bank credit lines drawn in March and BRL 1.3 billion in promissory notes, which was incorporated in our cash position in early April. Both lines mature in a year. This was a preventive step to help us navigate a dispute of uncertainty and, at the same time, secure our financial liquidity.

In addition, this cash support was crucial for putting together a comprehensive package for assisting our partners along with Ipiranga's value chain. In turn, it gives additional soundness to the Brazilian fuel distribution system as a whole.

Well, with this, I conclude my presentation. We can now begin the Q&A session. Thank you.

[Operator Instruction] Our first question comes from Christian Audi with Santander.

Okay. I would like to start with a question for Fred. Given all that's happening, as you look at your portfolio, Fred, how has the outlook for a potential refinery acquisition changed? Or can you just give us an update as to where that process is going? I know it's a long-term process, so your interest may still be there, but I was just wondering what's happening to the process, please?

And secondly, André, on the Ipiranga front, with volumes marginally improving potentially lower inventory losses in the second quarter as oil prices have stabilized a bit, this leads me to believe that we could see improved margins in the second quarter. If you could comment on that? And also the type of behavior you've seen from the white flags, they had proven resilient in the past at the beginning of this year. Is that still been the case in April and May? In other words, are they still gaining market share?

And then the third and final question was on the SG&A cut initiatives, in other words, André, you had introduced a number of initiatives to cut SG&A costs across several of your businesses. Some of those have already been achieved. What I was wondering if you could give us an update as to in which businesses do you still see important upside from potential further cuts in SG&A?

Okay. Thank you, Christian. This is Fred. Thank you for your questions. So let me address the question about portfolio and strategy. So I mean we remain in our view that we should prioritize capital allocation in the downstream sector in Brazil. So of course, our port infrastructure, the infrastructure also in the networks, both Ultragaz and Ipiranga. And of course, we have a continued interest in the refining opportunities.

Structurally, we don't think there is a change. Structurally, Brazil will be a net exporter -- net producer of oil, and will be -- always have a deficit of refined products. So that's the case. Then, obviously, we -- I think we and, I suppose, everybody else have to take a breath and we evaluate where we are. There's a lot of volatility. I mean we still need, let's say, few weeks or few months before we have any idea where this whole thing will end.

But again, we remain confident that the business proposition, structurally speaking, in Brazil is still grounded. I -- as you can understand, Christian, I cannot make any comments about the process itself. The whole process is under confidentiality, but I guess, my comments before that. I can give you an idea where we are. Thank you.

Christian, thanks for the questions. Starting with Ipiranga in terms of margins and inventory losses. I think it's important to mention that when we look at the impact of the inventory losses in the first quarter, it was related to the big drop in prices starting obviously in the second half of March. But as you know, right, when you have such a dramatic price decline, the inventory impact is not observed immediately. It takes some time, especially in a moment of low volumes for the volumes to be recycled. So what I'm trying to say here is that part of the big drop that happened already in the end of March flew down towards the second quarter as well.

So -- but it is a fact, and you mentioned that, that prices have started to recover. There has been already 2 price increases from Petrobras in the last few days. But overall, this will depend on how prices ended up staying, let's put it like that, by the end of second quarter. Obviously, there is a question that relates to operational leverage, right? I mean the fact that lower volumes tend to influence negative EBITDA margins. And it is also important to mention that we have seen margins -- sorry, volumes improving in the last few weeks as, let's say, the isolation started to somewhat be lower than in the beginning, right? So I think it's too early to tell. I think, obviously, if the trend of prices recovery continue, there will be a reduction of the impact in inventory losses.

It's also important to mention that we have to take into consideration also ethanol. Ethanol prices dropped more in the second quarter than in the first quarter, and they remain relatively low. So there is an impact coming from there as well. But it is also true that in terms of volumes, if in the first couple of weeks of the isolation, let's put it like that, we saw volumes going down by 60%, 70%. We're now seeing volumes in the Otto cycle down around 25% and in the diesel down by 10%. So there is some recovery happening.

As for SG&A, in general, all across the business, I mean, the measures continue to be taken. It is true for Ipiranga that basically had a 4% SG&A decline in the first quarter of this year versus last year. It is true for Oxiteno as well. If we look at -- even considering the FX depreciation, SG&A is below historical levels. So there is further upside, I would say, from SG&A cuts across our businesses. If you look at Extrafarma, there has been also a strong reduction in terms of, I would say, SG&A, in general, optimizing personnel costs or increasing productivity. So this is something that we are doing on a regular basis, and we can expect to see further upside from that.

And André, is Ipiranga the biggest source of those additional cuts in SG&A?

Yes. Yes. Clearly, clearly. We can expect this coming more from Ipiranga, clearly.

Okay. And on the -- going back to Ipiranga, on the white flag, have you seen any changes in market share that lead you to believe that the white flags, given their low-cost business model, are benefiting particularly from the current difficult macro-environment?

Christian, it's too early to tell. I think you have, let's say, 2 sides of the story. I mean we see, obviously, in some cases because of their, I would say, lower headcount or lower cost continued capacity to compete. But on the other hand, it's important as well to mention that to go through this crisis, it's important that you have solid financial background or solid financial situation. And there is -- so any of these competitors that, I mean, do not have, let's say, enough capacity from a working capital point of view to pass through the crisis, I mean they tend also to suffer.

So it's a tale of 2 stories, to be honest with you. I mean it's difficult to call a trend. But I mean, we've seen all. In some cases, tougher difficulties for some of these guys. And in some other cases, some resiliency, especially on the ethanol market, I would say.

Okay. And last clarifying point on leverage, you explained very well how your hedge accounting impacted this increase in net debt to EBITDA. Does hedge accounting, André, will continue in place through the end of the year? In other words, if the FX were to continue to depreciate during the second quarter, we could see a similar type of impact in your leverage from hedge accounting as well?

Yes. Well, the hedge accounting, Christian, it will continue until, obviously, the bonds are settled. But again, when you see, for example, the BRL 730 million of net debt going up. The other side is a reduction on our equity, on our net patrimony, in our equity. So this number does not fall through our P&L and does not require any cash. So -- and obviously, when you see this increase, you can expect, and this is happening, the accumulation of cash from Oxiteno exports in our international subsidiary, Ultrapar international.

So it is -- I mean if there was no hedge accounting, obviously, this impact would be felt in the P&L. Since there is a hedge account, the impact is in the equity part of the balance sheet, and the impact is in the cash being mounted up in our international subsidiary.

I mean summarizing all that, we're not going to have to buy U.S. dollars at BRL 5.5 or BRL 6 or whatever to settle down the bonds. I mean this is what is very important. We're not taking money from our cash to settle the bonds. The settlement will be coming from exports that are being performed by Oxiteno over the years.

Our next question comes from Frank McGann with Bank of America.

Okay. Two questions, if I could. One, I -- and perhaps I just missed it, but I didn't see the exact quantification of how much the inventory loss was included in the quarter, if you have that number? And then in the Ultragaz, the increase in EBITDA was really quite strong. So I was wondering if you could provide just a little bit more clarity on what really drove that.

Frank, thanks for the question. I hope everything is fine with you. Well, inventory loss, normally, I mean, after prices became all volatile in Brazil, I mean, we basically decided to not necessarily talk about the impact of these movements because it became a very recurring impact. But I think it's fair to say that in that particular quarter, it's being, let's say, such a dramatic price drop that we talked about that in our previous call, unfortunately. So the impact is in the vicinity of BRL 100 million in terms of inventory losses in the first quarter.

As for the LPG, basically, there has been a few important, I would say, tailwinds for Ultragaz. I think the first one was the increased demand for bottled LPG, especially in the end of the quarter -- in the end in the last 2 weeks of March. People kind of piled up their LPG bottles, afraid that during, let's say, social isolation period, they're going to be without LPG for cooking, specifically. So this helped results in one hand. And the expected reduction in terms of volume for bulk hasn't been as bad as we were expecting. In fact, in the first quarter, we haven't seen any reduction in bulk LPG. In general, the demand continues strong for bulk as well in the first quarter.

In addition to that, the cost of LPG came down. And therefore, there was also a margin expansion opportunity with this LPG costs coming down.

Our next question comes from Luiz Carvalho with Banco UBS.

I have one question that I addressed to Fred actually during the Investor Day recently about capital allocation. I mean due to the current environment, how do -- I mean, of course, more capital allocation strategy of the company is long term, but how do you see this current environment and potential change in some of the business sectors could change, how I can say, the plans and the strategy for the company to potentially, I don't know, divest from some of the assets and potentially invest in others, right? So just would like to try to get a better long-term sense in terms of the capital allocation strategy for the company amidst all these changes that we are seeing?

Okay. Thank you, Luis. We -- I mean we had a clear direction. That clear direction is really to prioritize our positioning in the downstream sector in Brazil. So there are, of course, initiatives through our -- to defect our CapEx and results -- operational results in, let's say, the triangle, which is Ipiranga, Ultragaz and Ultracargo. As we have discussed during the Ultra Day.

Of course, we are trading down the CapEx for this year. And we are maybe more contingent upon what we see in the next several weeks. So far, as you have followed, except for Ipiranga, all other businesses are quite resilient throughout the crisis.

So our views continues to be the same. We have significantly reduced the capital allocation as far as investments in -- for Extrafarma and for Oxiteno. Extrafarma, now it's much more in the, let's say, optimization cycle, getting rid of the low performance stores and turning positive cash and positive EBITDA terrain for a couple of quarters now.

In Oxiteno, of course, having ended a long and deep investment cycle, ramping up in U.S. is going fine, still available capacity in Brazil. So it's a company that really can increase its results with, let's say, maintenance, if you will, type of CapEx.

So that's what -- that's how we see what we have now. And obviously, as long as we're finding opportunities and also natural gas, I mean we're -- we continue to investigate, continue to analyze, obviously, there's a lot of fog now regarding, nowadays, business plans, business cases. But again, structurally, we don't think there's any major change in the validity of our views that there is a good case for refining in Brazil. There's a good case for when Petrogas privatized the natural gas chain. There's probably some parts of the value chain, which we may be able to play and may be able to play with differentiating conditions.

But of course, this whole -- any decision, any major decision now, it's obviously depending upon how the current crisis unfolds. No change to this directionally in strategy, but of course, fine-tuning of movements and times and, obviously, clear sense of cash preservation in that road map.

This concludes the question-and-answer session. At this time, I would like to turn the floor back to Mr. Pires for any closing remarks.

Okay. Well, thank you, everybody. Thank you all for participating in our quarterly call. So I hope to talk to you all again in early August. Thanks very much. Stay safe. Bye-bye.

This concludes today's Ultrapar First Quarter 2020 Results Conference Call. You may disconnect your lines at this time.