Raizen SA

BOVESPA:RAIZ4

Earnings Call Transcript

[Operator]

Good morning, everyone. Thank you for waiting. Welcome to the Raízen S.A. First Quarter of 2023, '24 crop year earnings presentation. This presentation is being recorded, and the replay will be available at the company's IR website at ri.raízen.com and at Raízen official YouTube channel. [Operator Instructions]. This call will be presented in English with Portuguese transcript. For the Q&A session, there will be a simultaneous translation to Portuguese. [Operator Instructions].

Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections our goals and the beliefs and assumptions of Raízen's Executive Board using current information available. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur.

Investors and analysts should be aware of events related to macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in their respective forward-looking statements.

Today, we have the presence of the following company's executives. Ricardo Mussa, CEO Carlos Moura, CFO and Investor Relations Officer; and Phillipe Casale, Head of IR. Now I will turn the conference over to Mr. Casale. Please, you may begin your presentation.

[Phillipe Casale, executive]

Good morning, everyone, and thank you for attending our Raízen results presentation for the first quarter of the 2023-24 crop year. Now with this new format. Here with me today is Carlos Moura, our CFO and IRO, and our CEO, Ricardo Mussa, will join us later via Zoom for the Q&A session.

I would like to point out that this presentation is also being broadcasted on our YouTube channel with Portuguese subtitles. So to begin the presentation, let me invite Carlos for his introduction. Good morning, Carlos.

[Carlos Alberto de Moura, executive]

Good morning, Phillipe. Good morning, everyone. Thank you for being here with us. This quarter, we had important structural progresses and dealt with circumstantial challenges. It's important to mention our priorities and levers to value creation presented at this year's Raízen Day and from which I highlight the following: First, mobility. We continue to make progress in expanding our network, reinforcing the dealer centrality. However, internal and external circumstances caused strong volatility in the industry margins and resulted in a complex operational environment with [ excess ] of diesel supply in the market in addition to macroeconomic effects in Latin America.

Additionally, successive price drops in all products resulted in effects on inventories. Under any circumstances, we will continue to strengthen the Shell integrated offering. In addition to the number of the stations, we increased sales to the auto cycle innovation. Our mobility teams in Latin America are even more prepared and confident in their ability to navigate this environment and deliver solid results, [indiscernible] as the year progresses.

I am pleased to announce the progresses made in the recovery of agricultural productivity. We started the harvest with accelerated crushing and superior performance rates. Our crop has been exceeding expectations. Our guidance of 80 million tons this year will be reached and we will generate more products for commercialization and naturally dilute costs.

In Sugar, prices are favorable cycle in accordance with our strategy to advance in the value chain with direct sales to the destination and product differentiation. In Ethanol, we decided to support an inventory position that would allow us to adapt to scenario of market prices. Despite the pressures in the capital structure, we are confident that this position will promote benefits and we will maintain the differentiated mix of [hydrous] and industrial ethanol for several markets. And applications capturing premiums over the benchmark.

In the Power segment, we continue to capturing opportunities in the market, intensifying partnerships and gaining scale. We grew consistently our distributed generation customer base and sales levels. We are making progresses in E2G with investments within expectations, including 5 plants currently under construction. We will inaugurate the plant at the Bonfim Bioenergy Park in the city of Guariba, state of Sao Paulo, which means that the worlds 2 largest [indiscernible] ethanol plants in operation are from Raízen.

Regarding the capital structure, I would like to highlight the rigor with our commitments. The investment-grade status was reaffirmed by 2 risk rating agencies. Our leverage at the end of the quarter follows the harvest seasonality and our commercialization strategy. It's important to note that we are using the levers in our capital structure, such as, for example, more than BRL 1 billion in compensation and reimbursement of tax credits.

In the next slide, please see the highlights of the results released yesterday. Despite the lower volumes sold in the first quarter this year, we were able to capture cost efficiencies, which more than compensated the lower level of revenues in the period. As you can see, our EBITDA was positively impacted by improved results in Sugar and affected by the lower contribution from Renewables and Mobility, as I have mentioned earlier.

At the corporate level, we recognized a nonrecurring extemporaneous effect of tax credits. Despite being a part of adjusted EBITDA, we reiterate that these effects should not be considered for the calculation of the guidance in this year. The nature of these credits is similar to those accounted for last year and will contribute to enhance our tax shield and future cash dynamic. Now I call Phillipe to come back and provide more details for each of our business segments. And at the end, I will return for some closing remarks.

[Phillipe Casale, executive]

Thank you, Carlos. I would like to start with the Mobility segment and with the results of the operation in Brazil and Latin America. So despite the increase in volumes sold from our operations, margins were affected by operational circumstances this quarter, especially in Brazil. In Argentina, we have made relevant efforts to sustain margins even through an immediate challenging economic scenario in this election year. We are improving the balance of local capital structure to adequate the current scenario of capital restrictions and controls.

This means funding denominated in Argentinian pesos and running the operations at a higher leverage than usual.

Now let me give you some color on Mobility Brazil. As you can see, this quarter was strongly affected by a new dynamic of increasing production locally with an incentive for opportunistic imports. That scenario caused an oversupply of diesel and consecutive price drops further creating a challenging environment for our operations. We have seen new pricing dynamic from the major supplier that should reflect in lower volatility leading prices, but an increasing volatility in the supply, mainly on the diesel.

This dynamic should benefit our supply strategy gradually throughout this year as we expect a recovery in returns. In diesel, you can see how the price movement of both the molecule sold by Petrobras in the imported one went down. But July already shows a different trend, reflecting what I have just mentioned.

Now going to the next slide here. The same movement occurred in the gasoline, ethanol and aviation fuel with negative effect on prices throughout the quarter. Worth mentioning that we have a more relevant penetration on ethanol in our operations, which maximizing the challenge of the turnover of our inventories. As a result, the total inventory effect on margins led us to a result of BRL 59 per cubic meter, which when normalized by that effect takes us to BRL 94 per cubic meter. But despite this impact, we made progress in the structural aspects that supports our long-term strategy in the Mobility segment.

And as we can see, we expanded our network of service stations and customer base, increased the volumes sold in the auto cycle and in commercial aviation. We continue to intensify sales and market initiatives enhancing the value of the Shell integrated offer and profitability for both our resellers and to Raízen.

I should mention that the progress made in the Shell Box with growing numbers in both users and transactions, and in the lubricants business, we are expanding sales on branded products seeking to reach our fair share on retail and B2B. We are also making progress with Shell Recharge. We reached 346 Oxxo branded stores, which takes us to over 2,000 points of presence in our operations.

Now let's move to our Agroindustrial Operation which was the highlight of the quarter. Despite the slower progress in crushing due to rainfall in early April, our TSH or tons of sugar per hectare show the strong progress, which resulted in an increased production of sugar equivalent. We are also maximizing the sugar production mix, taking advantage of the cycle of improved prices. For this year, we expect to crush at least 80 million tons of sugarcane, already reaping the results of our journey of agricultural recovery.

We remain firm with our investments to bring agricultural productivity to superior level. We completed more than 2/3 of this journey, and we are on track to reach full potential of our production. Soon the fourth, fifth and sixth cut, we will be adequated at the levels of productivity that we are seeking, increasing our product availability, improving returns and cost efficiency.

Now speaking about Renewables and Sugar costs. This harvest will certainly bring important gains in efficiency, reflecting our better productivity in having a stronger dilution effect on fixed costs. We also saw a relief in diesel, fertilizers and other agricultural inputs, which will help to improve our cost dynamics. It should be noted that these effects are not fully visible in the first quarter of the crop year due to the inventory carryover from previous harvest, but as the sales of this crop advance, this benefit will be clearly demonstrated.

Looking at the results in Renewables and Sugar, the lower revenue was more than offset by lower costs of goods sold in the quarter, resulting in a strong expansion of gross profit, mainly from sugar. EBITDA, as you can see in this slide here, was positively affected by the improved product margins, but offset by lower sales volumes of ethanol and sugar. Regarding volumes sold, it is important to highlight the Power business, which has gained in size with the increase of our customer base in distributed generation and commercialization as well, a trend that should continue over the year.

As for Ethanol and Sugar, let me remind you once again that Raízen's sales strategy is based on maximizing returns, targeting the best prices throughout the harvest year. That said, in this quarter, there was a concentration of lower volumes sold added with the setting up of inventories for future sales.

Now I would like to provide an overview of prices, starting with ethanol. As you can see, the circumstances in the market pushed Ethanol prices down with successive drop. Our integrated positioning in portfolio explores different markets and applications for ethanol, which has contributed to capturing higher prices. An important point, I would like to draw attention, to is that the quarterly sales mix included smaller volumes for exports in industrial ethanol. However, as shown in this slide, our sales strategy for this year continues unchanged and will ensure higher returns over local market prices.

Regarding Sugar, we are entering the sixth harvest year in a row with prices at higher levels, this time with a 20% premium over the previous year. We have hedged prices in BRL terms, ensuring expansion if our returns by combining higher volumes, better prices and the lower production costs. As you can see, even in a scenario of lowering prices in the future here in orange, the prices remain very constructive levels. Taking advantage of this higher price cycle for the commodities, we continue to increase our presence in the sugar value chain, making more and more sales directly to destination since 100% of our own sugar is already sold without any intermediaries.

We will now be calling Carlos back for his final remarks. Thank you, Carlos.

[Carlos Alberto de Moura, executive]

Thank you, Phillipe. Before we go through the cash flow for the quarter, I would like to share some information about one of our liquidity levels, supporting our balance sheet, recoverable taxes. In this quarter, we managed to offset and have reimbursements of over just BRL 1 billion with an emphasis on PIS/COFINS credits. This quarter, as detailed in explanatory note #8, we recognize extemporaneous credits which will be relevant to our company in the coming years in compliance with tax standards.

As we have mentioned before, we are building Sugar and Ethanol inventories for future sales, in addition to using some working capital levers available to us, always maintaining prudential levels of liquidity, balancing with a current capital structure, which allow us to support our expansion cycle.

In terms of cash flow of investments, we are maintaining our focus on recovering agricultural productivity, together with investments to builds [E2G] plants, product quality in the refinery in Argentina, renovation of service stations and expanding the Power segment.

Financing cash flow incorporating a higher level of amortization according to the guideline of extending the average term of the indebtedness in our balance sheet at the end of this year, which explains the difference in cash flow to the shareholders between the periods. These effects also explain the seasonal fluctuation of net debt. Despite the increase of the debt in the period, a healthy level of leverage has been maintained.

Our indicators are always convergent at the close of the crop year, giving our sales behavior base and our margins. We will have always done here. I would like to share with you the analysis of opportunities and challenges that lie ahead for us, leasing them in this slide.

Let me highlight our opportunities which includes superior level of agriculture productivity with an expansion of at least 9% in crushing at the floor of 80 million tons of sugarcane, which confirms our guidance. In Sugar, we accelerated our strategy of moving forward with direct sales to destinations, expanding returns in the favorable cycle for commodities and diluting costs.

Our E2G continues to expand strongly. Our contract portfolio reaches the equivalent to EUR 4.3 billion, and we will maintain the market up-to-date on all of our processes going forward. Amidst our challenges, I would like to highlight the volatility and externalities in the fuels market, at least until December. The last predictable business environment demands utmost attention and concentration from us.

Naturally, the macroeconomic and political scenario in Argentina requires close attention and agility in our decision-making processes. In Paraguay, we feel confident with the new momentum in the country after the last presidential elections. I reiterate our motivation, focus and confidence in delivering results for this crop year, as we have disclosed in our guidance. It's key that we know how to separate circumstantial effects from the structural advances achieved following our strategy.

Before I finish the presentation, I would like to highlight the launch of our sustainability report regarding 2022, 2023 crop year reinforcing our journey and commitments regarding ESG aspects. We are also issuing the first version of the modeling guide, which will provide a better understanding about our business and sources of data and information. We will remain at your disposal to support you to exploring this guide and improving the level of knowledge about our company.

So I would like to call our CEO, Ricardo Mussa, proudly representing Raízen Istanbul Turkey together with our dealers to our Q&A session. Thank you.

[Operator]

[Operator Instructions] Written questions that are not addressed during the earnings call will be returned by the Investor Relations team. [Operator Instructions]. Our first question comes from Mr. Luiz Carvalho from UBS.

[Luiz Carvalho, analyst]

I have a couple basically 3 here, if I may. The first one, Mussa, if you can, I don't know, share some views about the recent Petrobras price increase, both in gasoline and diesel on the light of the fuel distribution business, on the light of the Sugar and Ethanol business and also the strategy of the company in terms of supply -- fuel supply. That would be the first one.

The second one, if you can also give us a bit of an update in terms of the contracts on E2G and how the margins are performing? It's always good to hear from you how the business and, the competitive environment is evolving?

And lastly, if I may, a very quick one. We had the primaries in Argentina, and we saw a massive depreciation of the currency during this week. So just wondering if you can share some views as well in terms of how should we think about the returns and the outlook for Argentina. And if that's the case, despite that you reiterated the guidance, that poses some risks to the company guidance.

[Ricardo Aquila Mussa, executive]

Thank you, Luiz. Ricardo Mussa here. Great questions. The first one on -- regarding Petrobras price increase. Of course, we were expecting this price increase in my point of view because the situation was really challenging to support the -- especially in the diesel supply in Brazil. We're also seeing what's the impact on the ethanol business.

So to be very clear, of course, this is very positive to us on the ethanol side. We were concerned ethanol price were really, really low. And that's why you can see that we sold less than we had initially anticipated for the beginning of the crop. So it turned now to be a good strategy. So we are seeing now the ethanol price recovering with this price increase from Petrobras. And more than that, I think it's a great message to the market that Petrobras is following the international parity prices, of course, with less volatility, as [indiscernible] said before, but I think it was a great example that gives us confidence moving ahead on both businesses.

I think the best impact that we're going to have is on the Sugar and Ethanol business because this will drive ethanol prices up, and it should. So this was a good momentum for us.

Related to your point, our strategy on the fuel business. So we have been very close to Petrobras. We're trying to protect or quota as much as we can. And of course, being able to have access to the cheapest molecule that as much as we can share right now. But I think it was a good -- we were very glad with more than the price increase, but much more with the behavior that's showing that the Brazilian market is still following, of course, with less volatility to the international market price. So this gives us -- I think we did the right strategy here, being close to Petrobras protecting the quota. But looking ahead, I see a very positive trend. We already saw that happening in July, especially now in August. So it's a good moment.

To your second question on E2G contracts, I think the market hasn't changed. What I see -- what I'm seeing right now is the demand from sustainable aviation fuel is getting stronger. And I think the market prices that we have seen hasn't changed much. We are still seeing premiums now above 100% from UNG prices.

I think the thing that we are seeing now that is better than before is our cost of production is going down. So we are having good results in our Costa Pinto plant. The plant is running better than last year. It's running at lower cost with less enzymes. So now we are very anxious, of course, for the next month that we will start Bonfim plant, the second and much larger one. So I think for me, the market hasn't changed. It's still very high margins, but the news -- the good news, Luiz, is that we are seeing our production going in a very good direction, especially cost is also going down.

Argentina, you're right, we had a still very risky scenario. We are seeing the devaluation by now. So the most important piece of the equation now in Argentina is to pass through prices. So of course, that's we're trying to do as much as we can, still very good volumes, still very good margins. But you are right, there are risks here involved, especially going through the elections, and we have seen the 3 potential candidates very close to each other. So it seems that we're going to have until November, nothing is decided. So it's still risk ahead of us. But we are better than we anticipated initially. So the results are a little bit better.

Paraguay is doing great also, both on volumes and margins. So we are still confident with nothing here that changes the course. We already made our business plan in our guidance, putting some downside of the potential devaluation of the currency in Argentina. So it's already embedded in our guidance.

[Operator]

Our next question comes from Thiago Duarte from BTG.

[Thiago Duarte, analyst]

Two questions on my side. I will start with the Sugar and Ethanol segment. There was this very nice improvement in overall yields and I see that you're changing a little bit the tone of the guidance, putting 80 million tons of cane this year as a minimum, feels like more confident that you're going to be able to deliver above that mark. And -- but there was a little bit of, I sense, a little bit of a disappointment in terms of the cost dilution, which didn't show up as strongly at least as we were expecting in the quarter.

You mentioned in the earnings release, the carryover from last year inventories, which obviously are coming with higher cost. And obviously, the delayed start to the crop probably didn't help much for you to get the full operational leverage that you could have got in the quarter. So other than these elements, my question is really whether there were other elements that could explain the lack of significant operational leverage. And looking forward, as you think and since you guys are reiterating the guidance, if you could at this point come out with a figure how much in terms of unitary cost you expect to see a deflation this year in the next quarters for the balance of the crop year that would be great to hear.

And the second question and going back to the -- a little bit to the previous discussion on fuel and the sourcing and origination of fuel in Brazil along with Petrobras decision to hike prices this morning. So it looks like you guys didn't participate much in this import -- cheap import, especially from Russia in the quarter since the beginning of the year. So if you could talk a little bit about assuming that these cheap imports become viable again whether the company will be ready to tackle these volumes in an opportunistic way, I presume, or we should assume that the company will continue to stick with Petrobras in a more consistent way as the main source of fuel. And even though this might harm market share like we saw in the past few months. So if you could, I think Mussa elaborate a little bit more on how we should think about sourcing going forward?

[Ricardo Aquila Mussa, executive]

Thank you, Thiago. I think for both your questions. On the first one, it's just a carryover. If you look into our -- we have enough gain Thiago today on the fuel to 83 million to 85 million tonnes. So the only reason we are putting 80 million tonnes because there is the risk of not being able to harvest everything. So the -- of course, we are very confident the quality of the sugarcane, we are getting fantastic results. If you look into our July numbers, we have record crushing, record mix. So it's really in a very good position. You see on the next quarters, this effect, the cost dilution coming. So if you look into the how much we have done the same volume of last year with less than 20% of the acreage that we had last year, so you are going to see a lot of that coming in [indiscernible] once the products are sold throughout the next 3 quarters. So I have 0 doubt that this will happen. There is nothing here different we are seeing cost of fertilizer at the same level that we had in 2019. So going down we still have good momentum Thiago.

I think it's just a matter of the time. Of course, there is still the risk of El Nino. So we don't know how much harvesting days we have ahead of us. but very strong production on the field, very good mix with still some sugar to hedge by the end of the year. And now with this price increase that we have seen on the gasoline prices, we see some recovery now on the ethanol price moving ahead. So it's a good -- very good setup for the next quarter. So you're going to see that on the numbers.

Our strategy here -- of course, when we're talking about the fuels business with Petrobras, we did our best to protect the quota that we have with Petrobras. We see Petrobras being not aggressive, but want to keep their clients in a competitiveness way. Of course, the it's new. It's something that we are still adapting. So I don't think we did a fantastic job on the first quarter of the year. We are improving now, but I still believe we have the best team in place to tackle the strategy here to have the best molecule. It's a very, very good question, Thiago.

It depends how much we're going to see the import parity opening or not. We're still very close to Petrobras. That was our first idea, but we always be seeking the most competitive molecule moving ahead. And we are learning here with these new pricing policy that they have. And I think we figured it out now how to move ahead. But of course, we don't share much, Thiago, how is our strategy moving ahead, but I can guarantee to you, we are going to be always very competitive in protecting our branded service stations, as we did, you can see that we keep them, we gain market share on the branded on -- we're still growing the branded service stations. We did a terrific job on increasing the new contracts, and that's where we rely on. And we saw already a very good change on this second quarter on our margins behavior.

So we should be much better positioned on the next months.

[Phillipe Casale, executive]

If you allow me just to make a complement about the first question of Thiago. Good morning, Thiago and all. Just to highlight to you the information that we presented at our release considering the agriculture production costs in the Page 8 of the release that we increased the cost 3.4% year-over-year, it was a very good performance. And if you take into consideration that is the future or the going forward level of increasing costs and you have at least 90% in the growth of the crushing in this year, at least. You can calculate the effect of minimum dilution that we have. Obviously, we are working to reduce even more the cost increase over the production side, but this is a good proxy to analyze our future performance.

[Operator]

Our next question is from Mr. Leonardo Alankar from Sespe.

[Unknown Analyst]

I would like to get some more information regarding this sugar strategy. It was interesting to see that with higher prices, we still have some room to improve the hedging position so you may capture more higher price for sugar this season and the next season. But then you're also building entries for sugar, which is something we only heard from you guys. So I wanted to get a better understanding on what's the strategy here if we should expect this volume from this quarter to be diluted in the next following quarters or if you're expecting that to carry to the end of the year. So if you can give some more details on that.

And talking about the E2G, you mentioned in the release that the new plant is going to be turned on in September. I want to hear if there's anything still lacking or the launch is already ready for that. If we can expect how much of the production or the EBITDA from this operation to come on this season in 2024. So the pace of ramp-up of the E2G. So just to get a better understanding on the pace of this new factory coming online now?

[Ricardo Aquila Mussa, executive]

Thank you, Leonardo. I think the sugar strategy here, of course, we -- when you start the crop season, you start normally with more ethanol, beginning of the season is always like this. We had April that has more rain. It was good for the crop, but bad for the initial [indiscernible]. So you are going to see our mix improving ahead, you're going to produce more and more sugar. Of course, the concentration of -- and the deliveries. Normally, we are still seeing the stock-to-use ratio of sugar very low globally. So Brazil is coming for a big crop, but even with that big crop, we are not seeing the stock use ratio to return to a normal level.

Of course, El Nino, Leonardo, is not only impacting Brazil, but can also impact hugely India and this could drive prices up by the end of the crop season. That's why when you do have storage as we do, you can take some advantage of carrying some of the product by the end of the season. And there might be good moment for you to do that carry not only for our product but also on the trading side. That's why our strategy here. Of course, we are protecting the balance sheet, reducing the risk, but we still see some bullish segments on the prices for sugar moving ahead. That's why we're always looking how to make more money on the sugar.

We had a very good year on the trading side last year. This year, it started very good compared to the last year on our clients moving ahead and we are very confident here on other two.

To your second point on E2G, it's a commissioning phase now. So more than, I would say, 98%, 99% of the plant is almost done. So it's really the final touches of the plant. We should start commissioning now in September. We do have a very conservative ramp-up plan, so it's not going to be very material yet this year. We are not sharing that because we have so much demand. We don't want to share much right now how it is going to be our production. But this is a very important milestone, Leonardo, the startup of this plant. I think a lot of the skepticisim will go away once we start up, but there is still risk involved. We are very, very confident with the start-up of the plant now in September.

And as I said, these plants have very high CapEx but of course, very low OpEx and very high margin and cash flow generation. We've already seen that on Costa Pinto mill that is already producing at a lower cost and we expect this plant to perform better than Costa Pinto in all the senses, for the scale for the technology that we apply there, but each plant, we won't see in our guiding on our modeling here, and we are going to see how much each plant is going to deliver on cash flow per year. It's everything there. You can put some numbers and play with that. I think the ramp-up is between 6 months and 12 months to reach full potential. But let's see, it's a new start-up. So I don't want to anticipate much right now, but we are very, very confident on the startup next month.

[Unknown Analyst]

That was an interesting study on the modeling guide.

[Operator]

Our next question comes from Mr. Bruno Montanari from Morgan Stanley.

[Bruno Montanari, analyst]

I have one question and then one follow-up. Talking a little bit about the ethanol inventories. Clearly, you made the very right decision to hold on to inventories as now prices are likely to increase substantially. So how should we think about the destocking of your ethanol production now. Should we expect this to be sold more aggressively in the current quarter? Or is the idea to distribute them better throughout the rest of the crop year?

And then the follow-up is on E2G, Mussa, I get a comment that the costs are coming down, which is very good news. But can you give us an idea of where you stand versus I believe the range of margin the company was talking about was 50% EBITDA margin. So are you there yet in Costa Pinto? So those will be the 2 questions.

[Ricardo Aquila Mussa, executive]

Great question, Bruno. Regarding Ethanol, of course, we cannot share the strategy on how -- where we are -- when and we're going to commercialize the ethanol. We are very focused on the export segment, of course, and we see opportunities here in Brazil. Normally, normally, it was for me, what I was led here when the behavior of Petrobras are following international, despite the fact it's less, I'd say, frequent. It was a very important statement to us to be able to believe or reassure our strategy here. So we are more confident on the strategy. If you look today, the parity price of ethanol at the [ pump ] is around 62%. So consumption in Brazil is increasing right now because ethanol is more competitive than gasoline at least in the most important states that consume ethanol.

And this price increase should, of course, drive prices up. And I don't know if it's yet the best moment to commercialize that's up to my trading desk to decide. But it's difficult to say right now, Bruno. And even if we knew we wouldn't share, but normally, we do that by -- we have highest prices on the last quarter that has been -- if the historic -- historically, that has been happening. But we don't know. Normally, it depends on a daily basis.

Regarding E2G, we are -- we've not changed the margins to the same. I think where we are more confident is on the gas, it is the quality and the cost of getting more of the gas into the plant. The tests are phenomenal. So we have been able to reduce the logistics to get more gas available into the plant. And this reduced considerably the cost. The second 1 is the enzyme production in Brazil. We are working hard to bring that. That's not in our numbers today. And I'm very confident that we are going to have local production in Brazil that will reduce costs for -- not for those initial plants, but for the future plants.

But the numbers are better than we had, I don't know. But I would stick -- of course, we have to wait a little bit more to see how this second plant will perform. It still risks involved as a start-up, but from what we're seeing on Costa Pinto, there was not a single year that the cost didn't went down and not a single year that the productivity went up.

So when you start having -- I'll give one example, Bruno. On the Costa Pinto right now, we didn't have spare parts on the equipment. Now we do. So even the -- how much available time you have on the plant is better now because we have spare parts. Once you have 2, 3, 4 plants, then it's even easier to do all that. So I think we build this business plan in a very conservative way, the ramp-up, the cost. So I see more potential upside than downside. But we have to be careful and let's see how Bonfim performs next quarter, and then we can share more information, Bruno.

[Operator]

Our next question comes from Lucas Ferreira from JPMorgan.

[Lucas Ferreira, analyst]

I have 2 follow-up questions. The first one on the ethanol price hike announcement in the discussions. I had the feeling that this would be a much less relevant discussion for you because of your export strategy and since we're seeing oil prices on a much better level now even currency. So my question is if you don't have -- and since the ethanol prices are up 16%, but from a very low level, if you still don't have much better sourcing -- actually much better price -- prices in the international market than even after these increases in Brazil?

And the second question is regarding Marketing & Services and the discussion on the Petrobras quota and wonder -- I don't know if you can share that, Mussa, but how much of your sourcing is from Petrobras today out of the total, if any idea how much this theory could be growing in the future. Also asking because of the working capital effects that this has in your numbers, right?

[Ricardo Aquila Mussa, executive]

Thank you Lucas. On the ethanol price hike, I think it's always when you have such low level that we're seeing before, my major concern was not only the low level, was if we don't see the follow of the gasoline prices moving. Now I think the best is not the total amount of increase, Lucas, was the direction. It's showing that local player in Brazil, important player like Petrobras is following international market. That was to me the good news. And that gives confidence that you look into the even in the instruments that you had, you have for hedging, for to do pro hedged, it gives you confidence that you can do that. Even when you engage with a client, the sources, the alternative they had -- are different. So it helps overall the margin.

Still the international prices are better. So of course, you are going to still see ourselves very focused on the international and more than that on the specialties that we have in our program. So that doesn't change. But the overall scenario helps. We were concerned that this would imply a change on the pricing policy. That's why we'll workup. But we have reiterated the guidance even without that. So I think this is a positive one from we had last week, right.

On Petrobras quarte, we don't share that. It's a very sensitive information on our side. We have a very good logistics, the infrastructure to import, especially on the north, northeast of Brazil. We still see that being in quarter. So we need to be competitive on importing in that region. But of course, we have seen and we believe that being close to Petrobras, it's very important. So I still think we did the right thing when we protected the quota between April to June, but it cost us a little bit when you look right now. But I think it was the right thing moving ahead. I think Petrobras is a great partner. We need to be close to them, and we will not change that.

But having said that, we also have a very good logistics and infrastructure to import. We need to be competitive to our base. And we see all that as at least these changes on Petrobras, we are learning as we go. And I think we figured out now how these in the next quarters will be and we are going to plan accordingly. But we won't be able to share much on our strategy for the next few months. But we have a lot of discussion internally how to do that. And I'm very confident, as I said before, Lucas.

[Operator]

Our next question comes from Mr. Gabriel Barra from Citibank.

[Gabriel Coelho Barra, analyst]

I have 2. One regarding the tax credit. Remember, back to the company's Investor Day. I have talked a lot about the strong tax credit that the company has -- have mentioned the presentation something close to BRL 13 billion in credit that could be monetized in the future. So my question here is regarding the time line of this monetization. We have seen something close to BRL 1 billion this quarter. And my question is regarding time line and if you could imagine a pace close to this BRL 1 billion per quarter if it makes sense or not, if you could give us some color on that could help us here to understand this cash generation for the next quarters.

The second one is more a follow-up in a new question here, it's regarding E2G [indiscernible] opportunity here in the E2G taking account that you have a new plant can align in the next 12 months, September. So my point is we have talked about the cost cutting, maybe CapEx optimization, leverage this operation. But one thing that I remember and I have discussed during the Investor Day, you got the anticipation of the receivables, so if you have any discussion on that, what do you think about that if you are waiting for this new plant to start this process or not. So this could be something that I would like to understand here.

And the second part is regarding, I remember back to the IPO, the opportunity that you have not only E2G, but we have discussed the opportunities in Biogas in pellets, for example. So if you could give us more color on -- mainly on the biogas, what you see in terms of opportunities for the biogas, it's more linked with E2G given the Venice supply, et cetera. So if you could give us more color on that. I could also here help us to understand that is. So those are my 2 points.

[Ricardo Aquila Mussa, executive]

Thank you, Gabriel. I'll let Carlos answer the tax credit and also anticipation of E2G, very important questions. I'll tackle after him the E2G opportunities and the biogas ones. So please, Carlos, if you could step in.

[Carlos Alberto de Moura, executive]

Okay. Okay, Mussa. Good morning Gabriel, it's a pleasure to talk with you. If you analyze the Note #8 of financial statements, you're going to see on the consolidated basis, the space of BRL 1.1 billion in this quarter, mostly driven by the PIS/COFINS. That's the main source of compensation because you can offset this tax with all other federal taxes and this will continue to improve going forward, especially with this new momentum of prices and commercialization in the market. We are continuing to seek opportunities in the state VAT or even in reimbursement basis or compensation, and this will properly accelerated.

And in Argentina, IVA, we will continue to have -- this drives our level of compensation because we formed this tax shield due to the import of fuels last year during the turnaround of the refinery. It's reasonable to assume this space of BRL 1 billion going forward. Naturally, with some variation, but I think that will be reasonable mostly driven again by the PIS/COFINS. Mussa, please.

[Ricardo Aquila Mussa, executive]

Thank you, Carlos. Here on the biogas, and Gabriel, we are -- of course, we have approved -- we already sold the second plant. We are building that plant as we speak. And this is -- if you look into the Bonfim plant that the first biogas one that we had, Gabriel, we were really focused on electricity on energy. And we concluded that's not the best case. We are looking the opposite now. All the biogas that we produced, we have some solutions for that. So we have from the 35 bioenergy parks that we have. Only 6 of them are closed enough to build pipelines to connect to Gas Braziliano or Comgas, that's exactly what's happening right now with the Costa Pinto mill that's going to receive the second plant of biogas.

So for us, those 6 plants will happen, so that we're going to be the connection. The point that we are analyzing right now, what's the best use of the biogas moving forward? Clearly it's not [electricity]. And something that has really got our attention is fertilizer because you can produce fertilize using biogas and we had such good, I would say, studies on the best use of the biogas that we decided we have to slow down a little bit the construction of the biogas plants, understanding what's the highest value proposition for the product. Because if we can replace a good example, the fertilize in our production using biogas, Gabriel, you reduce the carbon intensity off your ethanol, ethanol, also the E2G and then you can have much higher premiums already on the contract.

So it's a double effect. You have a reduction in your costs. The demand is yours. So this is what caught our attention. So we are spending more time and investing more money now on understanding the best alternative for biogas. That is going to happen. It's going to happen. We don't know if the final use is going to be for replacing this in our fleet or -- but it hasn't changed. I think we are slowing down the investments as we had initially foreseen to understand what's the best use, but that's why you see we're going to have the second plant now up and running shortly. And the plant in Bonfim is also a profitable one. We are making money on the contract that we sold on energy and the results are great, especially on the Lagoon, the performance is great. That's as much as I can share now.

On the pellet one, we put that on hold. We don't see that as the best use of the biogas -- of the biomass right now. E2G is much more important, much more relevant and pellets would compete with E2G right now. So even with good prices of pellets that we are seeing from Europe today, we decided to focus on E2G and make our gas moving to E2G instead of patents.

[Gabriel Coelho Barra, analyst]

Very clear. If I may a follow-up here really fast here, to Carlos, regarding the question about the credit monetization. There is an opportunity here to anticipate this amount in the short term? And do you see any risk regarding the tax reform for this tax credit monetization.

[Carlos Alberto de Moura, executive]

Gabriel, I don't see any major risk because the tax reform is setting a period of future compensation from the parts involved, and this is expected for -- from 2026 on. At this moment, we are working to speed up the compensation, taking advantage of the higher generation of revenues and profits going forward. Naturally, using this tax shield as much as possible until the enforcement of the new legislation. But there is a lot of to be fulfilled in this process in the Congress. We do not believe that will be changed in the very short term. And at this moment, our attention and concentration is; one, to speeding up this compensation in compliance with the tax regulation. And second, to understand the probable outcomes from the tax reform.

[Operator]

Our next question comes from Ms. Isabella Simonato from Bank of America.

[Isabella Simonato, analyst]

My questions are on ethanol. I mean, I wonder if you have more color on ethanol demand and what's your view for the rest of the year? I mean, we saw that ethanol lost a lot of share on the auto cycle once gasoline prices came down and are trading below the parity. So I wonder if you have views that this parity could close throughout the next quarters. And what's the general view for fuel demand going forward?

And also attached to that, if the increase on the blend right is approved, what sort of real impact do you anticipate for demand in general?

[Ricardo Aquila Mussa, executive]

Great Isabella, thank you. Of course, it is more recent, if you look into our data here is showing a recovery on the ethanol demand on the past 3 weeks, but it was really down compared to last year. I think the parity is making its job on helping the demand come back. So -- and this is a matter of price, Isabella, we're looking right now, the parity at 62% as we are seeing demand will pick up. And we're expecting that to happen. I think it worked. At the end of the day, that's the beauty of the system when you have more supply, and the demand price comes in and make it work, that's what we're seeing right now and it's normal. That has been a normal year. The other year last year was not a normal year.

In normal year, you have much lower prices during the season and much higher prices during the off-season. It looks like this year is going to be exactly this. That's why you're going to see our inventory of ethanol higher from this part of the year, lower by the end of the year. And that I think will happen here Isabella. I think between moving from 27% to 30% is still -- we are confident this is going to happen at some point in time. It didn't happen yet. If it happens, we have enough volume, Brazil has enough volume to supply that. Of course, in the end, Isabella, the hydrous ethanol will be the -- doing the balance between how much is going to hydrous.

So we do have a lot of availability to convert hydrous into non-hydrous and moved to 30%. There is no risk on doing that. I think just a follow-up, is also good as a producer to have more demand. That's what the 30% will bring to the table. But for us, Isabella, as I answered to Lucas, we still more focus on the export segment and specialties. That's why even during the crop seasons year premiums higher than the market. And this should only increase gap moving forward. We expect having a higher premiums moving ahead.

In our case, in particular, Isabella, we are trying to squeeze as much sugar as we can, reducing the ethanol production now but sugar is paying much more even compared to export segment. And we have had a very good month of July on the mix. And I think it's going to be the same now in August and the weather is helping and now our equipments are helping. So the mix might be also an upside compared to what we have initially planned.

[Operator]

Our next question comes from Mr. Regis Cardoso from Credit Suisse.

[Regis Cardoso, analyst]

A couple of points. I think all of them quite objective and quick. One of them is regarding the Russian diesel imports. Whether you still think this is relevant at current oil prices, whether you think price cap on Russian diesel at current oil prices have put the supply out of the market. It's not available to Brazil anymore. Whether you can share any sort of discount you used to see in the diesel imports relative to the Gulf. So anyway, anything you could share about the Russian diesel and how it affected the competitive dynamics would appreciate it.

Second topic, a quick follow-up on the Bonfim plant ramp-up. If you can maybe share some of the parameters, so we can calibrate our expectations for the upcoming quarter. What do you think would be -- you talked a little bit about volume ramp-up in terms of timing. If you could also comment about pricing and -- as well as margins because I believe the latter contracts you've made had higher prices than the first few contracts and maybe the Bonfim plant is producing more for the initial contracts than for the latter contract. So I wanted to get a sense on pricing for that E2G as well.

Another one is just on Argentina elections in general. Whether you see any -- how do you see FX flow restrictions currently in Argentina? Does it make sense to take new money to Argentina? Would it be a positive if they change to maybe a way to manage FX?

And then just lastly, I think a very specific one, maybe for Carlos, on the corporate elimination segment, if we exclude the tax credit, it was a negative EBITDA. Maybe if you can just explain what's in that line and whether that is recurring?

[Ricardo Aquila Mussa, executive]

Thank you, Regis. Let's -- I'll give you, of course, we don't share much on our strategy of supply. Just to give you some insights of the imports of Russian diesel in Brazil. I think Brazil is still an outlet for Russian diesel. It's more complex compared to bringing from the Gulf. The ships are larger. It's riskier and you need to have a compliance. So it's much more complex to compare. And it always -- what we have seen in our market intelligence here is that by February this year when Europe started really to and U.S. to impose the sanctions to the Russian diesel. I [indiscernible] to find outlets. And Brazil was an outlet. And of course, it will only go into outlets that pays more in other countries like India, China or even Middle East and Africa are also competing for that.

So it always depends very difficult market to follow [ Raizen ]. It's more complex. But complexes mean it's bad because we also a company that has a very good reading understanding very good logistics. So it might have some opportunities having said that. But that's as much as I can share. I still see Brazil as an outlet for Russian diesel. So I don't think it will reduce. I think a lot of companies lost money with that, especially in July and now in August.

So I think it will make some of the trading companies more careful about Russian diesel because what happened out would happen in the future, maybe they have the U.S. for higher margins to do all that. So let's see how these evolve. But it's still, I think, Brazil an outlook for that.

Your second question was the ramp-up of Bonfim. We, of course, have a lot of sensitive information on that, too, especially on the contracts that we have because we have obligations on the contracts. So we don't share much. Yes, high numbers here, Regis, we should get Bonfim to between 60 million and 70 million liters next year. That's the plan. As much as we speed up the ramp-up of the plant, there is a considerable increase in our returns.

And one thing that not many people look into is that the spot market of E2G pays much higher premiums than our contracts. So as much as we can produce more even in Costa Pinto or Bonfim, the spot market price is today delivering much higher returns that could boost our returns. But that's as much as we can share right now, Regis. Of course, the modeling -- the guiding modeling will help you with more information that are not sensitive that as much as I can share.

To Argentina, your third question on FX, this is -- it's a risk that is still there. I think it is struggling right now. I think the -- I was concerned, that's my personal view, when I saw the elections the primaries in Argentina and the 3 candidates very close to each other, I was not expecting a devaluation of the currency right now because in my view, I was expecting more of the current government try to keep lower inflation, very high [emergent] right now.

So it was a good indication because it helps to reduce the gap. If we manage, and that's something to follow very closely here, Regis, if we manage to pass through prices those devaluations like we had this 22%, 21% that we're seeing right now. And this is going to reduce the gap of a MAX devaluation that might happen in the future and makes our -- protect our margins moving forward. So that's the -- all the efforts right now is to be able to press through this devaluation. And this will dictate the risk moving forward.

I was expecting this to happen closer to the elections. So this is a good test, Regis. I think the next few weeks, it's something to follow up, how is the price in Argentina happening. This will be a very good indication.

I'll leave Carlos to answer the last one, Carlos, please.

[Carlos Alberto de Moura, executive]

Thank you, Mussa. Morning, Regis. Regarding the corporate, we had an effect of BRL 350 [ million ] losses in this quarter, mostly driven of the unrealized profit over the inventories, especially between Raízen Energia and Raízen Trading due to the inventory positioning of ethanol. And this positioning has been created during this year with a different level of foreign exchange and mostly the effect of the foreign exchange is causing when you revert the unrealized profit, this effect in the balance sheet. We have also the reclassification of Grupo Nós equity that reached about BRL 55 million. And other elements, including the expenditures with our financial services unit that we reached something about BRL 25 million, BRL 30 million.

Going forward, we expect a neutralization of this effect of the realized profit as usual. This will be compensated when you have the commercialization and the other elements according to the evolution of results, we will disclose properly the effects in the corporate. But we didn't have any change in our criteria to recognize effects in this segment.

[Phillipe Casale, executive]

Regis, this is Phillipe here. Just as a disclosed disclosure on Page 23, on the earnings release, there's also more information about everything that Carlos just mentioned here, okay? And this will be, of course, closed over the next few quarters.

And to conclude the call before I pass to the operator here, we have one last question coming from the audience here through writing. And I'll probably address that to Mussa. Would you elaborate on investments to improve product quality and reduce sulfur emissions at the refinery in Argentina. You mentioned here, it's been amount of BRL 150 million per year. And is that going to increase the capacity of the refinery operation, the question comes from Pablo Gonzalez.

[Ricardo Aquila Mussa, executive]

Thank you, Pablo, for the question. If you look into that the majority of the investment was done last year. We have debottlenecked, yes. So we have increased. If you look into last year, Pablo, even though we had the turnaround of the plants. We have produced more -- we have processed more barrels than the previous year. So we have a better capacity now than we had been before. So you can -- in a guiding model we want to see how much the capacity, but it has increased. We see some pending investments there. The majority has been done already, but it's still this year, some final investments that we have to -- and then the plant is done, and we're going to substantially reduce the investments on the Refinery Argentina, but this has been a very important turnaround once every 30 years, and now it's done and the majority of that, the final pieces are on this year.

So we're going to have a better quality product and higher capacity to the plant and the demand is still going up in Argentina, record volumes this year again. So it's -- of course, the risk in Argentina is really the political risk, the macro scenario. But other than that, margins are good. Our network is fantastic and the refinery turnaround has pretty much been concluded, is still the final stages this year.

[Operator]

The Q&A session is over. We would like to hand the floor back to Mr. Ricardo Mussa for his final remarks.

[Ricardo Aquila Mussa, executive]

Well, thank you, everyone, for the call. As we made the statement here, it was a very tough quarter, especially on mobility. Structurally, we did a great achievement on the productivity better than we had in the plan. E2G is right on track to deliver. So the plant is right next door now to start up. We were not happy with the Mobility results focusing a lot on the cost side, reducing costs and focusing much on the supply side to make sure we have the best molecule to our network. We took the stand here to protect the branded science [indiscernible]. That's not going to change. We are going ahead at the same case that we had before. And more importantly here, we have reiterated the guidance for the year. Of course, different lines and different risks that lies ahead of us. But we are very confident that, especially now what we have seen in July and August, we are confident we are going to deliver. And let's focus on guys. Now it's time to deliver, time to work but thank you. Thank you for the call and see you in 3 months.

[Operator]

Raízen S.A. first quarter of 2023/'24 crop year conference call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you, and have a good afternoon.