0001094972 ifrs-full:LeaseholdImprovementsMember ifrs-full:GrossCarryingAmountMember 2018-12-31 0001094972 ugp:DebentureTenMember ugp:DebenturesFirstIssueMember ugp:UltracargoLogisticaSAMember 2021-01-01 2021-12-31
As filed with the Securities and Exchange Commission on May 10, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark one)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-14950
ULTRAPAR PARTICIPAÇÕES S.A.
(Exact name of Registrant as specified in its charter)
ULTRAPAR HOLDINGS INC.
(Translation of Registrant’s name into English)
The Federative Republic of Brazil
(Jurisdiction of incorporation or organization)
Brigadeiro Luis Antônio Avenue, 1343, 9th Floor
São Paulo, SP, Brazil 01317-910
Telephone: 55 11 3177 7014
(Address of principal executive offices)
Rodrigo de Almeida Pizzinatto
Chief Financial and Investor Relations Officer
Brigadeiro Luis Antônio Avenue, 1343, 9th Floor
São Paulo, SP, Brazil 01317-910
Telephone: 55 11 3177 7014
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Shares, without par value (represented by, and traded only in the form of, American Depositary Shares (evidenced by American Depositary Receipts), with each American Depositary Share representing one common share) | UGP | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
The number of outstanding shares of each class as of December 31, 2021.
| | |
Title of Class | | Number of Shares Outstanding |
Common Stock | | 1,088,172,907 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ Accelerated Filer ☐
Non-accelerated Filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| | |
U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
INTRODUCTION
Ultrapar is a Brazilian company with over 84 years of history, with its origins dating back to 1937, when Ernesto Igel founded Ultragaz, which was a pioneer in the use of Liquified Petroleum Gas (LPG) as cooking gas. Since then, Ultrapar has become one of the largest business groups in Brazil. As of December 31, 2021, Ultrapar owned the following main businesses: Ipiranga, Ultragaz and Ultracargo (energy and infrastructure), abastece aí (digital payments), Oxiteno (specialty chemicals) and Extrafarma (retail pharmacy), the last two of which are classified as discontinued operations and held for sale. The sale of Oxiteno was closed on April 1, 2022 and we expect to conclude the sale of Extrafarma during 2022. For more information on our continued and discontinued operations, please see "Item 4.A. History and Development of the Company —A.1. Continuing Operations” and “—A.2 Discontinued Operations.”
Since 1999, Ultrapar’s shares are traded under an ADR Level III program on the New York Stock Exchange – NYSE, and on the São Paulo Stock Exchange, B3 S.A. Since 2011, the Company’s shares have been listed on B3’s Novo Mercado, the segment with the highest standards of corporate governance.
Continuing Operations
- Ultragaz is a pioneer and a leader in LPG distribution in Brazil, one of the largest markets worldwide. Ultragaz had a 23.1% market share in 2021, according to ANP and was one of the largest independent LPG distributors in the world in terms of volume sold. See “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Competition.” As of December 31, 2021, we delivered LPG to an estimated 11 million households through a network of approximately 5.6 thousand independent retailers in the bottled segment and to approximately 58 thousand customers in the bulk segment. In 2021, Ultragaz’s total LPG volume sold was 1.7 million tons.
- Ultracargo is the largest private company of liquid bulk storage in Brazil, with seven terminals and storage capacity of 983 thousand cubic meters as of December 31, 2021, providing it with leading positions in the main ports in Brazil. In December 2021, Ultracargo expanded its geographic presence to the Northern region of Brazil, with the beginning of the operations of its new terminal located in Vila do Conde, in the state of Pará.
- Ipiranga is one of the largest fuel distributors in Brazil, with a network of 7,104 service stations and 18.4% market share in 2021 considering ethanol, gasoline, and diesel, according to ANP. In addition to the service stations, Ipiranga has 1,841 AmPm convenience stores and 1,149 Jet Oil franchises. See “Item 4.B. Information on the Company—Business Overview—Fuel Distribution—Ipiranga—Competition.”
- abastece aí is a digital payments company created in 2020 to leverage the benefits of Km de Vantagens and abastece aí app, a digital ecosystem through which our clients, mainly car and truck drivers, are offered discounts and cashback. As of December 31, 2021, approximately two million digital accounts have been created.
Discontinued Operations
- Oxiteno is a major producer of surfactants and specialty chemicals. Focused on innovation and sustainability, Oxiteno is one of the largest producers of ethylene oxide and its main derivatives in Latin America, according to IHS Chemical. For the year ended December 31, 2021, Oxiteno sold 779 thousand tons of chemical products. In August 2021, Ultrapar entered into a share purchase and sale agreement for the sale of all of its shares in Oxiteno to Indorama. On April 1, 2022, the transaction was closed. As a result, Oxiteno is no longer part of Ultrapar’s operations.
- Extrafarma is the seventh largest drugstore chain in Brazil, according to ABRAFARMA, with 399 drugstores and 4 distribution centers as of December 31, 2021. In May 2021, Ultrapar entered into a share purchase and sale agreement for the sale of all of its shares in Extrafarma to Pague Menos. As of the date of this annual report, the closing of the transaction is still subject to approval by the Brazilian antitrust authority.
References in this annual report to “Ultrapar”, “Ultra Group”, “we”, “our”, “us” and “the Company” are to Ultrapar Participações S.A. and its consolidated subsidiaries (unless the context otherwise requires). In addition, all references in this annual report to:
- “abastece aí” are to Ultrapar’s subsidiary that operates in the digital payment segment;
- “ABIQUIM” are to Associação Brasileira da Indústria Química, the Brazilian association of chemical industries;
- “ABRAFARMA” are to Associação Brasileira de Redes de Farmácias e Drogarias, the Brazilian association of pharmacy and drugstore chains;
- “ABTL” are to Associação Brasileira de Terminais de Líquidos, the Brazilian association of liquid bulk terminal operators;
- “ADSs” are to our American Depositary Shares, each representing (i) one common share, with respect to any period on or after August 17, 2011; or (ii) one non-voting preferred share, with respect to any period prior to August 17, 2011;
- “AmPm” are to Ipiranga’s convenience stores franchise network that operate under the brand AmPm, managed by AmPm Comestíveis Ltda.;
- “ANFAVEA” are to Associação Nacional dos Fabricantes de Veículos Automotores, the Brazilian association of vehicle producers;
- “ANP” are to the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis, the Brazilian oil, natural gas and biofuels regulatory agency;
- “ANVISA” are to the Agência Nacional de Vigilância Sanitária, the Brazilian health surveillance agency;
- “ARLA” are to Automotive Liquid Reducing Agent;
- “B3” are to the B3 S.A.—Brasil, Bolsa, Balcão, the São Paulo Stock Exchange;
- “Braskem” are to Braskem S.A.;
- “Brazilian Corporate Law” are to Law No. 6,404 enacted in December 1976, as amended by Law No. 9,457 enacted in May 1997, by Law No. 10,303 enacted in October 2001, by Law No. 11,638 enacted in December 2007, by Law No. 11,941 enacted in May 2009, by Law No. 12,431 enacted in June 2011, by Law No. 12,810 enacted in May 2013, by Law No. 13,129 enacted in May 2015, by Law No. 13,818 enacted in April 2019, by Law No. 13,874 enacted in September 2019, and by Law No. 14,030 enacted in July 2020;
- “Brazilian GAAP” are accounting practices adopted in Brazil that comprise the Brazilian Corporate Law and the Pronouncements, Guidelines and Interpretations issued by the Accounting Pronouncements Committee (“CPC”) and approved by the Federal Accounting Council (“CFC”) and the Brazilian Securities and Exchange Commission (“CVM”);
- “CADE” are to Conselho Administrativo de Defesa Econômica, the Brazilian Antitrust Authority;
- “Canamex” are to the chemical business formerly owned by the Berci Group, a company that was acquired by Oxiteno in 2003, currently Oxiteno Mexico;
- “CBL” are to Chevron Brasil Ltda. (currently Ipiranga), a former subsidiary of Chevron that, together with Galena, held Texaco;
- “CBLSA” are to Chevron Brasil Lubrificantes S.A., now called Iconic;
- “CBPI” are to Companhia Brasileira de Petróleo Ipiranga, a company that was merged into Ipiranga in November 2009;
- “Central Bank” are to the Banco Central do Brasil, the Brazilian central bank;
- “Chevron” are to Chevron Latin America Marketing LLC and Chevron Amazonas LLC;
- “Code” are to the U.S. Internal Revenue Code of 1986, as amended;
- “Commodity Exception” are to gains derived from “qualified active sales” of commodities and “qualified hedging transactions” involving commodities, within the meaning of the applicable U.S. Treasury regulations;
- “CONAMA” are to Conselho Nacional do Meio Ambiente – the National Council of the Environment;
- “ConectCar” are to ConectCar Soluções de Mobilidade Eletrônica S.A., a joint-venture initially formed by Ipiranga and OTP (Odebrecht Transport S.A.), which started its operations in 2012. In 2016, Redecard S.A. acquired OTP’s interest in ConectCar. In June 2021, Ultrapar entered into a share purchase and sale agreement for the sale of its equity interest in ConectCar to a subsidiary of Porto Seguro. The transaction was closed in October 2021. As a result, ConectCar is no longer part of Ultrapar’s operations;
- “Conversion” are to the conversion of all preferred shares issued by the company into common shares, at a ratio of 1 (one) preferred share for 1 (one) common share, as approved at the extraordinary general shareholders’ meeting and the special preferred shareholders’ meeting, both held on June 28, 2011;
- “CVM” are to Comissão de Valores Mobiliários, the Securities and Exchange Commission of Brazil;
- “Deposit Agreement” are to the Deposit Agreement between Ultrapar Participações S.A. and the Bank of New York Mellon, dated September 16, 1999, and all subsequent amendments thereto;
- “DI” are to the Brazilian money market interest rate (Certificados de Depósito Interbancário);
- “DNP” are to Distribuidora Nacional de Petróleo Ltda., a company that was acquired by Ipiranga in 2010 and was merged into Ipiranga in 2011;
- “DPPI” are to Distribuidora de Produtos de Petróleo Ipiranga S.A., a company that was merged into CBPI in 2008;
- “EBITDA” are to earnings before interest, taxes, depreciation and amortization;
- “EMCA” are to Empresa Carioca de Produtos Químicos S.A.;
- “Extrafarma” are to Imifarma Produtos Farmacêuticos e Cosméticos S.A., a wholly-owned subsidiary of Ipiranga, which is wholly-owned by Ultrapar and whose operations we sold. For more information, see “Item 4.A. Information on the Company—History and Development of the Company—A.2. Discontinued Operations—Extrafarma;”
- “Extrafarma Transaction” are to the exchange of shares of Extrafarma for Ultrapar’s shares on January 31, 2014, as described in “Item 4.A. Information on the Company—History and Development of the Company—A.2. Discontinued Operations —Extrafarma;”
- “Galena” are to Sociedade Anônima de Óleo Galena Signal, a former subsidiary of Chevron that, together with CBL, held Texaco;
- “IAS” are to International Accounting Standards;
- “IASB” are to International Accounting Standards Board;
- “IBP” are to Instituto Brasileiro de Petróleo e Gás;
- “Iconic” are to Iconic Lubrificantes S.A., formerly CBLSA, an association formed by Ipiranga and Chevron, which started its operations in 2017;
- “IFRS” are to International Financial Reporting Standards, as issued by IASB;
- “IGP-M” are to General Index of Market Prices of Brazilian inflation (Índice Geral de Preços – Mercado), calculated by the Getulio Vargas Foundation;
- “Indorama” are to Indorama Ventures PLC;
- “IpiLubs” are to Ipiranga Lubrificantes S.A., a company that was merged into CBLSA in November 2018;
- “Ipiranga” are to Ultrapar’s subsidiaries that operate in the fuel distribution business and related activities;
- “Ipiranga Group” are to RPR, DPPI, CBPI, Ipiranga Química S.A. (“IQ”), Ipiranga Petroquímica S.A. (“IPQ”), Companhia Petroquímica do Sul S.A. (“Copesul”) and their respective subsidiaries prior to their sale to Ultrapar, Petrobras and Braskem;
- “Ipiranga Group SPA” are to the Share Purchase Agreement entered into and among Ultrapar, with the consent of Petrobras and Braskem, and the Key Shareholders on March 18, 2007;
- “Ipiranga Group Transaction Agreements” are to agreements related to the acquisition of Ipiranga Group by Ultrapar, Petrobras and Braskem. Each Ipiranga Group Transaction Agreement is incorporated by reference to Exhibits 2.5, 2.6, 2.7, 4.4, 4.5, 4.6 and 4.7 to Form 20-F of Ultrapar Participações S.A. filed on June 7, 2007;
- “IQVIA”, are to the merger of Quintiles and IMS Health, Inc.;
- “IRS” are to U.S. Internal Revenue Service;
- “Key Shareholders” are to Ipiranga Group’s former controlling shareholders prior to the closing of the Ipiranga Group SPA;
- “Km de Vantagens” are to Km de Vantagens (Km of Advantages Program) loyalty program, part of abastece aí business;
- “Liquigás” are to Liquigás Distribuidora S.A.;
- “LPG” are to liquefied petroleum gas;
- “NAFTA” are to North American Free Trade Agreement, formed by the United States, Canada and Mexico. A revised version of NAFTA has been agreed to by all three countries for approval under a new name, the United States Mexico Canada Agreement, or USMCA, and is awaiting legislative approval before it comes into force;
- “Novo Mercado” are to Novo Mercado listing segment of B3;
- “NYSE” are to the New York Stock Exchange;
- “Oleoquímica” are to Oleoquímica Indústria e Comércio de Produtos Químicos Ltda.;
- “Oxiteno” are to Oxiteno S.A. – Indústria e Comércio, our wholly-owned subsidiary and its subsidiaries that produce ethylene oxide and its principal derivatives, fatty alcohols and other specialty chemicals and were sold to Indorama on April 1, 2022. For more information see “Item 4.A. Information on the Company—History and Development of the Company—A.2. Discontinued Operations —Oxiteno;”
- “Oxiteno Andina” are to the business of Oxiteno that was carried out in Venezuela until October 2019. In October 2019, Oxiteno Andina was sold to a buyer in Venezuela;
- “Oxiteno Mexico” are to the business of Oxiteno carried out in Mexico;
- “Oxiteno Nordeste” are to Oxiteno Nordeste S.A. Indústria e Comércio, which was merged into Oxiteno in December 2019;
- “Oxiteno Uruguay” are to the business of Oxiteno carried out in Uruguay;
- “Oxiteno USA” are to the business of Oxiteno carried out in the United States;
- “Pague Menos” are to Empreendimentos Pague Menos S.A.;
- “Parth” are to Parth do Brasil Participações Ltda., an investment company controlled by Mrs. Daisy Igel’s family and owner of 8% of Ultrapar’s capital stock;
- “Pátria” are to Pátria Private Equity VI FIP Multiestratégia, an investment company and a shareholder of both Ultra S.A. and Ultrapar;
- “Petrobras” are to Petrobras – Petróleo Brasileiro S.A.;
- “Petrochemical Business” are to IQ, IPQ and IPQ’s stake in Copesul;
- “Porto Seguro” are to Porto Seguro S.A.;
- “PFIC” are to passive foreign investment company;
- “PIS and COFINS taxes” are to Programa de Integração Social (Integration Program Taxes) and Contribuição para o Financiamento da Securidade Social (Contribution for the Financing of Social Security Taxes), respectively;
- “Real”, “Reais” or “R$” are to Brazilian Reais, the official currency of Brazil;
- “Repsol” are to Repsol Gás Brasil S.A., a company that was acquired by Ultragaz in 2011 and was merged into Ultragaz in 2012;
- “RPR” are to Refinaria de Petróleo Riograndense S.A. (formerly Refinaria de Petróleo Ipiranga S.A.), a joint-venture owned by Petrobras, Braskem and Ultrapar;
- “SEC” are to the U.S. Securities and Exchange Commission;
- “Securities Act” are to the U.S. Securities Act of 1933, as amended;
- “Selic” are to the Brazilian base interest rate;
- “Share Exchange” are to the exchanges of RPR’s, DPPI’s and CBPI’s preferred shares and any remaining common shares for Ultrapar’s preferred shares in connection with the acquisition of Ipiranga Group;
- “Sindicom” are to the Brazilian association of fuel distributors;
- “Sindigás” are to the Brazilian association of LPG distributors;
- “Southern Distribution Business” are to Ipiranga Group’s fuel and lubricant distribution businesses located in the South and Southeast regions of Brazil and their related activities;
- “STF” are to Supremo Tribunal Federal, the Brazilian Supreme Federal Court;
- “SUDENE” are to Superintendência do Desenvolvimento do Nordeste, the development agency of the Northeast of Brazil;
- “TEAS” are to TEAS – Terminal Exportador de Álcool de Santos Ltda., a company acquired by Ultracargo in March 2018;
- “Temmar” are to Terminal Marítimo do Maranhão S.A., a company that was acquired by Ultracargo in 2012 and was merged into Ultracargo Logística in 2013;
- “Texaco” are to the Texaco-branded fuel marketing business in Brazil, previously carried-out by CBL and Galena, companies that were acquired by Ipiranga in 2009;
- “Tropical” are to Tropical Transportes Ipiranga Ltda.;
- “TRR” are to Retail Wholesale Resellers, specialized resellers in the fuel distribution;
- “Ultra S.A.” are to Ultra S.A. Participações, a holding company owned by members of the founding family and senior management of Ultrapar. Ultra S.A. is the largest shareholder of Ultrapar, holding 25% of its total capital stock;
- “Ultracargo” are to Ultracargo Operações Logísticas e Participações Ltda., our wholly owned subsidiary and its subsidiaries that provide storage, handling and logistics services for liquid bulk cargo;
- “Ultracargo Logística” are to Ultracargo Logística S.A., Ultracargo’s subsidiary that operates in the liquid bulk storage segment, formerly named Terminal Químico de Aratu S.A. - Tequimar;
- “Ultragaz” are to Companhia Ultragaz S.A. and all Ultrapar’s subsidiaries that operate in the distribution of LPG;
- “Ultrapar International” are to Ultrapar International S.A.;
- “União Terminais” are to União Terminais e Armazéns Gerais Ltda., a company that was merged into Ultracargo Logística in 2008;
- “União Vopak” are to União Vopak Armazéns Gerais Ltda., a joint-venture in which Ultracargo has a 50% stake;
- “Unipar” are to União das Indústrias Petroquímicas S.A.;
- “U.S. Holder” has the meaning given in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations”;
- “US$”, “dollar”, “dollars” or “U.S. dollars” are to the United States dollar;
- “Vibra” are to Vibra Energia S.A.;
- “2018 Shareholders’ Agreement” has the meaning given in “Item 4.A. Information on the Company—History and Development of the Company—Corporate Events”, “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders” and “Item 10.C. Additional Information—Material Contracts;” and
- “2020 Shareholders’ Agreement” has the meaning given in “Item 4.A. Information on the Company—History and Development of the Company—Corporate Events”, “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders” and “Item 10.C. Additional Information—Material Contracts.”
Unless otherwise specified, data related to (i) the Brazilian petrochemical industry included in this annual report were obtained from ABIQUIM, (ii) the LPG business were obtained from Sindigás and ANP, (iii) the fuel distribution business were obtained from IBP, Sindicom and ANP, (iv) the liquid bulk storage industry were obtained from ABTL, and (v) the retail pharmacy business were obtained from ABRAFARMA and IQVIA.
PRESENTATION OF FINANCIAL INFORMATION
Our consolidated financial statements included in Item 18 were prepared in accordance with IFRS as issued by the IASB and include our consolidated Statements of Financial Position, as of December 31, 2021 and 2020 and the related consolidated Statements of Profit or Loss, Comprehensive Income, Changes in Equity and Cash Flows for the years ended December 31, 2021, 2020 and 2019, as well as notes thereto.
There are no standards, amendments and interpretations to IFRS issued by IASB which are effective and could have a material impact in the financial statements for the periods ended on December 31, 2021 and 2020 that have not been adopted by the Company.
The financial information presented in this annual report should be read in conjunction with our consolidated financial statements.
Segment information for our businesses is presented on an unconsolidated basis. See Note 32 to our consolidated financial statements for further information on segment information. Consequently, intercompany transactions have not been eliminated in segment information, and such information may differ from consolidated financial information provided elsewhere in this annual report. See “Item 7.B. Major Shareholders and Related Party Transactions—Related Party Transactions” for more information on intercompany transactions.
On December 31, 2021, the Company re-presented the businesses of Oxiteno and Extrafarma as current assets held for sale and discontinued operations. The comparative financial information for the years ended December 31, 2020 and 2019 were re-presented for consistency of presentation as shown in Note 3.c.3 to our consolidated financial statements.
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables and charts may not be an arithmetic aggregation of the figures that precede them.
Application of New SEC Regulations
In November 2020, the SEC issued a final rule under SEC Release No. 33-10890, “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information” (the “Final Rule”), whereby it amended certain SEC disclosure requirements to modernize, enhance and simplify financial statement disclosures required by Regulation S-K. Specifically, the rule eliminates the requirement for Selected Financial Data, streamlines the requirement to disclose Supplementary Financial Information, and amends rules related to the Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”) to, among other things, eliminate the need for registrants to provide a tabular disclosure of contractual obligations. These amendments are intended to eliminate duplicative disclosures and modernize and enhance MD&A disclosures for the benefit of investors, while simplifying compliance efforts for registrants.
According to the SEC, all corresponding amendments are applicable to Private Foreign Issuers providing disclosure required by Form 20-F or Form 40-F, as the case may be.
The Final Rule became effective on February 10, 2021 and compliance is mandatory for any reports on fiscal years ending on or after August 9, 2021. As a result, we have applied the Final Rule where applicable to this Form 20-F.
Market share and economic information
All market share information, unless otherwise specified, related to (i) the LPG business was obtained from ANP, (ii) the fuel distribution business was obtained from IBP, Sindicom and ANP, (iii) the liquid bulk storage industry was obtained from ABTL and (iv) the retail pharmacy business was obtained from ABRAFARMA and IQVIA. Unless otherwise specified, all macroeconomic data are obtained from the Instituto Brasileiro de Geografia e Estatística—IBGE, Fundação Getulio Vargas—FGV and the Central Bank. Although we do not have any reason to believe any of this information is inaccurate in any material respect, we have not independently verified any such information.
Financial Information in U.S. Dollars
Solely for the convenience of the reader, we have translated some amounts included in this annual report from Reais into U.S. dollars using the commercial selling rate as reported by the Central Bank on December 31, 2021 of R$5.58 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. Such translations should not be construed as representations that the Real amounts represent or have been or could be converted into U.S. dollars as of that or any other date.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act subject to risks and uncertainties, including our estimates, plans, forecasts and expectations regarding future events, strategies and projections. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or revise any forward-looking statements after we distribute this annual report because of new information, future events and other factors. Words such as “believe”, “expect”, “may”, “will”, “plan”, “strategy”, “prospect”, “foresee”, “estimate”, “project”, “anticipate”, “can”, “intend” and similar words are intended to identify forward-looking statements. We have made forward-looking statements with respect to, among other things, our:
- strategy for marketing and operational expansion;
- capital expenditures forecasts; and
- development of additional sources of revenue.
The risks and uncertainties described above include, but are not limited to:
- general business, economic and political conditions, including the price of crude oil and other commodities, refining margins and prevailing foreign exchange rates and the effect of such conditions on the economies of Brazil and other Latin American countries;
- the political environment leading up to and eventual outcome of the 2022 presidential elections in Brazil;
- risks beyond our control, including geopolitical crises, natural disasters, epidemics or pandemics, cyber-attacks, acts of terrorism or other catastrophic events, including the economic, financial and business impacts of such events;
- uncertainty regarding the ongoing hostility between Russia and Ukraine and the related impact on global macroeconomic conditions as a result of such conflict;
- competition;
- ability to produce and deliver products on a timely basis;
- ability to anticipate trends in the LPG, fuels, logistics and retail pharmacy industries, including changes in capacity and industry price movements;
- changes in official regulations;
- receipt of official authorizations and licenses;
- political, economic and social events in Brazil and the other countries in which we have operations;
- access to sources of financing and our level of indebtedness;
- ability to integrate acquisitions;
- regulatory issues relating to acquisitions;
- instability and volatility in the financial markets;
- climate changes;
- availability of tax benefits; and
- other factors contained in this annual report under “Item 3.D. Key Information—Risk Factors.”
Forward-looking statements involve risks and uncertainties and are not a guarantee of future results. Considering the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and our future results may differ materially from those expressed in or suggested by these forward-looking statements.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
- Selected Consolidated Financial Data
[Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Investing in our shares and ADSs involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this annual report in evaluating an investment in our shares or ADSs. Our businesses, results of operations, cash flow, liquidity and financial condition could be harmed if any of these risks materializes and, as a result, the trading price of the shares or the ADSs could decline and you could lose a substantial part or even all your investment.
We have included information in these risk factors concerning Brazil based on information that is publicly available. Other risks that we do not presently know about or deem as immaterial could also cause adverse effects on our businesses, operations, financial condition and results of operations.
Summary of Risk Factors
Risks Relating to Ultrapar and Its Industries
- Petrobras is the main supplier of LPG and oil-based fuels in Brazil. Fuel and LPG distributors in Brazil, including Ipiranga and Ultragaz, have formal contracts with Petrobras for the supply of oil-derivatives. Any material delay or interruption in the supply of LPG or oil-based fuels from Petrobras would immediately affect Ultragaz or Ipiranga’s ability to provide LPG and oil-based fuels to their customers;
- Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics;
- Intense competition is generally inherent to distribution markets, including the LPG, the fuel distribution and the retail pharmacy markets and may affect our operating margins;
- Anticompetitive practices in the fuel distribution sector may distort market prices;
- LPG and oil-based fuels compete with alternative sources of energy. Competition with and the development of alternative sources of energy in the future may adversely affect the LPG and oil-based fuels market;
- The Brazilian petrochemical industry is influenced by the performance of the international petrochemical industry and its cyclical behavior;
- The sale of Extrafarma might not be consummated, which could have an adverse effect on our businesses, operations, financial condition and results of operations;
- Regulatory, political, economic and social conditions could adversely impact our businesses and the market price of our securities;
- Our businesses would be materially adversely affected if operations at our transportation and distribution facilities experienced significant interruptions;
- We may be adversely affected by changes to specific laws and regulations in our operating sectors;
- We may be adversely affected by the imposition and enforcement of more stringent environmental laws and regulations, including as a result of rising climate change concerns, that may result in increased costs of operation and compliance, as well as a decrease in demand for our products;
- The production, storage and transportation of LPG, fuels and petrochemicals are inherently hazardous;
- Our level of indebtedness may require us to use a significant portion of our cash flow to service such indebtedness;
- Our insurance coverage may be insufficient to cover losses that we might incur;
- The suspension, cancellation or non-renewal of certain tax benefits may adversely affect our results of operations;
- No single shareholder or group of shareholders holds more than 50% of our capital stock, which may increase the opportunity for alliances between shareholders and other events that may occur as a result thereof;
- As a result of acquisitions, Ultrapar has assumed and may assume in the future certain liabilities related to the businesses acquired or to be acquired. Additionally, Ultrapar has assumed and may assume certain risks associated with acquisitions and divestments, including regulatory risks;
- Our founding family and part of our senior management, through their ownership interest in Ultra S.A. and Parth, own a significant portion of our shares and may influence the management, direction and policies of Ultrapar, including the outcome of any matter submitted to the vote of shareholders;
- Our status as a holding company may limit our ability to pay dividends on the shares and consequently, on the ADSs;
- Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm; and
- Information technology failures, including those that affect the privacy and security of personal data, as a result of cyber-attacks or other causes, could adversely affect our businesses and the market price of our shares and ADSs.
Risks Relating to Brazil
- The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions, including ongoing political instability and perceptions of these conditions in the international markets, could adversely affect our businesses and the market price of our shares and ADSs;
- Inflation and certain governmental measures to curb inflation, including as a result of the COVID-19 pandemic, may contribute significantly to economic uncertainty in Brazil and could harm our businesses and the market value of the ADSs and our shares;
- Exchange rate instability may adversely affect our financial condition, results of operations and the market price of the ADSs and our shares;
- Economic and market conditions in other countries, including in the United States and emerging market countries, may materially and adversely affect the Brazilian economy and, therefore, our financial condition and the market price of the shares and ADSs;
- Our businesses, financial condition and results of operations may be materially and adversely affected by a general economic downturn and by instability and volatility in the financial markets and commodity prices, including as a result of the conflict between Ukraine and Russia; and
- Holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other relevant persons.
Risks Relating to Our Common Shares and ADSs
- Asserting limited voting rights as a holder of ADSs may prove more difficult than for holders of our common shares;
- Holders of our shares or ADSs may not receive dividends;
- Holders of our shares may be unable to exercise preemptive rights with respect to the shares;
- If shareholders exchange ADSs for shares, they may lose certain foreign currency remittance and Brazilian tax advantages;
- Controls and restrictions on the remittance of foreign currency could negatively affect your ability to convert and remit dividends, distributions or the proceeds from the sale of our shares, Ultrapar’s capacity to make dividend payments to non-Brazilian investors and the market price of our shares and ADSs;
- Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our ADSs;
- Substantial sales of our shares or our ADSs could cause the price of our shares or our ADSs to decrease; and
- There may be adverse U.S. federal income tax consequences to U.S. Holders if we are or become a PFIC under the Code.
Risks Relating to Ultrapar and Its Industries
Petrobras is the main supplier of LPG and oil-based fuels in Brazil. Fuel and LPG distributors in Brazil, including Ipiranga and Ultragaz, have formal contracts with Petrobras for the supply of oil-derivatives. Any material delay or interruption in the supply of LPG or oil-based fuels from Petrobras would immediately affect Ultragaz or Ipiranga’s ability to provide LPG and oil-based fuels to their customers.
Prior to 1995, Petrobras held a constitutional monopoly for the production and importation of petroleum products in Brazil. Although this constitutional monopoly was formally terminated pursuant to an amendment to the Brazilian constitution enacted in 1995, Petrobras effectively remains the main provider of LPG and oil-based fuels in Brazil. In 2021, Ultragaz and all other LPG distributors in Brazil purchased all or nearly all LPG from Petrobras. Ultragaz’s net revenue from sales and services represented 9% of our net revenue from sales and services for the year ended December 31, 2021. The procedures for ordering and purchasing LPG from Petrobras are generally common to all LPG distributors—including Ultragaz. For more details, see “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Supply of LPG.”
With respect to fuel distribution, Petrobras also supplied the majority of Ipiranga and other distributors’ oil-based fuel requirements in 2021. Petrobras’ supply to Ipiranga is governed by an annual contract, under which the supply volume is established based on the volume purchased in the previous year. Ipiranga’s net revenue from sales and services represented 91% of our net revenue from sales and services for the year ended December 31, 2021. For further information, see “Item 4.B. Information on the Company—Business Overview—Fuel Distribution—Ipiranga—Supply of fuels.”
Significant interruptions or delays of LPG and oil-based fuel supply from Petrobras may occur in the future. Any interruption in the supply of LPG or oil-based fuels from Petrobras would immediately affect Ultragaz or Ipiranga’s respective ability to provide LPG or oil-based fuels to its customers, and material delays in the supply could also impact our operations. If we are not able to obtain an adequate supply of LPG or oil-based fuels from Petrobras under acceptable terms, we may seek to meet our demands through LPG or oil-based fuels purchased in the international market. The logistics infrastructure for LPG and oil-based fuel imports in Brazil is limited and is substantially controlled by Petrobras. Any such interruption or material delays could increase our purchase costs and reduce our sales volume, consequently, adversely affecting our operating margins.
Petrobras is currently under investigation by the CVM, the Brazilian Federal Police and other Brazilian public authorities in connection with corruption allegations (so called Lava Jato investigations) consisting, among other things, of illegal payments made to officers, directors and other employees of Petrobras to influence commercial decisions. Petrobras was under investigation by the SEC and the US Department of Justice and announced a settlement of those investigations in September 2018. In addition, Petrobras was previously subject to a class action in the United States, which was also settled in 2018. As disclosed by Petrobras, it is currently party to a collective action commenced in the Netherlands, an arbitration proceeding in Argentina, and arbitration and judicial proceedings commenced in Brazil. In each case, the proceedings were brought by investors (or entities that allegedly represent investors’ interests) who purchased shares of Petrobras traded on the B3 or other securities issued by Petrobras outside of the United States, alleging damages caused by facts uncovered in the Lava Jato investigations. Such investigations and proceedings have had a destabilizing effect on Petrobras, and it is difficult to ascertain what further impact such matters will have on Petrobras’ supply of LPG and oil-based fuels to market players.
In addition, Petrobras has made several changes to the composition of its management team and has undertaken a long-term divestment plan. It is not clear how these changes or any future changes in management may impact price adjustment policy and how the divestment plan may change the structure and long-term outlook of the fuel market. We cannot predict the outcome that the Lava Jato investigations will have on the fuel market and, specifically, on the availability of, and our ability to access, the LPG and oil-based fuel supply from Petrobras.
Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics.
A novel strain of coronavirus, COVID-19, was first identified in China in December 2019 and became a global pandemic in March 2020. Our businesses were materially and adversely affected by the ongoing COVID-19 pandemic and may be materially and adversely affected by the outbreak of other communicable diseases, including epidemics and pandemics.
The COVID-19 pandemic has had a material impact on businesses around the world, including ours, and the economic and political environments in which businesses operate. There are several factors associated with the ongoing COVID-19 pandemic and its impact on global economies that could have a material adverse effect on our businesses, financial condition, results of operations, cash flows, prospects and the market price of our securities.
A number of countries, states or areas where we operate have implemented policies in response to the COVID-19 pandemic, including declaring states of emergency, implementing severe restrictions on the movement and activities of people and/or implementing restrictions on the operations of certain businesses. These restrictions are determined by the central or local governments of individual jurisdictions (including through the implementation of emergency powers) and impacts (including the timing of implementation and any subsequent lifting of restrictions) may vary from jurisdiction to jurisdiction. Restrictions on the movement of people and on businesses operations have a significant impact on economic activity in the relevant countries, states or areas and could adversely affect our operational capacity or productivity, could disrupt transportation networks and supply and distribution chains causing disruptions in our businesses operations, and could significantly reduce customer demand or result in unfavorable changes in consumer behavior. In addition, new governmental and regulatory actions and support measures taken in response to the COVID-19 outbreak may impose restrictions or obligations on our businesses and may limit management’s flexibility in managing our business.
The dissemination of COVID-19 made us change our businesses practices (including additional hygienic practices for workplaces and employees, and canceling in-person meetings, events and conferences) during the pandemic. In addition, we also created a crisis committee to identify and monitor the main developments and risks relating to COVID-19 and to adopt preventive and emergency measures to reduce their effects. We may take additional actions, as required by government authorities or as determined by management, considering the best interests of our employees, customers and business partners. We cannot guarantee that these measures will be sufficient to mitigate the risks posed by the pandemic or that they will meet the demands of government authorities.
The COVID-19 pandemic has caused disruption to our customers, suppliers, personnel and resellers in Brazil and in all other countries in which we operate. Nonetheless, pursuant to Federal Decree No. 10,282/20, which was issued in the context of Federal Law No. 13,979/20, the activities of the subsidiaries of Ultrapar were considered essential during the ongoing COVID-19 pandemic. As a result, our subsidiaries have continued to operate and have ensured a continuous supply of their products and services to their clients. However, we cannot assure that our subsidiaries will not be impacted by external factors, such as the limitation of access by our subsidiaries to operational inputs, clients, and financial resources. We also cannot assure that the current legal framework will not be altered. If it happens, all or some of our subsidiaries' activities may no longer be considered essential and might be subject to restrictions that could materially affect the results of our operations and businesses.
In addition, the COVID-19 pandemic has affected business and economic sentiment, causing significant volatility in global markets and affecting the outlook of the economy of Brazil and of the other countries in which we operate. Such affects include significant volatility in the price of crude oil, the price of LPG and the price of other commodities, as well as significant volatility in foreign exchange rates, borrowing costs and the availability of credit. The COVID-19 pandemic has led to a weakening in gross domestic product in several countries around the world, including in the countries in which we operate.
In addition to general effects on the economy and the businesses of our suppliers and clients, the COVID-19 pandemic – and any other communicable disease – imposes risks to our operations directly. For instance, if a group of employees of the same division is infected simultaneously, such division may have its activities and businesses affected. If this occurs to a strategic division – or to more than one division simultaneously, it can adversely affect our operation and businesses, and results as a consequence.
New variants and mutations of the virus that causes COVID-19 have emerged in different countries, including in Brazil. Events like new waves of mutated coronavirus can add even more uncertainty to the economic scenario, rapidly changing predictions and forecasts. In addition, we cannot predict the potential severity of the economic downturn or recession and we cannot predict the post-crisis recovery environment which, from a commercial, economic, political, regulatory and risk perspective, could be significantly different to past crises and could persist for a prolonged period. The extent to which the COVID-19 outbreak will affect our businesses, financial condition, results of operations or cash flows will depend on present and future developments, which are highly uncertain and unpredictable. These developments include, among others, the duration and geographic distribution of the outbreak and new waves, its severity, actions to contain the virus or minimize its impact, and how quickly and to what extent normal economic and operational conditions can be resumed. Even after containing the outbreak of COVID-19, our businesses may continue to suffer adverse and material impacts due to the global or regional economic impact, including recession and economic slowdown, which may affect the purchasing power of our customers.
The implemented measures of social distancing, restrictions on the mobility of people and the operation of certain businesses due to the COVID-19 pandemic affected economic activity in Brazil over the last two years; however, these negative impacts have been mitigated as local governments gradually lift such restrictions in response to the increase in COVID-19 vaccinations. No significant effects were observed on the operations of the Company and its subsidiaries in the year ended December 31, 2021.
Still, we cannot predict to what extent the financial information, after December 31, 2021, may be affected by the commercial, operational and financial impacts of the pandemic, because it will depend on its duration and the impacts on economic activities, as well as government, and businesses in response to the crisis. In this context, some financial risk assessments, projections and impairment tests, in connection with the preparation of these financial statements, may be impacted by the pandemic, and may adversely affect the financial position of the Company and its subsidiaries. In addition, the increased volatility in financial markets may impact our financial results where a fair value approach is required.
As there are no comparable recent events that can provide us with guidance regarding the effect of a severe global pandemic, we cannot predict the final impact of the COVID-19 outbreak. Finally, the impact of the COVID-19 pandemic can also precipitate or exacerbate the other risks described in this annual report.
For the impact of ongoing COVID-19 pandemic on our results and operations in 2021 see “Item 5.A. Operating and Financial Review and Prospects— Operating Results—Impact of ongoing COVID-19 pandemic”, and other risk factors included herein and “—Trend Information” below.
Intense competition is generally inherent to distribution markets, including the LPG, the fuel distribution and the retail pharmacy markets and may affect our operating margins.
The Brazilian LPG market is very competitive in all segments — residential, commercial and industrial. Intense competition in the LPG distribution market could lead to lower sales volumes and increased marketing expenses, which may have a material adverse effect on our operating margins. See “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Industry and Regulatory Overview—The role of Petrobras” and “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Competition.”
The Brazilian fuel distribution market is highly competitive as well, in both retail and wholesale segments, with companies with significant resources participating in the Brazilian fuel distribution market. Furthermore, small, local and regional distributors, as well as some important international players have increased their market share in recent years. Intense competition in the fuel distribution market could lead to lower sales volumes and increased marketing expenses, which may have a material adverse effect on our operating margins. See “Item 4.B. Information on the Company—Business Overview—Fuel Distribution—Industry and Regulatory Overview—The role of Petrobras” and “Item 4.B. Information on the Company—Business Overview—Fuel Distribution—Ipiranga—Competition.”
Likewise, the Brazilian drugstore market is highly competitive. Extrafarma competes with national, regional and local drugstore chains, independent drugstores, prescription-only pharmacies, internet purveyors of pharmaceutical and beauty products, and other retailers such as supermarkets, beauty products’ stores and convenience stores. In addition, new retailers may enter the market and compete with us. Competition in the retail pharmacy market is shaped by a variety of factors, such as location, range of products, advertising, commercial practices, prices, quality of services and strength of brand name, among others. If we are unable to anticipate, predict and meet the preferences of our customers, we may lose revenue and market share to our competitors.
Anticompetitive practices in the fuel distribution sector may distort market prices.
In the recent past, anticompetitive practices have been one of the main problems affecting fuels distributors in Brazil, including Ipiranga. Generally, these practices have involved a combination of tax evasion and fuels adulteration, such as the dilution of gasoline by mixing solvents or adding anhydrous ethanol in an amount greater than that permitted by applicable law.
Taxes constitute a significant portion of the cost of fuels sold in Brazil. For this reason, tax evasion by some fuel distributors has been prevalent, allowing them to lower the prices they charge compared to large distributors such as Ipiranga. As the final prices for the products sold by distributors, including Ipiranga, are calculated based on, among other factors, the amount of taxes levied on the purchase and sale of these fuels, anticompetitive practices such as tax evasion may reduce Ipiranga’s sales volume and could have a material adverse effect on our operating margins. Should there be any increase in the taxes levied on fuel, tax evasion may increase, resulting in a greater distortion of the prices of fuels sold and further adversely affecting our results of operations.
LPG and oil-based fuels compete with alternative sources of energy. Competition with and the development of alternative sources of energy in the future may adversely affect the LPG and oil-based fuels market.
LPG competes with alternative sources of energy, such as natural gas, wood, diesel, fuel oil and electricity. Natural gas is currently the main source of energy that we compete with. Currently, natural gas is less expensive than LPG for large industrial consumers, but more expensive for most of residential consumers. Changes in relative prices or the development of alternative sources of energy in the future may adversely affect the LPG market and consequently our business, financial results and results of operations. Oil-based fuels also compete with alternative sources of energy, such as electricity. See “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Competition.”
The Brazilian petrochemical industry is influenced by the performance of the international petrochemical industry and its cyclical behavior.
The international petrochemical market is cyclical by nature, with alternating periods typically characterized by tight supply, increased prices and high margins, or by overcapacity, declining prices and low margins. The decrease in Brazilian import tariffs on petrochemical products, the increase in demand for such products in Brazil, and the ongoing integration of regional and world markets for commodities have contributed to the increasing integration of the Brazilian petrochemical industry into the international petrochemical marketplace. In addition, to the extent that Petrobras' price adjustment policy is aligned with international market price variation, those variations are relevant for the Brazilian petrochemical industry. Consequently, events affecting the petrochemical industry worldwide, including the escalating military tension between Russia and Ukraine, could have a material adverse effect on our business, financial condition and results of operations.
The sale of Extrafarma might not be consummated, which could have an adverse effect on our businesses, operations, financial condition and results of operations.
On May 18, 2021, Ultrapar entered into a share purchase and sale agreement ("SPA") for the sale of all of its shares in Extrafarma to Pague Menos for a total sale price of R$700 million, subject to certain adjustments due mainly to changes in working capital and Extrafarma’s net debt position on the closing date of the transaction, as provided in the SPA. The completion of the transaction is subject to usual conditions precedent, including the approval by Brazilian antitrust authority. If we fail to meet any of the conditions precedent set forth in the SPA, including the aforementioned antitrust approval, and the fulfillment of any such conditions precedent are not waived (if applicable) by Pague Menos, we would not be able to consummate the transaction. Consequently, we would not receive the proposed purchase price in connection with such sale, which could have an adverse effect on our businesses, operations, financial condition or results of operations. Additionally, we have incurred in significant costs, expenses, and fees for professional services and other transaction costs in connection with the sale of Extrafarma and we will have to pay such costs, expenses and fees even if the transaction is not completed. For more information, see “Item 4.A. Information on the Company—History and Development of the Company—A.2. Discontinued Operations—Extrafarma” and “Item 4.A. Information on the Company—History and Development of the Company—Recent Developments—Investitures and Divestitures.”
Regulatory, political, economic and social conditions could adversely impact our businesses and the market price of our securities.
Our financial and operational performance may be negatively affected by regulatory, political, economic and social conditions. In some of these jurisdictions, we are exposed to various risks such as potential renegotiation, nullification or forced modification of existing contracts, expropriation or nationalization of property, foreign exchange controls, changes in local laws, regulations and policies, trade controls and tariffs, global trade uncertainties and political instability. Furthermore, we operate in labor-intensive industries that are subject to the effects of instabilities in the labor market, including strikes, work stoppages, protests and changes in employment regulations, increases in wages and the conditions of collective bargaining agreements that, individually or in the aggregate, could have a material adverse effect on our results. The industries in which we operate have experienced these types of instabilities in the past and we cannot assure that these instabilities will not occur again.
Actual or potential political or social changes and changes in economic policy may undermine investor confidence, which may hamper investment and thereby reduce economic growth, and otherwise may adversely affect the economic and other conditions under which we operate in ways that could have a materially negative effect on our businesses.
We are also exposed to risks relating to the ongoing COVID-19 pandemic and the regulatory, political, economic and social impacts of that outbreak. See “—Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics.”
Our businesses would be materially adversely affected if operations at our transportation and distribution facilities experienced significant interruptions.
The distribution of LPG, fuels and pharmaceutical products is subject to inherent risks, including interruptions or disturbances in the distribution system which may be caused by accidents or force majeure events, including the ongoing COVID-19 pandemic. Our operations are dependent upon the uninterrupted operation of our terminals, storage and distribution facilities and various means of transportation. We are also dependent upon the uninterrupted operation of certain facilities owned or operated by our suppliers. Operations at our facilities and at the facilities owned or operated by our suppliers could be partially or completely shut down, temporarily or permanently, as the result of any number of circumstances that are not within our control, such as:
- catastrophic events, including hurricanes and floods;
- social and economic conflicts, such as terrorist events and wars, including the escalating military tension between Russia and Ukraine;
- epidemics and pandemics, such as the ongoing COVID-19 pandemic (see “—Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics”);
- environmental matters (including environmental licensing processes or environmental incidents, contamination, and others);
- labor difficulties (including work stoppages, strikes and other events); and
- disruptions in our means of transportation, affecting the supply of our products.
Any significant interruption at these facilities or inability to transport products to or from these facilities or to our customers for any reason could subject us to liability in judicial, administrative or other proceedings, including for disruptions caused by events outside of our control, which could materially affect our businesses and results.
For example, on May 21, 2018, Brazilian truck drivers announced a nationwide strike, which lasted 10 days, demanding a reduction in taxes imposed on diesel and an amendment to the fuel pricing methodology adopted by Petrobras. The nationwide strike also involved the blockage of some of our facilities, obstruction of highways and other public roadways all over the country which have affected the delivery of various types of cargos and prevented us from carrying out our activities and operations in a normal manner. Amongst the impacts caused by the nationwide strike, the ANP issued a series of exceptional measures to remain in effect while the strike was ongoing to avoid fuel shortages. The Brazilian Federal Government also announced the implementation of measures to meet the demands made by the truck drivers to end the nationwide strike.
We may be adversely affected by changes to specific laws and regulations in our operating sectors.
We are subject to extensive federal, state and local legislation and regulation by government agencies and sector associations in the industries we operate. Rules related to quality of products, product storage, staff working hours, among others, may become more stringent or be amended overtime, and require new investments or the increase in expenses so our operations are in compliance with the applicable rules. Changes in specific laws and regulations in the sectors we operate may adversely affect the conditions under which we operate in ways that could have a materially negative effect on our businesses and our results.
For example, as a consequence of the nationwide truck drivers’ strike, the ANP issued a series of exceptional measures to remain in effect while the strike was ongoing to avoid fuel shortages. The Brazilian Federal Government also announced the implementation of measures to meet the demands made by the truck drivers to end the nationwide strike.
The nationwide strike and the measures adopted in response had a direct impact on our businesses and results. Further strikes and any additional measures to be implemented by the Brazilian Federal Government and regulatory agencies in response may also affect our operations and further adversely impact our results.
We may be adversely affected by the imposition and enforcement of more stringent environmental laws and regulations, including as a result of rising climate change concerns, that may result in increased costs of operation and compliance, as well as a decrease in demand for our products.
We are subject to extensive federal and state legislation and regulation by government agencies responsible for the implementation of environmental and health laws and policies in Brazil. Companies like ours are required to obtain licenses for their manufacturing facilities from environmental authorities which may also regulate their operations by prescribing specific environmental standards in their operating licenses. Environmental regulations apply particularly to the discharge, handling and disposal of gaseous, liquid and solid products and by-products from manufacturing activities.
Changes in these laws and regulations, or changes in their enforcement, could adversely affect us by increasing our cost of compliance or operations. In addition, new laws or additional regulations, or more stringent interpretations of existing laws and regulations, could require us to spend additional funds on related matters in order to stay in compliance, thus increasing our costs and having an adverse effect on our results. Due to concern over the risk of climate change, a number of countries, including Brazil, have adopted or are considering the adoption of regulatory frameworks to, among other things, reduce greenhouse gas emissions. These include adoption of cap and trade regimes, carbon taxes, increased efficiency standards, prohibition of oil-based fuels vehicles, and incentives or mandates for renewable energy. These requirements could reduce demand for hydrocarbons in different rhythm aces and different levels in countries where our customers are located, as well as shifting hydrocarbon demand toward relatively lower-carbon sources. In addition, many governments are providing tax advantages and other subsidies and mandates to make alternative energy sources more competitive against oil and gas, what can disincentivize the sale of certain products supplied by our subsidiaries. Governments are also promoting research into new technologies to reduce the cost and increase the scalability of alternative energy sources, all of which could lead to a decrease in demand for our products. In addition, current and pending greenhouse gas regulations may substantially increase our compliance costs and, as a result, increase the price of the products we produce or distribute.
If we do not invest in researching and developing new, less carbon intensive solutions and adapt our operating structure to operate on cleaner energy sources, we may incur greater compliance and operating costs than other companies in the markets in which we operate, which may have an adverse effect on our competitiveness and revenues.
Furthermore, if we are perceived to be in violation of environmental laws and regulations, we may face reputational harm before consumers, our B2B customers, investors, the communities in which we operate and other stakeholders, which may adversely affect our access to capital, revenues and capacity to obtain the licenses we need to perform our operations.
For more information on environmental laws and regulation within our businesses, see “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Industry and Regulatory Overview—Environmental, health and safety standards”, “Item 4.B. Information on the Company—Business Overview—Fuel Distribution—Industry and Regulatory Overview—Environmental, health and safety standards” and “Item 4.B. Information on the Company—Business Overview—Petrochemicals and Chemicals—Industry and Regulatory Overview—Environmental, health and safety standards.”
The production, storage and transportation of LPG, fuels and petrochemicals are inherently hazardous.
The operations we perform at our plants involve safety risks and other operating risks, including the handling, production, storage and transportation of highly inflammable, explosive and toxic materials. These risks could result in personal injury and death, severe damage to or destruction of property and equipment and environmental damage. A sufficiently large accident at one of our plants, service stations or storage facilities could force us to suspend our operations in the facility temporarily and result in significant remediation costs, loss of revenues and contingent liabilities. In addition, insurance proceeds may not be available on a timely basis and may be insufficient to cover all losses. Equipment breakdowns, natural disasters and delays in obtaining imports or required replacement parts or equipment can also affect our manufacturing operations and consequently our results from operations, and our reputation.
For example, on April 2, 2015, part of the storage facilities operated by Ultracargo in Santos, in the state of São Paulo, endured a nine-day fire surrounding six ethanol and gasoline tanks. There were no casualties in this accident and, following an investigation by the State and Federal Police into the accident and its impact on the region, the cause of the accident was determined to be inconclusive. See “Item 4.A. Information on the Company—History and Development of the Company—Ultracargo – Fire at storage facilities in Santos.”
Our level of indebtedness may require us to use a significant portion of our cash flow to service such indebtedness.
As of December 31, 2021, our consolidated debt was R$16,377.6 million (US$2,934.8 million) and our net cash provided by operating activities from continuing operations totaled R$1,603.4 million (US$287.3 million). The level and composition of our indebtedness could have significant consequences for us, including requiring a portion of our cash flow from operations to be committed to the payment of principal and interest on our indebtedness, thereby reducing the available cash to finance our working capital and investments.
Our insurance coverage may be insufficient to cover losses that we might incur.
The operation of any chemical manufacturing plant and the specialized distribution and retail, as well as the operations of logistics of oil, LPG, fuels and pharmaceuticals distribution involve substantial risks of property damage and personal injury and may result in material costs and liabilities. Although we maintain insurance policies, the occurrence of losses or other liabilities that are not covered by insurance or that exceed the limits of our insurance coverage could result in significant unexpected additional costs.
The suspension, cancellation or non-renewal of certain tax benefits may adversely affect our results of operations.
Currently, we are entitled to tax benefits providing for income tax reduction for our activities in the Northeast region of Brazil, subject to certain conditions. Conversely, if the corresponding tax authorities understand that we have not complied with any of the tax benefit requirements or if the current tax programs from which we benefit are modified, suspended, cancelled, not renewed or renewed under terms that are substantially less favorable than expected, we may become liable for the payment of related taxes at the full tax rates and our results of operations may be adversely affected. Income tax exemptions amounted to R$110.9 million, R$83.9 million and R$43.2 million, for the years ended December 31, 2021, 2020 and 2019, respectively. See “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Income tax exemption status”, “Item 4.B. Information on the Company—Business Overview—Petrochemicals and Chemicals—Oxiteno—Income tax exemption status” and “Item 4.B. Information on the Company—Business Overview—Storage services for liquid bulk —Ultracargo—Income tax exemption status.”
No single shareholder or group of shareholders holds more than 50% of our capital stock, which may increase the opportunity for alliances between shareholders and other events that may occur as a result thereof.
No single shareholder or group of shareholders holds more than 50% of our capital stock. Due to the absence of a controlling shareholder, we may be subject to future alliances or agreements between shareholders, which may result in the exercise of a relevant influence over our Company by them. In the event a controlling group is formed and decides to exercise its influence over our Company, we may be subject to unexpected changes in our corporate governance and strategies, including the replacement of key executive officers. Any unexpected change in our management team, business policy or strategy, any dispute between our shareholders, or any attempt to acquire control of our Company may have an adverse impact on us. The term of office of our current members of our Board of Directors, who were elected at the annual and extraordinary general shareholders’ meeting held on April 14, 2021, will expire in the annual general shareholders’ meeting to be held in 2023.
As a result of acquisitions, Ultrapar has assumed and may assume in the future certain liabilities related to the businesses acquired or to be acquired. Additionally, Ultrapar has assumed and may assume certain risks associated with acquisitions and divestments, including regulatory risks.
Ultrapar has assumed certain liabilities of previously acquired businesses; therefore, certain existing financial obligations, legal liabilities or other known and unknown contingent liabilities or risks of the businesses acquired have become Ultrapar´s responsibility. Ultrapar may acquire new businesses in the future and, as a result, it may be subject to additional liabilities, obligations and risks. See “Item 4.A. Information on the Company—History and Development of the Company” for more information in connection with these acquisitions.
In addition, Ultrapar is subject to risks relating to acquisitions and divestments that it enters into from time to time. Such risks include that the approval of such transactions may ultimately be refused by the relevant regulatory bodies, including CADE. See “Item 8.A. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”
These liabilities may cause Ultrapar to be required to make payments (including indemnifications and future claims in judicial and arbitral proceedings), incur charges or take other actions that may adversely affect Ultrapar’s financial position and results of operations and the price of Ultrapar’s shares.
Our founding family and part of our senior management, through their ownership interest in Ultra S.A. and Parth, own a significant portion of our shares and may influence the management, direction and policies of Ultrapar, including the outcome of any matter submitted to the vote of shareholders.
Although there is no controlling shareholder of Ultrapar, our founding family and part of our senior management, through their ownership interest in Ultra S.A., beneficially own 25% of our outstanding common stock. Ultra S.A., together with Parth, another branch of the Igel family, entered into a shareholders’ agreement on May 2, 2018 relating to their Ultrapar shares. On August 18, 2020, Ultra S.A. and Parth entered into the 2020 Shareholders’ Agreement to include Pátria, in its capacity as Ultra S.A.'s shareholder then holding a 20% stake in Ultra S.A.'s capital stock, as consenting intervening party, therefore bound by the provisions of the 2020 Shareholders' Agreement. The 2020 Shareholders’ Agreement replaced the 2018 Shareholders’ Agreement in its entirety, and the terms and conditions remain substantially the same of the latter. On September 28, 2021, Ultra S.A. informed the Company that Mr. Marcos Marinho Lutz, our Chief Executive Officer, became a shareholder of Ultra S.A., holding 2.4% of its capital stock, and also became a consenting intervening party of the 2020 Shareholders’ Agreement. As of December 31, 2021, the 2020 Shareholders' Agreement binded a total of shares representing 34.7% of the Company’s capital stock.
See “Item 4.A. Information on the Company—History and Development of the Company”, “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements” and “Exhibit 2.12—2020 Shareholders’ Agreement, dated as of August 18, 2020.” Accordingly, these shareholders, acting together through Ultra S.A. and Parth, may exercise significant influence over all matters requiring shareholder approval, including the election of our directors.
Our status as a holding company may limit our ability to pay dividends on the shares and consequently, on the ADSs.
As a holding company, we have no significant operating assets other than the ownership of shares of our subsidiaries. Substantially all of our operating income comes from our subsidiaries, and therefore we depend on the distribution of dividends or interest on shareholders’ equity from our subsidiaries. Consequently, our ability to pay dividends depends solely upon our dividends and other cash flows from our subsidiaries.
Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm.
We are committed to conduct our businesses in a legal and ethical manner in compliance with the local and international statutory requirements and standards applicable to our activities. However, our governance and compliance processes, which include reviewing internal controls over financial reporting, may not prevent future violations of applicable legal, including anti-corruption, antitrust and conflicts of interest laws and regulations, accounting or governance standards. Although we have implemented what we understand to be a robust compliance and ethics program to detect and prevent violations of applicable anti-corruption, antitrust and conflicts of interest laws, we may be subject to breaches of our Code of Ethics, anti-corruption policies and commercial conduct protocols, and to instances of fraudulent behavior, corrupt, anticompetitive and unethical practices and dishonesty by our employees, contractors or other agents. In the recent past, anticompetitive practices have been one of the main problems affecting fuels and LPG distributors in Brazil, including Ipiranga and Ultragaz. There are allegations of cartels involved in price fixing in the fuel distribution and LPG sectors, and CADE has been targeting players of these sectors in different regions of Brazil. CADE has recently been actively investigating these sectors and the outcome of the ongoing investigations, administrative proceedings and lawsuits could have a material adverse effect on Ipiranga and Ultragaz. Our failure to comply with applicable laws and other standards could subject us to, among others, litigation, investigations, expenses, fines, loss of operating licenses and reputational harm.
Information technology failures, including those that affect the privacy and security of personal data, as a result of cyber-attacks or other causes, could adversely affect our businesses and the market price of our shares and ADSs.
We increasingly rely on information technology systems to process, transmit, and store electronic information. A significant portion of the communication between our personnel, customers, and suppliers depends on information technology. In addition, our billing systems relies heavily on technology infrastructure. As with all large systems, our information systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hacker attacks, human errors or other security issues.
We depend on information technology to enable us to operate efficiently and interface with customers, as well as to maintain in-house management and control. We also collect and store non-public personal information that customers provide to purchase products or services, including personal information and payment information.
In addition, the concentration of processes in shared services centers means that any technology disruption could impact a large portion of our businesses within the operating regions we serve. Any transitions of processes to, from or within shared services centers as well as other transformational projects, could lead to business disruptions. If we do not allocate, and effectively manage, the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, loss of customers, operations disruptions, or the loss of or damage to intellectual property caused by security breach. As with all information technology systems, our system could also be penetrated by outside parties with the purpose of extracting information, corrupting information or disrupting business processes.
In Brazil, we are subject to laws and regulations relating to data protection and data privacy, including Brazilian Law No. 13,709 (LGPD). LGPD, which came into force in September 2020, except for its administrative sanctions (Articles 52, 53 and 54), which came into force on August 1, 2021, pursuant to Law No. 14,010, sets out the rights of data holders and, among others, creates a legal framework for the processing of personal data. LGPD requires mandatory breach notification in case of relevant risk or damage to the data holder and authorizes regulatory investigations that could lead to fines and other sanctions in case of non-compliance. To date, we are not aware of any ongoing regulatory investigations affecting us. However, we cannot assure that we will not be subject to any such investigations and any resulting sanctions in the future, should any breaches take place.
LGPD, as well as any other changes to existing personal data protection laws, may subject us to, among other measures, additional costs and expenses, which would require costly changes to our businesses practices and security systems, policies, procedures and practices.
As a result of our activities, Ultra Group processes personal data, including data of employees, dealers, customers and consumers. Therefore, in order to comply with the applicable laws and regulations, we have designed and implemented a privacy program, which, among others, aims to ensure that our businesses will put in place the procedures required to provide the appropriate legal basis for the processing of personal data and the adequate handling of said personal data.
We have implemented security measures to protect our databases and prevent cyberattacks, thereby reducing risks of exposure to data breaches and IT security incidents and we have adopted various actions aiming to minimize potential technology disruptions, such as tools, controls and procedures in the management and monitoring of internal and perimeter security, periodic analysis of vulnerabilities, an information security and cybersecurity awareness program, contingency plans for critical processes, a secondary environment for physical disaster recovery and respective periodic tests, tools for continuous monitoring and correlation of events, a dedicated team responsible for maintaining and continuously improving the information security management system, incident response plans and other best practices and tools, but all of these protections may be compromised as a result of third-party security breaches, burglaries, cyberattack, errors by employees or employees of third-party vendors, contractors, misappropriation of data by employees, vendors or unaffiliated third parties, or other irregularities that may result in persons obtaining unauthorized access to company data or otherwise disrupting our business.
For example, on January 11, 2021, an unauthorized party disrupted access to our IT systems, which caused a temporary interruption to our operations and resulted in the theft of certain proprietary data. On January 14, 2021, we began restoring the systems that were affected by this incident, consistent with our cybersecurity guidelines and policies. All critical information systems of the Company and its subsidiaries have been fully operational since February 2021. For further information, see Note 1.b to our consolidated financial statements.
As of the date of this annual report, the Company does not carry insurance against cyber incidents. Therefore, similar interruptions, data breaches or any noncompliance with LGPD could have an adverse effect on our businesses, reputation, results of operations, cash flows or financial condition, or result in proceedings or actions against us, including the imposition of fines.
Risks Relating to Brazil
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions, including ongoing political instability and perceptions of these conditions in the international markets, could adversely affect our businesses and the market price of our shares and ADSs.
The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes substantial changes in policy and regulations. The Brazilian government’s actions to control inflation and affect other policies and regulations have involved price and wage controls, currency devaluations, capital controls, strong fiscal adjustments and limits on imports, among other measures. Our businesses, financial condition and results of operations may be adversely affected by changes in policy or regulations involving or affecting tariffs, exchange controls and other matters, as well as factors such as:
- currency fluctuations;
- inflation;
- interest rates;
- exchange rate policies;
- liquidity available in the domestic capital, credit and financial markets;
- oil and gas sector regulations, including price policies;
- petrochemical and chemical sectors regulations;
- retail pharmacy business regulations;
- payment business regulations;
- the impact of epidemics and pandemics, such as the ongoing COVID-19 pandemic;
- price instability;
- social and political instability;
- energy and water shortages and rationing;
- liquidity of domestic capital and lending markets;
- fiscal policy; and
- other political, economic, social, trade and diplomatic developments in or affecting Brazil.
Uncertainty over whether the Brazilian government may implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian issuers, as well as heightened volatility in the Brazilian Real. These and other future developments in the Brazilian economy or government policies may adversely affect us and our businesses as well as our results of operations and may adversely affect the trading price of our ADSs and shares. Furthermore, the Brazilian government may enact new regulations that may adversely affect our businesses and us.
Political instability in Brazil has been growing in recent years and can adversely affect the economy.
Brazilian markets have registered an increase in volatility due to uncertainties resulting from ongoing investigations conducted by the Brazilian Federal Police and the Brazilian Federal Public Prosecutor’s Office with respect to high-ranking members of the government, including President Jair Bolsonaro. Such investigations have impacted the country’s economy and political environment.
Furthermore, President Bolsonaro has been criticized both in Brazil and internationally, with the destabilizing effects of the COVID-19 pandemic increasing political uncertainty and instability in Brazil, particularly after the departure of several high-ranked federal ministers and the allegations of corruption against President Bolsonaro. As of the date of this 20-F, President Bolsonaro is under investigation by the Brazilian Supreme Court for potential misconduct, as alleged by former Minister of Justice, Sergio Moro. In addition, in April 2021, the Brazilian Congress has launched a Parliamentary Inquiry Commission (Comissão Parlamentar de Inquérito, or “CPI”) to investigate the government’s management of the COVID-19 pandemic. The CPI investigated, among other things, alleged failures to impose lockdowns or promote social distancing, the successive removals of health ministers amid the pandemic, and the promotion of unproven drugs in treating COVID-19. Upon completion of the congressional investigation, a final report was approved on October 26, 2021 recommending President Bolsonaro to be indicted for nine crimes related to his handling of the COVID-19 pandemic, including crimes against humanity. The congressional report could lead to criminal charges or trigger an impeachment proceeding. Any resulting consequences of these investigations could have material adverse effects on the political and economic environment in Brazil, as well as on businesses operating in Brazil, including us.
In February 2021, President Bolsonaro moved to replace the then-CEO of state-controlled Petrobras with the army general, Joaquim Silva e Luna, suggesting a more interventionist government agenda, which had an adverse effect on Brazilian capital markets. In March, 2022, Mr. Luna was ousted by President Bolsonaro in a stand-off over fuel prices. To replace him, president Bolsonaro nominated José Mauro Coelho, who was elected on April 14, 2022, for a one-year term, becoming Petrobras’s third CEO in just over a year. More recently, President Bolsonaro’s ongoing criticism of Brazil’s electronic voting system and the judiciary for investigations involving his supporters for allegedly financing, organizing or inciting violence or anti-democratic acts, or disseminating false information, contributed to heightened tensions with the Brazilian Supreme Court.
The potential outcome of these and other matters is uncertain, but they have already had a negative impact on the market general perception regarding the Brazilian economy and have adversely affected and may continue to affect our businesses, financial condition and results of operations, as well as the market price of our common shares. We cannot predict whether the ongoing investigations, including those involving President Jair Bolsonaro, will lead to further political and economic instability, nor whether new allegations against government officials and executives and/or private companies will emerge in the future. We are also unable to foresee the results of these investigations, nor the impact on the Brazilian economy or the Brazilian stock market.
In addition, general elections in Brazil, including to elect the president, are scheduled to be held in October 2022. Historically, election years in Brazil, especially presidential ones, are marked by political uncertainty which generates greater instability and volatility in the Brazilian economic and political scenario. Moreover, in March 2021, the Brazilian Supreme Court overturned criminal convictions and restored former President Luiz Inácio Lula da Silva’s political rights, allowing him to run in the upcoming presidential election, adding more uncertainty to the Brazilian political landscape. The outcome of the upcoming presidential election, as well as its impacts on the Brazilian economy, are uncertain and may adversely affect our operations, financial results, and the trading price of our shares.
Moreover, the Brazilian government may be subject to internal pressure to change its current macroeconomic policies in order to achieve higher rates of economic growth. Prior to the COVID-19 pandemic, Brazil was just emerging from a prolonged recession and a period of slow recovery, with only meager GDP growth in 2017, 2018 and 2019. Brazil’s incipient economic recovery in 2020 was torpedoed with the onset of the COVID-19 pandemic and governmental measures in relation thereto, all of which have introduced an additional level of economic and political uncertainty. These dynamics further impacted the start of 2021 which, as restrictions were gradually lifted and government stimulus reduced, amplified the uncertainty by adding volatility to the market through accelerated inflation and higher Selic rates in Brazil.
Brazil’s federal budget has been in deficit since 2014. Similarly, the governments of Brazil’s constituent states are also facing fiscal concerns due to their high debt burdens, declining revenues and inflexible expenditures. The Brazilian Congress has approved a ceiling on government spending that limits primary public expenditure growth to the prior year’s inflation for a period of at least 10 years. In 2019, Congress approved the reform of Brazil’s pension system, which is expected to contribute towards complying with the spending limit. However, discussions in the Brazilian Congress relating to a tax and an administrative reform remain ongoing as of the date of this annual report. In addition, governmental responses to the ongoing COVID-19 pandemic may have significant effect on the fiscal position in Brazil, including reduced tax revenue and increased governmental spending to combat COVID-19 and its impacts. The Brazilian Congress has approved a legislative decree that recognizes the state of public calamity in Brazil due to the COVID-19 pandemic and such state of calamity was effective until December 31, 2020. Due to the state of public calamity, the government was not required to meet the fiscal primary balance target for 2020. In addition, a constitutional amendment has been approved by the Congress to allow the separation of expenses incurred to combat COVID-19 from the budget of the Federal Government, creating an extraordinary regime to allow the increase in public expenditures during the ongoing COVID-19 pandemic without the constitutional barriers that currently restrict federal spending. The proposed constitutional amendment exempts the Federal Government from the so-called fiscal “golden rule” of balancing the budget through the end of 2020. Moreover, on December 8, 2022, the Congress passed another amendment to the Brazilian Constitution (the so-called “PEC dos Precatórios”), which eases certain rules related to the payment of “precatórios” in Brazil (judicial payment orders related to debts owed by the federal treasury and other federal governmental entites in Brazil) to release part of the Federal Government Budget for 2022, which will be used finance a new social program launched by President Bolsonaro ahead of his 2022 re-election campaign. Recently, proposals under consideration may also include significant financial support to the budgets of states and municipalities, further increasing government spending, which is expected to further increase the fiscal deficit in Brazil.
Diminished confidence in the Brazilian government’s budgetary condition and fiscal stance could result in downgrades of Brazil’s sovereign debt by credit rating agencies and the rise of risk premium, negatively impacting Brazil’s economy, lead to further depreciation of the Real and an increase in inflation and interest rates. In addition, negative ratings actions could be taken by rating agencies as a result of economic and political uncertainties or other factors in connection with the COVID-19 pandemic (see “—Risks Relating to Ultrapar and Its Industries—Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics”, and other risk factors included herein). The occurrence of any of these factors could adversely affect our businesses, results of operations and financial condition.
We cannot predict which policies will be adopted by the Brazilian government, including with respect to the oil and gas industry or Petrobras’ pricing policies. Moreover, in the past, the Brazilian economy has been affected by the country’s political events, which have also affected the confidence of investors and the public in general, thereby adversely affecting the performance of the Brazilian economy. Furthermore, any indecisiveness by the Brazilian government in implementing changes to certain policies or regulations may contribute to economic uncertainty in Brazil and heightened volatility for the Brazilian securities markets and securities issued abroad by Brazilian companies. We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments on our businesses. In addition, there is substantial uncertainty regarding future economic policies, and we cannot predict which policies will be adopted by the Brazilian government and whether these policies will negatively affect the economy or our businesses or financial performance. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect our securities and us. Any continued economic instability and political uncertainty which results in reduced availability of credit and reduced economic growth may materially and adversely affect our businesses.
Inflation and certain governmental measures to curb inflation, including as a result of the COVID-19 pandemic, may contribute significantly to economic uncertainty in Brazil and could harm our businesses and the market value of the ADSs and our shares.
In the past, Brazil has experienced extremely high rates of inflation. Inflation and some of the Brazilian government’s measures taken in an attempt to curb inflation have had significant negative effects on the Brazilian economy. Since the introduction of the Real in 1994, Brazil’s inflation rate has been substantially lower than that in previous periods. However, during the recent past, the economy has experienced increasing inflation rates and actions taken in an effort to curb inflation, coupled with economic and political impacts derived from COVID-19 crisis and speculation about possible future governmental actions, have contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market. According to the Índice Geral de Preços-Mercado, or IGP-M, an inflation index, the Brazilian general price inflation rates were 17.8% in 2021, 23.1% in 2020 and 7.3% in 2019. According to the Índice Nacional de Preços ao Consumidor Amplo, or IPCA, an inflation index to which Brazilian government’s inflation targets are linked, inflation in Brazil was 10.1% in 2021, 4.5% in 2020 and 4.3% in 2019. Brazil may experience high levels of inflation in the future. Our operating expenses are substantially in Reais and tend to increase with Brazilian inflation. Inflationary pressures due to low interest rates and exchange rate depreciation may also hinder our ability to access foreign financial markets or may lead to further government intervention in the economy, including the introduction of government policies that could harm our businesses or adversely affect the market value of our shares and, as a result, our ADSs.
Exchange rate instability may adversely affect our financial condition, results of operations and the market price of the ADSs and our shares.
Although a substantial portion of our sales is denominated in Reais, a significant portion of the products that we distribute, including LPG and fuel, have prices linked to commodity prices denominated in U.S. dollars. Therefore, we are exposed to foreign exchange rate risks that could materially adversely affect our businesses, financial condition and results of operations as well as our capacity to service our debt. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
During the last decades, the Brazilian government has implemented various economic plans and a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Although over long periods depreciation of the Brazilian currency has been generally correlated with the rate of inflation in Brazil, there have historically been observed shorter periods of significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies, in particular in the last 10 years.
In 2017, the Real depreciated 2% against the U.S. dollar reflecting the continued political instability and deterioration of the expectation of the pension reform approval, despite the slight improvement in the Brazilian macroeconomic scenario. In 2018, the Real depreciated 17%, pressured mainly by the global instability, result of economic crises in developed countries and the increase of interest rates by the Federal Reserve System in the United States. The domestic scenario, characterized by political instability due to the presidential election and the slow progress of fiscal and pension reforms, also influenced the Real depreciation during the year. In 2019, the Brazilian Central Bank reduced the interest rate to boost economic momentum after indications of low inflation. The reduction in interest rates, along with geopolitical instability – mainly the commercial conflict between the United States and China, led to pressures on the Real exchange rate in 2019. Despite the pension reform approval by the Brazilian Congress and other events that caused periods of appreciation during the year, the Real depreciated 4% against the U.S. dollar in 2019. In 2020, the Real depreciated 29% against the U.S. dollar, mainly due to the low interest rate environment in Brazil coupled with local and international market conditions, including the economic, political and other impacts of the ongoing COVID-19 pandemic. In 2021, the Real depreciated 7% against the U.S. dollar, mainly due to the slow recovery of Brazil from the economic downturn, the increase in global inflation and fiscal risks in the country. From December 31, 2021 to April 22, 2022, the Real appreciated 15% against the U.S. dollar.
There are no guarantees that the exchange rate between the Real and the U.S. dollar will stabilize at current levels, and the Real and the U.S. dollar exchange rate may be adversely impacted by the economic and fiscal scenario caused by the ongoing COVID-19 pandemic and governmental responses to this. Although we have contracted hedging instruments with respect to part of our existing U.S. dollar debt obligations, in order to reduce our exposure to fluctuations in the dollar/Real exchange rate, we cannot guarantee that such instruments will be adequate to fully protect us against further devaluation of the Real, and we could in the future experience monetary losses as a result. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for information about our foreign exchange risk hedging policy.
Depreciations of the Real relative to the U.S. dollar can create additional inflationary pressures in Brazil that may negatively affect us. Depreciations generally curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciations also reduce the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of our shares and, as a result, the ADSs. On the other hand, appreciation of the Real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments, as well as to a dampening of export-driven growth.
Economic and market conditions in other countries, including in the United States and emerging market countries, may materially and adversely affect the Brazilian economy and, therefore, our financial condition and the market price of the shares and ADSs.
The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil, and, to varying degrees, market conditions in other countries, including the United States, other Latin American and emerging market countries. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the capital markets in other countries to fluctuate. Developments or conditions in other countries, including the United States and other emerging market countries, have at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil, as well as limited access to international capital markets, all of which may materially and adversely affect our ability to borrow funds at an acceptable interest rate or to raise equity capital when and if we should have such a need.
In 2019, 2020 and 2021, the Brazilian market remained volatile due to, among other factors, uncertainties about the increasing risk aversion to emerging market countries, and the uncertainties regarding Brazilian macroeconomic and political conditions. These uncertainties adversely affected us and the market value of our securities. In addition, we continue to be exposed to disruptions and volatility in the global financial markets because of their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability. In addition, since the beginning of 2020, the ongoing COVID-19 pandemic has resulted in significant financial market volatility and uncertainty around the globe. See “Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics.”
Disruption or volatility in the global financial markets, including as a result of the military conflict between Russia and Ukraine, could further increase negative effects on the financial and economic environment in Brazil, which could have a material adverse effect on our businesses, results of operations and financial condition.
Our businesses, financial condition and results of operations may be materially and adversely affected by a general economic downturn and by instability and volatility in the financial markets, including as a result of the conflict between Ukraine and Russia.
The turmoil of the global financial markets and the scarcity of credit in the past led to lack of consumer confidence, increased market volatility and widespread reduction of business activity. An economic downturn could materially and adversely affect the liquidity, businesses and/or financial conditions of our customers, which could in turn result not only in decreased demand for our products, but also increased delinquencies in our accounts receivable.
On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Since then, global markets have been experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between these countries. Although the length and impact of the ongoing military conflict are highly unpredictable, the conflict in Ukraine has led and could further lead to market disruptions, including significant volatility in commodity prices, including crude oil and natural gas, which could impact the prices of LPG and oil-based fuel, and demand in the markets in which we operate. Additionally, governments in the United States and many other countries have imposed economic sanctions on certain Russian individuals, including politicians, and Russian corporate and banking entities. These sanctions, or even the threat of further sanctions, could result in Russia taking countermeasures or retaliatory actions which may lead to further market disruptions and an increase in crude oil and natural gas prices globally, which could negatively impact our businesses and operations.
Moreover, an eventual new global financial crisis could have a negative impact on our cost of borrowing and on our ability to obtain future borrowings. The disruptions in the financial markets could also lead to a reduction in available trade credit due to counterparties’ liquidity concerns. If we experience a decrease in demand for our products or an increase in delinquencies in our accounts receivable, or if we are unable to obtain borrowings our businesses, financial condition and results of operations could be materially adversely affected.
Additionally, the rapid escalation of COVID-19 pandemic across the world since the beginning of 2020 has had, and can continue to have, a number of negative impacts on our businesses, financial condition and results of operations. See “—Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics.”
Holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other relevant persons.
We are a company incorporated under the laws of Brazil. All members of our Board of Directors, executive officers and experts named in this annual report are residents of Brazil or have business address in Brazil. All or a substantial part of the assets pertaining to these individuals and to Ultrapar are located outside the United States. As a result, it is possible that investors may not be able to effect service of process upon these individuals or us in the United States or other jurisdictions outside Brazil, or enforce judgments against us or these other persons obtained in the United States or other jurisdictions outside Brazil, including for civil liability based upon United States federal securities laws or otherwise. In addition, because judgments of United States courts for civil liabilities based upon the United States federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions against us or our Board of Directors or executive officers than would shareholders of a United States corporation.
Risks Relating to the Shares and the American Depositary Shares
Asserting limited voting rights as a holder of ADSs may prove more difficult than for holders of our common shares.
Under the Brazilian Corporate Law, only shareholders registered as such in our corporate books may attend shareholders’ meetings. All common shares underlying the ADSs are registered in the name of the depositary bank. A holder of ADSs, accordingly, is not entitled to attend shareholders’ meetings. A holder of ADSs is entitled to instruct the depositary bank as to how to exercise the voting rights of its common shares underlying the ADSs in accordance with procedures provided for in the Deposit Agreement, but a holder of ADSs will not be able to vote directly at a shareholders’ meeting or appoint a proxy to do so. In addition, a holder of ADSs may not have sufficient or reasonable time to provide such voting instructions to the depositary bank in accordance with the mechanisms set forth in the Deposit Agreement and custody agreement, and the depositary bank will not be held liable for failure to deliver any voting instructions to such holders.
Holders of our shares or ADSs may not receive dividends.
Under our bylaws, unless otherwise proposed by the Board of Directors and approved by the voting shareholders at our annual shareholders’ meeting, we must generally pay our shareholders a mandatory distribution equal to at least 25% of our adjusted net profit, after the allocation of 5% of the net profit to the legal reserve. However, our net income may be used to increase our capital stock, used to set off losses and/or otherwise retained in accordance with the Brazilian Corporate Law and may not be available for the payment of dividends, including in the form of interest on shareholders’ equity. Therefore, whether you receive a dividend or not depends on the amount of the mandatory distribution, if any, and whether the Board of Directors and the voting shareholders exercise their discretion to suspend these payments. See “Item 8.A. Financial Information—Consolidated Statements and Other Financial Information—Dividends and Distribution Policy—Dividend Policy” for a more detailed discussion of mandatory distributions.
Holders of our shares may be unable to exercise preemptive rights with respect to the shares.
In the event that we issue new shares pursuant to a capital increase or offer rights to purchase our shares, shareholders would have preemptive rights to subscribe for the newly issued shares or rights, as the case may be, corresponding to their respective interest in our share capital, allowing them to maintain their existing shareholder percentage.
However, our bylaws establish that the Board of Directors may exclude preemptive rights to the current shareholders or reduce the time our shareholders have to exercise their rights, in the case of an offering of new shares to be sold on a registered stock exchange or otherwise through a public offering.
The holders of our shares or ADSs may be unable to exercise their preemptive rights in relation to the shares represented by the ADSs, unless we file a registration statement for the offering of rights or shares with the SEC pursuant to the United States Securities Act or an exemption from the registration requirements applies. We are not obliged to file registration statements in order to facilitate the exercise of preemptive rights and, therefore, we cannot assure ADS holders that such a registration statement will be filed. As a result, the equity interest of such holders in our Company may be diluted. If the rights or shares, as the case may be, are not registered as required, the depositary will try to sell the preemptive rights held by holder of the ADSs and you will have the right to the net sale value, if any. However, the preemptive rights will expire without compensation to you should the depositary not succeed in selling them.
If shareholders exchange ADSs for shares, they may lose certain foreign currency remittance and Brazilian tax advantages.
The ADSs benefit from the depositary’s certificate of foreign capital registration, which permits the depositary to convert dividends and other distributions with respect to the shares into foreign currency and remit the proceeds abroad. In order to surrender ADSs for the purpose of withdrawing the shares represented thereby, investors are required to comply with National Monetary Council (“CMN”) Resolution 4,373 of September 29, 2014 (“CMN Resolution 4,373”), which requires, among other things, that investors appoint a legal representative in Brazil. If the investors fail to comply with CMN Resolution 4,373, or the legal representative appointed by the investors fail to comply with CMN Resolution 4,373 or to take action when required to do so, it could affect the investors’ ability to receive dividends or distributions relating to our shares or the return of their capital in a timely manner. Investors that are registered as CMN Resolution 4,373 investors may buy and sell their shares on the Brazilian stock exchanges without obtaining separate certificates of registration. If investors do not qualify under CMN Resolution 4,373, they will generally be subject to less favorable tax treatment on distributions with respect to the shares. The depositary’s certificate of registration or any certificate of foreign capital registration obtained by the investor may be affected by future legislative or regulatory changes, and additional Brazilian law restrictions applicable to their investment in the ADSs may be imposed in the future. For a more complete description of Brazilian tax regulations, see “Item 10.E. Additional Information—Taxation—Brazilian Tax Consequences.”
Controls and restrictions on the remittance of foreign currency could negatively affect your ability to convert and remit dividends, distributions or the proceeds from the sale of our shares, Ultrapar’s capacity to make dividend payments to non-Brazilian investors and the market price of our shares and ADSs.
Brazilian law provides that, whenever there is a serious imbalance in the Brazilian balance of payments or reasons for believing that there will be a serious imbalance in the future, the Brazilian government can impose temporary restrictions on remittances of proceeds from investments to foreign investors, including ADS holders and holders of Ultrapar shares that reside outside Brazil. The probability that the Brazilian government might impose such restrictions is related to the level of the country’s foreign currency reserves, the availability of currency in the foreign exchange markets on the date a payment is due, the amount of the Brazilian debt servicing requirement in relation to the economy as a whole, and the Brazilian policy towards the International Monetary Fund, among other factors. We are unable to give assurances that the Central Bank will not modify its policies or that the Brazilian government will not introduce restrictions or cause delays in payments by Brazilian entities of dividends relating to securities issued in the overseas capital markets. Such restrictions or delays could negatively affect your ability to convert and remit dividends, distributions or the proceeds from the sale of our shares, Ultrapar’s capacity to make dividend payments to non-Brazilian investors and the market price of our shares and the ADSs.
Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our ADSs.
According to Article 26 of Brazilian Law No. 10,833/2003, if a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes, or a Non-Brazilian Holder, disposes of assets located in Brazil, the transaction will be subject to taxation in Brazil, even if such disposition occurs outside Brazil or if such disposition is made to another Non-Brazilian Holder. A disposition of our ADSs involves the disposal of a non-Brazilian asset, which in principle should not be subject to taxation in Brazil. Nevertheless, in the event that the disposal of assets is interpreted to include a disposal of our ADSs, this tax law could result in the imposition of the withholding income tax on a disposal of our ADSs between non-residents of Brazil. See “Item 10.E. Additional Information—Taxation—Brazilian Tax Consequences—Taxation of Gains.”
Substantial sales of our shares or our ADSs could cause the price of our shares or our ADSs to decrease.
The shareholders of Ultra S.A. and Parth, which together own 34.7% of our outstanding shares, have the right to exchange their shares of Ultra S.A. and Parth for shares of Ultrapar and freely trade them in the market as more fully described under “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements.” Other shareholders, who may freely sell their respective shares, hold a substantial portion of our remaining shares. A sale of a significant number of shares could negatively affect the market value of the shares and ADSs. The market price of our shares and the ADSs could drop significantly if the holders of shares or the ADSs sell them or the market perceives that they intend to sell them.
There may be adverse U.S. federal income tax consequences to U.S. Holders if we are or become a PFIC under the Code.
If we were characterized as a PFIC, in any year during which a U.S. Holder holds our shares or ADSs, certain adverse U.S. federal tax income consequences could apply to that person. Based on the manner in which we currently operate our businesses, the projected composition of our income and valuation of our assets, and the current interpretation of the PFIC rules, including the Commodity Exception, we do not believe that we were a PFIC in 2021 and we do not expect to be a PFIC in the foreseeable future. However, because PFIC classification is a factual determination made annually and is subject to change and differing interpretations, there can be no assurance that we will not be considered a PFIC for the current taxable year or any subsequent taxable year. U.S. Holders should carefully read “Item 10.E. Additional Information — Taxation — U.S. Federal Income Tax Considerations” for a description of the PFIC rules and consult their tax advisors regarding the likelihood and consequences of us being treated as a PFIC for U.S. federal income tax purposes.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We were incorporated on December 20, 1953, with our origins dating back to 1937, when Ernesto Igel founded Ultragaz and pioneered the use of LPG as cooking gas in Brazil, using bottles acquired from Companhia Zeppelin. The gas stove began to replace the traditional wood stove, and to a lesser degree, kerosene and coal, which dominated Brazilian kitchens at the time. Since then, Ultrapar has become one of the largest business groups in Brazil. As of December 31, 2021, Ultrapar owned the following main businesses: Ipiranga, Ultragaz and Ultracargo (energy and infrastructure), abastece aí (digital payments), Oxiteno (specialty chemicals), and Extrafarma (retail pharmacy), the last two of which are re-presented as discontinued operations.
We are currently in the process of completing the review of our businesses portfolio, seeking greater complementarity and synergies in our operations within the energy and infrastructure sectors in Brazil, through Ipiranga, Ultragaz and Ultracargo. As a result of this reformulation, we have decided to discontinue the Oxiteno and Extrafarma operations to focus on strengthening and expanding its energy and infrastructure operations.
Ultrapar is incorporated under the laws of Brazil. Our main executive office is located at Brigadeiro Luis Antônio Avenue, 1343, 9th Floor, 01317-910, São Paulo, SP, Brazil. Our telephone number is +55 (11) 3177 7014. Our internet website address is http://ri.ultra.com.br. Unless expressly incorporated by reference into this annual report, including the exhibits and schedules filed herewith, the contents of our website are not incorporated by reference into this annual report. Our agent for service of process in the United States is C.T. Corporation System, located at 111 Eighth Avenue, New York, New York 10011.
Below we describe our main continuing and discontinued operations.
A.1. Continuing Operations
Ultragaz
When Ultragaz began its operations, it served only the Southeast region of Brazil. Currently, Ultragaz operates nationwide in the distribution of both bottled and bulk LPG, including the most highly populated states in Brazil, such as São Paulo, Rio de Janeiro and Bahia, and may sell bottled LPG through independent dealers. Bulk LPG is serviced through Ultragaz own infrastructure.
In 1995, Ultragaz introduced UltraSystem – a small bulk distribution system – to residential, commercial and industrial segments, and started the process of geographical expansion through the construction of new LPG filling and satellite plants.
In 2003, Ultragaz acquired Shell Gás, Royal Dutch Shell plc’s LPG operations in Brazil. With this acquisition, Ultragaz became the Brazilian market leader in LPG, with a 24% share of the Brazilian market on that date. In 2011, Ultragaz acquired Repsol’s LPG distribution business in Brazil.
In the past few years, Ultragaz undertook a comprehensive review of its business strategy, positioning itself as a diverse and innovative company, and using its experience, knowledge and reliability of its processes, products and services to create and offer energy solutions that meet its clients' needs. This strategy shift was illustrated through the redefinition of Ultragaz’s business motto in order to make it broader, inspirational and more suitable to the Company’s goals. Ultragaz’s new motto is: “we use our energy to change people’s lives.”
Ultracargo
In the decade of 1960, the market demand for high-quality and safe transportation services led to our entrance in the transportation of chemicals, petrochemicals and LPG segment. In 1978, Ultracargo Logística (formerly Terminal Químico de Aratu S.A. – Tequimar) was founded for the purpose of operating the terminals business. Later, it was acquired by Ultracargo, which is currently the largest independent provider of liquid bulk storage in Brazil.
In 2005, Ultracargo started up a new terminal in Santos, its second port terminal, that integrates road, rail and maritime transportation systems. In 2008, Ultracargo acquired 100% of the shares of União Terminais held by Unipar, with port terminals in Santos and Rio de Janeiro, as well as the 50% stake held by Unipar in União Vopak total capital stock, the owner of a port terminal in Paranaguá. The combination of its operations with those of União Terminais doubled the size of Ultracargo’s results and made it the largest liquid bulk storage company in Brazil, strengthening its operating scale. With this acquisition, Ultracargo increased its presence at the port of Santos, the largest Brazilian port, and is now strategically positioned in the ports of Rio de Janeiro and Paranaguá, where the company did not previously have operations.
In 2009, Ultracargo acquired Puma Storage do Brasil Ltda., a storage terminal for liquid bulk located at the port of Suape, in the state of Pernambuco. In 2012, Ultracargo acquired Temmar from Temmar Netherlands B.V. and Noble Netherlands B.V., subsidiaries of Noble Group. Temmar owned a terminal in the port of Itaqui, in the state of Maranhão.
In March 2018, Ultracargo Logística acquired 100% of the quotas of TEAS, owned by Raízen Energia S.A. and Raízen Araraquara Açúcar e Álcool Ltda., whose assets had already been operated by Ultracargo Logística in the port of Santos.
In April 2019, Ultracargo won the concession of area VDC12 at the Vila do Conde port, in Barcarena, state of Pará, with a minimum storage capacity of 59 thousand cubic meters. The area will be operated by Ultracargo for at least 25 years. In December 2021, Ultracargo started its operations at this new terminal, with a total storage capacity of 110 thousand cubic meters. The new terminal is in a region that is strategic for Ultracargo since it is the only provider of storage services for liquid bulk at this port.
In 2021, Ultracargo also won the public auction to operate area IQI13 at the Itaqui port, which increased Ultracargo’s total bulk capacity by 79 thousand cubic meters. Upon completion of the phase 3 expansion at the Itaqui terminal, its total capacity was increased by 46 thousand cubic meters, resulting in a total capacity of 155 thousand cubic meters.
Ipiranga
In 2007, Ultrapar, Petrobras and Braskem announced their intent to acquire the Ipiranga Group, and Ultrapar entered into, and Petrobras and Braskem acknowledged, the Ipiranga Group SPA with the Key Shareholders of the principal companies comprising the Ipiranga Group.
After the completion of the acquisition of Ipiranga Group, its businesses were divided among Petrobras, Ultrapar and Braskem. Ultrapar retained the fuel and lubricant distribution businesses located in the South and Southeast regions of Brazil and a one-third stake in RPR; Petrobras received the fuel and lubricant distribution businesses located in the North, Northeast and Midwest regions of Brazil; Petrobras and Braskem received the Petrochemical Business, in the proportion of 60% for Braskem and 40% for Petrobras. For a more detailed discussion of the acquisition of Ipiranga Group, see our Form F-4 filed with the Commission on December 17, 2007.
Following the acquisition, Ultrapar, which was already Brazil’s largest LPG distributor, became the second largest fuel distributor in the country, with a 14% market share in 2007, according to ANP.
In 2008, Ipiranga entered into a sale and purchase agreement with Chevron for the acquisition of 100% of the shares of CBL and Galena. The combination with Texaco created a nationwide fuel distribution business, strengthening its competitiveness through a larger operational scale. After completion of the acquisition, Ipiranga implemented its business plan, which consisted of two main work streams (i) the integration of operations, administrative and financial functions of Texaco, and (ii) the implementation of Ipiranga’s business model in the expanded network, with a wider range of products and services and a differentiated approach to its resellers. By the end of 2012, Ipiranga had also converted all the acquired Texaco branded stations into the Ipiranga brand.
In 2009, a capital increase of R$15 million was approved at an extraordinary general shareholders’ meeting of RPR through the issuance of 15 million new common and preferred shares and the admission of new shareholders in its capital stock, as part of the acquisition of the Ipiranga Group. As a result, RPR ceased to be a wholly owned subsidiary of Ultrapar. Ultrapar retains a non-controlling equity interest of 33% in RPR.
In 2010, Ipiranga acquired 100% of the shares of DNP. DNP distributed fuels in the states of Amazonas, Rondônia, Roraima, Acre, Pará and Mato Grosso through a network of 110 service stations, with 4% market share in 2009 in the North of Brazil.
In 2012, Ipiranga entered the segment of electronic payment for tolls, parking and fuels through ConectCar. ConectCar fits into Ipiranga’s strategy of differentiation, offering more products and services in its service station network focused on convenience and practicality, generating benefits for its clients, retailers and for the company itself. In 2015, Redecard S.A. acquired 50% of ConectCar from a former partner. This new partner provided opportunities to ConectCar expand its services to new markets, continuing with its purpose of offering customers mobility, convenience, flexibility and, above all, differentiated benefits.
In 2016, Ipiranga entered into an association agreement with Chevron to create a new company in the lubricants business, Iconic; of which Ipiranga and Chevron hold 56% and 44%, respectively. Operations commenced on December 1, 2017.
In March 2019, Ipiranga was awarded the concession of specific areas in Cabedelo (PB) and Vitória (ES) through the consortia Nordeste and Navegantes, in which Ipiranga holds one third of the total participation, together with BR and Raízen. The concessions require the consortia to build and operate a minimum storage capacity for the Nordeste consortium of 64 thousand cubic meters and initial operations are expected to start in 2021, while the minimum storage capacity of the Navegantes consortium is 66 thousand cubic meters, with initial operation currently expected during 2022. In April 2019, Ipiranga won two concessions in the port of Miramar, in Belém (PA): (i) area BEL02A, through a consortium 50% owned by Ipiranga and 50% owned by Raízen, with a minimum storage capacity of 41 thousand cubic meters, and (ii) area BEL04A, which is currently operated by Ipiranga, therefore maintaining its operation in the region, with minimum storage capacity of 23 thousand cubic meters. These were strategic moves for Ipiranga, which improves logistics efficiency of fuels distribution through its own storage capacity and contributes to better quality services in the respective regions.
On June 25, 2021, Ultrapar entered into a share purchase and sale agreement for the sale of its equity interest in ConectCar, through its subsidiary Ipiranga, to Porto Seguro, through its subsidiary Portoseg S.A. The sale was completed on October 1, 2021, for R$165 million, with the transfer of the equity interest equivalent to 50% of ConectCar’s shares.
Ipiranga’s AmPm stores
The first AmPm stores in Brazil were established in 1993 at the Atlantic’s gas stations, whose national operation was acquired by Ipiranga in that same year. In 2012, Ipiranga acquired the AmPm brand and its right of use in Brazil.
In 2008, Ipiranga started its first AmPm bakery operation. As of December 31, 2021, we had 842 bakeries operating within Ipiranga’s AmPm stores.
Since 2013, AmPm has its own supply structure (“AmPm Suprimentos”), which has four distribution centers in the states of Rio de Janeiro, São Paulo, Rio Grande do Sul and Paraná. This initiative aims to streamline AmPm operations, improve the franchisees’ competitiveness and ensure a higher quality product assortment, creating value for clients and franchisees. At the end of 2021, our distribution centers served approximately 1,500 stores, providing about 56% of their stock-keeping units (“SKUs”).
In 2019, AmPm was separated from Ipiranga, in order to strengthen its network, promote greater agility and increase the company’s profitability. AmPm follows Ipiranga’s complete service station strategy, but with a totally separate organizational structure, which includes a management team fully dedicated to AmPm, the implementation of specialized retail systems, the internalization of key business processes and an exclusive advisory board for AmPm.
Also in 2019, AmPm started its company-operated stores, which serves as a laboratory for the continuous development of the franchise model, acting as a reference of operational excellence for franchisees, increasing their engagement to the business and ensuring the application of operational standards established by the franchisor. In December 2021, AmPm had 206 company-operated stores.
In 2020, AmPm promoted a significant transformation in the concept of its physical stores in order to make them more suitable for our new omnichannel model. Consequently, we also removed the AmPm brand from stores that, either for structural or operational reasons, were no longer suitable for this new concept.
In 2020, AmPm launched its new store concept, which allows the consumer to have a more fluid experience at the stores, focusing on food service. The new concept provides consumers with a more intuitive and intelligent shopping experience in a nicer and cozier environment. Our new model has a comprehensive digital services package which is offered on the main marketplaces in Brazil, in the delivery applications, abastece aí and WhatsApp, and in other company-operated stores solutions. In December 2021, AmPm had 162 stores using our new concept, of which 79 are company-operated stores and 83 are franchises.
AmPm is part of Ipiranga's complete service station strategy, which brings together all synergistic businesses. abastece aí is a key part of this process generating flow to the store and giving benefits to the consumer, in points of the Km de Vantagens or cashback through its digital wallet.
abastece aí
In July 2020, Ultrapar announced the creation of a business in the digital payment segment, combining the abastece aí app and the loyalty program Km de Vantagens. The application also offers discounts and cashback at a growing network of retail partners. This initiative is designed to accelerate the value creation of these platforms and the expansion of the services provided, with the potential for creating a digital ecosystem of sizeable proportions and capillarity. In 2021, approximately two million digital accounts have been created.
As a result of this initiative, the abastece aí app and the Km de Vantagens program became a subsidiary of the Ultra Group, that operates under the brand abastece aí.
A.2. Discontinued Operations
Oxiteno
We were one of the pioneers in developing the Brazilian petrochemicals industry with the creation of Oxiteno in 1970, whose first plant was located in the Mauá petrochemical complex in São Paulo metropolitan area. In 1974, Oxiteno inaugurated its second industrial unit, in the Camaçari petrochemical complex in Bahia. In 1986, Oxiteno established its own research and development center in order to respond to specific customer needs. In 2002, Oxiteno completed a tender offer for the acquisition of the shares of its subsidiary Oxiteno Nordeste, through the acquisition of approximately 73.3% of the shares held by minority shareholders. Oxiteno increased its share ownership in Oxiteno Nordeste from 97% to 98.9%.
In 2003, we concluded the acquisition of Canamex, later renamed Oxiteno Mexico, a Mexican specialty chemicals company. In 2004, we acquired the operational assets of Rhodia Especialidades S.A. de C.V. in Mexico. Both acquisitions had the target of establishing a stronger presence in the Mexican petrochemical market and to create a production and distribution platform to serve the United States market.
In 2007, Oxiteno acquired Arch Química Andina, C.A., at such time, the sole producer of ethoxylates in Venezuela, which had been the only ethylene oxide producing country in Latin America where Oxiteno did not have operations. The company was later renamed Oxiteno Andina. In October 2019, Oxiteno Andina was sold to a buyer in Venezuela, motivated by the operational and economic environment in the country.
In 2012, Oxiteno acquired a specialty chemicals plant in the United States. The plant is located in Pasadena, Texas, one of the most important chemical hubs in the world, benefiting from attractive feedstock conditions, including competitive natural gas-based raw materials, and highly efficient logistics infrastructure. In September 2018, Oxiteno completed the construction of the new alkoxylation unit in the same site in Texas, US. The unit expanded Oxiteno’s footprint in the United States, focusing on local markets of agrochemicals, personal care, household and industrial cleaning, coatings and oil and gas.
In 2012, Oxiteno acquired American Chemical I.C.S.A. (currently Oxiteno Uruguay), a Uruguayan specialty chemicals company. Oxiteno Uruguay’s production capacity is 81 thousand tons per year, particularly sulfonate and sulfate surfactants for the home and personal care industries.
As of December 2019, Oxiteno Nordeste was merged into Oxiteno. All activities of Oxiteno Nordeste were assumed by Oxiteno.
Oxiteno continued the expansion of its international activities, initiated in 2003 with the opening of commercial offices outside Brazil. In 2006, Oxiteno opened its first commercial office outside Brazil, in Buenos Aires, Argentina – Oxiteno Argentina S.R.L. In 2008, Oxiteno inaugurated its first sales office in Europe and the third outside Brazil in Brussels, Belgium, as part of Oxiteno’s internationalization strategy. In 2012, Oxiteno opened a commercial office in Shanghai, China – Oxiteno Shanghai Trading LTD.
On August 16, 2021, the Company announced the signing of a share purchase agreement for the sale of all shares of Oxiteno to Indorama Ventures PLC. On March 7, 2022, CADE approved the transaction without restrictions. On April 1, 2022, the transaction closed. The initial payment of US$1,150 million (equivalent to R$5,449.6 million) ¹, adjusted by the variations in working capital and net debt position of US$176 million (equivalent to R$834,0 million) ¹, resulted in the total initial payment of US$1,326 (equivalent to R$6,283.6 million) ¹, which was settled on April 1, 2022. This amount is still subject to final working capital and net debt adjustments. The final payment of US$150 million (equivalent to R$710.8 million) ¹, will be settled in April 2024. Oxiteno was controlled by the Company, which held a 100% interest in the Company.
¹ As of the closing date of the transaction, the amount converted into Reais using the exchange rate of US$1.00 to R$4.74, which implies a closing value of R$6,283.6 million for the initial payment.
Extrafarma
Benefitting from almost 60 years of activity in the wholesale and retail of pharmaceutical products, Extrafarma is a leading drugstore chain in the main regions in which it operates. In 2013, Ultrapar and the former shareholders of Extrafarma entered into an association agreement with Extrafarma, one of Brazil’s top ten drugstores’ chains, marking our entry in the retail pharmacy business. According to the terms of the agreement, Ultrapar and Extrafarma entered into a merger of shares, pursuant to which Ultrapar acquired 100% of the shares of Extrafarma in exchange for up to 2.9% of shares issued by Ultrapar to Extrafarma’s shareholders. Extrafarma became a wholly owned subsidiary of Ultrapar from February 1, 2014 onwards. The total consideration of the Extrafarma transaction consisted of the issuance of up to 32,056,262 shares of Ultrapar and the assumption by Ultrapar of Extrafarma’s net debt of R$106 million as of December 31, 2012.
Ultrapar received from the former seven shareholders of Extrafarma all of the shares of Extrafarma in exchange for 24,042,200 newly issued shares of Ultrapar, in accordance with Art. 252 of the Brazilian Corporate Law, increasing our issued share capital to 1,112,810,192 shares. In addition, as a mechanism for possible adjustments related to contingencies whose triggering events occurred prior to the closing of the transaction, we issued subscription warrants to the former Extrafarma shareholders that, if exercised, could potentially lead to the issuance of up to 8,014,062 shares, subject to adjustment based on numerous factors. Of the total possible shares that could be issued to the former Extrafarma shareholders upon exercise of the subscription warrants, they could receive up to 6,411,244 shares of Ultrapar based on absence of indemnification obligations.
In February 2022, August 2021, February 2021, August 2020 and February 2020, the subscription warrants were partially exercised, with an issuance of 43,925, 31,032, 70,939, 86,978 and 2,108,542 common shares, respectively, to former Extrafarma shareholders. Therefore, as of the date of this annual report, the exercise of the remaining subscription warrants by the former Extrafarma shareholders could potentially lead to the issuance of up to 3,474,269 additional shares of Ultrapar. The number of shares were adjusted to reflect the stock split issued by the Company on April 10, 2019.
On May 18, 2021, Ultrapar entered into a share purchase and sale agreement for the sale of all of its shares in Extrafarma to Pague Menos. The total sale price of R$700 million is subject to adjustments due mainly to changes in working capital and Extrafarma’s net debt on the closing date of the transaction. The payment of the transaction will be carried out in three installments, 50% on the closing date and 25% on each of the first and the second closing date anniversaries. The completion of this transaction is subject to usual conditions precedent in such deals, including the approval by CADE. We expect this transaction to be closed during 2022. For more information, see “—Recent Developments—Investitures and Divestitures.”
Corporate events
On October 6, 1999, we concluded our initial public offering, listing our shares simultaneously on B3 and NYSE. In 2000, Ultra S.A.’s shareholders signed an agreement, assuring equal treatment of all shareholders (holders of both common and/or preferred shares) in the event of any change in control – tag along rights. The agreement determined that any transfer of control of Ultrapar, either directly or indirectly, would only be executed in conjunction with a public offer by the acquiring entity to purchase the shares of all shareholders in the same proportion and under the same price and payment terms as those offered to the controlling shareholders. In December 2002, we completed a corporate restructuring process that had begun in October 2002. The effects of the corporate restructuring were (i) the merger of Gipóia Ltda., a company which held a 23% direct stake in Ultragaz and was owned by Ultra S.A., into Ultrapar, increasing our ownership in Ultragaz to 99.6% and (ii) the exchange of shares issued by Oxiteno for shares issued by Ultrapar.
In January 2008, Ultrapar significantly increased the liquidity of its shares through the issuance of 55 million preferred shares, as a consequence of the Share Exchange. The Share Exchange increased Ultrapar’s free float from 32 million shares to 87 million shares, with the free float reaching 64% of the Company’s total capital. The significant increase in the size of the free float helped Ultrapar to become part of Ibovespa, one of B3 index.
In April 2011, our Board of Directors approved the submission to our shareholders of a proposal to (a) convert any and all shares of preferred stock issued by the Company into common shares, on a 1:1 conversion ratio; (b) amend the Company’s bylaws, modifying several of its provisions, aiming to strengthen the Company’s corporate governance; and (c) adhere to the Novo Mercado segment rules. Our shareholders approved all the proposals and, in August 2011, Ultrapar’s shares began trading on the Novo Mercado under ticker symbol UGPA3. Simultaneously, Ultrapar’s ADSs, formerly represented by preferred shares, began representing Ultrapar’s common shares and began trading on the NYSE under this new format.
In April 2019, the Company’s Extraordinary and Annual General Meeting approved a stock split of Ultrapar’s common shares, whereby one existing share now represents two shares of the same class and type. The stock split did not alter Ultrapar’s total share capital and was effective on April 24, 2019.
During 2019, we created a Shared Services Center to centralize certain activities that were previously executed by our holding company operations and to include new activities that were previously executed by our businesses. This Shared Services Center, located in the city of Campinas (SP), started operating in January 2020 to deliver high quality services (with service level agreements) to the businesses while reducing the costs of our back-office activities and allowing our businesses to focus on their core activities.
In March 2020, we announced the creation of Ultra Venture Capital. Ultrapar intends to invest up to R$150 million in start-ups, to be called over a 5-year period. We believe that Ultra Venture Capital will help us to have greater access to innovative and disruptive technologies, as well as entrepreneurial mindset and talent, among other benefits.
In August 2020, Ultra S.A. and Parth entered into the 2020 Shareholders’ Agreement to include Pátria, in its capacity as Ultra S.A.'s shareholder then holding a 20% stake in Ultra S.A.'s capital stock, as consenting intervening party, therefore bound by the provisions of the 2020 Shareholders' Agreement. The 2020 Shareholders’ Agreement replaced the 2018 Shareholders’ Agreement in its entirety, and the terms and conditions remain substantially the same of the latter. On September 28, 2021, Ultra S.A. informed the Company that Mr. Marcos Marinho Lutz, our Chief Executive Officer, became a shareholder of Ultra S.A., holding 2.4% of its capital stock, and also became a consenting intervening party of the 2020 Shareholders’ Agreement. As of December 31, 2021, the 2020 Shareholders’ Agreement binded a total of shares representing 34.7% of the Company’s capital stock. The agreement aims to reinforce the principles that have been governing the actions of Ultra S.A. and Parth, in their capacity of Ultrapar’s shareholders, and to allow the Company to be managed in a professional and independent manner. See “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements.”
The COVID-19 pandemic has had a material impact on business around the world. The implemented measures of social isolation, restrictions on the movement of people and the operation of certain businesses due to the COVID-19 pandemic affected economic activity in Brazil over the last two years; however, these negative impacts have been mitigated as local governments gradually lift such restrictions in response to the increase in COVID-19 vaccinations. No significant effects were observed on the operations of the Company and its subsidiaries in the year ended December 31, 2021 as a result of the COVID-19 pandemic. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Ultrapar and Its Industries— Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics”, and other risk factors included herein and “Item 5.D. Operating and Financial Review and Prospects—Trend Information” below.
Company Management
In June 2017, Ultrapar announced changes to its executive officers approved by its Board of Directors. As of October 2017, Frederico Curado replaced Thilo Mannhardt and assumed the position of Chief Executive Officer.
As part of a planned succession process, consistent with the Company’s governance, in May 2018, Paulo Guilherme Aguiar Cunha, after more than four decades of contributions, resigned as Chairman of the Board of Directors and Pedro Wongtschowski, Vice-Chairman of the Board of Directors and Chief Executive Officer of Ultrapar between 2007 and 2012, was elected Chairman. Mr. Lucio de Castro Andrade Filho, who joined the Company in 1977 and has been a member of the Board of Directors since 1998, was elected for the position of Vice-Chairman of the Board of Directors.
Other important succession movements took place at the senior management level, with the appointment of Rodrigo de Almeida Pizzinatto, Tabajara Bertelli Costa, Marcelo Pereira Malta de Araújo and Décio de Sampaio Amaral as Chief Executive Officers of Extrafarma, Ultragaz, Ipiranga and Ultracargo, respectively, equally aligned to a planned succession process which blended internal promotions with the attraction of external talents.
In September 2020, the Board of Directors elected Rodrigo Pizzinatto, Chief Executive Officer of Extrafarma at that time, as our Chief Financial and Investor Relations Officer, after the resignation of André Pires de Oliveira Dias. In October 2020, Marcelo Bazzali was nominated as Chief Executive Officer of Extrafarma.
In September 2021, Ultrapar announced the succession plan of the leadership of its Board of Directors, developed under the leadership of the current Chairman, Pedro Wongtschowski, whose mandate will end in April 2023. To succeed him at the end of his term of office, the Board of Directors decided upon the preparation of Marcos Marinho Lutz to potentially recommend him for the Chairman position. As part of this process, Marcos Lutz assumed the position of Chief Executive Officer of Ultrapar in January 2022, a position he is expected to hold until April 2023. Additionally, Frederico Pinheiro Fleury Curado, our Chief Executive Officer from 2017 to 2021, was elected to the position of Vice-Chairman of the Board of Directors, succeeding Lucio de Castro Andrade Filho, who retired at the end of 2021 after 45 years of dedication to the Company.
Also in September 2021, the Board of Directors approved the election of Leonardo Remião Linden as Chief Executive Officer of Ipiranga and the election of Marcelo Pereira Malta de Araújo as Chief Corporate Development & Advocacy Officer of Ultrapar to be responsible for Sustainability, Institutional Relations, Communications, Legal, Compliance, Risks and Internal Audit of Ultrapar. Both changes took place in October 2021.
In April 2022, the members of the Board of Directors took note that, as a result of the transfer of all shares issued by Oxiteno S.A. Indústria e Comércio to Indorama Ventures PLC., Mr. João Benjamin Parolin submitted a letter of resignation from his position as director of Ultrapar. The Board of Directors decided to keep this position vacant.
Ultracargo—Fire at storage facilities in Santos
In 2015, a fire occurred in six ethanol and gasoline tanks operated by Ultracargo in Santos, which represented 4% of the subsidiary’s overall capacity as of December 31, 2014. The Civil and Federal Polices investigated the accident and its impacts, and concluded that it was not possible to determine the cause of the accident or to individualize active or passive conduct related to the cause, and there was no criminal charge against either any individual or Ultracargo, by either authority. Notwithstanding, on February 21, 2018, the Federal Criminal Court of Santos accepted a criminal indictment filed by the Federal Public Prosecutor’s Office against Ultracargo Logística (formerly Tequimar), which has already presented its defense against these charges, after being summoned in June 2018.
In 2017, Ultracargo obtained the licensing required for the return to operation of 67.5 thousand cubic meters of the total of 151.5 thousand cubic meters affected by the fire. The remaining tanks (84 thousand cubic meters) resumed operations between July and September 2019.
In 2019, Ultracargo signed a partial Conduct Adjustment Agreement (“TAC”) with the Federal Public Prosecutor’s Office and the State Public Prosecutor’s Office in the amount of R$67.5 million for the implementation of actions to offset the impacts caused to the Santos estuary following the fire at the Ultracargo terminal in 2015. Such amount was already paid in full by Ultrapar. Negotiations of indemnification for other alleged environmental damages are still in progress with the Federal Public Prosecutor’s Office and the State Public Prosecutor’s Office and, once finalized, Ultracargo may need to make future disbursements that are not currently provisioned, which may adversely affect our results of operations.
In addition, Ultracargo agreed to a deferred prosecution agreement on September 12, 2019. Pursuant to the terms of the deferred prosecution agreement, the prosecution by the 5th Federal Criminal Court of Santos was initially suspended until September 2021 and Ultracargo agreed to an additional compensation of R$13 million to a social project in Santos. Considering that Ultracargo complied with the obligations assumed in the TAC, at the end of the suspension period, Ultracargo requested the criminal proceeding to be closed by the court. This request is currently pending.
Therefore, the measures pursuant to an agreement signed between Ultracargo and the Public Prosecutor´s Office in relation to certain alleged environmental damages are in the process of being implemented.
As a result of the evolution of the regulation process with insurers, as of December 31, 2016, the Company recorded insurance receivables in the amount of R$366.7 million and indemnities to customers and third parties in the amount of R$99.9 million in its balance sheet. In the first quarter of 2017, Ultracargo received the full amount from the insurers. On February 4, 2021, the subsidiary paid the remaining balance related to the TAC, without pending and/or additional financial obligation arising from such commitment assumed. As of December 31, 2021, there were contingent liabilities not recognized related to lawsuits in the amount of R$2.0 million (R$4.4 million as of December 31, 2020). Between December 31, 2020 and December 31, 2021, there were no extrajudicial claims.
See “Item 8.A. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”
Issuance of debentures
In September 2021, the subsidiary Ipiranga completed its tenth issuance of unsecured, simple, nonconvertible, nominative, book-entry debentures in the amount of R$960 million, in a single series. The debentures were subscribed by Vert Companhia Securitizadora with the purpose of backing the issuance of Certificates of Agribusiness Receivables, or CRA. The proceeds from this issuance were used exclusively for the purchase of ethanol by Ipiranga. The debentures bear semiannual interest of IPCA + 4.8287%. The issuer hedged its exposure by changing the debentures charges linked to IPCA to 102.75% of DI.
On March 26, 2021, our subsidiary Ultracargo Logística completed its second issuance of R$100 million nonconvertible unsecured debentures due on March 15, 2028. The debentures bear semiannual interest of IPCA plus 4.37%. The issuer hedged its exposure by changing the debentures fixed rate linked to IPCA to 111.4% of DI.
On March 19, 2021, our subsidiary Tequimar Vila do Conde Logística Portuária S.A. completed its first issuance of R$360 million nonconvertible unsecured debentures due on March 15, 2028. The debentures bear semiannual interest of IPCA plus 4.04%. The issuer hedged its exposure by changing the debentures fixed rate linked to IPCA to 111.4% of DI.
Port concessions
On April 9, 2021, Ultracargo was awarded the concession of IQI13 area in the Itaqui port, state of Maranhão, for storage and handling of liquid bulk products, especially fuels. The minimum installed capacity will be 79 thousand cubic meters. The area will be operated by Ultracargo for at least 20 years, according to the auction notice. The estimated investments regarding this port concession are approximately R$310 million, to be disbursed throughout the next six years.
Recent Developments
Tender offer to purchase notes
On April 7, 2022, the subsidiary Ultrapar International commenced cash tender offers to purchase in the international market (i) up to the totality of the 5.250% notes due in 2026 and (ii) up to the Maximum Acceptance Amount of the 5.250% notes due in 2029, both issued by Ultrapar International and outstanding in the international market. The tender offers were subject to a maximum aggregate tender amount of US$550,003,000.00, which could be increased to up to US$600,000,000.00 at the sole discretion of Ultrapar International, consisting of the total amount to be spent by Ultrapar International in the purchase of the outstanding notes. The 2029 notes tender offer was also subject to a maximum acceptance amount corresponding to the difference between the maximum aggregate tender amount and the aggregate principal amount of the 2026 notes tendered and accepted for purchase (the “Maximum Acceptance Amount”).
As a result of the cash tender offers, Ultrapar International received valid offers for the purchase of 2026 and 2029 notes in the aggregate principal amount of US$114,329,000.00 and US$606,106,000.00, respectively. In view of this, it was decided to exercise their right to increase the initial aggregate tender amount to up to US$599,996,000.00, which was used to purchase (i) all of the 2026 tendered notes and (ii) the equivalent to the aggregate principal amount of US$485,667,000.00 of the 2029 tendered notes, representing 20.79% and 57.14% of the 2026 and 2029 outstanding notes, respectively. The purchase of the 2026 notes was settled on April 14 and 18, 2022, while the purchase of the 2029 notes was settled on April 27, 2022.
For more information, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Notes in the Foreign Market."
Issuance of common shares
On February 23, 2022, August 11, 2021 and February 24, 2021, our Board of Directors approved the issuance of 43,925, 31,032 and 70,939 common shares, respectively, within the limits of the authorized capital stock pursuant to Article 6 of the Company’s Bylaws, due to the partial exercise of the subscription warrants issued by the Company to the former Extrafarma shareholders in connection with the merger of shares of Extrafarma in 2014. As of the date of this annual report, the Company’s capital stock is represented by 1,115,151,608 common shares, all of them nominative and with no par value.
Investments and divestitures
On June 25, 2021, Ultrapar entered into a share purchase and sale agreement for the sale of its equity interest in ConectCar, through its subsidiary Ipiranga, to Porto Seguro, through its subsidiary Portoseg S.A. The sale was completed on October 1, 2021, for R$165 million, with the transfer of the equity interest equivalent to 50% of ConectCar’s shares. As a result, ConectCar is no longer part of Ultrapar’s operations.
In August 2021, Ultrapar entered into a share purchase and sale agreement for the sale of all shares of Oxiteno to Indorama. On April 1, 2022, the transaction closed. As a result, Oxiteno is no longer part of Ultrapar’s operations as of the date of this annual report. For more information, see “Item 4.A. Information on the Company—History and Development of the Company—A.2. Discontinued Operations—Oxiteno.”
Additionally, on May 18, 2021, Ultrapar entered into a share purchase and sale agreement for the sale of all shares of Extrafarma to Pague Menos. The completion of this transaction is subject to usual conditions precedent in such deals, including the approval by CADE. On May 7, 2022, CADE’s General Superintendent’s Office recommended the approval of the transaction, contingent on the execution of a Merger Control Agreement (“Acordo em Controle de Concentrações”) between Pague Menos and CADE, whereby Pague Menos shall undertake certain remedial measures to mitigate potential competitive issues arising out of the transaction. The recommendation made by the General’s Superintendent’s Office is now subject to CADE’s Tribunal review, which shall issue a final decision on the matter. For more information, see “Item 4.A. Information on the Company—History and Development of the Company—A.2. Discontinued Operations—Extrafarma.”
B. Business Overview
Ultrapar is a Brazilian company with its origins in 1937 when Ernesto Igel founded Ultragaz. Since then, Ultrapar has grown and expanded to new markets, becoming one of the largest corporate groups in Brazil. As of December 31, 2021, Ultrapar owned the following main businesses: Ipiranga, Ultragaz and Ultracargo (energy and infrastructure), abastece aí (digital payments), Oxiteno (specialty chemicals) and Extrafarma (retail pharmacy), the last two of which are classified as discontinued operations. The sale of Oxiteno was closed on April 1, 2022 and we expect to conclude the sale of Extrafarma during 2022. For more information on our continued and discontinued operations, please see "Item 4.A. History and Development of the Company —A.1. Continuing Operations” and “—A.2. Discontinued Operations.”
The following chart simplifies our organizational structure as of the date of this annual report, showing our main business without Oxiteno. For more information about the Oxiteno’s sale, see "Item 4.A. History and Development of the Company —A.2. Discontinued Operations—Oxiteno.” For more detailed information about our current organizational structure, see “Item 4.C. Information on the Company—Organizational Structure.”
Our Strengths
Relevant market positions across our main businesses
Ultragaz is one of the largest LPG distributors in Brazil. In 2021, Ultragaz’s market share was 23.1%, according to ANP, and served approximately 11 million households in the bottled segment through a network of approximately 5.6 thousand independent retailers and 58 thousand customers in the bulk segment. For the year ended December 31, 2021, Ultragaz’s total volume of LPG sold was 1.7 million tons.
Ultracargo is the largest private company in the liquid bulk storage industry in Brazil, according to ABTL latest volume releases, with seven terminals and total storage capacity of 983 thousand cubic meters in 2021, providing it with leading positions in the main ports in Brazil in which it operates.
Ipiranga is one of the largest fuel distributors in Brazil with a 18.4% market share in 2021, according to ANP, and a network of 7,104 service stations as of December 31, 2021. In addition to the service stations, Ipiranga’s network has 1,841 AmPm convenience stores and 1,149 Jet Oil franchises. In 2021, Ipiranga’s strategy was focused on strengthening its resale operations and increasing its performance. The implementation of Ipiranga’s business model — including its network of convenience stores and loyalty programs — in its network of service stations allows it to offer a wide range of products and services, benefiting consumers and resellers. The volume of fuel sold (ethanol, gasoline and diesel) by Ipiranga in 2021 was 21.8 million cubic meters.
Created in July 2020, abastece aí has already reached more than 4 million digital accounts. The application relies on the strength of Km de Vantagens, one of the largest loyalty programs in Brazil, with 36 million participants. In 2021, more than 40 million digital payment transactions at the fuel service stations were carried out through the app, with a total payment volume 46% higher than in 2020, reaching the milestone of R$5.1 billion.
Robust and resilient business portfolio
Our operations encompass LPG and fuel distribution, and liquid bulk storage services. We believe our businesses provide us with increased financial capability and flexibility.
Ultrapar’s businesses are simultaneously resilient and leveraged on Brazilian economic growth. Some of Ultrapar’s businesses, such as the sale of LPG for residential use and fuels for light vehicles, are relatively resilient due to their inelastic demand profile and, therefore, are less volatile in economic downturns. Bottled LPG is an essential good, as it is mainly used for cooking, and, therefore, is generally less correlated to economic performance. Volume of fuels for light vehicles tends to grow linked to the number of light vehicles in Brazil. The Brazilian light vehicle fleet grew at rates ranging from 0.4% to 2.4% per year during the last five years, despite the volatility in the economic growth during this period.
On the other hand, other businesses of Ultrapar, such as sales of diesel fuel and bulk LPG are linked to the economic performance and tend to experience higher sales volumes during periods of strong economic growth. Sales growth of these products have been historically correlated to the performance of the Brazilian economy.
Highly efficient LPG distribution network
In April 1995, Ultragaz was the first player to introduce LPG small bulk delivery in Brazil, with lower distribution costs as compared to bottled distribution. Over the years, it has built a strong client base in this segment.
Ultragaz maintains an exclusive network of independent dealers, which has enabled it to control the quality and productivity of its dealers, leading to a recognition that we believe is associated with quality, safety and efficiency, and also to have frequent contact with LPG customers. This network constituted approximately 5.6 thousand resellers that sell Ultragaz LPG bottles as of December 31, 2021.
Efficiencies in retail network logistics in addition to resale management know-how
We believe that the expertise in logistics and resale management that we have gained at Ultragaz is complemented by Ipiranga’s know-how in the same areas, thus maximizing efficiency and profitability at both companies.
Robust retail network
Ultrapar’s strategy for its retail operations is strongly focused on profitability and productivity through the expansion of Ipiranga’s logistics infrastructure coupled with differentiation and innovation initiatives. At Ipiranga, this focus has translated to the creation of new market niches through its reseller network characterized by customer service and convenience, thus contributing to high levels of customer loyalty. We believe these initiatives result in a better value proposition for customers and resellers, creating benefits for the whole chain – the client has access to differentiated, more convenient products and services; the reseller has a more attractive business; and the service station has a differentiated positioning, contributing to the evolution of the company’s results.
AmPm is a relevant part of Ipiranga’s differentiation strategy to develop the complete service station strategy. AmPm is the eight largest franchise network in the country, according to the 2021 ranking of the Brazilian Franchising Association, or ABF, with 1,841 stores and a penetration of 26% in the total number of service stations as of December 31, 2021.
In 2019, AmPm was segregated from Ipiranga, in order to strengthen its network, promote greater agility and increase the company’s profitability. AmPm follows Ipiranga’s complete service station strategy, but with a totally separate organizational structure, which includes a management team fully dedicated to AmPm, the implementation of specialized retail systems, the internalization of key business processes and an exclusive advisory board for AmPm.
Also in 2019, we started our company-operated stores, which serves as a laboratory for the continuous development of the franchise model, acting as a reference of operational excellence for franchisees, increasing their engagement to the business and ensuring the application of operational standards established by the franchisor. In December 2021, AmPm had 206 company-operated stores.
In 2020, AmPm launched the new store concept, which allows the consumer to have a more fluid experience, focusing on food service with an expansion of the product mix of bakeries. This new concept provides consumers with a more intuitive and intelligent shopping journey in a nicer and cozier environment. Our new model has a comprehensive digital services package, which is offered on the main marketplaces in Brazil, in the delivery applications, abastece aí and WhatsApp, and in other company-operated stores solutions. In December 2021, AmPm had 162 stores using our new concept, of which 79 are company-operated stores and 83 are franchises.
Distinguished positioning in the fuel distribution sector
We believe that Ipiranga differentiates itself from its competition in the sector by having a more diverse array of products and services and thereby being a more convenient choice for customers. These services and products include convenience stores, lubricant-changing service shops, electronic payment, bakeries, loyalty program, Ipiranga-branded credit cards, and a set of initiatives that aim at enhancing customer’s convenience and loyalty.
Cost-efficient operations
Ultragaz has significant market presence in densely populated areas, which allows it to operate its filling plants and distribution system with a high level of capacity utilization and efficiency with depth and capillarity. Ipiranga also has a significant market presence in the South and Southeast regions of Brazil, which allows it to operate its extensive network of primary and secondary storage terminals and its distribution system in a cost-efficient manner. Also, the increased scale of Ipiranga allowed improvements in efficiency and competitiveness in the distribution and sales processes, dilution of advertising, marketing and new product development expenses, and gains from economies of scale in administrative functions. Ultracargo is the largest independent liquid bulk storage company in Brazil and the only player in the liquid bulk storage sector present in the main major ports in the country. Such position provides Ultracargo with increased operational flexibility, operational efficiency and economies of scale.
Strong corporate governance structure
We are led by a strong and experienced management team with a proven track record in the LPG and fuel distribution, retail and specialized logistics industries. Our senior management team has on average 9 years of experience in the Company.
Our Board of Directors consist of 10 members. Since April 2019 our Board of Directors has been subject to an important renewal process that resulted in the election of seven new members. We believe these new members bring complementary expertise and experience for the discussions and decisions of our Board of Directors. All members of the Board of Directors have previous experience serving on boards of other large companies in Brazil such as Embraer S.A., Itaú Unibanco Holding S.A., Lojas Renner S.A. among others. In September 2021, Ultrapar announced the succession plan for the position of Ultrapar’s Chairman of the Board of Directors. Marcos Lutz assumed the position of Chief Executive Officer of Ultrapar in January 2022, succeeding Frederico Curado, now Vice-Chairman of the Board of Directors, after Lucio de Castro Andrade Filho retired at the end of 2021. As part of the plan, Marcos Lutz will succeed Pedro Wongtschowski as Chairman of the Board of Directors as from April 2023.
Also, we strengthened our management structure and governance. In addition to the People Committee in place since 2011, we also set up a Strategy Committee in 2019 and restructured the Audit and Risks Committee in the same year, which since then is a permanent body with independent board members.
Alignment of interests
Members of Ultrapar’s management receive variable short-term compensation linked to performance based on EBITDA and operating cash flow goals defined for each business and for Ultrapar, in addition to individual goals associated with the business' operational and commercial performance, the development of people, projects and other objectives, always in line with the strategic plan approved by the Board of Directors. The Economic Value Added (EVA®) continues to be our key metric for long-term compensation plan, in addition to our stock plan, through which the Company's executives are also shareholders of Ultrapar.
Moreover, Ultrapar has consistently implemented improvements in corporate governance, such as being the first Brazilian company to grant 100% tag along rights to all its shareholders, the segregation of the roles of Chief Executive Officer and Chairman of the Board of Directors and its emphasis on maintaining transparency and consistency in its interactions with investors.
In 2011, Ultrapar completed the implementation of a new corporate governance structure, further aligning our shareholders’ interests by converting all preferred shares into common voting shares. The conversion resulted in all of our shares having identical voting rights, which allows our shareholders to actively participate in the decisions of shareholders’ meetings, without (i) any limitations on voting rights, (ii) special treatment to current shareholders or (iii) mandatory public tender offers at a premium to market prices once a certain beneficial ownership threshold is achieved.
Strong operational track record
Our Company has exhibited a solid operational track record. Our net income attributable to shareholders of the Company presented an average compounded annual growth of 14% from 1998 to 2021, despite the overall macroeconomic volatility in Brazil and in the world during this same period.
Our Strategies
Streamline our Business Portfolio and further invest in the energy and infrastructure sectors in Brazil
Ultrapar concentrated its portfolio on the energy and infrastructure sectors, through Ipiranga, Ultragaz and Ultracargo, in which it has a solid operational scale and structural competitive advantages, allowing for greater efficiency and value generation potential. The focus of the management and the reduction of leverage are additional benefits of the process.
In 2021, Ultrapar started to conduct a portfolio rationalization process and entered into share purchase and sale agreements for the sale of all of its shares in Extrafarma, ConectCar and Oxiteno. The sale of Ultrapar’s interest in ConectCar was concluded in October 2021 and the sale of all shares of Oxiteno was closed on April 1, 2022. The sale of all shares of Extrafarma is still subject to CADE’s approval. For more information, see "Item 4.A. Information on the Company—History and Development of the Company —A.2. Discontinued Operations” and “Item 4.A. Information on the Company—History and Development of the Company—Recent Developments—Investitures and Divestitures.”
Build on the strength of our brands
We believe that our businesses have a high brand recognition associated with quality, safety and efficiency that we continually strive to deliver. We intend to reinforce this market perception by continuing to supply high-quality products and services and to introduce new services and distribution channels.
Invest in building a succession pipeline for key leadership positions
We remain committed to building a pipeline of entrepreneurial leaders at Ultrapar as well as in our businesses. Through a combination of promoting internal talent, internal horizontal transfers and external hires, there has been a relevant renovation in senior management positions, covering all the senior management. These movements have been carried out in a gradual, planned and constructive manner. In the last years, we worked to strengthen our management structure and governance, consolidating the pillars supporting the growth and longevity of Ultrapar.
Maintain a strong relationship with our resellers in the LPG and fuel distribution businesses
We intend to preserve our strong relationship with dealers by keeping their distribution exclusivity and continuing to implement our differentiated incentive programs in Ultragaz and Ipiranga. We plan to continue to invest in training our dealers, in order to maximize efficiency, to further strengthen our relationship and to promote the high standards of our distribution network. In parallel, we plan to continue to increase our operational efficiency and productivity at Ultragaz and Ipiranga.
Continuously improve cost and capital efficiency in the LPG and fuel distribution businesses
We plan to continue investing in the cost and capital efficiency of our distribution systems. Current initiatives include enhanced discipline with respect to our capital allocations and other programs designed to control our costs in both the LPG and fuel distribution businesses units.
Increase investments in logistics infrastructure to sustain and expand our market share and efficiency in fuel distribution
Our strategy is to continue to invest in Ipiranga’s logistics infrastructure in order to expand our capillarity and strengthen our national footprint. Such investments aim to enhance our logistics efficiency of fuel distribution through increased proprietary storage capacity in strategic locations, contributing to improve service quality in the relevant regions. In addition, we aim to solidify our network in service stations with larger throughput (volume sold per station), therefore increasing the sales volume at Ipiranga.
In March 2019, Ipiranga was awarded a concession of specific areas in Vitória (ES) and Cabedelo (PB) through the special purpose vehicles Nordeste and Navegantes, in which Ipiranga holds one third of the total capital stock, together with BR Distribuidora and Raízen. Also, in April 2019, Ipiranga was awarded two concessions in the port of Miramar, in Belém (PA): (i) area BEL02A, through a consortium 50% owned by Ipiranga and 50% owned by Raízen, and (ii) area BEL04A, which is currently operated by Ipiranga, therefore maintaining its operation in the region. For more information, see “Item 4.B. Information on the Company—Business Overview—Fuel Distribution—Ipiranga—Storage of fuels.”
We expect that investing in logistics infrastructure and focusing our service stations network in higher throughput stations will allow us to sustain and even expand our market share in the fuel distribution market, as well as to reduce our operating costs and improve our productivity gains.
Promote and benefit from the formalization of the fuel distribution market
We plan to continue to collaborate with the competent authorities to promote improvements to legislation and to enhance regulatory enforcements in the fuel distribution sector as means of creating a level playing field in the market, increasing sales volume in the formal market and improving our gross margin, thus reducing the competitiveness of players which benefited from cost advantages derived from unfair practices.
Invest in niche segments for LPG distribution
Ultragaz is strengthening its presence in the North and Northeast regions of Brazil by focusing on expanding to states where it previously did not have significant operations.
For the bulk segment, Ultragaz strategy is focused on two areas. The first area is offering its clients mainly in industrial and agribusiness segments new applications and services for LPG. As a result, Ultragaz aims at expanding its market share in LPG used for home and personal care and localized heating, such as preheating of industrial furnaces, especially in steel, lead, asphalt manufacturing and metallurgical plants; and in new applications in agribusiness, such as drying grains and seeds, with greater operational and economic efficiency. We believe that some of Ultragaz’s new applications and services provide environmental benefits and cost savings such as reduction in water consumption, from car washing and recycling of organic waste, and fall in carbon dioxide and pollutants, from asphalt plant and cotton production. The second area is to invest in the expansion of the bulk LPG distribution to small-and-medium-sized businesses, such as laundry shops, restaurants, bakeries, and residential condominiums, through agile and convenience services.
Expand our convenience store business model
In 2020, AmPm concluded a comprehensive review of its business model, including the renewal of its stores’ layout to provide consumers with a more fluid and intuitive purchase experience, including larger areas within for consuming products. AmPm developed a solid partnership with leading delivery platforms, as well as its proprietary solutions through QR Code and created a digital section inside the abastece-aí application. This review also involved AmPm’s rebranding, exploring proximity marketing concepts and new habits of consumption, coupled with a new product mix, expanding the offer of food service (bakeries and ready-to-eat meals), groceries and home and personal care products. In December 2021, AmPm had 206 company-operated stores.
Accelerate abastece aí value creation
In July 2020, we created a new company in the digital payments and electronic retailing segment combining the abastece aí app and the loyalty program Km de Vantagens. This initiative was designed to accelerate the value creation of these platforms and expand the services provided, with the potential for creating a digital ecosystem of sizeable proportions and capillarity. Since the launch of the new app in August 2020, we reached a milestone of 36 million of participants in the Km de Vantagens program, more than 4 million accounts created on the abastece aí app and total payment volume over R$5 billion.
The year of 2021 was also a period of consolidation of the abastece aí app as a digital account, reaching 3 million deposits and withdrawal transactions through PIX, an instant payment solution launched by the Central Bank.
Maintain financial strength
We seek to maintain a solid financial position to allow us to pursue investment opportunities and enhance our shareholders’ return on their investment in our Company. As a Holding company, our diversified portfolio, scale and listing (both in the domestic and international markets) allows us to access different sources and types of financing that each of our businesses would not be able to access individually.
Expand our bulk storage capacity while maintaining operational efficiency
Over the last few years, Ultracargo has expanded its installed capacity, diversifying its geographic position with gains of scale. Meanwhile, Ultracargo developed process improvement initiatives, such as Soul and Conecta, aimed at enhancing its productivity and operational efficiency in order to ensure a more efficient deployment of the company’s resources. For more information about these initiatives, see “Key Financial Information – B. Storage services for liquid bulk – Ultracargo – Storage facilities.”
Key Financial Information
The table below sets forth the net revenue from sales and services for our segments:
| Year ended December 31, |
|
|---|
| 2021 |
| 2020 |
| 2019 |
|
|---|
| (in millions of Reais) |
|
|---|
Ultragaz | 9,744.7 |
| 7,408.3 |
| 7,094.8 |
|
Ultracargo | 713.1 |
| 644.2 |
| 540.8 |
|
Ipiranga | 99,382.6 |
| 66,133.0 |
| 75,452.5 |
|
abastece aí | 84.7 |
| 17.2 |
| — |
|
Net revenue from sales and services (1) | 109,732.8 |
| 74,058.1 |
| 83,004.7 |
|
(1) Segment information for Ultragaz, Ultracargo, Ipiranga and abastece aí are presented on an unconsolidated basis. See “Presentation of Financial Information” for more information.
Industry and Regulatory Overview of our Continuing Operations
- Distribution of Liquefied Petroleum Gas
Liquefied petroleum gas (LPG) is a fuel derived from the oil or natural gas refining process. In Brazil, 70% of local demand in 2021 was produced in local refineries and processing units and the remaining 30% was imported. LPG has the following primary uses in Brazil:
- Bottled LPG — used primarily by residential consumers for cooking; and
- Bulk LPG — used primarily for cooking and water heating in shopping malls, hotels, residential buildings, restaurants, laundries, hospitals and industries, with several other specific applications to each industrial process, such as furnace heating, asphalt production, among others.
The following chart shows the process of LPG distribution:
Historically, bottled LPG has represented a substantial portion of the LPG distributed in Brazil and is primarily used for cooking. The use of LPG for domestic heating in Brazil is immaterial compared with its use in other developed and emerging countries, primarily because of Brazil’s generally warm climate. Consequently, demand seasonality throughout the year is relatively small. In addition, because LPG is not used to a significant extent for domestic heating in Brazil, overall consumption of LPG per capita is lower in Brazil compared to countries where domestic heating is a major element of LPG demand, making low distribution costs a major competitive differential in the Brazilian LPG market.
The primary international suppliers of LPG are major oil companies and independent producers of both liquefied natural gas and oil. However, due to Petrobras’ market dominance over the production and import of petroleum and petroleum products, a result of its legal monopoly that was abolished only in 1997, following Constitutional Amendment No. 09/1995 and the enactment of Federal Law No. 9,478/97, Petrobras is currently the de facto sole supplier of LPG in Brazil.
Currently, the LPG distribution industry in Brazil consists of 18 LPG distribution companies or groups of companies and is regulated by the National Petroleum Agency (ANP). The LPG distribution industry includes purchasing nearly all its LPG requirements from Petrobras, filling LPG bottles and bulk delivery trucks at filling stations, selling LPG to dealers and end users, controlling product quality and providing technical assistance to LPG consumers. See “— Industry and Regulatory Overview — The role of the ANP” and “— Industry and Regulatory Overview — The role of Petrobras.” LPG produced by Petrobras, which represented 70% of total LPG sold in Brazil in 2021, is transported in pipelines and by trucks from Petrobras’ production and storage facilities to filling stations maintained by LPG distributors. The balance is imported by Petrobras into Brazil and stored in large storage facilities mostly maintained by Petrobras. The imported LPG is then transported from the storage facilities by pipelines and trucks to the LPG distributors’ filling stations.
LPG can be delivered to end users either in bottles or in bulk. The bottles are filled in the LPG distributors’ filling stations. Distribution of bottled LPG is conducted via two main channels:
- home delivery of LPG bottles; and
- the sale of LPG bottles in retail stores and at filling stations.
In both cases, the bottles are either delivered by the LPG distributors themselves or by independent dealers.
Bulk delivery is the main delivery method to large volume consumers, such as residential buildings, hospitals, small-and-medium-sized businesses and industries. In the case of bulk delivery, LPG is pumped directly into tanker trucks at filling stations, transported to customers and pumped into a bulk storage tank located at the customer’s premises.
The role of the Brazilian government. The Brazilian government historically regulated the sale and distribution of LPG in Brazil. The period from 1960 to 1990 was characterized by heavy governmental regulation, including price controls, regulation of the geographical areas in which each LPG distributor could operate, regulation of the services offered by distributors and governmental quotas for the LPG sold by distributors, thus restricting the growth of larger LPG distributors. In 1990, the Brazilian government started a deregulation process of the LPG market. This process included easing the requirements for the entry into the market of new distribution companies, reducing certain administrative burdens and removing restrictions on the areas in which distributors could conduct their business and on sales quotas. There are currently no restrictions on foreign ownership of LPG companies in Brazil.
From 2008 to 2016, Petrobras increased LPG refinery prices for commercial and industrial usage sporadically. From 2017 to 2019, LPG refinery prices were adjusted more frequently. In the recent past, Petrobras’ practice was not to immediately reflect in its oil derivatives prices in Brazil the volatility of international prices of oil and oil derivatives. However, in June 2017, the dynamic of LPG prices supplied to the distributors was modified to reflect international price volatility and exchange rate variation.
In January 2018, the pricing policy for LPG acquisition at refineries was adjusted to soften the transfer of price volatility in the international market to the domestic price. The monitoring period for international prices and currency rates, which dictate the percentages of price adjustment, was the average of the preceding twelve months, rather than monthly variation, and price adjustments became quarterly, rather than monthly. In August 2019, Petrobras terminated the existing policy and price differentiation was ended in November 2019, which resulted in domestic prices for all segments being converted into one single price.
During 2020 and 2021, ’ pricing policy fed international commodity prices, although with less frequent adjustments. Due to the COVID-19 pandemic, the frequency of price adjustments increased, as a result of the volatility in international LPG prices. Other events may contribute to increased volatility, such as the ongoing conflict between Ukraine and Russia.
The role of Petrobras. Petrobras, Brazil’s national oil and oil products company, had a legal monopoly in the exploration, production, refining, importing and transporting of crude oil and oil products in Brazil and Brazil’s continental waters since its establishment in 1953. This monopoly was confirmed in Brazil’s federal constitution enacted in 1988. As a result, Petrobras was historically the sole supplier in Brazil of oil and oil-related products, including LPG.
In 2004, Petrobras entered the LPG distribution market in Brazil through the acquisition of Liquigás, one of the main players in the market. In August 2019, Copagaz, Itaúsa, Nacional Gás and Fogás entered into an agreement with Petrobras to acquire Liquigás. In November 2020, CADE approved Liquigás sale to a consortium composed by Copagaz, Itaúsa, Nacional Gás and Fogás, and Petrobras communicated the process completion in December 2020.
The role of the ANP. The ANP is responsible for the control, supervision and implementation of the government’s oil, gas and biofuels policies. The ANP regulates all aspects of the production, distribution and sale of oil and oil products in Brazil, including product quality standards and minimum storage capacities required to be maintained by distributors.
In order to operate in Brazil, an LPG distributor must be licensed with the ANP and must comply with certain minimum operating requirements, including:
- maintenance of sufficient LPG storage capacity;
- maintenance of an adequate quantity of LPG bottles;
- use of bottles stamped with the distributor’s own brand name;
- possession of its own filling plant;
- appropriate maintenance of LPG filling units;
- distribution of LPG exclusively in areas where it can provide technical assistance to the consumer either directly or indirectly through an authorized dealer; and
- full compliance with the Unified Suppliers Registration System (Sistema de Cadastramento Unificado de Fornecedores – SICAF).
LPG distributors are required to provide the ANP with monthly reports showing their sales in the previous month and the volume of LPG ordered from Petrobras for the next four months. The ANP limits the volume of LPG that may be ordered by each distributor based on the number of bottles and infrastructure owned by the distributor. Based on the information provided by the distributors, Petrobras supplies the volume of LPG ordered, since that LPG production and imports are enough to meet the demand.
LPG distribution to the final consumer may be carried out by independent or exclusive resellers, according to ANP Resolution 49/2016 and 51/2016. Each LPG distributor must provide the ANP with information regarding its contracted independent resellers on a monthly basis. The construction of LPG filling plants and storage facilities is subject to the prior approval of the ANP and may only begin its operations after ANP inspection.
The self-regulatory code/ANP Resolution 49/2016 and 51/2016. In 1996, most of the Brazilian LPG distributors, representing more than 90% of the market, bottle manufacturers, LPG transportation companies and certain LPG retail stores, under the supervision of the Brazilian government, entered into a statement of intent regarding the establishment of a program for “requalifying” LPG bottles (a process under which they undergo safety and quality checks) and other safety procedures, known as the “Self-Regulatory Code” or “Código de Autorregulamentação.” See “—Ultragaz—Bottle swapping centers” and “— Ultragaz—Requalification of bottles.” Before the Self-Regulatory Code came into effect, certain LPG distributors, not including Ultragaz, would fill bottles stamped with another distributor’s brand. This practice resulted in a low level of investment in new bottles, giving rise to concerns regarding the safety of older bottles. The Self-Regulatory Code provides, among other things, that:
- each LPG distributor may only fill and sell bottles that are stamped with its own trademark;
- each LPG distributor is responsible for the quality and safety control of its bottles; and
- each LPG distributor must maintain enough bottles to service its sales volume.
The Self-Regulatory Code was replaced by ANP Resolution 49/2016 and 51/2016, which regulates the distribution of LPG activities.
Ultragaz had to requalify 2.1 million bottles, 2.5 million bottles and 2.5 million bottles 2021, 2020 and 2019, respectively. In 2022, Ultragaz expects to requalify approximately 2.1 million bottles.
Environmental, health and safety standards. LPG distributors are regulated by ANP and subject to Brazilian federal, state and local laws and regulations relating to the protection of the environment, public health and safety. The CONAMA, the Ministry of Economy (Ministério da Economia), and the Ministry of Infrastructure (Ministério da Infraestrutura) are the primary regulators of LPG distribution at the federal level.
The Brazilian regulations require LPG distributors to obtain operating permits from the environmental agencies, from municipal authorities and from the fire department. In order to obtain and maintain the validity of such permits, distributors must satisfy regulatory authorities that the operation of facilities are in compliance with regulations and are not prejudicial to the environment and the community. In addition, regulations establish standard procedures for transporting, delivering and storing LPG and for testing and requalification of LPG bottles. Civil, administrative and criminal sanctions, including fines and the revocation of licenses, may apply to violations of regulations. Under applicable law, distributors are strictly and jointly liable for environmental damages.
The LPG industry and market are also subject to occupational health and safety standards, including labor laws, social security laws and consumer protection laws. In addition, the company also has a sustainability policy that describes the best management practices for health, safety and the environment (HSE).
In 2021, Ultragaz carried out an extensive HSE plan to improve its performance in order to focus on safety and reliable operations. This plan was based on different initiatives concerning the improvement of HSE processes and safety practices. For instance, Ultragaz’s truck drivers were trained in defensive driving to help them reducing risks while driving. Governance practices have been improved as well. All data concerning incidents and safety inspections were gathered in a data lake and on an online HSE dashboard that can be consulted to check the main HSE indicators and their performance. As a result, in 2021 the total recordable accident rate decreased 14% as well as the lost time injury rate decreased 29% compared to 2020.
Ultragaz maintained its annual HSE audits to verify the performance and compliance with HSE legislation, HSE internal standards and its sustainability policy from a remote model due to restrictions imposed by coronavirus pandemic.
Ultragaz
Founded in 1937, we were the first LPG distributor in Brazil. At that time, Brazilians used wood stoves and, to a lesser extent, alcohol, kerosene and coal stoves. Ultragaz was the leading company by sales volume in the Brazilian bulk LPG market as of December 31, 2021, according to ANP, and the second largest in overall volumes.
Ultragaz operates nationwide in the distribution of both bottled and bulk LPG, including the most highly populated states in Brazil, such as São Paulo, Rio de Janeiro and Bahia, and may sell bottled LPG through independent dealers. Bulk LPG is serviced through Ultragaz own infrastructure.
In 2003, Ultragaz acquired Shell Gás, Royal Dutch Shell’s LPG operations in Brazil. Shell Gás had about 4.5% market share in Brazilian LPG distribution according to ANP, selling 287 thousand tons of LPG in 2002. With this acquisition, Ultragaz became the national market leader in LPG, with a 24% share of the Brazilian market in 2003. In 2011, Ultragaz acquired Repsol, which sold approximately 22 thousand tons of LPG in that year.
Ultragaz is comprised of the following operating subsidiaries:
- Ultragaz, the company that pioneered our LPG operations;
- Bahiana, which primarily operates in the Northeast region of Brazil; and
- Utingás, a storage services provider that operates two facilities in São Paulo and Paraná. Utingás was incorporated in 1967 when Ultragaz and other LPG distributors joined to construct LPG storage facilities based in the states of São Paulo and Paraná. Ultragaz currently indirectly owns 57% of Utingás. See “—Storage of LPG.”
Markets and marketing. When Ultragaz began its operations, it served only the Southeast region of Brazil. Currently, Ultragaz is present in almost all of Brazil’s significant population centers. In recent years, Ultragaz strengthened its presence in the North and Northeast of Brazil, where it did not have significant operations. Distribution of bottled LPG includes mainly retail stores, carried out by Ultragaz’s dealership network mainly using 13 kg ANP approved bottles. In the case of Ultragaz, the bottles are painted blue. Ultragaz’s operating margins for bottled LPG vary from region to region and reflect the distribution channel in the region.
Before Shell Gás’ acquisition, Ultragaz’s sales strategy for bottled LPG delivery was to increase market share through geographical expansion as well as protecting and incrementing market participation in regions where it already operated. With the acquisition of Shell Gás, Ultragaz became the Brazilian market leader in LPG, and the focus of its marketing strategy evolved to protecting market share and strengthening its position in certain regions where it does not have a significant presence. The LPG bottled market in Brazil is mature and Ultragaz believes that growth in demand in the long term will be a function of an increasing number of households consuming the product as well as an increasing level of household income.
Distribution of bulk LPG is largely carried out through 190 kg storage tanks installed on the clients’ premises. Since 1995, Ultragaz operates small-and-medium-sized bulk delivery facilities with bob-tail trucks, which deliver LPG in bulk mainly to residential buildings, commercial and industrial clients. Ultragaz’s clients in the commercial sector include shopping centers, hotels, residential buildings, restaurants, laundries and hospitals. Ultragaz’s trucks supply clients’ stationary tanks using a system that is quick, safe and cost effective.
Ultragaz’s bulk sales include large industrial clients, including companies in the food, metallurgical, steel and home and personal care sectors that have large fixed tanks at their plants. In the case of large volume consumers, Ultragaz is competing with other highly competitive energy sources such as natural gas, diesel, wood, fuel oil and electricity.
Ultragaz’s strategy for bulk LPG distribution is to continue its process of product and service innovation. Ultragaz has a team to identify the needs of each bulk LPG client and to develop technical solutions for using LPG as an energy source. Furthermore, in 2015, Ultragaz started operating under a new concept for the small and medium business clients, named Ultrapronto. As an innovative concept in the LPG industry, Ultrapronto represents a more agile and complete service to the client, including prospecting of clients, setup of equipment, logistics and after-sale services. It permeates the entire value chain of the bulk segment, based on: (i) differentiated value proposition for the client, (ii) standardization of processes, in order to enable the service to client, and (iii) rationalization of the installation process.
The table below shows Ultragaz’s sales of LPG to clients of bottled and bulk LPG:
|
| Year ended December 31, |
|
|---|
Client category |
| 2021 |
| 2020 |
| 2019 |
|
|---|
|
| (in thousands of tons) |
|
|---|
Bottled LPG |
| |
| |
| |
|
Residential delivery by Ultragaz / Ultragaz owned retail stores |
| 38.1 |
| 39.2 |
| 52.4 |
|
Independent resellers (1) |
| 1,116.0 |
| 1,158.7 |
| 1,121.8 |
|
Total bottled LPG |
| 1,154.1 |
| 1,197.9 |
| 1,174.2 |
|
Total bulk LPG |
| 560.2 |
| 534.4 |
| 531.7 |
|
Total tons delivered |
| 1,714.2 |
| 1,732.3 |
| 1,706.0 |
|
(1) Includes residential deliveries and distribution through retailers’ stores.
Residential delivery has evolved during the last years from primarily door-to-door to a scheduled, order by phone or app.
LPG distribution is a dynamic retail market where consumers’ habits change constantly, thus creating opportunities for the company. In order to track market developments more closely and differentiate itself from its competitors, Ultragaz has developed and enhanced sales channels and payment methods. In the last decade, the company expanded the participation of Disk Gás (sale of LPG bottles by telephone) and, more recently, introduced ordering through a website (Pedido Online), cell phone messages (Whatsapp) and through a smartphone app (APP Ultragaz), which reached one million users in 2021. Ultragaz entered into sales partnerships with apps from companies such as iFood. These initiatives provide customers with greater convenience, add further value and generate logistic optimization to Ultragaz. The same principles have been extended to the bulk segment, in which Ultragaz is a pioneer and has a leading position. Ultragaz has been developing new technologies for different markets, such as factories, agribusiness, small and medium business and residential buildings. Ultragaz has created and is testing a vending machine for LPG cylinders, called Ultragaz 24h, which will work 24/7 and accept many payment methods. For industries, such as the industrial laundries, Ultragaz has developed a new system to control the whole drying process using Internet of Things (IoT) to optimize LPG consumption. Ultragaz has also expanded LPG uses portfolio to agribusiness, such as a solution for cotton moisture control, increasing productivity. Finally, tracking consumption trends in the bulk segment, Ultragaz has created a food recycler solution, which converts 80% of a typical restaurant waste into fertilizer through a fully automated process.
In May 2021, Ultragaz launched its new brand image. The new visual identity addressed its purpose of contributing to changing people’s lives. With an eye to the future, and in the spirit of its new motto “Somando energias”, or combining energies, Ultragaz is employing its vast experience together with technology to create energy solutions that focus on its customers’ needs, helping them to better manage the energy usage in their homes and businesses.
Contracts. Ultragaz supplies its bulk clients based on contracts with terms ranging typically from two to five years. This type of contract limits fluctuations in sales given that the installation of the tanks is carried out by Ultragaz, and any change in supplier would imply the client’s reimbursing Ultragaz’s investments. The contract also requires that any tank supplied by Ultragaz may only be filled with LPG delivered by the company. When the bulk delivery contract expires, it can be renegotiated, or the tank is removed. Since the installation of the tank represents a significant investment for Ultragaz, it seeks to achieve a return on its investment within the term of the contract.
Social initiatives. Given Ultragaz’s network and reach to the most remote communities in Brazil, it has engaged in a series of initiatives and partnerships to promote social inclusion, education and culture. The table below shows the most relevant ones:
Project |
| Year of
launch |
| Brief description |
|---|
Ultragaz Cultural |
| 2000 |
| - Series of shows, movies, theater, literature, music and educational workshops.
- 2000-2019: served more than 279 thousand children in 22 states in Brazil.
- In 2020 and 2021, exceptionally, due to the COVID-19, the project did not happen.
|
Educational Campaigns |
| 2008 |
| - Awareness and educational campaigns to address diseases prevention, such as COVID-19, and arterial hypertension, as well as other basic health concerns, like children rights.
- 2021: held three campaigns: (i) a COVID-19 campaign for children about physical distancing and the use of masks (10 million people impacted); (ii) a campaign encouraging the population to have healthy habits that help maintain adequate blood pressure (more than 3 million people impacted); and (iii) a children's cartoon campaign aimed at promoting the importance of respect, self-protection, open dialogue and knowledge of human body (more than 10 million people impacted).
|
United Nations Partnership |
| 2009 |
| - Ultragaz is a signatory of the UN Global Compact since 2009.
- In 2016, Ultragaz joined the 17 Objectives of Sustainable Development.
|
Volunteering Program |
| 2009 |
| - Junior Achievement: teaching entrepreneurship and sustainability to public school students.
- “Ler é Presente”: Aims to develop the creativity and imagination of children from public institutions and schools, through voluntary reading.
- 2021: 270 volunteers were involved in the program and, due to the COVID-19 pandemic, the projects happened remotely.
|
Educational projects |
| 2009 |
| - Near to its production bases, Ultragaz sponsors several projects that aim to promote quality education to children and teenagers. Some of these partners are: Escola de Música e Informática Ultragaz, Vocação, Pedra Bruta, Olga KOS, Pluga Cuca, Recriarte and ASA.
|
“Pega Pilhas, Baterias e Celulares” |
| 2012 |
| - Collection and disposal of used batteries in Ultragaz’s consumers’ households
- 2021: 256 kg of batteries collected in 31 cities in Brazil.
|
“Campanha Junte Óleo: Ultragaz Coleta e Soya Recicla” – |
| 2013 |
| - Cooking oil recycle campaign to avoid its disposal into drinkable water sources. Partnership with Bunge.
- 2020: the project won the LPG Innovation and Technology Award.
- In 2021, we reached the milestone of more than 1.3 million liters of oil collected since 2013, in more than 800 thousand households from the states of São Paulo, Minas Gerais, Rio Grande do Sul, Ceará, Bahia and Pernambuco.
|
“Somar Sustentabilidade” |
| 2014 |
| - A project that aims to foster sustainability concept and practices among its resellers.
- By the end of 2019, more than 480 resellers had participated. In 2020 and 2021, exceptionally due to the COVID-19 pandemic, the project did not happen.
|
Project |
| Year of
launch |
| Brief description |
|---|
CDP Partnership |
| 2015 |
| - With the support of CDP, Ultragaz promotes training with its critical suppliers about CO2 emissions and water resources, encouraging them to develop action plans.
- In 2021, Ultragaz engaged 95% of its critical suppliers in CO2 emissions program and the water resources program.
|
Female Empowerment |
| 2018 |
| - Partnership with the Feminine Association for Social and University Studies (Afesu) focused in supporting socially vulnerable women by offering training schemes for entry into the labor market.
- In 2021, in partnership with Rede ASTA, more than 160 artisans from Belém (state of Pará) and São Luís (state of Maranhão) joined an entrepreneurship course and learned how to start a new business and how to manage it.
- In 2021, in partnership with Consulado da Mulher and Itaú Mulher Empreendedora, 317 women participated in 24 classes covering from the creation of the business to its management, with focus on the entrepreneur's life.
- In 2021, in partnership with Rede Mulher Empreendedora, women from Belém (state of Pará) joined a course about entrepreneurship, financial independence and empowerment. Some of the topics discussed with women include self-esteem and self-image, their relationship with money, networking and building action plans.
- In partnership with ASPLANDE, we supported a Women's Rights Ambassador Project to women from the cities of Rio de Janeiro, Duque de Caxias, Nilópolis, Nova Iguaçu, Belford Roxo and São João Meriti, in the state of Rio de Janeiro.
|
Memória Local” |
| 2019 |
| - The project aims to preserve the memory of communities, through integrated activities between elementary and high school students, teachers and communities. Partnership with “Museu da Pessoa.”
- 2019: 1,474 people benefited.
|
COVID-19 actions |
| 2020 |
| - 2020: in partnership with the Ministry of Health, Ultragaz supported the preventive campaign to fight the coronavirus (COVID-19). About 10 million people were impacted by information distributed in 19 states in more than 57 cities. Ultragaz also donated 650 thousand bars of biodegradable soap to less favored communities, 6 thousand basic food baskets to communities around our bases in Bahia, R$1 million to Sírio Libanês Grajaú field hospital and 8 thousand bottled LPG to poor communities.
- 2021: donations of 8,000 LPG cylinders to CUFA (in the states of São Paulo and Bahia); food parcels for NGOs (in the states of Bahia, Pernambuco and Sergipe), including a national campaign in partnership with Gerando Falcões. Transportation of 2,000 oxygen cylinders from suppliers to hospitals in the state of São Paulo.
|
Instituto Alavanca |
| 2020 |
| - In 2020, we entered into a partnership with FIA, a reference among business schools, to revitalize the space of Instituto Alavanca, a non-governmental organization, associated with FIA, which offers educational activities for women, children and young people living in the São Remo community, in the city of São Paulo.
- In line with Ultragaz's sustainability mission, which has education as one of its investment pillars, the partnership aims to reactivate the facilities of the Alavanca institution. The work was completed in the first quarter of 2021.
|
Distribution infrastructure. Ultragaz’s distribution strategy includes having its own distribution infrastructure for bulk LPG, since it believes proximity to customers is a significant factor in successful distribution and sales strategies. Ultragaz also maintains a large independent reseller network for the bottled LPG. See “Independent resellers.” For both bottled and bulk LPG, deliveries are made by a staff wearing Ultragaz uniforms and driving vehicles with Ultragaz’s logo. Ultragaz has also invested in information technology for improving its process, such as logistics optimization and production efficiency. Ultragaz delivers bottled LPG, using a distribution network, which included 5.6 thousand independent resellers and a fleet of 117 vehicles for the delivery of gas bottles and 307 for bulk delivery as of December 31, 2021.
Bottled sales capacity derives from the number of bottles bearing Ultragaz’s brands. Ultragaz estimates that, as of December 31, 2021, there were 24.6 million 13 kg bottles stamped with Ultragaz’s brands in the market.
Independent resellers. Ultragaz’s independent distribution network ranges from large resellers, which carry out extensive home delivery, to single retail stores, which sell small quantities of LPG bottles. ANP Rule 51, enacted on November 30, 2016, that repealed the ANP Rule 297, sets that the independent resellers must be registered with ANP and comply with a list of prerequisites contained in such rule, as well as those required by law for the storage of bottles up to 90 kg. Also, each municipality sets forth its own safety regulations applicable to stores that sell LPG, including a minimum distance from certain locations, such as schools. For the year ended December 31, 2021, 97% of Ultragaz’s bottled LPG sales were made through resellers. The agreements entered between Ultragaz and independent resellers require the use of the Ultragaz brand and the display of the Ultragaz logo in the delivery vehicles and on the uniforms worn by delivery personnel. Proprietary rights of the trademark and the logo are retained by Ultragaz and are duly registered with the National Institute of Industrial Property (INPI – Instituto Nacional de Propriedade Industrial). All contracted resellers are Ultragaz’s exclusive representatives. Under the terms of the respective contracts, each dealer agrees not to deliver non-Ultragaz LPG bottles.
Ultragaz understands that investing in the efficiency of its reseller network is key for staying ahead of competition and at the same time aligned with market demand for LPG. Accordingly, Ultragaz has developed several programs aimed at improving resellers’ management quality and standards.
The main program is the Lapidar Challenge (exclusive excellence program for resellers), which seeks to standardize the best management practices of Ultragaz’s resellers, through the pillars of customer experience, business management, teams and resale structure, with focus on strict compliance with the laws applicable to the sector. Through a continuous evaluation process with annual cycles, resellers are classified into categories (Blue, Bronze, Silver, Gold and Blue Diamond) allowing participants to verify their performance against Ultragaz standards of excellence and stimulating constant improvement. In 2020, Ultragaz reviewed the entire program in order to make it more attractive, contributing to an evolution in its dealer network continuously and bringing excellence in execution and a better customer experience. In 2021, approximately 3,900 resellers participated in the program. Of those who participated, we chose the 150 resellers who achieved the highest cumulative score and classified them as Blue Diamond attesting to their compliance with most Ultragaz quality requirements.
Ultragaz offers to its new resellers a complete face-to-face training program, namely the Pre-operation, which is intended for resellers with no previous experience in LPG, and Cultura Azul (Blue Culture) that aims to insert resellers who already have experience in the segment in the Company's culture. The goal is to accelerate the maturation process of new resellers, sharing the best market practices, financial knowledge, operational, marketing and team management. Before start operating, our resellers receive a complete package of guidelines to ensure the standard of both brand structure and visual identity and the standard of service that is Ultragaz's hallmark to generate a positive experience for our customers.
In 2020, Ultragaz created a digital relationship channel with its resellers called MAP – Meu Amigo Parceiro. In this app resellers have access to resources that improve their work process such as: inclusion and status of orders placed, access to invoices and receipt, exclusive training program, marketing content, among others. Through MAP the reseller also accesses a marketplace platform, namely Portal Ultragaz, where they can purchase several items for resale and on terms and conditions negotiated by Ultragaz itself with previously accredited suppliers.
Distribution channels to bulk consumers. Bulk distribution is made directly to customers by delivering LPG to storage tanks located at customers' facilities. Small bulk distribution, consisting of residential buildings and commercial users, and smaller industrial users, is mainly made by bob-tail trucks. Large bulk distribution, consisting mainly of industrial users, is made directly to customers by bob-tail trucks or third-party tanker trucks.
Payment terms. Ultragaz’s sales through its retail stores and through home delivery are made mainly on a cash basis. Ultragaz’s sales to independent resellers and to industrial and commercial users have payment terms of 17 days on average.
Bottle swapping centers. Pursuant to the Self-Regulatory Code, established in 1996 and approved by ANP, the LPG distributors have established 9 operating swapping centers to facilitate the return of the bottles to the appropriate distributor. Under the Self-Regulatory Code, while LPG distributors may pick up any empty LPG bottles tendered by customers in exchange for full LPG bottles, whether or not such empty bottles were put in circulation by that distributor, after October 1997, LPG distributors were not permitted to refill third-party bottles. Accordingly, LPG distributors may deliver third-party bottles to a swapping center where such bottles may be exchanged for bottles placed in circulation by such LPG distributor. The swapping centers currently charge an average fee of R$0.70 (Dec/21) per exchanged LPG bottle.
Requalification of bottles. The lifetime of a bottle depends on several factors, the most important being the exposure of the bottle to corrosion from the atmosphere and whether the bottle has been damaged. The Self-Regulatory Code and ANP regulation provides that all bottles must be requalified after their first 15 years of use, and every ten years thereafter. Each bottle is visually inspected for damage and corrosion to determine if it can be requalified or if it should be scrapped. In the case of bottles which pass the quality and safety checks, several procedures are followed before the bottles are stamped with the year of requalification and the next term in which they are due for requalification.
Supply of LPG. Currently, Ultragaz and all other LPG distributors in Brazil purchase all or nearly all LPG from Petrobras. Ultragaz has a formal contract with Petrobras for the supply of LPG. The procedures for ordering and purchasing LPG from Petrobras are generally common to all LPG distributors, including Ultragaz, and is based on a three months rolling forecast planning. There have been no significant interruptions in the supply of LPG by Petrobras to the distributors since an interruption in 1995 due to a 15-day strike by Petrobras employees.
Prices of LPG. From 2017 on, LPG refinery prices were adjusted more frequently. In the last few years, Petrobras’ practice has been not to immediately reflect in its oil derivatives prices in Brazil the volatility of international prices of oil and oil derivatives. However, in June 2017, the dynamic of LPG prices supplied by the distributors was modified to reflect international price volatility and exchange rate variation. In January 2018, the pricing policy for LPG acquisition at refineries was adjusted to soften the transfer of price volatility in the international market to the domestic price. The monitoring period for international prices and currency rates, which dictate the percentages of price adjustment, was the average of the preceding twelve months, rather than monthly variation, and price adjustments became quarterly, rather than monthly. In August 2019, Petrobras terminated the existing policy and, since then, the price adjustment does not follow a specific periodicity, but tends to follow international trends.
As a result of the ongoing COVID-19 pandemic, and, more recently, the military conflict involving Russia and Ukraine, LPG commodity prices have experienced significant volatility. Petrobras followed this pattern for domestic LPG prices, reaffirming the international parity price policy for all its fuels, LPG included.
LPG prices for bulk and bottled segments were historically different. In November 2019, price differentiation was ended, which resulted in domestic prices for all segments being converted into one single price, as shown below.
The following table shows monthly price adjustments for residential and commercial and industrial LPG for the years ended December 31, 2021, 2020, and 2019.
| % Petrobras LPG prices adjustments |
Date
|
| Residential |
| Commercial and Industrial |
Jan-19 |
| - |
| -3.4% |
Feb-19 |
| 1.0% |
| -3.0% |
Mar-19 |
| - |
| 6.0% |
Apr-19 |
| - |
| 6.0% |
May-19 |
| 3.5% |
| - |
Jul-19 |
| - |
| -9.8% |
Aug-19 |
| -8.2% |
| -13.5% |
Oct-19 |
| 5.0% |
| 3.0% |
Nov-19 |
| 4.0% |
| 0.6% |
Dec-19 |
| 5.0% |
Feb-20 |
| -2.9% |
Mar-20 |
| -20.1% |
May-20 |
| 5.0% |
Jun-20 |
| 5.3% and 5.0% |
Jul-20 |
| 5.0% |
Aug-20 |
| 10.0% |
Oct-20 |
| 5.0% |
Nov-20 |
| 5.0% |
Dec-20 |
| 5.5% |
Jan-21 |
| 6.0% |
Feb-21 |
| 5.0% |
Mar-21 |
| 5.0% |
Apr-21 |
| 5.0% |
Jun-21 |
| 6.0% |
Jul-21 |
| 6.0% |
Oct-21 |
| 7.0% |
The following table shows a comparison between Petrobras’ average prices and international parity prices (R$ per ton) on yearly basis:
Year |
| Petrobras avg price |
| International parity price |
2019 |
| 2,134 |
| 1,612 |
2020 |
| 2,139 |
| 1,893 |
2021 |
| 3,452 |
| 3,477 |
Storage of LPG. On December 31, 2021, Ultragaz’s storage capacity was approximately 20.8 thousand tons, including Utingás’ storage capacity. Based on its 2021 average LPG sales, Ultragaz could store approximately 3.7 days of LPG supply.
Ultragaz stores its LPG in large tanks at each of its filling plants located throughout the regions in which it operates. Primary filling plants receive LPG directly from refineries and processing units by pipeline; secondary filling plants are supplied by truck; and satellite plants primarily hold LPG which is used to fill bob-tail trucks for small bulk distribution to customers that are not located near a primary or secondary filling plant. See “Item 4.D. Information on the Company — Property, Plants and Equipment.”
Competition. Ultragaz’s main competitors are:
- Liquigás, which was owned by Petrobras until December 2020, when it was acquired by a consortium formed by Itaúsa S.A., Copagaz, Nacional Gás and Fogás, and has been operating in the Brazilian LPG distribution sector for more than 60 years;
- Supergasbras, formed by the merger of Minasgás S.A., founded in 1955, and Supergasbras S.A., founded in 1946, and controlled by SHV Energy, a major multinational LPG distributor; and
- Nacional Gás, a Brazilian LPG distributor, which has been present in the market for more than 60 years.
The following table sets forth the market share of Ultragaz and its competitors in terms of volume according to ANP:
|
| Year ended December 31, |
|
|---|
LPG Distributor |
| 2021 |
| 2020 |
|
|---|
Ultragaz |
| 23.1% |
| 23.1% |
|
Copa Energia (Liquigás + Copagaz) |
| 25.7% |
| 30.0% |
|
Nacional Gás Butano |
| 21.3% |
| 18.5% |
|
Supergasbras |
| 20.6% |
| 20.0% |
|
Others |
| 9.3% |
| 8.5% |
|
Total |
| 100.0% |
| 100.0% |
|
Considering that the bottled market for LPG is mature with relatively low consumption growth, the competition is largely based upon attempts by LPG distributors to increase market share at the expense of their competitors. Since per capita consumption is small, low distribution cost is the critical factor in dictating profitability. Therefore, LPG distributors largely compete based on efficiencies in distribution and delivery as all LPG distributors currently purchase nearly all their LPG requirements from Petrobras, and as Petrobras’ refinery price charged to the distributors is the same to all LPG distributors. Ultragaz’s main markets, including the cities of São Paulo, Salvador and Recife, are highly populated areas and therefore distribution to this market can be carried out with great economies of scale resulting in lower distribution costs to Ultragaz. Additionally, Ultragaz benefits from low bulk LPG distribution costs.
In addition to competing with other LPG distributors, Ultragaz competes with companies that offer alternative energy sources to LPG, mainly natural gas, and other sources such as wood, diesel, fuel oil and electricity. Natural gas is currently the principal source of energy against which we compete. The supply of natural gas requires significant investments in pipelines. While fuel oil is less expensive than LPG, LPG has performance and environmental advantages over fuel oil in most uses.
In 2019, the Brazilian LPG market decreased by 0.3% compared to 2018. The bottled segment decreased by 0.5%, and the bulk segment increased by 0.4%. In 2020, the Brazilian LPG market increased 2.9% compared to 2019. The bottled segment increased by 3.8%, due to the lockdown effect of COVID-19, and the bulk segment remained stable. In 2021, the Brazilian LPG market decreased 1.1% compared to 2020 while the bottled segment decreased by 3.3%, due to the lift of many COVID-19 restrictions and an ease on lockdowns. On the other hand, the bulk segment increased 7.1% in 2021 as compared to 2020, mainly due to the economic recovery.
In 2020, Liquigás, the second biggest LPG distributor of Brazil, was bought by Itaúsa, Copagaz, Nacional Gás Butano and Fogás. The buyers initially own, respectively, 79%, 20% and 1% of Liquigás current assets and customers, according to Sindigás. The following graph shows LPG sales volume for the Brazilian market and Ultragaz for the periods indicated.
Source: ANP
Quality. We were the first Brazilian LPG distributor to receive ISO (International Standards Organization) certification for excellence in quality management, the first LPG distributor in Brazil to receive the state of São Paulo Quality Award (Prêmio Paulista de Qualidade), a recognized quality award in Brazil, and the Best in Management, the highest quality management award in Brazil. We started the search for continuous improvement of processes more effectively, delivering value to the customer through a lean culture.
Income tax exemption status. Brazilian legislation provides a 75% income tax reduction for businesses located in the Northeast region of Brazil, which depends on SUDENE’s formal and previous approval. Ultragaz is entitled to this tax benefit at its filling plants located at Mataripe, Caucaia, Juazeiro, Aracaju and Suape until 2024, 2025, 2026, 2027 and 2027, respectively. The total amount of SUDENE’s income tax exemption for the Ultragaz segment for the years ended December 31, 2021, 2020 and 2019 was R$19.7 million, R$23.1 million and R$17.1 million, respectively. For further information, see Note 10.c to our consolidated financial statements.
- Storage services for liquid bulk
Port infrastructure and efficiency are key factors in economic development, especially to international and regional trade development. In Brazil, the most common port management system is the Landlord Port model. Under this model, terminals are leased to private companies through concession agreements. Companies are granted long-term leases, associated with rights to operate the terminal, in exchange for fixed and/or variable payments. Under the Landlord Port model, the Public Port is responsible for maintenance and investments in infrastructure and for acting as a local regulator, whereas the private companies are responsible for maintenance and investments in superstructure and for providing storage services to users.
Port infrastructure and services in Brazil are regulated by the federal agency ANTAQ (Agência Nacional dos Transportes Aquaviários), which was created in 2001 to implement, regulate and enforce guidelines established by the Infrastructure Ministry. The agency dedicates efforts to ensure an adequate level of competition, tariffs, and to balance the interests of clients and service providers. The port administration and supervision of operators is regionally performed by a local port authority.
The Brazilian Infrastructure Ministry classifies cargo into the following categories, according to the National Port Logistic Plan (PNLP):
- Solid bulk: sugar, soil beans, corn, lumber, cereals;
- Mineral solid bulk: fertilizer, coal, metals, salt;
- Liquid bulk (fuel and chemicals): oil, alcohol, chemicals, fuel;
- Liquid bulk (vegetable): oil, food, juice;
- Containerized and general cargo: machines, equipment, furniture, food, clothing, vehicles, livestock.
According to the information presented by the Brazilian Infrastructure Ministry, in 2018 (latest data available), solid bulk accounted for 64% of all cargo handled in Brazilian ports, followed by liquid bulk (21%) and containerized and general cargo (15%). The PNLP projects that by 2060, the participation of liquid bulk is expected to rise to 24%.
Ultracargo
Ultracargo is the largest private provider of liquid bulk storage in Brazil. The company stores and handles liquid bulk, mainly fuels, chemicals and vegetable oils. Ultracargo also offers ship loading and unloading services, operation of pipelines, logistics programming and installation engineering. Ultracargo’s ten largest clients accounted for 67% of its revenues in 2021, with its three largest clients, Ipiranga (a related party), Braskem and Vibra, accounting for 14%, 12% and 10%, respectively, of Ultracargo’s revenues.
Terminal infrastructure. As of December 31, 2021, Ultracargo operated 7 terminals, along the Brazilian coast, with a total capacity of 983 thousand cubic meters.
Ultracargo’s strategic location of its operations, close to the main Brazilian port terminals, railroad junctions and roads, is one of the company’s main strengths and a key driver for integrated services profitability. Ultracargo’s history is one of pioneering logistics solutions in the Brazilian market.
The following table sets forth the volumes sold at Ultracargo’s port terminals during 2021.
Facility |
| Volume sold (in thousand cubic meters) |
|---|
Santos (state of São Paulo) |
| 3,736 |
Aratu (state of Bahia) |
| 2,778 |
Suape (state of Pernambuco) |
| 2,576 |
Itaqui (state of Maranhão) |
| 3,026 |
Rio de Janeiro (state of Rio de Janeiro) |
| 214 |
Paranaguá (state of Paraná) |
| 216 |
Total |
| 12,545 |
Regulation. Seaport infrastructure and services in Brazil are regulated by a federal agency named ANTAQ, which was created in 2001 to implement, regulate and enforce guidelines established by the Infrastructure Ministry. The agency dedicates efforts to ensure an adequate level of competition, tariffs, and to balance the interests of clients and service providers.
Storage facilities. Ultracargo primarily provides storage services for liquid bulk, especially fuels, chemicals and vegetable oils. Ultracargo provides storage facilities to Braskem and most of the second-generation petrochemical companies in the Northeastern Petrochemical Complex, including Oxiteno (a related party as of December 31, 2021). Transactions between Ultracargo and Oxiteno are carried out strictly on an arm’s-length basis.
At the end of 2003, Ultracargo maintained four liquid bulk storage terminals — in Aratu in the state of Bahia, in Paulínia and Santos in the state of São Paulo, and in Suape in the state of Pernambuco. In 2004, Ultracargo completed the construction of an intermodal terminal in Montes Claros, in the state of Minas Gerais, which was sold to Ipiranga in 2012.
Ultracargo completed the construction of another intermodal terminal in Santos in 2005. This project is Ultracargo’s second port installation to integrate road, rail and maritime transportation systems, the first being Aratu. The terminal occupies an area of approximately 64 thousand square meters that hosts 38 thousand cubic meters of tankage space for chemical products, 40 thousand cubic meters for ethanol and 38 thousand cubic meters for vegetable oils. In 2007, Ultracargo also expanded its liquid storage capacity with the addition of 10 thousand cubic meters to Aratu.
In 2008, Ultracargo added 184 thousand cubic meters to its liquid bulk storage capacity through: (i) the acquisition of União Terminais, which added 170 thousand cubic meters and (ii) the expansion of its terminal in Aratu, adding 14 thousand cubic meters. In 2009, Ultracargo added 95 thousand cubic meters to its liquid bulk storage capacity through (i) the acquisition of Puma’s assets in Suape, adding 83 thousand cubic meters and (ii) the expansion of its terminal in Aratu, adding 12 thousand cubic meters. With the acquisition of União Terminais, Ultracargo started to operate in Paranaguá, in the state of Paraná, and in Rio de Janeiro, in the state of Rio de Janeiro.
In 2010, Ultracargo added 16 thousand cubic meters to its liquid bulk storage in the terminal of Santos. Additionally, in 2010, Ultrapar sold Ultracargo’s in-house logistics, solid bulk storage and road transportation businesses, with the transfer of shares of AGT and Petrolog to Aqces Logística Internacional Ltda.
In 2011, Ultracargo added 26 thousand cubic meters to its liquid bulk storage capacity in the Suape terminal.
In 2012, Ultracargo added 55 thousand cubic meters to its liquid bulk storage capacity through the acquisition of a terminal in Itaqui, in the state of Maranhão.
In 2013, Ultracargo concluded an expansion in the terminal of Santos, adding 46 thousand cubic meters (42 thousand cubic meters in 2012 and 4 thousand cubic meters in 2013), and in the terminal of Aratu, adding 26 thousand cubic meters (4 thousand cubic meters in 2012 and 22 thousand cubic meters in 2013). This project was part of Ultracargo’s expansion plan started in 2010 and increased its total storage capacity by 15%.
In 2015, Ultracargo’s terminal in Paulínia was permanently closed and, in 2017, it was sold to a third party.
In 2019, Ultracargo’s operational capacity in Santos increased by 84 thousand cubic meters as a result of the retrofit of 38 thousand in July and the repair of 46 thousand cubic meters in September 2019. In October 2019, Ultracargo added 30 thousand cubic meters to Itaqui’s capacity through the implementation of the first phase, out of three phases, of its expansion. Also, in 2019, Ultracargo won a bid for a greenfield terminal in Vila do Conde’s port, located in Barcarena, state of Pará. Vila do Conde is considered a strategic position for Ultracargo, since it will allow the company to meet the increasing demand for fuel at the state of Pará. Ultracargo incorporated Tequimar Vila do Conde Logística Portuária S.A. in 2019 in connection with Vila do Conde’s concession. See “Item 4.A. Information on the Company — History and Development of the Company — A.1 Continuing Operations— Ultracargo.”
In 2020, Ultracargo’s operational capacity in Itaqui increased by 24 thousand cubic meters (8 thousand in February, 10 thousand in March, and 6 thousand in July), through the full implementation of the second phase and beginning of the third phase of its expansion.
Ultracargo adopted in 2020 two innovative and strategic initiatives: Conecta, a digital transformation program designed to develop and improve processes across the various areas of the company and enhance operational efficiency based on a new software architecture; and Soul, a new operational management model designed to optimize the terminal’s operations. In 2021, the company concluded the implementation of Conecta at the terminals of Itaqui, Suape, Vila do Conde and at its headquarters. The implementation is expected to be concluded in all terminals until the end of the first semester of 2022. Another initiative developed throughout the year was Soul, which already demonstrates notable gains related to continuous improvement in processes and management methods, in addition to reduction in waste and optimization of operational processes, and increased productivity and safety standards.
Also in 2021, Ultracargo accomplished several milestones related to its expansion plan, consolidating its position and leadership in the liquid bulk market. In April, the company won the public auction to operate in the IQI13 area at the Itaqui port, where the company already operates and is the market leader. The new area initially increased Ultracargo’s total capacity by 79 thousand cubic meters. Throughout 2021 Ultracargo concluded the phase 3 expansion at the Itaqui terminal, which further increased its total capacity by 46 thousand cubic meters. As a result, Ultracargo currently has a capacity of 155 thousand cubic meters to operate in such a port. At Vila do Conde terminal, Ultracargo started its operation in December 2021, with a total capacity of 110 thousand cubic meters. Ultracargo currently is the only provider of storage services for liquid bulk at this port, which marks an important step in the expansion plan for the North region.
Competition. Ultracargo remains among the leaders in all the ports in which we operate. According to ABLT, our market share in product storage in 2021 was 100% in Rio de Janeiro, 68% in Aratu, 55% in Itaqui, 37% in Suape, and 20% in Santos.
Ultracargo operates in a highly regulated and capital-intensive market. Terminal lease contracts are usually long term, as well as contracts with clients. Port competitiveness and overall structure are important factors to determine the most efficient route for each product. At the same time, the terminal’s operational efficiency, quality of service, capacity, and price level are factors to determine which operator will be more competitive within the port.
Ultracargo’s main competitors are:
- Cattalini, which is the largest liquid bulk operator in the Paranaguá port, with 610 thousand cubic meters of storage capacity;
- Ageo, which is the largest liquid bulk operator in the Santos port, with 510 thousand cubic meters of storage capacity;
- Vopak, which is one of the world leaders in tank storage. Vopak operates terminals in Santos and Aratu.
The following table sets forth the market share of Ultracargo and its competitors in terms of volume handled according to ABTL in 2021:
| Market share – Volume handled (tons) |
Ultracargo | 24.9% |
Cattalini | 15.8% |
Ageo-Copage | 13.2% |
Odfjell | 8.7% |
Vopak | 8.3% |
TFB S/A | 6.6% |
Others* | 22.5% |
* Others: Oiltanking, Adonai, APPA, CBL, Pandenor, Stolthaven, Temape and Terin.
Maintenance and quality control. During the design phase of each terminal, Ultracargo determines the capacity, accounting for a preventive maintenance program, considering a schedule for rotational tank shutdowns, to ensure storage supply, meeting all clients’ needs. As of December 31, 2021, preventive maintenance was performed by 100 Ultracargo’s own employees, in addition to 40 third-party contractors. In addition, Ultracargo has a team of employees dedicated to ensuring appropriate levels of quality in our services and compliance with safety standards.
Environmental, health and safety standards. Ultracargo is subject to Brazilian federal, state and local laws and regulations relating to environmental protection, safety, and occupational health and safety licensing by the fire department. CONAMA (National Environmental Council) is the main responsible for ruling and accepting matters with respect to the environment. Environmental state agencies and municipal departments are also responsible for establishing and supervising complementary laws and regulations. Ultracargo, also must obtain authorizations and/or licenses from federal, state, and/or municipal environmental agencies and fire departments to implement and operate their facilities. Ultracargo is required to develop and implement programs to control air and water pollution and hazardous waste, emergency plans for its terminals and headquarters, involving communities, public companies, and other private companies. Some of the products stored in Ultracargo’s terminals such as fuel and some chemicals may be classified as hazardous by The International Maritime Dangerous Goods Code (IMDG), which is also used by ANTAQ. The storage and transport of these products may be subject to specific regulation and authorization by the port authority. Ultracargo is in compliance with international standards as ISO 9001, ISO 14001 and ISO 45001.
To move forward with its climate change strategy, the company developed a partnership with a specialized consulting company to estimate the total volume of emissions and started studies to identify new technologies that could be an alternative to equipment dependent on volatile organic compounds (VOCs) at the Santos terminal, which is responsible for most of the scope 1 emissions of the company. Scope 2 emissions resulting from the acquisition of electric energy ceased in 2021 with the migration to cleaner energy sources and the acquisition of international certificates (I-REC). The company also counts with a hydric system in the terminals in Itaqui, Santos and Vila do Conde ports that allows the reuse of rainwater in its operations. Furthermore, at the construction of Itaqui and Vila do Conde expansions projects, the company reused the water of the hydrostatics tests saving up 136 thousand cubic meters in the process.
Quality. In 2002, Santos and Rio de Janeiro’s terminals obtained the ISO 14001 certification and the OHSAS 18001 certificate in the next year. In 2007, Ultracargo’s terminal in Aratu obtained an ISO 14001 certification and then, in 2012, obtained the OHSAS 18001 certificate. In 2011, Suape terminal obtained an ISO 14001 certification and the OHSAS 18001 certificate in the next year. In 2015, Itaqui terminal obtained both ISO 14001 and OHSAS 18001 certifications. Since then, Ultracargo’s terminals have undergone several re-certification processes, most recently in 2020.
In 2014 and 2016, the Aratu terminal was recognized for its performance in Health, Safety and the Environment by Industrial Development Committee of Camaçari (Cofic).
In 2020, Ultracargo launched the Vital quality management system, which consists in a group of best practices regarding safety, environment and risk mitigation, and is applied in all of the company’s terminals. Also, in 2020, all terminals were evaluated according to the first stage of certification by ISO 45001 as the evaluation process occurred in Vital system.
Income tax exemption status. Brazilian legislation provides a 75% income tax reduction for businesses located in the Northeast region of Brazil, which depends on SUDENE formal and previous approval. Ultracargo’s terminals at Aratu, Suape and Itaqui are entitled to the tax benefit up to 2022, 2030 and 2030, respectively. The total amount of SUDENE’s income tax exemption for the Ultracargo segment for the years ended on December 31, 2021, 2020 and 2019 was R$27.4 million, R$23.0 million and R$8.2 million, respectively. For further information, see Note 10.c to our consolidated financial statements.
C. Fuel Distribution
The Brazilian fuel market comprises the distribution and marketing of gasoline (including aviation gasoline), ethanol, diesel, fuel oil, kerosene (including aviation kerosene) and natural gas for vehicles (NGV). In 2021, diesel represented 48% of the fuels distributed in Brazil, followed by gasoline, ethanol, NGV, fuel oils and kerosene, each of which represented 31%, 13%, 2%, 3% and 3%, respectively.
Growth in the fuel distribution sector has been directly influenced by GDP growth rates and size of light vehicle fleet. GDP growth is the main driver for diesel volume, given that diesel in Brazil is highly used for buses, trucks and agricultural engines. The size of the light vehicle fleet influences the growth in the combined volumes of gasoline, ethanol and NGV, which are basically used for light vehicles. The growth in the size of the car fleet in turn, is highly correlated with credit availability and disposable income. In recent years, the economic recession has affected the credit availability and levels of disposable income in Brazil. See “Item 5.D. Operating and Financial Review and Prospects—Trend Information.”
In December 2021, credit in Brazil reached 54% of GDP, compared to 54% and 48% in December 2020 and 2019, respectively. Disposable income grew in Brazil in 2021, while the unemployment rate decreased and, as a result, vehicle sales increased in 2021 when compared to 2020. According to RENAVAM, approximately 2 million new light vehicles were registered in Brazil in 2021, an increase of 1% compared to 2020. The average fleet of light vehicles increased by 0.4% in 2021 in comparison to 2020, reaching more than 43.5 million at the end of the year, according to ANFAVEA. Out of all vehicles sold in 2021, 82.2% were flex-fuel vehicles, which have engines adapted to operate with either gasoline or ethanol, or any combination of the two, 2.7% were vehicles powered only by gasoline, 13.4% were diesel powered only and 1.8% were electric vehicles. Since the launch of flex-fuel vehicles in Brazil in 2003, 38 million flex-fuel cars have been sold in Brazil.
Moreover, recent changes to legislation and inspection in the fuels distribution sector have helped to progressively curb unfair competition, creating a level playing field. These improvements should benefit the formal market by capturing the volume from the grey market.
According to ANP, the distribution of fuels (gasoline, ethanol and diesel) is made mainly through three channels, as follows:
- Service stations, which serve final retail consumers;
- Large consumers, mainly industries and fleets; and
- Retail—wholesale resellers—TRR, specialized resellers that distribute diesel to medium and small volume end-users.
The following chart shows the oil-derivative fuel distribution process in Brazil:
The following chart shows the ethanol distribution process in Brazil:
Distribution of oil-derivative products is carried out through an extensive network of primary and secondary storage terminals. Primary storage terminals are generally located near refineries and ports and are used to store products to be sold to customers (service stations, large consumers and TRRs) and to be transported to secondary storage terminals.
Oil-derivative products are transported from refineries and port terminals to storage terminals via pipelines, coastal or river shipment and trucks. Transportation of oil-derivative products between primary and secondary storage terminals is provided by pipeline, railroads, trucks and coastal or river barges. Ethanol is transported from the many distilleries to primary and secondary storage bases by trucks and railroads. Delivery to service stations, large consumers and TRRs is made exclusively by trucks.
All gasoline sold in Brazil must contain a certain proportion of anhydrous ethanol that can vary from 18% to 27%. Currently, the percentage of anhydrous ethanol mixed with gasoline is 27%. The Brazilian Sugar and Alcohol Interministerial Council (Conselho Interministerial do Açúcar e Álcool) establishes the percentage of anhydrous ethanol that must be used as an additive to gasoline (currently, at 27% in regular gasoline and 25% in additive/premium gasoline).
Gasoline “A”, as it is known in its unmixed form, is mixed with anhydrous ethanol at primary storage terminals or at secondary storage terminals. Gasoline “A”, mixed with anhydrous ethanol, forms gasoline “C”, which is delivered directly to service stations and large consumers by truck.
Since January 2008, under the Biodiesel Program, distributors have been required to include a percentage of biodiesel in the volume of diesel sold, in order to reduce greenhouse gas emissions. In March 2016, the government enacted Law No. 13,263, which increased the required percentage of biodiesel mix to diesel to 8% until March 2017, which was further increased to 10% in 2019. On October 29, 2018, the National Council of Energy Policy published CNPE 16/2018 Resolution authorizing ANP to increase the biodiesel mix requirement to 15% until 2023, subject to technical testing of engines. As of the date of this annual report, there are 169 fuel distributors authorized by the ANP to operate in Brazil.
Supply. Petrobras is currently the only relevant domestic supplier of oil derivatives, accounting for 79.6% of Brazilian production. There are currently 19 oil refineries in Brazil, 14 of which are owned by Petrobras although it is in the process of selling seven of them. Petrobras’s total refining capacity in December 2021 was 302,000 cubic meters per day. Brazilian refineries are located predominantly in the South and Southeast regions of Brazil. The overall product yield for these refineries in 2021 was 39% diesel, 23% gasoline, 15% fuel oil, 7% LPG and 17% other products, including naphtha. In 2021, 75.5% of oil derivatives was supplied by local refineries and the remaining 24.5% was imported.
Ethanol is purchased from various producers. In 2021, approximately 30 million cubic meters of ethanol were produced, 38% of which was anhydrous ethanol and 62% was hydrated ethanol. Brazil’s supply of anhydrous and hydrated ethanol is seasonal and depends mostly on the sugarcane harvest.
Biodiesel is purchased from the many producers of biofuels in Brazil, and its main raw materials are tallow and soy seeds. As of December 31, 2021, there were 53 biodiesel producers, located predominantly in the Midwestern region. Brazil’s biodiesel production in 2021 was 6.8 billion of liters. Since January 2008, which was the first year of the Biodiesel Program, Petrobras has been required to purchase biofuels in auctions promoted by ANP and supply distributors with amounts of biodiesel corresponding to the proportional volume of diesel purchased. This policy aims to prevent distributors from selling diesel without including the minimum required amount of biodiesel.
The role of the Brazilian government. The Brazilian government has historically regulated the pricing of oil and oil-derivative products, ethanol, natural gas and electric energy. From 1990 onwards, the Brazilian oil and gas sector has been significantly deregulated. Until the adoption of the Petroleum Law, the Brazilian government maintained strict control over the prices that could be charged by (i) refineries to distributors, (ii) distributors to service stations and other channels and (iii) service stations to end-users.
Currently there is no legislation or regulation in force giving the Brazilian government power to set oil-derivative and ethanol fuel prices. However, given that Petrobras is a state-controlled company and the dominant supplier in this market, prices of oil-derivative fuels are still subject to indirect government influence, resulting in potential differences between international prices and domestic oil-derivative prices.
In January 2015, the Brazilian government announced the return of the CIDE tax and the increase in the PIS and COFINS taxes levied on fuel, with an impact of R$220 per cubic meter for gasoline and R$150 per cubic meter for diesel, valid from February 1, 2015. On September 30, 2015, Petrobras announced a new increase in gasoline and diesel prices of 6% and 4%, respectively.
In October 2016, a new pricing for gasoline and diesel was established with the objective of, among other aspects, controlling fluctuating prices according to international references on a monthly basis. Therefore, gasoline and diesel prices became directly influenced by the international prices and the Real/U.S. dollar exchange rate. Under the new pricing dynamic, gasoline prices were reduced by 3.2% and 3.1% and increased by 8.1% in October, November and December 2016, respectively. On the same occasions, diesel prices were reduced by 2.7% and 10.4% and increased by 9.5%.
In July 2017, the new price dynamic was updated in order to make daily price adjustments based on international references and the Real/U.S. dollar exchange rates. Also, in July 2017, Brazilian Government announced an increase in PIS and COFINS taxes for gasoline and diesel. On gasoline the taxes levied increased from R$381.6 to R$792.5 per cubic meter, while for diesel it jumped from R$248.0 to R$461.5 per cubic meter.
In 2021, fuel costs rose significantly in Brazil, as oil prices rose globally as a result of the gradual recovery in demand after the economic downturn caused by the pandemic in 2020 coupled with the continued devaluation of the Real in comparison to the U.S. dollar. The Brazilian government reacted by trying to reduce the volatility of international prices in the domestic market through the implementation of longer intervals between Petrobras' price adjustments and federal tax exemptions on diesel and LPG. In 2021, Petrobras maintained a price adjustment policy linked to the international diesel and gasoline market. However, the readjustments announced by Petrobras throughout the year were less frequent as compared to 2020 and domestic prices remained most of the time below parity with international prices.
The following graphs show the price volatility of fuels acquired by the distributors from the refineries:
Source: Petrobras
Ethanol prices are deregulated, being freely charged by the ethanol producers. In order to curb unfair competitive practices in the ethanol sales, some measures have been taken by the government, supported by Sindicom members. In April 2008, it became mandatory for fuel producers and distributors, as well as TRRs, to issue electronic tax invoices in all the states of Brazil. In January 2017, PIS and COFINS taxes for ethanol producers were reestablished at R$120 per cubic meter, without any corresponding credit. In July 2017, the Brazilian Government announced an increase in PIS and COFINS taxes for ethanol. For ethanol producers, taxes levied increased from R$120.0 to R$130.9 per cubic meter and for ethanol distributers went from zero to R$110.9 per cubic meter.
On January 13, 2005, in accordance with Law No. 11,097, the National Biodiesel Program (Programa Nacional de Biodiesel) was created. Since 2008, a certain amount of biodiesel has been required to be added to diesel. In addition, some changes were required in the distributors’ facilities, as well as the restructuring of its logistics. In March 2016, the government enacted Law No. 13,263, which increased the required percentage of biodiesel mix to diesel to 8% until March 2017, reaching 10% up to 2019. On October 29, 2018, the National Council of Energy Policy published CNPE 16/2018 Resolution authorizing the ANP to increase the biodiesel mix requirement to 15% until 2023, subject to technical testing of engines.
The role of Petrobras. Since its establishment in 1953, Petrobras maintained a legal monopoly in the exploration, production, refining, importing and transporting of crude oil and oil products in Brazil and its continental waters. This monopoly was confirmed in Brazil’s federal constitution enacted in 1988. As a result, Petrobras has historically been the sole supplier of oil and oil-derivatives in Brazil.
In November 1995, Petrobras’ monopoly was removed from the federal constitution by a constitutional amendment approved by the Brazilian Congress. According to this amendment, other state and private companies are permitted to compete against Petrobras in virtually all fields in which Petrobras operates. This amendment was also reflected in Law No. 9,478, dated August 6, 1997, which limited Petrobras’ monopoly to a maximum period of three years. Law No. 9,478 prescribed that the termination of Petrobras’ monopoly would be accompanied by the deregulation of oil, gas and oil-derivative product prices, and created a new regulatory agency, the ANP, to oversee all oil-related activities. However, in practice, Petrobras still remains basically the largest domestic oil-derivative supplier of oil and oil-related products, including naphtha, LPG and oil-derivative fuels in Brazil, even though there are no legal restrictions on the operations of other suppliers or to imports.
From 1971 until 2019, Petrobras acted in the Brazilian fuel distribution market through its subsidiary BR Distribuidora. Since 2019, BR Distribuidora became a private company, and changed its name to Vibra, which is the leader in the fuel distribution market, with a market share of 25.4% in 2021, according to ANP.
With the discovery of the pre-salt reservoirs, the Brazilian government adopted a series of measures in the regulatory environment, establishing a new legal framework for the oil industry, which may result in a series of regulations, such as production-sharing and concession contracts, among others. This discovery may bring a new scenario for the sector, creating major investments and adaptations in infrastructure such as new refineries, highways, pipelines, platforms, ports and ships, among others.
The role of the ANP. The ANP is responsible for the control, supervision and implementation of the Brazilian government’s policies with respect to activities related to oil, natural gas and biofuels. The ANP regulates all aspects of the industry, from the exploration and/or production, transportation to the sale of these products, including product quality standards, to the minimum storage capacities required to be maintained by distributors with respect to oil and oil products in Brazil. Prior to 1999, there were no formal requirements imposed by the Brazilian government on the fuel distribution segment. Distributors were only required to register with the national department of fuels or the national Petroleum Agent or the National Agency prior to starting operations. The Resolution ANP No 58/2014 establishes that a fuel distributor, in order to operate in Brazil, must obtain an operating authorization and meet certain minimum requirements of operation, including:
| • |
| minimum paid-in capital of R$4,500,000.00; and |
| • |
| proof of financial capacity equivalent to expected volumes to be sold (proof of such capacity may include proof of ownership of assets, insurance or a bank guarantee). |
ANP is also responsible for establishing the limits of oil-based fuel volume purchased by distributors based on their storage capacity. Fuel distributors are required to provide the ANP with monthly reports showing their previous month sales.
Fuel distribution for service stations and large consumers must be carried out only by a registered distributor. TRRs are allowed to trade only diesel, lubricants and grease to small-end consumers. Each distributor must provide the ANP with information regarding its contracted independent dealers on a monthly basis. The construction of storage facilities and approval for new retail sellers to operate is subject to the prior approval of the ANP. Service stations and storage facilities may only begin operations after ANP inspections.
Regulation. Distributors are prohibited from operating service stations, other than for training purposes or for the development and testing of new products and services, and therefore, service stations are operated by independent resellers. Three types of arrangements between distributors and service station operators are generally used in the fuels industry: (i) the distributor owns land, equipment and buildings for a service station and leases to an operator, (ii) a third party owns land, leases it to a distributor who constructs a service station facility or makes improvements to an existing facility and leases the station to an operator and (iii) the operator or a third party owns the land and constructs a service station facility or makes improvements to an existing facility, which is typically financed by the distributor (the most common practice in Brazil). Agreements between distributors and operators of service stations are generally exclusive for a given period. In exchange for being an exclusive reseller, the operator is granted the right to operate under the distributor’s brand name. The agreement might also include provisions related to the leasing of pumps and tanks, layout standards, training, quality control, technical and financial support, marketing and advertising support and franchises for complementary services, such as convenience stores (AmPm) and lubricant servicing franchises (Jet Oil).
ABD is the association that represents the interests of major Brazilian players of the downstream oil and gas supply chain. The association was formed in 2020 as part of Brazilian Petroleum Institute (IBP) and its primary purpose is to promote uniform standards for industry regulation and to provide a forum in which members can discuss matters affecting the industry and downstream sector. ABD represents its members in discussions before federal and state governmental bodies and presents its members perspectives on relevant laws and regulations, including those relating to taxation, operations, industrial and occupational safety and environmental protection. Prior to ABD, the Sindicom, founded in 1941, was the main association responsible for representing the interests of fuel and lubricant distributors in Brazil. Now, most of its previous actions are concentrated in ABD while Sindicom currently focus on taking judicial action on matters in connection with this sector.
During the 1990s, when the process of deregulation began in the fuel distribution sector in Brazil, a number of parties entered the market with a business model based on cost advantages derived from anticompetitive practices through fuel adulteration and tax evasion, including (i) diluting gasoline by mixing solvents or adding anhydrous ethanol in an amount greater than the permitted by applicable law (anhydrous ethanol has its taxation incorporated into gasoline “A” and is historically cheaper than gasoline), (ii) non-payment of federal taxes on fuels, taxes on gross revenues and state value-added taxes and (iii) selling anhydrous ethanol mixed with water as hydrated ethanol. Such practices have enabled these players, all of them smaller distributors, to increase their market share by charging artificially lower prices also based on artificially lower costs. Major distributors, including Ipiranga, have taken, individually and collectively, a number of actions targeted at reducing or eliminating the effects of these anticompetitive and illegal practices.
Among the actions taken were: (i) significant interaction with the Brazilian judiciary, including holding seminars for judges and prosecutors concerning the problems facing the industry and directly participating in tax litigation involving distributors that are not ABD members, (ii) sponsorship of the development of a chemical coloring solvent that is added to anhydrous ethanol, in order to prevent the addition of water (and later to be sold as hydrated ethanol); (iii) contribution to the development of CODIF, a system that electronically controls the collection of value-added taxes on fuel sales, (iv) support in the implementation of electronic invoices at the federal level, concluded in 2008, (v) support for ANP regulation which established brand definition and the obligation of disclosing the origin of the fuels in order to inhibit certain distributors from using a fake brand (known as cloned stations); (vi) development of a new model for biodiesel commercialization implementing a transition from bimestrial biddings managed by Petrobras using its PETRONECT system to open market with free negotiation between producers and distributors subject to 80% of volume goals to be determined annually by ANP; and (vii) the suggestion of several other measures, supported by ANP, including focusing the collection of PIS and COFINS on distilleries and the installation of flow meters, which were included in Law No. 11,727/2008. As a result of these efforts, the more regulated market has been leading to the weakening of the business model of lower prices based on artificially lower costs and unfair practices, creating a level playing field and increasing sales volume of the formal market.
Environmental, health and safety standards. Fuel distributors are subject to Brazilian federal, state and local laws and regulations relating to environmental protection, safety and occupational health and safety licensing by the fire department and transportation. The CONAMA is the principal responsible for ruling and accepting matters with respect to the environment. Environmental state agencies and municipal departments are also responsible for establishing and supervising complementary laws and regulations within its areas of operation.
Fuel distributors must obtain authorizations and/or licenses from federal, state and/or municipal environmental agencies and fire departments to implement and operate their facilities. They are required to develop programs to control air and water pollution and hazardous waste. Emergency plans for its plants and headquarters, involving communities, public companies and other private companies must also be implemented. Additionally, fuel distributors must also comply with laws from the Ministry of Economy, which prescribes occupational health and safety standards. To maintain a safe and healthy workplace, companies must carry out comprehensive occupational health and safety programs.
Fuels may be transported only under special conditions. In Brazil, transportation of dangerous products is regulated, and the regulations cover all modes of transport.
Decarbonization credits. The RenovaBio Program was designed to support Brazil’s COP21 goals and was launched in 2016 by the Ministry of Mines and Energy (MME), instituted as the “National Biofuels Policy.” RenovaBio’s goal is to reduce carbon emissions and encourage the consumption and production of biofuels in Brazil, contributing to a higher share of renewable fuels of Brazil’s energy matrix. This program foresees that biofuel producers will generate CBIO’s (biofuel decarbonization credit) in an amount related to the volume produced, and distributors receives decarbonization targets according to the volume of oil products sold, to their share of CO2 emissions in gasoline and diesel, and then they are required to acquire CBIO’s to achieve those targets. The CBIOs acquired are recorded at acquisition cost and are retired in the year to fulfill the individual target set by the ANP.
In December 2019, the RenovaBio Program was fully implemented. Despite coming into effect in 2019, Ipiranga was not required to buy CBIOs that year as the target for 2019 was required to be purchased in 2020. In 2021, the total target pursuant to the RenovaBio Program was 24.9 million CBIOs, and Ipiranga acquired 4.7 million CBIOs, in connection with its own individual target under RenovaBio Program.
Ipiranga
Ipiranga was established in 1937 and is one of the largest fuel distributors in Brazil, with 18.4% market share in terms of sales volume in ethanol, gasoline and diesel in 2021, according to ANP. Ipiranga distributes diesel, gasoline, ethanol, NGV, fuel oil, kerosene, ARLA 32 (liquid agent to reduce nitrogen oxides emissions from heavy vehicles), lubricants and greases nationwide through its network of 7,104 service stations and 90 storage terminals as of December 31, 2021.
Ipiranga has implemented a differentiation strategy by offering a broad range of products and services throughout its service station network. This strategy has led to a significant and growing convenience store business, branded AmPm, including the expansion of the bakery network and private label products under the same brand, as well as lubricant servicing businesses, Jet Oil and the consolidation of other related products and services.
Ipiranga conducts its commercial operations through four business units, as follows:
- Network of Service Stations - fuel distribution through retail service stations;
- Business to Business - large consumers and TRRs;
- AmPm - convenience store; and
- Jet Oil - oil exchange service centers.
In 2016, Ipiranga entered into a joint-venture agreement with Chevron to create a new company in the lubricants business, Iconic, of which Ipiranga and Chevron hold 56% and 44% respectively. The operation began in the end of 2017. The JV combines two complementary and experienced companies in this business, aiming at value creation by sharing best practices and strengthening its position in the competitive Brazilian lubricants market. The combination of the two businesses increases the capillarity of the sales channels in Brazil through Ipiranga’s network, as well as through Ipiranga’s and Chevron’s lubricant distributors network. Currently, Iconic serves more than 110 thousand customers among industries, retail and large consumers in Brazil through 38 authorized distributors. The company operates three plants, two in the state of Rio de Janeiro and one in São Paulo. Iconic sells lubricants, greases and coolants under Ipiranga and Texaco brands. For the year ended December 31, 2021, Iconic's sales volume was 286 thousand cubic meters compared to 267 thousand cubic meters in 2020 and 280 thousand cubic meters in 2019.
Ipiranga’s fuel distribution
Ipiranga operates in the retail segment of the fuel distribution market through a network of service stations operating under the Ipiranga brand throughout Brazil. Sales volume from service stations network accounted for 75% of total sales in 2021. Ipiranga also operates in the business-to-business (B2B) segment with more than five thousand customers, such as state and municipal governments, industries and cargo and passenger transportation fleet owners. Distribution to B2B accounted for 25% of Ipiranga's sales in 2021.
In 2021, the volume of fuel sold by Ipiranga increased by 5%, while the volume of diesel sales increased by 6%. The volume of gasoline, ethanol and NGV was 3% higher compared to the previous year, with a reduction of 9% in ethanol and an increase of 10% and 5% in gasoline and NGV, respectively.
The table below shows Ipiranga’s sales of fuels by products:
| The year ended December 31, |
|
|---|
| 2021 |
| 2020 |
| 2019 |
|
|---|
| (in thousand cubic meters) |
|
|---|
Diesel | 11,805.7 |
| 11,164.2 |
| 11,533.3 |
|
Gasoline | 7,051.8 |
| 6,417.2 |
| 7,380.8 |
|
Ethanol | 2,938.9 |
| 3,247.4 |
| 3,864.7 |
|
Lubricants | 286.3 |
| 266.7 |
| 279.8 |
|
Others(1) | 394.1 |
| 365.5 |
| 435.6 |
|
Total volume sold | 22,477.0 |
| 21,461.0 |
| 23,494.1 |
|
(1) Includes NGV, fuel oil, kerosene and ARLA 32.
Network of Service Stations. Responsible for 75% of total sales in 2021, the retail segment of the fuel distribution market had, as of December 31, 2021, a network of 7,104 service stations operating under the Ipiranga brand throughout Brazil, of which 831 are located on land owned by or leased to Ipiranga, while 6,273 are located on lands owned by third parties. In 2021, 91% of these stations were located in urban areas, whereas the remaining 9% were located on highways.
Ipiranga generally enters into three types of arrangements with resellers in which: (i) Ipiranga owns the land, the service station and its equipment and leases it to an operator, (ii) a third party owns the land and leases it to Ipiranga and it constructs a service station facility or make improvements to an existing facility and further leases the station to an operator and (iii) the operator or a third party owns the land and constructs a service station facility or makes improvements to an existing facility that is typically financed by Ipiranga. Under the terms of the contracts and in accordance with applicable law, each reseller operating under Ipiranga’s brand must purchase fuels exclusively from us.
Ipiranga has created incentive programs over the years in order to strengthen brand loyalty and its relationship with its resellers’ network, in order to differentiate itself from its competitors. These incentive programs include annual rewards to its resellers, such as international trips through the relationship program Clube do Milhão (Million Club), upon the accomplishment of pre-established goals. Ipiranga also establishes relationship programs with resellers’ employees, such as Clube Vip (VIP Club), to encourage the sale of added-value products and services. Training programs are provided to these employees focusing on developing their knowledge about the business and their capacity for selling products and services.
B2B – Business to business. Ipiranga operates in the B2B segment with more than five thousand clients, such as state and municipal governments, industries and cargo and passenger transportation fleet owners. In 2021, Ipiranga’s ten largest clients in B2B segment accounted for 17% of its revenue and no single customer accounted for more than 4%. Distribution to B2B represented 25% of Ipiranga’s sales in 2021.
Contracts. The relationship between Ipiranga and its clients is generally governed by exclusive supply contracts with terms ranging from 1 to 5 years. The types of contracts change according to the distribution channel. For service stations, contracts usually have terms of 3 to 5 years. Our commercial strategy includes the concession of bonuses agreements, which can be paid upfront (received on the signing of the contract) and/or post-paid (through the achievement of certain targets defined in contract). For the B2B segment, Ipiranga sells fuels in the spot market or under exclusive supply contracts, with the terms ranging from 1 to 3 years on average. Ipiranga has been working to increase the percentage of supply of fuels in the B2B segment under exclusive supply contracts by providing additional services and generating value to its clients.
Distribution infrastructure. Ipiranga operated through 90 storage terminals as of December 31, 2021, that were strategically located to facilitate fast and efficient delivery of its products. There are two types of facilities: primary storage terminals, generally located near the coast and major cities, which are supplied by refineries through pipelines, and secondary storage terminals, which are mainly located inland, and are supplied by primary terminals by railroad or through road transportation for locations not accessible by railroad. Ethanol is supplied to the terminals mostly by road.
Ipiranga has its own fleet of trucks through its transportation company, Tropical, which was responsible for transporting 29% of the volume of fuels sold by Ipiranga in 2021, with the remaining portion of the transportation provided by third parties.
Supply of fuels. Currently, Ipiranga and its competitors purchase the majority of oil-derivative fuels from Petrobras under a formal supply contract that establishes the volume and the terms of supply. The contract with Petrobras is renewed annually and the volume contracted is based on the volume purchased in the previous year. The procedures for ordering and purchasing fuels from Petrobras are generally common to all distributors, including Ipiranga. There have been no significant interruptions in the supply of fuels by Petrobras to the distributors, except for an interruption in 1995 due to a 15-day strike by Petrobras employees.
Brazilian refining capacity is not sufficient to serve the whole country’s demand for fuels; as a result, companies in this segment need to import fuel to complement their supply. In 2021, 75.5% of oil derivatives was supplied by local refineries and the remaining 24.5% was imported. Ipiranga began importing fuels in 2016 and, since then, strengthened its infrastructure in the main Brazilian ports and expanded its importing capillarity to ensure its capacity to supply its resellers.
The ethanol fuel market in Brazil consists of corn and sugarcane mills, producing sugar, ethanol and Dried Distillers Grains (DDG). Ethanol production from sugarcane occurs approximately eight months per year and ethanol from corn runs through the whole year. A portion of the production is stored in the distilleries to meet demand during the inter-harvest season. Distilleries produce two types of ethanol: (i) anhydrous ethanol, which must be blended with gasoline and (ii) hydrated ethanol, which is essentially used for flex fuel vehicles.
Ethanol in Brazil is substantially based on sugarcane that can either be used to produce ethanol or sugar. There are also six corn-based ethanol plants currently operating in the Midwest region of Brazil. From an ethanol producer’s perspective, the production ratio between ethanol and sugar is determined based on the respective prices of ethanol in the Brazilian market and of sugar in the international markets, such choice being fundamental for leveraging the profitability of their plant. Although ethanol production is subject to favorable climate conditions, the risk of interruptions in supply is primarily confined to the end of the harvest.
Ethanol producers have been investing in production capacity on the basis of higher fuel consumption and prices, also encouraged by the Brazilian decarbonization program, RenovaBio. The RenovaBio Program is designed to support Brazil’s COP21 goals and was launched in December 2016 by the Ministry of Mines and Energy (MME), instituted as the “National Biofuels Policy.” The goal of the Program is to create a market for decarbonization credit for biofuels (CBIO). Therefore, RenovaBio aims to recognize environmental benefits of biofuels, remunerating the sector’s role in reducing GHG emissions.
Storage of fuels. Ipiranga stores its fuels in large tanks at each of its facilities located throughout the regions in which it operates. Primary facilities receive fuels directly from Petrobras by pipeline and from distilleries by railroad and road transportation, while secondary facilities are supplied by railroad and trucks. See “Item 4.D. Information on the Company—Property, Plant and Equipment.” In 2021, Ipiranga’s storage capacity was 921.3 thousand cubic meters. Based on its 2021 average sales, Ipiranga can store approximately fifteen days of fuel supply. Accordingly, an interruption in the production of oil-based fuels for longer than that time period could result in shortages, such as the one that occurred during the Petrobras strike in 1995. See “—The role of Brazilian government.”
In 2021, we had the start-up of the operations of the SPEs of Cabedelo and Belém (BEL2A), in addition to the beginning of the operations of the shared base of Miritituba, which has 21,000 cubic meters of static capacity and in which Ipiranga, Vibra and Raízen hold equal stakes. In the second half of 2021, Ipiranga started the construction of a shared base in Fortaleza, which will have a total static capacity of 21,000 cubic meters, and in which Ipiranga will hold 60% of the capacity. The start-up of this base is scheduled for the first quarter of 2023. We also started operations at the Ultracargo terminal in Vila do Conde (state of Pará), with a contracted static capacity of 25,000 cubic meters.
AmPm
AmPm convenience store is the eighth largest franchise network in the country, according to ABF’s (Brazilian franchising association) ranking in 2021, with 1,841 stores, a penetration of 26% in the total service stations as of December 31, 2021.
Through its AmPm convenience stores, Ipiranga has been developing initiatives to increase product offerings. In 2010, we announced the launch of private label products, including energy drinks and snacks, and the expansion of the AmPm bakeries, providing to resellers an additional source of income, as well as strengthening the AmPm brand. In 2020, we expanded the bakery foodservice mix and items related to grocery, health and beauty care categories, following our new product mix management policy. The AmPm private label portfolio is also under ongoing review to create new premium product lines with higher value for customers and differentiated margins for franchisees.
With nationwide presence, our bakeries serve fresh products, such as bread, coffee, snacks and hot meals through 146 items, including AmPm branded products. A convenience store with a bakery has the potential to substantially increase its revenues when compared to a regular AmPm by offering more products of daily consumption and increasing the flow of costumers in the store. Ipiranga ended 2021 with 842 bakeries.
In 2014, Ipiranga launched a new beer purchase experience through its Beer Cave, which is a walk-in refrigerated area that stores more than 100 premium brands of beer. Ipiranga ended 2021 with 477 Beer Caves.
In order to strengthen the AmPm convenience stores’ product offerings and operations, Ipiranga launched in 2014 its own supply solution. The AmPm Suprimentos concentrates logistics, sales and customer service of the convenience store main products in just one structure – covering 55.9% of the products basket and serving approximately 1.5 thousand stores. This initiative aims to streamline the AmPm convenience store’s operation, increase the competitiveness of franchisees and ensure higher-quality product range and higher standardization of products assortment and availability. This model allows the entry of a wider range of suppliers, who are unable to deliver to each store individually, and eliminates the effort required for franchisees to keep their stores stocked.
At the end of 2021, AmPm Suprimentos operated four distribution centers located in Rio de Janeiro, São Paulo, Paraná and Rio Grande do Sul states, which supply the stores in those states with the main categories of products, except tobacco and ice cream.
As of December 31, 2021, AmPm had five stores with the Super Store model (stores from 300 m² to 600 m²) with an extended mix of products, installed in the states of Santa Catarina, Paraná, São Paulo and Rio de Janeiro.
In September 2020, we revised the criteria adopted to account the number of stores under our franchises network. We began to reevaluated franchises that have not been operating for at least 6 months, franchisees that formally ceased operations as agreed with us or franchises that are located on sites that are no longer an Ipiranga branded service station. We also promoted a significant improvement in our physical store concept, removing the AmPm brand from stores that we believe were no longer suitable for this new omnichannel model for structural or operational reasons.
In order to expand our franchise network, we also started operating our own AmPm stores. As of December 31, 2021, we were running 206 AmPm units and we expect to further expand the number of company-operated stores going forward. AmPm's company-operated stores are intended to (i) strengthen the franchise model, (ii) achieve operational excellence, (iii) boost the profit of the business model, (iv) test the business model, and (v) work as a transitional operation model when franchisees withdraw or until we believe the franchise model is sufficient to lead to critical mass and turnover in the region where own stores are located.
The company-operated stores have a management model focused on business results, efficient management controls and a specialized team with experience in retail management. The location choices are determined by an expansion committee that analyzes the trade with indicators and decide whether to go ahead with the venue in question. This allows AmPm to accelerate its expansion in a more strategic and secure way with focus on return on investment.
In January 2020, AmPm released a new store model, developed with up-to-date concepts in the global C-Store market. This new store focuses on a more fluid and less frictional consumer journey with a strong emphasis on foodservice. As a result, the first stores using this concept show an average growth in sales of food category products. We believe this new store concept changes the way customer shop in AmPm by allowing customers to be closer to walk-in coolers, including a beer cave format, and to have a digital experience, including a digital drive thru pursuant to which customers can purchase products in an app without leaving their own cars. As of December 31, 2021, AmPm had 162 stores in the new concept, being 79 company-operated stores and 83 franchises. We expect to implement this new omnichannel concept as part of our plan to achieve operational excellence in our AmPm stores.
The table below shows the highlights of AmPm stores:
|
| 2021 |
| 2020 |
|
|---|
Number of gas stations |
| 7,104 |
| 7,107 |
|
Number of stores |
| 1,841 |
| 1,804 |
|
Penetration in service stations (1) |
| 26% |
| 25% |
|
Revenues (in millions of Reais) |
| 1,751.9 |
| 1,738.6 |
|
SKUs |
| 1,515 |
| 1,563 |
|
Average area (in square meters) |
| 56.6 |
| 60.1 |
|
(1) Calculated based on the number of AmPm’s stores in relation to the number of Ipiranga’s gas stations.
AmPm revenues include a fixed franchising fee and a percentage of total revenues, which generally range between 4% and 8%. We also receive merchandising fees linked to contracts with suppliers, which establish trade agreements for the convenience stores.
Service stations convenience stores’ revenues in the Brazilian markets were R$7.5 billion in 2018 (last data available), a 1.5% growth compared to 2017, according to Sindicom. We believe the sector has potential for continued growth, mainly due to the shifts in cultural and household habits, such as (i) higher participation of women in the labor market, (ii) the increase of single-person households and smaller apartments, (iii) urbanization, increasing population density and logistical complexity, among others.
The convenience proposal increasingly adapts to the needs of consumers who seek practicality and speed in their routine, trying to solve their demands in a single stop. Thus, convenience stores fit the ideal model, adapting a complete service in one place.
These strategic differentiation initiatives resulted in a better value proposition for customers and resellers, generating benefits for the whole chain – the consumer gets access to differentiated products and services, the reseller earns higher revenues, and the service station obtains a differentiated positioning, turning AmPm into a convenience business platform for facilitating people’s daily routine and mobility.
Jet Oil
The Jet Oil business unit, Ipiranga’s lubricant-changing and automotive specialized service network, is the nineteenth in ABF (Associação Brasileira de Franquias – Brazilian Franchise Association) ranking among all kind of franchises. Jet Oil ended 2021 with 1,149 franchises. More than six thousand oil changes were made at Jet Oil units per day and 63% of the products sold were premium products in 2021. Jet Oil units offer an oil change service that features technology and safety, unifying quality products and expert services. These attributes translate Jet Oil’s slogan for consumers: “The full care that your car deserves.”
Competition
Ipiranga’s main competitors in 2021 were:
- Vibra Energia S.A. (“Vibra”), a subsidiary of Petrobras, which has been operating in the Brazilian fuel distribution sector since 1971. Vibra is the Brazilian market leader and operates throughout the entire country. In 2017, Vibra concluded its initial public offering, listing the shares on B3. Since 2019, as disclosed by Vibra, Petrobras is no longer the controlling shareholder, even though it continues to hold a significant stake in Vibra.
- Raízen Combustíveis S.A. (“Raízen”), a joint-venture between Cosan S.A. (“Cosan”) and Shell International Petroleum Company Limited (“Shell”), a subsidiary of Royal Dutch Shell. Cosan, through its subsidiaries, is the largest producer of sugar and ethanol in Brazil, having entered the fuel distribution market in 2008, when it acquired Esso’s fuel distribution business in Brazil. In 2011, Cosan established Raízen, a joint-venture with Shell by combining certain of their respective assets, including their respective distribution businesses.
In addition, a number of small local and regional distributors entered the Brazilian fuel distribution market in the late 1990’s, after the market was deregulated, which further increased competition in such market. Moreover, in 2018, some important international players entered the Brazilian fuel distribution market: (i) Glencore Oil Participações Ltda., a Swiss company, through the acquisition of 78% of Alesat Combustíveis S.A.; (ii) Total, a French company, through the acquisition of 100% of Zema; (iii) PetroChina, a Chinese company, through the acquisition of 30% of TT Work and (iv) Vitol, a Dutch company, acquired 50% of Rodoil and, subsequently, Rodoil acquired 100% of MegaPetro Petróleo Brasil S.A.. In 2019, Vitol also acquired 50% of Dislub Equador (a company based in Recife in the Northeast of Brazil) and therefore became a nationwide player in the distribution market.
The following table sets forth the market share of Ipiranga and its main competitors based on volume of gasoline, ethanol and diesel sold, according to ANP and Sindicom data:
|
| Year ended December 31, |
|
|---|
Distributor (1) |
| 2021 |
| 2020 |
| 2019 |
|
|---|
Vibra |
| 25.4% |
| 24.6% |
| 24.8% |
|
Raízen |
| 22.4% |
| 20.8% |
| 21.0% |
|
Ipiranga |
| 18.4% |
| 18.5% |
| 19.3% |
|
Others |
| 33.8% |
| 36.1% |
| 34.9% |
|
Total |
| 100.0% |
| 100.0% |
| 100.0% |
|
(1) Volume sold of gasoline, ethanol and diesel.
The retail market for gasoline, diesel and ethanol in Brazil is highly competitive, with similar products and relatively low margins. Therefore, our strategy is to differentiate ourselves in the market by offering value-added services to complement our main products, aiming to be the preferred choice of customers. For more information on Ipiranga’s strategy see “Item 4.B. Information on the Company—Business Overview—Our Strategies—Robust retail network.” The following graphs show sales volumes for the Brazilian market and Ipiranga for the periods indicated:
1 Diesel, gasoline, ethanol (Source: ANP and Sindicom) and NGV (Source: Abegás). Information provided by ANP and Sindicom are subject to retroactive adjustments and, therefore, can differ from the information contained herein.
Socio-environmental responsibility and quality. Since 2013, Ipiranga is a signatory of the UN Global Compact, an initiative sponsored by the United Nations formed by companies, institutions and the society. Its main goal is to mobilize the international business community to adopt internationally accepted business practices in the areas of human rights, labor relations, environment and anti-corruption intended to promote sustainable growth and civic awareness.
Ipiranga annually publishes its Sustainability Report, prepared in accordance with the standards of the Global Reporting Initiative (GRI), showing projects and actions taken during the year. In addition to climate change, priority is given to work relations, ensuring the health and safety of employees and their network, maintaining close relationships with resellers and the consumer market, and standards of ethics and integrity - all factors for which our management is recognized in the market. On other issues, Ipiranga expects to advance its internal management and positively influence society, becoming a more inclusive and diverse company and inspiring people's mobility. The way Ipiranga relates to the supply chain and surrounding communities, the promotion of conscious consumption, the eco-efficiency of its operations, the protection of soil and water and data privacy are the other material topics for the coming years.
During the development of its operating strategy, actions were mapped at the company, which were prioritized between 2020 and 2021 and will continue to be priority until 2025. All efforts to build a new strategy and Ipiranga's Sustainability Policy are aligned to Ultra Group guidelines.
Ipiranga has adopted its own environmental management system through a program named SIGA+ (Ipiranga’s management system applied to health, safety, environment, quality and social responsibility), which applies what we believe to be the highest international standards to its policies and practices. Ipiranga’s Betim terminal also has ISO 9001, ISO 14001 and ISO 45001 certifications.
In order to minimize the impact of its activities, through SIGA +, Ipiranga monitors and manages the units' performance indicators in order to ensure alignment with the reference standards for integrated management and continuous improvement. The data are audited annually to categorize the performance of the operating units into five levels. The system has been restructured in order to guarantee greater efficiency and agility. In addition, Ipiranga has been implementing actions aimed at energy efficiency and, for more than 10 years, has had an exclusive and independently audited program to manage its Greenhouse Gas emissions. The “Carbono Zero Ipiranga Program” includes actions to measure, reduce and offset GHG emissions and follows recognized international guidelines.
To strengthen its safety culture and the appreciation of life, Ipiranga has a program that seeks to guarantee adequate physical conditions, efficient procedures and safe behavior in its operations. Its Security Program has a structured investment plan for asset reliability, engagement and training of stakeholders, in order to make them agents of change. In 2021, the Safety Culture Diagnosis was carried out in the first semester, which took into account the perceptions of employees, including leadership and administrative and operational employees. With the results, the Safety Evolution Plan was developed, a set of actions to further strengthen the safety culture in all areas of the company.
D. Digital payments
abastece aí
abastece aí is a digital payments company created in 2020 to leverage the benefits of the loyalty program Km de Vantagens and the abastece aí app that were previously offered by Ipiranga. The company offers the development of a unified ecosystem of advantages and benefits to the clients, especially car drivers, integrated with a digital payment solution and great acceptance capillarity, including adoption by other business partners outside service stations.
Km de Vantagens was created in 2009 and is a pioneer customer loyalty program in the fuel industry through which customers and resellers may redeem rewards and benefits in areas of entertainment, tourism, magazines, airline tickets, car rental and others. With over 36 million participants in December 2021, Km de Vantagens has served as an important platform, strengthening relationships with Ipiranga’s customers. In 2021, more than 43 million transactions were redeemed at Km de Vantagens.
Ipiranga developed and launched abastece aí in 2016, a mobile payment service app, that seeks to maximize advantages from the integration of platforms to offer even greater convenience and benefits to customers. Through the abastece aí app, customers can obtain discounts in exchange for Km de Vantagens points. In addition, they can receive rewards of their preference and finalize the refueling process by using a unique Km de Vantagens password in a safe payment method. In 2021, approximately two million digital accounts have been created.
Context and market
Digital wallets are a global trend that involve a very diverse range of businesses. Between 2018 and 2020, the number of users of digital wallets grew by 30%, reaching more than 2.3 billion active users worldwide. According to a recent study by Bain & Company, “e-wallets” will represent 28% of total payments made in the world and almost 50% of all payments made in the sphere of e-commerce by 2022. In Brazil, this market is still very young, with great space for growth and development. The highly regulated and concentrated national banking system is the main obstacle to the current low participation of digital portfolios. However, due to recent changes in legislation, reduced technological costs, the entry of major international players in the market and the democratization of access to technology, digital wallets are expected to have an accelerate growth over the next few years.
The difficult and bureaucratic access to banks, combined with the mass use of smartphones, also contributes to the rise of digital wallets. Consequently, e-wallets emerge as a viable option to take care of people's financial organization, by offering a low cost and high efficiency service.
In 2020, the Central Bank of Brazil announced a new instant payment system with potential to profoundly transform the country's payment industry. The PIX is a tool that allows the transaction of resources in a few seconds at any time of the day and on all days of the year. In addition, PIX have a much lower transaction cost when compared to other payment methods such as Bank slip, TED or DOC. In order to use it, it is not necessary to have a bank account, just register it in any of the institutions approved by the Central Bank to offer this service, which includes abastece aí. Thus, by eliminating the need for intermediaries in the transfer process, we believe that PIX intensify the strengthening of digital wallets. It is extremely important to mention that the PIX is not only a substitute for traditional forms of payment, but it is also a mean to meet other financial demands, with the possibility of making payments in commercial establishments. As of December 2021, the PIX had already been registered by more than 117 million users, handling a volume of approximately R$716 billion in the year.
Operation
abastece aí is a relevant ecosystem of advantages for the vehicles’ drivers, integrated with a financial platform that expands the purchasing power of its users. The application offers a varied range of services for its clients, such as: cashbacks on purchases from partner companies, payment of slips, transfers, functions of cash in/cash out on digital wallet and various financial products. Currently, the main revenue stream for abastece aí derives from Ipiranga gas stations. When filling your car using the app at Ipiranga, the customer has the possibility to reverse a portion of the amount spent on several benefits, including: the accumulation of kilometers of advantage, cashback reversed in the portfolio, among others.
During the first year of operation as an independent company, the biggest challenge was to migrate the entire customer base from the old platform to the new digital platform. The new application was already available for download at the end of August 2020, for both IOS and Android. In just two months of operation, more than 1.3 million users had already been migrated. After the consolidation of the new platform, abastece aí started to offer more integrated and wide marketplace services and cashbacks. Currently, abastece aí has partnerships with other companies operating in various sectors, among which LATAM Pass, Netshoes, Movida and others.
In 2021, the strategy of abastece aí was concentrated around the revenues from the association fee with partner companies, being the main partnership with Ipiranga. As of December 31, 2021, there were more than 2 million active participants and throughout the year more than 40 million transactions were done through the app.
Marketplace model. It is a virtual shopping mall, where partner companies advertise their products by paying an association fee. The partner exposes its products to a larger number of people, the consumer can access products from various segments and the company providing the marketplace receives a percentage of each transaction.
Cashback model. This model works when the user makes a purchase through the application and receives a percentage of the money spent back. abastece aí works as the payment method and as a platform to announce the products of its partners.
Work methodology. The abastece aí operation is based on three main pillars: technological know-how, data intelligence and agile culture. The first involves the entire user experience of the application, its functionality and facilities. The company works to maintain an application with simple and intuitive interface, constantly improving the user’s experience.
In data intelligence, the company promotes the activation and growth of the customer base, identifying the main suggestions and criticisms to the functioning of the app. Also, it is critical to improve statistical and artificial intelligence models to personalize promotional campaigns, recognize potential customers and activate old users.
E. Oil Refining
RPR consists of a refinery in the city of Rio Grande, in the state of Rio Grande do Sul, in the Southern region of Brazil. The refinery’s nominal capacity is 17 thousand barrels per day, and its principal products include gasoline, diesel, naphtha, fuel oil, LPG, special oils, pentanes and solvents. In 2021, the average production of the refinery was 11,200 barrels per day, which represented 66% of its nominal capacity and less than 1% of the total Brazilian oil refining capacity, according to ANP data. Ultrapar currently owns approximately one third of the capital of RPR. See “Item 4.A. Information on the Company—History and Development of the Company— A.1 Continuing Operations—Ipiranga.” RPR’s results are accounted for using the equity method, as share of profit of joint-ventures and associates. Results generated by the oil refining operations are not significant to Ultrapar. In 2021, RPR ended the year at a gain of R$1 million.
Gasoline and diesel sales prices in Brazil are directly influenced by international prices. In 2021, sales prices of diesel increased 74% and sales price of gasoline increased 68%, as a result of a significant and rapid increase in international prices of oil and derivatives caused by a pickup in demand worldwide in the wake of the gradual reopening of the cities with a more positive outlook for the COVID-19 pandemic. Because international price increases were not immediately passed on to local prices, RPR’s selling margins and profitability were negatively affected in 2021.
Discontinued Operations
A. Petrochemicals and Chemicals
Industry and Regulatory Overview
The petrochemical industry transforms crude oil or natural gas into widely used consumer and industrial goods. The Brazilian petrochemical industry is generally divided in three sectors, depending on the stage of transformation of the petrochemical raw materials. The companies that operate in these different stages are known as first, second and third-generation companies.
First-generation companies. Brazil’s first-generation companies, which are referred to as “crackers”, break down or “crack” naphtha (a by-product of the oil refining process), their principal feedstock, into basic petrochemicals. In Brazil, the crackers supply their naphtha requirements from Petrobras and through imports. Currently, Petrobras is the major Brazilian producer of naphtha. The basic petrochemicals produced by the crackers include olefins, primarily ethylene, propylene and butadiene, and aromatics, such as benzene, toluene and xylenes. Braskem has three naphtha-cracker plants, located in Camaçari, Triunfo and Mauá. Brazil’s naphtha cracker units sell these basic petrochemicals to second-generation companies. The basic petrochemicals, which are in the form of either gases or liquids, are transported to the second-generation companies through pipelines for further processing. This sector passed through a restructuring process, with the emergence of Braskem as the main player and Petrobras as a relevant minority shareholder.
Second-generation companies. Second-generation companies process the basic petrochemicals produced by the crackers to obtain intermediate petrochemicals, such as:
- polyethylene, ethylene oxide, polystyrene and polyvinyl chloride (PVC), each produced from ethylene;
- polypropylene, oxo-alcohols and acrylonitrile, each produced from propylene;
- styrene butadiene rubber (SBR), and polybutadiene, each produced from butadiene;
- caprolactam, produced from benzene; and
- purified terephthalic acid (PTA), produced from p-xylene.
The intermediate petrochemicals are produced in solid form (as plastic pellets or powders) and in liquid form and are transported through roads, railroads or by ship to third-generation companies.
Third-generation companies. Third-generation companies, known as transformers, purchase the intermediate petrochemicals from the second-generation companies and transform them into final products, including:
- polyester—produced from PTA and ethylene glycol (ethylene glycols produced from ethylene oxide);
- plastics produced from polyethylene, polypropylene and PVC;
- elastomers produced from butadiene;
- acrylic fibers produced from acrylonitrile; and
- nylon produced from caprolactam.
Third-generation companies produce a variety of consumer and industrial goods, including containers and packaging materials, such as bags, film and bottles, textiles, detergents and paints as well as automobile parts, toys and consumer electronic goods.
Petrochemical complexes. The production of first- and second- generation petrochemicals in Brazil centers around three complexes: the Northeast petrochemical complex, the São Paulo petrochemical complex and the Southern petrochemical complex. Each complex has a single first-generation producer or cracker and several second-generation companies.
The Northeast complex, located in the municipality of Camaçari in the state of Bahia, began operations in 1978. Braskem currently has an ethylene production capacity of 1.28 million tons per year.
The São Paulo complex, located in the municipality of Santo André and Mauá in the state of São Paulo, was created in 1972 and is the oldest petrochemical complex in Brazil. Braskem has an ethylene production capacity of 700 thousand tons per year.
The Southern complex, located in the municipality of Triunfo in the state of Rio Grande do Sul, is based around the raw materials cracker from Braskem. Braskem’s plant in Triunfo has an ethylene production capacity of 1.25 million tons per year. Oxiteno does not purchase ethylene from Braskem in Triunfo, but purchases butene, a raw material used in the production of Methyl-ethyl-ketone (MEK).
Rio Polímeros S.A. (RioPol), a subsidiary of Braskem located in the state of Rio de Janeiro, has an ethylene production plant based on natural gas. RioPol has an ethylene production capacity of 520 thousand tons per year. All RioPol’s ethylene production is used in its own polyethylene production.
Role of Petrobras. Naphtha is the raw material used in Brazil to produce basic petrochemicals such as ethylene and propylene. Petrobras is still the most important naphtha supplier in Brazil, even though its legal monopoly ended in 2000. See “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas— Industry and Regulatory Overview—The role of Petrobras” for a discussion of the termination of the Petrobras monopoly.
Environmental, health and safety standards. Petrochemical companies are subject to Brazilian federal, state and local laws and regulations governing the protection of the environment. At the federal level, the main regulators are CONAMA and the Ministry of Economy.
In accordance with environmental laws and regulations, petrochemical companies are required to obtain licenses for their manufacturing facilities from competent environmental authorities, which may also regulate their operations by prescribing specific environmental standards in their operating licenses. To obtain and maintain valid such licenses, petrochemical companies must satisfy regulatory authorities that the operation, maintenance, and reclaiming of facilities comply with regulations and do not cause damage to the environment.
Environmental regulations apply particularly to the discharge, handling and disposal of gaseous, liquid, and solid products and by-products from manufacturing activities. Technical rules issued by CONAMA and by state authorities also prescribe preventive measures relating to environmental pollution and waste treatment requirements. In addition, the transportation, storage and supply of products are subject to specific standards designed to prevent spills, leakages and other accidents.
Historically, environmental regulations have imposed increasingly stricter standards, higher fines, and greater exposure to liability and increased operating costs and capital expenditures. In addition, civil, administrative and criminal sanctions, including fines and the revocation of licenses may apply to violations of environmental regulations. Under the Brazilian environmental law, companies are strictly and jointly liable for environmental damages.
Petrochemical companies are also subject to federal, state and local laws and regulations that establish occupational health and safety standards. In accordance with such laws and regulations, these companies are also required to report on their occupational, health and safety records on a yearly basis to the local office of the Ministry of Economy in each of the states in which they operate. They are also subject to all federal, state and local government regulation and supervision generally applicable to companies doing business in Brazil, including labor laws, social security laws, public health, consumer protection, securities laws and antitrust laws.
Moreover, petrochemical companies are subject to the United Nations international treaties and conventions applicable to the jurisdictions where they operate due to the potential use of their products (i) as controlled substances, as defined by various legislations in several jurisdictions, (ii) in the illicit production of narcotic drugs and psychotropic substances under international control, and (iii) in the production of chemical weapons.
The specific controls and the respective enforcement agents may vary from jurisdiction to jurisdiction, but generally include permits, licenses and certificates that are issued by several local authorities.
The sanctions that can be imposed in case of noncompliance with the applicable laws and/or regulations concerning controlled substances may vary at each jurisdiction, but generally include warnings, fines, interdiction, apprehension of products, suspension, cancellation or forfeiture of the corresponding permits, certificates and licenses.
Oxiteno
Before the sale of Oxiteno, we used to operate in the chemical sector through the second-generation company. Oxiteno, a major producer of specialty chemicals, was a subsidiary of Ultrapar until April 1, 2022. While operated by us, Oxiteno was the only producer of ethylene oxide, ethylene glycols, ethanolamines, glycol ethers and methyl-ethyl-ketone in Brazil, as well as the only producer of fatty alcohol in Latin America and the only ethylene oxide producer in South America. Its products were used in a broad range of industrial sectors, such as cosmetics, detergents, crop solutions, polyester, packaging, coatings and oil industry. During the year ended December 31, 2021, Oxiteno sold 779 thousand tons of chemical and petrochemical products.
While operated by us, Oxiteno’s strategic focus was to provide a broad coverage of the ethylene oxide and derivatives, to keep its production capacity ahead of demand in Brazil and to increase its geographic reach, thereby maintaining a leadership position in these markets while strengthening its market positioning in Brazil.
Products and markets. While operated by us, Oxiteno’s products could be divided into two main groups for ease of understanding: (i) commodity chemicals, which are generally higher-volume products, with standard specifications, and (ii) specialty chemicals, which tend to be lower-volume products sold based on chemical features and suitability to meet a particular end-use requirement. While operated by us, Oxiteno’s main commodity chemicals were ethylene oxide and ethylene glycol whereas its main specialty chemicals included a wide variety of products that were used as surfactants, softeners, dispersants, emulsifiers and hydraulic fluids.
The following chart outlines the predominant raw materials used by Oxiteno while operated by us, their intermediates and final products.
Specialty chemicals. The following table sets forth Oxiteno’s main specialty chemical products and their main uses and markets while operated by us.
Major markets |
| Specialty chemicals |
| Examples of uses and effects |
|---|
Detergents |
| Alkylbenzene sulfonic acids, alkylsulfates, alkyl ether sulfates, ethoxylated alkylphenols, ethoxylated fatty alcohols, polyethyleneglycols, alkanolamides, betaines, sulphosuccinates, block copolymers EO/PO. |
| Used in detergents, the specialty chemicals are added mainly to improve cleaning power and foaming and to reduce skin irritability. |
Cosmetics |
| Alkylsulfates, alkyl ether sulfates, betaines, ethoxylated fatty alcohols, polyethyleneglycols, alkanolamides, ethoxylated sorbitan esters, sorbitan fatty esters. |
| Used in cosmetics as moisturizers, detergents for foaming and residue removal, and reduction of eye irritation in shampoos. |
Crop protection chemicals |
| Ethoxylated fatty amines, ethoxylated alkylphenols, alkyl ether sulfates, blends, naphthalene sulfonate, ethoxylated vegetable oil, copolymers EO/PO. |
| Used as part of the composition of crop protection chemical, such as herbicides. Increases their efficiency, by improving soil penetration and adherence of the products to plant surfaces. |
Foods |
| Sorbitan fatty esters, ethoxylated sorbitan esters, emulsifiers, stabilizers, dispersants. |
| Mainly used as additives for breads and cakes, improving their texture and consistency, and as an emulsifier responsible for ice cream creaminess. |
Textiles |
| Ethoxylated alkylphenols, ethoxylated fatty alcohols, ethoxylated vegetable oils, ethoxylated fatty amines, antistatic agents, lubricants, softeners, emulsifiers, antifoamers, mercerizing additives, humectants, low foam detergents. |
| Used in the processing of textiles, improving spinning and weaving performance. Permits greater evenness in the mixing of fibers, dyeing, bleaching and improving the softness of the final cloth. |
Hydraulic fluids |
| Ethylene glycol ethers, ethylene glycols, corrosion inhibitors. |
| Used directly as hydraulic fluids in vehicles. Brake fluids guarantee brake system performance and safe braking. Cooling liquids help to cool the motor and maintain the correct operating temperature. |
Oil field chemicals |
| Additives, emulsion breaker, mutual solvent, surfactant, antifouling, glycols, ethanolamines and dispersants. |
| Chemical inputs applied in all stages of the production of oil and gas, such as drilling, cementing, completion, stimulation, production and refining, each one with specific characteristics. |
Coatings |
| Acetates, alcohols, glycols ethers, glycols, ketones, alkyl ether sulfates, ethoxylated alkylphenols, ethoxylated fatty alcohols, block copolymers EO/PO. |
| Solvents and surfactants are used in the preparation of paints and coatings, adhesives and inks. Solvents serve multiple functions in solvent borne paints and coatings: solubilization of the resin or polymer forming the continuous coating phase, pigment wetting and viscosity reduction to facilitate the application of the coating. Surfactants are used in emulsion polymerization and also as additive: thickeners, antifoaming agents, additives used to control rheological properties and others. |
Commodity products. The following were Oxiteno’s main commodity products and their principal uses and markets while operated by us:
Ethylene oxide. Ethylene oxide is a colorless and highly flammable gas at room temperature and atmospheric pressure. Ethylene oxide is produced in a continuous production process by gaseous phase catalytic partial oxidation of ethylene by oxygen at high temperature and pressure.
Ethylene glycols. The main ethylene glycol produced by Oxiteno was mono-ethylene glycol, known as MEG. Oxiteno also produced di- and tri-ethylene glycol. Mono-ethylene glycol is a clear, non-flammable, non-volatile liquid at room temperature and atmospheric pressure. Ethylene glycols are produced in a continuous process from an ethylene oxide solution and principally sold to chemical companies for the manufacture of polyester fibers and polyethylene terephthalate, known as PET, with the remainder sold for use in the production of antifreeze, brake fluids, solvent and other chemicals.
Domestic sales. The Brazilian petrochemicals industry seeks to prioritize demand from the domestic market, where there is greater value added, although sales are also made to the international market. While operated by us, Oxiteno sold the larger part of its commodities and specialty chemicals in Brazil, with production capacity exceeding domestic market demand, with Oxiteno exporting surplus production to more than 50 countries in Asia, America, Europe, Africa and Oceania. While operated by us, Oxiteno maintained its production capacity above local demand for strategic reasons. For the years ended December 31, 2021, 2020 and 2019, 34%, 33% and 31% of Oxiteno’s net revenue from sales and services, respectively, were from sales outside Brazil. For the years ended December 31, 2021, 2020 and 2019, 31%, 29% and 28% of Oxiteno’s sales volume, respectively, were from sales outside Brazil.
The following table shows Oxiteno’s domestic market sales volume by market segment for the period indicated:
|
| Year Ended December 31, |
|
|---|
Market sector |
| 2021 |
|
| 2020 |
|
| 2019 |
|
|---|
|
| (in thousand tons) |
|
|---|
Polyester |
| 100.2 |
|
| 126.0 |
|
| 141.7 |
|
Cosmetics and detergents |
| 120.4 |
|
| 123.8 |
|
| 105.9 |
|
Crop protection |
| 107.5 |
|
| 85.0 |
|
| 79.5 |
|
Distributors |
| 53.0 |
|
| 53.4 |
|
| 50.6 |
|
Coatings |
| 55.3 |
|
| 45.7 |
|
| 47.8 |
|
EO / DOT (brake fluids) |
| 31.5 |
|
| 28.1 |
|
| 30.6 |
|
Performance products (1) |
| 25.4 |
|
| 23.7 |
|
| 25.2 |
|
Oil and gas |
| 26.1 |
|
| 23.4 |
|
| 20.6 |
|
Glycols |
| 26.2 |
|
| 20.9 |
|
| 21.6 |
|
Others (2) |
| 5.8 |
|
| 4.8 |
|
| 4.4 |
|
Total Brazilian market |
| 551.3 |
|
| 534.7 |
|
| 527.9 |
|
| (1) | Includes food, civil construction, textiles, leather and paper. |
| (2) | Includes mineral oils and polymers. |
While operated by us, many of Oxiteno’s commodity product prices in the Brazilian market were set by reference to international contract prices in U.S. dollars, although the prices were denominated in Reais. For specialty products, sales were individually negotiated and sometimes made pursuant to contracts. Specialty chemicals were designed to meet specific customer needs and face less competition from imported products. Accordingly, specialty chemicals had higher value added and Oxiteno had more flexibility in pricing for these products.
Sales outside Brazil. While operated by us, Oxiteno’s export sales were made mainly to customers in the Mercosur, Far East, Europe and NAFTA. In Europe, Oxiteno exported its products mainly to Belgium, the Netherlands, Italy, Germany and France. In the Far East, Oxiteno exported its products mainly to China, Japan, Thailand, India and Taiwan.
The following table sets forth Oxiteno’s sales by volume for each geographic market served by Oxiteno in the periods indicated:
|
| Year Ended December 31, |
|
|---|
Breakdown of sales volume outside Brazil |
| 2021 |
|
| 2020 |
|
| 2019 |
|
|---|
|
| (in thousand metric tons and percentage of the total) |
|
|---|
From Oxiteno Brazil |
| |
|
| |
|
Mercosur (not including Brazil) |
| 101.3 |
|
| 21% |
|
| 51.9 |
|
| 24% |
|
| 41.2 |
|
| 20% |
|
Asia |
| 35.0 |
|
| 7% |
|
| 20.8 |
|
| 9% |
|
| 19.9 |
|
| 10% |
|
Europe |
| 35.0 |
|
| 7% |
|
| 15.1 |
|
| 7% |
|
| 19.4 |
|
| 9% |
|
NAFTA |
| 19.8 |
|
| 4% |
|
| 8.6 |
|
| 4% |
|
| 6.9 |
|
| 3% |
|
Other |
| 29.0 |
|
| 6% |
|
| 16.4 |
|
| 8% |
|
| 14.2 |
|
| 7% |
|
Sub-Total |
| 220.2 |
|
| 46% |
|
| 112.8 |
|
| 52% |
|
| 101.5 |
|
| 49% |
|
From Oxiteno Mexico |
|
|
|
|
|
|
| |
|
| |
|
Mexico |
| 66.2 |
|
| 14% |
|
| 33.0 |
|
| 15% |
|
| 38.9 |
|
| 19% |
|
USA |
| 13.1 |
|
| 3% |
|
| 6.8 |
|
| 3% |
|
| 10.6 |
|
| 5% |
|
Other |
| 16.4 |
|
| 3% |
|
| 7.0 |
|
| 3% |
|
| 7.6 |
|
| 4% |
|
Sub-Total |
| 95.7 |
|
| 20% |
|
| 46.8 |
|
| 21% |
|
| 57.2 |
|
| 28% |
|
From Oxiteno Andina (1) |
|
|
|
|
|
|
| |
|
| |
|
Venezuela |
| 0.0 |
|
| 0% |
|
| 0.0 |
|
| 0% |
|
| 0.1 |
|
| 0% |
|
Other |
| 0.0 |
|
| 0% |
|
| 0.0 |
|
| 0% |
|
| 0.0 |
|
| 0% |
|
Sub-Total |
| 0.0 |
|
| 0% |
|
| 0.0 |
|
| 0% |
|
| 0.1 |
|
| 0% |
|
From Oxiteno Uruguay |
|
|
|
|
|
|
| |
|
| |
|
Brazil |
| 30.4 |
|
| 6% |
|
| 13.6 |
|
| 6% |
|
| 14.5 |
|
| 7% |
|
Uruguay |
| 7.9 |
|
| 2% |
|
| 3.6 |
|
| 2% |
|
| 6.3 |
|
| 3% |
|
USA |
| 2.3 |
|
| 0% |
|
| 1.8 |
|
| 1% |
|
| 1.0 |
|
| 0% |
|
Other |
| 41.3 |
|
| 9% |
|
| 20.7 |
|
| 9% |
|
| 17.9 |
|
| 9% |
|
Sub-Total |
| 81.9 |
|
| 17% |
|
| 39.7 |
|
| 18% |
|
| 39.7 |
|
| 19% |
|
From Oxiteno USA |
|
|
|
|
|
|
| |
|
|
|
|
USA |
| 127.6 |
|
| 27% |
|
| 44.2 |
|
| 20% |
|
| 33.7 |
|
| 16% |
|
Other |
| 4.9 |
|
| 1% |
|
| 2.1 |
|
| 1% |
|
| 1.6 |
|
| 1% |
|
Sub-Total |
| 132.5 |
|
| 28% |
|
| 46.3 |
|
| 21% |
|
| 35.3 |
|
| 17% |
|
Total (1)(2) |
| 476.6 |
|
| 100% |
|
| 218.5 |
|
| 100% |
|
| 205.7 |
|
| 100% |
|
| (1) | In October 2019, Oxiteno Andina was sold to a buyer in Venezuela. |
| (2) | Does not include intercompany sales volume. |
While operated by us, Oxiteno exported a wide variety of chemical products including glycols, MEK, ethoxylated alkylphenols, glycol ether acetates, glycol ethers, ethanolamines and surfactants.
In most cases, Oxiteno’s sales prices for its commodity chemicals in foreign markets were based on international prices while operated by us. International spot prices were mostly established with reference to published pricing data regarding multiple market participants and variables with respect to a product. In general, Oxiteno’s operating margins on products manufactured in Brazil and sold in the international market were lower than operating margins for similar products sold in the domestic market.
Customers. While operated by us, Oxiteno’s most important customers for its commodity chemicals were chemical companies, surface coating producers and polyester producers. On the other hand, the customers for specialty chemicals comprised a variety of enterprises, including brake fluid distributors, agrochemical producers, food additives manufacturers and detergents and cosmetics manufacturers. We believed that by distributing specialty chemical products to a wide range of markets, Oxiteno would be able to protect itself, to a certain extent, from the effects of an economic activity slowdown in any specific market.
In 2021, Oxiteno’s main customers in the domestic market included Bayer, which mainly purchased ethanolamines, Unilever and Syngenta, which mainly purchased surfactants, PQS, which purchased primarily glycols, and Brenntag, a third-party distributor. While operated by us, Oxiteno made sales in the international market both to industrial customers, including Unilever and Procter&Gamble, and trading companies and other third-party distributors. In 2021, Oxiteno’s ten largest customers accounted for 34% of its net revenue from sales and services and no single customer accounted for more than 7% of Oxiteno’s net revenue from sales and services in such year.
Competition. While operated by us, Oxiteno faced a competitive market in Brazil against imports from international petrochemical players. As imported products were mostly commodity chemicals, competition is mainly based on price. Importers are subjected to additional costs when selling their products in the Brazilian market, due to import tariffs, which range between 0% and 18% (mainly concentrated between 2% and 13%), and additional freight charges. In addition, product quality, timely delivery, reliability of supply and technical service and support were also important aspects considered by customers, for which Oxiteno believed it presents a competitive advantage as a local producer over imports.
In case of specialty chemicals, pricing was a less decisive factor than conformity with specifications, product performance and reliability of service. Access to technology, technical assistance and research and development were important aspects regarding conformity to specifications and product performance, especially in the development of new products to meet customers’ needs. Oxiteno’s ensured access to such technology through its own research and development structure, licensing and joint ventures, if appropriate opportunities become available. In Mexico, Uruguay and in the USA, Oxiteno produces and sells only specialty chemicals while operated by us.
Oxiteno’s main competitors were Shell Chemical, Dow Chemical, Clariant, BASF, Solvay and Stepan.
Research and development. While operated by us, Oxiteno carried out a wide range of research and development activities, mainly related to the application of specialty chemicals and improvement in production processes. As of December 31, 2021, 169 employees of Oxiteno were engaged in research and development and engineering activities. Oxiteno’s research and development expenditures in 2021, 2020 and 2019 were R$62 million, R$60 million, and R$60 million, respectively. Oxiteno’s investments in research and development have resulted in the introduction of 170 new applications for its products during the last three years.
Raw materials. Oxiteno’s main raw material is ethylene. For the year ended December 31, 2021, ethylene was responsible for 31% of Oxiteno’s variable costs and 27% of its overall cost of sales and services. Other relevant raw materials include palm kernel oil, butene, n-butanol, primary fatty amine and phenol. Supply of ethylene represented an entry barrier for new ethylene oxide producers in Brazil since the current production capacity of ethylene by Brazilian crackers is committed to existing second-generation companies, including Oxiteno, and significant investments are needed for the construction of a new cracker. Additionally, ethylene transport and storage are complex and expensive since it must be kept at a temperature below -200 degrees Fahrenheit (-100 degrees Celsius) during transportation and storage. Therefore, the import and export of ethylene is unusual. Naphtha crackers, such as Braskem, are largely dependent on second-generation petrochemical companies such as Oxiteno for their sales, which are usually located in the same industrial complex as them.
Ethylene supply. While operated by us, ethylene was used to produce ethylene oxide at the Camaçari plant and the Mauá plant and Braskem supplied all Oxiteno’s ethylene requirements for both plants through pipelines, thus minimizing delivery costs and helping to ensure supply reliability. See “Item 4.B. Information on the Company—Business Overview—Petrochemicals and Chemicals—Industry and Regulatory Overview.”
While operated by us, Oxiteno had a supply agreement with Braskem which establishes a minimum annual consumption level and supply terms of ethylene for the Camaçari plant. The first agreement was valid until 2021 and established a minimum purchase commitment of 205 thousand tons of ethylene per year. A new agreement has been settled with Braskem which settled a minimum purchase commitment of 110 thousand tons of ethylene per year until 2031. Should the minimum purchase commitment not be met, Oxiteno would be liable for a fine based on the current ethylene price for the quantity not purchased. The minimum purchase commitment was subject to proportional reduction in the case of scheduled shutdowns in the supplier’s or Oxiteno’s facilities.
In addition, while operated by us, Oxiteno had a supply agreement with Braskem for the Mauá plant, which is valid until 2023. The minimum purchase commitment clause was 44,000 tons of ethylene annually. Should the minimum purchase commitment not be met, Oxiteno would be liable for a fine based on the current ethylene price for the quantity not purchased. The minimum purchase commitment was subject to proportional reduction in the case of scheduled shutdowns in the supplier’s and/or Oxiteno’s facilities.
While operated by us, Oxiteno did not storage ethylene and any unexpected interruptions in supply from the crackers would have an immediate impact on Oxiteno’s production.
First-generation petrochemical companies undergo scheduled maintenance shutdowns and Oxiteno anticipates these shutdowns by building up inventory, while operated by us. Oxiteno also used these planned shutdowns for regular maintenance work on its own plants, eventual substitution of catalysts or expansion of installed capacity.
Price of ethylene. The price of ethylene supplied by Braskem to Oxiteno’s plants in Camaçari and Mauá were linked to ethylene contract prices referenced to the North-Western Europe (NWE) markets.
The following table shows the average ethylene prices referenced to the North-Western Europe (NWE) contract prices:
|
| NWE |
|
|---|
|
| (US$/ton) |
|
| Equivalent to
(R$/ton)(¹) |
|
|---|
2021 |
| |
|
| |
|
First Quarter |
| 1,121 |
|
| 6,049 |
|
Second Quarter |
| 1,272 |
|
| 6,863 |
|
Third Quarter |
| 1,360 |
|
| 7,339 |
|
Fourth Quarter |
| 1,417 |
|
| 7,646 |
|
Maximum Price in Year |
| 1,468 |
|
| 7,919 |
|
Minimum Price in Year |
| 1,043 |
|
| 5,629 |
|
Year Average |
| 1,293 |
|
| 6,974 |
|
2020 |
| |
|
| |
|
First Quarter |
| 1,051 |
|
| 5,417 |
|
Second Quarter |
| 0,740 |
|
| 3,814 |
|
Third Quarter |
| 0,908 |
|
| 4,682 |
|
Fourth Quarter |
| 0,930 |
|
| 4,796 |
|
Maximum Price in Year |
| 1,083 |
|
| 5,585 |
|
Minimum Price in Year |
| 0,671 |
|
| 3,459 |
|
Year Average |
| 0,907 |
|
| 4,677 |
|
2019 |
|
|
|
|
|
|
First Quarter |
| 1,133 |
|
| 4,468 |
|
Second Quarter |
| 1,197 |
|
| 4,721 |
|
Third Quarter |
| 1,113 |
|
| 4,390 |
|
Fourth Quarter |
| 1,077 |
|
| 4,250 |
|
Maximum Price in Year |
| 1,218 |
|
| 4,804 |
|
Minimum Price in Year |
| 1,058 |
|
| 4,174 |
|
Year Average |
| 1,130 |
|
| 4,457 |
|
| (1) | The figures in U.S. dollars have been converted into Reais using the exchange rate of US$1.00 = 5.395, US$1.00 = 5.156, and US$1.00 = R$3.945 for 2021, 2020 and 2019, respectively, which is the yearly average exchange rate reported by the Central Bank for each of such years. This information is presented solely for the convenience of the reader. |
As Naphtha is the main raw material used to produce ethylene in Brazil, any fluctuations in its price will have a strong influence in ethylene’s price. Accordingly, since naphthas’ price is mainly driven by the price of the crude oil, ultimately both naphtha and ethylene prices are affected by the oil price fluctuation in international markets. Therefore, any increase in ethylene prices could affect Oxiteno’s competitiveness in the petrochemical market.
In 2013, the Brazilian government announced a reduction of PIS and COFINS taxes levied on certain raw materials for the petrochemical industry (first- and second- generation), including ethylene. As of December 31, 2021, the PIS and COFINS taxes levied on the acquisition of ethylene was 6%.
Other raw materials. For the year ended December 31, 2021, other raw materials, such as palm kernel oil, butene, n-butanol, acetic acid, nonene, phenol, primary fatty amine, ethanol, oxygen, base oils, ammonium and other accounted for approximately 48% of Oxiteno’s variable costs and 41% of its total costs of sales and services.
While operated by us, Oxiteno purchased these other raw materials from multiple sources, except for phenol, which Oxiteno purchased mainly from a single supplier in Brazil, Rhodia Poliamida Especialidades Ltda., and butene, which is supplied by Braskem in Triunfo.
Utilities. Electric power, steam and natural gas were the main utilities required for Oxiteno’s production while operated by us. Part of the electricity and steam used by Oxiteno were generated internally and the remaining were purchased from energy companies and third-party steam suppliers where Oxiteno’s plants are located. Natural gas was purchased from local companies. In 2021, electric power represented 1% of Oxiteno’s variable costs.
Maintenance and quality control. While operated by us, Oxiteno carried out a program of preventive maintenance at each of its plants and used statistical analysis to help predict production problems. The shutdowns due to the maintenance program usually took place at the same time as the shutdowns for the change of the ethylene oxide catalyst. In case of the ethylene oxide and ethylene glycol units at the Mauá and Camaçari plants, which have continuous production processes, maintenance was preferably scheduled for periods when the relevant cracker, which supplies ethylene to the plant, was scheduled to be shut down for maintenance. Each cracker was typically shut down for maintenance for a period of approximately 20 days every 36 to 48 months. The same happened to the Triunfo plant, which receives C4 from Braskem. In case of the other production units, maintenance was performed during scheduled breaks in production, and the frequency and period for maintenance vary depending on the nature of the product. While operated by us, Oxiteno used its own employees for specialized maintenance and third-party contractors for routine maintenance. In addition, Oxiteno had a team of employees responsible for quality control that operates continuously.
Environmental, health and safety matters. While operated by us, Oxiteno continuously monitored its compliance with federal, state and municipal legislation applicable to its various places of operation. In accordance with applicable law, Oxiteno was strictly and jointly liable for losses and damages of an environmental nature. See “Item 4.B. Information on the Company—Business Overview—Petrochemicals and Chemicals—Industry and Regulatory Overview— Environmental, health and safety standards.”
Each Oxiteno’s plant was licensed by the competent environmental authorities. Licenses granted were valid for a fixed period and then must be renewed. The other terms of the licenses vary according to the applicable legislation and to the periodic inspections performed by environmental authorities.
Waste products from Oxiteno’s industrial plants were discharged in accordance with legal requirements. Effluents were discharged and treated in Oxiteno’s own treatment centers or in the petrochemical complexes where it conducts operations. Oxiteno seeked to reprocess solid waste products in cement furnaces and, in locations where reprocessing was not possible, these products were mainly incinerated.
Oxiteno’s health and safety indicators were comparable to relevant international standards and were a priority in Oxiteno’s activities and in the action plans for the upcoming years.
In addition to the legal requirements, Oxiteno voluntarily complied with other requirements, such as those related to the Responsible Care Program, issued by ABIQUIM, which sets standards for environmental protection and occupational health, as well as safety measures to be followed by chemical producers.
Oxiteno developed an important project to increase the use of renewable raw materials, the oleochemical unit, which uses palm kernel oil, extracted from the palm seed, to produce fatty alcohols and its by-products. Oxiteno belongs to the Roundtable on Sustainable Palm Oil, an organization that works to regulate the sustainable plantation of palm, aiming to strengthen its regional leadership and its sustainability practices.
Sustainability. While operated by us, Oxiteno’s Strategic Sustainability Plan 2030 was based on eight pillars with objectives and goals that help overcome the challenges balancing economic prosperity, ethical governance, people care, the protection of the environment and generating value for all stakeholders.
“Oxiteno's formula is good” was an internal campaign through which the company recognized not only the importance of the business, but also its impacts. Thus, the work was guided by the creation of increasingly innovative solutions, while valuing the people and the environment care.
One of the pillars of the Strategic Sustainability Plan 2030 was the value of the workforce. In 2021, when Oxiteno was operated by us, we focused on seeking the health and safety of our workforce in all regions where we operated. Following our plans adopted in 2019, Oxiteno set up programs to support the evolution of the company's organizational culture, preparation of leaders and talents, as well as promoting engagement in the various stages of the professional cycle. Oxiteno created a multifunctional diversity committee that met virtually throughout the year to discuss topics aimed at developing a Diversity and Inclusion Policy (D&I), and the launch of the OxiEducation platform focusing on training employees in disciplines such as: customer focus, innovation and development of skills, and high-performance teams.
Another important initiative was the partnership between Oxiteno and Specialisterne, a social company that supports the inclusion of people with autism in the market, resulting in the contracting of autists for the company's IT staff.
Social problems also increased from 2020 onwards due to the pandemic of the new coronavirus, bringing more difficulties for those who live in the peripheries and slums of Brazil. To support vulnerable families, Oxiteno became a partner in the “Corona no Paredão. Fome não” campaign, created by the NGO “Gerando Falcões”, which collects and donates digital basic food baskets to registered families. Oxiteno helped more than 200 families, with basic food baskets that were sent to communities near their industrial units.
In 2021, many innovative projects were developed, such as the development of a tool to assess the sustainability performance of Oxiteno’s portfolio, to leverage the development of innovative and more sustainable solutions. Oxiteno also promoted discussions with its main clients in 2021 to identify potential joint projects and opportunities that can accelerate positive environmental and social impacts.
The search for the reduction of environmental impacts, such as the use of water, energy, waste and Greenhouse Gas, or GHG, emissions, necessarily undergo optimization and process efficiency, directly resulting in cost savings and productivity increase. An example is the project to reduce greenhouse gas emissions generated by the transport of Oxiteno's products. This initiative aims to optimize cargo and logistics routes, benefiting not only the environment but also promoting cost reduction and productivity.
In order to positively influence and promote sustainable development also in the value chain, Oxiteno became the first Brazilian chemical company to establish a partnership with EcoVadis, a global leader in supply chain sustainability assessment.
Income tax exemption status. Brazilian legislation provides a 75% income tax reduction for businesses located in the Northeast region of Brazil, which depends on SUDENE’s formal and previous approval. Oxiteno is entitled to this tax benefit at Oxiteno S/A and EMCA until 2026 and Oleoquímica until 2030. The total amount of SUDENE’s income tax reduction for Oxiteno for the years ended December 31, 2021, 2020 and 2019 was R$63.8 million, R$37.9 million and R$18.0 million, respectively.
B. Retail Pharmacy
The retail pharmacy business in Brazil is responsible for the purchase, distribution and resale of medicines to end consumers through drugstores. It is also a common practice in this industry to sell beauty and personal care products as well as certain convenience products at drugstores. Its main suppliers are pharmaceutical producers and beauty and personal care producers.
The retail pharmacy business is a highly regulated industry. In Brazil, the regulation of the sector is executed by the Federal Government, States and Municipalities. The Federal Government enacts laws and regulations of general applicability, which are enforced and complemented by actions of the States and Municipalities. At the federal level, the health and pharmaceutical sectors are regulated and supervised by the Ministry of Health, through ANVISA, a public agency established by Federal Law No. 9,782/99 and regulated by Decree No. 3,029/99.
In addition, pursuant to Law No. 10,742/03 and Decree No. 4,766/03, the regulation of standards and criteria for setting and adjusting the prices of medicines in Brazil is established by the Drug Market Regulation Chamber (“CMED”), which fixes a capped price for sales from pharmaceutical companies to their distributors, and for final sales to consumers. This capped-price is based on the mechanism which comprises essentially: (i) an inflation rate measured by the IPCA; (ii) factor of productiveness, which is a percentage calculated based on future earnings of productivity by the pharmaceutical industry; and (iii) factor of price adjustments, which is a percentage calculated based on the input costs applicable among market sector prices and to intra-sector prices. The medicines are readjusted in April of every year. However, some pharmaceutical products, such as herbal and homeopathic medicines are not currently subject to CMED’s price regulation. In Brazil, the front-store area occupied by drugstores is usually smaller than 300 square meters.
Brazilian drugstores’ total revenues, according to data from IQVIA, were R$152 billion in 2021, a 11% growth compared to 2020. We believe the sector has potential for continued growth, mainly because of the aging population, greater access to medicines, especially due to the growing prominence of generic drugs, the growing demand for personal care, wellness and beauty products in drugstores, and higher levels of disposable income among consumers in the longer term. In addition, consolidation of the sector, supported by increasing market formalization and consequent investments, is in its early stages. According to IQVIA, there were approximately 84 thousand drugstores in Brazil in 2021.
The main types of pharmaceutical products sold in Brazil are listed below:
Branded medicine — Innovative products, registered at the federal agency responsible for sanitary surveillance and marketed in the country whose efficacy, safety and quality have been scientifically proven by the federal competent body upon registration.
Generic medicine — Contain the same active ingredient, in the same strength and dosage form, being administered by the same route and with the same therapeutic indication as the reference drug in the country, showing the same safety as the reference drug in the country, and which can be interchangeable with the latter.
Similar medicine — Contain the same active ingredients, has the same concentration, pharmaceutical form, method of administration, dosage and therapeutic instructions, and is equivalent to a medicine registered with the Federal agency responsible for sanitary surveillance, differing only as regard the characteristics of size and form of the product, period of validity, packaging, labelling, excipients and vehicle.
OTC medicines — Over the Counter (“OTC”) medicines that do not need a prescription to be sold.
According to ABRAFARMA, the sale of medicines accounted for 68% of the total sales of its members in the retail pharmacy business in Brazil in 2021, and products other than medicines accounted for the remaining 32% of the sales. Sales of OTC products during the winter are usually higher than in warmer seasons, while sales of personal care products during the summer are usually higher than in other seasons.
The following chart shows the supply process of retail pharmacy in Brazil:
Extrafarma
Benefitting from 60 years of activity in the wholesale and retail of pharmaceutical products, Extrafarma is a leading drugstore chain in the regions in which it operates. Extrafarma operates in areas where recent sales growth rates have been above the national average, which we believe presents attractive potential for future growth.
As of December 31, 2021, Extrafarma operated 399 drugstores in ten states of Brazil (121 in Pará, 11 in Amapá, 3 in Tocantins, 91 in Ceará, 57 in Maranhão, 34 in Pernambuco, 20 in Bahia, 16 in Rio Grande do Norte, 4 in Paraíba and 42 in São Paulo). Extrafarma operates four distribution centers: Benevides, in the state of Pará; Aquiraz, in the state of Ceará; Guarulhos, in the state of São Paulo and São Luís, in state of Maranhão, which are responsible for supplying all of our stores.
Extrafarma operates both in the retail and wholesale of pharmaceutical products. In 2021, Extrafarma’s net revenues from sales and services reached R$2.0 billion, of which the retail products represented 95% and the wholesale products represented 5%.
Extrafarma’s main strategy is focused on the retail business, which is responsible for the larger share of its revenues. Within this business, Extrafarma’s product mix consists of all the main types of pharmaceutical products (branded medicine, generic medicine, similar medicine and OTC) in addition to personal care products and convenience products. In 2021, out of Extrafarma’s revenues in the retail business, branded medicines represented 34%, generic/similar medicines represented 15%, OTC 14%, personal care products represented 18% and convenience products represented 18%.
On the wholesale side, Extrafarma operates as a distributor of both pharmaceutical and personal care products. It purchases the products from manufacturers and sells them to other drugstore chains and independent retailers, which are serviced through Extrafarma’s own and leased truck fleet. As of December 31, 2021, the average payment term of Extrafarma’s sales to independent retailers was 49 days.
In 2016, Extrafarma remodeled its loyalty program and renamed it Clube Extrafarma. The program provides immediate discounts on purchases, in addition to accumulating 1 point for each R$1 spent. Points received by Extrafarma’s customers may be exchanged during the period of 6 months for significant discounts in store products, pre-paid mobile phone credits, Km de Vantagens and Latam Pass. As of December 31, 2021, Clube Extrafarma had 11.6 million clients registered.
Competition. The consolidation process of the retail pharmacy business is in its early stages. The drugstore chains associated with ABRAFARMA represented an estimated 44% of the total revenue in the sector in 2021. There were more than 20 drugstore chains associated with ABRAFARMA in 2021. According to ABRAFARMA, the main players in Brazil are Raia Drogasil S.A., Pague Menos S.A., DPSP S.A., São João Farmácias and Panvel Farmácias.
Innovation. Extrafarma accelerated its digitization process with the launch of the delivery service via WhatsApp as well as e-commerce (sales via the internet), including the possibility of buying over the web and withdrawing from stores. In addition, the company has expanded its partnership with delivery applications. The digital channels are expected to contribute to the expansion of the company's revenue and are in line with the current strategy, which provides for more selectivity in the opening of new stores. In 2020, the company launched a personalized discount coupon program for all stores seeking to increase the average ticket and customer loyalty. Extrafarma also expanded its private label Be better through the launch of new lines of basic care products and vitamins. In line with the strategy of expanding the offer of pharmaceutical services to customers, Extrafarma started a partnership with the largest vaccination clinic in the state of Pará. Also, in 2020, all cash and counter systems were replaced to provide a better shopping experience and greater productivity at points of sale. New digital wallets were also included as possible means of payment. See “Item 4.A. Information on the Company — History and Development of the Company —A.2 Discontinued Operations— Extrafarma.”
Eco-efficient operations. Extrafarma started an operation of two biogas plants in the state of Maranhão and Pernambuco, guaranteeing renewable energy to 85 stores and, in 2021, two solar energy plants were inaugurated in the states of Pará and Ceará, which are expected to supply around 200 stores. Among the goals related to energy efficiency, the company established that 90% of stores will be supplied by renewable energy sources and that all distribution centers will be supplied by the free energy market by 2025.
Extrafarma started working on structuring collection centers, for sorting, segregating and disposing of waste and aims to dedicate in the reverse logistics project for medicine that are expired or out-of-use, which covers all pharmaceutical retailers and manufacturer.
Insurance
We maintain insurance policies covering all the facilities of our wholly owned subsidiaries, which we consider appropriate to cover the risks to which we believe we are exposed, including but not limited to loss and damage from fire, lightning, explosion of any nature, windstorm, plane crash and electrical damage. The maximum compensation values based on the maximum possible loss that could result from specific location as of December 31, 2021 are shown below:
|
| Maximum compensation value (*)
|
|
|---|
Oxiteno |
| US$991 |
|
Ipiranga |
| R$1,418
|
|
Ultracargo |
| R$1,000 |
|
Ultragaz |
| R$354 |
|
Extrafarma |
| R$164 |
|
| (*) | In millions. In accordance with our policies terms and conditions. |
We maintain general liability insurance that covers all our wholly-owned subsidiaries with a maximum coverage of US$250 million for losses and damage incurred by third parties as a result of any accidents that occur in connection with our commercial/industrial operations and/or the distribution and sale of our products and services.
We maintain Directors & Officers Liability insurance policies to indemnify members of the Board of Directors, fiscal council and executives of Ultrapar and its subsidiaries (insured persons) in the total amount of US$80 million, which covers any insured liabilities resulting from wrongful acts, including any act or omission or any matter claimed against them solely by reason of his or her serving in such capacity, except if the act, omission or the claim is consequence of gross negligence or willful misconduct.
Until July 2021, we maintained a cyber risks insurance policy with maximum coverage of R$100 million to mitigate losses from a variety of cyber incidents, including data breaches and business interruption.
In addition, we also take out group life and personal accident, national and international transportation, and other insurance policies.
We believe that our insurance covers, in all material respects, the risks to which we are exposed and is in line with industry standards. However, the occurrence of losses or other liabilities that are not covered by insurance or that exceed the limits of our insurance coverage could result in significant unexpected additional costs.
C. Organizational Structure
The following chart shows our organizational structure(1) for our principal subsidiaries as of December 31, 2021:
Percentages represent approximate ownership of voting share capital and total capital (voting capital/total capital).| (1) | Non-controlling interests in Utingás are mainly held by Copa Energia. and SHV Gas (31% and 8% of total capital, respectively). |
| (2) | Other shareholders of RPR are Petrobras and Braskem, each holding 1/3 of the voting shares. |
| (3) | União Vopak — a company jointly owned by Ultracargo Logística and Vopak Brasil S.A.. |
| (4) | Iconic — an association between Ipiranga and Chevron. |
| (5) | Tequimar Vila do Conde — a company incorporated on May 20, 2019 due the concession of the port of Vila do Conde. |
| (6) | Latitude Logística Portuária — a company jointly owned by Ipiranga and Petróleo Sabbá S.A.. |
| (7) | Other shareholders of Nordeste Logística I, II and II and Navegantes Logística are Raízen Combustíveis S.A and Petrobras, each holding 1/3 of the voting shares. |
| (8) | Subsidiary created in January 2020 to provide valuation, business management and financial advisory services to UVC. In September 2020, the company’s name was changed to “UVC Investimentos Ltda.” |
| (9) | Fund constituted in January 2020 to invest in companies that can leverage or complement our business, and to support, map and invest in startups and new technologies. |
| (10) | In May 2020, Millennium became a direct subsidiary of the Company. |
| (11) | Subsidiary created in July 2020, to offer the abastece aí app and Km de Vantagens programs and to operate in the digital payments segment under the abastece aí brand. |
| (12) | In April 2021, the name of the subsidiary Terminal Químico de Aratu S.A – Tequimar was changed to Ultracargo Logística S.A. (“Ultracargo Logística”). |
| (13) | On December 31, 2021, the Company re-presented its related line of business of Oxiteno and Extrafarma as held for sale and discontinued operations. The sale of Oxiteno was closed on April 1, 2022. We expect to conclude the sale of Extrafarma during 2022. For more information on our continued and discontinued operations, please see "Item 4.A. History and Development of the Company —A.1. Continuing Operations” and “—A.2 Discontinued Operations.” |
We conduct our LPG distribution business through Ultragaz, composed of Cia. Ultragaz, Bahiana and Utingás. Cia. Ultragaz operates in the business of distribution of LPG, primarily in the South, Southeast and Midwest regions of Brazil. Bahiana operates in the business of distribution of LPG, primarily in the Northeast regions of Brazil. Utingás is an LPG storage company, with facilities in the states of São Paulo and Paraná.
We conduct our fuel distribution business through Ipiranga, represented by our wholly owned subsidiary Ipiranga, except for Ipiranga’s subsidiaries that operates in the LPG distribution business, as described above and Extrafarma as described below. Ipiranga covers the distribution and marketing of petroleum products, fuel ethanol and NGV throughout Brazil. Ipiranga also, through its subsidiaries, owns AmPm brand in Brazil and Tropical, which provides transportation services for Ipiranga and other fuel distributors.
We conduct liquid bulk storage business through our wholly owned subsidiary, Ultracargo, which operates through its subsidiary Ultracargo Logística, which maintains storage facilities at seven terminals, of which two are located near the main petrochemical complexes in Brazil, Camaçari and São Paulo.
We conduct a digital payment business through the brand abastece aí, which was created in 2020 combining the abastece aí app and the loyalty program Km de Vantagens, both of which became a new subsidiary of the Ultra Group.
Until April 1, 2022, we conducted petrochemical and chemical activities through our then-wholly owned subsidiary, Oxiteno. Oxiteno operates in the sector directly and through its subsidiaries, Oleoquímica, EMCA, Oxiteno Mexico and Oxiteno Uruguay. Oxiteno directly operates plants located in the state of São Paulo; in Camaçari, in the state of Bahia; and in Triunfo, in the state of Rio Grande do Sul. Oleoquímica and EMCA also operate in the Camaçari plant. Oxiteno Mexico operates three plants in Mexico, one plant located in Uruguay through Oxiteno Uruguay and one plant in the United States through Oxiteno USA. On April 1, 2022, we consummated the sale of all shares of Oxiteno pursuant to the share purchase and sale agreement dated August 16, 2021. As a result, we have re-presented our related line of business as held for sale and discontinued operations. For more information, see “Item 4.A. Information on the Company—History and Development of the Company— A.2. Discontinued Operations—Oxiteno.”
We conduct retail and wholesale pharmacy businesses through our wholly owned subsidiary, Extrafarma, which operates in the North, Northeast and Southeast regions of Brazil. The operation of Extrafarma has been re-presented as held for sale and discontinued operation. We expect that the sale of Extrafarma will be concluded during 2022. For more information see “Item 4.A. Information on the Company—History and Development of the Company— A.2. Discontinued Operations—Extrafarma.”
On August 4, 2016, the Company, through its subsidiary Ipiranga, entered into an association agreement with Chevron to create a new company in the lubricants market. The association is formed by Ipiranga and Chevron’s lubricants operations in Brazil. On December 1, 2017, the association process was concluded, with the contribution of the subsidiary IpiLubs to CBLSA pursuant to which Ipiranga obtained direct control of CBLSA. Ipiranga and Chevron hold 56% and 44%, respectively, of CBLSA. In order to simplify the corporate structure and join companies with similar activities, IpiLubs was merged with and into CBLSA on November 1, 2018. In that same shareholders’ meeting, the subsidiary changed its corporate name to Iconic.
In September 2016, subsidiary Ultrapar International S.A. was created and subsequently issued an aggregate principal amount of US$750 million of notes in the foreign capital markets.
On January 30, 2018, the Company through its subsidiary Ultracargo Logística entered into a share purchase and sale agreement for the acquisition of 100% of the quotas of TEAS, owned by Raízen Energia S.A. and Raízen Araraquara Açúcar e Álcool Ltda., which were operated by the subsidiary Ultracargo Logística in the port of Santos. The closing of the acquisition took place on March 29, 2018.
As of the date hereof, all our material subsidiaries are incorporated under the laws of Brazil. For further information, see “Item 4.A. Information on the Company—History and Development of the Company.”
D. Property, Plant and Equipment
Continuing Operations
Ultragaz
Ultragaz’s LPG distribution network includes 19 filling plants. LPG is carried to the filling plants either via gas pipelines from Petrobras’ installations or by tanker trucks. When LPG transportation is via gas pipeline the bases are known as primary and when transportation is via tanker truck, the bases are known as secondary. Ultragaz also operates LPG storage bases, known as satellite bases for supplying our bulk trucks. Ultragaz maintains storage facilities for LPG bottles and satellite bulk distribution plants at strategic locations in order to maintain supplies close to its customer bases and thus to reduce transportation costs. LPG is stored in the filling plants in large LPG storage tanks with an average of 59 tons per tank. In the case of LPG to be delivered in bulk, the LPG is pumped directly from the storage tanks into the bulk tankers. In the case of LPG to be delivered in bottles, the LPG is pumped from the storage tanks into a number of filling heads, which fill the LPG bottles.
The following table sets forth the total storage capacity, total filling capacity during 2021 and the 2021 average filling utilization for each of Ultragaz’s primary and secondary filling stations and satellite stations.
Base |
| Type |
| Total storage
capacity |
| Filling capacity |
| 2021
average filling
utilization rate |
|
|---|
|
| |
| (in tons) |
| (in tons per month) |
| |
|
|---|
Aracaju |
| Secondary |
| 240 |
| 4,680 |
| 62% |
|
Araçatuba |
| Satellite |
| 180 |
| |
|
|
|
Aracruz |
| Secondary |
| 120 |
| 4,680 |
| 20% |
|
Araraquara |
| Satellite |
| 60 |
| |
|
|
|
Araucária |
| Primary |
| 240 |
| 9,360 |
| 71% |
|
Barra de São Francisco |
| Secondary |
| 360 |
| 2,496 |
| 64% |
|
Barueri |
| Secondary |
| 1,500 |
| 5,720 |
| 65% |
|
Bauru |
| Satellite |
| 60 |
| |
| |
|
Betim |
| Secondary |
| 480 |
| 9,360 |
| 38% |
|
Canoas |
| Secondary |
| 600 |
| 4,680 |
| 85% |
|
Capuava |
| Primary |
| 720 |
| 14,040 |
| 34% |
|
Cascavel |
| Satellite |
| 120 |
| |
| |
|
Caucaia |
| Secondary |
| 420 |
| 8,580(1) |
| 65% |
|
Caxias do Sul |
| Satellite |
| 60 |
| |
| |
|
Chapecó |
| Satellite |
| 60 |
| |
| |
|
Florianópolis |
| Satellite |
| 30 |
| |
| |
|
Goiânia |
| Secondary |
| 360 |
| 8,580(1) |
| 51% |
|
Imbiruçu |
| Satellite |
| 480 |
| |
| |
|
João Pessoa |
| Satellite |
| 60 |
| |
| |
|
Joinville |
| Satellite |
| 30 |
| |
| |
|
Juazeiro |
| Secondary |
| 180 |
| 4,680 |
| 70% |
|
Londrina |
| Satellite |
| 60 |
| |
| |
|
Mataripe |
| Primary |
| 1,025 |
| 17,700(1) |
| 66% |
|
Mauá |
| Satellite |
| 720 |
| |
| |
|
Miramar |
| Primary |
| 420 |
| 5,720 |
| 0% |
|
Mucuripe |
| Satellite |
| 360 |
| |
| |
|
Paulínia |
| Primary |
| 1,800 |
| 9,360 |
| 64% |
|
Paulínia SPGas |
| Satellite |
| 480 |
| |
| |
|
Pirajá – Salvador |
| Satellite |
| 60 |
| |
| |
|
Ponta Grossa |
| Satellite |
| 60 |
| |
| |
|
Pouso Alegre |
| Satellite |
| 60 |
| |
| |
|
Ribeirão Preto |
| Secondary |
| 360 |
| 7,020(1) |
| 66% |
|
Rio de Janeiro |
| Primary |
| 840 |
| 5,720 |
| 75% |
|
Santos |
| Primary |
| 2,400 |
| 3,900 |
| 51% |
|
São José do Rio Preto |
| Satellite |
| 60 |
| |
| |
|
São José dos Campos |
| Primary |
| 600 |
| 5,720 |
| 50% |
|
São José dos Campos |
| Satellite |
| 360 |
| |
| |
|
Sorocaba |
| Satellite |
| 120 |
| |
| |
|
Suape |
| Primary |
| 480 |
| 11,440(1) |
| 63% |
|
Total (ex-Utingás) |
| |
| 16,625 |
| 143,436 |
| 56% |
|
Araucária(2) |
| Utingás |
| 630 |
| |
| |
|
Santo André(2) |
| Utingás |
| 3,534 |
| |
| |
|
Total |
| |
| 20,789 |
| 143,436 |
| 56% |
|
| (1) | These facilities operated with more than one 8-hour shift per day. |
| (2) | Only the storage capacity share indirectly owned by Ultragaz. |
In addition, Ultragaz maintains headquarters in the city of São Paulo and regional offices in the areas in which it operates.
Ultracargo
The following table sets forth the main products stored at and the storage capacity operated by Ultracargo’s facilities as of December 31, 2021.
Facility |
| Installed capacity
(incubicmeters) |
| Product lines |
Santos (state of São Paulo) |
| 296,791 |
| Chemicals, ethanol, lubricants, fuels and corrosives |
Aratu (state of Bahia) |
| 218,190 |
| Chemicals, ethanol, vegetable oils, corrosives and fuels |
Suape (state of Pernambuco) |
| 157,910 |
| Chemicals, ethanol, corrosives and fuels |
Itaqui (state of Maranhão) |
| 155,030 |
| Ethanol and fuels |
| Vila do Conde (state of Pará) |
| 110,000 |
| Ethanol and fuels |
Rio de Janeiro (state of Rio de Janeiro) |
| 17,264 |
| Corrosives and lubricants |
Paranaguá (state of Paraná) |
| 28,099 |
| Corrosives and vegetable oils |
Total |
| 983,284 |
| |
For more information see “Item 4.B. Business Overview — Storage Services for Liquid Bulk — Ultracargo — Storage facilities.”
Ipiranga
Distribution of fuels is carried out through an extensive network of primary and secondary storage terminals. Primary storage terminals are generally located near refineries and are used as storage terminals for products to be transported either to secondary storage terminals or to large customers and TRRs. Distributors own their storage terminals (Owned), lease space in third parties’ storage terminals (Third Party Agreement—TPA) or participate in pools (Joint-Operated terminals—JO) that serve two or more distributors. The following table sets forth the total storage capacity and ownership structure for each of Ipiranga’s primary and secondary facilities in 2021.
Storage Terminal |
| Type |
| Ownership Structure of Storage Terminal |
| Storage Capacity
(cubic meters) |
|
|---|
Açailândia |
| Secondary |
| JO operated by others(2) |
| 4,456 |
|
Araucária |
| Primary |
| TPA(1) |
| 1,303 |
|
Araucária |
| Primary |
| JO operated by others(2) |
| 55,859 |
|
Bagé |
| Secondary |
| Owned |
| 2,691 |
|
Barcarena |
| Primary |
| Owned |
| 9,202 |
|
Barcarena |
| Primary |
| TPA(1) |
| 25,000 |
|
Barueri |
| Primary |
| TPA(1) |
| 780 |
|
Barueri |
| Primary |
| Owned |
| 22,071 |
|
Bauru |
| Secondary |
| Owned |
| 3,259 |
|
Belém |
| Primary |
| Owned |
| 19,886 |
|
Betim |
| Primary |
| JO operated by Ipiranga(2) |
| 12,013 |
|
Betim |
| Primary |
| JO operated by others(2) |
| 7,127 |
|
Biguaçu |
| Primary |
| TPA(1) |
| 2,583 |
|
Brasília |
| Primary |
| JO operated by others(2) |
| 8,752 |
|
Cabedelo |
| Primary |
| TPA(1) |
| 8,977 |
|
Campo Grande |
| Secondary |
| Owned |
| 5,873 |
|
Campos |
| Secondary |
| JO operated by Ipiranga(2) |
| 3,705 |
|
Canoas |
| Primary |
| Owned |
| 41,508 |
|
Canoas |
| Primary |
| TPA(1) |
| 200 |
|
Cascavel |
| Secondary |
| Owned |
| 2,702 |
|
Caxias |
| Primary |
| Owned |
| 36,283 |
|
Caxias |
| Primary |
| JO operated by others(2) |
| 8,824 |
|
Chapecó |
| Secondary |
| TPA(1) |
| 2,930 |
|
Cruz Alta |
| Secondary |
| Owned |
| 5,480 |
|
Cubatão |
| Primary |
| Owned |
| 9,585 |
|
Cubatão |
| Primary |
| TPA(1) |
| 100 |
|
Cuiabá |
| Secondary |
| Owned |
| 1,555 |
|
Cuiabá |
| Secondary |
| TPA(1) |
| 360 |
|
Fortaleza |
| Primary |
| TPA(1) |
| 4,230 |
|
Goiânia |
| Primary |
| TPA(1) |
| 5,282 |
|
Goiânia |
| Primary |
| JO operated by others(2) |
| 8,469 |
|
Governador Valadares |
| Secondary |
| Owned |
| 5,449 |
|
Guamaré |
| Primary |
| JO operated by others(2) |
| 3,053 |
|
Guaramirim |
| Primary |
| TPA(1) |
| 1,160 |
|
Guarapuava |
| Secondary |
| Owned |
| 5,624 |
|
Guarulhos |
| Primary |
| TPA(1) |
| 2,050 |
|
Imbiruçu |
| Primary |
| JO operated by Ipiranga(2) |
| 4,555 |
|
Itabuna |
| Primary |
| TPA(1) |
| 225 |
|
Itacoatiara |
| Primary |
| TPA(1) |
| 20,000 |
|
Itaituba |
| Secondary |
| Owned |
| 1,350 |
|
Itajaí |
| Primary |
| JO operated by Ipiranga(2) |
| 9,429 |
|
Itajaí |
| Primary |
| TPA(1) |
| 3,256 |
|
Jequié |
| Primary |
| JO operated by others(2) |
| 6,219 |
|
Juazeiro |
| Secondary |
| JO operated by others(2) |
| 1,813 |
|
| Lages |
| Secondary |
| TPA(1) |
| 1,310 |
|
| Londrina |
| Secondary
|
| JO operated by Ipiranga(2) |
| 6,111 |
|
Storage Terminal |
| Type |
| Ownership Structure of Storage Terminal |
| Storage Capacity
(cubic meters) |
|
|---|
Luis Eduardo Magalhães |
| Secondary |
| TPA(1) |
| 310 |
|
Macapá |
| Primary |
| JO operated by Ipiranga(2) |
| 3,192 |
|
Maceió |
| Primary |
| JO operated by Ipiranga(2) |
| 4,824 |
|
Manaus |
| Primary |
| Owned |
| 8,718 |
|
Marabá |
| Secondary |
| TPA(1) |
| 1,231 |
|
Maringá |
| Secondary |
| TPA(1) |
| 1,843 |
|
Miritituba |
| Secondary |
| JO operated by others(2) |
| 6,932 |
|
Montes Claros |
| Secondary |
| Owned |
| 6,037 |
|
Munguba |
| Secondary |
| Owned |
| 12,376 |
|
Ourinhos |
| Secondary |
| Owned |
| 10,402 |
|
Paranaguá |
| Primary |
| TPA(1) |
| 90,000 |
|
Passo Fundo |
| Primary |
| JO operated by Ipiranga(2) |
| 8,930 |
|
Paulínia |
| Primary |
| Owned |
| 10,193 |
|
Paulínia |
| Primary |
| JO operated by Ipiranga(2) |
| 23,652 |
|
Porto Nacional |
| Secondary |
| TPA(1) |
| 8,222 |
|
Porto Velho |
| Secondary |
| Owned |
| 8,318 |
|
Porto Velho |
| Secondary |
| TPA(1) |
| 900 |
|
Pres. Prudente |
| Secondary |
| Owned |
| 3,682 |
|
Ribeirão Preto |
| Primary |
| JO operated by others(2) |
| 13,171 |
|
Rio Grande |
| Primary |
| TPA(1) |
| 3,466 |
|
Rondonópolis |
| Secondary |
| Owned |
| 10,710 |
|
Santa Maria |
| Secondary |
| Owned |
| 5,824 |
|
Santarém |
| Secondary |
| Owned |
| 3,968 |
|
Santos |
| Primary |
| TPA(1) |
| 63,000 |
|
São Caetano |
| Primary |
| Owned |
| 24,367 |
|
São Francisco do Conde |
| Primary |
| TPA(1) |
| 4,701 |
|
São José do Rio Preto |
| Secondary |
| JO operated by others(2) |
| 1,741 |
|
São José do Rio Preto |
| Secondary |
| Owned |
| 8,712 |
|
São José do Rio Preto |
| Secondary |
| Owned |
| 2,170 |
|
São José dos Campos |
| Primary |
| JO operated by others(2) |
| 13,471 |
|
São José dos Campos |
| Primary |
| TPA(1) |
| 700 |
|
São Luis |
| Primary |
| TPA(1) |
| 53,450 |
|
São Luis |
| Primary |
| JO operated by Ipiranga(2) |
| 14,352 |
|
Sarandi |
| Secondary |
| TPA(1) |
| 5,410 |
|
Sinop |
| Secondary |
| TPA(1) |
| 630 |
|
Suape |
| Primary |
| TPA(1) |
| 30,450 |
|
Suape |
| Primary |
| JO operated by others(2) |
| 18,066 |
|
Teresina |
| Secondary |
| JO operated by others(2) |
| 4,848 |
|
Teresina |
| Secondary |
| TPA(1) |
| 891 |
|
Uberaba |
| Primary |
| TPA(1) |
| 1,355 |
|
Uberlândia |
| Primary |
| JO operated by others(2) |
| 10,965 |
|
Vila Velha |
| Primary |
| TPA(1) |
| 14,569 |
|
Vilhena |
| Secondary |
| Owned |
| 884 |
|
Vitória |
| Primary |
| TPA(1) |
| 6,998 |
|
Total |
| |
| |
| 921,278 |
|
| (1) | Third party agreements |
| (2) | Joint-operated with other distributors |
Discontinued Operations
Oxiteno
While operated by us, Oxiteno had six plants in Brazil: Camaçari plants in the Northeast complex, Mauá plant in the São Paulo complex, Triunfo plant in the Southern complex and Tremembé and Suzano plants in the state of São Paulo.
The following table sets forth the ethylene oxide production capacity of Oxiteno’s plants in Brazil as of December 31, 2021.
Units |
| Capacity |
|
|---|
|
| (in tons per year) |
|
|---|
Camaçari |
| 350,000 |
|
Mauá |
| 90,000 |
|
Tremembé |
| — |
|
Triunfo |
| — |
|
Suzano |
| — |
|
Total |
| �� 440,000 |
|
Ethylene oxide is primarily an intermediate material used in the production of ethylene oxide derivatives — only 2% of Oxiteno’s sales volume was sales of merchant ethylene oxide in the year ended December 31, 2021. Therefore, Oxiteno’s overall production output may not be determined by adding the capacities of ethylene oxide and its derivatives.
As Oxiteno’s capacity for ethylene oxide derivatives exceeds its ethylene oxide production capacity, Oxiteno cannot produce the maximum amount of each derivative product in any year and, accordingly, actual production of ethylene oxide derivatives is less than its capacity shown in the tables below.
However, the excess production capacity of ethylene oxide derivatives provides a degree of operating flexibility that enables the company to switch production partially to other products and re-manage its ethylene oxide output for derivative products depending on relative demand, thus mitigating the effects of reductions in demand for certain products resulting from downturns in the petrochemical business cycle.
Camaçari plants. The first Camaçari plant, located in the Northeast Complex, was built by Oxiteno and started production in 1978. The Camaçari plants produce ethylene oxide and ethylene oxide derivatives, such as ethylene glycols, ethanolamines, glycol ethers and ethoxylated derivatives.
In 2007, in connection with the acquisition of Ipiranga Group by Ultrapar, Oxiteno started to operate a mineral oils production plant, EMCA.
The following table sets forth the production capacity of the Camaçari plant for each of its principal products as of December 31, 2021.
Units
|
| Current capacity (in tons per year) |
|
|---|
Ethylene oxide |
| 350,000 |
|
Ethylene glycols |
| 285,000 |
|
Ethoxylated derivatives |
| 270,000 |
|
Ethanolamines |
| 110,000 |
|
Fatty alcohols |
| 77,000 |
|
White mineral oils |
| 60,000 |
|
Glycol ethers |
| 25,000 |
|
Glycerin |
| 11,000 |
|
Fatty acids |
| 7,000 |
|
In 2021, the Camaçari plant operated at 73% of its production capacity. The plant had planned stoppages for regular maintenance.
Mauá plant. The Mauá plant, located in the São Paulo Complex, was the first plant built by Oxiteno and started production in 1974. The Mauá plant has process units for ethylene oxide, ethylene glycols, glycol ethers, glycol ether acetates, natural alcohols and ethoxylated derivatives. In addition to the production units, the plant has storage infrastructure, warehouse and maintenance facilities and also houses Oxiteno’s main research and development laboratory. The following table presents the production capacity of the Mauá plant for each of its major products as of December 31, 2021.
Units |
| Current capacity (in tons per year) |
|
|---|
Ethoxylated derivatives |
| 106,000 |
|
Ethylene oxide |
| 90,000 |
|
Acetates |
| 72,000 |
|
Ethylene glycols |
| 40,000 |
|
Glycol ethers |
| 40,000 |
|
Hydraulic fluids |
| 30,000 |
|
Alkylation |
| 17,000 |
|
C4+C5 alcohols |
| 13,500 |
|
In 2021, the Mauá plant operated at 65% of its production capacity.
Tremembé plant. The Tremembé plant, located at Bairro dos Guedes, Tremembé, in the state of São Paulo, has three major production units: a sulfonation/sulfation unit and two multipurpose units. The Tremembé plant started production in 1970 and was subsequently acquired by Oxiteno in 1985.
The following table shows the capacity of the main units at the Tremembé plant as of December 31, 2021.
Units |
| Current capacity (in tons per year) |
|
|---|
Specialties |
| 16,071 |
|
Sulfonation/Sulfation |
| 16,000(1) |
|
Performance solutions |
| 15,000 |
|
Esterification |
| 10,128 |
|
Betaines |
| 5,420 |
|
Hydraulic fluids |
| 5,000 |
|
| (1) | Capacity adjusted for 100% active matter. |
In 2021, the Tremembé plant operated at 66% of its production capacity.
Suzano plant. In 2007, Oxiteno began operating a sulfonation and sulfation plant in Suzano, with a production capacity of 13.5 thousand tons per year. In 2012, Oxiteno added 11.5 thousand tons per year to its capacity. As a result, production capacity at the Suzano plant increased to 25 thousand tons per year.
The following table shows the capacity of the principal units at the Suzano plant as of December 31, 2021.
Units |
| Current capacity (in tons per year) |
|
|---|
Sulfonation/Sulfation |
| 13,500 |
|
Esterification |
| 11,198 |
|
In 2021, the Suzano plant operated at 85% of its production capacity.
Triunfo plant. The Triunfo plant is located in the Southern Complex. The Triunfo plant was built by Oxiteno and started production in 1989. The Triunfo plant had two production units, one to produce secondary butyl alcohol, which is used in the production of MEK, and one for the production of MEK.
The following table shows the capacity of the principal units at the Triunfo plant as of December 31, 2021.
Units |
| Current capacity (in tons per year) |
|
Oxygenated solvents |
| 42,000 |
|
In 2021, the Triunfo plant operated at 69% of its production capacity.
With the acquisition of Oxiteno Mexico (formerly Canamex) in 2003 and Unión Química in 2007, Oxiteno acquired three specialty chemical plants in Mexico. As of December 31, 2021, the Coatzacoalcos plant had a production capacity of 86 thousand tons per year of ethoxylates and approximately 8 thousand tons per year of alkyphenols; the Guadalajara plant had a production capacity of 32 thousand tons per year of specialty chemicals and San Juan del Río had a production capacity of approximately 8 thousand tons per year of specialty chemicals. In 2021, the Guadalajara, the Coatzacoalcos and San Juan del Río plants operated at an average rate of 78%, 59% and 96% of their production capacity, respectively.
Oxiteno acquired a specialty chemical plant in Pasadena, Texas in 2012. As of December 31, 2021, the Pasadena plant had a production capacity of 120 thousand tons per year of specialty and performance solutions. In 2021, Pasadena plant operated at an average rate of 35% of its production capacity.
With the acquisition of Oxiteno Uruguay in 2012, Oxiteno acquired a specialty chemical plant in Montevideo, Uruguay. As of December 31, 2021, the Montevideo plant had a production capacity of 63 thousand tons per year of specialty chemicals and operated with 75% of its production capacity.
The following table sets forth Oxiteno’s production plants located outside of Brazil as of December 31, 2021:
Units |
| Current capacity (in tons per year) |
|
|---|
Ethoxylated derivatives — Coatzacoalcos plant |
| 86,000 |
|
Alkylation — Coatzacoalcos plant |
| 7,860 |
|
Ethoxylated derivatives — Guadalajara plant |
| 19,000 |
|
Esterification — Guadalajara plant |
| 13,000 |
|
Sulfonation/Sulfation — San Juan del Río |
| 8,400 |
|
Alkoxylation — Pasadena |
| 120,000 |
|
Specialties/Performance solutions — Pasadena |
| 32,000 |
|
Sulfonation/Sulfation — Montevideo |
| 45,000 |
|
Fatty Acid Sulfate (FAS) — Montevideo |
| 10,000 |
|
Betaines/Amides — Montevideo |
| 6,000 |
|
Fatliquor oils — Montevideo |
| 2,000 |
|
Extrafarma
As of December 31, 2021, Extrafarma operated 399 drugstores and 4 distribution centers in the North, Northeast and Southeast regions of Brazil.
The following tables set forth the breakdown per region of Extrafarma’s drugstores and the capacity for each of Extrafarma’s distribution centers as of December 31, 2021:
Location |
| 2021 |
|
|---|
North |
| 135 |
|
Pará |
| 121 |
|
Amapá |
| 11 |
|
Tocantins |
| 3 |
|
Northeast |
| 222 |
|
Ceará |
| 91 |
|
Maranhão |
| 57 |
|
Pernambuco |
| 34 |
|
Bahia |
| 20 |
|
Rio Grande do Norte |
| 16 |
|
Paraíba |
| 4 |
|
Southeast |
| 42 |
|
São Paulo |
| 42 |
|
Total |
| 399 |
|
Distribution center |
| Area
(in square meters) |
|
|---|
Benevides (Pará) |
| 8,273 |
|
Aquiraz (Ceará) |
| 7,500 |
|
Guarulhos (São Paulo) |
| 9,874 |
|
São Luís (Maranhão) |
| 5,124 |
|
Total |
| 30,770 |
|
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
You should read this discussion together with our consolidated financial statements, including the notes thereto and other financial information included elsewhere in this annual report. This annual report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors including, without limitation, those set forth in “Cautionary Statement Regarding Forward-Looking Information” and the matters set forth in this annual report generally.
In 2021, Ultrapar started to conduct a portfolio rationalization process and, as a result, it entered into share purchase and sale agreements for the sale of Extrafarma, ConectCar and Oxiteno. The sale of Ultrapar’s interest in ConectCar was concluded in October 2021 and the sale of all shares of Oxiteno was concluded on April 1, 2022. The sale of all shares of Extrafarma is still subject to CADE’s approval. On December 31, 2021, the Company re-presented the businesses of Oxiteno and Extrafarma as current assets held for sale and discontinued operations. The comparative financial information for the years ended December 31, 2020 and 2019 were re-presented for consistency of presentation as shown in Note 3.c.3 to our consolidated financial statements.
Overview
Ultrapar’s origins date back to 1937 when Ernesto Igel founded Ultragaz, which pioneered the use of Liquified Petroleum Gas (LPG) as cooking gas. Ultrapar is currently a leading player in the different segments of the energy and infrastructure industries through Ipiranga, Ultragaz and Ultracargo. In addition, the Company created in 2020 the digital payments company abastece aí.
Ultragaz is a pioneer and one of the largest companies in the Brazilian market (which is one of the largest markets worldwide) for LPG distribution, in addition to being a reference in innovation and in the development of applications for the use of LPG. In 2021, Ultragaz delivered LPG to an estimated 11 million households through a network of approximately 5.6 thousand independent retailers in the bottled segment, in addition to approximately 58 thousand customers in the bulk segment. Ultracargo is the largest private company of liquid bulk storage in Brazil with seven port terminals in strategic locations in the Northeast, Southeast, South and, recently, North regions, with the beginning of the operations of its new terminal in the port of Vila do Conde, in the state of Pará, in December 2021. Ipiranga is one of the largest fuel and lubricant distribution companies in the country, comprising a network of more than 7 thousand service stations, in addition to the largest convenience store franchise in Brazil, the AmPm network, with over 1,800 stores as of December 31, 2021. abastece aí is a digital payments company established in 2020 aimed at leveraging the benefits of the Km de Vantagens loyalty program and abastece aí app. In 2021, approximately two million digital accounts have been created.
Impact of ongoing COVID-19 pandemic
Since March 2020, the evolution of the COVID-19 pandemic and government responses have created an unprecedented global scenario, including in Brazil, where social distancing measures, quarantines, restrictions on travel and public transportation, and prolonged closures of commercial establishments, have affected our routine and presented challenges on a daily basis.
Ultrapar and its subsidiaries adopted a series of measures in an effort to mitigate the negative effects of the COVID-19 pandemic and preserve the health and safety of their employees and partners, the stability and continuity of their operations, and their solid financial position.
In March 2020, we implemented remote work for employees in administrative functions and provided all necessary support for them to maintain their activities, including lending office supplies and equipment. We did not notice any reduction in productivity in this period. In March 2022, these employees resumed on-site working. In addition to the basic concerns relating to the safety of our employees, the Company promoted several actions through live broadcasts focused on employees’ wellness, fitness and psychological support and monitoring, all in line with our principle of valuing people.
In addition, a multi-disciplinary committee was created to set a plan for the gradual return to the office and resumption of normal working activities for administrative areas, adjusting work areas through the introduction of numerous preventive measures, such as minimum distance between work stations, temperature measurement before entering the office, placement of hand sanitizers across our offices, and the intensification of cleaning and safety protocols according to the guidelines of state and municipal governments and health entities.
The implemented measures of social distancing, restrictions on the movement of people and the operation of certain businesses due to the COVID-19 pandemic affected economic activity in Brazil over the last two years; however, these negative impacts have been mitigated in recent months as local governments gradually lift such restrictions in response to the increase in COVID-19 vaccinations. No significant effects were observed on the operations of the Company and its subsidiaries in the year ended December 31, 2021.
Our results of operations may be negatively impacted by the ongoing COVID-19 pandemic. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Ultrapar and Its Industries— Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics”, and other risk factors included herein and “—Trend Information” below.
Social support
Since the outset of the coronavirus pandemic, Ultrapar and its subsidiaries have been operating on multiple fronts to preserve the Company’s employees and partners health and safety, the stability and continuity of its operations and the financial soundness of the Company.
During the year ended December 31, 2021, Ultrapar once more helped support Brazilian society by donating, approximately, R$8 million to several initiatives focused on fighting the pandemic and its consequences, totaling, approximately, R$45 million in contributions during the last two years.
With worsening of the pandemic in the beginning of 2021, Ultrapar and 11 other companies joined forces to donate more than 5,000 oxygen concentrators to the Ministry of Health. Together, the 12 companies invested more than R$35 million in this initiative. Ultrapar also donated R$1.5 million to Instituto Butantã so that the organization could buy the equipment required for the facility to produce COVID-19 (ButanVac) and influenza vaccines.
Ultragaz distributed more than 2,000 oxygen cylinders to hospitals in São Paulo and, thanks to its reseller network, the educational and awareness campaign on COVID-19 prevention reached more than 10 million people in 50 Brazilian cities. Ultragaz also donated 8,000 LPG bottles and more than 2,000 basic food baskets in 2021. Ultracargo donated about 6,000 basic food baskets to help communities near its operations in 2021.
In a partnership with the Brazilian Institute of Oil and Gas (IBP) and other companies, Ipiranga became part of a movement that donated to the Ministry of Health about four million medicines necessary for the intubation of COVID-19 patients. Ipiranga also joined forces with the United Nations International Children’s Emergency Fund (Unicef) and the Gerando Falcões and Aldeias Infantis NGOs to distribute personal protective equipment (PPEs), hygiene items, food vouchers and basic food baskets. In partnership with the municipal health department, the company also helped to provide the COVID-19 vaccine through the Saúde na Estrada program.
During 2021, in a partnership with AkzoNobel, Oxiteno supported the public school system in the region of Mauá, in the state of São Paulo, in an initiative involving (i) the donation of 1,000 basic food baskets to the families of students in vulnerable social situations, (ii) the renovation of more than 14,000 m² of school facilities and the delivery of masks and alcohol gel to protect students and teachers when the on-site classes return.
Together with the Transforma Brasil project, Extrafarma joined the A Fome Tem Pressa campaign, collecting an amount corresponding to 1,600 basic food baskets thanks to the active participation of its employees – for each R$1 donated by an employee, the company donated the same amount, helping families in vulnerable social situations in the regions of Ceará, Pará, and Rio Grande do Norte states. During 2021, approximately 20,000 hygiene items and 2,000 tons of food were collected to support NGOs such as Associação Comunitária Lucas Dantas (ACOLD), Jardim das Borboletas, Hospital Martagão and G10 Favelas.
Brazilian economic background
Since our continuing operating businesses are located in Brazil, we are significantly affected by Brazil’s economic and social conditions, including, but not limited to, gross domestic product (“GDP”), growth rates, credit availability and disposable incomes, the domestic rate of inflation and exchange rate fluctuations.
Gross domestic product. In 2017, GDP grew 1.3%, backed by falling inflation and interest rate (from 13.75% at the end of 2016 to 7.00% at the end of 2017). In 2018, Brazilian GDP grew 1.8%, driven by a recovery in demand, consumption and investment, supported by the resumption of several sectors in the economy, the IPCA index rate below the government’s target and the consequent lower level of interest rate (from 7.00% at the end of 2017 to 6.50% at the end of 2018). In 2018, growth was negatively impacted by a nationwide truck drivers’ strike in the second quarter. In 2019, Brazilian GDP grew 1.4% as a result of the gradual recovery of the Brazilian economy due to an increase in consumption and investments, despite continuing high unemployment rate. The Selic rate started the year at 6.5% and reached 4.5% as of December 31, 2019. In 2020, as a result of the ongoing COVID-19 pandemic, Brazilian GDP contracted 3.9%. Our operations suffered the effects of such contraction, especially with regard to LPG sales to commercial and industrial customers, diesel sales, Oxiteno’s sales to the domestic market, and Ultracargo’s logistics operations. In 2021, GDP grew 4.6% driven by a 4.7% and 4.5% growth in the service and industry sectors respectively. In comparison to 2020, 2021 was a year of recovery, the first since the outbreak of COVID-19 pandemic, mainly due to the progress of the vaccination process, which had a direct impact on family consumption. The increase in fiscal uncertainty and inflation drove the increase in the Selic rate, from 2% at the beginning of the year to 9.25% on December 31, 2021. As of the date hereof, the Selic rate was 11.75%. In 2022, as a result of the proximity of the presidential elections and the uncertainties with respect to both the domestic and international outlook, including as a result of the military conflict between Ukraine and Russia, the current market perspective is of a stagnant economy in 2022, with both inflation and high interest rates.
Inflation and currency fluctuations. Our cash operating activities are substantially in Reais and tend to increase with inflation. However, some of our costs of sales and services sold are linked to the U.S. dollar and are not substantially affected by the Brazilian inflation rate. In addition, some of our Real-denominated debt is indexed to the rate of inflation. In 2017, the Real depreciated 2% against the U.S. dollar and the IPCA index rate was 2.9%. The IGP-M index rate was -0.5%, the lowest rate since 2009. In 2018, the Real depreciated 17% against the U.S. dollar, pressured by the rise of the interest rate by the Federal Reserve System and the unstable economic political environment in Brazil (Presidential election and discussion on economic reforms). The IGP-M index rate was 7.5%, influenced by global commodities prices and the Real depreciation. The IPCA index rate was 3.7%, impacted by the adjustment of prices, such as food and beverages, fuels and electric energy. In 2019, the Real depreciated 4% against the U.S. dollar, mainly due to worldwide trade tensions headlined by China and the United States and the uncertainties with respect to the Brazilian pension reform. Furthermore, the Real depreciation was also a consequence of interest rate cuts by the Central Bank. The IGP-M and IPCA rates closed 2019 at 7.3% and 4.3%, respectively. In 2020, the Real depreciated 29% against the U.S. dollar, in a year mainly due to (i) the impacts of the ongoing COVID-19 pandemic; (ii) uncertainties in U.S. political landscape in view of its presidential elections and (iii) the worsening of the risks in the Brazilian fiscal debt. The IGP-M index was 23.1%, impacted mainly by devaluation of the Real against U.S. dollar that affects directly in the prices of raw material and others industrial inputs. The IPCA index rate closed 2020 at 4.5%. In 2021, the Real depreciated 7% against the U.S. dollar mainly due to the increase in global inflation coupled with high fiscal risks and low growth rate in Brazil. The IGP-M index was 17.8% and the IPCA index rate ended 2021 at 10.1%.
From December 31, 2021 to April 22, 2022, the Real appreciated 15% against the U.S. dollar, mainly due the expectation of interest rate increases in the U.S. and in some European countries. The main foreign exchange risk we face arises from certain U.S. dollar denominated costs and expenses. Although a substantial part of our debt is dollar-denominated, it is currently hedged against currency devaluation through the use of various derivative instruments or matching assets in the same currency. Additionally, a significant part of our raw materials is also denominated or indexed to the U.S. dollar. A large part of our sales is denominated in Reais, although prices in the chemical business are benchmarked to prices prevailing in the international markets, which in turn are linked to U.S. dollars. Hence, we are exposed to foreign exchange rate risks which could negatively impact our businesses, financial situation and operating results as well as our capacity to service our debt.
The table below shows the inflation rate for the periods indicated, as well as the devaluation (or appreciation) of the Real against the U.S. dollar.
|
| Year ended December 31, |
|
|---|
Index |
| 2021 |
| 2020 |
| 2019 |
|
|---|
IGP-M |
| 17.8% |
| 23.1% |
| 7.3% |
|
IPCA |
| 10.1% |
| 4.5% |
| 4.3% |
|
Devaluation (appreciation) of the Real against the U.S. dollar |
| 7.4% |
| 28.9% |
| 4.0% |
|
We manage foreign exchange risk associated with the scheduled payments under the terms of our U.S. dollar indebtedness by investing in U.S. dollar-denominated securities and foreign currency/interest swap contracts, under which we pay variable interest in Reais based on the DI and receive fixed interest in U.S. currency. As of December 31, 2021, our liabilities in foreign currency totaled R$10,394.3 million (US$1,862.6 million), including financing in foreign currency, gross of transaction costs and discount, and payables arising from imports, net of advances to foreign suppliers. At the same date, our total asset in foreign currency was R$4,149.5 million (US$743.5 million), comprised of investments indexed to U.S. dollars and hedging instruments used to manage fluctuations of exchange rates and foreign currency receivables exposures. As of December 31, 2021, Ultrapar had a net (liability) asset position (income statement effect) in foreign currency of R$498,6 million (US$89,3 million), comprised of a short-term net asset position of R$2,656.6 million (US$476.0 million) and a long-term net liability position of R$4,181.5 million (US$749.3 million), excluding a net liability position of R$1,026.4 that only affects equity. For the purposes of this paragraph, U.S. dollar values were calculated based on the December 31, 2021 Real/U.S. dollar exchange rate. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for information about our foreign exchange risk hedging policy and Notes 17 and 33 to our consolidated financial statements.
IFRS standards and criteria adopted in preparing the financial information
The consolidated financial information presented below was prepared based on the consolidated statements of profit or loss and cash flows for the years ended December 31, 2021, 2020 and 2019 that derived from our consolidated financial statements included in this annual report and prepared in accordance with IFRS. Financial information relating to Ultragaz, Ultracargo, Ipiranga and abastece aí is presented on an unconsolidated basis and does not reflect elimination of intercompany transactions. Accordingly, the sum of individual financial information of Ultrapar’s subsidiaries may not correspond to the consolidated financial information of Ultrapar. See “Presentation of Financial Information.”
On December 31, 2021, the Company re-presented the businesses of Oxiteno and Extrafarma as current assets held for sale and discontinued operations. The comparative financial information for the years ended December 31, 2020 and 2019 were re-presented for consistency of presentation as shown in Note 3.c.3 of our consolidated financial statements.
Results of Operations
Year ended December 31, 2021 compared to the year ended December 31, 2020.
The following table shows a summary of our results of operations for the years ended December 31, 2021 and 2020:
(R$ million) | Year ended
December 31,
2021 |
|
| % of net revenue from sales and services |
|
| Year ended
December 31,
2020 |
|
| % of net revenue from sales and
services |
|
| Percent
change
2021—2020 |
|
|---|
| |
|
| |
|
| Re-presented |
|
| |
|
| |
|
|---|
Continuing operations | |
|
| |
|
| |
|
| |
|
| |
|
Net revenue from sales and services | 109,732.8 |
|
| 100% |
|
| 74,058.1 |
|
| 100% |
|
| 48% |
|
Cost of products and services sold | (104,828.0 | ) |
| 96% |
|
| (70,056.4 | ) |
| 95% |
|
| 50% |
|
Gross profit | 4,904.9 |
|
| 4% |
|
| 4,001.6 |
|
| 5% |
|
| 23% |
|
Selling, marketing, general and administrative expenses | (3,398.2 | ) |
| 3% |
|
| (2,605.1 | ) |
| 4% |
|
| 30% |
|
Other operating income, net² | 96.2 |
|
| 0% |
|
| 64.0 |
|
| 0% |
|
| 50% |
|
Gain (loss) on disposal of property, plant and equipment and intangibles | 184.2 |
|
| 0% |
|
| 85.5 |
|
| 0% |
|
| 116% |
|
Operating income (loss) before financial income (expenses) and share of profit (loss) of joint-ventures and associates | 1,787.0 |
|
| 2% |
|
| 1,546.0 |
|
| 2% |
|
| 16% |
|
Share of profit (loss) of joint-ventures and associates | (17.6 | ) |
| 0% |
|
| (44.0 | ) |
| 0% |
|
| -60% |
|
Financial result, net | (762.7 | ) |
| 1% |
|
| (550.3 | ) |
| 1% |
|
| 39% |
|
Income and social contribution taxes | (188.0 | ) |
| 0% |
|
| (304.5 | ) |
| 0% |
|
| -38% |
|
Profit from continuing operations | 818.6 |
|
| 1% |
|
| 647.1 |
|
| 1% |
|
| 27% |
|
Discontinued operations | |
|
| |
|
| |
|
| |
|
| |
|
Profit (loss) from discontinued operations | 65.3 |
|
| N/A |
|
| 280.6 |
|
| N/A |
|
| -77% |
|
Profit for the year | 883.9 |
|
| N/A |
|
| 927.7 |
|
| N/A |
|
| -5% |
|
Net income attributable to: | |
|
| |
|
| |
|
| |
|
| |
|
Shareholders of Ultrapar | 850.5 |
|
| N/A |
|
| 893.4 |
|
| N/A |
|
| -5% |
|
Non-controlling shareholders of the subsidiaries | 33.4 |
|
| N/A |
|
| 34.3 |
|
| N/A |
|
| -3% |
|
1 Considers both selling and marketing, reversion (loss) allowance for expected credit losses and general and administrative expenses
2 Considers both other operating income and other operating expenses
Net revenue from sales and services. Ultrapar’s net revenue from sales and services was R$109,732.8 million in 2021, an increase of 48% compared to R$74,058.1 million in 2020, reflecting higher revenue in all of our segments, especially Ipiranga. Over the past three years, more than 90% of our consolidated net revenue from sales and services was generated by Ipiranga and Ultragaz. Therefore, the main components of these revenues come from diesel, gasoline, ethanol and LPG sales.
The following table shows the change in net revenue from sales and services for each of our segments:
| 2021 |
| 2020 |
| Percent change
2021—2020 |
|
|---|
| (R$ million) |
| |
|
|---|
Ultragaz | 9,744.7 |
| 7,408.3 |
| 32% |
|
Ultracargo | 713.1 |
| 644.2 |
| 11% |
|
Ipiranga | 99,382.6 |
| 66,133.0 |
| 50% |
|
abastece aí | 84.7 |
| 17.2 |
| 392% |
|
Net revenue from sales and services from continuing operations (1) | 109,732.8 |
| 74,058.1 |
| 48% |
|
(1) Segment information for Ultragaz, Ultracargo, Ipiranga and abastece aí is presented on an unconsolidated basis.
Ultragaz’s net revenue from sales and services was R$9,744.7 million in 2021, an increase of 32% compared to R$7,408.3 million in 2020, mainly due to the increases of LPG prices implemented by Petrobras in 2021 (see “Business Overview Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Prices of LPG"). The volume sold by Ultragaz was 1,714 tons in 2021, a decrease of 1% compared to 1,732 tons sold in 2020, mainly due to a 4% decrease in sales in the bottled segment, due to higher demand for LPG bottles in 2020, when more restrictive rules on the circulation of people and social distancing were in place, which increased in-home consumption. In the bulk segment, volumes increased 5%, due to higher sales to industries, commercial and services segments, which were more affected by the pandemic in 2020.
Ultracargo’s net revenue from sales and services was R$713.1 million in 2021, an increase of 11% compared to R$644.2 million in 2020, due to contractual readjustments, greater fuel handling and increased participation of chemicals in Santos and Suape and oils in Aratu. The average installed capacity at Ultracargo increased 5% in 2021, due to the expanded tankage capacity at Itaqui and Vila do Conde terminals in the last twelve months. Consequently, the cubic meter sold increased 2%, due to greater fuel handling in Itaqui, coupled with the expansions of tankage capacity, which were partially offset by lower fuel handling in Santos, as a result of lower imports.
Ipiranga’s net revenue from sales and services was R$99,382.6 million in 2021, an increase of 50% compared to R$66,133.0 million in 2020, mainly due to the increase in the average costs of products derived from oil and ethanol coupled with higher sales volume. Ipiranga’s sales volume rose 5% in 2021 due to the gradual lift of the COVID-19 restrictions on circulation of people, leading to higher fuel consumption in Brazil in 2021 as compared to 2020, with a growth of 3% in Otto cycle and 6% in diesel.
abastece aí’s net revenue from sales and services was R$84.7 million in 2021, an increase of 392% compared to R$17.2 million in 2020, mainly due to the higher number of transactions at the Ipiranga’s gas stations.
Cost of products and services sold. Ultrapar’s cost of products and services sold was R$104,828.0 million in 2021, an increase of 50% compared to R$70,056.4 million in 2020, due to the increase in costs in all segments. Ultrapar main costs of products and services sold are related to the purchase of goods for resale, including diesel, gasoline and ethanol for Ipiranga, LPG for Ultragaz, and depreciation and amortization.
The following table shows the change in cost of products and services sold for each of our segments:
| 2021 |
| 2020 |
| Percent change
2021—2020 |
|
|---|
| (R$ million) |
| |
|
|---|
Ultragaz | 8,626.3 |
| 6,310.2 |
| 37% |
|
Ultracargo | 285.4 |
| 270.0 |
| 6% |
|
Ipiranga | 96,110.4 |
| 63,609.9 |
| 51% |
|
abastece aí | — |
| — |
| N/A |
|
| Cost of products and services sold from continuing operations (1) | 104,828.0 |
| 70,056.4 |
| 50% |
|
(1) Segment information for Ultragaz, Ultracargo, Ipiranga and abastece aí is presented on an unconsolidated basis.
Ultragaz’s cost of products and services sold was R$8,626.3 million in 2021, an increase of 37% compared to R$6,310.2 million in 2020, due to the increases of LPG and fuels costs implemented by Petrobras in 2021 (see “Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Prices of LPG”) in addition to the effects of inflation on production materials.
Ultracargo’s cost of products and services sold was R$285.4 million in 2021, an increase of 6% compared to R$270.0 million in 2020, mainly due to the higher depreciation, resulting from expanded tankage capacity, and leasing readjustments. The cost of services provided per cubic meter sold posted an increase of only 3%, reflecting gains in productivity at the terminals.
Ipiranga’s cost of products and services sold was R$96,110.4 million in 2021, an increase of 51% compared to R$63,609.9 million in 2020, because of the increase in the average costs of products derived from oil and ethanol, in addition to higher sales volume.
Gross profit. For the reasons described above, Ultrapar’s gross profit was R$4,904.9 million in 2021, a growth of 23% compared to R$4,001.6 million in 2020. Ipiranga’s gross profit was R$3,272.2 million in 2021, an increase of 30% compared to R$2,523.2 million in 2020. Ultragaz’s gross profit was R$1,118.3 million in 2021, an increase of 2% compared to R$1,098.2 million in 2020. Ultracargo’s gross profit was R$427.7 million in 2021, an increase of 14% compared to R$374.2 million in 2020. abastece aí’s gross profit was R$84.7 million in 2021, compared to R$17.2 million in 2020.
Selling, marketing, general and administrative expenses. Ultrapar’s selling, marketing, general and administrative (“SG&A”) expenses generally include personnel, freight, marketing and depreciation and amortization expenses. Ultrapar’s SG&A expenses were R$3,398.2 million in 2021, an increase of 30% compared to R$2,605.1 million in 2020.
The following table shows the changes in SG&A expenses for each of our segments:
| 2021 |
| 2020 |
| Percent change
2021—2020 |
|
|---|
| (R$ million) |
| |
|
|---|
Ultragaz | 661.2 |
| 620.2 |
| 7% |
|
Ultracargo | 136.3 |
| 129.9 |
| 5% |
|
Ipiranga | 2,232.3 |
| 1,730.9 |
| 29% |
|
abastece aí | 184.9 |
| 47.1 |
| 293% |
|
SG&A from continuing operations | 3,398.2 |
| 2,605.1 |
| 30% |
|
Ultragaz’s SG&A expenses were R$661.2 million in 2021, an increase of 7% compared to R$620.2 million in 2020, due to higher expenses with personnel, freight, and commercial rebates, partially offset by lower expenses with consultancies and initiatives to reduce expenses in several lines.
Ultracargo’s SG&A expenses were R$136.3 million in 2021, an increase of 5% compared to R$129.9 million in 2020, due to higher expenses with personnel (mainly due to performance-based compensation), information technology and engineering to support expansion projects, productivity gains and digital transformation.
Ipiranga’s SG&A expenses were R$2,232.3 million in 2021, an increase of 29% compared to R$1,730.9 million in 2020, due to higher provisions for contingencies, higher expenses due to the increase in number of AmPm’s company-operated stores, Iconic higher sales volume and commercial rebates and higher sales volume and increase in unit cost for freight operations. This increase was partially offset by expense-reductions in several fronts in 2020, such as hiring, training and travel.
abastece aí’s SG&A expenses were R$184.9 million in 2021, an increase of R$137.8 million compared to R$47.1 million in 2020, due to higher expenses with personnel, development and marketing to increase the use of the application and the loyalty program.
Other operating income, net. Other operating income, net was R$96.2 million in 2021, an increase of 50% compared to R$64.0 million in 2020, due to higher constitution of extemporaneous tax credits as a result of the exclusion of the ICMS from the PIS and COFINS tax base in the amount of R$43.4 million and an increase of R$13.7 million in merchandise paid by our suppliers' to expose their products at the AmPm stores, partially offset by higher costs in the amount of R$37 million to meet the Renovabio's goals to reduce carbon emissions and encourage the consumption and production of biofuels in Brazil.
Gain (loss) on disposal of property, plant and equipment and intangibles. Ultrapar’s income from disposal of assets was R$184.2 million in 2021, an increase of R$98.7 million compared to R$85.5 million in 2020, mainly as a result of the ConectCar’s sale in the amount of R$76.5 million and higher sale of lands owned by Ipiranga's. The sale of Ipiranga's real estate properties is part of the company's business strategy to optimize employed capital when certain real estate properties value are higher than their respective value as an operational asset for the company.
Operating income (loss) before financial income (expenses) and share of profit (loss) of joint-ventures and associates. For the reasons described above, Ultrapar’s operating income before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$1,787.0 million in 2021, an increase of 16% compared to R$1,546.0 million in 2020.
Ultragaz’s operating income before financial income (expenses) and share of profit (loss) of joint-venture and of associates was R$470.3 million in 2021, a decrease of 5% compared to R$494.2 million in 2020, mainly due to higher expenses, partially offset by higher gross profit. Ultracargo’s operating income before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$293.6 million in 2021, an increase of 17% compared to R$251.8 million in 2020, mainly due to higher gross profit. Ipiranga’s operating income before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$1,298.4 million in 2021, an increase of 42% compared to R$915.4 million in 2020, mainly due to higher gross profit, partially offset by higher expenses. abastece aí’s operating loss before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$95.0 million in 2021, an increase of 228% compared to R$29.0 million in 2020, mainly due to higher gross profit.
Financial result, net. Net financial results include mainly income and expenses from interest on financial investments and financing and exchange rate variation. Ultrapar recognized a net financial expense of R$762,7 million in 2021, an increase of 39% compared to a net financial expense of R$550.3 million in 2020, mainly due to the negative results of the fair value position on the foreign exchange hedging and the higher cost of the debts caused by the increase in interest rates.
Income and social contribution taxes. Ultrapar’s income and social contribution taxes were R$188.0 million in 2021, a decrease of 38% compared to R$304.5 million in 2020.
Profit from continuing operations. Ultrapar’s profit from continuing operations was R$818.6 million in 2021, an increase of 27% compared to R$647.1 million in 2020, mainly due to higher operating income in Ipiranga and lower taxes, partially offset by higher financial expenses as described above.
Profit from discontinued operations. Profit from discontinued operations decreased by 77% compared to 2020, mainly due to the impairment of R$427.5 million at Extrafarma in 2021, partially offset by higher operating income before financial expenses in Oxiteno.
Profit for the year. As a result of the foregoing, Ultrapar’s net income was R$883.9 million in 2021, a decrease of 5% compared to R$927.7 million in 2020.
Year ended December 31, 2020 compared to the year ended December 31, 2019.
The following table shows a summary of our results of operations for the years ended December 31, 2020 and 2019:
| Year ended
December 31,
2020 |
|
| % of net
revenuefrom
sales and
services |
|
| Year ended
December 31,
2019 |
|
| % of net
revenuefrom
sales and
services |
|
| Percent
change
2020—2019 | |
|---|
| Re-presented |
|
|
|
|
| Re-presented |
|
|
|
|
|
|
|
|---|
| | (R$ million) | |
|---|
| Continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue from sales and services | 74,058.1 |
|
| 100% |
|
| 83,004.7 |
|
| 100% |
|
| -11% | |
Cost of products and services sold | (70,056.4 | ) |
| 95% |
|
| (78,208.8 | ) |
| 94% |
|
| -10% | |
Gross profit | 4,001.6 |
|
| 5% |
|
| 4,795.9 |
|
| 6% |
|
| -17% | |
Selling, marketing, general and administrative expenses¹ | (2,605.1 | ) |
| 4% |
|
| (2,886.4 | ) |
| 3% |
|
| -10% | |
Other operating income, net² | 64.0 |
|
| 0% |
|
| 140.0 |
|
| 0% |
|
| 54% | |
Gain (loss) on disposal of property, plant and equipment and intangibles | 85.5 |
|
| 0% |
|
| 1.7 |
|
| 0% |
|
| N/A | |
Operating income (loss) before financial income (expenses) and share of profit (loss) of joint-ventures and associates | 1,546.0 |
|
| 2% |
|
| 2,051.2 |
|
| 2% |
|
| -25% | |
Financial result, net | (550.3 | ) |
| 1% |
|
| (673.4 | ) |
| 1% |
|
| -18% | |
Income and social contribution taxes | (304.5 | ) |
| 0% |
|
| (470.0 | ) |
| 1% |
|
| -35% | |
Share of profit (loss) of joint-ventures and associates | (44.0 | ) |
| 0% |
|
| (12.7 | ) |
| 0% |
|
| 246% | |
Profit from continuing operations | 647.1 |
|
| 1% |
|
| 895.2 |
|
| 1% |
|
| -28% | |
Discontinued operations | |
|
| |
|
| |
|
|
|
|
| | |
Profit (loss) from discontinued operations | 280.6 |
|
| N/A |
|
| (492.3 | ) |
| N/A |
|
| -157% | |
Profit for the year | 927.7 |
|
| N/A |
|
| 402.9 |
|
| N/A |
|
| 130% | |
Net income attributable to: | |
|
| |
|
| |
|
| |
|
| | |
Shareholders of Ultrapar | 893.4 |
|
| N/A |
|
| 373.5 |
|
| N/A |
|
| 139% | |
Non-controlling shareholders of the subsidiaries | 34.3 |
|
| N/A |
|
| 29.4 |
|
| N/A |
|
| 17% | |
1 Considers both selling and marketing, reversion (loss) allowance for expected credit losses and general and administrative expenses
2 Considers both other operating income and other operating expenses
Net revenue from sales and services. Ultrapar’s net revenue from sales and services was R$74,058.1 million in 2020, a decrease of 11% compared to R$83,004.7 million in 2019, reflecting lower revenues in Ipiranga, partially offset by higher revenues in Ultragaz and Ultracargo, as further detailed below. Over the past three years, more than 90% of our consolidated net revenue was generated by Ipiranga and Ultragaz. Therefore, the main components of these revenues come from diesel, gasoline, ethanol and LPG sales. Additionally, we also generate revenue from liquid bulk storage services provided by Ultracargo.
The following table shows the change in net revenue from sales and services for each of our segments:
| 2020 |
| 2019 |
| Percent change
2020—2019 |
|
|---|
| (R$ million) |
| |
|
|---|
Ultragaz | 7,408.3 |
| 7,094.8 |
| 4% |
|
Ultracargo | 644.2 |
| 540.8 |
| 19% |
|
Ipiranga | 66,133.0 |
| 75,452.5 |
| -12% |
|
abastece aí | 17.2 |
| - |
| N/A |
|
Net revenue from sales and services from continuing operations (1) | 74,058.1 |
| 83,004.7 |
| -11% |
|
(1) Segment information for Ultragaz, Ultracargo, Ipiranga and abastece aí is presented on an unconsolidated basis
Ultragaz’s net revenue from sales and services was R$7,408.3 million in 2020, an increase of 4% compared to R$7,094.8 million in 2019, mainly due to higher sales volume in the period and increases of LPG prices implemented by Petrobras in 2020 (see “Business Overview Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Prices of LPG"). Ultragaz’s sales volume was 1,732 thousand of tons in 2020 compared to 1,706 thousand of tons in 2019, an increase of 2%, reflecting market growth in the period. In the bottled segment, volumes increased by 2%, due to stronger residential consumption driven by restrictions imposed by the pandemic. In the bulk segment, volumes remained stable with higher sales to industry and special gases (propellants), which were partially offset by lower volumes to the commercial and services sectors, most affected by social distancing measures adopted in connection with efforts to contain the spread of COVID-19 pandemic.
Ultracargo’s net revenue from sales and services was R$644.2 million in 2020, an increase of 19% compared to R$540.8 million in 2019, driven by greater fuel handling in light of expansions and spot operations as well as higher tariffs due to contractual readjustments. The average installed capacity at Ultracargo in 2020 increased by 12%, due to expanded tankage capacity at the terminals in Santos and Itaqui in the past 18 months. Consequently, cubic meter sold grew by 14% with greater fuel handling at the two terminals and a higher number of spot operations. Ultracargo ended the year with a market share of product handling of 25.2% in 2020 versus 23.7% at the end of 2019 according to ABLT, which was in line with the company’s growth plan.
Ipiranga’s net revenue from sales and services was R$66,133.0 million in 2020, a decrease of 12% compared to R$75,452.5 million in 2019, mainly due to lower sales volume and average fuel price volatility, in particular the substantial fall in fuel prices between March and April 2020, followed by continuous increases in the subsequent months. Ipiranga’s sales volume fell by 9% in 2020, due to the effects of the pandemic which significantly impacted fuel consumption in Brazil, mainly in the second quarter of 2020. This decrease was partially offset by a gradual recovery in demand for the period following the second quarter of 2020. The Otto cycle segment was the mostly affected by the lower demand, with sales volume decreasing 14% in 2020 compared to 2019. Sales volume of diesel decreased by 3% in 2020 compared to 2019.
abastece aí’s net revenue from sales and services was R$17.2 million in 2020, mainly linked to Ipiranga gas stations transactions and new partnerships.
Cost of products and services sold. Ultrapar’s cost of products and services sold was R$70,056.4 million in 2020, a decrease of 10% compared to R$78,208.8 million in 2019, due to lower costs in Ipiranga, partially offset by higher costs in Ultragaz and Ultracargo, as further detailed below. Ultrapar main costs of products and services sold are related to the purchase of goods for resale, including diesel, gasoline and ethanol for Ipiranga, LPG for Ultragaz, in addition to depreciation and amortization.
The following table shows the change in cost of products and services sold for each of our segments:
| 2020 |
| 2019 |
| Percent change
2020—2019 |
|
|---|
| (R$ million) |
|
|---|
Ultragaz | 6,310.2 |
| 6,105.0 |
| 3% |
|
Ultracargo | 270.0 |
| 261.0 |
| 3% |
|
Ipiranga | 63,609.9 |
| 71,962.7 |
| -12% |
|
abastece aí | 0,0 |
| - |
| N/A |
|
Cost of products and services sold from continuing operations (1) | 70,056.4 |
| 78,208.8 |
| -10% |
|
(1) Segment information for Ultragaz, Ultracargo, Ipiranga and abastece aí is presented on an unconsolidated basis
Ultragaz’s cost of products and services sold was R$6,310.2 million in 2020, an increase of 3% when compared to R$6,105.0 million in 2019, due to the increases of LPG prices implemented Petrobras in 2020 (see "Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Prices of LPG"), in addition to higher freight costs associated with sourcing LPG from more distant supply bases, as under our LPG supply agreement with Petrobras we are responsible for freight costs and Petrobras may supply LPG through various hubs, not necessarily close to our facilities.
Ultracargo’s cost of products and services sold was R$270.0 million in 2020, an increase of 3% compared to R$261.0 million in 2019, due to the increase in tankage capacity between the periods. The cost of services provided per cubic meter sold posted a decrease of 9%, reflecting gains in productivity at the terminals.
Ipiranga’s cost of products and services sold was R$63,609.9 million in 2020, a decrease of 12% compared to R$71,962.7 million in 2019, in line with the reduction in sales volume described above.
Gross profit. For the reasons described above, Ultrapar’s gross profit was R$4,001.6 million in 2020, a decrease of 17% compared to R$4,795.9 million in 2019, mainly as a result of decreased gross profit in Ipiranga. Ipiranga’s gross profit was R$2,523.2 million in 2020, a decrease of 28% compared to R$3,489.7 million in 2019, mainly due to lower volumes as mentioned above. Ultragaz’s gross profit was R$1,098.2 million in 2020, an increase of 11% compared to R$989.9 million in 2019, due to higher volumes as describe above. Ultracargo’s gross profit was R$374.2 million in 2020, an increase of 34% compared to R$279.7 million in 2019, mainly due to the aforementioned higher volumes. abastece aí’s gross profit was R$17.2 million in 2020.
Selling, marketing, general and administrative expenses. Ultrapar’s selling, marketing, general and administrative (“SG&A”) expenses generally include personnel, freight, marketing and depreciation and amortization expenses. Ultrapar’s SG&A expenses were R$4,098.4 million in 2020, a decrease of 6% compared to R$4,366.6 million in 2019.
The following table shows the changes in SG&A expenses for each of our segments:
| 2020 |
| 2019 |
| Percent change
2020—2019 |
|
|---|
| (R$ million) |
|
|---|
Ultragaz | 620.2 |
| 636.5 |
| -3% |
|
Ultracargo | 129.9 |
| 133.4 |
| -3% |
|
Ipiranga | 1,730.9 |
| 2,002.1 |
| -14% |
|
abastece aí | 47.1 |
| - |
| 13% |
|
Selling, marketing, general and administrative expenses from continuing operations | 2,605.1 |
| 2,886.4 |
| -10% |
|
Ultragaz’s SG&A expenses were R$620.2 million in 2020, a decrease of 3% compared to R$636.5 million in 2019, as a result of several initiatives implemented for reducing expenses, particularly in the payroll line, in addition to lower expenses with materials and provisions for doubtful accounts. This was partially offset by the increase in freight expenditures as a result of higher volume and inflation rate in the period together with higher fees for consultancies hired to improve operational efficiency.
Ultracargo’s SG&A expenses were R$129.9 million in 2020, a decrease of 3% compared to R$133.4 million in 2019, due to lower payroll expenses, which were partially offset by higher expenditures with IT systems for strengthening the technological platform and conceptual engineering projects for expansion studies.
Ipiranga’s SG&A expenses were R$1,730.9 million in 2020, a decrease of 14% compared to R$2,002.1 million in 2019, mainly due to the reduction in payroll and freight (lower sales volume) in addition to lower provisions for doubtful accounts and costs controls on various fronts, such as freight, payroll and marketing expenses.
abastece aí’s SG&A expenses were R$47.1 million in 2020, mainly due to payroll, technology and marketing expenses for structuring and growth of the business.
Other operating income, net. Other operating income, net was R$64.0 million in 2020, a decrease of 54% compared to R$140.0 million in 2019, reflecting the appropriation of costs in the total amount of R$124.0 million, with respect to Renovabio targets at Ipiranga, partially offset by tax credits at Ultracargo in 2020 and the recognition in 2019 of a R$65.5 million provision for the payment of the Conduct Adjustment Agreement (“TAC”) at Ultracargo, signed with the Public Prosecutor’s Office, relating to the implementation of actions to offset the impacts caused to the Santos estuary following the fire at the Ultracargo terminal in 2015 (see “Item 4.A. Information on the Company—History and Development of the Company—Ultracargo —Fire at storage facilities in Santos”).
Gain (loss) on disposal of property, plant and equipment and intangibles. Ultrapar’s expense from disposal of assets was R$85.5 million in 2020, an increase of R$83.8 million compared to R$1.7 million in 2019, mainly due to the higher sale of real estate owned by Ipiranga. The sale of Ipiranga's real estate properties is part of the company's business strategy to optimize employed capital when certain real estate properties value is higher than its respective value as an operational asset for the company.
Operating income (loss) before financial income (expenses) and share of profit (loss) of joint-ventures and associates. For the reasons described above, Ultrapar’s operating income before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$1,546.0 million in 2020, a decrease of 25% compared to R$2,051.2 million in 2019, mainly as a result of the decreased operating income before financial income (expenses) and share of profit (loss) of joint-ventures and associates in Ipiranga, partially offset by the increased operating income before financial income (expenses) and share of profit (loss) of joint-ventures in Ultragaz and Ultracargo.
Ultragaz’s operating income before financial income (expenses) and share of profit (loss) of associates was R$494.2 million in 2020, an increase of 34% compared to R$369.0 million in 2019, mainly due to higher gross profit and lower expenses. Ultracargo’s operating income before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$251.8 million in 2020, an increase of 203% compared to R$83.2 million in 2019, mainly due to higher gross profit and lower expenses. Ipiranga’s operating income before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$915.4 million in 2020, a decrease of 45% compared to R$1,674.4 million in 2019, due to lower gross profit. abastece aí’s operating loss before financial income (expenses) and share of profit (loss) of joint-ventures and associates was R$29.0 million in 2020.
Net financial results, net. Net financial results include mainly income and expenses from interest on financial investments and financing and exchange rate variation. Ultrapar recognized a net financial expense of R$550.3 million in 2020, a decrease of 18% compared to a net financial expense of R$673.4 million in 2019, mainly due to the appropriation of interest on extemporaneous tax credits in 2020.
Income and social contribution taxes. Ultrapar’s income and social contribution taxes net of benefits from income tax exemptions were R$304.5 million in 2020, a decrease of 35% compared to R$470.0 million in 2019, due to lower profit.
Profit from continuing operations. Ultrapar’s profit from continuing operations was R$647.1 million in 2020, a decrease of 28% compared to R$895.2 million in 2019, mainly due to lower operating income before financial income in Ipiranga and higher taxes, partially offset by lower financial expenses in 2020.
Profit from discontinued operations. Profit from discontinued operations was R$280.6 million in 2020, an increase by R$772.9 million compared to 2019, mainly due to the impairment of R$593.3 million at Extrafarma in 2019 and higher operating income before financial income in Oxiteno.
Profit for the year. As a result of the foregoing, Ultrapar’s profit for the year was R$927.7 million in 2020, an increase of 130% compared to R$402.9 million in 2019.
B. Liquidity and Capital Resources
Sources and Uses of funds
Our principal sources of liquidity derive from (i) cash, cash equivalents and financial investments, (ii) cash generated from operations and (iii) financings. Our material cash requirements have included the following:
- Working capital;
- Capital expenditures;
- Amortization of debts; and
- Payment of dividends.
Discussion of contractual obligations
We expect to spend approximately R$14.9 billion to meet contractual obligations over the next five years, including amortization and interest payments on existing financings. As of December 31, 2021, we had short- and long- term obligations related to financings and interest on financing contracts totaling R$3.6 billion and R$9.3 billion, respectively (see Note 17 to our consolidated financial statements). As of December 31, 2021, we also had short- and long- term liabilities in connection with hedge instruments totaling R$0.2 billion and R$0.4 billion, respectively, and short-term and long-term contractual obligations related to lease payables in the amount of R$0.3 billion and R$0.9 billion, respectively.
Subsidiary Ultracargo Logística has agreements with CODEBA, with the Complexo Industrial Portuário Governador Eraldo Gueiros and with Empresa Maranhense de Administração Portuária, in connection with its port facilities in Aratu, Suape and Itaqui, respectively. Such agreements establish a minimum cargo movement of products that corresponds to an obligation of R$14.3 million and R$30.2 million in short- and long-term, respectively.
We also estimate an obligation amount of planned funding from pension plan (Ultraprev) of R$21.8 million and R$94.7 million in short- and long term, respectively.
Moreover, we periodically assess the opportunities for acquisitions and investments. We consider different types of investments, either directly or through joint-ventures, or associated companies, and we finance such investments using cash generated from our operations, debt financing, through capital increases or through a combination of these methods.
We expect to meet our cash requirements through a combination of cash generated from operating activities and cash generated by financing activities, including new debt financing and the refinancing of some of our indebtedness as it becomes due. We believe that our sources of liquidity are sufficient to meet our cash requirements going forward.
Cash Flows
Net cash provided by (used in) operating activities
Net cash provided by operating activities from continuing operations was R$1,603.4 million in 2021, R$660.6 million lower than that of 2020 (a decrease of 29%), due to higher fuels and LPG costs. In 2020, net cash provided by operating activities from continuing operations was R$2,264.0 million, R$108.4 million lower than that of 2019 (a decrease of 5%), due to lower operating income. In 2021, 2020 and 2019, the Company paid R$420.3 million, R$356.0 million and R$330.1 million, respectively, in contractual assets with customers - exclusive rights.
Net cash provided by (used in) investing activities
In 2021, net cash provided by investing activities from continuing operations was R$882.9 million, an increase of R$2,860.5 million compared to 2020. Of this increase in net cash provided by investing activities from continuing operations, R$2,732.8 million resulted from the net redemptions of financial investments, partially offset by the investment of R$201.1 million in additions to property, plant and equipment and intangible assets, net of disposals. In 2020, net cash used in investing activities from continuing operations was R$1,649.0 million, an increase of R$809.7 million as compared to 2019. Of this increase in net cash used in investing activities from continuing operations, R$972.7 million was used in financial investments net of redemptions and R$73.1 million was invested in additions to property, plant and equipment and intangible assets, net of disposals. These effects were partially offset by less investments in joint-ventures in the amount of R$50.3 million, R$68.0 million in initial direct costs of right-of-use assets in 2019 which didn't occur in 2020 and R$117.8 million in proceeds from disposal of property, plant and equipment. In 2019, net cash used in investing activities from continuing operations was R$839.3 million. Of the total net cash used in investing activities from continuing operations, R$795.1 million was invested in additions to property, plant and equipment and intangible assets, net of disposals, partially offset by R$102.9 million resulted from the net redemptions of financial investments.
Net cash provided by (used in) financing activities
In 2021, net cash used in financing activities from continuing operations was R$2,802.6 million, R$3,129.9 million lower than that of 2020, mainly due to higher preventive fundraising carried out in 2020 because of the pandemic in Brazil, management initiatives on indebtedness — such as paying in advance those debts with a higher cost, thus reducing the effects with loading costs —, and the higher payment of dividends in 2021, which were retained in 2020. In 2020, net cash provided by financing activities from continuing operations was R$327.4 million, R$3,007.7 million higher than that of 2019, mainly due to an increase in proceeds from new financings and lower interest payments.
Cash and cash equivalents
Accordingly, cash and cash equivalents totaled R$2,668.1 million, R$2,661.5 million and R$2,115.4 million as of December 31, 2021, 2020 and 2019, respectively.
As of December 31, 2021, we had R$4,084.2 million in cash, cash equivalents and financial investments and hedging instruments whereas our consolidated debt due from January 1 to December 31, 2022 totaled R$3,605.4 million, including estimated interest payments on loans.
The Company and its subsidiaries use exchange rate hedging instruments (especially between the Real and the U.S. dollar) available in the financial market to protect its assets, liabilities, receipts and disbursements in foreign currency and net investments in foreign operations. Hedging instruments are used to reduce the effects of variations in exchange rates on the Company’s income and cash flows in Reais within the exposure limits under its Policy. Such foreign exchange hedging instruments have amounts, periods, and rates substantially equivalent to those of assets, liabilities, receipts, and disbursements in foreign currencies to which they are related. For additional information regarding our funding and treasury policies, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”
Consolidated debt
As of December 31, 2021, our consolidated short and long-term debt was as follows:
| Consolidated debt |
| Currency |
| Interest rate(1) |
| Principal amount of
outstanding and accrued
interest through
December 31, |
|
|---|
| |
| |
| |
| 2021 |
| 2020 |
|
|---|
| |
| |
| |
| (in millions of Reais) |
|
|---|
Foreign currency – denominated loans: |
| |
| |
| |
| |
|
Notes in the foreign market |
| US$ |
| 5.3% |
| 7,821.4 |
| 7,267.7 |
|
Foreign loan |
| US$ |
| 4.0% |
| 735.4 | | 1,047.6 |
|
Foreign loan |
| US$ |
| LIBOR (2) + 1.0% |
| 275.9 |
| 261.3 |
|
Financial institutions |
| US$ |
| LIBOR (2) + 1.4% |
| — |
| 312.2 |
|
Financial institutions |
| US$ |
| 2.5% |
| — |
| 154.8 |
|
Advances on foreign exchange contracts |
| US$ |
| 3.7% |
| — |
| 105.6 |
|
Financial institutions |
| MX$(3) |
| 8.4% |
| — |
| 39.4 |
|
Foreign loan |
| US$ |
| |
| — |
| — |
|
BNDES |
| US$ |
| |
| — |
| — |
|
Reais – denominated loans: |
| |
| |
| |
| |
|
Debentures – CRA – 5th, 7th and 8th issuances Ipiranga |
| R$ |
| 95.8% of DI |
| 2,063.8 |
| 2,037.6 |
|
Debentures – CRA – 5th, 7th and 8th issuances Ipiranga |
| R$ |
| IPCA (4) + 4.7% |
| 1,940.2 |
| 1,000.8 |
|
Debentures – 6th issuance |
| R$ |
| 105.3% of DI |
| 1,764.2 |
| 1,734.1 |
|
Debentures – 4th and 6th public issuances Ipiranga |
| R$ |
| 105.0% of DI |
| 771.5 |
| 1,679.0 |
|
Debentures – 2nd public issuance Ultracargo Logística and 1st issuance Tequimar Vila do Conde |
| R$ |
| IPCA (4) + 4.1% |
| 466.1 |
| — |
|
Banco do Brasil – floating rate |
| R$ |
| 110.9% of DI |
| 204.8 |
| 407.4 |
|
Debentures – 1st public issuance Ultracargo Logística |
| R$ |
| 6,5% |
| 80.9 |
| 92.5 |
|
Bank Credit Bill |
| R$ |
| DI + 2.0% |
| 51.2 |
| 50.7 |
|
FINEP – Research and Projects Financing |
| R$ |
| TJLP (5) - 1.5% |
| 0.3 |
| 29.8 |
|
Promissory Notes – 2nd issuance |
| R$ |
| R$ + DI |
| — |
| 1,038.5 |
|
Total loans |
| |
| |
| 16,180.5 |
| 17,259.1 |
|
Unrealized losses on swaps transactions |
| |
| |
| 197.2 |
| 117.2 |
|
Total |
| |
| |
| 16,377.6 |
| 17,376.2 |
|
| (1) | Interest rate as of December 31, 2021. |
| (2) | LIBOR = London Interbank Offered Rate. |
| (3) | MX$ = Mexican peso |
| (4) | IPCA = Brazilian National Wide Consumer Price Index. |
| (5) | TJLP (Long-Term Interest Rate) = set by the National Monetary Council, TJLP is the basic financing cost of FINEP for agreements entered into before 2020. On December 31, 2021, TJLP was fixed at 5.32% p.a. |
Our consolidated debt as of December 31, 2021 had the following maturity schedule:
| Maturity |
| Amount |
|
|---|
| |
| (in millions of Reais) |
|
|---|
January 1, 2022 to December 31, 2022 |
| 2,866.1 |
|
January 1, 2023 to December 31, 2023 |
| 3,092.7 |
|
January 1, 2024 to December 31, 2024 |
| 774.9 |
|
January 1, 2025 to December 31, 2025 |
| 270.4 |
|
January 1, 2026 to December 31, 2026 |
| 3,056.5 |
|
2026 thereafter |
| 6,317.0 |
|
Total |
| 16,377.6 |
|
As provided in IAS 39, the transaction costs and issuance premiums associated with our fundraising are included as part of our financial liabilities. See Note 17.g to our consolidated financial statements for more information.
Ultrapar contracted hedging instruments against foreign currency exchange and interest rate variations for a portion of its indebtedness. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and Note 33 to our consolidated financial statements for more information.
As of December 31, 2021, none of the financings are secured by collateral (R$75.3 million as of December 31, 2020) but are guaranteed by corporate guarantees and promissory notes in the amount of R$14,151.5 million (R$13,758.0 million as of December 31, 2020). As of December 31, 2021, and 2020, the Company did not have guarantees related to raw materials imported by the subsidiary Ipiranga.
Some subsidiaries issued collateral to financial institutions in connection with the amounts owed by some of their customers to such institutions (vendor financing). If a subsidiary is required to make any payment under this collateral, this subsidiary may recover the amount paid directly from its customers through commercial collection. The maximum amount of future payments related to this collateral is R$690.3 million as of December 31, 2021 with maturities of less than 49 months. As of December 31, 2021, Ultrapar did not have losses in connection with this collateral. The fair value of collaterals recognized in current liabilities as other payables was R$9.9 million as of December 31, 2021, which is recognized as profit or loss as customers settle their obligations with the financial institutions.
Collateral
As of December 31, 2021, Ultrapar had no debt secured by property, plant and equipment.
Notes in the foreign market
In October 2016, the subsidiary Ultrapar International issued notes (the “2026 notes”) in the international markets in the principal amount of US$750 million, with maturity in October 2026 and interest rate of 5.25% p.a., paid semiannually. The issue price was 98.097% of the face value of the 2026 notes. The 2026 notes are guaranteed by Ultrapar and Ipiranga. In June 2019, the subsidiary Ultrapar International repurchased US$200.0 million in principal amount of the 2026 notes.
In June 2019, the subsidiary Ultrapar International issued notes (the “2029 notes”) in the international market in the amount of US$500 million, with maturity in June 2029 and interest rate of 5.25% p.a., paid semiannually. The issue price was 100.0% of the face value of the 2029 notes. The 2029 notes are guaranteed by Ultrapar and Ipiranga. In July 2020, Ultrapar reopened its 2029 notes issued in the international market and issued additional notes in the total amount of US$350.0 million at an interest rate of 5.25% per year with the same characteristics of the 2029 notes.
As a result of the issuance of the 2026 notes and the 2029 notes, the Company and its subsidiaries are required to comply with certain obligations, including:
- restrictions on the Company, Ultrapar International and Ipiranga entering into a merger, consolidation or sale of all or substantially all of the assets of the Company and its consolidated subsidiaries; and
- restrictions on encumbrance of assets exceeding the greater of US$150 million and 15% of the Company’s consolidated net tangible assets, subject to certain exceptions.
The Company and its subsidiaries are in compliance with the levels of covenants required by the terms of these notes. The restrictions imposed on the Company and its subsidiaries are customary in transactions of this kind and have not limited their ability to conduct their business to date.
Foreign loans
The subsidiary Ipiranga has foreign loans in the total amount of US$175 million. Ipiranga also contracted hedging instruments for floating interest rate in U.S. dollar and exchange rate variation, changing the foreign loans charge to an average cost of 104.9% of DI (see Note 33 to our consolidated financial statements). Ipiranga designated these hedging instruments as a fair value hedge; therefore, loans and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss. The foreign loans are guaranteed by Ultrapar.
The maturity of the principal amount of these loans are as follows:
| |
| Amount |
| Cost |
|
|---|
| Maturity |
| in millions
of dollars |
| % of
DI |
|
|---|
Charges (1) |
| 6.2 |
| — |
|
June, 2022 |
| 50.0 |
| 105.0 |
|
September, 2023 |
| 60.0 |
| 105.0 |
|
September, 2023 |
| 65.0 |
| 104.8 |
|
Total / average cost |
| 181.2 |
| 104.9 |
|
| (1) | Includes interest, transaction costs, fair value adjustments and hedge initial recognition. |
Debentures
In September 2021, the subsidiary Ipiranga completed its tenth issuance of unsecured, simple, nonconvertible, nominative, book-entry debentures in the amount of R$960 million, in single series. The debentures were subscribed by Vert Companhia Securitizadora with the purpose of backing the issuance of Certificates of Agribusiness Receivables, or CRA. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary Ipiranga. The financial settlement took place on September 16, 2021. The debentures have an additional guarantee from Ultrapar and the main characteristics are as follows:
Principal Amount: | R$960,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | September 15, 2028 |
Repayment method: | Lump sum at final maturity |
Interest: | IPCA + 4.8287% |
Payment of interest: | Semiannually |
The subsidiary Ipiranga contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 102.75% of DI. Ipiranga designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
In March 2021, the subsidiary Ultracargo Logística completed its second issuance of public debentures, in a single series of 100,000 simple, nonconvertible into shares and unsecured debentures, which the main characteristics are as follows:
Principal Amount: | R$100,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | March 15, 2028 |
Repayment method: | Lump sum at final maturity |
Interest: | IPCA + 4.37% |
Payment of interest: | Semiannually |
The subsidiary Ultracargo Logística contracted hedging instruments subject to interest rate variation, changing the debentures fixed rate charges to 111.4% of CDI. Ultracargo Logística designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
In March 2021, the subsidiary Tequimar Vila do Conde completed its first issuance of public debentures, in a single series of 360,000 simple, nonconvertible into shares and unsecured debentures, which the main characteristics are as follows:
Principal Amount: | R$360,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | March 15, 2028 |
Repayment method: | Lump sum at final maturity |
Interest: | IPCA + 4.04% |
Payment of interest: | Semiannually |
The subsidiary Tequimar Vila do Conde contracted hedging instruments subjected to interest rate variation, changing the debentures fixed rate charges to 111.4% of DI. Tequimar Vila do Conde designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
In November 2019, the subsidiary Ultracargo Logística completed its first issuance of public debentures, in a single series of 90,000 simple, nonconvertible into shares and unsecured debentures, which the main characteristics are as follows:
Principal Amount: | R$90,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | November 19, 2024 |
Repayment method: | Lump sum at final maturity |
Interest: | 6.47% |
Payment of interest: | Semiannually |
The subsidiary Ultracargo Logística contracted hedging instruments subjected to interest rate variation, changing the debentures fixed rate charges to 99.94% of DI. Ultracargo Logística designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
In December 2018, the subsidiary Ipiranga completed its eighth issuance of unsecured, simple, nonconvertible, nominative, book-entry debentures in the amount of R$900 million, in two series of R$660 million and R$240 million. The debentures were subscribed by Vert Companhia Securitizadora with the purpose of backing the issuance of Certificates of Agribusiness Receivables (CRA). The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary Ipiranga.
The financial settlement occurred on December 21, 2018. The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:
Principal Amount: | R$660,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | December 18, 2023 |
Repayment method: | Lump sum at final maturity |
Interest: | 97.5% of DI |
Payment of interest: | Semiannually |
Principal Amount: | R$240,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | December 15, 2025 |
Repayment method: | Lump sum at final maturity |
Interest: | IPCA + 4.61% |
Payment of interest: | Annually |
The subsidiary Ipiranga contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 97.1% of DI. Ipiranga designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
In March 2018, Ultrapar completed its sixth issuance of unsecured simple, nonconvertible, nominative, book-entry debentures, in a single series of 1,725,000 simple, and their main characteristics are as follows:
Principal Amount: | R$1,725,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | March 5, 2023 |
Repayment method: | Lump sum at final maturity |
Interest: | 105.25% of DI |
Payment of interest: | Semiannually |
In October 2017, the subsidiary Ipiranga completed its seventh issuance of simple, nonconvertible, unsecured, book-entry debentures in the amount of R$944.1 million, in two series of R$730.4 million and R$213.7 million. These debentures were subscribed by Vert Companhia Securitizadora with the purpose of backing the issuance of Certificates of Agribusiness Receivables (CRA). The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary Ipiranga.
The financial settlement occurred on November 1, 2017. The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:
Principal Amount: | R$730,384,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | October 24, 2022 |
Repayment method: | Lump sum at final maturity |
Interest: | 95.0% of DI |
Payment of interest: | Semiannually |
Principal Amount: | R$213,693,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | October 24, 2024 |
Repayment method: | Lump sum at final maturity |
Interest: | IPCA + 4.34% |
Payment of interest: | Annually |
The subsidiary Ipiranga contracted interest rate hedging instruments, with the effect of changing the interest rate applicable to the debentures from IPCA + 4.34% to 97.3% of DI. Ipiranga designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
In July 2017, the subsidiary Ipiranga completed its sixth issuance of public debentures, in one single series of 1,500,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:
Principal Amount: | R$1,500,000,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | July 28, 2022 |
Repayment method: | Amortizing annually, beginning in July 2021 |
Interest: | 105.0% of DI |
Payment of interest: | Annually |
In April 2017, the subsidiary Ipiranga carried out its fifth issuance of debentures, in two series of 660,139 and 352,361, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary Ipiranga.
The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:
Principal Amount: | R$660,139,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | April 18, 2022 |
Repayment method: | Lump sum at final maturity |
Interest: | 95.0% of DI |
Payment of interest: | Semiannually |
Principal Amount: | R$352,361,000.00 |
Unit Par Value: | R$1,000.00 |
Maturity date: | April 15, 2024 |
Repayment method: | Lump sum at final maturity |
Interest: | IPCA + 4.68% |
Payment of interest: | Annually |
The subsidiary Ipiranga entered into interest rate hedging instruments, with the effect of changing the interest rate applicable to the debentures from IPCA to 93.9% of DI. Ipiranga designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
In May 2016, the subsidiary Ipiranga completed its fourth issuance of public debentures, in a single series of 500 simple, nonconvertible into shares, nominative, book-entry and unsecured debentures, with an additional guarantee granted by Ultrapar, and its main characteristics are as follows:
Principal Amount: | R$500,000,000.00 |
Unit Par Value: | R$1,000,000.00 |
Maturity date: | May 25, 2021 |
Repayment method: | Amortizing annually, beginning in May 2019 |
Interest: | 105.0% of DI |
Payment of interest: | Semiannually |
The proceeds of this issuance were used exclusively in the purchase of ethanol by the subsidiary Ipiranga. The subsidiary has the obligation to prove the allocation of the resources within 12 months from subscription.
BNDES
The subsidiaries had financings from BNDES for some of their investments and for working capital.
The subsidiaries paid off in advance the total outstanding amount of such loans in 2020.
Financial institutions
As of December 31, 2021, the subsidiary abastece aí had short-term loans in the amount of R$4.6 million.
In addition, former subsidiary Oxiteno México S.A. de C.V had a loan in the amount of US$20 million with maturity in April 2022 and Oxiteno Uruguay had loans with different maturity dates ranging from October 2021 to July 2022. As of December 31, 2021, the outstanding balance of the loans contracted by Oxiteno México S.A. de C.V and Oxiteno Uruguay totaled R$163.5 million.
In 2020, Oxiteno USA contracted a loan, which was fully paid on its maturity in September 2021.
Banco do Brasil
The subsidiary Ipiranga has floating rate loans with Banco do Brasil in the amount of R$204.8 million as of December 31, 2021.
Investments
Equity investments
Equity investments consist of capital increases, joint-ventures and associates. The table below shows our equity investments for the years ended December 31, 2021, 2020 and 2019:
| Year ended December 31, |
|
|---|
| 2021 |
| 2020 |
| 2019 |
|
|---|
| (in millions of Reais) |
|
|---|
Ultragaz | — |
| — |
| — |
|
Ultracargo | — |
| — |
| — |
|
Oxiteno | — |
| — |
| — |
|
Ipiranga (1) | 25.7 |
| 28.8 |
| 79.1 |
|
Extrafarma | — |
| — |
| — |
|
abastece aí | — |
| — |
| — |
|
Others | — |
| — |
| — |
|
Total equity investments (2) | 25.7 |
| 28.8 |
| 79.1 |
|
(1) | Capital invested in ConectCar and in the concessions acquired in 2019. |
| (2) | Equity investments consist of acquisition of subsidiaries and capital increases, net of capital reductions in joint-ventures and associates. |
Investments
The following table shows our total additions to property, plant, equipment, and intangible assets for the years ended December 31, 2021, 2020 and 2019:
| Year ended December 31, |
|
| 2021
|
| 2020 |
| 2019 |
|
| (in millions of Reais) |
|
Ultragaz | 333.4 |
| 277.6 |
| 227.5 |
|
Ultracargo | 313.9 |
| 214.8 |
| 206.4 |
|
Oxiteno | 286.8 |
| 201.6 |
| 248.6 |
|
Ipiranga | 393.3 |
| 210.1 |
| 341.1 |
|
Extrafarma | 36.4 |
| 38.8 |
| 89.1 |
|
abastece aí | 35.5 |
| 15.4 |
| — |
|
Others(1) | 27.1 |
| 32.4 |
| 20.2 |
|
Total – additions to property, plant, equipment and intangible assets | 1,426.3 |
| 990.8 |
| 1,132.8 |
|
| (1) | Includes mainly capital expenditures related to corporate information technology. |
Ultrapar’s investment plan for 2021 totaled R$1,891 million and was indicative of the Company’s commitment to the sustainable growth of its businesses and selectivity in capital allocation.
In 2021, Ultrapar’s allocation of resources net of divestments and receipts were R$1,884 million.
- Ultragaz had R$354 million allocated mainly to equipment installed in new customers in the bulk segment, to the new plants in Belém, in the state of Pará, and Fortaleza, in the state of Ceará, to the acquisition and replacement of bottles, in addition to security and information technology projects.
- Ultracargo had R$358 million allocated to the construction of the new terminal in Vila do Conde, in the state of Pará, to the phase 3 expansion of the Itaqui terminal and projects for efficiency gains, maintenance and operational safety of the terminals.
- Oxiteno had R$287 million allocated mainly to the maintenance and safety of the productive units.
- Ipiranga had R$807 million allocated to the expansion and maintenance of Ipiranga’s service stations franchise network, besides logistics infrastructure. Out of the total investments, R$418 million refers to fixed and intangible assets and R$420 million to contractual assets with customers (exclusive rights). These amounts were reduced by the receipt of R$32 million installments from sale of real estate assets, net of financings offered to customers.
- Extrafarma had R$36 million allocated mainly to information technology projects and maintenance and improvements in stores.
- abastece aí had R$35 million allocated mainly to the development of the app with new products and functions enhancing the experiences to the customers.
C. Research and Development, Trademarks and Patents
Research and Development
While operated by us, Oxiteno carried out a wide range of research and development activities, mainly related to the application of specialty chemicals and improvement in production processes. As of December 31, 2021, 169 employees of Oxiteno were engaged in research and development and engineering activities. Oxiteno’s research and development expenditures in 2021, 2020 and 2019 were R$62 million, R$60 million and R$60 million, respectively.
Oxiteno’s investments in research and development have resulted in the introduction of 170 new products during the last three years.
Trademarks and Patents
Ipiranga owns registrations for the trademarks used in its distribution business, such as Ipiranga, AmPm, Jet Oil, Clube VIP Ipiranga, Clube do Milhão Ipiranga, Posto 24 horas, Atlantic, Gasolina Original Ipiranga (Original Ipiranga Gasoline), “AmPm Estação”, among several others. The 10-year period of validity of the registrations for these trademarks will expire between 2022 and 2031.
The other Company’s subsidiaries also own registrations and applications for its main trademarks, such as (i) Ultragaz, Ultragaz Ultrasystem and Brasilgás trademarks for the activities of Ultragaz, (ii) Ultracargo and Ultradata for the activities of Ultracargo, and (iii) Quilômetros de Vantagens Ipiranga (“Km de Vantagens”) and “abastece aí” for the activities of abastece aí. The 10-year period of validity of the registrations for these trademarks will expire between 2022 and 2031.
As of December 31, 2021, we also owned registration and applications for the following trademarks in connection with our discontinued operations: (i) Extrafarma and Clube Extrafarma trademarks for the activities of Extrafarma and (ii) Oxiteno for the activities of Oxiteno.
D. Trend Information
Continuing Operations
LPG business
In June 2017, departing from prior practices, the price dynamic for LPG supplied by the distributors was modified to reflect international price volatility and exchange rate variation.
For residential use, the price dynamic for LPG acquisition was adjusted at the refineries in January 2018 to soften the transfer of price volatility in the international market to the domestic price. The period for verification of international prices and currency rates which dictate the percentages of price adjustment was the average of the preceding twelve months and no longer the monthly variation and price movement became quarterly and not monthly.
In August 2019, the pricing policy for residential use was terminated. There is now no formal policy for LPG prices for commercial, industrial and residential usage. See “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas— Industry and Regulatory Overview—The role of the Brazilian government.”
Until November 2019, Petrobras had different prices for LPG for residential use and for commercial and industrial uses. In November 2019, Petrobras started charging the same price for all LPG segments, ending price differentiation.
Any sharp fluctuation in LPG prices charged to LPG distributors can have an impact on Ultragaz’s results if it is unable to maintain its operational margins or sales volume. LPG bulk sales are correlated to economic growth. Thus, an acceleration or deceleration in Brazilian GDP growth can affect our sales volume, since the segment represented approximately 30% of the volume sold by Ultragaz. Bottled LPG is an essential good and, therefore, it has a relatively low correlation with economic performance. For more information on LPG prices see “Item 4.B. Information on the Company—Business Overview—Distribution of Liquefied Petroleum Gas—Ultragaz—Prices of LPG.”
At the beginning of the COVID-19 pandemic, LPG prices fell following oil prices. But, in April 2020 and May 2020, international prices rebounded as a result of the subsequent increase in demand, particularly in Asia. On the second semester of 2020, LPG prices in the world moved along with the seasonal trend, but since December 2020, many factors contributed to increased prices, such as the severe winter conditions noticed in the northern hemisphere, increased demand in Chinese petrochemical industry and the OPEC production agreement.
In 2021, the exchange rate (R$/US$) in Brazil remained mostly at the same level of the beginning of the year, between R$5.40 and R$5.60, so the volatility observed during 2021 can be attributed mainly to international LPG prices. In the first quarter, international prices fell, following the seasonality of the product. After that, just like most commodities prices worldwide, LPG prices increased to the highest levels since 2014. Petrobras followed that trend and adjusted LPG prices several times in 2021, the last of which happened in October.
In 2022, the conflict between Russia and Ukraine has been increasing volatility in oil prices with a direct impact on LPG international prices. As a result, Petrobras announced a new adjustment to the LPG price on March 10, 2022. Further increases in the raw material prices could impact the LPG consumption for residential use in 2022.
Fuel distribution business
In the recent past, the combined sales of gasoline, ethanol and NGV (Otto cycle) in Brazil have been correlated mainly with the growth of the light vehicle fleet. According to ANFAVEA, in 2021, the light vehicle fleet registered approximately 2.0 million new licensed vehicles in Brazil, and 1% increase in the average fleet compared to 2020, reaching almost 44 million light vehicles. In addition, we believe that the current proportion of inhabitants per vehicle in Brazil is still low when compared to the rate observed in countries with a similar level of development.
According to information from the ANP, in 2021, the national volume of Otto cycle sold increased by 2%, following the increase in the light vehicle fleet. Diesel sales, which in 2021 represented 53% of the volume sold by Ipiranga, have historically been correlated with Brazilian economic performance, especially in the agricultural and consumer goods segments. In 2021, the Brazilian diesel market, according to ANP data, increased by 8% compared to 2020. The increase in fuel consumption may have a positive effect on the future volume sold by the Company and on its results.
In 2022, the conflict between Ukraine and Russia has been causing increased volatility in oil prices with a direct impact on both diesel and gasoline prices. As a result of this volatility fuel supply chains could be affected.
Digital payments business
The banking sector in Brazil has extremely complex and bureaucratic process to open new accounts. We believe that in Brazil there is a considerable number of people still unbanked and a large quantity of active smartphones. These two factors represent an opportunity to digital wallets.
In 2020, the Central Bank of Brazil announced a new instant payment system with potential to completely transform the country's payment industry, allowing transaction at any time, reducing costs and eliminating intermediaries in the transfer and payment process. In November, 2020, the PIX was launched and its utilization has been growing significantly since then. In 2021 we continued expanding our digital payments business, with our digital wallet reaching more than 4 million customers.
In 2022, we expect limited spillover of the political uncertainties and fuels pricing on abastece aí and Km de Vantagens businesses.
Discontinued Operations
Retail pharmacy business
Retail pharmacy is a relevant market in Brazil and during the last years has presented significant growth. According to ABRAFARMA, the revenues of its member companies grew by 16% in 2021 compared to 2020. We believe the sector has potential for continued growth, mainly due to:
| (i)
| Brazilian aging population – the estimated Brazilian population over 60 years, which is responsible for the largest part of the consumption of medicines, is estimated at 31 million people and is expected to reach 42 million people in 2030, an average growth of 3% per year, according to IBGE data; |
| (ii) | greater access to medicines, especially due to the growing prominence of generic drugs, which are cheaper than the reference branded medicine; |
| (iii) | and the growing sale of personal care and beauty products through the drugstore channel. |
On May 18, 2021, we entered into a share purchase and sale agreement for the sale of all shares of Extrafarma to Pague Menos. We expect such transaction to be closed during 2022. Following the consummation of this transaction, we will no longer operate any retail pharmacy business and, as a result, our businesses and operations will no longer be subject to the trends of this industry. For more information, see “Item 4.A. Information on the Company—History and Development of the Company—A.2 Discontinued Operations—Extrafarma” and “Item 4.A. Information on the Company—History and Development of the Company—Recent Developments—Investitures and Divestitures.”
Chemical and petrochemical business
As of December 31, 2021, we conducted petrochemical and chemical activities through our then-wholly owned subsidiary, Oxiteno. On April 1, 2022, we concluded the sale of all shares of Oxiteno to Indorama Ventures PLC, pursuant to the share purchase and sale agreement dated August 16, 2021. As a result of our sale of Oxiteno, we have classified our related line of business as a discontinued operation. As of the date hereof, we no longer operate in the chemical and petrochemical businesses and, as a result, our businesses and operations are no longer subject to the trends of these industries. For more information, see “Item 4.A. Information on the Company—History and Development of the Company—A.2 Discontinued Operations—Oxiteno.”
E. Critical Accounting Estimates
Our financial statements are presented in IFRS as issued by the IASB. For summary information see Note 2 to our consolidated financial statements.
A. Directors and Senior Management
The following table lists the members of our Board of Directors and senior management as of the date of this annual report:
| Name |
| Position |
| Years with the
Company |
| Age |
Board of Directors |
| |
| |
| |
Pedro Wongtschowski |
| Chairman |
| 45 |
| 76 |
Frederico Pinheiro Fleury Curado(1) |
| Vice-Chairman |
| 4 |
| 60 |
Alexandre Teixeira de Assumpção Saigh |
| Director |
| 1 |
| 54 |
Ana Paula Vitali Janes Vescovi |
| Director |
| 3 |
| 53 |
Flávia Buarque de Almeida |
| Director |
| 3 |
| 54 |
Jorge Marques de Toledo Camargo |
| Director |
| 7 |
| 68 |
José Galló |
| Director |
| 3 |
| 70 |
José Luiz Alquéres(2) |
| Director |
| 1 |
| 78 |
José Maurício Pereira Coelho |
| Director |
| 7 |
| 55 |
Otávio Lopes Castello Branco Neto(2) |
| Director |
| 1 |
| 63 |
Executive Officers |
| |
| |
| |
Marcos Marinho Lutz(3) |
| Chief Executive Officer |
| 8 |
| 52 |
Rodrigo de Almeida Pizzinatto |
| Chief Financial and Investor Relations Officer, Ultrapar |
| 22 |
| 45 |
Marcelo Pereira Malta de Araújo(4) |
| Chief Corporate Development and Advocacy Officer |
| 3 |
| 60 |
Décio de Sampaio Amaral |
| Officer, Ultracargo |
| 2 |
| 52 |
Leonardo Remião Linden(5) |
| Officer, Ipiranga |
| 4 |
| 56 |
Tabajara Bertelli Costa |
| Officer, Ultragaz |
| 26 |
| 50 |
(1) Vice-Chairman of the Board of Directors elected at the meeting of the Board of Directors held in September 2021 with mandate term of office from January 3, 2022 to the completion of the mandate term of the current members of the Board of Directors.
(2) Members of the Board of Directors elected for their first term at the annual and extraordinary general shareholders’ meeting held in April 2021.
(3) Mr. Lutz was a member of the Board of Directors until December 2021 and took office as Chief Executive Office in January 2022. Mr. Lutz has also served as Ultracargo’s Officer from 2001 to 2003 and held different positions at Ultragaz, from 1994 to 1999.
(4) Chief Corporate Development & Advocacy Officer elected at the meeting of the Board of Directors held in September 2021.
(5) Mr. Linden was elected as Executive Officer at the Board of Directors’meeting held in September 2021. Mr. Linden has previously served as Iconic’s CEO from 2017 to 2021.
Summarized below is information regarding the business experience, areas of experience and principal outside business interest of the current members of our Board of Directors and our senior management.
Board of Directors
Pedro Wongtschowski. Dr. Wongtschowski became an Officer of Ultrapar in 1985, and served as CEO from January 2007 to December 2012. Currently, he serves as chairman of Ultrapar’s Board of Directors and as Coordinator of its Strategy Committee. He is chairman of the Board of the ANPEI (Associação Nacional de Pesquisa e Desenvolvimento das Empresas Inovadoras), Chairman of the Committee of Innovation and Competitiveness of FIESP (Federação das Indústrias do Estado de São Paulo), member of the Management Committee of Business Mobilization for Innovation of the MEI-CNI (Mobilização Empresarial pela Inovação - Confederação Nacional da Indústria), member of the Board of São Paulo Research Foundation (FAPESP), member of the Board the of EMPRAPII (Empresa Brasileira de Pesquisa e Inovação Industrial) and member of the Board of IEDI (Instituto de Estudos para o Desenvolvimento Industrial). Dr. Wongtschowski is a member of the Board of Directors of Embraer S.A., CTC (Centro de Tecnologia Canavieira) and several non-profit-organizations. He is author or co-author of books related to the chemical industry. Dr. Wongtschowski is a Chemical Engineer, with MSc and PhD from Escola Politécnica of the University of São Paulo.
Frederico Pinheiro Fleury Curado. Mr. Frederico Curado was CEO of Ultrapar from October 2017 to December 2021. Currently he serves as Vice-Chairman of the Board of Directors and member of the People, Strategy and Conduct Committees. Prior to joining Ultrapar, he was CEO of Embraer S.A. from 2007 to 2016, where he previously held the positions of Executive Vice President of Commercial Aviation Market from 1998 to 2007, and Executive Vice President of Planning and Organizational Development from 1995 to 1998. Mr. Curado is a member of the Board of Directors of Transocean Ltd. (since 2013) and ABB Ltd. (since 2016). Mr. Curado served as a member of the Board of Directors of Iochpe-Maxion S.A. (from 2015 to 2017), Vice-President of CCI - International Chamber of Commerce (2013-2018), President of the Brazil-United States Business Council (2011-2016), and as a member of the Board of the Smithsonian Air and Space Museum (2014-2017). Mr. Curado holds a bachelor's degree in Mechanical-Aeronautical Engineering from the Technological Institute of Aeronautics (ITA) in 1983 and has an Executive MBA from the University of Sao Paulo in 1997.
Alexandre Teixeira de Assumpção Saigh. Mr. Saigh joined us in September 2020 as a member of the Board of Directors and currently is also a member of the People Committee. Mr. Saigh is co-founder and member of the Executive Committee of Pátria Investimentos Ltda., a leading alternative investment management firm in Latin America. Mr. Saigh was a partner at Banco Patrimônio responsible for the development and execution of its merchant banking & private equity activities from 1994 until 2000, when he co-founded Pátria Investimentos. Mr. Saigh received a degree in financial management and hotel administration from Boston University and a postgraduate degree in economics from Harvard University.
Ana Paula Vitali Janes Vescovi. Ms. Vescovi joined us in July 2019 as a member of the Board of Directors and the Audit and Risks Committee where she currently serves as a coordinator since April 2021. In 2019, Ms. Vescovi became head of macroeconomics at Banco Santander (Brasil) S.A. Ms. Vescovi has been the Chairwoman of the Board of Directors of Caixa Econômica Federal from 2017 to 2018. Ms. Vescovi was also deputy minister and secretary of the National Treasury in the Ministry of Finance of the Federative Republic of Brazil from 2016 to 2018. Ms. Vescovi was a member of the Board of Directors of Eletrobrás, and Chairwoman of the Board of Directors of IRB – Brasil Resseguros S.A. from 2017 until 2018. She received a degree in economy from Federal University of Espírito Santo in 1990, a master’s degree in economics from Fundação Getulio Vargas (FGV) in 1992 and a master’s degree in public policies from the University of Brasília in 2001.
Flávia Buarque de Almeida. Ms. Buarque de Almeida joined us in April 2019 as a member of both the Board of Directors and the Strategy Committee. At Península Capital S.A. she has been Managing Director and Partner since 2013, as well as executive officer since 2019 and managing director of O3 Gestão de Recursos Ltda. Ms. Buarque de Almeida has been a member of the Board of Directors of BRF S.A. and Groupe Carrefour since 2017, W2W E-Commerce de Vinhos S.A. since 2016 and Vitamina Chile S.P.A since 2018. She served as a Director at GAEC Educação S.A. from 2014 to 2018 and Lojas Renner S.A. from 2011 to 2016. She received a degree in business administration from Fundação Getulio Vargas (FGV) in São Paulo in 1989 and holds an MBA from Harvard Business School in 1994, in addition to extension courses from Kellogg Graduate School of Management (Northwestern University), Insead and Harvard.
Jorge Marques de Toledo Camargo. Mr. Camargo joined us in April 2015 as a member of the Board of Directors and currently is also a member of the Audit and Risks and the Strategy Committees. He has been a member of the Board of Directors of Prumo Logística S.A. since 2014 and of Açu Petróleo S.A. since 2020. He is also Vice-President of the Board of Trustees of Centro Brasileiro de Relações Internacionais (CEBRI). Mr. Camargo served as President of Instituto Brasileiro de Petróleo e Gás (IBP) from 2015 to 2018 and is now member of its Board of Directors. He was also a senior consultant at McKinsey & Comp., Inc. from 2012 to 2019, and a member of the Board of Directors of Mills Estruturas e Serviços de Engenharia S.A. from 2011 to 2017. Previously he worked 27 years for Petrobras, including as a member of its Board of Officers, responsible for the International Area, and for Equinor, from 2003 to 2009, as Senior Vice-President at the headquarter in Norway and later as President of Equinor Brazil. He has more than 40 years of experience in the oil and gas industry. He graduated in Geology from the University of Brasilia and obtained a master’s degree in Geophysics from the University of Texas at Austin.
José Galló. Mr. Galló joined us in April 2019 as a member of the Board of Directors and the People Committee (where he also acts as a coordinator). He has been a member of the Board of Directors of Lojas Renner SA since 1998, having taken over as President of the body in 2019. He was Managing Director of Lojas Renner SA, from September 1991 to March 1999, when he was elected CEO, position which he held until April 2019. He is also an ambassador for Endeavor Brasil in Rio Grande do Sul since 2002 and Vice-President of the Deliberative Council of Instituto Caldeira, an innovation ecosystem in Porto Alegre. He was a member of the Board of Directors of Itaú Unibanco Holding SA from 2016 to 2021 of SLC Agrícola S.A. from April 2007 to May 2016, and of Localiza Rent a Car S.A. from October 2010 to June 2020, having been Vice-Chairman of the Board from April 2019 to June 2020. He graduated in business administration from Fundação Getúlio Vargas (FGV).
José Luiz Alquéres. Mr. Alquéres joined us as a member of the Board of Directors and the People Committee in April 2021. Mr. Alquéres is a member of the Board of Director of Energisa S.A. since 2017. He is also the Institutional Relations Officer of IHGB since 2020, chairman of the strategic council of Casa FIRJAN since 2020, Vice-President of the Instituto Cultral EDP since 2019, member of the advisory council since 2012 and executive officer of JL Alquéres Consultores Associated since 1999. Mr. Alquéres also served as chairman of the Board of Centrais Elétricas Brasileiras S.A. – Eletrobras, from 2016 to 2017. He is graduated in civil engineering from PUC and in Social Sciences from UFRJ.
José Maurício Pereira Coelho. Mr. Coelho joined us in April 2015 as a member of the Board of Directors and, as of 2019, he is member of the Audit and Risks Committee. He was the CEO of Previ – Caixa de Previdência dos Funcionários do Banco do Brasil – from 2018 to 2021, Chairman of the Board of Directors of Vale S.A from 2019 to 2021, the CEO of BB Seguridade Participações S.A from 2017 to 2018 and the Vice-President of Financial Management and Investor Relations of Banco do Brasil S.A. from 2015 to 2017. Mr. Coelho was also a member of the Board of Directors of the BB Securities LLC, New York, BB Securities Limited, London and BB Securities Asia Pte. Ltda., Singapore, from 2012 to 2015. He was a member of the Board of Directors of Cielo S.A from 2012 to 2017. He obtained a degree in accounting from Faculdade Unigranrio, Rio de Janeiro, in 1990. He has an MBA in Finance and Capital Markets, with specialization in Corporate Governance from Fundação Getulio Vargas in Rio de Janeiro (FGV/RJ).
Otávio Lopes Castello Branco Neto. Mr. Castello Branco Neto joined us in April 2021 as a member of the Board of Directors. He serves as a Partner and member of the Board of Directors of Pátria Investimentos LTDA. since 2010 and is a member of the Executive Committee. He has a bachelor’s degree in engineering.
Executive Officers
Marcos Marinho Lutz. Mr. Lutz joined us in April 2021 as a member of the Board of Directors and, as of January 2022, has held the position of CEO of Ultrapar. He has been a member of the Board of Directors of Votorantim S.A. since 2020 and of Corteva Agriscience since 2019. Mr. Lutz also served as a member of the Board of Directors of Rumo Logística S.A. from 2008 to 2020 and as the Chairman in 2020. Mr. Lutz was also a member of the Board of Directors of Comgás S.A. from 2013 to 2020, of Raízen S.A. from 2011 to 2020, of Moove S.A. from 2008 to 2020 and of Monsanto S.A. from 2014 to 2018. He was the Chief Executive Officer of Cosan S.A. – Indústria e Comércio from 2009 to 2020. He graduated as a naval engineer from Escola Politécnica of the University of São Paulo and holds an MBA in Marketing, Operations and Logistics from Kellogg School of Management.
Rodrigo de Almeida Pizzinatto. Mr. Pizzinatto joined us in 1999 as an intern and, since then, has worked in different areas of the Company, including treasury, M&A, corporate planning and investor relations. From 2012 to 2014, Mr. Pizzinatto was Ultrapar’s officer of M&A, Corporate Planning and Investor Relations. From 2014 to 2018, Mr. Pizzinatto served as Extrafarma’s officer, responsible for different areas during his tenure, such as expansion, marketing, commercial and logistics. In June 2018, he was named Chief Executive Officer of Extrafarma, leading a strategic revision and turnaround plan. In October 2020, he was nominated Ultrapar’s Chief Financial and Investor Relations Officer. Mr. Pizzinatto holds an MBA from Stanford Graduate School of Business and a bachelor’s degree in business administration from Fundação Getulio Vargas (FGV).
Marcelo Pereira Malta de Araújo. Mr. Araújo joined us in 2018 as Chief Executive Officer of Ipiranga and, since October 2021, held the position of Chief Corporate Development & Advocacy Officer of Ultrapar. He is also a member of the Board of Directors of the Brazilian Petroleum Institute and chairman of the Board of Directors of the Brazilian Downstream Association. With more than 30 years of experience, he initiated his career at Shell do Brasil, where he worked for 10 years in the operations, retail, lubricants, marketing, planning and engineering departments. After that, Mr. Araújo held leadership positions in large Brazilian corporations, such as Natura, CSN, Camargo Correa and Grupo Libra. In the last years, he acted as Chief Executive Officer of Marisa Lojas S.A. Mr. Araújo also accumulated experience as board member of Usiminas, Laboratório Fleury and Alpargatas. He graduated in engineering at Engineering Military Institution (IME) and holds an MBA from Sociedade de Desenvolvimento Empresarial (current IBMEC), in addition to extension courses from Harvard and Insead.
Décio de Sampaio Amaral. Mr. Amaral joined us in 2020. With 28 years of experience in logistics, supply chain, operations and project management, Mr. Amaral held leadership positions in Itautec-Philco, Souza Cruz and Vale. Recently he was the CEO of Camargo Correa Infraestrutura. Mr. Amaral graduated in engineering at ITA and in Industrial Management at Fundação Vanzolini, holds a master’s degree in Finance from IBMEC and completed executive programs in IMD and MIT.
Leonardo Remião Linden. Mr. Linden joined us in 2017 as CEO of Iconic and, in April 2021, he took over as Commercial Vice President in Ipiranga. Since October 2021, Mr. Linden holds the position of Chief Executive Officer of Ipiranga. He is currently the chairman of the Board of Directors of ICONIC Lubrificantes and was a member of the Board of Directors of Associação Brasileira de Downstream since 2020 and of the Board of Directors of Plural from 2017 to 2020. Mr. Linden has a long executive career in the fuels sector in Brazil and overseas. Prior to joining the Company, he formerly served as Strategic Planning and M&A Vice President from 2014 to 2015, and Marketing Vice President from 2011 to 2014 at Raízen. Mr. Linden also served as Sales and Marketing Vice President at Cosan from 2008 to 2011, after an international career at ExxonMobil between 1990 and 2008. He graduated in business administration from Universidade Federal do Rio Grande do Sul (UFRGS), with specializations in University of North Carolina, Kellogg Business School and Thunderbird Executive Education.
Tabajara Bertelli Costa. Mr. Bertelli initiated his career at Ultrapar in 1995 in the finance department and moved to Ultragaz in 2000, where he established a solid career, predominantly in the commercial areas. In 2015, he was transferred to Ipiranga, as an officer, to the recent developed department dedicated to Large Consumers Market (B2B) and had the opportunity to develop and consolidate a differentiated strategy to its customers. In January 2019, Mr. Bertelli became Chief Executive Officer of Ultragaz. Mr. Bertelli graduated in industrial engineering and holds a master’s degree in business management, both from the University of São Paulo (USP), and a post-graduation in Finance at Fundação Getulio Vargas (FGV). Mr. Bertelli also attended the STC – Skills, Tools and Competences from Kellogg Business School in 2010.
B. Compensation
The purposes of our compensation policy and practices for our management are (i) to align executives’ and shareholders’ interests, based on the principle of sharing risks and returns, (ii) to converge individual goals to the Company’s long-term strategy, and (iii) to recognize the contribution and retain professionals, based on market references.
Following these principles, we adopt a competitive compensation plan that includes the use of value creation metrics to establish variable compensation targets, benefits aligned with market practice and a stock ownership plan.
Pursuant to Ofício Circular/CVM/SEP/Annual/2022, starting in 2020, we ceased to report social charges paid by employer as manager compensation information.
For the year ended December 31, 2021, the Company recognized an aggregate compensation for our directors and executive officers of R$60 million in its financial statements. The compensation does not consider the social charges paid by the employer as manager compensation information, pursuant to Ofício Circular/CVM/SEP/Annual/2022. The numbers are distributed as follows:
|
|
|
|
|
|
|
| December 31, 2021 | Board of Directors |
| Executive Officers |
| Total |
|
| (in thousands of Reais, except for the number of members) |
|
Number of members (1) | 11.0 |
| 6.2 |
|
|
|
Annual fixed compensation | 10,680.6 |
| 14,684.7 |
| 25,365.4 |
|
Salary | 10,680.6 |
| 11,196.4 |
| 21,877.0 |
|
Direct and indirect benefits | - |
| 3,488.3 |
| 3,488.3 |
|
Variable compensation | - |
| 14,297.4 |
| 14,297.4 |
|
Short-term variable compensation | - |
| 14,297.4 |
| 14,297.4 |
|
Long-term variable compensation | - |
| - |
| - |
|
Post-employment benefit | - |
| 1,260.5 |
| 1,260.5 |
|
Benefits due to the interruption in the exercise of the position | - |
| 4,978.3 |
| 4,978.3 |
|
Stock-based compensation | - |
| 14,061.0 |
| 14,061.0 |
|
Total compensation | 10,680.6 |
| 49,282.0 |
| 59,962.7 |
|
| (1) | Average number of members in the period. |
The table below shows the higher, lower and average individual compensation recognized in our financial statements for our directors and executive officers in 2021:
| Body | Number of members |
| Highest individual compensation |
| Lowest individual compensation |
| Average individual compensation |
| (in thousands of Reais, except for the number of members) |
Board of Directors | 11.0 | | 2,014.2 | | 799.2 | | 971.0 |
Executive Officers | 6.2 | | 16,115.8 | | 4,153.4 | | 7,920.3 |
The main components of our management compensation plan are:
- Fixed compensation (salary and direct and indirect benefits): a monthly amount paid with the purpose of compensating the responsibility and complexity inherent to each position, the individual contribution and experience of each professional, seeking to maintain levels compatible with those of comparable companies.
- Short-term variable compensation: an annual amount paid in order to align the interests of the executives with those of the Company. This amount is linked to Company’s economic performance, and the achievement of annual individual goals. All targets related to the Company’s and the individual executive’s performance are established in accordance with the strategic planning. As of 2022, at least 1/3 of the individual goals (or 10% of total) for executive officers will be related to ESG purposes specifically designed for each officer.
- Share ownership compensation plan: since 2003, Ultrapar has adopted stock-based compensation to reinforce the alignment between the long-term interests of executives and shareholders and to retain executives. According to the terms of the stock plan in force since 2017, there are three different programs that aim to ensure retention of key executives and professionals and make a relevant portion of their compensation contingent on shareholder value generation.
Since 2003, Ultrapar has adopted a stock-based compensation plan pursuant to which certain executives have the voting and economic rights of shares held in treasury for a period of five to seven years from the initial concession of the rights. Following this period, Ultrapar transferred the full ownership to those executives subject to uninterrupted employment of the participant during the period. The number of shares and the executives eligible to this stock plan were determined by the Board of Directors, and there is no mandatory annual grant. The total number of shares to be used in the plan is subject to the number of shares in treasury and to the limit established in the plan. The fair value of the awards is determined on the grant date based on the market value of the shares on the B3 and the amounts are amortized between five to seven years from the grant date. As of December 31, 2021, the amount granted to the Company’s executives, including tax charges, totaled R$34.6 million. In 2021, an amortization in the amount of R$1.9 million was recognized as a general and administrative expense. As of December 31, 2021, all shares attributable to the members of our board of Executive Officers under this stock-based compensation plan had vested. At the extraordinary and annual general shareholders’ meeting held on April 19, 2017, Ultrapar’s shareholders approved a new stock-based incentive plan (“Plan”) which establishes the terms and general conditions for granting common shares issued by the Company held as treasury stock which may or may not involve awarding usufruct over any portion thereof for subsequent transfer of ownership for periods from three to six years to officers or employees of the Company or its subsidiaries.
As a result of the Plan, common shares representing up to 1% of the Company’s share capital may be delivered to the participants, which corresponds, at the date of approval of this Plan, to 11,128,102 common shares. This limit was modified to reflect the split of shares approved at the extraordinary and annual general shareholders meeting held on April 10, 2019 and implemented on April 24, 2019.
Additionally, on April 19, 2017, our Board of Directors approved our restricted stock program and the restricted stock and performance program, pursuant to which the participants appointed by the Board of Directors were granted unvested shares in the amount of R$102.1 million. In 2021, we recognized a general and administrative expense of R$20.3 million in connection with these programs.
The chart below sets forth a historical summary of the vested and unvested shares granted to the members of our board of Executive Officers as of December 31, 2021, by grating date:
Body | Statutory Officers |
Total number of members | 7 |
Number of compensated members | 1 | 2 | 2 | 1 | 5 | 1 | 6 | 2 | 6 | 2 |
Granting Date | 01-Out-17 | 08-Nov-17 | 04-Apr-18 | 24-Sep-18 | 03-Apr-19 | 02-Sep-19 | 01-Apr-20 | 16-Sep-20 | 07-Apr-21 | 22-Sep-21 |
Number of shares granted | 240,000 | 14,252(1) | 38,480(1) | 80,000 | 108,444(1) | 160,000 | 185,808(2) | 700,000 | 248,492(2) | 400,000 |
Period for the share effective ownership to be transferred Granting Date (1) | Oct-23 | 1/3 in | 1/3 in | Sep-24 | 1/3 in | Sep-25 | 1/3 in | Sep-26 | Apr-24 | Sep-27 |
Nov-20 | Apr-21 | Apr-22 | Apr-23 |
1/3 in | 1/3 in | 1/3 in | 1/3 in |
Nov-21 | Apr-22 | Apr-23 | Apr-24 |
1/3 in | 1/3 in | 1/3 in | 1/3 in |
Nov-22 | Apr-23 | Apr-24 | Apr-25 |
Price assigned to the shares granted (R$/share) | 38.57 | 38.57 | 34.35 | 18.40 | 23.25 | 16.42 | 16.21 | 23.03 | 21.00 | 14.17 |
(1) Subjected to the performance goals throughout the vesting period, the same amount of shares can be transferred to the Executive Directors as performance shares. The performance shares are not submitted to the grant of usufruct.
(2) Subjected to the performance goals throughout the vesting period, up to 150% of shares can be transferred to the Executive Directors as performance shares. The performance shares are not submitted to the grant of usufruct.
The members of our Board of Directors are not eligible to the approved program.
For more information on our Deferred Stock Plan and Plan, please see Note 9.c to our financial statements.
C. Board Practices
We are managed by our Board of Directors and by our Executive Officers. On April 14, 2021, the annual and extraordinary general shareholders’ meeting elected the Board of Directors for a two-year term. As of December 31, 2021, our Board of Directors, consisted of eleven members, all of them being non-executive members and six of whom were independent, according to the Brazilian Novo Mercado Listing Rules. On September 22, 2021, we announced the succession plan of the leadership of our Board of Directors, developed under the leadership of the current Chairman of the Board, Pedro Wongtschowski, whose mandate ends in April 2023. As part of such plan, Marcos Lutz left his position as a member of the Board of Directors and assumed the position of Chief Executive Officer of the Company effective as of January 2022, succeeding Frederico Curado, now Vice-Chairman of the Board of Directors, after Lucio de Castro Andrade Filho retired at the end of 2021.
As a result of Mr. Lutz departure to assume the position of Chief Executive Officer, as of January 2022, our Board of Directors was composed of ten members, all non-executive members and six independent members. One member of the Board was an executive officer until December 2012 and one member was an executive officer until December 2021. Three of the non-independent members are related, directly or indirectly, to Ultra S.A., namely, Pedro Wongtschowski, Alexandre Teixeira de Assumpção Saigh and Otávio Lopes Castello Branco Neto.
Our Board of Directors must meet every three months and extraordinarily whenever called by its chairman or by any two directors. During 2021, thirteen board meetings were held. Each meeting of the Board of Directors requires the majority of the directors to be present, including the chairman or the vice-chairman, before the meeting may commence. The vote of the majority of the members present is required for the approval of a resolution by the Board of Directors. In case of a tie, the chairman, or in the chairman’s absence, the vice chairman, will provide the casting vote. In case of urgency, the chairman of our Board of Directors (or a third party that he or she may appoint) may call a special meeting of the Board of Directors with a shorter notice period than the usual; provided, however, that two-thirds of board members are present in order to commence such special meeting. Among other responsibilities, the Board of Directors is responsible for (i) our general guidelines, (ii) electing and removing our executive officers, supervising their management and fixing their compensation, (iii) deliberating on the issuance of new shares, within the limits of our authorized capital, (iv) authorizing the distributions of dividends and interest on shareholders’ equity, (v) approving transactions with value exceeding five percent of our shareholders’ equity, (vi) approving our dissolution or merger and (vii) the appointment of independent registered public accounting firm. Pursuant to Brazilian law, the Board of Directors must be elected by our shareholders at the general shareholders’ meeting.
Members of the Board of Directors are elected for a period of two years and may be reelected.
Our bylaws require that at least one third of the members of our Board of Directors be independent directors, which exceeds the 20% required by the Novo Mercado segment regulation. In addition, our bylaws set forth that the election of the members of the Board of Directors must be made through the nomination of a slate of candidates, unless cumulative voting is requested. Only the following slates of candidates will be eligible: (i) those nominated by the Board of Directors; or (ii) those nominated by any shareholder or group of shareholders. See “Item 4.A. Information on the Company—History and Development of the Company—New corporate governance structure” and “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
When electing members to the Board of Directors, shareholders will be entitled to request, as required by law and our bylaws, the adoption of a cumulative voting process, provided that they do so within, at least, forty-eight hours in advance of the shareholders’ meeting. The minimum percentage of capital necessary for requesting the cumulative voting process is 5% of the shares. In the event the election has been conducted by cumulative voting, the removal of any member of the Board of Directors by the shareholders’ meeting shall entail the removal of the other members, giving rise to a new election. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
Executive Officers
As of December 31, 2021, our Board of Executive Officers was comprised of seven members, including our Chief Executive Officer. As a result of the conclusion of the sale of Oxiteno on April 1, 2022, Mr. Parolin is no longer an Executive Officer of Ultrapar. Consequently, our Board of Executive Officers is comprised of six members as of the date of this annual report.
Members of Board of Executive Officers are elected for a two-year term and can be reelected. For the dates on which our executive officers began holding their respective position, see “Item 6.A. Directors, Senior Management and Employees—Directors and Senior Management.”
Fiscal Council
Under Brazilian corporate Law, the Fiscal Council is a separate corporate body independent of management and independent auditors and it may operate on a permanent or non-permanent basis. According to the Brazilian Corporate Law, a Fiscal Council acting on a non-permanent basis is required to be formed when requested by 10% of voting shareholders in an annual general shareholders’ meeting. However, pursuant to CVM Instruction 324/00, in the case of Ultrapar, holders of 2% of the voting capital are entitled to request the installation of the Fiscal Council. The elected members of the Fiscal Council will remain in place only until the following annual general shareholders’ meeting, in which they may be reelected by our shareholders. The Fiscal Council must meet at least four times per year. Since its establishment, in July 2005, our Fiscal Council has been meeting on a regular basis, and in 2021, it held nine meetings.
Under Brazilian Corporate Law, individuals who are members of our Board of Directors or our Board of Executive Officers or are employees or spouses or relatives of any member of our management are not eligible to serve on the Fiscal Council. To be eligible to serve on our Fiscal Council, a person must be a resident of Brazil and either hold a university degree or have been a Company officer or Fiscal Council member of another Brazilian company for at least three years prior to election to our Fiscal Council. Our Fiscal Council, when installed, shall have the duties and obligations provided by the Brazilian Corporate Law, which includes, among others, the examination of the statements of financial position and other financial statements periodically prepared by the Company, at least every three months, and the examination of the accounts and financial statements for the fiscal year and issue an opinion on them. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
As set forth in our bylaws, our Fiscal Council operates on a non-permanent basis and, when installed by the general shareholders’ meeting, is composed of three effective members and an equal number of alternate members. As of December 31, 2021, our Fiscal Council was composed of Mr. Flávio Cesar Maia Luz, Mr. Geraldo Toffanello and Mr. William Bezerra Cavalcanti Filho as effective members. These members served a term from April 2021 through April 2022.
At the annual and extraordinary general shareholders’ meeting held on April 13, 2022, Flávio Cesar Maia Luz and Geraldo Toffanello were reelected for another term, whereas Mr. William Bezerra Cavalcanti Marinho was replaced by Nilson Martiniano Moreira. At the same meeting, the shareholders approved the payment of a monthly compensation in the amount of R$19,425.00 for each effective (non-alternate) member of the Fiscal Council, except for the president of the Fiscal Council, whose compensation was set at R$29,138.00 per month.
As of the date hereof, the composition of our Fiscal Council considering both effective and alternate members is as follows:
| Name |
| First Year of
Appointment |
Flávio Cesar Maia Luz (president) |
| 2021 |
Márcio Augustus Ribeiro (alternate) |
| 2007 |
Geraldo Toffanello |
| 2017 |
Pedro Ozires Predeus (alternate) |
| 2005 |
Nilson Martiniano Moreira |
| 2022 |
Sandra Regina de Oliveira (alternate) |
| 2021 |
Summarized below is information regarding the business experience, areas of experience and principal outside business interests of the current effective members of our Fiscal Council.
Flavio César Maia Luz. Mr. Luz was the President of the Fiscal Council of Ultrapar from 2005 to 2019, resuming his position as President of the Fiscal Council for the term of 2021 to 2022. Mr. Luz also served as Coordinator of our Audit and Risks Committee from 2019 to 2021. In addition, he is a member of the Board of Directors and Audit Committee Coordinator of Ser Educacional S.A. and Livetech Indústria e Comércio S.A. He is also a member of the Audit Committee of Omega Energia S.A. and CTC - Centro de Tecnologia Canavieira and a member of the Advisory Board of Brasanitas Empresa Brasileira de Saneamento Ltda and Partner-Officer at Doing Business Consultoria Empresarial Ltda. In the last five years, Mr. Luz served as a member of the Board of Directors of Marcopolo S.A., Soares Penido Obras Construções e Investimentos S.A. and Zen Indústria Metalúrgica S.A. Mr. Luz also served as member of the Fiscal Council of Itaúsa S.A., Duratex S.A. Linx S.A and CTEEP S.A. Mr. Luz received a degree in civil engineering from Escola Politécnica da Universidade de São Paulo and a post-graduate degree in business administration from Escola de Administração de Empresas de São Paulo da Fundação Getulio Vargas. He also holds certificates of continuing education programs in Finance, Marketing Strategy, Negotiation and Mergers & Acquisitions, from Harvard Business School, Stanford University, California University (Berkeley) and Wharton Business School, respectively.
Geraldo Toffanello. Mr. Toffanello has been a member of our Fiscal Council since 2017 and served as corporate accounting director of Gerdau S.A. until 2011. He was a member of the Fiscal Council of Gerdau S.A. and Metalúrgica Gerdau S.A. until April 2021, and of Dimed S.A. Distribuidora de Medicamentos, and a member of the Board of Directors of Puras FO from 2012 to 2015. Mr. Toffanello served as a member of the audit and accounting standards committee of ABRASCA – Associação Brasileira de Companhias Abertas (Brazilian Publicly Traded Companies Association) until 2010, a member of the council board of IFRS and a member of the accounting pronouncements committee – CPC. He is also a member of the Board of Directors of Parceiros Voluntários – NGO and the founder of Luzes do Mundo Ltda. Mr. Toffanello received a degree in accounting from Faculdade Porto-Alegrense de Ciências Contábeis e Administrativas and a postgraduate degree in accounting from Universidade Federal do Rio Grande do Sul.
Nilson Martiniano Moreira. Mr. Nilson Martiniano Moreira was a member of our Fiscal Council from 2016 to 2018 and a member of the Audit Committee of Banco Votorantim from 2020 to 2021. During 2021, he was the Risk, Compliance and Legal Director at Cateno Gestão de Contas de Pagamentos S.A. and held several executive positions at Banco do Brasil S.A. between 2006 and 2018. Mr. Moreira holds a degree in Economic Sciences from the Pontifícia Universidade Católica de Minas Gerais and an executive MBA from Fundação Dom Cabral.
Committees of the Board of Directors
Audit and Risks Committee
Our bylaws, as approved at the Annual and Extraordinary General Shareholders’ Meeting held on April 13, 2022, establish the audit and risks committee as an ancillary body of the Board of Directors. Pursuant to SEC and NYSE requirements, the audit and risks committee shall be comprised of at least three members, all of them members of the Board of Directors and all of them independent Directors. As required by the applicable regulations of the CVM, at least one member shall have recognized experience in corporate accounting matters. A single member of the audit and risks committee may satisfy the two above mentioned requirements. All members shall be elected by the Board of Directors for a term of office of two years, and the term shall coincide with the term of office of the Directors, with reelection being permitted for 10 years.
The audit and risks committee shall (a) recommend to the Board of Directors the retention and dismissal of independent audit services, as well as propose to the Board of Directors the nomination of the independent auditor and their replacement; (b) review the management report and the financial statements of the Company and of its controlled companies, and provide the recommendations it deems necessary to the Board of Directors; (c) review the quarterly financial information and the periodic financial statements prepared by the Company; (d) monitor the activities of the Company’s internal audit and internal controls departments, including follow-up and assessment of the effectiveness and sufficiency of the internal control structure and of the internal and independent audit processes of the Company and of its controlled companies, including in relation to the provisions set forth in the Sarbanes-Oxley Act, submitting the recommendations it deems necessary for the improvement of policies, practices and procedures; (e) evaluate and monitor the Company’s risk exposure per the Risk Management Policy, as well as provide its opinion on any review of the contents thereof, in addition to advising the Board of Directors in connection with the setting of acceptable risk levels; (f) establish procedures for the acceptance and handling of information submitted by any party relating to alleged noncompliance with applicable legal and regulatory requirements applicable to the Company, in addition to internal regulations, policies and codes, including procedures for confidential or anonymous submission, safeguarding information secrecy; (g) interact with the other Company’s governing bodies in connection with the receipt and review of information on noncompliance with legal and regulatory requirements applicable to the Company, as well as with internal regulations; and (h) provide its opinion on the matters submitted to it by the Board of Directors, as well as on those matters it determines to be relevant.
As of December 31, 2021, Ms. Ana Paula Vitali Janes Vescovi (who also acts as coordinator of the committee), Mr. Jorge Marques de Toledo Camargo and Mr. José Maurício Pereira Coelho were members of the audit and risks committee appointed by our Board of Directors at its meeting held on April, 14, 2021, for a two-year term, which term coincides with the term of office of the Directors. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
As of the date of this annual report, the composition of our audit and risks committee is as follows:
|
|
|
| Name |
| First Year of
Appointment |
Ana Paula Vitali Janes Vescovi |
| 2019 |
Jorge Marques de Toledo Camargo |
| 2021 |
José Maurício Pereira Coelho |
| 2019 |
Although our bylaws only require a majority of independent directors, all members of our audit and risks committee meet the applicable independent membership requirements of the SEC and the NYSE.
For information regarding the business experience, areas of experience and principal outside business interests of the current members of our audit and risks committee, see “—A. Directors and Senior Management—Board of Directors.”
People Committee
Our bylaws establish the people committee as an ancillary body of the Board of Directors. The people committee shall comprise mostly Directors, with at least two independent Directors, and its duties shall be as follows: (a) pursuant to the proposal received from the Chief Executive Officer, propose to the Board of Directors and periodically revise the parameters and guidelines of a remuneration and benefits framework to directors, executive officers and senior employees of the Company and subsidiaries, and members of the committees and other governing bodies assisting the Board of Directors, (b) propose to the Board of Directors, pursuant to the proposal received from the Chief Executive Officer, the overall compensation of the directors and executive officers of the Company, which shall be submitted to the shareholders’ meeting, and propose the individual compensation of the Board of Executive Officers; (c) ensure that the Company prepares itself adequately for the succession of its directors, executive officers and other key employees, particularly the Chief Executive Officer and the principal executive officers; and (d) carry out diligence and supervise the steps taken to ensure that the Company adopts a model of competence and leadership, attraction, retention and motivation in line with its strategic plans. As approved at the extraordinary and annual general shareholders’ meeting held on April 10, 2019, the denomination of such committee was modified from the people and organization to the people committee. In addition, the composition of such committee was modified to determine that it shall be comprised of at least three members, of which at least two must be independent directors. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
The people committee was installed by the Board of Directors at the meeting held on November 9, 2011. As of December 31, 2021, Mr. José Galló (who also acts as coordinator of the committee), Mr. Lucio de Castro Andrade Filho, Mr. Alexandre Teixeira de Assumpção Saigh and Mr. José Luiz Alquéres were members of the people committee as appointed by the Board of Directors at the meeting held on April 14, 2021 for a two-year term, that coincide with the term of office of the Directors. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.” With the retirement of Mr. Lucio de Castro Andrade Filho, Mr. Frederico Pinheiro Fleury Curado was appointed to replace him at the committee as of January 3, 2022.
Strategy Committee
Our bylaws establish the strategy committee as an ancillary body of the Board of Directors. The strategy committee shall be composed mostly of Directors and its duties shall be as follows: (a) to advise the Board of Directors in overall business direction, as well as in the drafting and monitoring of the Company’s strategic plans and budgets; (b) to provide its opinion on, and monitor, the Company’s strategic partnerships and main investments, as provided in the Investment Policy; and (c) to provide its opinion on the capital allocation strategy and on the management of the Company’s portfolio, including mergers and acquisitions.
As of December 31, 2021, Mr. Pedro Wongtschowski (who also acts as coordinator of the committee), Ms. Flávia Buarque de Almeida, Mr. Jorge Marques de Toledo Camargo and Mr. Marcos Marinho Lutz were members of the strategy committee appointed by the Board of Directors at the meeting held on April 14, 2021, for a two-year term, that coincide with the term of office of the Directors. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.” Considering that Mr. Marcos Marinho Lutz was appointed as Chief Executive Officer of the Company as of January 3, 2022, he is no longer member of the Strategy Committee. To occupy the position, the Board elected Mr. Frederico Pinheiro Fleury Curado in a meeting held on February 23, 2022.
Corporate Governance
We are incorporated under the laws of Brazil and we are subject to Brazilian laws related to corporate governance. Under Brazilian Corporate Law, there are no legal requirements with respect to corporate governance regarding (i) meetings of non-management directors, (ii) the mandatory establishment and composition of certain board committees or (iii) the adoption and disclosure of corporate governance guidelines or codes of business conduct and ethics. As a non-U.S. issuer, we are exempt from adopting certain NYSE corporate governance requirements. However, we aim to ensure that best practices, recommendations and standards of corporate governance are employed in our functioning and operations. As of December 31, 2020, we had adopted corporate governance practices, such as the requirement that at least 30% of the members of the Board of Directors be independent, the implementation of a code of ethics for Ultra S.A., Parth, senior officers and all employees, and the implementation of the strategy, people and audit and risks committees. According to our bylaws, the Fiscal Council will act on a non-permanent basis and will be installed when requested by our shareholders as set forth in Brazilian Corporate Law.
In 2000, B3 introduced three special listing segments, known as Levels 1 and 2 of Differentiated Corporate Governance Practices and Novo Mercado, which seek to foster a secondary market for securities issued by Brazilian companies with securities listed on B3, by requiring such companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily abiding by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian Corporate Law. These rules generally increase shareholders’ rights and enhance the disclosure of information provided to shareholders.
In 2005, we entered into an agreement with B3 and have complied with the requirements to become a Level 1 Company, which is the entrance level of the Differentiated Corporate Governance Practices of B3.
In 2011, the extraordinary general shareholders’ meeting and the special preferred shareholders’ meeting approved the conversion of each preferred share into one common voting share, the migration of Ultrapar to Novo Mercado segment of B3 and amendments to our bylaws. See “Exhibit 2.5—Rules of Novo Mercado.”
In 2017, new Listing Rules for the Novo Mercado were approved by the CVM and became effective as of January 2, 2018.
Some of the modifications of the Novo Mercado Listing Rules may be adopted until the General Shareholders Meeting of 2022, which include the following requirements: (i) set up an audit committee (statutory or non-statutory); (ii) structure and disclose a process of assessment of the Board of Directors, its committees and the executive officers; (iii) establish and disclose of a Code of Conduct, as well as a Compensation Policy, a Nomination Policy for the Board of Directors, its Committees and Executive Officer, a Risk Management Policy, a Related Party Transaction Policy and a Securities Trading Policy, all of them with minimum requirements. As of the date of this annual report, we are in full compliance with such rules.
Our bylaws are already adapted to the listing requirements of Novo Mercado. In addition, we have provisions that exceed such requirements. For example, according to the rules of Novo Mercado, the minimum percentage of independent members of the Board of Directors is set at 20%, while a minimum of one third is required in our bylaws. Our bylaws also establish a mandatory tender offer for 100% of the Company’s shareholders in the event a shareholder, or a group of shareholders acting in concert, acquire or become holder of 20% of the Company’s shares, excluding treasury shares. Our bylaws do not establish any limitation on voting rights, special treatment to current shareholders, public tender offers for a price above that of the acquisition price of shares or any other poison pill provisions, thus assuring the effectiveness of a majority shareholders’ approval on all matters to be deliberated. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
Termination Agreements
Not applicable.
D. Employees
As of December 31, 2021, we had 16,442 employees considering both our continuing and discontinued operations. The following table sets forth our number of employees per line of business at the dates indicated:
|
|
|
| As of December 31, |
|
| Number of employees |
|
| 2021 |
| 2020 |
| 2019 |
|
| Continuing operations | 8,858 |
| 8,174 |
| 7,888 |
|
Holding | 455 |
| 405 |
| 393 |
|
Ultragaz | 3,387 |
| 3,397 |
| 3,414 |
|
Ultracargo | 870 |
| 926 |
| 792 |
|
Ipiranga | 4,008 |
| 3,378 |
| 3,289 |
|
abastece ai | 138 |
| 68 |
| - |
|
Descontinued operations | 7,584 |
| 7,772 |
| 8,136 |
|
Oxiteno | 1,871 |
| 1,851 |
| 1,844 |
|
Extrafarma | 5,713 |
| 5,921 |
| 6,292 |
|
Ultrapar | 16,442 |
| 15,946 |
| 16,024 |
|
| (1) | Includes personnel relating to holding company and head office functions. |
Ultrapar’s employees are covered by collective agreements with the labor unions that represent different industry sectors: Ultragaz in the gas and oil products sectors; Ipiranga in the fuel distribution sector; Oxiteno in the chemicals sector; Ultracargo in the storage sector; Extrafarma in the retail pharmacy business; and Holding and abastece aí in the trade union of accounting service companies since January 2020. All agreements, signed between the companies and labor unions of each sector, addresses social, financial, labor union and labor relations issues.
In 2001, our Board of Directors approved the adoption of a defined contribution pension plan to be sponsored by Ultrapar and each of its subsidiaries. Participating employees have been contributing to this plan, managed by Ultraprev—Associação de Previdência Complementar, since 2001. Under the terms of the plan, every year each participating employee chooses his or her basic contribution to the plan. Each sponsoring company provides a matching contribution in an amount equivalent to each basic contribution, up to a limit of 11% of the employee’s base salary, according to the rules of the plan. As participating employees retire, they may choose to receive either (i) a monthly sum ranging between 0.3% and 1.0% of their respective contribution (including accumulated funds) in Ultraprev or (ii) a fixed monthly amount which will exhaust their respective contribution (including accumulated funds) over a period of 5 to 35 years. The sponsoring company does not guarantee the amounts, or the duration of the benefits received by each employee that retires. The total number of participating employees as of December 31, 2021 was 7,188.
E. Share Ownership
In accordance with our bylaws, our common shares are our sole class of capital stock authorized and outstanding. They entitle their holders to voting rights on any matter. See “Item 6.C. Directors, Senior Management and Employees—Board Practices—Corporate Governance.”
On April 10, 2019, the extraordinary and annual general shareholders’ meeting approved a stock split of the shares issued by Ultrapar, so that each share was replaced by two shares of the same class and type, and Ultrapar’s capital stock became composed of 1,112,810,192 common shares. The stock split did not involve any change in the capital stock, therefore being no alteration in the financial amount and shareholder participation in the Company’s capital stock. The share split was implemented on April 24, 2019, which was also the date that the corresponding stock split of our American Depositary Shares was implemented.
Since February 2020, the Company’s Board of Directors confirmed the issuance of 2,341,416 common shares, within the authorized capital limit provided by the Article 6 of the our Bylaws, due to the partial exercise of the rights conferred by the subscription warrants issued by the Company as a result of the merger of all Extrafarma shares into the Company as approved by the extraordinary general meeting held on January 31, 2014. For more information about these subscription warrants, see note 25 to our consolidated financial statements. As of the date of this annual report, our subscribed and paid-in capital stock consisted of 1,115,151,608 common shares, all of which have equal voting and equity rights.
The table below sets forth the number of our common shares beneficially owned, as of the date of this annual report, by each of our current directors and executive officers including through their participation in Ultra S.A.:
| Total |
|
| Common Shares |
| % |
|
Board of Directors | |
| |
|
Pedro Wongtschowski(1) | 4,869,576 |
| 0.4% |
|
Frederico Pinheiro Fleury Curado(4) | 383.700 |
| 0.0% |
|
Alexandre Teixeira de Assumpção Saigh | — |
| 0.0% |
|
Ana Paula Vitali Janes Vescovi | — |
| 0.0% |
|
Flávia Buarque de Almeida | — |
| 0.0% |
|
Jorge Marques de Toledo Camargo | — |
| 0.0% |
|
José Gallo | — |
| 0.0% |
|
José Luiz Alquéres(3) | — |
| 0.0% |
|
José Maurício Pereira Coelho | — |
| 0.0% |
|
Otávio Lopes Castello Branco Neto(3) | — |
| 0.0% |
|
Executive Officers | |
| |
|
Marcos Marinho Lutz(1) | 12,709,568 |
| 1.1% |
|
Rodrigo de Almeida Pizzinatto(4) | 492,589 |
| 0.0% |
|
Décio de Sampaio Amaral(4) | 159,161 |
| 0.0% |
|
Marcelo Pereira Malta de Araújo(2) (4) | 371,117 |
| 0.0% |
|
Tabajara Bertelli Costa(4) | 420,000 |
| 0.0% |
|
Leonardo Remião Linden(4) | 201,900 |
| 0.0% |
|
Board of Directors and Executive Officers(5) | 19,607,611 |
| 1.8% |
|
Total | 1,115,151,608 |
| 100% |
|
| (1) | Individuals who beneficially own shares primarily through their participation in the holding company Ultra S.A. See “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders.” |
| (2) | Individual who owns shares through an exclusive fund. |
| (3) | Members of the Board of Directors elected for their first term at the annual general shareholders’ meeting held in April 2021. |
(4)
| Executives who were granted shares through the Deferred Stock Plan. |
| (5) | Does not include common shares owned by Mr. Lucio de Castro Andrade Filho and Mr. João Benjamin Parolin. Both were compensated by the Company in 2021 but ceased to exercise its executive positions in 2022. |
Since 2003, Ultrapar has adopted stock-based compensation plans to certain executives. For more information about these plans, see “Item 6.B. Directors, senior management and employees — Compensation” and note 9.c to our consolidated financial statements.
A. Major Shareholders
The table below shows the capital stock of Ultrapar as of the date of this annual report:
| Total |
|
| Common Shares |
| % |
|
Shareholders | |
| |
|
Ultra S.A. Participações | 279,593,690 |
| 25% |
|
Parth do Brasil Participações | 85,667,912 |
| 8% |
|
Canada Pension Plan Investment Board | 56,341,152 |
| 5% |
|
BlackRock, Inc. | 55,813,586 |
| 5% |
|
Shares held in treasury | 26,497,864 |
| 2% |
|
Others | 611,237,404 |
| 55% |
|
Total | 1,115,151,608 |
| 100% |
|
On September 9, 2020, Ultrapar was notified by Ultra S.A. Participações it surpassed the 25% threshold and reached a relevant ownership position of 25.08% of the total ordinary shares issued by Ultrapar, totaling 279,593,690 shares. The increase in its position reflects the completion of the capital subscription of Ultra S.A. Participações capital stock by Pátria Private Equity VI FIP Multiestratégia.
On November 22, 2021, Ultrapar was notified by Canada Pension Plan Investment Board that it reached an aggregate ownership position of 5.03% of common shares issued by Ultrapar as of November 17, 2021, amounting to 56,084,095 shares. Canada Pension Plan Investment Board also informed that between the achievement of the relevant negotiation and the announcement date, it acquired another 257,057 shares, totaling 56,341,152 shares.
Ownership and Capital Structure of Ultra S.A. Participações and Parth do Brasil Participações
As of the date of this annual report, Ultra S.A. and Parth owned approximately 26% and 8%, respectively, of Ultrapar’s voting shares. As of the date of this annual report, the capital stock of Ultra S.A. and Parth were beneficially owned as follows:
Ultra S.A. | |
| |
|
| Total |
|
| Shares |
| % |
|
| Shareholders | |
| |
|
| Pátria Private Equity VI FIP Multiestratégia | 18,958,000 |
| 20% |
|
| Fabio Igel | 17,584,366 |
| 19% |
|
| Ana Maria Levy Villela Igel | 11,778,826 |
| 12% |
|
| Christy Participações LTDA | 9,039,643 |
| 10% |
|
| Marcia Igel Joppert | 6,261,252 |
| 7% |
|
| Joyce Igel de Castro Andrade | 5,798,377 |
| 6% |
|
| Others | 19,409,588 |
| 20% |
|
| Subtotal | 88,830,052 |
| 94% |
|
Directors and officers | |
| |
|
Marcos Marinho Lutz | 4,308,855 |
| 5% |
|
Pedro Wongtschowski | 1,650,918 |
| 2% |
|
Total directors and officers | 5,959,773 |
| 6% |
|
Total | 94,789,825 |
| 100% |
|
Parth | |
| |
|
| Total |
|
| Shares |
| % |
|
Shareholders | |
| |
|
Jennings Luis Igel Hoffenberg | 61,788,141 |
| 36% |
|
Pedro Igel de Barros Salles | 59,144,754 |
| 34% |
|
Bettina Igel Hoffenberg | 42,267,183 |
| 24% |
|
Venus Quartz LLC | 9,595,506 |
| 6% |
|
Total Shareholders | 172,795,584 |
| 100% |
|
Shareholders’ Agreements
On May 2, 2018, Ultra S.A. and Parth executed a shareholders’ agreement to set forth a set of rules to govern the relationship between these two shareholders. This 2018 Shareholders’ Agreement replaced the Ultra S.A. shareholders’ agreement executed in 2014 and should be in force for a period of five years, automatically renewable for a further period of five years, except if a termination notice is sent by one party to the other up to six (6) months before the end of its term.
The 2018 shareholders agreement’s main terms were substantially related to (i) how Ultra S.A., Parth and its shareholders should vote at Ultrapar’s shareholders meetings; (ii) procedures to exchange any party’s shares in Ultra S.A. or in Parth for shares of Ultrapar; and (iii) procedures applicable to the exercise of right of first refusal, preemptive rights and drag along rights. Additionally, any third party purchasing Ultra S.A.’s shares bound by the shareholders’ agreement must agree to be bound by the shareholders’ agreement. See “Exhibit 2.6—2018 Shareholders’ Agreement, dated as of May 2, 2018.”
In July 2019, Ultra S.A. informed the Company that its shareholders approved the disposal of all shares issued by Ultra S.A. held by Mr. Paulo Guilherme Aguiar Cunha and his family, which was concluded through certain transactions carried out in November 2019. As a result, Mr. Paulo Guilherme Aguiar Cunha and his family no longer held any shares issued by Ultra S.A. and, therefore, parties to the Ultrapar’s 2018 Shareholders’ Agreement.
On August 18, 2020, Ultra S.A. and Parth entered into the 2020 Shareholders’ Agreement to include Pátria in its capacity as Ultra S.A.'s shareholder then holding a 20% stake in Ultra S.A.'s capital stock, as consenting intervening party, therefore bound by the provisions of the 2020 Shareholders' Agreement. The 2020 Shareholders’ Agreement replaced the 2018 Shareholders’ Agreement in its entirety, and the terms and conditions remain substantially the same of the latter.
On September 28, 2021, Ultra S.A. informed the Company that Mr. Marcos Marinho Lutz, our Chief Executive Officer, became a shareholder of Ultra S.A., holding 2.4% of its capital stock, and also became a consenting intervening party of the 2020 Shareholders’ Agreement. As of December 31, 2021, the 2020 Shareholders’ Agreement binded a total of shares representing 34.7% of the Company’s capital stock.
B. Related Party Transactions
As of December 31, 2021, Ultrapar is responsible for guarantees and securities provided to subsidiaries in the amount of R$14,151.5 million. This disclosure of related party transactions is provided for purposes of the rules governing Annual Reports on Form 20-F and is not meant to suggest that these matters would be considered related party transactions under IFRS.
Utingás’ bylaws provide for each of its shareholders to use a proportion of Utingás’ total storage capacity equal to such shareholder’s proportionate ownership of Utingás. Accordingly, Ultragaz is entitled to use 4.2 thousand tons of LPG storage capacity at Utingás’ facilities, reflecting Ultragaz’s 57% ownership in Utingás. The amount of payments made by Ultragaz to Utingás in 2021 with respect to the use of storage capacity at Utingás’ facilities totaled R$8.9 million.
The related parties’ transactions for financial statements purposes are transactions between the subsidiaries of the Ultrapar with joint-ventures and associates companies that are not eliminated in the consolidation of financial statements. The main related parties’ transactions are related to RPR and Chevron’s companies. See Note 9.a to our consolidated financial statements for a detailed breakdown of related party transactions as of December 31, 2021.
- Interests of Expert and Counsel
Not applicable.
- Consolidated Statements and Other Financial Information
For our consolidated financial statements and notes thereto see “Item 18. Financial Statements.”
Dividends and Distribution Policy
Dividend policy
The bylaws of a Brazilian company may establish a minimum percentage of the profit that must be paid to shareholders as mandatory dividends. The amounts due as dividends may be paid as interest on net equity. As of December 31, 2021, our bylaws provided for a mandatory distribution of at least 50% of the adjusted net profit, after the allocation of 5% of the net profit to the legal reserve. At the annual and extraordinary general shareholders’ meeting held on April 13, 2022 an amendment to our bylaws was approved, adjusting the percentage of mandatory dividends we pay to at least 25% of the Company’s adjusted net profit.
Brazilian Corporate Law defines the “net profit” as the results of the relevant fiscal year, reduced by accumulated losses of prior fiscal years, provisions for income tax and social contribution on the net profit for such fiscal year, and amounts allocated to employees’ and management’s participation on the results in such fiscal year.
Under Brazilian Corporate Law, the net profit may be reduced or increased by the following:
- amounts allocated to the legal reserve;
- amounts allocated to the statutory reserve, if any;
- amounts allocated to the contingency reserve, if required;
- amounts allocated to the unrealized profit reserve;
- amounts allocated to the retained profit reserve;
- amounts allocated to the income tax exemption reserve;
- reversions of reserves registered in prior years, in accordance with Brazilian GAAP; and
- reversions of the amounts allocated to the unrealized profit reserve, when realized and not absorbed by losses.
Legal reserves. We are required to maintain a legal reserve to which we must allocate 5% of our net profit until the amount of our legal reserve equals 20% of paid-in capital. We are not required to make any allocations to the legal reserve for any fiscal year in which such reserve, when added to our capital reserves, exceeds 30% of our capital stock. Accumulated losses, if any, may be charged against the legal reserve. Other than that, the legal reserve can only be used to increase our capital.
Statutory reserves. Under Brazilian Corporate Law, any corporation may create statutory reserves, in which case it shall be provided in its respective bylaws. In this case, the bylaws must also indicate the reserve purpose, allocation criteria and maximum amount of reserve. As provided in our bylaws, we may allocate up to 75% of our adjusted net profit to an investment reserve, up to the limit of 100% of our capital stock.
Contingency reserves. Under Brazilian Corporate Law, our shareholders may decide, upon a proposal of our Board of Directors, to allocate a discretionary amount of our net profit to a contingency reserve for estimated future losses, which are deemed probable. The distributable amount may be further increased by the reversal of such reserve in the fiscal year when the reasons that justified the creation of such reserve cease to exist or in which the anticipated loss occurs. Accordingly, there is no specific percentage of net profit allocable to this type of reserve.
Unrealized profits reserves. Under Brazilian Corporate Law, when the mandatory dividend amount exceeds the realized net profits in a given fiscal year, our shareholders may elect, upon a proposal of our Board of Directors, to allocate some or all of the excess dividend amount to any unrealized profits reserve. Brazilian Corporate Law defines “realized” net profits as the amount by which the company’s net profits exceed the sum of (1) its net positive results, if any, from the equity method of accounting for earnings and losses of the company’s subsidiaries and certain of its affiliates and (2) the profits, gains or returns that will be received by the company after the end of the next fiscal year. The distributable amount is increased by the profits that were allocated to such reserve when they are realized.
Income tax exemption reserve. Under Brazilian Corporate Law, the portion of the net profit derived from donations or governmental incentives directed to investments, can be excluded of the Distributable Amount.
Retained profits reserve. Under Brazilian Corporate Law, our shareholders may decide to retain a discretionary amount of our net profits that is provided for in a budget approved in the general shareholders’ meeting, upon the proposal of its Board of Directors, for the expansion of our installations and other investment projects. After the conclusion of the relevant investments, we may retain the reserve until the shareholders approve the transfer of the reserve, in full or in part, to its capital or to the accumulated profits reserve. In accordance with Brazilian Corporate Law, if a project to which part of the reserve has been allocated has a term exceeding one year, the budget for such project must be approved by the general shareholders’ meeting each fiscal year through the conclusion of the project.
Brazilian Corporate Law provides that all statutory allocations of net profit, including the unrealized profits reserve and the reserve for investment projects, are subject to approval by the shareholders voting at a general shareholders’ meeting and may be used for capital increases or for the payment of dividends in subsequent years. The legal reserve is also subject to approval by the general shareholders’ meeting and may be transferred to capital or used to absorb losses but is not available for the payment of dividends in subsequent years.
The balance for the profit reserve accounts, except for the contingency reserve and unrealized profits reserve, may not exceed the share capital. If this happens, our shareholders must determine whether the excess will be applied to pay in the subscribed and unpaid capital, to increase and pay in the subscribed stock capital or to distribute dividends.
The profits unallocated to the accounts mentioned above must be distributed as dividends.
A company is permitted to allocate to the unrealized profits reserves all income from equity gains in subsidiaries that are not distributed to the company in the form of cash dividends. When such gains are distributed to the company in the form of cash dividends, the company is required to reverse the reserve. See “Item 3.D. Key Information—Risk Factors—Risks Relating to the Shares and the American Depositary Shares.” In addition to the mandatory distribution, the Board of Directors may recommend to the shareholders the payment of interim distributions from other funds that are legally available for such purposes. Any payment of an interim dividend may be set off against the amount of the mandatory dividend distribution for that fiscal year.
As an alternative form of payment of dividends, Brazilian companies may distribute interest on capital, which payments may be treated by a company as a deductible expense for income and social contribution taxes purposes. Payments of interest on capital may be made at the discretion of our Board of Directors, subject to the approval of the holders of our common shares. Payments of interest attributed to shareholders’ equity, net of withholding tax, may be distributed as part of the minimum mandatory dividends, to the extent that it does not exceed the limits described below. This interest is calculated in accordance with the daily pro rata variation of the Brazilian government’s long-term interest rate (TJLP), as determined by the Central Bank from time to time, and cannot exceed the greater of:
- 50% of net income (after the deduction of the social contribution on profits and before the provision for corporate income tax and the amounts attributable to shareholders as net interest on equity) related to the period in respect of which the payment is made; or
- 50% of the sum of retained profits and profit reserves in the beginning of the period with respect to which the payment is made.
Under Brazilian Corporate Law, a company may suspend the mandatory distribution either in the form of dividends or payments of interest on capital if the shareholders at the general shareholders’ meeting determine, based on the Board of Directors’ proposal, which is reviewed by the Fiscal Council when installed, that payment of the mandatory distribution for the preceding fiscal year would be inadvisable in light of the company’s financial condition. The management of the Company must report to the CVM such suspension within five days of the relevant general shareholders’ meeting. Under Brazilian law, mandatory distributions that are suspended and not offset against losses in future years must be paid as soon as the financial condition of the company permits.
We declare and pay dividends and/or interest on capital, pursuant to Brazilian Corporate Law and our bylaws. Our Board of Directors may approve the distribution of dividends and/or interest on capital, calculated based on our annual or semiannual financial statements or on financial statements relating to shorter periods. The amount of any distributions will depend on a series of factors, such as our financial condition, prospects, macroeconomic conditions, tariff adjustments, regulatory changes, growth strategies and other issues our Board of Directors and our shareholders may consider relevant.
The amount of retention of profits and investments reserve are free of distribution restrictions and totaled R$4.1 billion as of December 31, 2021.
We declared dividends to our shareholders of R$404 million for 2021. On March 11, 2022, the Company distributed the amount of R$186 million in distribution of dividends (equivalent to R$0.17 per common share). On August 27, 2021, the Company distributed the amount of R$218 million for the interim dividends payment (equivalent to R$0.20 per common share).
We declared dividends to our shareholders of R$480 million for 2020, of which R$424 million corresponded to mandatory dividends and R$55 million corresponded to additional dividends to the minimum mandatory dividends.
We usually pay dividends twice a year – interim dividends are paid after the reporting of the second quarter financial statements and the remaining is paid after the reporting of the annual financial statements.
The following table sets forth the dividends per share distributed by us, which reflects retroactively the approval of the stock split on April 10, 2019, which became effective on April 24, 2019.
Dividend history
| Year ended December 31, |
| Common shares(1) |
|
|---|
|
| (in Reais per share) |
| (in US$ per share)(2) |
|
|---|
2017 |
| 0.88 |
| 0.27 |
|
2018 |
| 0.63 |
| 0.16 |
|
2019 |
| 0.44 |
| 0.10 |
|
2020 |
| 0.44 |
| 0.08 |
|
2021 |
| 0.37 |
| 0.03 |
|
| (1) | Dividends per share take into account the stock split approved on April 10, 2019 and implemented on April 24, 2019. The number of shares used in the dividends per share calculation has not been retrospectively adjusted to reflect the issuance of 43,925, 31,032, 70,939, 86,978 and 2,108,542 common shares that occurred in February 2022, August 2021, February 2021, August 2020 and February 2020, respectively, as a result of the partial exercise of the subscription warrants issued to the former Extrafarma shareholders. |
| (2) | The amounts in Reais have been converted into dollars using the exchange rates at each respective payment date. |
Holders of our shares are entitled to receive dividends declared by us solely from the date of the subscription and/or acquisition of such shares.
Payment of dividends. Within the four months following the end of each fiscal year, our shareholders are required to hold an annual general shareholders’ meeting to decide, among other things, on the allocation of our net profits with respect to the fiscal year ended immediately prior to the shareholders’ meeting and the payment of an annual dividend. Additionally, interim dividends may be declared by our Board of Directors. Under Brazilian Corporate Law, dividends are generally required to be paid within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which such dividend was declared. Pursuant to Brazilian civil law, dividends revert to us three years after the date when we begin to pay such declared dividends.
Shareholders who are not residents of Brazil must register with the Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted in foreign currency outside of Brazil. The shares underlying the ADSs will be held in Brazil by Itaú Corretora de Valores S.A., as agent for the Depositary. For purposes of the registration requirement, the Depositary is deemed to be the stockholder of the shares underlying the ADSs. The Depositary will register such common shares with the Central Bank.
Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the Custodian on behalf of the Depositary. The Custodian will then convert such proceeds into U.S. dollars and will cause such U.S. dollars to be delivered to the Depositary for distribution to holders of ADSs. See “Description of American Depositary Receipts” in our Registration Statement filed on Form F-1, declared effective on April 12, 2005. In the event that the Custodian is unable to convert immediately the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that may occur before such dividends are converted and remitted. See “Item 3.D. Key Information—Risk factors—Risks Relating to Brazil.” Dividends paid by a Brazilian Corporation, in cash or in kind, in respect of the shares paid to shareholders who are not Brazilian residents, including holders of ADSs, are not subject to withholding income tax in Brazil to the extent that such amounts are related to profits generated after January 1, 1996. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, according to the tax legislation applicable to each corresponding year. Distributions of interest attributable to shareholders’ equity are currently subject to withholding tax at a rate of 15%, or 25% in the case of a shareholder domiciled in a “tax haven.” See “Item 10.E. Additional Information—Taxation—Brazilian Tax Consequences.”
Legal proceedings
Provisions for tax, civil and labor risks. We and our subsidiaries are party to administrative proceedings and lawsuits in relation to tax, civil, environmental, regulatory, and labor matters that are incidental to the normal course of our business. Depending on the outcome of such administrative proceedings and lawsuits, penalties restricting rights may be applied against the Company or its subsidiaries. Proceedings are guaranteed by escrow accounts, and whenever applicable, we maintain escrow deposits. The provisions for the losses are estimated and updated by management based on the opinion of the Company’s legal department and its external legal advisors.
The table below demonstrates the breakdown of provisions by nature and its movement (in millions of Reais):
Some of the provisions above consist, in whole or in part, of escrow deposits. The balance of these escrow deposits are as follows (in millions of Reais):
| Provisions |
| 2020 |
| Additions |
| Write-offs |
| Payments |
| Interest |
| Monetary restatement |
| 2021 |
|
Income taxes and contribution on net profit | | 547.9 |
| - | | (6.9) | | - |
| 11.3 | | - | | 552.2 |
|
ICMS | | 108.6 | | 58.8 | | (83.5) | | - |
| 0.3 | | - | | 84.1 |
|
Civil, Environmental and Regulatory claims | | 57.8 | | 87.1 | | (9.7) | | (8.1) |
| 0.7 | | (19.0) |
| 108.8 |
|
Labor litigation | | 90.6 | | 42.8 | | (4.4) | | (17.1) |
| 2.6 | | (19.2) | | 95.4 |
|
Others | | 93.1 | | 0.1 | | (1.4) | | - |
| 0.7 | | (0.8) | | 91.6 |
|
Total | | 898.0 | | 188.7 | | (106.1) | | (25.2) |
| 15.6 | | (38.9) | | 932.2 |
|
Current | | 43.6 | | | | | | |
|
| | | | 119.9 |
|
Non-current | | 854.4 | | | | | | |
|
| | | | 812.2 |
|
| Year ended
December 31, |
|
| 2021 |
| 2020 |
|
Tax matters | 731.3 |
| 789.6 |
|
Labor litigation | 48.1 |
| 57.6 |
|
Civil and others | 91.8 |
| 102.6 |
|
Total — non-current asset | 871.2 |
| 949.8 |
|
Social Security and tax provisions. On October 7, 2005, the subsidiaries Ultragaz and Bahiana filed for and obtained a preliminary injunction to recognize and offset PIS and COFINS credits on LPG purchases, against other taxes levied by the Brazilian Internal Revenue Service, notably IRPJ and CSLL. The decision was confirmed by a trial court on May 16, 2008. Under the preliminary injunction, the subsidiaries made escrow deposits for these debits which amounted to R$534.8 million as of December 31, 2021 (R$523.1 million as of December 31, 2020). On July 18, 2014, a second instance unfavorable decision was published, and the subsidiaries suspended the escrow deposits, and started to pay income taxes from that date. To revert the court decision, the subsidiaries presented a writ of prevention which was dismissed on December 30, 2014, and the subsidiaries appealed this decision on February 3, 2015. Appeals were also presented to the respective higher courts Superior Court of Justice (“STJ”) and Federal Supreme Court (“STF”) whose final trial are pending. At the Superior Court of Justice, the subject matter underlying the lawsuit was identified as a repetitive demand (Repetitive Theme Nº 1093) and it is currently waiting for trial.
Civil, environmental and regulatory provisions. Ultrapar and certain subsidiaries are engaged in lawsuits and administrative proceedings, mainly derived from contracts entered into with customers and former suppliers, as well as proceedings related to environmental and regulatory issues. The company and its subsidiaries maintained total provisions of R$108.8 million as of December 31, 2021 (R$57.8 million as of December 31, 2020) for such lawsuits and administrative proceedings. This increase from 2020 to 2021 is due to changes in our risk of loss assessment in connection with certain proceedings to which Ipiranga is a party, as a result of unfavorable decisions.
Labor provisions. The Company and its subsidiaries maintain provisions of R$95.5 million as of December 31, 2021 (R$90.7 million as of December 31, 2020) for labor litigation filed by former employees and by employees of our service providers mainly contesting the non-payment of labor rights.
Contingent liabilities. The Company and its subsidiaries are party to various tax, civil, environmental, regulatory and labor proceedings for which the risk of loss has been classified as either “possible” or “remote” by our in-house legal department and external advisors. Based on this assessment, we have not recorded provisions for proceedings with either a possible or remote risk of loss, pursuant to applicable accounting standards. The total amount involved in proceedings for which the risk of loss was classified as possible was R$3.3 billion as of December 31, 2021 (R$3.24 billion as of December 31, 2020).
Tax and social security contingent liabilities. The Company and its subsidiaries have tax and social security contingent liabilities of R$2.3 billion as of December 31, 2021 (R$2.4 billion as of December 31, 2020), as further described below.
Our subsidiary Ipiranga and its subsidiaries have assessments invalidating the offset of excise tax (“IPI”) credits in connection with the purchase of raw materials used in the manufacturing of products which sales are not subject to IPI under the protection of tax immunity. The amount of this contingency was R$178.4 million as of December 31, 2021 (R$176.4 million as of December 31, 2020).
Our subsidiary Ipiranga and its subsidiaries have legal and administrative proceedings related to ICMS. The total amount involved as of December 31, 2021 in these proceedings, was R$1.3 billion (R$958.1 million as of December 31, 2020). Such proceedings arose mostly due to (i) the disregard of ICMS credits amounting to R$209.6 million (R$300.7 million as of December 31, 2020), of which R$15.5 million (R$92.7 million as of December 31, 2020) refer to proportional reversal requirement of ICMS credits related to the acquisition of hydrated alcohol; (ii) the alleged nonpayment of certain ICMS debts in the amount of R$106.6 million (R$98.2 million as of December 31, 2020); (iii) conditional use of tax incentive in the amount of R$174.1 million (R$119.9 million as of December 31, 2020); (iv) inventory differences in the amount of R$295.1 million (R$269.6 million as of December 31, 2020) related to the leftovers or faults due to temperature changes or product handling; (v) lawsuits in which our subsidiaries challenge the need to deposit certain amounts to the State Fund of Fiscal Balance, as a condition to the grant of ICMS tax benefits owed to them in the amount of R$59,1 million; and (vi) collection of the additional 2% levied on products considered non-essential -hydrated alcohol- in the amount of R$219.2 million.
We and our subsidiaries are parties to administrative and judicial suits involving income tax, social security contribution, PIS and COFINS, substantially about denials of offset claims and credits disallowance which total amount was R$578.1 million as of December 31, 2021 (R$709.3 million as of December 31, 2020).
One of said suits consists of a tax assessment related to the IRPJ and CSLL received by Ipiranga, which results from the supposedly undue amortization of the goodwill paid in connection with its acquisition of a subsidiary, in the amount of R$218.6 million as of December 31, 2021 (R$212.4 million as of December 31, 2020), which includes income taxes, interest and penalties. Management assessed the likelihood of the tax assessment, supported by the opinion of our legal advisors, as “possible”, and therefore did not recognize a provision for this assessment.
Civil, environmental and regulatory contingent liabilities. The Company and its subsidiaries have civil, environmental and regulatory contingent liabilities in the total amount of R$771.7 million as of December 31, 2021 (R$561.7 million as of December 31, 2020), as further described below.
Our subsidiary Ultragaz is party to an administrative proceeding before CADE based on alleged anti-competitive practices in the state of Minas Gerais in 2001. CADE rendered a decision against Ultragaz and imposed a penalty of R$34.2 million as of December 31, 2021 (R$33.9 million as of December 31, 2020). This decision was suspended by a court order and its merit is being judicially reviewed.
Ultragaz is a party to certain legal proceedings totaling R$233.4 million (R$186.4 million as of December 31, 2020) initiated by resellers seeking the annulment and termination of certain distribution contracts, in addition to indemnification for losses and damages.
The subsidiary Ipiranga is a party to an administrative proceeding filed by CADE related to allegations of anticompetitive practices in the Federal District. These proceedings were initiated in June 2020, as a result of a preliminary investigation held in 2009. Ipiranga has already presented its defense and the process is currently in the production of evidence phase.
In 2019 and 2020, two administrative decisions were issued against Ipiranga, whereby it was demanded to pay two fines in the amount of R$40.7 million and R$8.1 million, respectively, for allegedly influencing uniform commercial conduct among fuel resellers in the metropolitan region of Belo Horizonte, in Minas Gerais and in Joinville, Santa Catarina. Ipiranga submitted these decisions to judicial review and in both cases obtained a favorable decision suspending the enforceability of such fines after judicial guarantees were provided. Our management did not recognize a provision for these contingencies, supported by the opinion of the external lawyers, who classify the probability of loss as remote.
Certain former shareholders of RPR, CBPI and DPPI filed two lawsuits in the States of São Paulo and Rio de Janeiro questioning the Share Exchange in connection with the acquisition of the Ipiranga Group in order to prevent the Company’s shareholders’ meeting that would deliberate on the Share Exchange from taking place. Decisions by administrative and judicial courts stated that there were no legal grounds for the request. Based on such administrative and court decisions, the Share Exchange was approved by the shareholders’ meeting of the companies on December 18, 2007. The lawsuit filed in the state of Rio de Janeiro was terminated as a result of loss of interest to sue, due to the sale of the correspondent shareholding at Ultrapar. Following several appeals filed by the former Ipiranga shareholders, the decision rendered by the São Paulo court also became final on April 18, 2018. In 2011, a new lawsuit in the state of Rio de Janeiro was filed by some of these former shareholders, questioning aspects of the Share Exchange. However, the High Court of Justice rendered a decision regarding a conflict of jurisdictions and ordered the remittance of this new lawsuit to the state of São Paulo, where it will be judged. As of the date of this annual report, the judgment of such lawsuit is still pending.
On November 29, 2016, a technical opinion was issued by the Operational Support Center for Execution (Centro de Apoio Operacional à Execução – CAEX), a technical body linked to the São Paulo State Public Prosecutor (“MPE”), presenting a proposal setting forth an estimate of monetary damages for the alleged environmental impact caused by a fire on April 2, 2015 at the Santos Terminal of the subsidiary Ultracargo Logística (formerly Terminal Químico de Aratu S.A. – Tequimar). This technical opinion is non-binding, with no condemnatory or sanctioning nature, and will still be evaluated by the authorities and parties. The Company disagrees with the methodology and the assumptions adopted in the proposal and has been negotiating an agreement with the MPE and the Brazilian Federal Public Prosecutor (“MPF”), since the beginning of the investigation. The negotiations relate to the indemnification of the alleged damages. As of the date of this annual report, no civil lawsuit has been filed on the matter. On May 15, 2019, the subsidiary Ultracargo Logística signed a Partial Conduct Adjustment Commitment Agreement (“TAC”) in the amount of R$67.5 million with the MPE and MPF to indemnify diffuse and collective damages of any kind arising from the fish mortality and the damage caused to the ichthyofauna. The negotiations on indemnification of other alleged damages are still ongoing and, once concluded, may result in additional payments and potential liabilities related to the project costs that may affect the Company’s future financial results. In the criminal sphere, the MPF filed a lawsuit against the subsidiary Ultracargo Logística, which was serviced and submitted its defense to the complaint on June 19, 2018. On September 12, 2019, at a hearing before the federal court of Santos, the MPF and Ultracargo Logística agreed, and the judicial authority approved, the conditional suspension of the criminal proceedings for a period of two years, after which Ultracargo Logística shall be required to demonstrate the due performance of the Partial TAC signed, with the obligation of a complementary allocation of R$13.0 million to the Fisheries Management Project, and thus achieve the definitive dismissal of the criminal process. On February 4, 2021, the subsidiary paid the remaining balance related to the TAC, and there are no pending and/or additional financial obligations arising from this commitment. Additionally, as of December 31, 2021 there are unrecognized contingent liabilities related to lawsuits amounting to R$2.1 million (R$4,4 million as of December 31, 2020). On December 31, 2020 and December 31, 2021, no lawsuits were initiated in connection with this matter. Information on the Company—History and Development of the Company—Ultracargo – Fire at storage facilities in Santos.”
Labor contingent liabilities. The Company and its subsidiaries have labor contingent liabilities in the total amount of R$246.5 million as of December 31, 2021 (R$256.3 million as of December 31, 2020), as further described below.
The Petrochemical Industry Labor Union (Sindiquímica), to which the employees of the subsidiaries Oxiteno S.A and EMCA located at the Camaçari Petrochemical Complex are affiliated, filed in 1990 a collective action against the subsidiaries, seeking compliance with section four of the 1989/1990 Collective Bargaining Agreement (CCT 1989/1990), which allegedly provided for a salary adjustment policy different from that actually practiced by such subsidiaries. The decisions rendered in the collective actions were favorable to the subsidiaries Oxiteno S.A. and EMCA and are final and unappealable. In that same year, a collective action was filed by the Union of Employers (SINPEQ) against Sindiquímica, seeking the recognition of the inapplicability of such section four. The collective action filed by SINPEQ against Sindiquímica became final in the STF in October 2019 and was unfavorable to SINPEQ, with the STF declaring the validity of section four. In October 2015, Sindiquímica filed an enforcement lawsuit against Oxiteno S.A and, in 2017, against EMCA, seeking to force these companies to comply with the CCT 1989/1990. As of this annual report, a favorable decision has been issued against Oxiteno whereas an unfavorable decision has issued against EMCA in connection with these enforcement proceedings, both pending final judgment. In addition to the collective actions, individual claims with the same subject matter have been filed, the judgment of which are currently pending.
Lubricants operation between Ipiranga and Chevron. In the process of establishing the joint-venture between Chevron and subsidiary Ipiranga, the companies agreed that each shareholder of the new company would be responsible for any claims arising out of any acts, facts or omissions prior to their formation. The liability provisions of the Chevron shareholder in the amount of R$19.7 million as of December 31, 2021 (R$101.7 million as of December 31, 2020) are reflected in the consolidated financial statements, as well as the contingent liabilities identified at the date of acquisition, whose provision in the amount of R$198.9 million was recognized as a business combination on December 1, 2017, with the balance of R$101.2 million as of December 31, 2020 (R$102.8 million as of December 31, 2020). The amount provisioned of Chevron’s liability recognized in the business combination will be reimbursed to subsidiary Iconic in the event of losses and an indemnity asset was hereby constituted in the same amount, without the need to establish a provision for uncollectible amounts.
On April 16, 2021, part of the provision for Chevron's liability related to the ICMS assessment in the amount of R$81.1 million, from July 1996 to December 1997, was definitively released through the payment by Chevron of the tax amnesty program, established by the ICMS/RJ Agreement No. 51/2020 (Decree/RJ No. 47,332/2020 and RJ State Law No. 9,041/2020). The released provision totaled R$19.7 million, and it refers to: (i) R$17.2 million of ICMS assessments on sales for industrial purposes, in which the Federal Supreme Court concluded the judgment unfavorably to taxpayers; (ii) R$2.2 million of labor lawsuits and (iii) R$0.2 million, regulatory and environmental lawsuits.
Antitrust matters
Acquisition of Liquigás Distribuidora S.A.(“Liquigás”). The acquisition of 100% of Liquigás by Ultragaz S.A. was submitted to the antitrust authorities on April 7, 2017. On August 28, 2017, the General Superintendence of CADE issued a non-binding opinion objecting to the transaction. On February 22, 2018, CADE’s Tribunal rejected the transaction relating the acquisition of Liquigás. The contract was automatically terminated, pursuant to which Ultragaz paid a fine on March 13, 2018, in favor of Petrobras, in the amount of R$286.2 million, as per the terms of original sale and purchase agreement.
Acquisition of Terminal Exportador de Álcool de Santos Ltda. (“TEAS”). The acquisition of 100% of TEAS, previously owned by Raízen Energia S.A. and Raízen Araraquara Açúcar e Álcool Ltda., by Ultracargo Logística, was duly submitted to the antitrust authorities on January 31, 2018. On February 9, 2018, the General Superintendence of CADE issued a decision for the approval of the transaction without any restriction. On March 2, 2018, CADE issued a certificate (“certidão de trânsito em julgado”) formalizing the definitive approval of such decision. The closing of the acquisition took place on March 29, 2018.
Divestment of ConectCar Soluções de Mobilidade Eletrônica S.A. (“ConectCar”). The sale to Portoseg S.A. – Crédito, Financiamento e Investimento of 50% of the shares issued by ConectCar and held by Ipiranga was submitted to the antitrust authorities on July 14, 2021. On July 28, 2021, the General Superintendence of CADE issued a decision for approving the transaction without restrictions. On August 16, 2021, CADE issued a certificate (“certidão de trânsito em julgado”) formalizing the definitive approval of such decision. The closing of the transaction occurred on October 1, 2021.
Divestment of Imifarma Produtos Farmacêuticos e Cosméticos S.A. (“Extrafarma”). The sale of 100% of Ipiranga’s interest in Extrafarma, amounting to 100% of Extrafarma’s share capital, to Empreendimentos Pague Menos was duly submitted to CADE on September 16, 2021. On February 11, 2022, the CADE’s General Superintendent’s Office issued a decision whereby it stated that, because of the complexity of the intended transaction, the Brazilian antitrust authority might need further time to finalize its assessment. On May 7, 2022, CADE’s General Superintendent’s Office recommended the approval of the transaction, contingent on the execution of a Merger Control Agreement (“Acordo em Controle de Concentrações”) between Pague Menos and CADE, whereby Pague Menos shall undertake certain remedial measures to mitigate potential competitive issues arising out of the transaction. The recommendation made by the General’s Superintendent’s Office is now subject to CADE’s Tribunal review, which shall issue a final decision on the matter.
Divestment of Oxiteno S.A. Indústria e Comércio (“Oxiteno”). The sale of 100% of Ultrapar’s interests in Oxiteno, amounting to 100% of Oxiteno’s share capital, to Indorama Ventures Spain Sociedad Limitada and Tereftálicos Indústria e Participações Ltda. was duly submitted to CADE on November 11, 2021. On March 04, 2022, the General Superintendence of CADE issued a decision approving the transaction without restrictions. On April 1, 2022, the transaction was closed.
- Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
- Offer and Listing Details
Not required.
- Plan of Distribution
Not applicable.
- Markets
Our shares are listed on the São Paulo Stock Exchange under the ticker symbol “UGPA3” and the ADSs are listed on NYSE under the symbol “UGP.”
- Share Capital
Not applicable.
B. Memorandum and Bylaws
We are registered with the commercial registry of the state of São Paulo under the registration number 35,300,109,724. Pursuant to chapter I, article 3 of our bylaws, our main corporate purpose is the investment of our capital in the trade, industry and agriculture sectors and in companies providing services, through the subscription for or acquisition of shares or quotas in other companies.
General
Set forth below is a summary of selected significant provisions of our bylaws and the Brazilian Corporate Law, the rules and regulations of the CVM and the Novo Mercado listing segment of B3 regarding certain corporate matters applicable to us. This description does not purport to be complete and is qualified by reference to our bylaws, Brazilian Corporate Law, the rules and regulations of the CVM and the rules of the Novo Mercado.
In connection with the conversion, at the extraordinary shareholders’ meeting and the special preferred shareholders’ meeting, both held on June 28, 2011, our shareholders approved (i) the conversion of all preferred shares into common shares at a ratio of one preferred share for one common share; (ii) changes to and consolidation of our bylaws; (iii) the Company’s adherence to the rules of the Novo Mercado of the B3; and (iv) the confirmation that the new provisions related to the rights of all Company’s shareholders in the event of a sale of control of the Company, pursuant to its new bylaws and the Novo Mercado regulations, are equivalent to the provisions of the Ultra S.A. shareholders’ agreement dated as of March 22, 2000. Such decisions became effective on the date the shares issued by the Company were admitted to trade at the Novo Mercado of the B3.
As a result of the Conversion, due to new capital structure, other shareholders’ rights are currently not applicable, for instance, the right to separate elections for the Board of Directors and Fiscal Council. On the other hand, common shareholders are entitled to voting rights in any matter.
Since our shares are listed on the Novo Mercado, we are required to comply with heightened requirements for corporate governance. In addition, we are not permitted to issue preferred shares or any shares with restricted voting rights while listed on this segment pursuant to its rules. As of January 2, 2018, the new rules for Novo Mercado came into effect. Despite the fact that the companies listed in this segment must fully comply with the regulations until the general shareholders’ meeting of 2022, our bylaws were already amended on April 10, 2019 to reflect these rules and therefore as of the date of this annual report we are in full compliance with such rules.
Description of Capital Stock
On April 10, 2019, the extraordinary and annual general shareholders’ meeting approved a stock split of the shares issued by Ultrapar, so that each share would be represented by two shares of the same class and type. The stock split shall not involve any change in the capital stock, therefore being no alteration in the financial amount and shareholder participation in the Company’s capital stock. The share split was implemented on April 24, 2019, which was also the date that the corresponding stock split of our American Depositary Shares was implemented.
As of December 31, 2021, our subscribed and paid-in capital stock consisted of 1,115,107,683 common shares, all of which have equal voting and equity rights, with no par value, of which 26,934,776 common shares were held in treasury.
On February 23, 2022, our Board of Directors confirmed the issuance of 43,925 common shares within the limits of the authorized capital stock pursuant to Article 6 of the Company’s Bylaws, due to the partial exercise of the subscription warrants issued by the Company as of the approval of the Extrafarma transaction. These common shares have the same rights assigned to the other shares previously issued by the Company.
As of the date of this annual report, the Company’s capital stock is represented by 1,115,151,608 common shares, all of them nominative and with no par value.
Subscription Warrants
As a result of the Extrafarma Transaction, the Company issued subscription warrants to the former Extrafarma shareholders which could potentially lead to the issuance of up to 6,411,244 shares, taking into account the stock split approved in April 2019 (3,205,622 shares prior to the April 2019 stock split). The subscription warrants were partially exercised in February 2020, August 2020, February 2021, August 2021 and February 2022, and the Company issued a total amount of 2,341,416 common shares. Therefore, as of the date of this annual report, the exercise of the remaining subscription warrants by the former Extrafarma shareholders could potentially lead to the issuance of up to 3,474,269 shares of Ultrapar. See “Item 4.A. Information on the Company — History and Development of the Company —A.2 Discontinued Operations—Extrafarma.”
Voting Rights
Each common share entitles its holder to one vote at the matters of the shareholders’ meetings, in accordance with the Brazilian Corporate Law, our bylaws and the Novo Mercado regulations. For more detailed information with respect to the voting rights of our common shares see our Form 8-A filed with the SEC on August 15, 2011 in the section “Description of Capital Stock—Shareholders’ Meetings.”
Deregistration as Publicly-Held Company
We may only deregister as a publicly-held company if such deregistration is approved by a majority of the shareholders present at a shareholders’ meeting, which shall be conditioned to: (i) the launching of a public tender offer for the acquisition of all of our outstanding shares in accordance with the provisions of Brazilian Corporate Law, the CVM rules and regulations, the Novo Mercado regulation and our bylaws by us, our controlling shareholders or a group of controlling shareholders and (ii) the acceptance of at least two thirds (2/3) of the shareholders representing the free float that show up at the tender offer auction (whether by selling its shares or expressly agreeing with the deregistration), in which case we would become a privately-held company. The price offered for such outstanding shares must at least correspond to the fair value of such shares as set forth in the respective appraisal report issued by a specialized institution with proven experience hired by the offeror for the purposes of the tender offer.
Shareholders holding at least ten percent of the free float of our shares may require our management to call a special shareholders’ meeting to determine whether to perform another valuation using the same or a different valuation method. This request must be made within 15 days following the disclosure of the price to be paid for the shares in the public tender offer. If the new valuation price is equal to or lower than the original valuation price, the shareholders making such request as well as those who vote in its favor must reimburse the Company for any costs incurred in preparing the new appraisal report. If the new valuation price is higher than the original valuation price, the offeror shall then decide whether to proceed with the public tender offer observing the new price or withdraw the tender offer, in which case the Company will continue to be registered as a publicly-held company.
Withdrawal from the Novo Mercado
According to the new Novo Mercado Listing Rules – applicable as of January 2, 2018 – and to our bylaws, the withdrawal from the Novo Mercado may be: (i) voluntary; or (ii) mandatory, as a result of the violation of any the rules of the Novo Mercado or the deregistration as publicly-held company.
The withdrawal, however, shall only occur after the launching of a public tender offer for the Company’s outstanding shares, which shall (i) follow, as applicable, the CVM regulation that rules that the mandatory tender offer for the deregistration as publicly-held company (including the abovementioned possibility to request a second valuation report); and (ii) be launched at a fair price, as appointed in the appraisal report issued by a specialized institution with proven experience for the purposes of the tender offer; and (ii) be approved by at least one third (1/3) of the shareholders representing the free float that participate in the tender offer auction (whether by selling its shares or expressly agreeing with the withdrawal from the Novo Mercado).
The obligation to launch such public tender offer, however, may be waived by the majority of the shareholders representing the Company’s free float present at the shareholders’ meeting convened to resolve on that matter. Such shareholders’ meeting may be held on first call with the attendance of shareholders representing two thirds (2/3) of the free float or, on second call, with the attendance of any number of shareholders representing the free float.
The withdrawal from the Novo Mercado does not necessarily result in our deregistration as a publicly-held company on the B3.
If the Company participates in a corporate reorganization involving the transfer of its shareholders’ base to a company that is not listed in the Novo Mercado, such resulting company or companies must apply for listing on Novo Mercado within one hundred and twenty (120) days from the date of the general shareholders meeting that approved the reorganization, unless the majority of the shareholders representing the Company’s free float present at such shareholders’ meeting agrees with the non-listing of the resulting company.
Pursuant to the new rules of the Novo Mercado and to our bylaws, the voluntary withdrawal shall be preceded by a public tender offer at fair market value. For the withdrawal to move forward, shareholders representing more than one third (1/3) of the outstanding shares shall need to accept the tender offer or expressly agree to delist without selling the shares.
According to the rules of the Novo Mercado, in the event of a transfer of our shareholding control within 12 months following our delisting from the Novo Mercado, the selling controlling shareholder(s) and the acquirer must offer to acquire the remaining shares for the same price and terms offered to the selling controlling shareholders, duly updated, or pay the difference, if any, between the tender offer price accepted by the former shareholders, duly updated, and the price obtained by the controlling shareholder in selling its shares.
Sale of Control
In the event of a direct or indirect sale of the Company’s shareholding control, through a single or series of transactions, the acquirer must conduct a public tender offer for all shares held by the remaining shareholders in order to ensure equal treatment of all shareholders (tag-along right). Such right has been provided to Ultrapar’s shareholders since March 22, 2000, in accordance with the terms of the Ultra S.A. shareholders’ agreement signed on the same date, which has since then been rescinded and replaced by our bylaws. The tender offer is subject to applicable laws and regulations, our bylaws and the rules of the Novo Mercado.
A public tender offer is also required when there is an assignment for consideration of share subscription rights or rights of other securities convertible into our shares, which results in the transfer of control of the Company. In such case, the acquiring shareholder must (i) complete a public tender offer for our remaining shares on the same terms and conditions offered to the selling shareholder and (ii) according to our bylaws, reimburse the counterparties from whom it has acquired our shares on the stock exchange in the six-month period preceding the transaction which resulted in a change in control. The reimbursement amount corresponds to the positive difference between the price paid to the selling shareholder in the transaction that resulted in a change of control and the adjusted price paid in the transactions carried out on the B3 during this six-month period, as adjusted by the Selic rate up until the payment date.
The buyer of a controlling interest shall, after the financial settlement of the foregoing tender offer, take the appropriate actions to, over the course of the subsequent 18 months, restore the minimum percentage of outstanding shares as per the rules of the Novo Mercado.
Acquisition of a Relevant Interest
Any person, regardless of whether he/she is a shareholder, which, on his/her own account or acting jointly with another person, acquires our shares, through a single transaction or a series of successive transactions, representing 20% or more of our capital stock, is required to make a tender offer for the acquisition of the shares held by the remaining shareholders at a price equal to the highest value per share paid by him/her in the preceding six months, adjusted pursuant to the Selic rate. Such persons will not be required to carry out a public tender offer in the event they timely and cumulatively sell on a stock exchange the number of our shares that exceeds such thresholds, within 30 days from the date they provide notice to the Company of their intent to make such sales. In addition, the requirement to carry out a public tender offer will not apply in the event any shareholder or group of shareholders hold more than 50% of our capital stock at the time of acquisition of the relevant interest.
Public Tender Offers
A single public tender offer may be launched for more than one of the purposes provided for in our bylaws, the Novo Mercado Listing rules, the Brazilian Corporate Law or in the regulations issued by the CVM, provided that the procedures used when conducting the unified public tender offer are compatible with all requirements of each individual public tender offer, the public tender offers do not suffer any damages and the authorization of the CVM is obtained, when required by the applicable law.
C. Material Contracts
2018 Shareholders’ Agreement
On May 2, 2018, Ultra S.A. and Parth executed a shareholders’ agreement to set forth a set of rules to govern the relationship between these two shareholders, binding on December 31, 2019 a total of shares representing 29.4% of the Company’s capital stock. This shareholders’ agreement replaced the Ultra S.A. shareholders’ agreement executed in 2014 and should be in force for a period of five years, automatically renewable for an equal period, except if a termination notice is sent by one party to the other up to six (6) months before the end of its term. The 2018 Shareholders Agreement’s main terms were substantially related to (i) the decision process of how Ultra S.A., Parth and its shareholders should vote at Ultrapar’s shareholders meetings; (ii) procedures to exchange any party’s shares in Ultra S.A. or in Parth for shares of Ultrapar; and (iii) procedures applicable to the exercise of right of first refusal, preemptive rights and drag along rights. Additionally, any third party purchasing Ultra S.A.’s shares bound by the shareholders’ agreement must agree to be bound by the shareholders’ agreement. See “Exhibit 2.6 — 2018 Shareholders’ Agreement, dated as of May 2, 2018.”
2020 Shareholders’ Agreement
On August 18, 2020, Ultra S.A. and Parth entered into the 2020 Shareholders’ Agreement to include Pátria, in its capacity as Ultra S.A.'s shareholder then holding a 20% stake in Ultra S.A.'s capital stock, as consenting intervening party, therefore bound by the provisions of the 2020 Shareholders' Agreement. The 2020 Shareholders’ Agreement replaced the 2018 Shareholders’ Agreement in its entirety, and the terms and conditions remain substantially the same of the latter. On September 28, 2021, Ultra S.A. informed the Company that Mr. Marcos Marinho Lutz became a shareholder of Ultra S.A., holding 2.4% of its capital stock, and also became a signatory of the 2020 Shareholders’ Agreement. As of December 31, 2021, the 2020 Shareholders' Agreement binded a total of shares representing 34.7% of the Company’s capital stock. See “Exhibit 2.13—2020 Shareholders’ Agreement, dated as of August 18, 2020.”
Association and Other Covenants Agreement — Extrafarma
On September 30, 2013, Ultrapar, Extrafarma, Paulo Correa Lazera, Katia Correa Lazera, Pedro José Correa Lazera, Roberto Correa Lazera, Tania Lazera Lima Paes, Tereza Lazera Kemp and Sandra Correa Lazera, each individual being a former shareholder of Extrafarma entered into an Association and Other Covenants Agreement to effect the merger of shares (incorporação de ações) of Extrafarma with Ultrapar. See “Exhibit 4.17 – Summary of the Association and Other Covenants Agreement, dated September 30, 2013.”
Notes in the foreign market
In October 2016, the subsidiary Ultrapar International S.A. issued notes in the international market in the principal amount of US$750 million, with maturity in October 2026 and interest rate of 5.25% per annum, with interest payable semiannually. The issue price was 98.097% of its face value. The notes are jointly and unconditionally guaranteed by Ultrapar and by the subsidiary Ipiranga. See “Exhibit 2.8 – Indenture, dated as of October 6, 2016.”
In June 2019, the subsidiary Ultrapar International repurchased US$200 million in notes due 2026.
In June 2019, the subsidiary Ultrapar International S.A. issued notes in the international market in the principal amount of US$500 million, with maturity in June 2029 and interest rate of 5.25% per annum, with interest payable semiannually. The issue price was 100% of its face value. The notes are jointly and unconditionally guaranteed by Ultrapar and by the subsidiary Ipiranga. See “Exhibit 2.9 – Indenture, dated as of June 6, 2019.”
In July 2020, Ultrapar International reopened its 2029 notes issued in the international market and issued additional notes in the total amount of US$350.0 million at an interest rate of 5.25% per year with the same characteristics of the 2029 notes (Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Consolidated Debt—Notes in the Foreign Market.”
As a result of the issuance of the notes in the foreign market, Ultrapar and its subsidiaries are required to perform certain obligations, including:
- Restriction on sale of all or substantially all assets of Ultrapar and subsidiaries Ultrapar International and Ipiranga;
- Restriction on encumbrance of assets exceeding US$150 million or 15% of the amount of the consolidated tangible assets.
Ultrapar and its subsidiaries are in compliance with the levels of covenants required by this debt. The restrictions imposed on Ultrapar and its subsidiaries are customary in transactions of this nature and have not limited their ability to conduct their business to date.
Debentures
In March 2018, Ultrapar completed its sixth issuance of R$1,725.0 million in public debentures, which mature in March 2023 and bear interest at 105.25% of DI, with principal due at maturity. The proceeds of the issuance were used to redeem 800 debentures from the fifth issuance at the final maturity date and to lengthen its debt profile, providing greater financial flexibility.
For more information on our debentures, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Consolidated Debt.”
Banco do Brasil
Our subsidiary Ipiranga entered into several loan agreements with Banco do Brasil S.A. to finance the marketing, processing or manufacturing of agricultural goods (particularly ethanol). The loan agreements contain certain financial penalties for failure to make required payments, limits on permitted usages of the borrowed amounts (which are linked to certain agricultural products expenditures) and loan acceleration clauses. In addition, these agreements contain cross default clauses, requiring the principal and accrued interest to be paid in full for certain events.
For further detail on financial instruments of Ultrapar and its subsidiaries, see Note 17 to our consolidated financial statements and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Consolidated Debt.”
D. Exchange Controls
There are no restrictions on ownership of our common shares or ADS by individual or legal entities domiciled outside Brazil. However, the right to convert dividend payments, interest on shareholders’ equity payments, and proceeds from the sale of our shares into foreign currency and to remit such amounts abroad is subject to restrictions under foreign investment legislation, which generally require, among other things, that the relevant investment be registered with the Central Bank and the CVM.
Foreign investors may register their investment in our shares under Law 4,131, dated as of September 3, 1962, as amended, or Law 4,131, or under Resolution No. 4,373, dated as of September 29, 2014 (which replaced Resolution No. 2,689, dated of January 26, 2000), or Resolution No. 4,373. Registration under Resolution No. 4,373 affords favorable tax treatment to foreign investors who are not residents in a “tax haven” jurisdiction (i.e. countries that do not impose income tax or where the maximum income tax rate is lower than 20%), as defined by Brazilian tax laws.
Portfolio foreign investments are regulated by Resolution No. 4,373 and CVM Resolution 13, as amended, or CVM Resolution 13. Resolution No. 4,373 provides that foreign investors may invest in financial and capital markets in Brazil, including by means of the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers, provided that certain requirements are fulfilled.
Under Resolution No. 4,373, foreign investors may invest in the same instruments and operational modalities available to the investors residing or domiciled in Brazil. The definition of foreign investor includes individuals, legal entities, funds and other collective investment entities, residing, domiciled or headquartered abroad.
Pursuant to Annex I of Resolution No. 4,373 and CVM Resolution 13, among the requirements applicable, in order to invest in Brazil under the mentioned resolution, a foreign investor must:
- appoint at least one representative in Brazil, which must be a financial institution or other institution authorized to operate by the Central Bank of Brazil. The local representative appointed by the foreign investor shall be responsible for performing and updating the registration of the investments made by the foreign investor with the Central Bank of Brazil, as well as the registration of the foreign investor with the CVM;
- through its representative in Brazil, register itself as a foreign investor with the CVM;
- through its representative in Brazil, register its foreign investment with the Central Bank; and
- appoint an authorized custodian in Brazil for its investments, which must be a financial institution or entity duly authorized by the Central Bank or CVM. Pursuant to article 2, §4º of the Annex I of Resolution No. 4,373, individuals are not subject to this requirement
Securities and other financial assets held by non-Brazilian investors pursuant to Annex I Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly authorized by the Central Bank or the CVM, as applicable, or be registered with clearing houses and other entities that provide services of registration, clearing and settlement duly licensed by the Brazilian Central Bank or the CVM, as applicable. In the case of Depositary Receipts (DRs), the record must be made by the Brazilian custodian entity on behalf of the foreign depositary institution.
Annex II of Resolution No. 4,373 of the National Monetary Council provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers.
For purposes of the mandatory registration with the Central Bank of Brazil of foreign investments in the Brazilian financial and capital markets, Resolution No. 4,373 expressly provides that simultaneous foreign exchange transactions (i.e. without effective transfer of funds to or from abroad) shall be required in specific situations, including (i) conversion of credits held by foreign investors in Brazil into foreign investment in the financial and capital markets; (ii) transfer of investments made in depositary receipts to the modality of foreign direct investments (or investimento estrangeiro direto) under Law No. 4,131 or investments in the Brazilian financial and capital markets under Annex I of Resolution. No. 4,373; and (iii) transfer of investments in the Brazilian financial and capital markets under Annex I of Resolution. No. 4,373 to the modality of foreign direct investments (or investimento estrangeiro direto) under Law No. 4,131.
In addition, Resolution No. 4,373 does not allow foreign investors to perform investments or sell the invested assets outside of organized markets, except as expressly authorized by the CVM through specific regulation or according to the exceptions provided in CVM Resolution 13. Pursuant to CVM Resolution 13, the exceptions for investments outside of organized markets include subscription, stock bonus, initial public offers and the exercise of put options for shareholders that remain following a tender offer, among others.
Foreign investors must be registered with the Brazilian Internal Revenue Service (“Receita Federal”) pursuant to the Nominative Instruction 1,863, dated as of December 27, 2018 and Nominative Instruction 1,548, dated as of February 13, 2015. This registration process is undertaken by the investor’s legal representative in Brazil.
The right to convert dividend payments and proceeds from the sale of our shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, that the relevant investment be registered with the Central Bank and the CVM.
We have obtained a certificate of registration in the name of The Bank of New York Mellon, the depositary, with respect to our ADS program. Pursuant to this certificate, the custodian and the depositary are able to convert dividends and other distributions with respect to the shares represented by ADSs into foreign currency and to remit the proceeds outside Brazil. In order for a holder of our ADSs to surrender its ADSs for the purpose of withdrawing the shares represented thereby, the investor is required to register as a Resolution No. 4,373 investor and meet the requirements mentioned above, as well as register its investment with the Central Bank. If the investor’s representatives fail to obtain or update the relevant certificates of registration, the investor may incur additional expenses or be subject to operational delays which could affect its ability to receive dividends or distributions relating to the shares or the return of its capital in a timely manner. An investor who surrenders its ADSs and withdraws the shares thereunder may be subject to less favorable Brazilian tax treatment on the gains from the disposition of the investment than a holder of ADSs.
Under Brazilian law, whenever there is a serious imbalance in Brazil’s balance of payments or reasons to foresee a serious imbalance, the Brazilian government may impose temporary restriction on the remittance of foreign currency abroad and on the conversion of Brazilian currency into foreign currencies. Such restrictions may hinder or prevent the custodian or holders who have exchanged ADSs for underlying shares from converting distributions or the proceeds from any sale of such shares, as the case may be, into U.S. dollars and remitting such proceeds abroad.
E. Taxation
This description does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular investor, including tax considerations that shall arise from rules of general application to all taxpayers or to certain classes of investors or that are generally assumed to be known by investors.
This summary is based upon tax laws of Brazil and the United States as of the date of this annual report, which are subject to change, possibly with retroactive effect, and to differing interpretations. Investors who hold our shares and ADSs should consult their own tax advisors as to the Brazilian, U.S. or other tax considerations relating to the ownership and disposition of shares or ADSs, including, in particular, the effect of any non-U.S., state or local tax laws.
The tax considerations described below do not take into account the effects of a possible future income tax treaty between Brazil and the United States. We cannot assure you as to whether or when an income tax treaty will enter into force or how it will affect U.S. Holders of our shares or ADSs.
This summary does not address any tax issues that affect solely the Company, such as deductibility of expenses.
Brazilian Tax Consequences
General. The following discussion summarizes the main Brazilian tax considerations relating to the ownership and disposal of our shares or ADSs, as the case may be, by a holder that is not domiciled in Brazil for purposes of Brazilian taxation and, in the case of shares, has registered its investment in such securities with the Central Bank as a direct investment (in each case, a “Non-Brazilian Holder”). The following discussion does not address all of the Brazilian tax considerations applicable to any particular Non-Brazilian Holder. Therefore, each Non-Brazilian Holder should consult his or her own tax advisors concerning the Brazilian tax considerations relating to an investment in our shares or ADSs.
Law No. 12,973 enacted on May 13, 2014 established new rules regarding the withholding tax exemption available on the payment of dividends and interest on capital. The legislation had no material impact, as foreseen by the tax consultants in the 20-F form in the previous year.
Taxation of dividends. Dividends paid by us, including stock dividends and other dividends paid in property, to the depositary in respect of the shares, or to a Non-Brazilian Holder in respect of shares, are currently exempted from withholding tax in Brazil to the extent that the dividends are paid out of profits as of January 1, 1996. Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, depending on the year the profits were generated.
Interpretation of the Discussion on the Definition of “Favorable Tax Jurisdiction.” On June 4, 2010, Brazilian tax authorities enacted Normative Instruction 1,037 listing (i) the countries and jurisdictions considered as favorable tax jurisdiction or where local legislation does not allow access to information related to the shareholding composition of legal entities to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents, or “tax haven” jurisdictions, and (ii) the privileged tax regimes, whose definition is provided by Law No. 11,727, dated as of June 23, 2008. Although we believe that the best interpretation of the current tax legislation could lead to the conclusion that the above mentioned “privileged tax regime” concept should apply solely for purposes of Brazilian transfer pricing, thin capitalization and controlled foreign company rules, we cannot assure you whether subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of a “privileged tax regime” provided by Law No. 11,727/08 will also apply to a Non-Brazilian Holder on payments potentially made by a Brazilian source.
Moreover, on November 28, 2014, due to the enactment of Ordinance No. 488, the definition of a favorable tax jurisdiction, for the purposes described above, was changed from jurisdictions where there is no income tax, or the income tax applicable rate is inferior to 20%, to jurisdictions where there is no income tax, or the income tax applicable rate is inferior to 17% (if the country is aligned with the international standards of fiscal transparency defined by Brazilian legislation).
We recommend prospective investors consult their own tax advisors from time to time to verify any possible tax consequences arising of Normative Ruling No. 1,037/10 and Law No. 11,727/08. If the Brazilian tax authorities determine that the concept of “privileged tax regime” provided by Law No. 11,727/08 will also apply to a Non-Resident Holder on payments potentially made by a Brazilian source, the withholding income tax applicable to such payments could be assessed at a rate up to 25%.
Payments of interest on capital. Law No. 9,249, dated as of December 26, 1995, permits Brazilian corporations to make distributions to shareholders of interest on capital, or interest attributed to shareholders’ equity.
These distributions may be paid in cash and such payments represent a deductible expense from the payer’s corporate income tax and social contribution on net profits tax basis. The deduction of such interest is limited to the daily pro rata variation of the Federal Government’s long-term interest rate, or TJLP, as determined by the Central Bank from time to time, and cannot exceed the greater of:
- 50% of net income (determined after the social contribution on net profits and before the provision for corporate income tax, and the amounts attributable to shareholders as interest on net equity) related to the period in which the payment is made; or
- 50% of the sum of accrued profits and profits reserves.
Any payment of interest on capital to shareholders (including holders of ADSs in respect of shares) is subject to a withholding income tax at a rate of 15%, or 25% if the Non-Brazilian Holder is domiciled in a “tax haven” jurisdiction (“Tax Haven Holder”). These payments may be included, net of withholding income taxes, as part of any mandatory dividend.
To the extent that payments of interest on capital are included as part of a mandatory dividend, we are required to distribute an additional amount to ensure that the net amount received by shareholders, after payment of the applicable withholding income tax, is at least equal to the mandatory dividend.
Distributions of interest on net equity to foreign holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Central Bank.
We cannot assure you if our Board of Directors will determine that future distributions should be made by means of dividends or interest on capital.
Taxation of gains. According to Law No. 10,833, dated as of December 29, 2003, the gains recognized on a disposal of assets located in Brazil, such as our shares, by a Non-Brazilian Holder, are subject to withholding income tax in Brazil. This rule is applicable regardless of whether the disposal is conducted in Brazil or abroad and/or if the disposal is made to an individual or entity resident or domiciled in Brazil, or not.
As a general rule, capital gains realized as a result of a disposal transaction are the positive difference between the amount realized on the disposal of the shares and the respective acquisition cost.
Under Brazilian law, however, income tax rules on such gains may vary depending on the domicile of the Non-Brazilian Holder, the type of registration of the investment by the Non-Brazilian Holder with the Brazilian Central Bank and how the disposition is carried out, as described below.
Capital gains realized by Non-Brazilian Holders on the disposal of shares sold on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market):
- are subject to the withholding income tax at a zero percent rate when realized by a Non-Brazilian Holder that (i) has registered its investment in Brazil before the Central Bank under the rules of Resolution No. 4,373 issued by the Brazilian Monetary Counsel (“Registered Holder”) and (ii) is not resident or located in a country or location which is defined as a “Favorable Tax Jurisdiction”, as described above; and
- are subject to income tax at a rate of 15% with respect to gains realized by(i) a Non-Brazilian Holder that is not a Registered Holder (including a Non-Brazilian Holder who qualifies under Law No. 4,131/62) and is not resident or domiciled in a “Favorable Tax Jurisdiction” and (ii) gains earned by Tax Haven Holders that are Registered Holders. In this case, a withholding income tax of 0.005% shall be applicable and withheld by the intermediary institution (i.e., a broker), and can be later offset against any income tax due on the capital gain.
Any other gains realized on the disposal of shares that are sold on the Brazilian stock exchange or on the organized over-the-counter market:
- are subject to income tax at a rate of 15% when realized by any Non-Brazilian Holder that is not a Tax Haven Holder, no matter if a Registered Holder or not; and
- are subject to income tax at a rate of 25% when realized by a Tax Haven Holder, no matter if a Registered Holder or not.
In the cases above, if the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable on the gross proceeds and can be offset against any income tax due on the capital gain.
Any exercise of preemptive rights relating to shares will not be subject to Brazilian income tax. Gains realized by a Non-Brazilian Holder on the disposal of preemptive rights will be subject to Brazilian income tax according to the same rules applicable to disposal of shares.
There can be no assurance that the current favorable tax treatment of Registered Holders will continue in the future.
Furthermore, according to the general rules set forth in Law No. 13,259/2016, any other gains on the disposal of shares (out of the Brazilian stock exchange and qualified under Law No. 4131/62) are subject to income tax at a progressive rate from 15% to 22.5%, or 25% if the resident is located in a “Favorable Tax jurisdiction” or Tax Haven.
Sale of ADS and shares by non-Brazilian Holders to other non-residents in Brazil
Pursuant to Section 26 of Law No. 10,833, published on December 29, 2003, the sale of property located in Brazil involving non-resident investors is subject to Brazilian income tax as of February 1, 2004. Our understanding is that ADSs do not qualify as property located in Brazil and, thus, should not be subject to the Brazilian withholding tax. We cannot assure you, however, that the Brazilian tax authorities or the Brazilian courts will agree with this interpretation. As a result, gains on a disposition of ADSs by a Non-Brazilian Holder to a non resident, in the event that courts determine that ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules applicable to our common shares, as described above.
Insofar as the regulatory norm referred to in Section 26 is generic and since, at the present time, no definitive jurisprudence provided by Brazilian Superior Courts has been established with respect to this matter, we are unable to assure the final outcome of such discussion.
Gains on the exchange of ADS for shares
Although there is no clear regulatory guidance, the exchange of ADSs for shares should not be subject to Brazilian income tax. Non-Brazilian Holders may exchange their ADSs for the underlying shares, sell the shares on a Brazilian stock exchange and remit abroad the proceeds of the sale within five business days from the date of exchange (in reliance on the depositary’s electronic registration). For further information, see “—Taxation of Bonds and Securities Transactions (IOF/Bonds).” Our understanding is that the exchange of ADSs for the underlying shares and sale of shares within the period mentioned above by a Non-Brazilian Holder that (i) is a Registered Holder and (ii) is not a Tax Haven Holder, should not be subject to the withholding income tax.
Upon receipt of the underlying shares in exchange for ADSs, Non-Brazilian Holders may also elect to register with the Central Bank the U.S. dollar value of such shares as a foreign portfolio investment under the rules of the Brazilian Monetary Counsel, which will entitle them to the tax treatment referred above in connection with Registered Holders.
Alternatively, the Non-Brazilian Holder is also entitled to register with the Central Bank the U.S. dollar value of such shares as a foreign direct investment under Law No. 4,131/62, in which case the respective sale would be subject to the tax treatment of Non-Brazilian Holders that are not Registered Holders.
Gains on the exchange of shares for ADS
The deposit of shares in exchange for the ADSs may be subject to Brazilian income tax on capital gains if the amount previously registered with the Central Bank as a foreign investment in shares (direct investment registered under Law No. 4,131/62) or, in the case of Registered Holders, the acquisition cost of the shares, as the case may be, is lower than:
- the average price per share on the Brazilian stock exchange on which the greatest number of such shares were sold on the day of the deposit; or
- if no shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of shares were sold during the 15 preceding trading sessions.
The difference between the amount previously registered, or the acquisition cost, as the case may be, and the average price of the shares, calculated as set forth above, is considered a capital gain subject to income tax at a rate of 15%, or 25% for Tax Haven Holders.
Taxation of Foreign Exchange Transactions (IOF/Exchange). IOF/Exchange is imposed on the conversion of Brazilian Reais into foreign currency and on the conversion of foreign currency into Reais. Currently, the applicable rate for most foreign currency exchange transactions is 0.38%, however, in the case of the settlement of foreign exchange transactions for the flow of capital into the country, made by foreign investors, for transactions in the financial and capital markets, the applicable rate is 0%. On March 16, 2021, the Brazilian Government issued Decree 10,977/22, which establishes that IOF rate should be reduced to zero by 2029. The Brazilian Federal Government is permitted to increase the rate at any time, up to 25%. However, any increase in rates only applies to future transactions.
Taxation of Bonds and Securities Transactions (IOF/Bonds). Law No. 8,894, dated as of June 21, 1994, created the IOF/Bonds, which may be imposed on any transaction involving bonds and securities, even if the transaction includes Brazilian stock, futures or commodities exchange. The Federal Supreme Court of Brazil decided that the transfer of shares shall be taxed by IOF/Bonds. The current rate of IOF/Bonds with respect to transactions of shares is 0%. Regarding the ADSs, under the Decree No. 8,165, from December 23, 2013 which amended the Decree No. 6,306, from December 14, 2007, the IOF/Bonds rate applicable to the transfer of shares listed on the Brazilian stock exchange, with the specific purpose of guaranteeing the issuance of depositary receipts in the foreign market, is currently 0%. The Brazilian government may increase the rate up to 1.5% per day during the terms of the securities, but only with respect to future transactions relating to shares or ADSs.
Other Brazilian Taxes. Some Brazilian states impose gift and inheritance tax on gifts or bequests made by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such states. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of shares or ADSs.
U.S. Federal Income Tax Considerations
The following is a discussion of U.S. federal income tax considerations relating to the ownership and disposition of our shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to U.S. Holders of our shares or ADSs. The discussion applies only to a U.S. Holder that holds our shares or ADSs as capital assets (generally, for investment purposes) for U.S. federal income tax purposes and does not address all the U.S. federal income tax considerations that may be relevant to a holder in light of its particular circumstances or to holders subject to special rules, such as dealers and traders in securities or currencies, financial institutions, insurance companies, tax-exempt entities, real estate investment trusts, regulated investment companies, persons that own, or have owned directly, indirectly or constructively, 10% or more of our shares (by vote or value) for U.S. federal income tax purposes, persons holding our shares or ADSs as part of a hedging transaction, wash sale, straddle, conversion transaction or other integrated transaction for U.S. federal income tax purposes, persons entering into a “constructive sale” with respect to our shares or ADSs for U.S. federal income tax purposes, persons that have a functional currency for U.S. federal income tax purposes other than the U.S. dollar, certain former citizens or long-term residents of the United States, persons who acquired our shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation.
Moreover, this discussion does not address the U.S. federal estate and gift tax, Medicare contribution or alternative minimum tax considerations relating to the ownership or disposition of our shares or ADSs. U.S. Holders should consult their tax advisors with respect to the U.S. federal, state, local and non-U.S. tax considerations relating to the ownership and disposition of our shares or ADSs.
This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed U.S. Treasury regulations, in each case as in effect and available on the date hereof. All of the foregoing is subject to change (possibly on a retroactive basis), or differing interpretations, which could affect the U.S. federal income tax considerations described herein. There can be no assurance that the IRS or a court will not take a contrary position with respect to any U.S. federal income tax considerations described below. In addition, this discussion assumes that each obligation provided for in or otherwise contemplated by the Deposit Agreement and any other related document will be performed in accordance with its terms.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our shares or ADSs that is for U.S. federal income tax purposes (i) a citizen or individual resident of the United States, (ii) a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust, (1) if such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes, or (2) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust.
If a partnership, or any other entity or arrangement treated as a partnership for U.S. federal tax income tax purposes, holds shares or ADSs, the U.S. federal income tax treatment of a partner in such partnership will generally depend on the status of the partner and on the activities of the partnership. Partnerships holding our shares or ADSs and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax considerations of owning and disposing of our shares or ADSs.
Ownership of ADSs in general
In general, U.S. Holders of ADSs will be treated for U.S. federal income tax purposes as owners of the shares underlying the ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs or exchanges the underlying shares represented by those ADSs for ADSs.
Taxation of distributions
Subject to the discussion below under “—Passive foreign investment company”, the gross amount of any distributions made to a U.S. Holder on our shares or ADSs, before reduction for any Brazilian taxes, including withholding taxes attributable to interest on equity, will be includable as ordinary dividend income on the day on which the dividends are actually or constructively received by a U.S. Holder to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. A distribution in excess of our current or accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted basis in our shares or ADSs and as a capital gain to the extent it exceeds the U.S. Holder’s basis. We do not maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, U.S. Holders should expect that distributions by us will generally be treated as dividends to U.S. Holders for U.S. federal income tax purposes.
A non-corporate U.S. Holder will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income”, provided that certain conditions are satisfied, including that (1) our shares or ADSs, as applicable, are readily tradable on an established securities market in the United States, (2) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend was paid and the preceding taxable year, and (3) certain holding period requirements are met. Although no assurance may be given, we believe that our ADSs are readily tradable on the NYSE, which is an established securities market in the United States. There can be no assurance, however, that our ADSs will be considered readily tradable on an established securities market in the United States in later years. Because we do not expect that our shares will be listed on an established securities market in the United States, we do not expect that dividends we pay on our shares will meet the conditions required for the reduced tax rate.
Dividends paid to U.S. Holders in Reais will be includable in income in a U.S. dollar amount based on the exchange rate in effect on the date of actual or constructive receipt whether or not converted into U.S. dollars at that time. If dividends received in Reais are converted into U.S. dollars on the day they are actually or constructively received, the U.S. Holder will generally not be required to recognize foreign currency gain or loss in respect of the dividend income. Assuming the payment is not converted at that time, the U.S. Holder will have a tax basis in Reais equal to that U.S. dollar amount, which will be used to measure gain or loss from subsequent changes in exchange rates. Any gain or loss that a U.S. Holder recognizes on a subsequent conversion of Reais into U.S. dollars (or other disposition) will generally be U.S. source ordinary income or loss for U.S. foreign tax credit purposes.
Dividends on our shares or ADSs received by a U.S. Holder will generally be treated as foreign source income and will generally constitute passive category income for U.S. foreign tax credit purposes. Subject to certain conditions and limitations under U.S. federal income tax law concerning credits or deductions for non-U.S. taxes and certain exceptions for short-term and hedged positions, a Brazilian withholding tax imposed on dividends would be treated as a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or at a U.S. Holder’s election may be deducted in computing taxable income if the U.S. Holder has elected to deduct all foreign income taxes for the taxable year). The rules with respect to foreign tax credits are complex and U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit under their circumstances.
Taxation of sale, exchange or other disposition of shares or ADSs
Subject to the discussion below under “—Passive foreign investment company”, a U.S. Holder will generally recognize gain or loss on the sale, exchange or other disposition of a share or ADS in an amount equal to the difference between the amount realized (including the gross amount of the proceeds before the reduction of any Brazilian tax) on such sale, exchange or other disposition and the U.S. Holder’s adjusted tax basis in such share or ADS. Subject to the discussion below under “—Passive foreign investment company”, gain or loss on the sale, exchange or other disposition of a share or ADS will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder held such share or ADS for more than one year. Gain or loss recognized by a U.S. Holder will generally be treated as U.S. source gain or loss for U.S. foreign tax credit purposes, as the case may be. An individual U.S. Holder may be entitled to preferential rates of taxation for net long-term capital gains; however, the deductibility of capital losses is subject to limitations under the Code.
A U.S. Holder’s initial tax basis of our shares or ADSs will be the U.S. dollar value of the purchase price determined on the date of purchase. If our shares or ADSs are treated as traded on an “established securities market,” a cash basis U.S. Holder (or, if it elects, an accrual basis U.S. Holder) will determine the U.S. dollar value of the cost of such shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. The conversion of U.S. dollars to Reais and the immediate use of that currency to purchase shares or ADSs will generally not result in taxable gain or loss for a U.S. Holder.
A U.S. Holder that receives Reais upon a sale, exchange or other disposition of our shares or ADSs will realize an amount equal to the U.S. dollar value of the Reais on the date of sale, exchange, or other disposition. If our shares or ADSs are treated as traded on an “established securities market,” a cash basis U.S. Holder (or, if it elects, an accrual basis U.S. Holder) will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale, exchange or other disposition. A U.S. Holder will have a tax basis in the Reais received equal to that U.S. dollar amount. Any gain or loss realized by a U.S. Holder on a subsequent conversion of Reais into U.S. dollars (or other disposition) will generally be U.S. source ordinary income or loss for U.S. foreign tax credit purposes.
If any gain from the sale, exchange or other disposition of our shares or ADSs is subject to Brazilian tax, U.S. Holders may not be able to credit such taxes against their U.S. federal income tax liability under the U.S. foreign tax credit limitations of the Code since such gain will generally be U.S. source income, unless such tax can be credited (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. Alternatively, the U.S. Holder may take a deduction for the Brazilian income tax if such holder does not take a credit for any foreign income tax during the taxable year. The rules with respect to foreign tax credits are complex and U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Passive foreign investment company
In general, certain adverse consequences could apply to a U.S. Holder if we are treated as a PFIC for any taxable year during which the U.S. Holder holds our shares or ADSs. A non-U.S. corporation will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules, either (i) at least 75 percent of its gross income consists of “passive income”, such as dividends, interest, rents, royalties and certain gains, including certain gains from commodities transactions, other than those that meet the Commodity Exception, or (ii) at least 50 percent of the average quarterly value of its gross assets is attributable to assets that produce or are held for the production of passive income.
We must make a separate determination each year as to whether we are a PFIC. Based on a review of our gross income and assets, the manner in which we currently operate our business, the current market price of our shares, and the current interpretation of the PFIC rules, including the Commodity Exception, we believe that we were not a PFIC for U.S. federal income tax purposes for the 2019 taxable year. However, the determination as to whether we are a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, depends upon the composition of a company’s income and assets and the market value of its assets from time to time, and is not made until after the end of a taxable year. Consequently, there can be no assurance that we will not be considered a PFIC for the current taxable year or any subsequent taxable year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our shares or ADSs, a U.S. Holder of our shares or ADSs may be subject to imputed interest charges and other generally adverse tax consequences with respect to any gain from the sale, exchange or other taxable disposition of, and certain “excess distributions” with respect to, our shares or ADSs. Distributions received in a taxable year that are greater than 125 percent of the average annual distributions received during the shorter of (i) the three preceding taxable years or (ii) a U.S. Holder’s holding period for the shares or ADSs will be treated as “excess distributions.” Under these special tax rules: (A) any excess distributions or gain will be allocated ratably to each day in the U.S. Holder’s holding period for the shares or ADSs, (B) the amount allocated to the taxable year of disposition, and any taxable year prior to the first taxable year in which we are a PFIC, will be treated as ordinary income, and (C) the amount allocated to each other taxable years that we were a PFIC will be subject to tax at the highest tax rate applicable to ordinary income in effect for such taxpayer for each such earlier taxable year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our shares or ADSs and any of our non-U.S. subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be subject to the rules described above on certain distributions by such lower-tier PFIC and a disposition of shares of such lower-tier PFIC even though such U.S. Holder would generally not receive the proceeds of those distributions or dispositions. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
If a company that is a PFIC provides certain information to U.S, Holders, a U.S. Holder can then avoid certain adverse tax consequences described above by making a “qualified electing fund” election to be taxed currently on its proportionate share of the PFIC’s ordinary income and net capital gains. However, a qualified electing fund election will not be available to U.S. Holders because we do not intend to provide the necessary information to allow U.S. Holders to make such an election for any tax year in which we are a PFIC.
Alternatively, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock. Marketable stock is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange (such as the NYSE) or other market as defined in applicable U.S. Treasury regulations. We believe that our shares and ADSs qualify as being regularly traded on a qualified exchange, but no assurances may be given in this regard. If a U.S. Holder makes this election, such holder will generally (i) include as income for each taxable year the excess, if any, of the fair market value of our shares or ADSs held at the end of the taxable year over the adjusted tax basis of such shares or ADSs and (ii) deduct as a loss the excess, if any, of the adjusted tax basis of our shares or ADSs over the fair market value of such shares or ADSs held at the end of the taxable year, but only to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in our shares or ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, such holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC.
Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
U.S. Holders should consult their tax advisors regarding the tax consequences that would arise if we were treated as a PFIC for U.S. federal income tax purposes, including the possibility of making a mark-to-market election.
Foreign tax credit for Brazilian taxes
Any Brazilian IOF/Exchange Tax imposed on a purchase of our shares or ADSs or IOF/Bonds Tax imposed on a transaction (as discussed above under “Brazilian Tax Consequences”) will not be treated as a creditable foreign tax for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors regarding the tax consequences of these Brazilian taxes.
Certain reporting requirements
Certain U.S. Holders are required to report to the IRS information relating to an interest in our shares or ADSs, subject to exceptions (including an exception for shares or ADSs held in accounts maintained by certain financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they held an interest in our shares or ADSs. If a U.S. Holder holds our shares or ADSs in any year in which we are treated as a PFIC with respect to such U.S. Holder, the U.S. Holder will be required to file IRS Form 8621 U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting rules to their particular circumstances.
THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS INTENDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE. U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN OUR SHARES OR ADSs.
- Dividends and Paying Agents
Not applicable.
- Statement by Experts
Not applicable.
- Documents on Display
Statements contained in this annual report as to the contents of any contract or other document referred to are not necessarily complete, and each of these statements is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit hereto. A copy of the complete annual report including the exhibits and schedules filed herewith is available on the website maintained by the SEC that contains information filed electronically with the SEC, which can be accessed over the internet at http://www.sec.gov.
We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934 as amended, and, in accordance therewith, file periodic reports and other information with the SEC. However, as a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements and relating to short-swing profits reporting and liability.
We furnish to The Bank of New York Mellon, as depositary, copies of all reports we are required to file with the SEC under the Exchange Act, including our annual reports in English, containing a brief description of our operations and our audited annual consolidated financial statements which are prepared in accordance with IFRS. In addition, we are required under the Deposit Agreement to furnish the depositary with copies of English translations to the extent required under the rules of the SEC of all notices of meetings of holders of common shares and other reports and communications that are generally made available to holders of common shares. Under certain circumstances, the depositary will arrange for the mailing, at our expense, of these notices, other reports and communications to all ADS holders.
We also file financial statements and other periodic reports with the CVM located at Sete de Setembro Street, 111, Rio de Janeiro, Brazil, 20050-901. In addition, the CVM maintains a website that contains information in Portuguese filed electronically with the CVM, which can be accessed over the internet at http://www.cvm.gov.br.
- Subsidiary Information
Not applicable.
You should read this discussion along with the Note 33 to our consolidated financial statements.
The main risks to which the Company and its subsidiaries are exposed reflect strategic/operational and economic/financial aspects. Operational/strategic risks (including, but not limited to, demand behavior, competition, technological innovation, and material changes in the industry structure) are addressed by Ultrapar’s management model. Economic/financial risks primarily reflect default of customers, behavior of macroeconomic variables, such as exchange and interest rates, as well as the characteristics of the financial instruments used by the Company and by their counterparties. These risks are managed through control policies, specific strategies, and establishment of limits.
The Company has a policy for the management of resources, financial instruments, and risks approved by its Board of Directors (the “Policy”). In accordance with the Policy, the main objectives of financial management are to preserve the value and liquidity of financial assets and ensure financial resources for the development of the businesses, including expansions. The main financial risks considered in the Policy are market risks (currencies, interest rates and commodities), liquidity risks and credit risks.
- The governance of the management of financial risks follows the segregation of duties below:
- The execution of the Policy has done by corporate financial board, through its treasury department, with the assistance of the accounting, legal and tax departments.
- The monitoring of compliance of the Policy and possible issues is the responsibility of the Financial Risk Committee, (“Committee”), which is composed of CFO, Treasury Director, Controller and other directors designated by the CFO. The Committee holds quarterly meetings and monitors the risk standards established by the Policy through a monitoring map on a monthly basis.
- Approval of the Policy and the periodic assessment of Company exposure to financial risks are subject to the approval of the Board of Directors of Ultrapar.
The Audit and Risks Committee advises the Board of Directors in the assessment of controls, management and exposure of financial risks and revision of Policy. The Risk, Compliance and Audit Department monitors of standards compliance of the Policy and reports to the Audit and Risks Committee the risks exposure and compliance or noncompliance with the Policy.
Currency risk
Most business operations of Ultrapar are located in Brazil and, therefore, the reference currency for risk management is the Real. Currency risk management is guided by neutrality of currency exposures and considers risks of Ultrapar and its exposure to changes in exchange rates. The Company considers as its main currency exposures the assets and liabilities in foreign currency and the short-term flow of net sales in foreign currency of Oxiteno.
The Company uses exchange rate hedging instruments (especially between the Real and the U.S. dollar) available in the financial market to protect their assets, liabilities, receipts and disbursements in foreign currency and net investments in foreign operations. Therefore, hedge is used in order to reduce the effects of changes in exchange rates on the Company’s income and cash flows in Reais within the exposure limits under its Policy. Such foreign exchange hedging instruments have amounts, periods, and rates substantially equivalent to those of assets, liabilities, receipts and disbursements in foreign currency to which they are related. Assets and liabilities in foreign currencies are stated below, translated into Reais as of December 31, 2021, 2020 and 2019:
Assets and liabilities in foreign currency
|
|
|
|
|
|
|
|
|
|
| In millions of Reais |
| 2021 |
|
| 2020 |
|
| 2019 |
|
Assets in foreign currency |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and financial investments in foreign currency (except hedging instruments) |
| 122.2 |
|
| 1,413.3 |
|
| 455.6 |
|
Foreign trade receivables, net of allowance for doubtful accounts and advances to foreign customers |
| 1.3 |
|
| 307.8 |
|
| 213.5 |
|
Other net assets foreign (except cash, cash equivalents, financial investments, trade receivables, financing and payables) |
| 186.6 |
|
| 1,767.6 |
|
| 1,445.0 |
|
Asset exposure in subsidiaries held for sales |
| 3,839.2 |
|
| - |
|
| - |
|
|
| 4,149.3 |
|
| 3,488.7 |
|
| 2,114.1 |
|
Liabilities in foreign currency |
| |
|
| |
|
| |
|
Financing in foreign currency gross of transaction costs and negative goodwill |
| (8,860.8 | ) |
| (9,246.7 | ) |
| (6,895.1 | ) |
Payables arising from imports, net of advances to foreign suppliers |
| (649.1 | ) |
| (633.0 | ) |
| (344.5 | ) |
Liability exposure in subsidiaries held for sales |
| (884.4 | ) |
| - |
|
| - |
|
|
| (10,394.3 | ) |
| (9,879.7 | ) |
| (7,239.6 | ) |
Foreign currency hedging instruments |
| 2,933.6 |
|
| 4,837.6 |
|
| 3,636.4 |
|
Foreign currency hedging instruments in subsidiaries held for sales |
| 1,786.5 |
|
| - |
|
| - |
|
Net asset (liability) position – Total |
| (1,525.0 | ) |
| (1,553.4 | ) |
| (1,489.0 | ) |
Net asset (liability) position – Income statement effect |
| (498.6 | ) |
| 186.3 |
|
| 452.0 |
|
Net asset (liability) position – Shareholders’ equity effect in subsidiaries held for sales |
| (1,026.4 | ) |
| (1,739.7 | ) |
| (1,941.1 | ) |
Sensitivity analysis of assets and liabilities in foreign currency
For the base scenario, future market curves as of December 31, 2021, were applied on the Company’s net position exposed to the currency risk, simulating the effects of appreciation and devaluation of the Real in the income statement and the equity.
The table below shows the effect of exchange rate changes, based on the total liability position of R$1,525.0 million in foreign currency.
| In millions of Brazilian Reais |
| Risk |
| Scenario |
|
Income statement effect |
| Real devaluation |
| (25.2) |
|
|
| Net effect |
| (25.2) |
|
Income statement effect |
| Real appreciation |
| 25.2 |
|
|
| Net effect |
| 25.2 |
|
The shareholders’ equity effect refers to cumulative translation adjustments of changes in the exchange rate on equity of foreign subsidiaries (see Notes 2.t.1 and 26.g.2 to our consolidated financial statements), net investments hedge in foreign entities, cash flow hedge of firm commitments and highly probable transactions (see Notes 2.c and 33.h to our consolidated financial statements).
Sensitivity analysis of derivative financial instruments
The Company and its subsidiaries use derivative financial instruments only to hedge against identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). Thus, for purposes of sensitivity analysis of market risks associated with financial instruments, as required by CVM Instruction 475/08, the Company analyzes the hedging instrument and the hedged item together, as shown on the charts below.
For the sensitivity analysis of foreign exchange hedging instruments, management adopted as a base scenario the Real/U.S. dollar exchange rates at maturity of each swap, projected by U.S. dollar futures contracts quoted on B3 as of December 31, 2021. As a reference, the exchange rate for the last maturity of foreign exchange hedging instruments is R$10.25 in the base scenario.
Based on the balances of the hedging instruments and hedged items as of December 31, 2021, the exchange rates were replaced, and the changes between the new balance in Reais and the balance in Reais as of December 31, 2021 were calculated. The table below shows the change in the values of the main derivative instruments and their hedged items, considering the changes in the exchange rate in the different scenarios:
|
| Risk |
| Base Scenario |
|
|
|
|
| (in millions of Reais) |
|
Currency swaps receivable in U.S. dollars |
|
|
| |
|
(1) U.S. dollar / Real swaps |
| Dollar appreciation |
| 137.3 |
|
(2) Debts/firm commitments in U.S. dollars |
|
|
| (137.3 | ) |
(1)+(2) |
| Net Effect |
| 0.0 |
|
Currency swaps payable in U.S. dollars |
|
|
| |
|
(3) Real / U.S. dollar swaps |
| Dollar devaluation |
| 49,935.7 |
|
(4) Gross margin of Oxiteno/Ipiranga |
|
|
| (49,935.7 | ) |
(3)+(4) |
| Net Effect |
| - |
|
Cash Flow Hedge |
|
|
| |
|
(5) Cash Flow Hedge |
| Dollar devaluation |
| 528.4 |
|
(6) Debts |
|
|
| (528.4 | ) |
(5)+(6) |
| Net Effect |
| - |
|
Net Investment Hedge |
|
|
| |
|
(7) Net Investment Hedge |
| Dollar devaluation |
| 252.4 |
|
(8) Debts |
|
|
| (252.4 | ) |
(7)+(8) |
| Net Effect |
| - |
|
For sensitivity analysis of hedging instruments for interest rates in Brazilian
Reais, the Company used the futures curve of the DI x Pre contract quoted on B3 as of December 31, 2021 for each of the swap and debt (hedged item) maturities.Based on the three scenarios of interest rates in Brazilian Reais, the Company estimated the values of its debt and hedging instruments according to the risk which is being hedged (variations in the pre-fixed interest rates in Brazilian Reais), by projecting them to future value at the contracted rates and bringing them to present value at the interest rates of the estimated scenarios. The result is shown in the table below:
|
| Risk
|
| Base Scenario |
|
|
|
|
| (in millions of Reais) |
|
Interest rate swap (in Brazilian Reais) – Debentures – CRA |
|
|
| |
|
(1) Fixed rate swap – DI |
| Decrease in Prefixed rate |
| (20,053.1 | ) |
(2) Fixed rate debt |
|
|
| 20,053.1 |
|
(1)+(2) |
| Net Effect |
| - |
|
Interest Rate Risk
Ultrapar adopts prudent policies for borrowing and investing financial resources and for capital cost minimization. The financial investments of Ultrapar are primarily held in transactions linked to the DI. Our borrowings primarily relate to financings from notes in the foreign credit markets, debentures, Banco do Brasil S.A., other development agencies, and other borrowings in foreign currency. Ultrapar does not actively manage risks associated with changes in the level of interest rates and attempts to maintain its financial interest assets and liabilities at floating rates. See Notes 4, 16 and 33 to our consolidated financial statements.
The table below provides information as of December 31, 2020 about our consolidated debt in foreign currency and in Reais that are subject to variable and fixed rates of interest. The table summarizes information on instruments and transactions that are sensitive to foreign currency exchange rates and interest rates:
|
|
|
|
|
|
|
|
|
|
| Principal by year of maturity(1) |
|
| Debt |
| Weighted
average
interest rate |
|
| Fair value |
|
| Book
value |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 and
thereafter |
|
|
| (in millions of Reais)
|
|
R$ borrowings |
| 6.1% |
|
| 85.5 |
|
| 85.5 |
|
| 5.1 |
|
| (0.1 | ) |
| 80.5 |
|
| — |
|
| — |
|
| — |
|
Borrowings indexed to the DI |
| 100.8% of the DI |
|
| 4,783.4 |
|
| 4,855.5 |
|
| 2,473.8 |
|
| 2,381.7 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Borrowings indexed to the TJLP |
| (1.5)% |
|
| 0.3 |
|
| 0.3 |
|
| 0.3 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
U.S. dollar borrowings |
| 5.1% |
|
| 8,856.6 |
|
| 8,556.9 |
|
| 55.3 |
|
| 718.9 |
|
| (7.8 | ) |
| (7.7 | ) |
| 3,062.4 |
|
| 4,735.8 |
|
Borrowings indexed to the LIBOR |
| 1.0% |
|
| 275.9 |
|
| 275.9 |
|
| 275.9 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Borrowings indexed to the IPCA |
| 4.6% |
|
| 2,406.3 |
|
| 2,406.3 |
|
| 29.4 |
|
| (7.7 | )
|
| 693.1 |
|
| 278.1 |
|
| (5.9 | ) |
| 1,419.3 |
|
Subtotal |
| |
|
| 16,408.1 |
|
| 16,180.5 |
|
| 2,839.8 |
|
| 3,092.7 |
|
| 765.9 |
|
| 270.4 |
|
| 3,056.5 |
|
| 6.155.1 |
|
Unrealized losses on swaps transactions |
| |
|
| 197.2 |
|
| 197.2 |
|
| 26.2 |
|
| — |
|
| 9.0 |
|
| — |
|
| — |
|
| 161.9 |
|
Total |
| |
|
| 16,605.3 |
|
| 16,377.6 |
|
| 2,866.1 |
|
| 3,092.7 |
|
| 774.9 |
|
| 270.4 |
|
| 3,056.5 |
|
| 6,317.1 |
|
|
|
(1) Figures include interest accrued through December 31, 2021.
|
Credit risk
The financial instruments that would expose the Company and its subsidiaries to credit risks of the counterparty are basically represented by cash and cash equivalents, financial investments, hedging instruments and trade receivables. See Note 34.d to our consolidated financial statements.
Customer credit risk — The credit policy establishes the analysis of the profile of each new customer, individually, regarding their financial condition. The review carried out by the subsidiaries of the Company includes the evaluation of external ratings, when available, financial statements, credit bureau information, industry information and, when necessary, bank references. Credit limits are established for each customer and reviewed periodically, in a shorter period the greater the risk, depending on the approval of the responsible area in cases of sales that exceed these limits.
In monitoring credit risk, customers are grouped according to their credit characteristics and depending on the business the grouping takes into account, for example, whether they are natural or legal clients, whether they are wholesalers, resellers or final customers, considering also the geographic area.
The estimates of credit losses are calculated by the expected loss approach based on the probability of default rates. Loss rates are calculated on the basis of the average probability of a receivable amount to advance through successive stages of default until full write-off. The probability of default calculation takes into account a credit risk score for each exposure, based on data considered to be capable of foreseeing the risk of loss (external classifications, audited financial statements, cash flow projections, customer information available in the press, for example), with addition of the credit assessment based on experience.
Such credit risks are managed by each business unit through specific criteria for acceptance of customers and their credit rating and are additionally mitigated by the diversification of sales. The subsidiaries of the Company request from customers secured by trade receivables and other receivables in certain circumstances, but such security arrangements are not taken account of when calculating the risk of loss. As of December 31, 2021, the loss allowance for expected credit losses on their trade receivables recorded for Ipiranga, Ultragaz and Ultracargo were R$422.5 million, R$135.6 million and R$1.5 million, respectively. In addition, as of December 31, 2021, no single customer or group accounts for more than 10% of total revenue. For further information, see Notes 6.a, 6.b and 33.d.3 to our consolidated financial statements.
Credit risk of financial institutions — Such risk results from the inability of financial institutions to comply with their financial obligations to the Company and its subsidiaries due to insolvency. The Company and its subsidiaries regularly conduct a credit review of the institutions with which it holds cash and cash equivalents, financial investments, and hedging instruments through various methodologies that assess liquidity, solvency, leverage, portfolio quality, etc. Cash and cash equivalents, financial investments, and hedging instruments are held only with institutions with a solid credit history, chosen for safety and soundness. The volumes of cash and cash equivalents, financial investments, and hedging instruments are subject to maximum limits by each institution and, therefore, require diversification of counterparties.
Government credit risk — The Company’s Policy allows investments in government securities from countries classified as investment grade AAA or Aaa by specialized credit rating agencies (S&P, Moody’s and Fitch) and in Brazilian government bonds. The volume of such financial investments is subject to maximum limits by each country and, therefore, requires diversification of counterparties.
The credit risk of financial institution and government of cash, cash equivalents and financial investments is summarized below:
| Fair value (in millions of Reais) |
|
Counterparty credit rating | 12/31/2021 |
|
| 12/31/2020 |
|
| 12/31/2019 |
|
AAA | 3,606.0 |
|
| 8,190.4 |
|
| 4,906.1 |
|
AA | 740.9 |
|
| 317.9 |
|
| 331.5 |
|
A | 116.6 |
|
| 163.8 |
|
| 418.0 |
|
BBB | - |
|
| - |
|
| 56.5 |
|
Total | 4,463.5 |
|
| 8,672.2 |
|
| 5,712.1 |
|
It is important to note that the credit risk analysis that we performed as of December 31, 2021 do not reflect the impacts of the now global COVID-19 pandemic, which may have significant impacts on the credit quality of our customers and the financial institutions with whom we hold assets. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Ultrapar and Its Industries— Our businesses may be materially and adversely affected by the outbreak of communicable diseases, such as the ongoing COVID-19 pandemic, or other epidemics or pandemics”, and other risk factors included herein.
Commodity price risk
The Company and its subsidiaries are exposed to commodity price risk, resulting from the fluctuation of diesel and gasoline prices, among others.
To mitigate the risk of fluctuations in diesel and gasoline prices, the Company and its subsidiaries permanently monitor the market, seeking to hedge price movements through hedge operations for cargo purchased in the international market, using derivative contracts of heating oil (diesel) and RBOB (gasoline) traded on the stock exchange. These goods are subject to the impacts of macroeconomic and geopolitical factors outside the control of the Company and its subsidiaries.
The table below shows the positions of derivative financial instruments to hedge commodity price risk as of December 31, 2021:
Derivative | | Contract | | Notional (m3) | | Notional (US$ million) | | Fair Value |
|
| | Position | Commodity | Maturity | | 12/31/2021 | | 12/31/2020 | | 12/31/2021 | | 12/31/2020 | | 12/31/2021 | | 12/31/2020 |
|
| | | | | | | | | | | | | | R$ million | | R$ million |
|
Term | | Sold | Heating Oil | jan-22 | | 167,255 | | 108,429 | | 103.1 | | 42.4 | | 2.3 | | (0.6 | ) |
Term | | Sold | RBOB | jan-22 | | 29,413 | | ‐ | | 17.1 | | ‐ | | (1.0 | ) | ‐ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.3 |
| (0.6 | ) |
Liquidity risk
The Company main sources of liquidity derive from (i) cash, cash equivalents and financial investments, (ii) cash generated from operations and (iii) financing. The Company believes that these sources are sufficient to satisfy its current funding requirements, which include, but are not limited to, working capital, capital expenditures, amortization of debt and payment of dividends.
The Company periodically examines opportunities for acquisitions and investments. The Company considers different types of investments, either directly, through joint-ventures, or through associated companies, and finance such investments using cash generated from operations, debt financing, through capital increases or through a combination of these methods.
The Company believes it has sufficient working capital to satisfy its current needs. The consolidated debt due over the next twelve months totals R$3,605.4 million, including estimated interests on loans. In 2021, the Company had R$4,084.2 million in cash, cash equivalents and short-term financial investments (for quantitative information, see Notes 5 and 17.a to our consolidated financial statements).
For further information on financial liabilities as of December 31, 2021, see Note 33.e to our consolidated financial statements.
Capital management
The Company manages its capital structure based on indicators and benchmarks. The key performance indicators related to the capital structure management are the weighted average cost of capital, and the net debt/EBITDA, interest coverage and indebtedness/equity ratios. Net debt is composed of cash and cash equivalents and financial investments and hedging instruments (see Note 5 to our consolidated financial statements) and loans and hedging instruments and debentures (see Note 17 to our consolidated financial statements). The Company can change its capital structure depending on economic and financial conditions, in order to optimize its financial leverage and capital management. The Company seeks to improve its return on invested capital by implementing efficient working capital management and a selective investment program.
Selection and use of financial instruments
In selecting financial investments and hedging instruments, an analysis is conducted to estimate rates of return, risks involved, liquidity, calculation methodology for the carrying value and fair value, and a review is conducted of any documentation applicable to the financial instruments. The financial instruments used to manage the financial resources of the Company are intended to preserve value and liquidity.
The Policy contemplates the use of derivative financial instruments only to cover identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). The risks identified in the Policy are described in the above sections and are subject to risk management. In accordance with the Policy, the Company and its subsidiaries can use forward contracts, swaps, options, and futures contracts to manage identified risks. Leveraged derivative instruments are not permitted. Because the use of derivative financial instruments is limited to the coverage of identified risks, the Company and its subsidiaries uses the term “hedging instruments” to refer to derivative financial instruments.
The table below summarizes the position of hedging instruments entered by the Company:
a) Designated as hedge accounting
|
|
|
|
|
|
|
|
|
|
|
| Product |
| Hedged object |
| Rates agreement |
| Maturity |
| Notional Amount |
| Fair value |
|
|
|
| Assets | Liabilities |
|
|
| 12/31/21 | 12/31/20 |
| 12/31/21 |
| 12/31/20 |
|
|
|
|
|
|
|
|
| R$ million |
Foreign exchange swap |
| Debt |
| US$ + 4.65% | 104.87% DI |
| Sep-23 |
| US$125.0 | US$185.0 |
| 212.5 |
| 298.9 |
Foreign exchange swap |
| Debt |
| US$ + LIBOR-3M + 1.14% | 105.00% DI |
| Jun-22 |
| US$50.0 | US$50.0 |
| 109.3 |
| 94.8 |
Interest rate swap |
| Debt |
| 4.59% + IPCA | 102.00% DI |
| Sep-28 |
| R$2.226.1 | R$806.1 |
| 166.5 |
| 203.8 |
Interest rate swap |
| Debt |
| 6.47% | 99.94% DI |
| Nov-24 |
| R$90.0 | R$90.0 |
| (9.0) |
| 3.5 |
Term |
| Firm commitments |
| R$ | Heating Oil |
| Jan-22 |
| US$120.3 | US$42.4 |
| 1.3 |
| (0.6) |
NDF |
| Firm commitments |
| R$ | US$ |
| Jan-22 |
| US$68.4 | US$23.1 |
| 5.7 |
| (0.7) |
|
| |
| | |
| |
| | |
| 486.3 |
| 599.7 |
b) Not designated as hedge accounting
| Product |
| Hedged object |
| Rates agreement |
| Maturity |
| Notional amount
|
| Fair value |
|
|
|
|
| Assets | Liabilities |
|
|
| 12/31/21 | 12/31/20 |
| 12/31/21 |
| 12/31/20 |
|
|
|
|
|
|
|
|
|
| R$ million |
|
Foreign exchange swap |
| Debt |
| US$ + 0.18% | 55.5% DI |
| - |
| - | US$320.0 |
| - |
| 519.3 |
|
Interest rate swap |
| Debt |
| 5.25% | DI – 1.36% |
| Jun-29 |
| US$300.0 | - |
| (126.8) |
| |
|
Interest rate swap |
| Debt |
| 2.7% | 100% DI |
| - |
| - | R$1,300.0 |
| - |
| (0.0) |
|
NDF |
| Firm commitments |
| US$ | R$ |
| Jun-22 |
| US$625.8 | US$378.6 |
| 3.5 |
| (112.2) |
|
|
| |
| | |
| |
| | |
| (123.3) |
| 407.1 |
|
All transactions mentioned above were properly registered with the over-the-counter segment of B3.
Hedging instruments existing in 2021 are described below, according to their category, risk, and hedging strategy:
a – Hedging against foreign exchange exposure of liabilities in foreign currency—The purpose of these contracts is (i) to offset the effect of the change in exchange rates of debts or firm commitments in U.S. dollars by converting them into debts or firm commitments in Reais linked to DI, (ii) change a financial investment linked to the DI and (iii) change a financial investment linked to the DI and given as a guarantee to a loan in the U.S. dollar into a financial investment linked to the U.S. dollar. The tables below present our position in this category of swaps as of December 31, 2021:
|
|
|
|
|
| Maturity |
|
Swap/Non Deliverable Forward |
| 2022 |
| 2023 and thereafter |
|
Notional amount (in millions of Reais)(1) |
| 3,603.7 |
| 4,045.9 |
|
Notional amount (in millions of dollars) |
| 645.8 |
| 725.0 |
|
Average receiving rate |
| US$ + 0.1% |
| US$ + 3.0% |
|
Average payment rate |
| 1.7% of the DI |
| 77.1% of the DI |
|
|
|
(1) Notional amount converted according to the commercial selling rate reported by the Central Bank (PTAX) as of December 31, 2020.
|
Swap |
| Maturity 2022 | |
Notional amount of swaps (in millions of Reais)(1) |
| 279.0 | |
Notional amount of swaps (in millions of dollars) |
| 50.0 | |
Average receiving rate |
| US$ + LIBOR + 1.14% | |
Average payment rate |
| 105.0% of the DI | |
|
|
(1) Notional amount converted according to the commercial selling rate reported by the Central Bank (PTAX) as of December 31, 2021.
|
b – Hedging against fixed interest rate in Brazilian Reais—The purpose of this contract is to change fixed interest rate of debentures issued in Brazilian Reais to floating interest. The table below presents our position in this category of swaps as of December 31, 2021.
Swap |
| Maturity 2022 and thereafter | |
Notional amount of swaps (in millions of Reais)(1) |
| 2226.1 | |
Notional amount of swaps (in millions of dollars) |
| 398.9 | |
Average receiving rate |
| 4.58% p.a. + IPCA | |
Average payment rate |
| 102.0% of the D | |
|
|
(1) Notional amount converted according to the commercial selling rate reported by the Central Bank (PTAX) as of December 31, 2021.
|
Swap/Non Deliverable Forward |
| 2023 and thereafter |
|
Notional amount (in millions of Reais)(1) |
| 90.0 |
|
Notional amount (in millions of dollars) |
| 16.1 |
|
Average receiving rate |
| 6.47% |
|
Average payment rate |
| 99.9% of the DI |
|
|
|
(1) Notional amount converted according to the commercial selling rate reported by the Central Bank (PTAX) as of December 31, 2021.
|
– Hedging against commodities exposure of operations—The purpose of these contracts results from the possibility of price oscillation regarding products marketed specially diesel (heating oil) and gasoline (RBOB). These price fluctuations may cause substantial alterations in the sales revenues and costs. The table below presents our position in this category of NDF´s as of December 31, 2021:
Term |
| Maturity 2022 |
|
Notional amount of NDF´s (in millions of Reais)(1) |
| 671.1 |
|
Notional amount of NDF´s (in millions of dollars) |
| 120.3 |
|
Position |
| Sold |
|
Contract |
| Heating oil / RBOB |
|
|
|
(1) Notional amount converted according to the commercial selling rate reported by the Central Bank (PTAX) as of December 31, 2021.
|
Non Deliverable Forward |
| Maturity 2021 |
|
Notional amount of NDF´s (in millions of Reais)(1) |
| 671.1 |
|
Notional amount of NDF´s (in millions of dollars) |
| 120.3 |
|
Position |
| Sold |
|
| Contract |
| R$/US$ |
|
|
|
(1) Notional amount converted according to the commercial selling rate reported by the Central Bank (PTAX) as of December 31, 2021.
|
Hedge accounting
The Company uses derivative and non-derivative financial instruments for hedging purposes and test, throughout the duration of the hedge, their effectiveness, as well as the changes in their fair value.
Fair value hedge
The Company and its subsidiaries designate as fair value hedges certain financial instruments used to offset the variations in interest and exchange rates, which are based on the market value of financing contracted in Brazilian Reais and U.S. dollars.
The foreign exchange hedging instruments designated as fair value hedge are:
|
|
|
|
|
|
|
|
|
|
| In millions, except the DI % |
| 2021 |
|
| 2020 |
|
| 2019 |
|
Notional amount – US$ |
| 175.0 |
|
| 235.0 |
|
| 395.0 |
|
Result of hedging instruments – gain/(loss) – R$ |
| 21.8 |
|
| 574.4 |
|
| 79.5 |
|
Fair value adjustment of debt – R$ |
| 47.1 |
|
| (13.1 | ) |
| (36.8 | ) |
Financial expense in the statements of profit or loss – R$ |
| (105.1 | ) |
| (597.7 | )
|
| (130.3 | ) |
Average effective cost – DI % |
| 104.9 |
|
| 104.1 |
|
| 104.4 |
|
For more information, see Note 17c.1 to our consolidated financial statements.
The interest rate hedging instruments designated as fair value hedge are:
|
|
|
|
|
|
|
|
|
|
| In millions, except the DI % |
| 2021 |
|
| 2020 |
|
| 2019 |
|
Notional amount – R$ |
| 2,226.1 |
|
| 806.1 |
|
| 806.1 |
|
Result of hedging instruments – gain/(loss) – R$ |
| (17.9 | ) |
| 67.4 |
|
| 73.0 |
|
Fair value adjustment of debt – R$ |
| 166.4 |
|
| (18.4 | ) |
| (77.0 | ) |
Financial expense in the statements of profit or loss – R$ |
| (245.7 | ) |
| (99.6) |
|
| (68.1 | )
|
Average effective cost – DI % |
| 102 |
|
| 95.8 |
|
| 95.8 |
|
For more information, see Notes 17.f.2, 17.f.4, 17.f.6, 17.f.8, 17.f.9 and 17.f.10 to our consolidated financial statements.
| In millions, except the DI % |
| 2021 |
|
| 2020 |
|
| 2019 |
|
Notional amount – R$ |
| 90.0 |
|
| 90.0 |
|
| 90.0 |
|
Result of hedging instruments – gain/(loss) – R$ |
| (10.1 | ) |
| 6.5 |
|
| 0.6 |
|
Fair value adjustment of debt – R$ |
| 11.8 |
|
| 3.3 |
|
| (0.2 | ) |
Financial expense in the statements of profit or loss – R$ |
| (5.9 | ) |
| (9.0 | ) |
| (0.4 | ) |
Average effective cost – DI % |
| 99.9 |
|
| 99.9 |
|
| 99.9 |
|
For more information, see Note 17.f.7 to our consolidated financial statements.
The exchange rate and commodity hedging instruments designated as fair value hedges are as described below. The purpose of this relationship is to transform the cost of the imported product from fixed to variable until the moment of fuel mixing, as occurs with the price practiced in its sales. The subsidiary Ipiranga carries out these operations with over-the-counter derivatives that are designated in a hedge accounting relationship, as a fair value hedge in an amount equivalent to the inventory of imported product:
| In millions |
| 2021 |
|
| 2020 |
|
| 2019 |
|
Notional amount – US$ |
| 188.6 |
|
| 65.5 |
|
| — |
|
Result of hedging instruments – gain/(loss) – R$ |
| (129.7 | ) |
| (87.4 | ) |
| — |
|
Fair value adjustment of inventories – R$ |
| (4.4 | ) |
| 18.5 |
|
|
|
|
Cash flow hedge
The Company and its subsidiaries designate as cash flow hedge of firm commitment and highly probable transactions, derivative financial instruments to hedge “firm commitments” and non-derivative financial instruments to hedge “highly probable future transactions”, so as to hedge against fluctuations arising from changes in exchange rate.
On December 31, 2021, the Company had no exchange rate and commodities hedging instruments of firm commitments designated as cash flow hedges.
On December 31, 2021, the notional amount of foreign exchange hedging instruments for highly probable future transactions designated as cash flow hedge, related to notes in the foreign market totaled US$386.8 million (US$468.2 million on December 31, 2020). On December 31, 2021, the unrealized loss of “Other comprehensive income” totaled R$7.9 million (R$315.4 million on December 31, 2020), net of deferred IRPJ and CSLL.
Net investment hedge in foreign entities
The Company and its subsidiaries designate as net investment hedge in foreign entities notes in the foreign market, for hedging net investments in foreign entities, to offset changes in exchange rates.
On December 31, 2021, the balance of foreign exchange hedging instruments designated as net investments hedge in foreign entities, related to part of the investments made in entities which functional currency is other than the Brazilian Real, totaled US$95.0 million (US$95.0 million on December 31, 2020). On December 31, 2021, the unrealized loss of “Other comprehensive income” is R$24.1 million (loss of R$73.1 million on December 31, 2019), net of deferred income and social contribution taxes. The effects of exchange rate changes on investments and hedging instruments were offset in equity.
- Debt securities
Not applicable.
- Warrants and Rights
Not applicable.
- Other Securities
Not applicable.
- American Depositary Shares
In the United States, our common shares are traded in the form of ADSs. Each of our ADSs represents one common share of Ultrapar, issued by The Bank of New York Mellon, as depositary, pursuant to a deposit agreement, dated September 16, 1999, as amended and restated on August 23, 2005, on August 22, 2011, and on March 2, 2018. The depositary’s principal executive office is located at 240 Greenwich Street, New York, New York 10286.
Fees and expenses
The following table summarizes the fees and expenses payable by holders of ADSs:
| Persons depositing or withdrawing shares must pay: | For |
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | (i) Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property (ii) Cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agreement terminates |
$0.05 (or less) per ADSs (or portion thereof) | Any cash distribution |
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities to holders of deposited securities which are distributed by the depositary to ADS holders |
$0.05 (or less) per ADS (or portion thereof) per annum | Depositary services |
Registration or transfer fees | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares |
Expenses of the depositary | (i) Cable (including SWIFT) and facsimile transmissions (when expressly provided in the deposit agreement) (ii) Converting foreign currency to U.S. dollars |
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | As necessary |
Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary |
Payment of taxes
The depositary may deduct the amount of any taxes owed from any payments to investors who hold ADSs. It may also sell deposited securities, by public or private sale, to pay any taxes owed. Investors who hold ADSs will remain liable if the proceeds of the sale are not sufficient to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to investors who hold ADSs any proceeds, or send to investors who hold ADSs any property, remaining after it has paid the taxes.
Reimbursement of fees
The Bank of New York Mellon, as depositary, has agreed to reimburse us for expenses we incur that are related to establishment and maintenance expenses of the ADS facility, including, but not limited to, investor relations expenses. The depositary has also agreed to pay its standard out-of-pocket maintenance expenses for providing services to registered DR holders, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, U.S. IRS tax reporting, mailing required tax forms, stationery, postage, facsimile, and telephone.
Reimbursement of fees incurred in 2021
From January 1, 2021, until December 31, 2021, Ultrapar received from the depositary US$503,427, related to continuing maintenance expenses of the ADS facility, including but not limited to, investor relations expenses.
As approved by the annual and extraordinary general shareholders’ meeting held on April 13, 2022, the mandatory dividend to be paid to the shareholders was reduced to 25% of the adjusted net profit. This reduction aims to adjust our bylaws to article 202, paragraph 2, of Law nr. 6,404/76, allowing a better cash allocation. The Company may, at its own discretion, pay more dividends to its shareholders.
(a) Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), as of December 31, 2021. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, including the possibility of improper management override of controls, internal control over financial reporting may not prevent or detect, on a timely basis, material misstatements due to error or fraud. Therefore, even those systems of internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or because the degree of compliance with the policies and procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In this context, our management, with participation of our Chief Executive Officer and Chief Financial Officer and under the oversight of our Board of Directors, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, based on the criteria established in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013 Framework”).
Based on such assessment and criteria, our management identified the following deficiencies in the Company’s internal control over financial reporting as of December 31, 2021:
· The Company did not design effective management review controls over the calculation of the income tax provision, including (a) appropriate identification of (i) revenue and expenses to be included in the determination of taxable income and (ii) tax and book basis differences to be used in the determination of deferred taxes, and (b) accuracy of the amounts included in the determinations. These deficiencies were due to the fact that the Company did not perform an effective risk assessment process to evaluate relevant risks of material misstatement associated with calculation of the income tax provision.
· At certain of its business units, the Company did not have resources that were sufficiently trained and experienced in the application of the requirements of the COSO 2013 Framework to its financial reporting processes and related internal controls. As a result, the Company did not maintain effective controls over the completeness and accuracy of information used to support the functioning of its internal controls relating to the existence of inventories held at third-party facilities.
The control deficiencies described above resulted in an immaterial misstatement related to the income tax provision in the Company’s preliminary consolidated financial statements which was corrected prior to the issuance of the 2021 annual consolidated financial statements. Because these control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis, we concluded that they represent material weaknesses in the Company’s internal control over financial reporting and that our internal control over financial reporting was not effective as of December 31, 2021.
Remediation Plan for the Material Weakness
Our management is actively engaged in the planning for, and implementation of, the remediation efforts to address the material weaknesses described above, which we plan to complete by the next annual assessment of the Company’s internal control over financial reporting. These efforts include performing a more granular assessment of risks inherent in the Company’s income tax calculation process, reassessing the appropriateness of design of existing controls associated with the income tax calculations, and implementation of certain additional controls over the determination of the current and deferred income tax balances, including:
a) Monthly review of our effective tax rate for each of the Company’s business units;
b) Monthly review of our income tax recognition by each of the Company’s business units’ tax specialists; and
c) Monthly report on the income tax recognition for the Controllership, Planning and Investor Relations departments.
The efforts to remediate the deficiencies in the level of internal control training and experience of personnel at certain business units and operation of controls over the completeness and accuracy of information used to support the functioning of internal controls related to the existence of inventories held at third-party facilities include offering a formal training program to those that act as control owners at the business units in order to: (i) reinforce the importance of internal controls over financial reporting processes, and (ii) explain the need for verification tests over the quality of information used to support the functioning of internal controls and appropriate documentation of such tests.
The remediation efforts will be monitored by our internal audit department, which will evaluate and internally report to the Audit and Risks Committee on the progress and results of the remediation plan.
(c) Report of the Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
KPMG Auditores Independentes Ltda (PCAOB ID n. 1124), issued in São Paulo, Brazil, the independent registered public accounting firm that audited the consolidated financial statements included in this annual report on Form 20-F, issued an auditor’s report expressing an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. The report of KPMG Auditores Independentes Ltda. appears on page F-5 of this annual report on Form 20-F.
(d) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We believe that each of Ms. Ana Paula Vitali Janes Vescovi, Mr. Jorge Marques de Toledo Camargo and Mr. José Maurício Pereira Coelho qualifies as an audit committee “financial expert,” as that term defined by the SEC in its final rules implementing Section 407 of the Sarbanes-Oxley Act of 2002. However, as we have previously relied on the exemption under Rule 10A-3(c)(3) of the Exchange Act from the audit committee requirements of Section 303A of the NYSE Listed Company Manual, we have not yet formally appointed an audit committee “financial expert.” We intend to do so in the near future. However, the Company believes that our audit and risks committee members are qualified to carry out their duties on the audit and risks committee given their experience and other qualifications in financial matters. For a discussion of the role of our statutory audit committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees of the Board of Directors—Audit and Risks Committee.”
In 2004, we established a Code of Ethics which covered (i) the Board of Directors; (ii) the whole Executive Board (including the Chief Executive Officer and the Chief Financial Officer); (iii) the Fiscal Council of Ultrapar; (iv) the Board of Directors and Executive Board of its subsidiaries; and (v) remaining bodies with technical or advisory functions that are directly subordinated to the Board of Directors, to the Executive Board or to the fiscal committee of Ultrapar. Our Code of Ethics was amended on June 17, 2009 to (i) improve certain existing items of the code by including examples of acceptable or unacceptable behavior and clarifying the language to avoid misunderstanding of such items and (ii) improve access to the channel for reporting non-compliance with the code. On July 31, 2013, we amended our Code of Ethics in order to increase the number of permanent members of the Conduct Committee from three to four members. On September 17, 2014 the Code of Ethics was fully revised. On December 13, 2017, our Board of Directors approved a new Code of Ethics, which came into effect on March 1, 2018. The Code of Ethics was fully revised on December 8, 2021 and came into effect on March 17, 2022. For the complete amended Code of Ethics please see our 6-K filed with the SEC on March 21, 2022. The objective of this code is (i) to reduce the subjectivity of personal interpretations of ethical principles; (ii) to be a formal and institutional benchmark for the professional conduct of the employees, including the ethical handling of actual or apparent conflicts of interests, becoming a standard for the internal and external relationship of Ultrapar with its stakeholders, namely: shareholders, clients, employees, partners, suppliers, service providers, labor unions, competitors, society, government and the communities in which it operates; and (iii) to ensure that the daily concerns with efficiency, competitiveness and profitability do not override ethical behavior.
Also, in 2014, we approved the Corporate Policy on Anti-Corruption and the Relationship with the Public and Private Sector, applicable to shareholders, employees of the Company, third parties and business partners when representing or acting on behalf of the Company. On December 13, 2017, our Board of Directors approved a new Corporate Policy on Anti-Corruption and the Relationships with the Public and Private Sector, which came into effect on March 1, 2018. On December 8, 2021, our Board of Directors approved a fully revised corporate policy on anti-corruption and relationship with public officials, which came into effect on March 17, 2022. This policy consolidates the guidelines for corruption prevention to be adopted in the relationship with public officers to protect the integrity and transparency of our businesses. For our complete revised corporate policy on anti-corruption and relationship with public officials, please see our 6-K filed with the SEC on March 21, 2022.
On September 21, 2016, our Board of Directors approved the Antitrust Policy applicable to employees of the Company, third parties and business partners. This policy establishes guidelines for preventing and combating violations of competition law and ensuring compliance with all competition laws, to be adopted by the Ultra companies, as well as in corporate transactions in which they are involved. On October 2018, we reviewed our Antitrust Policy.
Also, in 2016, the Company approved the Conflict of Interests Policy applicable to employees of the Company, third parties and business partners when representing or acting on behalf of the Company. This policy provides for standard behaviors and professional conduct of the employees, including the ethical handling of actual or apparent conflicts of interests. The Policy was revised in 2021, now called the “Conflict of Interest and Related Party Transactions Corporate Policy.” You can obtain a copy of our Code of Ethics and of our Corporate Policy on Anti-Corruption and the Relationship with the Public and Private Sector, free of charge, at our Investor Relations (www.ri.ultra.com.br), on “Governance” section, subsection “Bylaws, Codes and Policies.”
The relationship with our independent registered public accounting firm in respect to the contracting of services unrelated to the external audit is based on principles that preserve the independence of the independent registered public accounting firm. Our Board of Directors approves our consolidated financial statements, the performance by our independent registered public accounting firm of audit and permissible non-audit services, and associated fees, supported by our Audit and Risks Committee. See “Item 6.C. Directors, Senior Management and Employees—Board Practices—Audit and Risks Committee” for more information about the responsibilities of the Audit and Risks Committee. Our consolidated financial statements for the year ended December 31, 2021 and 2020 were audited by the independent registered public accounting firm KPMG Auditores Independentes Ltda.
The following table describes the total amount billed to us by KPMG Auditores Independentes Ltda for services performed in 2021 and 2020:
| 2021 |
| 2020 |
|---|
| (in thousands of Reais) |
|---|
Audit Fees | 8,212.8 |
| 8,489.9 |
Audit Related Fees | 551.0 |
| 1,156.4 |
Total Consolidated Audit Fees | 8,763.8 |
| 9,646.2 |
“Audit Fees” are the aggregate fees billed by our independent registered public accounting firm for the audit of our consolidated and annual financial statements, reviews of interim financial information and attestation services that are provided in connection with statutory and regulatory filings or engagements.
“Audit Related Fees” are fees related to tax compliance services to review the ECF, agreed upon procedures in connection with the reopening of 2029 notes offering process, attestation report on net assets book value.
Pre-Approval Policies and Procedures
In order to adapt to the new rules for the Novo Mercado segment, the extraordinary and annual general shareholders’ meeting held on April 10, 2019 decided that our audit and risks committee must function on a permanent basis to advise the Board of Directors. This committee is responsible for recommending to the Board of Directors the retention and dismissal of independent audit services, as well as proposing to the Board of Directors the nomination of the independent auditor and their replacement and to define the pre-approval policy for hiring services that may be provided by the independent auditor.
None.
We did not purchase any shares issued by the Company in 2021.
On December 9, 2021, Ultrapar engaged Deloitte Touche Tohmatsu Auditores Independentes as its principal accountants for the fiscal year ending December 31, 2022, and will dismiss KPMG Auditores Independentes Ltda. (“KPMG”), which is currently serving as the Company’s independent auditors, upon completion of their audit of the consolidated financial statement as of December 31, 2021 and for the three years ended December 31, 2021, 2020 and 2019, and the effectiveness of internal control over financial reporting as of December 31, 2021, and the issuance of their report thereon. The decision to change accountants was approved by the audit committee of the Board of Directors.
During the two fiscal years ended December 31, 2021 and 2020, and the subsequent interim period there were no: (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, or (2) reportable events, except that KPMG advised Ultrapar (and subsidiaries) of the following material weaknesses as of December 31, 2021: (i) the Company did not design effective management review controls over the calculation of the current income tax provision; including (a) appropriate identification of (i) revenue and expenses to be included in the determination of taxable income and (ii) tax and book basis differences to be used in the determination of deferred taxes, and (b) accuracy of the amounts included in the determinations and (ii) at certain of its business units, the Company did not have resources that were sufficiently trained and experienced in the application of the requirements of the COSO 2013 Framework to its financial reporting processes and related internal controls. As a result, the Company did not maintain effective controls over the completeness and accuracy of information used to support the functioning of its internal controls relating to the existence of inventories held at third-party facilities.
The audit reports of KPMG on the consolidated financial statements of Ultrapar (and subsidiaries) as of and for the years ended December 31, 2021 and 2020 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2021 and 2020 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG report dated May 10, 2022 indicates that Ultrapar (and subsidiaries) did not maintain effective internal control over financial reporting as of December 31, 2021 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states the: (i) the Company did not design effective management review controls over the calculation of the income tax provision, including (a) appropriate identification of (i) revenue and expenses to be included in the determination of taxable income and (ii) tax and book basis differences to be used in the determination of deferred taxes, and (b) accuracy of the amounts included in the determinations ; and (ii) at certain of its business units, the Company did not have resources that were sufficiently trained and experienced in the application of the requirements of the COSO 2013 Framework to its financial reporting processes and related internal controls. As a result, the Company did not maintain effective controls over the completeness and accuracy of information used to support the functioning of its internal controls relating to the existence of inventories held at third-party facilities.
Ultrapar has requested that KPMG Auditores Independentes Ltda. furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated May 10, 2022, is filed as “Exhibit 15 — Letter from KPMG Auditores Independentes Ltda. to the SEC, regarding the change in independent registered public accounting firm” to this Form 20-F.
We did not consult with Deloitte Touche Tohmatsu Auditores Independentes during our two most recent fiscal years or any subsequent interim period as to the application of accounting principles to a specified transaction, either completed or proposed, the type of audit opinion that might be rendered on our financial statements or any matter that was either the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of Form 20-F) or a reportable event (as described in Item 16F(a)(1)(v) of Form 20-F).
Under the rules of the NYSE, foreign private issuers are subject to a more limited set of corporate governance requirements than are U.S. domestic issuers. As a foreign private issuer, we must comply with four principal NYSE corporate governance rules: (i) we must satisfy the requirements of Exchange Act Rule 10A–3 relating to audit committees; (ii) our Chief Executive Officer must promptly notify the NYSE after any executive officer becomes aware of any material noncompliance with the applicable NYSE rules; (iii) we must provide the NYSE with annual and interim written affirmations; and (iv) we must provide a brief description of any significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards.
The significant differences between our corporate governance practices and the NYSE corporate governance standards are as follows:
Independence of Directors
NYSE rules require that a majority of the Board of Directors must consist of independent directors as defined under NYSE rules. Under Brazilian Corporate Law, we are not required to have a majority of independent directors.
The Brazilian Corporate Law requires that our directors be elected by our shareholders at a general shareholders’ meeting. According to the rules of Novo Mercado, 20% or at least two of the members of our Board of Directors, whichever is greater, must be independent. As of December 31, 2021, our Board of Directors had 6 members that meet the independence requirements pursuant to the rules of Novo Mercado. Furthermore, according to our bylaws, at least 30% of the members of our Board of Directors must be independent.
The rules for the Novo Mercado segment, in force as of January 2, 2018, established that the companies listed in this segment will have up to the annual shareholders’ meeting to be held in 2022 to adopt new requirements to assure the independence of the members of the Board of Directors, based on their relationship with the company, its direct or indirect controlling shareholder (if applicable), its directors and its executive officers; and subsidiaries, affiliates and joint-ventures.
According to these requirements—to be adopted not later than April 2022—a board member will not be considered independent if he/she (i) is the direct or indirect controlling shareholder of the company; (ii) has his/her voting rights at the board meetings bound to a shareholders’ agreement regarding matters related to the company; (iii) is a spouse, partner or direct or collateral first/second-degree relative of the controlling shareholder or of any executive officer of the company or the controlling shareholder; (iv) was an employee or executive officer of the company or its controlling shareholder in the past three years.
Furthermore, the new rules of the Novo Mercado establish that when deciding whether Board members are independent, some situations must be analyzed in order to verify whether they entail loss of independence due to the characteristics, magnitude and extent of the relationship, as follows: (i) “are they a first/second-degree relative of the controlling shareholder or of any executive officer of the company or the controlling shareholder?”; (ii) “have they been an employee or executive officer the company’s subsidiaries, affiliates or joint-ventures in the past three years?”; (iii) “do they have a business relationship with the company, its controlling shareholder, or a subsidiary, affiliate or joint-venture?”; (iv) “do they hold a position in a firm or entity that has a business relationship with the company or with its controlling shareholder, whereby they have decision-making power regarding the activities of the firm or entity?”; (v) “do they receive any compensation from the company, its controlling shareholder, or a subsidiary, affiliate or joint-venture other than the compensation relating to their position as a member of the board of directors or committees of the company, its controlling shareholder, or its subsidiaries, affiliates and joint-ventures, excluding income from shares in the company and benefits from supplementary pension plans?”
Once such requirements are adopted, the general shareholders’ meeting shall then be entitled to decide whether a person nominated as member of the Board of Directors is independent and may base its decision (i) on a declaration submitted to the Board of Directors in which the nominee attests and justify his/her compliance with the independence requirements or (ii) on the opinion of the Board of Directors expressed in management’s proposal to the general shareholders meeting that elects directors and officers regarding the candidate’s compliance or non-compliance with the independence criteria.
At the extraordinary and annual general shareholders’ meeting held on April 14, 2021, our bylaws were amended to reflect the new independence requirements, and the election of the Board of Directors deliberated upon on such general shareholders’ meeting contemplated said requirements and procedures.
As of December 31, 2021, our Board of Directors consisted of eleven members, all of them being non-executive members and six of whom were independent, according to the Brazilian Novo Mercado Listing Rules. Two of the non-independent board members were executive officers of Ultrapar until December 2006 or until December 2012. All of the non-independent board members are related, directly or indirectly, to Ultra S.A. See “Item 6.C. Directors, Senior Management and Employees—Board Practices” and “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
On September 22, 2021, we announced the succession plan of the leadership of our Board of Directors, developed under the leadership of the current Chairman of the Board, Pedro Wongtschowski, whose mandate will end in April 2023. As part of such plan, as of January 2022, Marcos Lutz assumed the position of Chief Executive Officer of the Company, succeeding Frederico Curado, now Vice-Chairman of the Board of Directors, after Lucio de Castro Andrade Filho retired at the end of 2021. On April 13, 2022, the annual and extraordinary general shareholders’ meeting elected Frederico Curado to act as board member with term of office until the mandate term of the Board of Directors elected in 2021 is completed. As of the date of this report, our Board of Directors is composed of ten members, six of whom are independent members, according to the rules previously mentioned.
No member of the Board has any material relationship with the Company, either directly or as a partner or officer of an organization that has relationship with Ultrapar, except for their interest as shareholders of Ultrapar or Ultra S.A. Participações, when applicable, as mentioned above. The Brazilian Corporate Law, the Novo Mercado Listing rules and the CVM establish rules relating to the qualification of the members of our Board of Directors and our executive officers, including their compensation, duties and responsibilities. We believe these rules provide adequate assurances that our directors are independent according to the independence tests established by the NYSE.
Executive Sessions
NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Such provision does not apply to Ultrapar given that none of our directors is currently an executive officer of the Company.
Committees
NYSE rules require that U.S. domestic listed companies have a nominating/corporate governance committee and a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s purpose and responsibilities. Under the Brazilian Corporate Law, we are not required to have a nominating committee, a corporate governance committee or a compensation committee. Notwithstanding, our bylaws provides for a people committee (formerly named compensation committee), strategy committee and an audit and risks committee, as ancillary bodies of the Board of Directors. See “Item 6.C. Directors, Senior Management and Employees—Board Practices” and “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
The members of our committees shall be elected by the Board of Directors for a term of office of two years, coincident with the term of office of the directors.
As of the date hereof, our people committee was composed of the board members Mr. José Galló (who also acts as coordinator of the committee), Mr. Frederico Curado, Mr. Alexandre Teixeira de Assumpção Saigh and Mr. José Luiz Alquéres whereas our strategy committee was composed of the board members Mr. Pedro Wongtschowski (who also acts as coordinator of the committee), Ms. Flávia Buarque de Almeida, Mr. Jorge Marques de Toledo Camargo and Mr. Frederico Curado. For more information, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees of the Board of Directors—People Committee” and “—Strategy Committee.”
Audit and Risks Committee
U.S. domestic listed companies must have an audit committee with all independent directors who are financially literate and who satisfy the independence requirements of Rule 10A–3 of the Securities Exchange Act of 1934 (the “Exchange Act”), with a written charter addressing the committee’s purpose and responsibilities.
Our bylaws establish our audit and risks committee as an ancillary body of the Board of Directors, which shall be composed of at least three members, all of them members of the Board of Directors and at least one member with recognized experience in corporate accounting matters, as provided in the applicable regulations of the CVM. Although our bylaws only require a majority of independent directors, all members of our audit and risks committee meet the applicable independent membership requirements of the SEC and the NYSE. All members shall be elected by the Board of Directors for a term of office of two years, and the term shall coincide with the term of office of the Directors, with reelection being permitted for successive terms. A single member of the audit and risks committee may concentrate the two above mentioned requirements.
The audit and risks committee shall (a) recommend to the Board of Directors the retention and dismissal of independent audit services, as well as propose to the Board of Directors the nomination of the independent auditor and their replacement; (b) review the management report and the financial statements of the Company and of its controlled companies, and provide the recommendations it deems necessary to the Board of Directors; (c) review the quarterly financial information and the periodic financial statements prepared by the Company; (d) monitor the activities of the Company’s internal audit and internal controls departments, including follow-up and assessment of the effectiveness and sufficiency of the internal control structure and of the internal and independent audit processes of the Company and of its controlled companies, including in relation to the provisions set forth in the Sarbanes-Oxley Act, submitting the recommendations it deems necessary for the improvement of policies, practices and procedures; (e) evaluate and monitor the Company’s risk exposure per the Risk Management Policy, as well as provide its opinion on any review of the contents thereof, in addition to advising the Board of Directors in connection with the setting of acceptable risk levels; (f) establish procedures for the acceptance and handling of information submitted by any party relating to alleged noncompliance with applicable legal and regulatory requirements applicable to the Company, in addition to internal regulations, policies and codes, including procedures for confidential or anonymous submission, safeguarding information secrecy; (g) interact with the other Company’s governing bodies in connection with the receipt and review of information on noncompliance with legal and regulatory requirements applicable to the Company, as well as with internal regulations; and (h) provide its opinion on the matters submitted to it by the Board of Directors, as well as on those matters it determines to be relevant.
As of the date hereof, our audit and risks committee was composed of the board members Ms. Ana Paula Vitali Janes Vescovi (who also acts as coordinator of the committee), Mr. Jorge Marques de Toledo Camargo and Mr. José Maurício Pereira Coelho. For more information, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees of the Board of Directors—Audit and Risks Committee.”
Fiscal Council
Under Brazilian corporate Law, the Fiscal Council is a separate corporate body independent of management and independent auditors and it may operate on a permanent or non-permanent basis. According to the Brazilian Corporate Law, a Fiscal Council acting on a non-permanent basis is required to be formed when requested by 10% of voting shareholders in an annual general shareholders’ meeting. However, pursuant to CVM Instruction 324/00, in the case of Ultrapar, holders of 2% of the voting capital are entitled to request the installation of the Fiscal Council. The elected members of the Fiscal Council will remain in place only until the following annual general shareholders’ meeting, in which they may be reelected by our shareholders. The Fiscal Council must meet at least four times per year. Since its establishment, in July 2005, our Fiscal Council has been meeting on a regular basis, and in 2021, they held nine meetings.
Additionally, individuals who are members of our Board of Directors or our Board of Executive Officers or are employees or spouses or relatives of any member of our management are not eligible to serve on the Fiscal Council. To be eligible to serve on our Fiscal Council, a person must be a resident of Brazil and either a hold university degree or have been a Company officer or Fiscal Council member of another Brazilian company for at least three years prior to election to our Fiscal Council. A Fiscal Council, when installed, shall have the duties and obligations provided by the Brazilian Corporate Law, which includes, among others, the examination of the statements of financial position of the Company and other financial statements prepared by a company, at least every three months, and the examination of the company’s accounts and financial statements for the fiscal year and give an opinion on them.
Our Fiscal Council is composed of three effective members and an equal number of alternate members and operates on a non-permanent basis when installed by the general shareholders’ meeting. As of the date hereof, we have a Fiscal Council installed, which is composed of the following members: Flavio César Maia Luz, Geraldo Toffanello and Nilson Martiniano Moreira. For more information, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees of the Board of Directors—Fiscal Council” and “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022”.
Shareholder Approval of Equity Compensation Plans
NYSE rules require that equity compensation plans for U.S. domestic listed companies be subject to shareholder approval, with limited exceptions. In November 2003, our shareholders approved the Deferred Stock Plan. In accordance with the Deferred Stock Plan, the Board of Directors determines the eligible participants and the number of shares to which each participant shall have rights. See “Item 6.C. Directors, Senior Management and Employees—Compensation.” At the annual general shareholders’ meeting held on April 19, 2017, our shareholders approved a new stock-based incentive plan for our employees and executives.
Corporate Governance Guidelines
NYSE rules require that U.S. domestic listed companies adopt and disclose corporate governance guidelines. We have adopted corporate governance guidelines set out by our Board of Directors or required by the Brazilian Corporate Law, the CVM and B3 and which we believe are consistent with best practices, such as the 100% tag along rights to all shareholders, the establishment and disclosure of a code of ethics, and the adoption of the Policy of Disclosure of Material Acts or Facts, which deals with the public disclosure of all relevant information and the trading of shares issued by Ultrapar as per CVM Resolution N. 44, and the adoption of Anti-Corruption and Relationship with the Public and Private Sector Corporate Policy.
Since June 28, 2011, we have been listed on the Novo Mercado segment of B3. According to the rules of Novo Mercado, 20% or at least two members of our Board of Directors, whichever is greater, must be independent while a minimum of 30% is required in our bylaws.
Our bylaws also (i) establish a mandatory tender offer for 100% of the Company’s shareholders in the event a shareholder, or a group of shareholders acting in concert, acquire or become holder of 20% of the Company’s shares, excluding treasury shares, and (ii) create a strategy, an audit and risks and a people committees, as ancillary bodies of the Board of Directors. Our bylaws do not establish any limitation on voting rights, special treatment to current shareholders, public tender offers for a price above that of the acquisition price of shares or any other poison pill provisions, thus assuring the effectiveness of a majority shareholders’ approval on all matters to be deliberated. See “Exhibit 1.1—Bylaws of Ultrapar, dated as of April 13, 2022.”
In addition, as mentioned above, on September 2017, new rules for Novo Mercado were approved by the CVM. Some of the modifications of the Novo Mercado Rules include the following requirements: (i) set up an audit committee (statutory or non-statutory); (ii) structure and disclose a process of assessment of the Board of Directors, its committees and executive officers; (iii) establish and disclose a Code of Conduct, as well as a Compensation Policy, a Nomination Policy for the Board of Directors, its Committees and Executive Officer, a Risk Management Policy, a Related Party Transaction Policy and Securities Trading Policy, all of them with minimum requirements. Despite the fact that the companies listed in this segment must fully comply with the regulations until the general shareholders’ meeting of 2022, our bylaws were amended to reflect, among other amendments, such requirements and we are in full compliance with such rules.
Code of Business Conduct and Ethics
NYSE rules require that U.S. domestic listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees. In 2004, we established a code of ethics, which was amended on September 17, 2014, on December 17, 2017, and on December 8, 2022. For the complete amended code of ethics please see our Form 6-K filed with the SEC on March 21, 2022. The main objective of this code is (i) to reduce the subjectivity of personal interpretations of ethical principles; and (ii) to be a formal and institutional benchmark for the professional conduct of our employees, including the ethical handling of actual or apparent conflicts of interests, becoming a standard for the internal and external relationship of the Company with its stakeholders. See “Item 16.B. — Code of Ethics.”
Not applicable.
Not applicable.
We have responded to Item 18 in lieu of responding to this Item.
We file the following consolidated financial statements together with the reports of independent registered public accountants’ firms, as part of this annual report:
Report of Independent Registered Public Accounting Firm | F-3 |
Consolidated statements of financial position as of December 31, 2021 and 2020 | F-4 |
Consolidated statements of profit or loss for the years ended December 31, 2021, 2020 and 2019 | F-6 |
Consolidated statements of comprehensive income for the years ended December 31, 2021, 2020 and 2019 | F-7 |
Consolidated statements of changes in equity for the years ended December 31, 2021, 2020 and 2019 | F-8 |
Consolidated statements of cash flows—Indirect method for the years ended December 31, 2021, 2020 and 2019 | F-11 |
Notes to the consolidated financial statements | F-13 |
We are filing the following documents as part of this Annual Report Form 20-F:
1.1 | Bylaws of Ultrapar, dated as of April 13, 2022 (incorporated by reference to Form 6-K furnished by Ultrapar Participações S.A. filed on April 13, 2022). |
2.1 | Shareholders’ Agreement dated March 22, 2000 (incorporated by reference to Exhibit 2.1 to Form 20-F of Ultrapar Participações S.A. filed on June 7, 2007). |
2.2 | Amendment dated as of March 31, 2006 to the Indenture dated as of December 20, 2005 (incorporated by reference to Exhibit 2.3 to Form 20-F of Ultrapar Participações S.A. filed on May 5, 2006). |
2.3 | Ipiranga Group Shareholders’ Agreement entered into by and among Ultrapar, Petrobras and Braskem, dated April 18, 2007 — English Translation (incorporated by reference to Exhibit 2.7 to Form 20-F of Ultrapar Participações S.A. filed on June 7, 2007). |
2.4 | RPR Shareholders Agreement entered into by and among Ultrapar, Petrobras and Braskem, dated April 18, 2007 — English Translation (incorporated by reference to Exhibit 2.8 to Form 20-F of Ultrapar Participações S.A. filed on June 7, 2007). |
2.5 | Rules of the Novo Mercado—English translation (incorporated by reference to Exhibit 2.9 to Form 20-F of Ultrapar Participações S.A. filed on April 6, 2018). |
2.6 | Shareholders’ Agreement dated May 2, 2018 (incorporated by reference to the report on Form 6-K furnished by Ultrapar Participações S.A. filed on May 2, 2018). |
2.7 | Ultrapar Participações S.A. 6th Public Offering Indenture of Simple, Non-Convertible into Shares, Single-Series, Unsecured Debentures, for Public Distribution with Restricted Placement Efforts between Ultrapar Participações S.A. and Pentágono S.A. DTVM, dated February 22, 2018 (incorporated by reference to Form 6-K of Ultrapar Participações S.A. filed on February 22, 2018). |
2.8 | Indenture, dated as of October 6, 2016 among Ultrapar International S.A., as Issuer, Ultrapar Participações S.A. and Ipiranga Produtos de Petróleo, as guarantors, The Bank of New York Mellon, as Trustee, Transfer Agent and Registrar, The Bank of New York Mellon, as Principal Paying Agent and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Paying Agent and Luxembourg Transfer Agent (incorporated by reference to Exhibit 2.9 to Form 20-F of Ultrapar Participações S.A. filed on April 23, 2019). |
2.9 | Indenture, dated as of June 6, 2019 among Ultrapar International S.A., as Issuer, Ultrapar Participações S.A. and Ipiranga Produtos de Petróleo, as guarantors, The Bank of New York Mellon, as Trustee, Transfer Agent and Registrar, The Bank of New York Mellon, as Principal Paying Agent and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Paying Agent and Luxembourg Transfer Agent (incorporated by reference to Exhibit 2.10 to Form 20-F of Ultrapar Participações S.A. filed on May 4, 2020). |
2.10 | Amended and Restated Deposit Agreement dated as of March 2, 2018, among Ultrapar Participações S.A., the Bank of New York Mellon as Depositary, and all Owners and Beneficial Owners from time to time of American Depositary Shares issued thereunder (incorporated by reference to Exhibit 1 to Form F-6/A of Ultrapar Participações S.A. filed on February 23, 2018). |
2.11 | Description of Securities Registered under Section 12 of the Exchange Act. |
2.12 | Shareholders’ Agreement dated August 18, 2020 (incorporated by reference to the report on Form 6-K furnished by Ultrapar Participações S.A. filed on August 24, 2020). |
2.13 | First Supplemental Indenture, dated as of July 20, 2020, among Ultrapar International S.A., as Issuer, Ultrapar Participações S.A. and Ipiranga Produtos de Petróleo, as guarantors, The Bank of New York Mellon, as Trustee, Transfer Agent and Registrar, The Bank of New York Mellon, as Principal Paying Agent and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Paying Agent and Luxembourg Transfer Agent. (incorporated by reference to Exhibit 2.14 to Form 20-F of Ultrapar Participações S.A. filed on April 29, 2021). |
4.1 | Form of agreement between Ultragaz and independent dealers (incorporated by reference to Exhibit 10.4 to Form F-1 of Ultrapar Participações S.A. filed on February 2, 2005, as amended). |
4.2 | Take or pay agreement between Tequimar and CODEBA (incorporated by reference to Exhibit 10.5 to Form F-1 of Ultrapar Participações S.A. filed on February 2, 2005, as amended). |
4.3 | Revolving Line of Credit Agreement among Banco Nacional de Desenvolvimento Econômico e Social (BNDES), Companhia Brasileira de Petróleo Ipiranga, Companhia Ultragaz S/A, Oleoquímica Indústria e Comércio de Produtos Químicos Ltda, Oxiteno Nordeste S/A Indústria e Comércio, Tequimar—Terminal Químico de Aratu S/A, Tropical Transportes Ipiranga Ltda. and Ultrapar Participações S.A., dated December 16, 2008—English Summary (incorporated by reference to Exhibit 4.12 to Form 20-F of Ultrapar Participações S.A. filed on June 30, 2010). |
4.4 | Line of Credit Agreements between Banco do Brasil S.A. and Ipiranga Produtos de Petróleo S.A., each dated June 16, 2010—English Summary (incorporated by reference to Exhibit 4.14 to Form 20-F of Ultrapar Participações S.A. filed on June 30, 2010). |
4.5 | Amendment to the line of Credit Agreements between Banco do Brasil S.A. and Ipiranga Produtos de Petróleo S.A., each dated February 7, 2013—English Summary (incorporated by reference to Exhibit 4.16 to Form 20-F of Ultrapar Participações S.A. filed on April 30, 2013). |
4.6 | Association and Other Covenants Agreement to effect the merger of shares (incorporação de ações) of Extrafarma with Ultrapar, dated September 30, 2013 — English Summary (incorporated by reference to Exhibit 4.17 to Form 20-F of Ultrapar Participações S.A. filed on April 30, 2014). |
4.7 | Protocol and Justification of Incorporação de Ações (merger of shares) issued by Imifarma Produtos Farmacêuticos e Cosméticos S.A. by Ultrapar Participações S.A., dated December 17, 2013 (incorporated by reference to the report on Form 6-K furnished by Ultrapar Participações S.A. filed on December 27, 2013, as amended). |
4.8 | English language summary of the Share Purchase Agreement entered into by and between Ipiranga Produtos de Petróleo S.A. and Empreendimento Pague Menos S.A., and, as consenting intervening parties, Imifarma Produtos Farmacêuticos e Cosméticos S.A. and Ultrapar Participações S.A., dated May 18, 2021. |
4.9 | Share Purchase Agreement entered into by and between Ultrapar Participações S.A., Tereftálicos Indústria e Participações Ltda. and Indorama Ventures Spain Sociedad Limitada, and, as consenting interveners, Oxiteno S.A. – Indústria e Comércio, Oxiteno USA, LLC, Oxiteno Mexico S.A., de C.V. and Oxtiteno Uruguay S.A., and, as consenting interveners and guarantors, Indorama Ventures Public Company Limited and Indorama Ventures Polímeros S.A., dated August 15, 2021. |
8.1 | List of subsidiaries of Ultrapar (incorporated by reference to Note 4 to our consolidated financial statements included in this annual report). |
11.1 | Code of Ethics, amended on March 1, 2018 (incorporated by reference to the report on Form 6-K furnished by Ultrapar Participações S.A. filed on March1, 2018). |
12.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
12.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
13 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002. |
| 15 | Letter from KPMG Auditores Independentes Ltda to the SEC, dated May 10, 2022 regarding the change in independent registered public accounting firm |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
There are certain promissory notes and other instruments and agreements with respect to long-term debt of our Company omitted from the exhibits filed with or incorporated by reference into this annual report, none of which authorizes securities in a total amount that exceeds 10% of the total assets of our Company. See “Item 5.B. Operating and Financial Review and Prospect—Liquidity and Capital Resources—Consolidated Debt.” We hereby agree to furnish to the SEC copies of any such omitted promissory notes or other instruments or agreements as the Commission requests.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ULTRAPAR PARTICIPAÇÕES S.A. |
|
|
|
| By: | /S/ MARCOS MARINHO LUTZ |
| Name: | Marcos Marinho Lutz |
| Title: | Chief Executive Officer |
Date: May 10, 2022 | By: | /S/ RODRIGO DE ALMEIDA PIZZINATTO |
| Name: | Rodrigo de Almeida Pizzinatto |
| Title: | Chief Financial and Investor Relations Officer |
| Ultrapar Participações S.A. Consolidated Ended December 31, 2021 and Report of Independent Registered Public Accounting Firm | |
| Ultrapar Participações S.A. and Subsidiaries |
| Consolidated Financial Statements |
| As of Year Ended December 31, 2021 |
To the Shareholders and Board of Directors
Ultrapar Participações S.A.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Ultrapar Participações S.A. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for each of the years in the three‑year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2021, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 10, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the recoverability of deferred tax assets
As discussed in note 2.n and note 10.a to the consolidated financial statements, the Company had R$ 571,755 thousand of deferred tax assets as of December 31, 2021 of which R$ 423,410 thousand was related to temporary differences and R$ 148,345 thousand was from carry-forward tax losses. The Company prepares future taxable income projections from business plans of each segment of the Company to support the recognition of deferred tax assets. The projection of future taxable profits involves certain key assumptions that require the Company to make significant judgments, including those relating to growth in gross domestic product (GDP), exchange rate, basic interest rate (SELIC) and DI (local interbank offering rate), inflation rate, commodity price index, among others. Significant judgment was also required to determine the discount rate. The assumptions relating to future cash flows are based on the business plan and budget prepared by the Company and approved by the Board of Directors.
We identified the evaluation of the recoverability of deferred tax assets as a critical audit matter because the determination of the key assumptions and the likelihood of future taxable profits by the Company involved significant complexity, judgment and uncertainty and, therefore, required subjective auditor judgment to assess. In addition, the Company’s evaluation of the recoverability of the deferred tax assets was sensitive to possible changes in the key assumptions and judgments.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process for projecting future taxable profits, including controls related to the development and approval of the underlying assumptions and the final projections of future taxable profits.To assess the Company’s ability to forecast, we compared the Company’s prior year projections of taxable profits for 2021 to actual taxable profits in 2021. Additionally, we analyzed the Company’s history of realizing its deferred tax assets within the periods previously projected. We performed a sensitivity analysis on the assumptions related to growth in GDP, exchange rate, interest rates, inflation, the commodity price index and the discount rate to assess their impact on the recoverability of the deferred tax assets.
We involved corporate finance professionals with specialized skills and knowledge, who assisted in evaluating the assumptions used by the Company in the projections of future taxable profits by comparing them to internal and external sources, including (i) assessing the Company’s projected growth rate by comparing it for consistency with management’s documented strategy as well as internally-prepared budgets; and (ii) evaluating the Company’s inflation projection by comparing it to market information. We also involved tax professionals with specialized skills and knowledge, who assisted in evaluating the determination of taxable profits.
KPMG Auditores Independentes Ltda.
We have served as the Company’s auditor since 2017.
São Paulo, SP, Brazil
May 10, 2022
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Ultrapar Participações S.A.:
Opinion on Internal Control Over Financial Reporting
We have audited Ultrapar Participações S.A. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2021 and 2020, the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated May 10, 2022 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment:
- The Company did not design effective management review controls over the calculation of the income tax provision, including (a) appropriate identification of (i) revenue and expenses to be included in the determination of taxable income and (ii) tax and book basis differences to be used in the determination of deferred taxes, and (b) accuracy of the amounts included in the determinations; and
- At certain of its business units, the Company did not have resources that were sufficiently trained and experienced in the application of the requirements of Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to its financial reporting processes and related internal controls. As a result, the Company did not maintain effective controls over the completeness and accuracy of information used to support the functioning of its internal controls relating to the existence of inventories held at third-party facilities.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG Auditores Independentes Ltda.
São Paulo, SP, Brazil
May 10, 2022
Ultrapar Participações S.A. and Subsidiaries
As of December 31, 2021 and 2020
(In thousands of Brazilian Reais)
| Note | 12/31/2021 |
| | 12/31/2020 |
|
Assets | | |
| | |
|
Current assets | | |
| | |
|
Cash and cash equivalents | 5.a | 2,280,074 |
| | 2,661,494 |
|
Financial investments and hedging instruments | 5.b | 1,804,122 |
| | 5,033,258 |
|
Trade receivables | 6.a | 3,375,246 |
| | 3,318,927 |
|
Reseller financing | 6.b | 582,562 |
| | 549,129 |
|
Inventories | 7 | 3,918,772 |
| | 3,846,196 |
|
Recoverable taxes | 8.a | 1,061,227 |
| | 1,044,850 |
|
Recoverable income and social contribution taxes | 8.b | 291,833 |
| | 366,080 |
|
Dividends receivable | | 147 |
| | 1,152 |
|
Other receivables | | 56,205 |
| | 56,955 |
|
Prepaid expenses | 11 | 98,024 |
| | 132,122 |
|
Contractual assets with customers – exclusive rights | 12 | 555,052 |
| | 478,908 |
|
| | 14,023,264 |
| | 17,489,071 |
|
Assets held for sale | 3.c.1 | 11,000,917 |
| | - |
|
Total current assets | | 25,024,181 |
| | 17,489,071 |
|
Non-current assets | | |
| | |
|
Financial investments and hedging instruments | 5.b | 379,277 |
| | 977,408 |
|
Trade receivables | 6.a | 63,749 |
| | 72,195 |
|
Reseller financing | 6.b | 415,472 |
| | 419,255 |
|
Related parties | 9.a | 490 |
| | 2,824 |
|
Deferred income and social contribution taxes | 10.a | 571,755 |
| | 974,711 |
|
Recoverable taxes | 8.a | 1,046,798 |
| | 1,474,808 |
|
Recoverable income and social contribution taxes | 8.b | 155,358 |
| | 261,205 |
|
Escrow deposits | 23.a | 871,261 |
| | 949,796 |
|
Indemnification asset – business combination | 23.c | 120,991 |
| | 204,439 |
|
Other receivables | | 29,748 |
| | 20,238 |
|
Prepaid expenses | 11 | 71,368 |
| | 70,507 |
|
Contractual assets with customers – exclusive rights | 12 | 1,524,174 |
| | 1,227,423 |
|
Investments | | |
| | |
|
In joint ventures | 13.a | 71,389 |
| | 139,100 |
|
In associates | 13.b | 7,176 |
| | 25,588 |
|
Others | | 28 |
| | 2,793 |
|
| | 78,593 |
| | 167,481 |
|
Right-of-use assets | 14 | 1,651,295 |
| | 2,150,286 |
|
Property, plant, and equipment | 15 | 5,534,591 |
| | 8,005,860 |
|
Intangible assets | 16 | 1,471,256 |
| | 1,782,655 |
|
Total non-current assets | | 13,986,176 |
| | 18,761,091 |
|
Total assets | | 39,010,357 |
| | 36,250,162 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2021 and 2020
(In thousands of Brazilian Reais)
| Note | 12/31/2021 |
| | 12/31/2020 |
|
Liabilities | | |
| | |
|
Current liabilities | | |
| | |
|
Loans, financing and hedge derivative financial instruments | 17 | 618,327 |
| | 2,306,036 |
|
Debentures | 17.f | 2,247,724 |
| | 949,908 |
|
Trade payables | 18.a | 3,670,895 |
| | 2,745,019 |
|
Trade payables – reverse factoring | 18.b | 2,119,059 |
| | 1,295,633 |
|
Salaries and related charges | 19 | 330,103 |
| | 468,630 |
|
Taxes payable | 20 | 229,176 |
| | 286,014 |
|
Dividends payable | 26.h | 202,860 |
| | 442,133 |
|
Income and social contribution taxes payable | | 196,348 |
| | 169,317 |
|
Post-employment benefits | 21.b | 21,082 |
| | 27,077 |
|
Provision for asset retirement obligation | 22 | 4,632 |
| | 4,267 |
|
Provision for tax, civil, and labor risks | 23.a | 119,942 |
| | 43,660 |
|
Leases payable | 14 | 188,832 |
| | 260,189 |
|
Other payables | | 144,204 |
| | 224,676 |
|
Deferred revenue | 24 | 5,625 |
| | 18,282 |
|
| | 10,098,809 |
| | 9,240,841 |
|
Liabilities directly associated with assets held for sale | 3.c.1 | 2,541,421 |
| | - |
|
Total current liabilities | | 12,640,230 |
| | 9,240,841 |
|
Non-current liabilities | | |
| | |
|
Loans, financing and hedge derivative financial instruments | 17 | 8,672,547 |
| | 8,526,064 |
|
Debentures | 17.f | 4,839,045 |
| | 5,594,208 |
|
Related parties | 9.a | 3,534 |
| | 3,711 |
|
Deferred income and social contribution taxes | 10.a | 282 |
| | 12,732 |
|
Post-employment benefits | 21.b | 194,637 |
| | 257,647 |
|
Provision for asset retirement obligation | 22 | 52,079 |
| | 49,168 |
|
Provision for tax, civil, and labor risks | 23.a; 23.c | 812,243 |
| | 854,385 |
|
Leases payable | 14 | 1,159,479 |
| | 1,573,099 |
|
Subscription warrants – indemnification | 25 | 51,296 |
| | 86,439 |
|
Provision for liabilities of joint ventures | 13.a | - |
| | 2,096 |
|
Other payables | | 115,745 |
| | 139,507 |
|
Total non-current liabilities | | 15,900,887 |
| | 17,099,056 |
|
Equity | | |
| | |
|
Share capital | 26.a; 26.f | 5,171,752 |
| | 5,171,752 |
|
Equity instrument granted | 26.b | 34,043 |
| | 22,404 |
|
Capital reserve | 26.d | 596,481 |
| | 594,049 |
|
Treasury shares | 26.c | (488,425 | ) | | (489,068 | ) |
Revaluation reserve on subsidiaries | 26.e | 4,154 |
| | 4,337 |
|
Profit reserves | 26.f | 4,866,409 |
| | 4,408,275 |
|
Other comprehensive income | 26.g.1; 26.g.2 | (117,493 | ) | | (233,394 | ) |
Additional dividends to the minimum mandatory dividends | 26.h | - |
| | 55,391 |
|
Equity attributable to: | | |
| | |
|
Shareholders of the Company | | 10,066,921 |
| | 9,533,746 |
|
Non-controlling interests in subsidiaries | | 402,319 |
| | 376,519 |
|
Total equity | | 10,469,240 |
| | 9,910,265 |
|
Total liabilities and equity | | 39,010,357 |
| | 36,250,162 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Brazilian Reais, except earnings per thousand share)
| Note | 2021 |
| | 2020 |
| | 2019 |
|
Continuing operations | | |
| | Re-presented |
| | Re-presented |
|
Net revenue from sales and services |
| 109,732,842 |
| | 74,058,056 |
| | 83,004,729 |
|
Cost of products and services sold | 28 | (104,827,966 | ) | | (70,056,447 | ) | | (78,208,786 | ) |
Gross profit | | 4,904,876 |
| | 4,001,609 |
| | 4,795,943 |
|
Operating income (expenses) | | |
| | |
| | |
|
Selling and marketing | 27 | (1,934,789 | ) | | (1,595,871 | ) | | (1,631,760 | ) |
Reversion (loss) allowance for expected credit losses | | 3,123 |
| | (15,281 | ) | | (35,225 | ) |
General and administrative | 27 | (1,466,551 | ) | | (993,986 | ) | | (1,219,450 | ) |
Gain (loss) on disposal of property, plant and equipment and intangibles | 28 | 184,189 |
| | 85,455 |
| | 1,700 |
|
Other operating income | 29 | 445,836 |
| | 321,385 |
| | 356,235 |
|
Other operating expenses | 29 | (349,670 | ) | | (257,351 | ) | | (216,206 | ) |
Operating income (loss) before finance income (expenses) and share of profit (loss) of joint ventures and associates | | 1,787,014 |
| | 1,545,960 |
| | 2,051,237 |
|
Share of profit (loss) of joint ventures and associates | 13 | (17,634 | ) | | (44,031 | ) | | (12,709 | ) |
Operating income before finance income (expenses) and income and social contribution taxes | | 1,769,380 |
| | 1,501,929 |
| | 2,038,528 |
|
Finance income | 30 | 460,154 |
| | 357,666 |
| | 344,282 |
|
Finance expenses | 30 | (1,222,886 | ) | | (908,014 | ) | | (1,017,633 | ) |
Financial result, net | 30 | (762,732 | ) | | (550,348 | ) | | (673,351 | ) |
Profit before income and social contribution taxes | | 1,006,648 |
| | 951,581 |
| | 1,365,177 |
|
Income and social contribution taxes | | |
| | |
| | |
|
Current | 10.b; 10.c | (430,280 | ) | | (538,761 | ) | | (467,343 | ) |
Deferred | 10.b | 242,246 |
| | 234,244 |
| | (2,633 | ) |
| | (188,034 | ) | | (304,517 | ) | | (469,976 | ) |
Profit from continuing operations | | 818,614 |
| | 647,064 |
| | 895,201 |
|
Discontinued operations | | |
| | |
| | |
|
Profit (loss) from discontinued operations | 3.c.2 | 65,264 |
| | 280,633 |
| | (492,257 | ) |
Profit for the year | | 883,878 |
| | 927,697 |
| | 402,944 |
|
Income attributable to: | | |
| | |
| | |
|
Shareholders of the Ultrapar | | 850,463 |
| | 893,383 |
| | 373,526 |
|
Non-controlling interests in subsidiaries | | 33,415 |
| | 34,314 |
| | 29,418 |
|
Earnings per share from continuing operations (based on weighted average number of shares outstanding) – R$ | | |
| | |
| | |
|
Basic | 31 | 0.7200 |
| | 0.5625 |
| | 0.7969 |
|
Diluted | 31 | 0.7158 |
| | 0.5592 |
| | 0.7922 |
|
Earnings per share from discontinued operations (based on weighted average number of shares outstanding) – R$ | | |
| | |
| | |
|
Basic | 31 | 0.0598 |
| | 0.2576 |
| | (0.4531 | ) |
Diluted | 31 | 0.0595 |
| | 0.2561 |
| | (0.4504 | ) |
Total earnings per share (based on weighted average number of shares outstanding) – R$ |
|
|
|
|
|
|
|
|
Basic | 31 | 0.7799 |
|
| 0.8201 |
|
| 0.3438 |
|
Diluted | 31 | 0.7753 |
|
| 0.8152 |
|
| 0.3418 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Brazilian Reais)
| Note | 2021 |
| | 2020 |
| | 2019 |
|
Net income for the year | | 883,878 |
| | 927,697 |
| | 402,944 |
|
Items that will be subsequently reclassified to profit or loss: | | |
| | |
| | |
|
Fair value adjustments of financial instruments of subsidiaries, net of taxes | 26.g.1 | 7,175 |
| | (313,271 | ) | | (51,319 | ) |
Fair value adjustments of financial instruments of joint ventures, net of taxes | 26.g.1 | 99 |
| | 190 |
| | ( 978 | ) |
Cumulative translation adjustments and hedge of net investments in foreign operations, net of taxes | 26.g.2 | 73,049 |
| | 129,169 |
| | 36,570 |
|
Items that will not be subsequently reclassified to profit or loss: | | |
| | |
| |
|
|
Actuarial gain (losses) of post-employment benefits of subsidiaries, net of taxes | 26.g.1 | 40,887 |
| | (17,762 | ) | | (29,996 | ) |
Actuarial gain of post-employment benefits of joint ventures, net of taxes | 26.g.1 | 5,723 |
| | 875 |
| | (6,791 | ) |
Total comprehensive income for the year | | 1,010,811 |
| | 726,898 |
| | 350,430 |
|
Total comprehensive income for the year attributable to shareholders of the Ultrapar | | 966,364 |
| | 703,879 |
| | 327,768 |
|
Total comprehensive income for the year attributable to non-controlling interest in subsidiaries | | 44,447 |
| | 23,019 |
| | 22,662 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Brazilian Reais, except dividends per share)
| | |
| | |
| | |
| | |
| | |
| | Profit reserve |
| | |
| | |
| | |
| | |
| | Equity attributable to: |
| | |
|
| Note | Share capital |
| | Equity instrument granted |
| | Capital reserve |
| | Treasury shares |
| | Revaluation reserve on subsidiaries |
| | Legal reserve |
| | Investments statutory reserve |
| | Other reserves |
| | Cumulative translation adjustments |
| | Retained earnings |
| | Additional dividends to the minimum mandatory dividends |
| | Shareholders of the Company |
| | Non-controlling interests in subsidiaries |
| | Consolidated equity |
|
Balance as of December 31, 2020 | | 5,171,752 |
| | 22,404 |
| | 594,049 |
| | (489,068 | ) | | 4,337 |
| | 750,010 |
| | 3,658,265 |
| | (464,990 | ) | | 231,596 |
| | 0- |
| | 55,391 |
| | 9,533,746 |
| | 376,519 |
| | 9,910,265 |
|
Net income for the year | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 850,463 |
| | 0 - |
| | 850,463 |
| | 33,415 |
| | 883,878 |
|
Other comprehensive income: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fair value adjustments of available for financial instruments, net of income taxes: | 26.g.1 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 7,304 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 7,304 |
| | (30 | ) | | 7,274 |
|
Actuarial gain of post-employment benefits, net of income taxes | 26.g.1 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 35,548 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 35,548 |
| | 11,062 |
| | 46,610 |
|
Currency translation of foreign subsidiaries and the effect of net investments hedge, net of income taxes | 26.g.2 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 73,049 |
| | 0 - |
| | 0 - |
| | 73,049 |
| | 0 - |
| | 73,049 |
|
Total comprehensive income for the year | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 42,852 |
| | 73,049 |
| | 850,463 |
| | 0 - |
| | 966,364 |
| | 44,447 |
| | 1,010,811 |
|
Issuance of shares related to the subscription warrants - indemnification - Extrafarma acquisition | 26.d | 0 - |
| | 0 - |
| | 1,819 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 1,819 |
| | 0 - |
| | 1,819 |
|
Equity instrument granted | 26.b | 0 - |
| | 8,008 |
| | 613 |
| | 643 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 9,264 |
| | 0 - |
| | 9,264 |
|
Equity instrument granted of subsidiaries | 26.b | 0 - |
| | 3,631 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 3,631 |
| | 0 - |
| | 3,631 |
|
Realization of revaluation reserve of subsidiaries | 26.e | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (183 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 183 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Unclaimed dividends forfeited | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 10,487 |
| | 0 - |
| | 10,487 |
| | 1,329 |
| | 11,816 |
|
Transfer to statutory reserve | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 11,641 |
| | 0 - |
| | 0 - |
| | (11,641 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Dividends attributable to non-controlling interests | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 971 |
| | (19,976 | ) | | (19,005 | ) |
Approval of additional dividends by the Shareholders’ Meeting | 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (55,391 | ) | | (55,391 | ) | | 0 - |
| | (55,391 | ) |
Allocation of net income: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Legal reserve | 26.f; 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 42,523 |
| | 0 - |
| | 0 - |
| | 0 - |
| | (42,523 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Investments statutory reserve | 26.f; 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 403,970 |
| | 0 - |
| | 0 - |
| | (403,970 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Proposed dividends (R$ 0.17 per share) | 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (185,896 | ) | | 0 - |
| | (185,896 | ) | | 0 - |
| | (185,896 | ) |
Intermediary dividends (R$ 0.20 per share) | 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (218,074 | ) | | 0 - |
| | (218,074 | ) | | 0 - |
| | (218,074 | ) |
Balance as of December 31, 2021 | | 5,171,752 |
| | 34,043 |
| | 596,481 |
| | (488,425 | ) | | 4,154 |
| | 792,533 |
| | 4,073,876 |
| | (422,138 | ) | | 304,645 |
| | 0- |
| | 0 - |
| | 10,066,921 |
| | 402,319 |
| | 10,469,240 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Brazilian Reais, except dividends per share)
| | |
| | |
| | |
| | |
| | |
| | Profit reserve |
| | |
| | |
| | |
| | |
| | Equity attributable to: |
| | |
|
| Note | Share capital |
| | Equity instrument granted |
| | Capital reserve |
| | Treasury shares |
| | Revaluation reserve on subsidiaries |
| | Legal reserve |
| | Investments statutory reserve |
| | Other reserves |
| | Cumulative translation adjustments |
| | Retained earnings |
| | Additional dividends to the minimum mandatory dividends |
| | Shareholders of the Company |
| | Non-controlling interests in subsidiaries |
| | Consolidated equity |
|
Balance as of December 31, 2019 | | 5,171,752 |
| | 11,970 |
| | 542,400 |
| | (485,383 | ) | | 4,522 |
| | 705,341 |
| | 3,290,073 |
| | (146,317 | ) | | 102,427 |
| | 0- |
| | 261,470 |
| | 9,458,255 |
| | 376,920 |
| | 9,835,175 |
|
Net income for the year | | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 893,383 |
| | 0- |
| | 893,383 |
| | 34,314 |
| | 927,697 |
|
Other comprehensive income: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fair value adjustments of available for financial instruments, net of income taxes | 26.g.1 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (313,081 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | (313,081 | ) | | 0 - |
| | (313,081 | ) |
Actuarial losses of post-employment benefits, net of income taxes | 26.g.1 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (5,592 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | (5,592 | ) | | (11,295 | ) | | (16,887 | ) |
Currency translation of foreign subsidiaries, including the effect of net investments hedge | 26.g.2 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 129,169 |
| | 0 - |
| | 0 - |
| | 129,169 |
| | 0 - |
| | 129,169 |
|
Total comprehensive income for the year | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (318,673 | ) | | 129,169 |
| | 893,383 |
| | 0 - |
| | 703,879 |
| | 23,019 |
| | 726,898 |
|
Issuance of shares related to the subscription warrants - indemnification - Extrafarma acquisition | 26.d | 0 - |
| | 0 - |
| | 54,763 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 54,763 |
| | 0 - |
| | 54,763 |
|
Stock plan | 9.c | 0 - |
| | 0 - |
| | (3,114 | ) | | (3,685 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (6,799 | ) | | 0 - |
| | (6,799 | ) |
Equity instrument granted | 26.b | 0 - |
| | 4,526 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 4,526 |
| | 0 - |
| | 4,526 |
|
Equity instrument granted of subsidiaries | 26.b | 0 - |
| | 5,908 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 5,908 |
| | 0 - |
| | 5,908 |
|
Income and social contribution taxes on realization of revaluation reserve of subsidiaries | 26.e | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (185 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 185 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Transfer to statutory reserve | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (774 | ) | | 0 - |
| | 0 - |
| | 774 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Shareholder transaction – changes of investments | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 42 |
| | 0 - |
| | 42 |
| | (42 | ) | | 0 - |
|
Dividends attributable to non-controlling interests | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (1,001 | ) | | (23,378 | ) | | (24,379 | ) |
Approval of additional dividends by the Shareholders’ Meeting | 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (261,470 | ) | | (261,470 | ) | | 0 - |
| | (261,470 | ) |
Allocation of net income: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Legal reserve | 26.f; 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 44,669 |
| | 0 - |
| | 0 - |
| | 0 - |
| | (44,669 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Investments statutory reserve | 26.f; 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 368,966 |
| | 0 - |
| | 0 - |
| | (368,966 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Proposed dividends (R$ 0.44 per share) | 26.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (479,748 | ) | | 55,391 |
| | (424,357 | ) | | 0 - |
| | (424,357 | ) |
Balance as of December 31, 2020 | | 5,171,752 |
| | 22,404 |
| | 594,049 |
| | (489,068 | ) | | 4,337 |
| | 750,010 |
| | 3,658,265 |
| | (464,990 | ) | | 231,596 |
| | 0- |
| | 55,391 |
| | 9,533,746 |
| | 376,519 |
| | 9,910,265 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Brazilian Reais, except dividends per share)
| | |
| | |
| | |
| | |
| | |
| | Profit reserve |
| | |
| | |
| | |
| | |
| | Equity attributable to: |
| | |
|
| Note | Share capital |
| | Equity instrument granted |
| | Capital reserve |
| | Treasury shares |
| | Revaluation reserve on subsidiaries |
| | Legal reserve |
| | Investments statutory reserve |
| | Other reserves |
| | Cumulative translation adjustments |
| | Retained earnings |
| | Additional dividends to the minimum mandatory dividends |
| | Shareholders of the Company |
| | Non-controlling interests in subsidiaries |
| | Consolidated equity |
|
Balance as of December 31, 2018 | | 5,171,752 |
| | 4,309 |
| | 542,400 |
| | (485,383 | ) | | 4,712 |
| | 686,665 |
| | 3,412,427 |
| | (63,989 | ) | | 65,857 |
| | 0- |
| | 109,355 |
| | 9,448,105 |
| | 351,924 |
| | 9,800,029 |
|
Net income for the year | | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 373,526 |
| | 0- |
| | 373,526 |
| | 29,418 |
| | 402,944 |
|
Other comprehensive income: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fair value adjustments of available for financial instruments, net of income taxes: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | (52,318 | ) | | |
| | |
| | |
| | (52,318 | ) | | 21 |
| | (52,297 | )
|
Actuarial losses of post-employment benefits, net of income taxes | 25.g.1 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (30,010 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | (30,010 | ) | | (6,777 | ) | | (36,787 | ) |
Currency translation of foreign subsidiaries, including the effect of net investments hedge | 25.g.2 | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 36,570 |
| | 0 - |
| | 0 - |
| | 36,570 |
| | 0 - |
| | 36,570 |
|
Total comprehensive income for the year | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (82,328 | ) | | 36,570 |
| | 373,526 |
| | 0 - |
| | 327,768 |
| | 22,662 |
| | 350,430 |
|
Equity instrument granted os subsidiaries | 25.b | 0- |
| | 7,661 |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 7,661 |
| | 0- |
| | 7,661 |
|
Shareholder transaction - gain in reimbursement of shares pref. B from Oxiteno Nordeste | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 1,489 |
| | 0 - |
| | 1,489 |
| | (1,489 | ) | | 0 - |
|
Realization of revaluation reserve of subsidiaries | 25.e | 0- |
| | 0- |
| | 0- |
| | 0- |
| | (190 | ) | | 0- |
| | 0- |
| | 0- |
| | 0- |
| | 190 |
| | 0- |
| | 0- |
| | 0- |
| | 0- |
|
Income and social contribution taxes on realization of revaluation reserve of subsidiaries | 25.e | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (31 | ) | | 0 - |
| | (31 | ) | | 0 - |
| | (31 | ) |
Transfer to statutory reserve | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 1,648 |
| | 0 - |
| | 0 - |
| | (1,648 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Dividends attributable to non-controlling interests | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (993 | ) | | (993 | ) |
Redemption of non-controlling shares of Oxiteno Nordeste | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (2,180 | ) | | (2,180 | ) |
Capital increase from Iconic non-controlling shareholders | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 6,996 |
| | 6,996 |
|
Approval of additional dividends by the Shareholders’ Meeting | 25.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (109,355 | ) | | (109,355 | ) | | 0 - |
| | (109,355 | ) |
Allocation of net income: | | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
|
Legal reserve | 25.f; 25.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 18,676 |
| | 0 - |
| | 0 - |
| | 0 - |
| | (18,676 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
|
Interim dividends (R$ 0.20 per share of the Company) | 25.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (217,382 | ) | | 0 - |
| | (217,382 | ) | | 0 - |
| | (217,382 | ) |
Proposed dividends (R$ 0.24 per share of the Company) | 25.h | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (124,002 | ) | | 0 - |
| | 0 - |
| | (137,468 | ) | | 261,470 |
| | 0 - |
| | 0 - |
| | 0 - |
|
Balance as of December 31, 2019 | | 5,171,752 |
| | 11,970 |
| | 542,400 |
| | (485,383 | ) | | 4,522 |
| | 705,341 |
| | 3,290,073 |
| | (146,317 | ) | | 102,427 |
| | 0- |
| | 261,470 |
| | 9,458,255 |
| | 376,920 |
| | 9,835,175 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Brazilian Reais)
| Note | 2021 | |
| 2020 | |
| 2019 |
|
| | | |
| Re-presented | |
| Re-presented |
|
Cash flows from operating activities | | | |
| | |
| |
|
Profit from continuing operations | | 818,614 | |
| 647,064 | |
| 895,201 |
|
Adjustments to reconcile net income to cash provided by operating activities from continuing operations | | | |
| | |
| |
|
Share of loss (profit) of joint ventures and associates | 13 | 17,634 | |
| 44,031 | |
| 12,708 |
|
Amortization of contractual assets with customers – exclusive rights | 12 | 282,521 | |
| 289,436 | |
| 355,250 |
|
Amortization of right-of-use assets | 14.a | 260,716 | |
| 242,670 | |
| 216,609 |
|
Depreciation and amortization | 15; 16 | 653,118 | |
| 595,531 | |
| 551,768 |
|
PIS and COFINS credits on depreciation | 15; 16 | 7,081 | |
| 6,062 | |
| 4,891 |
|
Interest and foreign exchange rate variations | | 1,133,882 | |
| 533,926 | |
| 1,043,899 |
|
Deferred income and social contribution taxes | 10.b | (242,246 | ) |
| (234,244 | ) |
| 2,633 |
|
Current income and social contribution taxes | 10.b | 430,280 | |
| 538,761 | |
| 467,345 |
|
Loss on disposal of property, plant, and equipment and intangibles | 29 | (184,189 | ) |
| (85,455 | ) |
| (1,700 | ) |
Reversion (loss) allowance for expected credit losses | 6 | (3,123 | ) |
| 15,281 | |
| 34,981 |
|
Provision for losses in inventories | 7 | (826 | ) |
| 1,338 | |
| (115 | ) |
Provision for post-employment benefits | 21.b | (2,393 | ) |
| (15,867 | ) |
| 14,749 |
|
Equity instrument granted | | 9,364 | |
| 8,793 | |
| 6,222 |
|
Provision of decarbonization – CBIO | 30 | 161,281 | |
| 124,287 | |
| - |
|
Provision for tax, civil, and labor risks | 23.a | 93,328 | |
| 21,582 | |
| 31,595 |
|
Other provisions and adjustments | | 2,332 | |
| (1,912 | ) |
| 5,829 |
|
| | 3,437,374 | |
| 2,731,284 | |
| 3,641,865 |
|
(Increase) decrease in current assets | | | |
| | |
| |
|
Trade receivables and reseller financing | 6 | (968,787 | ) |
| 481,984 | |
| 240,474 |
|
Inventories | 7 | (1,626,670 | ) |
| 108,136 | |
| (486,534 | ) |
Recoverable taxes | 8 | (672,607 | ) |
| (115,316 | ) |
| (633,069 | ) |
Dividends received from joint ventures | | 1,005 | |
| 4,836 | |
| 4,108 |
|
Other receivables | | (24,360 | ) |
| (18,922 | ) |
| 24,335 |
|
Prepaid expenses | 11 | (61,573 | ) |
| (70,503 | ) |
| (13,368 | ) |
Increase (decrease) in current liabilities | | | |
| | |
| |
|
Trade payables | 18 | 2,425,821 | |
| 798,180 | |
| 77,131 |
|
Salaries and related charges | 19 | 63,066 | |
| 15,644 | |
| 9,872 |
|
Taxes payable | 20 | 11,733 | |
| 22,925 | |
| (10,291 | ) |
Post-employment benefits | 21.b | (2,814 | ) |
| 1,273 | |
| (15,355 | ) |
Other payables | | (36,357 | ) |
| (16,663 | ) |
| 61,966 |
|
Deferred revenue | 24 | (10,614 | ) |
| (9,814 | ) |
| 769 |
|
(Increase) decrease in non-current assets | | | |
| | |
| |
|
Trade receivables and reseller financing | 6 | 12,008 | |
| (73,035 | ) |
| 11,333 |
|
Recoverable taxes | 8 | (153,526 | ) |
| (667,894 | ) |
| (28,182 | ) |
Escrow deposits | 23 | (43,324 | ) |
| (26,492 | ) |
| (35,064 | ) |
Other receivables | | 73,903 | |
| (27,738 | ) |
| (801 | ) |
Prepaid expenses | 11 | 35,962 | |
| 6,683 | |
| 8,573 |
|
Increase (decrease) in non-current liabilities | | | |
| | |
| |
|
Post-employment benefits | 21.b | 11,907 | |
| 8,700 | |
| (18,632 | )
|
Provision for tax, civil, and labor risks | 23.a | (28 | ) |
| (104 | ) |
| - |
|
Other payables | | (17,193 | ) |
| (34,721 | ) |
| 9,637 |
|
Deferred revenue | 24 | - |
|
| - |
|
| (11,850 | ) |
Acquisition of CBIO | 16 | (176,837 | ) |
| (125,345 | ) |
| - |
|
Payments of contractual assets with customers – exclusive rights | 12 | (420,261 | ) |
| (356,045 | ) |
| (330,068 | ) |
Payments of contingencies | 23.a | (24,351 | ) |
| (39,256 | ) |
| (22,966 | ) |
Income and social contribution taxes paid | | (230,036 | ) |
| (333,784 | ) |
| (111,499 | ) |
Net cash provided by operating activities from continuing operations | | 1,603,441 | |
| 2,264,013 | |
| 2,372,384 |
|
Net cash provided by operating activities from discontinued operations | | 982,519 | |
| 874,106 | |
| 552,468 |
|
Net cash provided by operating activities | | 2,585,960 | |
| 3,138,119 | |
| 2,924,852 |
|
Ultrapar Participações S.A. and Subsidiaries
Consolidated Statements of Cash Flows – Indirect Method
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Brazilian Reais)
| | 2021 | |
| 2020 | |
| 2019 |
|
Cash flows from investing activities | | | |
| Re-presented | |
| Re-presented |
|
Financial investments, net of redemptions | 5.b | 1,863,053 | |
| (869,748 | ) |
| 102,911 |
|
Acquisition of property, plant, and equipment | 15 | (1,028,419 | ) |
| (750,618 | ) |
| (720,779 | ) |
Acquisition of intangible assets | 16 | (237,488 | ) |
| (154,534 | ) |
| (111,251 | ) |
Revenue on disposal of investments | | 159,657 | |
| - | |
| - |
|
Capital increase in joint ventures | 13.a | (25,700 | ) |
| (28,840 | ) |
| (79,124 | ) |
Capital decrease in associates | 13.b | 1,500 | |
| - | |
| - |
|
Initial direct costs of right-of-use assets | 14 | (14,905 | ) |
| - | |
| (68,007 | ) |
Related parties | 9.a | 2,334 | |
| - | |
| - |
|
Proceeds from disposal of property, plant, and equipment and intangibles | 28 | 162,837 | |
| 154,725 | |
| 36,912 |
|
Net cash provided by (used in) investing activities from continuing operations | | 882,869 | |
| (1,649,015 | ) |
| (839,338 | ) |
Net cash provided by (used in) investing activities from discontinued operations | | (158,733 | ) |
| (487,390 | ) |
| (995,923 | ) |
Net cash provided by (used in) investing activities | | 724,136 | |
| (2,136,405 | ) |
| (1,835,261 | ) |
Cash flows from financing activities | | | |
| | |
| |
|
Loans and debentures | | | |
| | |
| |
|
Proceeds | 17 | 1,383,611 | |
| 3,387,161 | |
| 2,009,221 |
|
Repayments | 17 | (2,426,222 | ) |
| (1,815,130 | ) |
| (2,460,941 | ) |
Interest paid | 17 | (733,791 | ) |
| (701,458 | ) |
| (1,416,977 | ) |
Payments of lease | | | |
| | |
|
|
|
Principal | 14 | (304,975 | ) |
| (250,202 | ) |
| (210,147 | ) |
Interest paid | 14 | (15,267 | ) |
| (5,705 | ) |
| (11,892 | ) |
Dividends paid | 26.h | (705,753 | ) |
| (284,767 | ) |
| (596,436 | ) |
| Capital increase from non-controlling shareholders |
| - |
|
| - |
|
| 6,996 |
|
Related parties | 9.a | (177 | ) |
| (2,548 | ) |
| (146 | ) |
Net cash provided by (used in) in financing activities from continuing operations | | (2,802,574 | ) |
| 327,351 | |
| (2,680,322 | ) |
Net cash provided by (used in) in financing activities from discontinued operations | | (552,967 | ) |
| (919,684 | ) |
| (241,907 | ) |
Net cash provided by (used in) in financing activities | | (3,355,541 | ) |
| (592,333 | ) |
| (2,922,229 | ) |
Effect of exchange rate changes on cash and cash equivalents in foreign currency - continuing operations | | (4,547 | ) |
| 21,912 | |
| (21,805 | ) |
Effect of exchange rate changes on cash and cash equivalents in foreign currency - discontinued operations | | 56,553 | |
| 114,822 | |
| 30,871 |
|
Increase (decrease) in cash and cash equivalents | | 6,561 | |
| 546,115 | |
| (1,823,572 | ) |
Cash and cash equivalents at the beginning of the year | 5.a | 2,661,494 | |
| 2,115,379 | |
| 3,938,951 |
|
Cash and cash equivalents at the end of the year | 5.a | 2,668,055 | |
| 2,661,494 | |
| 2,115,379 |
|
Cash and cash equivalents at the end of the year - continuing operations | | 2,280,074 | |
| - | |
| - |
|
Cash and cash equivalents at the end of the year - discontinued operations | | 387,981 | |
| - | |
| - |
|
Transactions without cash effect: | | | |
| | |
|
|
|
Addition on right-of-use assets and leases payable | 14.a | 227,977 | |
| 420,070 | |
| 311,106 |
|
Addition on contractual assets with customers – exclusive rights | 12 | 269,725 | |
| 193,040 | |
| - |
|
Reversion fund – private pension | 11; 21.a | 2,656 | |
| 33,843 | |
| - |
|
Issuance of shares related to the subscription warrants – indemnification – Extrafarma acquisition | 26.d | 1,819 | |
| 54,763 | |
| - |
|
The accompanying notes are an integral part of the consolidated financial statements.
Ultrapar Participações S.A. and Subsidiaries
(In thousands of Brazilian Reais, unless otherwise stated)
1. Operations
Ultrapar Participações S.A. (“Ultrapar” or “Company”) is a publicly-traded company headquartered at the Brigadeiro Luis Antônio Avenue, 1343 in the city of São Paulo – SP, Brazil, listed on B3 S.A. – Brasil, Bolsa, Balcão (“B3”), in the Novo Mercado listing segment under the ticker “UGPA3” and on the New York Stock Exchange (“NYSE”) in the form of level III American Depositary Receipts (“ADRs”) under the ticker “UGP”.
The Company engages in the investment of its own capital in services, commercial, and industrial activities, through the subscription or acquisition of shares of other companies. Through its subsidiaries, it operates in the segments of liquefied petroleum gas – LPG distribution (“Ultragaz”), fuel distribution and related businesses (“Ipiranga”), storage services for liquid bulk (“Ultracargo”) and digital payments segment (“Abastece aí”). The information about segments are disclosed in Note 32. The activities related to the production and marketing of chemical products (“Oxiteno”) and retail distribution of pharmaceutical, hygiene, beauty, and skincare products (“Extrafarma”) are presented as discontinued operations (see Note 3).
a. Clarifications on the impacts of COVID-19
The World Health Organization (“WHO”) declared a coronavirus pandemic (COVID-19) on March 11, 2020. To contain a spread of the virus in Brazil, the Ministry of Health (“MH”) and the state and municipal governments announced several actions to reduce the agglomeration and movement of people, including the closing of commerce, parks and common areas. In this context, the Company created a Crisis Committee to keep up with it and monitor the main risks and adopt preventive and emergency measures to reduce the pandemic effects.
Since the beginning of the coronavirus pandemic, the Company and its subsidiaries acted in numerous initiatives to ensure the safety and security of its employees and the stability and continuity of its operations and partners, the financial solidity of the Company. All the activities of the companies controlled by the Company are classified as essential in the context of the measures adopted to face the pandemic.
The Company and its subsidiaries quickly adopted the work at home (expressed by home office) for the administrative public, with all the necessary support for the operational continuity. In addition to basic safety concerns with employees, companies implemented several initiatives aimed at welfare, such as virtual meetings, psychological support and concern for ergonomics, following the principle of valuing people.
The emergency measures and speed in answer to the first effects of the crisis, as well as initiatives to support the supply chain, were effective to keep the activities of the subsidiaries in operation, ensuring the delivery of essential services to the population and preserving the health and security of employees and partners.
Remains uncertain to what extent the financial information, after December 31, 2021, may be affected by the commercial, operational and financial impacts of the pandemic, because it will depend on its duration and the impacts on economic activities, as well as government, business in response to the crisis. In this context, some financial risk assessments, projections and impairment tests, in connection with the preparation of these financial statements, may be impacted by the pandemic, and may adversely affect the financial position of the Company and its subsidiaries.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Operational impacts
The implemented measures of social isolation, restrictions on the movement of people and to the operation of certain businesses due to COVID-19 pandemic affected economic activity in Brazil in the last two years, however, with the advance of vaccination the negative impacts have been reduced in the last months. No significant effects were observed on the operations of the Company and its subsidiaries in the year of 2021.
Main risks and associated measures
Credit risk - The actions taken by the Company and its subsidiaries throughout 2020 and 2021 softened the impacts of the pandemic on the financial condition and its customers and, consequently, mitigated its potential effects on default rates, that are at lower level than in 2020. The effects of loss allowance for expected credit losses of year ended December 31, 2021 are disclosed in Notes 6 and 33.d.
Risk of realization of deferred tax assets - the Company and its subsidiaries annually prepare technical assumption study of the constitution and realization of credits related to deferred tax assets, considering the current projections and tax planning strategies approved by the Board of Directors and did not identify the need for write-offs for the year ended on December 31, 2021.
Risks in financial instruments - the increase in volatility in financial markets may impact financial results according to sensitivity analyzes presented in Note 33.
Liquidity risk – The Company and its subsidiaries presented movements in their net debt position consistent with the results and the seasonality of their businesses.
The management of the Company and its subsidiaries continue maintaining discipline in control of costs and expenses to preserve cash in all business and selectivity in the allocation of capital without compromising sustainable business growth.
b. Clarifications on the cyber incident
The Company experienced on January 11, 2021 a ransomware attack in its information technology environment.
As a precautionary measure, the Company interrupted its systems, affecting for a short period of time the operations of its subsidiaries. Immediately, all security and control measures were adopted to remedy the situation and as of January 14, 2021 the operational systems of the Company and its subsidiaries began to be gradually restored, according with the priority and relevance of each affected process. Since January 25, 2021 all the critical information systems of the Company and its subsidiaries are in full operation.
The Company had a specific insurance policy for cyber incidents, which has already been triggered, being the assessment of such claim is in progress. For further information see Note 35.b.
c. Approval of the Oxiteno S.A. share purchase and sale agreement by CADE
On August 16, 2021, the Company announced the signing of a share purchase agreement for the sale of all shares of Oxiteno S.A. – Indústria e Comércio (“Oxiteno S.A.”) to Indorama Ventures PLC (“Indorama”). On March 7, 2022, CADE approved the transaction without restrictions. On April 1, 2022, the transaction closed. The initial payment of US$1,150 million (equivalent to R$ 5,449.6 million) (1), adjusted by the variations in working capital and net debt position of US$ 176 million (equivalent to R$ 834,0 million) (1), resulted in the total initial payment of US$ 1,326 (equivalent to R$ 6,283.6 million) (1), which was settled on April 1, 2022. This amount is still subject to final working capital and net debt adjustments. The final payment of US$150 million (equivalent to R$ 710.8 million) (1), will be settled in April 2024. Oxiteno S.A.was controlled by the Company, which held a 100% interest in the Company.
(1) As of the closing date of the transaction, the amount converted into Reais using the exchange rate of US$ 1.00 to R$ 4.74, which implies a closing value of R$ 6,283.6 million for the initial payment.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
2. Presentation of financial statements and summary of significant accounting policies
The consolidated financial statements (“financial statements”) were prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).
The presentation currency of the Company’s financial statements is the Brazilian Real, which is the Company’s functional currency.
The Company and its subsidiaries applied the accounting policies described below in a consistent manner for all years presented in these financial statements.
The Company classified the transactions related to the purchase and sale agreements of Oxiteno and Extrafarma as current assets held for sale and discontinued operations. The comparative information of the income and cash flow statements for the year ended December 31, 2020 and 2019 were re-presented for the purposes of applying IFRS 5 for consistency of presentation for all years presented as shown in Note 3.c.3.
a. Recognition of revenue
Revenue of sales and services rendered is measured at the value of the consideration that the Company's subsidiaries expect to be entitled to, net of sales returns, discounts, amortization of contractual assets with customers and other deductions, if applicable, being recognized as the entity fulfills its performance obligation and freight mode of delivery. At Ipiranga, the revenue from sales of fuels and lubricants is recognized when the products are delivered to gas stations and to large consumers. At Ultragaz, revenue from sales of LPG is recognized when the products are delivered to customers at home, to independent dealers and to industrial and commercial customers. At Extrafarma, the revenue from sales of pharmaceuticals is recognized when the products are delivered to end user customers in own drugstores and when the products are delivered to independent resellers. At Oxiteno, the revenue from sales of chemical products is recognized when the products are delivered to industrial customers. At Ultracargo, the revenue provided from storage services is recognized as services are performed. At Abastece aí, the revenue provided from storage services of digital payments is recognized as services are performed. The breakdowns of revenues from sales and services are shown in Notes 32.
Amortization of contractual assets with customers for the exclusive rights in Ipiranga’s reseller service stations and the bonuses paid in performance obligation sales are recognized in the income statement as a deduction of the revenue from sale according to the conditions established per terms of underlying agreements (see Notes 2.f and 12).
The am/pm franchising upfront fee is recognized in profit or loss as the entity fulfills each performance obligation throughout the term of the agreements with the franchisees. For more information, see Note 24.a.
Deferred revenue from loyalty program is recognized in the income statement when the points are redeemed, on which occasion the costs incurred are also recognized in profit or loss. Deferred revenue of unredeemed points is also recognized in profit or loss when points expire. For more information, see Note 24.b.
Costs of products sold and services provided include goods (mainly fuels, lubricants, LPG, and pharmaceutical products), raw materials (chemicals and petrochemicals) and production, distribution, storage, and fulfillment costs.
Exchange variations and the results of derivative finance instruments are presented net in the statement of profit and loss on finance expenses.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Cash and cash equivalents
Includes cash, banks deposits, and short-term up to 90 days of maturity from acquisition date, highly liquid investments that are readily convertible into a known amount of cash and are subject to an insignificant risk of change in value. For more information on cash and cash equivalents, see Note 5.a.
c. Financial assets
The Company and its subsidiaries evaluated the classification and measurement of financial assets based on its business model of financial assets as follows:
- Amortized cost: financial assets held in order to collect contractual cash flows, solely principal and interest. The interest earned and the foreign currency exchange variation are recognized in profit or loss and balances are stated at acquisition cost plus the interest earned, using the effective interest rate method.
- Measured at fair value through other comprehensive income: financial assets that are acquired or originated for the purpose of collecting contractual cash flows or selling financial assets. The balances are stated at fair value, and the interest earned, and the foreign currency exchange variation are recognized in profit or loss. Differences between fair value and initial amount of financial investments plus the interest earned are recognized in equity in other comprehensive income in the “Other reserves”. Accumulated gains and losses recognized in equity are reclassified to profit or loss at the time of their settlement. Substantially the financial investments in Bank Certificates of Deposit (“CDB”) and repurchase agreements are classified as measured at fair value through other comprehensive income.
- Measured at fair value through profit or loss: financial assets that were not classified as amortized cost or measured at fair value through other comprehensive income. The balances are stated at fair value and both the interest earned and the exchange variations and changes in fair value are recognized in the income statement. Investment funds and derivatives are classified as measured at fair value through profit or loss.
The Company and its subsidiaries use financial instruments for hedging purposes, applying the concepts described below:
- Hedge accounting – fair value hedge: financial instruments used to hedge exposure to changes in the fair value of an item, attributable to a particular risk, which can affect the entity’s statements of profit or loss. In the initial designation of the fair value hedge, the relationship between the hedging instrument and the hedged item is documented, including the objectives of risk management, the strategy in conducting the transaction, and the methods to be used to evaluate its effectiveness. Once the fair value hedge has been qualified as effective, the hedge item is also measured at fair value. Gains and losses from hedge instruments and hedge items are recognized the statements of profit or loss. The hedge accounting must be discontinued when the hedge becomes ineffective.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
- Hedge accounting – cash flow hedge: financial instruments used to hedge the exposure to variability in cash flows that is attributable to a risk associated with an asset or liability or highly probable transaction or firm commitment that may affect the statements of profit or loss. The portion of the gain or loss on the hedging instrument that is determined to be effective relating to the effects of exchange rate effect, is recognized directly in equity in accumulated other comprehensive income as “Other reserves” while the ineffective portion is recognized in the statements of profit or loss. Gains or losses on the hedging instrument relating to the effective portion of this hedge that had been recognized directly in accumulated other comprehensive income shall be recognized in the statements of profit or loss in the period in which the hedged item is recognized in profit or loss or as initial cost of non-financial assets, in the same line of the statement that the hedged item is recognized. The hedge accounting shall be discontinued when (i) the hedging relationship is canceled; (ii) the hedging instrument expires or (iii) the hedging instrument no longer qualifies for hedge accounting. When hedge accounting is discontinued, gains and losses recognized in equity in other comprehensive income are reclassified to the statements of profit or loss in the period which the hedged item is recognized in profit or loss. If the transaction hedged is canceled or is not expected to occur, the cumulative gains and losses in equity in other comprehensive income shall be recognized immediately in profit or loss.
- Hedge accounting – hedge of net investments in foreign operation: financial instruments used to hedge exposure on net investments in foreign subsidiaries due to the fact that the local functional currency is different from the functional currency of the Company. The portion of the gain or loss on the hedging instrument that is determined to be effective, referring to the exchange rate effect, is recognized directly in equity in accumulated other comprehensive income as cumulative translation adjustments, while the ineffective portion and the operating costs are recognized the statements of profit or loss. The gain or loss on the hedging instrument that has been recognized directly in accumulated other comprehensive income shall be recognized in the statements of profit or loss when the disposal of the foreign subsidiary occurs.
For more information on financial instruments, see Note 33.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
d. Trade receivables and reseller financing
Trade receivables are recognized at the amount invoiced to the counterparty that the Company and subsidiaries are entitled (see Notes 6.a and 33.d.3). The loss allowance for expected credit losses consider the expected losses for the next 12 months take into account the deterioration or improvement of the customers’ credit quality, considering the customers’ characteristics in each business segment. The amount of the expected credit losses is deemed by management to be sufficient to cover any loss on realization of trade receivables.
Reseller financing is provided at subsidized rate for renovation and upgrading of service stations, purchase of products and development of the automotive fuels and lubricants distribution market (see Notes 6.b and 33.d.3). The terms of reseller financing range between 12 and 60 months, with an average term of 40 months. The minimum and maximum subsidized interest rates are 0% per month and 1% per month respectively. These financing are remeasured at a market rate for working capital loans and the remeasurement adjustment between the market rate and the rate subsidized is recognized as a reduction to the reseller’s revenue at the beginning of the contract. Throughout the contract, the interest appropriated by the market rate is recognized to the financial result.
e. Inventories
Inventories are stated at the lower of acquisition cost or net realizable value (see Note 7). The cost value of inventory is measured using the weighted average cost and includes the costs of acquisition and processing directly and indirectly related to the units produced based on the normal capacity of production. Estimates of net realizable value are based on the average selling prices at the end of the reporting period, net of applicable direct selling expenses. Subsequent events related to the fluctuation of prices and costs are also considered, if relevant. If net realizable values are below inventory costs, a provision corresponding to this difference is recognized. Provisions are also made for obsolescence of products, materials, or supplies that (i) do not meet its subsidiaries’ specifications, (ii) have exceeded their expiration date, or (iii) are considered slow-moving inventory. This classification is made by management with the support of its industrial and operations teams.
f. Contractual assets with customers – exclusive rights
Exclusive rights disbursements as provided in Ipiranga’s agreements with reseller service stations and major consumers are recognized as contractual assets when paid and amortized according to the conditions established in the agreements (see Note 2.a and 12).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
g. Assets and liabilities held for sale and discontinued operations
Non-current assets and related liabilities are classified as held for sale if it is highly probable that their book value will be recovered, primarily, through a sale transaction rather than continued use. The classification criteria are met only when the sale is highly probable, the asset or group of assets is held for immediate sale in its current condition and the sale is expected to occur within 12 months after classification as held for sale.
A line of business or subsidiary is classified a discontinued operation when the sale occurs of a component of the company that represents an important separate line of business or when the operation meets the criteria to be classified as held for sale. Reclassification occurred in 2021, and once classified as discontinued operations the results and cash flows are presented separately based on the classification of the respective assets and liabilities held for sale.
Assets and liabilities held for sale and discontinued operations are measured at the lower of the book value and fair value, net of selling expenses, and presented separately in the statements of financial position.
h. Investments
Investments in associates and joint ventures are accounted for under the equity method of accounting in the financial statements (see Note 13 items a and b). An associate is an investment, in which an investor has significant influence, that is, has the power to participate in the financial and operating decisions of the investee but does not exercise control. A joint venture is an investment in which the shareholders have the right to net assets on behalf of a joint control. Joint control is the agreement, which establish that decisions about the relevant activities of the investee require the consent from the parties that share control.
Other investments are stated at acquisition cost less provision for losses, unless the loss is considered temporary.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
i. Right-of-use assets and leases payable
The Company and its subsidiaries recognized in the financial position, right-of-use assets and the respective lease liabilities initially measured at the present value of future lease payments, considering the related contract costs (see Note 14). The amortization expenses of right-of-use assets is recognized in statement of profit or loss over the lease contract term. When the right-of-use asset is used in the construction of the property, plant, and equipment (“PP&E”), its amortization is capitalized until the asset under construction is completed. The liability is increased for interest and decreased by lease payments made. The interests are recognized in the statement of profit or loss using the effective interest rate method. The remeasurement of assets and liabilities based on the contractual index is recognized in the financial position, not having an effect in the result. In case of cancellation of the contract, the assets and respective liabilities are written off to the result, considering, if it is the case, any penalties provided in contractual clauses. The Company and its subsidiaries have no intention in purchasing the underlying asset. The Company and its subsidiaries periodically review the existence of an indication that the right-of-use assets may be impaired (see Note 2.v).
Right-of-use assets include amounts related to area port leases grants (see Note 34.c).
The Company and its subsidiaries apply the recognition exemptions to short-term leases of 12 months or less and lease contracts of low amount assets. In these cases, the recognition of the lease expense in the statements of profit or loss is on a straight-line basis.
j. Property, plant, and equipment
PP&E is recognized at acquisition or construction cost, including capitalization of right-of-use assets and financial charges incurred on PP&E under construction, as well as qualifying maintenance costs resulting from scheduled plant outages and estimated costs to remove, to decommission, or to restore assets (see Notes 2.o and 22), less accumulated depreciation and, when applicable, less provision for losses (see Note 15).
Depreciation is calculated using the straight-line method, over the periods mentioned in Note 15, taking into account the estimated useful lives of the assets, which are reviewed annually.
Lease hold improvements are depreciated over the shorter of the lease contract term and useful life of the property.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
k. Intangible assets
Intangible assets include assets acquired by the Company and its subsidiaries from third parties, and are recognized according to the criteria below:
- Goodwill is shown as intangible assets corresponding to the positive difference between the amount paid or payable to the seller and the fair value of the identifiable assets and liabilities assumed of the acquired entity. Goodwill is tested annually for impairment. Goodwill is allocated to the business segments, which represent the lowest level that goodwill is monitored for impairment testing purposes (see Note 16.a).
- Other intangible assets acquired from third parties, such as software, technology, and commercial property rights, are measured at the total acquisition cost and amortized using straight-line method, over the periods mentioned in Note 16, taking into account their useful lives, which are reviewed annually.
- The decarbonization credits (“CBIOS”) acquired are recorded at historical cost in intangible assets, retired in the year to fulfillment the individual target set by the National Agency of Petroleum, Natural Gas and Biofuels (“ANP”) and are not amortized. These assets are used to settle of the annual decarbonization obligation adopted by Brazilian National Biofuels Policy (“RenovaBio”), implemented by Law No. 13,576/2017, with additional regulations established by Decree No. 9,888/2019 and Ordinance No. 419 of November 20, 2019 issued by the Brazilian Ministry of Mines and Energy.
The Company and its subsidiaries have not recognized intangible assets that were generated internally. The Company and its subsidiaries have goodwill and brands acquired in business combinations, which are evaluated as intangible assets with indefinite useful life (see Note 16 items a and e).
l. Other assets
Other assets are stated at the lower of cost and realizable value, including, if applicable, interest earned, monetary changes and changes in exchange rates incurred, less the provisions for losses and, if applicable, adjusted to present value.
m. Financial liabilities
The financial liabilities include trade payables, other payables, financing, loans, debentures, leases payable and derivative financial instruments. Financial liabilities are classified as “financial liabilities at fair value through profit or loss” or “financial liabilities at amortized cost”. The financial liabilities at fair value through profit or loss refer to derivative financial instruments, subscription warrants - indemnification, and financial liabilities designated as hedged items in a fair value hedge relationship upon initial recognition (see Note 2.c – Fair Value Hedge). The financial liabilities at amortized cost are stated at the initial transaction amount plus related charges and net of amortization and transaction costs. The charges are recognized in the statement of profit or loss using the effective interest rate method.
Transaction costs incurred and directly attributable to the activities necessary for contracting loans or for issuing bonds, as well as premiums and discounts upon issuance of debentures and other debt, are allocated to the instrument and amortized in the statement of profit or loss taking into its term, using the effective interest rate method (see Note 17.h).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
n. Income and social contribution taxes on income
Current and deferred income tax (“IRPJ”) and social contribution on net income tax (“CSLL”) are calculated based on their current rates. For the calculation of current IRPJ, the value of tax incentives is also considered. At the end of the fiscal year the portion of the profit corresponding to these investment grants is allocated to the constitution of a tax incentive reserve in subsidiaries shareholders' equity and is excluded from the dividend calculation base and subsequently capitalized. Taxes are recognized based on the rates of IRPJ and CSLL provided for by the laws enacted on the last day of the financial statements. The current rates in Brazil are 25% for IRPJ and 9% for CSLL. For more information about recognition and realization of IRPJ and CSLL see Note 10.
For purposes of disclosure deferred tax assets were offset against the deferred tax liability IRPJ and CSLL, in the same taxable entity and the same tax authority.
o. Provision for asset retirement obligation – fuel tanks
The subsidiary Ipiranga has the legal obligation to remove the underground fuel tanks located at Ipiranga-branded service stations after a certain period. The estimated cost of the obligation to remove these fuel tanks is recognized as a liability when the tanks are installed. The estimated cost is recognized in PP&E and depreciated over the respective useful lives of the asset. The amounts recognized as a liability accrue inflation effect using the Amplified Consumer Price Index (“IPCA”) until the tank is removed (see Note 22). The estimated removal cost is reviewed and updated annually or when there is significant change in its amount and change in the estimated costs are recognized in statements of profit or loss when they become known.
p. Provisions for tax, civil, and labor risks
A provision for tax, civil and labor risks is recognized for quantifiable risks, when the chance of loss is more-likely-than-not in the opinion of management and internal and external legal counsel, and the amounts are recognized based on the evaluation of the outcomes of the legal proceedings (see Note 23).
q. Post-employment benefits
Post-employment benefits granted and to be granted to employees, retirees, and pensioners are based on an actuarial calculation prepared by an independent actuary and reviewed by management, using the projected unit credit method (see Note 21.b). The actuarial gains and losses are recognized in equity in cumulative other comprehensive income in the “Other reserves”.
r. Other liabilities
Other liabilities are stated at known or measurable amounts and changes in exchange rates incurred. When applicable, other liabilities are recognized at present value, based on interest rates that reflect the term, currency, and risk of each transaction.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
s. Foreign currency transactions
Foreign currency transactions carried out by the Company or its subsidiaries are remeasured into their functional currency at the exchange rate prevailing at the date of each transaction. Outstanding monetary assets and liabilities of the Company and its subsidiaries are translated using the exchange rate at the date of the financial statements. The effect of the difference between those exchange rates is recognized in financial results until the conclusion of each transaction.
t. Basis for translation of financial statements of foreign subsidiaries
t.1 Subsidiaries with administrative autonomy
Assets and liabilities of the foreign subsidiaries denominated in currencies other than Brazilian Real which have administrative autonomy are translated using the exchange rate at the date of the financial statements. Revenues and expenses are translated using the average exchange rate of each year and equity is translated at the historical exchange rate of each transaction affecting equity. Gains and losses resulting from changes in these foreign investments are directly recognized in equity in the “cumulative translation adjustments” and will be recognized in profit or loss if and when these investments are disposed of. The balance in cumulative translation adjustments on December 31, 2021 was a gain of R$ 304,645 (gain of R$ 231,596 on December 31, 2020) and is related to the subsidiaries Oxiteno which on December 31, 2021 were classified as assets and liabilities held for sale. See Notes 3 and 26.g.2.
The foreign subsidiaries with functional currency different from the Company and which have administrative autonomy are listed below:
Subsidiary | Functional currency |
| Location |
Oxiteno México S.A. de C.V. | Mexican Peso |
| Mexico |
Oxiteno Servicios Corporativos S.A. de C.V. | Mexican Peso |
| Mexico |
Oxiteno Servicios Industriales S.A. de C.V. | Mexican Peso |
| Mexico |
Oxiteno USA LLC | U.S. Dollar |
| United States |
Oxiteno Uruguay S.A. (i) | U.S. Dollar |
| Uruguay |
(i) The subsidiary Oxiteno Uruguay S.A. (“Oxiteno Uruguay”) determined its functional currency as the U.S. dollar (“US$”), as its inventory sales, purchases of raw material inputs, and financing activities are performed substantially in this currency.
t.2 Subsidiaries without administrative autonomy
Assets and liabilities of the other foreign subsidiaries, which do not have administrative autonomy, are considered an extension of the activities of their parent company and are translated using the exchange rate at the date of the financial statements. Gains and losses resulting from changes in these foreign investments are directly recognized as financial result. The gain recognized in income for the year ended December 31, 2021 amounted to R$ 2,309 (gain of R$ 15,126 for the year ended December 31, 2020 and gain of R$ 2,017 for the year ended December 31, 2019).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
u. Use of estimates, assumptions and judgments
The preparation of the financial statements requires the use of estimates, assumptions, and judgments for the accounting and disclosure of certain assets, liabilities, and profit or loss. Therefore, the Company and subsidiaries’ management use the best information available at the date of preparation of the financial statements, as well as the experience of past and current events, also considering assumptions regarding future events. The estimates and assumptions are reviewed periodically.
u.1 Judgments
Information on the judgments is included: in the determination of control in subsidiaries (Notes 2.h, 2.t.1 and 4), the determination of joint control in joint venture (Notes 2.h and 13.a), the determination of significant influence in associates (Notes 2.h and 13.b).
u.2 Uncertainties related to the assumptions and estimates
The information regarding uncertainties related to the assumptions and estimates are included: in determining the fair value of financial instruments (Notes 2.c, 2.m, 5, 17 and 34), the determination of the loss allowance for expected credit losses (Notes 2.d, 6 and 34.d.3), the determination of provisions for losses of inventories (Notes 2.e and 7), the estimates of realization of deferred IRPJ and CSLL amounts (Notes 2.n and 10.a), the useful lives and discount rate of right-of-use assets (Notes 2.i and 14), the useful lives of PP&E (Notes 2.j and 15), the useful lives of intangible assets, and the determination of the recoverable amount of goodwill (Notes 2.k and 16.a), provisions for assets retirement obligations (Notes 2.o and 22), provisions for tax, civil, and labor risks (Notes 2.p and 23), estimates for the preparation of actuarial reports (Notes 2.q and 21.b) and the determination of fair value of subscription warrants – indemnification (Notes 25 and 34.j). The actual result of the transactions and information may differ from their estimates.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
v. Impairment of assets
The Company and its subsidiaries review in every reporting period the existence of any indication that an asset may be impaired. To intangible assets with indefinite useful life the review is done annually. If there is an indication of devaluation the Company and its subsidiaries estimate the recoverable amount of the asset. Assets that cannot be evaluated individually are grouped in the smallest group of assets that generate cash inflow from continuous use and that are largely independent of cash flows of other assets (cash generating units, “CGU”). The recoverable amount of assets or CGUs corresponds to the greater of their fair value net of applicable direct selling costs and their value in use.
The fair value less costs to sell is determined by the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, net of costs of removing the asset, and direct incremental costs to bring an asset into condition for its sale, legal costs, and taxes.
To assess the value in use, the projections of future cash flows, trends, and outlooks, as well as the effects of obsolescence, demand, competition, and other economic factors were considered. Such cash flows are discounted to their present values using the discount rate before tax that reflects market conditions for the period of impairment testing and the specific risks of the asset or CGU being evaluated. In cases where the expected discounted future cash flows are less than their carrying amount, an impairment loss is recognized for the amount by which the carrying value exceeds the fair value of these assets. Losses for impairment of assets are recognized in profit or loss. In case goodwill has been allocated to a CGU, the recognized losses are first allocated to reduce the corresponding goodwill. If the goodwill is not enough to absorb such losses, the surplus is allocated to the assets on a pro-rata basis. An impairment of goodwill cannot be reversed. For other assets, impairment losses may be reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if the impairment had not been recognized.
On December 31, 2021, the Company updated the calculation of the impairment of assets carried out on June 30, 2021 for the subsidiary Imifarma Produtos Farmacêuticos e Cosméticos S.A. (“Extrafarma”) for the amount of R$ 427,529 and deferred income and social contribution taxes effects of R$ 145,360, resulting in a net loss of R$ 282,169. See Note 3.a.
w. Business combination
A business combination is accounted by applying the acquisition method. The cost of the acquisition is measured based on the consideration transferred and to be transferred, measured at fair value at the acquisition date. The non-controlling interest in the acquired company is measured based on its interest in net assets identified in the acquired company. Goodwill is measured as the excess of the consideration transferred and to be transferred over the fair value of net assets acquired (identifiable assets and liabilities assumed, net). After the initial recognition, goodwill is measured at cost less any accumulated impairment losses. For impairment testing purposes, goodwill is allocated to the Company’s operating segments. When the cost of the acquisition is lower than the fair value of net assets acquired, a gain is recognized directly in the statement of profit or loss. Costs related to the acquisitions are recorded in the statement of profit or loss when incurred. For the year ended on December 31, 2021 and 2020 there was not business combination.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
x. Statements of cash flows indirect method
The Company and its subsidiaries present the interest paid on loans, financing, debentures, and leases payable in financing activities and present financial investments, net of redemptions, in the investing activities.
y. Adoption of the pronouncements issued by IASB
There are no standards, amendments and interpretations to IFRS issued by the IASB which are effective and could have a material impact in these financial statements to December 31, 2021 and 2020 that have not been adopted by the Company.
In order to be prepared for the transition of the IBORs, the Company is monitoring the pronouncements of the authorities, as well as the measures that have been adopted, aiming at the adaptation of the financial instruments to the new benchmarks. On June 2017, the Company, through the subsidiary Ipiranga Produtos de Petróleo S.A. (“IPP”), contracted a financing with maturity date on June 2022, with the current notional amount of USD 50 million (equivalent to R$ 279 million as of December 31, 2021) linked to LIBOR, with quarterly interest flows and principal amortization at maturity. At the time of the debt raising, a swap transaction with a notional value and cash flow identical to the debt was transacted with the same financial institution, through which the IPP became active in LIBOR, at an interest rate equivalent to the debt and liability rate in floating rate Reais (see Notes 17 c.1, 17.d and 33.g), these being the only operations linked to LIBOR. In view of the short-term maturity as well as the debt, the swap and the fact that both have the same cash flow and financial institution, the Company has evaluated that there are not currently significant impacts from the LIBOR change on its operations.
z. Authorization for issuance of the financial statements
These financial statements were authorized for and by the Management on May, 10, 2022.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
3. Assets and liabilities from subsidiaries held for sale and discontinued operations
The divestments of Oxiteno and Extrafarma are aligned with Ultrapar’s portfolio review. With a more complementary and synergistic businesses, Ultrapar concludes the rationalization phase of its portfolio and will now concentrate on developing investment opportunities in the verticals of energy and infrastructure, with increasing focus on energy transition, leveraged by its portfolio and expertise. In the context, the Company announced the contracts signings described below and, as of December 31, 2021, classified these transactions as assets and liabilities held for sale and discontinued operations. The Company recognizes deferred taxes for the difference between the carrying amount of the net assets of a subsidiary that is classified as discontinued operation and the tax base of the investment. The related deferred tax expense or benefit is allocated to discontinued operations.
a. Extrafarma share sale and purchase agreement and other agreements
On May 18, 2021 the Company announced the signing of a share purchase agreement for the sale of all shares of Extrafarma held by subsidiary IPP to Empreendimentos Pague Menos S.A. (“Pague Menos”). The total sale price is R$ 700 million, subject to adjustments due mainly to changes in working capital and Extrafarma's net debt position on the closing date of the transaction.
The transaction will be settled in 3 installments as follows: 50% on the closing date and 25% on each the first and the second anniversary of the closing date, monetarily updated by the Interbank Deposits Interest Rate (“DI”) rate + 0.5% p.a., with a guarantee will be provided by a shareholder of the Pague Menos for the last 2 installments. The completion of this transaction is subject to usual conditions precedent in such deals, including approval by the Brazilian antitrust authority and by the general shareholders’ meeting of Pague Menos, pursuant to the terms of article 256 of the Brazilian Corporate Law, which was already held by the purchasing company. Furthermore, preemptive rights were granted to Company's shareholders who wished to acquire Extrafarma's shares, proportionally to their respective participation in the Company's share capital and for the same price per share to be paid by Pague Menos, pursuant to article 253 of the Brazilian Corporate Law. The shareholders of the Company that exercised such right will become direct shareholders of Extrafarma after closing of the transaction. The company held a general shareholders’ meeting on June 25, 2021 in which was formalized the offering of the aforementioned preemptive rights, detailing the procedures for its exercise, as applicable. The exercise period ended on July 29, 2021 and the total exercised was less than 1% of the Company's capital.
On February 11, 2022, the Administrative Council for Economic Defense ("CADE") issued an order declaring the Concentration Act no. 08700.005053/2021-74 regarding the acquisition of Extrafarma by Pague Menos. This declaration of complexity is a regular phase within the normal manner for concentration acts whose analysis by CADE needs further investigation. The companies continue to work with CADE in a transparent manner to provide all necessary clarifications.
Extrafarma and Pague Menos will maintain their regular course of business, on an independent manner, until the closing date of the transaction.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
On December 31, 2021, the Company recorded an impairment in the amount of R$ 282,169, net of the effects of deferred income and social contribution taxes, as allocated below:
| Amount |
|
Goodwill | 68,273 |
|
Residual surplus value of fixed assets | 160 |
|
Intangibles assets arising from business combination | 76,136 |
|
Property, plant, and equipment | 60,548 |
|
Right-of-use assets | 38,957 |
|
Recoverable taxes | 183,455 |
|
Impairment | 427,529 |
|
Deferred income and social contribution taxes | (145,360 | ) |
Net impairment | 282,169 |
|
b. Oxiteno S.A. share purchase and sale agreement
On August 16, 2021, the Company announced the signing of a share purchase agreement for the sale of all shares of Oxiteno S.A. – Indústria e Comércio (“Oxiteno S.A.”) to Indorama Ventures PLC (“Indorama”). For further information, see Note 1.c.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c. Disclosure of the impacts of IFRS 5 – Assets and liabilities held for sale and discontinued operations
The tables of assets and liabilities held for sale and discontinued operation are detailed below and include the financial position and profit or loss incurred throughout 2021 and 2020, when applicable. Eliminations refer to intercompany transactions, substantially represented by purchase and sale transactions, effects on the profit or loss of foreign debts contemplating hedging instruments, investments in associates that are not part of the sales transaction, among others.
c.1 The main classes of assets and liabilities classified as held for sale on December 31, 2021 are shown below:
Assets | Oxiteno |
| | Extrafarma |
| | Eliminations (*) |
| | Total |
|
Current assets | |
| | |
| | |
| | |
|
Cash and cash equivalents | 334,882 |
| | 53,099 |
| | ‐ |
| | 387,981 |
|
Financial investments and hedging instruments | 1,346,552 |
| | ‐ |
| | ‐ |
| | 1,346,552 |
|
Trade receivables | 993,960 |
| | 35,743 |
| | ‐ |
| | 1,029,703 |
|
Inventories | 1,671,662 |
| | 578,206 |
| | ‐ |
| | 2,249,868 |
|
Recoverable taxes | 634,718 |
| | 62,053 |
| | ‐ |
| | 696,771 |
|
Other assets | 51,829 |
| | 26,145 |
| | (5,035 | ) | | 72,939 |
|
Total current assets | 5,033,603 |
| | 755,246 |
| | (5,035 | ) | | 5,783,814 |
|
Non-current assets | |
| | |
| | |
| | |
|
Financial investments and hedging instruments | 492,430 |
| | ‐ |
| | ‐ |
| | 492,430 |
|
Related parties | ‐ |
| | 1,674 |
| | (1,674 | ) | | ‐ |
|
Deferred income and social contribution taxes | 541,756 |
| | 200,194 |
| | ‐ |
| | 741,950 |
|
Recoverable taxes | 393,723 |
| | 17,938 |
| | ‐ |
| | 411,661 |
|
Other assets | 10,538 |
| | 4,136 |
| | ‐ |
| | 14,674 |
|
| 1,438,447 |
| | 223,942 |
| | (1,674 | ) | | 1,660,715 |
|
Investments | 36,207 |
| | 5,000 |
| | (22,047 | ) | | 19,160 |
|
Right-of-use assets, net | 31,871 |
| | 318,183 |
| | ‐ |
| | 350,054 |
|
Property, plant, and equipment | 2,787,241 |
| | 154,663 |
| | ‐ |
| | 2,941,904 |
|
Intangible assets | 160,141 |
| | 85,129 |
| | ‐ |
| | 245,270 |
|
Total non-current assets | 4,453,907 |
| | 786,917 |
| | (23,721 | ) | | 5,217,103 |
|
Total assets held for sale | 9,487,510 |
| | 1,542,163 |
| | (28,756 | ) | | 11,000,917 |
|
(*) Balances and transactions between the discontinued and continuing operations have been eliminated, mainly related to loans.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Liabilities | Oxiteno |
| | Extrafarma |
| | Eliminations (*) |
| | Total |
|
Current liabilities | |
| | |
| | |
| | |
|
Loans, financing and hedge derivative financial instruments | 302,154 |
| | ‐ |
| | (62,841 | ) | | 239,313 |
|
Trade payables | 493,800 |
| | 225,487 |
| | (1,949 | ) | | 717,338 |
|
Trade payables – reverse factoring | 725,246 |
| | - |
| | - |
| | 725,246 |
|
Salaries and related charges | 176,941 |
| | 45,843 |
| | - |
| | 222,784 |
|
Taxes payables | 53,988 |
| | 15,696 |
| | - |
| | 69,684 |
|
Income and social contribution taxes payable | 12,415 |
| | ‐ |
| | ‐ |
| | 12,415 |
|
Post-employment benefits | 3,311 |
| | - |
| | - |
| | 3,311 |
|
Provision for tax, civil, and labor risks | 2,946 |
| | 520 |
| | - |
| | 3,466 |
|
Leases payable | 11,702 |
| | 64,312 |
| | - |
| | 76,014 |
|
Other liabilities | 68,721 |
| | 13,249 |
| | (13,264 | ) | | 68,706 |
|
Total current liabilities | 1,851,224 |
| | 365,107 |
| | (78,054 | ) | | 2,138,277 |
|
Non-current liabilities | |
| | |
| | |
| | |
|
Loans, financing and hedge derivative financial instruments | 5,728,028 |
| | ‐ |
| | (5,725,594 | ) | | 2,434 |
|
Related parties | 2,875 |
| | ‐ |
| | (2,875 | ) | | ‐ |
|
Deferred income and social contribution taxes | 12,964 |
| | ‐ |
| | ‐ |
| | 12,964 |
|
Post-employment benefits | 6,806 |
| | 287 |
| | - |
| | 7,093 |
|
Provision for tax, civil, and labor risks | 33,149 |
| | 2,370 |
| | - |
| | 35,519 |
|
Leases payable | 22,786 |
| | 314,915 |
| | - |
| | 337,701 |
|
Other liabilities | 5,341 |
| | 2,092 |
| | - |
| | 7,433 |
|
Total non-current liabilities | 5,811,949 |
| | 319,664 |
| | (5,728,469 | ) | | 403,144 |
|
Total equity | 1,824,337 |
| | 857,392 |
| | (2,681,729 | ) | | - |
|
Total liabilities held for sale and equity | 9,487,510 |
| | 1,542,163 |
| | (8,488,252 | ) | | 2,541,421 |
|
(*) Balances and transactions between the discontinued and continuing operations have been eliminated, mainly related to loans.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c.2 The results for the year and cash flows from discontinued operations as of December 31, 2021 are shown below:
| Oxiteno |
| | Extrafarma |
| | Eliminations (*) |
| | Total |
|
Net revenue from sales and services | 7,102,771 |
| | 1,986,932 |
| | (23,908 | ) | | 9,065,795 |
|
Cost of products and services sold | (5,540,773 | ) | | (1,384,316 | ) | | 23,908 |
| | (6,901,181 | ) |
Gross profit | 1,561,998 |
| | 602,616 |
| | ‐ |
| | 2,164,614 |
|
Operating income (expenses) | |
| | |
| | |
| | |
|
Selling marketing and administrative | (978,221) |
| | (685,794 | ) | | ‐ |
| | (1,664,015 | ) |
Impairment | ‐ |
| | (427,529 | ) | | ‐ |
| | (427,529 | ) |
Other operating income, net | 26,924 |
| | (1,109 | ) | | ‐ |
| | 25,815 |
|
Operating income (loss) before finance income (expenses) and share of profit of associates | 610,701 |
| | (511,816 | ) | | ‐ |
| | 98,885 |
|
Share of profit of associates | 48 |
| | ‐ |
| | - |
| | 48 |
|
Operating income (loss) before finance income (expenses) and income and social contribution taxes | 610,749 |
| | (511,816 | ) | | - |
| | 98,933 |
|
Financial result, net | (431,441 | ) | | (45,265 | ) | | 329,736 |
| | (146,970 | ) |
Profit (loss) before income and social contribution taxes | 179,308 |
| | (557,081 | ) | | 329,736 |
| | (48,037 | ) |
Income and social contribution taxes | 69,995 |
| | 155,416 |
| | (112,110 | ) | | 113,301 |
|
Profit (loss) for the year | 249,303 |
| | (401,665 | ) | | 217,626 |
| | 65,264 |
|
Depreciation and amortization for the year (i) | 308,564 |
| | 154,850 |
| | - |
| | 463,414 |
|
(*) Elimination between continuing and discontinued operations related to the intercompany loan (PPE) between Ultrapar International and Oxiteno.
(i) Balances included for complete breakdown of segment information.
| Oxiteno |
| | Extrafarma |
| | Eliminations |
| | Total |
|
Net cash provided by (used in) operating activities | 1,016,580 |
| | (33,273 | ) | | (788 | ) | | 982,519 |
|
Net cash used in investing activities | (122,363 | ) | | (35,072 | ) | | (1,298 | ) | | (158,733 | ) |
Net cash provided by (used in) financing activities | (1,054,930 | ) | | 35,286 |
| | 466,677 |
| | (552,967 | ) |
Effect of exchange rate changes on cash and cash equivalents in foreign currency | 56,553 |
| | ‐ |
| | ‐ |
| | 56,553 |
|
(Decrease) increase in cash and cash equivalents | (104,160 | ) | | (33,059 | ) | | 464,591 |
| | 327,372 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c.3 The results for the year and cash flows from discontinued operations as of December 31, 2020 are shown below:
| 12/31/2020 |
| | Discontinued operations |
| | 12/31/2020 |
|
| Disclosed |
| | Oxiteno |
| | Extrafarma |
| | Eliminations |
| | Total |
| | Re-Restated |
|
Net revenue from sales and services | 81,241,102 |
| | 5,210,704 |
| | 1,988,411 |
| | (16,069 | ) | | 7,183,046 |
| | 74,058,056 |
|
Cost of products and services sold | (75,628,214 | ) | | (4,188,711 | ) | | (1,399,125 | ) | | 16,069 |
| | (5,571,767 | ) | | (70,056,447 | ) |
Gross profit | 5,612,888 |
| | 1,021,993 |
| | 589,286 |
| | ‐ |
| | 1,611,279 |
| | 4,001,609 |
|
Operating income (expenses) | |
| | |
| | |
| | |
| | |
| | |
|
Selling marketing and administrative | (4,098,377 | ) | | (831,056 | ) | | (662,182 | ) | | - |
| | (1,493,238 | ) | | (2,605,139 | ) |
Other operating income, net | 297,544 |
| | 153,457 |
| | (5,403 | ) | | - |
| | 148,054 |
| | 149,490 |
|
Operating income (loss) before finance income (expenses) and share of profit (loss) of subsidiaries, joint ventures and associates | 1,812,055 |
| | 344,394 |
| | (78,299) |
| | ‐ |
| | 266,095 |
| | 1,545,960 |
|
Share of profit (loss) of subsidiaries, joint ventures and associates | (43,617 | ) | | 414 |
| | ‐ |
| | - |
| | 414 |
| | (44,031 | ) |
Operating income (loss) before finance income (expenses) and income and social contribution taxes | 1,768,438 |
| | 344,808 |
| | (78,299 | ) | | - |
| | 266,509 |
| | 1,501,929 |
|
Financial result, net | (269,374 | ) | | 1,482 |
| | (38,938 | ) | | 318,430 |
| | 280,974 |
| | (550,348 | ) |
Profit (loss) before income and social contribution taxes | 1,499,064 |
| | 346,290 |
| | (117,237 | ) | | 318,430 |
| | 547,483 |
| | 951,581 |
|
Income and social contribution taxes | (571,367 | ) | | (118,132 | ) | | (40,453 | ) | | (108,265 | ) | | (266,850 | ) | | (304,517 | ) |
Net income from continuing operations | - |
| | - |
| | - |
| | - |
| | - |
| | 647,064 |
|
Net income from discontinued operations | - |
| | - |
| | - |
| | - |
| | 280,633 |
| | 280,633 |
|
Profit (loss) for the year | 927,697 |
| | 228,158 |
| | (157,690 | ) | | 210,165 |
| | 280,633 |
| | 927,697 |
|
Depreciation and amortization for the year (i) | 1,556,599 |
| | 275,063 |
| | 153,899 |
| | - |
| | 428,962 |
| | 1,127,637 |
|
(i) Balances included for complete breakdown of segment information.
| 12/31/2020 |
| | Discontinued operations | | 12/31/2020 |
|
| Disclosed |
| | Oxiteno |
| | Extrafarma |
| | Eliminations |
| | Total |
| | Re-Restated |
|
| (A) |
| | |
| | |
| | |
| | (B) |
| | (A-B) |
|
Net cash provided by (used in) operating activities | 3,138,119 |
| | 765,090 |
| | 111,396 |
| | (2,380 | ) | | 874,106 |
| | 2,264,013 |
|
Net cash used in investing activities | (2,136,405 | ) | | (159,349 | ) | | (6,484 | ) | | (321,557 | ) | | (487,390 | ) | | (1,649,015 | ) |
Net cash (used in) provided by financing activities | (592,333 | ) | | (1,236,490 | ) | | 11,272 |
| | 305,534 |
| | (919,684 | ) | | 327,351 |
|
Effect of exchange rate changes on cash and cash equivalents in foreign currency | 136,734 |
| | 114,822 |
| | ‐ |
| | ‐ |
| | 114,822 |
| | 21,912 |
|
Increase (decrease) in cash and cash equivalents | 546,115 |
| | (515,927 | ) | | 116,184 |
| | (18,403) |
| | (418,146 | ) | | 964,261 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c.4 The results for the year and cash flows from discontinued operations as of December 31, 2019 are shown below:
| 12/31/2019 |
| | Discontinued operations |
| | 12/31/2019 |
|
| Disclosed |
| | Oxiteno |
| | Extrafarma |
| | Eliminations |
| | Total |
| | Re-Restated |
|
Net revenue from sales and services | 89,297,975 |
| | 4,254,237 |
| | 2,060,569 |
| | (21,560 | ) | | 6,293,246 |
| | 83,004,729 |
|
Cost of products and services sold | (83,187,109 | ) | | ( 3,537,570 | ) | | (1,462,313 | ) | | 21,560 |
| | ( 4,978,323 | ) | | (78,208,786 | ) |
Gross profit | 6,110,866 |
| | 716,667 |
| | 598,256 |
| | - |
| | 1,314,923 |
| | 4,795,943 |
|
Operating income (expenses) | |
| | |
| | |
| | |
| | |
| | |
|
Selling marketing and administrative | ( 4,366,640 | ) | | ( 737,606 | ) | | (742,599 | ) | | - |
| | ( 1,480,205 | ) | | ( 2,886,435 | ) |
Other operating income, net | (443,674 | ) | | (5,348 | ) | | (580,055 | ) | | - |
| | ( 585,403 | ) | | 141,729 |
|
Operating income (loss) before finance income (expenses) and share of profit (loss) of subsidiaries, joint ventures and associates | 1,300,552 |
| | (26,287 | ) | | (724,398 | ) | | - |
| | (750,685 | ) | | 2,051,237 |
|
Share of profit (loss) of subsidiaries, joint ventures and associates | (12,145 | ) | | 528 |
| | - |
| | 36 |
| | 564 |
| | ( 12,709 | ) |
Operating income (loss) before finance income (expenses) and income and social contribution taxes | 1,288,407 |
| | (25,759 | ) | | (724,398 | ) | | 36 |
| | (750,121 | ) | | 2,038,528 |
|
Financial result, net | (506,854 | ) | | 14,464 |
| | (32,451 | ) | | (184,484 | ) | | 166,497 |
| | ( 673,351 | ) |
Profit (loss) before income and social contribution taxes | 781,553 |
| | (11,295 | ) | | (756,849 | ) | | 184,520 |
| | (583,624 | ) | | 1,365,177 |
|
Income and social contribution taxes | (378,609 | ) | | 35,191 |
| | 118,901 |
| | (62,725 | ) | | 91,367 |
| | (469,976 | ) |
Net income from continuing operations | 402,944 |
| | 23,896 |
| | ( 637,948 | ) | | 121,795 |
| | ( 492,257 | ) | | 895,201 |
|
Net income from discontinued operations | - |
| | (23,896 | ) | | 637,948 |
| | (121,795 | ) | | 492,257 |
| | ( 492,257 | ) |
Profit (loss) for the year | 402,944 |
| | - |
| | - |
| | - |
| | - |
| | 402,944 |
|
Depreciation and amortization for the year (1) | 1,499,955 |
| | 222,004 |
| | 154,324 |
| | - |
| | 376,328 |
| | 1,123,627 |
|
(i) Balances included for complete breakdown of segment information.
| 12/31/2019 |
| | Discontinued operations | | 12/31/2019 |
|
| Disclosed |
| | Oxiteno |
| | Extrafarma |
| | Eliminations |
| | Total |
| | Re-Restated |
|
| (A) |
| | |
| | |
| | |
| | (B) |
| | (A-B) |
|
Net cash provided by (used in) operating activities | 2,924,852 |
| | 486,276 |
| | 23,282 |
| | 42,910 |
| | 552,468 |
| | 2,372,384 |
|
Net cash used in investing activities | (1,835,261 | ) | | (882,894 | ) | | (122,462 | ) | | 9,433 |
| | (995,923 | ) | | (839,338 | ) |
Net cash (used in) provided by financing activities | (2,922,229 | ) | | (375,258 | ) | | 125,852 |
| | 7,499 |
| | (241,907 | ) | | (2,680,322 | ) |
Effect of exchange rate changes on cash and cash equivalents in foreign currency | 9,066 |
| | 30,871 |
| | - |
| | - |
| | 30,871 |
| | (21,805 | ) |
Increase (decrease) in cash and cash equivalents | (1,823,572 | ) | | (741,005 | ) | | 26,672 |
| | 59,842 |
| | (654,491 | ) | | (1,169,081 | ) |
c.3.1 Share of profit (loss) of investees Oxiteno and Extrafarma, net of related parties, were re-present as discontinued operations in the total amount of R$ (492,257) in the statement of profit or loss for the year 2019, as per Notes 3.c.3 and 13.a.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
4. Principles of consolidation and investments in subsidiaries
a. Principles of consolidation
In the preparation of the consolidated financial statements the investments of one company in another, balances of asset and liability accounts, revenues transactions, costs and expenses were eliminated, as well as the effects of transactions conducted between the companies. Non-controlling interests in subsidiaries are presented within consolidated equity and net income.
Consolidation of a subsidiary begins when the Company obtains direct or indirect control over a entity and ceases when the company loses control. Income and expenses of a subsidiary acquired are included in the consolidated statement of profit or loss and comprehensive income from the date the Company gains the control. Income and expenses of a subsidiary, in which the parent Company loses control, are included in the consolidated statement of profit or loss and comprehensive income until the date the Company loses control.
When necessary adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Company’s accounting policies.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Investments in subsidiaries
The consolidated financial statements include the following direct and indirect subsidiaries:
| | | % interest in the share |
| | | 12/31/2021 | | 12/31/2020 | | 12/31/2019 |
| | | | Control | | Control | | Control |
| Location | Segment | | Direct | | Indirect | | Direct | | Indirect | | Direct | | Indirect |
Ipiranga Produtos de Petróleo S.A. | Brazil | Ipiranga | | 100 | | 0 - | | 100 | | 0 - | | 100 | | 0 - |
am/pm Comestíveis Ltda. | Brazil | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Icorban – Correspondente Bancário Ltda. | Brazil | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Ipiranga Trading Limited | British Virgin Islands | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Tropical Transportes Ipiranga Ltda. | Brazil | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Ipiranga Imobiliária Ltda. | Brazil | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Ipiranga Logística Ltda. | Brazil | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oil Trading Importadora e Exportadora Ltda. | Brazil | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Iconic Lubrificantes S.A. | Brazil | Ipiranga | | 0 - | | 56 | | 0 - | | 56 | | 0 - | | 56 |
Integra Frotas Ltda. | Brazil | Ipiranga | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Companhia Ultragaz S.A. | Brazil | Ultragaz | | 0 - | | 99 | | 0 - | | 99 | | 0 - | | 99 |
Ultragaz Comercial Ltda. | Brazil | Ultragaz | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Nova Paraná Distribuidora de Gás Ltda. (1) | Brazil | Ultragaz | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Utingás Armazenadora S.A. (2) | Brazil | Ultragaz | | 0 - | | 57 | | 0 - | | 57 | | 0 - | | 57 |
Bahiana Distribuidora de Gás Ltda. | Brazil | Ultragaz | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
LPG International Inc. | Cayman Islands | Ultragaz | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Imaven Imóveis Ltda. | Brazil | Others | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Imifarma Produtos Farmacêuticos e Cosméticos S.A. (3) | Brazil | Extrafarma | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
UVC Investimentos Ltda. (4) | Brazil | Others | | 0 - | | 99 | | 0 - | | 99 | | 0 - | | 0 - |
Centro de Conveniências Millennium Ltda. and subsidiaries (5) | Brazil | Ipiranga | | 100 | | 0 - | | 100 | | 0 - | | 0 - | | 100 |
Oxiteno S.A. Indústria e Comércio (6) | Brazil | Oxiteno | | 100 | | 0 - | | 100 | | 0 - | | 100 | | 0 - |
Oxiteno Argentina Sociedad de Responsabilidad Ltda. | Argentina | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oleoquímica Indústria e Comércio de Produtos Químicos Ltda. | Brazil | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno Uruguay S.A. | Uruguay | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno México S.A. de C.V. | Mexico | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno Servicios Corporativos S.A. de C.V. | Mexico | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno Servicios Industriales S.A. de C.V. | Mexico | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno USA LLC | United States | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Global Petroleum Products Trading Corp. | Virgin Islands | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno Europe SPRL | Belgium | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno Colombia S.A.S. | Colombia | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Oxiteno Shanghai LTD. | China | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Empresa Carioca de Produtos Químicos S.A. | Brazil | Oxiteno | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Ultracargo – Operações Logísticas e Participações Ltda. | Brazil | Ultracargo | | 100 | | 0 - | | 100 | | 0 - | | 100 | | 0 - |
Ultracargo Logística S.A. (7) | Brazil | Ultracargo | | 0 - | | 99 | | 0 - | | 99 | | 0 - | | 99 |
TEAS – Terminal Exportador de Álcool de Santos Ltda. | Brazil | Ultracargo | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Tequimar Vila do Conde Logística Portuária S.A. | Brazil | Ultracargo | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
Ultrapar International S.A. | Luxembourg | Others | | 100 | | 0 - | | 100 | | 0 - | | 100 | | 0 - |
SERMA – Ass. dos usuários equip. proc. de dados | Brazil | Others | | 0 - | | 100 | | 0 - | | 100 | | 0 - | | 100 |
UVC – Fundo de investimento em participações multiestratégia investimento no exterior (8) | Brazil | Others | | 100 | | 0 - | | 100 | | 0 - | | 0 - | | 0 - |
Eaí Clube Automobilista S.A. (9) | Brazil | Abastece aí | | 100 | | 0 - | | 100 | | 0 - | | 0 - | | 0 - |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The percentages in the table above are rounded.
| (1) | Non-operating company in closing phase. |
| (2) | In October 2020 there was a change in the share capital of the company Utingás, which became controlled by Companhia Ultragaz S.A. (“Cia Ultragaz”). |
| (3) | On May 18, 2021 the Company announced the signing of an agreement for the sale of all shares of Extrafarma to Pague Menos. As of December 31, 2021, the Company reclassified the subsidiary's balances to “assets and liabilities held for sale”. For more details, see note 3.c.1. |
| (4) | Subsidiary set up in January 2020 to provide valuation, business management and financial advisory services to UVC - Fundo de investimento em participações multiestratégia investimento no exterior (“UVC – Fundo de investimento”). In September 2020 the Company’s name was changed to UVC Investimentos Ltda (“UVC Investimentos”). |
| (5) | In May 2020 there was a change in the interest of the capital of the subsidiary Millennium which became a direct subsidiary of the Company. |
| (6) | On August 16, 2021, the Company announced the signing of agreement for the sale of its interest in Oxiteno S.A. to Indorama. As of December 31, 2021, the Company reclassified the subsidiary's balances to “assets and liabilities held for sale”. For more details, see Note 3.c.1. |
(7)
| In April 2021 the name of subsidiary Terminal Químico de Aratu S.A – Tequimar was changed to Ultracargo Logística S.A. (“Ultracargo Logística”). |
| (8) | Fund set up on January 2020, the UVC has the purpose to monetize the resources of its shareholders through investment in promising companies in business segments that are complementary to the Company's businesses, with additional benefits such as of startups and new technologies. |
| (9) | Subsidiary set up in July 2020, focused on digital payments and electronic retail, combining the “abastece aí” app and the “Km de Vantagens” program.
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
5. Cash and cash equivalents, financial investments and hedge derivative financial instruments
Cash equivalents and financial investments, excluding cash and bank deposits, are substantially represented by investments: (i) in Brazil, in certificates of deposit of financial institutions linked to interest rate of the DI, in repurchase agreement, financial bills, and in short term investments funds, whose portfolio comprised of Brazilian Federal Government bonds and in certificates of deposit of financial institutions; (ii) outside Brazil, in certificates of deposit of financial institutions and in short term investments funds, whose portfolio comprised of Federal Government bonds; and (iii) in currency and interest rate hedging instruments.
The financial assets were classified in Note 33.j, based on business model of financial assets of the Company and its subsidiaries.
Cash, cash equivalents and financial investments amounted to R$ 4,463,473 as of December 31, 2021 (R$ 8,672,160 as of December 31, 2020) are as follows:
a. Cash and cash equivalents
Cash and cash equivalents of the Company and its subsidiaries are presented as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
Cash and bank deposits | |
| | |
|
In local currency | 317,907 |
| | 285,306 |
|
In foreign currency | 16,640 |
| | 119,775 |
|
Financial investments considered cash equivalents | |
| | |
|
In local currency | |
| | |
|
Fixed-income securities | 1,943,164 |
| | 2,241,852 |
|
In foreign currency | |
| | |
|
Fixed-income securities | 2,363 |
| | 14,561 |
|
Total cash and cash equivalents | 2,280,074 |
| | 2,661,494 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Financial investments and currency and interest rate hedging instruments
The financial investments which are not classified as cash and cash equivalents are presented as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
Financial investments | |
| | |
|
In local currency | |
| | |
|
Fixed-income securities and funds | 1,607,608 |
| | 3,749,852 |
|
In foreign currency | |
| | |
|
Fixed-income securities and funds | 103,239 |
| | 1,278,940 |
|
Currency and interest rate hedging instruments (a) | 472,552 |
| | 981,874 |
|
Total financial investments | 2,183,399 |
| | 6,010,666 |
|
Current | 1,804,122 |
| | 5,033,258 |
|
Non-current | 379,277 |
| | 977,408 |
|
(a) Accumulated gains, net of income tax (see Note 33.i).
6. Trade receivables and reseller financing
a. Trade receivables
The composition of trade receivables is as follows:
| | 12/31/2021 |
| | 12/31/2020 |
|
Domestic customers | | 3,805,756 |
| | 3,443,641 |
|
Domestic customers – related parties (see Note 9.a) | | 57 |
| | 151 |
|
Foreign customers | | 3,137 |
| | 326,442 |
|
Foreign customers – related parties (see Note 9.a) | | 4,400 |
| | 2,984 |
|
(-) Loss allowance for expected credit losses | | (374,355 | ) | | (382,096 | ) |
| | 3,438,995 |
| | 3,391,122 |
|
Current | | 3,375,246 |
| | 3,318,927 |
|
Non-current | | 63,749 |
| | 72,195 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The breakdown of trade receivables, gross of loss allowance for expected credit losses, is as follows:
| |
| | |
|
| Past due |
|
| Total |
| | Current |
|
| less than 30 days |
|
| 31-60 days |
|
| 61-90 days |
|
| 91-180 days |
|
| more than 180 days |
|
12/31/2021 | 3,813,350 |
| | 3,131,528 |
|
| 90,024 |
|
| 33,255 |
|
| 24,804 |
|
| 23,903 |
|
| 509,836 |
|
12/31/2020 | 3,773,218 |
| | 2,963,163 |
|
| 124,606 |
|
| 27,970 |
|
| 21,389 |
|
| 47,169 |
|
| 588,921 |
|
The breakdown of loss allowance for expected credit losses, is as follows:
| |
| | |
|
| Past due |
|
| Total |
| | Current |
|
| less than 30 days |
|
| 31-60 days |
|
| 61-90 days |
|
| 91-180 days |
|
| more than 180 days |
|
12/31/2021 | 374,355 |
| | 21,962 |
|
| 1,595 |
|
| 3,049 |
|
| 2,761 |
|
| 14,926 |
|
| 330,062 |
|
12/31/2020 | 382,096 |
| | 21,219 |
|
| 2,154 |
|
| 1,751 |
|
| 2,233 |
|
| 13,378 |
|
| 341,361 |
|
Movements in the allowance for loss allowance for expected credit losses are as follows:
Balance as of December 31, 2019 | | 404,886 |
|
Additions | | 194,220 |
|
Reversals | | (203,994 | ) |
Write-offs | | (13,016 | ) |
Balance as of December 31, 2020 | | 382,096 |
|
Additions | | 177,872 |
|
Reversals | | (150,160 | ) |
Write-offs | | (18,646 | ) |
Reclassification to assets held for sale | | (16,807 | ) |
Balance as of December 31, 2021 | | 374,355 |
|
For more information about the allowance for loss allowance for expected credit losses see Note 33.d.3.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Reseller financing
The composition of reseller financing is as follows:
| | 12/31/2021 |
| | 12/31/2020 |
|
Reseller financing – Ipiranga | | 1,183,312 |
| | 1,165,395 |
|
(-) Loss allowance for expected credit losses | | (185,278 | ) | | (197,011 | ) |
| | 998,034 |
| | 968,384 |
|
Current | | 582,562 |
| | 549,129 |
|
Non-current | | 415,472 |
| | 419,255 |
|
The breakdown of reseller financing, gross of loss allowance for expected credit losses, is as follows:
| |
| | |
|
| Past due |
|
| Total |
| | Current |
|
| less than 30 days |
|
| 31-60 days |
|
| 61-90 days |
|
| 91-180 days |
|
| more than 180 days |
|
12/31/2021 | 1,183,312 |
| | 770,008 |
|
| 19,260 |
|
| 24,290 |
|
| 14,373 |
|
| 26,685 |
|
| 328,696 |
|
12/31/2020 | 1,165,395 |
| | 787,904 |
|
| 10,230 |
|
| 15,237 |
|
| 21,200 |
|
| 28,989 |
|
| 301,835 |
|
The breakdown of loss allowance for expected credit losses, is as follows:
| |
| | |
|
| Past due |
|
| Total |
| | Current |
|
| less than 30 days |
|
| 31-60 days |
|
| 61-90 days |
|
| 91-180 days |
|
| more than 180 days |
|
12/31/2021 | 185,278 |
| | 1,514 |
|
| 6,410 |
|
| 8,697 |
|
| 6,255 |
|
| 9,892 |
|
| 152,510 |
|
12/31/2020 | 197,011 |
| | 22,872 |
|
| 785 |
|
| 1,812 |
|
| 2,397 |
|
| 14,684 |
|
| 154,461 |
|
Movements in the allowance for loss allowance for expected credit losses are as follows:
Balance as of December 31, 2019 | | 156,006 |
|
Additions | | 74,745 |
|
Reversals | | (29,791 | ) |
Write-offs | | (3,949) |
|
Balance as of December 31, 2020 | | 197,011 |
|
Additions | | 65,536 |
|
Reversals | | (68,982 | ) |
Write-offs | | (8,287 | ) |
Balance as of December 31, 2021 | | 185,278 |
|
For more information about the allowance for loss allowance for expected credit losses see Note 33.d.3.
Ultrapar Participações S.A. and SubsidiariesNotes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
7. Inventories
The composition of inventories is as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
| Cost |
| | Provision for losses |
| | Net balance |
| | Cost |
| | Provision for losses |
| | Net balance |
|
Fuels, lubricants and greases | 3,042,932 |
| | (4,871 | ) | | 3,038,061 |
| | 1,682,841 |
| | (5,344 | ) | | 1,677,497 |
|
Finished goods | 0 - |
| | 0 - |
| | 0 - |
| | 646,180 |
| | (22,281 | ) | | 623,899 |
|
Work in process | 0 - |
| | 0 - |
| | 0 - |
| | 1,450 |
| | 0 - |
| | 1,450 |
|
Raw materials | 293,242 |
| | 0 - |
| | 293,242 |
| | 568,185 |
| | (1,827 | ) | | 566,358 |
|
Liquefied petroleum gas (LPG) | 151,831 |
| | (5,761 | ) | | 146,070 |
| | 110,767 |
| | (5,761 | ) | | 105,006 |
|
Consumable materials and other items for resale | 117,150 |
| | (1,875 | ) | | 115,275 |
| | 129,559 |
| | (2,598 | ) | | 126,961 |
|
Pharmaceutical, hygiene, and beauty products | 0 - |
| | 0 - |
| | 0 - |
| | 521,689 |
| | (2,611 | ) | | 519,078 |
|
Purchase for future delivery (1) | 302,456 |
| | (464 | ) | | 301,992 |
| | 198,986 |
| | (464 | ) | | 198,522 |
|
Properties for resale | 24,239 |
| | (107 | ) | | 24,132 |
| | 27,532 |
| | (107 | ) | | 27,425 |
|
| 3,931,850 |
| | (13,078 | ) | | 3,918,772 |
| | 3,887,189 |
| | (40,993 | ) | | 3,846,196 |
|
(1) Refers substantially to ethanol, biodiesel and advances for fuel acquisition.
Movements in the provision for losses are as follows:
Balance as of December 31, 2018 | 42,587 |
|
Reversals to net realizable value adjustment | (5,174 | ) |
Additions of obsolescence and other losses | 4,296 |
|
Oxiteno Andina (i) | (985 | ) |
Balance as of December 31, 2019 | 40,724 |
|
Additions to net realizable value adjustment | 2,245 |
|
Reversals of obsolescence and other losses | (1,976 | ) |
Balance as of December 31, 2020 | 40,993 |
|
Additions to net realizable value adjustment | 5,974 |
|
Reversals of obsolescence and other losses | (5,184 | ) |
Reclassification to assets held for sale | (28,705 | ) |
Balance as of December 31, 2021 | 13,078 |
|
(ii) Refers to the asset write-offs of Oxiteno Andina in 2019.
The breakdown of provisions for losses related to inventories is shown in the table below:
| 12/31/2021 |
| | 12/31/2020 |
|
Net realizable value adjustment | 8,269 |
| | 17,488 |
|
Obsolescence and other losses | 4,809 |
| | 23,505 |
|
Total | 13,078 |
| | 40,993 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
8. Taxes to recover
a. Recoverable taxes
Recoverable taxes are substantially represented by credits of Tax on Goods and Services (“ICMS”, the Brazilian VAT), Contribution for Social Security Financing (“COFINS”) and Social Integration Program (“PIS”).
| 12/31/2021 |
| | 12/31/2020 |
|
ICMS (a.1) | 893,206 |
| | 1,129,325 |
|
PIS and COFINS (a.2) (a.3) | 1,177,513 |
| | 1,297,029 |
|
Value-added tax (IVA) of foreign subsidiaries | 179 |
| | 35,600 |
|
Others | 37,127 |
| | 57,704 |
|
Total | 2,108,025 |
| | 2,519,658 |
|
Current | 1,061,227 |
| | 1,044,850 |
|
Non-current | 1,046,798 |
| | 1,474,808 |
|
a.1 The recoverable ICMS net of provision for losses is substantially related to the following subsidiaries and operations:
(i) The subsidiaries Oxiteno S.A., Empresa Carioca de Produtos Químicos S.A. (“EMCA”) and Oleoquímica Indústria e Comércio de Produtos Químicos Ltda. (“Oleoquímica”) accumulate credits in the amount of R$ R$ 195,037 as of December 31, 2020 due to sales and transfer transactions within and outside the State of Bahia at reduced rates.
(ii) The subsidiaries IPP, Bahiana Distribuidora de Gás Ltda. (“Bahiana”), Cia. Ultragaz, AMPM and Iconic Lubrificantes S.A. (“Iconic”) have credits in the amount of R$ 893,206 (R$ 754,882 as of December 31, 2020) recognized, mainly, of the following nature: a) transactions of inputs and outputs of products subject to taxation of the own ICMS; b) interstate outflows of oil-related products, whose ICMS was prepaid by the supplier (Petróleo Brasileiro S.A. (“Petrobras”)), in the case of the subsidiaries IPP, Bahiana and Cia. Ultragaz and c) credits for refunds of the ICMS-ST (tax substitution) overpaid when the estimated calculation base is used higher than the actual operation practiced by the subsidiary IPP.
(iii) As of December 31, 2021, the amount of R$ 19,015, net of provision for impairment of assets, was reclassified to assets held for sale. The subsidiary Extrafarma had ICMS credits and ICMS-ST (tax substitution) advances in the amount of R$ R$ 179,405 as of December 31, 2020, on the inflow and outflow of operations carried out by its distribution centers, mostly in the North and Northeast, as well as refunds of the ICMS-ST portion overpaid when the estimated calculation base is used higher than the actual operation.
The amounts of recoverable ICMS are realized by the taxed operations itself, being a revolving credit, which means that the credits are monthly offset with the tax payable on sales and new credits are generated by the acquisition of inputs, as well as by the State's refund on tax substitution operations. Management estimates the realization of the credits classified in non-current assets within an average term of up to 5 years.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The provision for ICMS losses, in the amount of R$ 48,502 (R$ 52,338 as of December 31, 2020), relates to tax credits of the subsidiaries.
a.2 The recoverable PIS and COFINS is substantially related to:
(i) The balance of PIS and COFINS includes credits recorded under Laws 10,637/2002 and 10,833/2003 in the amount of R$ 607,373 (R$ 651,051 as of December 31, 2020), whose realization will occur through the offset of debts administered by the Brazilian Federal Revenue Service (“RFB”) in an estimated term of up to 2 years by management. As of December 31, 2021, the amount of R$ 93,108 was reclassified to assets held for sale, as per Note 3.a.
(ii) The subsidiaries IPP, Tropical Transportes Ipiranga Ltda (“Tropical”), AMPM, Iconic and Ultragaz have credits in the amount of R$ 570,140 (R$ 645,978 as of December 31, 2020) resulting from a favorable decision on the exclusion of ICMS from the calculation basis of PIS and COFINS (see item a.3 below). The management estimates the realization of these credits within up to 3 years. As of December 31, 2021, the amount of R$ 275,813 was reclassified to assets held for sale, as per Note 3.c.1.
The credit balance of PIS and COFINS is realized through the settlement of own debts in subsequent months or with other debts managed by the Receita Federal and social security for cases that the law allows.
a.3 On March 15, 2017, due to general repercussions, the STF decided that ICMS does not compose the basis for calculating PIS and COFINS. After filing the Union's Embargoes for Clarification, the STF definitively ruled about the thesis on May 13, 2021, reaffirming the exclusion of the highlighted ICMS from the PIS and COFINS calculation basis and modulating the effects of the decision for the lawsuits filed after March 15, 2017. Certain subsidiaries have credits originated from favorable decisions on the exclusion of ICMS from the PIS and COFINS calculation base, having been recorded in results, up to the present year of 2021, the amount of R$ 569,212, of which R$ 279,598 of principal and R$ 289,614 of monetary variation (R$ 154,225, of which R$ 66,415 of principal and R$ 87,810 of monetary variation recognized in profit or loss up to 2020 – re-presented).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Recoverable income tax and social contribution taxes
Relates to IRPJ and CSLL to be recovered by the Company and its subsidiaries, arising from the tax advances of previous years, as well as referring to lawsuits the non-incidence of IRPJ and CSLL on the monetary variation (SELIC) in the repetition of undue payments (see note 10.e), with management estimating the realization of these credits within up to 5 years.
| 12/31/2021 |
| | 12/31/2020 |
|
IRPJ and CSLL | 447,191 |
| | 627,285 |
|
Current | 291,833 |
| | 366,080 |
|
Non-current | 155,358 |
| | 261,205 |
|
9. Related parties
a. Related parties
Balances and transactions between the Company and its subsidiaries have been eliminated in consolidation and are not disclosed in this note. The balances and transactions between the Company and its subsidiaries with other related parties are disclosed below:
| Loans |
|
| Assets |
| | Liabilities |
|
Química da Bahia Indústria e Comércio S.A. (1) | - |
| | 2,875 |
|
Others (1) | 490 |
| | 659 |
|
Total as of December 31, 2021 | 490 |
| | 3,534 |
|
| Loans |
|
| Assets |
| | Liabilities |
|
Química da Bahia Indústria e Comércio S.A. (1) | - |
| | 2,875 |
|
Routeasy Serviços de Assessoria Logística Ltda.(2) | 2,334 |
| | - |
|
Others (1) | 490 |
| | 836 |
|
Total as of December 31, 2020 | 2,824 |
| | 3,711 |
|
| (1) | Loans contracted have indefinite terms and do not contain remuneration clauses. |
| (2) | The loan contracted has a term of 36 months, can be extended by mutual agreement between the parties, being remunerated by the DI plus 3% p.a. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Commercial transactions |
|
| Receivables |
| | Payables |
| | Sales and services |
| | Purchases |
|
Refinaria de Petróleo Riograndense S.A. | - |
| | 90,761 |
| | - |
| | 619,785 |
|
União Vopak Armazéns Gerais Ltda. | 57 |
| | - |
| | 1,402 |
| | - |
|
Chevron (Thailand) Limited | 204 |
| | - |
| | 675 |
| | 1,072 |
|
Chevron Lubricants Lanka PLC | - |
| | - |
| | 164 |
| | - |
|
Chevron Lubricants Oils S.A. | 319 |
| | - |
| | 786 |
| | - |
|
Chevron Marine Products | 3,663 |
| | - |
| | 24,583 |
| | - |
|
Chevron Oronite Brasil LTDA. | - |
| | 53,378 |
| | 78 |
| | 150,878 |
|
Chevron Products Company | - |
| | 158,557 |
| | - |
| | 789,452 |
|
Chevron Belgium NV | - |
| | 821 |
| | - |
| | 7,520 |
|
Chevron Petroleum CO Colombia | 214 |
| | - |
| | 392 |
| | - |
|
Total as of December 31, 2021 | 4,457 |
| | 303,517 |
| | 28,080 |
| | 1,568,707 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Commercial transactions |
|
| Receivables |
| | Right-of-use assets (1) |
| | Payables |
| | Leases payable (1) |
| | Sales and services |
| | Purchases |
| | Expenses |
|
Oxicap Indústria de Gases Ltda. | - |
| | - |
| | 1,772 |
| | - |
| | 471 |
| | 19,077 |
| | - |
|
Refinaria de Petróleo Riograndense S.A. | - |
| | - |
| | 65,215 |
| | - |
| | - |
| | 314,587 |
| | - |
|
ConectCar Soluções de Mobilidade Eletrônica S.A. | 151 |
| | - |
| | 104 |
| | - |
| | 3,062 |
| | 154 |
| | - |
|
LA’7 Participações e Empreend. Imob. Ltda. (a) | - |
| | 8,635 |
| | - |
| | 8,044 |
| | - |
| | - |
| | 1,613 |
|
Chevron (Thailand) Limited | 166 |
| | - |
| | 6 |
| | - |
| | - |
| | 759 |
| | - |
|
Chevron Brasil Oleos Basicos LTDA | - |
| | - |
| | 6 |
| | - |
| | - |
| | - |
| | - |
|
Chevron Latin America Marketing LLC | 118 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
|
Chevron Lubricants Lanka PLC | 3 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
|
Chevron Lubricants Oils S.A. | 823 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
|
Chevron Marine Products | 1,873 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
|
Chevron Oronite Brasil LTDA. | - |
| | - |
| | 37,482 |
| | - |
| | - |
| | 108,198 |
| | - |
|
Chevron Products Company | - |
| | - |
| | 87,754 |
| | - |
| | - |
| | 247,578 |
| | - |
|
Chevron Belgium NV | - |
| | - |
| | 785 |
| | - |
| | - |
| | 6,707 |
| | - |
|
Chevron Petroleum CO Colombia | 1 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
|
Total as of December 31, 2020 | 3,135 |
| | 8,635 |
| | 193,124 |
| | 8,044 |
| | 3,533 |
| | 697,060 |
| | 1,613 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Commercial transactions |
|
| Receivables (1) |
| Payables (1) |
|
| Other payables |
|
| Sales and services |
| | Purchases |
| | Expenses |
|
Oxicap Indústria de Gases Ltda. | - |
| 1,545 |
|
| - |
|
| 1 |
| | 18,565 |
| | - |
|
Refinaria de Petróleo Riograndense S.A. | - |
| 264,602 |
|
| - |
|
| - |
| | 1,019,108 |
| | - |
|
ConectCar Soluções de Mobilidade Eletrônica S.A. | 739 |
| 113 |
|
| - |
|
| 7,385 |
| | 121 |
| | - |
|
LA’7 Participações e Empreend. Imob. Ltda. (a) | - |
| 124 |
|
| - |
|
| - |
| | - |
| | 1,477 |
|
Chevron (Thailand) Limited | 1,333 |
| 5,177 |
|
| - |
|
| - |
| | 90,912 |
| | - |
|
Chevron Brasil Oleos Basicos LTDA | - |
| - |
|
| 6 |
|
| - |
| | 6,336 |
| | - |
|
Chevron Latin America Marketing LLC | 86 |
| 6 |
|
| - |
|
| 13 |
| | 506 |
| | - |
|
Chevron Lubricants Lanka PLC | - |
| - |
|
| 285 |
|
| - |
| | - |
| | - |
|
Chevron Lubricants Oils S.A. | 58 |
| - |
|
| - |
|
| 42 |
| | - |
| | - |
|
Chevron Marine Products | 506 |
| - |
|
| - |
|
| 104 |
| | - |
| | - |
|
Chevron Oronite Brasil LTDA. | 1,193 |
| - |
|
| - |
|
| 345 |
| | - |
| | - |
|
Chevron Products Company | - |
| 16,302 |
|
| - |
|
| - |
| | 212,915 |
| | - |
|
Chevron Belgium NV | - |
| 2,119 |
|
| - |
|
| - |
| | 15,019 |
| | - |
|
Chevron Petroleum CO Colombia | - |
| - |
|
| 7 |
|
| 30 |
| | - |
| | - |
|
Total as of December 31, 2019 | 3,915 |
| 289,988 |
|
| 298 |
|
| 7,920 |
| | 1,363,482 |
| | 1,477 |
|
| (1) | Included in “right-of-use assets” and “leases payable”, respectively. |
| (a) | Refers to rental contracts of 15 drugstores owned by LA’7 as of December 31, 2020, a company of the former shareholders of Extrafarma that are current shareholders of Ultrapar. |
Purchase and sale transactions relate substantially to the purchase of raw materials, feedstock, transportation, and storage services based on similar market prices and terms with customers and suppliers with comparable operational performance. The operations of ConectCar refer to services provided. In the opinion of the Company and its subsidiaries’ management, transactions with related parties are not subject to credit risk, therefore, 0 provision for expected losses on accounts receivable or guarantees are recorded. Guarantees provided by the Company in loans of subsidiaries and affiliates are mentioned in Note 17.i.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Key executives
The Company’s compensation strategy combines short and long-term elements, following the principles of alignment of interests and of maintaining a competitive compensation, and is aimed at retaining key officers and remunerating them adequately according to their attributed responsibilities and the value created to the Company and its shareholders.
Short-term compensation is comprised of: (a) fixed monthly compensation paid with the objective of rewarding the executive’s experience, responsibility, and his/her position’s complexity, and includes salary and benefits such as medical coverage, check-up, life insurance, and others; (b) variable compensation paid annually with the objective of aligning the executive’s and the Company’s objectives, which is linked to: (i) the business performance measured through its economic value creation and (ii) the fulfillment of individual annual goals that are based on the strategic plan and are focused on expansion and operational excellence projects, people development and market positioning, among others. More details about the Deferred Stock Plan are contained in Note 9.c and about post-employment benefits in Note 21.b.
The expenses for compensation of its key executives (Company’s directors and executive officers) as shown below:
| 2021 |
| | 2020 |
| | 2019 |
|
Short-term compensation | 47,003 |
| | 47,936 |
| | 41,659 |
|
Stock compensation | 15,778 |
| | 4,786 |
| | 9,881 |
|
Post-employment benefits | 2,737 |
| | 2,866 |
| | 2,640 |
|
Termination benefits | 5,637 |
| | - |
| | - |
|
Total | 71,155 |
| | 55,588 |
| | 54,180 |
|
c. Deferred stock plan
Since 2003 Ultrapar has adopted a stock plan in which the executive has the usufruct of shares held in treasury until the transfer of the full ownership of the shares to those eligible members of management after five to seven years from the initial concession of the rights subject to uninterrupted employment of the participant during the period. The volume of shares and the executives eligible are determined by the Board of Directors, and there is no mandatory annual grant. The total number of shares to be used in the plan is subject to the number of shares in treasury. Ultrapar’s Board of Directors members are not eligible to participate in the stock plan. The fair value of the awards was determined on the grant date based on the market value of the shares on the B3, the Brazilian Securities, Commodities and Futures Exchange and the amounts are amortized between five to seven years from the grant date.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The table below summarizes shares granted to the Company and its subsidiaries’ management:
Grant date | Balance of number of shares granted |
|
| Vesting period |
|
| Market price of shares on the grant date (in R$ per share) |
|
| Total grant costs, including taxes |
| | Accumulated recognized grant costs |
| | Accumulated unrecognized grant costs |
|
March 4, 2016 | 133,332 |
|
| 2022 to 2023 |
|
| 32.72 |
|
| 9,025 |
| | (8,440 | ) | | 585 |
|
December 10, 2014 | - |
|
| 2021 |
|
| 25.32 |
|
| 19,557 |
| | (19,557 | ) | | - |
|
March 5, 2014 | - |
|
| 2021 |
|
| 26.08 |
|
| 5,999 |
| | (5,999 | ) | | - |
|
| 133,332 |
|
| |
|
| |
|
| 34,581 |
| | (33,996 | ) | | 585 |
|
For the year ended December 31, 2021 the amortization in the amount of R$ 1,902 – continuing operation and R$ 1,325 – discontinued operation (reversal of R$ 64 – continuing operation and R$ 2,296 – discontinued operation for year ended December 31, 2020 and R$ 8,502 – continuing operation and R$ 1,819 – discontinued operation for the year ended December 31, 2019) was recognized as a general and administrative expense.
The table below summarizes the changes of number of shares granted:
Balance on December 31, 2019 | | 1,224,524 |
|
|
Cancellation of granted shares due to termination of executive employment | | (200,000 | ) |
|
Shares vested and transferred | | (322,264 | ) |
|
Balance on December 31, 2020 | | 702,260 |
|
|
Shares vested and transferred | | (448,930 | ) |
|
Reclassification to assets held for sale | | (119,998 | ) |
|
Balance on December 31, 2021 | | 133,332 |
|
|
In addition, on April 19, 2017, the Ordinary and Extraordinary General Shareholders’ Meeting (“OEGM”) of approved a new incentive plan based on shares (”Plan”), which establishes the general terms and conditions for the concession of common shares issued by the Company and held in treasury, that may or may not involve the granting of usufruct of part of these shares for later transfer of the ownership of the shares, in periods of three to six years, to directors or employees of the Company or its subsidiaries.
As a result of the Plan, common shares representing at most 1% of the Company's share capital may be delivered to the participants, which corresponds, at the date of approval of this Plan, to 11,128,102 common shares.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The table below summarizes the restricted and performance stock programs:
Program | Grant date | Balance of number of shares granted |
|
| Vesting period |
|
| Market price of shares on the grant date (in R$ per share) |
|
| Total grant costs, including taxes |
| | Accumulated recognized grant costs | |
| Accumulated unrecognized grant costs |
|
Restricted | October 1, 2017 | 240,000 |
|
| 2023 |
|
| 38.19 |
|
| 9,293 |
| | (9,293 | ) |
| - |
|
Restricted | November 8, 2017 | 4,596 |
|
| 2022 |
|
| 38.19 |
|
| 1,018 |
| | (994 | ) |
| 24 |
|
Restricted | April 4, 2018 | 31,220 |
|
| 2022 to 2023 |
|
| 34.35 |
|
| 3,013 |
| | (2,902 | ) |
| 111 |
|
Performance | April 4, 2018 | 5,550 |
|
| 2022 to 2023 |
|
| 34.35 |
|
| 356 |
| | (267 | ) |
| 89 |
|
Restricted | September 19, 2018 | 80,000 |
|
| 2024 |
|
| 19.58 |
|
| 1,020 |
| | (1,020 | ) |
| - |
|
Restricted | September 24, 2018 | 80,000 |
|
| 2024 |
|
| 18.40 |
|
| 3,170 |
| | (1,250 | ) |
| 1,920 |
|
Restricted | April 3, 2019 | 176,814 |
|
| 2022 to 2024 |
|
| 23.25 |
|
| 7,004 |
| | (5,479 | ) |
| 1,525 |
|
Performance | April 3, 2019 | 83,412 |
|
| 2022 to 2024 |
|
| 23.25 |
|
| 3,587 |
| | (2,212 | ) |
| 1,375 |
|
Restricted | September 2, 2019 | 440,000 |
|
| 2025 |
|
| 16.42 |
|
| 9,965 |
| | (3,875 | ) |
| 6,090 |
|
Restricted | April 1, 2020 | 290,082 |
|
| 2023 to 2025 |
|
| 12.53 |
|
| 5,668 |
| | (3,135 | ) |
| 2,533 |
|
Performance | April 1, 2020 | 238,188 |
|
| 2023 to 2025 |
|
| 12.53 |
|
| 5,494 |
| | (2,960 | ) |
| 2,534 |
|
Restricted | September 16, 2020 | 700,000 |
|
| 2026 |
|
| 23.03 |
|
| 13,259 |
| | (5,847 | ) |
| 7,412 |
|
Restricted | April 7, 2021 | 522,716 |
|
| 2024 |
|
| 20.85 |
|
| 17,985 |
| | (5,141 | ) |
| 12,844 |
|
Performance | April 7, 2021 | 522,716 |
|
| 2024 |
|
| 20.85 |
|
| 17,985 |
| | (5,141 | ) |
| 12,844 |
|
Restricted | September 22, 2021 | 1,000,000 |
|
| 2027 |
|
| 14.17 |
|
| 19,547 |
| | (1,087 | ) |
| 18,460 |
|
| | 4,415,294 |
|
| |
|
| |
|
| 118,364 |
| | (50,603 | ) |
| 67,761 |
|
For the year ended December 31, 2021, a general and administrative expense in the amount of R$ 24,067 – continuing operation and R$ 4,283 – discontinued operation was recognized in relation to the Plan (R$ 10,440 – continuing operation and R$ 2,224 – discontinued operation for the year ended December 31, 2020 and R$ 10,674 – continuing operation and R$ 2,219 – discontinued operation for the year ended December 31, 2019.
Balance on December 31, 2019 | | 1,738,660 |
|
Shares granted on April 1, 2020 | | 877,788 |
|
Shares granted on September 16, 2020 | | 700,000 |
|
Cancellation of granted shares due to termination of executive employment | | (353,294 | ) |
Cancellation of performance shares | | (52,992 | ) |
Balance on December 31, 2020 | | 2,910,162 |
|
Shares granted on April 7, 2021 | | 1,386,504 |
|
Shares granted on September 22, 2021 | | 1,000,000 |
|
Performance shares (i) | | (133,326 | ) |
Cancellation of granted shares due to termination of executive employment | | (133,186 | ) |
Reclassification to assets held for sale | | (614,860 | ) |
Balance on December 31, 2021 | | 4,415,294 |
|
| (i) | Refers to the reversal of the provision constituted in view of the significant probability that performance indicators will not be achieved. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
10. Income and social contribution taxes
a. Deferred income (IRPJ) and social contribution taxes (CSLL)
The Company and its subsidiaries recognize deferred tax assets and liabilities, which are not subject to the statute of limitations, mainly resulting from provision for differences between cash and accrual basis, tax loss carryforwards, negative tax bases and provisions for tax, civil, and labor risks. Deferred tax assets are sustained by the continued profitability of their operations. Deferred IRPJ and CSLL are recognized under the following main categories:
| 12/31/2021 |
| | 12/31/2020 |
|
Assets - deferred income and social contribution taxes on: | |
| | |
|
Provision for impairment of assets | 57,924 |
| | 75,231 |
|
Provisions for tax, civil, and labor risks | 188,236 |
| | 138,516 |
|
Provision for post-employment benefits | 73,335 |
| | 96,108 |
|
Provision for differences between cash and accrual basis (i) | 24,754 |
| | 606,054 |
|
Goodwill | 4,825 |
| | 5,161 |
|
Business combination – tax basis vs. accounting basis of goodwill | 18,699 |
| | 75,515 |
|
Provision for asset retirement obligation | 16,991 |
| | 15,728 |
|
Provision for suppliers | 39,364 |
| | 49,501 |
|
Provision for profit sharing and bonus | 44,876 |
| | 56,873 |
|
Leases payable | 41,463 |
| | 41,932 |
|
Change in fair value of subscription warrants | 10,957 |
| | 22,833 |
|
Provision for deferred revenue | 15,643 |
| | 25,770 |
|
Other provisions | 2,769 |
| | 14,917 |
|
Tax losses and negative basis for social contribution carryforwards (10.d) | 148,345 |
| | 363,862 |
|
Total | 688,181 |
| | 1,588,001 |
|
Offset liability balance of deferred IRPJ and CSLL | (116,426 | ) | | (613,290 | ) |
Net balance of deferred taxes assets | 571,755 |
| | 974,711 |
|
Liabilities - deferred income and social contribution taxes on: | |
| | |
|
Revaluation of PP&E | 408 |
| | 1,776 |
|
Leases payable | 138 |
| | 1,895 |
|
Provision for differences between cash and accrual basis (i) | 19,664 |
| | 402,780 |
|
Provision for goodwill | 28,676 |
| | 92,242 |
|
Business combination – fair value of assets | 66,079 |
| | 111,832 |
|
Other provisions | 1,743 |
| | 15,497 |
|
Total | 116,708 |
| | 626,022 |
|
Offset asset balance of deferred IRPJ and CSLL | (116,426 | ) | | (613,290 | ) |
Net balance of deferred taxes liabilities | 282 |
| | 12,732 |
|
| (i) | Refers, mainly, to the income tax on the exchange variation of the derivate hedging instruments. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Changes in the net balance of deferred IRPJ and CSLL are as follows:
| 2021 |
| | 2020 |
| | 2019 |
|
|
Initial balance | 961,979 |
| | 646,163 |
| | 504,890 |
|
|
Deferred IRPJ and CSLL recognized in income of the year | 242,246 |
| | 234,244 |
| | (2,633 | ) |
|
Deferred IRPJ and CSLL of subsidiaries classified as discontinued operations | 110,821 |
| | (146,305 | ) | | 100,098 |
|
|
Deferred IRPJ and CSLL recognized in other comprehensive income | (11,366 | ) | | 210,034 |
| | 40,497 |
|
|
Reclassification to assets held for sale | (728,986 | ) | | 0 - |
| | 0- |
|
|
Others | (3,221 | ) | | 17,843 |
| | 3,311 |
|
|
Final balance | 571,473 |
| | 961,979 |
| | 646,163 |
|
|
In order to evaluate the realization of deferred tax assets, the taxable income projections from business plans of each segment of the Company which indicates trends and perspectives, demand effects, competition and other economic factors, and that represent the management’s best estimate about the economic conditions existing during the period of realization of the deferred tax asset were taken into account.
The main key assumptions used to calculate the realization of deferred tax assets are: growth in Gross Domestic Product (“GDP”), exchange rate, basic interest rate (SELIC) and DI, inflation rate, commodity price index, among others. The balances of Company and its subsidiaries of R$ 688,181 were supported by the technical study on taxable profit projections for the realization of deferred tax assets.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Reconciliation of income and social contribution taxes
IRPJ and CSLL are reconciled to the statutory tax rates as follows:
| 2021 | |
| 2020 | |
| 2019 |
|
|
| | |
| Re-Restated (i) | |
| Re-Restated (i) |
|
|
Income before taxes | 1,006,648 | |
| 951,581 | |
| 1,365,177 |
|
|
Statutory tax rates – % | 34 | |
| 34 | |
| 34 |
|
|
Income and social contribution taxes at the statutory tax rates | (342,260 | ) |
| (323,538 | ) |
| (464,161 | ) |
|
Adjustments to the statutory income and social contribution taxes: | | |
| | |
|
|
|
|
Nondeductible expenses (ii) | (45,569 | ) |
| (33,420 | ) |
| (41,690 | ) |
|
Nontaxable revenues (iii) | 2,571 | |
| 2,757 | |
| 4,525 |
|
|
| Monetary variation (SELIC) on repetition of tax undue payments (iv) | 136,060 |
|
| 0- |
|
| 0- |
|
|
Adjustment to estimated income (v) | 3,901 | |
| 8,850 | |
| 10,511 |
|
|
Unrecorded deferred income and social contribution taxes carryforwards deferred (vi) | (5,285 | ) |
| (3,166 | ) |
| (3,271 | ) |
|
Share of profit (loss) of subsidiaries, joint ventures and associates | (5,995 | ) |
| (14,972 | ) |
| (4,322 | ) |
|
Other adjustments | 21,414 | |
| 12,911 | |
| 3,178 |
|
|
Income and social contribution taxes before tax incentives | (235,163 | ) |
| (350,578 | ) |
| (495,230 | ) |
|
Tax incentives - SUDENE | 47,129 | |
| 46,061 | |
| 25,254 |
|
|
Income and social contribution taxes in the income statement | (188,034 | ) |
| (304,517 | ) |
| (469,976 | ) |
|
Current | (430,280 | ) |
| (538,761 | ) |
| (467,343 | ) |
|
Deferred | 242,246 | |
| 234,244 | |
| (2,633 | ) |
|
Effective IRPJ and CSLL rates – % | 18.7 | |
| 32.0 | |
| 34.4 |
|
|
| (i) | For more information on the restatement, see note 3.c.1. |
| (ii) | Consist of certain expenses that cannot be deducted for tax purposes under applicable tax legislation, such as expenses with fines, donations, gifts, losses of assets, negative effects of foreign subsidiaries and certain provisions. |
| (iii) | Consist of certain gains and income that are not taxable under applicable tax legislation, such as the reimbursement of taxes and the reversal of certain provisions. |
| (iv) | Refers to amounts related to non-taxation of IRPJ/CSLL on monetary variation (SELIC) in the repetition of undue tax lawsuits (see note 10.e). |
| (v) | Brazilian tax law allows for an alternative method of taxation for companies that generated gross revenues of up to R$ 78 million in their previous fiscal year. Certain subsidiaries of the Company adopted this alternative form of taxation, whereby income and social contribution taxes are calculated on a basis equal to 32% of operating revenues, as opposed to being calculated based on the effective taxable income of these subsidiaries. The adjustment to estimated income represents the difference between the taxation under this alternative method and the income and social contribution taxes that would have been paid based on the effective statutory rate applied to the taxable income of these subsidiaries. |
(vi)
| See Note 10.d. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c. Tax incentives – SUDENE
For belonging to the sectors of the economy considered priority for the subsidized areas, under the terms of the development program of region operated by the Superintendence for the Development of the Northeast (“SUDENE”), the following subsidiaries, in compliance with the current law have entitled to federal tax benefits providing for IRPJ reduction under:
Subsidiary | Units |
|
| Incentive - % |
|
| Expiration |
Bahiana Distribuidora de Gás Ltda. | Mataripe base |
|
| 75 |
|
| 2024 |
| Caucaia base |
|
| 75 |
|
| 2025 |
| Juazeiro base |
|
| 75 |
|
| 2026 |
| Aracaju base |
|
| 75 |
|
| 2027 |
| Suape base |
|
| 75 |
|
| 2027 |
Ultracargo Logística S.A. | Suape terminal |
|
| 75 |
|
| 2030 |
| Aratu terminal |
|
| 75 |
|
| 2022 |
| Itaqui terminal |
|
| 75 |
|
| 2030 |
d. Income and social contribution taxes carryforwards
As of December 31, 2021, the Company and certain subsidiaries had tax loss carryforwards related to income tax (IRPJ) and negative basis of CSLL, whose compensations are limited to 30% of taxable income in a given tax year, which do not expire.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The balances which are constituted of deferred taxes related to income tax loss carryforwards and negative basis of social contribution base are as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
Oil Trading | 53,839 |
| | 0 - |
|
Ultrapar (i) | 43,441 |
| | 27,736 |
|
Abastece aí | 41,065 |
| | 7,362 |
|
Tequimar Vila do conde | 9,861 |
| | 489 |
|
Ultracargo | 139 |
| | 107 |
|
Oxiteno S.A. (ii) | 0 - |
| | 205,604 |
|
Ipiranga | 0 - |
| | 44,537 |
|
Iconic | 0 - |
| | 5,691 |
|
Extrafarna (ii) | 0 - |
| | 72,318 |
|
UVC Investimentos | 0 - |
| | 18 |
|
| 148,345 |
| | 363,862 |
|
| (i) | Considers the amount of R$ 8,510 of deferred taxes recognized on the tax loss of subsidiary Ultrapar International as of December 31, 2021 (R$ 7,659 as of December 31, 2020). |
| (ii) | As of December 31, 2021, the amounts of R$ 247,912 and R$ 72,318, referring to the balances constituted on deferred charges related to IRPJ tax losses and negative CSLL bases for the subsidiaries Oxiteno S.A. and Extrafarma, respectively, were reclassified to assets held for sale. |
The balances which are not constituted of deferred taxes related to income tax loss carryforwards and negative basis of social contribution base are as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
Extrafarma | 312,521 |
| | 294,400 |
|
Integra Frotas | 11,769 |
| | 7,802 |
|
Millennium | 3,174 |
| | 640 |
|
| 327,464 |
| | 302,842 |
|
e. Non-incidence of IRPJ/CSLL on the update by Selic of tax undue payments received from the Federal Government
The Company and its subsidiaries have lawsuits claiming the non-incidence of IRPJ and CSLL on monetary variation (SELIC) on tax credits. On September 27, 2021, the Federal Supreme Court judged that the incidence of IRPJ and CSLL on amounts related to monetary variation (SELIC) received by taxpayers in the repetition of tax undue payments is unconstitutional. The Company and its subsidiaries recognized a tax credit of R$ 106,667 related to this topic. On December 31, 2021, the amount of R$ 74,243 related to the subsidiaries Extrafarma, Oxiteno S.A., Oleoquímica and EMCA, was reclassified to assets held for sale.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
11. Prepaid expenses
| 12/31/2021 |
| | 12/31/2020 |
|
Rents | 54,327 |
| | 30,400 |
|
Advertising and publicity | 28,410 |
| | 17,752 |
|
Deferred stock plan, net | 4,399 |
| | 9,900 |
|
Insurance premiums | 26,917 |
| | 58,675 |
|
Software maintenance | 19,863 |
| | 24,233 |
|
Employee benefits | 8,362 |
| | 8,924 |
|
IPVA and IPTU | 1,553 |
| | 2,632 |
|
Contribution - private pension fund (see Note 21.a) | 19,831 |
| | 36,068 |
|
Other prepaid expenses | 5,730 |
| | 14,045 |
|
| 169,392 |
| | 202,629 |
|
Current | 98,024 |
| | 132,122 |
|
Non-current | 71,368 |
| | 70,507 |
|
12. Contractual assets with customers – exclusive rights
Refers to exclusive rights disbursements of Ipiranga’s agreements with reseller service stations and major consumers that are recognized at the time of their occurrence and recognized as a reductions of the revenue from sales and services in the statement of profit or loss according to the conditions established in the agreement, being reviewed as changes occur under the terms of the agreements. In December 31, 2021, the contracts amortization weighted average term was five years.
Balance and changes are shown below:
Balance as of December 31, 2018 | | 1,518,477 |
|
Additions | | 330,068 |
|
Amortization | | (355,250 | ) |
Transfer | | (27,306 | ) |
Balance as of December 31, 2019 | | 1,465,989 |
|
Additions | | 549,085 |
|
Amortization | | (289,436 | ) |
Transfer | | (19,307 | ) |
Balance as of December 31, 2020 | | 1,706,331 |
|
Additions | | 689,986 |
|
Amortization | | (282,521 | ) |
Transfer | | (34,570 | ) |
Balance as of December 31, 2021 | | 2,079,226 |
|
Current | | 555,052 |
|
Non-current | | 1,524,174 | |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
13. Investments
The table below presents the amount reconciliation of share of profit (loss) of subsidiaries, joint ventures and associates:
| Note | 2021 |
| | 2020 |
| | 2019 |
|
| | |
| | Re-presented (i) |
| | Re-presented (i) |
|
Joint ventures | 13.b | (18,068 | ) | | (45,812 | ) | | (14,463 | ) |
Associates | 13.c | 434 |
| | 1,781 |
| | 1,754 |
|
| | (17,634 | ) | | (44,031 | ) | | (12,709 | ) |
(i) See Note 3.c.3.
a. Joint ventures
The Company holds an interest in Refinaria de Petróleo Riograndense S.A. (“RPR”), which is primarily engaged in oil refining.
The subsidiary Ultracargo Logística holds an interest in União Vopak – Armazéns Gerais Ltda. (“União Vopak”), which is primarily engaged in liquid bulk storage in the port of Paranaguá.
The subsidiary IPP held an interest in ConectCar, which is primarily engaged in automatic payment of tolls and parking in the States of Bahia, Ceará, Espírito Santo, Goiás, Mato Grosso, Mato Grosso do Sul, Minas Gerais, Paraná, Pernambuco, Rio de Janeiro, Rio Grande do Sul, Santa Catarina, São Paulo and Distrito Federal. On June 25, 2021, the sale of ConectCar, completed on October 1, 2021. For further details see item 13.b.1.
The subsidiary IPP participates in the port concession BEL02A at the port of Miramar, in Belém (PA), through Latitude Logística Portuária S.A. (“Latitude”); for the port of Vitória (ES), participates through Navegantes Logística Portuária S.A. (“Navegantes”); in Cabedelo (PB), has participation in the Nordeste Logística I S.A. ("Nordeste Logística I"), Nordeste Logística II S.A. ("Nordeste Logística II") and Nordeste Logística III S.A. ("Nordeste Logística III”) (see Note 34.c).
These investments of joint ventures are accounted for under the equity method of accounting based on their financial statements as of December 31, 2021.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Balances and changes in joint ventures are as follows:
| União Vopak |
| | RPR |
| | ConectCar |
| | Latitude Logística |
| | Navegantes Logística |
| | Nordeste Logística I |
| | Nordeste Logística II |
| | Nordeste Logística III |
| | Total |
|
Balance as of December 31, 2018 | 7,446 |
| | 20,118 |
| | 74,390 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | 101,954 |
|
Capital increase | - |
| | - |
| | 35,000 |
| | 10,351 |
| | 23,581 |
| | 1,930 |
| | 4,183 |
| | 4,079 |
| | 79,124 |
|
Other reserves | - |
| | (7,771 | ) | | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | (7,771 | ) |
Dividends | (1,474 | ) | | (4,295 | ) | | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | (5,769 | ) |
Share of profit (loss) of joint ventures | 1,370 |
| | 10,740 |
| | (26,572 | ) | | - |
| | - |
| | - |
| | - |
| | - |
| | (14,462 | ) |
Balance as of December 31, 2019 | 7,342 |
| | 18,792 |
| | 82,818 |
| | 10,351 |
| | 23,581 |
| | 1,930 |
| | 4,183 |
| | 4,079 |
| | 153,076 |
|
Capital increase | - |
| | - |
| | 20,000 |
| | - |
| | - |
| | 303 |
| | 3,894 |
| | 5,006 |
| | 29,203 |
|
Capital decrease (i) | - |
| | - |
| | - |
| | - |
| | (363 | ) | | - |
| | - |
| | - |
| | (363 | ) |
Other reserves | - |
| | 1,065 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | 1,065 |
|
Proposed dividends | - |
| | (165 | ) | | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | (165 | ) |
Share of profit (loss) of joint ventures | 392 |
| | (21,788 | ) | | (21,638 | ) | | - |
| | (1,594 | ) | | (1,409 | ) | | (401 | ) | | 626 |
| | (45,812 | ) |
Transfer to provision for liabilities | - |
| | 2,096 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | 2,096 |
|
Balance as of December 31, 2020 | 7,734 |
| | - |
| | 81,180 |
| | 10,351 |
| | 21,624 |
| | 824 |
| | 7,676 |
| | 9,711 |
| | 139,100 |
|
Capital increase | - |
| | - |
| | 15,000 |
| | 5,001 |
| | 3,697 |
| | - |
| | 6,399 |
| | 600 |
| | 30,697 |
|
Capital decrease (i) | - |
| | - |
| | - |
| | (5,001 | ) | | - |
| | - |
| | - |
| | - |
| | (5,001 | ) |
Other reserves | - |
| | 99 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | 99 |
|
Actuarial gain of post-employment benefits | - |
| | 5,723 |
| | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | 5,723 |
|
Shareholder transaction – changes of investments | - |
| | - |
| | - |
| | (966 | ) | | - |
| | - |
| | - |
| | - |
| | (966 | ) |
Share of profit (loss) of joint ventures | 602 |
| | 822 |
| | (18,081 | ) | | 593 |
| | (3,032 | ) | | 1,592 |
| | (819 | ) | | 255 |
| | (18,068 | ) |
Disposition of investment (see Note | - |
| | - |
| | (78,099 | ) | | - |
| | - |
| | - |
| | - |
| | - |
| | (78,099 | ) |
Transfer from provision for liabilities | - |
| | (2,096 | ) | | - |
| | - |
| | - |
| | - |
| | - |
| | - |
| | (2,096 | ) |
Balance as of December 31, 2021 | 8,336 |
| | 4,548 |
| | - |
| | 9,978 |
| | 22,289 |
| | 2,416 |
| | 13,256 |
| | 10,566 |
| | 71,389 |
|
(i) Refers to reimbursement of expenses that preceded the port area auctions and that were apportioned among the other members of the consortium.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Provision to (from) short-term liabilities |
|
| RPR |
|
Balance as of December 31, 2019 | - |
|
Transfer to provision for liabilities | 2,096 |
|
Balance as of December 31, 2020 | 2,096 |
|
Transfer from provision for liabilities | (2,096 | ) |
Balance as of December 31, 2021 | - |
|
The table below presents the statements of financial position and statements of profit or loss of joint ventures:
| 12/31/2021 |
|
| União Vopak |
| | RPR |
| | ConectCar (i) |
| | Latitude Logística |
| | Navegantes Logística |
| | Nordeste Logística I |
| | Nordeste Logística II |
| | Nordeste Logística III |
|
Current assets | 10,068 |
| | 273,029 |
| | 171,894 |
| | 18,798 |
| | 5,393 |
| | 52,022 |
| | 36,958 |
| | 17,458 |
|
Non-current assets | 9,696 |
| | 179,652 |
| | 177,217 |
| | 50,215 |
| | 167,170 |
| | 18,346 |
| | 17,279 |
| | 49,439 |
|
Current liabilities | 2,824 |
| | 354,001 |
| | 174,030 |
| | 9,151 |
| | 256 |
| | 46,615 |
| | 1,418 |
| | 13,960 |
|
Non-current liabilities | 268 |
| | 84,980 |
| | 18,883 |
| | 39,906 |
| | 105,440 |
| | 16,504 |
| | 13,052 |
| | 21,239 |
|
Equity | 16,672 |
| | 13,700 |
| | 156,198 |
| | 19,956 |
| | 66,867 |
| | 7,249 |
| | 39,767 |
| | 31,698 |
|
Net revenue from sales and services | 17,660 |
| | 2,092,786 |
| | 60,436 |
| | 5,895 |
| | - |
| | 11,625 |
| | 2,016 |
| | 7,561 |
|
Costs, operating expenses and income | (16,144 | ) | | (2,105,544 | ) | | (97,095 | ) | | (2,591 | ) | | (1,579 | ) | | (3,260 | ) | | (3,980 | ) | | (5,030 | ) |
Net finance income and income and social contribution taxes | (312 | ) | | 15,235 |
| | 497 |
| | (2,118 | ) | | (7,517 | ) | | (3,589 | ) | | (494 | ) | | (1,765 | ) |
Net income (loss) | 1,204 |
| | 2,477 |
| | (36,162 | ) | | 1,186 |
| | (9,096 | ) | | 4,776 |
| | (2,458 | ) | | 766 |
|
Number of shares or units held | 29,995 |
| | 5,078,888 |
| | 263,768,000 |
| | 4,383,881 |
| | 22,298,195 |
| | 681,637 |
| | 3,933,265 |
| | 4,871,241 |
|
% of capital held | 50 |
| | 33 |
| | 50 |
| | 50 |
| | 33 |
| | 33 |
| | 33 |
| | 33 |
|
The percentages in the table above are rounded.
(i) The balances presented refer to September 30, 2021, due to the completion of the sale of ConectCar on October 1, 2021, for further details see note 13.a.1.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| 12/31/2020 |
|
| União Vopak |
| | RPR |
| | ConectCar |
| | Navegantes Logística |
| | Nordeste Logística I |
| | Nordeste Logística II |
| | Nordeste Logística III |
|
Current assets | 8,510 |
| | 291,720 |
| | 161,371 |
| | 24,691 |
| | 972 |
| | 18,531 |
| | 21,513 |
|
Non-current assets | 9,796 |
| | 171,270 |
| | 169,843 |
| | 166,389 |
| | 6,021 |
| | 18,005 |
| | 30,503 |
|
Current liabilities | 2,698 |
| | 363,388 |
| | 168,854 |
| | 8 |
| | 4 |
| | 5 |
| | 6 |
|
Non-current liabilities | 140 |
| | 105,912 |
| | - |
| | 126,201 |
| | 4,516 |
| | 13,504 |
| | 22,877 |
|
Equity | 15,468 |
| | (6,310 | ) | | 162,360 |
| | 64,871 |
| | 2,473 |
| | 23,027 |
| | 29,133 |
|
Net revenue from sales and services | 15,666 |
| | 1,455,668 |
| | 91,096 |
| | - |
| | - |
| | - |
| | - |
|
Costs, operating expenses and income | (14,408 | ) | | (1,531,652 | ) | | (134,961 | ) | | (3,480 | ) | | (4,225 | ) | | (1,203 | ) | | 1,878 |
|
Net finance income and income and social contribution taxes | (474 | ) | | 10,361 |
| | 589 |
| | (1,301 | ) | | - |
| | - |
| | - |
|
Net income (loss) | 784 |
| | (65,623 | ) | | (43,276 | ) | | (4,781 | ) | | (4,226 | ) | | (1,203 | ) | | 1,878 |
|
Number of shares or units held | 29,995 |
| | 5,078,888 |
| | 248,768,000 |
| | 22,298,195 |
| | 681,637 |
| | 3,933,265 |
| | 4,871,241 |
|
% of capital held | 50 |
| | 33 |
| | 50 |
| | 33 |
| | 33 |
| | 33 |
| | 33 |
|
| 12/31/2019 |
|
| União Vopak |
| | RPR |
| | ConectCar |
|
Net revenue from sales and services | 15,400 |
| | 2,156,432 |
| | 80,387 |
|
Costs, operating expenses and income | (12,083 | ) | | (2,130,323 | ) | | (136,764 | ) |
Net finance income and income and social contribution taxes | (577 | ) | | 6,237 |
| | 3,234 |
|
Net income (loss) | 2,740 |
| | 32,346 |
| | (53,143 | ) |
Number of shares or units held | 29,995 |
| | 5,078,888 |
| | 228,768,000 |
|
% of capital held | 50 |
| | 33 |
| | 50 |
|
The percentages in the table above are rounded.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
a.1 ConectCar share purchase and sale agreement
The Company concluded the process of selling its interest in ConectCar started on June 25, 2021. On September 30, 2021, ConectCar was controlled by IPP and by Redecard S.A., belonging to Itaú Unibanco Holding S.A., both with equal interests of 50%.
On October 1, 2021, the Company announced the conclusion of the sale of its interest in ConectCar through its subsidiary IPP to Porto Seguro S.A., through its subsidiary Portoseg SA – Credit, Financing and Investment. The sale value of the 50% interest in the subsidiary IPP after adjustments resulting from changes in working capital and net debt position, totaled R$ 158 million. The disposition of investment, totaled R$ 78 million. The gain from sale of Conectcar, totaled R$ 76 million.
b. Associates
Subsidiary IPP holds an interest in Transportadora Sulbrasileira de Gás S.A. (“TSB”), which is primarily engaged in natural gas transportation services.
Subsidiary Oxiteno S.A. holds an interest in Oxicap Indústria de Gases Ltda. (“Oxicap”), which is primarily engaged in the supply of nitrogen and oxygen for its shareholders in the Mauá petrochemical complex. Due to the sale of the subsidiary, the balances were reclassified to assets of subsidiaries held for sale at December 31, 2021, for further details see note 3.
The subsidiary Oxiteno S.A. holds an interest in Química da Bahia Indústria e Comércio S.A. (“Química da Bahia”), which is primarily engaged in manufacturing, marketing, and processing of chemicals. The operations of Química da Bahia are currently suspended. This interest is not part of the Oxiteno sale transaction.
Subsidiary Cia. Ultragaz holds an interest in Metalúrgica Plus S.A. (“Metalplus”), which is primarily engaged in the manufacture and trading of LPG containers. The operations of this associate are currently suspended.
Subsidiary Cia. Ultragaz holds an interest in Plenogás Distribuidora de Gás S.A. (“Plenogás”), which is primarily engaged in the marketing of LPG. The operations of this associate are currently suspended.
These investments are accounted for under the equity method of accounting based on the financial statements as of December 31, 2021.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Balances and changes in associates are as follows:
| Transportadora Sulbrasileira de Gás S.A. |
| | Oxicap Indústria de Gases Ltda. |
| | Química da Bahia Indústria e Comércio S.A. |
| | Metalúrgica Plus S.A. |
| | Plenogás Distribuidora de Gás S.A. |
| | Total |
|
Balance as of December 31, 2018 | 4,689 |
| | 15,366 |
| | 3,590 |
| | 228 |
| | 465 |
| | 24,338 |
|
Dividends | (818 | ) | | - |
| | - |
| | - |
| | (87 | ) | | (905 | ) |
Share of profit (loss) of associates | 1,790 |
| | - |
| | (36 | ) | | (90 | ) | | 85 |
| | 2,317 |
|
Share of profit (loss) of associates - discontinued operations | - |
| | 568 |
| | - |
| | - |
| | - |
| | - |
|
Balance as of December 31, 2019 | 5,661 |
| | 15,934 |
| | 3,554 |
| | 138 |
| | 463 |
| | 25,750 |
|
Dividends | (2,357 | ) | | - |
| | - |
| | - |
| | - |
| | (2,357 | ) |
Share of profit (loss) of associates | 1,846 |
| | - |
| | (12 | ) | | (91 | ) | | 38 |
| | 1,781 |
|
Share of profit (loss) of associates - discontinued operations | - |
| | 414 |
| | - |
| | - |
| | - |
| | 414 |
|
Balance as of December 31, 2020 | 5,150 |
| | 16,348 |
| | 3,542 |
| | 47 |
| | 501 |
| | 25,588 |
|
Capital decrease | (1,500 | ) | | - |
| | - |
| | - |
| | - |
| | (1,500 | ) |
Dividends | (998 | ) | | - |
| | - |
| | - |
| | - |
| | (998 | ) |
Share of profit (loss) of associates | 552 |
| | - |
| | (14 | ) | | (100 | ) | | (4 | ) | | 434 |
|
Share of profit (loss) of associates - discontinued operations | - |
| | 48 |
| | - |
| | - |
| | - |
| | 48 |
|
Reclassification to assets held for sale | - |
| | (16,396 | ) | | - |
| | - |
| | - |
| | (16,396 | ) |
Balance as of December 31, 2021 | 3,204 |
| | - |
| | 3,528 |
| | (53 | ) | | 497 |
| | 7,176 |
|
2
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The table below presents the statements of financial position and statements of profit or loss of associates:
| 12/31/2021 |
|
| Transportadora Sulbrasileira de Gás S.A. |
| | Oxicap Indústria de Gases Ltda. |
| | Química da Bahia Indústria e Comércio S.A. |
| | Metalúrgica Plus S.A. |
| | Plenogás Distribuidora de Gás S.A. |
|
Current assets | 7,685 |
| | 90,156 |
| | 14 |
| | 47 |
| | 568 |
|
Non-current assets | 11,611 |
| | 70,496 |
| | 10,151 |
| | 126 |
| | 1,804 |
|
Current liabilities | 5,875 |
| | 44,408 |
| | - |
| | 28 |
| | 158 |
|
Non-current liabilities | 601 |
| | 7,562 |
| | 3,109 |
| | 303 |
| | 724 |
|
Equity | 12,820 |
| | 108,682 |
| | 7,056 |
| | (158 | ) | | 1,490 |
|
Net revenue from sales and services | 15,126 |
| | 69,611 |
| | - |
| | - |
| | - |
|
Costs, operating expenses and income | (12,691 | ) | | (68,390 | ) | | (28 | ) | | (239 | ) | | 18 |
|
Net finance income and income and social contribution taxes | (226 | ) | | (904 | ) | | - |
| | (61 | ) | | (31 | ) |
Net income (loss) | 2,209 |
| | 317 |
| | (28 | ) | | (300 | ) | | (13 | ) |
Number of shares or units held | 20,124,996 |
| | 1,987 |
| | 1,493,120 |
| | 3,000 |
| | 1,384,308 |
|
% of capital held | 25 |
| | 15 |
| | 50 |
| | 33 |
| | 33 |
|
| 12/31/2020 |
|
| Transportadora Sulbrasileira de Gás S.A. |
| | Oxicap Indústria de Gases Ltda. |
| | Química da Bahia Indústria e Comércio S.A. |
| | Metalúrgica Plus S.A. |
| | Plenogás Distribuidora de Gás S.A. |
|
Current assets | 10,570 |
| | 65,136 |
| | 47 |
| | 58 |
| | 352 |
|
Non-current assets | 12,822 |
| | 77,339 |
| | 10,146 |
| | 414 |
| | 2,196 |
|
Current liabilities | 2,189 |
| | 26,116 |
| | - |
| | 28 |
| | 154 |
|
Non-current liabilities | 602 |
| | 7,994 |
| | 3,109 |
| | 302 |
| | 890 |
|
Equity | 20,601 |
| | 108,365 |
| | 7,084 |
| | 142 |
| | 1,504 |
|
Net revenue from sales and services | 14,295 |
| | 58,677 |
| | - |
| | - |
| | - |
|
Costs, operating expenses and income | (6,475 | ) | | (54,163 | ) | | (24 | ) | | (212 | ) | | 396 |
|
Net finance income and income and social contribution taxes | (437 | ) | | (1,770) |
| | - |
| | (60 | ) | | (39 | ) |
Net income (loss) | 7,383 |
| | 2,744 |
| | (24 | ) | | (272 | ) | | 357 |
|
Number of shares or units held | 20,124,996 |
| | 1,987 |
| | 1,493,120 |
| | 3,000 |
| | 1,384,308 |
|
% of capital held | 25 |
| | 15 |
| | 50 |
| | 33 |
| | 33 |
|
| 12/31/2019 |
|
| Transportadora Sulbrasileira de Gás S.A. |
| | Oxicap Indústria de Gases Ltda. |
| | Química da Bahia Indústria e Comércio S.A. |
| | Metalúrgica Plus S.A. |
| | Plenogás Distribuidora de Gás S.A. |
|
Net revenue from sales and services | 12,348 |
| | 43,463 |
| | - |
| | - |
| | - |
|
Costs, operating expenses and income | (4,815 | ) | | (36,791 | ) | | (84 | ) | | (213 | ) | | 285 |
|
Net finance income and income and social contribution taxes | (157 | ) | | (2,483 | ) | | 12 |
| | (57 | ) | | (29 | ) |
Net income (loss) | 7,376 |
| | 4,189 |
| | (72 | ) | | (270 | ) | | 256 |
|
Number of shares or units held | 20,124,996 |
| | 1,987 |
| | 1,493,120 |
| | 3,000 |
| | 1,384,308 |
|
% of capital held | 25 |
| | 15 |
| | 50 |
| | 33 |
| | 33 |
|
The percentages in the table above are rounded.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
14. Right-of-use assets and leases payable
The Company and certain subsidiaries have real estate leases, substantially related to: (i) Ipiranga: fuel stations and distribution centers; (ii) Ultragaz: points of sale and bottling bases; (iii) Ultracargo: port areas and (iv) Company: offices. The Company and certain subsidiaries also have lease agreements relating to vehicles.
a. Right-of-use assets
| Weighted average useful life (years) | Balance on 12/31/2020 |
| | Additions and remeasurement |
| | Write-offs |
| | Transfer (i) |
| | Effect of foreign currency exchange rate variation |
| | Amortization |
| | Reclassification to assets held for sale (ii) |
| | Balance on 12/31/2021 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Real estate (iii) | 10 | 2,254,432 |
| | 257,787 |
| | (150,718 | ) | | 0 - |
| | 1,295 |
| | 0 - |
| | (569,323 | ) | | 1,793,473 |
|
Port area | 20 | 268,534 |
| | 31,096 (*) |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 299,630 |
|
Vehicles | 4 | 139,843 |
| | 26,589 |
| | (9,315 | ) | | 0 - |
| | 103 |
| | 0 - |
| | (11,047 | ) | | 146,173 |
|
Equipment | 6 | 44,936 |
| | 19,887 |
| | (6,171 | ) | | 0 - |
| | 1,920 |
| | 0 - |
| | (43,832 | ) | | 16,740 |
|
Others | 20 | 27,846 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 27,846 |
|
| | 2,735,591 |
| | 335,359 |
| | (166,204 | ) | | 0 - |
| | 3,318 |
| | 0 - |
| | (624,202 | ) | | 2,283,862 |
|
Accumulated amortization: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Real estate | | (481,975 | ) | | 0 - |
| | 76,954 |
| | 0 - |
| | (530 | ) | | (283,882 | ) | | 199,963 |
| | (489,470 | ) |
Port area | | (3,962 | ) | | 0 - |
| | 0 - |
| | (11,935 | ) | | 0 - |
| | (7,629 | ) | | 0 - |
| | (23,526 | ) |
Vehicles | | (63,091 | ) | | 0 - |
| | 7,032 |
| | 0 - |
| | (54 | ) | | (48,146 | ) | | 5,392 |
| | (98,867 | ) |
Equipment | | (19,619 | ) | | 0 - |
| | 6,483 |
| | 0 - |
| | (897) |
| | (17,637 | ) | | 29,836 |
| | (1,834 | ) |
Others | | (16,658 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (2,212 | ) | | 0 - |
| | (18,870 | ) |
| | (585,305 | ) | | 0 - |
| | 90,469 |
| | (11,935 | ) | | (1,481 | ) | | (359,506 | ) | | 235,191 |
| | (632,567 | ) |
Impairment | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Real estate | | 0 - |
| | (38,957 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 38,957 |
| | 0 - |
|
| | 0 - |
| | (38,957 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 38,957 |
| | 0 - |
|
Net amount | | 2,150,286 |
| | 296,402 |
| | (75,735 | ) | | (11,935 | ) | | 1,837 |
| | (359,506 | ) | | (350,054 | ) | | 1,651,295 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| (i) | Refers to the amortization of right-of-use assets in the subsidiary Tequimar Vila do Conde Logística Portuária S.A. (“Tequimar Vila do Conde”), which is being capitalized as Construction in progress, starting its operation in December 2021. |
| (ii) | For further information, see Note 3.c.1. |
| (iii) | Includes lease contracts as presented in Note 9.a. |
| (*) | Includes balances of R$ 14,905 referring to initial direct costs of right-of-use assets. |
| Weighted average useful life (years) | Balance on 12/31/2019 |
| | Additions and remeasurement |
| | Write-offs |
| | Effect of foreign currency exchange rate variation |
| | Amortization |
| | Balance on 12/31/2020 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
|
Real estate | 10 | 2,068,254 |
| | 259,244 |
| | (78,529 | ) | | 5,463 |
| | 0 - |
| | 2,254,432 |
|
Port area | 20 | 68,007 |
| | 200,527 |
| | 0- |
| | 0- |
| | 0 - |
| | 268,534 |
|
Vehicles | 4 | 91,868 |
| | 55,616 |
| | (7,893 | ) | | 252 |
| | 0 - |
| | 139,843 |
|
Equipment | 6 | 31,822 |
| | 7,833 |
| | (572 | ) | | 5,853 |
| | 0 - |
| | 44,936 |
|
Others | 20 | 27,846 |
| | 0- |
| | 0- |
| | 0- |
| | 0 - |
| | 27,846 |
|
| | 2,287,797 |
| | 523,220 |
| | (86,994 | ) | | 11,568 |
| | 0 - |
| | 2,735,591 |
|
Accumulated amortization: | | |
| | |
| | |
| | |
| | |
| | |
|
Real estate | | (256,430 | ) | | 0 - |
| | 46,282 |
| | (697 | ) | | (271,130 | ) | | (481,975 | ) |
Port area | | 0- |
| | 0 - |
| | 0- |
| | 0- |
| | (3,962 | ) | | (3,962 | ) |
Vehicles | | (27,492 | ) | | 0 - |
| | 5,509 |
| | 232 |
| | (41,340 | ) | | (63,091 | ) |
Equipment | | (7,600 | ) | | 0 - |
| | 572 |
| | (1,996 | ) | | (10,595 | ) | | (19,619 | ) |
Others | | (15,363 | ) | | 0 - |
| | 0- |
| | 0- |
| | (1,295 | ) | | (16,658 | ) |
| | (306,885 | ) | | 0 - |
| | 52,363 |
| | (2,461 | ) | | (328,322 | ) | | (585,305 | ) |
Net amount | | 1,980,912 |
| | 523,220 |
| | (34,631 | ) | | 9,107 |
| | (328,322 | ) | | 2,150,286 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Weighted average useful life (years) | Adoption IFRS 16 |
| | Additions and remeasurement |
| | Write-offs |
| | Transfer |
| | Effect of foreign currency exchange rate variation |
| | Amortization |
| | Balance on 12/31/2019 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Real estate | 7 | 1,636,330 |
| | 308,622 |
| | (55,605 | ) | | 98,043 |
| | 80,930 |
| | 0 - |
| | 2,068,320 |
|
Port area (i) | 0 - | 0 - |
| | 68,007 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 68,007 |
|
Others | 4 | 95,097 |
| | 26,235 |
| | (1,981 | ) | | 27,847 |
| | 4,272 |
| | 0 - |
| | 151,470 |
|
| | 1,731,427 |
| | 402,864 |
| | (57,586 | ) | | 125,890 |
| | 85,202 |
| | 0 - |
| | 2,287,797 |
|
Accumulated amortization: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Real estate | | 0 - |
| | 0 - |
| | 6,682 |
| | 0 - |
| | 36 |
| | (262,750 | ) | | (256,032 | ) |
Others | | 0 - |
| | 0 - |
| | 442 |
| | (14,068 | ) | | 81 |
| | (37,308 | ) | | (50,853 | ) |
| | 0 - |
| | 0 - |
| | 7,124 |
| | (14,068 | ) | | 117 |
| | (300,058 | ) | | (306,885 | ) |
Net amount | | 1,731,427 |
| | 402,864 |
| | (50,462 | ) | | 111,822 |
| | 85,319 |
| | (300,058 | ) | | 1,980,912 |
|
(i) Refers to the area port lease, which R$ 68,007 was paid by the Company’s subsidiaries in the fourth quarter of 2019.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Leases payable
The changes in leases payable are shown below:
Balance as of December 31, 2018 | 46,066 |
|
Adoption IFRS 16 | 1,363,803 |
|
Interest accrued | 128,996 |
|
Payments | (321,716 | ) |
Additions and remeasurement | 334,857 |
|
Write-offs | (52,129 | ) |
Effect of foreign currency exchange rate variation | 88,796 |
|
Balance as of December 31, 2019 | 1,588,673 |
|
Interest accrued | 144,655 |
|
Payments | (360,787 | ) |
Additions and remeasurement | 484,121 |
|
Write-offs | (35,381 | ) |
Effect of foreign currency exchange rate variation | 12,007 |
|
Assignment of contract | 0 - |
|
Balance as of December 31, 2020 | 1,833,288 |
|
Interest accrued | 147,494 |
|
Payments (i) | (440,574 | ) |
Additions and remeasurement | 288,711 |
|
Write-offs | (83,157 | ) |
Effect of foreign currency exchange rate variation | 16,264 |
|
Reclassification to liabilities held for sale (ii) | (413,715 | ) |
Balance as of December 31, 2021 | 1,348,311 |
|
Current | 188,832 |
|
Non-current | 1,159,479 |
|
(i) Includes the amount of R$ 29,237 paid by subsidiary Tequimar Vila do Conde related to port concession grants.
(ii) For further information. see Note 3.c.1.
The future disbursements (installments) assumed under leases contracts are presented below:
| 12/31/2021 |
|
Up to 1 year | 304,007 |
|
From 1 to 2 years | 264,224 |
|
From 2 to 3 years | 241,323 |
|
From 3 to 4 years | 218,157 |
|
From 4 to 5 years | 152,671 |
|
More than 5 years | 965,220 |
|
Total | 2,145,602 |
|
The contracts related to the leases payable are substantially indexed by the IGP-M (General Market Price Index is a measure of Brazilian inflation, calculated by the Getúlio Vargas Foundation).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b.1. Discount rates
The weighted average discount rates for the lease contracts of the Company are:
Contracts for maturity date and discount rate |
|
Maturity date of the contracts | Discount rates (% p.a.) |
|
Up to 5 years | 6.92 |
|
From 6 to 10 years | 7.12 |
|
From 11 to 15 years | 7.35 |
|
More than 15 years | 8.18 |
|
c. Lease contracts of low amount assets
Subsidiaries Cia. Ultragaz, Bahiana, IPP and Serma have operating lease contracts consider as being of low value, short term and variable payments for the use of factory and IT equipment’s, vehicles and real states. The subsidiaries have the option to purchase the assets referring to IT equipment at a price equal to the fair value on the date of option, and management does not intend to exercise such option. The future disbursements (payments), assumed as a result of these contracts amount approximately to:
| Up to 1 year |
|
| Between 1 and 5 years |
|
| Total |
|
|
12/31/2021 | 124 |
|
| 994 |
|
| 1,118 |
|
|
12/31/2020 | 1,147 |
|
| 6,145 |
|
| 7,292 |
|
|
The amount of leases considered low value, short term and variable payments, recognized as an expense for the year ended December 31, 2021 was R$ 13,524 (R$ 13,965 for the year ended December 31, 2020 and R$ 7,255 for the year ended December 31, 2019).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
15. Property, plant, and equipment
Balances and changes in PP&E are as follows:
| Weighted average useful life (years) | Balance on 12/31/2020 |
| | Additions |
| | Depreciation |
| | Transfer (i) (ii) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Reclassified to assets held for sale (iii) |
| | Balance on 12/31/2021 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Land | | 687,108 |
| | 2,424 |
| | 0 - |
| | 0 - |
| | (17,503 | ) | | 3,416 |
| | (65,151 | ) | | 610,294 |
|
Buildings | 33 | 2,154,710 |
| | 47,920 |
| | 0 - |
| | 119,748 |
| | (34,925 | ) | | 26,997 |
| | (827,729 | ) | | 1,486,721 |
|
Leasehold improvements | 10 | 1,222,822 |
| | 21,944 |
| | 0 - |
| | 136,206 |
| | (31,587 | ) | | 30 |
| | (293,236 | ) | | 1,056,179 |
|
Machinery and equipment | 12 | 6,498,362 |
| | 161,071 |
| | 0 - |
| | 558,197 |
| | (13,811 | ) | | 93,412 |
| | (4,272,654 | ) | | 3,024,577 |
|
Automotive fuel/lubricant distribution equipment and facilities | 13 | 3,169,320 |
| | 88,112 |
| | 0 - |
| | 33,794 |
| | (45,640 | ) | | 0 - |
| | 0 - |
| | 3,245,586 |
|
LPG tanks and bottles | 9 | 776,479 |
| | 91,842 |
| | 0 - |
| | 1,567 |
| | (28,957 | ) | | 0 - |
| | 0 - |
| | 840,931 |
|
Vehicles | 8 | 310,836 |
| | 19,054 |
| | 0 - |
| | 11,634 |
| | (25,949 | ) | | 82 |
| | (27,418 | ) | | 288,239 |
|
Furniture and utensils | 8 | 316,712 |
| | 33,644 |
| | 0 - |
| | 2,277 |
| | (14,614 | ) | | 1,296 |
| | (171,223 | ) | | 168,092 |
|
IT equipment | 5 | 444,844 |
| | 28,350 |
| | 0 - |
| | 901 |
| | (11,998 | ) | | 705 |
| | (132,427 | ) | | 330,375 |
|
Construction in progress (ii) | | 580,695 |
| | 797,674 |
| | 0 - |
| | (829,245 | ) | | (301 | ) | | 3,290 |
| | (99,865 | ) | | 452,248 |
|
Advances to suppliers | | 34,642 |
| | 21,985 |
| | 0 - |
| | (18,894 | ) | | 0 - |
| | 0 - |
| | (23,452 | ) | | 14,281 |
|
Imports in progress | | 866 |
| | 4,312 |
| | 0 - |
| | (4,631) |
| | 0 - |
| | 38 |
| | (404 | ) | | 181 |
|
| | 16,197,396 |
| | 1,318,332 |
| | 0 - |
| | 11,554 |
| | (225,285 | ) | | 129,266 |
| | (5,913,559 | ) | | 11,517,704 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| | Balance on 12/31/2020 |
| | Additions |
| | Depreciation |
| | Transfer (i) (ii) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Reclassified to assets held for sale (iii) |
| | Balance on 12/31/2021 |
|
Accumulated depreciation: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Buildings | | (851,397 | ) | | 0 - |
| | (68,388 | ) | | (94 | ) | | 23,031 |
| | (6,872 | ) | | 317,874 |
| | (585,846 | ) |
Leasehold improvements | | (689,161) |
| | 0 - |
| | (81,976 | ) | | 81 |
| | 27,519 |
| | (37 | ) | | 170,021 |
| | (573,553 | ) |
Machinery and equipment | | (3,598,304 | ) | | 0 - |
| | (356,637 | ) | | 0 - |
| | 11,717 |
| | (21,651 | ) | | 2,206,474 |
| | (1,758,401 | ) |
Automotive fuel/lubricant distribution equipment and facilities | | (1,906,953 | ) | | 0 - |
| | (178,110 | ) | | (311 | ) | | 34,841 |
| | 0 - |
| | 0 - |
| | (2,050,533 | ) |
LPG tanks and bottles | | (454,651 | ) | | 0 - |
| | (62,558 | ) | | 0 - |
| | 18,899 |
| | 0 - |
| | 0 - |
| | (498,310 | ) |
Vehicles | | (143,854 | ) | | 0 - |
| | (22,927 | ) | | 195 |
| | 15,480 |
| | (20 | ) | | 17,977 |
| | (133,149 | ) |
Furniture and utensils | | (191,713 | ) | | 0 - |
| | (23,594 | ) | | 24 |
| | 14,443 |
| | (817 | ) | | 89,369 |
| | (112,288 | ) |
IT equipment | | (352,256 | ) | | 0 - |
| | (35,614 | ) | | 317 |
| | 11,489 |
| | (435 | ) | | 106,965 |
| | (269,534 | ) |
| | (8,188,289 | ) | | 0 - |
| | (829,804 | ) | | 212 |
| | 157,419 |
| | (29,832 | ) | | 2,908,680 |
| | (5,981,614 | ) |
Provision for losses: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Land | | (146 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (146 | ) |
Leasehold improvements | | (61 | ) | | (43,666 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | (3 | ) | | 43,712 |
| | (18 | ) |
Machinery and equipment | | (2,857 | ) | | (839 | ) | | 0 - |
| | 0 - |
| | 6 |
| | (45 | ) | | 2,446 |
| | (1,289 | ) |
Automotive fuel/lubricant distribution equipment and facilities | | (73 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 27 |
| | 0 - |
| | 0 - |
| | (46 | ) |
Vehicles | | 0 - |
| | (160 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 160 |
| | 0 - |
|
Furniture and utensils | | 0 - |
| | (14,887 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 14,887 |
| | 0 - |
|
IT equipment | | 0 - |
| | (1,660 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 1,660 |
| | 0 - |
|
Advances to suppliers | | (110 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 110 |
| | 0 - |
|
| | (3,247 | ) | | (61,212 | ) | | 0 - |
| | 0 - |
| | 33 |
| | (48 | ) | | 62,975 |
| | (1,499 | ) |
Net amount | | 8,005,860 |
| | 1,257,120 |
| | (829,804 | ) | | 11,766 |
| | (67,833 | ) | | 99,386 |
| | (2,941,904 | ) | | 5,534,591 |
|
(i) Refers to R$ 169 transferred to intangible assets.
(ii) Includes R$ 11,935 transferred from right-of-use assets.
(iii) For further information, see Note 3.c.1.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Weighted average useful life (years) | Balance on 12/31/2019 |
| | Additions |
| | Depreciation |
| | Transfer (i) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Balance on 12/31/2020 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Land | | 667,865 |
| | 21,300 |
| | 0 - |
| | 2,113 |
| | (14,427 | ) | | 10,257 |
| | 687,108 |
|
Buildings | 32 | 1,925,946 |
| | 25,572 |
| | 0 - |
| | 148,527 |
| | (27,210 | ) | | 81,875 |
| | 2,154,710 |
|
Leasehold improvements | 9 | 1,121,528 |
| | 28,374 |
| | 0 - |
| | 89,559 |
| | (16,954 | ) | | 315 |
| | 1,222,822 |
|
Machinery and equipment | 13 | 5,707,721 |
| | 144,089 |
| | 0 - |
| | 378,883 |
| | (5,554 | ) | | 273,223 |
| | 6,498,362 |
|
Automotive fuel/lubricant distribution equipment and facilities | 13 | 2,991,472 |
| | 90,279 |
| | 0 - |
| | 133,963 |
| | (46,394 | ) | | 0 - |
| | 3,169,320 |
|
LPG tanks and bottles | 10 | 755,460 |
| | 65,230 |
| | 0 - |
| | 289 |
| | (44,500 | ) | | 0 - |
| | 776,479 |
|
Vehicles | 8 | 320,161 |
| | 22,495 |
| | 0 - |
| | 8,363 |
| | (40,517 | ) | | 334 |
| | 310,836 |
|
Furniture and utensils | 9 | 295,604 |
| | 13,985 |
| | 0 - |
| | 6,775 |
| | (3,694 | ) | | 4,042 |
| | 316,712 |
|
Construction in progress | | 827,086 |
| | 506,367 |
| | 0 - |
| | (765,785 | ) | | (1,167 | ) | | 14,194 |
| | 580,695 |
|
Advances to suppliers | | 12,544 |
| | 28,339 |
| | 0 - |
| | (6,185 | ) | | (56 | ) | | 0 - |
| | 34,642 |
|
Imports in progress | | 250 |
| | 1,437 |
| | 0 - |
| | (822 | ) | | 0 - |
| | 1 |
| | 866 |
|
IT equipment | 5 | 412,809 |
| | 32,134 |
| | 0 - |
| | 539 |
| | (2,827 | ) | | 2,189 |
| | 444,844 |
|
| | 15,038,446 |
| | 979,601 |
| | 0 - |
| | (3,781 | ) | | (203,300 | ) | | 386,430 |
| | 16,197,396 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| | Balance on 12/31/2019 |
| | Additions |
| | Depreciation |
| | Transfer (i) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Balance on 12/31/2020 |
|
Accumulated depreciation: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Buildings | | (793,835 | ) | | 0 - |
| | (65,318 | ) | | 2,376 |
| | 20,021 |
| | (14,641 | ) | | (851,397 | ) |
Leasehold improvements | | (614,379 | ) | | 0 - |
| | (80,995 | ) | | 49 |
| | 6,252 |
| | (88 | ) | | (689,161 | ) |
Machinery and equipment | | (3,231,627 | ) | | 0 - |
| | (317,694 | ) | | 59 |
| | 4,091 |
| | (53,133 | ) | | (3,598,304 | ) |
Automotive fuel/lubricant distribution equipment and facilities | | (1,766,878 | ) | | 0 - |
| | (176,404 | ) | | (6 | ) | | 36,335 |
| | 0 - |
| | (1,906,953 | ) |
LPG tanks and bottles | | (425,554 | ) | | 0 - |
| | (56,267 | ) | | (30 | ) | | 27,200 |
| | 0 - |
| | (454,651 | ) |
Vehicles | | (139,045 | ) | | 0 - |
| | (24,585 | ) | | 48 |
| | 19,997 |
| | (269 | ) | | (143,854 | ) |
Furniture and utensils | | (171,475 | ) | | 0 - |
| | (21,060 | ) | | 7 |
| | 2,988 |
| | (2,173 | ) | | (191,713 | ) |
IT equipment | | (318,063 | ) | | 0 - |
| | (35,080 | ) | | 122 |
| | 2,676 |
| | (1,911 | ) | | (352,256 | ) |
| | (7,460,856 | ) | | 0 - |
| | (777,403 | ) | | 2,625 |
| | 119,560 |
| | (72,215 | ) | | (8,188,289 | ) |
Provision for losses: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Advances to suppliers | | (110 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (110 | ) |
Land | | (146 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (146 | ) |
Leasehold improvements | | (1,599 | ) | | 910 |
| | 0 - |
| | 0 - |
| | 639 |
| | (11 | ) | | (61 | ) |
Machinery and equipment | | (2,875 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 156 |
| | (138 | ) | | (2,857 | ) |
Automotive fuel/lubricant distribution equipment and facilities | | (98 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 25 |
| | 0 - |
| | (73 | ) |
| | (4,828 | ) | | 910 |
| | 0 - |
| | 0 - |
| | 820 |
| | (149 | ) | | (3,247 | ) |
Net amount | | 7,572,762 |
| | 980,511 |
| | (777,403 | ) | | (1,156 | ) | | (82,920 | ) | | 314,066 |
| | 8,005,860 |
|
(i) Refers to amounts transferred between items and to intangible assets.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Weighted average useful life (years) | Balance on 12/31/2018 |
| | Additions |
| | Depreciation |
| | Transfer (i) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Oxiteno Andina (*) |
| | Balance on 12/30/2019 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Land | - | 620,879 |
| | 43,420 |
| | 0 - |
| | 4,785 |
| | (2,017 | ) | | 1,059 |
| | (261 | ) | | 667,865 |
|
Buildings | 32 | 1,801,073 |
| | 18,117 |
| | 0 - |
| | 105,861 |
| | (4,339 | ) | | 7,023 |
| | (1,789 | ) | | 1,925,946 |
|
Leasehold improvements | 10 | 1,015,640 |
| | 19,191 |
| | 0 - |
| | 129,234 |
| | (42,552 | ) | | 15 |
| | 0 - |
| | 1,121,528 |
|
Machinery and equipment | 13 | 5,219,256 |
| | 131,831 |
| | 0 - |
| | 365,953 |
| | (4,967 | ) | | 9,596 |
| | (13,948 | ) | | 5,707,721 |
|
Automotive fuel/lubricant distribution equipment and facilities | 14 | 2,864,333 |
| | 103,288 |
| | 0 - |
| | 81,038 |
| | (57,187 | ) | | 0 - |
| | 0 - |
| | 2,991,472 |
|
LPG tanks and bottles | 10 | 743,016 |
| | 65,351 |
| | 0 - |
| | (6,993 | ) | | (45,914 | ) | | 0 - |
| | 0 - |
| | 755,460 |
|
Vehicles | 7 | 308,756 |
| | 24,686 |
| | 0 - |
| | 7,564 |
| | (20,353 | ) | | (394 | ) | | (98 | ) | | 320,161 |
|
Furniture and utensils | 9 | 279,016 |
| | 15,009 |
| | 0 - |
| | 4,399 |
| | (2,665 | ) | | 198 |
| | (353 | ) | | 295,604 |
|
Construction in progress | - | 922,799 |
| | 591,525 |
| | 0 - |
| | (695,301 | ) | | (108 | ) | | 8,344 |
| | (173 | ) | | 827,086 |
|
Advances to suppliers | - | 14,088 |
| | 7,378 |
| | 0 - |
| | (8,921 | ) | | 0 - |
| | (1 | ) | | 0 - |
| | 12,544 |
|
Imports in progress | - | 41 |
| | 9,513 |
| | 0 - |
| | (9,304 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 250 |
|
IT equipment | 5 | 395,063 |
| | 21,771 |
| | 0 - |
| | 872 |
| | (5,249 | ) | | 352 |
| | 0 - |
| | 412,809 |
|
| | 14,183,960 |
| | 1,051,080 |
| | 0 - |
| | (20,813 | ) | | (185,351 | ) | | 26,192 |
| | (16,622 | ) | | 15,038,446 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| | Balance on 12/31/2018 |
| | Additions |
| | Depreciation |
| | Transfer (i) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Oxiteno Andina (*) |
| | Balance on 12/31/2019 |
|
Accumulated depreciation: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Buildings | | (743,117 | ) | | 0 - |
| | (58,158 | ) | | 187 |
| | 4,681 |
| | 893 |
| | 1,679 |
| | (793,835 | ) |
Leasehold improvements | | (558,042 | ) | | 0 - |
| | (84,664 | ) | | 2,040 |
| | 26,291 |
| | (4 | ) | | 0‐ |
| | (614,379 | ) |
Machinery and equipment | | (2,969,209 | ) | | 0 - |
| | (298,767 | ) | | 2,983 |
| | 3,510 |
| | 16,340 |
| | 13,516 |
| | (3,231,627 | ) |
Automotive fuel/lubricant distribution equipment and facilities | | (1,657,608 | ) | | 0 - |
| | (159,961 | ) | | 0 - |
| | 50,691 |
| | 0 - |
| | 0 - |
| | (1,766,878 | ) |
LPG tanks and bottles | | (401,056 | ) | | 0 - |
| | (57,890 | ) | | 4,467 |
| | 28,925 |
| | 0 - |
| | 0 - |
| | (425,554 | ) |
Vehicles | | (123,650 | ) | | 0 - |
| | (27,106 | ) | | 28 |
| | 11,274 |
| | 311 |
| | 98 |
| | (139,045 | ) |
Furniture and utensils | | (155,339 | ) | | 0 - |
| | (18,944 | ) | | (12 | ) | | 2,280 |
| | 204 |
| | 336 |
| | (171,475 | ) |
IT equipment | | (288,083 | ) | | 0 - |
| | (34,782 | ) | | 50 |
| | 5,061 |
| | (309 | ) | | 0‐ |
| | (318,063 | ) |
Construction in progress | | (6,896,104 | ) | | 0 - |
| | (740,272 | ) | | 9,743 |
| | 132,713 |
| | 17,435 |
| | 15,629 |
| | (7,460,856 | ) |
Provision for losses: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Advances to suppliers | | (83 | ) | | (27 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (110 | ) |
Buildings | | (306 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 306 |
| | 0 - |
|
Land | | (827 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 681 |
| | (146 | ) |
Leasehold improvements | | (1,385 | ) | | (1,528 | ) | | 0 - |
| | 0 - |
| | 111 |
| | 1,203 |
| | 0 - |
| | (1,599 | ) |
Machinery and equipment | | (6,117 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 769 |
| | 1,138 |
| | 1,335 |
| | (2,875 | ) |
Automotive fuel/lubricant distribution equipment and facilities | | (165 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 67 |
| | 0 - |
| | 0 - |
| | (98 | ) |
Construction in progress | | (38 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 38 |
| | 0 - |
|
Furniture and utensils | | (70 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 1 |
| | 0 - |
| | 69 |
| | 0 - |
|
| | (8,991 | ) | | (1,555 | ) | | 0 - |
| | 0 - |
| | 948 |
| | 2,341 |
| | 2,429 |
| | (4,828 | ) |
Net amount | | 7,278,865 |
| | 1,049,525 |
| | (740,272 | ) | | (11,070 | ) | | (51,690 | ) | | 45,968 |
| | 1,436 |
| | 7,572,762 |
|
(i) Refers to amounts transferred to intangible assets, inventories and right-of-use assets.
(*) Refers to the asset write-offs of Oxiteno Andina.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Construction in progress relates substantially to expansions, renovations, constructions and upgrade of industrial facilities, terminals, stores, service stations and distribution bases.
Advances to suppliers is related, basically, to manufacturing of assets for expansion of plants, terminals, stores, service stations and bases and acquisition of real estate.
16. Intangible assets
Balances and changes in intangible assets are as follows:
| Weighted average useful life (years) | Balance on 12/31/2020 |
| | Additions |
| | Amortization |
| | Transfer (i) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Reclassification to assets held for sale (ii) |
| | Balance on 12/31/2021 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill (a) | | 1,525,088 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (706,992 | ) | | 818,096 |
|
Software (b) | 4 | 1,395,046 |
| | 284,311 |
| | 0 - |
| | 372 |
| | (19,826 | ) | | 1,808 |
| | (514,731 | ) | | 1,146,980 |
|
Technology (c) | | 32,617 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (32,617 | ) | | 0 - |
|
Distribution rights | 12 | 133,599 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (19,006 | ) | | 114,593 |
|
Brands (d) | | 136,962 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 4,759 |
| | (72,523 | ) | | 69,198 |
|
Trademark rights (d) | 39 | 114,792 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 114,792 |
|
Others (e) | 10 | 50,698 |
| | 1,678 |
| | 0 - |
| | 0 - |
| | 0 - |
| | (76 | ) | | (51,879 | ) | | 421 |
|
Decarbonization credits (f) | | 0 - |
| | 176,837 |
| | 0 - |
| | 0 - |
| | (176,837 | ) | | 0 - |
| | 0 - |
| | 0 - |
|
| | 3,388,802 |
| | 462,826 |
| | 0 - |
| | 372 |
| | (196,663 | ) | | 6,491 |
| | (1,397,748 | ) | | 2,264,080 |
|
Accumulated amortization: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Software | | (825,024 | ) | | 0 - |
| | (206,025 | ) | | (203 | ) | | 19,329 |
| | (1,566 | ) | | 334,087 |
| | (679,402 | ) |
Technology | | (32,616 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 32,616 |
| | 0 - |
|
Distribution rights | | (113,326 | ) | | 0 - |
| | (3,093 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 15,392 |
| | (101,027 | ) |
Trademark rights | | (9,056 | ) | | 0 - |
| | (2,937 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (11,993 | ) |
Others | | (32,845 | ) | | 0 - |
| | (167 | ) | | 0 - |
| | 0 - |
| | (2 | ) | | 32,612 |
| | (402 | ) |
| | (1,012,867 | ) | | 0 - |
| | (212,222 | ) | | (203 | ) | | 19,329 |
| | (1,568 | ) | | 414,707 |
| | (792,824 | ) |
Provision for losses and impairment: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill (a) | | (593,280 | ) | | (68,273 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 661,553 |
| | 0 - |
|
Distribution rights | | 0 - |
| | (76,218 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 76,218 |
| | 0 - |
|
| | (593,280 | ) | | (144,491 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 737,771 |
| | 0 - |
|
Net amount | | 1,782,655 |
| | 318,335 |
| | (212,222 | ) | | 169 |
| | (177,334 | ) | | 4,923 |
| | (245,270 | ) | | 1,471,256 |
|
(i) Refers to amounts transferred from PP&E.
(ii) For further information, see Note 3.c.1.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Weighted average useful life (years) | Balance on 12/31/2019 |
| | Additions |
| | Amortization |
| | Transfer (i) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Balance on 12/31/2020 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill (a) | | 1,525,088 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 1,525,088 |
|
Software (b) | 4 | 1,210,529 |
| | 184,027 |
| | 0 - |
| | 993 |
| | (6,633 | ) | | 6,130 |
| | 1,395,046 |
|
Technology (c) | | 32,617 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 32,617 |
|
Commercial property rights | | 7,934 |
| | 0 - |
| | 0 - |
| | 0 - |
| | (7,934 | ) | | 0 - |
| | 0 - |
|
Distribution rights | 10 | 133,599 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 133,599 |
|
Brands (d) | | 122,504 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 14,458 |
| | 136,962 |
|
Trademark rights (d) | 39 | 114,792 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 114,792 |
|
Others (e) | 10 | 44,900 |
| | 1,040 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 4,758 |
| | 50,698 |
|
Decarbonization credits (f) | | 0 - |
| | 125,345 |
| | 0 - |
| | (1,058 | ) | | (124,287 | ) | | 0 - |
| | 0 - |
|
| | 3,191,963 |
| | 310,412 |
| | 0 - |
| | (65 | ) | | (138,854 | ) | | 25,346 |
| | 3,388,802 |
|
Accumulated amortization: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Software | | (648,861 | ) | | 0 - |
| | (175,144 | ) | | 0 - |
| | 3,375 |
| | (4,394 | ) | | (825,024) |
|
Technology | | (32,616 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (32,616 | ) |
Commercial property rights | | (6,384 | ) | | 0 - |
| | (85 | ) | | 0 - |
| | 6,469 |
| | 0 - |
| | 0 - |
|
Distribution rights | | (108,932 | ) | | 0 - |
| | (4,394 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | (113,326 | ) |
Trademark rights | | (6,119 | ) | | 0 - |
| | (2,937 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | (9,056 | ) |
Others | | (32,713 | ) | | 0 - |
| | (121 | ) | | 0 - |
| | 0 - |
| | (11 | ) | | (32,845 | ) |
| | (835,625 | ) | | 0 - |
| | (182,681 | ) | | 0 - |
| | 9,844 |
| | (4,405 | ) | | (1,012,867 | ) |
Provision for losses and impairment: | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill (a) | | (593,280 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (593,280 | ) |
Commercial property rights | | (465 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 465 |
| | 0 - |
| | 0 - |
|
| | (593,745 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 465 |
| | 0 - |
| | (593,280 | ) |
Net amount | | 1,762,593 |
| | 310,412 |
| | (182,681 | ) | | (65 | ) | | (128,545 | ) | | 20,941 |
| | 1,782,655 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
(i) Refers to amounts transferred to property, plant and equipment and prepaid expenses.
| Weighted average useful life (years) | Balance on 12/31/2018 |
| | Adoption IFRS 16 |
| | Additions |
| | Amortization |
| | Transfer (i) |
| | Write-offs and disposals |
| | Effect of foreign currency exchange rate variation |
| | Oxiteno Andina (*) |
| | Balance on 12/31/2019 |
|
Cost: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill (a) | - | 1,525,088 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 1,525,088 |
|
Software (b) | 3 | 1,062,486 |
| | 0 - |
| | 145,004 |
| | 0 - |
| | 2,553 |
| | (784 | ) | | 1,551 |
| | (281 | ) | | 1,210,529 |
|
Technology (c) | 5 | 32,617 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 32,617 |
|
Commercial property rights | 10 | 64,032 |
| | (56,114 | ) | | 3,820 |
| | 0 - |
| | (1,401 | ) | | (2,403 | ) | | 0 - |
| | 0 - |
| | 7,934 |
|
Distribution rights | 6 | 142,989 |
| | 0 - |
| | 1,505 |
| | 0 - |
| | (10,895 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 133,599 |
|
Brands (d) | - | 120,571 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 1,933 |
| | 0 - |
| | 122,504 |
|
Trademark rights (d) | 35 | 114,792 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 114,792 |
|
Others (e) | 10 | 43,281 |
| | 0 - |
| | 1,668 |
| | 0 - |
| | (355 | ) | | 0 - |
| | 306 |
| | 0 - |
| | 44,900 |
|
| | 3,105,856 |
| | (56,114 | ) | | 151,997 |
| | 0 - |
| | (10,098 | ) | | (3,187 | ) | | 3,790 |
| | (281 | ) | | 3,191,963 |
|
Accumulated amortization: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Software | | (537,438 | ) | | 0 - |
| | 0 - |
| | (110,088 | ) | | 13 |
| | (611 | ) | | (998 | ) | | 261 |
| | (648,861 | ) |
Technology | | (32,613 | ) | | 0 - |
| | 0 - |
| | (3 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (32,616 | ) |
Commercial property rights | | (23,931 | ) | | 16,186 |
| | 0 - |
| | (848 | ) | | (669 | ) | | 2,878 |
| | 0 - |
| | 0 - |
| | (6,384 | ) |
Distribution rights | | (106,597 | ) | | 0 - |
| | 0 - |
| | (6,511 | ) | | 4,176 |
| | 0 - |
| | 0 - |
| | 0 - |
| | (108,932 | ) |
Trademark rights | | (3,182 | ) | | 0 - |
| | 0 - |
| | (2,937 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (6,119 | ) |
Others | | (32,740 | ) | | 0 - |
| | 0 - |
| | (105 | ) | | 136 |
| | 0 - |
| | (4 | ) | | 0 - |
| | (32,713 | ) |
| | (736,501 | ) | | 16,186 |
| | 0 - |
| | (120,492 | ) | | 3,656 |
| | 2,267 |
| | (1,002 | ) | | 261 |
| | (835,625 | ) |
Provision for losses and impairment: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill (a) | | 0 - |
| | 0 - |
| | (593,280 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (593,280 | ) |
Commercial property rights | | 0 - |
| | 0 - |
| | (465 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (465 | ) |
| | 0 - |
| | 0 - |
| | (593,745 | ) | | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | (593,745 | ) |
Net amount | | 2,369,355 |
| | (39,928 | ) | | (441,748 | ) | | (120,492 | ) | | (6,442 | ) | | (920 | ) | | 2,788 |
| | (20 | ) | | 1,762,593 |
|
(i) Refers to amounts transferred to PP&E and right-of-use assets.
(*) Refers to the asset write-offs of Oxiteno Andina.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
a. Goodwill
The balance of the goodwill is tested annually for impairment and is represented by the following acquisitions:
| Segment | 12/31/2021 |
| | 12/31/2020 |
|
Goodwill on the acquisition of: | | |
| | |
|
Extrafarma | Extrafarma | 661,553 |
| | 661,553 |
|
Extrafarma – impairment (i) | Extrafarma | (661,553 | ) | | (593,280 | ) |
Extrafarma – net | Extrafarma | 0 - |
| | 68,273 |
|
Ipiranga (ii) | Ipiranga | 276,724 |
| | 276,724 |
|
União Terminais | Ultracargo | 211,089 |
| | 211,089 |
|
Texaco | Ipiranga | 177,759 |
| | 177,759 |
|
Iconic (CBLSA) | Ipiranga | 69,807 |
| | 69,807 |
|
Oxiteno Uruguay (iii) | Oxiteno | 0 - |
| | 44,856 |
|
Temmar | Ultracargo | 43,781 |
| | 43,781 |
|
DNP | Ipiranga | 24,736 |
| | 24,736 |
|
Repsol | Ultragaz | 13,403 |
| | 13,403 |
|
TEAS | Ultracargo | 797 |
| | 797 |
|
Others (iii) | Oxiteno | 0 - |
| | 583 |
|
| | 818,096 |
| | 931,808 |
|
(i) For further information, see Note 3.a.
(ii) Including R$ 246,163 presented as goodwill at parent Company Ultrapar.
(iii) For further information about reclassification, see Note 3.c.1.
On December 31, 2021, the Company tested the balances of goodwill shown in the table above for impairment. The determination of value in use involves assumptions, judgments, and estimates of cash flows, such as growth rates of revenues, costs and expenses, estimates of investments and working capital, and discount rates. The assumptions about growth projections and future cash flows are based on the Company’s business plan of its operating segments, as well as comparable market data, and represent management’s best estimate of the economic conditions that will exist over the economic life of the various CGUs, to which goodwill is related. The key-assumptions used by the Company to calculate the value in use are described below:
Period of evaluation: the evaluation of the value in use is calculated for a period of five years, after which the Company calculated the perpetuity, considering the possibility of carrying the business on indefinitely.
Discount and real growth rates: on December 31, 2021, the discount and real growth rates used to extrapolate the projections ranged from 9.4% to 10.5% and from 0% to 1% p.a., respectively, depending on the CGU analyzed.
Revenue from sales and services, costs and expenses, and gross margin considers the budget prepared for 2022 and the long-term strategic plan prepared by management and approved by the Board of Directors.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Software
Includes user licenses and costs for the implementation of the various systems used by the Company and its subsidiaries: integrated management and control, financial management, foreign trade, industrial automation, operational and storage management, accounting information, and other systems. Also include expenses related to software in progress in the amount of R$ 27,672 on December 31, 2021 (R$ 13,684 on December 31, 2020 and R$ 16,657 on December 31, 2019).
c. Technology
The subsidiaries Oxiteno S.A. and Oleoquímica recognize as technology certain rights of use held by them. Such licenses include the production of ethylene oxide, ethylene glycols, ethanolamines, glycol ethers, ethoxylates, solvents, fatty acids from vegetable oils, fatty alcohols, and specialty chemicals, which are products that are supplied to various industries. The balance was reclassified to assets of subsidiaries held for sale. For further details, see Note 3.b.
d. Brands and trademark rights
Brands are represented by the acquisition cost of the ‘am/pm’ brand in Brazil, acquired in the business combination, and Chevron and Texaco trademark rights.
e. Other intangibles
Refers mainly to the loyalty program “Clube Extrafarma” reclassified to assets of subsidiaries held for sale. For further details, see Note 3.a.
f. Decarbonization credits
Represent the CBIOS acquired and recorded at acquisition cost. The amount in the “write-offs” column refers to CBIOS retired in the year, that had its maturity date and can not be the object of future negotiation.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
17. Loans, financing, debentures and hedge derivative financial instruments
a. Composition
Description | 12/31/2021 |
| | 12/31/2020 |
| | Index/ Currency | Weighted average financial charges 12/31/2021 – % p.a. | Maturity |
Foreign currency: | |
| | |
| | | | |
Notes in the foreign market (b) (*) | 7,821,441 |
| | 7,267,687 |
| | US$ | 5.3 | 2026 to 2029 |
Foreign loan (c.1) (*) | 735,438 |
| | 1,047,644 |
| | US$ | 4.0 | 2023 |
Foreign loan (c.1) (*) | 275,936 |
| | 261,284 |
| | US$ + LIBOR (1) | 1.0 | 2022 |
Financial institutions (d) | - |
| | 154,783 |
| | US$ | - | 2022 |
Financial institutions (d) | - |
| | 39,350 |
| | MX$(2) | - | 2021 |
Financial institutions (d) | - |
| | 312,200 |
| | US$ + LIBOR (1) | - | 2021 |
Advances on foreign exchange contracts | - |
| | 105,579 |
| | US$ | - | 2021 |
Total foreign currency | 8,832,815 |
| | 9,188,527 |
| | | | |
| |
| | |
| | | | |
Brazilian Reais: | |
| | |
| | | | |
Debentures – CRA (f.2, f.4 and f.6) | 2,063,788 |
| | 2,037,602 |
| | DI | 95.8 | 2022 to 2023 |
Debentures – 6ª issuance (f.5) | 1,764,199 |
| | 1,734,113 |
| | DI | 105.3 | 2023 |
Debentures – CRA (f.2, f.4, f.6 and f.10) (*) | 1,940,237 |
| | 1,000,824 |
| | IPCA | 4.7 | 2024 to 2028 |
Debentures – Ipiranga (f.1 and f.3) | 771,538 |
| | 1,679,036 |
| | DI | 105.0 | 2022 |
Debentures – Ultracargo Logística and Tequimar Vila do Conde (f.8 and f.9) (*) | 466,061 |
| | - |
| | IPCA | 4.1 | 2028 |
Banco do Brasil (e) | 204,813 |
| | 407,420 |
| | DI | 110.9 | 2022 |
Debentures – Ultracargo Logística (f.7) (*) | 80,946 |
| | 92,541 |
| | R$ | 6.5 | 2024 |
Bank Credit Bill | 51,179 |
| | 50,692 |
| | R$ + DI | 2.0 | 2022 |
Financial institutions (d) | 4,564 |
| | - |
| | R$ | - | 2022 |
FINEP | 326 |
| | 29,803 |
| | TJLP (3) | (1.5) | 2022 |
Notes - Ultrapar (g.1) | - |
| | 1,038,499 |
| | R$ + DI | - | 2021 |
Total in Brazilian Reais | 7,347,651 |
| | 8,070,530 |
| | | | |
Total foreign currency and Brazilian Reais | 16,180,466 |
| | 17,259,057 |
| | | | |
Currency and interest rate hedging instruments (**) | 197,177 |
| | 117,159 |
| | | | |
Total | 16,377,643 |
| | 17,376,216 |
| | | | |
Current | 2,866,051 |
| | 3,255,944 |
| | | | |
Non-current | 13,511,592 |
| | 14,120,272 |
| | | | |
(*) These transactions were designated for hedge accounting (see Note 33.h).
(**) Accumulated losses (see Note 33.i).
(1) LIBOR = London Interbank Offered Rate.
(2) MX$ = Mexican Peso.
(3) TJLP (Long-term Interest Rate) = set by the National Monetary Council, TJLP is the basic financing cost of Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”), the Brazilian Development Bank. On December 31, 2021, TJLP was fixed at 5.32 % p.a.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The changes in loans, financing, debentures and hedge derivative financial instruments are shown below:
Balance as of December 31, 2018 | 15,116,139 |
|
New loans and debentures with cash effect | 2,105,737 |
|
Interest accrued | 845,844 |
|
Principal payment | (2,644,704 | ) |
Interest payment | (1,469,780 | ) |
Monetary and exchange rate variation | 296,441 |
|
Change in fair value | 113,060 |
|
Balance as of December 31, 2019 | 14,392,722 |
|
New loans and debentures with cash effect | 3,591,624 |
|
Interest accrued | 757,161 |
|
Principal payment | (2,795,002 | ) |
Interest payment | (740,853 | ) |
Monetary and exchange rate variation | 2,048,688 |
|
Change in fair value | 34,702 |
|
Hedge result | 87,174 |
|
Balance as of December 31, 2020 | 17,376,216 |
|
New loans and debentures with cash effect | 1,462,220 |
|
Interest accrued | 801,102 |
|
Principal payment | (2,922,214 | ) |
Interest payment | (749,043 | ) |
Monetary and exchange rate variation | 800,749 |
|
Change in fair value | (229,657 | ) |
Hedge result | 80,018 |
|
Reclassification to liabilities held for sale (i) | (241,748 | ) |
Balance as of December 31, 2021 | 16,377,643 |
|
(i) For further information, see Note 3.c.1.
The long-term debt had the following principal maturity schedule:
| 12/31/2021 |
| | 12/31/2020 |
|
From 1 to 2 years | 3,092,734 |
| | 2,702,626 |
|
From 2 to 3 years | 774,904 |
| | 3,091,641 |
|
From 3 to 4 years | 270,401 |
| | 784,778 |
|
From 4 to 5 years | 3,056,499 |
| | 231,271 |
|
More than 5 years | 6,317,054 |
| | 7,309,956 |
|
| 13,511,592 |
| | 14,120,272 |
|
The transaction costs and issuance premiums associated with debt issuance were added to their financial liabilities, as shown in Note 17.h.
The Company’s management entered into hedging instruments against foreign exchange and interest rate variations for a portion of its debt obligations (see Note 33.h).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Notes in the foreign market
On October 6, 2016 the subsidiary Ultrapar International S.A. (“Ultrapar International”) issued US$ 750,000 (equivalent to R$ 4,185,375 as of December 31, 2021) in notes in the foreign market, maturing in October 2026, with interest rate of 5.25% p.a., paid semiannually. The issue price was 98.097% of the face value of the note. The notes were guaranteed by the Company and its subsidiary IPP. The Company has designated hedge relationships for this transaction (see Notes 33.h.2 and 33.h.3).
On June 6, 2019 the subsidiary Ultrapar International issued US$ 500,000 (equivalent to R$ 2,790,250 as of December 31, 2021) in notes in the foreign market, maturing in June 2029, with interest rate of 5.25% p. a., paid semiannually. The issue price was 100% of the face value of the note. The notes were guaranteed by the Company and its subsidiary IPP. The Company has designated hedge relationships for part of this transaction (see Note 33.h.3).
On June 21, 2019, the subsidiary Ultrapar International repurchased US$ 200,000 (equivalent to R$ 1,116,100 as of December 31, 2021) in notes in the foreign market maturing in October 2026.
On July 13, 2020 the subsidiary Ultrapar International carried out the reopening of notes in the foreign market issued in 2019, realizing new issuance in the amount of US$ 350,000 (equivalent to R$ 1,953,175 as of December 31, 2021) maturing in June 2029, to the coupon (interest) and yield of 5.25% per year, paid semiannually. The issue price was 99.994% of face value of the note. The notes were guaranteed by the Company and the subsidiary IPP.
As a result of the issuance of the notes in the foreign market the Company and its subsidiaries are required to perform certain obligations, including:
- Restriction on sale of all or substantially all assets of the Company and subsidiaries Ultrapar International and IPP;
- Restriction on encumbrance of assets exceeding US$ 150,000 (equivalent to R$ 837,075 as of December 31, 2021) or 15% of the amount of the consolidated tangible assets.
The Company and its subsidiaries are in compliance with the levels of covenants required by this debt. The restrictions imposed on the Company and its subsidiaries are customary in transactions of this nature and have not limited their ability to conduct their business to date.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c. Foreign loans
c.1. The subsidiary IPP has foreign loans in the amount of US$ 175,000 (equivalent to R$ 976,588 as of December 31, 2021). IPP also contracted hedging instruments with floating interest rate in U.S. dollar and exchange rate variation, changing the foreign loans charges, on average, to 104.9% of DI. IPP designated these hedging instruments as a fair value hedge (see Note 33.h.1). Therefore, loans and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss. The foreign loans are secured by the Company.
The foreign loans have the maturity distributed as follows:
Maturity | US$ |
| | R$ |
| | Cost in % of DI |
|
Charges (1) | 6,234 |
| | 34,786 |
| | 0 - |
|
Jun/2022 | 50,000 |
| | 279,025 |
| | 105.0 |
|
Sep/2023 | 60,000 |
| | 334,830 |
| | 105.0 |
|
Sep/2023 | 65,000 |
| | 362,733 |
| | 104.8 |
|
Total / average cost | 181,234 |
| | 1,011,374 |
| | 104.9 |
|
(1) Includes interest, transaction costs and fair value adjustments.
d. Financial institutions
In December 2021, the subsidiary Abastece Aí ended the year with a short-term liabilities in the amount of R$ 4,564.
The subsidiary Oxiteno México S.A de C.V has contracted loan of US$ 20,000 with maturity in April 2022. The other maturities of this item are represented by Oxiteno Uruguay with maturities between October 2021 and July 2022 and by Oxiteno USA, which has already been fully settled on its maturity in September 2021. As of December 31, 2021 the balances of R$ 163,478 were reclassified to liabilities held for sale.
e. Banco do Brasil
The subsidiary IPP has floating interest rate loans with Banco do Brasil in the amount of R$ 204,813 as of December 31, 2021, of which R$ 1,646 in charges, intended for marketing, processing, or manufacturing of agricultural goods (ethanol) with maturity in May 2022.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
f. Debentures
f.1 In May 2016 the subsidiary IPP carried out fourth issuance of public debentures, in 1 single series of 500 simple, nominative, registered debentures, nonconvertible into shares and unsecured, which main characteristics are as follows:
Face value unit: | R$ 1,000,000.00 |
Final maturity: | May 25, 2021 |
Payment of the face value: | Annual as from May 2019 |
Interest: | 105.0% of DI |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
Subsidiary IPP paid in advance its fourth public issuance of debentures upon maturity.
f.2 In April 2017 the subsidiary IPP carried out its fifth issuance of debentures, in 2 series, being one of 660,139 and another of 352,361, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Eco Consult – Consultoria de Operações Financeiras Agropecuárias Ltda. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary IPP.
The debentures were later assigned and transferred to Eco Securitizadora de Direitos Creditórios do Agronegócio S.A. that acquired these agribusiness credit rights with the purpose to bind the issuance of Certificates of Agribusiness Receivables (CRA). The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:
Amount: | 660,139 |
Face value unit: | R$ 1,000.00 |
Final maturity: | April 18, 2022 |
Payment of the face value: | Lump sum at final maturity |
Interest: | 95.0% of DI |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
Amount: | 352,361 |
Face value unit: | R$ 1,000.00 |
Final maturity: | April 15, 2024 |
Payment of the face value: | Lump sum at final maturity |
Interest: | IPCA + 4.68% |
Payment of interest: | Annually |
Reprice: | Not applicable |
The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 93.9 % of DI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
f.3 In July 2017 the subsidiary IPP carried out sixth issuance of public debentures, in 1 single series of 1,500,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:
Face value unit: | R$ 1,000.00 |
Final maturity: | July 28, 2022 |
Payment of the face value: | Annual as from July 2021 |
Interest: | 105.0% of DI |
Payment of interest: | Annually |
Reprice: | Not applicable |
f.4 In October 2017 the subsidiary IPP carried out its seventh issuance of debentures in the amount of R$ 944,077, in 2 series, being on of 730,384 and another of 213,693, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Vert Companhia Securitizadora. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary IPP.
The debentures were later assigned and transferred to Vert Créditos Ltda., that acquired these agribusiness credit rights with the purpose to bind the issuance of Certificates of Agribusiness Receivables (CRA). The financial settlement occurred on November 1, 2017. The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:
Amount: | 730,384 |
Face value unit: | R$ 1,000.00 |
Final maturity: | October 24, 2022 |
Payment of the face value: | Lump sum at final maturity |
Interest: | 95.0% of DI |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
Amount: | 213,693 |
Face value unit: | R$ 1,000.00 |
Final maturity: | October 24, 2024 |
Payment of the face value: | Lump sum at final maturity |
Interest: | IPCA + 4.34% |
Payment of interest: | Annually |
Reprice: | Not applicable |
The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 97.3% of DI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
f.5 In March 2018 the Company carried out sixth issuance of public debentures, in a single series of 1,725,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:
Face value unit: | R$ 1,000.00 |
Final maturity: | March 5, 2023 |
Payment of the face value: | Lump sum at final maturity |
Interest: | 105.25% of DI |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
f.6 In December 2018 the subsidiary IPP carried out its eighth issuance of debentures in the amount of R$900,000, in 2 series, being one of R$660,000 and another of R$240,000, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Vert Companhia Securitizadora. The proceeds from this issuance were used exclusively for the purchase of ethanol by subsidiary IPP. The debentures were subscribed with the purpose to bind the issuance of CRA. The financial settlement occurred on December 21, 2018. The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:
Amount: | 660,000 |
Face value unit: | R$ 1,000.00 |
Final maturity: | December 18, 2023 |
Payment of the face value: | Lump sum at final maturity |
Interest: | 97.5% of DI |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
Amount: | 240,000 |
Face value unit: | R$ 1,000.00 |
Final maturity: | December 15, 2025 |
Payment of the face value: | Lump sum at final maturity |
Interest: | IPCA + 4.61% |
Payment of interest: | Annually |
Reprice: | Not applicable |
The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 97.1% of DI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
f.7 In November 2019 the subsidiary Ultracargo Logística made its first issuance of debentures, in a single series of 90,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:
Face value unit: | R$ 1,000.00 |
Final maturity: | November 19, 2024 |
Payment of the face value: | Lump sum at final maturity |
Interest: | 6.47% |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
The subsidiary Ultracargo Logística contracted hedging instruments subjected interest rate variation, changing the debentures fixed for 99.94% of the DI. Ultracargo Logística designated these hedging instruments as fair value hedges therefore debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized in profit or loss.
f.8 In March 2021 the subsidiary Tequimar Vila do Conde made its first issuance of debentures, in a single series of 360,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:
Face value unit: | R$ 1,000.00 |
Final maturity: | March 15, 2028 |
Payment of the face value: | Lump sum at final maturity |
Interest: | IPCA + 4.04% |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
The subsidiary Tequimar Vila do Conde contracted hedging instruments subjected interest rate variation changing the debentures fixed for 111.4% of the DI. Tequimar Vila do Conde designated these hedging instruments as fair value hedges therefore debentures and hedging instruments are both measured at fair value from inception with changes in fair value recognized in profit or loss.
f.9 In March 2021 the subsidiary Ultracargo Logística made its second issuance of debentures, in a single series of 100,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:
Face value unit: | R$ 1,000.00 |
Final maturity: | March 15, 2028 |
Payment of the face value: | Lump sum at final maturity |
Interest: | IPCA + 4.37% |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
The subsidiary Ultracargo Logística contracted hedging instruments subjected interest rate variation changing the debentures fixed for 111.4% of the DI. Ultracargo Logística designated these hedging instruments as fair value hedges therefore debentures and hedging instruments are both measured at fair value from inception with changes in fair value recognized in profit or loss.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
f.10 In September 2021, subsidiary IPP carried out its tenth issue of debentures in the total amount of R$ 960,000, in a single series of 960,000 simple, nonconvertible, registered, book-entry and unsecured debentures, privately placed by Vert Companhia Securitizadora. The funds were used exclusively for the purchase of ethanol by the subsidiary IPP. The debentures were subscribed for the purpose to bind the issuance of CRA. The financial settlement ocurred on September 16, 2021. The debentures have an additional guarantee from Ultrapar and the main characteristics are as follows:
Amount: | 960,000 |
Face value unit: | R$ 1,000.00 |
Final maturity: | September 15, 2028 |
Payment of the face value: | Lump sum at final maturity |
Interest: | IPCA + 4.83% |
Payment of interest: | Semiannually |
Reprice: | Not applicable |
The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to the IPCA to 102.75% of the DI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.
The debentures have maturity dates distributed as shown below (includes accrued interest through December 31, 2021):
Maturity | | 12/31/2021 |
|
Charges (1) | | (22,759 | ) |
Apr/2022 | | 660,139 |
|
Jul/2022 | | 750,000 |
|
Oct/2022 | | 730,384 |
|
Mar/2023 | | 1,725,000 |
|
Dec/2023 | | 660,000 |
|
Apr/2024 | | 443,944 |
|
Oct/2024 | | 267,316 |
|
Nov/2024 | | 90,000 |
|
Dec/2025 | | 287,294 |
|
Mar/2028 | | 498,474 |
|
Sep/2028 | | 996,977 |
|
Total | | 7,086,769 |
|
(1) Includes interest, transaction cost and fair value adjustments.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
g. Notes
g.1 In April 2020 the Company carried out second public issuance of notes in a single series of 40 commercial notes, not convertible into shares, of unsecured type, whose main characteristics are:
Face value unit: | R$ 25,000,000.00 |
Final maturity: | April 6, 2021 |
Payment of the face value: | Lump sum at final maturity |
Interest: | DI + 3.10% |
Payment of interest: | Lump sum at final maturity |
Reprice: | Not applicable |
The Company paid in advance its second public issuance of notes on maturity.
h. Transaction costs
Transaction costs incurred in issuing debt were deducted from the value of the related financial instruments and are recognized as an expense according to the effective interest rate method as follows:
| Effective rate of transaction costs (% p.a.) | | Balance on 12/31/2020 |
| | Incurred cost |
| | Amortization |
| | Reclassification to liabilities held for sale (i) |
| | Balance on 12/31/2021 |
|
Debentures (f) | 0.2 | | 28,348 |
| | 40,953 |
| | (14,811 | ) | | 0 - |
| | 54,490 |
|
Notes in the foreign market (b) | 0.1 | | 37,112 |
| | 0 - |
| | (4,890 | ) | | (4,204 | ) | | 28,018 |
|
Notes (g) | | | 1,318 |
| | 0 - |
| | (1,318 | ) | | 0 - |
| | 0 - |
|
Banco do Brasil (e) | 0.1 | | 332 |
| | 0 - |
| | (256 | ) | | 0 - |
| | 76 |
|
Total | | | 67,110 |
| | 40,953 |
| | (21,275 | ) | | (4,204 | ) | | 82,584 |
|
(i) See Note 3.c.1.
| Effective rate of transaction costs (% p.a.) | | Balance on 12/31/2019 |
| | Incurred cost |
| | Amortization |
| | Balance on 12/31/2020 |
|
Debentures (f) | 0.2 | | 41,406 |
| | 0 - |
| | (13,058 | ) | | 28,348 |
|
Notes in the foreign market (b) | 0.1 | | 28,114 |
| | 13,263 |
| | (4,265 | ) | | 37,112 |
|
Notes (g) | 0.5 | | 0 - |
| | 6,802 |
| | (5,484 | ) | | 1,318 |
|
Banco do Brasil (e) | 0.1 | | 770 |
| | 0 - |
| | (438 | ) | | 332 |
|
Foreign loans (c) | | | 94 |
| | 0 - |
| | (94 | ) | | 0 - |
|
Others | | | 1,382 |
| | 0 - |
| | (1,382 | ) | | 0 - |
|
Total | | | 71,766 |
| | 20,065 |
| | (24,721 | ) | | 67,110 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Effective rate of transaction costs (% p.a.) | | Balance on 12/31/2018 |
| | Incurred cost |
| | Amortization |
| | Balance on 12/31/2019 |
|
Debentures (g) | 0.2 | | 56,376 |
| | 692 |
| | (15,662 | ) | | 41,406 |
|
Notes in the foreign market (b) | 0.1 | | 13,881 |
| | 18,442 |
| | (4,209 | ) | | 28,114 |
|
Banco do Brasil (f) | 0.2 | | 3,437 |
| | 0 - |
| | (2,667 | ) | | 770 |
|
Foreign loans (c) | 0 - | | 331 |
| | 0 - |
| | (237 | ) | | 94 |
|
Others | 0.2 | | 2,432 |
| | 0 - |
| | (1,050 | ) | | 1,382 |
|
Total | | | 76,457 |
| | 19,134 |
| | (23,825 | ) | | 71,766 |
|
The amount to be appropriated to profit or loss in the future is as follows:
| Up to 1 year |
| | 1 to 2 years |
| | 2 to 3 years |
| | 3 to 4 years |
| | 4 to 5 years |
| | More than 5 years |
| | Total |
|
Debentures (f) | 15,060 |
| | 11,129 |
| | 6,990 |
| | 6,075 |
| | 5,886 |
| | 9,350 |
| | 54,490 |
|
Notes in the foreign market (b) | 4,126 |
| | 4,128 |
| | 4,143 |
| | 4,135 |
| | 3,897 |
| | 7,589 |
| | 28,018 |
|
Banco do Brasil (e) | 76 |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 0 - |
| | 76 |
|
Total | 19,262 |
| | 15,257 |
| | 11,133 |
| | 10,210 |
| | 9,783 |
| | 16,939 |
| | 82,584 |
|
i. Guarantees
The financings does not have guaranteed by collateral as of December 31, 2021 (R$ 75,251 as of December 31, 2020) and has guarantees and promissory notes in the amount of R$ 14,151,506 as of December 31, 2021 (R$ 13,758,033 as of December 31, 2020).
The Company and its subsidiaries offer collateral in the form of letters of credit for commercial and legal proceedings in the amount of R$ 118,231 as of December 31, 2021 (R$ 129,139 as of December 31, 2020).
The subsidiary IPP issued collateral to financial institutions in connection with the amounts payable by some of their customers to such institutions (vendor financing) as follows:
| IPP |
|
| 12/31/2021 |
| | 12/31/2020 |
|
Maximum amount of future payments related to such collateral | 690,347 |
| | 330,944 |
|
Maturities of up to | 49 months |
| | 46 months |
|
Fair value of collateral | 9,923 |
| | 5,496 |
|
If the subsidiary IPP is required to make any payment under these collateral arrangements, this subsidiary may recover the amount paid directly from its customers through commercial collection. Until December 31, 2021 the subsidiary IPP did not have losses in connection with these collateral arrangements. The fair value of collateral is recognized in current liabilities as “other payables”, which is recognized in the statement of profit or loss as customers settle their obligations with the financial institutions.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
18. Trade payables
a. Trade payables
| 12/31/2021 |
| | 12/31/2020 |
|
Domestic suppliers | 3,010,912 |
| | 2,306,398 |
|
Domestic suppliers – related parties (see Note 9.a) | 1,422 |
| | 5,102 |
|
Foreign suppliers | 445,805 |
| | 307,486 |
|
Foreign suppliers - related parties (see Note 9.a) | 212,756 |
| | 126,033 |
|
| 3,670,895 |
| | 2,745,019 |
|
Some Company’s subsidiaries acquire oil-based fuels and LPG from Petrobras and its subsidiaries. These suppliers control almost all the markets for these products in Brazil.
b. Trade payables – reverse factoring
| 12/31/2021 |
| | 12/31/2020 |
|
Domestic suppliers – reverse factoring | 1,948,033 |
| | 1,021,424 |
|
Domestic suppliers – reverse factoring - related parties (see Note 9.a) | 89,339 |
| | 61,989 |
|
Foreign suppliers – reverse factoring | 81,687 |
| | 212,220 |
|
| 2,119,059 |
| | 1,295,633 |
|
Some subsidiaries of the Company entered into agreements with a financial institutions. These agreements consist in the anticipation of the receipt of trade payables by the supplier, in which the financial institutions prepay a certain amount from the supplier and receives, on the maturity date the amount payable by the subsidiaries of the Company. The decision to join this type of transaction is solely and exclusively of the supplier. The agreement does not substantially change the main characteristics of the commercial conditions previously established between the subsidiaries of the Company and the suppliers. These transactions are presented in operating activities in the statements of cash flow.
19. Salaries and related charges
| 12/31/2021 |
| | 12/31/2020 |
|
Provisions on salaries
| 136,938 |
| | 195,286 |
|
Profit sharing, bonus and premium | 132,390 |
| | 184,306 |
|
Social charges | 52,739 |
| | 73,267 |
|
Others | 8,036 |
| | 15,771 |
|
| 330,103 |
| | 468,630 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
20. Taxes payable
| 12/31/2021 |
| | 12/31/2020 |
|
ICMS | 146,598 |
| | 180,522 |
|
IPI | 4,163 |
| | 8,952 |
|
PIS and COFINS | 13,667 |
| | 13,187 |
|
ISS | 45,533 |
| | 38,328 |
|
Value-added tax (IVA) of foreign subsidiaries | - |
| | 27,322 |
|
Others | 19,215 |
| | 17,703 |
|
| 229,176 |
| | 286,014 |
|
21. Employee benefits and private pension plan
a. ULTRAPREV - Associaçăo de Previdência Complementar
In February 2001 the Company’s Board of Directors approved the adoption of a defined contribution pension plan to be sponsored by the Company and its subsidiaries. Participating employees have been contributing to this plan, managed by Ultraprev - Associação de Previdência Complementar (“Ultraprev”), since August 2001. Under the terms of the plan, every year each participating employee chooses his or her basic contribution to the plan. Each sponsoring company provides a matching contribution in an amount equivalent to each basic contribution, up to a limit of 11% of the employee’s reference salary, according to the rules of the plan. As participating employees retire, they may choose to receive either (i) a monthly sum ranging between 0.3% and 1.0% of their respective accumulated fund in Ultraprev or (ii) a fixed monthly amount, which will exhaust their respective accumulated fund over a period of 5 to 35 years. The Company and its subsidiaries do not take responsibility for guaranteeing amounts or the duration of the benefits received by the retired employee.
The non-vested portion of the contribution made by the sponsor, in cases where the terminated employees chose to withdraw from the pension plan, are considered as a pension fund. Employees who left the Company and chose to withdraw from the pension plan lose the portion of the contribution already made by the sponsor and this amount may be deducted from the sponsor future contributions. The amount is presented in the movements of prepaid expenses. Furthermore, employees who left the company and chose to continue with the pension plan make contributions individually.
In May 2020 the Deliberative Council of Ultraprev approved the utilization of the pension fund in the amount of R$ 47,088, and in May 2021 the additional use of R$ 3,706. The amount of R$ 27,451 was used to deduct the sponsors’ normal contributions and the amount of R$ 3,512 was reclassified to assets held for sale. The balance of R$ 19,831 as of December 31, 2021 will be used to deduct normal sponsor contributions in a period up to 92 months depending on the sponsor. The number of months is estimated according to the current amount being deducted from contributions.
As of December 31, 2021, the subsidiaries contributed with R$ 16,368 to Ultraprev, including the utilization of the pension fund of R$ 10,566 (R$ 17,186 including the utilization of the pension fund of R$ 7,446 as of December 31, 2020 and R$ 21,357 as of December 31, 2019), which is recognized as expense in the income statement. The total number of participating employees as of December 31, 2021 was 4,381 active participants and 387 retired participants. In addition Ultraprev had 23 former employees receiving benefits under the rules of a previous plan whose reserves are fully constituted.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Post-employment benefits
The subsidiaries recognized a provision for post-employment benefits mainly related to seniority bonus, payment of Government Severance Indemnity Fund (“FGTS”), and health, dental care, and life insurance plan for eligible retirees.
The amounts related to such benefits were determined based on a valuation conducted by an independent actuary and reviewed by management as of December 31, 2021.
| 12/31/2021 | | 12/31/2020 |
|
Health and dental care plan (1) | 159,867 | | 200,318 |
|
Indemnification of FGTS | 38,617 | | 53,952 |
|
Seniority bonus (2) | 5,570 | | 16,336 |
|
Life insurance (1) | 11,665 | | 14,118 |
|
Total | 215,719 | | 284,724 |
|
Current | 21,082 | | 27,077 |
|
Non-current | 194,637 | | 257,647 |
|
(1) Only IPP, Tropical and Iconic.
(2) In 2021, there was a change in the seniority bonus policy for retirement, with a reduction in the benefit (Ultragaz and Ipiranga).
The change in the present value of the post-employment benefit obligation occurred as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
Opening balance | 284,724 |
| | 272,867 |
|
Expense for the year of continuing operations | 15,585 |
| | 11,622 |
|
Expense (revenue) for the year of discontinued operations | 2,951 |
| | (6,411 | ) |
(Gain) Losses from changes in actuarial assumptions | (58,954 | ) | | 24,822 |
|
Benefits paid directly by Company and its subsidiaries | (18,400 | ) | | (18,969 | ) |
Exchange rates from post employment benefits | 217 |
| | 793 |
|
Reclassification to liabilities held for sale (i) | (10,404 | ) | | 0 - |
|
Ending balance | 215,719 |
| | 284,724 |
|
(i) For further information see Note 3.c.1.
The total of expense in each year is presented below:
| 2021 |
| | 2020 |
| | 2019 |
|
|
|
|
| Re-presented |
|
| Re-presented |
|
Health and dental care plan | 15,265 |
| | 11,127 |
| | 10,442 |
|
Indemnification of FGTS | 4,409 |
| | 6,199 |
| | (5,423 | ) |
Seniority bonus | (4,886 | ) | | (6,821 | ) | | 3,580 |
|
Life insurance | 797 |
| | 1,117 |
| | 1,293 |
|
Total | 15,585 |
| | 11,622 |
| | 9,892 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The main actuarial assumptions used are:
Economic factors | 12/31/2021 | | 12/31/2020 |
| % p.a. | | % p.a. |
Discount rate for the actuarial obligation at present value | 8.93 | | 8.22 |
Average projected salary growth rate | 7.07 | | 7.07 |
Inflation rate (long term) | 3.25 | | 3.25 |
Growth rate of medical services | 7.38 | | 7.38 |
| Demographic factors |
| Mortality Table for the life insurance benefit – CSO-80 |
| Mortality Table for other benefits – AT 2000 Basic decreased by 10% |
| Disabled Mortality Table – RRB 1983 and RRB-1944 |
| Disability Table – Weak light |
Sensitivity analysis
The significant actuarial assumptions to determine the provision for post-employment benefits are: discount rate, wage and medical costs increases. The following sensitivity analyses on December 31, 2021, as shown below, were determined based on possible changes of assumptions occurring at the reporting date of the financial statements, keeping all other assumptions constant.
12/31/2021 | | | | | | | |
Assumption | Change in assumptions | | Decrease in liability | | Change in assumptions | | Increase in liability |
Discount rate | increase by 1.0 p.p. | | 24,196 | | decrease by 1.0 p.p. | | 24,293 |
Wage growth rate | decrease by 1.0 p.p. | | 3,002 | | increase by 1.0 p.p. | | 2,258 |
Medical services growth rate | decrease by 1.0 p.p. | | 19,218 | | increase by 1.0 p.p. | | 23,522 |
The sensitivity analyses presented may not represent the real change in the post-employment benefits obligation, since it is unlikely that changes occur in just one assumption alone, considering that some of these assumptions may be correlated.
Inherent risks related to post-employment benefits
Interest rate risk: a long-term interest rate is used to calculate the present value of post-employment liabilities. A reduction in this interest rate will increase the corresponding liability.
Wage growth risk: the present value of the liability is calculated using as reference the wages of the plan participants, projected with the average nominal wage growth rate. An increase in the real wages of plan participants will increase the corresponding liability.
Medical costs growth risk: the present value of the liability is calculated using as reference the medical cost by age based on actual healthcare costs, projected based on the growth rate of medical services costs. An increase in the real medical costs will increase the corresponding liability.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
22. Provision for asset retirement obligation – fuel tanks
The provision corresponds to the legal obligation to remove the subsidiary IPP’s underground fuel tanks located at by Ipiranga-branded service stations after a certain use period (see Note 2.o).
Changes in the provision for asset retirement obligation are as follows:
Balance as of December 31, 2018 | 54,667 |
|
Additions (new tanks) | 290 |
|
Expenditure with tanks removed | (5,456 | ) |
Accretion expense | 1,741 |
|
Balance as of December 31, 2019 | 51,242 |
|
Additions (new tanks) | 163 |
|
Expenditure with tanks removed | (4,306 | ) |
Accretion expense | 6,336 |
|
Balance as of December 31, 2020 | 53,435 |
|
Additions (new tanks) | 451 |
|
Expenditure with tanks removed | (2,773 | ) |
Accretion expense | 5,598 |
|
Balance as of December 31, 2021 | 56,711 |
|
Current | 4,632 |
|
Non-current | 52,079 |
|
23. Provisions and contingencies
a. Provisions for tax, civil, and labor risks
The Company and its subsidiaries are parties in tax, civil, environmental, regulatory, and labor disputes at the administrative and judiciary levels, which, when applicable, are backed by escrow deposits. Provisions for losses are estimated and updated by management based on the opinion of the Company’s legal department and its external legal advisors.
The table below demonstrates the breakdown of provisions by nature and its movement:
Provisions | Balance on 12/31/2020 |
| | Additions |
| | Reversals |
| | Payments |
| | Interest |
| | Reclassification to liabilities held for sale (i) |
| | Balance on 12/31/2021 |
|
IRPJ and CSLL (a.1.1) | 547,862 |
| | 0 - |
| | (6,966 | ) | | 0 - |
| | 11,276 |
| | 0 - |
| | 552,172 |
|
ICMS (c) | 108,568 |
| | 58,839 |
| | (83,536 | ) | | 0 - |
| | 284 |
| | 0 - |
| | 84,155 |
|
Civil, environmental and regulatory claims (a.2.1) | 57,772 |
| | 87,066 |
| | (9,702 | ) | | (8,116 | ) | | 724 |
| | (18,983 | ) | | 108,761 |
|
Labor litigation (a.3.1) | 90,675 |
| | 42,826 |
| | (4,432 | ) | | (17,068 | ) | | 2,620 |
| | (19,161 | ) | | 95,460 |
|
Others | 93,168 |
| | 63 |
| | (1,457 | ) | | 0 - |
| | 704 |
| | (841 | ) | | 91,637 |
|
Total | 898,045 |
| | 188,794 |
| | (106,093 | ) | | (25,184 | ) | | 15,608 |
| | (38,985 | ) | | 932,185 |
|
Current | 43,660 |
| | |
| | |
| | |
| | |
| | |
| | 119,942 |
|
Non-current | 854,385 |
| | |
| | |
| | |
| | |
| | |
| | 812,243 |
|
(i) For further information see Note 3.c.1.
Some of the provisions above involve in whole or in part, escrow deposits.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Balances of escrow deposits are as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
Tax matters | 731,326 |
| | 789,624 |
|
Labor litigation | 48,147 |
| | 57,603 |
|
Civil and others | 91,788 |
| | 102,569 |
|
Total | 871,261 |
| | 949,796 |
|
a.1 Provisions for tax matters
On October 7, 2005 the subsidiaries Cia. Ultragaz and Bahiana filed for and obtained a preliminary injunction to recognize and offset PIS and COFINS credits on LPG purchases, against other taxes levied by the RFB, notably IRPJ and CSLL. The decision was confirmed by a trial court on May 16, 2008. Under the preliminary injunction the subsidiaries made escrow deposits for these liabilities which amounted to R$ 534,830 as of December 31, 2021 (R$ 523,136 as of December 31, 2020). On July 18, 2014 a second instance unfavorable decision was published, and the subsidiaries suspended the escrow deposits, and started to pay income taxes from that date. To revert the court decision the subsidiaries presented a writ of prevention which was dismissed on December 30, 2014 and the subsidiaries appealed this decision on February 3, 2015. Appeals were also presented to the respective higher courts Superior Court of Justice (“STJ”) and Federal Supreme Court (“STF”) whose final trial are pending. At the STJ, the issue was subject to the system of Repetitive Appeals (Repetitive Issue No. 1093) and is awaiting judgment by the Superior Court.
a.2 Provisions for civil, environmental and regulatory claims
a.2.1 The Company and its subsidiaries maintain provisions for lawsuits and administrative proceedings, mainly derived from contracts entered into with customers and former services providers, as well as proceedings related to environmental and regulatory issues in the amount of R$ 108,761 as of December 31, 2021 (R$ 57,772 as of December 31, 2020). The increase seen during the year is due to the reassessment of likelihood of loss to probable due to unfavorable decisions in several lawsuits received by the subsidiary Ipiranga.
a.3 Provisions for labor matters
a.3.1 The Company and its subsidiaries maintain provisions of R$ 95,460 as of December 31, 2021 (R$ 90,675 as of December 31, 2020) for labor litigation filed by former employees and by employees of our service providers mainly contesting the non-payment of labor rights. The increase seen during the year is due to the reassessment of likelihood of loss to probable due to unfavorable decisions in several lawsuits received by the subsidiary Ipiranga.
b. Contingent liabilities
The Company and its subsidiaries are parties in tax, civil, environmental, regulatory, and labor claims whose loss is assessed as possible (proceedings whose chance of loss is more than 25% and less or equal than 50%) by the Company and its subsidiaries’ legal departments, based on the opinion of its external legal advisors and, based on these assessments, these claims were not recognized in the financial statements. The estimated amount of this contingency is R$ 3,310,603 as of December 31, 2021 (R$ 3,236,982 as of December 31, 2020).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b.1 Contingent liabilities for tax matters and social security
The Company and its subsidiaries have contingent liabilities for tax matters and social security in the amount of R$ 2,292,465 as of December 31, 2021 (R$ 2,419,000 as of December 31, 2020), mainly represented by:
b.1.1 The subsidiary IPP and its subsidiaries have assessments invalidating the offset of excise tax (“IPI”) credits in connection with the purchase of raw materials used in the manufacturing of products which sales are not subject to IPI under the protection of tax immunity. The amount of this contingency is R$ 178,422 as of December 31, 2021 (R$ 176,390 as of December 31, 2020).
b.1.2 The subsidiary IPP and its subsidiaries have legal proceedings related to ICMS. The total amount involved in these proceedings, was R$ 1,303,383 as of December 31, 2021 (R$ 958.134 as of December 31, 2020). Such proceedings arise mostly of the disregard of ICMS credits amounting to R$ 209,611 as of December 31, 2021 (R$ 300,707 as of December 31, 2020), of which R$ 15,532 (R$ 92,687 as of December 31, 2020) refer to proportional reversal requirement of ICMS credits related to the acquisition of hydrated alcohol; of alleged non-payment in the amount of R$ 106,590 as of December 31, 2021 (R$ 98,157 as of December 31, 2020); of conditioned fruition of fiscal incentive in the amount of R$ 174,039 as of December 31, 2021 (R$ 119,894 as of December 31, 2020); of inventory differences in the amount of R$ 295,163 as of December 31, 2021 (R$ 269,581 as of December 31, 2020); and of fiscal equilibrium fund required by States to fruition tax benefits in the amount of R$ 59,128 and a 2% surcharge on products considered non-essential (hydrated ethanol) in the amount of R$ 219,218 as of December 31, 2021.
b.1.3 The Company and its subsidiaries are parties to administrative and judicial suits involving Income Tax, Social Security Contribution, PIS and COFINS, substantially about denials of offset claims and credits disallowance which total amount is R$ 578,097 as of December 31, 2021 (R$ 709,338 as of December 31, 2020), mainly represented by:
b.1.3.1 The subsidiary IPP received a tax assessment related to the IRPJ and CSLL resulting from the alleged undue amortization of the goodwill paid on acquisition of a subsidiary, in the amount of R$ 218,589 as of December 31, 2021 (R$ 212,350 as of December 31, 2020), which includes the amount of the income taxes, interest and penalty.
b.2 Contingent liabilities for civil, environmental and regulatory claims
The Company and its subsidiaries have contingent liabilities for civil, environmental and regulatory claims in the amount of R$ 771,695 as of December 31, 2021 (R$ 561,713 as of December 31, 2020), mainly represented by:
b.2.1 The subsidiary Cia. Ultragaz is party to an administrative proceeding before CADE based on alleged anti-competitive practices in the State of Minas Gerais in 2001. The CADE entered a decision against Cia. Ultragaz and imposed a penalty of R$ 34,162 as of December 31, 2021 (R$ 33,895 as of December 31, 2020). The imposition of such administrative decision was suspended by a court order and its merit is being judicially reviewed.
b.2.2 The subsidiary Cia. Ultragaz has lawsuits totaling the amount of R$ 233,426 (R$ 186,381 on December 31, 2020) filed by resellers seeking the declaration of nullity and termination of distribution contracts, in addition to indemnities for losses and damages.
b.2.3 The subsidiary IPP became party to an administrative proceeding filed by CADE, related to allegations of anti-competitive practices in the Distrito Federal which was established in June 2020, arising from a preliminary investigation started in 2009. IPP has already presented its defense and the proceeding is in the evidentiary stage. In 2020 and 2019, IPP received 2 fines in the amount of R$ 8,187 and R$ 40,693, for allegedly influencing uniform commercial conduct among fuel resellers around the city of Belo Horizonte, state of Minas Gerais and in Joinville, Santa Catarina. The IPP submitted both decisions to judicial review and in both cases decisions were issued suspending the enforceability of fines due to the judicial guarantees presented. Management supported by their external legal advisors classify the likelihood of loss as remote.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b.2.4 On November 29, 2016 a technical opinion was issued by the Operational Support Center for Execution (Centro de Apoio Operacional à Execução – CAEX), a technical body linked to the São Paulo State Public Prosecutor (“MPE”), presenting a proposal of compensation for the alleged environmental damages caused by the fire on April 2nd, 2015 at the Santos Terminal of the subsidiary Ultracargo Logística. This technical opinion is non-binding, with no condemnatory or sanctioning nature, and will still be evaluated by the authorities and parties. The subsidiary disagrees with the methodology and the assumptions adopted in the proposal and is negotiating an agreement with the MPE and the Brazilian Federal Public Prosecutor (“MPF”), since the beginning of the investigation and currently there is no civil lawsuit filed on the matter. The negotiations relate to in natura repair of the any damages. Thus, on May 15, 2019, the subsidiary Ultracargo Logística signed a Partial Conduct Adjustment Commitment Agreement (“TAC”) in the amount of R$ 67,539 with the MPE and MPF to compensate for diffuse and collective damages of any kind arising from the fish mortality and the damage caused to the ichthyofauna. The negotiation on compensation for other alleged damages are still ongoing and once concluded, the payments related to the project costs may affect the future Company’s financial statements.
The MPF filed a criminal case against the subsidiary Ultracargo Logística, which was summoned and replied to the complaint on June 19, 2018. On September 12, 2019, at a hearing in the federal court of Santos, the MPF and Ultracargo Logística agreed, and the judicial authority approved, the conditional suspension of the criminal proceedings for a period of 2 years, when Ultracargo Logística shall then prove compliance with the execution of the Partial TAC signed, with the obligation of a complementary allocation of R$ 13,000 to TAC and the Fisheries Management Project, to obtain the definitive filing of the process. On February 4, 2021, the subsidiary paid the remaining balance referring to the TAC, without pending and/or additional financial obligation arising from such commitment assumed. In addition, as of December 31, 2021, there are contingent liabilities related to lawsuits in the amount of R$ 2,022 (R$ 4,428 as of December 31, 2020). Between December 31, 2020 and December 31, 2021, there were no extrajudicial claims.
b.3 Contingent liabilities for labor matters
The Company and its subsidiaries have contingent liabilities for labor matters in the amount of R$ 246,443 as of December 31, 2021 (R$ 256,269 as of December 31, 2020).
c. Lubricants operation between IPP and Chevron
In the process of transaction of the lubricants' operation in Brazil between Chevron and subsidiary IPP , it was agreed that each shareholder is responsible for any claims arising out of acts, facts or omissions that occurred prior to the transaction. The liability provisions of the Chevron shareholder in the amount of R$ 19,724 (R$ 101,663 as of December 31, 2020) are reflected in the consolidation of these financial statements. Additionally, in connection with the business combination, a provision in the amount of R$ 198,900 was recognized on December 1, 2017 due contingent liabilities, amounted to R$ 101,267 as of December 31, 2021 (R$ 102,777 as of December 31, 2020. The amounts of provisions of Chevron's liability recognized in the business combination will be reimbursed to subsidiary Iconic in the event of losses and an indemnity asset was hereby constituted in the same amount, without the need to establish a provision for uncollectible amounts.
Part of the provision of the Chevron related to the ICMS tax assessment (R$ 81,060), for the period from July 1996 to December 1997, was definitively extinguished through the payment made by the Chevron in the tax amnesty program, established by the Agreement ICMS/RJ No. 51/2020 (Decree/RJ No. 47,332/2020 and State Law of RJ No. 9,041/2020) on April 16, 2021.
The value of the provision of the Chevron indemnification in the amount of R$ 19,724, refers to: (i) R$ 17,231 ICMS assessments on sales for industrial purposes, in which the STF closed the judgment of the thesis unfavorably to taxpayers; (ii) R$ 2,207 labor claims and (iii) R$ 285 civil, regulatory and environmental claims.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
24. Deferred revenue
The subsidiaries of the Company have recognized the following deferred revenue:
| 12/31/2021 |
| | 12/31/2020 |
|
‘am/pm’ and Jet Oil franchising upfront fee (a) | 420 |
| | 814 |
|
Loyalty program “Km de Vantagens” (b) | 5,205 |
| | 15,424 |
|
Loyalty program “Clube Extrafarma” (b) | 0 - |
| | 2,044 |
|
Total current | 5,625 |
| | 18,282 |
|
a. Franchising upfront fee
am/pm is the convenience stores chain of the Ipiranga service stations and on December 31, 2021 had 8 stores (unaudited) with initial deferred franchising upfront fee as the requirements for recognition in income have not yet been met (20 stores (unaudited) as of December 31, 2020). In 2021, 90 stores (unaudited) were opened in total (58 stores (unaudited) opened in 2020).
Jet Oil is the network specialized in oil changes and automotive services at Ipiranga gas stations and as of December 31, 2021, it had 8 stores (unaudited) opened with initial deferred franchise upfront fee as the requirements for recognition in income have not yet been met (4 stores (unaudited) as of December 31, 2020). In 2021, 45 stores (unaudited) were opened in total (45 stores (unaudited) opened in 2020).
For more information on the deferred income from the initial franchise fee see Note 2.a.
b. Loyalty programs
The loyalty program called KM de Vantagens under which registered customers are rewarded with points when they buy products in several partners, including the Ipiranga’s service station, was transferred to Abastece aí (www.abasteceai.com.br). The subsidiary IPP remains a partner in the program, offering cashback to its customers based on the limits negotiated under the terms of the partnership, where, after the customer meet the requirements for the right to the benefit, Abastece aí immediately credits the amount to the customer's virtual wallet and charges IPP, which reimburses Abastece aí and recognizes the same amount as reduction in sales. At the end of each year, the subsidiary IPP assesses the points available to its customers with the potential to become cashback in future years and recognizes such probability as deferred income.
Subsidiary Extrafarma has a loyalty program called Clube Extrafarma under which registered customers are rewarded with points when they buy products at its drugstore chain. The customers may exchange these points, during the period of six months, for discounts in products at its drugstore chain, recharge credit on a mobile phone, and prizes offered by partners Multiplus Fidelidade and Ipiranga, through Km de Vantagens. Points received by Extrafarma’s customers are recognized as a reduction of revenue from sales and services. On December 31, 2021, the balance in the amount of R$ 927 was reclassified to a liability held for sale.
Deferred revenue is estimated based on the fair value of the points granted, considering the value of the prizes and the expected redemption of these points. For more information on deferred revenue from loyalty program, see Note 2.a.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
25. Subscription warrants – indemnification
Because of the association between the Company and Extrafarma on January 31, 2014, 7 subscription warrants – indemnification were issued, corresponding to up to 6,411,244 shares of the Company. The subscription warrants – indemnification could be exercised beginning 2020 by the former shareholders of Extrafarma and are adjusted according to the changes in the amounts of provisions for tax, civil, and labor risks and contingent liabilities related to the period prior to January 31, 2014. The subscription warrants – indemnification’s fair value is measured based on the share price of Ultrapar (UGPA3) and is reduced by the dividend yield until 2020, since the exercise is possible only from 2020, and they are not entitled to dividends while they are not converted into shares.
On February 23, 2022 the issuance of 43,925 common shares (see Note 35) and August 11, 2021, February 24, 2021, August 12, 2020 and February 19, 2020, the Company’s Board of Directors approved, the issuance of 31,032, 70,939, 86,978 and 2,108,542, respectively, common shares within the authorized capital limit provided by the article 6 of the Bylaws, due to the partial exercise of the rights conferred by the subscription warrants issued by the Company at the time of the merger of all Extrafarma shares into the Company, approved by the Extraordinary General Meeting ("EGM") of the Company held on January 31, 2014.
As set out in the association agreement between the Company and Extrafarma of January 31, 2014 and due to the unfavorable decisions on some lawsuits with triggering events prior to January 31, 2014, 578,538 shares linked to the subscription warrants – indemnification were canceled and not issued. On December 31, 2021, 3,527,934 shares were retained linked to subscription warrants – indemnification which will be issued or canceled as the final decisions on the lawsuits are determined, the maximum number of shares that can be issued in the future, total R$ 51,296 (R$ 86,439 as of December 31, 2020).
26. Equity
a. Share capital
On December 31, 2021 the subscribed and paid-in capital stock consists of 1,115,107,683 (1,115,005,712 as of December 31, 2020) common shares with 0 par value and the issuance of preferred shares and participation certificates is prohibited. Each common share entitles its holder to one vote at Shareholders’ Meetings.
As of December 31, 2021 there were 50,374,275 common shares outstanding abroad in the form of ADRs (47,413,094 shares as of December 31, 2020 and 46,518,315 shares as of December 31, 2019).
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Equity instrument granted
The Company has a share-based incentive plan, which establishes the general terms and conditions for the concession of common shares issued by the Company held in treasury (see Note 9.c).
c. Treasury shares
The Company acquired its own shares at market prices, without capital reduction, to be held in treasury and to be subsequently disposed of or cancelled.
As of December 31, 2021, 23,756,393 common shares (24,739,626 as of December 31, 2020 and 26,780,298 as of December 31, 2019) were held in the Company's treasury, acquired at an average cost of R$ 18.13 (R$ 19.77 as of December 31, 2020 and R$ 18.12 as of December 31, 2019).
d. Capital reserve
The capital reserve reflects the gain on the transfer of shares at market price used in the Deferred Stock Plan granted to executives of the subsidiaries of the Company, as mentioned in Note 9.c.
Because of Extrafarma’s association in 2014 the Company recognized an increase in the capital reserves in the amount of R$ 498,812, due to the difference between the value attributable to share capital and the market value of the Ultrapar shares on the date of issuance, deducted by R$ 2,260 related to the incurred costs directly attributable to issuing new shares. Additionally, August 11, 2021, February 24, 2021, August 12, 2020 and on February 19, 2020, and, there was an increase in the reserve in the amount of R$ 448, R$ 1,371, R$ 1,691 and R$ 53,072, respectively, due to the partial exercise of the subscription warrants – indemnification (see note 25).
e. Revaluation reserve
The revaluation reserve, recognized prior to the adoption of the international accounting standards (IFRS), reflects the revaluation of assets of subsidiaries and is based on depreciation, write-off, or disposal of the revalued assets of the subsidiaries, as well as the tax effects recognized by these subsidiaries.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
f. Profit reserves
f.1 Legal reserve
Under Brazilian Corporate Law, the Company is required to allocate 5% of net annual earnings to a legal reserve, until the balance reaches 20% of share capital. As of December 31, 2021, the legal reserve totaled R$ 791,083 (R$ 750,010 as of December 31, 2020). This reserve may be used to increase capital or to absorb losses but may not be distributed as dividends.
f.2 Investments reserve
In compliance with Article 194 of the Brazilian Corporate Law and Article 54.b) of the Bylaws this reserve is aimed to protect the integrity of the Company’s assets and to supplement its capital stock, in order to allow new investments to be made. As provided in its Bylaws, the Company may allocate up to 50% of the annual net income, after deducting the legal reserve, to the investments reserve, up to the limit of 100% of the share capital.
The investments reserve is free of distribution restrictions and totaled R$ 4,073,876 as of December 31, 2021 (R$ 3,658,265 as of December 31, 2020).
g. Other comprehensive income
g.1 Other reserves
| (i) | Gains and losses on the hedging instruments of exchange rate related to firm commitment and highly probable transactions designated as cash flows hedges are recognized in equity as “other reserves”. Gains and losses are reclassified to initial cost of non-financial assets recognized in statements of profit or loss at the moment of paid off of the hedge instrument. |
|
|
| (ii) | The differences between the fair value of financial investments measured at fair value through other comprehensive income and the initial amount of financial investments plus the earned income and the foreign currency exchange variation are recognized in equity as other reserves. Gains and losses are reclassified to statements of profit or loss when the financial investment is settled.
|
|
|
| (iii) | Actuarial gains and losses relating to post-employment benefits, calculated based on a valuation conducted by an independent actuary, are recognized in equity under the title “other reserves”. Actuarial gains and losses recorded in equity are not reclassified to profit or loss in subsequent periods. |
|
|
| (iv) | The Company also recognizes in this item the effect of changes in the non-controlling interest in subsidiaries that do not result in loss of control. This amount corresponds to the difference between the amount by which the non-controlling interest was adjusted and the fair value of the consideration received or paid and represents a transaction with shareholders. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Balance and changes in other reserves of the Company are as follows:
| Fair value of cash flow hedging instruments (i) |
| | Fair value of financial instruments (ii) |
| | Actuarial (loss) gain of post-employment benefits (iii) |
| | Non-controlling shareholders interest change (iv) |
| | Total |
|
Balance as of December 31, 2018 | (243,336 | ) | | (273 | ) | | (17,749 | ) | | 197,369 |
| | (63,989 | ) |
Changes in fair value of financial instruments | (76,479 | ) | | 478 |
| | - |
| | - |
| | (76,001 | ) |
IRPJ and CSLL on fair value | 23,683 |
| | - |
| | - |
| | - |
| | 23,683 |
|
Actuarial loss of post-employment benefits | - |
| | - |
| | (41,794 | ) | | - |
| | (41,794 | ) |
Income and social contribution taxes on actuarial losses | - |
| | - |
| | 11,784 |
| | - |
| | 11,784 |
|
Balance as of December 31, 2019 | (296,132 | ) | | 205 |
| | (47,759 | ) | | 197,369 |
| | (146,317 | ) |
Changes in fair value of financial instruments | (477,570 | ) | | 64 |
| | - |
| | - |
| | (477,506 | ) |
IRPJ and CSLL on fair value | 164,425 |
| | - |
| | - |
| | - |
| | 164,425 |
|
Actuarial loss of post-employment benefits | - |
| | - |
| | (7,725 | ) | | - |
| | (7,725 | ) |
Income and social contribution taxes on actuarial losses | - |
| | - |
| | 2,133 |
| | - |
| | 2,133 |
|
Balance as of December 31, 2020 | (609,277 | ) | | 269 |
| | (53,351 | ) | | 197,369 |
| | (464,990 | ) |
Changes in fair value of financial instruments | 12,036 |
| | (672 | ) | | - |
| | - |
| | 11,364 |
|
IRPJ and CSLL on fair value | (4,060 | ) | | - |
| | - |
| | - |
| | (4,060 | ) |
Actuarial gain of post-employment benefits of subsidiaries, net | - |
| | - |
| | 49,550 |
| | - |
| | 49,550 |
|
IRPJ and CSLL on actuarial gains | - |
| | - |
| | (14,002 | ) | | - |
| | (14,002 | ) |
Balance as of December 31, 2021 | (601,301 | ) | | (403 | ) | | (17,803 | ) | | 197,369 |
| | (422,138 | ) |
g.2 Cumulative translation adjustments
The change in exchange rates on assets, liabilities, and income of foreign subsidiaries that have functional currency other than the presentation currency of the Company and an independent management (see Note 2.t.1) and the exchange rate variation on notes in the foreign market, net of income taxes (see Note 33.h.3) is directly recognized in the equity. This cumulative effect is reflected in profit or loss as a gain or loss only in case of disposal or write-off of the investment.
Balance and changes in cumulative translation adjustments of the Company are as follows:
| 2021 |
| | 2020 |
| | 2019 |
|
Initial balance | 231,596 |
| | 102,427 |
| | 65,857 |
|
Currency translation adjustment of foreign subsidiaries | 97,113 |
| | 202,277 |
| | 46,330 |
|
Effect of foreign currency exchange rate variation on financial instruments | (36,461 | ) | | (110,770 | ) | | (14,788 | ) |
IRPJ and CSLL on foreign currency exchange rate variation on financial instruments | 12,397 |
| | 37,662 |
| | 5,028 |
|
Final balance | 304,645 |
| | 231,596 |
| | 102,427 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
h. Dividends and allocation of net income
The shareholders of the Company are entitled under the Bylaws to a minimum annual dividend of 50% of adjusted net income, after allocation of 5% to the legal reserve, calculated in accordance with Brazilian Corporate Law. The dividends and interest on equity in excess of the obligation established in the Bylaws are recognized in equity until the Shareholders approve them. The proposed dividends of 2020, as of December 31, 2020 totaled R$ 479,748 (R$ 0.44 – forty-four cents of Brazilian Real per share), were approved by the Board of Directors on February 24, 2021, and were paid from March 12, 2021. On August 11, 2021, the interim dividends were approved in the amount of R$ 218,074 (R$ 0.20 – twenty cents per share), paid on August, 2021.The proposed dividends payable of 2021 as of December 31, 2021 totaled R$ 185,896 (R$ 0.17 – seventeen cents of Brazilian Real per share), were approved by the Board of Directors on February 22, 2022, and will be paid from March 11, 2022 onwards.
The management proposal for the allocation of net income for 2021 and for distribution of dividends is as follow:
| 12/31/2021 |
|
Allocation of net income | |
|
Net income for the year attributable to shareholders of Ultrapar | 850,463 |
|
Legal reserve (5% of the net income) | 42,523 |
|
Adjusted net income (basis for dividends) | 807,940 |
|
Minimum mandatory dividends for the year (50% of the adjusted net income) | 403,970 |
|
Total of distribution | 403,970 |
|
Interim dividends (R$ 0.20 per share of the Company) | (218,074 | ) |
Balance of proposed dividends (R$ 0.17 per share) | 185,896 |
|
Allocation of dividends | |
|
Minimum mandatory dividends for the year (50% of the adjusted net income) | 185,896 |
|
Balance of proposed dividends (R$ 0.17 per share) | 185,896 |
|
Allocation of net income | |
|
Legal reserve (5% of the net income) | 42,523 |
|
Minimum mandatory dividends for the year (50% of the adjusted net income) | 403,970 |
|
Statutory reserve | 403,970 |
|
Total distribution of net income for the year attributable to shareholders of Ultrapar | 850,463 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Balances and changes in dividends payable are as follows:
Balance as of December 31, 2019 | 16,094 |
|
Provisions | 710,206 |
|
Payments | (284,767 | ) |
Balance as of December 31, 2020 | 442,133 |
|
Provisions | 478,366 |
|
Prescribed dividends | (11,816 | ) |
Payments | (705,753 | ) |
Reclassification to liabilities of subsidiaries held for sale | (70 | ) |
Balance as of December 31, 2021 | 202,860 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
27. Costs and expenses by nature
The Company presents its costs and expenses by function in the consolidated statement of profit or loss and presents below its expenses by nature:
| 2021 |
| | 2020 |
| | 2019 |
|
| |
| | Restated |
| | Restated |
|
Raw materials and materials for use and consumption | 104,233,143 |
| | 68,851,960 |
| | 77,218,922 |
|
Personnel expenses | 1,575,066 |
| | 1,414,567 |
| | 1,571,227 |
|
Freight and storage | 899,188 |
| | 1,073,971 |
| | 871,057 |
|
Depreciation and amortization | 653,118 |
| | 595,531 |
| | 551,768 |
|
Amortization of right-of-use assets | 260,716 |
| | 242,670 |
| | 216,609 |
|
Advertising and marketing | 106,352 |
| | 143,694 |
| | 192,389 |
|
Services provided by third parties | 399,904 |
| | 184,532 |
| | 179,319 |
|
Other expenses | 101,819 |
| | 139,379 |
| | 258,705 |
|
Total | 108,229,306 |
| | 72,646,304 |
| | 81,059,996 |
|
Classified as: | |
| | |
| | |
|
Cost of products and services sold | 104,827,966 |
| | 70,056,447 |
| | 78,208,786 |
|
Selling and marketing | 1,934,789 |
| | 1,595,871 |
| | 1,631,760 |
|
General and administrative | 1,466,551 |
| | 993,986 |
| | 1,219,450 |
|
Total | 108,229,306 |
| | 72,646,304 |
| | 81,059,996 |
|
28. Gain (loss) on disposal of PP&E and intangibles
The gain or loss is determined as the difference between the selling price and residual book value of the investment, PP&E, and intangible asset. In 2021 the gain was R$ 184,189 (gain of R$ 85,455 in 2020 and losses of R$ 1,700 in 2019), represented primarily from sale of Conectcar (gain of R$ 76,485) and of PP&E.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
29. Other operating income, net
| 2021 |
| | 2020 |
| | 2019 |
|
| |
| | Re-presented |
| | Re-presented |
|
Other operating income, net: | |
| | |
| | |
|
Commercial partnerships (1) | 25,511 |
| | 19,469 |
| | 40,816 |
|
Merchandising (2) | 33,144 |
| | 25,703 |
| | 44,396 |
|
Extraordinary tax credits (3) | 213,183 |
| | 136,561 |
| | 110,090 |
|
Property rental (4) | 26,026 |
| | 24,825 |
| | 26,622 |
|
Revenue from miscellaneous services (administrative, commercial and IT services) | 96,742 |
| | 91,726 |
| | 97,829 |
|
Contractual fine and gas voucher | 10,332 |
| | 9,685 |
| | 15,902 |
|
Others | 40,898 |
| | 13,416 |
| | 20,580 |
|
| 445,836 |
| | 321,385 |
| | 356,235 |
|
Other operating expenses, net: | |
| | |
| | |
|
Property rental (4) | (116,744 | ) | | (92,117 | ) | | (92,199 | ) |
Taxes on other operating income (5) | (23,416 | ) | | (24,929 | ) | | (42,533 | ) |
Fines for tax infractions | (3,702 | ) | | (5,692 | ) | | (4,680 | ) |
Decarbonization obligation (6) | (161,281 | ) | | (124,287 | ) | | (65,539 | ) |
Others | (44,527 | ) | | (10,326 | ) | | (11,255 | ) |
| (349,670 | ) | | (257,351 | ) | | (216,206 | ) |
Other operating income, net | 96,166 |
| | 64,034 |
| | 140,029 |
|
| (1) | Refers to contracts with service providers and suppliers, which establish trade agreements for convenience stores and gas stations.
|
|
|
| (2) | Refers to contracts with suppliers of convenience stores, which establish, among other agreements, promotional campaigns.
|
|
|
| (3) | Refers substantially to PIS and COFINS credits (see Note 8.a.3), recorded in 2021. |
|
|
| (4) | Refers to Ipiranga’s income and expenses with property rentals and sublease, especially for establishment of own gas stations, linked to contractual requirements for the preservation of the brand. |
|
|
| (5) | Refers substantially to ICMS, ISS, PIS and COFINS. |
|
|
| (6) | Refers to the obligation adopted by the RenovaBio to set decarbonization targets for its sector. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
30. Finance income (Expense)
| 2021 |
| | 2020 |
| | 2019 |
|
| |
| | Re-presented (i) |
| | Re-presented (i) |
|
Finance income: | |
| | |
| | |
|
Interest on financial investments | 101,326 |
| | 93,667 |
| | 203,323 |
|
Interest from customers | 109,999 |
| | 132,155 |
| | 126,606 |
|
Changes in subscription warrants – indemnification (see Note 25) | 33,180 |
| | 0 - |
| | 0- |
|
Selic interest on extraordinary PIS/COFINS credits (see Note 8.a.3) | 201,795 |
| | 121,565 |
| | 11,146 |
|
Other finance income | 13,854 |
| | 10,279 |
| | 3,207 |
|
| 460,154 |
| | 357,666 |
| | 344,282 |
|
Finance expenses: | |
| | |
| | |
|
Interest on loans | (410,430 | ) | | (337,324 | ) | | (459,995 | ) |
Interest on debentures | (306,539 | ) | | (321,656 | ) | | (482,238 | ) |
Interest on leases payable | (110,878 | ) | | (109,318 | ) | | (91,956 | ) |
Bank charges, financial transactions tax, and other charges | (70,801 | ) | | (46,878 | ) | | (45,553 | ) |
Exchange variation, net of gains and losses with derivative financial instruments | (239,106 | ) | | (58,944 | ) | | 90,372 |
|
Changes in subscription warrants – indemnification (see Note 25) | 0 - |
| | (17,353 | ) | | (7,760 | ) |
Interest of provisions and other expenses | (85,132 | ) | | (16,541 | ) | | (20,503 | ) |
| (1,222,886 | ) | | (908,014 | ) | | (1,017,633 | ) |
Finance income (expense) | (762,732 | ) | | (550,348 | ) | | (673,351 | ) |
(i) For further details, see Note 3.c.3.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
31. Earnings per share
The table below presents a reconciliation of numerators and denominators used in computing earnings per share. The Company has a deferred stock plan and subscription warrants – indemnification, as mentioned in Notes 9.c and 25, respectively.
| 2021 |
| | 2020 - Re-presented (ii) |
| | 2019 - Re-presented (ii) |
|
| Continuing operations |
| | Discontinued operations (i) |
| | Total |
| | Continuing operations |
| | Discontinued operations (i) |
| | Total |
| | Continuing operations |
| | Discontinued operations (i) |
| | Total |
|
Basic earnings per share | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Net income for the year of the Company | 785,199 |
| | 65,264 |
| | 850,463 |
| | 612,750 |
| | 280,633 |
| | 893,383 |
| | 865,783 |
| | (492,257 | ) | | 373,526 |
|
Weighted average shares outstanding (in thousands) | 1,090,500 |
| | 1,090,500 |
| | 1,090,500 |
| | 1,089,414 |
| | 1,089,414 |
| | 1,089,414 |
| | 1,086,485 |
| | 1,086,485 |
| | 1,086,485 |
|
Basic earnings per share – R$ | 0.7200 |
| | 0.0598 |
| | 0.7799 |
| | 0.5625 |
| | 0.2576 |
| | 0.8201 |
| | 0.7969 |
| | (0.4531 | ) | | 0.3438 |
|
Diluted earnings per share | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Net income for the year of the Company | 785,199 |
| | 65,264 |
| | 850,463 |
| | 612,750 |
| | 280,633 |
| | 893,383 |
| | 865,783 |
| | (492,257 | ) | | 373,526 |
|
Weighted average shares outstanding (in thousands), including dilution effects | 1,096,962 |
| | 1,096,962 |
| | 1,096,962 |
| | 1,095,842 |
| | 1,095,842 |
| | 1,095,842 |
| | 1,092,873 |
| | 1,092,873 |
| | 1,092,873 |
|
Diluted earnings per share – R$ | 0.7158 |
| | 0.0595 |
| | 0.7753 |
| | 0.5592 |
| | 0.2561 |
| | 0.8152 |
| | 0.7922 |
| | (0.4504 | ) | | 0.3418 |
|
Weighted average shares outstanding (in thousands) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Weighted average shares outstanding for basic per share | |
| | |
| | 1,090,500 |
| | |
| | |
| | 1,089,414 |
| | |
| | |
| | 1,086,485 |
|
Dilution effect | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Subscription warrants – indemnification | |
| | |
| | 3,548 |
| | |
| | |
| | 3,570 |
| | |
| | |
| | 3,774 |
|
Deferred stock plan | |
| | |
| | 2,914 |
| | |
| | |
| | 2,858 |
| | |
| | |
| | 2,614 |
|
Weighted average shares outstanding for diluted per share |
|
| | |
| | 1,096,962 |
| | |
| | |
| | 1,095,842 |
| | |
| | |
| | 1,092,873 |
|
(i) For further details, see Note 3.c.2.
(ii) For further details, see Note 3.c.3.
Earnings per share were adjusted retrospectively by the issuance of 2,297,491 common shares due to the partial exercise of the rights conferred by the subscription warrants disclosed in note 25.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
32. Segment information
The Company operates six main business segments: gas distribution, fuel distribution, chemicals, (presented as discontinued operations), storage, drugstores (presented as discontinued operations) and digital payments. The gas distribution segment (Ultragaz) distributes LPG to residential, commercial, and industrial consumers, especially in the South, Southeast, and Northeast regions of Brazil. The fuel distribution segment (Ipiranga) operates the distribution and marketing of gasoline, ethanol, diesel, fuel oil, kerosene, natural gas for vehicles, and lubricants and related activities throughout all the Brazilian territory. The storage segment (Ultracargo) operates liquid bulk terminals, especially in the Southeast and Northeast regions of Brazil. The digital payments segment (Abastece aí) offers digital payments services, combining the “abastece aí” app and the loyalty program “Km de Vantagens”. The segments shown in the financial statements are strategic business units supplying different products and services. Intersegment sales are at prices similar to those that would be charged to third parties.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
a. Financial information related to segments
The main financial information of each of the continuing operations Company’s segments are stated as follows. For discontinued operations see note 3.c.2.
| 2021 |
|
|
Income | Ipiranga |
|
| Ultragaz |
|
| Ultracargo |
|
| Abastece aí |
|
| Subtotal |
|
| Others (1)(2) |
|
| Elimination |
|
| Total |
|
|
| |
Net revenue from sales and services | 99,382,617 |
|
| 9,744,659 |
|
| 713,096 |
|
| 84,733 |
|
| 109,925,105 |
|
| 22,452 |
|
| (214,715 | ) |
| 109,732,842 |
|
|
Transactions with third parties | 99,382,547 |
|
| 9,740,657 |
|
| 518,762 |
|
| 84,733 |
|
| 109,726,699 |
|
| 6,143 |
|
| - |
|
| 109,732,842 |
|
|
Intersegment transactions | 70 |
|
| 4,002 |
|
| 194,334 |
|
| 0 - |
|
| 198,406 |
|
| 16,309 |
|
| (214,715 | ) |
| - |
|
|
Cost of products and services sold | (96,110,408 | ) |
| (8,626,340 | ) |
| (285,406 | ) |
| 0 - |
|
| (105,022,154 | ) |
| 70 |
|
| 194,118 |
|
| (104,827,966 | ) |
|
Gross profit | 3,272,209 |
|
| 1,118,319 |
|
| 427,690 |
|
| 84,733 |
|
| 4,902,951 |
|
| 22,522 |
|
| (20,597 | ) |
| 4,904,876 |
|
|
Operating income (expenses) | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Selling and marketing | (1,409,350 | ) |
| (438,697 | ) |
| (9,213 | ) |
| (71,345 | ) |
| (1,928,605 | ) |
| (6,184 | ) |
| 0 - |
|
| (1,934,789 | ) |
|
Loss allowance (reversion) for expected credit losses | 23,536 |
|
| (20,482 | ) |
| 69 |
|
| 0 - |
|
| 3,123 |
|
| 0 - |
|
| 0 - |
|
| 3,123 |
|
|
General and administrative | (846,441 | ) |
| (202,002 | ) |
| (127,117 | ) |
| (113,544 | ) |
| (1,289,104 | ) |
| (198,044 | ) |
| 20,597 |
|
| (1,466,551 | ) |
|
Gain (loss) on disposal of property, plant and equipment and intangibles | 183,862 |
|
| 2,138 |
|
| (1,754 | ) |
| (9 | ) |
| 184,237 |
|
| (48 | ) |
| 0 - |
|
| 184,189 |
|
|
Other operating income, net | 74,574 |
|
| 10,976 |
|
| 3,876 |
|
| 5,159 |
|
| 94,585 |
|
| 1,581 |
|
| 0 - |
|
| 96,166 |
|
|
Operating income (loss) | 1,298,390 |
|
| 470,252 |
|
| 293,551 |
|
| (95,006 | ) |
| 1,967,187 |
|
| (180,173 | ) |
| 0 - |
|
| 1,787,014 |
|
|
Share of profit (loss) of subsidiaries, joint ventures and associates | (859 | ) |
| (104 | ) |
| 602 |
|
| 0 - |
|
| (361 | ) |
| (17,273 | ) |
| 0 - |
|
| (17,634 | ) |
|
Operating income before finance income (expenses) and income and social contribution taxes | 1,297,531 |
|
| 470,148 |
|
| 294,153 |
|
| (95,006 | ) |
| 1,966,826 |
|
| (197,446 | ) |
| 0 - |
|
| 1,769,380 |
|
|
Depreciation of PP&E and amortization of intangible assets charges | 325,942 |
|
| 211,014 |
|
| 76,421 |
|
| 14,365 |
|
| 627,742 |
|
| 25,376 |
|
| 0 - |
|
| 653,118 |
|
|
Amortization of contractual assets with customers – exclusive rights | 280,975 |
|
| 1,546 |
|
| 0 - |
|
| 0 - |
|
| 282,521 |
|
| 0 - |
|
| 0 - |
|
| 282,521 |
|
|
Amortization of right-of-use assets | 182,245 |
|
| 46,579 |
|
| 25,440 |
|
| 267 |
|
| 254,531 |
|
| 6,185 |
|
| 0 - |
|
| 260,716 |
|
|
Total of depreciation and amortization | 789,162 |
|
| 259,139 |
|
| 101,861 |
|
| 14,632 |
|
| 1,164,794 |
|
| 31,561 |
|
| 0 - |
|
| 1,196,355 |
|
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| 2020 - Re-presented |
|
|
Income | Ipiranga |
|
| Ultragaz |
|
| Ultracargo |
|
| Abastece aí |
|
| Subtotal Segments |
|
| Others (1)(2) |
|
| Elimination |
|
| Total |
|
|
| |
Net revenue from sales and services | 66,133,035 |
|
| 7,408,342 |
|
| 644,177 |
|
| 17,223 |
|
| 74,202,777 |
|
| 48,325 |
|
| (193,046 | ) |
| 74,058,056 |
|
|
Transactions with third parties | 66,132,828 |
|
| 7,403,632 |
|
| 504,725 |
|
| 17,223 |
|
| 74,058,408 |
|
| (352 | ) |
| - |
|
| 74,058,056 |
|
|
Intersegment transactions | 207 |
|
| 4,710 |
|
| 139,452 |
|
| 0 - |
|
| 144,369 |
|
| 48,677 |
|
| (193,046 | ) |
| - |
|
|
Cost of products and services sold | (63,609,871 | ) |
| (6,310,157 | ) |
| (270,010 | ) |
| 0 - |
|
| (70,190,038 | ) |
| 207 |
|
| 133,384 |
|
| (70,056,447 | ) |
|
Gross profit | 2,523,164 |
|
| 1,098,185 |
|
| 374,167 |
|
| 17,223 |
|
| 4,012,739 |
|
| 48,532 |
|
| (59,662 | ) |
| 4,001,609 |
|
|
Operating income (expenses) | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Selling and marketing | (1,164,779 | ) |
| (404,776 | ) |
| (7,278 | ) |
| (13,945 | ) |
| (1,590,778 | ) |
| (5,093 | ) |
| 0 - |
|
| (1,595,871 | ) |
|
Loss allowance (reversion) for expected credit losses | 2,863 |
|
| (18,514 | ) |
| 370 |
|
| 0 - |
|
| (15,281 | ) |
| 0 - |
|
| 0 - |
|
| (15,281 | ) |
|
General and administrative | (568,963 | ) |
| (196,883 | ) |
| (122,965 | ) |
| (33,164 | ) |
| (921,975 | ) |
| (131,673 | ) |
| 59,662 |
|
| (993,986 | ) |
|
Gain (loss) on disposal of property, plant and equipment and intangibles | 78,952 |
|
| 7,936 |
|
| (1,433 | ) |
| 0 - |
|
| 85,455 |
|
| 0 - |
|
| 0 - |
|
| 85,455 |
|
|
Other operating income, net | 44,195 |
|
| 8,265 |
|
| 8,898 |
|
| 920 |
|
| 62,278 |
|
| 1,756 |
|
| 0 - |
|
| 64,034 |
|
|
Operating income (loss) | 915,432 |
|
| 494,213 |
|
| 251,759 |
|
| (28,966 | ) |
| 1,632,438 |
|
| (86,478 | ) |
| 0 - |
|
| 1,545,960 |
|
|
Share of profit (loss) of subsidiaries, joint ventures and associates | (932 | ) |
| (53 | ) |
| 392 |
|
| 0 - |
|
| (593 | ) |
| (43,438 | ) |
| 0 - |
|
| (44,031 | ) |
|
Operating income before finance income (expenses) and income and social contribution taxes | 914,500 |
|
| 494,160 |
|
| 252,151 |
|
| (28,966 | ) |
| 1,631,845 |
|
| (129,916 | ) |
| 0 - |
|
| 1,501,929 |
|
|
Depreciation of PP&E and amortization of intangible assets charges | 314,511 |
|
| 192,241 |
|
| 65,838 |
|
| 4,053 |
|
| 576,643 |
|
| 18,888 |
|
| 0 - |
|
| 595,531 |
|
|
Amortization of contractual assets with customers – exclusive rights | 287,800 |
|
| 1,636 |
|
| 0 - |
|
| 0 - |
|
| 289,436 |
|
| 0 - |
|
| 0 - |
|
| 289,436 |
|
|
Amortization of right-of-use assets | 177,039 |
|
| 41,015 |
|
| 19,482 |
|
| 40 |
|
| 237,576 |
|
| 5,094 |
|
| 0 - |
|
| 242,670 |
|
|
Total of depreciation and amortization | 779,350 |
|
| 234,892 |
|
| 85,320 |
|
| 4,093 |
|
| 1,103,655 |
|
| 23,982 |
|
| 0 - |
|
| 1,127,637 |
|
|
| (1) | Includes in the line “General and administrative” and revenue on disposal of PP&E and intangibles the amount of R$ 154,640 in 2021 (R$ 87,363 in 2020) of expenses related to Ultrapar's holding structure, including the Presidency, Financial Board, Legal Board, Board of Directors and Fiscal Council, Risk, Compliance and Audit Board and Sustainability Board. |
| (2) | The “Others” column consists of financial income and expenses, income tax and social contribution of the segments, the parent company Ultrapar and the subsidiaries Serma, Imaven Imóveis Ltda. (“Imaven”), Ultrapar International, UVC Investimentos, UVC - Fundo de investimento and equity of joint ventures of ConectCar, until September 30, 2021 and RPR. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| 2019 – Re-presented |
|
|
Income | Ipiranga |
|
| Ultragaz |
|
| Ultracargo |
|
| Subtotal |
|
| Others |
|
| Elimination |
|
| Total |
|
|
| |
Net revenue from sales and services | 75,452,481 |
|
| 7,094,825 |
|
| 540,758 |
|
| 83,088,064 |
|
| 44,063 |
|
| (127,397 | ) |
| 83,004,729 |
|
|
Transactions with third parties | 75,451,946 |
|
| 7,091,031 |
|
| 462,368 |
|
| 83,005,345 |
|
| (616 | ) |
| - |
|
| 83,004,729 |
|
|
Intersegment transactions | 535 |
|
| 3,794 |
|
| 78,390 |
|
| 82,719 |
|
| 44,678 |
|
| (127,397 | ) |
| - |
|
|
Cost of products and services sold | (71,962,747 | ) |
| (6,104,952 | ) |
| (261,025 | ) |
| (78,328,724 | ) |
| 533 |
|
| 119,405 |
|
| (78,208,786 | ) |
|
Gross profit | 3,489,734 |
|
| 989,873 |
|
| 279,733 |
|
| 4,759,340 |
|
| 44,595 |
|
| (7,992 | ) |
| 4,795,943 |
|
|
Operating income (expenses) |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Selling and marketing | (1,228,136 | ) |
| (394,798 | ) |
| (8,683 | ) |
| (1,631,617 | ) |
| ( 143 | ) |
| 0- |
|
| (1,631,760 | ) |
|
Loss allowance (reversion) for expected credit losses | (3,942 | ) |
| ( 31,370 | ) |
| 87 |
|
| (35,225 | ) |
| 0- |
|
| 0- |
|
| 35,225 | ) |
|
General and administrative | (770,028 | ) |
| (210,361 | ) |
| ( 124,767 | ) |
| ( 1,105,156 | ) |
| ( 122,286 | ) |
| 7,992 |
|
| ( 1,219,450 | ) |
|
Gain (loss) on disposal of property, plant and equipment and intangibles | 13,285 |
|
| 2,677 |
|
| (807 | ) |
| 15,155 |
|
| ( 13,455 | ) |
| 0- |
|
| 1,700 |
|
|
Other operating income, net | 186,982 |
|
| 12,953 |
|
| (62,392 | ) |
| 137,543 |
|
| 2,486 |
|
| 0- |
|
| 140,029 |
|
|
Operating income (loss) | 1,687,895 |
|
| 368,974 |
|
| 83,171 |
|
| 2,140,040 |
|
| (88,803 | ) |
| 0- |
|
| 2,051,237 |
|
|
Share of profit (loss) of subsidiaries, joint ventures and associates | ( 24,782 | ) |
| (5 | ) |
| 1,370 |
|
| ( 23,417 | ) |
| 10,708 |
|
| 0- |
|
| (12,709 | ) |
|
Operating income before finance income (expenses) and income and social contribution taxes | 1,663,113 |
|
| 368,969 |
|
| 84,541 |
|
| 2,116,623 |
|
| (78,095 | ) |
| 0- |
|
| 2,038,528 |
|
|
Depreciation of PP&E and amortization of intangible assets charges | 275,294 |
|
| 186,221 |
|
| 59,618 |
|
| 521,133 |
|
| 30,636 |
|
| 0- |
|
| 551,768 |
|
|
Amortization of contractual assets with customers – exclusive rights | 355,055 |
|
| 195 |
|
| 0- |
|
| 355,250 |
|
| 0 - |
|
| 0- |
|
| 355,250 |
|
|
Amortization of right-of-use assets | 164,543 |
|
| 31,264 |
|
| 20,673 |
|
| 216,480 |
|
| 128 |
|
| 0- |
|
| 216,609 |
|
|
Total of depreciation and amortization | 794,892 |
|
| 217,680 |
|
| 80,291 |
|
| 1,092,863 |
|
| 30,764 |
|
| 0- |
|
| 1,123,627 |
|
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| 2021 |
|
|
Cash flow | Ipiranga |
|
| Ultragaz |
|
| Ultracargo |
|
| Abastece aí |
|
| Subtotal Segments |
|
| Others (3) |
|
| Elimination |
|
| Total |
|
|
| |
Acquisition of property, plant, and equipment | 386,693 |
|
| 336,871 |
|
| 298,272 |
|
| 636 |
|
| 1,022,472 |
|
| 5,947 |
|
| 0 - |
|
| 1,028,419 |
|
|
Acquisition of intangible assets | 156,498 |
|
| 30,150 |
|
| 15,819 |
|
| 34,824 |
|
| 237,291 |
|
| 197 |
|
| 0 - |
|
| 237,488 |
|
|
Payments of contractual assets with customers – exclusive rights | 420,261 |
|
| 0 - |
|
| 0 - |
|
| 0 - |
|
| 420,261 |
|
| 0 - |
|
| 0 - |
|
| 420,261 |
|
|
Decarbonization credits (see Note 16) | 176,837 |
|
| 0 - |
|
| 0 - |
|
| 0 - |
|
| 176,837 |
|
| 0 - |
|
| 0 - |
|
| 176,837 |
|
|
| 2020 - Re-presented |
|
|
Cash flow | Ipiranga |
|
| Ultragaz |
|
| Ultracargo |
|
| Abastece aí |
|
| Subtotal Segments |
|
| Others (3) |
|
| Elimination |
|
| Total |
|
|
| |
Acquisition of property, plant, and equipment | 245,980 |
|
| 276,470 |
|
| 211,287 |
|
| 5,149 |
|
| 738,886 |
|
| 11,732 |
|
| 0 - |
|
| 750,618 |
|
|
Acquisition of intangible assets | 85,337 |
|
| 32,613 |
|
| 5,596 |
|
| 10,285 |
|
| 133,831 |
|
| 20,703 |
|
| 0 - |
|
| 154,534 |
|
|
Payments of contractual assets with customers – exclusive rights | 351,233 |
|
| 4,812 |
|
| 0 - |
|
| 0 - |
|
| 356,045 |
|
| 0 - |
|
| 0 - |
|
| 356,045 |
|
|
Decarbonization credits (see Note 16) | 125,345 |
|
| 0 - |
|
| 0 - |
|
| 0 - |
|
| 125,345 |
|
| 0 - |
|
| 0 - |
|
| 125,345 |
|
|
| 2019 – Re-presented |
|
|
Cash flow | Ipiranga |
|
| Ultragaz |
|
| Ultracargo |
|
| Subtotal Segments |
|
| Others (3) |
|
| Elimination |
|
| Total |
|
|
| |
Acquisition of property, plant, and equipment | 284,882 |
|
| 222,082 |
|
| 206,369 |
|
| 713,333 |
|
| 7,446 |
|
| 0- |
|
| 720,779 |
|
|
Acquisition of intangible assets | 70,193 |
|
| 27,702 |
|
| 617 |
|
| 98,512 |
|
| 12,739 |
|
| 0- |
|
| 111,251 |
|
|
Payments of contractual assets with customers – exclusive rights | 327,346 |
|
| 2,722 |
|
| 0- |
|
| 330,068 |
|
| 0- |
|
| 0- |
|
| 330,068 |
|
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| 12/31/2021 |
|
|
Assets | Ipiranga |
|
| Ultragaz |
|
| Ultracargo |
|
| Abastece aí |
|
| Subtotal Segments |
|
| Others (3) |
|
| Assets from subsidiaries held for sale |
|
| Total |
|
|
| |
Total assets (excluding intersegment transactions) | 21,050,793 |
|
| 3,233,736 |
|
| 2,675,453 |
|
| 152,212 |
|
| 27,112,194 |
|
| 897,246 |
|
| 11,000,917 |
|
| 39,010,357 |
|
|
| 12/31/2020 |
|
|
Assets | Ipiranga |
|
| Ultragaz |
|
| Oxiteno |
|
| Ultracargo |
|
| Extrafarma |
|
| Abastece aí |
|
| Subtotal Segments |
|
| Others (3) |
|
| Elimination |
|
| Total |
|
|
Total assets (excluding intersegment transactions) | 18,761,207 |
|
| 2,927,061 |
|
| 8,892,850 |
|
| 2,197,675 |
|
| 1,845,038 |
|
| 85,787 |
|
| 34,709,618 |
|
| 1,540,544 |
|
| 0 - |
|
| 36,250,162 |
|
|
| (3) | The “Others” column comprises the parent company Ultrapar (including goodwill from certain acquisitions) and the subsidiaries Serma, Imaven, Ultrapar International, UVC Investimentos and UVC - Fundo de investimento. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| 2021 |
| | 2020 |
| | 2019 |
|
| |
| | Re-presented |
| | Re-presented |
|
Income before financial result, income and social contribution taxes | 1,769,380 |
| | 1,501,929 |
| | 2,038,528 |
|
Financial result, net | (762,732 | ) | | (550,348 | ) | | (673,351 | ) |
Income before income and social contribution taxes | 1,006,648 |
| | 951,581 |
| | 1,365,177 |
|
Additions to PP&E and intangible assets (excluding intersegment account balances): | |
| | |
| | |
|
Ultragaz | 367,021 |
| | 309,083 |
| | 249,784 |
|
Ipiranga | 550,874 |
| | 338,848 |
| | 370,864 |
|
Ultracargo | 316,873 |
| | 218,898 |
| | 217,377 |
|
Abastece aí | 35,460 |
| | 15,434 |
| | 0- |
|
| 1,270,228 |
| | 882,263 |
| | 838,025 |
|
Others (1) | 6,143 |
| | 32,437 |
| | 20,185 |
|
Total additions to PP&E and intangible assets, excluding decarbonization credits (see Notes 15 and 16) | 1,276,371 |
| | 914,700 |
| | 858,210 |
|
Asset retirement obligation – fuel tanks (see Note 22) | (451 | ) | | (163 | ) | | (290 | ) |
Capitalized borrowing costs | (10,013 | ) | | (9,385 | ) | | (25,890 | ) |
Total investments in PP&E and intangible assets (cash flow) | 1,265,907 |
| | 905,152 |
| | 832,030 |
|
Addition on contractual assets with customers – exclusive rights (see Note 12): | |
| | |
| | |
|
Ipiranga | 689,986 |
| | 543,382 |
| | 330,068 |
|
Ultragaz | 0 - |
| | 5,703 |
| | 0- |
|
Total | 689,986 |
| | 549,085 |
| | 330,068 |
|
| (1) | The “Others” column comprises the parent company Ultrapar (including goodwill from certain acquisitions) and the subsidiaries Serma, Imaven, Ultrapar International, UVC Investimentos and UVC – Fundo de investimento. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Geographic area information
The right-of-use assets, PP&E and intangible assets of the Company and its subsidiaries are located in Brazil, except those related to Oxiteno’ plants abroad, which were reclassified to assets of subsidiaries held for sale on December 31, 2021, for further details see Note 3.b, as shown below:
| 12/31/2021 |
| | 12/31/2020 |
|
United States of America | 0 - |
| | 1,152,876 |
|
Mexico | 0 - |
| | 163,042 |
|
Uruguay | 0 - |
| | 90,347 |
|
| 0 - |
| | 1,406,265 |
|
The subsidiaries generate revenue from operations in Brazil, as well as from exports of products to foreign customers, as disclosed below:
| 2021 |
| | 2020 | |
| 2019 |
|
| |
| | Re-presented (i) | |
| Re-presented (i) |
|
Net revenue from sale and services: |
|
| | | |
| |
|
Brazil | 109,598,146 |
| | 73,941,162 | |
| 82,927,227 |
|
Other Latin American countries | 69,523 |
| | 45,356 | |
| 40,655 |
|
United States of America and Canada | 35,279 |
| | 29,935 | |
| 16,906 |
|
Europe | 18,876 |
| | 34,460 | |
| 17,058 |
|
Others | 11,018 |
| | 7,143 | |
| 2,883 |
|
Total | 109,732,842 |
| | 74,058,056 | |
| 83,004,729 |
|
| (i) | For further information see Note 3.c.3. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
33. Risks and financial instruments
a. Risk management and financial instruments – governance
The main risks to which the Company and its subsidiaries are exposed reflect strategic/operational and economic/financial aspects. Operational/strategic risks (including, but not limited to, demand behavior, competition, technological innovation, and material changes in the industry structure) are addressed by the Company’s management model. Economic/financial risks primarily reflect default of customers, behavior of macroeconomic variables, such as exchange and interest rates, as well as the characteristics of the financial instruments used by the Company and its subsidiaries and their counterparties. These risks are managed through control policies, specific strategies, and the establishment of limits.
The Company has a policy for the management of resources, financial instruments, and risks approved by its Company’s Board of Directors (“Policy”). In accordance with the Policy, the main objectives of financial management are to preserve the value and liquidity of financial assets and ensure financial resources for the development of the business, including expansions. The main financial risks considered in the Policy are market risks (currencies, interest rates and commodities), liquidity and credit. The governance of the management of financial risks follows the segregation of duties below:
The execution of the Policy has done by corporate financial board, through its treasury department, with the assistance of the accounting, legal and tax departments.
The monitoring of compliance of the Policy and possible issues is the responsibility of the Risk and Investment Committee, (“Committee”), which is composed of CFO, Treasury Director, Controller and other directors designated by the CFO and which meet quarterly. The monthly monitoring of Policy standards is responsibility of the CFO.
Approval of the Policy and the periodic assessment of Company exposure to financial risks are subject to the approval of the Company’s Board of Directors of Ultrapar.
The Audit and Risks Committee advises the Company’s Board of Directors in the assessment of controls, management and exposure of financial risks and revision of Policy. The Risk, Compliance and Audit board monitors of standards compliance of the Policy and reports to the Audit and Risks Committee the risks exposure and compliance or noncompliance of the Policy.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b. Currency risk
Most transactions of the Company, through its subsidiaries, are located in Brazil and therefore, the reference currency for risk management is the Brazilian Real. Currency risk management is guided by neutrality of currency exposures and considers the risks of the Company and its subsidiaries and their exposure to changes in exchange rates. The Company considers as its main currency exposures the changes in assets and liabilities in foreign currency.
The Company and its subsidiaries use exchange rate hedging instruments (especially between the Brazilian Real and the U.S. dollar) available in the financial market to protect their assets, liabilities, receipts, and disbursements in foreign currency and net investments in foreign operations. Hedge is used in order to reduce the effects of changes in exchange rates on the Company´s income and cash flows in Brazilian Reais within the exposure limits under its Policy. Such foreign exchange hedging instruments have amounts, periods, and rates substantially equivalent to those of assets, liabilities, receipts, and disbursements in foreign currencies to which they are related.
Assets and liabilities in foreign currencies are stated below, translated into Brazilian Reais:
b.1 Assets and liabilities in foreign currencies
| 12/31/2021 |
|
| 12/31/2020 |
|
Assets in foreign currency | |
|
| |
|
Cash, cash equivalents and financial investments in foreign currency (except hedging instruments) | 122,242 |
|
| 1,413,276 |
|
Foreign trade receivables, net of loss allowance for expected credit losses and advances to foreign customers | 1,324 |
|
| 307,829 |
|
Other assets | 186,548 |
|
| 1,767,626 |
|
Asset exposure from subsidiaries held for sale | 3,839,194 |
|
| 0- |
|
| 4,149,308 |
|
| 3,488,731 |
|
Liabilities in foreign currency | |
|
| |
|
Financing in foreign currency, gross of transaction costs and discount | (8,860,833 | ) |
| (9,246,707 | ) |
Payables arising from imports, net of advances to foreign suppliers | (649,107 | ) |
| (633,013 | ) |
Liabilities exposure from subsidiaries held for sale | (884,402 | ) |
| 0- |
|
| (10,394,342 | ) |
| (9,879,720 | ) |
Foreign currency hedging instruments | 2,933,572 |
|
| 4,837,554 |
|
Foreign currency hedging instruments from subsidiaries held for sale | 1,786,471 |
|
| 0- |
|
Net liability position – total | (1,524,991 | ) |
| (1,553,435 | ) |
Net (liability) asset position – income statement effect | (498,604 | ) |
| 186,306 |
|
Net liability position – equity effect from subsidiaries held for sale | (1,026,387 | ) |
| (1,739,741 | ) |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
b.2 Sensitivity analysis of assets and liabilities in foreign currency
For the base scenario, future market curves as of December 31, 2021 were used applied on the net position of the Company exposed to the currency risk, simulating the effects of appreciation and devaluation of the Real in the income statement, impacted by the average U.S. dollar of R$ 5.6514 on December 31,2021.
The table below shows the effects of exchange rate changes on the net liability position of R$ 1,524,991 in foreign currency as of December 31, 2021:
| Risk | Scenario |
|
| | Base |
|
Income statement effect | Real devaluation | (25,230 | ) |
| Net effect | (25,230 | ) |
Income statement effect | Real appreciation | 25,230 |
|
| Net effect | 25,230 |
|
c. Interest rate risk
The Company and its subsidiaries adopt policies for borrowing and investing financial resources and for capital cost minimization. The financial investments of the Company and its subsidiaries are primarily held in transactions linked to the DI, as set forth in Note 5. Borrowings primarily relate to financing from Banco do Brasil, as well as debentures and borrowings in foreign currency, as shown in Note 17.
The Company attempts to maintain most of its financial interest assets and liabilities at floating rates.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c.1 Assets and liabilities exposed to floating interest rates
The financial assets and liabilities exposed to floating interest rates are demonstrated below:
| Note | 12/31/2021 |
| | 12/31/2020 |
|
DI | | |
| | |
|
Cash equivalents | 5.a | 1,943,164 |
| | 2,241,852 |
|
Financial investments | 5.b | 1,607,608 |
| | 3,749,852 |
|
Loans and debentures | 17.a | (4,855,517 | ) | | (6,947,362 | ) |
Liability position of foreign exchange hedging instruments – DI | 33.g | (2,283,625 | ) | | (2,124,146 | ) |
Liability position of fixed interest instruments + IPCA – DI | 33.g | (2,364,583 | ) | | (2,203,705 | ) |
Net liability position in DI | | (5,952,953 | ) | | (5,283,509 | ) |
TJLP | | |
| | |
|
Loans – TJLP | 17.a | (326 | ) | | (29,803 | ) |
Net liability position in TJLP | | (326 | ) | | (29,803 | ) |
LIBOR | | |
| | |
|
Asset position of foreign exchange hedging instruments – LIBOR | 33.g | 279,047 |
| | 260,958 |
|
Loans – LIBOR | 17.a | (275,936 | ) | | (573,484 | ) |
Net liability position in LIBOR | | 3,111 |
| | (312,526 | ) |
Total net liability position exposed to floating interest | | (5,950,168 | ) | | (5,625,838 | ) |
c.2 Sensitivity analysis of floating interest rate risk
For sensitivity analysis of floating interest rate risk, in December 31, 2021 the Company used the market curves of the reference indexes (DI, TJLP, LIBOR and SELIC) as a base scenario.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The tables below show the incremental expenses and income that would be recognized in finance income, if the market curves of floating interest at the base date were applied to the average balances of the current year, due to the effect of floating interest rate.
| | 12/31/2021 |
|
|
| Risk | Scenario |
|
|
| | Base |
|
|
Exposure of interest rate risk | | |
|
|
Interest effect on cash equivalents and financial | Increase in DI | 153,160 |
|
|
Interest effect on debt in DI | Increase in DI | (360,652 | ) |
|
Interest rate hedging instruments (liabilities in DI) effect | Increase in DI | (221,157 | ) |
|
Incremental expenses | | (428,649 | ) |
|
Interest effect on debt in TJLP | Increase in TJLP | (7 | ) |
|
Incremental expenses | | (7 | ) |
|
Foreign exchange hedging instruments (assets in LIBOR) effect | Increase in LIBOR | 11 |
|
|
Interest effect on debt in LIBOR | Increase in LIBOR | (94 | ) |
|
Incremental expenses | | (83 | ) |
|
d. Credit risks
The financial instruments that would expose the Company and its subsidiaries to credit risks of the counterparty are basically represented by cash and bank deposits, financial investments, hedging instruments (see Note 5), and trade receivables (see Note 6).
d.1 Credit risk of financial institutions
Such risk results from the inability of financial institutions to comply with their financial obligations to the Company and its subsidiaries due to insolvency. The Company and its subsidiaries regularly conduct a credit review of the institutions with which they hold cash and cash equivalents, financial investments, and hedging instruments through various methodologies that assess liquidity, solvency, leverage, portfolio quality, etc. Cash and cash equivalents, financial investments, and hedging instruments are held only with institutions with a solid credit history, chosen for safety and soundness. The volume of cash and cash equivalents, financial investments, and hedging instruments are subject to maximum limits by each institution and, therefore, require diversification of counterparties.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
d.2 Government credit risk
The Company's policy allows investments in government securities from countries classified as investment grade AAA or aaa by specialized credit rating agencies (S&P, Moody’s and Fitch) and in Brazilian government bonds. The volume of such financial investments is subject to maximum limits by each country and, therefore, requires diversification of counterparties.
The credit risk of financial institution and government of cash, cash equivalents and financial investments is summarized below:
| | Fair value |
|
Counterparty credit rating | | 12/31/2021 |
| | 12/31/2020 |
|
AAA | | 3,606,000 |
| | 8,190,428 |
|
AA | | 740,879 |
| | 317,894 |
|
A | | 116,594 |
| | 163,838 |
|
Total | | 4,463,473 |
| | 8,672,160 |
|
d.3 Customer credit risk
The credit policy establishes the analysis of the profile of each new customer, individually, regarding their financial condition. The review carried out by the subsidiaries of the Company includes the evaluation of external ratings, when available, financial statements, credit bureau information, industry information and, when necessary, bank references. Credit limits are established for each customer and reviewed periodically, in a shorter period the greater the risk, depending on the approval of the responsible area in cases of sales that exceed these limits.
In monitoring credit risk, customers are grouped according to their credit characteristics and depending on the business the grouping takes into account, for example, whether they are natural or legal clients, whether they are wholesalers, resellers or final customers, considering also the geographic area.
The expected of credit losses are calculated by the expected loss approach based on the probability of default rates. Loss rates are calculated on the basis of the average probability of a receivable amount to advance through successive stages of default until full write-off. The probability of default calculation takes into account a credit risk score for each exposure, based on data considered to be capable of foreseeing the risk of loss (external classifications, audited financial statements, cash flow projections, customer information available in the press, for example), with addition of the credit assessment based on experience.
Such credit risks are managed by each business unit through specific criteria for acceptance of customers and their credit rating and are additionally mitigated by the diversification of sales. NaN single customer or group accounts for more than 10% of total revenue.
The subsidiaries of the Company request guarantees related to trade receivables and other receivables in specific situations to customers, but these guarantees don’t influence in the calculation of risk of loss.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The subsidiaries of the Company maintained the following loss allowance for expected credit losses balances on trade receivables:
| 12/31/2021 |
| | 12/31/2020 |
|
Ipiranga | 422,542 |
| | 447,389 |
|
Ultragaz | 135,565 |
| | 113,621 |
|
Oxiteno (*) | 0- |
| | 16,430 |
|
Extrafarma (*) | 0- |
| | 73 |
|
Ultracargo | 1,526 |
| | 1,594 |
|
Total | 559,633 |
| | 579,107 |
|
(*) On December 31, 2021 the balances were reclassified to assets of subsidiaries held for sale.
The table below presents information about credit risk exposure, resulting from the additions of the balances of trade receivables and reseller financing:
| 12/31/2021 |
| | 12/31/2020 |
|
| Weighted average rate of losses |
| | Accounting balance |
| | Provision for losses |
| | Weighted average rate of losses |
| | Accounting balance |
| | Provision for losses |
|
Current | 0.6% |
| | 3,901,536 |
| | 23,476 |
| | 1.2% |
| | 3,751,067 |
| | 44,091 |
|
less than 30 days | 7.3% |
| | 109,284 |
| | 8,005 |
| | 2.2% |
| | 134,836 |
| | 2,939 |
|
31-60 days | 20.4% |
| | 57,545 |
| | 11,746 |
| | 8.2% |
| | 43,207 |
| | 3,563 |
|
61-90 days | 23.0% |
| | 39,177 |
| | 9,016 |
| | 10.9% |
| | 42,589 |
| | 4,630 |
|
91-180 days | 49.1% |
| | 50,588 |
| | 24,818 |
| | 36.8% |
| | 76,158 |
| | 28,062 |
|
more than 180 days | 57.5% |
| | 838,532 |
| | 482,572 |
| | 55.7% |
| | 890,756 |
| | 495,822 |
|
| |
| | 4,996,662 |
| | 559,633 |
| | |
| | 4,938,613 |
| | 579,107 |
|
The information about loss allowance for expected credit losses balances by geographic area are as follows:
| 12/31/2021 |
| | 12/31/2020 |
|
Brazil | 559,532 |
| | 568,461 |
|
United States of America and Canada | 3 |
| | 1,146 |
|
Other Latin America countries | 15 |
| | 271 |
|
Europe | 66 |
| | 9,120 |
|
Others | 17 |
| | 109 |
|
| 559,633 |
| | 579,107 |
|
For more information about the allowance for loss allowance for expected credit losses, see Notes 6.a and 6.b.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
d.4 Price risk
The Company and its subsidiaries are exposed to commodity price risk, due the fluctuation in prices for diesel and gasoline, among others. These products are traded on the stock exchange and are subjected to the impacts of macroeconomic and geopolitical factors outside the control of the Company and its subsidiaries.
To mitigate the risk of the fluctuation of diesel and gasoline prices, the Company and its subsidiaries permanently monitor the market, seeking to protection of price movements through hedge transactions for cargo purchased in the international market, used contracts of derivative for heating oil (diesel) and RBOB (gasoline) traded on the stock exchange.
The table below shows the positions of derivative financial instruments to hedge commodity price risk at December 31, 2021:
Derivative | | Contract | | Notional amount (m 3) |
| | Notional amount (USD thousands) |
| | Fair value (R$ thousands) |
|
| | Position | | Product | | Maturity | | 12/31/2021 |
| | 12/31/2020 |
| | 12/31/2021 |
| | 12/31/2020 |
| | 12/31/2021 |
| | 12/31/2020 |
|
Term | | Sold | | Heating Oil | | jan-22 | | 167,255 |
| | 108,429 |
| | 103,148 |
| | 42,399 |
| | 2,269 |
| | (563 | ) |
Term | | Sold | | RBOB | | jan-22 | | 29,413 |
| | 0- |
| | 17,112 |
| | 0- |
| | (967 | ) | | 0- |
|
| | | | | | | | |
| | |
| | |
| | |
| | 1,302 |
| | (563 | ) |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
e. Liquidity risk
The Company and its subsidiaries’ main sources of liquidity derive from (i) cash, cash equivalents, and financial investments, (ii) cash generated from operations and (iii) financing. The Company and its subsidiaries believe that these sources are sufficient to satisfy their current funding requirements, which include, but are not limited to, working capital, capital expenditures, amortization of debt, and payment of dividends.
The Company and its subsidiaries periodically examine opportunities for acquisitions and investments. They consider different types of investments, either directly, through joint ventures, or through associated companies, and finance such investments using cash generated from operations, debt financing, through capital increases, or through a combination of these methods.
The Company and its subsidiaries believe to have sufficient working capital, sources of financing and income from continuing operation to meet their current needs. The gross indebtedness due over the next twelve months totals R$ 3,605,377, including estimated interest on loans (for quantitative information, see Note 17.a). Furthermore, the business investments made in 2021 totaled R$ 1,883,839. On December 31, 2021, the Company and its subsidiaries had R$ 4,084,196 in cash, cash equivalents, and short-term financial investments (for quantitative information, see Note 5).
The table below presents a summary of financial liabilities as of December 31, 2021 by the Company and its subsidiaries, listed by maturity. The amounts disclosed in this table are the contractual undiscounted cash outflows, and, therefore, these amounts may be different from the amounts disclosed on the balance sheet.
Financial liabilities | Total |
|
| Less than 1 year |
|
| Between 1 and 3 years |
|
| Between 3 and 5 years |
|
| More than 5 years |
|
Loans including future contractual interest (1) (2) | 19,825,386 |
|
| 3,605,377 |
|
| 5,081,235 |
|
| 4,237,708 |
|
| 6,901,066 |
|
Currency and interest rate hedging instruments (3) | 747,861 |
|
| 214,846 |
|
| 272,208 |
|
| 169,274 |
|
| 91,533 |
|
Trade payables | 5,789,954 |
|
| 5,789,954 |
|
| 0- |
|
| 0- |
|
| 0- |
|
Leases payable | 2,145,602 |
|
| 304,007 |
|
| 505,547 |
|
| 370,828 |
|
| 965,220 |
|
| (1) | To calculate the estimated interest on loans some macroeconomic assumptions were used, including averaging for the period the following: (i) DI of 11.74% to 2022 and 10.32% to 2023; (ii) exchange rate of the Real against the U.S. dollar of R$ 5.75 in 2022, R$ 5.45 in 2023, R$ 5.10 in 2024 and R$ 4.90 as from 2025; (iii) TJLP of 6.08%; (iv) IPCA of 5.11% in 2022, 3.32% in 2023, 3.1% in 2024 and 3.0% as from 2025. (source: B3, Bulletin Focus and financial institutions). |
| (2) | Includes estimated interest payments on short-term and long-term loans until the payment date. |
| (3) | The currency and interest rate hedging instruments were estimated based on projected U.S dollar futures contracts and the futures curves of DI x prefixed rate and DI x IPCA contracts quoted on B3 on December 31, 2021 and on the futures curve of LIBOR (ICE – Intercontinental Exchange) and commodities heating oil contracts quoted on New York Mercantile Exchange (“NYMEX”) on December 31, 2021. In the table above, only the hedging instruments with negative results at the time of settlement were considered. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
f. Capital management
The Company manages its capital structure based on indicators and benchmarks. The key performance indicators related to the capital structure management are the weighted average cost of capital, net debt / EBITDA, interest coverage, and indebtedness / equity ratios. Net debt is composed of cash, cash equivalents, and financial investments (see Note 5) and loans, including debentures (see Note 17). The Company can change its capital structure depending on the economic and financial conditions, in order to optimize its financial leverage and capital management. The Company seeks to improve its return on invested capital by implementing efficient working capital management and a selective investment program.
g. Selection and use of financial instruments
In selecting financial investments and hedging instruments, an analysis is conducted to estimate rates of return, risks involved, liquidity, calculation methodology for the carrying value and fair value, and a review is conducted of any documentation applicable to the financial instruments. The financial instruments used to manage the financial resources of the Company and its subsidiaries are intended to preserve value and liquidity.
The Policy contemplates the use of derivative financial instruments only to cover identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). The risks identified in the Policy are described in the above sections and are subject to risk management. In accordance with the Policy, the Company and its subsidiaries can use forward contracts, Swaps, options, and futures contracts to manage identified risks. Leveraged derivative instruments are not permitted. Because the use of derivative financial instruments is limited to the coverage of identified risks, the Company and its subsidiaries use the term “hedging instruments” to refer to derivative financial instruments.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The table below summarizes the position of hedging instruments entered by the Company and its subsidiaries:
Designated as hedge accounting
Product | | Hedged object | | Rates agreement | | Maturity | | Note | | Notional amount 1 |
| | Fair value |
|
| | | | Assets | Liabilities | | | | | | 12/31/2021 |
| | 12/31/2020 |
| | 12/31/2021 |
| | 12/31/2020 |
|
Foreign exchange swap | | Debt | | USD + 4.65 % | 104.87% DI | | sep-23 | | 33.h.1 | | USD 125,000 |
| | USD 185,000 |
| | 212,510 |
| | 298,889 |
|
Foreign exchange swap | | Debt | | USD + LIBOR-3M + 1.14% | 105.00% DI | | jun-22 | | 33.h.1 | | USD 50,000 |
| | USD 50,000 |
| | 109,332 |
| | 94,782 |
|
Interest rate swap | | Debt | | 4.59% + IPCA | 102.00% DI | | sep-28 | | 33.h.1 | | R$ 2,266,054 |
| | R$ 806,054 |
| | 166,468 |
| | 203,837 |
|
Interest rate swap | | Debt | | 6.47% | 99.94% DI | | nov-24 | | 33.h.1 | | R$ 90,000 |
| | R$ 90,000 |
| | (9,044 | ) | | 3,498 |
|
Term | | Firm commitments | | BRL | Heating Oil | | jan-22 | | 33.h.1 | | USD 120,260 |
| | USD 42,399 |
| | 1,302 |
| | (563 | ) |
NDF | | Firm commitments | | BRL | USD | | jan-22 | | 33.h.1 | | USD 68,361 |
| | USD 23,124 |
| | 5,702 |
| | (733 | ) |
| | | | | | | | | | | |
| | |
| | 486,270 |
| | 599,710 |
|
Not designated as hedge accounting
Product | | Hedged object | | Rates agreement | | Maturity | | Notional amount 1 |
| | Fair value |
|
| | | | Assets | Liabilities | | | | 12/31/2021 |
| | 12/31/2020 |
| | 12/31/2021 |
| | 12/31/2020 |
|
Foreign exchange swap | | Debt | | USD + 0.18% | 55.5% DI | | 0- | | 0- |
| | USD 320,000 |
| | 0- |
| | 300,000519,260 |
|
NDF | | Firm commitments | | USD | BRL | | jun-22 | | USD 625,762 |
| | USD 378,550 |
| | 3,463 |
| | (112,152 | ) |
Interest rate swap | | Debt | | 2.67% | 100% DI | | 0- | | 0- |
| | R$ 1,300,000 |
| | 0- |
| | (5 | ) |
Interest rate swap | | Debt | | 5.25% | DI - 1.36% | | jun-29 | | USD 300,000 |
| | 0- |
| | (126,752 | ) | | 0- |
|
| | | | | | | | | |
| | |
| | (123,289 | ) | | 407,103 |
|
(1) Currency as indicated.
All transactions mentioned above were properly registered with CETIP S.A.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
h. Hedge accounting
The Company and its subsidiaries use derivative and non-derivative financial instruments for hedging purposes and test, throughout the duration of the hedge, their effectiveness, as well as the changes in their fair value.
h.1 Fair value hedge
The Company and its subsidiaries designate as fair value hedges certain financial instruments used to offset the variations in interest and exchange rates, which are based on the market value of financing contracted in Brazilian Reais and U.S. dollars.
The foreign exchange hedging instruments designated as fair value hedge are:
In thousands, except the DI % | 12/31/2021 |
| | 12/31/2020 |
|
Notional amount – US$ | 175,000 |
| | 235,000 |
|
Result of hedging instruments – gain/(loss) – R$ | 21,812 |
| | 574,378 |
|
Fair value adjustment of debt – R$ | 47,064 |
| | (13,131 | ) |
Finance expense in the statements of profit or loss – R$ | (105,059 | ) | | (597,735 | ) |
Average effective cost – DI % | 104.9 |
| | 104.1 |
|
For more information, see Note 17.c.1.
The interest rate hedging instruments designated as fair value hedge are:
In thousands, except the DI % | 12/31/2021 |
| | 12/31/2020 |
|
Notional amount – US$ | 2,226,054 |
| | 806,054 |
|
Result of hedging instruments – gain/(loss) – R$ | (17,922 | ) | | 67,446 |
|
Fair value adjustment of debt – R$ | 166,374 |
| | (18,446 | ) |
Finance expense in the statements of profit or loss – R$ | (245,710 | ) | | (99,555 | ) |
Average effective cost – DI % | 102.0 |
| | 95.8 |
|
For more information, see Notes 17.f.2, 17.f.4, 17.f.6, 17.f.8, 17.f.9 and f.10.
In thousands, except the DI % | 12/31/2021 |
| | 12/31/2020 |
|
Notional amount – US$ | 90,000 |
| | 90,000 |
|
Result of hedging instruments – gain/(loss) – R$ | (10,088 | ) | | 6,528 |
|
Fair value adjustment of debt – R$ | 11,756 |
| | 3,250 |
|
Finance expense in the statements of profit or loss – R$ | (5,914 | ) | | (8,968 | ) |
Average effective cost – DI % | 99.9 |
| | 99.9 |
|
For more information, see Note 17.f.7.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The foreign exchange hedging instruments and commodities designated as fair value hedge are as described below and are concentrated in subsidiary IPP. The purpose of this relationship is to transform the cost of the imported product from fixed to variable until the moment of blend the fuel, as occurs with the price practiced in its sales. The IPP realizes these operations with over-the-counter derivatives that are designated in a hedge accounting relationship, as a fair value hedge in an amount equivalent to the inventories of imported product.
In thousands | 12/31/2021 |
| | 12/31/2020 |
|
Notional amount – US$ | 188,621 |
| | 65,523 |
|
Result of hedging instruments – gain/(loss) – R$ | (129,670 | ) | | (87,448 | ) |
Fair value adjustment of inventories – R$ | (4,352 | ) | | 18,468 |
|
h.2 Cash flow hedge
The Company and its subsidiaries designate, as cash flow hedge for protection against variations arising from exchange rate changes, derivative financial instruments to hedge firm commitments and non-derivative financial instruments to hedge highly probable future transactions.
On December 31, 2021, the notional amount of foreign exchange hedging instruments for highly probable future transactions designated as cash flow hedge, related to notes in the foreign market totaled US$ 386,787 (US$ 468,215 on December 31, 2020). On December 31, 2021, the unrealized gain of “Other comprehensive income” is R$ 7,880 (loss of R$ 315,403 on December 31, 2020), net of deferred IRPJ and CSLL. The impacts and balances of cash flow hedge are recognized at Oxiteno, a group company that was reclassified as held for sale and discontinued operations.
h.3 Net investment hedge in foreign entities
The Company and its subsidiaries designate, as net investment hedge in foreign entities, notes in the foreign market, for hedging net investment in foreign entities, to offset changes in exchange rates.
On December 31, 2021 the balance of foreign exchange hedging instruments designated as net investments hedge in foreign entities, related to part of the investments made in entities which functional currency is other than the Brazilian Real, totaled US$ 95,000 (US$ 95,000 on December 31, 2020), being recognized a loss in “Other comprehensive income” of R$ 24,064 on December 31, 2021 (loss of R$ 73,108 on December 31, 2020), net of deferred income and social contribution taxes. The effects of exchange variation on investments and notes in the foreign market were offset in shareholders' equity.
The impacts and balances of net investments hedge in foreign are recognized at Oxiteno, a group company that was reclassified as held for sale and discontinued operations
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
i. Gains (losses) on hedging instruments
The following tables summarize the value of gains (losses) recognized, which affected the equity of the Company and its subsidiaries:
| 12/31/2021 |
|
| Profit (loss) |
| | Equity |
|
a – Currency swaps receivable in U.S. dollars (i) and (ii) and commodities | (205,680 | ) | | 0- |
|
b – Interest rate swaps in R$ (iii) | (101,488 | ) | | 0- |
|
c – Non-derivative financial instruments (iv) | 21,547 |
| | (753,655 | ) |
Total | (285,621 | ) | | (753,655 | ) |
| 12/31/2020 |
|
| Profit (loss) |
| | Equity |
|
a – Currency swaps receivable in U.S. dollars (i) and (ii) and commodities | 497,210 |
| | 0- |
|
b – Currency swaps payable in U.S. dollars (ii) | (330,999 | ) | | 80 |
|
c – Interest rate swaps in R$ (iii) | 58,131 |
| | 0- |
|
d – Non-derivative financial instruments (iv) | (919,219 | ) | | (737,471 | ) |
Total | (694,877 | ) | | (737,391 | ) |
| 12/31/2019 |
|
| Profit or loss |
| | Equity |
|
a – Currency swaps receivable in U.S. dollars (i) and (ii) and commodities | 230,000 |
| | 0- |
|
b – Currency swaps payable in U.S. dollars (ii) | (1,667 | ) | | (80 | ) |
c – Interest rate swaps in R$ (iii) | (4,035 | ) | | 0- |
|
d – Non-derivative financial instruments (iv) | (262,098 | ) | | (348,959 | ) |
Total | (37,800 | ) | | (349,039 | ) |
| (i) | Does not consider the effect of exchange rate variation of exchange Swaps receivable in U.S. dollars when this effect is offset in the gain or loss of the hedged item (debt/firm commitments). |
| (ii) | Considers the designation effect of foreign exchange hedging. |
| (iii) | Considers the designation effect of interest rate hedging in Brazilian Reais; and |
(iv)
| Considers the results of notes in the foreign market (for more information see Note 17.b). |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
j. Fair value of financial instruments
The fair values and the carrying values of the financial instruments, including currency and interest rate hedging instruments, are stated below:
| | | 12/31/2021 |
| | 12/31/2020 |
|
| Category | Note | Carrying value |
| | Fair value |
| | Carrying value |
| | Fair value |
|
Financial assets: | | | |
| | |
| | |
| | |
|
Cash and cash equivalents | | | |
| | |
| | |
| | |
|
Cash and bank | Measured at amortized cost | 5.a | 334,547 |
| | 334,547 |
| | 405,081 |
| | 405,081 |
|
Financial investments in local currency | Measured at fair value through other comprehensive income | 5.a | 1,943,164 |
| | 1,943,164 |
| | 2,241,852 |
| | 2,241,852 |
|
Financial investments in foreign currency | Measured at fair value through profit or loss | 5.a | 2,363 |
| | 2,363 |
| | 14,561 |
| | 14,561 |
|
Financial investments: | | | |
| | |
| | |
| | |
|
Fixed-income securities and funds in local currency | Measured at fair value through profit or loss | 5.b | 1,607,608 |
| | 1,607,608 |
| | 3,643,286 |
| | 3,643,286 |
|
Fixed-income securities and funds in local currency | Measured at fair value through other comprehensive income | 5.b | 0- |
| | 0- |
| | 31,315 |
| | 31,315 |
|
Fixed-income securities (guarantee of loans) | Measured at amortized cost | 5.b | 0- |
| | 0- |
| | 75,251 |
| | 75,251 |
|
Fixed-income securities and funds in foreign currency | Measured at fair value through other comprehensive income | 5.b | 103,239 |
| | 103,239 |
| | 1,278,940 |
| | 1,278,940 |
|
Currency and interest rate hedging and commodities instruments | Measured at fair value through profit or loss | 5.b | 472,552 |
| | 472,552 |
| | 981,874 |
| | 981,874 |
|
Trade Receivables | Measured at amortized cost | 6.a | 3,438,995 |
| | 3,367,012 |
| | 3,391,122 |
| | 3,369,766 |
|
Reseller Financing | Measured at amortized cost | 6.b | 998,034 |
| | 992,359 |
| | 968,384 |
| | 965,645 |
|
Total | | | 8,900,502 |
| | 8,822,844 |
| | 13,031,666 |
| | 13,007,571 |
|
Financial liabilities: | | | |
| | |
| | |
| | |
|
Financing | Measured at fair value through profit or loss | 17.a | 1,011,374 |
| | 1,011,374 |
| | 1,308,928 |
| | 1,308,928 |
|
Financing | Measured at amortized cost | 17.a | 8,082,323 |
| | 8,380,088 |
| | 9,406,013 |
| | 10,186,947 |
|
Debentures | Measured at amortized cost | 17.a | 4,599,525 |
| | 4,529,439 |
| | 5,450,751 |
| | 5,363,621 |
|
Debentures | Measured at fair value through profit or loss | 17.a | 2,487,244 |
| | 2,487,244 |
| | 1,093,365 |
| | 1,093,365 |
|
Leases payable | Measured at amortized cost | 14 | 1,348,311 |
| | 1,348,311 |
| | 1,833,288 |
| | 1,833,288 |
|
Commodities, currency and interest rate hedging instruments | Measured at fair value through profit or loss | 17.a | 197,177 |
| | 197,177 |
| | 117,159 |
| | 117,159 |
|
Trade payables | Measured at amortized cost | 18 | 5,789,954 |
| | 5,727,724 |
| | 4,040,652 |
| | 4,008,457 |
|
Subscription warrants – indemnification | Measured at fair value through profit or loss | 25 | 51,296 |
| | 51,296 |
| | 86,439 |
| | 86,439 |
|
Total | | | 23,567,204 |
| | 23,732,653 |
| | 23,336,595 |
| | 23,998,204 |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
The fair value of financial instruments, including currency and interest hedging instruments, was determined as follows:
- The fair value of cash and bank deposit balances are identical to their carrying values.
- Financial investments in investment funds are valued at the value of the fund unit as of the date of the financial statements, which corresponds to their fair value.
- Financial investments in CDBs (Bank Certificates of Deposit) and similar investments offer daily liquidity through repurchase at the “yield curve” and the Company calculates their fair value through methodologies commonly used for mark to the market.
- The fair value of trade receivables and trade payables are approximate to their carrying values and the Company calculates its fair value through methodologies commonly used in the market.
- The subscription warrants – indemnification was measured based on the share price of Ultrapar (UGPA3) at the financial statements date and are adjusted to the Company’s dividend yield, since the exercise was only possible from 2020 onwards and they were not entitled to dividends until then. The number of shares of subscription warrants – indemnification was also adjusted according to the changes in the amounts of provision for tax, civil, and labor risks and contingent liabilities related to the period prior to January 31, 2014 (see Note 25).
- The fair value calculation of notes in the foreign market is based on the quoted price in an active market (see Note 17.b).
The fair value of other financial investments, financing and leases payable was determined using calculation methodologies commonly used for fair value reporting, which consist of calculating future cash flows associated with each instrument adopted and adjusting them to present value at the market rates as of the date of the financial statements. For some cases where there is no active market for the financial instrument, the Company and its subsidiaries can use quotes provided by the transaction counterparties.
The interpretation of market information and the choice of calculation methodologies for the fair value requires considerable judgment and estimates to obtain a value deemed appropriate to each situation. Consequently, the estimates presented do not necessary indicate the amounts that may be realizable.
Financial instruments were classified as financial assets or liabilities measured at amortized cost, except (i) all exchange rate and interest rate hedging instruments, which are measured at fair value through profit or loss, financial investments classified as measured at fair value through profit or loss and financial investments that are classified as measured at fair value through other comprehensive income (see Note 5.b), (ii) loans and financing measured at fair value through profit or loss (see Note 17.a), (iii) guarantees to customers that have vendor arrangements (see Note 17.i), which are measured at fair value through profit or loss, and (iv) subscription warrants – indemnification, which are measured at fair value through profit or loss (see Note 25). Cash, banks, trade receivables and reseller financing are classified as measured at amortized cost. Trade payables, leases payable and other payables are classified as financial liabilities measured at amortized cost.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
j.1 Fair value hierarchy of financial instruments
The financial instruments are classified in the following categories:
(a) Level 1 – prices negotiated (without adjustment) in active markets for identical assets or liabilities;
(b) Level 2 – inputs other than prices negotiated in active markets included in Level 1 and observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).
The table below shows the categories of the financial assets and financial liabilities:
| Category | Note | 12/31/2021 |
| | Level 1 |
| | Level 2 |
|
Financial assets: | | | |
| | |
| | |
|
Cash and cash equivalents | | | |
| | |
| | |
|
Cash and bank | Measured at amortized cost | 5.a | 334,547 |
| | 0- |
| | 0- |
|
Financial investments in local currency | Measured at fair value through other comprehensive income | 5.a | 1,943,164 |
| | 0- |
| | 1,943,164 |
|
Financial investments in foreign currency | Measured at fair value through profit or loss | 5.a | 2,363 |
| | 2,363 |
| | 0- |
|
Financial investments: | | | |
| | |
| | |
|
Fixed-income securities and funds in local currency | Measured at fair value through profit or loss | 5.b | 1,607,608 |
| | 1,607,608 |
| | 0- |
|
Fixed-income securities and funds in foreign currency | Measured at fair value through other comprehensive income | 5.b | 103,239 |
| | 0- |
| | 103,239 |
|
Currency and interest rate hedging and commodities instruments | Measured at fair value through profit or loss | 5.b | 472,552 |
| | 0- |
| | 472,552 |
|
Trade Receivables | Measured at amortized cost | 6.a | 3,367,012 |
| | 0- |
| | 0- |
|
Reseller Financing | Measured at amortized cost | 6.b | 992,359 |
| | 0- |
| | 0- |
|
Total | | | 8,822,844 |
| | |
| | |
|
Financial liabilities: | | | |
| | |
| | |
|
Financing | Measured at fair value through profit or loss | 17.a | 1,011,374 |
| | 0- |
| | 1,011,374 |
|
Financing | Measured at amortized cost | 17.a | 8,380,088 |
| | 0- |
| | 0- |
|
Debentures | Measured at amortized cost | 17.a | 4,529,439 |
| | 0- |
| | 0- |
|
Debentures | Measured at fair value through profit or loss | 17.a | 2,487,244 |
| | 0- |
| | 2,487,244 |
|
Leases payable | Measured at amortized cost | 14 | 1,348,311 |
| | 0- |
| | 0- |
|
Commodities, currency and interest rate hedging instruments | Measured at fair value through profit or loss | 17.a | 197,177 |
| | 0- |
| | 197,177 |
|
Trade payables | Measured at amortized cost | 18 | 5,727,724 |
| | 0- |
| | 0- |
|
Subscription warrants – indemnification (1) | Measured at fair value through profit or loss | 25 | 51,296 |
| | 0- |
| | 51,296 |
|
Total | | | 23,732,653 |
| | |
| | |
|
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
| Category | Note | 12/31/2020 |
| | Level 1 |
| | Level 2 |
|
Financial assets: | | | |
| | |
| | |
|
Cash and cash equivalents | | | |
| | |
| | |
|
Cash and bank | Measured at amortized cost | 5.a | 405,081 |
| | 0- |
| | 0- |
|
Financial investments in local currency | Measured at fair value through other comprehensive income | 5.a | 2,241,852 |
| | 0- |
| | 2,241,852 |
|
Financial investments in foreign currency | Measured at fair value through profit or loss | 5.a | 14,561 |
| | 14,561 |
| | 0- |
|
Financial investments: | | | |
| | |
| | |
|
Fixed-income securities and funds in local currency | Measured at fair value through profit or loss | 5.b | 3,643,286 |
| | 3,643,286 |
| | 0- |
|
Fixed-income securities and funds in local currency | Measured at fair value through other comprehensive income | 5.b | 31,315 |
| | 0- |
| | 31,315 |
|
Fixed-income securities (guarantee of loans) | Measured at amortized cost | 5.b | 75,251 |
| | 0- |
| | 0- |
|
Fixed-income securities and funds in foreign currency | Measured at fair value through other comprehensive income | 5.b | 1,278,940 |
| | 30,245 |
| | 1,248,695 |
|
Currency and interest rate hedging and commodities instruments | Measured at fair value through profit or loss | 5.b | 981,874 |
| | 0- |
| | 981,874 |
|
Trade Receivables | Measured at amortized cost | 6.a | 3,369,766 |
| | 0- |
| | 0- |
|
Reseller Financing | Measured at amortized cost | 6.b | 965,645 |
| | 0- |
| | 0- |
|
Total | | | 13,007,571 |
| | |
| | |
|
Financial liabilities: | | | |
| | |
| | |
|
Financing | Measured at fair value through profit or loss | 17.a | 1,308,928 |
| | 0- |
| | 1,308,928 |
|
Financing | Measured at amortized cost | 17.a | 10,186,947 |
| | 0- |
| | 0- |
|
Debentures | Measured at amortized cost | 17.a | 5,363,621 |
| | 0- |
| | 0- |
|
Debentures | Measured at fair value through profit or loss | 17.a | 1,093,365 |
| | 0- |
| | 1,093,365 |
|
Leases payable | Measured at amortized cost | 14 | 1,833,288 |
| | 0- |
| | 0- |
|
Commodities, currency and interest rate hedging instruments | Measured at fair value through profit or loss | 17.a | 117,159 |
| | 0- |
| | 117,159 |
|
Trade payables | Measured at amortized cost | 18 | 4,008,457 |
| | 0- |
| | 0- |
|
Subscription warrants – indemnification (1) | Measured at fair value through profit or loss | 25 | 86,439 |
| | 0- |
| | 86,439 |
|
Total | | | 23,998,204 |
| | |
| | |
|
| (1) | Refers to subscription warrants issued by the Company in the Extrafarma acquisition. |
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
k. Sensitivity analysis of derivative financial instruments
The Company and its subsidiaries use derivative financial instruments only to hedge against identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). Thus, for purposes of sensitivity analysis of market risks associated with financial instruments, the Company analyzes the hedging instrument and the hedged item together, as shown on the charts below.
For the sensitivity analysis of foreign exchange hedging instruments as of December 31, 2021, management adopted as a base scenario the Real/U.S. dollar exchange rates at maturity of each swap, projected by U.S dollar futures contracts quoted on B3. As a reference, the exchange rate for the last maturity of foreign exchange hedging instruments is R$ 10.25 (R$ 8.23 as of December 31, 2020) in the base scenario.
Based on the balances of the hedging instruments and hedged items as of December 31, 2021, the exchange rates were replaced, and the changes between the new balance in Brazilian Reais and the original balance in Brazilian Reais were calculated in each of the scenarios. The table below shows the change in the values of the main derivative instruments and their hedged items, considering the changes in the exchange rate in the different scenarios:
12/31/2021 | Risk | Scenario Base |
|
Currency swaps receivable in U.S. dollars | | |
|
(1) U.S. Dollar / Real swaps | Dollar appreciation | 137,304 |
|
(2) Debts / firm commitments in dollars | (137,301 | ) |
(1)+(2) | Net effect in result | 3 |
|
Currency swaps payable in U.S. dollars | | |
|
(3) Real / U.S. Dollar swaps | Dollar devaluation | 49,935,747 |
|
(4) Gross margin of Oxiteno/Ipiranga | (49,935,747 | ) |
(3)+(4) | Net effect in result | 0- |
|
Cash Flow Hedge | | |
|
(1) Cash Flow Hedge | Dollar devaluation | 528,360 |
|
(2) Debts | (528,360 | ) |
(1)+(2) | Net effect in equity | 0- |
|
Net Investment hedge in foreign entities | | |
|
(1) Net Investment Hedge | Dollar devaluation | 252,423 |
|
(2) Debts | (252,423 | ) |
(1)+(2) | Net effect in equity | 0- |
|
For sensitivity analysis of hedging instruments for interest rates in Brazilian Reais as of December 31, 2021, the Company used the futures curve of the DI x Pre contract quoted on B3 as of December 31, 2021 for each of the swap and debt (hedged item) maturities, to determine the base scenario.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
Based on the scenarios of interest rates in Brazilian Reais, the Company estimated the values of its debt and hedging instruments according to the risk which is being hedged (variations in the pre-fixed interest rates in Brazilian Reais), by projecting them to future value at the contracted rates and bringing them to present value at the interest rates of the estimated scenarios. The results are shown in the table below:
12/31/2021 | Risk | Scenario Base |
|
Interest rate swap (Real) – Debentures - CRA | | |
|
(1) Fixed rate swap - DI | Decrease in Pre-fixed rate | (20,053,149 | ) |
(2) Fixed rate debt | 20,053,149 |
|
(1)+(2) | Net effect in result | 0- |
|
34. Commitments
a. Contracts
a.1 Subsidiary Ultracargo Logística has agreements with CODEBA, with the Complexo Industrial Portuário Governador Eraldo Gueiros and with the company Empresa Maranhense de Administração Portuária, in connection with its port facilities in Aratu, Suape and Itaqui, respectively. Such agreements establish a minimum cargo movement of products, as shown below:
Port | Minimum movement per year | Maturity |
Aratu | 900,000 ton. | 2022 |
Suape | 250,000 ton. | 2027 |
Suape | 400,000 ton. | 2029 |
Aratu | 465,403 ton. | 2031 |
Itaqui | 1,222,377 m³ | 2049 |
If the annual movement is less than the minimum contractual movement, the subsidiary is liable to pay the difference between the effective movement and the minimum contractual movement, based on the port tariff rates in effect on the date established for payment. As of December 31, 2021, these rates were R$ 8.37 and R$ 2.67 per ton for Aratu and Suape, respectively and R$ 0.85 per m³ for Itaqui. According to contractual conditions and tolerances, on December 31, 2021 there were 0 material obligations regarding the minimum purchase limits of the contract.
b. Insurance coverage
The Company is supported by insurance policies with the objective of covering several risks to which it is exposed.
In the insurance policies the maximum compensation values based on the risk analysis of certain locations.
The General Liability Insurance program covers the Ultrapar and its subsidiaries with a maximum aggregate coverage of US$ 250 million.
The Company maintains liability insurance policies for directors, executive officers and council to indemnify Ultrapar and its subsidiaries in the total amount of US$ 80 million.
In addition, group life and personal accident, health and national and international transportation and other insurance policies are also maintained.
The coverage and limit of the insurance policies are based on a careful study of risks and losses conducted by independent insurance advisors, being the type and amounts of insurance are considered by management to be sufficient to cover potential losses based that may occur in view of the nature of the activities conducted by the companies.
Ultrapar Participações S.A. and Subsidiaries
Notes to the Consolidated Financial Statements
(In thousands of Brazilian Reais, unless otherwise stated)
c. Area port lease
On March 22, 2019, Ultrapar, through its subsidiary IPP, won the port concessions of 3 areas with minimum storage capacity of 64 thousand m³ (unaudited) located at the port of Cabedelo, in the state of Paraíba, and one area with minimum storage capacity of 66 thousand m³ (unaudited) at the port of Vitória, in the state of Espírito Santo, which will be designated for handling, storage and distribution of fuels. These concessions were carried out by two consortiums of which IPP holds one third of the total participation. For the port of Cabedelo, the companies Nordeste Logística I, Nordeste Logística II and Nordeste Logística III were incorporated, in partnership with Raízen Combustível S.A. and Petrobrás Distribuidora S.A. For the port of Vitória, the company Navegantes was incorporated, in partnership with Raízen Combustível S.A. and Petrobrás Distribuidora S.A. The total investments related to IPP’s participation is up to R$160 million (unaudited) for a concession term of 25 years.
On April 5, 2019, Company, through its subsidiary IPP and Ultracargo Logística, also won 3 concessions. IPP won 2 concessions in the port of Miramar, in Belém, state of Pará: (i) area BEL02A, through a consortium 50% owned by IPP, that shall have minimum storage capacity of 41 thousand m³ (unaudited), and (ii) area BEL04, which is currently operated by IPP with minimum storage capacity of 23 thousand m³ (unaudited). Such areas will be operated for at least 15 years, according to the auction notice. For the area BEL02A, Latitude was incorporated, together with Petróleo Sabbá S.A. Ultracargo Logística won the concession of area VDC12 in the port of Vila do Conde, in Barcarena, state of Pará. The minimum storage capacity will be 59 thousand m³ (unaudited). The area will be operated by Ultracargo Logística for at least 25 years, according to the auction notice. For the area VDC12, Tequimar Vila do Conde was incorporated (see Note 4.b).
On April 9, 2021, the Company, through its subsidiary Ultracargo Logística, won the auction for leasing the IQI13 area in the Itaqui port, State of Maranhão, for storage and handling of liquid bulk products, especially fuels. In the leased area, a new terminal will be built with a minimum installed capacity of 79 thousand cubic meters (unaudited). The lease will have a minimum duration of 20 years according to the auction notice. For this capacity, an investment of approximately R$ 310 million is estimated, including the amount related to the grant, to be disbursed in up to six years after signing of the contract.
35. Subsequent events
a. Issuance of Extrafarma subscription bonus shares
On February 23, 2022, the Company’s Board of Directors approved the issuance of 43,925 common shares within the authorized capital limit provided by art. 6 of the Company's Bylaws, due to the partial exercise of the rights conferred by the subscription warrants (see note 25) issued at the time of the conclusion of the purchase of Extrafarma by the Company, approved by the extraordinary general meeting of the Company held in January 31, 2014. The share capital of the Company will therefore be represented by 1,115,151,608 common shares, all of which are registered and without par value.
b. Impact of the conflict between Ukraine and Russia
The turmoil of the global financial markets and the scarcity of credit in the past led to lack of consumer confidence, increased market volatility and widespread reduction of business activity. An economic downturn could materially and adversely affect the liquidity, businesses and/or financial conditions of our customers, which could in turn result not only in decreased demand for our products, but also increased delinquencies in our accounts receivable.
On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Since then, global markets have been experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between these countries. Although the length and impact of the ongoing military conflict are highly unpredictable, the conflict in Ukraine has led and could further lead to market disruptions, including significant volatility in commodity prices, including crude oil and natural gas, which could impact the prices of LPG and oil-based fuel, and demand in the markets in which we operate. Additionally, governments in the United States and many other countries have imposed economic sanctions on certain Russian individuals, including politicians, and Russian corporate and banking entities. These sanctions, or even the threat of further sanctions, could result in Russia taking countermeasures or retaliatory actions which may lead to further market disruptions and an increase in crude oil and natural gas prices globally, which could negatively impact our business and operations.
Moreover, an eventual new global financial crisis could have a negative impact on our cost of borrowing and on our ability to obtain future borrowings. The disruptions in the financial markets could also lead to a reduction in available trade credit due to counterparties’ liquidity concerns. If we experience a decrease in demand for our products or an increase in delinquencies in our accounts receivable, or if we are unable to obtain borrowings our businesses, financial condition and results of operations could be materially adversely affected.
Additionally, the rapid escalation of COVID-19 pandemic across the world since the beginning of 2020 has had, and can continue to have, a number of negative impacts on our businesses, financial condition and results of operations.
c. Tender offers to purchase notes
On April 7, 2022, the subsidiary Ultrapar International commenced cash tender offers to purchase in the international market (i) up to the totality of the 5.25% notes due in 2026 and (ii) up to the Maximum Acceptance Amount of the 5.25% notes due in 2029, both issued by Ultrapar International and outstanding in the international market. The tender offers were subject to a maximum aggregate tender amount of US$ 550,003, which could be increased to up to US$ 600,000 at the sole discretion of Ultrapar International, consisting of the total amount to be spent by Ultrapar International in the purchase of the outstanding notes. The 2029 notes tender offer was also subject to a maximum acceptance amount corresponding to the difference between the maximum aggregate tender amount and the aggregate principal amount of the 2026 notes tendered and accepted for purchase (the “Maximum Acceptance Amount”).
As a result of the cash tender offers, Ultrapar International received valid offers for the purchase of 2026 and 2029 notes in the aggregate principal amount of US$ 114,329 and US$ 606,106, respectively. In view of this, it was decided to exercise their right to increase the initial aggregate tender amount to up to US$ 599,996, which was used to purchase (i) all of the 2026 tendered notes and (ii) the equivalent to the aggregate principal amount of US$ 485,667 of the 2029 tendered notes, representing 20.79% and 57.14% of the 2026 and 2029 outstanding notes, respectively. The purchase of the 2026 notes was settled on April 14 and 18, 2022, while the purchase of the 2029 notes was settled on April 27, 2022.
d. Update on Extrafarma’s sale process
Additionally, on May 18, 2021, Ultrapar entered into a share purchase and sale agreement for the sale of all shares of Extrafarma to Pague Menos. The completion of this transaction is subject to usual conditions precedent in such deals, including the approval by CADE. On May 7, 2022, CADE’s General Superintendent’s Office recommended the approval of the transaction, contingent on the execution of a Merger Control Agreement (“Acordo em Controle de Concentrações”) between Pague Menos and CADE, whereby Pague Menos shall undertake certain remedial measures to mitigate potential competitive issues arising out of the transaction. The recommendation made by the General’s Superintendent’s Office is now subject to CADE’s Tribunal review, which shall issue a final decision on the matter.
