Ultrapar took important steps to enhance both its management model and its corporate governance during 2018. As part of a planned succession process and consistent with the Company’s good corporate governance, Paulo Guilherme Aguiar Cunha, after three decades of unparalleled contributions, was nominated Chairman Emeritus of the Board of Directors, an honorary and lifetime position. To succeed him, Pedro Wongtschowski, Vice Chairman of the Board of Directors and Chief Executive Officer of Ultrapar between 2007 and 2012, was elected Chairman. Other important succession movements took place at the senior management level, in the leadership of Extrafarma, Ultragaz and Ipiranga, equally aligned to a planned succession process that blended internal promotions with the attraction of external talents.
Over the course of the year, we dedicated both time and resources to improving Ultrapar’s strategic planning process with a view to achieving better integration and dynamics of the analyses of our businesses with an extension of our planning horizon, harmonization of assumptions and parameters among companies, monitoring results closer and more frequently, consolidation of annual budgets and investment plans and a structured assessment for the Company’s portfolio of investments.
On another front, we formalized or improved some important corporate policies such as Risk Management (general nature), Management of Financial Risks, Disclosure of Material Facts, Securities’ Trading and Competition/Anti-Trust policies. All of these initiatives are consistent with our organization’s resolute commitment to the continual improvement in governance practices and the ethical and transparent conduct of our people.
From the macro-economic point of view, the year began with a positive outlook for recovery in Brazil following the deepest recession in the country’s history. However, rising oil prices combined with a sharp currency devaluation engendered a significant increase in fuel prices and, consequently, road transportation freight costs, culminating in a truckers’ strike which paralyzed the entire country, impacting substantially all sectors of the economy. The outcome to this event together with uncertainties surrounding the eventual results of the general elections, led the Brazilian economy to post only moderate growth in 2018.
Since our businesses bear a close correlation with the performance of the domestic economy as a whole, we took firm action in the management of costs, expenses and capital employed, seeking to increase the efficiency of our operations, optimize investments and reduce the working capital of our companies. In such an environment of limited economic expansion and consequent intensified competition, there was an inevitable impact on some of our results. In 2018, Ultrapar reported an Adjusted EBITDA of R$3,069 million and net earnings of R$1,132 million, which were solid results, although below our expectations and lower than those reported for 2017.
At Ipiranga, we strengthened the management model to ensure greater agility in reacting to the opportunities and challenges of the market. We strengthened the relationship with our resellers and modified the organizational structure with a view to facilitating the capture of value in the ancillary businesses such as the am/pm convenience store franchise and the customer relationship channels, notably KMV – Km de Vantagens, the country’s leading loyalty program. Following a difficult first half, also due to the truckers’ strike, Ipiranga began a gradual and consistent process of recovery in the second half of the year, underscoring our conviction of an improvement in results from 2019 onwards. In 2018, we added 67 bakeries and 54 beer caves to our network as well as 78 new am/pm stores and 37 Jet Oil units, consolidating both as the 2nd and 6th largest franchise networks in the country, respectively, according to the Brazilian Franchise Association. Among other initiatives, the Abastece aí (Fill Up There) app is already being used by more than 1.4 million as a means of payment and for exchanging KMV points.
Oxiteno began operations at its new ethoxylation plant in Texas, USA, with a state of the art operation both in technology and automation and located in the world’s largest surfactants’ market, this important project being concluded at an investment of approximately US$200 million. In addition, the Company continues committed to its research and development activities for continually expanding its specialty chemicals portfolio with greater potential for adding value and launching 22 new products in 2018.
Throughout the year, Ultragaz continued to develop pioneering innovation and operational excellence in its field, which combined with discipline in the management of costs and expenses has contributed to the Company achieving the status of a worldwide benchmark in LPG distribution. Employing digital solutions for its clients, automating the activities of its commercial team and employing digital technology with its resellers, Ultragaz aims to continue growing organically in Brazil, mainly in the North and the Northeast, at the same time assessing opportunities for expansion in the international market. In 2018, Ultragaz developed and launched seven new LPG applications for industry, agribusiness and commerce and services, adding more than 900 new clients during the year.
Ultracargo reported an excellent performance in 2018, despite a scenario of reduced fuel imports which affected the entire bulk liquid storage sector. The Company’s agility and flexibility were instrumental in maximizing opportunities in the ethanol and chemicals markets, offsetting the impact of the decline in the demand for fuel storage and handling. In 2019, the Company will continue investing in the expansion of its capacity mainly focusing on the ports of Santos (SP) and Itaqui (MA).
As to Extrafarma, 2018 was a year of intensifying competition in the retail pharmacy market with pressure both on margins and from expansion at all the principal retail pharmacy chains. In this environment, the Company reduced its pace of store additions, adopting greater selectivity in location and potential profitability, prioritizing the densification of its network and logistics optimization. Additionally, Extrarfama has implemented a new retailing system, which shall contribute to enhance productivity and inventory management at the distribution centers and stores as well as providing a better purchasing experience for our customers.
For 2019, we rely on an improving Brazilian macroeconomic outlook, with greater generation of employment and incomes, driving expansion in domestic market demand. This combination of factors will be beneficial to our businesses, all of which have the potential to leverage against future GDP growth and which will also benefit from the maturing process of investments made over the past few years. Consequently, at Ultrapar, we expect growth in all our businesses in the next few years with improved returns and a rapid reduction in financial leverage. This will allow us to increase our investment potential and to pursue market opportunities.
We believe in our capabilities to create value through our work in the management of companies of good quality, characterized by good market positioning, tangible competitive advantages, a good cash generation and return on capital employed, and a competent leadership team. We have also determined that our businesses should be conducted strictly according to Ultra’s principles – safety first and foremost; governance, integrity and management transparency; financial discipline and soundness; client satisfaction as the basis for our success; differentiation as a competitive factor; operational excellence and qualified and high performance teams.
We are determined to ensure that the Company will continue its successful trajectory of contributing to the development of Brazil, with respect for our clients, consumers, shareholders, business partners, employees, suppliers, capital markets and the society as a whole. We would like to take the opportunity to thank each one of our stakeholders for their trust and contribution in supporting and enhancing Ultrapar and its businesses.
