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Ultrapar (NYSE:UGP)
Q3 2019 Earnings Call
Nov 8, 2019, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Ultrapar's Third Quarter 2019 Results Conference Call. There is a simultaneous webcast that can be accessed through the Ultrapar's website at ri.ultra.com.br and MZIQ platform. Please feel free to flip through the slides during the conference call. Today with us, we have Mr. Fred Curado, Chief Executive Officer and Mr. Andre Pires, Chief Financial Officer and Investor Relations Officer, together with other executives of Ultrapar.

[Operator Instructions] After Ultrapar's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions] We remind you that questions which will be answered during the Q&A session may be posted in advance in the webcast. A replay of this call will be available for one week. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of Securities Litigation Reform Act of 1996. Forward-looking statements are based on beliefs and assumptions of Ultrapar management and on information currently available to the company. They involve risks and uncertainties, and assumptions, because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Ultrapar and could cause results to differ materially from those expressed in such forward-looking statements.

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

Frederico Curado -- Chief Executive Officer

Thank you and good morning to everyone. And it's a pleasure to be here as my first participation and one of the earnings calls. And I decided to do this because a year ago, November last year, we shared in our Ultra Day here in San Paulo, we shared a bit of a vision toward the future of our strategic direction. So I think it's a good opportunity to update all of you where we are interested. So I'll go quickly over the company and then talk a little bit about the consolidated picture. So starting with Ipiranga. I think, well Marcel has done a very good job in terms of bolstering a team in our organization, reducing costs, also being closer and closer to our resellers. There's a tremendous effort as well on the pricing models to get more artificial intelligence as far as our optimization of pricing.

And last but not least, the focus on having there adjacent businesses being managed and the whole follow up of the business in a dedicated way with experienced management, dedicated management, management which is responsible for their own P&L, I mean, management P&L. So, as a result of all that, so what I see in Ipiranga is a company which is getting more agile, getting more efficient and more competitive faster. It, of course, is a long term process, but I think definitely we are in the right direction. So quickly over to Extrafarma. I was particularly pleased with the positive cash flow for the first time ever, I mean, ever under our hands, in our hands, which is not by chance. It's a consequence of the turnaround that Rodrigo is leading since mid last year. And we do see a continuous improvement in terms of not only economical results but also cash results.

We are, as you probably know, we have changed dramatically the strategy of growth of the company. So, instead of a accelerated and wide open growth in terms of opening new stores throughout the country, we are focusing on density in those markets where we have a good competitive position. So, just to mention the one number or one aspect of this effort, we are reducing our presence from 14 states in Brazil to 11. And invest in the and logistics, invest in the IT platforms to support those clusters where we have more competitors. So we think this is key for the recorded -- consolidation for the record of every company. So, good news there as well.

So moving on to Oxiteno, Oxiteno what we said last year remains valid, three priorities for Oxiteno is execution, execution and execution. We of course, we did not expect, I don't think anybody expected the downside in price of commodity, so we are surfing as everybody else in the chemical industry we've at. On the other hand, the company's been very fast to inform to adjust its, it's you know, cost structure, to this new reality, if you will. It's a cyclical business and similar commodities, and but we -- that cycle maybe reverse for some time. So maybe two years, three years we don't know of course, but we cannot just assume that a few months from now things are going to go better again. So, we are adjusting our cost structure, including a zero budget effort project, we just finalized to this new reality.

So -- but the -- true real value creation levers at Oxiteno remain being you know, the increasing mix, quality of the mix of our products, more and more trying to by investing in R&D more and more having specialty chemicals in Europe commodities -- petrochemical commodities. And the second lever is the maturity of our U.S operation. We change the management of that operation last in April, May, and changes are still going on, as a flow down of changes, very let say positive expectations we have for the new team there. So we see 2020 as a year better year than 2019, for sure. And probably within two or three years, we're going to see the full potential of that operation been realized. So that's one Oxiteno.

Quickly over to Ultragaz. Ultragaz having a stellar quarter, the third quarter is always the best quarter for Ultragaz in the seasonality of Brazil. But it's not again -- not by chance that they came to those results. I mean, it's a reflect of their continuous focus on innovation, continuous focus operation excellence. And in also, there is a -- there's a nice -- a nice -- good perspective going forward, which is as you probably know for many, many years we have a difference in pricing for the LPG for the domestic using for the bulk use for business small and medium sized businesses, and thats unjustifiable difference in price has been eliminated -- digitally eliminated now is about 3% only. Hence, Petrobras has committed to you know match those two prices not by -- not by increasing the domestic, but by reducing the -- the bulk and to March next year. So, this clearly increases the competitiveness of our yields for small and medium sized businesses. These are the natural gas and other sources of energy. The other thing which is more mid to long-term, which will be a good driver for Ultragaz and profitability will be the potential privatization of Petrobras assets, infrastructure assets -- the midstream assets.

So, today it's LPG in Brazil because of the whole infrastructures in the hands of Petrobras and that's all the other business, you know, meter is so important of LPG. As they -- as they sell some assets in billion those vessels goes private enterprises, we believe you will have better access more competitors -- more competitiveness in the excess rate of raw materials, so that's a -- that's another -- let say glider of growth and the value for Ultragaz. And finally, which is our -- our fifth company Ultracargo were companies, again leader on its space have has been having a very good year. And this year we have but this chemistry continue to invest. We want a confession of bids, tender earlier this year for a new terminal in the north Brazil billing area which are delivered to their significant expansion of our presence in that region.

And so our business continue to invest because as the downstream sector in Brazil, including refining the transportation retail, as it gets more integrated with the potential privatization of Petrobras assets, we see Ultracargo quite well positioned to be a player in this new environment. So now trying to put an umbrella over Ultrapar five businesses. I've done a lot in the last 12 to 18 months in terms of improving management model, improving organization, improving our governance. And these actions may not always very visible to the outside world, but I really believe they're essential for the company's growth, longevity capacity. So, just a quick run on a few of the initiatives. As far as governance, I think an important change in our Board of Directors was affected last April, in particular the creation of committees. So now we have three committees in place and the committee's certainly give us greater agility and their dynamics in the process of decision-making. The Senior Manager of Ultrapar, specially in relationship with the strategic direction of the company's portfolio, and we have to concentrate our capital, we have to allocate capital.

So, as far as the company's go themselves, you know, the EBITDA debt level, we have also created some new instrument Advisory Boards, they're not statutory boards committees, the Advisory Boards but they are pretty much active in the following up the development of the companies. And it's been a very powerful instrument for me and for Andrea to be closer and more-in a more let's say, objective, more agile and timely basis to follow up the businesses the five businesses, because the two are five Advisory Boards decided two of us we have in each one, two or three outside members, members with expertise in that particular industry. So, it could be the instrument to be closer, to be faster in the, you know, steering the business toward making any adjustments which is needed, again on a timely basis.

And finally, I'll just mention the effort to build up -- to rebuild pipeline of leaders, our pipeline of business leaders, not only in our business but also to . So, this definitely is one of the pillars for the future of the company. We have had in the last 18 months 45% of renewal in the first two levels of the company, and with a combination of outside hires, combination of promotions-promotions, but also some horizontal transfers, which I prefer to call horizontal growth opportunities. Because you know that creates improvement for the individual but also for growth elevation is cross feeding of expertise and knowledge. So, we're doing that in a very transparent, very respectful in a planned way. So, it's a lot to be done over 18 months, but the organization is reacting positively and we see you know high agility already with this renewal in our in our ranks.

So I'll pass over to Andrew Andre to go to -- to lead you through the results and he'll be back at the end for the Q&A. Thank you.

Andrew Pires -- Chief Financial Officer

Thanks, Fred. Good morning, everyone. And moving on directly to the results for the quarter, beginning with the performance of the Ipiranga in slide number 3. Ipiranga, we ended the third quarter of 2019 with flat volumes compare to the same period last year, due to a 4% growth in Otto cycle driven by higher ethanol sales and the reduction of 4% in diesel with lower sales to the B2b segment. Compared to the second quarter of 2019, sales volume increased by 10%, with a growth of 7% and 40% in Otto cycle and diesel respectively.

We ended the quarter with a total network of 7,151 service stations and our net reduction of 35 service stations compared with the last quarter. This decline was due to the churn in service stations to suboptimal performance and lower throughput. Despite the reduction in the number of service stations, there was an increase in the volume sold during the period, which demonstrate an increase in service station productivity. The am/pm business unit ended the third quarter 2019 to 2,386 stores. That's an expedition of 23 stores compare to the previous quarter due to initiatives to increase productivity and efficiency. Here again, the focus is on quality instead of quantity. To a pilot project, we are structured proprietize store operations, so that we can accelerate growth in a sustainable way. We expect to be implementing same-stores using this model before year-end. We're also working with specialized franchisees for the management of stores of Ipiranga service station in addition to the traditional franchise model.

Moving on to the digital relationship initiatives, our Abastece Ai app continue to grow in usage increasing its penetration in excess of 10% of the service station volume sales. As for our loyalty program, Km of Advantages, the number of participants jump to 32 million people in the third quarter of 2009 representing 34% of service station sales. Ipiranga's SG&A scale by 10% in the third quarter of 2019 following management initiatives for reducing costs and expenses. In addition, the overall improvement in our credit portfolio has allowed reversion in provisions which contributed for the SG&A decrease. As a result, the EBITDA increased by 24% compared to the third quarter of 2018 mainly due to the improvement in margins, the reduction SG&A and better results at ICONIC. Unit EBITDA was BRL99 per cubic meter in the quarter. Considering IFRS 16 adjustments and the segregation of corporate expenses, the Ipiranga's EBITDA was BRL676 million in the quarter. For the fourth quarter of 2019, we continue to see an improvement in the market dynamics. In addition, we expect that the initiative to optimize cost and expenses will contribute to the continued improvement in operating results in relation to the last quarter and on a year-on-year basis.

Moving on to slide number 4 talking about Oxiteno, Oxiteno's specialty chemical sales volume fell by 5% in the third quarter of 2019 due to continuing weak industrial performance in Brazil and lower demand from Latin American markets. Commodities volumes in turn recorded a 4% decline in relation to the third quarter of 2018. A quarter with above average glycol sales, however, compared to the second quarter of 2019 there was growth of 6% driven specially by the agro chemicals and HPC segments, and reflecting seasonal fluctuations between periods. In the U.S. the Pasadena plant continues to ramp up, still contributing though negatively to results due to the fixed costs and expenses. If we look at the graph of international prices, we can see the continued drop in the prices of MEG and ethylene maintaining the squeeze on glycol margins. The outcome of this scenario in the quarter was an EBITDA of BRL74 million that the decrease of 58% compared with the third quarter of 2018 due to the compressed glycol margins and a reduction in sales volume. On a quarter-on-quarter comparison, however, EBITDA rose by 91%, driven by the increasing sales across all segments. Considering IFRS 16 adjustments, and the segregation of corporate expenses, Oxiteno's EBITDA was BRL79 million in the quarter. The current dynamic of compressed glycol margin should proceeds for the next quarters. In this context, we are adjusting Oxiteno's costs and expenses structure to reduce the impact on results.

We are continuing to implement initiatives to optimize working capital, as well as be more selective in the allocation of capital to preserve operating cash generation. Now, moving on to slide number five. Let's talk about Ultragaz, growth in sales volumes at Ultragaz resumed in the third quarter of 2019. With increases in both bottled and bulk segments. I did the recovery in the overall market trends for the period. One of the factors driving improved demand was the reduction in LPG prices during the quarter. The decrease was most pronounced in the bulk segment, reducing the spread for bottle gas and increasing the competitiveness of LPG over natural gas.

With this EBITDA of Ultragaz increased by 9% on a year-on-year basis, reaching a record quarterly result of BRL134 million due to the improvement in gross margins and higher sales volume. Considering IFRS 16 adjustment and the segregation of corporate expenses, Ultragaz EBITDA was BRL186 million in the quarter. Recent cut in LPG prices should contribute to our continuing increase in sales volume compared with 2018 as well as providing more favorable prospects for returns from the operation. Now on slide number six, talking about Ultracargo. In the third quarter of 2019 Ultracargos average storage rose by 2% due to greater handling of fuels and corroslves, although partially offset by the decline in the ethanol handling. In the quarter we resume the operations in 84,000 cubic meters of capacity at the Santos terminal. That goes out of action since 2016.

In October, we unveiled the first expansion phase at the Itaqui terminal with 30,000 cubic meters of capacities. These enhanced storage capacity will enhance -- storage capacity will be contributing to growth, breaking results from the fourth quarter 2019 onwards. In September Ultracargo signed an agreement of BRL13 million with the Federal Prosecutors Office relative to your lawsuit filed due to the Santos Terminal in 2016. This amount complemented the agreement executed in May 2018 as part of the enquiry. The provisioning of this amount has an impact on Ultracargo's EBITDA, which reach BRL36 million in the third quarter of 2019. If we exclude the impact of the agreement, EBITDA was BRL49 million, an increase of 12% compared with the same period of last year, mainly due to greater handling of products and higher average prices. Considering IFRS 16 adjustments and the segregation of corporate expenses, Ultracargo's EBITDA was BRL45 million in the quarter. The tendency will be for growing results as Ultracargo increases storage capacity at Santos and Itaqui terminals.

Let's move on now to slide number seven and talk about Extrafarma. In the third quarter of 2019 Extrafarma continue the process of closing underperforming stores, resulting in a net closure of 10 stores in the period and reflecting a stricter approach to underperforming units. Thanks to greater selectivity in their expansion of the network, the percentage of mature stores during the quarter reached 51%. Gross revenues grew by 5% in the quarter compared to the same period of last year. The recovery in the third quarter of 2019 of both wholesale and retail sales was due to the stabilization of the new retailing system, as well as the larger number of mature stores. EBITDA for the quarter was BRL5 million negative due to the steep pressure competitive environment and the impact of closing underperforming stores, partially offset by the growth in sales and the constitutional tax credits in the period. Considering IFRS 16 adjustments and the segregation of corporate expenses, Extrafarma's EBITDA was BRL80 million in the third quarter of 2019.

Our efforts to optimize working capital to get a greater selectivity of investments contributed to a positive operating cash generation of BRL17 million in the quarter. This was the first positive cash generation since the acquisition of Extrafarma. In August, we unveiled a distribution center in Guadalupe [Phonetic], which will now supply the drugstore in the greater Sao Paulo region and contributed to the improvement in the level of service and greater logistical efficiency. In September, we launch Extrafarma's first on-brand product to be better, which will contribute to network monetization and differentiation. In addition, we are implementing improvements to our operation, which includes personalized promotions used to our system and better generic views, which should contribute to higher sales and results. With current initiatives for increasing operational efficiency and improving profitability of Extrafarma, we expect the trend toward a consistent year-on-year improvement in results to be maintained in the next quarter.

Now, looking at the consolidated figures for Ultrapar in slide number 8, Ultrapar EBITDA reached BRL888 million in the quarter, an increase of 4% compared to the third quarter of 2018 due to the increase in EBITDA at all business except Oxiteno. If we exclude the impact of the agreement at Ultracargo, EBITDA was BRL111 million an increase of 6%. Compared to the second quarter of 2019, the EBITDA rose by 51% driven by results, Ipiranga, Oxiteno and Ultragaz and also due to the focus of all business on controlling costs and expenses. In the third quarter of 2019, Ultrapar SG&A decreased by 1% compared to the same period last year. Considering IFRS 16 adjustments EBITDA was BRL979 million.

Net earnings were BRL321 million, virtually flat, compared to the third quarter of 2019 and 153% higher than on the second quarter of 2019, due principally to the increase in EBITDA. Net profits post-IFRS 16 adjustment was BRL307 million. Total investments year-to-date was BRL1.1 billion, 30% less than the same period in 2018, a result of greater selectivity in the allocation of capital. With operating cash generation after investment in the last 12 months amount BRL1.8 billion practically double than the amount recorded in 2018. Moving on to the next slide, talk about our debt profile. Net debt at a quarter end was BRL8.6 billion rise an increase of BRL482 million in relation to the second quarter of 2019, mainly due to the disbursements for Brazilian reals and acceleration on the dollar denominated debt in the period.

With this leverage, measured net debt to EBITDA was 2.7 times as life increased compared to the preceding quarter. We continuously implement our liability management strategy, lengthening our debt profile and keeping your average cost very competitive. At the end of the third quarter of 2019, our average duration was five years and our weighted average cost of debt was 99% of our CDI rate.

With this, I conclude my presentation. Thank you all participating and we can now begin our Q&A. Thank you.

Operator

Thank you. The floor is now open for questions. [Operator Instructions] And our first question will come from Frank McCann of Bank of America. Please go ahead.

Frank McGann -- Analyst

Hell. Thank you. If I could two questions. One, Ipiranga in terms of the cost performance seems to be quite good in the quarter and I just wondering if you could pass a little bit more details of where the cost improvements were coming, and how sustainable you think they are?

And then secondly, just in terms of the broader distribution markets, the white flag volumes continues to be very strong when we look at the industry data and I was just wondering what how you're seeing the overall competitive environment and how you expect it to develop over the next 12 months?

Andrew Pires -- Chief Financial Officer

Hi, Frank. This is Andre here. Well, beginning with the performance of Ipiranga in terms of cost, in fact, I mean, Ipiranga has been implementing series of measures to control cost and expenses and to adjust its expenses to let's say, the market reality. So part of this reduction has to do with those initiatives.

In addition to that, specifically in the third quarter, there was a reversion of provisions for bad debt in the amount of BRL20 minute. This reversion is basically an adjustment that is relative to the improvement of the quality -- the quality of the credit portfolio, of the client's portfolio of Ipiranga.

So, taking all this into consideration, we believe that this is pretty sustainable. Obviously, if we look on our own a unitary -- from a military point of view, per cubic meters, the reduction also reflects the volume improvement from the second to the third quarter of 2019.

Basically, uses some operational leverage dilute fixed costs. So, in general, this is again a reflection of the initiatives that Ipiranga has initiated although the process is still going we believe that there will be more games going forward in terms of opportunities to either reduce costs or improve let's say the logistics costs by streamlining our logistics infrastructure and logistics routes, so there'll be opportunities there as well further opportunities. As for the white flag, I think you're right I mean the white flags are independent distributors, they continue to be an important competitor. Basically, what we see is that they be taken advantage of a market that few surfers from I would say from the income appreciation for most part of the population.

So, their model of this comprise continues to have a very powerful value proposition. But we believe that once we see a more sustainable economic recovery on one hand, I mean, our competitiveness should pay out in terms of our value proposition of the of our business model. In addition to that, looking a little bit further ahead, if we think about what is potentially going to happen with the privatization of 50% of the refining capacity by Petrobras and if we assume that the market is going to work in a way that is more similar to what we see in other markets, when you have private players in refining and overall refining, plus, logistics infrastructure, players that have more scale, more capacity, more uptake should have better bargain powers on the supply side as well.

So, again, further down the road, we believe that our business model in having more scale a broader presence should prevail and should be able to command more efficient I would say cost structure and therefore bring more competitiveness to the final customer I would say.

Frank McGann -- Analyst

Okay. Thank you very helpful.

Operator

Our next question will come from Liliana Yang of HSBC. Please go ahead.

Lilyanna Yang -- Analyst

Hi, thank you for the question. Could you please comment on future bass downstream assets that are out for sale, you indicated the synergy gains and the changing in dynamics for the sector. So, could you highlight what you think adding these assets could be beneficial for you And or even for the sector in case you end up north eyeing or buying them?

And also can you -- on a second question, could you comment on how you plan to monetize your non fuse segments in your convenience store model how different you for yourselves from . Thank you.

Andrew Pires -- Chief Financial Officer

Thank you. Thank you for the question. The way we see the Brazilian market that Petrobras has been the only players -- not the only, but 99.90% -- almost 100% of the refining capacity in the country.

And of course, as so -- as such optimizes the country as a whole, the combination of the refineries and also keeping in mind the obligation to supply the homeless Entering into the avatar on one side, the monopoly the quasi monopoly refined, but also on the other side, you have the responsibility to making sure that the whole country is properly supplied.

So, when you break that structuring in regional -- regions, so they are prioritize, two refineries in the south of the country, two refineries in the northeast or the country they preserved in the cluster in the southeast. And there is also seller one in the Amazon, and a few with smaller ones. This where we believe there will be a fundamental change in the dynamics once. Of course, every new player which refinery we try to optimize its own refining operation.

Keep in mind as well that one with the refinery, they hold midstream. Infrastructure comes along, in that inbound and outbound infrastructure comes with a refinery with this combination. And then when you look at the value chain, we have not only pyramid, but we also have Ultragaz, and Ultracargo play in that sector, so there's a strategic alignment. So we see among those three companies and then they all three are quite well positioned in that value chain, which will probably have a more, let's say, regionally optimization, optimization more toward every region of the country, as we-by the way, as we see in the U.S. and Europe. So that's more or a less with logic of what we see. So having an important presence in the offtake of those refineries and being also a very important place in the retailer and other seller network, I think places that are in a good -- it's a good place to be we believe next few years that this progression process moves on.

So, now to your am/pm. We are, I mean, I think, unquestionably heads in chains of the number of stores, the maturity of our franchise. These are the other convenience stores, networks in the Brazil. The strength of our brand as well, that meaning is am/pm. So, what -- for what we're doing, we're not saying that we buy -- we don't have any dogma saying that we want to be stand-alone and we don't need or we don't want partners. It's just that we are I think ahead and we are, I mean, even making what is a good operation much better. As Andre mentioned in his speech, having more dedicated management am/pm, we already see some very good results as far as the production of the future and management of the supply chain, etc. So we may even consider having a strategic partnership going down the road. But you know, let's say, that the base case is an organic growth and under a very different management objects, which is a dedicated and professional team with experience in retail, and even more so in food retail, along with the convenience.

Lilyanna Yang -- Analyst

If I may just follow-up. I wonder if you make sense for -- I mean, today to go more up ahead different asset like without having a partner with expertise in the refining business ahead of the potential of traditional Petrobras effort.

Andrew Pires -- Chief Financial Officer

We -- I mean, we see that there are some skills in that operation. So, it is last year in any technological deal refining is a clear skill and operator refinery, trading is another one, distribution and retail. We kind of believe we are good in distribution retail. We do have experience in operating a large and complex petrochemical and biochemical industry operation. We do not have specific industry experience in running refineries, and we have limited experience in trading.

So, a partner is probably -- would be an alternatives, very early stage to define, what is the ultimate strategy and was built let say clutter to throw gases opportunities, but that's something we're contemplating as a possibility, would be probably a good opportunity for us to have a partner. But I will not say, this is a mandatory requirement.

Lilyanna Yang -- Analyst

Perfect. Thank you clear.

Operator

And our next question will come from Gustavo Alovato [Phonetic] with Retail. Please go ahead.

Unidentified Participant

Can you hear me?

Andrew Pires -- Chief Financial Officer

Yes, I can. We can hear you now. The floor is yours. Mr. Gustavo [Phonetic] do you have a question to ask?

Unidentified Participant

Okay. Can you hear me?

Andrew Pires -- Chief Financial Officer

Yes.

Unidentified Participant

Okay. So thanks for -- in the previous call, you mentioned that the estimate Cyrus result were 50 to 200 million, highs for the next 18 months. So looking at the results, we noticed that there was some reduction already in third quarter. Among this status, I would like to know how much more can you expect these two 150 to 200 addition regarding the company that is shipping in the third quarter or is something already embedded into the third quarter results?

Also to estimate result and the quality to base, if you could provide some guidance regarding what the company is doing and moving short to 10 or so the results are Likely improving especially in the U.S.. So when can expect that unit new US regarding the expansion the company completely last year, should be breakeven regarding -- in terms of EBIT? Thank you.

Andrew Pires -- Chief Financial Officer

Hi, Gustavo. Thanks. Thanks for the question. As for the expanding opportunities, we have already started the Cleveland Mendel's changes some time ago, there's two more to come. The overall potential is around BRL150 million per year. The part of that has already happened or is already happening in the second or third quarter of this year.

So we don't have a number for the next quarters of course, but I mean, when this is all said and done and taken into consideration specially the improvements in the logistics part. It's something on a yearly basis. Sustainable 150 to 200 a year something like that.

In terms of occidental the USA operations, we have an expectation of an improved results for 2020. The breakeven should be achieved at some point between the second and third quarter of 2020 on a monthly basis, but on a on a full year basis is a 2021 expectation, right but crossing the line of say sometime doing to 2020?

Unidentified Participant

Okay very clear. If you allow to ask another question regarding -- I know you guys don't have to work on a monthly basis. So you know, this is shrunk volumes in July and August, but I rightfully reduction September going to the fourth quarter. So you know can we expect the same train of the third quarter or should be deceleration September should prevail? Thank you.

Andrew Pires -- Chief Financial Officer

Hi Gustavo. Yeah, well basically, as we normally see, we try not to look specifically at given short periods like a month, month period, right. From our perspective, the trend that we saw in the third quarter -- which is improving volumes and faltering itself, improving market track should prevail. Also in the fourth quarter -- and we have seen an improved market dynamic and improve the economic dynamic throughout the third quarter, the end of the third quarter, going to the fourth quarter as well. So, yes, we believe it should prevail.

Unidentified Participant

Thank you.

Operator

Our next question will come from Pedro Medeiros of Citigroup. Please go ahead.

Pedro Medeiros -- Analyst

Good morning, guys. Thank you so much for taking the question. Congrats on the results. I have a couple of follow ups. I think most of the questions were already answered in the prior call and this one. My first one is coming back to the topic of the panel, if you look at a broad business; you show you ready sequential margin improvements taking outside the typical seasonality. So, I just wanted to understand the outlook for the fourth quarter, OK. Should we continue to expect on a margin basis, sequential margin gains? So, just try to understand a bit of the recurrence of the third quarter results.

My second question is you have been commenting about the targets for recovering returns at Ipiranga and considering the comments of the recurring nature of Ipiranga's margin this quarter and the cost improvement that were already achieved, can you give us like some additional color on how do you think Ipiranga returns stand? And how far are we from the corporate corrugates? And perhaps, when do you expect to achieve that? Is it already visible considering the performances per quarter? So, I would appreciate if you can comment on that.

And just one last point. Okay, I apologize. Coming back to the topic of the September sales, apparently, most of the changes in volumes environments were driven by the diesel market. So, can you get some additional color on what's happening on the diesel market and why do we expect it to be reversed in the fourth quarter? Thank you.

Andrew Pires -- Chief Financial Officer

Okay, Pedro, thanks for the questions. Starting with Oxiteno, I mean, again, there is some seasonality right. I mean the third quarter tends to be the best quarter in the year as Oxiteno is involved in the industrial segment. Four quarters are normally weaker from a volume and activity point of view for Oxiteno. So, there is a trend of life improvement. But obviously, we have to look at this trend more in the long run. So, clearly, we are more optimistic about 2020. But on a quarter-to-quarter basis, we have to take into consideration this is an emphasis being the fourth quarter normally a relatively weak quarter every year every year for Oxiteno.

On Ipiranga, talking about what we see in terms of improving the company results over the next few quarters. I mean as I mentioned in my speech, I mean, we continue to see conditions to similar improvements, both in terms of volumes and in terms of margins as well, on a on a sequential basis, quarter to quarter and on a year basis compared to the same period of last year. So yes, I think that is a glass of recovery going on. You mentioned, how far are we in terms of our expectations from our corporate side to get there. I mean it is difficult to say how far, but we believe that there is more room for improvement in the next few quarters. So we feel good about the initiatives that have been introduced in Ipiranga, the way that Ipiranga is being managed procedures units that focus on operational excellence.

And in cost, the focus on implementing a new pricing system with more quantitative approach. So, things are starting to pay off from our perspective, today often shorted from our perspective, when we look at the results versus the initiatives that are being implemented. And for September sales in terms of the diesel market again, difficult to define a trend that is given by a specific month. We have lost share in the second quarter in B2B, digital sales were poor for Ipiranga. Some of this market share has been recalled quickly in the third quarter, But as you know, I mean, this is a spot market and it depends on the conditions at the very moment it depends on the prices, adjustments like Petrobras. I can say that I mean, second quarter again was a period where our loss in market share was greater than we anticipated. I think we'll recover this loss in market share, especially the diesel market and we continue to see a sequential improvement in overall volumes in the next few quarters.

Pedro Medeiros -- Analyst

Okay, thank you. Thank you, Andre. Congrats for the results.

Operator

And our next question will come from Christian Audi of Santander. Please go ahead.

Christian Audi -- Analyst

Hi. Andre. I have three follow-up questions. Firstly on -- going back to the refinery, potential refinery acquisition. Are you looking at that more as a defensive maneuver in the sense of you needing to be there to protect the refinery elements or part of your chain or more as a unopportunistic one in the sense of you seeing synergies, attractive synergies to be had that could really add upside for your business? The second question and then I was going back to Ipiranga on the competitive front. You already touched on the white flag, but can you just comment a little bit about the behavior you have been seeing from both Dr Distribuidora and the newly entrant foreigner, foreign companies that bought smaller players. What type of aggressive, non-aggressive type of the behavior you've seen from them from a pricing and competitive point of view?

And then lastly, if you could just provide an update on the potential regulatory changes in the fuel distribution, which ones you think may pass or may not pass just a general update would be very helpful, please? Thanks.

Andrew Pires -- Chief Financial Officer

Welcome back to Christian. So now we don't see defensive more, we see as a value creation opportunity. Ipiranga, whoever acquires refineries will have an Ipiranga large customer. So I think the stake that Ipiranga have as a large distributor throughout the country is, there in any case. So Ipiranga will be really benefit from the same reasons that they already talked about a few questions ago. Scale and volume pricing, probably they will be the norm under a let's say market -- normal market conditions. So, the benefit is there. But we also see the refining itself, the refineries itself, there's value there, we believe. Structurally, Brazil will be more and more long in crude oil. So as the presalt exploration goes up, the surface of oil will increase and Brazil become a higher, higher net exporter of oil.

On the other hand, we do not foresee at least now, any new investments in new refineries in the country we don't see quite frankly in the world. The movement is the other way around. And Brazil has a structural deficit in refining products, more specifically given in gasoline. So you have the very unique combination, which is a country where geographically we are kind of a far from, let's say, the major markets. And then the true you have we have a country which has a very large domestic market with a situation where we have long including short in refining products. So, that business we see with potential by itself. So we see that business is neutral. Ultrapar business, not necessarily as an Ipiranga business we see Ipiranga, Ultracargo is together again, in the new retail system as it's benefiting from those changes. So it's not the offensive movement. So it's a very creative movement for us.

And Christian about the other two questions, on the competitive front, I mean, as I mentioned the market remains very competitive. But let's say the overall market dynamic has improving. I prefer not to comment individually on the behavior each one of the player of the markets. But what I can say again, is that, the overall market dynamic has improving, which is allowing us to recover margin as we did right in the sequential quarters and as we did compared to the third of last year.

As for updates on regulatory changes, there hasn't been any new, let's say initiatives since the last three, four or five months. I think the only topic that has somewhat address more was the one related to the direct sales of ethanol from ethanol use to the service stations. So this has moved through the change that had to be moved. However, in order to be implemented we believe as you know to be regulated from a tax point of view, how they are going to replace, if it is the case the distributors from parts of the chain of tax collection.

There hasn't been any new regulation on the tax front. So if this, I mean the regulation in order to go ahead needs this tax with the code to be changed. There hasn't been any proposal for taxable change. So we don't know. So again, I mean, after what we saw last year a lot of initiatives. I mean, I think, now we're waiting to see what, are those initiatives that, eventually will be, right?

Christian Audi -- Analyst

Great, thank you very much.

Operator

This concludes our question-and-answer session. At this time, I'd like to turn the floor back over to Mr. Pires for any closing remarks. Please go ahead, sir.

Andrew Pires -- Chief Financial Officer

Okay. So, thanks, everybody for the interest and participation in our call. And I hope to see you again, in our fourth quarter results, late February. And we're going to have Ultra Day here in San Paulo, Brazil, early March 5th. See you all then. Thank you very much. Have a good afternoon.

Operator

[Operator Closing Remarks].

Questions and Answers:

Duration: 57 minutes

Call participants:

Frederico Curado -- Chief Executive Officer

Andrew Pires -- Chief Financial Officer

Frank McGann -- Bank of America -- Analyst

Lilyanna Yang -- HSBC -- Analyst

Unidentified Participant

Pedro Medeiros -- qCitigroup -- Analyst

Christian Audi -- Santander -- Analyst

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