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Cosan (NYSE:CZZ)
Q2 2020 Earnings Call
Aug 11, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen. At this time, we'd like to welcome everyone to Cosan S.A.'s second-quarter 2020 results conference call. To be with us, we have Mr. Joao Arthur Souza, head of finance, and Phillipe Casale, investor relations executive manager.

[Operator instructions]. The value and slideshow of this presentation are available through the live webcast at ir.cosan.com.br. The slides can also be downloaded from the webcast platform. Before proceeding.

let me mention that forward-looking statements are based on the beliefs and assumptions of Cosan's management, and the information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Cosans's and could cause results to differ materially from those expressed in such forward-looking statements. Now, I would turn the conference over to Mr.Phillipe Casale. Mr. Casale, you may begin the call.

Phillipe Casale -- Investor Relations Executive Manager

Good morning. And welcome to Cosan S.A.'s second-quarter 2020 earnings conference call. This quarter will definitely go down as one of the most difficult periods in the history of Brazil, and the world. The impact of the pandemic on the global economy, and mainly on people's lives especially those who have lost friends and family have been very substantial.

As I stated over the past few months in every event, we participated all of our efforts have been directed toward making sure that our teams in operation most of which are essential ones continue to run completely safely. We have geared up the company to navigate this scenario. We've finally tuned the risk and liquidity management. We have worked closely with our clients and suppliers, managing our exposure while at the same time, preparing for an upturn.

We have done our homework. Everything suggests that the worst is behind us, and we are ready to capture the opportunities that the recovery of the economy will bring during the rest of this year. Today's presentation will be slightly different, and I would like to start with Slide 3. Which shows a macroeconomic in specific sectors indicators for the past few months that are directly related to our business such as, fuel consumption, and industrial production.

Their crisis definitely peaked in April. As you can see on the charts, since then the gradual flexibility of social distancing restriction has led to a steady improvement of all of those indexes. We can see that clearly in our business results in April, we're very poor. May was too affected, but we have initial signs of improvement to finally improving June when our performance was much closer to the brick rises levels, and that trend has continued in the past few weeks.

Moving to Slide 4. As you can see, the effects of social distancing were strongly felt by our business. Especially in terms of volumes, leading to a 57% drop in proforma adjusted EBITDA, and a net loss in the quarter. As for the year-to-date results, the bottom chart showing EBITDA R$2.3 billion for the first half of 2020, a 14% decrease, versus the same period last year.

With the exception of Raizen Energia, overall business performance since the beginning of the pandemic had a direct effect on the results for the first half of 2020. Let's drill down into the facts on each business line. Starting on the left-hand side of the next slide, Slide 5, Raizen Combustíveis Brazil. The tough combination of unprecedented and abrupt contraction in demand, plus the dropping fuel prices resulted in an extremely challenging quarter for the sector.

We went into April with higher inventory levels than usually owing to these lower turnover due to the downturn in sales in March, following the declaration of the pandemic, and the criminal cyber attack we suffered. The plunge in international oil prices, coupled with the start of the sugarcane crop season in Brazil which historically put pressures on ethanol price, had a significant negative effect on Raizen's inventory levels, and consequently on margins. As you know, this effect is treated as a recurring part of the business, and our figures are not adjusted for it. However, for better understanding, it is worth pointing out that the loss was around R$300 million in the quarter, more than double last quarter.

Another crucial factor in understanding these quarter results is the loss of economies of scale due to the sharp reduction in sales. Our optimized logistics structure has always contributed to very efficient performance and the superior results of Raizen. For instance, demobilizing the entire logistic structure, both the contracted and our own. After all the long term work is done focusing on capacity building and safety of the operation, we didn't make any sense due to a one-off event.

But considering April and May, when the drop in sales reached roughly 50%, margins were inevitably impacted. C1 scale --The aviation segment has been even more affected due to the physical structure of the operation, we have predominantly fixed costs with the exception of the bridges of products, therefore the flight reduction of nearly 90% in the period had a negative effect on the quarter. It should be stressed that we have been working very closely with our main clients seeking efficient contract management, and reducing our credit exposure. Let's take a look at some figures.

Starting with the total volume sold by Raizen that was 24% lower year on year. These are proven to be more resilient owing to the demand in agribusiness, and freight transportation. The adjusted EBITDA totaled R$65 million in the quarter, reflecting the tax summation than before. We don't usually make a month on month comparisons, but it's essential to understanding market dynamics this quarter.

As the chart in the bottom left-hand corner shows, demand picked up coupled with the recovery of average fuel prices have already led to results that are much closer to normalized level in June. In summary, all evidence suggests that the crisis peaked in April, and we can expect the second half of 2020 with trends like those seen last year. In other words, a gradual recovery of profitability and improve the business environment up to the end of the year. Raizen strengthening, even more, its relationship with resellers through very closely management, keeping exposure with clients and suppliers under control.

Lastly, capex. This quarter totaled R$225 million, 2% lower. Although some investments were postponed during the peak of the crisis, the pace of renewal and gas station conversion remains solid for the remainder of the year. Now let's move to Raizen Argentina on the right-hand side of this slide.

Bear in mind that the results are in U.S. dollars which is the functional currency of the operation. Just like Brazi, the business in Argentina was severely affected this quarter. However, the effects of the crisis were stronger due to the stricter locked down, and the shut down of the refinery operations for nearly a month.

In view of the drop in the demand, the volatility in oil prices and the exchange rates impacted inventory both for crude oil and refined products. Also, contributed to negative margins seen in the period. The abrupt sales reduction of 42% seen in the quarter caused the adjusted EBITDA to drop net to negative $51million. As social distancing restrictions continue to be lifted, demand should pick up gradually over the next few months.

The recent international price recovery should also make a positive contribution, but the profit improvement will depend substantially on whether higher costs can be passed on. Investments in the quarter totaled $10 million, reductions Raizen in line with their rationalization of investments for the period. On the next slide, we'll talk about how Raizen Energy results. Raizen Energy results were less affected by the pandemic.

The weather was quite dry during the first quarter of 2020, 2021. Crop year allowing for a speedier crushing in higher agricultural yields. Their production mix was geared toward sugar which should provide better returns than ethanol during the crop season. EBITDA was 229 million, an 18% reduction that can be explained by the commercialization strategy which will concentrate higher on product sales volumes in the last quarter of the crop year.

Let's take a quick look at sales per product starting with sugar. On sugar. Volume sold was lower this quarter, offset by an increase in the resale operation. Selling price was 27% higher in line with the hedging contracts for the year, and the increase of white sugar sales in the mix.

Moving to ethanol.Own volume sold was in line with the same period last year. The strategy here is similar to sugar seeking higher profitability throughout the year. The sharp decline in oil prices and demand led to plunging ethanol prices at the start of the quarter. But by the end of May, prices began to recover in the domestic market reaching similar levels to the same period last year.

So, the average selling price went up by 9%, compared to the first Q19 due to higher export volumes, and the economic hedging strategy for ethanol sales. Going through to electricity now. The own volumes sold were in line year over year, and the average price was 3% higher than the second Q19, bringing a positive contribution to results. As for sugar hedges.

Raizen has hedged practically all sugar exports for the current crop, and an average price of R$0.60 of BRL per pound weight, nearly 10% higher than last year's crop. The increase in the competitiveness of Brazilian sugar owing to the recent BRL devaluation has presented good opportunities, providing higher returns than those seen in the last years. For the 2022 crop, we have hedged roughly 60% of the sugar, and an average price of R$0.66 per pound weight. We have started to hedged even this 22,23 crop, we have an even better level of return.

There is a consensus that the current crop in Brazil should lead to a significant increase in sugar production which might keep the pressure on sugar prices in the short mid-term. Even if production declines in countries like Thailand, and I mean the sugar prices the U.S. dollar terms. To conclude in Raizen Energy's results, investments added up to R$588 million in the quarter in line with the expectation for the year.

With the next slide, we will discuss natural gas. And just before I start, I would like to let you know that on July 31st, Compass Gas and Energy filed for a registration offer an initial public offering of its common shares. For that reason, Compass is currently in a quiet period. And therefore, we will not be able to discuss any projections or the process itself at this time.

Let's take a look at the figures for the quarter. Compass adjusted EBITDA reached R$473 million, a 19% reduction on our proforma basis. We'll go straight into Comgás figures which is currently Compass main operating asset. Just one more disclaimer.

Before we continue, you may have noticed that we do not disclose the normalized EBITDA for the second Q20. That's because as of June according to our assessed resolution, or [Inaudible] regulating agent of Comgás, Comgás began to recognize the effects of the regulatory current account in its corporate books. And therefore, it no longer needs to normalize the EBITDA. However, the balance accurate was fully accounted for in the quarter.

So, an adjustment was needed in the period for comparison purposes. Total natural gas volume distributed fell 27% in the quarter, reflecting the drop in the demand especially in the industrial and commercial segments. Owing to the spread of the pandemic, and the resulting decline in economic activity. In the industrial segment, the ceramics, chemical, and automotive industries have been the most badly hit.

In the commercial segment, there was a 54% reduction concentrated mainly in the food and hotel segments. The residential segment on the other hand posted a 15% increase, as a result of social distancing restriction, and lower temperatures in the period. As well as 96,000 new clients added in the past 12 months which ended up improving the sales mix, partially offsetting the volume losses in the quarter. Comgás adjusted EBITDA was 18% lower and totaled R$481million, an effect of the decrease in sales. Moreover, and also our reflects off the current scenario there was a specific R$51 million increase in the provision or the allowance for doubtful account.

Excluding that provision, Comgás delivered a 7% reduction in overall expenses. You should be pointing out that Comgás has sought to work, even more closely with its clients thereby also minimizing an increase in credit exposure. Despite the pandemic, Comgás kept its investment plan reaching R$231 million in the quarter. Continuing with the presentation, let's move to Slide 8.

Demand for lubricants has been affected in every country we operate in. The reduction of volumes at Moove was 35% in the quarter. EBITDA totaled R$44 million, 43% lower than the same quarter last year. Nevertheless, some positive effects in the quarter had been helped to naturalize part of the worst volume.

First, the consolidation of results on foreign exchange, contributing positively to the results. Second, an improving -- the lubricant sales mix during the crisis which reflects the implementation of the business marketing strategy. And lastly, we have noticed a positive sales recovery trend over the quarter, especially in Europe, where the resumption of activity is making headway. Let's turn to the right-hand side of this slide, and discuss corporate expenses.

Thanks for the company's focus while navigating this new period, we have posted a 10% savings in expenses. The other expenses added up to R$22 million. Now, turning into Slide 9, to discuss the consolidated financial highlight. The portfolio grew by 16% in the quarter, due to Comgás, and Raizen issues is a cash strengthening measure to navigate the current scenario. The funds raised also expand the cash generated for shareholders and a proforma basis.

The effects mentioned before also led to operating cash consumption in the quarter, especially at Raizen Combustíveis which has historically generated cash. As a consequence, proforma leveraging went up to 2.4 times net debt EBITDA reflecting smaller contributions by operating results, especially this quarter. Before concluding the presentation, I would like to briefly touch on the progress we have made in our ESG journey. on July 1st, we issued our annual sustainability report and disclosed our 10 sustainable development commitments, which are in line with the United Nations agenda for the first time.

These goals fall our economic, social, and environmental principles and we will pursue them through the implementation of well-structured, and concrete actions in all of our companies by 2030. By doing that, we are reaffirming our commitment to the present and the future in keeping with our long-term vision. Comgás, Raizen, and also Rumo which is one of the company's economic group. It is also in the companies economic group that has also issued its own complete, sustainable, sustainability reports.

Furthermore, we have also launched our sustainability portal where we concentrate our initiatives reports, videos, and other content that are related to the topic. We are actively engaging in advance ESG agenda, and committed to becoming increasingly more transparent. To that end, we have answered the Dow Jones sustainability question for the second consecutive year. Other similar initiatives are also being implemented.

We are leaders in the business we operate, and therefore responsible for leading these agenda. More specifically on the G for governance. In July, we announced that the group's long-awaited corporate restructuring process. This is a major step toward the simplification of the structure which unifies and consolidates the three listed holdings companies into one.

On August 4, we announced the creation of the committees whose members are highly experienced and independent professionals, and we will be responsible for assessing Cosan S.A. and Cosan's assets. Also, as announced, we have filed for the registration of an initial public offering of Compass Gas Energy, the group company that provides gas and energy solutions for the country. We've then concluded the presentation, and we can start the Q&A session.

Thank you.

Questions & Answers:


Operator

Thank you. We will now begin the Q&A session. [Operator instructions]. Our first question comes from Isabella Simonato from Bank of America.

Isabella Simonato -- Bank of America Merrill Lynch -- Analyst

Thank you. Good morning, everyone. Good morning, Filippi. I have two questions.

First of all, in Raizen Energia, if you could elaborate a little bit more on the sugar commercialization strategy. I mean, we saw a big jump in the trading volume of sugar, right. And I understand, you guys preferred to hold a little bit more inventories. But can you elaborate on that decision.

And how can we think about that go in the next couple of quarters. I mean, if you are accelerating now. The [Inaudible] of your own volume. And how the balance between trading and on volume should be.

And also the second question is on Raizen Combustíveis. I understand that you guys have now sequential improvements writing in volumes. And I understand that that goes already in July as well, but the margin pressure was quite high in the quarter. How can we think about that recovery, and how the fixed part of your cost structure has been diluted back, now that volumes are more -- are better.

Thank you.

Phillipe Casale -- Investor Relations Executive Manager

Isabella, thank you for the question. Starting with a question in Raizen Energia. Actually, the volumes in sugar it's more linked to resale and not trading itself. Right.

So this is part of the strategy of Raizen to maximize the value of the entire operation. Right. So reselling has been part of our operation, we're selling off sugar has been part of our operation. But we increased a little bit easier this quarter specifically.

And this is another part of our strategy here to keep capturing better returns on the operation itself. And in regards to all sugar volumes. As we're going to maximize the sugar production this year, we are also analyzing the best scenarios and the best moments to sell our sugar. So looking at the cost of carrying that product nowadays, and compare even to the latter to the last year.

Again, on this crop year, we will probably concentrate more on the sales on the third, in the fourth quarter of the harvest year. Right. So it's the fourth, and the first quarter of the calendar year. So that's quite linked to seeking on seeking to capture the best return within their commercialization strategy.

In terms of the receivers, I think this is a good opportunity here to expand a little bit more. I tried to make it more clear in the call, and here I will try to explain a little bit more about the dynamics. And we even showed some macroeconomic indicators which are quite linked to our business in a more specific field. We saw that April and May, and also a little bit of March was the peak of the crisis.

Right. So just explaining a little bit of a dynamic here for ourselves. Right. For Raizen Combustíveis.

So we entered April, we have a high level of inventory due to the criminal hacker attack that we mentioned on the call or the first-quarter results. And also due to the COVID impacts. Right. So the turnover on the inventory was lower leading to a higher level of inventory by the end of March.

So, we entered the quarter with more volumes than we would like. Right. So, as you all know, we do have more ethanol in our mix as well. Right.

And that is considered not only on the sales but also on inventory levels. And ethanol suffered even more in the quarter, owing to the price drop falling to gasoline. And also because of the beginning of the crop season. As you know historically speaking, it puts pressures on ethanol prices at every beginning of the crop season.

So just to wrap up here the inventory in fact. Right. Which was mainly concentrated again in April and May, this very important to highlight. It was around R$300 million that I mentioned on the call.

So, as you know, [Inaudible] international prices have started to show some recovery, and we have been seeing since then a recovery also on demand. This should bring a positive effect going forward. So, part of this negative effect year on April and May will be recovered part in June, and partly the rest of the year. Right.

So another relevant impact here on our results is quite important to mention, which by the way contributes to superior results in a more normalized scenario. Is economies upscale. Right. As I mentioned in the presentation, there is a good part of our good trainers on safety, focus, logistical structure.

But was preserved during the peak of the crisis right. That didn't make sense to be mobilized because of one or two months of dropping in the volumes distributed. So that proves -- that actually to be the right decision. If we take into consideration, the level of one that we are currently distributing which is more, to more close to the pre crises one.

It could take June and July which is out there already. Those warnings are much linked, or much closed to the pre-crisis levels that we were distributing. So, in summary here, I just make sure that everyone gets the message here. April was very, very weak.

May also was weak, but already showing some signs of improvement. While June was much closer to normalized like that one. I was looking at July to that. So that's -- what I mean normalized levels, I'm talking about the business environment.

I'm talking about volumes, and I'm talking about the return. The overall performance. So that's the trend that we should expect for the rest of the year. As I mentioned, the second half of 2020 should be quite similar to 2019.

Where June was the weakest month, and overall, the third and the fourth quarter will both gradually recover, at least that's what is the signs are showing to us. As I was talking about macroeconomic indicators, and actually our June and July results here on the fuel distribution.

Operator

Our next question comes from Regis Cardoso with Credit Suisse.

Regis Cardoso -- Credit Suisse -- Analyst

Hi, guys. Good morning. Thanks for taking my questions. If you follow up on your comments now on Raizen Combustíveis if I may, please.

The R$300 million inventory loss you commented there, is this just the effect of being inventory, or does it also include anything related to the parish shooting in margins, or to the games and in the hedges. So just let me know how to interpret that R$300 million. Also, when you mentioned normalized levels in June, I mean the volume side of the equation is pretty clear. We can see it, but from a margin perspective, when you speak it's more normalized.

Doesn't that margin include the inventory gains because prices started to pick up in June. So just also we can understand that better. And then just finally, if you have an estimate of the total effect of these economies of scale because the losses in volumes was of course so abrupt. If you have an estimate of how much that could have been affected your results.

Phillipe Casale -- Investor Relations Executive Manager

Regis, thank you for your question. So the R$300 million or around R$200 million that I mention is pure effect of the inventory. Basically, on the turnover of the products on the sale of the field. It has no relation we've had or anything like that.

We do have financial instruments to protect those imports, but that's not related to the fact that we saw -- that we based on selling the field itself. Right. So this is a pure effect on the quarter. Which again, as I mentioned Raizen is highly concentrated in April and May.

Ok. In terms of the normalized levels in June that I mentioned to you, you disclosed to as I mentioned in terms of the overall performance. Right. So meaning that I'm talking about volumes.

And I'm talking about margins or returns if you will. Right. And these of course include the dynamics of prices that impacted inventories. And that's why we are facing also a better environment here.

But this is also part of the equation on the fields in June, and also I can mention July here which is out here already. In the total effect of the economy of scale, it's -- I mean we're going to disclose it. Of course, this is in the strategic part. What I can tell you again, and I want to reinforce here is that these have benefited us or has brought a benefit to our results in the past -- in a more normalized scenario.

Let's put it this way, we have invested a lot in the past few years on having these well-structured logistics, and also not only of our own but also the third party ones that we contracted. Right. But also there's an important point here that I mentioned the information before. In the economies of scale which is the aviation business.

Right. Which has been penalized a few of our results. As I mentioned on the call, it was a flight reduction of nearly 90% of volume dropped roughly 80%, specifically in the fields this quarter. And by then, the nature of these operations is where we have more of the physical structure.

We predominantly fixed costs. So, here we get more penalized in a quarter where the demand is not there. So, here it's also quite more difficult to predict when we're going to see a more structural recovery on the demand side. But I mean, we are analyzing on a daily basis here how the market will evolve in the aviation segment.

And just one more thing here, just to put in perspective here what is our expectations for the rest of the year. And as I mentioned, the second half in our view here looking at the numbers, it is going to be pretty close to the original brand of the brick crisis. Because the original plan that we have for the second half. There's a minimal downside here, but we have pretty realigned with the brick crisis number let's put it this way.

Regis Cardoso -- Credit Suisse -- Analyst

Thanks, Phillipe. if I may just follow up on a few more specifics of the results. I think you recognize now in the second quarter, the R$45 million that you had reversed in the first quarter,2020. So I mean, if it weren't for that adjustment, you would have also slightly higher EBITDA in Combustíveis.

Is this correct. And the other thing is for the other party, it seems you had gains in fiscal credits. Recoveries, is this R$22 million. So, just wanted to know if you think this is related to the fiscal fees that you're typically adjusting the results in most quarters.

Phillipe Casale -- Investor Relations Executive Manager

The first one, you are right. It's a 44, R$45 million that we adjusted on the first quarter. We are adjusting back again, the second quarter. So we are narrowing the effect.

So, your assumption is right. And it comes off the credo -- the credit, the fiscal credit recovery. Whatever is -- whenever we have the normally recurring game. Historically speaking, we always adjusted.

Right. So, everything that is adjusted is the non-recurring part of it. Right.

Regis Cardoso -- Credit Suisse -- Analyst

Right. Very clear. Thanks.

Phillipe Casale -- Investor Relations Executive Manager

Thank you.

Operator

Our next question comes from Lucas Ferreira with JP Morgan.

Lucas Ferreira -- J.P. Morgan -- Analyst

Hi, Phillipe. My first question is also a follow up on Combustíveis. Just to make sure, were there any other a one-off feedback from the aviation given the lower volumes, or any break up in contracts or something like this. Any particular one-off thing affecting the quarter in the aviation business.

Apart from the volumes of flights from the needs then, we should be aware of it. And the second question is more broadly. When you comment about the recovery of the business, and in the second half should you close to normalized in terms of fulsome profitability. Have you guys adjusted it.

The Boston and that's also selling expense and structure in order to cope with this outlook of probably lower volumes going forward. Not only because the economy is not recovered by, but also because people are stupid in changing habits. So, assuming that the volumes do not recover to the normalized trajectory to the multilateral levels. Would you see your margins also coming back to what it was last year.

So my question is regarding the costs and salary structure. I'm not sure if I could be wrong. But you said it you wouldn't comment on Compass, but I'd also wanted to pick your brains on the volume trends there. If you could say something.

I'm not sure if you can. Thank you.

Phillipe Casale -- Investor Relations Executive Manager

Lucas, thank you for your questions. The third one, I can again do any projections here, so I'm not going to be able to answer it. In terms of the first one, In Raizen Combustíveis the answer is no. There is no one-off effect here.

We have worked very closely with our clients. Of course, analyzing our exposure, and controlling all the exposure we had in that business. So, there was no one-off event other than the extremely big drop on the demand. On the volumes.

So, there is nothing, nonrecurring besides cohesion back that I can highlight here on the aviation segment. And second, in terms of the cost structures. Again, economies of scale are quite important in this business. April, as I mentioned that volume dropped about 50%.

And then, in May, it was a little better. But also, we faced a strong drop in demand. As I mentioned also on the call, it's important to highlight here that we have viewed throughout the year. It is a quite strong structure, logistics structures, training the drivers in terms of safety, in terms of quality of products, and so on.

So, what we did here is that -- or the analysis we did is that demobilizing all these logistics is structure. Again, both contracting in and of our own. After all, this long-term work that we had done didn't make any sense because of a month or two. Of course, we always look at the minimum adjustments that we can make, and whatever was in our hands here that will not jeopardize the recovery of the operations.

As we have been seeing or a good part of the recovery, as we haven't seen in June. I think that was the right decision. So, we did whatever we could. In terms of not putting in risk the quality and the efficiency of our operations going forward once we have a more normalized market.

Lucas Ferreira -- J.P. Morgan -- Analyst

Thank you, Phillipe.

Operator

Our next question comes from Thiago Duarte with BTG Pactual.

Thiago Duarte -- BTG Pactual Equity Research -- Analyst

Good morning, everybody. I have a couple of questions on Combustíveis, and then to Energia. The first one is if you could please elaborate a little bit on the competitive environment. I mean, if we look at the market share on Raizen Combustívei to all the quarter and the last few months.

We saw a steep drop in March and April, and in almost a full recovery in May and June. And of course, this all happened in the middle of the price downturn, price and volumes downturn. And as the volumes and prices start to recover, you saw a significant market share recovery. It seemed to be -- especially these a little bit outside the resale more into the wholesale.

So if you could elaborate a little bit on how you see the competitive environment in the middle of this big streak in prices and volumes, and how that changes or affects the profitability of the business in your view that would be interesting. The second question on Combustíveisthese would be related to rebates. I mean, is this something that happened last quarter, and it happened this quarter. Again, if you look at rebates on a per cubic meter, or even a per gas station bases, it's much higher than last year.

And then, in the last few years or so. Just wondering how that's related to this progress into given more incentive to resellers and so on and so forth, or something else that we might be missing would be interesting to hear as well. And the last question on Raizen Energia. Just interesting or interested in understanding how you see the drought as you've mentioned that the crushing base has been very strong for Raizen for the rest of the industry.

The drought clearly played an important role there. So just wondering if you have any preliminary sense on how that affects the length of the crop. If it could lead to an early, lead to early termination of the crop. And how that affects agricultural yields going forward.

If so. Right. So, these are my three questions. Thank you.

Phillipe Casale -- Investor Relations Executive Manager

Thiago, thanks for your questions. It's a good opportunity here to talk about market share as well because I do recall that some of the investors here throughout the quarter have been asking us about the market share performance. Remembering the March and April, and May was very erratic. In terms of the demand, behavior in, terms of price volatility lead to a quite challenging and different business environment.

So, we were -- I think we were in a very safe position here to not change dramatically our strategy because we knew that when the fundamentals were back, gradually profitability and volume also would come back. And that's exactly what happened in our market share and profitability in June. As I mentioned, it's being much closer to the pre quite as one ride. So it was again, three months actually because of the market share we have March we felt backed off the hacker attack in our business, and also because of the liquidity.

And then April and May are the peaks of cohesion. We are a very erratic and very challenging scenario. So, I think when you look at the numbers as you mentioned, we are back at the same levels of the pre-crisis. And there is no reason for us to think that that's going to change dramatically going forward.

So, we should keep the consistency here, and keep the pace of the performance of Raizen. When we talk about rebates. Just one disclaimer here. The rebate is not actually fully linked or related to the volumes of the quarter itself.

It might have some delays between when did the rebate is passed to between month here. So, the progress of this is very clear in terms of our forward strategy of renewing contracts and bringing new stations to our pipeline. To our network. So what happened is that every time we go for renewal of the contract, we try to offer the rebate model which is clearly -- which for us has clearly a better return in terms of the alignment with the resellers, and on the long term relationship with our network.

And in terms of Raizen Energy, the dry weather is actually helping to accelerate the crop. The harvest of the sugarcane is probably going to be crushing a little bit more than what we did last year, close to the original plan as well. There is, of course, if the dry weather persists, there is a risk that we issued accelerate a little bit more to harvest, or we can even postpone some of the crushing now to end the crushing more close to the end of the year of the calendar year. But what we are looking at in terms of the yield is an improvement linked to not only the resources that we have in doing.

And that's a clear commitment we have here in terms of improving our agricultural yields. So, you have seen in the first quarter an acceleration of growth of IFRS. And it's totally out of control yields, and that should be the case if this climate persists. Of course, we do need rains at the right moment right of the year.

So having these very dry weather is not the best scenario. So, we need the rains. Again, at the right time. But I think this is going to be a better crop the next year.

Which again, leads to a higher crushing, which will lead to a more cost dilution for Raizen improving returns here.

Thiago Duarte -- BTG Pactual Equity Research -- Analyst

Thank you very much, Philippe.

Operator

Our next question comes from Alex Falcão with HSBC.

Alex Falcao -- HSBC -- Analyst

Thanks, for taking my question. Good morning. Quick question on -- when you look at the new normal for consumption in fuel distribution. Do you see any additional room for other impairments here specifically for Argentina.

Is that something that you can expect that. And can you tell us a little bit about your expectations for margins. I know you don't like to talk about margins per cubic meter. But without fuel, without aviation, your margins are probably going to be lower here.

Can you give us shed a little bit of light here on where it's probably going to sit. Thank you.

Phillipe Casale -- Investor Relations Executive Manager

Falcão, thanks for your questions. In terms of new the so-called new normal there, and specifically in Argentina. I think the main challenge there is less on demand because of course until it's facing a lockdown. And I think with the phase of flexibility there's locked down real both will help to bolster their recovery on their demand which should be more gradual than what we haven't seen in Brazil.

But we think that eventually the demand will recover to anything and restored to the brink of hit levels also in Argentina. The question here is time. But I think the main challenge in Argentina, It's good that you ask. We have a 30-day shutdown of the refinery.

That coupled with the strong volatility of the business. The oil price is the intermediary product in refined product prices that affect the inventory loss in this quarter specifically. So, this is important to talk about the impact of the quarter. And I think here the main challenge in Argentina looking forward will be the capacity, or actually the timing right of passing through the devaluation of the currency, and the increased cost of the crude oil.

So, this is the main challenge for Argentina going forward. And last on the demand in our view here because again, the [Inaudible] has its phase of being more flexible, and eventually the demand will come back. Of course, we don't know what will be the new normal. But eventually, volumes have shown throughout the world that the levels are pretty close to the prescribed as one in terms of fields.

And in terms of margins per cubic meter, the profitability here, what I can tell you is that in that -- I have mentioned this before here, we are expecting the second half of the year having volumes behaving better. Having the prices coming back. Macroeconomic indicators are showing some signs of recovery. We should have profitability here, or a level of return much closer to what we were expecting before that the debt crisis.

Now as I mentioned the second half of the year will probably post results close to our original plan of the three crises one. So this is of course if we don't have any big or major hit in the macroeconomic indicators that should be the scenario for the remainder of the year on how Combustíveis Brazil.

Alex Falcao -- HSBC -- Analyst

Ok. Thank you.

Operator

[Operator instructions]. I would like to turn the floor back over to Mr. Phillipe Casale for his final remarks. Mr.

Casale, you may proceed.

Phillipe Casale -- Investor Relations Executive Manager

Thank you, very much. I hope to see you here in the following quarters. And stay well. Thank you.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Phillipe Casale -- Investor Relations Executive Manager

Isabella Simonato -- Bank of America Merrill Lynch -- Analyst

Regis Cardoso -- Credit Suisse -- Analyst

Lucas Ferreira -- J.P. Morgan -- Analyst

Thiago Duarte -- BTG Pactual Equity Research -- Analyst

Alex Falcao -- HSBC -- Analyst

Alex Falco -- HSBC -- Analyst

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