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Cosan Limited (NYSE:CZZ)

F1Q13 Earnings Call

August 9, 2012 10:30 am ET

Executives

Guilherme Machado – Head of Investor Relations

Marcos Marinho Lutz – Chief Executive Officer

Analyst

Fernando F. Ferreira – Merrill Lynch, Pierce, Fenner & Smith, Inc.

Celina Apostolo Merrill – Credit Suisse Securities (NYSE:USA) LLC (Broker)

Martin Tapia – Raymond James Argentina Sociedad de Bolsa SA

Christian Audi – Santander Central Hispano Investment

Gustavo Gregori – Deutsche Bank Corretora de Valores SA

Felipe Koh – Citigroup Global Markets Brasil CCTVM SA

Operator

Good morning ladies and gentlemen. At this time, we would like to welcome everyone to Cosan Limited and Cosan S.A. First Quarter of the Fiscal Year of 2013 Results Conference Call.

Today with us we have Mr. Marcos Marinho Lutz, Cosan’s CEO, and Mr. Guilherme Machado, Head of IR. We would like to inform you that this event is recorded and all participants will be in a listen-only mode during the company’s presentation. After Cosan Limited and Cosan S.A.’s remarks, there will be a question-and-answer session for industry analysts. At that time, further instructions will be given. (Operator Instructions).The audio and slide show of this presentation are available through live webcast at www.cosan.com.br/ir. The slides can also be downloaded from the webcast platform.

Before proceeding, let me mention that forward-looking statements will be made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Cosan Limited and Cosan S.A.’s management and on 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. Investor should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Cosan Limited and Cosan S.A. and could cause results to differ materially from those expressed in such forward-looking statements.

Now I’ll turn the conference over to the Head of IR Guilherme Machado. Mr. Machado you may begin your conference.

Guilherme Machado

Thank you, good morning. I’d like to thank you all for joining our conference call for the results of first quarter of fiscal year 2013. And I’d like to start highlighting that in this fiscal year due to the signatures of an agreement with [Groupo Canyu] we are not going to show Cosan Limited as a separated business unit. And particularly for this quarter, we are going to show its results in our financial statements as discontinued business.

And as for the next quarters moving ahead, we are going only to recognize our stake of 11.72% income yield after the contribution of Cosan Limited business. I’d like to start talking about the consolidated results. In this quarter we have the positive variation of 18.1% in our net revenues, mainly due to an increase in the revenues of the Raízen Combustíveis, our distribution division segment, and that jumped from R$5.2 billion of net revenue 1Q 2012 to R$6.1 billion in the 1Q 2013. Just to remember that we do the proportional consolidation of 50% for both Raízen Combustíveis and Raízen Energia in our figures and 100% of Rumo and the Other Business segment.

Talking about to the EBITDA we had a negative impact of 15.1% in our figures from R$502 in 1Q 2012 moving to R$427, roughly, in 1Q 2013. This is mainly due to the impact of the delay in the beginning of the crop season in the results of Raízen Energia that crushed almost 40% less sugar cane compared to the previous year, and it reflects the delay in the beginning of the crop season.

It’s important to highlight and to make it clear that we do not believe in the disruption of crop season as we observed in the last fiscal year. We do believe in our fiscal year that has been delayed due to the climate conditions in this fiscal year 2013.

Moving ahead and talking about the net income, we had our net income that had a negative impact of 110%, moving from R$167 million in the 1Q 2012, compared to a net loss in this first quarter 2013 of R$17 million and this is mainly due to a negative impact of the exchange variation, which is a non-cash effect that impacted our results, and we did an exercise to adjust this effect in order to offset the exchange variation effect as well as the result of sale of assets in both quarters. And the reduction in this exercise shows that we had a negative impact of 33% which, again, is mainly related to the delay in the beginning the harvest in the crop season fiscal year 2013.

Moving to Raízen Combustíveis, which is the fuel distribution business that we jointly control with Shell, we had an increase in the volume of fuels sold in fiscal year 2013 of roughly 5%, jumping from 5.1 billion liters sold in first quarter 2012 to 5.3 billion liters of fuels sold in this quarter. And the net revenues increased roughly 6%, jumping from R$9.7 billion to R$10.3 billion, mainly due to the higher volume sold in both gasoline and diesel, which are the products that have higher unit margins compared to the other products.

Talking about EBITDA, we had a significant increase in the EBITDA of roughly 19%, jumping from R$310 million in this [last] fiscal year to R$367 million in the first quarter 2013. Gross margin is jumping from 3.2% to 3.6%, which represents an EBITDA (inaudible) of R$69 million, a significant increase of roughly 13%, mainly due to the better mix of products sold in our network and the higher penetration of Shell brand as we move forward in the conversion of Esso-branded service station that used to belong to Cosan in the past.

In Raízen Energia, which the business that accounts for the sugar, ethanol and energy co-generation production, that we also control jointly with Shell, talking about the operation performance, as we have already mentioned, it was mainly impacted by climate effect that represented a drought during the inter-harvest period, where we expect the growth of the sugarcane fields and also the rains during the beginning of the harvesting process that caused a delay in the beginning of the crop season that used to start in the end of April and we have started effectively in the first quarter of May.

So, we had a negative impact in the crushing, in the sugarcane crushed of roughly 40%, reaching 11 million tons of sugarcane crushed compared to 18 million tons crushed in the previous quarter. And the sugar production preceded also a decrease of roughly 46%, reaching 643,000 tons produced in the period. And also the ethanol production recognized a decrease of 44%, reaching 350 million liters produced in this quarter.

The TSR, the total sugar recovered in the sugarcane, also called ATR in Portuguese, proceeded with a decrease of roughly 4%, reaching 120 kilograms of sugar per ton. And the volume of energy produced in the comparison of the quarter remained roughly stable, mainly due to the investment that we had made in the past years to increase the capacity of energy production in our site. So we have produced 424,000 megawatts in this quarter with an average price of R$167 per megawatt hour.

The financial performance of Raízen Energia, the delay of the crop season also is reflected in financial figures. So we had a decrease of 22.8% in the net revenues, reaching R$1.3 billion in this first quarter 2013 compared to R$1.6 billion in the previous quarter. And EBITDA decreased roughly in the same proportion of 21%, reaching R$323 million with margins of 25.6%. Talking about our hedge position, on June 30, 2012 we were 74% hedged for our total sugar production to be exported of 2.8 million tons of sugar at an average price of $0.229 per pound with an FX of R$1.92. We have already started to hedge part of our production for the next crop season, so we are at this moment are at a figure of May 30, we were hedged 14% for the same volume expected to be showed that 2.8 million tons of sugar at the price of $0.216 per pound with an FX on average of R$2.2

Moving onto the business that Cosan controls 100%, and talking about Rumo, in the operational figure we have also decreased roughly 32% and the total volume loaded in the port, due to the delay in the production of sugar in the center south of Brazil with an average unit revenue of R$6 million per ton loaded.

In the net revenues, we also had a negative impact of 25.6%, reaching R$105 million in this quarter compared to R$141 in the previous quarter. In terms of EBITDA, we had a decrease of 21%, reaching R$43 million in this quarter compared to R$54.3 million in the first quarter of 2012, with EBITDA margin of 41%.

Moving to the Other business segment, which accounts for the lubricants and specialties and also the base oil as well the lease of land and contingencies related to the business contributed to Raízen and the corporate structures of Cosan, regardless Raízen, obviously, we had a net revenue that increases 31.6%, reaching R$317 million compared to R$241 million in the previous quarter, mainly due to the increase of the lubricants and base oils volumes sold in this period, and also the increase of 2% of the distribution of lubricant in the operations of Bolivia, Uruguay and Paraguay recently acquired. EBITDA jumped from R$27 million in first quarter 2012 to R$38 million in first quarter 2013, an increase of 42.2% and margin reached 12% in this segment.

Moving to our net debt position, we have an increase in our net debt position from the fourth quarter of 2012 to this first quarter of 2013 of roughly R$900 million, we had the net debt of R$3.9 billion compared to R$3.1 billion in the previous quarter, an increase of 28%, and our debt is 59% denominated in reals and 41% U.S. dollar denominated. And talking about on maturities, 23% of our debt is positioned the short-term and 77% is positioned in the long-term. So the most important figures in the increase of the debt is compounded by the debt that we have acquired to complete the acquisition of Comma Oil & Chemicals in the U.K., the lubricants business that we recently acquired from ExxonMobil.

The increase of net debt of Raízen that we consolidated proportionally was 50%, mainly the BNDES line and freight finance line, and also the exchange variation that impacted the U.S. dollar denominated debt, that’s roughly R$400 million. So, if we do the calculations of our net debt position to the EBITDA for the last 12 months, we have a leverage position of 1.7 times and compared considering the capital subscription that Shell has to do in Raízen and we consolidated 50%. I think it’s important to highlight that for the last annual shareholders meeting, we have approved the dividend payment of R$250 million for the fiscal year ending in March 31 and is will be paid in this fiscal year.

So for the last, our guidance, we would like to reinforce that we have unchanged the figures that we released in the fourth quarter of 2012 that shows that the company is quite confident that all the figures will be delivered with utmost efforts in all the different business lines that we operate.

And I would like to conclude my presentation here and move on for Q&A session. Thank you all.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-answer-session for investors and analysts. (Operator Instructions) The first question is from Fernando Ferreira, Merrill Lynch. Please go ahead.

Fernando Ferreira – Merrill Lynch, Pierce, Fenner & Smith, Inc

Thank you, good morning everyone. I have two questions, first on Rumo, when we compare to this quarter the revenues from transportation and also from the ports they are very different and also the yields increased in this quarter. Was there any adjustment on the take-or-pay or did you receive any extra take-or-pay revenues in this quarter from your contract with ALL?

Marcos Marinho Lutz

Yes. We actually receive pretty much every month some adjustment. So at the end, the way that the contracts works is we do a program and after that an investors and the market concluded, we check if any material difference is due to the ALL service or our service. So, for instance, if we take too long to unload the train, this is kind of our fault versus them not bringing empty trains when scheduled it’s their fault, or having this taking too long to get to someplace is their fault, so we do that and this has been kind of every month. I think throughout this year we’ll still have that, I mean still we have all the investments done, so the duplication from (inaudible) all the way to (inaudible) when this is ready and this should be ready at the end of the year, I mean till that time I think we will have that adjustment towards us, so we will be receiving that for a while.

Fernando Ferreira – Merrill Lynch, Pierce, Fenner & Smith, Inc

Sure and now you are able to quantify how much you had in this quarter or not?

Marcos Marinho Lutz

No, I think this is not a relevant number for an investor of Cosan and I think this, at the end, is paying the difference that I will be making doing the service as scheduled and contracted, so it’s not relevant on their side you should see those fines basically recomposing the profits that we will be having if the service will be provided so this will not change anything.

Fernando Ferreira – Merrill Lynch, Pierce, Fenner & Smith, Inc

Okay, thank you. And the second question is on the margins on the fuel distribution side. Just help me understand your guidance here. If I look at the highest EBITDA with the lowest volume and the opposite as well, we get to a range of 56 to 71, but if I use the lowest EBITDA, the lowest volume and the highest EBITDA and the bigger volume I get to a range of 62 to 65, right? Then you reported 69 in this quarter. So what sort of range are you actually thinking for the year, which makes sense, and do you think that margins will trend down from here or do you expect pretty much the same level going forward?

Marcos Marinho Lutz

Again, as I’ve mentioned, the main drivers are mix. Obviously when you have a market that allows you to sell a better mix, which means more aviation fuel, more let’s say high-end or, let’s say premium fuel. So, we launched a premium diesel fuel and we are expanding the diesel, gasoline to the whole chain. And it’s been done in a very structured and successful way. So this is the driver, so this is kind of sustainable.

The other driver, I would say, is the mix of ethanol versus gasoline. That you know that like last year where, again we’re picking a year where gasoline is more predominant in most of the states, and this actually brings us to a better level of margin. So, again, we are kind of optimistic. I would say that we are probably going more to the ceiling of the guidance than to the bottom. But it’s too early in the year to say that we’ll be actually be through the roof on the guidance.

Fernando Ferreira – Merrill Lynch, Pierce, Fenner & Smith, Inc

Okay, thanks Marcos.

Operator

The next question is from Celina Merrill, Credit Suisse. Please go ahead.

Celina Merrill – Credit Suisse Securities (USA) LLC (Broker)

Hi, good morning and thank you for taking the question. I just had a question on the sugarcane harvest and wanted to know if you could provide an update on how the weather looks now and have you caught up on the crushing volume after the delay in the start, or is that something you expect to see in the next few months? Thank you

Marcos Marinho Lutz

Well, I think first thing is important to explain, when we say delays in harvest, this is not really because we were actually delaying the, let’s say, normally delays happen for, I mean when nothing is ready and stuff like that. The delaying is due to the fact that we have a larger crushing capacity than we have cane to crush. And because we have an agricultural yield that sinks in the middle of the year when the weather is drier and is colder, so the concentration of sucrose in the cane actually goes up.

You want to crush, I mean ideally, everything in one month in terms of agricultural yield. So when you have more crushing capacity than cane, you concentrate your crop. So we’ve been crushing in the good days close to 340,000 tons of cane in a good day. So if you divide what we’re forecasting by that. You can see that probably in 150 days you’ll be done with your crop. So in a year like that, you want to start late and finish early. In a year like 2008, 2007, when we had actually a lot of cane and actually less cane for the end of the year, then you want to start as early as you can and finish as late as you can, which is a very different case scenario from these both years.

So, having said that, we will probably, crush on the dates that we were scheduling. We might have a delay, or let’s say early start, when we make a program in news that they expanded for an average rain fall in a weekly basis, and basically if you have an early start of rain, you then crush a little slower at the end, and you end up crushing for more time and finishing your crop later.

But again, this year is a year where actually the crushing won’t be a challenge, the challenge will be the efficiencies and, obviously, the challenge will be on the agricultural side to be prepared for actually a larger crop, way larger crop for next year. So, for that purpose, actually, the rainfall at the beginning of the year was positive. This rainfall will probably produce a little larger crop, but not with more products because there will be less sugar per ton and more tons, but this for sure helps the other years, so the planting season was actually very good weather.

Celina Merrill – Credit Suisse Securities (USA) LLC (Broker)

Okay, that’s very helpful. Thank you.

Operator

Your next question is from Martin Tapia, Raymond James. Please go ahead.

Martin Tapia – Raymond James Argentina Sociedad de Bolsa SA

Hi, good morning, thank you for the call. And my first question is regarding the catch up in sugar cane crushing and sugar ethanol production that you’re expecting to happen in the following quarters. Should we see it happening in both the second quarter and third quarter? Or should we expect a normal 2Q and an extraordinary 3Q at the end of the year? My second question has to do with the gross margin for sugar and ethanol. Could you explain the significant reduction in ethanol gross margin in this quarter and provide any guidance on your expectation for relative profitability between sugar and ethanol over the next months? That’s all. Thank you.

Marcos Marinho Lutz

We will expect actually a catch up on second and third Qs, yes. So, in theory, we should be crushing I mean we have more capacity this year to crush. So in the peak months, so the second Q will be actually better than last year because there’s more crushing capacity. The ethanol thing is a lot explained by actually the late start as well, because remember in the last two years and this year is not different, will be a third year that way, ethanol paying less or having less margin than sugar. So what many people do here is they actually do the most, let’s say, towards sugar mix possible. Which means that at the beginning of the crop and then the tail of the crop it actually gets even more sugar oriented, because at the end you want to somehow maximize and really not full the downstream of your mill which is actually where your distillery and your sugar factory is located, they’re actually running idle, so you can actually have even more flexibility to make more towards one product versus the other.

This is actually more important at the end, because everything is a kind of stabilizer during the crops because at the beginning you substitute with sugar and you’re end up producing ethanol. At the beginning you have to stabilize the mill, so you have some discount on that. So the next biggest factor is you end up having more idle equipment on the ethanol part, so as the allocation of costs actually goes more towards ethanol you end up having less even worse margin on ethanol side.

Operator

Are we ready for the next question? The question is from Christian Audi, Santander. Please go ahead.

Christian Audi – Santander Central Hispano Investment

Thanks. Hi, Marcos. Just to clarify on the sugar and ethanol, on this point that you just made about catching up, I just want to understand. So in your view the catch up is something that would happen more now in the second quarter than on the third or is it a catching up process that will really kind of evenly happen both in the second and in the third?

Marcos Marinho Lutz

Sorry, at the end it’s tough to say that because we run on statistics here. So it’s probability. I would say that, in theory, you will have a very strong second quarter if you don’t have if you have a weather like we’re having today it will be actually doing a good part of the cooperation. At the end we’re not that far from our plan, we’re very close to the plan, and the plan actually had a strong crushing month during the dry season, which is actually the idea of concentrating the crop. So if you have, let’s say, regular rain or average rain, average of 10 years in a weekly basis, we’re talking about having a big chuck of recuperating on this quarter we’re leaving now.

Christian Audi – Santander Central Hispano Investment

Okay

Marcos Marinho Lutz

And then probably less than half of the total on the last month. But if you have some additional rain, you have plenty of room in the last quarter to actually catch up on the difference.

Christian Audi – Santander Central Hispano Investment

Okay. And then on the distribution side, going back to the topic of mix, it sounds like from a sustainability point of view that for 2012 it’s fair to assume that this is quite positive mix that you’ve experienced should continue. But my question is more looking at 2013. Do you see anything that could significantly change what has been an attractive product mix for you, whether its government intervention or anything else? Or, no, it’s really more a 2014 issue, in other words, for the rest of this year and in 2013, is it fair to assume that the product mix will remain quite positive for you and it’s really a question mark of what happens in 2014, how do you see that?

Marcos Marinho Lutz

I think, I mean if you asked that to me a year ago I would say that probably we can have a recoup cycle. But I don’t see that happening very soon. I really believe at this point that that if you, again, regain the effectiveness of the ethanol production, you will still need something like five years to catch up what is not being invested and grown, to have mixes that are compared to, let’s say, three years ago. Because in the end, the internal consumption has been growing. So, the fuel side, I mean the fuels the auto fuels as a whole is growing.

So important gasoline is really I mean more than 100,000 barrels a week. So it is getting very, very, let’s say, towards gasoline and I think the catch up of this process you will need, obviously, you have first people planting and having, let’s say, the full capacity of the installed factories running which is, actually, let’s say I would say a two-year cycle, three-year cycle. And this is happening now, probably, if you have the conditions necessary in two years you’ll be ready for that. But when you’re talking about the other needs, then you’re talking about green fields and this is kind of a five- to six-year project to start to run and probably seven to be full capacity. So then we are talking about longer range of years. So, again, I think at this point for a stock exchange investor we are talking about something that is quite structural for a while.

Christian Audi – Santander Central Hispano Investment

Okay. And, also on the distribution side, can you provide us within an update on, we’re half way through the year, for your rebranding process, how many I believe the target was around 1,400 conversions have been made or where do we stand here midyear into this process?

Marcos Marinho Lutz

We are disappointed with that number you mentioned in terms of contract clients, so which is the first let’s say milestone on the process. Out of that 80% is converted, typically, the rest is work in progress and this is really our throughput. So we can do X conversions per month with the service providers we have contracted for that matter, so that’s kind of we want to have pipeline that is full and a process that is efficient, and we convert X stations per month. So we have that happening well. But now you have at the end of the last 200 to 300 stations that are under negotiation and this negotiation is, I mean the way we are doing, we’ve been doing a mode, let’s say a scheme, that is more long-term oriented.

So we want to not only negotiate, say, ‘I’ll come here and rebrand your site and tomorrow we’ll have another brand,’ but we’re actually really revisiting the contracts, signing long-term contracts, agreeing on economics and having everything set, that actually starts a new life and a new flag very structured, and very in line with all the other contracts. So this is why we have that last, let’s say 200, 300 contracts to be signed, and this would probably be finalized this year, something like that.

Christian Audi – Santander Central Hispano Investment

I mean, that’s a very impressive speed at which you did all this. So, given that quite a bit has been done already in the first half of the year can we assume that maybe for the rest of the year margins are more stabilized, because the bulk of this rebranding, as you said earlier on 80% of the contracts are already signed, is behind, and so to think that there is upside to the margin you generated this quarter maybe progress is given that there’s only 200, 300 left on the negotiations so it’s to think that it’s more flattish from here to the end of the from now to the end of the year and maybe upside only comes more in 2013?

Marcos Marinho Lutz

Again, I think there’s other than the more physical things to see on the synergy and the work of the company, although at this point we start shifting from synergies to really doing good work. So, at the end, a lot of things but I think a lot of things are and we are learning a lot on the process, and we have many, many initiatives from convenience stores towards methods of payment, all the way through branding, relationship management, logistics, infrastructure, a lot of stuff that has been done since we started this process. And this has actually been very successful. Some of those initiatives actually started before the JV, I mean, in the Cosan fuels and lubricants still, when we started opening new we opened like -- we made four investments in new terminals for opening new markets. And obviously when we merged the companies, this new infrastructure was starting and ready to do stuff. So from now on, we’ll start to really have trouble in separating synergies from (inaudible).

Christian Audi – Santander Central Hispano Investment

Right, right. And then on debt front, as you look ahead to 2013 thinking about CapEx, more specifically growth CapEx as opposed to maintenance CapEx for this distribution business, with the rebranding behind you, do you are you foreseeing, and I know you probably got have not got to that point of doing the CapEx for the next year, but do you foresee a growth CapEx for the distribution business for 2013 that is maybe as aggressive as it was in 2012? Or we should expect kind of a more natural, maybe, decrease in this growth CapEx in 2013? How are you thinking about that?

Marcos Marinho Lutz

I think, actually, you should expect a slow decrease on that going forward given that the more you grow in this business the more marginal the growth CapEx becomes. So, for instance, when you’re growing and you’re going into a new region and then you have to actually put in infrastructure there, have not only on the OpEx side but also on the CapEx side your operation installed in the region. And after that, then you have to somehow get stations and let’s say invest in the market. When you’re large enough, even your contracts when you’re kind of strong in one certain region, even your contracts are cheaper. So, at the end, this gets better and better on the long run.

So there is a combination that you should expect that the CapEx originated on capturing the synergies or putting the companies together and having things organized to as one single entity this should be ending at the end of the year. And then the growth becomes cheaper on the long run as well. As we mentioned, the focus in growth there is the white flag that we feel that, especially with our smaller mix of ethanol, it is a lot more appealing to carry a brand than to be a white flag. So this is actually where we’re really targeting to grow on the commercial side. And this is actually an expensive growth, so.

Christian Audi – Santander Central Hispano Investment

All right. And that white flag expansion, the cheap growth that you’re talking about, as you look into the next year, how much of it would be more in the (inaudible) region versus the rest of Brazil, more or less?

Marcos Marinho Lutz

I don’t know it by heart. We can actually get some numbers on that and you can call Guilherme to tell you. But we’re quite balanced. We see opportunities pretty much everywhere.

Operator

The next question is from Gustavo Gregori, Deutsche Bank. Please go ahead.

Gustavo Gregori – Deutsche Bank Corretora de Valores SA

Hi, good morning. I wanted to ask if there are any updates on the CZZ collapse.

Marcos Marinho Lutz

I think there is no update on that since the last call. I think we are in the same, we have, I know there is conversation happening among shareholders. I’m not really participating much on those. This is a more a shareholder issue than anything. But nothing factual or any milestone worth telling or notifying.

Gustavo Gregori – Deutsche Bank Corretora de Valores SA

All right. Thanks.

Operator

Your next question is from Felipe Koh, Citigroup. Please go ahead.

Felipe Koh – Citigroup Global Markets Brasil CCTVM SA

Thank you. Thank you for taking my questions here also in the conference call in English. I have one question is recently... hello can you guys hear me?

Marcos Marinho Lutz

Yes, yes, hello?

Felipe Koh – Citigroup Global Markets Brasil CCTVM SA

Hello, okay, okay. Recently we’ve heard, we’ve read actually on the local newspapers, about questioning from the Brazilian federal tax entity, the Fiscal, about amortizations of goodwill from acquisitions in the past also. I just want to check, did you see any risk of the Fiscal trying to put the barrier on the goodwill generated on the possible conclusion of the Comgas deal that should be probably in the coming months, right, as you mentioned in the Portuguese call? And, also on the local newspapers also mentioned about the coming new deal, right, could be on that. Can you give us a little color and elaborate on that? Thanks.

Marcos Marinho Lutz

Yeah. If you want to get more technical I have [Cesario], our controller, here with us. But what he was saying while we were still in your question is that this is kind of a quite old subject that is being re-floated very often. So it’s not something that is kind of a new initiative, it’s something that has been talked about for a long time already, probably more than three, four years. Obviously this can be a risk. If they change the rules before we close the deal, this is a risk. If it’s after we close the deal, then I don’t see much of a risk. But in your coming deal question, I don’t quite get the question. So if you could repeat what exactly you want to hear?

Felipe Koh – Citigroup Global Markets Brasil CCTVM SA

Just wanted to check if there is any risk, on your view, that we could not see the NPV generated from the goodwill. I think that you mentioned in the previous calls that it’s about R$500 million, it’s about R$500 million to R$600 million. That is a good amount of money. Just to check if you see any probability of not getting....

Marcos Marinho Lutz

So about the Comgas deal, yeah, I think my last statement helps on that. There is a risk if something changes but we don’t believe there is a change that is that imminent, and it’s a longstanding discussion.

Felipe Koh – Citigroup Global Markets Brasil CCTVM SA

Okay, thank you.

Operator

Thank you. This concludes the question-and-answer session for investors and analysts. We’ll now turn the conference over to Mr. Guilherme Machado for any closing remarks.

Guilherme Machado

So, I’d like again to thank you all for joining us for our conference call for the first quarter earnings release for fiscal year 2013, and thank you all.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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