Ultrapar Participações S.A. (UGP) Q4 2019 Earnings Call Transcript

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Ultrapar Participações S.A. (NYSE: UGP) Q4 2019 Earnings Call May 16, 2019, 11:30 a.m. ET

Contents:

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  • 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 Ultrapar's 1Q '19 results conference call. There's also a simultaneous webcast that may be accessed through Ultrapar's website at ir.ultra.com.br in the MZIQ platform. Please feel free to flip through the slides during the conference call.

Today with us, we have Mr. Andre Pires, Chief Financial and Investor Relations Officer together with other executives of Ultrapar. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Ultrapar's remarks are completed, there will be a question and answer session. At that time, further instructions will be given.

Should any participant need assistance during this call, please press * and 0 to reach the Operator. 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 we be available for one week.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor and Securities Litigation Reform Act of 1996. Forward looking statements are based on the beliefs and assumptions of Ultrapar 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.

Investors should understand the 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 conference call over to Mr. Pires. Mr. Pires, you may begin the conference.

Andre Pires -- Chief Financial and Investor Relations Officer

Thank you very much. Good morning, everyone. It's a pleasure to be here with you to discuss Ultrapar's fourth quarter 2019 results and our perspectives and priorities for the next quarters. With me today are the officers from our businesses as well as our investor relations team. Before I begin, I would like to draw your attention to slide number two, where we highlight some new criteria adopted in the quarterly numbers, changes that are effective from 2019 on.

Starting the first quarter, we have adopted the new IFRS 16 on a prospective basis, which has some impacts on the reporting of operational log leases in our financial statements. In addition to the IFRS 16, we have decided to report the corporate segment separately from the business unit, thus providing greater transparency on our expenses as well as improving comparability among peer companies.

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The corporate line includes expenses related to the structure of the Ultrapar Holding Company. These two changes are described in detail in our earnings release, together with comparative tables. In order to keep comparability, changes have been made on a prospectus basis but without changing past figures. We continue to present int his discussion the results according to the previous criteria already known to you.

Moving on to slide number three, during the course of the first quarter, signs of the expected economy recovery was becoming more difficult became increasingly apparent with diminishing GDP forecasts for the year as well as weaker industrial performance. In the table at the upper right-hand side, we can see some market indicators related to the sectors we operate in. Data published by the Brazilian Association of Pharmacies, Abrafarma, show a significant increase in competition and retail pharmacy sector with a strong expansion of Abrafarma members in the last few quarters in all geographic regions in Brazil.

In the LPG distribution sector, there has been also a decline in domestic consumption. Among our business' segments, the only one to report year on year growth was the fuel distribution business, with a recovery of volumes in recent quarters. More specifically, in the first quarter of 2019, sales volumes of diesel and Otto cycle increased by 2% and 3%, respectively.

Looking at Ultrapar results in the quarter, adjusted EBITDA was 782 million reais after the adoption of the IFRS 16. If the impact of the new accounting standards were not to considered, adjusted EBITDA was 698 million reais, a growth of 37% over the amount reported in the first quarter of 2018. However, when adjusted for the liquid gas break settled last year, there was a 12% reduction in adjusted EBITDA. We'll provide greater detail for each business during the presentation.

Ultrapar's earnings were 251 million reais, compared to 73 million reais reported in the first quarter of 2018. This, again, is a reflection of the liquid gas. Cash flow generated from operation was 562 million reais in the quarter, well above the first quarter of 2018.

Let's now move on to Ipiranga's performance in slide number four. Continuing along the path of late 2018, sales volume in the first quarter of 2019 was 5.6 million cubic meters, an increase of 2% compared with the first quarter of 2018. There was an increase of 3.2% in Otto cycle, which was lightly above the market. Diesel sales volume rose 2% in line with market growth.

We ended the first quarter of 2019 with a network of 7,218 service stations. That's a net edition of 138 units compared with the first quarter of 2018, unstable in relation to the fourth quarter of 2018. In addition to the service station network, we continue to pursue our strategy of differentiation and innovation, including the expansion of our franchise network.

Ipiranga continues to gain customer traction, reaching 7.7 million transactions in the first quarter of 2019. There was also an additional 700,000 new customers in the quarter, totaling 2.2 million registered individuals with transactions to date. Ipiranga reported a reduction of 8% in expenses compared with the first quarter of 2018. This is firstly due to a reduction at ICONIC related to higher initial expenses, leading to integration of the businesses in 2018.

Another factor was the reduction of expenses, particularly with advertising and marketing while provisioning for losses was also lower, in line with an improvement in customer credit ratings. Therefore, adjusted EBITDA amounted to 538 million reais, a reduction of 8% compared with the first quarter of 2018.

This performance was due to lower gross margins in Otto cycle, partially offset by greater sales volumes and lower expenses in the period. Profitability indicators continue to show a recovery from the past few quarters and unitary EBTIDA was 96 reais per cubic meter, a sequential evolution over the first quarter of 2018 despite the seasonal negative effects between periods. Considering the previously mentioned adjustment of IFRS 16 and the separation of the corporate segment, Ipiranga's adjusted EBTIDA was 594 million reais.

The increase in international oil prices and its derivatives over the past few months combined with a less favorable outlook for the economic environment-imposed challenges for a faster recovery. With a more cautious approach in the short-term, we continue to work on various fronts to optimize operational efficiency and the capital allocation, including initiatives to reduce expenses.

In addition, we are placing a greater focus on the development of convenience and digital initiatives, with structures dedicated to each of these activities. For the current year, we are maintaining our forecast of sales volume growth above GDP as well as recovery in EBITDA on a year on year basis.

Moving on to Oxiteno now in slide number five -- Oxiteno's total sales volume in the first quarter of 2019 was 180,000 tons, stable compared to last year. Commodity volumes rose 12% compared with the first quarter last year, thanks to new sales agreements. On the other hand, specialty chemical volume was down 2% against the same quarter due to slowing of the Brazilian economy, impacting the mix of volume sold by Oxiteno.

Consequently, sales volumes in the domestic market reduced 2% year on year. However, in the international market, the ramp up at the new Pasadena plant contributed to an increase of 4% in sales volume, particularly in the USA. This was an atypical quarter for Oxiteno, probably the lowest profitability recorded in a quarter in many years.

Regarding margins, the speed and intensity of the decrease in reference prices for petrochemicals, particularly related to these increase in this supply and high levels of inventories in international markets significantly impacted Oxiteno's profitability, as you can see in the graph on the lower left-hand side.

Therefore, Oxiteno recorded an EBITDA of 34 million reais in the quarter, a decline of 33% when compared with the first quarter of 2018. Factors driving this result were the lower-level unitary margins in dollars, the sales mix with a greater share of commodities, as well as the higher cost of the Pasadena plant despite the 60% devaluation of the real against the dollar. Considering the previously mentioned adjustments of IFRS 16 and the separation of the corporate segment, Oxiteno's EBITDA was 39 million reais.

We should see an increase in volumes in the second quarter. On the other hand, we are still facing pressure on margins of commodities. The combination of these effects should lead to a gradual improvement in the results, although lower than the same period of 2018. We are working on initiatives to reduce expenses and capital in the face of the more challenging environments.

Moving on to slide number six and the performance of Ultragaz -- during the first quarter, sales volume of Utragaz was down 4% year on year, while sales volumes for the market reduced approximately 2% in both segments. Bottled segment volume was 4% less also when compared with the first quarter of last year. This was due to a decline in consumption and to a temporary cut of supply in LPG by some refineries.

In the bulk segment, sales volume was down by 3%. Here, it was a reduction in consumption on the part of industrial clients and in line with industrial activity we have seen as a whole. Despite Ultragaz customary cost discipline, we saw a 33 million reais rise in SG&A expenses due to greater provisioning for loan losses, higher expenses related to adjustments in the organization and legal contingencies in the first quarter of 2019.

With this, EBITDA of Ultragaz was 97 million reais in the quarter, 17% less than the EBITDA reported in the first quarter of 2018, adjusted by the Liquigas find. Considering the previously mentioned adjustments of our FRS and the separation of the corporate segment, Ultragaz EBITDA was 108 million reais.

The issue surrounding the supply of LPG, which I just mentioned, were resolved in April. So, we do not expect any further significant impact. The outlook is for a gradual resumption in the moderate growth trajectory expected for the full year.

Going on to Ultracargo now in slide number seven, in the first quarter of 2019, Ultracargo's average storage increased by 5% in relation to the first quarter of 2018. This result is due to greater movement at the census terminal combined with additional ethanol handling activities, more than offsetting the decline in fuel handing at the terminals.

In the quarter, Ultracargo's EBITDA was 52 million reais. That's 27% higher in relation to the same period last year, a combination of greater average storage, contractual readjustments at the terminals and an increase in operational efficiency. Considering the previously mentioned adjustments of IFRS 16 and the separate of corporate segments, Ultracargo's EBITDA was 59 million reais.

For the year, we expect the current market dynamic to continue in a trajectory similar to the first quarter of 2019. In addition, we announced yesterday the outcome of an agreement with the public prosecutor's office about the fire incident at the census terminal in 2015. The total amount of the agreement is 67.5 million reais to be disbursed after September 2020. We had a provision of 50 million reais related to this matter and we will complement this provision in the remaining amount during the second quarter of 2019.

Let's move on now to slide number eight and talk about Extrafarma. Extrafarma ended the first quarter of '19 with 440 drug stores, a gross addition of 65 stores in the past 12 months and 9 stores in the quarter. At the end of the period, 54% of the stores have been open for less than three years, the same level as the first quarter 2018.

Extrafarma's gross revenue in the first quarter of 2019 increased by 1% compared to the first quarter of '18. This represents a 3% increase in retail sales and reflects a larger average number of stores and the annual adjustment in pharmaceutical prices. However, these effects were offset by the intensification in the competitive environment.

The expansion of competitors has reduced its margins. Therefore, EBTIDA for the quarter was a negative 21 million reais, mainly reflecting the impact of an intensely competitive market and expansion of the network. Considering the previously mentioned adjustments of IFRS 16 and the separation of the corporate segment, Extrafarma's EBITDA after adjustments was 1 million reais.

In the current quarter, we see no significant change in the competitive environment, which continues to be tight, but these effects should be gradually offset over the next quarters with the maturing of gross revenues and the annual adjustments of medicine prices, better servicing arising from this totalization of the new retail system, better management of expenses, and closing of poorly performing stores.

To conclude, I would like to comment on some of the initiatives we have taken at the beginning of the year, as well as our priorities and perspectives for 2019. We were successful in [inaudible] concessions actions organized by the government early in the year. To a consortium, [inaudible] was successful in bids to invest and operate lots [inaudible] Paraiba and Vitoria in the state of [inaudible] for a minimum term of 25% years.

Ipiranga also won the concession for two areas in the port of Miramar in the state of Para for a minimum period of 15 years. This is a strategic move for Ipiranga, which will now have its own storage and ports of [inaudible] and Vitoria in addition to expanded capacity at the Port of Miramar. Therefore, it will expand its logistical efficiency in the distribution of fuels and the quality of the service provided in the respective regions.

Ultracargo won the bid for a terminal in the Port of Villa de [inaudible], also in the state of Para, for a minimum term of 25 years. The terminal will have a minimum capacity of 59,000 cubic meters and operations are scheduled to begin in 2023. This will be Ultracargo's seventh terminal and a strategic initiative in an area with a growing demand for fuels. Investments in these concessions will be disbursed over the next five years.

We held our annual general meeting on April 10th and our shareholders approved some important matters, including the election of the board of directors for the next two years with the entry of four new members. This will bring additional experience in a complementary way to the board and the adjustment of the company's corporate bylaws for the new regulation of the [inaudible] segment, two years ahead of the deadline.

In spite of an operational performance which is still below historical levels, we are committed and taking steps to improve the profitability indicators of the businesses and maintaining our financial soundness. This will involve initiatives to reduce expenses and focus on capital allocation without sacrificing the company's long-term growth.

With this, I conclude my presentation for today. Thank you all for participating on this call. We can now begin the Q&A session. Thank you very much.

Questions and Answers:

Operator

Thank you. The floor is now open for questions. If you have a question, please press * and then 1 on your touch-tone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing * and 2. In case you are following the conference via webcast, please click on question to the host to send your question. Questions will be taken in the order in which they are received. We do ask that when you pose your question that you pick up your handset to provide optimum sound quality. Please hold while we poll for questions.

Our first question comes from Fernanda Cunha from Citibank. Please go ahead with your question.

Fernanda Cunha -- Citibank -- Analyst

Hi, good afternoon. Thank you for taking my question. So, the first one is related to the sequential sales that you have seen in Ipiranga. When we look at month over month this quarter, January against December 2018, February against January, and then on, we see that sales volumes are performing behind your top two peer competitors. Can you comment on why this has happened and what you expect in coming quarters in terms of volume growth? Also, if you could provide a rough number of fuel station openings for 2019.

The second one is related to SG&A in Ipiranga, you mentioned in the last call that SG&A improved 10 reais per cubic meter, but when we try to exclude the impact of ICONIC expenses, it seems that on a recurring basis, it has only improved 5 reais. Could you help us quantify how much you have achieved in SG&A cost-cutting initiatives?

The third one is if you could comment on the returns expected in which you took the decision to participate in the port concessions option given that you will be expanding around 500 million in expansion capex for the next couple of years, I'm just wondering what drove that decision and what can we expect in terms of better returns on this decision. Thank you.

Andre Pires -- Chief Financial and Investor Relations Officer

I'm going to start with the third question. Starting with the port concessions, basically, the vision for this concessions work, basically the same type of vision we have for Ipiranga, which is the fact that structurally, we see Brazil as a country that will in the long run be short on refined fuel products. Therefore, it's very important that you have the logistic infrastructure to be able to provide for this increasing movement of fuels to all the countries.

The prices that we ended up committing both for Ipiranga and for Ultracargo, something that I can say they ended up being below what we were considering the maximum amount that we would be willing to pay for this option. Clearly, the returns that we were already expecting were already above our weighted average cost.

This is information that we do not disclose, but we ended up paying or at least winning. The price for this bid was below what we were expecting. So, therefore, our expected return will be higher, significantly higher than our weighted average cost of care, both for Ipiranga and Ultracargo.

Just a question about the volumes -- if we look at the volumes more on a year on year basis, a longer-term basis, if you take the first quarter of 2019, our volume grew by 2.3% on a consolidated basis, basically Otto cycle plus diesel, while the overall market grew by 2.3%. So, it grew exactly the same level as the total market.

If we compare our growth with Plural, which is basically the association of the three largest players, Plural's volume on a consolidated basis in the first quarter of '19 compared to the first quarter of '18 grew by 0.5%. We grew by 2.3%. So, if you look at this on a sequential basis quarter by quarter but on a year on year basis, we've been growing in line or slightly above the market. I don't think we should look at these numbers on a month by month basis. If you look at market share, our market share has been stable over the last few quarters and Ipiranga has maintained its position comparing with its peers and comparing with the markets in general terms.

As for the SG&A, let me take a look on the breakdown separating ICONIC. You're correct. So, the 5 reais per cubic meter belongs to ICONIC. So, the recurring is 5 reais. But something I mentioned in the morning on the Portuguese call is looking at the last three quarters, Ipiranga, even excluding ICONIC, it's reducing its SG&A or keeping it stable. We see the strength continuing toward the year. The focus is in some of the levers that we can control. One of these levers is definitely SG&A. So, there are a lot of initiatives within Ipiranga to keep this type of performance on the following quarters.

Operator

Our next question comes from Gabriel Francisco from XP Investimentos. Please go ahead with your question.

Gabriel Francisco -- XP Investimentos -- Analyst

Hi, Andre. Thank you for the call. Going down in the last question a little bit, if you are seeing a lower arbitrage opportunity, where does this resilience in the white flags in players that use imports come from? What we would expect is that this would, at the end of the day, benefit those that are the traditional big players and who have scale. What's keeping you from expanding market share and expanding margins if your competitor has a lower advantage? That's my number one question.

My second question is a little bit of accidental in Ultracargo. We have seen disruptions in operations and some have mentioned disruptions that could affect the [inaudible] complex in terms of the supply chain. Are any of Oxiteno's operations directly affected by the disruptions with [inaudible] or Ultracargo's storage business in the region? That's my second question.

Andre Pires -- Chief Financial and Investor Relations Officer

Thanks for the questions. Question number one about the competitiveness of the white flags, they have a business model that is efficient, especially in an environment that we do not see a lot of growth from the part of the consumer. The wallet effect in the fuel distribution business in an environment where unemployment remains high, disposable income remains low is very efficient for players that do have a business model. There are more liens. They have some scale in the areas they operate. They have basically lower overhead, less investments in their gas stations.

So, when the main decision-making impact is price, they have a business model that remains very resilient and very competitive. We structurally believe that a gas station that offers differentiation to convenience to innovation over time tends to recover this market share. But for that, we need an economic dynamic that is different than the economic dynamic we are living in. So, to answer your question, the expected recovery in terms of market share from the big players versus the white flags, I think, are very dependent today on the recovery of the economic activity.

As for the issue with [inaudible], there's no impact for Oxiteno whatsoever, nor is there an impact for Ultracargo. This is not related to any of our two businesses.

Operator

Our next question comes from Frank McGann with Bank of America. Please go ahead with your question.

Frank McGann -- Bank of America Merrill Lynch -- Analyst

Thank you very much. Continuing with Ipiranga, it appears you didn't have any stores in the quarter. Also, for the company as a whole, capex was quite low. So, I was just wondering what your thoughts are in terms of growth, in terms of service stations this year as far as in the other businesses and overall capex, if you could provide a little bit of view on that.

Andre Pires -- Chief Financial and Investor Relations Officer

Yes, basically, when we look at the first quarter of 2019, we had the same number of gross additions and churn. So, we added 43 or inaugurated 43 new stations and the churn was coincidentally also 43. There are a few reasons for that. First, as you know, there is a seasonality in terms of inauguration of gas stations in our businesses in Brazil as well. Normally, the seasonality is more toward the second semester of the year. It was a weaker quarter in terms of inaugurations. Nevertheless, we reduced our backlog from 300 to 350 gas stations that have been already contracted for, paid for, and have to be inaugurated.

When you look at capex, capex was below what we were expecting for the first quarter, taking into consideration our budget. Also, partially due to some seasonality impact and partially due to waiting for the right moment and looking for the ideal returns in terms of investments we were making. It's important to mention that normally during a regular year at Ultrapar, there is a catch-up after the first and second quarter as well.

However, it doesn't mean that we are necessarily going to basically have exactly the same number in terms of capex as expected in our budget. There are a few changes in assumptions. The first change is related to the auctions, the ports that I mentioned during my speech. We won two bids, which represent a commitment of around 1 billion reais for the next five years. But for 2019 specifically, there is an additional commitment of 96 million reais, 51 million for Ipiranga, 45 million for Ultracargo, which were not budgeted to begin with. So, we're going to accommodate those 96 million into the budget originally approved.

The second assumption is more related to the speed of the economic recovery and the way the economy is performing in 2019. That also might eventually entail some potential reductions if we see the economy is not reacting the way we were expecting. The focus is to continue to have better generation of operating cash flow, also in 2019, and because of that, one of the important levers we have to do is capex.

The other important lever is working capital. Just to give you an example, we had a very good performance in terms of working capital in the first quarter again, as we did in the fourth quarter of 2018. Only in Ipiranga, our cash conversion cycle was reduced by three days compared to the first quarter of 2018. So, three days for Ipiranga is 200 million reals each day, 600 million reals of working capital improvement despite the increase in prices in terms of inventories.

So, we are using the levers of capex, using the levers of working capital to keep on increasing our working cash flow generation. So, making a long story short, if we had to be a little bit more conservative in terms of capex in order to achieve this objective, we would.

Frank McGann -- Bank of America Merrill Lynch -- Analyst

If I could follow-up with a bigger picture question in terms of how you are seeing the downstream business -- you're obviously in a key portion of that with distribution and you've mentioned that potentially you could look at Petrobras refinery offerings, but whether you would do that or would end up doing anything or not on that front, do you see the opening up of the refining business to potentially include more players as potentially affecting the business in a way that would positively or negatively impact Ipiranga?

Andre Pires -- Chief Financial and Investor Relations Officer

That's a very good question, Frank. Conceptually, an environment where you do not have a monopolistic supplier, being among the largest retail players in a market like that would give us very important bargaining power when we're talking to a supplier. So, a more diversified supply base is positive for a large distribution company such as ourselves. It's also positive for the end consumer. It will become a more fluid competitive environment.

Obviously, today, we are in an environment where the fact that we are a very important and large player doesn't give us any advantage from a cost point of view. So, an environment with very clear rules and more players, it's basically technically or conceptually more positive for a player such as Ipiranga.

As I mentioned before, we have an obligation to be very close to this process, to investigate if it makes sense for us to participate or not, but in any case, from a structural point of view, conceptually a change such as this one is very positive.

Operator

Our next question comes from Luiz Carvalho from Banco UBS. Please go ahead with your question.

Luiz Carvalho -- Banco UBS -- Analyst

Hi, Andre. Thank you for taking the question again. I just wanted to ask two additional questions. The first one about Oxiteno -- I remember in the past you mentioned that for every cent of real depreciation, we should see around 40 million of additional EBITDA in the company. I'd just like to check with you if this correlation is still valid now. As part of a weaker real, we did not see this offset on the results as of now.

The second one -- I'd like to come back to one question made in the Portuguese call, maybe in a different way, in terms of the comparison on EBITDA growth for 2018 -- what number are you using for 2018? Can we use the official report number or should we make any adjustment? Thank you.

Andre Pires -- Chief Financial and Investor Relations Officer

Hi, Luiz. Thanks for the questions. In terms of Oxiteno, yes, for each 0.10 real of currency devaluation, you can estimate 40 million to 50 million reais of additional [inaudible], absolutely. It remains absolutely the case. What happened in the first quarter was that the acceleration of the devaluation happened more toward the end of the first quarter if you compare to the first quarter of last year.

And this impact was not sufficient when compared to the impact of the very strong drop of price of the glycol or the margins of the commodities. This remains the case and this should help the results in the second quarter, definitely, even with the pressure on glycol margins, the currency devaluation should benefit the results in the second quarter.

As for your second question, I will try to answer the question the same way but try to explain a little bit more. We see growth in our consolidated EBITDA, comparing apples to apples. You saw in 2018, we had one-offs that some of them impacted negatively the EBITDA. Some others impacted positive EBITDA. If you take out these non-recurring items, we will see growth on the EBTIDA. It's our expectation to see EBTIDA growing in 2019.

Operator

Once again, if you would like to ask a question, please press * and then 1. Our next question comes from Lilyanna Yang from HSBC. Please go ahead with your question.

Lilyanna Yang -- HSBC -- Analyst

Thank you for the opportunity. You mentioned the active portfolio management and growth opportunities. So, given your leverage of 2.65 times today, the improvement in the economic environment, would you give more color on the growth opportunities? It does not seem to be in refining. It looks like it could be more in logistics. Is there something else there? How would you fund that growth? Any color on that would be helpful.

A second question is on Ipiranga -- is it possible to see Ipiranga close the profitability gap to rising [inaudible] and how do you think Ipiranga could exceed that? Thanks.

Andre Pires -- Chief Financial and Investor Relations Officer

Hi, Lilyanna. Thanks for the questions. In terms of our vision for the portfolio, we see some opportunities that we started, in a way, to execute with the options that we want recently for terminal imports. So, basically, we see in the short-term in Brazil opportunities that are related to logistic infrastructure. So, we are focusing and executing on that. We see and follow very closely the initiatives that Petrobras have either announced or commented by Petrobras as its objective to reduce some of its exposure in some sectors. Obviously, refining is one of them that we are following up.

I mentioned during the Portuguese call that we consider ourselves a pure fuel distribution company. It's not part of our original strategy to become a producer of refined fuel, but eventually, if the opportunity makes sense, we are going to investigate. As we were going to investigate other opportunities that are eventually available related to some other Petrobras assets.

Now, in terms of funding this growth, we've basically been already deleveraging since the end of last year. We continued to see a stronger cashflow generation that will help on the deleveraging phase. If we have an opportunity that makes sense that will generate important returns to our shareholders that can generate returns from synergies as well, we might consider going a little higher in terms of leveraging to take advantage of these opportunities.

But in any case, in the short-term, we don't see any reason to increase or any opportunity that would require this increasing leverage. These are things much more toward the long-term than the short-term. I think it's important also to mention in addition to the issues related to logistics infrastructure or Petrobras assets to the initiatives that Ipiranga and ourselves have been dedicating to, let's say, the other digital and convenience initiatives of Ipiranga.

I mentioned in my speech that we're dedicating time and specific structures to evaluate these initiatives, both in the case of the AM/PM convenience store or the other digital initiatives as mentioned in the speech, the traction that has been gained and also the increase in the number of participants in our loyalty program. This is also something we are dedicating a lot of time and that we can obviously give more focus now in the future.

Lilyanna Yang -- HSBC -- Analyst

Maybe on the Ipiranga question and the profitability gaps, if you could comment...

Andre Pires -- Chief Financial and Investor Relations Officer

Yeah. In terms of the profitability gap, basically, as I mentioned before, we've been improving our unitary SG&A per cubic meter. We've been sequentially improving our EBITDA since the second semester of last year. We don't have a focus specifically in closing the gap. Our focus is to keep on improving our profitability. So, we think we are on track for that. Profitability has been improving. EBITDA per cubic meter has been improving as well. We see that this trajectory should continue.

Obviously, this will happen more consistently in a stronger way if we see the economy helping, if we see some headwind, some tailwinds from the economy. So, unfortunately for the beginning of this year, this hasn't happened. We are focusing on this improvement and we are very consistent in working toward that.

Operator

Ladies and gentlemen, this concludes today's question and answer section. At this time, I'd like to turn the conference over to Mr. Pires for any closing remarks.

Andre Pires -- Chief Financial and Investor Relations Officer

Thank you all for the participation on the call. As always, our IR team is available to answer some of your other questions. Thank you very much and I hope to see you all on the second quarter results call in August. Thank you.

Operator

Thank you. This concludes today's Ultrapar 1Q '19 results conference call. You may disconnect your lines at this time.

Duration: 51 minutes

Call participants:

Andre Pires -- Chief Financial and Investor Relations Officer

Fernanda Cunha -- Citibank -- Analyst

Gabriel Francisco -- XP Investimentos -- Analyst

Frank McGann -- Bank of America Merrill Lynch -- Analyst

Luiz Carvalho -- Banco UBS -- Analyst

Lilyanna Yang -- HSBC -- Analyst

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