Cosan S.A. (CSAN) Q1 2024 Earnings Call Transcript
Cosan S.A. (NYSE:CSAN) Q1 2024 Results Conference Call May 29, 2024 10:00 AM ET
Company Participants
Rodrigo Araujo – CFO
Ana Luisa Perina – Head of IR
Conference Call Participants
Luiz Carvalho – UBS
Ana Luísa Perina – Head of IR
Isabella Simonato – Bank of America
Gabriel Barra – Citi
Regis Cardoso – XP
Vicente Falanga – Bradesco BBI
Bruno Montanari – Morgan Stanley
Thiago Duarte – BTG Pactual
Operator
Good morning, everyone. Thank you for waiting. And welcome to Cosan’s First Quarter Earnings Release Video Conference Call. Simultaneous translation will be available during the session by clicking on the interpretation button at the bottom of the screen and choosing your preferred language, Portuguese or English. Those listening to the video conference in English, you have the option to mute the original audio in Portuguese by clicking on mute original audio. The video conference is being recorded and will be available on the company’s IR Web site at cosan.com.br. You can also download the presentation through the chat icon, also in English. During the company’s presentation, all participants will be on a listen only mode. The question and answer session will start after the presentation. Please note that the information contained in this presentation and in the statements that may be made during the conference call regarding Cosan’s business prospects, projections and operating and financial goals constitute the beliefs and assumptions of the company’s management as well as information currently available. Forward-looking considerations are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should know that overall economic conditions, market conditions and other operating factors may affect Cosan’s future performance and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn it over to Mr. Rodrigo Araujo.
Rodrigo Araujo
Good morning, everyone. Welcome to our earnings call for the first quarter of 2024. I’m Rodrigo Araujo, CFO of Cosan. And I’m here to go over the main highlights of the quarter and some details in terms of strategy and management priorities. So starting with our priorities for the year. As we’ve been constantly reinforcing, we were highly focused on discipline and capital allocation and being of course mindful of our leverage at the HoldCo level and the OpCos and also, with the interest, the high interest rate environment that makes our capital allocation decisions and discipline even more important. So we’re focused on liability management and portfolio recycling throughout the portfolio. We’ve been, of course, highly focused on execution in our portfolio to make sure that we maintain our track record in terms of execution. We delivered what’s been promised in terms of the different guidances and plans of the operating companies. Of course, making sure that we’re always enjoying benefits of the talent pipeline of high quality people that we have and maintaining continuously high safety standards in the group. And finally, we’re focused also on supporting and making sure that we execute the contracted growth that’s coming from the operational companies. So the structural projects of Lucas do Rio Verde to connect the Brazilian Midwest and agriculture area in Rumo, the second generation ethanol plants in Raizen and the natural gas regasification terminal in Compass, for example.
So going through our highlights of the first quarter of 2024. Our EBITDA under management finished in BRL7.1 billion in the quarter. The difference, when we compare to the first quarter of ’23, is mainly related to tax credits that were recognized in Raizen in the first quarter of ’23 and were not recognized in the first quarter of ’24. In terms of net income, we had the negative result of BRL192 million compared to the first quarter of ’23 that was negative BRL904 million. Mainly the differences are the tax liabilities that we recognized in the first quarter of ’23. And also, this was partially offset by the results of equity pickup, the negative equity pickup from Raizen in the first quarter of ’24 and the negative impact of the mark-to-market of our TRS in the first quarter of ’24. In terms of safety, our results in the first quarter of ’24 are pretty well aligned with acceptable limits that we have even though it’s slightly worse than ’23. Fortunately, we had no fatality in this first quarter. We continue to be highly focused on maintaining very high safety standards and improving our results focused on zero fatalities and zero accidents. In terms of dividends and interest on capital received, it’s pretty well aligned with the first quarter of 2023. Our net debt of BRL22.7 billion is pretty aligned with the fourth quarter as well. And finally, in terms of interest coverage that is, of course, a metric that, as you guys know, we’ve been following closer since the fourth quarter of ’24 or ’23. We evolved from 1 time to 1.1 times for the last 12 months, so focused on improving our interest coverage in terms of sustainability of our leverage at the HoldCo level.
Looking at the overall figures for the portfolio. In Rumo, we increased transported volumes and had an important increase in the average tariff. We are also advancing in our project of Lucas do Rio Verde to connect Mato Grosso in the north of the Midwest of Brazil. In Compass, we had an increase in industrial consumption that was partially offset by the higher temperatures that reduced the residential consumption of natural gas. We had a negative mix impact given the fact that we had higher industrial volumes and lower residential volumes. We also had the positive impact coming from Edge, the company of marketing and services that we started up in the fourth quarter of ’23. And we also had the conclusion of our regas terminal in Santos, in Brazil. Moove, ahead stable volumes of lubricant sales but substantially higher EBITDA with much healthier margins, continuing its schedule and agenda to improve performance over time. In Radar, our land business, the recurring EBITDA was pretty aligned with the first quarter of the last year with respect to the leases of the agricultural properties in the portfolio, and the fair market value of our properties was BRL16.3 billion. Annually, we reassess the fair market value and this was done in the fourth quarter of ’23 and Cosan stake is around BRL5 billion. In Raizen, we had record sugarcane crushing levels, 84 million tons, with an important productivity recovery, especially in the first three cuts.
So the sugarcane productivity, the investments that we did over the last couple of years are showing important results in terms of recovering productivity in the sugarcane. We also had healthier margins in the fuel distribution segment in mobility and also higher sugar prices. They were partially offset by lower ethanol prices. When we compare to the first quarter of ’23, we had the negative impacts of tax credits that were recognized in the first quarter of ’23 and were not recognized in ’24 and also of lower ethanol prices. Finally, with respect to Vale, this was the first quarter that we consolidated the results, the equity pickup of Vale’s results. We have also concluded the unwinding of our collar financing structure by the end of April. So we finished during the quarter the unwinding of part of the collar and then in April we sold around 0.78% of our stake in Vale, mainly focused on reducing the leverage at the HoldCo. So reducing the gross debt at the HoldCo level. So we concluded the unwinding of the entire structure and we also, in May, unwound the first tranche of the call spread, the forward synthetic forward structure that we had, around 0.25% of optionality in terms of additional Vale stake. So overall, if you look at the figures in May, we have 4.15% of direct stake and 1.43% of the synthetic forward, the call spread that we still maintain as an optionality.
So looking at the EBITDA under management, the overall figures. As I mentioned before, the main changes here are the better results in Rumo from higher margins and higher volumes and the negative results from the lack of recognition of tax credits in the first quarter of ’24 in Raizen and the lower ethanol prices that were offset by sugar prices and volume. So we’re getting to BRL7.1 billion of EBITDA under management. Looking at our debt profile. As I mentioned, if you look at the green figures in the first quarter of ’24 and then April, we concluded the unwinding of the collar structure that is pointed there as Cosan Oito and finishing the gross debt of BRL23.8 billion in April. Looking at the net debt to EBITDA, the pro forma adjusted when we include the fair market value of Vale’s share, it’s pretty aligned with the fourth quarter. So coming down from 1.8 times to 1.7, the overall cost of our debt, CDI plus 1.54%. In terms of the amortization profile, if you look at the figures in the lower part of the of the slide, we’ve increased the average — the duration of the portfolio from 5.8 years to 6.5, doing liability management and improving the profile. So basically we substantially reduced the amortizations between 2024 and 2027 to better navigate the CapEx cycle in the portfolio. And finally, looking at the cash flows in the period, we received BRL911 million in dividends. So debt payments of BRL3.8 billion. We issued a bond in January ’24 of BRL3 billion. So after interest and other expenses, we come down to an end balance of BRL2.6 billion. So we used part of the company’s cash to reduce the overall gross debt. So those are the main highlights for the first quarter of 2024. Thank you for joining us today. And let’s move on to our Q&A session. Thank you.
Question-and-Answer Session
Operator
We will now begin the Q and A session with Mr. Rodrigo Araujo and Mrs. Ana Luisa Perina [Operator Instructions]. So our first question is from Luiz Carvalho, sell-side UBS.
Luiz Carvalho
Rodrigo, could you give us a bit more detail about your leveraging? Have you got a leveraging target in terms of debt coverage? Or if I can rephrase my question, as of which point will you be looking at capital allocation or investments or accelerating dividends, buyback? And still along the same lines, would it make sense for Vale to wait for an additional reduction given the influence that you already have there with a member of the board? How do you see that? And my second question is about regulatory issues at the HoldCo level. Cosan, of course, have some ongoing discussions about the concession regulations, the authorization for the regas terminal, the Subida da Serra, also surrounding Vale, renewing the tariffs at Comgas. How do you see all these conversations? I know that this is essentially down to the companies. But how are you seeing all of those discussions at the HoldCo level?
Rodrigo Araujo
So I’ll start with leveraging. Our set target, we don’t really have a set target, but to be healthy is about 1.5 to 2 times the interest coverage. So that would allow us to coverage — to cover the debt service, while keeping the HoldCo’s commitments and our current dividend payout level with organic deleveraging over time. So we don’t really have a set time to get to that. We do have levers we can pull to get to that coverage level, but that’s what we consider to be healthy. As I said during the last conference call, you’ll be hearing us talk a lot more about interest coverage, aiming towards having dividends, inflow and interest coverage outflow and dividend payout to the shareholders. So you’ll be hearing us talk about that a lot more. About Vale’s position and the position size, we did quite a lot in the first quarter. It’s been an extended first quarter, because it’s been part in April, part in May. So, essentially, what we’ve done since the beginning of the year, first we have unwound a collar structure. That collar structure was very important when we went forward with the acquisition, but it consumed part of the dividends that came in from Vale to keep the [strike] fixations. So we’re making adjustments so that we can have more access to dividends and have a duration that is more compatible with our CapEx flow in the portfolio. The duration was 2.5, now we’ve switched to 7.5 years. So we have changed our amortization profile as well and we’ve also adjusted the size. The first thing we did we sold the 0.78, as you know, to reduce gross debt at the HoldCo level.
So that sale considered exactly what you said. Political influence, stake in the company, supporting the constructive agenda at Vale and Cosan’s stake in the company. We believe that 4% won’t make that much difference in terms of our influence in the company, but it makes a huge difference in terms of gross debt at Cosan. So obviously, we’re looking into the ideal size all the time. It might be less than that, but let’s assume that 4.15 taken on through the share buyback as the maximum level. And what we’ve always also done was that synthetic forward structure we had, considering that we were not going to exercise the first tranche, which was due in November ’24, we executed it. Because in practice, we believe the data of the option going again, so it will lose value over time. And given that it was still in cash, we chose to execute that. And it’s not material, it’s roughly BRL15 million. So we executed the first tranche. We kept the rest, because the rest doesn’t really have a relevant carryover cost, but we’ll continue to have the optionality to have the share upside. There are some implicit benefits there. So we’re not keeping it to increase our position, that 1.43 won’t be increased. We won’t be increasing our position but we do have the optionality as this agenda moves forward with value, we might be able to capture additional value from this call spread without the implicit carryover cost.
Now as for the regulatory side, we have been monitoring that quite closely, Luiz, and it’s key that we are very close to the business, and that is one of the group’s characteristics. We know how to navigate this kind of scenario very well. And what we did recently, now that Nelson has joined us, we have made our institutional relations structure much more robust at Cosan, so that we have this connection among the business so that we can foster this joint regulatory agenda, because there are many touch points. We have shared regulatory issues within the group and one of the roles Cosan plays is to share that, especially when it comes to regulatory issues. And with our member in Vale’s board, we can also make contributions to that agenda at Vale. So that’s it for our regulatory agenda. Luiz obviously, we’re monitoring everything you’ve mentioned very closely but we’re also preparing to be able to create value to that agenda as shareholders and to make sure that we have more exchanges so that the portfolio can gain increasingly more.
Operator
The next question is from Isabella Simonato, sell-side Bank of America.
Isabella Simonato
As a follow-up to the question about your leveraging, you’ve been making some important moves since the beginning of the year. And my question is about whether you have any strategic moves in mind in terms of managing Cosan’s gross debt. And looking at the normal cost of deleveraging, as you said, depending on the dividends and the OpCo’s performances. When we look at each one of them and we have talked about that a while back, they all have CapEx. Some more than others. But they all have enough CapEx to do it. So what is the most relevant source of dividends to ramp up this deleveraging process in your opinion? Are there any opportunities that are similar to what you’re doing at the HoldCo level at any of the OpCos that will allow them to become a major dividend payer so that this process can be accelerated?
Rodrigo Araujo
So I’ll start with the first one about leveraging and everything we’ve been doing. I’ve also talked about our profile. As I said, I think it’s important to reiterate, just as important as our level, it’s important to have an adjusted profile to this CapEx cycle, as you said. And that’s been part of what we’ve done and we will be doing more. We’ll still perform some operations to adjust our profile, both in the domestic and international markets. So we will be more active in terms of profile DCM. As for the level and M&A operations, as you know, we do have some assets. We don’t really have any relevant updates on those but they are potential M&A targets, such as the port. We talked about it last quarter in terms of maturity levels to list Compass or Moove. We’re not expecting anything for ’24. But we are looking into potential listings when it comes to Moove and Compass. And as Luiz said, we’re always looking at the ideal position at Vale. So this is a great asset with liquidity. So we’re always looking at the size of our stake in it and we will be monitoring it over time. In terms of performance, CapEx and dividends. Well, number one, we need to make sure that we are executing on the structuring projects. I mentioned a few of them during the presentation. Look at the Rio Verde, the Regas Terminal, second generation ethanol. We need to make sure that those structuring projects are in place. What we have been discussing and fostering is that some companies are closer to the end of their CapEx cycles. Others are right in the middle of it.
Compass, for instance, is already paying out more dividend this year. So we see some results coming from this very intense CapEx cycle. There won’t be any CapEx looking forward but the last few years have been very intense when it comes to CapEx. And based on the numbers, you’ll see that Moove is also concluding the integration of its acquisitions, making their cash generation capacity more robust. You’ve seen that and that will obviously translate into potentially more dividend payouts. And what we’re always also seeing is that we’re fostering — managing our portfolio to focus on other structuring projects and recycling our portfolio, especially at Rumo and Raizen, which have a more relevant CapEx cycle over the next few years. We’ll include bringing in partners to help fund structuring projects, the announcement of the additional capacity at Santos. As we’ve mentioned, we looked for partners to work with us on that project. Raizen has recently announced the sale of GD and looking at what’s core, looking at what can be recycled within the portfolio. We expect to become increasingly more active in our capital discipline. And, Isabella, obviously, that has to do with Cosan, as a shareholder, but also with each individual company. And it’s important to reiterate that we are in a very challenging market environment right now. We started off the year with considerable interest rates looking forward. So every single business in our portfolio needs to have capital discipline. It’s key to reiterate that, because navigating high interest rates requires excellent capital discipline, and you’ll be hearing a lot more of that from the different OpCos. And that comes from the current scenario.
Isabella Simonato
Could I ask a follow-up question about Raizen? It’s interesting that you’re talking about partners for structuring projects that are core to the subsidiaries. Do you think given the plan pipeline, which is considerable, and there’s a long time to develop the pipeline. Would it make sense to start thinking about a strategic partner to go into that segment as well or is it too soon to say?
Rodrigo Araujo
I think, generally speaking — well, let me give you a broader answer. It makes sense for any project. If this partner adds value, if the partner is in line with the shareholders, we’ll always consider them. We have no restrictions when it comes to strategic partners. Obviously, some assets are more challenging than others. You know that second generation ethanol dynamics is very closely related to the first generation ethanol. It’s got its specificities. But yes, we’re definitely looking at partners for structuring projects. If there are partners who can add value, not only financially but partners that can help us create value, then we will always consider them.
Operator
Next question is from Gabriel Barra, sell-side Citi.
Gabriel Barra
I have a couple of follow-up questions. The first one is about Vale’s position. So you’ve made some considerable adjustments to the position. Is this the ideal position in your opinion or can we expect further adjustments to Vale’s position? And what may be the potential triggers to additional adjustments, or are you comfortable with the current position? Second follow-up question is about listing. You mentioned Moove maybe in 2024. Compass a little bit further down the line. I think Moove’s thesis has been working very well. You’ve had some great results, and Compass as well. But there are some micro points. And going back to the first question about the regas terminal Subida da Serra. And my question is about what might be a trigger to list Compass. Would it have to do with market circumstances or more domestic issues before listing the company and waiting for the right time to do it? And you’ve been very clear when it comes to capital allocation, the company’s capital structure focusing on deleveraging. But every now and again, we’re asked about [indiscernible] and capital allocation. Cosan has always been a major player in capital allocation and looking for opportunities. So given the company’s current capital structure, could you consider capital allocation here or are you really deleveraging and thinking about adjusting your capital structure in the short term, or might there be room for potential acquisitions or short term investments?
Rodrigo Araujo
So let’s start with Vale. There is no magic number when it comes to the ideal position. So we’ll be monitoring what is more adequate to Cosan’s capital structure, how our agenda is advancing in terms of value generation. You know that we are always considering levers to create value. As you know, we’ve made some public announcements recently about the CEO succession process. There have been some major regulatory discussions as we mentioned at the beginning of the call. So many things are happening. They are key to potentially unlocking value for the company in the short to the midterm. And so we need to consider all of that with the fact that we want to have an active voice, we want to be a shareholder that exerts influence. So it’s not cast in stone that this is the ideal position. But from this upwards, I think 414, 415. For the time being, you can take that as the maximum level. But if at some point, we believe we should decrease that position based on Cosan’s capital structure, we might consider that in light of liquidity. So that’s where we are right now, and the triggers as I think I’ve mentioned most of them.
As for listing Compass, let me start by the end of your question. There is no market but that’s not the main point, that’s one of the points. I think the Brazilian market, we all know how challenging things have been this year. But despite that, it’s not just about the regulatory agenda, there are many key things in the company’s plan, a major pipeline to be executed. And if those are well executed, we, as shareholders and Compass’ management, are focusing on executing them then they will lead to value creation. We have Edge’s rollout. The company started last year. As you know, we have very positive prospects for the terminal to create more optionalities, a commercial agenda for the company, unlocking more value, which is key. We also have Comgas’ tariff review cycle this year, the strategic rollout of the distribution companies, assets in our pipeline and we may increase our share there. We also have investments in the assets that we are committed to selling very close to closing those on assets that are not core to us. So all of that is crucial. And removing uncertainties is always a good thing for any M&A.
So back to what I said at the beginning. In the Brazilian capital market, there is no room for that kind of operation right now. And just to reiterate something I said earlier when Isabella asked her question, we want to have enough room in Cosan’s capital structure. And when I talk about profile, that’s what I mean, that we can do that when the time is right, so as to create as much value as possible for Cosan and its shareholders. We don’t want to be under pressure to do anything at the wrong time, at a time when it doesn’t make sense for the company and that we leave value creation on the table, because we’re being pressured by capital structure. So we’re very aware of that. And as for capital allocation, well, let me reiterate what I said during the presentation. We have a lot to do in our portfolio. Major CapEx in our company’s value creation agenda. We’ve been working on that at value with recent investments. And to be very open, there is no space to increase indebtedness in Cosan’s capital structure right now. We’re working towards reaching the ideal point, the sweet spot to have a higher interest coverage than we have right now. We have been moving forward but we want to increase that. So we have a lot to do and now is not the time. We’ve been very active. We have been making considerable contributions based on our experience on how close we are to the regulatory agency and what we do here in the State of Sao Paulo. So we have been making contributions to that process but I don’t see any room in the company’s capital structure for any additional allocation.
Operator
Next question is from Regis Cardoso, sell-side XP.
Regis Cardoso
A couple of different subjects I’d like to touch on, please. First is Vale. Rodrigo, could you give us some more color on the benefits? You talked about increasing the duration, but what about the service of debt, carryover cost at Vale? With your call spread position right now, ultimately, do you think you could have just a financial settlement? But anyway, if you could talk about the specific financial instruments and give us an update on your investment thesis. So what you thought at the beginning, has it been materializing or not? Second subject I’d like to touch on is your business portfolio composition. We’re talking about service debt of the debt coverage. And could you talk about the company’s current portfolio, including businesses, sectors, currencies, ability to pay and the conviction about the investment flows at the OpCos to service the HoldCo’s debt?
Rodrigo Araujo
Well, to give you an overview of what we have been doing at Vale, and then I’ll go into the strategic side of the thesis. Since the beginning of the year, the collar unwinding, as you said, is about duration, but it goes beyond that. It has to do with capturing the results we expect for the company. It is about dividends. Considering last year, part of the dividends we were to receive were reverted to keep the strikes of the fixed collar. So as I mentioned at the beginning, the collar structure was key in terms of funding at the time of the acquisition, but you need to monitor it constantly to be able to unwind it, because it becomes expensive over time considering dividends. So in October 2022, if you remember, we hadn’t elected a member of the board yet, there are many things yet to happen, there were a lot more uncertainties that we dealt with over time. So that has helped to unwind the collar structure. So in addition to have full access to dividends, there’s also another soft side to it, but just as important, which is reducing complexity. That is also important. That is a value lever for Cosan shareholders even though it’s quite an encompassing portfolio. Reducing complexity is key. Even though it’s not a hard aspect, it’s also been important. So the current snapshot is cost spread plus direct stake and it also unlocks the dividend payout.
As for the future structure, what we have right now is the 1.43. We’re not considering exercising that right now, but it could be through a financial settlement. So much so that we’ve already done it with the first tranche, which is that 0.25. So it can be a financial settlement and there’s no carryover costs. And now going into your second question about the thesis, there have been some challenging times, especially at the beginning of this year, end of last year. Looking forward, I think the company is going through a better time now than two or three months ago. There were a lot of uncertainties, a lot of noise around the company. We still see positive fundamentals for the company and its ability to deliver results, cash generation even more. We’ve closed the value based metals deal so there have been some important things happening. And it’s important to clarify that there are some aspects, the succession process, which is ongoing, unlocking the regulatory agenda, these are value levers. And obviously, as a relevant shareholder in the company, we want to make sure it happens. Our main thing to monitor in the thesis and the strategy is to make sure that that agenda moves forward, and we hope that that will happen this year. But we will be monitoring it closely.
And given the asset’s liquidity, even if we are constructive in terms of moving the agenda forward, we need to be pragmatic as well. So we’ll consider both sides over time. As for the current portfolio, I think the portfolio is healthy. It’s got a healthy combination of assets such as Compass as a gas distribution company. Those are very resilient assets. Their regulatory nature has to be resilient. And Vale also helped towards being more exposed to hard currencies and asset assets such as Moove and Raizen with a key future upside agenda based on the pipeline that’s being executed or the strategic CapEx agenda. So in broad terms, we’re very happy with our portfolio mix. As I said earlier, I think what we have been doing at Cosan and at the invested companies is to keep an eye out for opportunities to expose our position to noncore assets, looking for partners in this challenging high interest rate scenario. But generally speaking, it’s a very healthy portfolio with — there are opportunities to recycle the portfolio at the HoldCo level and at the invested companies level. But we’re very happy with the portfolio’s quality but there are obviously opportunities to recycle it, and we should become more active when it comes to that.
Regis Cardoso
Could I ask another follow-up question, please? And considering the portfolio mix, where do you see Cosan 9 and 10, the intermediate holding companies? Is that a way to balance the OpCo’s exposure profile or…
Rodrigo Araujo
Well, no. This is an equity structure. We haven’t given any voting rights out to anyone. It’s more to do with access to dividends. It’s much more financial. It’s not a direct divestment. We see it as a contribution to dilute risks from an equity perspective, not in terms to decrease exposure.
Operator
The next question is from Vicente Falanga, sell-side, Bradesco BBI.
Vicente Falanga
Let’s start with Radar. We didn’t have a mark-to-market effect this quarter. So looking at the company’s net income, it was about 126 million. So we’re talking about 13%. Is this the metric we should be looking at? And if so, there seems to be still good returns even in this high interest rate scenario. What would be the cash yield that would accelerate selling land? And about Moove, could you give us some more detail about the strategy behind the margin exposure considering the strong results, but there’s also been considerable working capital consumption. Are there two things related? And if not, is it seasonal? Can we expect that those things will be reverted this year?
Rodrigo Araujo
About Radar, let me mention a couple of points. Obviously, we do see some healthy yields, but our way of looking at it, obviously, yields are important. The company right now can generate cash and payout dividends. And looking forward, it can sustain the payment installments of the purchase all the way through to ‘26. So we’re very comfortable with the dividends that will allow us to remain neutral, because the dividend will help us amortize the acquisition payments. But yield is a part of the equation, that’s how we look at the business. So let me take a step back and we announced this at the beginning of the year. We started managing the portfolio as a whole in an integrated fashion to help us learn and have more visibility of other areas, other strategies, because this is a rotation business, that’s its nature, and you will be seeing that happen over time. So what we expect as shareholders is that this is a self funded business. We’re not going to increase our exposure in terms of additional equity. It should be — continue to pay our dividend so that we can pay for the acquisition commitments and the crop rotation at Raizen is healthy. So yes, healthy yields, we have captured and served that wave like any other agricultural company, and the margins are looking even more constructive for next year. And now we want to be able to make that rotation to do what we did in the last 30% cycle. We’re ahead of the curve, and we want to be positioned in new crops with new strategies before that cycle is over. So that’s the strategy behind that.
As for Moove, we have a very clear and solid strategy. We need to target the right clients. If we think conceptually about the strategy, the company was a business underneath a major oil company, then it went under a retail business with lots of specificity. The lubes business within a traditional distribution business presents opportunity. So when possible, we can create a value agenda, which is what happened at Moove. In the integration process, especially the acquisition of PetroChoice, which is more recent that happened in 2022, the integration will accelerate the margin capture process. We’ve had even better results than we imagined when we made the acquisition, so we want to accelerate the value implementation agenda. Last year was the company’s best historical year and we’re very positive about this year. We should be delivering even better results than last year. Now as for the working capital, it’s a very cyclic business. We know that the second and the third quarter tend to be stronger, so that working capital fluctuation is natural. The fourth and the first quarter, there are scheduled downtimes. There are many things that take place that make this a cyclic business. And working capital will go back to normal levels over the year. There’s a high organic cash conversion cycle. So yes, working capital is cyclic by nature.
Operator
The next question is from Bruno Montanari, sell-side Morgan Stanley.
Bruno Montanari
In terms of liability management within your preferred shares considering Vale’s operation at the two intermediate holding companies. Is there any chance to rethink or restructure that operation so that you’d be able to have more dividends going into Cosan’s holding company? And the second question, I know that your number one focus is on controlling, leveraging, increasing your debt service interest coverage. But considering the OpCos from the holding company point of view, what has been using up management’s time the most?
Rodrigo Araujo
Well, as for the preferred shares, well, the structure will allow for that as of the fourth year. And in terms of access to dividends, based on the structure modeling, it tends to be very efficient because it matches the business dividend flows. It’s a natural match. So obviously, we’ll be monitoring that over time. We’re always looking at potential opportunities. But right now, we have other less efficient debts, which are the target of liability management. So we’re not focusing on bringing that structure forward. Even because of its equity structure, the payment is associated to the business payment. So it’s a positive equity prospect. As for the businesses, well, generally speaking, the company’s main focus is on where we have more CapEx considering the current interest rate scenario and for many reasons due to the fact that we know it’s hard to execute on CapEx in Brazil, there are many challenges. So wherever we have a more robust CapEx agenda, that’s where we need to spend more time, because it’s more challenging. Now when we look at leveraging levels at the invested companies, they’re all getting organized and getting ready to navigate the cycle. So that’s it in broad terms. And obviously, as I said at the beginning when Luiz asked his question, the regulatory agenda also is time consuming. So we need to do it properly, we need to make sure it’s right, it’s organized and that takes time. We’ve talked a lot about Vale, but just to reiterate. It’s a different investment to the other ones where we are in a controlling company position. So being able to replicate and restrengthen our analysis ability also takes up time of management.
Operator
The next question is from Thiago Duarte, sell-side BTG Pactual.
Thiago Duarte
Let me combine — I mean, Rodrigo, you talked about many different things in your answers to the many different questions. So let me try and put the pieces together and come to a conclusion. Do you think that to get to a 1.522 coverage level as the guidance or as a level that you’re comfortable with considering the burden that will represent to the holding company and the holding company’s ability to pay out dividends. Do you think that, organically speaking, Moove’s IPO, assessing your stake at Vale and the dividend flows that you’re considering, do you think that if nothing else is done, structurally speaking, you will be able to get level? And if so, when will you reach that level? So that’s the first part of my question. The second part is, in tge recent past, I think just before you joined the group, you discussed the possibility of looking at the portfolio more broadly speaking and you mentioned that in a previous answer. You used to call it a permanent portfolio and a nonpermanent portfolio. So you mentioned portfolio recycling. Up to what point are you considering that in addition to these more trivial moves such as the IPOs of a couple of companies?
Rodrigo Araujo
I’ll start with the first one. I mentioned many things that we’re doing, adjusting our positions, the port, potentially listing assets. So that’s a combination of organic and inorganic initiatives. I don’t really have a time set for when we will do that by — there are a number of variables to be considered. Some of the businesses are exposed to the commodity cycle, so that needs to be taken into consideration. So we don’t have a set target in terms of timing, but it is a combination of organic and inorganic initiatives. I mentioned the port, for instance, adjusting our position size. All of those levers have to be taken into consideration. As for the portfolio, we need to consider the scenario. It’s not just about what the company is going through. It’s what the company is going through and the current scenario. Looking at the last few years, we have made some major commitments across the portfolio, and that requires management focus, shareholder focus. We need to make sure that we are executing not only business as usual on a daily basis but the different cycles. There have been some considerable changes. We don’t have to go too far back. If we go back three or four months, we were talking about an interest rate. And now we’re 200 basis points below, so that’s considerable if you have significant CapEx levels.
So I think it’s a combination of considering what we can do well, but it’s also a matter of a more challenging macro scenario. If you think about the current macro scenario this year, at the beginning of the year, we were talking about five reductions in the American interest rate. And now is it going to be one, is it going to be two, is it going to be none? And the same applies to the Brazilian market during the last interest committee meeting, that’s exactly what we saw. So that has to go into the equation. We need to be able to execute things well. But considering the macro scenario, there’s no point in keeping the same plans if the scenario is changing. So that’s what we need to consider. We need to think about what we can do and do well simultaneously but in a more challenging macro scenario. That’s it. Thank you for your questions.
Operator
This concludes the Q&A session. I will now turn it over to Mr. Rodrigo Araujo for his closing remarks.
Rodrigo Araujo
Thanks, everyone, for joining us on this earnings release call. Thank you for the questions. Myself, Ana and the whole team, financial team at Cosan, are here if you have any follow-up questions. Thanks, and see you next quarter.
Operator
Cosan’s first quarter 2024 earnings release video conference is now concluded. For further questions, please contact the Investor Relations department. Thank you so much for joining us, and have a great day.
