Executive Summary / Key Takeaways

• Strategic Transformation Underway: Ultrapar ($UGP) is actively reshaping its portfolio, marked by the strategic acquisition of a controlling stake in Hidrovias do Brasil and a disciplined focus on operational efficiency and new energy solutions across its core segments. This transformation aims to enhance long-term value creation and solidify its position in the Brazilian energy and infrastructure landscape.
• Resilient Financial Performance Amidst Headwinds: Despite persistent challenges from unlawful practices in the fuel sector, Ultrapar demonstrated strong operational cash flow generation and a significant increase in Q2 2025 net income, bolstered by extraordinary tax credits and robust contributions from Ultragaz and Hidrovias.
• Commitment to Regulatory Integrity and Fair Competition: Ultrapar is a vocal advocate for regulatory advancements, actively supporting measures like single-phase taxation for ethanol and tax solidarity principles, which are crucial for combating tax evasion and fostering a healthier competitive environment in the fuel distribution market.
• Diversification and Technological Advancement as Growth Drivers: Ultragaz is expanding its "new energy" solutions, including biomethane and distributed generation, which are maturing and expected to contribute an increasing share to EBITDA. Ultracargo continues its strategic expansion with new terminals and railway connections, enhancing its exposure to the agribusiness sector.
• Disciplined Capital Allocation and Leverage Management: Management targets a comfortable leverage level of 1.5x to 2x EBITDA, with strong cash generation expected in the second half of 2025 to return leverage to year-end 2024 levels. Capital allocation prioritizes high-return investments in existing businesses and potential new ventures, with increased dividend payouts considered if suitable projects are not identified.

Ultrapar's Enduring Energy and Infrastructure Powerhouse

Ultrapar Participações S.A. ($UGP), founded in 1937, has evolved into a diversified energy and infrastructure conglomerate, deeply embedded in Brazil's economic fabric. The company's core operations span fuel distribution through Ipiranga, liquefied petroleum gas (LPG) distribution via Ultragaz, and liquid bulk storage terminals under Ultracargo. Its recent strategic moves, including the acquisition of a controlling stake in Hidrovias do Brasil, underscore a clear narrative of portfolio optimization and a disciplined pursuit of long-term value creation. This strategic pivot, initiated with divestments like Oxiteno and Extrafarma, positions Ultrapar to capitalize on Brazil's fundamental energy and logistics demands while adapting to evolving market dynamics.

The Brazilian energy landscape, particularly in fuel distribution, is characterized by intense competition and a persistent challenge from unlawful practices, including irregular imports and non-compliance with biodiesel blending mandates. Ultrapar's strategy is to not only compete effectively within this environment but also to actively champion regulatory reforms that promote fair competition. The company's historical journey, marked by continuous investment in its extensive distribution networks and customer-facing services like AmPm convenience stores and the Km de Vantagens loyalty program, provides a robust foundation for its current strategic responses to these market forces.

Operational Excellence and Digital Integration as Differentiators

While Ultrapar does not explicitly detail a singular "core differentiated technology" in the vein of a proprietary manufacturing process, its competitive edge is forged through a combination of operational excellence, strategic digital integration, and a proactive approach to new energy solutions. The company's extensive distribution networks for Ipiranga and Ultragaz represent significant logistical infrastructure, enabling efficient supply chain operations and localized service delivery across Brazil. This scale and reach provide a cost advantage and foster strong customer loyalty, particularly in the retail fuel and bottled LPG segments.

Ultrapar leverages digital platforms such as the abastece aí app and the Km de Vantagens loyalty program to enhance customer engagement and retention. These digital tools streamline payment processes and offer value-added services, differentiating Ipiranga's offerings in a highly competitive market. Within Ultragaz, the strategic push into "new energy" solutions, including biomethane and distributed generation, represents a significant area of innovation. These initiatives are maturing and are expected to contribute an increasing share to Ultragaz's EBITDA, aligning with broader energy transition trends. The company's focus on combining these new energy businesses with existing client portfolios aims to create integrated energy solutions, enhancing customer value and securing future growth avenues. This strategic integration of digital tools and new energy offerings, rather than a single technological breakthrough, forms Ultrapar's evolving technological moat, contributing to its competitive positioning and long-term growth strategy.

Competitive Arena: Ultrapar's Strategic Positioning

Ultrapar operates in a highly competitive Brazilian energy sector, directly contending with formidable players such as Petrobras (PBR), Vibra Energia, and Cosan (CZZ). Each competitor presents distinct strengths and strategic focuses, shaping Ultrapar's market positioning.

Petrobras, as the state-owned energy giant, boasts an integrated supply chain from exploration to refining and distribution. Its sheer scale and control over upstream assets can provide cost advantages in raw material sourcing. However, Ultrapar, particularly through Ipiranga, differentiates itself with a more specialized and regionally focused distribution network, emphasizing customer-facing services and loyalty programs. This allows Ultrapar to achieve greater operational efficiency in downstream activities and potentially stronger customer retention, countering Petrobras's scale with localized service excellence.

Vibra Energia, a major fuel distributor, shares a similar focus with Ipiranga in retail and wholesale fuel sales. Both companies compete directly in expanding retail networks and digital services. Ultrapar's offerings, including its extensive service station network and digital payment applications, provide comparable operational performance in customer engagement. However, Ultrapar's broader geographic reach in Latin America and its emphasis on integrated services, such as convenience stores and loyalty programs, could provide an edge in customer engagement and retention. While Vibra has shown trends of improving margins through streamlined operations, Ultrapar's strategic focus on integrated services and operational discipline aims to maintain competitive profitability.

Cosan, a diversified energy conglomerate with interests in fuel distribution, logistics, and renewable energy, represents a competitor with a broader strategic scope. Ultrapar's strategy is more concentrated on traditional fuel and gas distribution, while Cosan leverages diversification into biofuels and infrastructure. Ultrapar's established distribution infrastructure and customer loyalty programs provide a unique value proposition in its core segments. While Cosan might lead in innovation speed due to its renewable energy focus, Ultrapar's strength lies in its operational focus and efficiency within traditional segments, ensuring reliable cash flow generation.

Ultrapar's overall market positioning is characterized by a strong regional presence and a commitment to operational efficiency and customer engagement. Its growth trajectory is aligned with increasing energy demands in Latin America, and it aims to compete effectively by leveraging its established infrastructure, digital integration, and strategic investments in new energy solutions. The company's active role in advocating for regulatory integrity is also a critical competitive response, seeking to level the playing field against unlawful practices that distort market dynamics.

Financial Fortitude: Performance and Liquidity

Ultrapar demonstrated a resilient financial performance in the first half of 2025, particularly in Q2, despite a challenging market. The company reported a total EBITDA of BRL 2.07 billion in Q2 2025, a significant increase driven in part by the recognition of BRL 677 million in extraordinary tax credits at Ipiranga. Recurring EBITDA for the quarter stood at BRL 1.468 billion, marking a 15% increase year-over-year, primarily due to the consolidation of Hidrovias' results and improved performance at Ultragaz. Net income saw a substantial 134% surge year-over-year to BRL 1.151 billion, reflecting these higher operating results and the one-off tax credit.

For the full year 2024, Ultrapar's recurring EBITDA totaled BRL 5.375 billion, a 4% decrease from 2023, mainly due to lower EBITDA at Ipiranga and the impact from Hidrovias' share of loss. However, net income for 2024 reached BRL 2.526 billion, maintaining the same level as 2023, supported by extraordinary tax credits. Operational cash generation remained strong, reaching BRL 1.848 billion in Q2 2025 (excluding a BRL 909 million reduction in draft discount), a 73% growth compared to the same period last year. This robust cash generation is crucial for funding investments and managing debt.

Ultrapar's liquidity and capital structure remain a focus. Net debt at the end of Q2 2025 was BRL 12.635 billion, leading to a net debt to EBITDA (LTM) ratio of 1.9x, up from 1.7x in the prior quarter. This increase was primarily due to the BRL 909 million reduction in draft discount, triggered by IOF tax burden, and the consolidation of Hidrovias, which added BRL 3.056 billion to net debt and approximately 0.2x to total leverage. Management, however, anticipates a strong cash flow generation in the second half of 2025, expecting leverage to return to year-end 2024 levels. The company successfully raised BRL 1 billion at Ipiranga at a competitive average cost of 106% of the CDI, below its current average cost of debt, demonstrating continued access to favorable funding.

Segment Deep Dive: Growth Engines and Operational Excellence

Ultrapar's diversified portfolio is strategically managed across several key segments, each contributing uniquely to its overall performance and growth trajectory. Understanding the individual dynamics of Ipiranga, Ultragaz, Ultracargo, and Hidrovias do Brasil is crucial for appreciating Ultrapar's integrated strategy and its resilience in the Brazilian market.

Ipiranga: Adapting to a Shifting Fuel Landscape

Ipiranga, Ultrapar's fuel distribution arm, continues to face a complex market. In Q2 2025, volumes sold decreased by 2% year-over-year, with diesel down 3% due to irregularities in the biodiesel blend and an open import parity scenario. Auto cycle sales also declined by 1% due to irregular naphtha imports. These unlawful practices, along with inventory levels and Petrobras price adjustments, led to a 13% year-over-year decrease in Ipiranga's recurring EBITDA to BRL 678 million in Q2 2025.

Despite these headwinds, Ipiranga is actively adapting. Management expects seasonally stronger volumes in Q3 2025, with a closing import parity scenario and normalizing inventories contributing to improved profitability. The company is a strong advocate for regulatory advancements, highlighting the positive impact of single-phase taxation for hydrated ethanol (implemented in May 2025) and the tax solidarity principle in São Paulo state, which are seen as crucial steps in combating tax evasion and fostering a fairer competitive environment. Ipiranga's investment strategy remains selective, prioritizing quality over quantity in its network of 5,826 service stations and 1,460 AmPm stores, aiming for a 20% return on invested capital.

Ultragaz: LPG Leadership and New Energy Horizons

Ultragaz delivered a robust performance in Q2 2025, with recurring adjusted EBITDA increasing by 11% year-over-year to BRL 442 million. This growth was driven by a better sales mix, greater efficiency in the Bulk segment, and increasing contributions from new energy solutions. While LPG volume sold decreased by 1% year-over-year (with the bottle segment down 2% due to competitive dynamics and higher costs from Petrobras auctions), the strategic focus on new energies is gaining traction.

Ultragaz is actively developing solutions in biomethane and distributed generation, which are expected to contribute an increasing share to its EBITDA. The company views Brazil's current LPG market regulation as a global reference, ensuring consumer safety and fostering competition. However, management expressed strong concerns regarding ANP's proposal to end brand respect and allow partial LPG refilling, arguing it would endanger safety, discourage investments (Ultragaz alone invested BRL 3 billion in bottles over 10 years), and create opportunities for illegal activities. The company's net income per bottle is a tight BRL 2, representing a 2% unit margin, underscoring the importance of efficient operations and a stable regulatory framework.

Ultracargo: Infrastructure Backbone and Agribusiness Link

Ultracargo, Brazil's largest private liquid bulk storage company, continues to expand its strategic infrastructure. In Q2 2025, its installed capacity remained at 1,067,000 cubic meters. While cubic meters sold decreased by 14% year-over-year due to lower demand for storage and fuel imports, the company is focused on long-term growth. Its EBITDA for the quarter was BRL 141 million, a 15% decrease year-over-year, primarily due to lower volumes and initial costs associated with the expansion of Opla and the new terminal in Palmeirante.

A significant operational milestone was the completion of Opla's railway branch and the gradual ramp-up of operations in Palmeirante in July 2025. This expansion connects the countryside to ports, increasing Ultracargo's exposure to the agribusiness sector, a key growth area for Brazil. Management expects Q3 2025 EBITDA to be in line with Q2, with expectations for EBITDA per cubic meter to reach levels similar to other terminals by 2026 as new expansions mature. The company maintains a robust pipeline of investments, including expansion in Suape and railway structures in Santos, reflecting its commitment to meeting continuous demand.

Hidrovias: A New Growth Corridor

Ultrapar's strategic investment in Hidrovias do Brasil culminated in May 2025 with Ultrapar becoming the controlling shareholder. This move, following a BRL 1.2 billion capital increase, signals Ultrapar's confidence in Hidrovias' value-creation potential. Hidrovias' results were consolidated into Ultrapar's financials starting in May, contributing BRL 276 million in recurring EBITDA to Ultrapar in Q2 2025.

Hidrovias delivered strong operational performance in Q2 2025, with total volume increasing by 10% year-over-year, driven by improved navigation conditions in the South corridor and volume growth in the North corridor. Its recurring adjusted EBITDA (as reported by Hidrovias) surged by 39% year-over-year to BRL 348 million. Ultrapar's management is focused on enhancing Hidrovias' operational and administrative efficiency, increasing asset yields, and optimizing its financial structure. The outlook for Q3 2022 anticipates continued strong results and a significant increase in recurring EBITDA, with the second half of the year expected to be much stronger than the previous year, driven by crop distribution and improved navigability.

Outlook and Strategic Vision

Ultrapar's management maintains a clear forward-looking vision, underpinned by disciplined capital allocation and a proactive approach to market challenges. For the second half of 2025, the company anticipates strong operational cash flow generation, which is expected to bring its leverage ratio (net debt to EBITDA) back to the comfortable range of 1.5x to 2x by year-end, despite the recent increase due to Hidrovias' consolidation and the draft discount reduction.

Segment-specific guidance reinforces this positive outlook: Ipiranga expects seasonally stronger volumes and improved profitability in Q3 2025, benefiting from normalizing inventories and a closing import parity scenario. Ultragaz anticipates seasonally stronger volumes and slightly higher recurring EBITDA in Q3 2025, further enhanced by its new energy initiatives. Ultracargo expects Q3 2025 EBITDA to remain consistent with Q2 levels, as its new terminals mature. Hidrovias is projected to deliver continued strong results and a significant increase in recurring EBITDA in Q3 2025.

Ultrapar's strategic vision involves a continuous evaluation of investment opportunities, both for expanding existing businesses and potentially entering new ones, with a required return on investment adjusted by risk. If attractive projects are not identified, increasing dividend payouts remains an option to return value to shareholders. This flexible yet disciplined approach to capital allocation, coupled with a strong commitment to operational excellence and regulatory advocacy, positions Ultrapar for sustained growth.

Risks on the Horizon

Despite Ultrapar's robust strategy, several risks warrant investor attention. The most prominent is the persistence of unlawful practices in the fuel sector, including irregular naphtha imports and non-compliance with biodiesel blending. These activities continue to impact Ipiranga's volumes and margins, creating an uneven competitive playing field. While regulatory advancements are underway, their full enforcement and impact remain critical to watch.

Another significant risk stems from proposed changes to LPG regulation by ANP, particularly the potential end of brand respect and allowance of partial LPG refilling. Management strongly argues that such changes could compromise populational safety, discourage essential investments in bottle infrastructure (estimated at BRL 13 billion over the last decade), and foster illegal activities, potentially leading to higher logistical costs and no consumer price benefit. The outcome of these regulatory discussions will be crucial for Ultragaz's long-term stability and profitability.

Furthermore, Ultrapar's businesses, particularly Ipiranga, remain exposed to commodity price volatility, which can impact inventory gains or losses and overall profitability. While the company actively manages working capital, significant fluctuations in fuel prices can still affect financial performance. The integration and value realization from the Hidrovias acquisition also present execution risks, although management expresses strong confidence in its potential.

Conclusion

Ultrapar ($UGP) is demonstrating a compelling narrative of strategic transformation and operational resilience within Brazil's dynamic energy and infrastructure sectors. Through disciplined capital allocation, a proactive stance on regulatory integrity, and strategic investments in growth areas like Hidrovias and Ultragaz's new energy solutions, the company is actively shaping its future. Its foundational strengths in extensive distribution networks and customer-centric services, combined with a commitment to combating market irregularities, underscore a robust competitive positioning.

While challenges from unlawful practices and potential regulatory shifts in the LPG market persist, Ultrapar's management has articulated a clear vision for enhancing efficiency, driving growth, and maintaining a healthy financial structure. The anticipated strong cash flow generation in the latter half of 2025 and the maturation of recent investments, particularly in Ultracargo and Hidrovias, are key indicators for investors to monitor. Ultrapar's story is one of an established leader adapting to change, leveraging its core strengths and strategic foresight to fuel long-term value creation in a complex yet opportunity-rich market.