Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Cosan S.A. Second Quarter 2016 Results Conference Call. Today with us we have Mr. Mario Silva, CEO; Ms. Paula Kovarsky, IRO; Mr. Joao Arthur Souza, CFO; and Mr. Phillipe Casale, Investor Relations Manager of Cosan S.A. We would like to inform you that this event is recorded and all participants will be in a listen-only mode during the Company's presentation. After Cosan's remarks, there will be a question-and-answer session for industry analysts. At that time, further instructions will be given. [Operator Instructions] The audio and a slideshow of this presentation are available through the live Webcast at ir.cosan.com.br. These slides can also be downloaded from the Webcast platform. Before proceeding, let me mention that forward-looking statements will be made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Cosan's management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Cosan and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Ms. Paula. Ms. Paula, you may begin the conference.

Good morning, everyone. Welcome to Cosan S.A.'s conference call about second quarter results. As usual, let's start the presentation by talking about each business line of Cosan S.A. and then we go to the consolidated results. So let's move straight to Slide 4 with the results of Raizen Combustiveis. Following the trend observed in recent quarters, our sales volume outperformed the industry average, reflecting the consistency of our growth strategy [indiscernible] on the expansion of the distribution network through the conversion of independents, especially white flag stations. I'd like to remind you that last year we had a higher concentration of conversions in the second half of the year, which means more positive impact from the ramp-up of those stations now in the first half of 2016. Otto cycle sales volumes were flattish compared to second quarter of last year versus a 3% drop in market volumes, as we added 368 new stations to our network over the past 12 months. The same comparison in terms of gasoline equivalent, which we believe to be a more accurate way to understand the market dynamics as we adjust the ethanol for its energy efficiency, points to an increase of 2%. And just for the record, all market data source is the ANP, the regulator in Brazil. Diesel sales grew 2% in the period due to new B2B contracts, in spite of a 4% market contraction. Adjusted EBITDA reached R$597 million, 17% higher over the same period of last year. Main drivers here were slightly larger sales volume with a better mix, and most importantly, the gains related to the optimization of our supply and commercialization strategies. The EBITDA grew 2% sequentially as the positive impact of this supply and commercialization strategy was already present in the first quarter of this year as…

[Operator Instructions] Our first question comes from Juan Tavares, Citigroup.

My first question is just about your agriculture yield in the sugarcane business. Can you give us an update there on how your CapEx plan is within Raizen Energia and what's your outlook for ag yields going into the next crop as well? And maybe if you can give us an update also on just capital allocation overall? I know that in the Comgas section of your press release you mentioned that you had postponed some CapEx there and were reviewing some of your operational strategy on certain expansions. So I'm curious there on how do you foresee some of your capital allocation for the rest of the year, and also in the context of dividends? Thank you.

Let me talk about the Raizen Energia. What happens is, as you know, we had a dry April and a rainy May and June, so what happens is that we had a positive impact on the TCH with little impact on the TRS. But this doesn't change at all our expectations regarding productivity for this harvest year, the 16-17. What's probably going to happen is that, and if [indiscernible] is confirmed for the second half of the year, this means we will see a pretty dry second half which means we'll be able to crush a lot, but then we may end the harvest year with lower agricultural productivity. But again, it doesn't really affect what we expect in terms of crushing for the 16-17 harvest year. What's really important here is to understand what does this drier second half means for the 17-18 harvest year, and we do believe that if the drier weather is confirmed, we'll probably have a lower agricultural productivity in the next year, which likely means a smaller crushing in the 17-18 compared to the 16-17. But I think this is more of an issue or something to be more concerned when you think about it from a sector standpoint. The thing is, we all know that there is a good deal of under-investment in the sugarcane fields in Brazil over the last two or three years. So the negative impact of a drier weather can be stronger in a field that has had less investment over the last three years, which is not the case for us. Again, remember that we've been investing or we've been renewing our sugarcane fields more than 20% over the last two to three years. The 15-16 harvest year in particular was a transition year because our plan now…

Okay. And regarding dividends, are you considering making any additional dividend payments this year?

This is Mario speaking. Look, what we can tell you about is we're going to pay the mean of that 25% that we have under the Brazilian Corporate Law, but we cannot anticipate any major change in terms of the dividends that we're going to pay.

Yes, I mean if you look at the competence of dividends, right, there's been a consistent increase in the payment, which essentially relates to the consistent improvement in the operational performance, and this should be the trend. More than that, we really don't like to talk about, okay.

Okay, thank you, very helpful.

Our next question comes from Ravi Jain, HSBC.

So I had two quick questions. The first one is on the Energia business, as to your strategy of inventories, especially on the ethanol front, given that we expect additional taxes on ethanol starting in January next year. If you could give us some color on that, it will be helpful. And the second question is on Comgas, any update on the spin-off of Comgas, should we expect it more towards after the five-year review, or just an update on that will be helpful? Thank you.

So let's talk about the inventory carryover strategy. What happened, as I said before, is that we had a bit of an atypical behavior of ethanol prices in Brazil, which I think has to do with the change in climate or the unusual climate in the first quarter as well as the very fact that sugar prices are paying 30%, maybe more, or remunerating 30% more than ethanol in Brazil and there's been some migration to sugar. So the very truth of the matter is that we looked at our expectations for ethanol prices in the fourth quarter and first, I mean the second half of the harvest year, and the harvest didn't look to be profitable – sorry, the carry didn't look to be profitable, and this is why we didn't do so far, which doesn't mean we won't do throughout the harvest year if the opportunity appears. Regarding your question about taxes, as you know, we have a PIS/COFINS exemption in the ethanol production. This exemption ends at the end of the year. We are actually discussing the future of that with the government, I mean as a sector. And of course there is the debate about whether the government is going to put an additional city tax on gasoline, yes or no. What I think is important to understand here is that if you think about the Brazilian supply/demand equation for fuels, it is probably more complex than in most countries, because not only we have the hydrated ethanol which doesn't exist anywhere else, but at the end of the day given the fact that the production of sugar and ethanol is connected, at a limit you have sugar supply/demand impacting your fuels supply/demand in the country. So the thinking has to be what's the right balance between sugar and ethanol prices in Brazil so that you can guarantee that there is an incentive to produce ethanol, because the flipside of the coin is that the country will have to import a lot of gasoline and this has a negative impact on the trade balance, okay. And I mean I would even go beyond that, I mean Brazil is so relevant to the international trade for sugar that you really have to, and then sugar is a very important commodity for us in terms of exports, that the equation needs to go well beyond the PIS/COFINS or the CIDE or the combination. I mean I think the country has to have a more clear strategy in that regard.

This is Mario speaking. Regarding your second question on the spin-off of Comgas, as you know, we've been communicating to the market the intention to spin-off Comgas for one or two years at least. In the recent bond transaction that we did, it already predicts the spin-off. Being said that, we keep studying. What I can tell you is that it's a highly complex movement, both on a corporate perspective, on a tax perspective, but we keep studying that, and as soon as we have more concrete steps, which we're going to share with the market, but there is nothing concrete right now that I can anticipate for you, okay. But I mean the intention, it's still on the table and we keep studying, and at the point that we are ready to announce to the market, we're going to bring some news on that.

If I may add, just recapping what we promised, I mean what's implied in terms of the flexibility of doing the spin-off, we are committed to having the same level of leverage in the company that is left [indiscernible] and the new company that will be formed, if that's the route. We are committed to have the same kind of rating. So this shouldn't be an issue, okay.

Yes, thank you so much. That's helpful.

Our next question comes from Victor Saragiotto, Credit Suisse.

I was just comparing your results with the competition and it seems that Cosan is more focused on market share gains given the relative volume and EBITDA growth. I just want to understand if this assumption is correct, and if so, why do you think that your strategy is the better one?

So, the very simple question is, no, we are not focused on market share gains. And again, I'm going to repeat myself but it is what it is. The market share gains are a very clear reflect of the consistency of our growth strategy targeting the conversion of white flag stations. Remember that not only about the growth that you're seeing now, we've been very consistent in the type of white flag that is our target, we have a network with higher throughput per station which translates into operational efficiency, and we therefore have a hurdle rate in terms of the type of white flag that we target. And then, you asked the question about margins, but I think the margin is only one part of the equation. What we look for is for higher returns, and higher returns is a combination of the numerator which is the EBIT and the denominator which is the capital employed. And this is how we are measured and this is how we define our growth strategy for Raizen Energia. As I mentioned in the presentation, this is essentially why we are suggesting that you guys look at the EBIT expansion, because I think that's a better way to understand the evolution of the business. And then, last but not least, we would avoid commenting on the competition strategy. I mean, we know exactly what we're doing. There's nothing new in fact. So this is something that is only maturing. We are focused on that strategy for the last three years. What you're seeing now is just the consolidation of that strategy.

Okay, very clear. Thank you.

[Operator Instructions] Thank you. That concludes the question and answer session for investors and analysts. I would like to invite Ms. Paula for final remarks.

Just want to thank you all for attending the conference call and we'll see you next quarter.