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Risks and Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Assets and liabilities in foreign currencies

Assets and Liabilities in Foreign Currencies


In millions of Brazilian Reais	12/31/2018			12/31/2017
Assets in foreign currency
Cash, cash equivalents and financial investments in foreign currency (except hedging instruments)		254.2			236.4
Foreign trade receivables, net of allowance for doubtful accounts and advances to foreign customers		235.1			214.9
Other net assets in foreign (except cash, cash equivalents, financial investments, trade receivables, financing, and payables)		1,384.9			930.0

		1,874.2			1,381.3

Liabilities in foreign currency
Financing in foreign currency, gross of transaction costs and discount		(5,515.6	)		(4,416.2	)
Payables arising from imports, net of advances to foreign suppliers		(567.7	)		(173.1	)

		(6,083.3	)		(4,589.3	)

Foreign currency hedging instruments		2,483.0			1,777.6

Net liability position – Total		(1,726.1	)		(1,430.4	)
Net asset (liability) position – Income statement effect		282.7			(26.1	)
Net liability position – Equity effect		(2,008.8	)		(1,404.3	)

Sensitivity analysis of assets and liabilities in foreign currency

The table below shows, in the three scenarios, the effects of exchange rate changes on the net liability position of R$ 1,726.1 million in foreign currency as of December 31, 2018:


In millions of Brazilian Reais	Risk	Scenario I			Scenario II			Scenario III
		Likely			25%			50%
(1) Income statement effect	Real devaluation		28.3			70.7			141.4
(2) Equity effect			(200.9	)		(502.2	)		(1,004.4	)

(1) + (2)	Net effect		(172.6	)		(431.5	)		(863.0	)

(3) Income statement effect	Real appreciation		(28.3	)		(70.7	)		(141.4	)
(4) Equity effect			200.9			502.2			1,004.4

(3) + (4)	Net effect		172.6			431.5			863.0

The table below shows, in the three scenarios, the effects of exchange rate changes on the net liability position of R$ 1,430.4 million in foreign currency as of December 31, 2017:


In millions of Brazilian Reais	Risk	Scenario I			Scenario II			Scenario III
		Likely			25%			50%
(1) Income statement effect	Real devaluation		(2.6	)		(6.5	)		(13.0	)
(2) Equity effect			(140.4	)		(351.1	)		(702.2	)

(1) + (2)	Net effect		(143.0	)		(357.6	)		(715.2	)

(3) Income statement effect	Real appreciation		2.6			6.5			13.0
(4) Equity effect			140.4			351.1			702.2

(3) + (4)	Net effect		143.0			357.6			715.2

Financial assets and liabilities exposed to floating interest rates

The financial assets and liabilities exposed to floating interest rates are demonstrated below:


In millions of Brazilian Reais	Note		12/31/2018			12/31/2017
CDI
Cash equivalents		4.a		3,722.3			4,821.6
Financial investments		4.b		2,537.3			1,153.0
Asset position of foreign exchange hedging instruments—CDI		33.g		33.9			29.9
Loans and debentures		15.a		(8,440.9	)		(7,987.3	)
Liability position of foreign exchange hedging instruments—CDI		33.g		(2,205.5	)		(1,877.4	)
Liability position of fixed interest instruments + IPCA – CDI		33.g		(823.5	)		(586.6	)

Net liability position in CDI				(5,176.4	)		(4,446.8	)

TJLP
Loans – TJLP		15.a		(201.2	)		(301.9	)

Net liability position in TJLP				(201.2	)		(301.9	)

LIBOR
Asset position of foreign exchange hedging instruments—LIBOR		33.g		811.6			984.3
Loans—LIBOR		15.a		(1,437.1	)		(1,418.5	)

Net liability position in LIBOR				(625.5	)		(434.2	)

TIIE
Loans—TIIE		15.a		(4.0	)		(3.4	)

Net liability position in TIIE				(4.0	)		(3.4	)

SELIC
Loans – SELIC		15.a		(51.5	)		(100.3	)

Net liability position in SELIC				(51.5	)		(100.3	)

Total net liability position exposed to floating interest				(6,058.6	)		(5,286.6	)

Sensitivity analysis of floating interest rate risk

The tables below shows the incremental expenses and income that would be recognized in financial income, due to the effect of floating interest rate changes in different scenarios.


In millions of Brazilian Reais			12/31/2018
	Risk		Scenario I			Scenario II			Scenario III
			Likely			25%			50%
Exposure of interest rate risk
Interest effect on cash equivalents and financial investments		Increase in CDI		32.7			81.7			163.3
Foreign exchange hedging instruments (assets in CDI) effect		Increase in CDI		0.1			0.2			0.5
Interest effect on debt in CDI		Increase in CDI		(55.0	)		(137.4	)		(274.9	)
Interest rate hedging instruments (liabilities in CDI) effect		Increase in CDI		(33.7	)		(73.4	)		(139.6	)

Incremental expenses				(55.9	)		(128.9	)		(250.7	)

Interest effect on debt in TJLP		Increase in TJLP		(1.7	)		(4.2	)		(8.3	)

Incremental expenses				(1.7	)		(4.2	)		(8.3	)

Foreign exchange hedging instruments (assets in LIBOR) effect		Increase in LIBOR		2.8			6.9			13.9
Interest effect on debt in LIBOR		Increase in LIBOR		(3.6	)		(9.1	)		(18.1	)

Incremental expenses				(0.8	)		(2.2	)		(4.2	)

Interest effect on debt in TIIE		Increase in TIIE		(0.1	)		(0.3	)		(0.5	)

Incremental expenses				(0.1	)		(0.3	)		(0.5	)

Interest effect on debt in SELIC		Increase in SELIC		(0.4	)		(1.0	)		(2.0	)

Incremental expenses				(0.4	)		(1.0	)		(2.0	)


In millions of Brazilian Reais			12/31/2017
	Risk		Scenario I			Scenario II			Scenario III
			Likely			25%			50%
Exposure of interest rate risk
Interest effect on cash equivalents and financial investments		Increase in CDI		47.3			118.1			236.3
Foreign exchange hedging instruments (assets in CDI) effect		Increase in CDI		0.2			0.5			1.0
Interest effect on debt in CDI		Increase in CDI		(67.2	)		(168.0	)		(336.0	)
Interest rate hedging instruments (liabilities in CDI) effect		Increase in CDI		(38.6	)		(94.2	)		(186.7	)

Incremental expenses				(58.3	)		(143.6	)		(285.4	)

Interest effect on debt in TJLP		Increase in TJLP		(2.3	)		(5.6	)		(11.3	)

Incremental expenses				(2.3	)		(5.6	)		(11.3	)

Foreign exchange hedging instruments (assets in LIBOR) effect		Increase in LIBOR		1.4			3.4			6.8
Interest effect on debt in LIBOR		Increase in LIBOR		(1.7	)		(4.4	)		(8.7	)

Incremental expenses				(0.3	)		(1.0	)		(1.9	)

Interest effect on debt in TIIE		Increase in TIIE		(0.0	)		(0.1	)		(0.2	)

Incremental expenses				(0.0	)		(0.1	)		(0.2	)

Interest effect on debt in SELIC		Increase in SELIC		(1.0	)		(2.5	)		(4.9	)

Incremental expenses				(1.0	)		(2.5	)		(4.9	)

Summary of Credit Risk of Cash, Cash Equivalents and Financial Investments

The credit risk of cash, cash equivalents and financial investments is summarized below:


	Fair value
Counterparty credit rating	12/31/2018		12/31/2017
AAA		5,933,671		29,003
AA		707,358		6,076,520
A		262,553		192,638
BBB		90,824		71,767

Total		6,994,406		6,369,928

Allowance for estimated losses on doubtful accounts balances on trade receivables

The subsidiaries of the Company maintained the following allowance for estimated losses on doubtful accounts balances on trade receivables:


	12/31/2018		12/31/2017
			Restated (i)
Ipiranga		442,486		350,594
Ultragaz		61,975		83,627
Oxiteno		12,371		10,755
Extrafarma		5,858		5,623
Ultracargo		2,089		2,179

Total		524,779		452,778

(i)	See Note 2.x.

Contractual undiscounted cash outflows

The table below presents a summary of financial liabilities in 2018 by the Company and its subsidiaries, listed by maturity. The amounts disclosed in this table are the contractual undiscounted cash outflows, and, therefore, these amounts may be different from the amounts disclosed on the balance sheet.


	In millions of Brazilian Reais
Financial liabilities	Total		Less than 1 year		Between 1 and 3 years		Between 3 and 5 years		More than 5 years
Loans including future contractual interest (1) (2)		19,323.8		2,869.0		4,089.7		7,820.3		4,544.8
Currency and interest rate hedging instruments (3)		388.3		55.2		172.9		147.7		12.5
Trade payables		2,731.7		2,731.7		—		—

⁽¹⁾

To calculate the estimated interest on loans some macroeconomic assumptions were used, including averaging for the period the following: (i) CDI of 6.39% in 2018, 7.38% from 2019 to 2021, 8.52% from 2022 to 2023, 9.49% from 2024 to 2033, (ii) exchange rate of the Real against the U.S. dollar of R$ 3.87 in 2018, R$ 3.92 in 2019, R$ 4.06 in 2020, R$ 4.27 in 2021, R$ 4.53 in 2022, R$ 4.81 in 2023, R$ 5.12 in 2024, R$ 5.44 in 2025, R$ 5.77 in 2026 and R$ 6.13 in 2027 (iii) TJLP of 7.03%, (iv) IGP-M of 8.12% in 2018, 4.14% in 2019, 3.90% from 2020 to 2033 and (v) IPCA of 4.01% (source: B3, Bulletin Focus and financial institutions).

⁽²⁾	Includes estimated interest payments on short-term and long-term loans until the payment date.

⁽³⁾

The currency and interest rate hedging instruments were estimated based on projected U.S dollar futures contracts and the futures curves of DI x Pre and Pre x IPCA contracts quoted on B3 on December 28, 2018 and on the futures curve of LIBOR (ICE—Intercontinental Exchange) on December 31, 2018. In the table above, only the hedging instruments with negative results at the time of settlement were considered.

Position of hedging instruments

The table below summarizes the position of hedging instruments entered into by the Company and its subsidiaries:


			Notional amount¹						Fair value						Amounts receivable			Amounts payable
Hedging instruments	Maturity		12/31/2018			12/31/2017			12/31/2018			12/31/2017			12/31/2018
									R$ million			R$ million			R$ million			R$ million
Designated as hedge accounting
a –Exchange rate swaps receivable in U.S. dollars
Receivables in U.S. dollars (LIBOR)			US$	150.0		US$	240.0			577.5			788.6			577.5			—
Receivables in U.S. dollars (Fixed)		Jul 2021 to Nov 2023	US$	245.0		US$	203.6			973.7			665.6			973.7			—
Payables in CDI interest rate		Jul 2021 to Nov 2023	US$	(395.0	)	US$	(443.6	)		(1,515.8	)		(1,568.6	)		—			1,515.8

Total result				—			—			35.4			(114.4	)		1,551.2			1,515.8

b – Interest rate swaps in Brazilian Reais
Receivables in fixed interest rates + IPCA		Apr 2024 to Dec 2025	R$	806.1		R$	566.1			859.1			583.3			859.1			—
Payables in CDI interest rates		Apr 2024 to Dec 2025	R$	(806.1	)	R$	(566.1	)		(823.5	)		(586.6	)		—			823.5

Total result				—			—			35.6			(3.3	)		859.1			823.5

c – Options
Zero Cost Collar (Reais x U.S. dollars)		Jan 2019 to Dec 2019	US$	149.4			—			0.3			—			0.3			—

Total result			US$	149.4			—			0.3			—			0.3			—

Not designated as hedge accounting
d –Exchange rate swaps receivable in U.S. dollars
Receivables in U.S. dollars (LIBOR)		Jan 2019 to Oct 2026	US$	60.0		US$	60.0			234.1			195.7			234.1			—
Receivables in U.S. dollars (Fixed)			US$	856.8		US$	753.0			731.6			157.5			731.6			—
Payables in CDI interest rate			US$	(916.8	)	US$	(813.0	)		(689.7	)		(308.8	)		—			689.7

Total result				—			—			276.0			44.4			965.7			689.7

e – Exchange rate swaps payable in U.S. dollars + COUPON
Receivables in CDI interest rates			US$	8.9		US$	9.1			33.9			29.9			33.9			—
Payables in U.S. dollars (Fixed)		Jan 2019 to Apr 2019	US$	(8.9	)	US$	(9.1	)		(33.9	)		(29.8	)		—			33.9

Total result				—			—			—			0.1			33.9			33.9

Total gross result										347.3			(73.2	)		3,410.2			3,062.9
Income tax										(27.9	)		(4.7	)		(27.9	)		—

Total net result										319.4			(77.9	)		3,382.3			3,062.9

Positive result (see Note 4)										363.3			85.8			2,296.3			1,932.9
Negative result (see Note 15)										(43.9	)		(163.7	)		1,086.0			1,130.0

⁽¹⁾	In million. Currency as indicated.

Foreign Exchange Hedging Instruments Designated as Fair Value Hedge

The foreign exchange hedging instruments designated as fair value hedge are:


In millions, except the CDI %	12/31/2018			12/31/2017
Notional amount – US$		395.0			320.0
Result of hedging instruments – gain/(loss) – R$		149.2			(143.4	)
Fair value adjustment of debt – R$		(28.5	)		16.5
Financial expense in the statements of profit or loss – R$		(215.9	)		(4.1	)
Average effective cost – CDI %		104.4			102.7

For more information, see Note 15.c.1.

The interest rate hedging instruments designated as fair value hedge are:


In millions, except the CDI %	12/31/2018			12/31/2017
Notional amount – R$		806.1			566.1
Result of hedging instruments – gain/(loss) – R$		25.8			(3.3	)
Fair value adjustment of debt – R$		(13.3	)		19.1
Financial expense in the statements of profit or loss – R$		(50.2	)		(18.5	)
Average effective cost – CDI %		95.8			95.2

Value of gains (losses) recognized

The following tables summarize the value of gains (losses) recognized, which affected the equity of the Company and its subsidiaries:


	R$ million
	2018
	Profit or loss			Equity
a – Exchange rate swaps receivable in U.S. dollars (i) (ii)		181.5			—
b – Exchange rate swaps payable in U.S. dollars (ii)		(3.8	)		0.2
c – Interest rate swaps in R$ (iii)		12.5			—
d – Non-derivative financial instruments (iv)		(134.0	)		(289.6	)

Total		56.2			(289.4	)


	R$ million
	2017
	Profit or loss			Equity
a – Exchange rate swaps receivable in U.S. dollars (i) (ii)		(72.1	)		5.3
b – Exchange rate swaps payable in U.S. dollars (ii)		3.2			—
c – Interest rate swaps in R$ (iii)		15.9			—
d – Non-derivative financial instruments (iv)		(104.2	)		(36.7	)

Total		(157.2	)		(31.4	)


	R$ million
	2016			1/1/2017
	Profit or loss			Equity
a – Exchange rate swaps receivable in U.S. dollars (i) (ii)		(177.0	)		(13.8	)
b – Exchange rate swaps payable in U.S. dollars (ii)		9.2			—
c – Interest rate swaps in R$ (iii)		(0.5	)		—
d – Non-derivative financial instruments (iv)		(28.5	)		(14.9	)

Total		(196.8	)		(28.7	)

⁽ⁱ⁾	Does not consider the effect of exchange rate variation of exchange swaps receivable in U.S. dollars when this effect is offset in the gain or loss of the hedged item (debt/firm commitments);

⁽ⁱⁱ⁾	Considers the designation effect of foreign exchange hedging;

⁽ⁱⁱⁱ⁾

Considers the designation effect of interest rate hedging in Brazilian Reais; and

^(iv)

Considers the results of notes in the foreign market (for further information see Note 15.b).

Fair values and the carrying values of the financial instruments

The fair values and the carrying values of the financial instruments, including currency and interest rate hedging instruments, are stated below:


				12/31/2018				12/31/2017 Restated (i)
	Category	Note		Carrying value		Fair value		Carrying value		Fair value
Financial assets:
Cash and cash equivalents
Cash and bank deposits	Measured at amortized cost		4.a		205,482		205,482		147,926		147,926
Financial investments in local currency	Measured at fair value through other comprehensive income		4.a		3,722,308		3,722,308		4,821,605		4,821,605
Financial investments in foreign currency	Measured at fair value through profit or loss		4.a		11,161		11,161		32,473		32,473
Financial investments:
Fixed-income securities and funds in local currency	Measured at fair value through profit or loss		4.b		2,462,018		2,462,018		1,076,849		1,076,849
Fixed-income securities and funds in local currency	Measured at fair value through other comprehensive income		4.b		2,208		2,208		2,720		2,720
Fixed-income securities and funds in local currency	Measured at amortized cost		4.b		73,089		73,089		73,471		73,471
Fixed-income securities and funds in foreign currency	Measured at fair value through other comprehensive income		4.b		154,811		154,811		129,131		129,131
Currency and interest rate hedging instruments	Measured at fair value through profit or loss		4.b		363,329		363,329		85,753		85,753

Total					6,994,406		6,994,406		6,369,928		6,369,928

Financial liabilities:
Financing	Measured at fair value through profit or loss		15.a		1,567,374		1,567,374		1,047,809		1,047,809
Financing	Measured at amortized cost		15.a		6,889,310		6,840,079		6,740,872		6,761,907
Debentures	Measured at amortized cost		15.a		5,826,242		5,770,979		5,035,247		5,037,072
Debentures	Measured at fair value through profit or loss		15.a		833,213		833,213		554,402		554,402
Finance leases	Measured at amortized cost		15.a		46,066		46,066		48,515		48,515
Currency and interest rate hedging instruments	Measured at fair value through profit or loss		15.a		43,944		43,944		163,749		163,749
Subscription warrants – indemnification	Measured at fair value through profit or loss		24		123,095		123,095		171,459		171,459

Total					15,329,244		15,224,750		13,762,053		13,784,913

(i)	See Note 2.x.

Summary of the financial assets and financial liabilities measured at fair value

The table below shows a summary of the financial assets and financial liabilities measured at fair value:


	Category	Note		12/31/2018		Level 1		Level 2		Level 3
Financial assets:
Cash equivalents
Cash and banks	Measured at amortized cost		4.a		205,482		205,482		—		—
Financial investments in local currency	Measured at fair value through other comprehensive income		4.a		3,722,308		—		3,722,308		—
Financial investments in foreign currency	Measured at fair value through profit or loss		4.a		11,161		11,161		—		—
Financial investments:
Fixed-income securities and funds in local currency	Measured at fair value through profit or loss		4.b		2,462,018		2,462,018		—		—
Fixed-income securities and funds in local currency	Measured at fair value through other comprehensive income		4.b		2,208		—		2,208		—
Fixed-income securities and funds in local currency	Measured at amortized cost		4.b		73,089		—		73,089		—
Fixed-income securities and funds in foreign currency	Measured at fair value through other comprehensive income		4.b		154,811		1,666		153,145		—
Currency and interest rate hedging instruments	Measured at fair value through profit or loss		4.b		363,329		—		363,329		—

Total					6,994,406		2,680,327		4,314,079		—

Financial liabilities:
Financing	Measured at fair value through profit or loss		15.a		1,567,374		—		1,567,374		—
Financing	Measured at amortized cost		15.a		6,840,079		2,841,436		3,998,643		—
Debentures	Measured at amortized cost		15.a		5,770,979		—		5,770,979		—
Debentures	Measured at fair value through profit or loss		15.a		833,213		—		833,213		—
Finance leases	Measured at amortized cost		15.a		46,066		—		46,066		—
Currency and interest rate hedging instruments	Measured at fair value through profit or loss		15.a		43,944		—		43,944		—
Subscription warrants – indemnification (1)	Measured at fair value through profit or loss		24		123,095		—		123,095		—

Total					15,224,750		2,841,436		12,383,314		—


	Category	Note		12/31/2017		Level 1		Level 2		Level 3
Financial assets:
Cash equivalents
Cash and banks	Measured at amortized cost		4.a		147,926		147,926		—		—
Financial investments in local currency	Measured at fair value through profit or loss		4.a		4,821,605		—		4,821,605		—
Financial investments in foreign currency	Measured at fair value through profit or loss		4.a		32,473		32,473		—		—
Financial investments:
Fixed-income securities and funds in local currency	Measured at fair value through profit or loss		4.b		1,076,849		1,076,849		—		—
Fixed-income securities and funds in local currency	Measured at fair value through other comprehensive income		4.b		2,720		—		2,720		—
Fixed-income securities and funds in local currency	Measured at amortized cost		4.b		73,471		—		73,471		—
Fixed-income securities and funds in foreign currency	Measured at fair value through other comprehensive income		4.b		129,131		40,556		88,575		—
Currency and interest rate hedging instruments	Measured at fair value through profit or loss		4.b		85,753		—		85,753		—

Total					6,369,928		1,297,804		5,072,124		—

Financial liabilities:
Financing	Measured at fair value through profit or loss		15.a		1,047,809		—		1,047,809		—
Financing	Measured at amortized cost		15.a		6,761,907		2,523,643		4,238,264		—
Debentures	Measured at amortized cost		15.a		5,037,072		—		5,037,072		—
Debentures	Measured at fair value through profit or loss		15.a		554,402		—		554,402		—
Finance leases	Measured at amortized cost		15.a		48,515		—		48,515		—
Currency and interest rate hedging instruments	Measured at fair value through profit or loss		15.a		163,749		—		163,749		—
Subscription warrants – indemnification (1)	Measured at fair value through profit or loss		24		171,459		—		171,459		—

Total					13,784,913		2,523,643		11,261,270		—

⁽¹⁾	Refers to subscription warrants issued by the Company in the Extrafarma acquisition.

The fair value of trade receivables and trade payables are classified as level 2.

Changes in exchange rate


12/31/2018	Risk		Scenario I Likely			Scenario II			Scenario III
Currency swaps receivable in U.S. dollars
(1) U.S. Dollar / Real swaps		Dollar		372,022			1,039,669			1,707,316
(2) Debts/firm commitments in dollars		appreciation		(372,019	)		(1,039,661	)		(1,707,303	)

(1)+(2)		Net effect		3			8			13

Currency swaps payable in U.S. dollars
(3) Real / U.S. Dollar swaps		Dollar		(65	)		8,545			17,154
(4) Gross margin of Oxiteno		devaluation		65			(8,545	)		(17,154	)

(3)+(4)		Net effect		—			—			—

Options
(5) Options Real / U.S. Dollar swaps		Dollar		—			97,938			244,572
(6) Gross margin of Oxiteno		Devaluation		7,641			(138,993	)		(285,627	)

(5)+(6)		Net effect		7,641			(41,055	)		(41,055	)

12/31/2017	Risk		Scenario I Likely			Scenario II			Scenario III
Currency swaps receivable in U.S. dollars
(1) U.S. Dollar / Real swaps		Dollar		198,138			690,432			1,182,726
(2) Debts/firm commitments in dollars		appreciation		(198,130	)		(690,415	)		(1,182,700	)

(1)+(2)		Net effect		8			17			26

Currency swaps payable in U.S. dollars
(3) Real / U.S. Dollar swaps		Dollar		(97	)		7,486			15,069
(4) Gross margin of Oxiteno		devaluation		97			(7,486	)		(15,069	)

(3)+(4)		Net effect		—			—			—