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Risks and Financial Instruments | 12 Months Ended
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Dec. 31, 2020
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Risks and Financial Instruments | # 33. Risks and f inancial i nstruments a. Risk m anagement and f inancial i nstruments – g overnance The main risks to which the Company and its subsidiaries are exposed reflect strategic/operational and economic/financial aspects. Operational/strategic risks (including, but not limited to, demand behavior, competition, technological innovation, and material changes in the industry structure) are addressed by the Company’s management model. Economic/financial risks primarily reflect default of customers, behavior of macroeconomic variables, such as exchange and interest rates, as well as the characteristics of the financial instruments used by the Company and its subsidiaries and their counterparties. These risks are managed through control policies, specific strategies, and the establishment of limits. The Company has a policy for the management of resources, financial instruments, and risks approved by its C ompany’s Board of Directors (“Policy”). In accordance with the Policy, the main objectives of financial management are to preserve the value and liquidity of financial assets and ensure financial resources for the development of the business, including expansions. The main financial risks considered in the Policy are market risks (currencies, interest rates and commodities), liquidity and credit. The g overnance of the management of financial risks follows the segregation of duties below: The execution of the Policy has done by corporate financial board, through its treasury department, with the assistance of the accounting, legal and tax departments. The monitoring of compliance of the Policy and possible issues is the responsibility of the Risk and Investment Committee, (“Committee”), which is composed of CFO, Treasury Director, Controller and other directors designated by the CFO. The Committee holds quarte r ly meetings and monitors the risk standards established by the Policy through a monitoring map on a monthly basis. Approval of the Policy and the periodic assessment of Company exposure to financial risks are subject to the approval of the C ompany’s Board of Directors of Ultrapar. The Audit and Risks Committee advises the C ompany’s Board of Directors in the assessment of controls, management and exposure of financial risks and revision of Policy. The Risk, Compliance and Audit board monitors of standards compliance of the Policy and reports to the Audit and Risks Committee the risks exposure and compliance or noncompliance of the Policy. b. Currency r isk Most transactions of the Company, through its subsidiaries, are located in Brazil and, therefore, the reference currency for risk management is the Brazilian Real. Currency risk management is guided by neutrality of currency exposures and considers the risks of the Company and its subsidiaries and their exposure to changes in exchange rates. The Company considers as its main currency exposures the changes in assets and liabilities in foreign currency. The Company and its subsidiaries use exchange rate hedging instruments (especially between the Brazilian Real and the U.S. dollar) available in the financial market to protect their assets, liabilities, receipts, and disbursements in foreign currency and net investment s in foreign operation s. Hedge is used in order to reduce the effects of changes in exchange rates on the Company´s income and cash flows in Brazilian Reais within the exposure limits under its Policy. Such foreign exchange hedging instruments have amounts, periods, and rates substantially equivalent to those of assets, liabilities, receipts, and disbursements in foreign currenc ies to which they are related. Assets and liabilities in foreign currencies are stated below, translated into Brazilian Reais: b.1 Assets and l iabilities in f oreign c urrencies
| 12/31/2020 |  |  | 12/31/2019 |
Assets in foreign currency |  |  |  |  |
Cash, cash equivalents and financial investments in foreign currency (except hedging instruments) | 1,413,276 |  |  | 455,620 |
Foreign trade receivables, net of allowance for doubtful accounts and advances to foreign customers | 307,829 |  |  | 213,544 |
Other assets | 1,767,626 |  |  | 1,445,022 |
| 3,488,731 |  |  | 2,114,186 |
Liabilities in foreign currency |  |  |  |  |
Financing in foreign currency, gross of transaction costs and discount | (9,246,707 | ) |  | (6,895,052 | )
Payables arising from imports, net of advances to foreign suppliers | (633,013 | ) |  | (344,523 | )
| (9,879,720 | ) |  | (7,239,575 | )
Foreign currency hedging instruments | 4,837,554 |  |  | 3,636,418 |
Net liability position – total | (1,553,435 | ) |  | (1,488,971 | )
Net asset (liability) position – income statement effect | 186,306 |  |  | 452,178 |
Net liability position – equity effect | (1,739,741 | ) |  | (1,941,149 | )
b.2 Sensitivity a nalysis of a ssets and l iabilities in f oreign c urrency Scenarios I, II and III were based on 10%, 25% and 50% variations, respectively, applied on the net position of the Company exposed to the currency risk, simulating the effects of appreciation and devaluation of the Real in the income statement and the equity: The table below shows, in the three scenarios, the effect s of exchange rate changes o n the net liability position of R$ 1,553,435 in foreign currency as of December 3 1, 20 20:
| Risk | Scenario I |  |  | Scenario II |  |  | Scenario III |
|  | Base |  |  | 25% |  |  | 50% |
(1) Income statement effect | Real devaluation | 18,631 |  |  | 46,577 |  |  | 93,153 |
(2) Equity effect | (173,974 | ) |  | (434,935 | ) |  | (869,871 | )
(1) + (2) | Net effect | (155,343 | ) |  | (388,358 | ) |  | (776,718 | )
(3) Income statement effect | Real appreciation | (18,631 | ) |  | (46,577 | ) |  | (93,153 | )
(4) Equity effect | 173,974 |  |  | 434,935 |  |  | 869,871 |
(3) + (4) | Net effect | 155,343 |  |  | 388,358 |  |  | 776,718 |
The table below shows, in the three scenarios, the effects of exchange rate changes on the net liability position of R$ 1,488,971 in foreign currency as of December 3 1, 20 19:
| Risk | Scenario I |  |  | Scenario II |  |  | Scenario III |
|  | Base |  |  | 25% |  |  | 50% |
(1) Income statement effect | Real devaluation | 45,218 |  |  | 113,045 |  |  | 226,089 |
(2) Equity effect | (194,115 | ) |  | (485,287 | ) |  | (970,575 | )
(1) + (2) | Net effect | (148,897 | ) |  | (372,242 | ) |  | (744,486 | )
(3) Income statement effect | Real appreciation | (45,218 | ) |  | (113,045 | ) |  | (226,089 | )
(4) Equity effect | 194,115 |  |  | 485,287 |  |  | 970,575 |
(3) + (4) | Net effect | 148,897 |  |  | 372,242 |  |  | 744,486 |
The equity effect refer s to cumulative translation adjustments of changes in the exchange rate on equity of foreign subsidiaries (see Note s 2.s.1 and 2 5.g.2), net investments hedge in foreign entities, cash flow hedge of firm commitment and highly probable transaction (see Note 2.c and “h. Hedge Accounting” below). c. Interest r ate r isk The Company and its subsidiaries adopt policies for borrowing and investing financial resources and for capital cost minimization. The financial investments of the Company and its subsidiaries are primarily held in transactions linked to the DI, as set forth in Note 4. Borrowings primarily relate to financing from Banco do Bra s il, as well as debentures and borrowings in foreign currency, as shown in Note 1 6. The Company attempts to maintain most of its financial interest assets and liabilities at floating rates. c.1 Assets and liabilities exposed to floating interest rates T he financial assets and liabilities exposed to floating interest rates are demonstrated below:
| Note | 12/31/2020 |  |  | 12/31/2019 |
DI |  |  |  |  |  |
Cash equivalents | 4.a | 2,241,852 |  |  | 1,780,939 |
Financial investments | 4.b | 3,749,852 |  |  | 2,610,686 |
Asset position of foreign exchange hedging instruments – DI | 33.g | - |  |  | 19,323 |
Loans and debentures | 16.a | (6,947,362 | ) |  | (6,268,615 | )
Liability position of foreign exchange hedging instruments – DI | 33.g | (2,124,146 | ) |  | (3,318,289 | )
Liability position of fixed interest instruments + IPCA – DI | 33.g | (2,203,705 | ) |  | (821,902 | )
Net liability position in DI |  | (5,283,509 | ) |  | (5,997,858 | )
TJLP |  |  |  |  |  |
Loans –TJLP | 16.a | (29,803 | ) |  | (103,945 | )
Net liability position in TJLP |  | (29,803 | ) |  | (103,945 | )
LIBOR |  |  |  |  |  |
Asset position of foreign exchange hedging instruments – LIBOR | 33.g | 260,958 |  |  | 850,307 |
Loans – LIBOR | 16.a | (573,484 | ) |  | (1,457,263 | )
Net liability position in LIBOR |  | (312,526 | ) |  | (606,956 | )
SELIC |  |  |  |  |  |
Loans – SELIC | 16.a | - |  |  | (30,392 | )
Net liability position in SELIC |  | - |  |  | (30,392 | )
Total net liability position exposed to floating interest |  | (5,625,838 | ) |  | (6,739,151 | )
c.2 Sensitivity a nalysis of f loating i nterest r ate r isk For sensitivity analysis of floating interest rate risk, the Company used the accumulated amount of the reference indexes (DI, TJLP, LIBOR and SELIC) as a base scenario. Scenarios I, II and III were based on 10%, 25% and 50% variation s, respectively, applied in the floating interest rate of the base scenario: The tables below show the incremental expenses and income that would be recognized in finance income, due to the effect of floating interest rate changes in different scenarios.
|  | 12/31/2020
| Risk | Scenario I |  | Scenario II |  | Scenario III
|  | Base |  | 25% |  | 50%
Exposure of interest rate risk |  |  |  |  |  |
Interest effect on cash equivalents and financial | Increase in DI | 13,175 |  | 32,937 |  | 65,875
Interest effect on debt in DI | Increase in DI | (19,674) |  | (49,184) |  | (98,368)
Interest rate hedging instruments (liabilities in DI) effect | Increase in DI | (1,137) |  | (11,934) |  | (29,929)
Incremental expenses |  | (7,636) |  | (28,181) |  | (62,422)
Interest effect on debt in TJLP | Increase in TJLP | (301) |  | (752) |  | (1,503)
Incremental expenses |  | (301) |  | (752) |  | (1,503)
Foreign exchange hedging instruments (assets in LIBOR) effect | Increase in LIBOR | 528 |  | 1,320 |  | 2,640
Interest effect on debt in LIBOR | Increase in LIBOR | (1,410) |  | (3,525) |  | (7,050)
Incremental expenses |  | (882) |  | (2,205) |  | (4,410)
Interest effect on debt in SELIC | Increase in SELIC | (41) |  | (102) |  | (203)
Incremental expenses |  | (41) |  | (102) |  | (203)
|  | 12/31/2019
| Risk | Scenario I |  | Scenario II |  | Scenario III
|  | Base |  | 25% |  | 50%
Exposure of interest rate risk |  |  |  |  |  |
Interest effect on cash equivalents and financial | Increase in DI | 29,304 |  | 73,261 |  | 146,522
Foreign exchange hedging instruments (assets in DI) | Increase in DI | 55 |  | 137 |  | 274
Interest effect on debt in DI | Increase in DI | (44,469) |  | (111,173) |  | (222,345)
Interest rate hedging instruments (liabilities in DI) effect | Increase in DI | (39,175) |  | (85,571) |  | (162,897)
Incremental expenses |  | (54,285) |  | (123,346) |  | (238,446)
Interest effect on debt in TJLP | Increase in TJLP | (1,213) |  | (3,033) |  | (6,065)
Incremental expenses |  | (1,213) |  | (3,033) |  | (6,065)
Foreign exchange hedging instruments (assets in LIBOR) effect | Increase in LIBOR | 1,722 |  | 4,305 |  | 8,609
Interest effect on debt in LIBOR | Increase in LIBOR | (3,551) |  | (8,876) |  | (17,753)
Incremental expenses |  | (1,829) |  | (4,571) |  | (9,144)
Interest effect on debt in SELIC | Increase in SELIC | (251) |  | (628) |  | (1,257)
Incremental expenses |  | (251) |  | (628) |  | (1,257)
d. Credit r isks The financial instruments that would expose the Company and its subsidiaries to credit risks of the counterparty are basically represented by cash and bank deposits, financial investments, hedging instruments (see Note 4), and trade receivables (see Note 5). d.1 Credit risk of financial institutions Such risk results from the inability of financial institutions to comply with their financial obligations to the Company and its subsidiaries due to insolvency. The Company and its subsidiaries regularly conduct a credit review of the institutions with which they hold cash and cash equivalents, financial investments, and hedging instruments through various methodologies that assess liquidity, solvency, leverage, portfolio quality, etc. Cash and cash equivalents, financial investments, and hedging instruments are held only with institutions with a solid credit history, chosen for safety and soundness. The volume of cash and cash equivalents, financial investments, and hedging instruments are subject to maximum limits by each institution and, therefore, require diversification of counterpart ies. d.2 Government credit risk The Company's policy allows investments in government securities from countries classified as investment grade AAA or a aa by specialized credit rating agencies (S&P, Moody’s and Fitch) and in Brazilian government bonds. The volume of such financial investments is subject to maximum limits by each country and, therefore, requires diversification of counterparties. The credit risk of financial institution and government of cash, cash equivalents and financial investments is summarized below:
|  | Fair value
Counterparty credit rating |  | 12/31/2020 |  | 12/31/2019
AAA |  | 8,190,428 |  | 4,906,077
AA |  | 317,894 |  | 331,512
A |  | 163,839 |  | 418,020
BBB |  | - |  | 56,488
Total |  | 8,672,160 |  | 5,712,097
d.3 Customer credit risk The credit policy establishes the analysis of the profile of each new customer, individually, regarding their financial condition. The review carried out by the subsidiaries of the Company includes the evaluation of external ratings, when available, f inancial statements, credit bureau information, industry information and, when necessary, bank references. Credit limits are established for each customer and reviewed periodically, in a shorter period the greater the risk, depending on the approval of the responsible area in cases of sales that exceed these limits. In monitoring credit risk, customers are grouped according to their credit characteristics and depending on the business the grouping takes into account, for example, whether they are natural or legal clients, whether they are wholesalers, resellers or final customers, considering also the geographic area. The expected of credit loss es are calculated by the expected loss ap p roach based on the probability of default rates. Loss rates are calculated on the basis of the average probability of a receivable amount to advance through successive stages of default until full write-off. The probability of default calculation takes into account a credit risk score for each exposure, based on data considered to be capable of fores eeing the risk of loss (external classifications, audited f inancial statements, cash flow projections, customer information available in the press, for example), with addition of the credit assessment based on experience. Such credit risks are managed by each business unit through specific criteria for acceptance of customers and their credit rating and are additionally mitigated by the diversification of sales. No single customer or group accounts for more than 10% of total revenue. The subsidiaries of the Company request guarantees related to trade receivables and other receivables in specific situations to customers, but these guarantees don’t influence in the calculation of risk of loss. The subsidiaries of the Company maintained the following allowance for expected losses on doubtful accounts balances on trade receivables:
| 12/31/2020 |  | 12/31/2019
Ipiranga | 447,389 |  | 447,235
Ultragaz | 113,621 |  | 94,985
Oxiteno | 16,430 |  | 13,252
Extrafarma | 73 |  | 3,419
Ultracargo | 1,594 |  | 2,001
Total | 579,107 |  | 560,892
The table below presents information about credit risk exposure:
| 12/31/2020 |  | 12/31/2019
| Weighted average rate of losses |  | Accounting balance |  | Provision for losses |  | Weighted average rate of losses |  | Accounting balance |  | Provision for losses
Current | 1.2% |  | 3,751,067 |  | 44,091 |  | 1.3% |  | 3,843,803 |  | 50,198
less than 30 days | 2.2% |  | 134,836 |  | 2,939 |  | 2.1% |  | 185,612 |  | 3,975
31-60 days | 8.2% |  | 43,207 |  | 3,563 |  | 7.1% |  | 37,801 |  | 2,688
61-90 days | 10.9% |  | 42,589 |  | 4,630 |  | 20.4% |  | 24,861 |  | 5,062
91-180 days | 36.8% |  | 76,158 |  | 28,062 |  | 41.8% |  | 91,633 |  | 38,337
more than 180 days | 55.7% |  | 890,756 |  | 495,822 |  | 53.1% |  | 867,618 |  | 460,632
|  |  | 4,938,613 |  | 579,107 |  |  |  | 5,051,328 |  | 560,892
The information about expected losses on doubtful accounts balances by geographic area are as follows:
| 12/31/2020 |  | 12/31/2019
Brazil | 568,461 |  | 550,928
Mexico | - |  | 1,123
Uruguay | 76 |  | 267
Other Latin American countries | 271 |  | 561
United States of America and Canada | 1,146 |  | 889
Europe | 9,120 |  | 7,075
Others | 33 |  | 49
| 579,107 |  | 560,892
For further information about the allowance for expected losses on doubtful accounts, see Notes 5.a and 5.b. d.4 Price risk The Company and its subsidiaries are exposed to commodity price risk, due the fluctuation in prices for diesel and gasoline, among others. To mitigate th e risk of the fluctuation of diesel and gasoline prices, the Company and its subsidiaries permanently monitor the market, seeking to protect ion of price movements through hedge transactions for cargo purchased in the international market, used contracts of derivative for heating oil (diesel) and RBOB (gasoline) traded on the stock exchange. These products are traded on the stock exchange and are subject ed to the impacts of macroeconomic and geopolitical factors outside the control of the Company and its subsidiaries. The table below shows the positions of derivative financial instruments to hedge commodity price risk at December 3 1, 2020:
Derivative |  | Contract |  | Notional amount (m3) |  | Notional amount (USD thousands) |  | Fair value
|  | Position |  | Product |  | Maturity |  | 12/31/2020 |  | 12/31/2019 |  | 12/31/2020 |  | 12/31/2019 |  | 12/31/2020 |  | 12/31/2019
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | R$ thousands |  | R$ thousands
Term |  | Sold |  | Heating Oil |  | jan-21 |  | 108,429 |  | 76,950 |  | 42,399 |  | 40,529 |  | (563) |  | (2,378)
Term |  | Sold |  | RBOB |  | - |  | - |  | 64,867 |  | - |  | 29,243 |  | - |  | 1,107
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (563) |  | (1,271)
e. Liquidity r isk The Company and its subsidiaries’ main sources of liquidity derive from (i) cash, cash equivalents, and financial investments, (ii) cash generated from operations and (iii) financing. The Company and its subsidiaries believe that these sources are sufficient to satisfy their current funding requirements, which include, but are not limited to, working capital, capital expenditures, amortization of debt, and payment of dividends. The Company and its subsidiaries periodically examine opportunities for acquisitions and investments. They consider different types of investments, either directly, through joint ventures, or through associated companies, and finance such investments using cash generated from operations, debt financing, through capital increases, or through a combination of these methods. On December 31, 2020 t he Company and its subsidiaries believe to have enough working capital and sources of financing to satisfy their current needs. The gross indebtedness due over the next twelve months total ed R$ 3,620,550 including estimated interests on loans (for quantitative information, see Note 1 6.a). Furthermore, the investment for 20 2 1 total ed R$ 1,890,763. On December 3 1, 20 20, the Company and its subsidiaries had R$ 7,694,752 in c ash, cash equivalents, and short-term financial investments (for quantitative information, see Note 4). The table below presents a summary of financial liabilities as of December 3 1, 20 20 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.
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) | 20,131,159 | 3,620,550 | 6,716,208 | 1,695,276 | 8,099,125
Currency and interest rate hedging instruments (3) | 472,647 | 133,092 | 88,918 | 106,885 | 143,752
Trade payables | 4,040,652 | 4,040,652 | - | - | -
Leases payable | 2,734,384 | 396,010 | 668,089 | 541,004 | 1,129,281
(1) | To calculate the estimated interest on loans some macroeconomic assumptions were used, including averag ing for the period the following: (i) DI of % 2.29% to 2021, 3.74% to 2022 and 4.84% to 2023; (ii) exchange rate of the R eal against the U.S. dollar of R$ 4.86 in 2021, R$ 4.33 in 2022, R$ 4.17 in 2023, R$ 4.20 in 2024, R$ 4.22 in 2025, R$ 4.24 in 2026, R$ 4.26 in 2027, R$ 4.28 in 2028 and R$ 4.30 in 2029; (iii) TJLP of 4.39%; (iv) IGP-M of 4.79% in 2021, 4.02% in 2022, 3.25% as from 20 2 3; (v) IPCA of 3.6% in 202 1, 3.3% in 202 2, 3.0% as from 202 3 (source: B3, B ulletin 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 curve s of DI x Pre and Pre x IPCA contract s quoted on B3 on December 3 1, 2020 and on the futures curve of LIBOR (ICE – Intercontinental Exchange) and commodities heating oil contracts and RBOB quoted on New York Mercantile Exchange (“NYMEX”) on December 3 1, 2020. In the table above, only the hedging instruments with negative result s at the time of settlement were considered.
f. Capital m anagement The Company manages its capital structure based on indicators and benchmarks. The key performance indicators related to the capital structure management are the weighted average cost of capital, net debt / EBITDA, interest coverage, and indebtedness / equity ratios. Net debt is composed of cash, cash equivalents, and financial investments (see Note 4) and loans, including debentures (see Note 1 6). The Company can change its capital structure depending on the economic and financial conditions, in order to optimize its financial leverage and capital management. The Company seeks to improve its return on invested capital by implementing efficient working capital management and a selective investment program. g. Selection and u se of f inancial i nstruments In selecting financial investments and hedging instruments, an analysis is conducted to estimate rates of return, risks involved, liquidity, calculation methodology for the carrying value and fair value, and a review is conducted of any documentation applicable to the financial instruments. The financial instruments used to manage the financial resources of the Company and its subsidiaries are intended to preserve value and liquidity. The Policy contemplates the use of derivative financial instruments only to cover identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). The risks identified in the Policy are described in the above sections and are subject to risk management. In accordance with the Policy, the Company and its subsidiaries can use forward contracts, S waps, options, and futures contracts to manage identified risks. Leveraged derivative instruments are not permitted. Because the use of derivative financial instruments is limited to the coverage of identified risks, the Company and its subsidiaries use the term “hedging instruments” to refer to derivative financial instruments. The table below summarizes the position of hedging instruments entered by the Company and its subsidiaries:
Designated as hedge accounting |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  | Hedged object |  | Rates agreement |  | Maturity |  | Note |  | Notional amount 1 |  | Fair value
|  |  |  | Assets | Liabilities |  |  |  |  |  | 12/31/2020 |  | 12/31/2019 |  | 12/31/2020 |  | 12/31/2019
Foreign exchange swap |  | Debt |  | USD + 4.58 % | 103.9% DI |  | nov-23 |  | 33.h.1 |  | USD 185,000 |  | USD 245,000 |  | 298,889 |  | 69,298
Foreign exchange swap |  | Debt |  | USD + LIBOR-3M + 1.14% | 105.0% DI |  | jun-22 |  | 33.h.1 |  | USD 50,000 |  | USD 150,000 |  | 94,782 |  | 74,970
Interest rate swap |  | Debt |  | 4.57% + IPCA | 95.8% DI |  | dec-25 |  | 33.h.1 |  | R$ 806,054 |  | R$ 806,054 |  | 203,837 |  | 144,123
Interest rate swap |  | Debt |  | 6.47% | 99.9% DI |  | nov-24 |  | 33.h.1 |  | R$ 90,000 |  | R$ 90,000 |  | 3,498 |  | 584
Term |  | Firm commitments |  | BRL | Heating Oil / RBOB |  | jan-21 |  | 33.h.1 |  | USD 42,399 |  | - |  | (563) |  | -
NDF |  | Firm commitments |  | BRL | USD |  | jan-21 |  | 33.h.1 |  | USD 23,124 |  | - |  | (733) |  | -
Zero Cost Collar |  | Operating margin |  | Put USD 3.86 | Call USD 4.33 |  | - |  | 33.h.2 |  | - |  | USD 60,000 |  | - |  | (121)
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | 599,710 |  | 288,854
Not designated as hedge accounting |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  | Hedged object |  | Rates agreement |  | Maturity |  | Notional amount 1 |  | Fair value
|  |  |  | Assets | Liabilities |  |  |  | 12/31/2020 |  | 12/31/2019 |  | 12/31/2020 |  | 12/31/2019
Foreign exchange swap |  | Debt |  | USD + 0.18% | 55.5% DI |  | jun-29 |  | USD 320,000 |  | USD 853,000 |  | 519,260 |  | 353,451
NDF |  | Firm commitments |  | BRL | USD |  | may-21 |  | USD 378,550 |  | USD 71,600 |  | (112,152) |  | (1,080)
Interest rate swap |  | Debt |  | 1.9% | 100% DI |  | jan-21 |  | R$ 1,300,000 |  | - |  | (5) |  | -
Foreign exchange swap |  | Debt |  | LIBOR-3M + 2.0% | 105.9% DI |  | - |  | - |  | USD 60,000 |  | - |  | 48,535
Foreign exchange swap |  | Firm commitments |  | USD + 0.00% | 33.5% DI |  | - |  | - |  | USD 17,896 |  | - |  | (2,203)
Foreign exchange swap |  | Operating margin |  | 34.8% DI | USD + 0.00% |  | - |  | - |  | USD 4,680 |  | - |  | 612
Term |  | Firm commitments |  | BRL | Heating Oil / RBOB |  | - |  | - |  | USD 56,000 |  | - |  | (1,271)
|  |  |  |  |  |  |  |  |  |  |  |  | 407,103 |  | 398,044
(1) Currency as indicated. All transactions mentioned above were properly registered with CETIP S.A. h. Hedge a ccounting The Company and its subsidiaries use derivative and non-derivative financial instruments for hedging purposes and test, throughout the duration of the hedge, the ir effectiveness, as well as the changes in their fair value. h.1 Fair value hedge The Company and its subsidiaries designate as fair value hedges certain financial instruments used to offset the variations in interest and exchange rates, which are based on the market value of financing contracted in Brazilian Reais and U.S. dollars. T he foreign exchange hedging instruments designated as fair value hedge are:
In thousands, except the DI % | 2020 |  | 2019
Notional amount – US$ | 235,000 |  | 395,000
Result of hedging instruments – gain/(loss) – R$ | 574,378 |  | 79,466
Fair value adjustment of debt – R$ | (13,131) |  | (36,764)
Finance expense in the statements of profit or loss – R$ | (597,735) |  | (130,320)
Average effective cost – DI % | 104.1 |  | 104.4
For more information, see Note 16.c.1. T he interest rate hedging instruments designated as fair value hedge are:
In thousands, except the DI % | 2020 |  | 2019
Notional amount – US$ | 806,054 |  | 806,054
Result of hedging instruments – gain/(loss) – R$ | 67,446 |  | 72,957
Fair value adjustment of debt – R$ | (18,446) |  | (76,992)
Finance expense in the statements of profit or loss – R$ | (99,555) |  | (68,054)
Average effective cost – DI % | 95.8 |  | 95.8
For more information, see Note s 16.g.2, 16.g.4 and 16.g.6.
In thousands, except the DI % | 2020 |  | 2019
Notional amount – US$ | 90,000 |  | 90,000
Result of hedging instruments – gain/(loss) – R$ | 6,528 |  | 584
Fair value adjustment of debt – R$ | 3,250 |  | (208)
Finance expense in the statements of profit or loss – R$ | (8,968) |  | (377)
Average effective cost – DI % | 99.9 |  | 99.9
For more information, see Note 16.g.7. The foreign exchange hedging instruments and commodities designated as fair value hedge are as described below. The purpose of this relationship is to transform the cost of the imported product from fixed to variable until the moment of blend the fuel, as occurs with the price practiced in its sales. The subsidiary Ipiranga realizes these operations with over-the-counter derivatives that are designated in a hedge accounting relationship, as a fair value hedge in an amount equivalent to the inventories of imported product.
In thousands, except the DI % | 2020 |  | 2019
Notional amount – US$ | 65,523 |  | -
Result of hedging instruments – gain/(loss) – R$ | (87,448) |  | -
Fair value adjustment of inventories – R$ | 18,468 |  | -
h.2 Cash flow hedge The Company and its subsidiaries designate, as cash flow hedge of firm commitment and highly probable transactions, derivative financial instruments to hedge firm commitments and non-derivative financial instruments to hedge highly probable future transactions, to hedge against fluctuations arising from changes in exchange rate. On December 3 1, 20 20, the notional amount of foreign exchange hedging instruments for highly probable future transactions designated as cash flow hedge, related to notes in the foreign market totaled US$ 468,215 (US$ 550,000 on December 31, 201 9). On December 3 1, 20 20, t he unrealized loss of “Other comprehensive income” is R$ 315,403 (loss of R$ 293,277 on December 31, 201 9), net of deferred IRPJ and CSLL. On December 3 1, 20 20, the notional amount of foreign exchange hedging instruments for highly probable future transactions designated as cash flow hedge, related to future sales revenues of Oxiteno (zero cost collars) have not been renewed and did not have balance (US$ 60,000 on December 31, 20 19) or loss recognized in “Other comprehensive income” (loss of R$ 74 on December 31, 201 9). h.3 Net investment hedge in foreign entities The Company and its subsidiaries designate, as net investment hedge in foreign entities, notes in the foreign market, for hedging net investment in foreign entities, to offset changes in exchange rates. On December 3 1, 20 20, the balance of foreign exchange hedging instruments designated as net investments hedge in foreign entities, related to part of the investments made in entities which functional currency is other than the Brazilian Real, totaled US$ 95,000 (US$ 95,000 on December 31, 201 9).On December 3 1, 20 20, t he unrealized loss of “Other comprehensive income” is R$ 73,108 (l oss of R$ 55,682 on December 31, 201 9), net of deferred income and social contribution taxes. The effects of exchange rate changes on investments and hedg ing instruments were offset in equity. i. Gains (losses) on h edging i nstruments The following tables summarize the value of gains (losses) recognized, which affected the equity of the Company and its subsidiaries:
| 2020
| Profit or loss |  | Equity
a – Exchange rate derivates receivable in U.S. dollars (i) and (ii) and commodities | 497,210 |  | -
b – Exchange rate derivates payable in U.S. dollars (ii) | (330,999) |  | 80
c – Interest rate swaps in R$ (iii) | 58,131 |  | -
d – Non-derivative financial instruments (iv) | (919,219) |  | (737,471)
Total | (694,877) |  | (737,391)
| 2019
| Profit or loss |  | Equity
a – Exchange rate derivates receivable in U.S. dollars (i) and (ii) and commodities | 230,000 |  | -
b – Exchange rate derivates payable in U.S. dollars (ii) | (1,667) |  | (80)
c – Interest rate swaps in R$ (iii) | (4,035) |  | -
d – Non-derivative financial instruments (iv) | (262,098) |  | (348,959)
Total | (37,800) |  | (349,039)
| 2018
| R$ million
| Profit or loss |  | Equity
a – Exchange rate swaps receivable in U.S. dollars (i) (ii) | 181,544 |  | -
b – Exchange rate swaps payable in U.S. dollars (ii) | (3.903) |  | 0,176
c – Interest rate swaps in R$ (iii) | 12,474 |  | -
d – Non-derivative financial instruments (iv) | (133,951) |  | (284,624)
Total | 56,163 |  | (289,448)
(i) | D oes not consider the effect of exchange rate variation of exchange S waps 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) | C onsiders 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 1 6.b).
j. Fair v alue of f inancial i nstruments The fair values and the carrying values of the financial instruments, including currency and interest rate hedging instruments, are stated below:
|  |  | 12/31/2020 |  | 12/31/2019
| Category | Note | Carrying value |  | Fair value |  | Carrying value |  | Fair value
Financial assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  |  |  |  |
Cash and bank | Measured at amortized cost | 4.a | 405,081 |  | 405,081 |  | 284,992 |  | 284,992
Financial investments in local currency | Measured at fair value through other comprehensive income | 4.a | 2,241,852 |  | 2,241,852 |  | 1,780,939 |  | 1,780,939
Financial investments in foreign currency | Measured at fair value through profit or loss | 4.a | 14,561 |  | 14,561 |  | 49,448 |  | 49,448
Financial investments: |  |  |  |  |  |  |  |  |
Fixed-income securities and funds in local currency | Measured at fair value through profit or loss | 4.b | 3,643,286 |  | 3,643,286 |  | 1,937,967 |  | 1,937,967
Fixed-income securities and funds in local currency | Measured at fair value through other comprehensive income | 4.b | 31,315 |  | 31,315 |  | 595,816 |  | 595,816
Fixed-income securities (guarantee of loans) | Measured at amortized cost | 4.b | 75,251 |  | 75,251 |  | 76,904 |  | 76,904
Fixed-income securities and funds in foreign currency | Measured at fair value through other comprehensive income | 4.b | 1,278,940 |  | 1,278,940 |  | 303,417 |  | 303,417
Currency and interest rate hedging and commodities instruments | Measured at fair value through profit or loss | 4.b | 981,874 |  | 981,874 |  | 682,615 |  | 682,615
Trade Receivables | Measured at amortized cost | 5.a | 3,391,122 |  | 3,369,766 |  | 3,689,500 |  | 3,663,247
Reseller Financing | Measured at amortized cost | 5.b | 968,384 |  | 965,645 |  | 800,936 |  | 839,090
Total |  |  | 13,031,666 |  | 13,007,571 |  | 10,202,534 |  | 10,214,435
Financial liabilities: |  |  |  |  |  |  |  |  |
Financing | Measured at fair value through profit or loss | 16.a | 1,308,928 |  | 1,308,928 |  | 1,666,092 |  | 1,666,092
Financing | Measured at amortized cost | 16.a | 9,406,013 |  | 10,186,947 |  | 6,008,414 |  | 7,268,742
Debentures | Measured at amortized cost | 16.a | 5,450,751 |  | 5,363,621 |  | 5,657,339 |  | 5,603,669
Debentures | Measured at fair value through profit or loss | 16.a | 1,093,365 |  | 1,093,365 |  | 1,030,892 |  | 1,030,891
Leases payable | Measured at amortized cost | 13 | 1,833,288 |  | 1,833,288 |  | 1,588,673 |  | 1,588,673
Commodities, currency and interest rate hedging instruments | Measured at fair value through profit or loss | 16.a | 117,159 |  | 117,159 |  | 29,985 |  | 29,985
Trade payables | Measured at amortized cost | 17 | 4,040,652 |  | 4,008,457 |  | 2,700,071 |  | 2,678,808
Subscription warrants – indemnification | Measured at fair value through profit or loss | 24 | 86,439 |  | 86,439 |  | 130,657 |  | 130,657
Total |  |  | 23,336,595 |  | 23,998,204 |  | 18,812,123 |  | 19,997,517
The fair value of financial instruments, including currency and interest hedging instruments, was determined as follows: The fair value of cash and bank deposit balances are identical to their carrying values. Financial investments in investment funds are valued at the value of the fund unit as of the date of the financial statements, which corresponds to their fair value. Financial investments in CDBs (Bank Certificates of Deposit) and similar investments offer daily liquidity through repurchase at the “yield curve” and the Company calculates their fair value through methodologies commonly used for mark to the market. The fair value of trade receivables and trade payables are approximate to their carrying values and the Company calculates its fair value through methodologies commonly used in the market. The subscription warrants – indemnification was measured based on the share price of Ultrapar (UGPA3) at the financial statements date and are adjusted to the Company’s dividend yield, since the exercise is only possible starting in 2020 onwards and they are not entitled to dividends until then. The number of shares of subscription warrants – indemnification is also adjusted according to the changes in the amounts of provision for tax, civil, and labor risks and contingent liabilities related to the period prior to January 31, 2014 (s ee Note 24). The fair value calculation of notes in the foreign market is based on the quoted price in an active market (see Note 16.b). The fair value of other financial investments, financing and leases payable was determined using calculation methodologies commonly used for mark-to-market reporting, which consist of calculating future cash flows associated with each instrument adopted and adjusting them to present value at the market rates as of the date of the f inancial statements. For some cases where there is no active market for the financial instrument, the Company and its subsidiaries can use quotes provided by the transaction counterparties. The interpretation of market information on the choice of calculation methodologies for the fair value requires considerable judgment and estimates to obtain a value deemed appropriate to each situation. Consequently, the estimates presented do not necessary indicate the amounts that may be realiz able in the current market. Financial instruments were classified as financial assets or liabilities measured at amortized cost, except (i) all exchange rate and interest rate hedging instruments, which are measured at fair value through profit or loss, financial investments classified as measured at fair value through profit or loss and financial investments that are classified as measured at fair value through other comprehensive income (see Note 4.b), (ii) loans and financing measured at fair value through profit or loss (see Note 1 6.a), (iii) guarantees to customers that have vendor arrangements (see Note 1 6.i), which are measured at fair value through profit or loss, and (iv) subscription warrants – indemnification, which are measured at fair value through profit or loss (see Note 2 4). Cash, banks, trade receivables and reseller financing are classified as measured at amortized cost. Trade payables, leases payable and other payables are classified as financial liabilities measured at amortized cost. j.1 Fair v alue h ierarchy of f inancial i nstruments The financial instruments are classified in the following categories: (a) Level 1 – prices negotiated (without adjustment) in active markets for identical assets or liabilities; (b) Level 2 – inputs other than prices negotiated in active markets included in Level 1 and observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). The table below shows the categories of the financial assets and financial liabilities:
| Category | Note | 12/31/2020 |  | Level 1 |  | Level 2
Financial assets: |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  |  |
Cash and bank | Measured at amortized cost | 4.a | 405,081 |  | - |  | -
Financial investments in local currency | Measured at fair value through other comprehensive income | 4.a | 2,241,852 |  | - |  | 2,241,852
Financial investments in foreign currency | Measured at fair value through profit or loss | 4.a | 14,561 |  | 14,561 |  | -
Financial investments: |  |  |  |  |  |  |
Fixed-income securities and funds in local currency | Measured at fair value through profit or loss | 4.b | 3,643,286 |  | 3,643,286 |  | -
Fixed-income securities and funds in local currency | Measured at fair value through other comprehensive income | 4.b | 31,315 |  | - |  | 31,315
Fixed-income securities (guarantee of loans) | Measured at amortized cost | 4.b | 75,251 |  | - |  | -
Fixed-income securities and funds in foreign currency | Measured at fair value through other comprehensive income | 4.b | 1,278,940 |  | 30,245 |  | 1,248,695
Currency and interest rate hedging and commodities instruments | Measured at fair value through profit or loss | 4.b | 981,874 |  | - |  | 981,874
Trade Receivables | Measured at amortized cost | 5.a | 3,369,766 |  | - |  | -
Reseller Financing | Measured at amortized cost | 5.b | 965,645 |  | - |  | -
Total |  |  | 13,007,571 |  |  |  |
Financial liabilities: |  |  |  |  |  |  |
Financing | Measured at fair value through profit or loss | 16.a | 1,308,928 |  | - |  | 1,308,928
Financing | Measured at amortized cost | 16.a | 10,186,947 |  | - |  | -
Debentures | Measured at amortized cost | 16.a | 5,363,621 |  | - |  | -
Debentures | Measured at fair value through profit or loss | 16.a | 1,093,365 |  | - |  | 1,093,365
Leases payable | Measured at amortized cost | 13 | 1,833,288 |  | - |  | -
Commodities, currency and interest rate hedging instruments | Measured at fair value through profit or loss | 16.a | 117,159 |  | - |  | 117,159
Trade payables | Measured at amortized cost | 17 | 4,008,457 |  | - |  | -
Subscription warrants – indemnification (1) | Measured at fair value through profit or loss | 24 | 86,439 |  | - |  | 86,439
Total |  |  | 23,998,204 |  |  |  |
| Category | Note | 12/31/2019 |  | Level 1 |  | Level 2
Financial assets: |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  |  |
Cash and bank | Measured at amortized cost | 4.a | 284,992 |  | - |  | -
Financial investments in local currency | Measured at fair value through other comprehensive income | 4.a | 1,780,939 |  | - |  | 1,780,939
Financial investments in foreign currency | Measured at fair value through profit or loss | 4.a | 49,448 |  | 49,448 |  | -
Financial investments: |  |  |  |  |  |  |
Fixed-income securities and funds in local currency | Measured at fair value through profit or loss | 4.b | 1,937,967 |  | 1,937,967 |  | -
Fixed-income securities and funds in local currency | Measured at fair value through other comprehensive income | 4.b | 595,816 |  | - |  | 595,816
Fixed-income securities (guarantee of loans) | Measured at amortized cost | 4.b | 76,904 |  | - |  | -
Fixed-income securities and funds in foreign currency | Measured at fair value through other comprehensive income | 4.b | 303,417 |  | 18,985 |  | 284,432
Currency and interest rate hedging and commodities instruments | Measured at fair value through profit or loss | 4.b | 682,615 |  | - |  | 682,615
Trade Receivables | Measured at amortized cost | 5.a | 3,663,247 |  | - |  | -
Reseller Financing | Measured at amortized cost | 5.b | 839,090 |  | - |  | -
Total |  |  | 10,214,435 |  |  |  |
Financial liabilities: |  |  |  |  |  |  |
Financing | Measured at fair value through profit or loss | 16.a | 1,666,092 |  | - |  | 1,666,092
Financing | Measured at amortized cost | 16.a | 7,268,742 |  | - |  | -
Debentures | Measured at amortized cost | 16.a | 5,603,669 |  | - |  | -
Debentures | Measured at fair value through profit or loss | 16.a | 1,030,891 |  | - |  | 1,030,891
Leases payable | Measured at amortized cost | 13 | 1,588,673 |  | - |  | -
Commodities, currency and interest rate hedging instruments | Measured at fair value through profit or loss | 16.a | 29,985 |  | - |  | 29,985
Trade payables | Measured at amortized cost | 17 | 2,678,808 |  | - |  | -
Subscription warrants – indemnification (1) | Measured at fair value through profit or loss | 24 | 130,657 |  | - |  | 130,657
Total |  |  | 19,997,517 |  |  |  |
(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. k. Sensitivity a nalysis of d erivative f inancial i nstruments The Company and its subsidiaries use derivative financial instruments only to hedge against identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). Thus, for purposes of sensitivity analysis of market risks associated with financial instruments, the Company analyzes the hedging instrument and the hedged item together, as shown on the charts below. For the sensitivity analysis of foreign exchange hedging instruments as of December 3 1, 20 20 and December 31, 201 9, management adopted as a base scenario the Real/U.S. dollar exchange rates at maturity of each swap, projected by U.S dollar futures contracts quoted on B3. As a reference, the exchange rate for the last maturity of foreign exchange hedging instruments is R$ 8.23 (R$ 5.76 as of December 31, 201 9) in the base scenario. Scenarios II and III were estimated with a 25% and 50% additional appreciation or depreciation of the Brazilian Real against the base scenario, according to the risk to which the hedged item is exposed. Based on the balances of the hedging instruments and hedged items as of December 3 1, 20 20 and December 31, 201 9, the exchange rates were replaced, and the changes between the new balance in Brazilian Reais and the original balance in Brazilian Reais were calculated in each of the three scenarios. The table below shows the change in the values of the main derivative instruments and their hedged items, considering the changes in the exchange rate in the different scenarios:
12/31/2020 | Risk | Scenario I Base |  | Scenario II |  | Scenario III
Currency swaps receivable in U.S. dollars |  |  |  |  |  |
(1) U.S. Dollar / Real swaps | Dollar | 1,013,826 |  | 1,522,343 |  | 2,030,860
(2) Debts / firm commitments in dollars | appreciation | (1,013,824) |  | (1,522,330) |  | (2,030,835)
(1)+(2) | Net effect | 2 |  | 13 |  | 25
Currency swaps payable in U.S. dollars |  |  |  |  |  |
(3) Real / U.S. Dollar swaps | Dollar | 59 |  | 17,877 |  | 35,694
(4) Gross margin of Oxiteno/Ipiranga | devaluation | (59) |  | (17,877) |  | (35,694)
(3)+(4) | Net effect | - |  | - |  | -
12/31/2019 | Risk | Scenario I Base |  | Scenario II |  | Scenario III
Currency swaps receivable in U.S. dollars |  |  |  |  |  |
(1) U.S. Dollar / Real swaps | Dollar | 700,499 |  | 1,668,202 |  | 2,635,905
(2) Debts / firm commitments in dollars | appreciation | (700,465) |  | (1,668,031) |  | (2,635,596)
(1)+(2) | Net effect | 34 |  | 171 |  | 309
Currency swaps payable in U.S. dollars |  |  |  |  |  |
(3) Real / U.S. Dollar swaps | Dollar | 376 |  | 62,559 |  | 124,742
(4) Gross margin of Oxiteno | devaluation | (376) |  | (62,559) |  | (124,742)
(3)+(4) | Net effect | - |  | - |  | -
Options |  |  |  |  |  |
(5) Options Real / U.S. Dollar swaps | Dollar | - |  | 42,101 |  | 102,917
(6) Gross margin of Oxiteno | devaluation | - |  | (42,101) |  | (102,917)
(5)+(6) | Net effect | - |  | - |  | -
For sensitivity analysis of hedging instruments for interest rate s in Brazilian Reais as of December 3 1, 2020 and December 31, 2019, the Company u s ed the future s curve of the DI x Pre contract quoted on B3 as of December 3 1, 20 20 for each of the swap and debt (hedged item) maturities, to determine the base scenario. Scenarios II and III were estimated based on a 25% and 50% deterioration, respectively, of the base scenario pre-fixed interest rate. Based on the three scenarios of interest rate s in Brazilian Reais, the Company estimated the values of its debt and hedging instruments according to the risk which is being hedged (variations in the pre-fixed interest rate s in Brazilian Reais), by projecting them to future value at the contracted rates and bringing them to present value at the interest rate s of the estimated scenarios. The result s are shown in the table below:
12/31/2020 | Risk | Scenario I Base |  | Scenario II |  | Scenario III
Interest rate swap (Real) – Debentures - CRA |  |  |  |  |  |
(1) Fixed rate swap - DI | Decrease in | (39,412) |  | (230,705) |  | (187,597)
(2) Fixed rate debt | Pre-fixed rate | 39,412 |  | 230,705 |  | 187,597
(1)+(2) | Net effect | - |  | - |  | -
12/31/2019 | Risk | Scenario I Base |  | Scenario II |  | Scenario III
Interest rate swap (Real) – Debentures - CRA |  |  |  |  |  |
(1) Fixed rate swap - DI | Decrease in | (195,123) |  | (137,260) |  | (74,027)
(2) Fixed rate debt | Pre-fixed rate | 195,123 |  | 137,260 |  | 74,027
(1)+(2) | Net effect | - |  | - |  | -
For the sensitivity analysis of the commodity price swings hedging instruments on December 3 1, 20 20 and December 31, 2019, the Company used the futures heating oil and gasoline (RBOB) contracts quoted on NYMEX. Scenarios II and III were estimated based on 25% and 50% deterioration, respectively, of the base scenario commodity price. Based on the balances of the hedging instruments and the objects hedged on December 3 1, 2020 and December 31, 2019, prices were substituted and the variations between the new balance in Reais and the balance in Reais in the report date were calculated in each of the three scenarios. The table below shows the variation of the amounts of the derivative instruments and their objects of hedge, considering the variations in commodity prices in the different scenarios:
12/31/2020 | Risk | Scenario I Base |  | Scenario II |  | Scenario III
NDF Commodities |  |  |  |  |  |
(1) NDF Commodities | Decrease in | - |  | 551,794 |  | 1,103,589
(2) Gross margin from Ipiranga | Commodities Price | - |  | (551,794 | ) | (1,103,589)
(1)+(2) | Net effect | - |  | - |  | -
12/31/2019 | Risk | Scenario I Base |  |  | Scenario II |  |  | Scenario III |
NDF Commodities |  |  |  |  |  |  |  |  |
(1) NDF Commodities | Decrease in | 100,542 |  |  | 1,490,893 |  |  | 2,881,245 |
(2) Gross margin from Ipiranga | Commodities Price | (100,542 | ) |  | (1,490,893 | ) |  | (2,881,245 | )
(1)+(2) | Net effect | - |  |  | - |  |  | - |

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