Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Alupar's conference call to discuss the earnings regarding the first quarter 2018. The [ orders ] and slides of this conference call are being simultaneously broadcast on the company's IR website, www.alupar.com.br/ir. In there, you'll also find the presentation available for download. [Operator Instructions]

We would like to tell you that any forward-looking statements about future events are subject to risks and uncertainties and may make such forward-looking statements not become true or that are different from expected. Forward-looking statements issue an opinion only on the date they are made, and the company is not obliged to update them.

Today in this conference call, we have, first, José Luiz de Godoy Pereira, CFO and Investor Relations Officer; Luiz Coimbra, Investor Relations Manager.

Now we are going to turn the call over to Mr. José Luiz de Godoy, then we'll start the presentation. Please, Mr. Godoy, you may go on.

[José de Godoy Pereira, executive]

Hello to everyone that is attending our presentation. We are going to go through information of the company and highlight the most relevant points for the company regarding the first quarter '18. I'm going to talk about the most relevant points or the highlights, and then Luiz, that is our IR Manager, is going to go into more details in numbers. And then we are going to open for your questions.

So we released the acquisition of IB's equity capital and transmission line by means of ENTE. We have a share -- we have an indirect share corresponding for 25.06%; ENTE has 50.10%. This is a transmission line that connect substations of Poções III -- II and III. It's a very important project to us because the substation of Poções III is crucial for us to advance some of the projects that we already have in our portfolio and will enable us to have revenues during this period.

TAESA is also part of the process [ with 24%. ] TAESA has a minority share in ENTE, 49%. And Apollo 12, that is finally the party that acquired the project and they negotiated with us, also with 24.95%.

Another fact that we also released is the -- our rating international scale. We had an upgrade of our national ratings, and now we have our international rating from Fitch. We are BB for Alupar investments on April 6, 2018.

We also announced the dividends regarding the year closed on December 31, 2017. So we had already approved, as an advance of the dividends of the year, the payout of BRL 0.21 per unit. That was on January 24, 2018, corresponding to BRL 0.07 per share. And we had the payment of dividend in February. And then in the shareholders' meeting, we approved the whole of the dividends of BRL 0.11 in common and preferred shares. We had already paid to [ them ] part of it on February 18, and then we are going to pay the equivalent to BRL 0.33 per unit. Probably the payment is going to occur up to July 30, 2018. That's 50.3% of the net income that is being paid out as dividends.

Going on in our presentation, you'll see the status of our projects that are ongoing, that are under construction. We have ETAP on the first line under construction. What you'll see in the last quarter was the LTP. and all the other projects are moving on, and our expectation is still this year to have the installation license of ETB, TPE, TCC and EDTE. So our expectation is in this year to have the licenses ready for all these projects.

Now I'm going to turn the call to Luiz for his words. But I think that before that, I would say what was most relevant and had impact in our results was a provision that we have for 2 power -- hydropower plants. We have the provision of BRL 23 million. We have an injunction against the application of penalties. This injunction is still valid. But in February this year, we have the [ appeal ] injunction that was refused. And therefore, we decided to have a provision. If our injunction were rejected, we would [ have ] an impact that it could [ have ] in the 2 companies if the injunction was rejected.

And so we had this provision of BRL 23 million in the 2 companies. This provision may be reduced if the NP of -- that is being discussed in Congress is approved. So if it is approved or if the provisional measure is approved, we might have a reduction in this provision. But we are waiting for new developments to see what happens. Anyway, we did have the provision just for you to understand the impact of this result. Anyway, we're just going to give you some numbers, and later on I'm going to come back to your questions.

[Luiz Coimbra, executive]

Well, good afternoon, everyone. Thanks for attending our conference call for the first quarter. I'm going to start my presentation on Slide 10, which show our main differences both with regulatory revenues and IFRS.

So in the first chart, you see adjusted net income totaling for BRL 345.9 million this year against BRL 372 million year-on-year. The main impact of this was the reduction of BRL 17.8 million in the remuneration compensation of financial assets. We had a drop in the rate of remuneration of some financial assets because of the microeconomic rates that we used and the amortization of financial assets because of the receipt of RAPs. And also, we had BRL 8.6 million with the energy supply revenue. This is basically due to the strategy the company adopted. We decided to have the seasonalization strategy of our generators.

In the bottom part, you'll see net revenues totaling BRL 388 million against BRL 432 million in the first quarter '17. In this case, you see a difference between the regulatory information and IFRS. And the difference is basically explained because of the variation in transmission revenue. We had a drop of BRL 38.2 million, totaling BRL 302 million against the BRL 340 million that we had in the first quarter '17. This reduction of BRL 38 million is because of the 50% [ cliff ] in RAPs. We first have the commercial operation for March this year, and that was called a pro rata rate of 50%, and this drop accounts for approximately BRL 12 million -- BRL 17 million in the quarter when you compare to the years of '16, '17.

The same happened with ETEP. Also, we had its anniversary of [ 15 ] of operation in August '17. So we had some months with a reduction of 50%. And compared to the previous quarter, you have basically an impact of BRL 10 million.

And finally, ECTE with March 2017, again another cycle. Some have already been considered in pro rata, and we had the full year in '17, '18, and that's basically BRL 8 million for the quarter.

On the next slide, we see the variation of our EBITDA, both regulatory and corporate information. So we have BRL 257.4 million in the corporate line [ information ] against the BRL 305.9 million of last year. Basically, the main differences were in adjusted net revenues, minus BRL 26.2 million. And the most significant perhaps is operation costs; we had an increase of BRL 32 million (sic) [ BRL 23 million ] basically because of the GSF provision we talked about in the amount of BRL 23 million, especially in the lines of Queluz and

Lavrinhas. This provision, I think, is important considering that this is an evolution and this is something that has been going on since July 2015.

Another impact that we have was an increase of BRL 2.6 million in energy purchase because of the seasonalization strategy that we adopted.

And the last variation that is significant in EBITDA is the equity pickup, BRL 2.8 million, again because of the consolidation of our ETB, the former BJL. We are not going to consolidate in the financial statements of Alupar, and we'll have a separate accounting results.

Now if we go to regulatory information, our EBITDA totaled BRL 298.7 million this quarter against BRL 365.9 million in the first quarter '17. The variation has the same basically idea. The only difference is in revenues, in generation, and we had this variation of BRL 38.2 million in energy transmission revenues.

On the next slide, we have corporate law information for our -- for net income with BRL 60.3 million against BRL 73.7 million in the first quarter '17. And the main impact here are -- were the reduction of BRL 48.5 million in EBITDA, of which BRL 23 million is the provision that we talked about and BRL 26.2 million is the drop of adjusted net revenue.

We had significant results -- reduction in our financial results, minus BRL 31.7 million, and this is basically because of the reduction of long-term interest rates, about 28%. In the first quarter last year, it was 7.6% a year, and now when you compared to the first quarter, it's 6.76% a year. So that improved our results a little.

And also, the financial deposits, we had 31% of our debt in CDI. And year-to-date, we have the difference between 31% against 12%. So this is the result in the financial -- the -- an improvement in the financial results.

And finally, we had a reduction of BRL 14 million with an agreement with minority shareholders and, again, due to the provision of GSF. That brought an impact of more or less BRL 13 million for this line.

When we look at regulatory information in the bottom part of the slide, we totaled BRL 67.3 million against BRL 92.4 million recorded in the first period last year. And the main variation for regulatory information compared to year-on-year was EBITDA. We had a reduction in corporate of BRL 48 million and in regulatory BRL 67.2 million, and the variation basically is from transmission revenues.

On the next slide, I'm going to talk a bit about our indebtedness first of the holding company. The holding company had gross debt of BRL 694.4 million in this quarter, BRL 33 million below the BRL 527.4 million recorded in the fourth quarter '17.

And basically because we had an amortization in February of the last installment of the fourth issue of debentures. So we settled the fourth issuance. And with that, we had a decrease in our gross debt.

As for our cash, we total BRL 829.9 million against BRL 936.5 million recorded in the fourth quarter '17, a variation of BRL 106 million. This variation is first, we had the amortization and the payout of interest in the holding debt of BRL 53 million. The most relevant here is the settlement of the fourth issuance of debentures.

We paid, as we mentioned, part of the dividends in February this year, '17, BRL 1.5 million, and we had some investments in ongoing projects. As a counterpart, we received the dividends from our subsidiaries of BRL 71.7 million.

If you see the bottom charts, the composition of our debt is basically debentures. We have 2 debenture issuance going on, the fifth and the sixth.

And the debt profile had a reduction in our short term. So today, we are at 6% against 11% that we had in the fourth quarter '17 basically here because of the settlement of the fourth issuance of debentures.

Going on to the next slide, Slide 14. We have the breakdown of our consolidated indebtedness. So gross debt totaled BRL 4,362,000,000 in this quarter, where BRL 400 million, the BRL 4,700-something that we had recorded in December, that's explained by the settlement in January this year a part of our debt and the payment of the last installment of the issuance of debentures I talked about.

All together, we had cash of BRL 1,661,000,000 against what we had in December. We had a variation of BRL 400 million in cash availability. It has to do with the reduction of -- due to the settlement of the debt that we made.

In the bottom part of this slide, we show a reduction of our short-term debt. Now we have 19% of our debt in short term. In December, we had 23% for the reasons I just explained, especially the settlement of the fourth issuance.

And here, we have the debt profile per index. You see that most of our debt is in CDI, but we also have other indexes: TJLP with 28% and IPCA with 24%.

We have approximately 11% in foreign currency. In the fourth quarter '17, it was about 16%, slightly higher because we had some foreign debts. And in the end of the year, that was settled.

The last slide, Slide 15 shows our debt amortization schedule. The debt profile was also very much extended. We have most of our maturity after 2023, and the short term that we have of this amount, almost BRL 300 million, BRL 269 million, are bridge loans that are going to be turned into long term.

So you see here, we have our investments in our plans for BRL 143 million in Risaralda, BRL 105 million in Verde 8, BRL 20.6 million in ETVG and BRL 30 million in Alupar Inversiones.

Well, with that, I close the numbers and we can open for questions and answers.

[Operator]

[Operator Instructions] My first question comes from Andre Sampaio from Santander.

[Andre Sampaio, analyst]

I have a question. If you could give us a bit more color about the auctions.

[Unknown Executive]

Well, we are still studying the auctions. We still do not have concrete information, but we are studying the lines that were announced, the projects, and we are going to see what happens, as usual. We are the only company that participated in all transmission auctions since the very first one in 1999. So we are going to do our homework. But we still don't know much about the level of competitiveness, prices, profitability. This is something that we still do not have information to know exactly what is going to happen.

[Operator]

[Operator Instructions] Igor Kfouri from [ Eleven Financial ] would like to ask a question.

[Igor Kfouri, analyst]

I would like to know if you're thinking of decreasing your level of dividend payouts in the coming months to continue with your project of expansion. And if so, when would you normalize that to the level of 50%, which is your historical level?

[Unknown Executive]

Well, right now no. We have all our projections. And in all of them, we are considering paying the minimum statutory dividend, which is 50%, and this is what we want to keep for the coming years. And now we have the new rating, so we have enough resources to meet all the projects that we have in our pipeline. So for now, we don't have anything different. The idea is to keep the level of 50% of our income.

[Operator]

Alupar's Q&A is now closed. We are going to turn the call back to Mr. José Luiz for his final considerations.

[José de Godoy Pereira, executive]

Well, I wish you all good afternoon. Thanks very much for attending. And if you have any additional questions, we are at your disposal to clarify any questions you might have through our IR department. See you next time. Thank you very much. Have a good afternoon.

[Operator]

Alupar's conference call is now closed. We thank you very much for attending and wish you a good afternoon.