Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Alupar teleconference for discussing the earnings concerning the first quarter 2019. The audio and the slides of this teleconference are being simultaneously transferred through Internet in the company's website, www.alupar.com.br/ri. The presentation is also available for download. [Operator Instructions]

We inform that forecast about future events are subject to risk and uncertainties, and they make the expectations not to be materialized or maybe different from what is expected. These forecasts issue the opinion solely on the date they are made, and the company is not required to update them. So in this conference, we have Mr. José Luiz de Godoy Pereira, the CFO and Investor Relations Director of Alupar; and Mr. Luiz Coimbra, the Manager of relations with investor.

Now I would like to give the floor to Mr. José Luiz de Godoy, who will then start the presentation. Please, Dr. -- Mr. José Luiz, you may proceed.

[José de Godoy Pereira, executive]

Thank you very much for being here for the earnings release. Once again, we are presenting the earnings of this Q. I'm going to address the relevant issues, and Luiz will address the issues concerning the company's financial statements and then we are going to open for Q&A. Once again, thank you, and let's move on.

We have this presentation of the first Q '19 that's available on the Internet for download purposes. And we have listed here, starting here on Page 4, we have listed the relevant events of this period. We listed each one. We had the issue of the operation license of EDTE, which is our project, and we also have the result of the Eletrobrás auction. And we had a share in several projects and where we had the partnership. And so the -- we had their share and we acquired the batch O, the AETE, which is a transmission line in Mato Grosso.

We had the issue of the prior license of [indiscernible] and that we have the TPE, what we call the joint venture we have with [indiscernible]. And we also [indiscernible] reaffirmation of the rating. Fitch has reasserted our rating, AAA. We had the license in the Juazeiro, the ESTE, which is an ETB project. [indiscernible] the Bahia Transmission Company. We had the [ license copy ], which is the project we have in Rio Grande Do Norte, and this project was moved toward 9 months as compared to ANEEL

We had the license for the installation of another segment of the ETB, which was Bom Jesus de Lapa, and therefore, ETB already has the license for operation in all segments. And this means that we are truly working on the construction.

We also had the issue of the prior license of TSM, which is a project that connects São Paulo to the line of continuous line that reaches [indiscernible] through the Paraíba Valley. And also, according with the original timetable within our expectation, we managed to obtain the prior license 5 months before the schedule we had. And also, we managed to gain the installation license, which is a project, the [ TPE ], which we have in Espírito Santo and Bahia and the state of Minas Gerais. And this project, we have already started the construction. So these were the major events.

I would like to speak a little bit about a topic, which was the first project that we put into operation. We moved the project forward in 9 months. We had a CapEx -- a relevant CapEx savings, that's also an investment of approximately BRL 175 million. And this project, we had the issue of debentures of BRL 150 million or the 476 CVM (sic) [ ICVM ] instruction. ETAP was responsible for implementing the first batch 013. It was in 2016. It was a major project for us. Although it's not one of the largest project we have, but this was a case where we were very successful.

And now moving to Page #6 of the presentation. We had a dividend payout according to the general and special shareholders meeting. We had paid out BRL 0.21 per [ action ] equivalent, BRL 0.73 (sic) [ BRL 0.63 ] per unit, of which, during December 2018, we had distributed BRL 0.06. And now we are making the payout of BRL 0.15 per [ action ] total, BRL 0.45 per unit. Another point I would like to highlight is that we had a positive adjustment due to the adoption of CPC 47 in the amount of BRL 63 million (sic) [ BRL 64.3 million ].

So now moving on to Page 8. We are updating the status of the implementation of the assets. You can see the ETAP project, which is the first line in the spreadsheet, has been completed. The next one will be in ETC, and we are in the final construction phase. And then we have the status of each one. What is in green is the investment we had in this period and I showed you before, the TPE, LP (sic) [ PL ] of TSM and the Segment 1 and 2 of ETB [indiscernible] and the installation license of EDTE.

Now on Page 9, we show what is the evolution of the [ real estate coverage ] of each one of the projects. That is not included because it's not complete. So we have then ETC, which is substation. We have in Espírito Santo. We have -- and then the ETB in Bahia, we have 99%, and we have started the construction in EDTE. We have 95% of the real estate property acquired. TPE, 9 (sic) [ 89%]; TCC, 92%. And [ TCE ] is a project that is not for this year, so we are lagging behind due to the connection because to start the operation, it depends on the execution of a substation, which is not ours. And this substation is a bit late. So it's pointless to bring forward this project because we would not have any revenue if it's not complete. And the TSM project that goes through the Paraíba Valley, then goes to Rio de Janeiro, we have almost 60% of the real estate this year, which is the project in Colombia. We have not started the [ real estate ] project. We are starting it now.

Well, I think that these were the material facts or relevant points. And I'm going to give the floor to Luiz so that he can talk about the financial statements, and then we are going to have a Q&A session. Thank you all for listening to me.

[Luiz Coimbra, executive]

Good afternoon, everyone. Firstly, I would like to thank you for your participation in our call concerning the earnings of the first Q '19. I'm going to start with Slide 20, where we show the variation of the net revenue in the corporate and regulatory figures.

When we look at the corporate figures, we have an increase of BRL 780 million in the revenue. [ Of them ], BRL 731 million were concerning the transmission segment. Here, the majority was due to the adoption of the CPC 47. We adopted the CPC 47 on January 18, 2018, and then we started accounting for the margin of construction and operation. And with that, we had the significant increase. We have a BRL 160 million increase concerning the investments we made in the project pipeline and BRL 11 million due to the margin.

Now looking at the regulatory figures, we see we have BRL 75.4 million -- BRL 464 million and the main difference is the transmission segment, where we had the significant increase in the regulatory. We had a reduction, 30%, in the transmission segment basically due to the drop of the transmission in EATE. They happened due to the fact that they have been in operation for 15 years.

Now moving onto the next, we see the EBITDA variation. It totaled BRL 258 million (sic) [ BRL 258.3 million ] in the first Q [indiscernible] BRL 834 million in this Q. So it had an 86% margin as compared to 74% of last year. This increase of BRL 576 million in EBITDA, the main accounts are the infrastructure revenue that's very evident in the chart and I explained previously. We had an increase in the revenue with BRL 153 million in the cost of infrastructure concerning the investment in the transmission projects in Brazil. We had a significant reduction of BRL 18.3 million in operating costs.

In the first Q of last year, we provisioned some expenses concerning the retroactive GSF. We accounted for BRL 23 million of the first Q '18 and we have not done this in this Q. And the last relevant account is equity accounting. We see an increase of BRL 41.6 million in equity accounting, and this increase is explained by the implementation of CPC 47. We had a transmission [indiscernible]. We do not consolidate the earnings and with the implementation of CPC and the investment we have made in the first Q, it had a BRL 94 million profit. That's why we had this increase.

Moving on to the next slide. We have the regulatory EBITDA, which is BRL 286.4 million in this Q, before BRL 297 million (sic) [ BRL 298.7 million ] that we accounted for in the first Q '18, therefore, a reduction of BRL 12.3 million. When we compare the variation of IFRS and the regulatory, the main reference are in the translation revenue, the cost of infrastructure, in equity accounting, in the transmission revenue, we do not have the [ IFRS ], the adoption of CPC. We had a reduction of BRL 30 million due to the decline of the reduction of EATE and [ ETEP ]. And we also had the equity accounting. There is no variation. We don't have an infrastructure cost here.

Moving on to the next slide. We see the net profit, the total, BRL 400.5 million, in corporate figures, BRL 30.9 million (sic) [ BRL 58.9 million ] in the first Q in '18. Practically the EBITDA increased BRL 176 million. We had a variation in the taxes. We have an increase, BRL 61.2 million in taxes, which derives from the increase in the earnings of the transmission company. We adopted CPC 47. We had increased the revenue of financial assets and it has -- this impact deferred in the participation in the minority shareholder. We had increase of BRL 175.9 million and a great part of the transmission project. We have some minority shareholders and this increase brings this type of earning or result.

In the next slide, we have the variations, the regulatory, which is BRL 69.4 million compared to [indiscernible], where we compared with BRL 67.3 million in the first quarter. And the main variation, when we compare with the corporate figures is the EBITDA, we have a reduction of BRL 12.2 million basically to the reduction we had in the transmission segment and income tax; while in the corporate, we had BRL 61.2 million in income tax. In the regulatory, we had a drop of 17.9% (sic) [ BRL 17.9 million ]. A good deal of the BRL 17.9 million is due to the [indiscernible], earnings of [indiscernible] and that had the impact on the income tax.

Now moving onto slide, we show that the debt of the holding company, when we compare with the 4Q '18, there is no significant variation. The gross debt grew BRL 19.3 million. We had no payment of amortization. So basically, this was a provision monetary variation we had in the period, and we had a reduction of BRL 10 million in cash. And this is the implement -- due to the implementation project. In the lower part of this slide, there was no [ alteration this structure ]. We had the 2 issue of debentures and the holding. And in the short term, it reached 6%, in line with the 4% we had in the 4Q of '18.

And moving on to Slide 23, we show that the consolidated debt of the company. Our net debt totaling BRL 2,873.8 million in this Q against BRL 2,803 million we had in the 4Q of 2018. This difference is due to reduction we had in our cash given that we are making investments in the projects. The debt profile has not changed. We continue with a small part of the debt in the short term. And as to the breakdown, there was no change. The majority of our debt, BRL 54 million, is indexing the IPCA, especially due to the [ depreciation ] we had done in this project last year. They are the majority indexed in IPCA.

And following to Slide 24, we show the schedule of our debt, and it's still long. We have a maturity date up to 2024. We have -- we always show the bridge and we have taken the long-term debt, and we are settling the bridges. We too have 2 bridges concerning the works we have outside Brazil. We have the implementation of the La Virgen Peruvian plant in Peru, and we have the bridge in Colombia. And we are negotiating to issue the long term so this bridge in the next quarters will be replaced by the long-term debt.

In the next slide or the last one, I'm going to talk about the performance of Alupar shares. The shares has performed very well in the first quarter. We had a 25% appreciation. Until yesterday, was 25% against 70% (sic) [ 17.33% ] IEE and 4.25% IBOVESPA. And I have always highlighted to you is the liquidity. The chart in the bottom shows our daily volume the beginning of '19. And so yes, we have BRL 14.9 million per day in terms of volume. So we've been struggling to have this increase, and this reflects in the performance of our shares.

With that, I close my presentation. And we can open for Q&A.

[Operator]

[Operator Instructions] Mr. Luis Lima from Credit Suisse would like to ask a question.

[Luis Lima, analyst]

I would like to ask a question. Based on M&A, in terms of growth, what are you seeing both in the auction at the end of the year and the news in the media concerning some companies that are entering the transmission segment? I would like to hear from you what you want to do, you prefer greenfield or the secondary [ wealth ]?

[José de Godoy Pereira, executive]

We are going to analyze all the opportunities available in our marketplace, both in terms of the assets for sale and in the auctions. And we are going to try to see where the opportunities lie for investment.

In the case of the auction, I don't know what will be the level of aggressiveness. We've seen it's very aggressive prices and auctions, and we think that this level, the return is very poor. But we are going to analyze it as we have always done. All the companies that participate in the transmission market since the beginning for over 20 years, and we are going to see what are the best opportunities.

[Luis Lima, analyst]

And if I could ask another question. Just to have more detail, so how much CapEx were you able to save [indiscernible] vis-à-vis the regulatory? And what is your perception? Are you going to repeat in the other projects that are ongoing?

[Paulo de Godoy Pereira, executive]

Well, the CapEx, we have publicized this figure. [indiscernible] today, BRL 324 million. We managed to execute BRL 170-some million. It doesn't mean that this is a rule for all projects, and we analyze on a case-by-case basis. And there are projects where we can have a better optimization, and others, we are not so substantial. We do not have a general rule.

We have a vague idea that in the sum total of our projects, our expectation is to manage to have a reduction as compared to the CapEx estimated by ANEEL. ANEEL does not have the elements. They have an estimate, but they have an executive project. Only when you have the executive project and all the details, you're able to have a better forecast of these values. But in the batches we won, the only reason we want this project or the batches was because we were able to have a project with a cost below ANEEL estimate. Otherwise, we would not have hit any discount as we did in the auction. So -- and we have told that our expectation is to have, on average, 15% below the value estimated by ANEEL in the projects that we won, obviously. Thank you.

[Operator]

[Operator Instructions] The queue and a session is closed. Now we would like to give the floor to Mr. José Luiz for his final remarks.

[José de Godoy Pereira, executive]

Okay. Once again, thank you all for your presence and we hope to see you in our next earnings release in the second quarter of '19. And the company is available to provide any clarifications you feel necessary. Please call Luiz and Kassia at the Investor Relations and they will be available to make -- to give you any additional clarification. Once again, and see you again in the next quarter.

[Operator]

Alupar's teleconference close. We would like to thank you for your participation and have a good afternoon.