Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, ladies and gentlemen. I bid welcome to the teleconference of Alupar for the earnings concerning first quarter 2021. The audio and slides are being transmitted simultaneously by the web on the IR page of the company, www.alupar.com.br/ri. The presentation is also available for download.

[Operator Instructions]

We inform the statements that are forward-looking events are subject to risks and uncertainties that may make these expectations not come true, or that they are different from what is expected. Those statements issue the opinion only on the date they are made, and the company is not required to update them.

We have here Mr. José Luiz de Godoy Pereira, CFO and Director of Investor Relations of Alupar; and Mr. Luiz Coimbra, Manager of Investor Relations.

Now I hand it over to Mr. José Luiz de Godoy, who will begin the presentation. Please Dr. -- Luiz de Godoy, the floor is yours.

[José de Godoy Pereira, executive]

Good afternoon, everyone, on behalf of our IR team, I'd like to thank you for participating in this first quarter '21 earnings call of Alupar Investimento. We will break this presentation down into two. First, I will be presenting the highlights to give you an update on the highlights of our company, and then Luiz will go over the figures talking about financial balance and discuss the figures a little bit with you. And finally, at the end, we will have a Q&A session.

Starting with the highlights, recent highlights of the company. The first one was the operation start-up of TCC. This is a transmission line project we had, which was being constructed. It included 2 transmission lines, 1 line from Valadares to Mutum and the other one from Mutum to Rio Novo do Sul. And 2 substations, 1 in Rio Novo do Sul and the other substation in Mutum.

This project now is scheduled for start-up was February 2022. We managed to put it into operation in March '21. Thus, we have advanced it by 11 months vis-à-vis, we are [ ahead ] of the schedule. We will -- the CapEx to be unitized will be BRL 759.7 million for a RAP cycle 2021 of BRL 165 million, and that gives us a RAP CapEx ratio of 22%.

A second update, which I think is a highlight for you, is that we have had our general meeting, April 27, 2021, and we declared dividends of BRL 0.28 of per share, which corresponds to equivalent of BRL 0.84 per unit. This will be paid in May 30 (sic) [ May 31 ], August 30 and September 30 (sic) [ November 30 ]. This is a thing that is very relevant for shareholders.

The third point, which I think is also important, an important highlight, is that past April, we've completed the follow-on of the FI-FGTS, which was a shareholder of the company, which held 35.162 million units. This corresponded to roughly 12% of the total capital of the company, they decided to sell this stocks, and this was done through a market competitive process, a secondary follow-on a conventional one and this operation was quite successful.

Pricing was without any discount and with a 3.20% premium in relation to the volume weighted average price of the last 60 days before pricing. Sale was done a total value of BRL 896.7 million.

Then finally, I'd like to give you an update of the general status. If you look on Page #6, if you have the presentation. Here, we have an overview of the development of ongoing assets. We have 3 projects being developed right now. The project -- well, they are not in operation yet. So the first one is the TSM project. This is a line that goes from São Paulo to Rio de Janeiro, going through the Paraíba River Valley. Here we have the status of the project. The main challenge in this project was the land issue because this is a very complex area.

We have 100% of land negotiation completed yet. We have hired all equipment. Everything has been delivered execution really at full speed, and we have physical work advance of the construction of 72%, [ ANEEL ] has scheduled for this project is August 2022, and we are now in May '21 already with 72% of the physical work advance and we will probably advance this project.

The second one is the ESTE project. This is a partnership between Alupar and [ TAESA ] through what we call TBE. And this project is going on since the beginning, we didn't plan to have any advance of start-up for this product because we would have a revenue issue. We wouldn't have any advantage getting the revenue if this project was advanced.

So we are doing it according to the ANEEL schedule. Land negotiation, 100% done, physical work advance of the construction, 67%. And we are expecting to complete this ESTE project by the end of this year.

And the third project, which is being developed is the one in Colombia, TCE. The license hasn't -- not been granted yet. We are discussing with environmental protection agencies.

We had the impact of the COVID-19 pandemic. We already expected that this permit or this license was granted, but due to many different reasons and many issues, we -- this license hasn't been granted yet. Anyway, we are working, and we've never stopped working in land negotiation. We have 83% of properties already acquired and hired. We have many properties, really, it was a major challenge. And virtually everything is already completed, and we are pending the license. And we hope we will get this license very soon. This license is on hold or late because of all these issues are already mentioned, but we believe that we will have this solved very soon.

Well, now I'll hand over to Luiz Coimbra, he is going to discuss with you the financial statements. And at the end, we will have our Q&A session. Thank you.

[Luiz Coimbra, executive]

Good afternoon, everyone, and thank you for attending this first quarter '21 earnings call of Alupar. I will start my presentation on Slide #8 with the main financial highlights. IFRS, starting with revenue, net revenue, BRL 1,601.5 million a growth of 22.8% when compared to the same figures in the first quarter '20.

This variation is explained by basically 2 factors. First one is recognition of BRL 507 million from indexation of the contract assets, particularly the assets that are indexed to IGPM. And the second point is recognition of BRL 128 million because of the advance by 11 months of the start-up of the TCC transmission company.

And the lower bottom graph, we see that EBITDA was BRL 1.108 billion compared to the BRL 698.7 million in first Q '20. We had 2 main impacts here, first, this increase of -- in transmission revenue, which I've just discussed, and we also had a reduction of BRL 106.8 million in infrastructure costs because of less investment in this quarter when compared to the first quarter 2020.

Looking at the left graph, the upper right-hand corner. Here, we see the net income. It was BRL 323.4 million, a 52.8% increase when compared to the first Q '20. The 2 main impacts here, first was an increase of BRL 409.4 million in EBITDA, which I have already explained, and the other thing we should highlight here is financial result. We had an increase of BRL 117.8 million, basically because of the growth in financial expenses in the projects that entered into operation.

So we had 3 projects entering into operation. TCA and [ ETD ] entered in October 2020 and TCC is starting up past March. So these projects have the financial expenses also being part of our results. Going to the next slide now. Here, we see regulatory figures starting with net revenue, BRL 563.1 million, 17.8% above the BRL 477.9 million in the same period last year. And we had 3 main factors here.

The first one was an increase of BRL 112.9 million in the revenue from [ TTR, NTT and TCC just nil ] because of the entry of operations of these companies and the second was a BRL 42.5 million reduction in the revenue of [ NT, RT and STN ] and since last transmitting companies because of a 50% drop of RAP for the 2021 cycle because of the 15 years investor of entry in operation of these assets.

And finally, we had an increase of BRL 24.2 million in revenue of the other transmitting company because of the RAP adjustment because of the resolution of June past year, adjusting 1.82% for TCA indexed contracts. Then in the bottom of the slide, we see the EBITDA with a total of BRL 461.1 million in this quarter and 24.2% increase. Basically, the impact in EBITDA was an increase of [ 97.1 ] in revenue, which I've just discussed. And looking here at the graph on the right up hand corner, we see changes in income, a total of BRL 68.3 million compared to BRL 72.4 million in the first Q of 2020.

And the main impact here were, first, increase of BRL 89.8 million in EBITDA, and the financial result, we had an increase of BRL 117.9 million in financial results, basically because of the same explanation that we've just heard for IFRS. We had 3 assets enter into operation, as I've mentioned already. So the expenses go through our income.

Next slide. Here, we see adaptiveness of the holding company. The holding company had a gross debt with a cash of BRL 647.3 million a total debt of BRL 146 million. Short-term debt was BRL 182.3 million and BRL 172.8 million out of that it refers to second share of the sixth issue of debentures. So this has been paid.

Regarding indexation, 77% of the debt of the holding company is indexed in CDI and 21% IPCA. Next slide. Consolidated debt, gross debt, BRL 9.115 billion. Cash position, BRL 1.996 billion. A total net debt of BRL 7.119 billion. Regarding consolidated debt structure, there were no significant variations in this quarter, thus most of our debt, 55% is indexed through IPCA, followed by CDI, 22%.

Another relevant index, our debt in foreign currencies, and this refers to projects in Peru and Colombia, they account for around 12% of total debt of the company. Going now to the next slide. Here, we see the amortization scheduled. Consolidated debt profile was still long. We have 38% of due date concentrated after 2026, the holding company has due of the 6 issues concentrated in 2021 has just been paid past April, and we have the seventh issue, much longer in time, distributed over the year 2024.

Here, we also see this table showing the bridges in this quarter, we didn't get any bridge loan. Thus, we have the 2 loans, which we had already contracted for the implementation of the projects in Colombia and Peru.

Next slide, the last slide of the presentation.

I'll talk a little bit about capital market. Alupar shares have valued by [ 21.3% ]. And a 4.3% devaluation in the price of energy. And another point I highlight is -- these are financial volume. We finished in the year-to-date BRL 21.9 million vis-à-vis BRL 20.1 million in the first period last year.

And here, an important point that Luiz mentioned right in the beginning of the presentation about the investment of FI-FGTS on average. After this de-investment, we have a negotiation, BRL 42.6 million a day.

With that, I close my presentation, and now we can continue and proceed to the Q&A session. I wish you all a good afternoon.

[Operator]

[Operator Instructions]

First question by Carolina Carneiro from Crédit Suisse.

[Carolina Carneiro, analyst]

I have 2 questions related to growth. The first one, so we have a participation in TAESA, they announced how they're going to have the sales process. I'd like you to remind us how does this agreement work in the case of TDE asset, considering the format that has been chosen to have the shares in an auction. How would you have that [ gone ]?

Second, how could this happen, this process of investment, the additional purchase of TAESA TDE? And how will this process of evaluation which should be connected to the -- [ Cemig ] TAESA interest sale? And update of investments in renewable energy projects, portfolios, could you give us an update on that, too, renewable energy projects?

[José de Godoy Pereira, executive]

Cemig has announced they have this plan to sell their stake at TAESA. And there are a few points which I think are relevant that should be discussed in this transaction. We have this issue, which they should have TBE this partnership, and we are open to all possibilities. I think we have 3 alternatives on the table. One is to have a uncrossing, the other one is acquisition of TBE assets or the third option is to be partner of the company that is going to acquire TAESA, TBE is a very healthy company generates a cash -- the company's TBE is a brand, there are many there.

They generate cash that's fine. Having that these 3 possibilities are to be discussed, nothing has been defined yet because we still have some issues, IESA, for example, how IESA will exert its rights of preference and acquisition, and that's something key. And how is the interpretation of tagalong, if Cemig leaves the controlling block, whether that would be assessed by CVM as a change in control or not.

I think these are the 3 main points. I think that the simplest one to solve is TBE. I think this is relatively simple. But anyway, the alternatives are there. We have been talking with them, but nothing has been really defined yet. I think that they should have first all point [ solved ] so that they can go on and proceed.

Now regarding new investments, we are participating and taking all the opportunities we have. We have been looking at some things regarding M&A. We have been looking at some greenfield projects. We are starting out the wind farm projects in the state of Rio Grande do Norte. We are starting it now -- so we have been looking at it, and we have been participating, and we will go on looking at it and trying to grab the best opportunities we come across.

[Operator]

Our next question is by Andre Sampaio from Santander.

[Andre Sampaio, analyst]

I'd like to have follow-on Carol's question regarding the discussion of uncrossing. I'd like to learn that from you, how will that -- how could that potentially work and if this automatically excludes the possibility of you purchasing the rest of TBE.

[José de Godoy Pereira, executive]

This decrossing or uncrossing -- well, actually, TPE, I think these are 10 different companies -- 9 or 10 different companies. So every company has its shareholders and this decrossing or uncrossing would be basically to break it down into different blocks. And one will sell shares or stakes to others, as TAESA leaves 100% of one block, and we leave with 100% in the other block.

And we have a number of issues that has to be assessed. We have issues related to funding. We have issues we have a number of open issues, tax issues too. So we still have a number of issues that have to be carefully looked at both on our side and on their side to and if we have this process, they would get 100% of assets, and we would too. It wouldn't make any sense, therefore, to have this preferred acquisition. Yes. A case of their stake if that were the alternative.

[Operator]

[Operator Instructions]

The Q&A session is closed. Now I'd like to give the floor to Mr. José Luiz for the final remarks of the company.

[José de Godoy Pereira, executive]

Well, once again, thank you all very much, and we count on you on the presentation for the second Q. And our team is available. If you have any questions, anything you want to clarify, just feel free to contact our IR team. Have a good afternoon, and see you soon.

[Operator]

Alupar teleconference is hereby closed. We thank you all for participating. Good afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]