Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Alupar First Quarter 2022 Earnings Call. The audio and the video are being broadcast at the ri -- ir.com.br (sic) [ alupar.com.br ]. Presentation is also available there for download. [Operator Instructions]

Forecasts are subjected to risks and uncertainties that may cause these perspectives to differ from what was expected. These opinions are based on information currently available today. Mr. José Luiz Godoy Pereira, CFO and IR Director; and Mr. Luiz Coimbra, IR Director.

I'll give now the floor to Mr. José Luiz Godoy. You have the floor, Mr. Pereira.

[José de Godoy Pereira, executive]

Good afternoon. Thank you for attending our earnings call for the first quarter of 2022. I would like to start by talking about the highlights of this period, and then Luiz will present the figures. We'll then have a Q&A session to clarify any questions you may have.

The first highlight of this quarter was the confirmation of our rating by Fitch Ratings. Nationwide, our corporate has been confirmed as AAA. Internationally, it's BB. This happened in the first quarter of this year.

ESTE is now operational. It's a transmission line from Mesquita to João Neiva. This is according to our time frame with ANEEL. There were no expectations to bring that forward because that depended on another project that hasn't been operational yet. So we wouldn't have any additional revenue by anticipating that start-up. So we vetted an AAR of BRL 123 million. CapEx is $495 million (sic) [ BRL 495 million ] yet to be amortized. The ratio is 25% of allowed any revenue and CapEx.

Another highlight was the acquisition of a stake. We have a call option of 30% over the shares of the Perfin fund has in the projects of which we are partners. So we exercised that call option as to the TPE, Paraiso Energy Transmission (sic) [ Transmissora Paraiso de Energia ]. So we acquired a 30% stake, 14.7% of the total capital of TPE. We have a proportional AAR of BRL 38 million. We paid out BRL 26,348,000.

Along the same lines, we also exercised another call option of another project. That's TSM, Transmissora Serra da Mantiqueira. That's also a 30% of the stake that Perfin had there. So we increased that stake to 65.7% with AAR increased to BRL 78 million over the total. The purchase value was BRL 6 million (sic) [ BRL 6.4 million ] for that 14% stake.

There's another highlight for the quarter. That's the ELTE project, Empresa Litorânea de Transmissão de Energia. These are 2 transmission lines and 2 substations in the coastal area of São Paulo. We already had the installations license, and now we have the anticipated permit for the northern section. So we're expecting the installations license to the northern portion, too, so that we can make the entire project feasible, and this is expected to be issued in the next months to come. This was very important to make this entire São Paulo coastal project viable.

I'll turn over to Luiz Coimbra for the financial reports, and then we'll come back for the Q&A.

[Luiz Coimbra, executive]

Good afternoon. Thank you for attending our first quarter earnings call. I'm starting at Slide 9. First, IFRS numbers and then the regulatory figures. Net revenue amounted to BRL 1.280 billion. That was a drop because there was a BRL 396 million decrease in infrastructure revenue. We had 3 assets that became operational: TCC in late 2021; TSM, December last year; and ESTE, mid-February now in 2022.

EBITDA reached BRL 1.131 billion. 2 accounts I would like to highlight: first, the reduction in revenue for prevention that I have just explained; as a counterpart, we had a reduction of BRL 336.6 million (sic) [ BRL 333.6 million ] in infrastructure costs. Given the fact we've had better investments through transmissions, TCC, TSM and ESTE became operational. When we look at the profit, that amounted to BRL 431 million, a 33% increase when compared to the same period of last year.

On to the next slide. These are regulatory figures. Revenues amounted BRL 713.7 million, a 26.7% increase. That is driven by the increase in transmissions. We had a BRL 95.4 million increase because TCC and TSM and ESTE turned operational, and BRL 73 million increase given the adjustment of AAR price increases in IPCA, and 37% for those contracts that are IGP-M-based. EBITDA reached BRL 622 million, a 34.9% increase.

Let me point out 2 accounts: that BRL 169.6 million increase in revenue that I have just explained and a BRL 18.2 million reduction in the account Other expenses. Actually, there was a one-off BRL 16.7 million from Other revenues line. And that's because we got reimbursed by the insurance company because of the problems we had during the implementation of that mill, the adduction tunnel construction.

On to profit now. BRL 166.9 million, a 144% increase. Let me point out 3 highlights: BRL 161 million increase of EBITDA, I have just explained; a BRL 29.9 million increase in depreciation account, basically because La Virgen became operational, TCC, TPE and ESTE became operational; and BRL 15.2 million in financial results driven by the IPCA increase for that period. That is the index of 55% of the consolidated debt of Alupar.

On to the next slide. That's the holding company debt. Gross debt amounted to BRL 688 million (sic) [ BRL 678 million ]. Cash position is BRL 503 million (sic) [ BRL 513.2 million ]. BRL 164.8 million is the net debt. The holding company debt is made up of just one single debt. That's the seventh debenture issuing, 100% CDI-indexed. It will mature between '24 and 2025.

On to the next slide. That's the consolidated debt. The gross debt was BRL 9.938 billion; cash, BRL 2.128 billion; net debt, BRL 7.809 billion. When we look at the profile, there haven't been any major changes. Most of the debt, 55%, remains IPCA-based, then CDI at 29%. And the currency basket in Colombia and Peru, they accounted for about 10% of the total debt.

On to the next slide. That is the amortization profile. So the profile remains very long, 36% concentrated after 2027. The holding company has the maturity of the seventh issuing between '24 and 2025, and transmission and generation assets mature throughout these years according to the operational cash generation of each one of these projects.

That concludes my presentation. I think we can get started with the Q&A session. Thank you.

[Operator]

[Operator Instructions] The first question, Mr. Henrique Peretti, JPMorgan.

[Henrique Peretti, analyst]

My question is about the transmission auction, BRL 15.3 billion CapEx. Is this CapEx estimate in line with the current market conditions? So here's the question. Is the CapEx appropriate? Do you believe that it can become more expensive? What's your appetite in this auction? Are you interested in a couple of lines? What's the return expectation?

[José de Godoy Pereira, executive]

I can tell you I -- we don't have that information yet. We're still studying the projects to consider what falls within CapEx. This is something we'll have to come up with very close to the auction. I don't know what increased, what didn't increase.

Actually, there have been some increases in several inputs that will impact transmission. Metals, aluminum, nickel, iron ore, that will impact the cost of steel; copper, too. So all these price increases will impact. I don't know whether ANEEL has included that in the amount of CapEx for these auctions. We're, of course, going to study it. If it is feasible, we'll be participating.

[Henrique Peretti, analyst]

Luiz, can you elaborate, what kind of competition you expect in this auction? Tighter monetary policies around the corner? What's your take to believe that there will be less competition, and as a consequence, more attractive rates? Returns should be better, right?

[Luiz Coimbra, executive]

The cost of money is on the rise. That will reflect on the cost of capital to all players. It's very hard to predict, though. I've seen many people saying that they will participate. And based on what we've seen in previous auctions, prices have -- are way too aggressive. But I cannot say for sure what's going to happen.

What I can say is the cost of capital is higher. The CapEx cost is higher. The cost of debt is also on the rise, and that will impact on the project return. So it's very difficult to determine how competitive each one of these projects will be. There is some important competitiveness on the part of these projects, I believe.

[Operator]

[Operator Instructions] This concludes the Q&A session. Mr. José Luiz Godoy Pereira, you have the floor for your final remarks.

[José de Godoy Pereira, executive]

Once again, thank you for attending. The company is available to answer any questions you may have. Have a good day.

[Operator]

Alupar's earnings call is now concluded. Thank you. Have a good day.

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