Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2018-Q2

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Alupar's Conference Call to discuss the earnings for the second quarter of 2018. The audio and slides for this conference call are being broadcast simultaneously on the Internet, the company's Investor Relations website, www.alupar.com.br/ir. The presentation is also being made available for download. [Operator Instructions]

Please be advised that forecasts about future events are subject to risk and uncertainties, which may cause such expectation not to materialize or to differ from expectation. These forecasts are related only to the date they are made, and the company does not undertake to update them.

Present in this conference call are Mr. José Luiz de Godoy Pereira, CFO and Alupar Investor Relations Officer; and Mr. Luiz Coimbra, Investor Relations Manager.

Now I'd like to give the floor to Mr. José Luiz de Godoy, who will begin the presentation. Please, Mr. Godoy, you may proceed.

[José de Godoy Pereira, executive]

Good morning, everyone. Thank you very much for coming to our earnings presentation. So our presentation is made available at the website. So I'll be talking about some highlights, some relevant topics, talking about the highlights in our earnings and then Q&A session.

So starting with our presentation. In the second quarter, we had the payment of the portion of dividend for 2018, we pay now in [ 2011 ] the second share. We had already paid BRL 0.11 per share. Well, actually, we had paid BRL 0.07 per common share and now we paid additional BRL 0.33 per unit, a total of BRL 0.54 per unit. A total of BRL 158,240,000, keeping our policy of paying 50% of net profit.

The second relevant event we had in this period was the Verde 8. The first machine entered in 31st May, then June and the third August 9, 2018. We have a small machine, an auxiliary machine that will probably enter still this month, and then we are to be fully operational with all plants operating.

The other relevant aspect here is regarding projects. We have this little table here, it's on Page 6 that we can see the progress of all projects. So what happens this quarter a relevant topic. So we have here the status for every project and the relevant thing in this quarter is that we registered TSM, where the environmental agency, and also TSM who got a permit that was May 30, MPL for EDTE, first line, the second line will be getting soon. And we got the PL for EDTE, which is another project located in Bahia. So we will be updating these tables in every presentation so that you'll follow the progress of all these projects in our backlog.

We have some pictures of some projects here at Page 7 and 8. Basically, these are pictures from properties for you to know how construction is right now. And then on Page 8 we have some pictures of ETC, which is the substation located in the state of Espírito Santo, so we have earth moving there -- a lot of earth is being moved, so we see an overview of the construction site. We probably be ending earth moving this month.

So now I'll give the floor to the Investors Relations Officer. He will be talking about results and then at the end, we will have the Q&A session. Thank you very much.

[Luiz Coimbra, executive]

Good afternoon, everyone. Thank you for participating this meeting second quarter. I will start my presentation talking about the main differences in income. The regulatory income and IFRS, starting with adjusted net revenue BRL 377.6 million in the second quarter, almost BRL 18 million above the BRL 359 million we had in the second Q last year.

And the main factor here was BRL 14 million in this revenue from energy. Basically, we had BRL 10 million in the generator, [ Gomes ], and then we had a liquidation what was surplus in June. PLD was higher BRL 441.96, a total of BRL 15 million. So we had this increase in revenue. Then we had a significant increase in Morro Azul, a plant in Columbia. BRL 7.4 million increase there. And in the end, this was consolidated -- and this will be consolidated as part of our revenue.

Another significant variation here is an increase of 2.3% in energy income. This pays operating cost -- the maintenance cost. So what happened here? We had BRL 2.3 million in 2 transmitters, and we had a cleaning service there as last year they did the same service that's why we have the difference.

Look at the lower graph, we see the regulatory revenue BRL 114 million (sic) [ BRL 414.6 million ], BRL 424 million we had last year. So we have a difference in energy supply between the regulatory and corporate. The difference is explained by the variation we had in transmission. It had a drop of BRL 26 million and that is a transmission revenue. This decrease is due to some RAP decreases. And we have 3 assets, EATE and ETEEP (sic) [ETEP], and we had a decrease in RAP. When we compare 2Q last year and this year we had a reduction.

Next slide, let's talk a little bit about EBITDA. BRL 32 million above the one we had in the second Q 2017. The main impact here, I think it's easy to see, first adjusted net revenue, an increase of BRL 17 million, basically because of a increase of BRL 14 million in energy supply. Another impact was in operating cost. We had an increase of BRL 4.9 million. BRL 1.6 million Hydro resources that was in the Ferreira Gomes power plant. And we had a BRL 3.2 million increase in services provided, here we had BRL 1.3 million in Morro Azul, a small hydro power plant and BRL 2.6 million in the EATE and anti-transmitters for the cleaning services they did in the right-of-way. And another impact here, which is more significant was in energy purchased, we had a reduction of almost BRL 17 million, BRL 16.8 million, because of its seasonalization strategy we decided to use this quarter. Particularly, I'd like to highlight 3 main points here. In Foz do Rio Claro power plant, we had a BRL 9.3 million reduction. Last year, we serialized energy purchase and Queluz and Lavrinhas power plant, we had a significant difference, a reduction of BRL 15.7 million, because we needed to purchase energy in the month of April. And in this quarter, we had all this energy allocated. So we didn't need to purchase any energy. Ferreira Gomes power plant, we had an increase of BRL 16 million, because in this quarter we needed to purchase energy in April and May. And in the second quarter last year, we just had to purchase energy in April.

Finally, the last significant impact on EBITDA was this BRL 6.1 million in Other revenues and expenses. This variation is due to an increase we had in January, Other revenues, resulted of an added value due to the acquisition in Foz do Rio Claro power. We acquired 3.77% of the stocks of this power plant in September last year.

Slide 13, regulatory EBITDA. A total of BRL 332 million, 1.6% greater than what we had in the second quarter 2017, which was BRL 326.8 million. I think the only -- the biggest difference here was in transmission a reduction in BRL 26 million in regulatory EBITDA, a growth of 1.7%. And this reduction is due to the RAP of the past EATE transmitters.

Slide 14, corporate law information, BRL 84.6 million, a significant increase. So much higher when compared to the second Q last year, which is BRL 52.3 million. So we had a BRL 31.4 million increase in EBITDA, because of an increase in -- because of a reduction in energy purchase, as I had mentioned before.

We had a significant reduction in financial results, 16.4%, for 2 reasons. First, we had almost BRL 26 million reduction in financial expenses due to 4 factors: first, a decrease of in the holding, because we had this fourth issue of debentures, and financial expenses went down. And we had 2 macroeconomic issues here; first, a decrease in TJLP, which is 25% of the consolidated debt of the company, and in the second quarter last year it was 7% and now it is BRL 160 million; and the other was a decrease in CDI, we had a significant reduction in CDI, 30% of the consolidated debt of the company. 1.76% (sic) [ 1.56% ] is accumulated this quarter, different from the second Q 2017. And finally, we had a BRL 5.6 million increase in this Colombia plant. And the last significant variation we had is a share of minority, BRL 13.6 million, BRL 6.9 million in the generators for Foz do

Rio Claro, Queluz and Lavrinhas considering the allocation strategy. And the impact was BRL 6.9 million.

Slide 15, regulatory income. BRL 92 million, BRL 30 million above the BRL 62 million we had in the second quarter of 2017. And variations here when compared to IFRS, we had 3 lines. EBITDA, financial income and financial revenue. EBITDA, BRL 5.3 million increase. And we had an EBITDA -- I expect before -- regarding corporate income, we had an increase -- a reduction of BRL 11 million in taxation. This variation is because we had an increase in BRL 12 million in deferred income tax because of the BRL 4 million increase we had in this period. All the projects that were going on, they had one value last year, and this year we have no taxable income recorded in this quarter. And finally, regarding minorities, an increase of BRL 1 million, BRL 13.6 million in corporate income and this change was particularly in EATE, ETEP and ECTE transmitters, BRL 1.6 million, and a reduction of BRL 10.2 million in regulatory numbers, particularly because of a reduction in income, because we had a decrease in RAP regarding this asset.

Next Slide 16. The indebtedness of the holding. It had a gross debt BRL 665 million in the quarter, lower than the BRL 757 million we had in the 2Q last year, then we paid the last portion of the debentures of the holding BRL 52 million. We had a relevant increase of BRL 35 million in the fourth issue of -- the fifth issue of debentures, BRL 10 million interest in the sixth issue of debentures. And we had some changes leading to this number.

When we look at the cash of the company, BRL 757 million was total this quarter when compared to BRL 936 million we had in December. And this difference in cash, we had 4 or 5 main factors. First payment of the interest from the holding debt, we amortized some debt, BRL 100 million total. We paid dividends -- interim dividends BRL 60 million. And I complement now on the residual portion additional BRL 96.7 million, a total of over BRL 170 million. We had allocations to these projects and we received dividends from the subsidiaries, a total of BRL 127 million. That's why we had these variation in cash around BRL 180 million. The debt looking at the bottom graph, the debt profile when we look to the graph on the right, we had a reduction from 11% to 4% in short term, particularly, because of what we did with the debt.

Next slide talking about consolidated debt, gross debt BRL 7.3 billion (sic) [ BRL 4.3 billion ]. We had a reduction of BRL 440 million (sic) [ BRL 464.4 million ] when compared to debt we had December 2017. And this reduction in gross debt is explained by the payment of Villa Virge, BRL 258 million, and payment of the last share of the fourth issue, a total of BRL 50 million.

Cash, availability of cash BRL 1,560,000,000. And in December we had BRL 2,074,000,000. This variation is BRL 519 million is due to a reduction of BRL 179 million of cash of the holding, as I explained. And it is a reduction of BRL 273 million cash in Alupar Peru, particularly because of the -- because we paid this loans we took from Santander bank.

Short term BRL 903 million, BRL 87 million with the holding. And then we had BRL 176 million in the subsidiaries, BRL 409 million debentures.

Next slide, we see the consolidated debt profile for many -- a good share is from 2017, and out of this deferred debt BRL 409 million, they will be replaced by long-term debt that we have this little table, BRL 107 million TCE, Verde 8. Then Alupar Peru BRL 20 million, ETVG, we're finishing reinforcement there. BRL 155 million ETAP, and BRL 103 million ETC. And then there is a small amount that is to be paid in this short-term line.

Now these are the numbers, I think we can go to the Q&A session now.

[Operator]

[Operator Instructions] First question come from Maria Carneiro from Crédit Suisse.

[Carolina Carneiro, analyst]

I have 2 questions. The first one is regarding the allocation. If you can confirm, this quarter you had a smaller allocation than in the first quarter. But can we say that in the second half we will be able to see a greater allocation. In the third quarter, probably, could you confirm that? And the second question is about the growth. We could see that at the end of this month, I'd like to understand what kind of projects we could see you're participating in if really you see an opportunity and aggressive participation of other competitors. Has anything changed regarding expectation of participating in this auction? Is it looking better than the last auction you participated?

[Unknown Executive]

Actually -- allocation first. Yes, we have a greater allocation now in the third quarter. In the first quarter, we allocated January, you could see that, and the second one we allocated just in June, and the third quarter we allocated the whole quarter with a much greater capacity. Regarding the auction, we have wind and also small power plant projects, but it will all depend on the level of return. If competition is as aggressive as it has been, I don't think we be selling, but anyway, we will participate in the auction and we will be watching out for these projects.

[Operator]

Our next question come from Andre Sampaio from Santander.

[Andre Sampaio, analyst]

I'd like to complement something regarding the generation auction. Could you please talk a little bit about what you are expecting regarding this change in terms of wind power generation and those amounts to be generated?

[Operator]

Ladies and gentleman, please stay connected. Alupar conference call will resume soon.

[Unknown Executive]

We had a connection issue. So I didn't get the last question asked by Andrea. Can you hear me?

[Andre Sampaio, analyst]

Okay, now I can hear you. I would just like to complement the question asked by Carol regarding the auction, could you talk a little bit about the change in the way you're going to contract in the auction for wind power generation regarding the amount?

[Unknown Executive]

I think the trend in the industry is to look more at the reality of the different sources. I think we had a slightly increased risk for wind generation, but this should have an impact on price, and we can try to do something to minimize this risk. I think that it has more to do with what is going on in reality. I think the change will be good for wind.

[Operator]

Next question [indiscernible]

[Unknown Analyst]

I would like to ask something which was not very clear regarding La Virgen. It seems everything has been invested already, but the plant hasn't started operating yet. So how is the schedule? What is missing? The other question regarding the new transmission project. Do you believe you will be able to anticipate them, vis-à-vis, the original schedule? And the third question is regarding minority interest. Do you intend to buy them or negotiate them so that a greater part of operating income goes to net income?

[Unknown Executive]

I will start regarding La Virgen. The project had an issue of infiltration or leakage in the tunnels. They had to do some reinforcement there. This is what we are doing right now, so this will delay the project. Something we actually hadn't forecast. But this will be -- will not be something very relevant. We'll just have to delay it a little bit.

Regarding the other project, we want to do many of them earlier. Some of them will be advanced a lot -- in some projects, if we get the permits this year, we will be able really to advance the project. And I think this is going to be very good for the company. And the third point, minority shares. We want to do that. We do not know the price, I think this would be disclosed today. Until yesterday, we didn't have the prices. And if the price is okay, if they think this will generate value for the company, we are going to buy this minority interest.

[Unknown Analyst]

Regarding La Virgen, do you have any date? Like a month?

[Unknown Executive]

Well, I think we are going to be 6 months late. So the project, the cost that is low is 2 -- around 2,000 for installed megawatts. So it's still very interesting.

[Unknown Analyst]

That will be leased some expenses, energy purchase to deliver?

[Unknown Executive]

No, we don't have any contracts there.

[Operator]

[Operator Instructions] The question-and-answer session is now closed. We would like to give the floor to José Luiz to make the final remarks.

[José de Godoy Pereira, executive]

Well, once again, thank you all very much for coming. I hope I have cleared all the questions you had, and our whole team here is available to clear any doubts and answer any questions. Thank you so much.

[Operator]

The Alupar conference call is closed. We thank you for your participation, and have a good afternoon.