Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2019-Q2

[Operator]

Good afternoon, ladies and gentlemen. We bid you welcome to Alupar teleconference to discuss results for the second quarter 2019. The audio and slides of this conference call are being simultaneously streamed via web at the company's website, www.alupar.com.br/ri. The presentation is also available for download. [Operator Instructions]

Forward-looking statements are subject to risks and uncertainties that may hinder or change these expectations. These forecasts are opinions on the date they were created, and the company does not undertake to update them.

We have present in this teleconference Mr. José Luiz Godoy Pereira, CFO and IR Director from Alupar; and Mr. Luiz Coimbra, Manager of Investors Relationship. I would like now to give the floor to José Luiz Godoy who is going to start this presentation. Please, Mr. Godoy, you may proceed.

Mr. Godoy, you may proceed

[José de Godoy Pereira, executive]

Thank you. Thank you all for participating in our presentation of the 2Q '19 results. We're going to follow what we have always done. So I'm going to introduce here the relevant events of this quarter, update the projects of the company, and then Luiz will open for Q&A. And at the end, we'll open for Q&A.

So starting by our relevant events. We have announced some -- they all have been announced actually. Just to pick that up. We finished the acquisition of the participation of EDTE, which is in Mato Grosso Brazil. We entered in the launching of Eletrobrás -- in the process of sales of Eletrobrás. We sold and -- we acquired 49% of Eletrobrás, along with the investment fund. And we also acquired the participation of one of the partners, that is BIPAR. So we have today about 75%, 74% of that asset, which is new for us. It's already in operation and it's synergic to other assets that we have in Mato Grosso -- in the State of Mato Grosso.

Also we have the distribution of the dividends that were declared. We declared BRL 189 million, equivalent to BRL 0.63 per unit. We had distributed in the past year BRL 30 million, and now we are distributing what remains, reaching BRL 184 million.

So for those who are following the presentation, on Page 7, we see the statues -- the state of the projects under construction. So you see number one is finished, as anticipated. Two is a substation, ETC, which is in the State of Espírito Santo. It's ready to set up -- to launch. It should have been already, but [indiscernible] for some time because there was issue of corp America -- of American corp So everything is very busy there.

And now we are online because of the other line from Belo Monte, which is a continuous power -- continuous energy, continuous current. So we are online. And with that, we were not able to start yet, but we're ready, just waiting to be authorized, and it should be in the beginning of September, not because of us, but because of the schedule.

And then we have TPE, TCC. We have the construction, and we're going to talk about this in expenditures, which are from Minas Gerais and [indiscernible]. We are doing okay. We -- the jobs have already started. The resource uptake already is also according to what we expected. Actually, we intend to anticipate these projects.

We have [ ESTE ], which is a project that we have through the license from IBAMA. We have not started the construction job. TSM, which is online, that's in Vale do Paraíba. LT has been issued. LI should be issued by the end of this year. We have these 2 projects in Bahia, which is EDTE and TBI (sic) [ ETB ], both in Bahia. They are already licensed or under construction. They should be ready on schedule. And we have one in Colombia that we are in the final phase for the license to install it.

Now going to Page 8. We show this issue that is relevant in the purchase. So we have project by project. We are ahead in every project. TSM, which is at Paraíba Valley, which is a huge challenge from this standpoint, we have 72% of the properties acquired from the standpoint of the plant -- the land. AS (sic) [ ESTE ] project, which is a substation, we have -- 40% has been acquired. But also this project, we probably will not be able to anticipate it because it depends on another substation, which is from [ CTF ]. And it's a bit behind -- lagging behind on that project. And I think it's basically that.

We made a graph from Page 9 to 11 of those projects that are under construction, where they are at, each one of them, and when they have started one by one. I don't think we have to go into much detail. And some pictures from the projects for you to have an idea of how they are or where they are at. That goes to Page 19.

Now we will be talking about the figures, and then we open for Q&A.

[Luiz Coimbra, executive]

Good afternoon, you all. Thank you for your participation in this forum.

My presentation is -- look at Slide 19. We show the variations in net revenue, regulatory [ information ]. On the upper part of Slide 19, we show the net revenue, which is BRL 817 million, 59.3% raise considering the same period last year. The most important fact here was BRL 564 million in infrastructure that comes from investments that were -- in some projects in transmission in Brazil.

Also there was a reduction of BRL 8.1 million in the generation segment. The reported impact was in Ferreira Gomes and the other one. There was a reduction of BRL 17.3 million because of the strategy we adopted considering the second quarter last year. And then the other one, a BRL 12 million increase especially because of the assets. And also we increased BRL 58.7 million just because of the growth we had in deductions of taxes and deferred taxes. This is because of the increase in the revenue of transmission processes that we are implementing.

Now in the lower part of the graph, we show variation of regulatory revenue, a total of BRL 409 million vis-à-vis the BRL 414 million of the same period last year. And this reduction is explained first by reduction of BRL 8.1 million in revenue, as I commented with you. And we had a drop of BRL 2.7 million in or...

[ He corrects himself ]

an increase in transmission. And that is -- we had a drop of BRL 33 million consolidated revenue of [ ETEP ] because of the anniversary of the startups. We have BRL 14 million in ETEP, and we have BRL 22 million increase in the other assets -- transmission assets because of the readjustment of RAP.

Now the next slide, the impact on EBITDA. The total is BRL 437.4 million, which is 10.3% growth when we compare to BRL 396 million registered in the same period last year. And in fact, on EBITDA, the most important was -- were the increase in BRL 304 million in net revenue, especially because of the increase in infrastructure revenue. We had an increase of BRL 214 million in the cost of infrastructure, only the investments that we did in projects; an increase of BRL 5 million in administrative expenses; BRL 1.3 million in Ferreira Gomes expensed with legal aspects; BRL 1.3 million in -- which is La Virgen, also for legal aspects. And there, they are implementing the management system there.

We had an increase of [ BRL 0.6 million ] in the projects that had their start-up in the second quarter last year, from then on; and BRL 1.2 million increase in Alupar, concerning representation of 2018 that we had to represent because of CPC 47 or IFRS 15; and also an increase in other revenue, BRL 4.8 million. In here, actually, what happened was that in the second quarter last year, in the parent holding, it's positive on other revenue, BRL 5.6 million. Due to -- because we've bought shares of [indiscernible] and -- of a power plant, and that gave positive results in that quarter. And that operation, we did not rebuy this year. And we had a reduction that was important of BRL 34 million and -- of equivalent. This is basically the result of [ ITB ] that we are implementing. So we -- because of problems here, we have this equivalent.

Now the next slide, we talk about regulatory EBITDA. The total is BRL 303 million that we had registered on the same period last year. The only variation -- what's different here are on net revenue, the cost of infrastructure, the development of regulatory figures and equity and the net revenue BRL 5.8 million variation, especially because of the reduction that we had in transmission lines in ETEP. And we had a readjustment of the other transmission lines and also ETEP.

The equity here had a reduction of BRL 7 million because of a change in the way -- in our accountancy and on the participations that Alupar has directly and indirect in Transleste, Transudeste and others. So we changed the way how we take this in consideration, accountancy speaking.

Now next slide. We show variations in profit, BRL 110.9 million vis-à-vis what we registered last year. And it's important to mention this increase of BRL 40.9 million in EBITDA that I just explained. We had an increase of BRL 44 million in taxes, basically in deferred taxes, BRL 47 million. We also had an increase -- BRL 8.6 million in the participation of minorities. These 2 last items, growth in taxes and minority participation have to do with the implement of the transmission lines that are implemented. With CPC 47, we have better results in the beginning of the concession.

Now regulatory figures, BRL 77.2 million as compared to BRL 92 million we had on the second quarter last year. And the most important impact here was a reduction of BRL 28 million in EBITDA and a reduction of BRL 10.5 million in taxes and BRL 7.8 million in the minority participation. And this is explained especially because of less results of EATE. So there is a resize of that in the figures.

Slide 23, we're talking about indebtedness of the holding, debt of BRL 674.5 million as compared to BRL 680 million that we had in December last year. So almost no variation. The debt is composed by the 2 issues that we have, 2 [ initials ] that we have. Cash also did not very much, BRL 707 million this quarter and BRL 745 million in December last year. What's worth painting in yellow here when we look at debt is increase in short-term indebtedness. It represented here 30%, the short term. And in December, we had 4%. And this increase is because of the first installment of the 6 -- issuing of debentures that's 50% of the total for April 15 next year.

Slide 24 where we talk about consolidated debt profile. The gross debt, BRL 6.377 billion, BRL 26 million less than December. The net debt, BRL 2.829 billion vis-à-vis what we registered last year, almost no variation. In relation to the structure of the debt that we see on the lower part of the slide, most of our indebtedness, 55% is indexed by IPCA. Most of these are the debt that we captured for the projects of transmission and implementation. That's also in IPCA. We have TJLP, 17%; and CDI, 15%. And we also always emphasize regarding the projects in Colombia and Peru. We closed this quarter with 12%.

Slide 25. We show the schedule for amortization. Also there was no significant variation. The profile of the debt is elongated. We have 45% concentrated after 2024, and we also emphasize the bridges. So there's a table we put here. We have 2 bridges that concern the projects that we are implementing in Peru and Colombia. No short term to push the cash flow of the company. The debt -- long-term debt of the TCE, we are negotiating. It is going well. We believe that between the third and fourth quarter, we will postpone this debt.

Now the last slide. We show the performance of the shares considering the energy and IBOVESPA indexes. Alupar, this has been updated up to yesterday, 51% increase in its figures; IBOVESPA, 17.54% increase; and IEE, 39.24%. So Alupar's performance is very good this year. It's consistent.

And we would like to emphasize the liquidity. We put a table down there. From the IPO, we're at a BRL 7.7 million a day. And when you look at the figures and look after follow-on, they doubled, BRL 13.5 million. And when we look at the accumulated for this year [ IOI ], BRL 17.4 million. In this quarter specifically, we are at BRL 19 million a day of negotiation. So this is the points that we are tackling in an efficient way and being able to improve, and it reflects in the performance of the shares.

With that, I close my part of figures, and we can open for Q&A.

[Operator]

[Operator Instructions] Our first question comes from [ Graeme Lima ] from Santander.

[Unknown Analyst]

I have 2 questions. One in relation to GSF approved by the chairman. What do you say for the company, for the sector?

And another question. I would like to know what you are seeing in relation to the opportunity of growth this year. What do you expect in sales? Could you comment what you see for this year?

[José de Godoy Pereira, executive]

In relation to Eletrobrás, we will always look at the opportunities as long as there's an opportunity that's interesting. But we don't know whether we're going to participate or not. And also GSF, I think that we cannot say as yet what the impact is going to be because this law has not been approved as yet, although it has advanced, and there's no regulation as yet that have been defined for that. So we don't know exactly what's going to be the impact in GSF. We have our internal estimates, and that would depend a lot on the rules that will be issued for that sector.

[Operator]

[Operator Instructions] Our next question comes from Mrs. Maria Carolina Carneiro from Crédit Suisse.

[Carolina Carneiro, analyst]

I also have 2 questions. The first one, if you could give us an update regarding the [ institute ] from Roraima. I think you have commented on the last meeting that the expectation was at the end of May. And is there any update? And also the regulatory issues were being discussed about the agreement. I would like to know if you have anything new on that.

And the second question, in relation to generation, we have seen some clients commented on the development of free market -- closing agreements that are longer agreements in the free market for some projects, for some wind farms. I would like you to comment on that. Have you seen this type of interest, this type of development in the free market that might lead to anything new in your portfolio?

[Technical Difficulty]

[Operator]

Mr. Godoy?

[José de Godoy Pereira, executive]

I'm sorry. Can you hear me? Okay. So I'm sorry, we had a technical problem here, and we were disconnected. So answering Carol's question in relation to the opportunity of having project for wind farms, I believe that we are studying that. We have some projects that may be taken forward and that are maybe quite interesting for the free market. The trend for what we see is to grow more and more towards [ stratified ] since we are reducing the bar for the free user. In Brazil, this is a global trend in relation to TME.

What's going on? We see news every day in the newspapers, and we try not to say anything. What's happening? We are negotiating with FUNAI and IBAMA because of the indigenous territory there, and the demands that are being demanded by FUNAI and IBAMA besides the fact that this project being 200 months late because the license was not issued. They took it to an unbalance -- economical/financial unbalance of the agreement, and ANEEL is radically against rebalancing the agreement from the economical/financial standpoint. What it proposes is to readjust according to IPCA and -- for that and the [ remaining ] time we have this on our balance. So we have this issue that has been discussed.

Because the agreement -- for you to have an idea of the addition, the dollar was at 1.7, and you know the impact of the dollar in material and equipment. We have investments done there that have been for 10 years there, cables, and we don't even know if we're going to be able to use them again because part of this material cannot be used. So we are unbalanced. And on that, ANEEL is radically against any type of rebalancing the agreement. And the license has not been issued yet, and we are on this talk with FUNAI and IBAMA.

[Operator]

[Operator Instructions]

[José de Godoy Pereira, executive]

So thank you all for your participation, and we are here for you. Should you have any questions, you can call our team here. Thank you.

[Operator]

Alupar teleconference is thus adjourned. We thank you for your participation, and shall you have a good afternoon.

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