Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2020-Q2

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Alupar conference call to discuss results regarding the second quarter 2020. The audio and slides of this conference call are being streamed simultaneously over the Internet on the company's IR website, www.alupar.com.br/ri. The presentation is also available for download. [Operator Instructions]

We would like to inform that forward-looking statements are subject to risks and uncertainties, which may prevent such expectations from materializing, that is different from what is expected. These forward-looking statements reflect opinion only on the date they are made, and the company does not undertake to update them. Here at the earnings conference call are Mr. José Luiz de Godoy Pereira, CFO and Investor Relations Officer of Alupar; and Mr. Luiz Coimbra, Investor Relations Manager.

I would now like to turn the call over to Mr. José Luiz de Godoy, who will start the presentation. Mr. Godoy, you may proceed.

[José de Godoy Pereira, executive]

Hello. Good afternoon, everyone. Thank you very much for attending this earnings call for the second quarter 2020. I'm going to start presenting the highlights for the period as we always do, and then we will move on to Mr. Luiz Coimbra, our Investor Relations Manager, so that he can discuss the number of -- the financial numbers with you. And then we'll open the Q&A session.

Beginning from our presentation, let's talk about the highlights that caused impact on the company during this period of the second quarter 2020. The first highlight was the project that started operating in the transmission line, Juazeiro III - Ourolândia. It's a ETB project, and this project had its first phase started. The annual permitted revenue is BRL 143 million per year, and we are having a revenue of BRL 55 million per year. This was a project acquired by [ ESTE ] at the end of 2017. And we have delivered the first phase very close to the expected date, which is quite on schedule. Even though we acquired the project at the end of 2017, we were able to deliver it on schedule, the first phase. We are at nearly the end of the second phase of the project. And of course, we had some impact by the COVID. And this project is in the list of a deal when they offered a 4-month waiver for some projects, and this project is included in this list. And this project started last month, the end of July.

Another highlight is the dividend payout, the first installment related to 2019. The declared value was BRL 202 million and we have already paid BRL 96.7 million out of the total of the BRL 220 million -- BRL 202 million. And the rest is planned to be paid up to December. And we paid BRL 0.33 per unit or BRL 0.11 per share.

Now I'm going to talk about the project. And you can see on the presentation, Slide 5, we are going to discuss some aspects of the projects, the projects which are underway. And we are going to talk about them one by one. And the first column to the left is the TCE project and ETB as well. ETB was the one that started its first phase, but the project as a whole, has already completed by 95% in physical progress. We are talking about construction works because all the other items have already completed by 100%. So all the other items have already been completed by 100%.

The TPE project is also completed -- nearly completed. 93% is the physical progress. Other than that, 100% of all the items are completed. We also have TCC, which has made good progress in all items, and the physical progress stands at 54%, but all the other items, land regularization contracting, cable receiving, metal structures and the substation equipment stand at 95%.

ESTE is the fourth project we'd like to discuss, and this has already reached 95% of land negotiation. The contracting area is already at 100% and it's 6% in physical progress. We have no intention of anticipating the progress because we would have no benefit from this because this project depends on another substation, which does not belong to us. It belongs to another company, and their schedule is late.

So we would not be favored in any way if we look forward in the schedule. So we are keeping to the schedule determined by ANEEL. And then I would like to discuss the TCE project that is in Colombia. The land negotiation has made very good progress. We have already reached 75% progress and 60% of the contracting has already been made. What is a bit late in this project was the installation license. Since this is a project in Colombia and Colombia adopted the lockdown approach to COVID, we had this impact and the installation license was delayed. We wanted this license to be granted by mid-2020, but we believe that this is going to be pushed to the end of the year, considering everything that happened in Colombia associated with COVID.

And the sixth and last project is TSM project, which is underway. It's a project that had some difficulties. By the way, TCE and TSM are the projects that faced some difficulties related to the land negotiation. So this is a project is -- that connects São Paulo in Rio going through Vale do Paraíba. I'm talking about TSM projects that we have already acquired 90% of the land.

And recently, we have started the physical activities, physical work. And it's important to say that the land negotiation has made very good progress. And even though we had started the construction works 2 or 3 months ago, the physical progress has already reached 22%, 4% for cable receiving and the metal structure have reached the level of 22%. So this is the general status of all the projects which are underway.

Thank you very much for your attention. And I would like to turn the call over to Mr. Luiz Coimbra, our IR Manager, and he will discuss the financial figures, the financial results of our company, and then we will open the Q&A session. Thank you.

[Luiz Coimbra, executive]

Good afternoon, everyone. Thank you very much for attending this earnings conference to discuss the results of Alupar. I'm going to start from Slide 7, talking about the figures in IFRS, starting with the net revenue, which amounted to BRL 1.027 billion, an increase of 25.6% in relation to the value reported last year. And the impact was an increase of BRL 219.4 million related to the concession assets remuneration related to the investments we made in projects in Brazil. As for the generation segment, we had a reduction of BRL 20.4 million due to the different strategies of allocation and commercialization or trading of energy.

And now talking about the EBITDA variation. EBITDA amounted to BRL 422.1 million in this quarter in comparison to the BRL 437.4 million year-on-year. The main impact on EBITDA was an increase of BRL 250 million in the revenues, as I just mentioned. We also had an increase of BRL 253.3 million in the infrastructure costs related to the investments made in -- which are being implemented in Brazil and also the consolidation of the transmitting company of ETB that contributed with BRL 91.6 million. And the latest impact, which was relevant to EBITDA was a reduction of BRL 30.3 million in the equity pick-up and this is associated with the consolidation of TME and ETB. And this quarter, this line represents exclusively the result of TME transmitting company.

As for net income, let's talk about the result that amounted to BRL 72.1 million in comparison to the BRL 110.9 million reported last year. And these are the reasons for the main variations. This BRL 15.3 million in the EBITDA, which has just been explained to you. And then we had an increase of BRL 7.9 million in the financial results. Basically, we had a reduction of BRL 8.6 million in the financial expenses related to the reduction in cash associated with the investments that are being implemented and the reduction of CDI. And the highest variation that we had of BRL 23.3 million in depreciation, these are noncash effects driven by the utilization of the construction and this amount have been provisioned. And if we do not consider those effects, we can see the adjusted income of BRL 16.1 million that would -- instead of BRL 72.1 million, it would amount to BRL 88.2 million for this period.

On this slide, we can see the regulatory figures. The net revenue amounted to BRL 426.5 million, a growth of 4.3% in relation to the second quarter of last year. And as for transmission, we had a growth of BRL 40.9 million. And the main impact were caused by the increase of BRL 25.4 million in the -- for ETC and EDTE because they started operating in September 2019 and also January 2020. We had a growth of BRL 26.7 million for AETE and TME, the transmission companies, as a result of the consolidation that happened in third and fourth quarter of last year. We had a reduction of BRL 10.2 million for ENTE and ERTE because there was a 50% drop in the RAP and this was related to the 15th anniversary of operation of both units.

As for generation, we have a reduction of BRL 20.4 million in the IFRS. And when we see the graph below and we talk about EBITDA, you can see that it amounted to BRL 322.1 million for this quarter, a growth of 6.2% in relation to the amount reported in the same period last year. And the main impact were caused by, first, an increase of BRL 20.6 million in the revenue that I just explained, which is associated with transmission segment. And another line is the increase of BRL 3.4 million in the G&A expenses.

Here, we had a growth of BRL 6.4 million of Alupar Holding and noncash effect due to the write-off of some units that were discontinued. And to end the topic, let's discuss the net income that amounted to BRL 50.4 million this quarter. There's 4 lines I'd like to mention. The first one is the increase of BRL 18.7 million in EBITDA I just explained to you and followed by an increase of BRL 29.9 million in the depreciation basically is because the balance that for the construction that had been provisioned. And now we use it as asset of service. These are very similar to the numbers in IFRS. Then we had an increase of BRL 5.9 million in the financial results, driven by the fall of financial revenues due to the cash reduction since we are making investments in the projects and also due to the reduction in CDI.

And then we had an increase of BRL 4.1 million as for the minority shareholder share. And the main reason was the growth of BRL 10.2 million in the TME, ETB and AETE transmission companies because these were not -- these were companies that are not -- were not consolidated in the same period of last year. We made this -- now we can make the same adjustment for the depreciation and we would have, instead of BRL 50.4 million in the gross income, we would have had BRL 66.6 million for the second quarter 2020.

On Slide 9, we will talk about the investments of the holding company, which stands at BRL 810.9 million, which is decently lower than the gross debt of December 2019. And this is associated with the amortization of the first installment of the fixed issue of debentures in April in the amount of BRL 158.6 million. The cash amounted to BRL 721 million, a reduction. You can see here, in December, we had recorded BRL 1.022 billion of our cash. And it was due to the amortization of the sixth issue of debentures and the [ fact was ] the payment of dividends, the first installment in the amount of BRL 96.7 million and this was -- this happened in June.

When we look at the short-term debt, it stood at BRL 163.8 million, and it is associated with the fact that the installments of the second admission of debentures of April 15, 2021. As to the adjustments of the debt, 80.5% is adjusted in CDI and this is associated with the seventh issue of debentures and 19.5% is adjusted according to the IPCA, that is related to the residual balance of the sixth issue of debentures.

On Slide 10, we talk about the consolidated debt. The gross debt amounted to BRL 8.470 billion. The cash stood at BRL 2.859 billion, with a net debt of BRL 5.611 billion. In relation to the debt structure, we have no significant variations and most of our debt is adjusted according to IPCA, 57%, 21% associated with CDI and 12% related to the foreign amount that is associated with the total indebtedness. And we keep the policy of matching the currencies.

And following on to the next slide, we talk about the amortization schedule. So the consolidated debt profile, quite extended, 48% maturing after 2025. And when we look at the holding amortization schedule, we can see that the sixth issue is on April 21, and the seventh issue of debentures is more expanded, covering the years of 2024 and 2025. As to the subsidiaries, they are well distributed. They're sized according to the generation capacity of each individual project.

And now we can look at the bridges tables. We have no funding for this quarter. We still have the 2 bridge loans related to the projects which are being implemented in Colombia and Peru. The only difference is that on August 11, we signed an agreement with TCE. It's a long-term agreement, and we are going to focus on the settlement of this bridge loan.

And now moving on to Slide 12, we are going to talk about the capital market. So we have a devaluation year-to-date of 9.27% in comparison to IBOVESPA of 11.7% and a devaluation of the Electrical Energy Index of 4.93%. And in this table below here, we can see the daily liquidity here. This is something that we have drawn your attention to. So we closed the second quarter with a daily liquidity of BRL 20.8 million, a little bit higher than the BRL 19 million that was recorded in the second quarter of 2019.

And with this, I close my presentation, and then we can start the Q&A session. Good afternoon, everyone, and thank you very much for your participation.

[Operator]

[Operator Instructions] The Q&A session is over. We would like to turn the call over to Mr. Godoy for his final consideration.

[José de Godoy Pereira, executive]

Our conference call has come to an end. We would like to thank you for your participation, and have a nice day.

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