Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the Alupar conference call to discuss the results for the second quarter 2023. The audio and the slides of this conference are being broadcast simultaneously through Internet at the company's site. -- ir.alupar.com.br. The presentation is also available for download. [Operator Instructions]

Forward looking statements are subject to risks and uncertainties, and that the expectations may not materialize today. We have with us Mr. Jose Luiz de Godoy Pereira, CFO and IRO for Alupar; and Mr. Luiz Coimbra, the IR Superintendent. Now I will like to give the floor to Mr. Jose Luiz who will begin the presentation. You may begin, Sir.

[José de Godoy Pereira, executive]

Good afternoon, and thank you all for attending the call for the second quarter 2023. I'm going to mention some relevant points for the quarter, the highlights, of course, for the company, and then our IRO will convey the figures. And as we usually do at the end, we will open up for questions and answers.

We begin with the highlights for the quarter. The first is the RAP readjustment. We have 30 transmission companies, of which 29 are in Brazil. And a part is readjusted by IGPM, the other part by IPCA. The IGPM readjustment was negative in July 2022 and '23 and IPCA was positive, giving us a positive result of 0.2% of the total RAP. So the RAP is BRL 139 million, and will now go on to be BRL 3.145 billion for the 2023, '24 cycles.

The second relevant event was the first quarterly interim dividends according to our dividend policy approved in 2022. We pay BRL 0.12 per unit or BRL 0.04 per share, whether the shares are common or preferred shares. And this is how we work with our statements.

The third fact that we disclosed to the market was the partnership with WEG for self-production of energy at the Santa Regia complex, which is in Rio Grande Do Norte, and there will be a production contract of 15-megawatt average during a period of 18 years. In this contract, we will sell 70% of the Santa Regia Park for the total physical warranty that we have. Another important event is the coming into operation of the Sao Joao Park in Rio Grande Do Norte as well, a park with a installed capacity of 25.2 megawatts, 14.1 megawatts average of assured energy. Now in this park, we have sold 71% of the energy at the auction A522 in September of '22.

So our partnership with WEG and with this partnership, we have decreased our volume of energy without a contract for the long term.

We also disclosed our sustainability report now in July 17 of this year. This is a concern for the company, and we continually work with disclosures trying to service the market, comply with the assumptions of the market. So for those who are interested in knowing a bit more about the ESG issues in the company and how we deal with them, the sustainability report is available for all shareholders.

We also had an extension of the coming into operation for the TCE, which is our [indiscernible] in Colombia, substation of La Virginia and La Esperanza. Now this project has a physical advance of [ 85% ] of the [indiscernible] we're missing simply a part of the environment license that will have to be approved. We have 17 towers in this area, so we're lacking the environmental license. However, we had a waiver from the competent agencies through Resolution 4447-23, expanding therefore the coming and [ the date of ] operation for July of 2024. So basically, we're waiting for the authorization of the 17 towers to be able to proceed.

We go on to Page #9, where we speak about the status of each project under execution and the advance and progress of each of them. We have the TCE project, which I have just mentioned. 84% of advance in June, of course. Now this has advanced even further. We have taken a picture of the status of each project on the 30th of June of '23. But at that point, the general advance was 84% of LT Manoel da Nobrega in the Southern Coast, we have an advance of 74%. And UFE, which is a project, a wind project along with a solar project, well, in truth, it is a solar project that underneath that has a wind project. And the advance or the status of advancing this project is 54%.

I would now like to give the floor to Luiz, who will share with you our financial highlights. And please feel at ease at the end to ask for the necessary clarifications.

[Luiz Coimbra, executive]

Thank you all for participating in our earnings release for the second quarter of 2023.

I'm on Slide #11. Speaking about the highlights, and then we will speak about regulatory issues. We begin with net revenues compared to last year, and basically, we had a drop of BRL 530.4 million due to a monetary restatement due to the reduction of macroeconomic indicators. When we look at the IGPM, there was a deflation of 52% during the quarter, and the IPCA also had a slowdown, ending the quarter at 1.3%. The EBITDA totaled's BRL 636.1 million compared to BRL 873 million reported in the second quarter of '22. First, because of reduction in revenue and a reduction of BRL 157 million in other expenses and revenues.

In the second quarter of last year, we accounted for an extraordinary expense of BRL 150 million because of the recognition of 5 companies. Now, only TCE has gone through this review and the expense was much lower. When we look at the company profit, it was BRL 222.2 million, 23.4% higher compared to the BRL 180 million recorded last year. The main impact here was a drop of BRL 237 million in EBITDA, as I have just explained, and a reduction of BRL 146.2 million because of a reduction in our financial expenses. Once again, they're due to the drop in IPCA. We had an inflation during this period of [ 0.76% ], and in the second quarter of '22, it was [ 32.2% ].

And another important point is the variation in the exchange rate. In the second quarter of '22, there was a devaluation of the [indiscernible] compared to the dollar, suggesting a negative result for the account. And in this quarter, we had an appreciation of the [indiscernible] with the [indiscernible], a positive result.

We go on to the next slide. We begin with revenues, that this quarter had a growth of 15.3%. This variation is due mainly to the increase of 60.4% and the invoicing of transmission companies impacted by the readjustment of RAP for contracts index in IPCA and is 10.72% for contract [ mix ] and [ IPPM ]. We had an increase in the Generation segment as well, and here, I would like to highlight an increase of BRL 12.2 million in the trailer of Alupar and the Ferreira Gomes plant. We had more energy sold during this quarter. And I would also like to highlight the increase in La Virgen plant, where we had an increase of BRL 5.1 million in the [indiscernible] because of an improvement in the spot price compared to the same period last year.

The EBITDA totaled BRL [ 600.8 billion ] this year, a growth of 3% impacted by a growth in the invoicing, as I have just mentioned. Net debt -- Net income, I'm sorry, was BRL 50.2 million. And the main impacts of this account was the increase of BRL 85.1 million in EBITDA that I just explained. We also had a reduction of 145.9% (sic) [ BRL 145.9 million ] in financial results due to the drop of the IPCA and gains in the exchange variation. These are the main variations in the IFRS figures. Finally, a participation of minority interest, BRL 59.2 million in this account, a growth of BRL 55 million in the transmission sector. Basically, there was an improvement in the result of the transmission companies because of RAP and an improvement in the financial results.

In the next slide, we see the indebtedness of the holding. The net debt is BRL 648.1 million. We ended with BRL 698.9 million, a negative debt of BRL 32.3 million with indebtedness of the holding that consists only in 1 debt, which is the 7th issuance of debentures and that has maturity in the years 2024 and 2025.

We go on to the next slide and speak about the consolidated indebtedness. Gross debt was BRL 11.649 billion this quarter. We ended with cash and cash equivalents of BRL 2.595 billion with a net debt of BRL 9.053 billion. When we look at the structure of the consolidated debt, most of our debt, 49%, remains to be indexed by IPCA followed by CDI. And then we have projects in Colombia and Peru. They ended the quarter with 14% of the total indebtedness of the company.

We go on to the next slide, and speak about the profit allocation. Complying with the dividend policy that approved last year, we have paid out BRL 36.6 million. Corresponding to BRL 0.12 per unit, the payment will be carried out 60 days after the date of approval. And of course, those who will receive these dividends are the shareholders enrolled in the company as of August 16, and shares will be negotiated ex dividend also in August.

In the next slide, we show you the capital markets of the company. We had an accumulated appreciation of 11.81% during the year. IEE, 10.96%, and for IBOV, it's an appreciation of 7.44%. And here, you see the evolution in our financial volume. We have increased all of this by 18.9% with an average volume throughout the year.

With this, I would like to end my presentation, and we will now offer the floor for questions and answers.

[Operator]

We will now go on to questions and answers for investors and analysts. [Operator Instructions]

Our first question comes from Julia Zaniolo from Santander Bank.

[Julia Zaniolo, analyst]

We have 2 questions at our end.

During the semester, we see that the payout is below the 50% of your dividend policy. Would you explain to us when you will announce an additional payout of that 50%? Thank you.

[Unknown Executive]

In truth, it was 50% of the regulatory amount. That is our policy for the payout of dividends. But this year, we have been making adjustments because we're paying an amount that is higher than in 2022. Besides the quarterly anticipations according to our policy, we're paying dividends referring to last year. This is a year of transition so that we can have a more regular payout. All this through the present exercise.

[Operator]

[Operator Instructions] Our next question comes from Rafael Nagano from Credit Suisse.

I'm sorry, I cannot hear the question. I truly regret this. Once again, we were not able to hear your question. The sound was too low. If you could repeat it, please?

[Rafael Nagano, analyst]

Is it better now?

[Operator]

Yes, it's good now.

[Rafael Nagano, analyst]

Well, regarding the capital allocation, I would like to know what is happening in transmission compared to generation? If you see any opportunities in the secondary market for the development of new projects now that the in-house implementation of projects is well underway?

[Unknown Executive]

We're going to, of course, consider the auction that you mentioned in December and make an effort to participate in the case we find something that will bring a return. We look for opportunities where we can add value for the shareholders.

And regarding the M&A market, we, of course, have also considered some opportunities. We have set forth some proposal. So far, we have not been successful, but it could happen at some point in time that we will have an opportunity.

[Operator]

The next question comes from Daniel Travitzky from Safra Bank. You may proceed.

[Daniel Travitzky, analyst]

In truth, I have 2 questions.

First, regarding the price of energy, you disclosed 2 projects with prices that are quite interesting, BRL 195 and BRL 168 per megawatt hour. I would like to understand the dynamic of how you were able to close these contracts? These are older contracts, and which would be the dynamic to continue closing contracts of that level going forward?

Now, which will be the cost of CapEx dynamic comparing solar and wind parks in the present day context? If you could give us an update of what is happening with the cost dynamic or the construction of these projects.

[Unknown Executive]

Well, the issue of CapEx is so variable that it will change project to project. We have better conditions for one, worse condition for another, so we truly cannot generalize in this case, especially for projects. What we have observed is that there was an increase of CapEx after the pandemic.

Now when it comes to the trading, what we have in the market at present is production. That is making it possible to work with new enterprises. The market is quite complicated. This PPA of BRL 130 was at the auction that we had last year. But there isn't that much demand in the free market consumers. In the controlled market, consumers are leaving, and I do think that what is left therefore is the issue of auctions that will be quite hampered, and we will have to work in all of these other markets.

[Operator]

Our next question comes from the webcast, from Henrique Peretti from JPMorgan.

[Henrique Peretti, analyst]

Does Alupar intend to participate in the next transmission auction that includes the [ HVBC ] project? If they're not successful, will they participate in future auctions? Are you going to look at brownfield or increased dividends?

[Unknown Executive]

Regarding [ HVBC ], we're interested in participating. The problem with [ HVBC ] is that the technology adopted is an old technology that only Chinese manufacturers produce. There are 2 technologies, the ICC and PCT, and the ICC system was adopted and only the Chinese manufacturers produces. So this will limit our capacity and the capacity of other players who do not work with the Chinese technology. And [ HVBC ] will leave out all the European manufacturer and [indiscernible] if there's an older technology, they tend to work with a newer technology.

We are going to look around and see if there would be a possibility. I don't know if the Chinese companies have a partnership with the Chinese players themselves. We're not sure what will happen in the market, but we will participate in the auction.

[Operator]

[Operator Instructions] The next question comes from the webcast from [ Maira Maldonado ] from [ XP ] Investments.

[Unknown Analyst]

Regarding [indiscernible], give us an update on the status of a project? Which is the expectation on the beginning of work? And what is happening with the arbitrage?

[Unknown Executive]

Well, the beginning of works, we ended the part that is just before the coming into operation, what was required by the indigenous community, and we have begun work. Now the other segments are at the end of the hiring, and the project is progressing according to our expectations.

All the arbitrage is working, and it's complying with its own timing. It has a deadline of a month to retain definition, and we should have a decision very close to that deadline. We don't think it will come out before. Therefore, this is the time a normal arbitrage process takes.

[Operator]

[Operator Instructions] Our next question is also from the webcast, comes from Emerson Silva.

[Unknown Analyst]

I have 2 questions.

First, companies in the sector are closing their capital. How should we look upon this movement? Is there intention on behalf of the holding company?

Secondly, Eletrobras disclosed is its investment plan and its desire to carry out M&As. Would this be something natural considering the synergies that exist?

[Unknown Executive]

Well, the closing of capital, I can state on behalf of Alupar that we have no intention of closing the company. Opening the capital was an achievement. We are a transparent company that would like to continue on through time.

Regarding Eletrobras, I don't know the position of Eletrobras. What happens is that we have an agreement with Eletrobras to work with their shares as soon as TNE comes into operation. This will also encompass a part of RAP. We have other assets with Eletrobras, and we're going to work through a crossing of our assets, in this case.

[Operator]

[Operator Instructions] Our next question also comes from the webcast and will be asked by Marcelo [indiscernible].

[Unknown Analyst]

Congratulations for your results.

Could you speak about the dynamic of the last transmission auctions in LatAm, and which countries could present opportunities?

[Unknown Executive]

We participated in an auction recently between Peru and Ecuador. We did not win the bid. The company that -- when the bid was quite aggressive as well. But yes, there are opportunities and we're always looking upon those markets, Brazil and the other markets of Lat Am where we participate.

Well, I think this answers your question.

[Operator]

[Operator Instructions] Our next question from the webcast from [ Jose Magallanes ], [indiscernible] Capital.

[Unknown Analyst]

Do you have any expectation regarding new contracts, like the 1 you made with WEG?

[Unknown Executive]

We have held conversions not only with WEG but also with other large players to carry out partnership for self production, of course, and there are some opportunities that could arise in that area.

[Operator]

[Operator Instructions] Our next question on the webcast comes from [ Tiago Ives ] from [ Next Investimentos ].

[Unknown Analyst]

New projects outside of Brazil, is this something that Alupar is looking at? Or can we consider that Alupar will not increase its asset base outside of the country?

[Unknown Executive]

No, no. We have been looking at projects outside of Brazil. And the coming year, our expectation is that we will have 10% of our revenues coming from outside of Brazil, which is very positive. All of the revenues outside of Brazil will come in dollars, and of course, this will be a very interesting mix for the company.

[Operator]

This ends the question and answer session. Hence here, I would like to return the floor to Mr. Godoy for the final remarks of the company.

[José de Godoy Pereira, executive]

Once again, thank you very much for your attendance, and we are at your entire disposal should you require additional clarifications. I hope to see you in our next call.

[Operator]

The Alupar conference call has come to an end. We would like to thank all of you for your participation. Have a good afternoon.