Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Analysis

Quarterly Growth and Project Updates Drive Future Optimism

In the latest quarter, the company's revenue grew by 10.2% to BRL 953.7 million due to expanding infrastructure investments in the ELTE transmission line. Profit rose by 6.7% to BRL 237 million. A significant dividend increase saw BRL 0.21 per unit paid. Expansion in Latin America added 7 projects, expected to start by 2027, totaling $219 million in investments. Net debt stands at BRL 8.676 billion with no major changes. The company remains committed to sustainable growth and has an active ESG agenda.

Strong Financial Results Amidst Growth Challenges

In the second quarter of 2024, Alupar reported revenue of BRL 953.7 million, reflecting a solid increase compared to the previous quarter. This growth was primarily fueled by advancements in the transmission segment, particularly through notable investments in the ELTE transmission line. Despite this upward revenue trend, the company faced challenges from the recent monetary correction, where revenue was impacted by a 0.74% IGP-M inflation rate against a deflation of 2.72% experienced in the latter part of 2023.

EBITDA and Profit Growth

EBITDA reached BRL 785.7 million this quarter, which is a BRL 150 million increase compared to prior periods, illustrating effective cost control and operational efficiency. The profit for this quarter totaled BRL 237 million, representing a 6.7% increase year-over-year. These results highlight the company's robust operational capabilities despite external pressures, such as increasing financial expenses attributed to exchange rate fluctuations.

Project Development and Future Potential

Throughout the first half of 2024, Alupar was active in expanding its portfolio, acquiring four new assets in Latin America—two in Chile and two in Peru. The total investment for these assets amounted to approximately $165.5 million. With expected revenues exceeding BRL 39 million across these seven future projects set to commence operations by 2027, the company is positioning itself well for sustained revenue growth in the coming years. Moreover, these acquisitions are expected to bolster the company’s market presence in the competitive LATAM infrastructure sector.

Dividend Increase Reflects Commitment to Shareholders

Alupar proudly announced a significant increase in its dividends, paying BRL 66.6 million this quarter, translating to BRL 0.21 per unit—a remarkable 82% increase from BRL 0.12 per unit in the previous quarter. This payout reflects a 56% growth compared to the same period last year, demonstrating the company's commitment to delivering value back to shareholders while maintaining a payout ratio of 46.4%.

Strategic Outlook and Debt Management

Looking ahead, Alupar's management expressed a cautious yet optimistic outlook regarding future project auctions in Brazil and across LATAM. The company is keen on ensuring that all initiatives align with its return expectations and has been diligently managing its capital structures. With gross debt standing at BRL 12.433 billion, most of which is indexed to IPCA, Alupar is strategically positioned to navigate financial obligations while exploring new investment opportunities.

Challenges in Project Licensing and Operational Execution

Though the company is expanding aggressively, it mentioned facing delays related to licensing processes for ongoing projects. Alupar is actively working to minimize these impacts by pushing forward with all operations that do not require extensive environmental approvals. Although the industry is currently slow due to regulatory considerations, Alupar is optimistic about eventually resuming significant advancements on all fronts.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen, welcome to our teleconference for the discussion of the results referring to the second quarter of '24. [Operator Instructions]. Reminder that all participants will be only listening to the teleconference during the presentation, and then we will proceed with a Q&A session.

Forecasts about future events can be subject to risks and maybe the expectations might be different from what was expected. These opinions are issued only on the date they are done and the company doesn't oblige to update them. We have here our CFO; and also Mr. Luiz Coimbra, Superintendent of relationships of Alupar. Mr. Luiz Coimbra is going to proceed with the presentation. Please, Mr. Coimbra, the floor is yours.

[Luiz Coimbra, executive]

Good afternoon to you all. Thank you for your participation in this call. I'm going to be brief and then we go straight into the Q&A session. So we are going to go first through the highlights of the period, then we are going to talk about status of the projects, then we are going to talk about the destination of the results and then profit allocation and then capital markets.

Now we have here the first highlight of this quarter, the new cycle. The cycle RAP, '24, '25, we had an adjustment in our contracts in IPCA. We had a 3.93% adjustment, and we have our indexed contracts at 29% of our transmission agreements, we had a deflation of 0.34%. With that, our revenue leads '23, '24 cycle from BRL 3.564 million to BRL 3.932 million with a growth of 10.2% -- 10.3% sorry.

And also, we see here that we have 5 new projects in this first semester, 4 projects outside abroad Brazil and one project in Brazil. Now talking a little bit about our LATAM expansion. We've acquired in the first semester 4 new assets, 2 in Chile and 2 in Peru. In Chile, we've acquired 2 projects totalizing $145.9 million investments, a RAP of $19.4 million, ratio RAP CapEx of 13.3%. These are going to enter into operation in '27 COD.

In Peru, we have 2 new assets, $19.6 million in new CapEx, RAP $3.2 million, ratio 16.3%, and COD 2027. Peru, the concession term is 30 years from the operation, the entrance into operation of the asset. For LATAM now, we have in this new cycle, 7 new projects. We're talking about an investment of around $219 million, BRL 1.5 billion, and we have $39 million revenue. So all these assets, the 7 assets, they have -- they are expected to begin operations until '27.

Now next slide, you highlight another one, sustainability report that was published on the first of July, we reinforce here our ESG agenda. The transparency, our commitment to transparency. This is the fourth addition of our sustainability report and designed according to SASB. So if you are interested, please access the full report through the QR code and is also available on our website. The next 2 slides, well we have another highlight that it's important the creation and the launching of the brand of our Alup, the company that commercializes. So it's going to be present in the whole country, focusing on small and average transmission clients with new solutions that adapt to the needs of the clients.

And then on 8th slide, we have another highlight. We paid the return to shareholders. So now we have dividends paid. They were approved in May. They were paid in July. We paid BRL 66.6 million, so it's BRL 0.07 per share, so BRL 0.21 per unit, a growth of 82%. We paid BRL 0.12 in the first quarter of '23 and now we are paying BRL 0.21 per unit. And here, you can see the status of our projects that are being deployed, beginning here by TCE in Colombia, we have there 96% of physical advance, we had a new prorogation of the term in this quarter. So the COD that was foreseen for the middle of this year was moved now to June '25, postponed, and the revenues of this project we are receiving since December '21, also another project that is well advanced is ELTE, the South Litoral in Manoel da Nóbrega, began operations in May this year, and the revenue is 48% of the total revenue of the project.

North Shore has a good advancement as well. And also, we have TNE. It's a long standing project. We have 42% of physical advance already, it's in site. We have works inside and outside indigenous reserve, and also, we have the TCN, TES, and TEL in Latin America. TCN we have done 29%, TES as 11%, and TEL 17%. And besides those assets in this table, we have orders that are still at the initial phases. They are still under the engineering steps. And so as we have more information, we will give them to you.

And now with the next slide, we introduce you to the results of IFRS. So the revenue is 963 -- BRL 953.7 million, is a growth regarding the second quarter of '23. The growth was in the transmission segment and the impacts were the growth in the revenue of infrastructure due to the investments in the ELTE transmission line. In those we had the impact, the monetary correction revenue that was impacted by IGP-M 0.74% in face of a deflation of 2.72% in the second semester of '23. EBITDA totalized in this quarter BRL 785.7 million, four main impacts of this, the first is the increase in the net revenue that I've just explained. We had an increase of BRL 23.7 million in the cost of infrastructure due to the investments at ELTE. We had an impact of BRL 15.8 million due to other revenues due to the positive effect of the various tariff revisions in EDT and transit fee. And also, we had an increase of BRL 10.7 million in the account due to equity assets is not consolidated by Alupar, so it's equivalent.

And this asset had a result impacted by the phases of the implementation of the project. We have expanded more along this quarter. We have -- so the results were higher this quarter compared with last year. So the profit is BRL 237 million, a 6.7% increase regarding '23 -- comparing with '23.

And I will highlight 4 accounts. The first is the increase of BRL 150 million in EBITDA. We had an increase also of BRL 39.3 million in the financial results due to the increase in the financial expenses due to the exchange variation, we had a devaluation of real in face of the Peruvian currency, and this has an effect on noncash. And lastly, we had an increase BRL 48.8 million in the taxes and BRL 39 million in the participation of minority areas. So this is a result of the transmissions.

And in the next slide, we had the regulatory numbers. So net revenues, we had reduction of BRL 17 million regarding the numbers of the secondary. And this is because of the transmission STN. It had a nonrecurrent credit that reduced this account of reductions. EBITDA totalized BRL 645 million compared to last year. And I will highlight 3 accounts, the reduction of BRL 17 million in the revenue. And then we had an increase of BRL 10.4 million in the operational costs especially because of the increase of BRL 8.9 million in the cost of services. So we have transitory costs that impacted them. And also we had expenses with La Virgen.

And the last account that I would like to highlight is the increase of BRL 4.8 million in the personnel account with 3 impacts. We had a agreement approved in the third quarter of '23. We had a payment of PMR in '24 that was above the PLR participation in profits than '23 due to the achievements of goals in '23 and also we had the impact of the operation of new actives, the energy parks and all that began operating in this period. And looking at the profit, it got totalized in this trimester, it has a reduction in EBITDA. It has -- because of the parks such as Pitombeira, we had a growth of BRL 39.6 million in the financial results, it's the same impact that we had in the IFRS numbers due to the devaluation of reais to the new sol. It increases the account of exchange.

And also, we had a reduction of BRL 17.3 million in the participation of minority interest, especially in the STN Transmissão. So in the last year, it had that credit nonrecurrent that improved the result, its result. Now the holding had gross debt that was BRL 663 million. The negative debt is BRL 406 million. The debt of the holding is just a debt, the seventh issuance of debentures, and this is going to be due in the fourth quarter of '25. And part of this debt is going to be more amortized this quarter, the fourth quarter this year. Now we have the gross debt, BRL 12.433 billion. And so the net debt is BRL 8.676 billion so we had no significant variations. Most of our debt is indexed to IPCA, followed by PCI and also the debts regarding projects in Colombia and Peru 12%.

Next slide, we see the destination of the results. So we have the payout of dividends. It was approved by the Board of Directors. They approved the dividends, corresponds to BRL 0.18 per unit, it's going to be paid until 60 days of the approval date that was yesterday, and the shareholders that are enrolled in the records of the company until the end of the 16th of August are being entitled -- are going to be entitled to these dividends. When we look at this dividend compared to the ones paid in the second quarter of '23, we had a growth of 56% and the payout is in the order of 46.4%.

And now in the last slide, we see the performance of the company in the capital market. So Alupar shows a valuation of 8.47%. The IEE has a devaluation of 4.99%, and IBOVESPA devaluation in the same period, 4.12%. And another point is the increase of the financial volume we have accumulated in the year, average daily negotiation BRL 26.4 million.

So now I close my presentation, and I open now for the Q&A session. Thank you.

[Operator]

We will begin with a Q&A session for shareholders and analysts. [Operator Instructions] Our first question comes from [ Mr. Mario Wobeto ] from Safra. Please, you can begin, proceed.

[Mario Wobeto, analyst]

So I have two questions. The first one is about the interest of the company, in the participation the next auction of transmission in Brazil, if you can comment on the opportunities in LatAm as well? And the other question is regarding the impacts in the projects that are under development since we have prioritization in the licensing bodies.

[Unknown Executive]

Well, thank you for your question. Regarding the next auction, we still didn't know, we are still analyzing whether we are going to participate in it or not. It's going to depend on the return of the projects to see if they are feasible projects, let's see the cost. It is still too early to know. And about LATAM, yes, we are looking around the opportunities that are showing up and we are looking, we are trying to participate in several projects, and it's difficult to know really because we have planning that are for many years and they don't happen.

[Unknown Executive]

Someone has sent a question but in written form. Regarding the projects. This is for us, is also important and -- sorry, the sound is very bad. I'm sorry, the incoming sound is not well.

[Unknown Analyst]

If you please could comment about the finalization of the licensing bodies, are you going to have a few impacts?

[Unknown Executive]

Yes, indeed. No, well, not completely paralyzed by the news we are seeing, we are seeing kind of a slow operation, but we are trying to advance the most that we can, everything that doesn't need the environmental bodies in all the parts of the projects that are like executive, basic suppliers. So we are doing this, everything that we can, everything that doesn't depend on the licensing. You know the land enrollment. So now I read about it on the newspapers, you know piece of news, I read that maybe really this track is going to be finished soon. So we are in the expectation.

[Operator]

Now our next question comes from [ Mr. Petra Silva ].

[Unknown Analyst]

How Alupar sees the opportunities and the auctions abroad. The plan is to grow organically or through mergers?

[Unknown Executive]

Well, we have adopted the policy of diversification in the continent is what we do usually, will try to work with companies that are similar to ours, so we seek for synergy with the Brazilian market. We have countries here that represent almost 50% of GDP in Brazil. So we think that this is an opportunity that we have to look at.

And in relation to M&A, yes, we have looked into it, but this is a question of returns. We have to evaluate if it will give us adequate returns, appropriate returns. But we haven't closed anything recently, but we have been looking around. Maybe we can open some opportunity -- some window of opportunity.

[Operator]

Now our next question comes from [ Mr. Anders Gemarize ].

[Unknown Analyst]

Where are AP from projects in Chile, Peru and Colombia, are they linked to the local currency? If yes, do you have any way of protecting from the exchange variation?

[Unknown Executive]

Yes. Well, in the case of transmission, everything is indexed in dollars. We have only one project that is in local currency indexed to inflation, this is a project in Colombia and all the other projects are indexed in dollars. And what we do is that we check the structure of the capital of each project, we index the revenue with the currency. So we don't incur any risks in any project.

[Operator]

And then our next question comes from [ Mr. Pedro Rosseti ].

[Unknown Analyst]

Thank you for the results. I would like to know if you can comment about how you see the structure of debt of debentures. And are you comfortable with the chronogram of receivements of these loans, with these borrowings, the laws. Do you intend to do any recapitation?

[Unknown Executive]

Well, we have done several issues -- issuances to leverage projects and roll the debt. This is something that we do on our daily basis. And what we use is we look to our capital structure to optimize it to streamline it the most, and we try to leverage to work below 3.5. And maybe we have talked about that, when you have projects that don't create revenue yet, they are still under construction.

Well, we have been talking to the bond holders to leverage this in exceptional conditions, but we've been working with the numbers in the healthy capital structure of the company.

[Operator]

[Operator Instructions] Now please wait until we have more questions. In case there is no more questions, the session of Q&A is finished. Now I'll give the floor to Mr. Jose Luiz to make the final remarks.

[José de Godoy Pereira, executive]

Well, thank you all for your participation in our presentation. And I invite you all in case you have any questions, please get in touch with our area of IR. We have an area here that takes care of all the shareholders, so -- but even if you are not a shareholder, you want to invest in the company, we are at your disposition, okay. Thank you so much and see you next time.

[Operator]

This teleconference is finished. We thank you for your participation, and have a good day.

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