Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2018-Q3

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the Alupar audio conference call to discuss the results of the third quarter of 2018. The audio of this conference call is being simultaneously broadcast on the Internet at the company website, www.alupar.com.br/ri.

You can find the PowerPoint presentation at the website for download. [Operator Instructions]

We would like to clarify that forward-looking statements are subject to risks and uncertainties, which can lead these expectations not to be fulfilled or to be different from initially expected. These forward-looking statements are the current opinion only on that date they are made, and the company is not obliged to update them.

The conference call will be attended by Mr. José Luiz de Godoy Pereira, CFO and Director of Investor Relations of Alupar; and [indiscernible] Luiz Coimbra, Manager of Investor Relations.

I would like to turn over now to Mr. de Godoy (sic) [ Luiz Coimbra ]. Please go ahead, sir.

[Luiz Coimbra, executive]

Good afternoon, everyone, who are going to follow this conference call. We will do what we do traditionally. So I will present some of the relevant points that have impacted the company on this quarter, and then Mr. Coimbra (sic) [ Mr. Pereira ] is going to talk about the results.

We have made the presentation available for download, so you can follow on the slides as well. If you don't have it, it's okay. We also have more time for clarifications later.

Starting on Page 4 with the period highlight for the third quarter of 2018. The first one is that we participated on Eletrobrás auction. It sold minority shares in several projects that they already participated in. And we did it for several projects. We won several projects, too.

So we won Lot K, 49% of TMA. TMA is -- TME is a company for which we own 45% of its shares. So with that, we will reach 95%.

We have also won Lot O, a company that we did not participate in, which is the consortium of Perfin. And our focus was not exactly that, but it's very synergistic with TME since we have a complex in the state of Mato Grosso. We believe that AETE, and other companies we have there are very synergistic with this operation. And we have also bid and won Lot M, a minority share of 24%, 25%. That was a minority-acquired stake with companies that we already have 41%.

We also have additional shares through [ EDE ] more specifically and another company we own, for which we own 10%.

Lots M, Transirapé, Transleste and Transudeste are a point we're still discussing with Eletrobrás. So although we won the bid, in our stakeholders' meeting, we believe that we have some preference right over these 3 shares. But we understand this differently. This right of preference should be at least proportional to the other partners. So this is a point that is still under discussion to determine what is going to happen with the shares for this lot.

Now moving to Page 5, we have concluded the issuance of debentures of ETAP and ETC. In the presentation, you find the characteristics of this funding. So BRL 116 million in ETC, BRL 156 million in ETAP. So the amortization is in the 5th, 6th and 7th year. There are -- we were in 2 series 1 in CDI and 2 series in infrastructures debentures. So for these NTNB26 plus 0.3% for the first series. And the third material fact is that we also issued long-term funding for TPE and TCC. This is a subsequent event because this was done in the month of October, not in the quarter. But this debenture was a shift to IPCA plus 6.5%. That's a longer operation with a longer duration than the previous operation I described. We issued those debentures, both of them on -- at the bank, that is with that, with additional fiduciary guarantee. So with that, we also have funding both of TPE and TCC already funded and well structured. There's another point I'd like to talk about.

And on Page 8, just to update the projects we are conducting. You will find on Page 8 the projects we are conducting, the ones that are being built. Out of all the projects we have, we have the prior license to all of them except TSM, which was a latest bid and TCE, which is the Colombia project. For the other projects, we already have the prior license. So there are some of them that will go into operation next year. And for the other projects, we expect to achieve the installation license this year. Of course, it depends on some bureaucracy, but we are moving forward very well, so that -- and we hope to issue the license of installation this year.

On Page 9, we show the land negotiation status. ETAP and ETC, 100% is already negotiated; for ETB, 85% has been negotiated; and EDTE is 90%; 70% TPE; 18% for TCC; and for TSM, 15%. So that is the land negotiation status.

And as for construction, we have made a diagram showing the status of each one. In the case of ETAP and ETC, the projects are more advanced. For ETAP, everything to be worked is ready. The transmission line is also ready. And commission for the substation, we have finished. Earth moving, we are in the middle of civil works, and we have just started assembly in September. As for ETC, we are finishing earth moving and civil works is about to begin. We are moving well. The transmission line is not ready, but it's much smaller, just 4 kilometer long.

We have also added a few pictures for you to see the status of the ETAP and ETC projects so that you have an idea of the civil works and the other activity status. It's always good to see this image as well. After all, images are worth more than a thousand words.

So now we will hear more about the figures, and we'll open for the Q&A session.

[José de Godoy Pereira, executive]

Good afternoon, and thank you once again for your participation in this conference call to report the results of the third quarter.

I will start my presentation on Slide 16, where we can see variations in revenue for corporate law information and regulatory information.

Starting with the corporate law information, the adjusted net revenues totaled BRL 406 million. We had increased BRL 20 million when compared to the BRL 386 million of the same quarter last year. And we also have the revenue from the transmission line. So here are some transmission projects conducted in Brazil. So you were getting the revenue on the asset. So the remuneration on the concession asset, that has increased at BRL 8.1 million. As for the energy supply revenue, we had a BRL 5.3 million increase because of the use of energy in that quarter.

We have -- there's Verde 8 energy. So we are sampling that, and that has brought to us a result of BRL 18 million. And also, we ran the last couple of Ferreira Gomes that has -- giving a good impact of about BRL 22 million for that quarter.

Now talking about the regulatory net revenue, we have totaled BRL 411 million. The same period of last year was BRL 424 million. But differences in revenue we see between corporate law and regulatory information have to do with the energy transmission revenue. Since the corporate law revenue increased, there was a decrease in the revenue of the regulatory information of a regulatory revenue of BRL 20 million because of a difference of the revenue of the EATE and ETAP. They have a 50% fall of the RAP because of its 15th anniversary.

And on the next slide, we can see more about the EBITDA. So in total BRL 341.6 million, which accounts for 8.8% growth in the quarter. The main impact has to do, as you can see, an increase in the adjusted net revenue of BRL 20 million, as I've just explained. There was also a variation in terms of energy purchased with a reduction of BRL 11.8 million because of our energy allocation strategy we used for this quarter.

And another relevant fact is that -- and a relevant point is the other revenues and expenses account. This is not exactly an increase. What happened here is that in the third quarter of last year, we started to adopt IFRS because of the construction in Colombia. So we reverted some of the expenses during the project. So that quarter had an expense with an inverted signal. So this is why there was variation.

And finally, something else that draws our attention has to do with the equity pickup, BRL 7.6 million increase. Again, not a variation of this quarter. In the third quarter of 2017, there was a reversal of the dividends that have increased if we provisioned. So this is why there is this difference of BRL 0.9 million that was recorded in third quarter of last year.

On Slide 18, you can see variations of EBITDA for the regulatory information totaling BRL 346.8 million. In the same quarter of last year, it was BRL 358 million, one. Here, the only significant difference is the transmission's revenue. While we had a reduction in the regulatory figure from BRL 20 million to BRL 20.4 million (sic) [ from BRL 20.4 million to BRL 20 million ], there was an increase in the corporate law figures. The rest are equivalent variations.

Now moving to Slide 19. We can see the net income that total BRL 107 million, a little bit under the BRL 112 million that we had recorded in the third quarter of 2017. It is also clear to see the variation we had. There was a BRL 27.7 million variation in EBITDA and a reduction -- or an increase [He corrects himself] in BRL 34.1 million in financial result. The impact in financial expenses were BRL 20.7 million, close to BRL 2 million because of the beginning of operation of SHPPP Verde 8 (sic) [ Verde 8 SHPP ], also an increase of BRL 12 million in Morro Azul. And it's the same thing, there were reversal of expenses from the previous quarter and -- like an increase of BRL 6.2 million in the holding because of the increase of IPCA. This works on top of 100% of our debt. Many of them are on the ventures. And also, a decrease in BRL 13.4 million in financial revenues because of the decrease in CDIs. Lows (sic) [ Loss ] of the cash of the holding company is 100% applied in CDI, and this is why there was this reduction of BRL 8.8 million in the holding company.

And finally, the variation in minority shares. There was an increase of BRL 2.8 million in our share of minority. That have to do with improvement in 3 of the transmission companies that we own: EATE, ENTE and STN. Together, there was an increase of BRL 4 million for that account.

Now moving to Slide 20. Here we can see variation in net income for the regulatory information. Not major differences, minus BRL 5 million in EBITDA and a growth in BRL 27 million in the corporate information. So this is why there was a drop here in BRL 5 million in the regulatory one.

Financial results, without much difference, but there was a significant difference in the percentage of minority, a BRL 7.9 million reduction. We had an increase in the other one of BRL 2.8 million. This is just for transmission companies EATE and ETEP. There was a variation because of the drop in RAP and an increase of BRL 2.2 million in the corporate law information.

Now on Slide 21, let me talk about the debt profile of the holding company. Its total debt was BRL 687 million, BRL 40 million under the BRL 760 million we had in the same period of last year. We also had a reduction of BRL 176 million regarding what we had recorded last December. And here, the variation in the holding cash status. Payment of dividends that is paid to the shareholders. It's -- some of the debt were amortized, both the principal debt and the other debt. And we also paid for projects totaling BRL 124 million. And here, we received from subsidiaries BRL 220 million in dividend accumulated in 12 months.

Now moving to the next slide, we can see the consolidated debt profile. So total debt, BRL 4.3 billion (sic) [ BRL 4.5 billion ]. So a little bit inferior to what we had recorded in December 2017. So you can see the differences between one year and the other.

This reduction in cash, BRL 166 million of the holdings. And there was also a reduction of BRL 271 million for Alupar through -- and -- from the last year, some of the money that was taken -- that was carried to this year. So this is why there's a cash variation.

It's important to say that the net debt and EBITDA remains at the same level, 2.3 in December, and that's the same level we have today. So we have amortized a lot of debt along this year.

Now moving to the next slide. We can see the debt amortization schedule for the debt. The debt profile is now they have 34% is concentrated to be paid as of 2023. Here we can see the opening of the bids. They total BRL 220 million, out of which the BRL 35 million of ETC has already been funded for the long term. In the next quarter, it will no longer be here. And it's also part of the work that the company has done. In the fourth quarter of last year, we had accumulated an amount of BRL 880 million. So this year, we will roll over the bids because of the long-term plan.

And on Slide 24, here you can see capital markets and the valuation of the shares. Here you can see we had some local/regional impact. They have leveraged some of the results. But once again, we see the good liquidity. It was close to BRL 4.5 million a day, now the cumulated amount is BRL 6.6 million. If we think about the daily liquidity level comparing last year to this year, we have BRL 12 million liquidity level a day, BRL 9.9 million in average of the whole year. So there are more people betting on the company.

Now we can move to the Q&A session.

[Operator]

[Operator Instructions] The first question is from Kaique Vasconcellos from Safra Bank.

[Kaique Vasconcellos, analyst]

I would like to better understand the point you talked about, about Lot M because I understand there was a dispute under right of preference. But how can you solve that? It's -- would it be like half and half to each part? Do you think you need to go through arbitration? So what are the possible solutions to this issue?

[Unknown Executive]

I believe that first thing, you need to determine this interpretation with the seller. We are talking to them. We are talking to TAESA to understand this interpretation, the right interpretation to be made. But we don't know yet which are the possible ways to take. What I can tell you today is that there is a difference in the interpretations of the shareholding agreement. Of course, we are open to talk and better understand this issue to try to solve the problem and try to understand the point.

[Kaique Vasconcellos, analyst]

What is the expected timing? You have any expectations on timing?

[Unknown Executive]

Well, there's a timing for this period. TAESA sent a letter. But we also sent a letter in the -- so we now -- we're understanding Eletrobrás is analyzing the point. We are also taking some legal opinions to serve as a basis for our discussion, and let's see what they decide.

[Operator]

Carolina Carneiro from Crédit Suisse would like to ask a question.

[Carolina Carneiro, analyst]

I have 2 questions about the next transmission bid. The first one, first question, is are you interested in participating in this bid? And second question, do you know why ANEEL has removed the status prior definition from that bid this week? Apparently, it's going to be part of next week's agenda. Do you think that has to do with the loss from Eletrosul that are no longer valid?

[Unknown Executive]

I don't know about the agenda. Apparently, it's part of the agenda. Again, it is the schedule for the month of December. Of course, we will participate in it. Whether we are going to win it, well, of course, that will depend on the return that we plan to have. Of course, we want to do something that is beneficial for the company. It will depend on the study that we have already started working on. But we cannot say at this point what it's going to be like because it's too early for us to know exactly which projects are profitable or not. That depends on our budget and on other factors, funding costs, everything that we are analyzing right now. So I cannot tell you what it's going to be. So maybe the laws are very good. Maybe they are not very good. So we did not know at this point. We are working on it so that we can reach a conclusion.

[Carolina Carneiro, analyst]

If you allow me, I have yet another question about PL 209 that could be analyzed this year, that could be -- have a solution. There was a -- that is a deal. I understand that there are some points that were included in other deals to be tapped by the government. Do you think that this deal could be voted this year to resolve this issue involved in these discussions?

[Unknown Executive]

It is hard to tell. Personally, I think that this is going to be voted at the House of Representatives. But I don't know. I think it's very unlikely because it's the end of the legislation period. The administration is about to change. And the new administration that has just been elected, they have topics that are more relevant to be voted at this point. It is not impossible, but it's highly unlikely that this deal is going to be voted at House of Representatives. We are waiting for that. It's a huge problem for our industry, but it needs to be solved. There are so many things to be solved at this point. That is probably going to be voted next year. That's my personal opinion. Many people believe that there is a chance that it is voted this year, but I'm very skeptical about it.

It's also hard to tell what the final reading is going to look like, whether the House of Representatives will change the text or not. And there are some things that had already been approved, I don't know why, and now that's not implemented. So [ Order of Merit ], the [ PLVS ]. There was a whole methodology that was developed but not implemented. And the law was approved last year. I don't know. Honestly, I think that it's very unlikely that it will be approved by the House of Representative this year. And of course, everything will be opened when the new administration takes over.

[Operator]

Our next question is from [ Juliana Adegi ] from [ Claritas ].

[Unknown Analyst]

Aligned with Carolina's question, who signed -- the person who signed the [indiscernible] Pact in 2015, Paragraph 10, that the agent of generation would wave the rights to any future dispute? The person who signed this [indiscernible] Pact, this reagreement will be outside the indemnity from the [indiscernible] up part now. So is it associated to those who joined that agreement in the past?

[Unknown Executive]

What happened is that those who made that agreement back then wave the lawsuits that were being analyzed back then. But in our case, be more specific, there are some plants that were 100% in the regulated market. So we just adopted or we -- the new rule, and we signed that agreement. In the case of power plants that are in the free market, in the long-term contracts, so in that case, there was no agreement made because they operated on the free market. So I believe that they make a new rule, like the agreement was made only for the part of energy that is in the regulated market. We play -- pay full GSF on that part that is in the free market. Because of the [indiscernible], if you make -- if you propose an agreement to those who are -- who operate in the free market, companies that signed that agreement in the past, if they have -- they operate an agenda-free market, they were not covered by the previous agreement. I think they should be covered now.

[Unknown Analyst]

Yes, but the test first called it generation agent.

There was one sense in saying that they renounce -- they would waive any right.

[Unknown Executive]

Well, there is a legalese behind it. We are talking about an agreement. The agreement that was made in the past or the one that was remade had a clause for the regulated market, another one for the free market, and you could choose. So different whether you have different conditions for different markets or just in the free market. But if you open new conditions to the free market, it'll be the same as going back to the previous situation. If you had given me this condition to the free market at that time, I would have joined that agreement for both markets. There is this [indiscernible] issue that need to be granted to these agents. Otherwise, it doesn't make sense. Also because that will not solve the problem, there are very large companies like San Antonio that has significant service operations in free markets, [indiscernible], [indiscernible], all of them. They are the big plants. There are a lot of power plants that have part of its operations in regulated market, part of the operations in the free market. And there we will have problems with that in the future.

[Operator]

[Operator Instructions] You can proceed.

[Unknown Executive]

Once again, thank you very much for your participation. The Investor Relations team is at your service to clarify any questions you may have in the future. Thanks very much. Have a good afternoon.

[Operator]

Alupar teleconference is closed. We'd like to thank you for participation -- for participating and wish you a nice afternoon.