Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2022-Q3

[Unknown Executive]

The audio and slides are being transmitted simultaneously through the Internet, through the IR site of the company, ri.alupar.com.br. The presentation is also available for download. [Operator Instructions]

And please note that forecasts about future events are subject to risks and uncertainties, which may cause such expectations not to materialize. This means they will be different than expected. These forecasts express opinion on the date that they are made, and the company has no obligation to update them. Present at the conference call, we have Mr. José Luiz Godoy Pereira, CFO and Investor Relations Officer of Alupar; and Mr. Luiz Coimbra, Alupar’s Investor Relations superintended.

Now I would like to give the floor to Mr. José Luiz Godoy. José Luiz, you may start.

[José de Godoy Pereira, executive]

Good afternoon to everyone. Thank you for participating in our earnings results regarding [ 3Q ] of 2022. I will talk about the most relevant events during the period. And Luiz Coimbra, our CFO, will show you the different figures. And at the end, we will entertain a Q&A session should you have additional questions.

Therefore, the first relevant event was the readjustment of our RAP. This readjustment takes place every year in the month of July. And part of the readjustments are IGP-M, the other part is IPCA. IGP-M was adjusted by 10.72% for the cycle 2022 to 2023 now. And the IPCA readjustment of 11.73% with this, the RAP of the cycle of 2022, 2023, July to July went through 2,876 to 3,125. Now the second relevant event of the period was the payment of the second tranche of the dividends that were declared in the meeting of April of 2022. The second tranche was paid out on August 31, 2022, and the amount paid was BRL 0.45 per unit and BRL 0.15 per share. We also had – we restructured one of our units.

There was the first moment, there was the option of sell by the IFGTS of the total amount of preferential shares of the company. And there was a second action where was the acquisition by -- Foz do Rio Claro that is another generating company that we have here of 51% of the [indiscernible] [ IJUÍ ENERGIA ]. After the share restructuring, Alupar has 49% of shares and Foz do Rio Claro has 51% of the shares. We also -- during the same period, there was an agreement of the T&E. This is a line that connect announced [ Boavista ]. The -- this project had been blocked because of 3 public civil lawsuits.

And now during the month of September. Finally, we reached an agreement together with all the engaged part -- all the parties engaged in the licensing agreement. This agreement was signed. Therefore, the 3 lawsuits came to an end, who participated was [ TNE ]. That is the TNE, the concessionaire that is -- that has the project and also the Federal Union, Funai, Ibama, the public prosecution office, also the indigenous [indiscernible] and the line crosses part of this reserve. So with this -- so as of September of 2022, it became valid. Within this agreement, the union participated characterizing one part of the indigenous counterpart that will be paid out through the privatization fund that was created by the privatization of Eletrobras.

So therefore, with this, the union will be able to take over the settlement of the parcel or the portion that is not connected to the environmental impact of the transmission line. And this is why there is an agreement with the indigenous community -- [indiscernible] Finally, we sold in the auction A-5. We sold 10 megawatt average of ACM for 15 years. This starts in January 1 of 2027. Now EAP I, This is the wind complex of São João and we sold the 10 megawatt average for an amount of [ BRL 172 ] per megawatt hour. So thank you very much. And now I will give the floor to Luiz Coimbra so he can talk about the financial highlights. And at the end, we will be at your disposal.

[Luiz Coimbra, executive]

Good afternoon to everyone, and thank you for participating in our call for 3Q. I am going to show the IFRS numbers, and I will explain the regulatory figures. I will start on Slide 9, starting with the net revenue. BRL 652.7 million, represented a drop because of 2 reasons. One was the drop of BRL 270 million in infrastructure because of the operation of the [ TSN ] in December of 2021 and [ as this year ]. And also, there was a registry of drop [ through D3 ] in the monetary correction that is deflation registered during this quarter, when we see the EBITDA, it was BRL 487 million.

The main impact was a drop in the revenue that I just mentioned. There was a drop of BRL 126 million in infrastructure caused a result of lower investments because of the operation of the new power transmission companies, there was a drop of BRL 36.6 million with energy purchase basically because of the allocation strategy and for the lower spot price that was around BRL 135 other [ BRL 297 ] that we had registered during Q3 of 2021. And the thing to highlight would be other revenues and expenses. There is an increase of BRL 43 million, which is a result of the tariff review that some power transmission went through during the second quarter last year and the second quarter this year, and the impact is reflected throughout the third quarter.

Now when we see our profit, it was BRL 115.7 million. There was a [ BRL 415 million ] drop in EBITDA. There was an improvement in -- of BRL 105 million and taxes also BRL 124 million. Now going to the next slide, we have the regulatory figures. We start by revenue at total BRL 757 million. There is a growth of 5.9% vis-a-vis the same period last year. And basically here, we had the operation of the [ TSMS ] operation and the readjustment of RAP of 100 -- of 11.73% due to the contracting in IPC and 10.71 the contracts index in GPM. When we see the EBITDA, there was BRL 628.8 million during this quarter, there is a growth of 10.3% when compared to Q3 of 2021.

Now the 2 main variations, number one would be an increase of BRL 50.7 million in the income, and there was a drop of 36.6% and energy purchase is the same result that we had. So the leasing allocation and lower value of energy in the spot market when we see BRL 146.4 net income -- the main impacts here, number one, an increase of 58.7% in EBITDA. And afterwards, I believe that there was a drop of [ 105.5% ] in the financial result that is basically a result of the reduction of IPC that presented a deflation of 1.32% year in the accumulated of this quarter an inflation of 0.02% registered during the same period last year. And now our next slide, we have the holdings indebtedness.

There is a gross debt of BRL 689.5 million, a cash position of BRL 661.8 million with a net debt of BRL 27.7 million. The indebtedness is only one debt that is the seventh debenture issuance, 100% index with CDI, which matures in 2024 and 2025. Now our next slide, we have the consolidated indebtedness. Our gross debt was [ BRL 11.015 billion ], a cash position of [ BRL 2.560 billion ]. This is a net debt of [ BRL 8.455 billion ] regarding the debt structure. Most of our debt, 50% is indexed to the [ IPCA ] with CDI with 30% of the debt regarding the Colombian and Peruvian projects accounted for 14% of the total indebtedness of the company. On the next slide, you can see the amortization schedule. The profile of the debt is extended.

We have 34% of our maturities concentrated after 2027. The holding matures the seventh issuance distributed throughout 2024 and '25. And the transmission and generation assets have their maturity throughout the years according to the generation of their cash generation of each one of them. Here, you can see the performance of our shares in the capital market. Here, we can see the valuation and liquidity. The valuation of our shares throughout this year is 18.83%. -- and IEE [ appreciate ] of 8.27% and IBOVESPA 8.36%and when we see the financial volume year-to-date, we have BRL 26.8 million, and this is an increase of 22% vis-a-vis the BRL 21.9 million that we had during the same period last year.

With this in my presentation, I believe that we can continue with the Q&A session.

[Operator]

[Operator Instructions] Our first question from Julia Zaniolo from Santander.

[Julia Zaniolo, analyst]

I have 2 questions. Number one, to understand what you think about the end of the year and what is the project because you already have expectations of deadline with ICME.

[Unknown Executive]

Therefore regarding TNE, we are structuring. We had already bought material. And they have been stock for over 10 years. We have most of the aluminum cables purchased for the project, and everything has been stored for over 10 years. We're assuming this action. There's a first stage that are the first 6 months that are -- that is the interaction with the indigenous community. And yes, we are focusing on our projects in order to proceed. Now regarding the auction. It is very difficult to say something because we will -- we don't know if the competitiveness level will increase or drop.

I believe that the trend is to have more realistic returns. -- because there were a number of impacts in the interest rates, et cetera. So this should be taken into account by the enterprises as cost variation of a number of inputs, difficulties to execute. With the IPC employees, there are -- most of the companies face problems with COVID, and they still have now recovered from the impact that they had. So this should be taken into account during the next quarter. Now let's see. It is very difficult to predict anything in advance -- thank you very much.

[Operator]

Our next question from Rafael Nagano, Credit Suisse.

[Rafael Nagano, analyst]

Two questions. This is a follow-up of Julia's question regarding the TNE, if there is an update regarding the arbitrage process together with ANEEL. And I would also like to know about your view. I would like your view regarding about the future [ auctions ] especially because of the problems that the EPC employees faced, which is something that affected the CapEx.

[Unknown Executive]

Regarding the TNE arbitrage, it is underway. It will take some time to evolve the -- what we expect is to conclude this in 48 months. This is what we expect throughout the entire process because the process can last up to 48 months, it could be before, but this is underway. So this process has already initiated. Now regarding next year's auction -- it will be difficult to be -- to execute it because of the number of projects that exist. And as I mentioned, unfortunately, a number of companies that perform this had to face many COVID problems. And this still -- they still are not recovered from the impact of COVID. So I believe that there will be difficulties. I believe that this will be taken into account in the bids.

[Operator]

Our next question from Victor Burke from JPMorgan.

[Victor Pinto Burke, analyst]

Could you give us an idea of cost? We saw an increase of costs of the IRFS, what would be the optimum increase of cost -- there are concessions that may die their connections that may end. Do you think that this can hinder your transmission plans? Or is this something that we should expect in the long run?

[Unknown Executive]

The cost increase. I imagine that it's connected to because we have a smaller deployment. Perhaps there is a reflection of this. But IFRS is more complex to analyze specifically this point. I think what we use most is the regulatory balance. What was your other question? So the request when you request an ANEEL concession, in, well, solar complex, well, there is no guarantee that is creating distortions in the sector. There are complexes that have their connection on and better in default, they're trying to sell. It's a real confusion. I believe that this situation isn't adequate. It's [ an idea ]. I think that ANEEL should increase guarantees. ANEEL said that they would carry out a connection auction. Perhaps this would be an option and you need a connection auction. And for this, you need guarantees so that the peers connect themselves because this is like a gold rush. Everybody wants the discount that is coming to an end, everybody is asking for connections now.

[Operator]

Now to pose a question -- our next question from our webcast from [ Peter from Sylvia ].

[Unknown Analyst]

With the end of the investment cycle, can we expect a dividend payout similar to that of your peers of the industry?

[Unknown Executive]

So we are focusing on paying our dividends, and we will see this throughout time. It is difficult to say because what limits the payout of dividends is the leverage position of each company, we have to see the leverage level of each one to see the capacity of payout that they have. Many competitors are reaching the covenant limit. So on the other side, as we grow more, proportionally speaking, more proportionally to our size, we grew more than other companies. We had a lower dividend payout. The trend now is to increase this. And there are a number of companies that will stop dropping the amount that they pay out. So this is something what limit is the covenant that established by the debenture holders.

[Operator]

The next question from our webcast from [ Gilson ].

[Unknown Analyst]

I would like to know if the company thinks about distributing dividends on a quarterly basis or every 6 months, if yes, when will -- if yes, when will this be implemented?

[Unknown Executive]

We are precisely discussing this year. It is something that can happen, but we are focusing working on this. I can't predict when, but we are discussing this issue internally in the company and perhaps it will make sense.

[Operator]

[Operator Instructions] The Q&A session has come to an end. We would like to give the floor to Mr. José Luiz for the final remarks of the company.

[José de Godoy Pereira, executive]

Well, I would like to thank all of you for your participation and tell you that our company is at your disposal to our IR team is at your disposal to clarify any further questions, the Alupar conference call has come to an end. We thank you all for your participation and have an excellent afternoon.

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