Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Analysis

Alupar's Strong Revenue Growth and Project Advancements Mark Successful Quarter

Alupar reported a remarkable quarterly revenue of BRL 928 million, an increase of almost BRL 280 million year-over-year. The surge is attributed mainly to a BRL 69 million growth in infrastructure revenue and a BRL 228 million boost from concession assets. Profit soared to BRL 364 million, up from BRL 100 million last year, driven by a BRL 237 million rise in EBITDA. The company anticipates ongoing project advancements in Latin America, with BRL 732 million in investments expected to generate an additional BRL 100 million in revenue by 2029. Strong financial health is reflected in a net debt of BRL 8,761 million and a stable dividend policy.

Strong Revenue Growth Amid Infrastructure Investment

In the latest quarter, Alupar reported a significant revenue rise to BRL 928 million, which reflects an impressive increase of nearly BRL 280 million compared to the previous year's third quarter. Key drivers of this growth included an increase in infrastructure revenue by BRL 69 million due to investments in the ELTE project and a remarkable BRL 228 million rise in revenue from concession assets. This upward trajectory showcases the company's strategic investments in infrastructure as a solid foundation for future earnings.

Substantial EBITDA Increase Signals Healthy Operations

The company's EBITDA surged to BRL 693 million, marking an increase of BRL 238 million over the same period last year. This rise is largely attributed to improved revenues from concession assets and effective cost management within infrastructure operations, even as costs associated with the ELTE transmission line increased by BRL 58 million. The consistent growth in EBITDA illustrates Alupar's operational efficiency and its ability to enhance profitability.

Remarkable Profit Expansion Amid Reduced Tax Liabilities

Net profit for the quarter reached BRL 364 million, up sharply from BRL 100 million a year ago—a remarkable improvement attributable to the increased EBITDA, a reduction in taxes by BRL 222 million due to benefits from SUDAM, and a rise in minority participation by BRL 240 million. This performance suggests that Alupar is not only growing its top line but also optimizing its financial obligations, providing further value to shareholders.

Projects and Future Pipeline Signal Promising Growth

Alupar has showcased progress in its project pipeline, with notable advancements in the ELTE project, which is operating the southern stretch and is currently 87% complete. Additionally, the company has secured several new contracts in Latin America projected to generate additional revenue of over $100 million. Moving forward, Alupar's projected capital expenditures include $500 million in Peru and $200 million each in Chile and Colombia, reflecting long-term growth strategies in the region.

Debt Management and Financial Health

In terms of financial health, Alupar reported a gross consolidated debt of BRL 12.27 billion, with a cash flow of BRL 3.51 billion, resulting in a net debt of approximately BRL 8.76 billion. The company appears to be managing its debt effectively, with 49% of the debt indexed to inflation (IPCA). The recent issuance of BRL 850 million in incentivized debentures at a competitive rate demonstrates Alupar's financial strategy to maintain liquidity and manage costs. This strategic positioning indicates resilience against market fluctuations.

Dividend Distribution Enhances Shareholder Confidence

The administration approved the distribution of dividends amounting to BRL 76.1 million at BRL 0.18 per unit, which reflects an increase from BRL 0.12 per unit paid in the same quarter last year. This increase in dividends not only rewards shareholders but also reinforces Alupar’s commitment to delivering shareholder value amidst growth and expansion initiatives.

Navigating Market Dynamics and Future Expectations

Going forward, Alupar must navigate various market dynamics, including challenges related to local restrictions impacting their operational capabilities. The company is actively participating in discussions to improve regulatory conditions and aims to mitigate curtailment issues that have previously impacted performance. Looking ahead, management remains cautiously optimistic about upcoming auctions and potential projects, indicating readiness to engage decisively in pursuit of growth opportunities within Latin America.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Alupar Results of the Third Quarter of '24. Audio and the slides are being streamlined. [Operator Instructions]

Forecasts about future events are subject to risks, maybe the expectations are not fulfilled. These forecasts are the point of view of the people on the date that they are made.

Here we have José Luiz de Godoy Pereira, CFO of Alupar; and Luiz Coimbra, Director of Investments Relations. Now with you, Mr. Luiz Coimbra.

[Luiz Coimbra, executive]

Good afternoon. Thank you for the participation in this call. Today, we are going to talk about the highlights of the quarter. Then I'm going to talk about the status of the projects. Then we are going to talk about numbers, results of the quarter and destination of results and then the performance of the company in the capital market.

The first highlight is 2 projects that we have in Latin America. We participated in some auctions and we were successful in 2. In Peru, totalizing $443 million in investments with an additional revenue of $66.1 million. The first project is TSA Group 02. The auction was on 29th of August. The investment is $400 million with a revenue of $60 million. Second project, Runatullo auction in September. It's a project of investments of $42 million.

Now our cycle of investments in LATAM is very relevant. We have about $732 million in investments until the end of '29. This is going to allow for an additional revenue of more than $100 million. This cycle also has BRL 4 billion investment for BRL 600 million revenue.

Now another highlight. The dividends paid in the second quarter this year. So the Board of Administration approved the distribution. They were paid on the 3rd of October. We paid BRL 0.18 per unit. When we compared with the same quarter last year, there was an increase, expressive. Last year, we paid BRL 36.6 million, BRL 0.12 per unit.

Next slide, please. We talk about another highlight. We have the emission of the debentures. It's a capture in the holding. It's BRL 850 million. It was an incentivated debenture by the law 12.431 with a remuneration rate of 6. 4986%. I think it was a good moment of the market today in the holding. We have only 1 debt of BRL 600.50 million with a cost of CDI plus 1.40. So we are able to prepay this debt. So we have only this new emission ongoing.

Next topic is the status of the implementation projects. We have 3 projects that are advancing significatively. The first one is TCE in Colombia. This project was basically ready, but depended on the licensing of 17 towers. We had an environmental pendency. Now we had the license of 16 of these towers in October. So we are going to follow with this project. Maybe the last tower is going to be finished until the end of the year.

Also ELTE advanced is the stretch north. The south stretch was concluded and began operating in May '24. ELTE is 87% advanced. In the second quarter, we had 55% of advance so the project is evolving well. And our expectations is to finish on the first quarter next year.

Also TNE advanced. We have 61% of general advance of the project. In the second quarter, we had 42% of advancement. So it's advancing well. Our expectation is to conclude the project on the fourth quarter next year.

We have 3 other projects in Peru, Chile and Colombia that are at the beginning. We are doing something in the land area. We are working on the licensing. We are beginning also other projects and we don't open them here because they have not evolved yet. So we'll show them soon.

Now the numbers of the company highlights here to the societal numbers. Revenue in this quarter was BRL 928 million, a growth of almost BRL 280 million when compared to the third quarter last year. Two main impacts. First, an increase of BRL 69 million of infrastructure revenue due to investments in ELTE. The second other impact was a growth of BRL 228 million in the revenue of concession actives. We had an increase of the macro indicators of inflation, especially IGPM that had registered a deflation of 2.75% in the third trimester -- quarter last year.

And now we have an inflation this year, down there on this slide, we had the EBITDA that totalized BRL 693 million with an increase of BRL 238 million when compared to the same numbers in last year. We have an impact of the active of the revenue of concession assets. We had an increase in the cost of infrastructure of BRL 58 million ELTE transmission line and an increase of BRL 42.2 million in equity equivalents in the TNE transmission. The result enters via equity equivalents. It is evolving well. We've advanced it well in this trimester -- this quarter. So the revenue of infrastructure of BRL 760 million bigger than last year. So our result is bigger.

Now looking at the profit. Profit was BRL 364 million compared to BRL 100 million from last year. This was impacted by EBITDA increase, BRL 237 million. And the other 2 accounts, they are related. We had a reduction of BRL 222 in taxes and an increase of BRL 240 in minority participation. We had EATE transmission line obtained tax benefit from SUDAM. So now we have a reduction in the tax line. And now we have a participation in minority in this asset.

So now next slide. We have the regulatory numbers, revenue is BRL 120.3 million, (sic) [ BRL 820.3 million ], 2.9% above the numbers of same period last year. We had 2 impacts here. First, operation of south stretch of ELTE and also the readjustments of [ ETES ]. We had [ obligation ] in June of [ 3.3% ] in the contracts indexed by the IPCA.

EBITDA also have 2 main accounts responsible for the variation, the increase in the net revenue and also an increase of BRL 22.6 million in the purchase of energy. First, we had the purchase of energy in the wind complex Agreste Potiguar and the sun energy park of Pitombeira. And these assets, they are located in Rio Grande do Norte and [indiscernible] states affected by the restrictions. This impact is going to be reduced from now on with the interest into operation of Pacatuba, Jaguaruana transmission line began in October and is going to help the region South, North and Southwest.

Profit, it was 11.9% above the same period last year, and we had a reduction of 6.7% in the EBITDA that I just explained. Also, we had an increase of 7.8% in the depreciation and amortization account with the entrance into operation of São João and Santa Régia wind parks and the UFV Pitombeira solar farm, a reduction of 22.4% in the financial results. Because of the reduction in the exchange rate with the valuation of reals in face of the new sol, the Peruvian currency. And also we had IFRS, we had a reduction of BRL 31.4 million in taxes and an increase of BRL 20.2 million in the minority areas.

We had a benefit, the benefit the tax, benefits by SUDAM. We had debt of the holding. We had a gross debt of [ 3.24 ], with negative debt of BRL 110 million. It's only one debt. The seventh emission of debentures indexed by CDI is due on the fourth quarter next year. We did a captation recently. So we are going to anticipate the payment of this debt.

Now we have the consolidated debt. Gross debt was BRL 12,270 million. Cash flow BRL 3,509, so the net debt is BRL 8,761 million.

Regarding the consolidated debt. No changes that are important, 49% is indexed by IPCA. And followed by the other models in the next slide, we see destination of results. The dividends approved on the end of '22 by the administration board. So we approved BRL 76.1 million. This is BRL 0.04 (sic) [ BRL 0.24 ] per unit. This payment is going to be done up to 60 days after the approval date yesterday. And shareholders inscribed in the company until the 14th of November will be entitled to receive.

Last slide of our presentation. The performance of the company in share market. Alupar has 1% devaluation accumulated in the year, IEE is 10.85% devaluation and IBOVESPA, 3.23%.

Another point is the financial volume. We closed the second quarter with BRL 27 million daily volume. This quarter, considering the accumulated of the year, we improved a little bit. Now -- I'm sorry, now we are BRL 27 million. We were before BRL 26 point something (sic) [ BRL 26.4 million ].

And now I finish my presentation, and we begin now with the session of Q&A for shareholders and analysts.

[Operator]

[Operator Instructions] First question is from [ John Pedro ] from Santander.

[Unknown Analyst]

What do you think about the transition auction next year and other opportunities outside of the country?

[Unknown Executive]

It's difficult to say next year's auction. It's small so I don't know the competition level. It's too early to say if we are going to participate in it. We are going to have a look, yes. And let's see the returns of the last auction. I mean I think we are aggressive. So the market has changed in this meanwhile, so I think it's early to say.

This refers also to abroad. We are looking abroad to some auctions and trying to identify opportunities. We are going to analyze. It's difficult to say if we're going to go there or there. We look to the most alternatives possible to choose the most attractive opportunities.

[Operator]

Next question is from Victor Cunha, Itau BBA.

[Victor Cunha, analyst]

Talking about curtailment. We see the restrictions by ONS in the assets of Alupar due to the localizations. They are significant. And now the company incurred in cost of purchase in energy that were higher. How are the talks about getting back the money? Have you seen some improvements in the restrictions for the operation of the 3 lines in October this year?

[Unknown Executive]

You're talking about the curtailment. Yes, we were really impacted in this quarter because of the curtailment in the assets. The transmission represent [ 35 ], it's a small impact, but it occurred. So it reduced in October. We had a line that was almost 2 years delayed. It has been executed. The Pacatuba line and especially in [indiscernible], we had a worsening of the curtailments. And with entrants into operation, we improved the curtailment.

And Rio Grande do Norte, the curtailment is smaller, around 15%, 20%. And we had some changes in how it is distributed by ONS in October, September. I don't really remember. We did a more proportional distribution. But we have these discussions in the sector, not only Alupar, it's a broader discussion with all the agents with the ONS and ANEEL.

And we have 2 types of curtailment that are being analyzed. One is [ inadequate ] and does improve most of the curtailment, is a problem of transmission and delays in the transmission lines. So it's not a question of energy. You know it's due to transmission problems. And this risk, if I know, contracted badly or something that delays, well, we have raised this point already. We need to have an improvement in the guarantees and the selection of the players at the moment of the contraction because at the bid moment, we have people with price, as you know, they are not able to execute later. So curtailment is a consequence of this scenario that we have seen the transmission.

I think we have to reach consensus in the sector. I'm not talking only about Alupar, but it's a general rule of the sector. This is harming companies. There are companies saying that are going to leave Brazil, who are not going to invest anymore. This is absurd, Brazil with all the potential that it has.

[Victor Cunha, analyst]

If you allow me a third question. In the last years, the company had several lots of transmissions outside Brazil with more attractive returns. So if you could give us an idea of the pipeline in transmission of in countries like Colombia, Peru and Chile for '25, I would thank you.

[Unknown Executive]

Well, our pipeline is like debt. We have a CapEx of $500 million in Peru, $200 million in Chile, in Colombia, we will have also $200 million. So this is the division these projects are going to enter into operation around 60 months in average. But all this pipeline in tax, in dollar and plus inflation. And the scenario abroad is as competitive as here. The difference maybe is that the same players that compete with us here, compete with us there. So the difference that they don't use the Brazilian vehicle, they use another vehicles. So if you get the Spanish companies, they don't enter with the Brazilian vehicle in the LATAM countries. They use the Spanish vehicle or [indiscernible], for instance. It's not [indiscernible], the Brazilian arm of [indiscernible]. But is Colombia, so and so forth, all the players.

[Operator]

Next question is from Vladimir Pinto from XP.

[Vladimir Pinto, analyst]

My question is about the arbitration process of [indiscernible]. Can you give us an update?

[Unknown Executive]

Well, I'm limited because the process is confidential. It's already 24 months, the expectation. The resolution is that they are going to solve inside this 24 months. These 24 months, they are going to be complemented in the first semester of next year. We've done some audiences, there was a decision that was on the press as a partial sentence. We are defining the broadness of the sentence. I think it's going to be defined until middle of next year, you know, at least the general scope.

[Operator]

Next question is [ Gustavo Faria ] of Bank of America.

[Unknown Analyst]

I have 2 questions. The first is about the review of CapEx that you've mentioned in the LATAM. Do you believe that there is no risk for the review of the CapEx above or below? Maybe there's a possible review? How do you do the handling of this CapEx?

And the second question is about how do you see the main competitive advantage of Alupar in comparison with the international players in Chile, at Colombia? Do you think it's the CapEx, engineering or funding that is cheaper?

[Unknown Executive]

Well, I don't know. I don't know. It's difficult to. I think we have advantages. We have positive points, but also others can have advantages. So it's difficult to give a general rule. Each project is a project in itself, and it's difficult to say that one is similar to the other. Each one has its challenges and characteristics.

Regarding CapEx expectations. We first look into the values that we've said. When we calculate CapEx, we determine the value as a contingency, and the contingency is the part that is unknown and it depends on the risk of each project. Each project is analyzed individually, item by item, each part of the project, the ones that have more risks, that are riskier. So in this CapEx, we already have a provision for contingencies that might occur that are unknown. We do an analysis and then it's the capacity of each player of executing.

If you look to our historic, we are able -- both of the projects we executed, below our initial expectations. We were able to get savings. That's what I can tell you. But during the -- we are going to see what is going to happen. I don't think that we are going to have great modifications because difficulties of these projects are concentrated in supply. So I think that really, when you have problems is when you have big lines that you end up having greater difficulties in the land part, in the environmental part, in foundation. So this sometimes are worse.

[Operator]

Next question is from [ Pedro Mandaluzo ] from [indiscernible].

[Unknown Analyst]

How is the vision of the company in new investments in Generation? How is the arbitral process with [ BRF ]?

[Unknown Executive]

Well, the process as I told you, is confidential, it's ongoing. Our expectation is that it concludes -- I think that it's going to be difficult until maybe the end of next year, we are going to reach a final conclusion with a sentence on this discussion.

And regarding Generation, what happened. I think that the bodies, EPE, [ Minas ], et cetera, they have to look at this because what happens is that the investments in Generation will require a bigger return, and this is going to make the cost of energy more expensive for the consumer. A lot of cross subsidies were created, and this caused some distortions. I think basically, we have to look at this and the level of return must be higher because of the risk that we have now. This is going to be [ prespecified ].

[Operator]

Next question is from [ Felipe Tobias ], shareholder of Alupar.

[Unknown Attendee]

The dividend is going to be paid still in 2024?

[Unknown Executive]

Well, yes. We pay according to our policy in 60 days. So the idea is to keep this policy. So our expectations is to do this, to pay in 60 days, up to 60.

[Operator]

Next question is from [ Matias Oliveira ].

[Unknown Analyst]

Congratulations for the results. I would like to know if all the projects abroad have the revenues fixed in dollar or are they fixed in the local currency?

[Unknown Executive]

The backlog that we are is fixed in dollar. We received in local currency, converted in the previous day exchange rate to dollar, and it's updated by [ PPI ] annually, [ PPI ] core, where you exclude energy, it's the core of the inflation. So basically, the rule is this.

[Operator]

So the Q&A session is finished. Now Mr. José Luiz, your final comments, please.

[José de Godoy Pereira, executive]

So again, thank you for the interest in the company, for your participation in the presentation of results. And our team is here for you if you have anything else, if you want to chat, we are at your disposal. So thank you. Have a nice day, and see you next time.

[Operator]

The teleconference is now finished. Thank you, and have a nice day.

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