Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the Alupar call to discuss the results related to the fourth quarter 2021. The audio and the slides of this teleconference are being broadcast simultaneously over the Internet at the IR website, www.alupar.com.br. The presentation is also available for downloading. [Operator Instructions]

We inform that forecasts about future events are subject to risks and uncertainties. And thus, these expectations might not come through, but they may be different from expected. These forecasts are of the opinion only on the date they are made, and the company is not obliged to update them.

In this call, we have Dr. Jose Luiz Godoy Pereira, CFO and Director of Relations with Investors of Alupar; and Luiz Coimbra, Manager of Investor Relations.

Now I'd like to give the floor to Mr. Godoy, who will start the presentation. Dr. Jose Luiz, you have the floor.

[José de Godoy Pereira, executive]

Good afternoon, everyone. Thank you for coming to Alupar Investimento's earnings call. I will be presenting the most relevant facts that have impacted the company recently, and then I'll pass the floor to Luiz Coimbra, who will be presenting the financial results for the fourth quarter 2021. At the end of the presentation, we will answer any questions you may have in relation to the company.

So the first relevant fact was the payment of dividends. We declared the 2020 dividends on April 27, 2021, at the General Shareholders' Meeting, BRL 0.28 per share was declared, equivalent to BRL 0.84 per unit. And these amounts were paid in 3 installments. The third one was paid in November 2021. And the amount paid in November was BRL 0.24 per unit.

The other relevant fact was that recently, we have the reaffirmation of our rating. Fitch rates our company and it has reaffirmed the AAA BRA rating. And also, at the end of November 2021, we have the issuance of the installation license for the transmission line project for the South Coast. This is an ELTE project divided into 2 transmission lines and 2 substations, 1 on the South Coast and 1 on the North Coast. So in November 2021, we got the installation license to implement the southern section of this project.

In the fourth quarter, we also exercised a call. We had a call option against Perfin with the possibility of acquiring 30% of the assets of which we have a partnership with them, and we exercised this call in relation to TCC, which is the transmission company Caminho do Café, we exercised 30%. So we went from holding 51% of the total capital to 65.7% of the total capital after exercising this call. This will add a proportional RAP, R-A-P, annual permitted revenue of BRL 26.3 million per year.

In the fourth quarter of 2021, we also exercised the call also against Perfin. So we exercised the call of the shares of 30% of TPE. So after exercising this call, we increased our stake in TPE, which is the Paraiso de Energia transmission company, going from 51% to 65.7%, adding a proportional RAP or R-A-P of BRL 38.7 million a year.

The other highlight is that we had -- while we got the extension of the implementation period of our TCE project, this is a project in Colombia and the license due to a number of issues, well, we had a series of delays. We have the COVID-19 pandemic that had an impact on us getting the license. And with that, we requested -- and now in the fourth quarter, we got the authorization to extend the implementation period by 580 days with this implementation term extension. And since the original deadline was December 2021, we were authorized to start billing RAP from January, equivalent to $24 million a year.

Also in the third quarter, we had the startup of this project, which is a transmission line between São Paulo and Rio de Janeiro. This is a TSM project. The project started 8 months ahead of analysis scheduled. And the unitized Aneel CapEx updated to November 2021 was BRL 1.139 billion. We had a unitized CapEx of BRL 768 million for RAP, permitted annual revenue, for the same cycle, '21, '22, of BRL 120 million. This equates to a RAP/CapEx ratio of 16%.

Now in February, we had a start-up of the project where we have a partnership with TAESA -- through TBE, more specifically, with this project that we have together with TAESA. We have a direct interest or direct stake of 50.02%. The SC project was the Mesquita – João Neiva line project plus the João Neiva 2 substation, a project whose Aneel CapEx based on February 2022 was BRL 633 million and we had a unitized CapEx of BRL 495 million for a RAP in the period of 2021 and 2022 of BRL 123 million, that's equivalent to a RAP/CapEx ratio of 25%.

We also had an impact effect for the company, which is the fact that we became signatories of the UN Global Compact. This is a concern we have about ESG, and we have been doing a lot of work. And we have been focusing a lot on this ESG issue in our company, trying to increasingly be a company that really focused on environmental issues, human rights, anticorruption compliance, focusing a lot on these governance and corporate issues.

Well, now I'm going to pass the floor to Luiz Coimbra, who will show you the numbers and then we will open for questions and answers. Thank you.

[Luiz Coimbra, executive]

Good afternoon, everyone, and thank you for participating in Alupar's fourth quarter earnings call. I will start my presentation on Slide 13 by highlighting the numbers in RFS sic [ IFRS], and then I'll move on to an explanation of the regulatory numbers. I'll be making a more succinct presentation so that we can prioritize the Q&A session.

So starting here on Slide 13, Alupar's net revenue in this quarter was BRL 1.128 billion. We had a reduction in revenue here, basically due to the reduction in infrastructure revenue and the start-up of all transmission companies, ETB, [ TPE ], TCC and TSM, that entered into operation.

And at the end of 2021, when we look at this graph at the bottom of the slide, EBITDA was also reduced. We had a total EBITDA of BRL 778.7 million. Basically, the main drivers here were -- well, the first was this reduction in revenue from the transmission segment that I've just explained. We also had a reduction of BRL 284 million in the cost of infrastructure for the projects that came into operation and we had a reduction of BRL 72.3 million in operating costs.

Here, particularly because we recorded a balance of EUR 62.8 million that refers to the financial recognition of the right to extend the grants or concessions of the plants that we are recognizing in the fourth quarter. When we look at the profit graph, this quarter, we had a profit of BRL 219.3 million. The main drivers here were: first, the reduction of BRL 781.9 million EBITDA, which I've just explained. And we had a reduction of BRL 214 million in the tax line and of BRL 346 million in minority shareholder interest. These variations were all in line with the results of the company -- transmission companies and generating companies.

Moving on to Slide 14 now. We have the presentation of the regulatory figures. Net revenue was BRL 779.7 million sic [ 679.7 million ], an increase of 24.6%. So basically here, we had an increase of BRL 137.2 million in revenues from transmission companies, BRL 81.5 million due to the startup of new assets, and BRL 58.8 million due to the readjustments of the RAPs, permitted annual revenues. We had a readjustment of 8.06% for the contracts indexed to IPC, and of 37.6% sic [ 37.06%] for contracts indexed to IGP-M.

We also had an increase of BRL 11 million in revenue from generation, and this is basically the readjustment of energy sales contracts and the seasonalization strategy. We ended up having more energy allocated in this quarter when compared to the fourth quarter of the previous year.

Looking at the EBITDA here, it was BRL 593.7 million this quarter, an increase of 42.5%. The 2 main variations of this account -- well, the first one was a BRL 149 million increase in revenue, which I've just explained, and a BRL 47.4 million reduction in operating costs. This is the same impact that we had on the number in RFS. We recorded BRL 62.8 million this quarter, which refers to the financial recognition of the right to extend the grants of the plants.

When we look at the profit, profit was BRL 143.6 million in this quarter and the main drivers were first, this increase of BRL 177.4 million in EBITDA, which I've just mentioned. We had an increase of BRL 18.8 million in the depreciation account due to the start-up of the La Virgen power plant, which is our asset in Peru and the transmission company's ETB, TPE, and TCC that entered into operation in the fourth quarter 2020. And we had an increase of BRL 33.1 million in the tax line and an increase of BRL 14.3 million in minority shareholder interest, which is in line with the growth in the results of our companies.

Moving on to the next slide, we present the holding company's indebtedness. The holding company recorded a gross debt of BRL 659.5 million, with a cash position of BRL 520.9 million. So we had a total net debt of BRL 138.7 million in this quarter. The holding company indebtedness consists of only 1 debt, which is the seventh debentures issue, which is 100% indexed to CDI with a maturity period distributed in the years 2024 and 2025.

Moving on to the next slide, we present the consolidated indebtedness gross debt was BRL 10.48 billion. We had a cash position of BRL 2.052 billion with a total net debt of BRL 7.996 billion. When we look at the debt structure, there was no significant variation. Most of our debt, 53%, is indexed to TCE, followed by CDI with 29%. Currency license debt, which is debt related to projects in Colombia and Peru ended the fourth quarter of last year, accounted for around 11% of the company's total debt.

Now on the next slide, Slide 17, we show the debt amortization schedule. The debt profile remained quite extended. We have 35% of maturities concentrated after the year 2027. The holding company has the maturity of the seventh issue distributed in the years 2024 and 2025, and the transmission and generation assets have maturities distributed over the years, according to the operating cash generation of each asset.

Moving on to the next slide, Slide 18, we present here the allocation of the results of 2021. The Board of Directors recommended the distribution of dividends in the amount of BRL 360.4 million. This corresponds to BRL 0.41 per common share and preferred share or BRL 1.23 per unit. Payment is planned in 3 installments with BRL 131.9 million to be paid in May and August. And the remaining balance, BRL 96.7 million, are planned to be paid in November. These dividends are 46% higher than the BRL 246.2 million, which we paid last year, and they represent a payout of 103% of the regulatory net income.

With that, I finish my presentation here. And we can then start the Q&A session. Thank you.

[Operator]

[Operator Instructions] The first question is by Guilherme Lima, Santander.

[Guilherme Lima, analyst]

I have 2 questions. First one, regarding dividends. How do you expect the payment of dividends, the payout should proceed in the next years? Are you thinking about repurchasing shares? And the other question, can you give us an update regarding T&E, regarding CapEx and schedule?

[Unknown Executive]

Payment of dividends, we've proposed to the meeting an increase regarding the yield paid last year. So as we were saying already, we have a growing graph in terms of payment. Year after year, we have been increasing our payments. So this is part of what we have planned.

Regarding T&E, we have been talking with all stakeholders to try -- to leave this impasse. We have this issue with the indigenous community there involving the Brazilian Ministry of Mines. It involves FUNAI. It involves also the affected indigenous communities. So we have a stalemate, and we have been discussing and we have been meeting to see whether we can reach a common denominator, so this project can really go ahead.

[Operator]

Our next question will be through webcast, [indiscernible]

[Unknown Analyst]

Apparently, Alupar hasn't participated in the auction in the end of last year. What -- there a reason for that? And what is the expectation for a major auction which is planned for June or July?

[José de Godoy Pereira, executive]

Alupar did participate in the transmission auction at the end of last year, but it didn't win because we looked at the -- we thought that the level of return was pretty low. In some cases, the payback would even be negative. So we participated, and we didn't win any project. We will do -- new auctions are being planned, and we will go on participating in the future auctions. When we think it is possible, we will give bids, the things we think are feasible and that will really generate value for the company. And then we will do that if we have the opportunity.

[Operator]

Next question?

[Unknown Analyst]

I'd like to know whether Alupar is interested in migrating to the new leasing and the new market -- the new leasing market?

[José de Godoy Pereira, executive]

Well, right now, we don't think there's really any difference for shareholders. There might be something to be looked at, but that's a regulatory issue also. So we have no position right now in terms of looking at this matter. This is what I can tell you for now.

[Operator]

[Operator Instructions] Next question. Any prospects to exercise other calls related to Perfin? This question was asked by [indiscernible].

[José de Godoy Pereira, executive]

Well, we have a schedule. But what I can say is that we will probably exercise this call as fast as possible because the cost of the call is slightly higher. We have 7.3% plus IPCA variation. So we have been recycling all that and the advanced exercise of these calls is part of that.

[Operator]

Next question, Daniel.

[Unknown Analyst]

Could you please talk about the midyear auction? How do you see the scenario to leverage projects thinking of a scenario with higher interest rates?

[Unknown Executive]

Well, a scenario with higher interest rates will have to be considered in the capital cost. I think the scenario will be part of the whole auction strategy, not only on our side, but also in other players in the market. So this will be considered. Higher interest rates will lead to higher capital costs, and we will take that into account. Let's see what the market will do.

[Operator]

Next question. Luiz, if the company doesn't get new grants for new transmission lines, what we will do? Can we wait to expect new generation projects? Anything in MA or a higher return of dividends?

[José de Godoy Pereira, executive]

I think it's a bit of everything. We have transmission projects, which we are still developing. We have a backlog in terms of transmission and construction. We have new auctions which we believe at some time we will succeed. And we have the pipeline of generation, particularly focused on renewable energy. So we will have a mix of all that. And at the same time, we have an increase in the dividend payout.

Regarding M&A, we can look at one or another case, but that's not really our main focus right now. But this might be something to be looked at. But this is not our main focus right now.

[Operator]

Our next question, Pedro Moreira from Trilha Investimentos.

[Pedro Moreira, analyst]

We found an increase in PV in 2021, was there any specific event?

[José de Godoy Pereira, executive]

Well, I would have to check every asset, but we had an increase -- well, we are still way below the market average. Sometimes we may have 1 or another event. To be more specific, there was 1 specific event that happened in the end of the year in one of our transmission projects in the north. But in our whole portfolio, we are below the market average. Well, we may have 1 year where things are slightly worse or slightly better. Sometimes we have some specific events that may happen.

Just to add, specifically, we had an event at ETAP in the end of the year, which was a bigger event, but it was diluted throughout all our projects. If you consider them all taken together, this amount was not very different from the amount we're having.

[Operator]

[Operator Instructions] We hereby close the Q&A session. I'd like to give the floor to Jose Luiz for the final remarks.

[José de Godoy Pereira, executive]

Okay. Once again, I'd like to thank you all for participating, and we are at your disposal for any questions you may have. Our IR team is available. Thank you, and see you in the next presentation.

[Operator]

Alupar call is hereby closed. We would like to thank you all for participating, and wish you all a good afternoon.

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