Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Transcript 2022-Q4

[Operator]

[Audio Gap]

relative to the fourth quarter of 2022. The respective slide deck and audio track are being broadcast simultaneously over the Internet at the IR company's website, ir.alupar.com. The presentation is also available for download. [Operator Instructions].

I'd like to inform that forward-looking statements are subject to risks and uncertainties, which may lead those forward-looking statements not to materialize. In other words, it could be different from what is expected that those statements reflect opinion made on the date they were made, and the company is not obliged update them.

Here with us today what we have Mr. José Luiz de Godoy Pereira, CFO and IRO for Alupar; and Mr. Luiz Coimbra, IR Superintendent. I'd like now to turn the floor over to Mr. Godoy Pereira, who will start the presentation. Please, Mr. Godoy, you may carry on, sir.

[José de Godoy Pereira, executive]

Good afternoon, everyone. I'd like to thank you all for being here today with us, where we will discuss the results for the year '22 and Q4 '22. We'll start the presentation talking about the most -- the highlights of the fourth quarter. And then Mr. Coimbra, will dive into the numbers, the financial results. And at the end, we'll come back for a Q&A session should you have a comments or clarifications you may have concerning the year and also Q4.

So we have a small agenda on Page 3 of the highlight of the company in the year, which happened and which were relevant in the first, second and third quarter of 2022. This has been announced before and disclosed in previous presentations. So it's just for your information and to have everybody on the same page. And in the case, we haven't had the chance to see that, I'm not going to go over each one of them, but this is for your information.

Moving on to Page #4 then, where we have the highlights of Q4, specifically. We have the definition of the priorities at SDGs in line with our ESG policies. You know that the company has worked hard to improve its ESG pillars, several policies I think have been put in place. And we had, in Q2, as announced, a significant improvement in our rating from AA (sic) [ BB ] to A the MSCI rating. So we moved from BB to A, a significant improvement that the reflection of the hard work we put in the ESG agenda at our SDGs are, as you can see, quality education, clean energy, decent work, responsible consumption, production actions to fight global climate change in life on earth.

Those are the main objectives, our sustainable development goals, or SDGs, the ones we're going for and going after in the company.

So moving on to Page #5, we have other highlights. Still talking about Q4. We have the installation license being issued for Domênico Rangoni substation. That is a project located on the coast of the São Paulo made up of 2 substations and 2 transmission lines, 1 line, the southern coast of the state and another line and another substation up north. We already have the licensing for Manoel da Nóbrega substation, which is the license to install, the permit to install in the south of coast. And now we've acquired the licensing for the northern shore of the state Domênico Rangoni substation. We're still lacking a license for the transmission line. We have for the substations, not for the transmission lines. And we expect that to happen still within Q1 of 2023.

Moving on to Page #6 of our presentation, we -- within the quarter, we paid the third tranche of the dividend payout for 2022. 2022, we declared BRL 1.23 per unit in terms of dividends to be paid out, and we paid on May 31, BRL 0.45 per unit. On August 31, we paid out another BRL 0.45. And at the end of the period on November 30, we paid out BRL 0.33, totaling BRL 1.23 per unit. The total paid by the company added up to BRL 360 million, which were declared still within the fiscal year 2022.

Also noteworthy, on November 11, we had the approval of our new dividend policy. The idea is to align our dividend policy with the best practices in the market. So we have established the main points around this new policy, namely, to be able to have a minimum payout level and to have capital discipline. Those are the main pillars around this new policy for dividend payout. With that, we'll have a minimum payout of 50% of the regulatory net income and a minimum level of dividend to be paid out.

As I said, it will be paid out quarterly, every 3 months. And also, as you can see on the slide, starting then payments will happen within 60 days from each approval date. Those are the main terms of this new policy. We have announced the policy. If you're interested, you can feel free to go to our IR website and have a broken down if you need to see it in more detail.

Lastly, on Page 7, we have another highlight, a relevant event. The transmission auction, which was held in December last year, 2022, we came out as winners of Lot #6, but because of the decision from the accounting court, the TCU, they removed the lot from the auction after the auction. This happened post facto. The court decided or ruled in favor of removing the lot from the auction, Lot #6, the one we had come out as winners. So this was under litigation for some time.

ANEEL suspended the process until the closing of the process and also requested the process to be reconsidered or revisited. That was done on February 13. That's when ANEEL made the request for TCU to revisit that decision to exclude the lot. ANEEL wanted the lot back in the auction.

Alupar, on the same day, December 13 -- February 13, of course, presented also a request. We had won the auction, so the idea was to make our voice heard as an interested party. So we joined efforts with ANEEL. And the last relevant event for Q4 was the fact that we confirmed our rating by Fitch, the rating agency. Our rating has been confirmed. It was AAA -- corporate AAA nationwide, BB internationally in foreign currency and BBB- in local currency. So that was our rating. At the end of the day, there was no change. So the outlook is to remain stable.

So I will now turn the floor over to Luiz Coimbra, and he will go into more details about our financial, and then we'll be back at the end for questions or comments that you may have. Thank you for now, and I remain available. Over to you, Luiz.

[Luiz Coimbra, executive]

Good afternoon, everyone. Thank you for participating in our earnings call for Q4 2022 for Alupar. I'll start on Slide #10, where you'll see the financial highlight in IFRS, and then I'll go into the regulatory numbers on Slide #10. On net revenue, which totaled BRL 732.3 million on the left-hand of the slide, a drop when compared to Q4 2021, driven mainly by lifting of the monetary correction and also due to macroeconomic indicators in the quarter. IGP-M saw, in this quarter, a deflation of 0.9% as opposed to an inflation of 1.54% in Q4 2021.

And IPCA saw level of 1.63% when compared to 2.96% posted in Q4 2021. When we look on the bottom part, EBITDA, BRL 523.7 million on the right hand of the slide when compared to BRL 778.7 million posted in Q4 2021. The main impact here, debt reduction in revenue I had just mentioned. And we also saw a significant drop in our infrastructure cost account BRL 204.4 million, mainly due to fewer investments that we made in the quarter, which comes from the start-up of the TSM and ESTE generating units. When we look at the structure net income, it came out at BRL 191.8 million in the quarter, impacted mainly by the reduction of BRL 255 million in EBITDA and BRL 208 million in terms of income tax and social contribution.

Moving on to the next slide, if you will. We have the financial highlights in terms of regulatory numbers. Net revenues totaled BRL 759.8 million, up 11.8% when compared to the same period of last year Q4. That variation was driven mainly by the start-up of those 2 transmission companies TSM in December '21, and ESTE in February 2022. And the RAP readjustment at 11.33% for contracts pegged to IPCA and 10.72% for contracts pegged to IGP-M.

Looking at the bottom part of the slide, the EBITDA bridge, it totaled BRL 617.3 million, a growth of 4% when compared to the same period of the last year, and the main variations, #1, the increase of BRL 101.8 million in revenue, I just explained. We also saw a drop of BRL 25.9 million in energy purchases basically because of our allocation strategy for the quarter.

And at the lower level of the spot price, which was BRL 55 this quarter. In Q4 2021, the amount was BRL 135 spot price. Another important variation was an increase of BRL 84.5 million in operating cost. Basically, in Q4 2021, we filed a positive nonrecurring amount of BRL 62.8 million. Relative to the recognition, the rights to extend concessions for the plants that were part of the MRE system. So that amount was positive in Q4, dropping the cost -- operating cost for that quarter.

Moving on to the net income chart on the right-hand side, profit -- net income came out at BRL 159.5 million, up 11% when compared to 2021. The main drivers were the following , number one, an increase of BRL 23.6 million in EBITDA, I have just explained. We also saw an increase of BRL 12.5 million in depreciation and amortization basically due to the start of the 2 transmission lines, TSM and ESTE. And we also saw an increase of BRL 35 million in our minority shareholders -- minority shares due to the improvement in the results of our transmission companies coming from the RAP readjustments. And for those companies that have that linked to IPCA also because of reduction in IPCA. So the financial number was lower as well. And as a consequence, net income came out at better levels.

Moving on to the next slide, where we see our debt level for the holding. The holding saw a gross debt of BRL 666.8 million, a cash position of BRL 976 million, totaling a negative net debt of BRL 309.9 million. The holding's indebtedness consists of one single debt, the seventh debenture issuance, 100% index for CDI maturing by 2024 and 2025.

Moving on to the next slide. We see information about the consolidated debt level. Gross debt totaled BRL 11,636 million, a cash position of BRL 2.825 million, a total of BRL 8,810 million. When we look at the structure of the consolidated debt, we haven't seen many variations when compared to the previous quarter. Most of our debt, 48% of it is indexed in IPCA, followed by CDI at 32%. We have a portion of tax, 14% which is in foreign currency related to projects in Peru and Colombia.

Now the next slide, we will be talking about our profit allocation. First talking about dividend payout. The company's Board of Directors recommended a dividend payout to the tune of BRL 492 million, accounting to BRL 1.44 per unit or BRL 0.48 per share, that represents a payout of 85% based on the regulatory profit. That payout is 35 percentage points higher than the minimum of 50%, which we have established in our dividend payout policy, which was launched and announced last year.

That amount represents the largest payout of the company, a significant growth in payout, a growth of 70% when compared to the dividend payout level of last year. That reflects the current moment we're going through, a more robust cash generation driven by the new projects and also driven by smaller investments concentrated for 2023.

Moving on to the next slide, and still talking about profit allocation, but now in terms of stock bonus. The Board of Directors also recommended an increase in the company's capital to the tune of BRL 328.8 million. Raising part of this reserve for investments we will issue 35,164,450 new shares, which will receive a bonus to shareholders to the tune of 4 new shares for each 100 shares owned. The value attributed will be BRL 9.35 per share, irrespective of the type of share, which is equivalent of BRL 28.05 per unit.

On the last slide, the company's performance in the Capital Market. Our share saw an appreciation of 22.78% in 2022, i.e., saw an increase of 3.11% and Ibovespa 4.69%. Year-to-date '23 Alupar saw a devaluation of 0.5%. [ EIA ] in the same period saw a devaluation of 6.72%, and Ibovespa saw a drop of 5.84%.

Another important highlight is the financial volume. We saw an average of BRL 25.9 million throughout 2022, a growth of 16.9%, quite significant when compared to 2021.

With that, I close my presentation, and we can move on to the Q&A session. Thank you.

[Operator]

[Operator Instructions] Our first question comes from [indiscernible].

[Unknown Analyst]

Two questions, one about Lot #6 of the auction. You have requested a reexamination of the ruling. Is there any timeline for the court to respond to that? And what would be your next steps? And also looking forward now, how do you expect to balance dividend payout, on the one hand, and growth on the other? You have increased your payout in the past year, and now we have, going forward, another 3 transmission auctions, which will be quite relevant. So how do you strike a balance between payout and the growth for the company? Of course, I know that if interesting opportunities come up, it would be interesting. So if you could give us some color on what you're thinking going forward in terms of investments?

[José de Godoy Pereira, executive]

Well, as for Lot 6, it is now at the hands of the court. It's difficult for us to have an answer for that in terms of deadline of timeline window. I have no idea how long that will take to come to a final ruling. We'll have to wait and see.

As for dividend payout, we have announced our policy, and our policy will be to pay 50% of the regulatory income minimum. And then, of course, keep an eye on the investment opportunities. Our main concern of the occupation is to generate value for shareholders. And of course, if there are opportunities to invest, attractive opportunities, of course, we may study those opportunities on a case-by-case basis. There are several auctions coming up. We will be part of those auctions as we have always done. We're always looking for better ways to improve the company's results.

[Operator]

Our next question comes from the webcast from [indiscernible]. Could you comment on how the generation segment is behaving given a more stress out CapEx in the industry and also uncertainties around long-term energy prices? And also, if you could update the CME?

[José de Godoy Pereira, executive]

Okay. As for generation, we have a few projects coming in this year. And we have other projects, which are now under development. And they are on hold now. So we'll have to be able to negotiate energy sale at a price level that is fitting with the project, which, today, is quite a challenge because prices have dropped significantly and CapEx has increased. But that's a cyclical phenomenon, right?

The market will find a balance at a reasonable level, both for energy buyers and for those investing in generation. That's a matter of time.

As for CME, we are now starting to work there. Our idea is that as of July to start concrete works. We're now serving the project. We are now at a pre-start period of the works because of indigenous people's issues that we had. But we believe that, in July, we'll have our teams in the field to start working.

[Operator]

[Operator Instructions] Next question also comes from the webcast from [ Gabriel Agostini ] who's a shareholder. If I got it right, BRL 1.44 will be paid out uniformly, evenly throughout the quarter in 2023, correct?

[José de Godoy Pereira, executive]

No, no, the BRL 1.44 will be paid out now as per our policy up to 60 days after the approval.

[Operator]

[Operator Instructions] Next question comes from Julia Zaniolo from Santander.

[Julia Zaniolo, analyst]

We saw in the past auctions some lots being negotiated in a more stressed manner. I'd like to understand your vision about those lines, which have already been contracted by auction as they come to market. And if you would be interested in looking at those opportunities more closely.

[José de Godoy Pereira, executive]

As to the past auction, what I can tell you is that CapEx and deadlines were very, very aggressive. In terms of future going forward and the next auctions or next opportunities, it's difficult for us to define anything now. We have to wait and see and then study and survey. If we realize return levels might be interesting, we will decide to participate in those coming opportunities and auctions, but we have to wait and see.

[Operator]

Next question comes from webcast from [ Peterson Silva ]. Concerning bonus, I'd like to understand what happens to the shares which are not units? What's the proportion in that case, shares and units?

[José de Godoy Pereira, executive]

The proportion is exactly the same. For shares, 4 for 100 common shares, 4 to 100. That's exactly the same proportion whether it's unit or shares and preferred or common, it makes no difference. The proportion remains the same, 4 to 100.

[Operator]

Our next question from the webcast from [ Marcos ]. What's the CapEx do you consider to commit for the auction to be held in June?

[José de Godoy Pereira, executive]

I have no idea, to be frank. That's a tough question. We don't know. We have been studying the projects. It's difficult to answer that now what kind of CapEx, right? It's impossible to say that now. A few months to go until July, that's a long time. We are trying to see what we can do in terms of opportunities. That's the main thing to find the right opportunity.

[Operator]

The Q&A session is now over. I'd like to turn the conference to Mr. José Luiz for his final remarks. Mr. José Luiz, you may carry on, please.

[Luiz Coimbra, executive]

I think he got disconnected. This is Coimbra. Are you there, Luiz?

[José de Godoy Pereira, executive]

I'm back. I am back. Yes.

[Luiz Coimbra, executive]

Please wait. I think José Luiz having some kind of technical glitch. So I'll wrap up by saying thank you to all of you who took part in our earnings call. Our IR team remains available, of course, as usual. Have a nice day, everyone. See you next time.

[Operator]

Alupar's earnings call is now over. Thank you all for participating. Have a nice day, everyone.