Alupar Investimento SA

BOVESPA:ALUP4

Earnings Call Analysis

Alupar Announces Growth and Dividends

Alupar has unveiled plans for expansion, with five new projects amounting to an investment of BRL 3.1 billion, expected to contribute BRL 388 million in revenues by 2028 and yield a CapEx return of 11.9% to 13%. Net revenue in the fourth quarter grew by 16% year-over-year to BRL 732 million, and EBITDA saw a modest rise of 0.5%, reaching BRL 622 million. The company had an increase in net debt to BRL 456 million. Alupar declared dividends of BRL 0.12 per unit, paid in January, and proposed additional dividends of BRL 0.38 per unit, with total 2023 dividends reaching BRL 0.04 per share. Also, a stock bonus plan is approved. The energy index outperformed with shares and IBOVESPA growing by around 23%, and the financial volume for daily transactions closed at BRL 24.1 million.

Alupar's Strategic Expansion and Investment in New Projects

Alupar has demonstrated a commitment to growth by undertaking five new projects, requiring a total investment of BRL 3.1 billion. This includes expansions within Brazil and a notable re-entry into the Chilean market with a transmission line slated to start in Q4, 2027. Additionally, the company has secured investments in Peru and Colombia, strengthening its foothold in Latin American energy and transmission sectors. A novel venture into the hybrid energy space via a solar project marks Alupar's first foray, with an investment of BRL 240 million, combining solar and wind energy for enhanced synergy.

Dividend Policy and Recent Distribution

Adhering to its dividend policy, Alupar has approved a distribution of BRL 36.6 million, equating to BRL 0.12 per share. Eligible shareholders, determined as of November 16, 2023, have received their dividends as of the following January. The company further decided on a dividend of BRL 347.4 million, or BRL 0.38 per share, cumulative with previous quarters' dividends amounting to BRL 0.04 per share. These dividends will be distributed 60 days following shareholder meeting approval.

Financial Performance Highlights

For the fourth quarter, Alupar reported a 16% year-over-year increment in net revenue to BRL 732 million, led by a 26% positive variation in generation. This includes significant contributions from wind parks and power sales at regulated market prices. However, EBITDA saw a modest increase of 0.5%, reaching BRL 622 million, despite the rise in net revenue due to higher administrative expenses. The quarter was marked by an increased depreciation and amortization as well as a positive financial result from index-fluctuations of PCA and CDI, instrumental in debt management. There was also a notable tax reversal in the quarter of BRL 19.8 billion, impacting comparatives.

Debt Position and Shareholder Returns

Alupar closed the period with a holder debt of BRL 665 million and a cash position of BRL 1.121 million, leading to a net debt of BRL 456 million. The consolidated debt sees the PCA as a major component, followed by CDI at 34% and 40% composed of foreign currency debt. Alongside dividend distribution, the Board approved a stock bonus program intended to increase shareholder value by BRL 362 million. The capital market performance reflects positively on the company, with share price improvements aligning with energy sector growths and the broader IBOVESPA index uptick of around 23%.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon. Welcome to this conference of Alupar for the discussion of the results related to the fourth quarter of 2023. The audio and the slides are being broadcast by the audio in English. [Operator Instructions] And the prediction for events can have some risks and maybe some expectations will be not be the same. So the company is not obliged to update it -- and here, we have José de Godoy Pereira, the CFO and Director of Relations with Alupar and Mr. Luiz Coimbra the CO of Alupar, and now I'll give the word to Mr. Luiz Coimbra, who will start his presentation. So please, Mr. Luiz, you can go on.

[Luiz Coimbra, executive]

Good afternoon, everyone. Thank you for the participation in this conference call presentation for the fourth quarter of 2023 and I will start in my presentation, and then we will continue with the Q&A session. Then we will have Mr. Jose Luiz, who is the CEO of the company.

I will start here in the Slide 3, which is the growth of the company. Alupar has got some projects along this quarter. We have a picture here. We have 5 new projects, 3 of them are in Latin America, 2 are in Brazil which is an investment of BRL 3.1 billion.

When we speak of Latin America load goes back to Chile, we have an asset that was sold which was in Chile. So this project has as a milestone in the return to Chile. We have 6 kilometers of line in transmission, and it will start in the fourth quarter of 2027. In Peru, we already work in this field of generation which will have this milestone with transmission with the 2 substations with 9 kilometers of transmission line, and the operation will start in the third quarter of 2026.

In Colombia, we are a little bit more consolidated. We have TCE, which is a line of 25 kilometers, which is in the end of its construction. We have a PCH of 19 mega. And then this new asset consolidates our position there that's an asset that has 2 substations with more than 100 kilometers of line transmission and the operation is for the third quarter of 2027. In Brazil, we have 2 new projects. The first is the station -- the center station, which will have an investment of in BRL 500 million.

And then it has -- it will start in 2028. And that last, we had an auction in December, which was batch 2, it has line transmission of 501 line transmission, and we are working on a reduction of this investment we are speaking of a CapEx of BRL 200 million. And with this overview that we have here, we will add up to 2028, BRL 388 million of revenue and the CapEx. It's 11.9% to 13%. So now going to the fourth slide, we speak of the first operation, which is the solar project, which was communicated last February, we invested BRL 240 million.

So this is the first hybrid project that we have which is a solar park inside a wind park, which has 61.7 installed capacity, and it brings synergy to a part to a wind park in the Energy Park for connection and for land as well. And going to the other one, we speak of the dividend distribution. So according to our policy, that we had a meeting -- in a meeting on November 16, 2023, we had the approval of distribution of BRL 36.6 million which is 0.12 per unit, the stakeholders that had the dividends were the ones who were in the basis of November 16, 2023 and the payment was made now in January, last January.

Now we have the projects under construction status, starting with Colombia. This project had 96% of construction and the other one, 99% for the line -- for the transmission line there still have some towers that we need to continue with them. There are some problems with them, we need to conclude this. We have another one that is here on the coast of Brazil, which is Manoel da Nobrega in Dominican Rangoni which 99% of physical construction, and the other one has 36% of physical advance.

It had a delay in the license. So it will be -- start to run in the third quarter of this year. And the last one, we have TL which started in 2023. Today, we have 10% of physical advance, and we have Vegetal, which is 50%. It's within our schedule, we have some work forces inside in the outside. So we really want to finish according to the schedule. So speaking of the numbers of the fourth quarter in case you have questions, for the numbers, we will be available here. When we look at the net revenue, it's like BRL 732 million, which had a growth of 16% related to 2022. And the impact here was the positive variation of 26% for the generation.

I will highlight 3 main impacts. The first was the increase of BRL 8 billion for the wind parks in San Juan [indiscernible] P1 and P2. The second point is the increase of BRL 3.5 million for the PCH. It was not contracted. It was selling power at cheap price. And now we have the regulated market and the price of it will be at around BRL 208. And then the last one was BRL 5.8 million and then according to the commercialization strategy, which we had 10 mega, which was additional.

But when we look at the EBITDA here at the bottle, it's like BRL 622 million, which had a growth of 0.5% in the first -- the increase of BRL 27 million for the net revenue that I've just mentioned, and we also had an increase of BRL 23 million for the administrative expenses. Basically, we had an increase of around BRL 17 million for the holdings and then we had the decrease of some projects that were that we had to stop.

And then we had an increase of BRL 6 million in Peru due to some expenses because of the participation that we had in some auctions in the for the quarter. And looking at the other graphic, we have some variations here. First, we have an increase of around 3 for the depreciation in the amortization. We have another number for the financial result, which was positive because of the both index that we had for the PCA, which is a number of 40% to 80% and the also CDI, which is 34% of our debt the PCA had an inflection of 1.08 for the actual number for this year which we had in the fourth quarter of 2022 and the CDI was 2.83% for the accrual number.

And in view of the other number that we had for 2022. Another number that I would like to highlight here is that the increase that we have for the tax is in the -- in the fourth quarter, we had a reversion of BRL 19.8 billion for the taxes. That's why we had this increase when I compare both years, both quarters. And go into the next when we presented the debt that we have for the holder which is BRL 665 million and they closed the year with a cash of BRL 1.121 million.

So we had a net debt which was BRL 456 million. And then we have 100% of CDI. We had a change in the profile of the debt and then 50% will be in October of this year. And then for short term, we have the allocation of this first installment. For the next slide, we have a debt, which is consolidated to this growth will be around BRL 11 billion that we have a total of BRL 80.942 billion when we look at the numbers, the warrant major changes, and we have the PCA followed by the CDI, which is 34%.

When we speak of the foreign currency, we had 40%. And going to the next slide, we speak a little bit of the results destination. So we had a recommendation from the -- in the meeting that we had in January, the dividend distribution of BRL 347.4 million, which is BRL 0.38 per unit and summing up all the 3 values that we have from the first to second and third quarter we have the dividends of one, which is BRL 0.04 per share. And then who will be in charge of those distributions will be carried out by the stakeholders who will be in this next meeting, and the payment will be done in 60 days from approval.

Speaking of profits allocation, the Board has also approved a stock bonus, so this -- we will have a measure of some shares, which will be an increase of BRL 362 million but also there will be an approval. And going to the other slide, we have the performance of the capital markets. The shares have hedged an improvement. The index of energy has had an improvement and IBOVESPA had an increase of around 23%.

And the last one that we like to highlight, which is the financial volume which we closed the year with BRL 24.1 million for daily negotiations. And then I close my presentation, we can continue with the Q&A session. Thank you.

[Operator]

[Operator Instructions] Our first question is come from Julia Zaniolo from Santander. So your mic is open.

[Julia Zaniolo, analyst]

Good afternoon, everyone. My question is related to the transmission line first, how is your -- how do you see opportunities in short term related to this auction in LatAm, Brazil? And then what do you intend to do along this year if you have any expectation to prioritize those LatAm auctions or you will deal -- or will you deal with the LatAm and Brazil the same way with the same discount?

[José de Godoy Pereira, executive]

It's hard to say we have a study case by case. And it's according to the level of complexity that we have for every project. And this issue of a return and discount depends on it, mainly for LatAm that sometimes they don't have the price. We define the price and this price will just be recognized after we open it. That's, of course, that we take into consideration of the criteria for the costs and capital for every country where we go, we get in it's adjusted according to the risk of each country of each place where we are in.

[Operator]

Now our next question comes from Mr. Marius Mario from Banco Safra. And he says could you share the view of the company related to the competition and the possibility of having partnerships for the auction that we will have in the end of this month. Besides this auction, do you see any other opportunities in this quarter considering Chile, Colombia and Peru.

If so, could you share the features, the size of the batches among others? And how can -- how do you see the reception of the investors related to the bonus?

[José de Godoy Pereira, executive]

So let's start with the -- let's start from the -- back to the beginning. Yes. Related to the auction, it's difficult to should know we don't -- we still don't have a perfect diagnose. We don't know how the auction will be. We don't know how aggressive it will be the level of competition, we are still in the preliminary level and see which ones are feasible and which ones aren't.

Related to the bonus for the action we actually, we did it last year, and the reception has been good. And this is something that has helped us with the liquidity, which is another concern that we have. We are doing this again. We did once last year. It's been a while and another bonus.

And I think it has been positive. We've had positive things and it's a way of payout to pay the dividend. So I think this is -- it's an interesting structure for the company itself as well as for the stakeholders.

[Operator]

Another question comes from Victor from Itau. He says congratulations for the results for 2024, and we expect that the payout will be in 50% with some advertisements of bonus in shares or the increase would make sense as the company wants to leverage between 3x to 3.5x. Does the company intended to be in the auction that will be held in the end of March with Perfin as they did in the last auction.

[José de Godoy Pereira, executive]

For the payout of dividends, yes. Yes, that's our policy. We will pay the least. If we have leftovers of limited. If we can keep those numbers from 3 to 3.5 years, we can increase the dividend for the payout we will be following this along the year. We will be doing this very close. And then if it's possible, we can pay more than 50 because the policy requires the minimum and not the maximum.

And the other question was related to the auction. I think I've already answered this question. We are still in this phase of study. We don't know for sure which projects are feasible. Partnerships that we are still studying to see if we will have them or not. It's not a general rule, maybe some projects we might have. In the others, we might not to have a definition where we want to go.

[Operator]

The next question is from [ Peter on Silva ] from Wolfe and he says taking into consideration that we have the bonus for our shares. Doesn't it damage the yield of the company taking into consideration the pairs of -- in the sector and also the stakeholder basis, what does the company think about it?

[José de Godoy Pereira, executive]

I don't know. I didn't get the question because we will get the shares are the existing stakeholders in the base. So the effect, I think, should be the other way around. The stakeholder that has shares today besides receiving the ones that will be in the basis, they will receive the dividend as well an amount of shares that they can sell into the market if they wish.

And it increases the payout of the dividends for the stakeholders related to what was said before. There is no dilution of any stakeholder when you give the bonus. The stakeholders will get those shares and they will be there in the basis at the -- on the set to date because it will -- the bonus will be the same. It will be the same as the dividend.

[Operator]

The next question is from Flavio Bau, and he says, what is the dividend or EBITDA you consider important for a new cycle of investment?

[José de Godoy Pereira, executive]

It's complicated to answer that because it depends on each case. But this is not our decision, our own decision. Maybe we have a level of debt that will drop in my rate, and we'll give more costs for the debt. It depends on negotiation among the holders that have bonus to negotiate that. This number is between 3.35%. The limit is 3.5% and then we've been working on this number between 3%, 3.5%. It depends on several conditions of the market that can be changed.

There is the impact of the level of the interest rate, which can be higher -- that's not something that is the main point of the company. It's something that we can keep studying and working on it. But for now, what do we have in our contracts, not in some of them, not in all, is the limitation of 3.5%. As we have this number, we would try to work between 3% to 3.5%.

[Operator]

The next question, he says there are other opportunities. The company mentioned some challenges in the supply chain due to the high volume of investment concentrated in short term. Could you give us an overview of how you see this?

[José de Godoy Pereira, executive]

Yes, it can be a challenge to the supply chain, of course, especially for the building in the assembly, there is a large gap and it can generate some constraints during this process of construction. We work with a vertical way. We depend less on specific providers, suppliers, but then in the market, yes, we can have some constraints and some issues for the deadlines, CapEx cost for some specific cases.

It's hard to say, but yes, but it's according to each case.

[Operator]

Our next question comes from our [ Joseto Deskini ] your mic is on. As we have no more questions, the Q&A session is closed. I will give the Board to Mr. Jose Luiz for the final remarks of the company.

[José de Godoy Pereira, executive]

I would like to thank you the opportunity of discussing with you the numbers of the companies for 2023, the fourth quarter. And again, I will say that in case you have questions, you can get in touch with us and our team is available for you. So and see you next time.

[Operator]

The teleconference of Alupar is finished. I thank you for your participation. Have a great afternoon.