CPFL Energia SA

BOVESPA:CPFE3

Earnings Call Transcript 2022-Q2

[Carlos Cyrino, executive]

Good morning to everyone. Welcome to one more presentation of CPFL Energia. Today, we're going to talk about the results of the second quarter '22. I'm Carlos Cyrino, Director, Investor Relations of the CPFL Group, and I will be conducting the dynamics of our event. We have Gustavo Estrella; Mr. Pan, our CFO; and other executives of the company. [Operator Instructions] I would also like to inform all the participants that at the end of the presentation, we will have a session of questions and answers. [Operator Instructions] I remind you that this event is being recorded.

I'm now going to give the floor to Gustavo Estrella to give -- to start with the results.

[Gustavo Estrella, executive]

Thank you very much, Cyrino. Good morning to everyone. We are now on Slide 3, where we have some highlights for our semester. We have an issue with the connection, and we'll be back in a few minutes.

Can you hear me?

[Carlos Cyrino, executive]

I can hear you particularly.

[Gustavo Estrella, executive]

Okay. Let's begin again. We're going to start here with Slide #3, some highlights. The first one is -- hold on, folks. We're having technical problems, but we will soon be back, guys.

I apologize for our technical problems. We have an EBITDA with a growth of 38.7%, reaching BRL 2.848 billion of profit of BRL 1.263 billion. The CapEx, once more, very robust. Following year -- our target of this year to reach almost BRL 5 billion of investment and BRL 21 in the next few years. We delivered BRL 1.346 billion, an increase of 32.1%. Our net debt has reached BRL 22.8 billion, a leverage, which is stable, a bit higher than twice to 2x or double.

We also have an important movement with CPFL transmission with a debt prepayment of our debt in dollars, the IDB and EFD, these are debts that were reagreed and exchange for debt in the standards of CPFL real debt, we also had a readjustment from 10.14% in real, reaching BRL 939 million in the cycle 2022, 2023.

Now let's move to the next slide. We're now on Slide 4. We have some recognition prices here. The CPFL Piratininga got the award for best distributor in the Southeast region and social environmental responsibility. Santa Cruz for the third time on the third NAL Quality Award for companies over 400,000 clients. The main category in the Southeast also in the Southwest -- Southeast of Brazil. Also the Eco [indiscernible] Award 2021, 2022 with a corporate project in hospitals.

Now we're going to go to Slide 5, talking about energy sales. We have a stable load with a small drop of 0.4% if we compare to 2021. If we look at the bottom part of our slide, we can see the residential class with a flat performance in relation to last year. The highlight here is the impact of 2.3%, and we have been feeling a strong movement of distributed generation and the concession areas affecting the residential area. The industry has a sign of recovery with a growth of 2%. This is important growth.

We see some segments which are important. Food growing more than 6%; rubber, textiles growing 4%. So this is a sign of recoveries of the industry in our markets and more positive expectations for the second semester. Commercial glass continues maintaining signs of recovery. We have to remember the base of low consumers last year due to the pandemic, but a growth of 2 digits, almost 2%. And the other glass -- others, we have an impact of migration, but also impact of irrigation, especially due to hydrology, which has been more favorable in 2020.

Now we're going to the next slide, which is Slide 6. Here, we have our delinquency. We have a drop in relation to 2021. This is good news, a drop of 11.7%, but we closed at 1.06% above historical average. All the actions of controlling, the delinquency of the company continues, the volume of cuts, et cetera. And we understand that for higher reduction, we depend on recovery of the economy and increase of revenue.

Now we're on Slide 7. Here, we have the losses. We continue track or recurrent losses. We closed at 8.36% with the total losses of the group. Coming from 9%, we have maintained a positive scenario with a drop in our volume of losses in the distributors.

Now let's talk about generation. We have a drop of the PLD 75%. It's a reflect of the geology, this -- hydrology, sorry, and during 2022, an expressive decrease in GSF with a drop of 2.7%. In wind generation, drop of 3.2%, worse performance of the winds themselves. We've been performing below the 17% different from 2021 when we were very near the curve. So this brings -- this reflects on the wind generation about availability, stability in relation to 2021.

Now let's go to results, and I'm going to give the floor to Mr. Pan, who is going to speak about the results of the company.

[Yuehui Pan, executive]

Good morning. Hello, Gustavo. In this quarter, we have an EBITDA of BRL 2.8 billion, a hike of 38.7%. Following the good performance in the segment of distribution, which had an EBITDA of BRL 1.8 billion, an increase of 48%. The largest gain once more has come from the market and the tariffs, BRL 441 million, especially due to the high IGP-M. The finance assets of the concessions had a hike of BRL 217 million. We had a gain of BRL 30 million. This is due to the rental of posts that have adjusted contracts by the IGP-M. The PDD was lower this semester, BRL 12 million, as we have demonstrated by Gustavo on Slide 6.

In the PMSO, we had an increase of BRL 105 million, very much affected by the hike of the inflation, other effects at BRL 4 million. In generation, the EBITDA reached BRL 757 million, an increase of 6%. The main positive effect was the updating of the contract price is BRL 110 million. The lowest expense of GSF due to the lower PLD contributed with BRL 7 million. On the other hand, we had a negative impact of BRL 85 million referring to the lower wind generation during the quarter. Other effects added a loss of BRL 11 million.

Now let's move forward to the next slide. The transmission segment also was a highlight in the quarter with an EBITDA of BRL 202 million. A good part of this value is due to the consolidation of the numbers of CPFL transmission with BRL 181 million, confirming once more our expectations in relation to this acquisition. The other transmission projects had a positive impact of BRL 7 million. The segment trading service and others was mainly impacted by an extraordinary event of last year. The recognition of this PIS/Cofins over ICMS and CTF Brazil, the amount was BRL 45 million. Besides this, there was a variation of BRL 4 million and services had a variation of BRL 12 million.

Once more, we highlight CPFL's services. Now we show the performance of the net profit on the next slide, which was BRL 263 million in the period, a hike of 12.1% in relation to the same quarter last year. Financial results, we had a decrease of BRL 640 million due to expenses with a net debt and increase of BRL 653 million due to the increase of the CDI, which was 0.77% last year, 2.86% this semester this quarter besides a higher balance, an extraordinary effect of the PIS/Cofins over the ICMS and CTF Brazil, BRL 40 million reduction in fine, BRL 17 million after the ITC adoption and no more the IGP-M in the delayed builds compensated by a monetary update of the regulatory asset, BRL 95 million due to the higher SELIC. Other effects added to BRL 25 million negative depreciation increased BRL 43 million and taxes reduction of BRL 25 million due -- [indiscernible] credits due to the currency variation, which happens in the debt liquidation of CPFL transmission, BRL 95 million.

On Slide 20, we show the performance -- the accumulated performance of the first semester. We reached an EBITDA of BRL 5.5 billion, a hike of 36.6%. The result was due to the good performance of distribution with an increase of the EBITDA of 46.8% favored, especially by the tariff readjustments between '21 and '22 and the update of the concession finance asset. In generation, the readjustments of the contracts were partially compensated by the lower generation of the wind farms.

In the chart on the right side, we can see the performance of the net profit, which was BRL 2.4 billion during the period, an increase of 16.2% in relation to '21. The increase of the EBITDA was partially compensated by the worsening of BRL 950 million in the financial results impacted by the higher cost of the debt and lower interest rates and fines. The depreciation increased BRL 90 million and the taxes, BRL 94 million. The higher value of taxes is related to the improvement of the operational performance of the company, especially compensated by tax credits of CPFL transmission.

The next slide, we have the leveraging of the debt and the net debt reached -- sorry, BRL 22.8 billion and the EBITDA over the last 12 months is a total of BRL 11.2 billion. So the leveraging measured by the net debt versus EBITDA was BRL 2.04 million. We had debenture issued during the quarter were the main ones at BRL 2.3 billion, with an average time of [ 6.65 ] years and average cost more or less CDI, minus 1.09 -- sorry, plus 109 and a prepayment of the CPFL transmission debt totaling BRL 615 million.

On Slide 14, we have the profile of the gross debt. Our larger exposure is in CDI with 69% followed by 30% IPCA and 2% of TJLP. On the chart on the right side, we have the cost of the debt, which increased due to the CDI variation during the period. Finalizing the balance at the end of the semester was BRL 4.1 billion with a coverage rate of 0.76x the short-term amortizations. The average amortization time is 3.4 years.

Now let's move to Slide 15. The CapEx of the second quarter was BRL 1.3 billion, an increase of BRL 32.1 million in relation to last year. In the vision per segment, we have in distribution, a total investment of BRL 1.1 billion destined mainly to works to attend clients, sector expansion, together with improvements and modernization. In the generation segment, we invested BRL 43 million with maintenance of the ongoing projects and also the building of [ Sherobeen ]. We invested BRL 154 million in reinforcements, improvements and the building of our CPFL transmission projects.

Finally, for the commercialization and service, we destined BRL 12 million. With this, in the first semester of 2022, the total investment was BRL 2.6 billion, which represents an increase of 49.2% in relation to the same period last year, highlighting the investments carried out in the segments of distribution and transmission.

I thank you for your attention, and I give the word back to Mr. Estrella.

[Gustavo Estrella, executive]

Thank you, Mr. Pan. Well, following here, we had the conclusion of our energy, the P&D project with BRL 64 million invested. We finished this now in June. I think it was a good experience testing in real life a storage program, looking at energy and transmission in our final consumers. So we put on the -- on a -- generate on the substation of ours and also for our client group, we were able to simulate a microgrid isolating the system and supporting the clients and the normal conditions of use, these residence in negated community in Campinas, and we will, in fact, be able to evaluate isolating these clients in our microgrid configuration and supporting the consumption of energy with our batteries.

We tested all the operational part, it's still a challenge in relation to the financial feasibility. But it was an excellent experience for our team imagining that at a certain point, we might have competitively cost batteries to apply this in real life. Well, now we're ending our presentation, and we are available for the questions that you might have. Thank you.

[Carlos Cyrino, executive]

Thank you, Gustavo. Thank you, Pan, for the presentation, and we're now going to open our session for questions and answers. [Operator Instructions] We already have here a first question. The question comes from Julia.

[Unknown Analyst]

Our question is about the reinforcement CapEx. We see the assets are more or less double, and we want to know if this dynamic is fair for transmitter, if they shouldn't really have a more depreciated base or if they should convert to a base, which is similar to a distributor, allowing you to have an additional CapEx in the transmitter. What do you think?

[Andre Luiz Gomes da Silva, executive]

Julia, thank you for your question. Really, the depreciate base of the transmitter is very different from a distributor. But these are different segments. And the dynamic is different. So the transmitter has authorized revenues [indiscernible] different to a distributor, you have a dynamic and a base of management and everything for executing this investment part and the transmitter receives authorizations to be able to manage the asset part.

So in fact, the dynamic is very different. But the trend of a transmitter is taking into considering the safety of the system, the trend is to have less active assets and the base of remuneration. So given the proportion you have authorized revenue different from the distribution. So a lot of these depend on the systemic reinforcements, authorized by NAL or [ IFRS ]. The dynamic is different from the distributor. That's why you see more depreciation. That does not mean that they don't do their service well.

The asset seen by NAL, they're only authorized as we communicate the need. The LCA had a more appreciated part, and we are planning to do a more as massive attack in these assets of CPFL transmission. I'm not sure if I was clear in my response.

[Carlos Cyrino, executive]

Thank you, Andre. Thank you, Julia. [Operator Instructions] If there's no more questions, we are going to stop. If you have any questions, or anything you'd like to ask. We are available to bring all clarifications. So before we finish, I'd like to remind you that we will -- on the 20th of October, we will have our Investor Day. It will be in the city of Sao Paulo, will be a hybrid model. We've already sent it. And in the next days, we will be updating you and bringing you all the news. I'm now going to give the floor to Gustavo Estrella for the final considerations and for the closure of this event.

[Gustavo Estrella, executive]

Thank you, Cyrino. Well, I would like to thank everyone for your participation in the call of results. I think this shows one more trimester that shows the resilience of our results with an expectation, I would say, a more positive expectation of the recovery of the economy and will also have reflects on the results. We see this trend to recover the next month. So once more, I thank you all, and have a good day.

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