CPFL Energia SA

BOVESPA:CPFE3

Earnings Call Analysis

Earnings Call Transcript 2023-Q2

[Carlos Cyrino, executive]

Good morning to everyone. You're all welcome to one more presentation on the results of the CPFL Energy. Today, we're going to talk about the results of the first quarter of '23. I'm Carlos Cyrino, Director of Investor Relations. And today, I'll be Master of Ceremonies of our event. We have Gustavo Estrella with us, our CEO; and the other executives of the company.

The presentation will be in Portuguese with interpretation for English. All you have to do is click on the bottom globe and choose English. If you want to see the presentation in English, you can find it on the website of CPFL Energia. [Operator Instructions] I remind you that this event is being recorded.

I'm going to give the floor now to Gustavo Estrella to start the presentation of the results.

[Gustavo Estrella, executive]

Hello. Good morning to everyone. Thank you for being present at our call for the second quarter of 2023.

Here in the first slide, we're going to talk about our results. EBITDA with a growth of 7.2%, BRL 3.054 million accumulated in the first semester, a growth of almost 20% -- 19.9% reaching BRL 6.584 million profit, 1.7 with a 2% negative we had a nonrecurring effect due to the recognition of a fiscal credit of a debt that we had in CPFL transmission. So the variation -- it shows up now in this semester, we would have a growth of almost 7% as well.

In the variation of the semester, we have 19.5% with BRL 2.8 million of net debt. BRL 23 billion with a leverage of 1.72x of the EBITDA. A reminder always that today, we have 3.75 dividends. I think -- is approved in the administration that we had set in the beginning of the year. The declaration of complementary dividends referring to 2022 in CPFL with no -- we declare here a dividend of BRL 903 million, which corresponds to BRL 0.78 per share.

Let's move to the next slide. Here, we have some important highlights, which are positive in the tariff revision of our distributors, we concluded the revision of RGE June 23, with a positive effect of 1.1% for our consumers, and an increase of 1.2% in our Parcel B. In Energy, we have a regulatory revenue of BRL 11 billion. Piratininga also in this revision process for the month of October. We have a base of preliminary net RAB of BRL 3.9 billion.

Some important recognitions in consumer satisfaction, CPFL Santa Cruz is in first place. And in second place, RGE, consumer satisfaction awards. So again, Santa Cruz first and RGE second.

Let's go to the next slide. Here, we have a distribution of energy sales. We see the load in the concession area, 1.3% lower than 2022 in sales, a negative variation of 0.1%. When we look for consumer class, residential class with a growth of 2.2%, it's important to highlight even though we have distributed generation, we have a positive impact of the increase of the revenue mass in the first semester that brought a positive effect in the consumption of energy whether it be commercial or residential. The industry which was a concern with the negative -- we can feel the resilience of the industry to recover the consumption of Energy.

When we look in the different classes of consumption of the industry, we see performance, which is positive in food. This corresponds to almost 20% of the industrial consumption, but we see several other sectors, metal, paper and pulp. These have a negative performance varying from 4% to 5% drop. So we see a negative perspective for the industry up to the end of the year. Possibly with the consumption below than the consumption verified in 2022.

Let's move to the next slide. When we look at the performance of the semester, it's similar to what we saw in the second semester, a drop of 0.6% in the concession, 0.7% in sales in the concession area. The effects are very similar. Residents going up as affected also and the commercial class also and the industry -- the accumulated with a drop of 1%.

Let's move to the next slide. Here is a slide about delinquency. This is an important number here. As you know, we come with a robust process of energy cuts over 200,000 per month, we see the positive impact in the reduction of our delinquency, 0.73%. It's a decrease of 35% in relation to '22. So this is very positive. We start to get close to the levels pre-pandemic in delinquency, and this number really is very important.

Now let's go to the next slide. This is another good piece of news. We had a sequence of reduction of total losses in our distributors. We know the challenge about the regulatory losses. So this is 1 more quarter. So from 8.76% to 819 -- 8.19% in the third quarter -- at the second quarter, as you can see in the lower part 2 of the 4 distributors below the regulatory rates. I think this is a challenge that we still have, especially Paulista and Piratininga to go in quest of these rates in the next semester.

Now let's go to the next slide. This is about generation. The PLD is aligned with the previous semester fruits of this positive numbers and below consumption of energy, the increase -- modest increase of load. We have PLD, which should go until the end of the year. Low energy prices that for sure will go beyond 2023. We see the GSF -- this gives us a negative reflex in the correction of our financial assets. We also have a variation in the operational resources in BRL 48 million. This is still from the inflation of the last months. So this is the private pension plans, and this is the result, BRL 48 million and a positive concession financial asset, tariff revisions with an important positive number of BRL 60 million.

The market in general has a positive effect due to the mix and the increase of the [ low-potential ] classes, residential and commercial. So an improvement of mix and an improvement of tariffs brought a positive impact of BRL 53 million in this period. PLD, as we said, positive BRL 31 million and other revenues with an impact of BRL 25 million. The main effect of the results come from generation and the main effect still is the consolidation effect of the participation of hydraulic [ Enercan ] project.

We acquired this after the privatization effect last year. And we are one of the largest shareholders on this project. So we go through the IFRS and we consolidate this bringing an impact positive BRL 132 million in our results. Besides this, we also have the increase of the wind performance that brought a positive result with BRL 44 million.

Next slide, still about results. In the segment of transmission, we have 2 important results, an increase of margin, BRL 27 million readjustments of tariffs and the integration process of CPFL transmission which is important with the reduction of operational costs, bringing us BRL 16 million with personnel reduction. We also had the transmission lines with an impact of 15 -- so we have a positive effect in our trading of BRL 15 million in our Service segment, in general, an increase of BRL 88 million, especially from our [indiscernible] contributing positive with our results in the quarter.

Now besides the effects of the EBITDA, we have a negative effect in results -- financial results, BRL 36 million coming from the financial results. BRL 122 million reminding us that it's noncash of BRL 56 million and also negative effects of interest and fines of BRL 40 million. We have a positive effect with the reduction of expansions with our net debt, BRL 104 million this quarter. And the prepayment of the AFD debt with the acquiring of CPFL transmission, plus BRL 36 million comparing '22 to '23.

The effects on the taxes. As I said, we have the recognition of the fiscal credit in 2022. So BRL 133 million this brings this negative impact of 1.2% in nonprofit. This -- not considering this, we would have a growth of almost 7% compared to the net profit of 2022.

Let's go to the next slide on the comparison of the results of the first semester. Important growth in the EBITDA of our distributed with BRL 445 million, especially due to the impacts of the tariff revisions, whether it be the correction of the remuneration or the positive impacts in the increase of our Parcel B. In generation, one moving impact of Enercan and the impacts of the wind farms, bringing positive results and the effects of the reduction of personnel and also the Sul I and Sul II projects. When we look at the profits, BRL 1.093 million, we have the impact of the financial results coming from the sectorial variations and the effect in the income tax.

Now let's talk about leverage and dividends. We -- this is stable in relation to the first semester with the debt of [ BRL 23.2 million ]. The dividends -- complementary dividends, which is BRL 903 million or BRL 0.78 per share. The shares trade ex from 18th of August. So -- this will be paid out up to the 31st of December of 2023.

In the next slide here, we see a positive perspective about the indebtedness. We see a stability in the first trimester. And we will -- since this is 73% index of the CDI. After the end of the year, we will reduce our financing costs due to the variation of the interest rate about -- we can see that our cash position is very robust. This covers 2023, '24 and a bit of '25. This is always an important topic with CPFL. We have a robust position and the perspective of access to the market with good conditions. So we have no short-term pressure to access the market. We will do this as we have good conditions and lower costs.

Next slide. Here, we see an investment program, our CapEx, even though it is lower than it was in 2022. It is explained here. Because of the end of the cycle, of the tariff revision in the main distributors in 2022, beginning of 2023. This reduction was already expected in our investment program. But still, we have an investment program over BRL 5.2 million expected to 2023, led by the distribution segment, which has already delivered BRL 1.8 million in the first semester and another program comes from CPFL transmission with almost BRL 300 million investment with the expectation a bit over BRL 500 million up to the end of 2023.

Lastly, I would like to talk about our agenda, ESG, we have 2 very important programs. The first is the Electricians School where we educate and train these electricians that joins CPFL. We can see here with over 2,500 contracted in 51 training centers. It's a growing participation in electricians. So in 2020, there were 18 women which corresponded to a little over 2,000 -- 2% sorry. So July '23, we have 177 women which corresponds to 10.3% of the contracted professionals. This is an internal process that we have of women electricians more and more in our collaborators.

Another topic, which is important. We opened our first school of formation to technical auxiliary for wind farms in the town of Joao Camara where all wind farms are in the state of Rio Grande do Norte we have this course is technical assistance and maintenance of wind farms. This course is close and we hope that this will be a recurring program from now on.

Well, ladies and gentlemen, I think this was the main information. I am available with my team for the questions and answers. Thank you very much.

[Carlos Cyrino, executive]

Thank you, Gustavo, for the presentation. Before we open the session of questions and answers, I would ask you to fill out the satisfaction form with the QR code that shows up on the screen. It's very important for us to improve and develop our materials so please fill out the form, it's very quick. Now we're going to start the questions and answers. [Operator Instructions]

So we already have some questions here. The first question comes from Guilherme of Santander Bank.

[Guilherme Lima, analyst]

I'd like to know about dividends, additional dividends in 2022. So I'd like to know what your expectation is about the payout in 2023?

[Gustavo Estrella, executive]

Guilherme, thank you for your question. Well, I think it's always a challenge to balance growth with the payment of dividends. We're doing this in 2023 without a low-term, beyond our investment program of BRL 5.2 billion. It's a robust program of investments but aligned with balancing our growth, we believe that we can pay these dividends referring to 2022. This analysis is done in a recurring manner. So the challenge is the same. Without a perspective of large investments, the expectation is continuing the maintenance of the payments of dividends the way that we're doing it now in 2022.

[Carlos Cyrino, executive]

Now let's go to the next question. Itaú BBA, Victor Cunha.

[Victor Cunha, analyst]

I would like more details about the comment about payment of -- how are these dividends paid? Is it the perception of risk? What do you take into account? If you could please elaborate a bit more on this topic?

[Carlos Cyrino, executive]

Just 1 minute, Victor. Gustavo's computer has -- we're waiting for the computer to adjust itself. Just 1 second, and you'll have your answer. Can you hear us? Just 1 minute because Gustavo's lost his connection. He is back again -- could you repeat the question?

[Victor Cunha, analyst]

In the beginning of the call, you said that CPFL would no longer be in the process of Goias. If you could elaborate this point and about the payment of extraordinary dividends referring to last year. Is it a perception of risk of the assets? What is the base of CPFL about this decision?

[Gustavo Estrella, executive]

In relation to the dividends, one thing has nothing to do with the other. We had a perspective of following up with the Goias. So we paid out these dividends at this time. So Victor, I think the idea is to evaluate internally our strategy of growth and new investments, not only Goias but any other large asset at this moment and evaluate the scenario, the risks, the moment, and the certainty of each one of the processes, I think it's natural to evaluate that at this moment of uncertainty, especially in the segment of distribution. Uncertainty about renovation. So we decided not to follow up in this process and once more reevaluate how to follow this inorganic process of growth from now on.

This is valid for transmission, distribution, given the regulatory scenario, and transmission with all the challenge that we've found, of being competitive in the auctions. I think this reflection is very important. And the idea is to follow with the dividend payments of 2022. And I think the discussions, the internal strategic discussions that we have, it's the time to reflect, understand the alternatives that we have and follow, as we always had, always getting assets with controlled risk and that give us profit. That is the goal based in our finances, but also looking at the risks and opportunities that we have for each asset that we acquire.

[Carlos Cyrino, executive]

I don't see any other question here. I will then end the session of questions and answers. If there's any question or any doubt, we are available to answer anything later on.

Before giving the final words to Gustavo, and to end, I would like to remind you that next Tuesday, we will do investor education. We're going to bring regulatory topics for distribution, and you can still register, it's going to be in Sao Paulo, near Faria Lima I think it will be very easy for you to go there and listen to this. And those who have not responded in the satisfaction research. This always helps us to improve more and more.

So I'm now going to give the floor to Gustavo for the final considerations and the closure of this event.

[Gustavo Estrella, executive]

Well, as my final comments, I would like to thank the participation of each one of you. And once more say that this is one more good results delivery in the quarter. Were firm in our investment plan BRL 5.2 billion with always with a focus on distribution and transmission, always going after operational efficiency, maintaining a balance between growth and dividend payment, and this is the plan of always taking robust and stable results to everyone. So thank you. I thank you all for your presence today.

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