Companhia de Saneamento do Parana Sanepar

BOVESPA:SAPR4

Earnings Call Transcript 2021-Q4

[Operator]

Thank you very much, ladies and gentlemen. Good morning, and thank you for waiting. Welcome to the audio conference of the Sanepar for the earnings call of the fourth quarter of '21.

This might contain some forward-looking statements regarding the operational growth and financial results and growth prospects. These are only projections, as such, are based solely on Sanepar's management expectations regarding the future of the business and continued access to capital in order to finance the company's business plan. Forward-looking statements are not guarantee of performance. They substantially depend on the changes in market conditions, government rules or performance of the industry and present economy, among other factors, and the risks presented in the disclosure documents filed by Sanepar and are, therefore, subject to change without prior notice.

Now when we close the presentation, we will close the Q&A.

To start, let's give the floor, Abel Demetrio.

[Abel Demetrio, executive]

Good morning, Marcelo. Thank you for being here for the fourth quarter of '21 and the closing of '21. We have the Director of Investments. We have our Environment Director. We have the managers. We have the RI Manager and Regulation, [indiscernible]. Let's continue.

Let's start with the Page 2. We already talked about the theme. Page 3, let's talk about the highlights. Comparing '21 to 2020, the key financial indicators presented follow the following variation: 8.4% net revenue growth, net 8.4% growth, 17.6% EBITDA growth, 18.2% net profit growth. There is an increase in 74,600 water connections, an increase of 71,500 sewage connections; service index water, 100%, sewage, 77.3%. Therefore, the 100% of the sewage that was collected was treated.

EBITDA margin 2020, 40.3%; '21, 43.7%. We had an increase of investments, 36.3%. And we got in '21, the value of BRL 1.320 billion. We captured BRL 500 million in '21 in the 11th debenture issuing. We have the AAA from Moody's and the Fitch rating, AAA; 2021 Transparency Trophy and the first place as the infrastructure sector of the Valor Inovação Brasil 2021 award.

Let's talk about the operating results. Here, the volume was 0.8% lower than the billed volume in regards to 2020. We have the water prices throughout '21. There is an increase of connections. We have units increased 4.6%. We have also the build volume, marginal growth by 1%. And sewage, there is lower imports in water, therefore, lower inputs in sewage. The economic units increased 1%, and the default is occurrence 0.5 percentage points, and the operational efficiency and liters connection per day, 43. And we have that result .

The draught in Paraná, just like in '21, we have the metropolitan region. There is a trial period. On Page 6, we can see that in 2021, there were 4 months that were much lower than what we expected for Curitiba -- July, September and November. In fact in late December and February, our levels of rains are satisfactory. And it allowed for January to have the end of the turnover in Curitiba.

At Page 7, at the end of December '21, we have 67% of the 4 water reservoirs against 41% of 2020.

Page 8, we have our performance indicators. We have our financial, and we have the covenants. Here we see the 8th, 9th, 10th, 11th issues of the debentures or contracts for financing with the BNDES and the contracts as well, the contracts that we have with CAIXA Econômica. And we have the contracts -- the company with the indicators is always fulfilling its financial covenants.

Let's talk about the main ones. We have the contracts. One is the EBITDA. We have 2.92%. The net bank debt adjusted by the EBITDA, 1.31. Other honors debts divided by the adjusted EBITDA, we can see that we're very comfortable. And our indebtedness degree, we have 46.5%.

We already talked about the indicators, the EBITDA margin, 43.7%; the ROIC, 12.7%; ROE 15.9%.

Next page. We can see the financial performance, the net revenue getting to BRL 5.2 billion with an increase of 8.4%. EBITDA and margin increased 17.6%, getting to BRL 2.273 billion, margin of 43.7%.

Net revenue, the growth, we have a net margin of 22.2%. And then we have an invoice of over BRL 1 billion. The expenses that have an impact in the EBITDA, the operating cost and expenses, they grew to 2.2% and there where we got BRL 2.931 billion.

Page 11, cash generation. We had a cash management of BRL 1.72 billion; conversion, 74.9%; and a variation of an increased 6.6%. Net debt and leverage, we have short term, BRL 408 million. Long term, the ones that are over 1 year, BRL 3,713 billion, totaled debt BRL 4.1 billion. The cash and equivalents BRL 983 million. And we have the net debt of BRL 3.1 billion comparing to the BRL 2.8 billion of '19 and '20 in the covenant of 1.4x. The weighted average cost of debt was 10.5% in '21, 8% in 2020.

Our CapEx, BRL 1.320 billion, but the division is 47% water, 45% in sewage, 8% others. Of the total of CapEx, 71% of the resources, 61% were debt resources and 39% were equity resources.

Next page, we can talk about the quarterly results for '21 fourth quarter. It grew 11.8% of net revenue. The net result grew 13.9%.

Income statement. We already talked about the EBITDA growing for 8.4% in net revenue. And the net results grew 18.1%. The main math in regards to '21 in regards to the revenue, we had a readjustment of 5.1% of the February debt, lots of tariff review. There is an increase in the connection, water and sewage and therefore, an increase in revenue; personnel reduction of 11.3%, and that result of the PAI that went to -- that actually had a lowering of over BRL 100 million.

Material, 4.4% positive results, about 10%, a highlight of increase of costs and maintenance, lubricants, and then an increase in resources. Electric energy, 6.6%, 26.7% increase, very representative for the cost. We went from BRL 450 million to BRL 568 million. The main provider of energy is COPEL in that June at the same date. There is a decrease of 3% of the subsidies, and that impacted the price of energy.

Third parties, 2.6% growth. It's controlled even though there is an increase. Provisions, 70.9% with an expressive increase. We have the provisions. There is a reclassification of losses. Labor issues are the main issues. 2019, BRL 84 million and 2021. So expenses and adjusted EBITDA in our managed providers, we have an increase of 34.4% due to the increase of the IPCA and got to 10.6% at the end of '21; INPC, 6.22% to 9.3%. The interest rates, are venture below the [4.42%] and that...

So let's talk about the nonrecurring items. 2020, we had a lot of nonrecurring items, the main one is the incentive retirement program, PAI. If we remove this effect, we would have the 2021 full adjusted EBITDA, 44%. When we compare 2021, we had very few nonrecurrent, extraordinary losses and the provisions, we have 33.9% of adjusted EBITDA.

On the next page, we're going to talk about the adjusted EBITDA in non-managerial items. We had EBITDA of BRL 2.2 billion. Nonmunicipal items, electricity, treatment materials, fees and charges, BRL 102 million. So our EBITDA would be BRL 2.375 billion, and we work out the EBITDA of 45.6%.

Next page, the balance sheet. Net debt grew 13.5%. We got to BRL 3.3 billion, impacted mainly by the increase of investments that went from BRL 3.6 billion to BRL 4.1 billion. On the other hand, cash equivalents, there was an increase of 8.4%. These are the main items.

Operating working capital BRL 594 million. The main variation is the clients. Accounts receivable from customers, BRL 799 million to BRL 1.023 billion, a variation of increase, 27.9%. We have the provisions going from BRL 544 million to BRL 615 million, 13%. Contract assets, an increase of 14%, coming to BRL 1.8 billion and other assets getting to BRL 1.64 billion. We have the operating working capital turnover, 41 days compared to 35 in 2020.

Talking about the cash flow, operating activities generated cash of BRL 1.7 billion, an increase of 6.6%. Investment activities consumed BRL 1.3 billion, 36.2% increase in financing activities. Payment of dividends and amortization had an increase. At the end of the year, there's an increase of BRL 108 million, getting to the cash of BRL 983 at the end of '21.

Well, there was a presentation of the numbers regarding the FY of '21 and from now on I'm available for questions.

[Operator]

[Operator Instructions]

The first question is from Carolina from Credit Suisse.

[Carolina Carneiro, analyst]

Give us more detail about the next steps on the readjustments of the tariff review, if you can compare that.

[Abel Demetrio, executive]

Thank you for the question. Yes, we have submitted that the readjustment for the regulatory agency, but the information of readjustment is by the AGEPAR. The tariff review, we are still working on the second phase that were delayed for subcontracting the consulting companies, and we had an issue of subcontracting.

On February 17, the company received new proposals, and now we are seeing the base of assets, so we can continue with the second phase.

[Carolina Carneiro, analyst]

So a follow-up, there is a delay in the calendar so the review wouldn't be finished with the readjustment of tariffs, but I imagine there is no possibility because of delays.

[Abel Demetrio, executive]

Abel Demetrio to comment with here. AGEPAR, because of this delay consulting, we have regulatory and our database needs to be published to start getting a tariff. So really, the adjustment is not factual anymore. And as soon as we have the publication of the new calendar...

[Operator]

Well, the next question will be from Milene with JPMorgan.

[Milene Carvalho, analyst]

I wanted to do a follow-up of the end of the rationing of water in Curitiba. There is an increase of moderate volume, but I wanted to know whether the company is waiting. And I wanted to ask you about dividends. You have a payout of 30% connected to the leverage of the company to have a larger distribution. I wanted to understand the decision of the company here.

[Abel Demetrio, executive]

I'll give the floor to our President, and he will talk about the end of the turnover.

[Claudio Stabile, executive]

We had -- that when we got to 80% of reservoir, we would have the end of the turnover, and this is what happened. That 80%, even though Abel talked about the rains and there is a conjugation of actions, not only rains, but also our program of rational use of water, very strong, and the works that the companies have done. They continue to work and they ask that you do not increase the level. And with what we have here today and with a new culture of our population and even though we have rains below the local average, at least we will have 2 more years without the turnover problem. At that point, we are very safe. We are very sure. And this is due to a technical issue.

In regards to dividends, we have the distribution at the end of last year, the company is -- has the business plan for 2026. Still a lot of uncertainties. We have an investment plan that is very good at the end of last year. The company is needed to submit their proof of economic capacity for reaching the goals. And then we have 99% fulfilling those goals. And even the contracts where you're not getting to the roles, we have the turnover. And remember that the turnover is over, but it doesn't mean then that the function continues to be pre -- normal. It's not precrisis. And we do not go back to the previous levels. So we're very conservative.

It's -- we also have the war that has started. We're being conservative. And this year, we still have the elections, and we still have market volatility. I wouldn't say they're more difficult, but they are more expensive. These are the evaluations and its more restrictive dividends.

[Milene Carvalho, analyst]

Another clarification here. With the readjustment, there is a public consultation on knowing how the processes will be. Is there a chance of annual readjustment for May or the 2 processes might be delayed?

[Abel Demetrio, executive]

The company saw the readjustment, and we will have a few delays. We understand that the normal schedule is direct approval. But since we have a methodology, we understand then adjustments in regards to certain thresholds, we can have that adjustment. We can see that both processes can unfold together.

[Operator]

[Operator Instructions] We have another question from Pedro Moreira from Italia Investments. Pedro?

[Unknown Analyst]

I have a few questions. Continuing with the issue of the second phase of the second RTP and as a part about alternatives -- regulatory alternatives, we did a follow-up -- and it seems that in February -- since February, this is in the hands of the regulatory. The company doesn't have a contact with the agency. Is there an expectation? We wanted to continue with the readjustment for the review, but do you have...

[Abel Demetrio, executive]

Thank you, Pedro. The company had done contributions. The report has been published that concern of the schedules is a concern of us and the company. We had, at the agency last week or the week before, we were received by the technicians. So yes, we keep that contact almost daily and also working with the regulatory agency.

[Unknown Analyst]

I'd like to ask a question, what are the actions that you're taking for the bad debt? And also, another question, this in regards to the energy expenses. We know that this is significant. There was a consultation to AGEPAR. Do you have any follow-up in the company? Can it be done briefly, in very small expectations to increase these actions or these are projects that are pilot?

[Abel Demetrio, executive]

I'm going to start answering the question of the nonpayment without 3.3% in 2020. Remembering that in 2020, we had the issue of COVID, and that was in March and April. When there was the issue of COVID, everybody knows about the importance of water for personal hygiene, and they prohibited the cuts of water. So we have not stopped the provision of water. That is reflected on the increase of the nonpayment. In 2021, we had a program in the sense of finding these steps, and we hope we can close this briefly through the goals before COVID.

Now I'm going to give -- move forward to the President, so he can comment in regards to the actions that we have planned.

[Claudio Stabile, executive]

Well, you mentioned the unregulated market. We have been working with our agency. Now there is a deliberation. But it got to a point where the prices were -- I believe that 3 months ago, the prices were very high due to the water shortages. We have all the map -- everything mapped. All the processes are prepared. This takes about 6 months, but all of this is well elaborated and now we're just waiting for the markets.

And we are working strongly with solar energy. We have the first plant of the country that has been tested for 3 years, and now we will continue to increase the capacity and expanding to the 4 other water reservoirs.

And even in third parties, we have biogas. We have been working with the treatment of sewage that works with anaerobic system, and we have the generation of biogas, and that is to understand the quality of bio methane. We have an improved great increase in biogas.

In hydro energy, for example, when we distribute water, we can add turbines. And we can do the water treatment, sewage. We have the pilots in order to replicate. So what we're talking about is the set of actions in the unregulated market with clean energy, renewable energy, trying to find a reduction in our electric energy and also guaranteeing an economy in regards to our water stations, sewage, because of our lack of service.

[Operator]

[Operator Instructions] Next question will be from [indiscernible].

[Unknown Analyst]

I wanted to know more about the process of the economic proof with the regulatory agency, the new legal landmark and signing the additions with the municipality. Are you signing them? And how are you dealing with the issue of not being possible, according to the decree, of renewing, extending this deadline?

[Abel Demetrio, executive]

Thank you for the question. Well, as the decree had predicted, the company's had until December to do the protocol. The company did, with the regulatory agency. We also did the protocol. And also, we did the process for the National Agency of Water. At the end of 2021, regulatory agency of the state of Paraná, and then we can prove the capacity of the company. And with that schedule, there is a decision by the agency predicted on March 17. So we're waiting for the agency. The company has a deadline but right now, the agency has been very diligent and the company has answered a lot of questions.

In regards to the nonrenewal of the contract, we have the proof and the requested terms, and we're waiting for the sector. And then we have the renewals, these are things that have to be better debated. Thank you.

[Operator]

[Operator Instructions] Ladies and gentlemen, we will continue with the Q&A session. [Operator Instructions]

Dear guests, we now close the Q&A session. We will give the floor to Mr. Abel Demetrio for the final.

[Abel Demetrio, executive]

Well, in the name of the Executive Board of Directors of Sanepar, we would like to thank you for taking part in this teleconference. Thank you very much.

[Operator]

The earnings call is closed. Thank you very much. Have a wonderful day.