Companhia Paranaense de Energia (ELPC) 2017 Q1 法說會逐字稿

Good morning, and thank you for waiting.

Welcome to Companhia Paranaense de Energia Copel's conference call to present the results of the first quarter of 2017.

(Operator Instructions)

Before proceeding, we would like to clarify that forward-looking statements that might be made during this call related to Copel's business perspectives, operating and financial projections and targets, are beliefs and assumptions of the company's management as well as information currently available.

Forward-looking statements are not guarantees of performance.

They involve risks, uncertainties and assumptions as they refer to future events, and therefore, they depend on circumstances that might or might not occur.

General economic conditions, industry conditions and other operating factors may affect the future performance of Copel and may lead to results that differ materially from those expressed in such forward-looking statements.

During this call, we have the participation of Mr. Antonio Sergio de Souza Guetter, CEO of the company; Mr. Gilberto Mendes Fernandes, Administration Officer; Mr. Fabio Malina Losso, Government Risk and Compliance Officer; Mr. Jonel Nazareno Iurk, Business Development Officer; Mr. Sergio Luiz Lamy, CEO of Copel Generation and Transmission; Mr. Maximiliano Andres Orfali, CEO of Copel Distribuição; and Mr. Adir Hannouche, CEO of Copel Telecomunicações.

The presentation that will be made by Copel's management may be followed at the company's website, Investor Relations, copel.com.

Now we would like to turn the floor over to Mr. Antonio Sergio de Souza Guetter, CEO of the company.

Mr. Guetter, you may proceed.

Good morning, everyone.

I thank each one of you for participating in our call.

I would like to start our talk by saying a few words about the current continuing economy scenario, which starts to give some signs of recovery at the beginning of this year.

The electricity charge of the National Interconnected System grew by 3.5% in the first quarter of 2017, explained in part by the improvement in industry confidence that went up almost 3% in March 2017, exceeding 90 point, the highest level since May 2014.

These figures are driven by some factors which tend to encourage the economy: Industrial production and domestic consumption.

Among them, we can highlight trade balance that had the highest surplus since the beginning of the historical series amounting to $14 billion vis-à-vis $8 billion that we saw in the same period in 2016.

Inflation, measured by the extended CPI, reached the lowest level in the last 10 years.

And the accumulated ratio in the last 12 months was 4.6%.

And also, the reduction in (inaudible) rate by 1.5 points in 3 months only.

In our concession area, it couldn't be different.

Up to March, the industrial physical production grew by 4.6% on a year-on-year comparison, driving job generation in Paraná, which closed the quarter with a positive balance of over 16,000 positions, being the third state with the highest balance of formal employment in the first quarter of '17.

And the consequence of that can be seen in the consumption of the group market of Copel Distribuição, with a growth of 3.5% in the first quarter of this year.

We can also see an improvement in delinquency.

We closed the first quarter with a balance of past dues between 15 and 360 days of 237 million, the lowest level since November 2015.

And the ratio was maintained at 1.6, slightly higher than Copel's historical levels, where the ADA dropped by 30% on a year-on-year comparison, amounting to 25 million up to March this year.

Now going to Slide #4, I would like to talk a little bit about recent decision by ANEEL about our asset base related to the RBSE.

On May 9, last Tuesday, ANEEL ratified the result of the inspection of the appropriation report of assets related to the RBSE and recognized the amount of BRL 668 million as the net amount of the assets for indemnification purposes on the base date of 31 December, 2012.

Based on our best estimate, the company had already recognized in our financial statements of 2016 the historical amount of BRL 518 million, and the respective remeasurement of the cash flow represented an asset of almost BRL 1.2 billion, of which, BRL 810 million impacted our operating revenue at the time.

And with the ratification of the appraisal report, management made the necessary adjustment in the result of the first quarter of this year with a positive impact on the operating revenue by BRL 225 million.

It's important to highlight that the effective receipt of this indemnification will occur in the next few years as of July 2017.

Still talking GeT -- about GeT, we posted BRL 40 million in impairment of the Cutia wind farm assets due to the higher CapEx of our projects and other assumptions utilized within the cash realized in the fourth quarter of 2016.

And another relevant matter that I would like to mention is about the recent approval of dividend payout amounting to BRL 506 million related to the fiscal year of 2016 occurred during the 62nd Annual Shareholders Meeting on April 28.

Payments will be made in 2 installments.

And the first one will be at interest on equity up to June 30, and the second one as dividend up to 31 December 2017.

The total approved corresponds 50% of the payout referring to the 2016 fiscal year.

Besides during the same meeting, new members of the board and the fiscal council were elected for the 2017 to 2019 term.

And the composition of this board is 100% compliant to Law 13,303, the law of state-owned companies.

Now going to Slide #5.

We can see that the operating revenue increased by 7% in the first quarter of 2017 on a year-on-year comparison amounting to BRL 3.3 billion.

And the main reason for this increase was the 43% growth in the revenue from the use of the power grid amounting to BRL 1.1 billion, which reflects the recognition of BRL 225 million related to the remeasurement of the cash flow of the transmission assets related to the RBSE, as I have already mentioned.

Revenue from the sale to distributors reached BRL 724 million and had a 6% increase, reflecting mainly the higher CCEE revenue due to the higher GSF and also the higher spot market in the period.

Revenue growth was partially offset by the drop of 28% in the sale to final customers.

This movement is justified by the average reduction of 13% in tariffs in June 2016 due to the result of the fourth tariff review cycle of Copel Distribuição and also the drop of 11% in the captive market due to the migration of clients to the free market.

The other operating revenues item, made up by the telco revenue, gas distribution and others, grew by 4% and reflects mainly the expansion of the client base of Copel Telecom.

On Slide #6, we show the operating cost and expenses that amounted to BRL 2.5 billion in 1Q '17, amount 10% lower on a year-on-year basis.

And this is attributed mostly to the 10% drop in the cost of the purchase of energy, which amounted almost BRL 1.1 billion due to the lower acquisition cost of energy coming from Itaipu and due to those lower exchange rate for the dollar in the period.

The charges for the use of the grid dropped by 36% due to the lower cost with charges for the system services due to the lower thermal dispatch outside the order of merit.

And the position and reversal line dropped by 18%, reflecting mainly the lower volume of provision for legal claims and also for allowance for doubtful accounts, ADA, partially offset by the posting of additional impairment, as I said, related to the Cutia wind farm.

The manageable costs dropped by 1% in the first quarter this year, reflect mainly the lower cost with third-party services and financial compensation for the use of hydro resources due to the lower generation of hydro energy in the period, partially offset by the 11% increase of personnel, reflecting the adjustment of salaries applied as of October 2016.

Slide 7 shows EBITDA, which was 87% higher on a year-on-year comparison, totaling BRL 1 billion in the first quarter of 2017 with around 31% margin over the operating revenue.

This growth is very well explained by the remeasurement of the cash flow of the transmission assets related to the RBSE; by the result of the fourth tariff review cycle of Copel Distribuição, valid as of June 24, 2016; the higher GSS; and also higher spot price in the period and the growth of the grid market of Copel Distribuição.

In the first quarter of 2017, Copel GeT cash generation accounted for 71% of the consolidated EBITDA, Copel Distribuição for 19%, Copel Telecom for 3% and other companies in the group accounting for 7%.

The fact that the main contribution came from Elejor.

On Slide 8, we show the Copel consolidated net income.

In the first quarter, the company posted a net income of BRL 417 million, 270% (sic) [207%] higher than the BRL 136 million posted in the first quarter of 2016.

Analyzing the result of subsidiaries, we can observe that Copel GeT closed the quarter with a net income of BRL 343 million; Copel Distribuição, net income of BRL 71 million; and Copel Telecom, BRL 12 million.

Before giving the floor -- or before starting your question and answer, I would like to introduce to you our new [CO] and IRO elected yesterday by our board.

And he -- Mr. Adriano Rudek de Moura is a graduate in accounting sciences specializing controllership and financing.

34 years of experience in finances, of which, 20 were at Electrolux, global leader in home appliances with presence in over 150 countries.

In the last 14 years, he was Administrative, Financial and Investor Relations officer of Electrolux Latin America.

On behalf of the whole company, I would like to welcome Mr. Moura, who joins the company with the mission of helping us to maintain our excellent pace of growth, focused on maximizing value to the company and higher efficiency and austerity and financial discipline.

Well, these were our highlights.

Now we are available to answer your questions.

(Operator Instructions) Mr. Thiago Silva from Banco Santander.

My question has to do with the volume of the distribution company.

Captive volume was impacted mainly by the migration of customers from captive to the free market.

And I would like to know when, in your view, we could see a stabilization of this movement in the volume for the future.

And the second question, related to cost.

We see a performance of manageable costs in your release, that I would like to know if you have an internal program, an in-house program, mainly regarding personnel in this regard.

I will give this floor to the CEO of Copel Distribuição.

We already see a stabilization of this one, and we already start to reverse the process.

We expect this to stabilize and maybe reduce.

Regarding the cost, we have a very strong program to reduce our costs.

We have a program that should have impact by the end of this year, and we do not intend to hire new people for these jobs that are being vacant.

We would like you to remind you that last year, we had a reduction of about 200 employees at Distribuição, and we did not replace any of them, so they still are vacant.

So this was a way of taking advantage of the program and not replace, that is to say, to take advantage of our voluntary redundancy program.

(Operator Instructions) Our next question comes from Mr. Marcelo Sá from UBS.

I would like to know if you can give us an update about your discussions about RBSE and if you have negotiated some solution with ABRAGE and ANEEL.

Also, I would like to know if you have some relevant changes in the volume of contracted energy of Copel.

And also about distribution, the market was higher than most people expected.

I would like to know if there was a specific reason?

The size of the growth in volume, do you believe this is recurrent for now on -- from now on?

Could you please repeat your second question, the company ops?

I would like to know, in generation, if you have reduced the energy contracted amount.

Lamy, he's the CEO of GeT.

In relation to your question about the RBSE, there are many different things involved, and all of them happening simultaneously when dealing with them, with this team in the judicial arena, ABRAGE is very much proactive, and Copel GeT is also apart from ABRAGE, and we're hiring 2 law firms in order to track the evolution of this subject and defend of the interest of transmission companies.

And regarding the negotiation, this is a process underway and it's a rather interesting one.

And this is being ordained by the Ministry of Mines and Energy.

In order to sit at the table and discuss and evaluate all the most important agreements related to the subject, and then they -- we have already scheduled a meeting with many players with the participation of ABRAGE, and ABRAGE and the Ministry of Mines and Energy trying to find a solution that may please all the parties.

And we are very bullish about this possibility.

Regarding energy contracts, Copel already, at the end of 2016, had already foreseen the possibility of a low level of GSF for this year, especially after the second half.

And therefore, we had already taken precautions last year in order to leave a reasonable amount of energy, about 15% of the energy contracted, in order to cope with this challenge.

We had a plan and what we view is that we had a part of energy to be delivered in 2017, and that would be still in 2017.

But already at the beginning of 2017, with the perspective of low GSF started to become more real, we changed that so Copel is very well positioned in order to cope with this difficulty that will happen end of May, of reduction of energy because of the low GSF.

And the third question was about the reasons for the strong improvement with the Distribuição.

Maximiliano will be talking about that.

What we can say is that we had no non-recurring items yet.

And we worked very much focused on reducing the ADA and with very good results in the reduction of the allowance for doubtful accounts, the ADA.

And we had a reduction of 200 in our headcount last year, and we are not replacing them, so this is another reason.

So our personnel cost, we were almost able to absorb the adjustment of the last collective bargaining without having an increase in our payroll.

I would say that these 2 factors ended up contributing for this result.

Vitor Sousa from Brasil Plural.

I have a doubt about your debt.

Could you give us a strong guidance regarding your leverage up to the end of the year?

Is there a level of comfort that you have in mind in order to close the last quarter of 2017?

I see that you have 2.3x, and I would like you to give us some color regarding what would be the optimal level to be achieved.

About our leverage, we intend to be under the limit of our 3.5x.

So our forecast is to have this up to the end of the year.

And I would like now to turn the floor over to Adriano.

Well, this is a point of attention of the whole management of the company.

We have already published our information also regarding this event and the way we intend to deal with that.

And we have -- we must have an efficient cost management and also in the debt profile.

I believe all these events together make Copel have the conditions to keep within our target.

So have a you a more adequate so far for the next 2 months.

But can you give any figure?

That is to say, can you give me a number?

Or you don't have this kind of target.

As I said, we want to be below 3.5x, and our objective is to stay at 3.3x.

(technical difficulty)

Another question about management.

(inaudible) to the CFO position.

What are you expecting to change at COPEL with this regard?

Nothing's changing.

(inaudible) more of international (inaudible).

And he has a very good relationship with foreign banks.

And we also have foreign partners.

So he has a lot of knowledge in this area and he's very experienced in funding and accounting.

And I'm sure that he's going to add a lot of help to us also regarding the review of our own assets.

But also, it's the impairment with the Cutia project with the potential (inaudible).

But certainly, we will be reviewing our portfolio as you said yourself.

Adriano will add to that.

Adding to what he said, regarding this year, we (inaudible).

And also, we saw a massive expansion of higher to the amount that posted in December, so in the first quarter.

It flexes the amount that we got at PP&E, were drawn to our results in the first quarter.

Impairment, yes, there may every single year, changing the assumptions then sometimes.

And we'd have to review this we think it's something that we monitor on an ongoing basis.

But in the first quarter it was the complement of the (inaudible) already realized in December, and that shows the recoverability of this amount of BRL 13 million, that's what's focused now.

Pedro Manfredini from Itau BBA.

Just an update regarding payments in the states.

Could you give us an update about that?

[The interpreter apologizes but the sound was very bad.]

Well, there's nothing new on the front there because the state is paying the PLD again.

Arlindo Carvalho from Credit Suisse.

About your indexes.

We saw that you have BRL 10.7 billion maturing now in the short run.

And I would like to know if you intend to roll this over and how do you see this matter.

[Felipe] will answer your question.

In fact, we have a relevant amount that will be maturing the next few months and also 2018.

And what we have been seeing the correct contact with the banks and that institutions are very comfortable in terms of the capacity of rolling over Copel's debt.

So we are very comfortable regarding this, regarding our capacity to extend the maturity, and we have all the right position to roll them over in the next few months.

What is the level of cost you see for that?

Will it be different from in (foreign language)?

Can you give us a figure?

Well, you can see that in our financial statements, because we have already published this information last night, and the most recent operation that we've signed was a promissory note at 117% of the CDI.

(Operator Instructions) Pedro Manfredini with Itau BBA.

(technical difficulty)

that the company intend to make a debenture issuance?

[And the interpreter apologizes because the sound is so soft here in the translation booth.

We apologize.]

At Copel GeT, we have not issued in infrastructure debenture yet.

And all the projects that you mentioned, (inaudible) and the wind farm (inaudible), they are under the umbrella of Copel GeT.

And there could be an issuance of infrastructure debentures in the future.

We -- in the next few months, when this opportunity arises, we intend to issue also an infrastructure debenture at Copel GeT.

We made only one, which was in Copel Telecom.

And Copel GeT has a lot of backup energy for this kind of security.

And we should go towards that in the next operations that we might develop.

(Operator Instructions) As there are no more questions, we would like to give the floor back to Mr. Sergio de Souza Guetter for his final remarks.

We thank you very much for your interest in our call.

And I would like to say that I'm very bullish about the results of the first quarter.

I believe that the market has shown a very fast recovery and a major one.

So once again, I thank you very much for following our call, and I will -- I expect to see you all in our next call.

Thank you very much, and have a good day.

Copel's conference call is closed.

We thank you for participating and wish you all a very good day.

Thank you.