Companhia Paranaense de Energia (ELPC) 2022 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the video conference of Companhia Paranaense de Energia-COPEL to discuss third quarter 2022 earnings results. This video conference is being recorded, and the replay may be accessed at the company's IR website, ri.copel.com. The presentation is also available for download. (Operator Instructions) Before proceeding, let me stress that forward-looking statements are based on the beliefs and the assumptions of Copel's management and on information currently available to the company. Forward-looking statements may involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur investors, analysts and journalists should remember that events related to the macroeconomic environment, the industry and other factors may cause results to differ materially from those expressed in such forward-looking statements.

In this video conference, we have Mr. Daniel Slaviero, CEO of Copel; Mr. Adriano Rudek de Moura, CFO of Copel as well as the officers of the subsidiaries who will be available during the Q&A session. And I would like to turn the floor to Mr. Daniel Slaviero, who will start the presentation. Mr. Slaviero, you may proceed.

Good morning to all. Thank you all for joining us in this video conference. Before highlighting the quarterly results of Copel, I think it is important to talk about the letter we saved by the controlling shareholder on October 31.

As dated in the material fact, what we know is what the state of Paranaense requested from CCEE and I quote to provide technical information in order to subsidize the model for a potential capital market transaction, whereby the investment of the state of Paranaense Copel is optimized preserving the state's relevant shareholding in the company. I also emphasized that the material fact, the adoption of any possible model Depending on the studies to be carried out for this purpose will be subject to certain approvals in accordance with the law and applicable regulations.

We have no information on how the study will be carried out nor the time frame for its completion. What we can say is that Copel's management will await the development of this study. And to the extent that it is formally requested compared to the work always following our corporate governance protocols. And any relevant information on this topic, of course, will be promptly informed to the market. Now talking specifically about our earnings, once again, we ended Q3 with adjusted EBITDA of more than BRL 1 billion in year-to-date adjusted EBITDA was BRL 4.1 billion, a growth of a little over 3% over the same period of 2021, followed by a strong cash generation of JPY 1.4 billion.

Furthermore, in line with the company's dividend payout policy, we will have a general shareholders meeting convened from November 21 that will deliberate on the proposal of BRL 970 million in dividends in the form of interest and capital. which would represent an approximately dividend yield of 6% for the year 2022. We continue to do well in relation to our operating performance, and we're working steadily to further improve the performance of our business. And so as we have repeatedly said, we have been pursuing growth opportunities with disciplined capital allocation.

And early last month, we announced the acquisition of 2 wind hubs with BRL 1.8 billion enterprise value, which will add more than 260 megawatts of installed capacity to our portfolio. The acquisition is part of the company's growth strategy in renewable energy. It expands the diversification of the generation matrix and is fully in line with our investment policy. The addition of these 2 wind farms, wind power will represent 17% of the power generation portfolio of Copel Group benefiting from the increase in incentivized energy and the reduction in exposure to hydrological risk.

This is an asset of very high quality that started operating recently with first-rate wind turbines and PPA, either in the regulated or free market with very attractive prices, the installed capacity of the company's consolidated wind power generation after the acquisition of this wind farm will be increased by almost 30% from 2018 to now, we've optimized the operational management structure that's allowing for operating synergy with the other companies in the group.

On the next slide, I highlight with great pride that Copel was elected the best company in the Brazilian electricity sector in 2022 by the Valo 1000 award. This achievement has a special interest and taste for us at Copel because we compete in an imminently private market. And this was the first time that the award had ESG criteria for the choice of the winner. Copel was also recognized for its financial results for its management and business performance, but also for its actions to protect the environment for its social actions and mainly for its governance advances that led to the migration in the end of 2021 to Level 2 of governance of B3. I also highlight some recent progress made. the definition of the (inaudible) bonus with a minimum value of BRL 1.8 billion. We intend to put this asset on the market in the coming weeks and hold the auction in Q4 of 2023.

All these items listed on the slide, as you can see, which were approved and recently communicated to the market in the last few days, a part of our Vision 2030, which will be detailed in our Investor Day to take place on November 22. So this is the invitation. I invite you all to participate in the live broadcast of Copel day on November 22, starting at 9:00 a.m. All the officers will be present, the officers of the holding and of the subsidiaries as well as the Chairman of the Board of Directors will be attending to talk more about the outlook, growth opportunities and the future of our Copel. It will be a great event. And now I turn the floor to Moura, our CFO, to speak about the financials of the quarter, and then we'll open the Q&A session. Thank you very much.

Thank you, Daniel. Good day, everyone. I also thank each and everyone of you for joining us in our conference call. In the financial KPIs, I would like to start by highlighting once again the cash generation of BRL 1.4 billion, up 83% over the same quarter in 2021. In this comparison, we are excluding the effects of the pre supplement of CRC then by the state government in the third quarter of 2021. Year-to-date, in the 9 months of '22, we have already totaled BRL 4.4 billion of operating cash generation. This represents an increase of more than 90% in relation to the same period of 21 in one of the main components. And one of the main components of this increases the improvement in the national hydrological scenario with less need to purchase electricity. This has upcase other positive impacts, such as tariff adjustment, the growth of the great market of days as well as the reduction of the PMSO that we will see in detail later on. This we're ending the quarter with a consolidated cash balance of EUR 4.3 billion.

Year-to-date, adjusted EBITDA has also surpassed BRL 4 million, up 3.5%. Q3 '22 EBITDA was JPY 1 billion. In this case, in EBITDA comparability between Q3 '22 and '21 was negatively impacted mainly for 2 reasons. Deflation on transmission assets, we had deflation according to a PCA of 1.3%. In Q3 '21, inflation was 3%. That gives us a negative effect on our results. And I would also highlight the lack of Wege dispatch this year. This explains most of this reduction of almost 12% that you can see on the slide, which was partially offset by many other positive impacts, as we have highlighted before.

And just one detail this difference in deflation on transmission assets only happens according to IFRS standards, which updates assets for the fair value monthly. If we consider regulatory balances to exist because the effect of inflation in the case of PCA occurs annually with tariff adjustments or reviews every 5 years. So in the release, we included a conciliation between balance sheet under IFRS and regulatory balance sheet where the former is lower in BRL 176 million in the quarter, but greater than BRL 380 million year-to-date. As regards to the adjusted net income of BRL 403 million.

Well, there was an impact of the reduction in EBITDA, as I mentioned, and there is also the effect of the increase in the cost of debt, which we have been following for a few quarters due to inflation. Also the rise of interest rates and also the reduction in financial revenue due to the prepayment of the CRC by the state of Aparna. Despite the increase in net debt with the recent acquisitions, this cost should reduce with the expectation of the downward trend in inflation and interest. But still, we don't have a lot of visibility as to when this will occur. Besides the cost of debt, we are also recognizing an additional depreciation charge of BRL 16 million per quarter mainly due to the effects of the GSF renegotiation, which has already started to be amortized according to the remaining concession term of the benefited plants.

Lastly, there are no relevant nonrecurring items recorded this quarter. Just some minor adjustments that did not exceed BRL 25 million. But in the third quarter of '21, it was an impact of more than BRL 1.5 billion on the EBITDA. And this was excluded from this comparison base. Moving forward here, we have a bridge with the contribution of each business, Q3 '21 versus '22 were the main positive and negative impacts. And it is usually clear the impact of deflation on transmission assets at jet, which I commented earlier, more than BRL 350 million in the comparison between the quarters, both on Jets assets and its investee jointly controlled. We have the impact in the improvement of the hydrological scenario, where the GSF average was about 75% compared to 51% in Q3 '21.

That led to BRL 280 million positive effect on the result. Additional contribution from new businesses that state being included. They are part of the result. additional BRL 40 million and the reduction in the PMS at both Jet and is. Another relevant impact was the lack of discussion from Ag BRL 167 million quarter-on-quarter. If we get these 2 factors, the impact of deflation and the lack of dispatching from Vega, that adds up to more than BRL 500 million on a comparable basis. Despite this reduction despite the impact on jets for these 2 factors, if we consider year-to-date results, EBITDA already exceeds JPY 2.6 billion. up 14% compared to 9 months '21. And this is the result of our strategy of efficient management in the commercialization of electricity, cost reduction plan, conclusion of works. The results are starting to be seen. And all of this will be incremented with the recent acquisition of Ventura and Santa Rosa, Aventura Jadeon do novo wind complexes.

In this, this robust growth, more than EUR 500 million BRL 530 million in the quarter, a 13% increase historical milestone. And year-to-date, this has already passed 1.2 billion mark, with regulatory efficiency of 11%, a consequence of the increase. There is also 4.9% in the tariffs for the use of the distribution systems and growth in the grid market build and valid in addition to reduction in personnel and administrative costs. We are very confident in the continued improvement of these results based on all the measures we're executing, both as part of the cost reduction agenda and prudent investments with positive impacts on results. To conclude this part is the comment on Copel Mercado Livre. That continues to be among the largest traders in Brazil with relevant strategic importance in the commercialization of electricity of Copel Group with a strong potential for sustainable growth with the capturing of opportunities with greater opening in the free market.

In terms of results, EBITDA of EUR 6 million was slightly lower than last year, basically explained by the reduction in the margins of energy purchase and sale given a more challenging year for the segment. Moving forward, in PMSO, we see a reduction of 4.1% compared to last year. Personnel reduction was significant 3% compared to the same quarter last year, 512 employees, last in the last 12 months, mainly through incentivized dismissal programs. This reduction more than offset the increase in salary of almost 11% in October last year, due to increase in the INPC Net index National Consumer Price Index. And we had some increases, especially in this, but we are maintaining adequate levels considering the relevant inflation in the period.

On the other hand, we registered a decrease of 38% in the line provisions and reversals, basically due to the reduction of BRL 12.7 million in provisions for litigation, mainly labor. And there was a growth of BRL 66 million in the line other operating costs and expenses as a result of the higher financial compensation for the use of water resources due to the higher spectohydroelectric power plants. Speaking about investments, moving a little forward. We continue to rigorously comply with the plan, both physical and financial including bringing forward some projects as was the case of Jandaira Wind hub. We have already invested more than BRL 1.7 billion up to September, and we are focused on prudent investments in the distribution company, which alone has already invested about JPY 1.3 billion out of a total planned investment of EUR 1.6 billion for 2022, mainly in the transformation program that includes Parana, Trifatico and the smart grid.

Just as a reminder, the acquisition of Aventura Santa Rosa Mundo Novo hubs will be dispersed only at the closing of the operation that is expected for next year. So there is no impact on investments planned for 2022. Moving forward here, we see the performance of leverage without the impact of these and Copel's for comparability reasons. We're talking about 1.9x. In cases of including this provision, leverage would still be in the range of 2.3x. We will continue to focus on improving the more prevalance capital structure with the levers of the dividend policy and investment policy, and we are advancing well in this journey.

As you can see, we do not have any foreign exchange exposure in our debt and the Main indexes or DI and IPCA with the expectation of reduced inflation and interest rates, we will have lower nominal costs. in terms of maturities, turned reflex here, values are quite reduced for 2023 and 2024, concentrating more towards 2025, but totally within our capacity of cash generation. Finally, as Daniel has already announced on at the beginning of the call. On the next slide, on November 21, the shareholders' meeting will deliberate on the proposal of paying EUR 970 million of interest and capital. This proposal takes into account Copel's a cash position, maximization of tax benefits arising from this type of income in 2022.

On November 22, soon after deliberation of the shareholders meeting, we are proposing payment of BRL 600 million on November 30 of this year, and the remaining balance, BRL 370 million by June 2023 on a date to be defined in next year's general shareholders' meeting when we approve the income statement for 2022. So thank you very much for joining us. And I want to reinforce our invitation to Copel on November 26, Hope to see you all there, and now we can start the Q&A session.

(Operator Instructions) Our first question comes from [Carolina Carneiro.]

I have 2 questions. About first GRA, the concession was defined for possible extension with privatization. Since this should be a sale model, you will still have a stake. And what would be the step-by-step processes to enable the sale? Second question about Araucaria. Can you help understand could you help us understand what the analysis for possible divestment will be like?

Thank you for the questions. Speaking about for GRA the ministry published the ordinance with JPY 1.83 billion. Both for the price of energy and WACC, they haven't really communicated that. We expect to have access to the data with the foundation for this study. But in our calculations, we understand that the value is very much adequate to the size and the capacity for revenue generation and result that the asset has. So this is a value that in our calculations seemed reasonable and adequate. We have both financial advisers and legal advisers standing by. In the next few weeks, our Department of new businesses is working with our internal team and advisers to put the process out in the market so that we can do this in Q4 of next year in the ordinance itself.

The deadline is December 10, 2023 first half a dedication and the renewal of the concession sale of control with renewal. And then we have 15 to 20 days to pay the grant bonus in Copel day, we will be giving more detail, more color on this process. But overall, this is what we expect. We have seen large expected companies from Brazil and multinationals already gain some interest. And we believe that well, given the quality of the asset, we believe that we're going to have good competition among our partners in the Posera plant.

Regarding Araucaria, the Board of Directors on November 4 approved an in-depth study for divestment of Auracaria in a context of net 0 carbon net 0 in our carbon net zero plant that we have by 2030. So this was a significant step, a relevant step. Aurocaria is an asset with a load center with a lot of megawatts. It recently went through a major overhaul complete retrofit. So the asset, just like (inaudible) is ready, is at the top of its mark, and I believe that it could be interesting for somebody who has a strategy to grow in gas stores. It could be a very interesting asset for potential buyers. We expect that in the coming months, the study is expected to evolve so that we can take this take a complete analysis to our governance. committees, but this is moving forward. And the trend is that we will sell 100% of Copel's shares in this asset so that we can continue our growth in a 100% renewable matrix with hydro, solar and wind matrix .

our next question comes from [Philippe Mello.]

Given that Copel has earnings retention of more than EUR 7 billion, is it possible to pay more dividends still in 2022?.

Philippe, indeed, Copel has a reserve of retained profit that is quite significant, but this doesn't mean that we are going to have extraordinary dividend paid out. On the contrary, we will continue to follow our dividend payout policy. As I mentioned during the presentation, we have interest and capital part of the dividends will be paid still this year. The remaining balance will be paid next year. And possible adjustments will be made according to the 2022 balance sheet at year-end, that will be presented and approved in the shareholders meeting in April. So we will continue with our dividend payout of the current policy.

our next question by Marcelo.

Could you please comment whether the studies that were requested by the state of Parana of operation in the capital markets will also consider privatization scenarios. What is the expectation regarding the timing to complete the study? And what is the timing regarding the positioning of the state of Parana regarding future strategies?

Hello Marcelo as mentioned in the beginning, we still don't have all the information in terms of how the study will evolve, And what is what the deadline is, if there is a deadline for completion. What we know is what we said, what was communicated to the market. And it's very clear that the government intends to study options that can optimize their share, but also preserving a relevant shareholding in the operation. This is what's very clear Parana analyze the study will analyze all options, including (inaudible) not doing anything, and this will be taken to the government bodies and submitted to the majority of shareholders' approval. And it is what we said here, we will be contributing as soon as we are invited and requested following our governance protocols so that the study we can bring a model or a path. And the controlling shareholder will take into account the interest of the company, employees, shareholders and of course, the customers served.

Next question by [Daniel Meda.]

I would like to understand a little better the company's expectation for market opening considering the disco, what will be the remuneration of the company's asset and what role will it start having in low voltage.

How do we see this? I'm going to make a quick introduction in the MAX will add because you and your team are following this up close. Well, first, the market opening process is inexorable, and we see this as good opportunities for growth with market opening. and the potential approval of F414 that will set forth the conditions. In our Copel day, Daniel, we will elaborate on the synergies that we might have from Copel Group and Copel distribute some with 5 million of consumers and ended with this ability to build, operate ascertain them with the trader. But specifically, regarding the matricial mix and the business model, how it will be mix perhaps you could elaborate for Daniel and for everyone joining us on this call.

Daniel, this is an interesting question. We're favorable to improving the rules of the sector. Market opening is beneficial for everyone. Of course, it does have to come with some important rules. The first is about overcontracting. But we believe that the model being evaluated and discussed will bring solutions. So that we can coexist with this. And I believe that PEL-414 will bring us many options and many opportunities of gains for the discos. And we see with optimism the possibilities that will open up to us looking forward. And I think that to conclude as we say here as we always say here, there will always be a wire connecting to households to the industries and to companies. So distribution, operation, easement, stores and greater operation. It will all of this will always be an attractive business with a model. They will create a lot of benefits, not only for Copel, but for the energy sector as a whole.

Our next question comes from [Jo from Baker Investor.]

I would like to know if the company is thinking about paying quarterly dividends to shareholders ?

Again, in our dividend policy, we have at least 2 payments annually normally on the base of the first half and the second, with close and approval of financial statements that happened in April, normally in payment until June. And it is that we will maintain these 2 dividend payout events, one normally in November, the other one around June of the following year. This is our intent. And I'd like to remind you that this is always the base of the first half of the year based on the levers and the financial definitions, including financial leverage and availability of cash flow, and we always privilege investments.

(Operator Instructions)

Well, as there are no more questions, once again, I would like to thank all of you, ladies and gentlemen, everyone who is with us on this call. I'd like to congratulate all the officers with me and all couple of employees who worked hard for solid, sound results. As we said in the last 40 minutes, this has been a very intense quarter. And all this vision of the future opportunities, growth avenues, the discussions that are permeating the whole of Copel. All of this will be detailed in will be explored in more details in Copel day. So again, I invite you if you can, if you're interested, please enroll to join us online in our Copel Day Investor Day. The whole the Chairman of the Board, the whole management will be joining so that we can explore growth avenues so that we can continue to strengthen our company, Copel.

Thank you very much, and have a great day. Copel's videoconferences ended. We would like to thank all of you for participating, and have a good day.

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