Companhia de Saneamento do Paraná - SANEPAR (SAPR4) Earnings Call Transcript & Summary

[Operator Instructions] We highlight that the information contained in this presentation and possible [indiscernible] statements that are going to be made during the video conference related to the perspective of business, financial and operational projections and targets from Sanepar are part of beliefs and expectations from the company Executive Boards in regards to its future. Future considerations are not a guarantee of performance as they depend substantially of changes in the market conditions, governmental regulations, performance of the sector of the Brazilian economy, to mention a few factors. In addition to the risk presented in the documentation of disclosures, so therefore, subjected to changes without prior notice. To start, we'll give the floor to our Financial Director and relation with investors, Abel Demetrio.

Thank you, Rodrigo. Good morning, everybody and the participants of this video conference. I have here our Investment Director. This is our RI management, [ Fabiana Hines ] with her team; our accounting teams, [ Osiris ]. This presentation is about the results in the first quarter of 2022, where we have in the following page, the disclaimer being the growth of our income in 14.7% in the period of 2021 when compared and the growth of -- was 18.4% or everything compared to 2021, the first same period. And about the water connections, we had 18,400 new connections. We had an increase of -- the investments in the period were reaching BRL 352 million in -- compared to 2021 the first same period. We had in February of 2022, the liquidation of the 12th Debentures of the company issuing BRL 600 million divided in BRl 300 million in institutional and BRL 300 million in a series that was incentivated with the 2000 the -- next, our President, Mr. Claudio Stabile, that is part of this video conference.

Good morning, everybody. We reached it in the first quarter of 2020 to 67 -- 77.5% of sewers with sewers collected 100% treated and water -- for some times, we have had 100% service and our margin was 46.2% in regards -- in comparison to the first quarter 2021. As operational results, we had then a recovery of the volumes that invoice for water and sewers. It's important that in the quarter is [indiscernible] in the metropolitan region over a part. What made the volume invoice of the company reached 5.1%, an increase. Also, we had the invoice volume for sewer and the increase of 17,000 economies and [indiscernible] 200 net new sewers connection. Delinquency was above 7.4% in regards to the same period in 2021. But the good news is that in January, February, it went to 9%. And in March, there was a reversion. So delinquencies went over -- went down. So expectation is that the decrease. The losses rate per connection reached the first quarter with 2021, there was 1.4% registered in the first quarter of 2021. We see that increase as normal in the first quarter of 2021. We didn't have the turnover, we exit to the losses as there less. Carrying on now here the volume of our dams was 87%. Yesterday, our dams were at a level of 89%. Most of them with 100% of their capability and 60% was compared to '21. So the rainfall of this year brought a good recovery. And once we had a range in the average in the state of Parana. In the following slide, we're going to talk about -- a little bit about performance indicators. Here, we have the main indicators hired with financial institutions, if they are the issues of private and debentures and 11th and 12th issues the covenants with BNDS, through debentures and private institutions, the 7th issues, the contracts with [indiscernible]. They have clauses that are restrictive covenant clauses. In the following page, basically, we have the contract, which is contained all the others' obligations, the financial obligations. So we reached with 3.4 [indiscernible]. Our bank debt -- net debt bank was 1.1, a little bit less leverage then it compares quarter 2021. Other steps was 0.50. Other onerous steps, we are talking about health care plans and particularly either electrical energy. And this divided, it cannot be higher than 1 brought by BNDS, which is part of the contract. Part of the debt level is around 50%. And 48.1% of some of the indicators. We talked about, it is 42.3%. If compared to the first quarter of 2021, it's the 12.8% compared to 11.5% in the first quarter of 2021. In the following screen now continuing about performance. We had 14.7% of net revenue, so reaching BRL 1.4 million. We reached BRL 596 million. We had a 14% variation, BRL 290 million on net profit and net margin of a variation of 18.4% and operating costs and expenses, we had, of course, here, the increase of the cost and inflation and services. We had a higher volume that was also in the same line. In the next screen, we see our cash generation with a conversion of EBITDA in 81.2%. This cash generation it's got a 41.3% variation if compared to the same period in 2021. Our net debt and leverage on the right, we had a BRL 388 million short term and a total of BRL 3.1 billion weighting average cost of -- we have a net debt of BRL 3,146 million and net debt at the end of the year with a leverage very close to 1.4 now or 1.3 if compared. Weighted average and cost of debt with some increase given the variations of interests and inflationary questions also had an impact the cost of our debt, which reached 11.6%. Our CapEx, as we have our Investor Director here, is 36.2% compared to last year, reaching BRL 353 million. In the breakdown here, we have 45%, 51% and 4%. Now the demonstration of results, income statements for the first quarter. We had the revenue, the growth. The personnel grew -- increased on 9.6%. We had an increase in adjustment, salary adjustment on some categories. They signed a collective agreement in March, impacting in this question. Material, an increase of 20.1%. The variation is something that, in addition to the inflation many times, these are imported products that increase against BRL 53,542 million last year compared. Electricity, as we have gone through it already, we had up to March -- we have made our number increase in 39.5% in regards to the same period of last year, with the cost reaching BRL 175,000. In this calculation third-party services, we had 12.4% with inflation, an increase of production. With general and taxes, we had 10.2% provisions. We had a reduction of 76%. In the first quarter of 2021, we had -- so it ended up affecting provisions for health care, at the moment, 37% Financial expenses, we haven't had any impact. On other costs and expenses, we had an increase of 44%. Here, a reduction of fixed assets also given delinquency and some provisions for -- especially for private customers over 180 days. Now going to the next slide. We have then which EBITDA was BRL 595 million adjusted. On fees and charges we had of BRL 648 million. Going to real which is at 42.3%. In this next screen, we see the data from the balance sheet. Our net debt basically is stable. Obviously, we had increased as we said, but also loans and debentures grew on the other side. So basically, it's stable. Working -- operating working capital, we had, say, 6.8%. The main item in this calculation is that reached here BRL 1.078 million. It's the most representative in working capital. Other assets and liabilities from this calculation is contracts, given also the question of CapEx that we are adjusting. And this is our net equity is 3.7%, and working capital is stable in regards to the end of the 2021. In regards to our cash flow, our cash flow is in operating activities of 484,000 activities of investments and financing activities versus payments and other variations. We had -- at the end, we got -- we had an increase of going from BRL 600 million to BRL 1.5 billion at the end of March, which is BRL 600 million gap. These are the data from 2022. Now we're going to move, Rodrigo, to -- we're going to be available here.

[Operator Instructions] The first question is from Ricardo, an investor. How -- as he requested, no audio, I will read the question. And he says, "Has Sanepar assess the proposal of freezing the fees in 2022 that are in Congress right now? Is this process institutional? And if it's approved, does the company tends to get an appeal in the Supreme Court?

Could you repeat the question? I had -- my screen was frozen here with the audio.

No problem. How does Sanepar assess the freezing of fees in 2022 that is [indiscernible] in the Congress? Is this project institutional? If approved, will the company appeal in the Supreme Court? That's Ricardo's question.

Sorry, Ricardo. We are waiting here because it was muted. It was frozen, the image was frozen. But yes, the company expects that something in this sense is approved. If there is a legal approval, possibly as we are talking here [Technical Difficulty]

Good morning, everybody. Just a few seconds. So the connection can be restored. We went through a connection issue, but it's been solved. So the connections are being restored right now. I think we're getting back now with the connection. Hello, everybody. So we're resuming. Can we continue.

Yes, yes. Yes. Rodrigo, we can continue.

Okay. So the first question, Okay. Ricardo says the following. "How does Sanepar assess the proposal of freezing fees in 2022 that is going through in Congress? Is this project in constitutional? If approved, does the company intend to appeal at the Supreme Court?"

Well, Ricardo, in this case, we hope them to manifest. And then we have a decision legislative, the concrete decision how to manifest in this case.

Okay. The next question is from Christiano. He's an investor. Christiano, we are going to enable your audio, so you can make your questions. So I'm going to read it, his question and he says, "Sanepar has interest in getting auctions for [indiscernible] Brazil. So only going to focus in Parana."

First, again, good morning, everybody. Sanepar, of course, has a commitment with its contracts with the state, and we will meet not only by the force but also because of the contracts are effective. Of course, we are analyzing the market as a whole. But firstly, it's the forecast in our investment plan. Our focus at this moment is our contracts that are effective, and we have obligations to meet. But we are paying attention, bring close attention to the market as a whole.

Okay. The next question is about the investor, [ Marcus ]. We're going to enable your audio, so you can make your question live. [Technical Difficulty] I think we're having another connection issue. Please a few seconds, so we get this sort out. [Foreign Language]

[Foreign Language]

What measures are being taken by the company for 2023 that are meant 20% of the company's income? Is there the possibility of this being renewed? That was Victor's question.

Rodrigo -- Victor, thank you for your question. And 20.4%. These are the contracts due expiring in 2022, 2023, including the values that are coming from contracts for the next years, for the following years, don't have the weight -- a significant weight in regards to our revenue. In regards to the question of information.

It was clarified by Abel and what percentage would that be up to 2033. That's a number up to 2033. Of course, within the current scenario, this, by the rule we have to have the bidding. But we have a situation of regionalization of 3 micro regions where there is a small mitigation of the conceding powers in regards to the [indiscernible]. So there -- it's not -- it wouldn't be so -- let's say, so simple for us to get out of the providing the service as this providing services is really complex, and there is a question if it is like that indemnization, the previous indemnization. So there's a set of actions that if nothing happens, there is an expectation of some changes. We are dealing with the federal government over the systems. We haven't stopped our conversations with them. So we have surely some solutions for each case or even for each contract, but for a question of strategy to be defined and exposed, we prefer to wait a little more.

Okay. Continuing, I'm going to read all the questions because of the instability in connection. The next question is from [indiscernible] It's an investor, and he says, "Good morning, congratulations for the results. My question is about the line of cost. The increase of the line of cost was 14%, but that are significant inputs like [indiscernible] that increased by 40%. On the counterpart, the fee increase was below 5%. How does a company -- what does the company intend to do that in short, mid and long term won't harm the capacity for instrument and profitability? How to deal with this regulatory risk?"