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

Good morning, everyone. Be very welcome to the first results meeting of the Parana Company Sanepar. We inform you that this video conference is being recorded and will be available in the company's website. [Operator Instructions] If your question is not responded throughout the meeting, please send it to our e-mail [ @sanepar.com.br ]. The [Indiscernible] that will be made in regards to business and the strategies of Sanepar, they are the beliefs and expectations of Sanepar in regards to its future. And they depend substantially in changes in the market conditions, governmental operations and other factors besides the risks that will be presented in the documents. So we can start. Let's test the [indiscernible].

Good morning, everyone. Thank you very much. Thank you for your participation in this media conference. Alongside me is Lucia, our Investment Director; and also our regulation management, Jean Carlos Tulio; [indiscernible] also our Manager of Investment Management. Ricardo is here as well. So let's start our presentation. So let's go through the results of the first quarter of 2023. [Indiscernible] highlights of this first trimester, we can see that the revenue went up 3.5% in relation to the first trimester of '22. Our EBITDA went up 11%, and our revenue went up for 9.5%. 151,000 new sewer connections are a level of service with the water is 100%. The sewage reached almost 80%, with 100% of treatment. The EBITDA margin in the period of 45.7%. Our investment volume just hit BRL 352 million in 2022 and in '23, BRL 400 million. Turning the next page, in the operational topics. We have [indiscernible] water that is almost 10% higher than the last year and an addition of economy of almost 20%. In relationship to sewage, the volume went up almost 6% in the same level in the last year. We see 22,000 new economies. Our default went to 5.7%. We have some credit recuperation, again, 7% in the first trimester of 2022. So the defaultation is a result of the credit plan that the company engaged in. We have 2025 -- we have 225 liters that we lost per connection per day in the first trimester of '22. [Indiscernible] relationship the [Indiscernible] of water in our dams, we are constantly having a volume of 100% in the four dams that constitute the [indiscernible] system here in Curitiba. The metropolitan area. So we have all these percentages in 100%. In relation, here are the some performance indexes. So in the first trimester of 2023, we have right here, in relation to the debentures of the 8, 9, and 10 and 11 additions in the market -- and 12 addition issue, and adjusted EBITDA is 3 and EBITDA that is adjusted by the financial debt it's also 1.5%. And financials [Indiscernible] of BNDES, we have the bank debt that is almost 3% and 3.03% and also other debt and EBITDA is to 0.45%. CAIXA contracts also hitting this corner. They are a bit above. And we have other kinds of debts that are adjusted by the EBITDA that is [Indiscernible]. In the next screen, we can see the EBITDA with the German bank. EBITDA is the level of debt that we have. In the first trimester, we hit 43.9% with the margin. We went above 7%. The ROIC annual is 10.7,% and the other one is almost [Indiscernible]. Here is the financial development. Our revenue, as we said, it went up 3.4%, BRL 1,454,000. Our EBITDA went up 11.4%, with 45.7% of margin. Our net profit went up 9.5%, with an impact of EBITDA that is reduced 2.6%, hitting the period BRL 790 million. In relation to the revenue generation, the cash generation we have a variation of 0.9% [indiscernible], [indiscernible] of 72.5%. Here we [Indiscernible] having an immediate impact in results of the company, but in conjunction of the installment plan, that's why we don't have an index that is a bit higher than 72%. The net debt is BRL 3.8 million. We had in the end of 31 of March, BRL 1,300,000 [indiscernible], with a debt that is where they are [Indiscernible]. The average cost -- it's right here on the third graph that is impacted by the taxes in July especially in those that [indiscernible]. Some indexes with inflation. I'm -- going up are getting better. The OpEx we have remade that realized during the period, we have a variation of 14% in relation to the same period last year, [Indiscernible] in regards to water and [Indiscernible] investments, 57% in regards to [ issue ]. So let's [Indiscernible] the main items that compose the result. Our net revenue, as we said, it went 3.4%. Here is a product of the taxes adjustments of 2022. At mid-'23, we [indiscernible] should be applied in the next day, that is 19th, the month of May. As we said [indiscernible], the increase of the levels of water and sewage and also we had more connections on these [Indiscernible]. In relation to the personnel, we have an increase of 12%, with a reflex of the wage [Indiscernible] 2023. Also from -- in conjunction of the ease of taxes from 2022 and 2021. Some questions also of some additional actions that were taking some lawsuits that were the main impacts in these personnel accounts. Inflation materials, an increase of 25%. Here is the main items that hit [Indiscernible] accounted was the laboratory that has an increase of 25%. The material Q3 was the -- the [Indiscernible] materials was the main item in this phase. Also the maintains material. In relationship, the electrical grid it had a decrease in relation to last year. This is a positive factor. All this benefit substantial [indiscernible] our accounting relationship, the adjustments that we had last year. And we also had a decrease of 3% in the subsidy for the U.S. sector. We had a pretty good growth. We had other items that represented a growth [indiscernible] that are linked to the main power to the vigilance in monitoring systems maintenance, those are the items that had growth that are bigger than 3.1%. [indiscernible] going up 43%. Provisions [indiscernible] health plans in the [indiscernible] went up more than 3%. Provisions also had a very important growth in this period here, especially the labor provisions because of retirement reintegration action. The people have retired before 2010, that's why we had the necessity of realizing this provisions. And also we had extra hours of work and those actions that are related to stage, that is the syndicate of engineers. On the other hand, we [indiscernible] provision that [Indiscernible] will be a value of BRL 40 million reduction of approximately [indiscernible] that are [indiscernible] labor lawsuits that were not [indiscernible]. The expenses and provisions for [indiscernible], we had an increase of [ 40% ]. Financial expenses, also we had an increase of 27%. As we said, the financial questions are really weighing down on the results. And other costs and expenses with a reduction of [ 61% ] here is impacted by the revision of the losses for the credits because of the plan of recovery credit that is being deployed by the company is still ongoing. And that contributed for the reduction of the cost and expenses. As we saw, the net result is 9.1 -- 9.5% better than last year. The margin is 1.2%, and the EBITDA is 11% better. Here is the adjustments of EBITDA in the non-manageable items. Here, we will do an observation that we are talking about the first trimester, but with the approval of the second phase, we will have then a substantial change in the manageable accounts versus non-manageable. But looking here at 31st of March, we have non-manageable items, we got a deflationary factor. And we are, let's say, equalized with what we have in debt and energy and with what we have of tax coverage. We have in credit BRL 19 million and taxes, BRL 12 million. And our margin of EBITDA, when we adjust all these items, would be 45.5%. So [indiscernible] on these measure, right, that was utilizing the first revision -- tax revision looking to [indiscernible] items that are manageable versus non-manageable. Here, I'll talk a bit about the [indiscernible] balance. Here, we got the increasing debt of [ 2% ]. So we have financial -- we had financing debentures. We still have financial applications going up 3.1%, leading BRL 1.2 million. Here, the main highlight is the accounts that, once you have the net value, they want [indiscernible] liquidity, bringing that into balance. But our cash balance that -- as for users keeping, we will have this recovery of credit. Not that much of assets. Here, we can say that the main account is contract assets, and we [indiscernible] billions and [ BRL 900 million ]. We have a working capital of 95 days. Cash inflow is very constant, bringing cash bank of BRL 491 million, consuming 14.4% in this financial -- is mainly through payments and financing BRL 132 million of capital [Indiscernible] in the last period. That being said, we had an increase of cash flow of BRL 4 million. And we went from [ BRL 1.212 billion ]. So that was the presentation of the first quarter. We will be awaiting the Q&A to keep going the video conference.

[Operator Instructions] So here is the question. [indiscernible] Congratulations for your [indiscernible]. In this line of growth is very significant for this period. I'd like to ask if we have any evolution in regards to [indiscernible]? A possible contract with Miringuava? And if we have some sort of update after the joining credit of BRL 4.5 billion. Those were the questions of [Indiscernible].

[ Leandro ], thank you for your questions. All right. In relation to Miringuava, we won't be talking about it at the moment. In relation to the union lawsuit of BRL 4.5 billion, in which it is controversy the company registered as a [Indiscernible] asset, but we, didn't have a resolution or the description of the debt as a union regulatory. So the company is still diligent with their lawyers so that we can be successful in these action and keep monitoring it. But we are not [Indiscernible]. In relation to the PPP, let's go to [indiscernible].

In regards to PPP, do we have the [Indiscernible] process? So we had too many processing [indiscernible]. We try to do an degredation of this process [indiscernible] for all the interested parties. This morning [indiscernible] that's when we end the presentation [Indiscernible].

Next question [indiscernible]. Related to the filtration levels of the company, could you give more details for the contracts that are ending in the short to medium term?

Thank you, [ Paulo ], for your question. So we have -- at the end of March 31, we have 22 expired contracts that represent 5% of the revenue -- total revenue from the company. We also have, in 2023, 15 contracts with expiration date that ends in 2023. And they represent more -- 0.62% of our total net revenue. In that case, 4.60% of EBITDA. But the main expiration in relationship to [indiscernible] and the ones that we will expire this year and that the most relevant contracts that we will expire in the last 3 years, we have [indiscernible], that represent [indiscernible], for example, represents 3.8%. It will expire in '26. We have [indiscernible] that represents 3.6% as well. And we have [indiscernible] that represents 1.6% plus 2.4 years. So these are the main expiration dates. And of course, the company is aware of these expired contracts and the contract will expire and were aware and we are looking at it, and we will try to [indiscernible].

Okay. Moving forward. [ Carlos Suarez Rodriguez]. Could you comment on the factors that explain the decrease in revenue of sewage in the period?

Carlos, thank you for the question. Well, during the period, we have an increase in revenue rate. We have an increase of [ 2.9%, 2.8% ] of these profit to have a relationship with last year. And last year after the -- in the crisis, we have [indiscernible]. And this we have a growth of [ 0.3% ], keeping us in the level knowing [indiscernible] last year and we -- more 5.9% in the first trimester of '23.

[indiscernible]. In relation to the tax rep we saw the readjustments were a bit below what were expected. But the changes from water sewage could be justified. Is that adjustment valid to new contracts or for every contract?

Thank you [indiscernible] for your question. We had the end of the second phase of the periodic tax revision of the company, the index of the repositioning of tax went to 22%. We had some positive effects and some -- it's not that positive effects. We can say that we have the base. The base is very aligned in what we have demanded and what we've done in our audit. Of course, this report is being fiscalize by the regulatory agencies, but we also had the OpEx question that is very rigorous. In relation to some items, I can talk about the private presidencies [indiscernible], it shouldn't be considered as something, let's say, reimbursable in taxes. We also had the utilization of the initialized values of 2021 and '22, and that is possible for the cycle. The agency understood that those were points that they [indiscernible] looked at. But the fact is that, that generated some results that the company had reached in '21 and '22 in favor of tax reduction. And on the other hand, the tax structure of the company where you take [indiscernible] water and [indiscernible] sewage, 100% to water, 100% to sewage. It's something that if when it's implemented, it will demand some studies from us and from the agency as well. As in the tax structure question, we don't have intentions to increase or decrease the taxes. So we will keep some level of resources that the company needs. So this is [indiscernible]. We won't have impact to increase or decrease the adjustment levels for our company not bringing, let's say, a positive or negative result. It will be a neutral result.

The next question is from [indiscernible], Investor. [indiscernible] more about this ESG, [indiscernible]. My question [indiscernible] the quality of the launches, and it brings [indiscernible] purpose for the oceans. And then our company was first -- was one of the first to introduce certification of emission the ventures. I'd like to remind you that, that last year, the company did [indiscernible] that shows that we are very aligned in this question of ESG. Also in the financial question, looking to what the market has -- let's say, what the market has -- the best of the market has to offer in governance. And that's because of the nature of our operations. We work with water. We treat water for the population. We [indiscernible]. We [indiscernible] water in [indiscernible]. So that the nature of our document is very linked to ESG. I like [indiscernible] things up because he certainly knows a lot more than me.

Thank you. Good morning, everyone. As you know, [indiscernible] has done a very strong working in relation to the ESG question. Last year, we were little uneasy. It was -- we were recognized for that, and we are very proud for that work, not only in the [indiscernible] questions, but also all questions related to ESG, be then governance-related, gender-related and other aspects that bring the company to be a reference in the ESG sector. Recently, the company approved its mid-term plan to mitigate climate change, and that is being incorporated in our work, in our operation. So we do understand that in the ESG sector, we expect that in not too much time we will be referencing the market in OpEx or ESG, especially the gender question.

Okay. Let's [indiscernible] in the next question is from [indiscernible]. Congratulations for your management of the company results. I'd like to know the opinion of management. What are the threats and benefits of the new law about sewage in Brazil? [ Marcos ], thank you very much for your question. I'll let [indiscernible] to help me, but we see the increase on the side of the [indiscernible]. That is very important for a company that without having contracts, we have a series of difficulties, especially when we talk about financing and resource capitation, and the organizing or financial institution. They should bring investment [indiscernible] need to present a contract there value drives. So those contracts that are expired as part of the contracts that have a short-term expiration date, bring problems of revenue capitation and the restriction of the investments that the company can do those channels and that goes against the decree, new sewer swap that we need to hit 99% of coverage in 2023. So we've been monitoring the decrease. We have [indiscernible] that is attracted to help us. We have lots of people evaluating these decrees, but effective that we need to have not only the [indiscernible], but also the sector needs to have clear definition so that the [indiscernible] allow investments in those towns that are in these situations all across Brazil. Given the [indiscernible] on the company and to utilize these investments, we'll be able to recover the investments in those, I think is the main [indiscernible] that we have in relation to the new law. It is still in a very discussed level of this law. You know everyone is talking about it, but I think that overall, it's about that.

Thank you very much. Let's keep going. Another question from [indiscernible]. He's an investor, and he says, now talking about leverage and I know that we are in sight [indiscernible] for the company. I'd like to know if the company has some expectations about what we will be [indiscernible] in the next years if we have [indiscernible] to the increased investment? So we reached 90% of the [indiscernible] sewage law?

[indiscernible] this question of yours is very, very good. This is a very relevant point. We increased our view of investment. Historically. we are doing more or less investment [indiscernible]. Of course, the leverage index is something that we need [indiscernible] because of restrictions in the financing distribution. All of our contracts have a restriction in regards to leveraging. This restriction goes up to 3, and the company is at [ 1.7 ] the leveraging level. Of course, the company is always aware when we do our business [indiscernible] and our investment plan. So that we take care of this index, and we are always thinking about [indiscernible] that we need to go through. And of course, as you said, we have lots of investments to do. We need to reach this 90%, but we are very conservative in regards to these numbers. We always have a constant analysis with the Board and different people. And of course, we strive to keep this level. Maybe a bit more of leveraging, given that the compromises and the commitment of the company for the universalization of their service are very relevant. Of course, we have other companies that have been leveraging in superior levels, and they have their challenges to keep themselves inside some [indiscernible], but that was my main point.

[indiscernible]

No, I think that's it. So as I said, our investment plan in very old. We are looking for the universalization. Even before the new law, the company was working tirelessly so that we would reach 1 to 2 points -- percentage of points of growth per year. Of course, that's a big challenge looking for alternatives like PPP, [indiscernible] to the end of [indiscernible] price [indiscernible] in the universalization in [indiscernible].

Next question is [indiscernible]. Could you please talk about the migration for the [indiscernible] market that you announced some days ago? [indiscernible] a study that shows a margin increase because of these adjustments?