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

Sanepar Company 2023. If you need simultaneous translation, we have this, too, on the platform. You just click on the button 'Interpretation' and you can choose your preferred language, Portuguese or English. And for those listening to the video conference in English, there is an option to mute their original audio in Portuguese, by clicking unmute original audio. We inform you that this video conference is being recorded and will be made available on the company's IR website where the complete material of disclosure of results is available. You can also download the presentation from the chat icon also in English. [Operator Instructions]. If for some reason, your question is not answered during the event, please direct it to ri.sanepar.com.br. We emphasize that information contained in this presentation and statements that may be made during the video conference regarding Sanepar business outlook, projections and operating financial growth are the beliefs and assumptions of the company's management as well as information currently available. Future considerations are not guarantees of performance. They involve risks, uncertainties and assumptions because they refer to future events, and therefore, depend on circumstance that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors may affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements. To begin, we hand the floor over to the Financial and Investor Relations Director, Abel Demetrio.

Good morning, everybody. Thank you for participating into the video conference. And on behalf of the company, I thank you all. And if the President is available to introduce himself and to open the floor. Please open your mic.

Good morning, everybody. Can you hear me?

Yes we can.

First of all, I would like to thank the presence of all of you online or in person. I'm here in the San Pedro District and we will talk about a very important thing regarding Sanepar in the country, but I'm sure everybody will be very happy with the results. And we have my manager -- and now my director and our managers and they will introduce to you everything that happened. A few months ago, we would only talk about those projects. And today, we see them happening. So I thank you again. I hope you have a great event, a big hug from me. See you soon.

Thank you, President for your participation. We are here with the Director of Investments, Leura Lucia Conte de Oliveira, with our Environment and Social Management, Social Costing, we have the Finance Manager and Ricardo Gonçalves in our RI team. So this is our presentation from the second quarter of 2023. That has been accumulated, and we see in the next page, as a highlight of this semester and we have an increase in the revenue of 13%. And a growth of 8.1%. The EBITDA margin grew in the second semester of 49.8%. And the second semester is 27.8% and the net profit of over 80% and the 6 months, 41%, which is comparable to the year of 2022. As far as the water distribution, we had all these numbers, we had a level of 100%, which has been universalized with 79.9% of collected sewage and treated. Our EBITDA margin was over 86.4% to 43.3% in the second quarter and in the accumulated with 64.4%. As far as the investments, we had both in the quarters and in the other in the second term, we invested BRL 477 million. And in the second one, BRL 880 million again, the BRL 763.7 million the same period of 2022. As far as the results in this period, we had a water average volume in the 6 months of BRL 245 million. We have 2 tough spots in an economy of all these [indiscernible]. And we had that increase of 2.8% in the total of connections with the total of economic units of 4,127,856. We have 1.4%, much better than the 4.9% in the same period of last year. Any loss we reached 221.8 loss of connections of liters per day in an increase of 2.5% related to last year. Remember, the last year is still in the effects of the hydric crisis that we had, so -- but it was still better than previous one. So here, as far as the reservoir level, we closed with 92.7% in our May reservoirs with the same data of reference of June with the volume of 90.9%. In this quarter, we had in May and June were month that had a lot of very hot days, and this has contributed to the issue of the volumes that we saw in the previous slide. As far as the performance indicators, we had -- as far as in the second quarter we have the payment of debentures and we have even the rapid issues as well as the BNDS ones and the contracts of finance with the Caixa Econômica Federal, the contract with KfW. Everything within the established limit -- established the contract. So now we have the visitor. We have 2.69 with the net bank debt, we have 1.78 which was a leverage a bit superior of 1.63 compared to the same period in 2022. Due to all the investors they had been other onerous debt and EBITDA, we have 0.41% and the level of debt is about 48.6% in the end of June. Yes, ratios, we have EBITDA of 44.4% with ROIC annualized 11.7% and the ROE of 15.3%. We're now going through financial development, we said the net revenue that reached BRL 2.990 billion. The EBITDA is 27.8%, reached BRL 1.327 billion in the last 6 months. The net profit grew 9.1%. We reached BRL 742 million with a margin of 24.8%. And once they had impact on the EBITDA, they had a reduction of 3.7% in period reaching 1.663 billion. And if you compared with the same period of last year that was more. So with the cash generation in EBITDA, we had an increase of 12.5% with a conversion of cash of 77.2%. Here, I would like to say that the company has the credit problem with the population. And of course, with the installment of this debt, so to speak, throughout many months. We have already hit the economic effect, but on the cash, we hope to have the recovery of these amounts in the 3, 4 years, which is the average period of the installments. So it's a bit slower than the amounts from 2022. So we have the net debt and leverage. We have BRL 3,874 million, in long term, we have a total of BRL 5.56 billion. So we have the equivalent of CapEx with net debt reach is about 8.8% of leverage that we've seen. So the average is with the end of '22, which was 11.5%. We end up with 11.1%. This is due obviously to the lack of the inflation numbers that gave us a positive outcome. And now we have the beginning of the interest rates that have been decreasing and we haven't accumulated also with the APCA. We have achieved 29 with an inflation of 0.2. So we hope a journey that is -- should be decreasing any of this. So the CapEx as we can see, we made a great effort and we've grown. Last year, we had compared to 2021, we had grown. And this year, we increased the growth compared to 2022 in 15.3% with BRL 880 million, which is very substantial. 38% in water, 56% in sewage -- sanitary sewage and 5% in others. According to the graph, we see that this relationship of water and sewage, we had 50% and sewage with 45%. And now in the end, we have all the investments and we've been able to invest more resources, sewage and we got to 56% and even with the universalization that legal mark established. So here, we have the income statement with the net revenue increasing in 6.7% with a very 13% compared to 2022 with a reduction of 4.6% in this trimester of costs and expenses. In the accumulated, we have a total of decreased with 2.2%. So now going through the May, once we have the personnel, we have an increase of 8.3%. This basically due to the IPC, which had recovery and some issues of -- we have here with a personnel made percentage increase on the cost. So the materials, we grew 17%, as far as materials, the main point is treatment materials, which is in charge of 68% of expenses and materials. The financial impact only of that was about BRL 2.6 million. And with the electric and mechanics with a growth of 3.4%, which was positive. But since we had an 8% impact in the cost of material. So there was a variation of 575 [indiscernible]. As far as electric energy power, we had a good management in the second semester. We had a good performance in the first one, and we had a reduction of 24.2% of costs compared to the same period in 2022. Remember that from June 24, Copel, which is the main source provider, she announced adjustment of 10.5% on the cost but this average of 10.5% established for high voltage and low voltage costs. For high voltage, the average was 38.1% and low voltage was 11.73%, we had about 70% of the Sanepar compared to Copel [indiscernible]. So we might bring us average of 24.2% from June. Remember that we have the end of the subside for the last subside that we had for sanitation department and now was definitely incorporated to exits. We have the third-party services growing in 11%. The main account, the impact of that was the network maintenance. We had some delays on maintenance that were done in this period. Therefore, we had an increase on that. We've also had the client servicing that we had. So we had a growth in the same period in the vigilance, the partners due to all the collective agreements and contracts and vigilance posts that were implemented in the company. We also increased and had an impact on costs all this time. The general and taxes, we had a reduction of 12.9%, especially because last year, we had the environmental taxes and without this kind of payments, so we were able to save on the parts. So the civil, work, environmental, fiscal and tax provisions, we had a very significant reduction with an expense that we have 120,000, which is above the 65,714 from last year. We had the -- especially the work was -- we have wages and unions, the issues that we had to do and also career plans that impacted that. We also had some new environmental issues and also the capitalization of some actions and updating of the values, which has impacted on this amount. On health care and social security provisions, we had a significant decrease of 4.3%. All there was expanded in the same period of last year. We have now BRL 112 million to BRL 118 million. So you see this is the fruit of an inflation that has been accumulated from the previous period from last year. So we also have other costs and expenses. We have the results of the recovery of credit campaign with our clients. We had a great recovery in this point, a reversion of about BRL 44 million at the time, it was a reversion on the provision of losses we caused this to have the possibility of reducing this account of 47.9%. So now going through the detrimental cost, we had our net result in the end of 2022, growing in 14.5%. So we see an increase of loans and other. So we reached the big amount, financial applications. We also have 4.6% smaller than from the end of 2022 which get our net result, an increase of 14%. So we had the EBITDA, so remember that everything that is renegotiable [indiscernible] decided to acquiring [indiscernible]. So -- and we were able to grow 9.1% in the period which make our working capital also to grow. And all the other items, we had the reduction of stocks in the offering cost of [indiscernible] wages and all the other were favorable to this broader, small working capital for the operations. Other assets and liabilities, we've grown in 58% and in another point, which is asset and contract has grown 5.3%, reaching BRL 2.891 billion. And in the end of June of 2023, we've a total of BRL 10 billion, this within [indiscernible] days. As far as the net, we had operational activities, bringing a growth of 12.4% with a net profit in just financial year. If you -- of BRL 1.024 billion, and we have a reduction of other assets. I mean, the activities of finances, we had an increase of 5.8%, this activity has consumed [indiscernible] million. And in finance, we had BRL 197 million, especially with loans and finances. We have dividends and payments of dividends of BRL 385,618, we have financial payments of BRL 181 million, giving us a reduction of BRL 553,350, going from BRL 1.233 billion to BRL 1. 154 billion. So this was the presentation of the last semester. So now I pass on the floor to our moderator.

Ladies and gentlemen, we will start now the questions-and-answer session. [Operator Instructions]. So let's start. The first question is from Yuri. He says, the [indiscernible] of the ICL represents what percentage of the company? And what is the amount of Hertz for megawatts hour?

Good morning, Yuri. This represents 45% of all the consumptions of the operational units of the company. We have 49 units. There were objects of the bidding and the winner was Copel [indiscernible] and the contract was signed on July 28 with a value of BRL 200,000, and we expect this to bring a relevant economy for 2024 until 2028. Obviously, not [indiscernible] economy will be captured right in the beginning of the year 2024. So we had to announce the contracts as they are over. And I just need you hear the amount for megawatts, but I will ask our personnel from RI to tell you and send you the amounts for this parameter.

So we had another question from Yuri. He says, I would like to understand a bit better what were the main impacts to the amount of water and sewage, the basis of comparison 2023 is weak. What is the amount of the volume for the effect in total?

From the time that we had a period of water shortage. We had a recovery of the volumes of -- it was due to the hydric crisis. So now we have the regular amount of consumptions. We hope it will stabilize, but we also have a strong elements, which are all the investments that were done in the number of connections of water and sewage. So I believe that this has increased the amount of volumes. Also, in the second quarter of 2023, we had a very favorable climate with many sunny days and even warm days. So this makes consumptions of the family to increase. Of course, the hydric also helps in the recovery of credit and all the -- once there were losses, they go back to our account. So this was one of the biggest motive to cost, especially for the growth of the volume.

Now the next question is from Nilo [indiscernible], Investor of [indiscernible] Incorporation. We see that the debts of the company is high, we would like to know what actions the company will take to decrease this debt. Questions from Nilo.

Thank you, Nilo, for the question. I would say that our debt is 1.78 of leverage, our level is 3. So we are very careful with that, of course. The amount of investments that are needed according to the new mark of the investments brings us to a high level. But we have the debt, what we call [indiscernible] reasonable for the financial health of the company. Even it's lower than other companies, which [indiscernible]. So we also have an average period for the payment of the debt, very comfortable as we've shown in our demonstrations. But of course, our planning every year is revised. And when we do the planning of investments and revenues and expenses, the indicators show us that everything will be attended in the guidelines. I approved them already in our accounts. And I would say that nowadays, that our debts is in level that we consider very comfortable.

The next question is from Juliano. The investments of PPP will be part of the net revenue of the company.

Can you repeat, please?

The investments from PPP, will they be part of the net [indiscernible] of the company?

No. As far as the investment of PPP, we have to follow the definitions of the regulatory agency that already consider the assets employment is very similar as best one that the taxes getting all the expenses within the amount review. So we have the idea that all expenses that will be used that has the IP scope and services amount will be given -- will be paid by the tariffs.

The next question, from Eduardo Nazareth, an analyst from [indiscernible]. I have 3 doubts. The first one was answered. The second one, can you explain a bit better that the increase in sewage and what it seems that the growth was very big compared to what was expected. Was there any a typical thing that happened this set-up. Is that any complaints that are controversial to what was expected by the union. This was the question from Eduardo.

Thank you, Eduardo. As far as the section of taxes immunity, we did not have any relevant procedural change. So it continues in the same way that was already disclosed to the market. As far as volume, I can pass it on to Julio for him to do an explanation. As far as the previous period, so we can have with him more technical data that corroborate with what happened besides the water crisis.

Good morning, everybody. We really had this period of July -- June and July above expectations as far as the temperatures and the climate, especially in Parana, as well as the whole country. There was an increase of the average temperature with very dry days, and this is one of the causes that took us to a greater consumption of water. So in normal event would be different, but we were able to keep our supply with very satisfactory index of 90% in the metropolitan area. So beside the consumption being bigger than the whole state, the levels of availability of the water and its distribution was kept.

Just to add to that, we leave something that is very typical due to the climate change and the recovery was very low, due to the water crisis and all the economy that was done back then. Now we faced a period that was historically different in the company. But of course, we expect recovery from this period.

Next question is from Ricardo Cesar. He says, is there any expectation for the privatization of the company?

Thank you, Ricardo. We don't have anything related to this, mainly expectations privatization.

The next is [indiscernible]. Can you give more information about our partnership? How Sanepar will be benefited on this PPP?

Good morning, everybody. As far as the PPP, and our new partner, [indiscernible], our expectations are very positive. We have 16 municipalities that in this PPP, 4 of them do not have existing for the population, and we understand that these are very positive for not only for Sanepar but also for the population. The new mark but a very positive thing, the new landmarks. So we have a few years ahead of us and these has been translated in all the investments that the company has done from 2022 and 2023, and we've grown a lot. So the idea by [indiscernible] is a partner that has been supporting us to advance universalization in a shorter time when the company will do if working in the traditional way, doing investments with contracted companies.

Thank you. Now continuing. The next question is from Leonardo [indiscernible], an investor. Can you talk a little bit more about acquisition of [indiscernible].

Leonardo, thank you for the question. This topic -- this is still in negotiations with third parties. The company prefers not to comment on that so that we don't hinder any negotiations that are still happening. Maybe in the next quarter or the company may communicate about that through their memos, but I would not like to have any statement about that.

Next question is on Marcus [indiscernible], an investor. Does Sanepar have a plan of working outside the state of Parana. I would like to congratulate you for the excellent results that you've shown.

Hi, Marcus. Thank you for your question. I believe that sanitation land mark is bringing a lot of changes in the companies, bringing new players into the market. Obviously, the company has a big effort to be done, is still in here in the state of Parana. So just like the new PPP that is bringing new universalization to other municipalities that not have sanitation yet. So we are still in Panama. Of course, we have 64.9 in sanitation, which are big assets in universalization. We believe that eventually, we will be able to do everything that needs to be done in the state and locate some resources for orders. The market is open. But right now, we don't have any initiatives in this sense, but of course, there is this possibility, we can work outside the state as well as outside the country. The state of the company allows us for that. We are in some municipalities in Santa Catarina state already for some time. But first, we need to discuss this universalization and bring universalization in the state of Parana.

Now we have [indiscernible] about the [indiscernible]. I would like to know what is the effect of the program [ hydric ] in the revenue?