CPFL Energia SA (NYSE:CPL) Q3 2021 Earnings Conference Call November 12, 2021 9:00 AM ET
Carlos Cyrino - Director, IR
Gustavo Estrella - CEO
Yuehui Pan - CFO and IRO
Vítor Fagali - VP of Business Development
Conference Call Participants
Carolina Carneiro - Credit Suisse
Marcelo Sa - Itau
Andre Sampaio - Santander
Flavia Sounis - Goldman Sachs
Good morning, everyone. Welcome to the presentation of the results of the third quarter CPFL Energia. I'm Carlos Cyrino, Director of Investor Relations, and today I will be conducting all the dynamics of our event. Today we have Gustavo Estrella, President of CPFL Energia, Mr. Pan, Director, Vice President, Finance and Investor Relations, and the other executives of the company.
The whole presentation will be carried out in Portuguese with interpretation for English. For this, click on the button interpretation that you can see on the bottom part of your screen. If you want to see the presentation in English, this presentation is on the IR site of CPFL. After the presentation, we will start the questions-and-answers. All the questions should be made live and to ask a question, all you have to do is click on the button, raise your hand and you will find that at the bottom part of the screen.
This event is being recorded. I now give the floor to Gustavo Estrella, first to start the presentation of the results.
Thank you, Cyrino. Good morning to everyone. Thank you for your presence here at the call. I am now going to first part, we're going to then highlight. First of all, we've had an increase in the load of concession of 2%. We're going to talk about this, but I think it's very positive in the consumption of energy in the consumption area. We also have an EBITDA of R$2.596 million a growth of 32.8%. The net income of R$1.436 million, a growth of 6.2%. Our net debt reaches R$15.9 billion and a leverage of 1.77 net debt of EBITDA.
We have investments in this quarter of R$932 million, a growth of 21%. Remembering that our estimate for the year of R$3.4 billion, and it's a big investment for the company. The regulatory asset has reached R$3.1 billion in September, when we closed the quarter, the highest value of history.
We also had a tariff adjustment in CPFL Piratininga of 12.4% for the consumer now last October. We also concluded the commercial startup of the Gameleira Wind Complex. We also concluded on the 14th of October, the acquisition of the CEEE-T CPFL Transmissão. So we started the process of integration of CEEE with CPFL Energia.
Another important highlight is the IDIV index B3 as a payment of dividends. We also implemented the Audit Committee, which is a requirement of the Novo Mercado. So we started the implementation of the audit committee now in the month of November. We also won the ABRADEE Award o for CPFL Santa Cruz and CPFL Piratininga in social and environmental responsibility. CPFL Energia was also highlighted in reports by Santander as Excellent rating and by Credit Suisse, one of the 60 companies in the world that are good to invest. We also were recognized with the Melhores da Dinheiro award for the ISTOÉ Magazine.
So now let's move to the next slide. Well, when we talk about energy sales, we had a growth of 2% in concession and 3.5% in the sales in the concession area. And if we look at the effect of the concessionaries, we would have a growth of sales of 4.4% and growth of the load of 2.4%. And here on the right side, you can see the residential less 0.4%, basically the effect of 0.5% IGP temperature, this is more and more of effect in residential.
The positive is the industry, which continues demonstrating recovery and strength with a growth of 9.1% compared to last month, and the good news of the performance of the commercial class with a growth of 8.2%. In the segment of others, we have a drop of 5.4%, and this is basically the effect of migrations. And without this, we would have a growth aligned to the year of 2020.
Now, let's move to the next slide. Here, we see the commercial segment. We can see that retail where we had the second largest decrease, a decrease of 7.2% compared to 2019 and 2020, a partial recovery 2.8% in the market in 2021. The other class that has decreased on the right side of our slide, when we look here, we see a drop in 12% and a recovery higher than the values of 2019, 30.9%. So the highlight here is that we see a recovery and also a sequence of growth, especially in telecommunications and health.
Let's move to the next slide. Here, we do the same analysis, in the industrial segment, we can see here an important growth in the accumulated of 2019, 2020 a growth of 6.1%. That means we've surpassed the growth of 2019. We have a situation which is of stability in the segment of vehicles. There was a drop of 7.7% and then recovery of 2.8%, and then now we have the accumulated 18.1%. The other classes rubber, metallurgy we see a growth which is higher than the year 2019, which shows that we are in recovery.
The next slide, please. Here, we have delinquency and losses, we have a challenging scenario with the delinquency we have a growth expressive growth especially in the second quarter of 2021. We can start seeing a drop of the levels of delinquency dropping to 126 and the trend continues in the beginning of the fourth quarter. So, it is still high and we start seeing a response and all the actions that the company collection actions that the company is carrying out, we see.
And finally, we can see the impacts in the drop of delinquency. When we can see here the benchmark, we can see that in general the delinquency pressure has been felt with the elevation of tariffs and also high unemployment in the country. Therefore, this is important this happens not only with CPFL, but the companies of the sector in general. The rates of loss we see a drop here in the group CPFL of 9.06% to 8.62%. And this is a positive signal or positive sign. And this shows reduction.
Let's move now to the next slide. Here in generation, we can see an expressive increase of PLD compared to 2020. And this reflects what we've been doing in the last months. Fortunately, we see this being reverted. And this reflects next expressive reduction in the beginning of the fourth quarter, but the third quarter we had a lot of pressure. And here, you see the GSF in the same line, which was higher than 2020. And this brought a GSF, which is negative in the third border.
The APPS and the SHPPS was also a reflection of the situation. In the wind generation, we have an increase not only the end tree of Gameleira operation and here you can see the comparisons with 2020. And basically, this is aligned with the averages that we have seen in the last quarter.
Next slide, please. So, now I'm going to give the floor to Mr. Pan, and he's going to talk a little bit about the results of the company.
Thank you, Gustavo. Good morning to everyone. The EBITDA in this quarter was R$2.6 billion, a hike of 32.8%. I highlight once again the good result of the segment of distribution with an increase of 43.2%. The largest variation was the market and the tariffs, especially due to the higher IGP-M. Another important effect was higher gain of the financial assets of the concession, which had a hike of R$191 million due to the higher IPCA.
In the third quarter last year, the IPCA had been 0.86%, and this year, it was plus 2.38%. In this quarter, we had a gain of R$26 million once more from other revenues. As mentioned in the last quarter, this is basically from the rental of poles, reflecting the increase of the IGP-M during the period.
The PMSO had an increase of R$74 million, and it is the main impact, with the expenses linked to inflation, an increase of 9.5%, but below the IPCA over 10% due to the salary readjustments and other contracts with suppliers. The PDD was higher than R$73 million. It was a similar level to the second quarter.
In the pension plan, we had an increase of R$14 million. The other effects add up to R$10 million. In generation, the EBITDA was of R$1.1 billion, a high increase of 31%. The main effect was the gain with the GSF solution in the regulated market of R$274 million. Another positive impacts were the updates of the prices of the index contracts by EGPM in the amount of R$191 million. Besides this, we had a gain of R$27 million due to the higher generation of energy in our wind farms added to the entry or the beginning of the operation of the Gameleira Complex.
On the other hand, we had an impact, a negative impact of R$138 million referring to a higher CapEx due to the substitution of suppliers. And this was negative R$116 million due to the higher PLD and the lower level of the GSF. Other effects added a gain of R$21 million. The segment of trading, services and others had a negative EBITDA of R$32 million, mainly impacted by the margin of commercialization negative R$83 million. Other effects add a gain of R$3 million.
Let's move to the next slide, we show the performance of the net profit, which was R$1.436 million during the period, an increase of R$6.2 in relation to the same period last year. In the financial result we had an improvement of R$3 million due especially to the gain of MTM R$34 million in new fundings in the quarter, monetary updates of the regulatory R$30 million, assets and monetary update on fiscal credit R$18 million, and increases and fines R$9 million.
On the other hand, the expenses with the net debt had an increase of R$143 million, explained due to the increase of the IPCA and the CDI during the period. A higher payment of taxes is related to the better results in the period and recognition of fiscal credits in the CPFL renewables. Last year, the amount is R$271 million.
On Slide 11, we show you the results of the nine months accumulated in 2021. The EBITDA grew 36.2%. We highlight here distribution that grew 42.9% favored by the good performance of the market and the tariffs. Due to the IGP-M and the financial assets of the concession. Another highlight is generation with an increase of 29.3% which is equivalent to R$560 million due to more wind generation, the readjustments of contracts and the GSF solution. The net profit increased 29.6% reaching R$3.5 billion. We also were impacted by the higher debt costs, MTM which were partially compensated by fines and increases.
Now let's talk about indebtedness. The net debt is a total of R$15.9 billion and the EBITDA of the last 12-months reach R$9 billion. The leverage which is measured by the net debt versus EBITDA was 1.77 times. We highlight that we had still not paid the R$1.7 billion dividends and the R$2.7 billion for the acquisition of CEEE-T.
On the chart on the right side, you can see the cash position at the end of the third quarter R$4.9 billion with a coverage rate 1.81 times. The short-term amortizations and the medium-term amortizations is 3.27-years low. We have the cost of the debt that increase normally especially due to the variation of the IPCA and the CDI during this period.
However, the real costs is still negative. Now, when we compose the gross debt we can see that the higher exposure is indexed to the CDI 69%, 29% index to the IPCA and 2% to the TJLP. As for the dividends, we have maintained our plan of growth and payment of dividends, where we had a payout of 80% in 2020, representing a total of R$2.08 billion. And in 2021, we announced the payment of R$3.46 billion, representing a payout of 100%.
The CapEx of the quarter was R$932 million, an increase of to 21% in relation to the same period last year. If we look by segment, we have in distribution a total invested of R$821 million, destined to modernization, maintenance and widening of the network and the equipment. In this segment of generation we invested R$71 million in the Gameleira and Cherobim projects. We invested another R$16 million in Sul 1 and Sul 2 transmission projects. And also for the segment of trading and services we destined R$24 million to increase, modernize and maintenance of equipment, vehicles, tools, and IT. In the accumulated vision for nine months, we invested R$2.646 million, an increase of 37.2%.
I thank you very much. And now I'm giving the floor back to Mr. Gustavo Estrella. Thank you.
Thank you. So, finalizing our presentation, we have some social, environmental actions, the Gameleira Wind Complex, this is a strategy totally aligned with our sustainability plan and a series of actions social, environmental programs that are very relevant in the region in the area of projects that we are working on. So again, once again a growth of renewable energy and sustainability and all ESG plan of the company. So this is an important investment now in the month of September 100% aligned with our strategies. Well, we end our presentation now, and we are available for questions.
A - Carlos Cyrino
Thank you, Gustavo. Thank you, Mr. Pan for your presentation. So we now open for questions-and-answer. And this will be done in the order that they come. [Operator Instructions] We can see that we have a question here. It comes from Carol from Credit Suisse. Good morning, Caro, thank you for your participation. You can ask your question.
Thank you for the call. Good morning, everyone. I have two questions. The first one is about the agenda of bidding and capital allocation. For example, the CT generation sold and I'd like to know what are you going to do in relation to the assets that you've already built this year? Or, what you're guaranteeing is within the ideal and if you're going to look at these other assets that I mentioned?
And the second one is about regulation, we saw that and now what about the long-term strategies they had to put to vote, the public consultation of the losses and the last response of the methodology of losses? So I'd like to understand on your side, the expectation about this loss discussion, which is very relevant for the sector? And what proposals you have and what vision you have? And if there's any regulatory topic that you believe will be important this year.
Thank you, Carol for your questions. The first one is about the bidding process, we continue with our strategy of growth, and what the market offers us. About the generation, we have specific interests in the assets where we already participate. And we'll see in the future if there is anything that inserts itself in the strategy of CPFL, we then will participate and evaluate these projects.
And what we have now as a challenge is the integration of CEEE-T integration. The company during the next two or three months, very much focus in the integration. It's a big challenge. It's a big company. So we are focusing on this but we continue looking at opportunities the market will offer to grow. I’ll ask Rafael please to continue responding.
Unidentified Company Representative
Hello, Carol, thank you for your question. As for these losses, this is an important topic for us distributors. And we've been talking with Enel about this topic, and Enel took the cautious decision of discussing this matter with companies. Yesterday we had a very positive meeting with Enel. CPFL has a lot of knowhow in this area of losses with implementation of technology, a calculus methodology, evaluations that we have given the work that we've been doing, controlling our losses, as we showed in stable numbers and also with the challenges that we have in the country. But we are discussing this with Enel. And we are evolving to have an adhering methodology to the situation of the company, of the country and the balance of companies.
Thank you very much for your response.
Thank you, Carol. We're moving on to the second question. Marcelo Sa from Itau, thank you for your participation. Please ask your question.
Thank you for the opportunity. When you talk about growth strategies, I think it's clear that you see more opportunities in the transmission than renewable energy. And then we see a movement in direction of renewable energy with more optimistic vision of price, the demand of this type of source. What do you imagine doing long-term? Do you think all this offer is going to decrease the price or the migration to the free market is going to sustain the prices? And of course now we had good rains in October and November, I was talking to some specialists. And they think we even have the PLD in December. If this confirms we will have some impact in the price curve looking further forward. So I'd like to see how you see this dynamic and these challenges of renewable energy. I'd like to know what your plans are. Thank you.
Unidentified Company Representative
I’m Ricardo. I'm responsible for this area. Thank you for the question. When we talk about prices, we have been seeing short improvement with favorable weather and rains. We have a relevant drop of prices in the fourth quarter. So when we talk about medium, long-term, we see the entry of new plants, especially renewable font plants. And we still have discount. We've had an excess of plants operating in three, five years as compression the price down.
And long-term, this depends on consumption. But we see more stable prices. When we look long-term, I think this is a bit of the dynamic of the prices in relation to all this. It will depend on the free market evolution. But this is the way we are going, what I just mentioned.
Thank you very much. Thank you for the answer.
Thank you, Marcelo. Let's move to the next question. The next question is Andre Sampaio from Santander. Thank you, Andre, for your participation. Please ask your question.
Good morning. I'd like to ask two questions. The first one is a follow up in Carol's questions about the discussion of the losses. The technical notes presented in the conclusion of the technical area, it develops the rule in relation to the risk areas where Piratininga CPFL ends up by going over 10%. In this discussion, I would like to hear from you what is your opinion in relation to this, if this really should generate a benefit for you?
And my second question in truth is about renewables as well. I'd like to hear from you, after all these M&As and with the pipeline interest, how would you as a company, unlock the potential value of this business from now on? You see what the market is doing with discount, so I'd like to understand what is your plan to unlock this value? And if it wouldn't make sense to do something specific in renewables?
Hi, Andre. In relation to this issue, risk areas in the proportion the Piratininga has a benefit that shows a bit the improvement of the Piratininga situation, especially in the area of Sanchez and its environment. So this brings Piratininga to a more realistic situation. This is positive.
And yesterday as I said, we had a very interesting meeting presenting alternatives to consider certain situations of some companies, even if they're not the same as Piratininga, but which also reflects the reality. And this was as I said, discussed with Enel.
Andre, Vítor Fagali, Vice President of Business Development, I'm going to try to respond about renewables. We have a pipeline here to develop over four gigs. And we have these projects live and under analysis. And the topic is, as of the moment that we understand these projects generate value, they have a risk versus adjusted return which is compatible to the company. The goal is to continue developing and continue. But this necessarily comes from the premise of feasibility. So we always analyze this, evaluating renewable park if we grow, and how we should advance from now on. But I think do direct, we have our greenfields here and that's how we understand the opportunity. On the financial point of view, we're going to evolve with all of this.
Perfect. Thank you for the responses.
Thank you, Andre. We're going now to the last question. And the question comes from Flavia from Goldman Sachs. Flavia, thank you for participating. Please ask your question.
Good morning. Thank you for the call. I have a quick question about regulatory issues. What do you see -- do you see that changes can come any deterioration any increase of the spreads? How do you see this moving forward?
Good morning, Flavia. Thank you for your question. So the methodology of Enel already takes into account this annually with the scenario that we are living through, so we hope that these next definitions in the next year will reflect what we're going through now.
Thank you, Flavia. Well, we have no more questions. We're going to end session of Q&A. If there's any question, the Investor Relations group is available to clarify anything you need later.
I would like to communicate now in the middle of December, we're going to have a CPFL Investor Day. It will still be virtually. And we hope all of you will participate. You will receive the official invitation soon. I'm going to give the floor back to Gustavo Estrella for his final considerations.
Well, I thank you all for the participation. I think we have an important improvement to alleviate the situation. But I think what clearly is here is a pressure scenario, high prices. And this brings us a challenge, especially with the tariff free adjustments of the distributors. So I think the readjustment of the cash situation and the size. But we have to deal with this in a scenario, which becomes improbable with high prices. So we have to deal with this topic, the sectorial topic. It's not only specific to CPFL, but it's something that we will have to work on in the next few months.
As I said, we have a big challenge of integration of the CEEE-T integration. The first 100 days will be decisive for this process. But we are very confident that we made an excellent investment in an asset that for sure will have the standards of CPFL Energia soon. Sectorally, I think we have an positive expectation of the recovery of the economy, increase of consumption and evolving of the regulatory agenda. We have topics that are very important that are being discussed on the table 414 1917. So the expectation is that short-term, we will be able to deal with all these topics, so that we evolve and the sector developments in the direction of opening with an organized and planned process, so that we'll be able to have a long-term vision. That is our vision.
I thank you all for being present. Thank you.
Well, we then end the call for the third quarter 2021 [ph]. Once more, we thank you all for participating. Have a great afternoon, a great weekend, a good holiday on Monday and goodbye.