Copel(ELP) - 2023 Q1 - Quarterly Report

Financial Statements Presents the company's financial position, performance, and cash flows for Q1 2023, highlighting asset growth, stable revenue, and decreased net income Statements of Financial Position Total assets grew to BRL 53.1 billion driven by PPE and intangibles, with liabilities increasing to BRL 31.3 billion and equity to BRL 21.8 billion Consolidated Statement of Financial Position (in thousands of BRL) | Category | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Total Current Assets | 9,962,522 | 9,327,249 | | Total Noncurrent Assets | 43,101,941 | 40,376,451 | | Total Assets | 53,064,463 | 49,703,700 | | Total Current Liabilities | 7,362,533 | 7,156,597 | | Total Noncurrent Liabilities | 23,935,401 | 21,415,878 | | Total Liabilities | 31,297,934 | 28,572,475 | | Total Equity | 21,766,529 | 21,131,225 | | Total Liabilities & Equity | 53,064,463 | 49,703,700 | Statements of Income Net operating revenue remained stable at BRL 5.53 billion, but net income decreased to BRL 635.5 million due to higher financial expenses Consolidated Statement of Income (in thousands of BRL) | Metric | 03.31.2023 | 03.31.2022 | | :--- | :--- | :--- | | Net Operating Revenue | 5,530,666 | 5,587,749 | | Gross Operating Profit | 1,428,064 | 1,408,945 | | Profit Before Financial Results and Taxes | 1,214,240 | 1,170,480 | | Operating Profit | 881,101 | 957,253 | | Net Income | 635,490 | 669,791 | Statements of Comprehensive Income Total comprehensive income of BRL 635.3 million closely mirrored net income, with minimal impact from other comprehensive items Comprehensive Income Summary (in thousands of BRL) | Metric | 03.31.2023 | 03.31.2022 | | :--- | :--- | :--- | | Net Income | 635,490 | 669,791 | | Total other comprehensive income, net of taxes | (186) | - | | Total Comprehensive Income | 635,304 | 669,791 | Statements of Changes in Equity Total equity increased to BRL 21.77 billion by March 31, 2023, primarily driven by BRL 635.5 million in net income - Equity grew by BRL 635.3 million in Q1 2023, mainly attributed to the net income for the period[16] Statements of Cash Flows Operating cash flow decreased to BRL 540.2 million, while investing activities used BRL 1.51 billion due to acquisitions, resulting in a BRL 232.8 million cash increase Consolidated Statement of Cash Flows Summary (in thousands of BRL) | Category | 03.31.2023 | 03.31.2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 540,190 | 1,183,483 | | Net Cash Used in Investing Activities | (1,513,715) | (534,121) | | Net Cash Generated (Used) in Financing Activities | 1,206,342 | (151,233) | | Change in Cash and Cash Equivalents | 232,817 | 498,129 | - A significant cash outflow of BRL 912.1 million was used for the acquisition of subsidiaries, marking a major investment activity during the quarter[20] - The company raised BRL 1.3 billion through a new debenture issuance, which was the primary source of financing cash flow[20] Notes to the Interim Financial Information Provides detailed explanations of Copel's operations, accounting policies, asset and liability movements, debt, risks, and related party transactions 1. Operations Copel, controlled by the State of Paraná, operates in electricity and acquired BRL 1.005 billion in wind complexes, pursuing corporate transformation - The State of Paraná has authorized the transformation of Copel into a company with dispersed capital and no controlling shareholder, a strategic move intended to enable the full renewal of concessions for three major hydroelectric power plants[25] - On January 30, 2023, Copel GeT completed the acquisition of 100% of the Aventura and Santa Rosa & Mundo Novo Wind Complexes from EDP Renováveis Brasil S.A. for BRL 1,005.2 million[33] Summary of Wind Complex Acquisition (in thousands of BRL) | Complex | Net Assets Acquired (Fair Value) | Technical Goodwill | Consideration Amount | | :--- | :--- | :--- | :--- | | Aventura & Santa Rosa | 800,497 | 204,676 | 1,005,173 | 2. Concessions and Authorizations Details Copel's extensive concessions across segments, including the BRL 508 million Compagas gas distribution extension to 2054 - The Compagas gas distribution service concession was extended to July 6, 2054, upon payment of a BRL 508 million grant bonus in December 2022[45][46] - The notes detail numerous generation and transmission concessions, with maturities extending from the near term (e.g., 2024) to as far out as 2055, highlighting the long-term nature of the company's core assets[49][51] 3. Basis of Preparation Interim financials prepared under IAS 34, affirming going concern status based on strong equity and cash generation - The financial statements adhere to IAS 34 - Interim Financial Reporting[52] - Management confirms the company's going concern status based on long-term concessions, strong equity, and robust operating cash generation[57][58] 4. Significant Accounting Policies Accounting policies are consistent with 2022 annual statements, with new standards having no significant impact - Accounting policies are consistent with the 2022 annual financial statements[59] - New accounting standards effective January 1, 2023, had no significant impact on the financial statements[60][65] 5. Cash and Cash Equivalents Cash and cash equivalents increased to BRL 2.91 billion, with BRL 2.63 billion in highly liquid financial investments Cash and Cash Equivalents (in thousands of BRL) | Category | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Cash and bank accounts | 284,594 | 222,641 | | Financial investments with immediate liquidity | 2,626,680 | 2,455,816 | | Total | 2,911,274 | 2,678,457 | 6. Bonds and Securities Bonds and securities increased to BRL 501.8 million, primarily noncurrent assets for long-term financial guarantees Bonds and Securities (in thousands of BRL) | Category | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Current | 92 | 93 | | Noncurrent | 501,700 | 430,963 | | Total | 501,792 | 431,056 | 7. Trade Accounts Receivable Trade accounts receivable reached BRL 3.58 billion, including a BRL 119.7 million disputed receivable from CCEE with a full provision Trade Accounts Receivable Summary (in thousands of BRL) | Category | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Total Receivables | 3,577,994 | 3,451,869 | | Current | 3,460,364 | 3,342,050 | | Noncurrent | 117,630 | 109,819 | - The company has a disputed receivable of BRL 119.7 million from the CCEE concerning the HPP Colíder plant's delayed start-up, and while a preliminary injunction favors Copel, the company has prudently recorded an equivalent amount in expected credit losses pending a final court ruling[69][71][73] 8. Net Sectorial Financial Assets and Liabilities Net sectorial financial assets shifted to a BRL 177.1 million asset from a BRL 101.9 million liability, reflecting regulatory adjustments - The net balance of sectorial financial assets and liabilities shifted from a net liability of BRL 101.9 million at the start of the year to a net asset of BRL 177.1 million at the end of Q1 2023[76] 9. Accounts Receivables - Concessions Concession receivables increased to BRL 2.41 billion, mainly from distribution investment indemnification and HPP GPS bonus recovery Accounts Receivable - Concessions (in thousands of BRL) | Category | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Power distribution service concession | 1,560,022 | 1,442,819 | | Bonus from the grant of concession | 782,005 | 766,832 | | Generation concession agreements | 70,001 | 68,642 | | Total | 2,412,028 | 2,278,293 | 10. Contract assets Contract assets totaled BRL 7.78 billion, primarily from power transmission (BRL 5.42 billion) and distribution concessions Contract Assets by Concession (in thousands of BRL) | Concession Type | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Power distribution service | 2,330,452 | 2,332,171 | | Piped gas distribution service | 30,750 | 30,032 | | Power transmission | 5,417,369 | 5,310,476 | | Total | 7,778,571 | 7,672,679 | 11. Other Receivables Other receivables grew to BRL 2.37 billion, driven by a BRL 1.57 billion fair value of power purchase and sale contracts - The largest component of other receivables is the fair value of power purchase and sale contracts, which increased by nearly BRL 500 million during the quarter to BRL 1.57 billion[92] 12. Taxes Net deferred tax liability of BRL 161.8 million exists, alongside a BRL 3.31 billion PIS/Cofins credit and related BRL 2.05 billion consumer refund liability - Copel DIS has a tax credit of BRL 3.31 billion related to the exclusion of ICMS from the PIS/Cofins tax base, which is being recovered through offsetting with taxes payable[102][103][106] - A liability of BRL 2.05 billion is recorded to be refunded to consumers related to the PIS/Cofins tax credit recovery, and an additional provision of BRL 1.88 billion has also been recognized due to Federal Law No. 14,385, though the company is evaluating legal measures[107][109][113] 15. Investments Equity method investments increased to BRL 3.44 billion, mainly in joint ventures, generating BRL 104.1 million in equity earnings Changes in Investments (in thousands of BRL) | Category | Balance as of Jan 1, 2023 | Equity in Earnings | Additions | Balance as of Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Joint Ventures | 3,278,103 | 98,895 | 10,780 | 3,387,868 | | Associates | 47,093 | 5,193 | - | 47,278 | | Total | 3,325,731 | 104,088 | 10,780 | 3,435,680 | 16. Property, plant and equipment PPE increased to BRL 11.19 billion, primarily due to BRL 1.19 billion from wind complex acquisition and a BRL 35.6 million impairment reversal Changes in Property, Plant and Equipment (in thousands of BRL) | Description | Amount | | :--- | :--- | | Balance as of January 1, 2023 | 10,069,468 | | Additions | 75,326 | | Depreciation | (143,411) | | Effects of business combination | 1,187,108 | | Balance as of March 31, 2023 | 11,189,018 | - A partial reversal of impairment totaling BRL 35.6 million was recognized for generation segment assets, mainly HPP Colíder, due to a review of expected revenue from energy sales[135][136] 17. Intangible assets Intangible assets grew to BRL 11.27 billion, driven by generation concession acquisitions, with distribution and generation as largest components Intangible Assets by Type (in thousands of BRL) | Category | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Concession - distribution | 7,510,408 | 7,257,827 | | Generation concessions/authorization | 3,009,784 | 2,252,615 | | Concession - piped gas | 713,270 | 726,107 | | Other | 41,255 | 41,178 | | Total | 11,274,717 | 10,277,727 | - Generation concession and authorization rights increased by approximately BRL 757 million, mainly due to BRL 615.6 million in rights and BRL 204.7 million in technical goodwill from the wind complex acquisition[145] 20. Loans and Financing Loans and financing increased to BRL 5.45 billion, mainly due to BRL 875.7 million from acquired wind complexes, with all covenants met Changes in Loans and Financing (in thousands of BRL) | Description | Amount | | :--- | :--- | | Balance as of January 1, 2023 | 4,650,363 | | Business combination effects | 875,738 | | Charges and variations | 149,229 | | Payments (principal and charges) | (225,288) | | Balance as of March 31, 2023 | 5,450,042 | - The company's loan agreements contain financial covenants, such as Net Debt/EBITDA and debt service coverage ratios, which were fully met as of the last measurement date[158][159] 21. Debentures Debentures increased to BRL 9.28 billion due to a BRL 1.3 billion issuance for wind complex acquisition, with covenants met Changes in Debentures (in thousands of BRL) | Description | Amount | | :--- | :--- | | Balance as of January 1, 2023 | 7,803,855 | | Funding | 1,300,000 | | (-) Transaction costs | (11,325) | | Charges and monetary variations | 332,388 | | Payments (principal and charges) | (148,257) | | Balance as of March 31, 2023 | 9,276,661 | - In January 2023, Copel GeT issued BRL 1.3 billion in new debentures to finance the acquisition of the Santa Rosa & Mundo Novo and Aventura wind complexes[162] 22. Post-employment Benefits Post-employment benefit liability totaled BRL 1.08 billion, primarily for healthcare plans, with BRL 66.0 million expense recognized Post-employment Benefit Liabilities (in thousands of BRL) | Plan Type | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Pension plans | 685 | 949 | | Healthcare plans | 1,080,573 | 1,069,088 | | Total | 1,081,258 | 1,070,037 | 28. Provisions for Legal Claims and Contingent Liabilities Provisions for probable legal claims totaled BRL 2.01 billion, with BRL 3.78 billion in contingent liabilities, including a BRL 1.14 billion regulatory risk Provisions and Contingent Liabilities (in thousands of BRL) | Category | Provisions (Probable Loss) | Contingent Liabilities (Possible Loss) | | :--- | :--- | :--- | | Tax | 210,577 | 526,492 | | Labor & Employee Benefits | 557,324 | 387,312 | | Regulatory | 6,252 | 1,530,473 | | Civil | 1,239,021 | 1,335,008 | | Total | 2,013,174 | 3,779,285 | 29. Equity Paid-in capital was BRL 10.8 billion, with the State of Paraná holding 31.07%; Class 'B' preferred EPS was BRL 0.23728 Main Shareholders as of March 31, 2023 | Shareholder | % of Total Shares | | :--- | :--- | | State of Paraná | 31.07% | | BNDESPAR | 23.96% | | Free float (B3, NYSE, Latibex) | 44.16% | | Other shareholders | 0.81% | Earnings Per Share (in BRL) | Share Class | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Common shares | 0.21571 | 0.22870 | | Class "A" preferred shares | 0.23728 | 0.25158 | | Class "B" preferred shares | 0.23728 | 0.25158 | 33. Operating Segments Copel operates five segments, with GET and DIS being largest in assets and operating profit, contributing BRL 591.2 million and BRL 180.3 million respectively Assets by Reportable Segment (in thousands of BRL) | Segment | 03.31.2023 | | :--- | :--- | | Power Generation and Transmission (GET) | 26,656,292 | | Power Distribution (DIS) | 20,881,942 | | Power Sale (COM) | 2,265,570 | | GAS | 1,082,586 | | Holding and Services | 2,241,268 | | Consolidated Total | 53,064,463 | Operating Profit by Reportable Segment (in thousands of BRL) | Segment | Q1 2023 | | :--- | :--- | | Power Generation (GER) | 375,074 | | Power Transmission (TRA) | 216,104 | | Power Distribution (DIS) | 180,336 | | Power Sale (COM) | 106,975 | | GAS | 39,403 | | Holding and Services | (36,791) | | Consolidated Total | 881,101 | 34. Financial Instruments Details financial instruments and risk management for credit, liquidity, market, and sector-specific risks like GSF and concession renewals - The company actively manages several financial risks: - Credit Risk: Exposure totals BRL 9.9 billion, mitigated by investing cash in federal banks and managing customer receivables[239][244] - Liquidity Risk: Managed by projecting cash flows and maintaining access to debt markets[251] - Market Risk: Includes exposure to USD fluctuations, variable interest rates (CDI, IPCA, TJLP), and electricity price volatility in the free market[251] - Sector-specific risks are significant, including: - Generation Scaling Factor (GSF): Risk from low hydroelectric generation is managed by not fully contracting assured energy and using insurance for regulated contracts[268][276] - Concession Renewal: The company is actively managing the renewal process for key generation and distribution concessions, including a potential corporate transformation to facilitate this[289] Capital Management - Debt to Equity Ratio | Metric | 03.31.2023 | 12.31.2022 | | :--- | :--- | :--- | | Net Debt (in thousands BRL) | 11,448,547 | 8,869,525 | | Equity (in thousands BRL) | 21,766,529 | 21,131,225 | | Debt to Equity Ratio | 0.53 | 0.42 | 35. Related Party Transactions Engages in transactions with related parties including the State of Paraná and BNDES, involving financing, dividends, and operational agreements - Significant related parties include the State of Paraná (controlling shareholder) and BNDES/BNDESPAR (major shareholder and creditor), with transactions including dividends payable, social programs funded by the state, and financing from BNDES[317] - Copel provides substantial financial guarantees for its subsidiaries' financing and debentures, as detailed in Notes 20 and 21, and also for certain joint ventures, primarily through pledges of its shares in those ventures[326][327] 39. Condensed individual financial information of Companhia Paranaense de Energia - Copel Parent company financials show BRL 21.0 billion in subsidiary investments and BRL 626.6 million net income from equity earnings - The parent company's main asset is its investments in subsidiaries, which are accounted for using the equity method and valued at BRL 21.0 billion[338][349] - The parent company's net income is driven by the results of its subsidiaries, with BRL 639.6 million in equity earnings contributing to a total net income of BRL 626.6 million for the quarter[340] 40. Subsequent events Subsequent events include ANEEL's public consultation on hydroelectric concessions and Copel DIS's BRL 1.6 billion debenture offering - In May 2023, ANEEL opened a public consultation on the new concession contracts for HPP Segredo, HPP Salto Caxias, and HPP Foz do Areia, which is linked to Copel's potential transformation into a 'Corporation'[355] - On June 6, 2023, Copel DIS announced a public distribution offer of BRL 1.6 billion in debentures, scheduled for issuance on June 15, 2023[358]