Copel 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; filed April 27, 2020. This is an annual report, not a standalone fourth-quarter report. Financial statements are consolidated, prepared under IFRS, and presented in Brazilian reais (R$). The company generates, transmits, distributes and sells electricity, mainly in Paraná, and also operates in gas and telecommunications.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net operating revenue | R$16.244bn | R$14.935bn | +8.8% |
| Gross profit | R$4.484bn | R$3.433bn | +30.6% |
| Profit before financial results and taxes | R$3.191bn | R$2.394bn | +33.3% |
| Net income | R$2.063bn | R$1.444bn | +42.9% |
| Net income attributable to controlling shareholders | R$1.990bn | R$1.407bn | +41.4% |
| Net cash from operating activities | R$2.945bn | R$1.771bn | +66.3% |
| Capital expenditures | R$2.056bn | R$2.591bn | −20.7% |
Gross margin was approximately 27.6%, up from 23.0%; net margin was approximately 12.7%, up from 9.7%. Net financial expense increased to R$488.5 million from R$438.1 million. Income tax and social contribution expense was R$639.3 million, with an effective tax rate of 23.7% versus 26.2%.
At year-end, total assets were R$38.313 billion and equity was R$17.598 billion. Current assets of R$7.909 billion exceeded current liabilities of R$5.346 billion (current ratio approximately 1.48). Cash and cash equivalents were R$2.942 billion; current and noncurrent loans, financing and debentures totaled approximately R$11.572 billion. The filing reports net debt of R$8.485 billion under its debt reconciliation and adjusted net debt of R$8.407 billion for its leverage measure; definitions differ. Adjusted net debt/adjusted EBITDA was 2.01x, compared with 3.09x in 2018.
Material changes and drivers
- Revenue increased as electricity sales to final customers rose 3.7%, grid-use revenue rose 20.4%, and piped-gas revenue rose 33.2%. The grid-revenue increase reflected tariff adjustments, market growth and new transmission assets.
- Sectorial financial asset and liability revenue fell sharply to R$25.1 million from R$985.3 million in 2018, largely reflecting the timing and amortization of tariff-related balances.
- Costs of sales and services increased 3.8% to R$13.160 billion, slower than revenue growth. Higher depreciation and amortization—up 46%—followed the start of commercial operations at Colíder, Cutia and Baixo Iguaçu. Energy-purchase costs declined 4%.
- Operating cash flow improved, while financing activities used R$288.0 million, compared with R$1.287 billion of financing cash inflow in 2018. The company issued R$2.965 billion of debentures and repaid R$1.977 billion of debenture principal in 2019.
- Share capital increased by R$2.890 billion during 2019. The company reported R$643 million of interest on equity declared for the year; the reported per-share distribution at year-end was R$2.24 for common shares, R$3.95 for Class A preferred shares and R$2.47 for Class B preferred shares.
- IFRS 16 was adopted from January 1, 2019 using the modified retrospective method, without restating prior periods. Adoption added R$118.0 million of lease liabilities and right-of-use assets initially, reducing comparability of lease-related balances.
Outlook, risks and unusual items
- Copel budgeted approximately R$2.087 billion of 2020 capital expenditures, including R$1.074 billion for distribution and R$792.3 million for generation and transmission. Management said operations and planned investment rely on adequate tariffs, financing, permits and cash generation; public-sector borrowing limits may constrain financing.
- The filing describes significant COVID-19 uncertainty after year-end: lower electricity consumption, collection pressure and possible defaults, contract-reduction requests, overcontracting, lower short-term prices and possible project or supplier delays. Management established a contingency committee and was monitoring liquidity, operations and regulatory responses. The filing did not provide a quantified COVID-19 earnings or cash-flow forecast.
- Brazil’s GDP grew 1.1% in 2019, while Paraná’s GDP declined 0.4%. Customer migration to the free market may reduce captive demand and leave distributors with excess contracted energy; Copel Distribuição estimated 2019 contracting at 105.8% of demand, with recovery dependent on regulatory recognition of involuntary overcontracting.
- Legal provisions were R$1.607 billion; additional claims classified as possible losses were approximately R$3.485 billion. Outcomes and payment timing remain uncertain.
- Compagas’s concession expiration is disputed: the concession agreement indicates 2024, while a Paraná state law was interpreted to set an earlier date. A preliminary injunction was granted, but the merits remained unresolved. The concession risk may affect the gas subsidiary’s financial condition.
- Foz do Areia’s existing concession expires in September 2023. Copel transferred it to a subsidiary in March 2020 and sought a new 30-year concession tied to a sale of control; completion and terms were uncertain.
- Management identified a material weakness in controls over impairment assumptions and calculations for fixed assets at Copel Telecomunicações and UEGA. Management was implementing remediation. The auditor gave an adverse opinion on internal control over financial reporting, while issuing an unqualified opinion on the IFRS financial statements. The 2018 revenue-control material weaknesses were reported as remediated.
- Impairment and related write-offs were notable: the filing reports R$1.043 billion of impairment against in-service property, plant and equipment and R$127.6 million against construction in progress at year-end. It also reports R$87.4 million of telecom impairment and R$124.1 million of telecom asset write-offs and remeasurement related to decommissioning.
Most important facts for investors to verify
- Review the full audited statements and notes for the reconciliation of debt, net debt, cash and liquidity measures, and the maturity and covenant terms of borrowings and debentures.
- Track remediation and independent testing of the impairment-control material weakness, especially for telecom and UEGA assets.
- Assess subsequent disclosures on COVID-19 effects on collections, customer demand, energy contracts, liquidity and capital spending; the filing’s impact assessment was qualitative.
- Follow the Compagas concession litigation and the process for Foz do Areia’s proposed new concession and sale of control.
- Evaluate the recoverability and timing of the CRC receivable from Paraná (R$1.351 billion at year-end), and developments in probable and possible legal claims.