Business context and reporting period
Companhia Paranaense de Energia (Copel) filed this Form 20-F on April 19, 2021, reporting for the fiscal year ended December 31, 2020. The filing is an annual report, not a standalone fourth-quarter report. Copel is a Brazilian state-controlled electricity generation, transmission, distribution and trading company, with gas and telecommunications operations. Its consolidated financial statements are audited under IFRS as issued by the IASB; Deloitte gave an unqualified opinion on the financial statements and internal controls.
The company reported 2020 consolidated results with Copel Telecom classified as a discontinued operation; comparative 2019 and 2018 figures were restated. The filing also reflects the March 2021 share split in per-share figures.
Key financial metrics
Unless otherwise stated, amounts are R$ million. Percentages and margins below are calculated from filing figures.
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net operating revenue | 18,633.2 | 15,869.2 | +17.4% |
| Gross profit / gross margin | 5,285.4 / 28.4% | 4,405.1 / 27.8% | +20.0% profit |
| Profit before financial results and tax | 4,253.3 | 3,302.3 | +28.8% |
| Operating profit / operating margin | 5,119.5 / 27.5% | 2,846.9 / 17.9% | +79.9% |
| Net income, including discontinued operations | 3,909.8 | 2,062.9 | +89.5% |
| Net income from continuing operations | 3,834.2 | 2,171.3 | +76.6% |
| Net cash from operating activities | 3,940.8 | 2,945.0 | +33.8% |
Net margin was approximately 21.0%, compared with 13.0% in 2019. Operating profit includes a substantial improvement in financial results: net financial income was R$866.3 million, versus a net financial expense of R$455.4 million in 2019. Company-adjusted EBITDA for its leverage calculation was R$5,069.6 million; adjusted net debt was R$6,412.4 million, or 1.26x adjusted EBITDA, compared with 2.01x in 2019.
Cash and cash equivalents were R$3,222.8 million at year-end (R$2,941.7 million in 2019). Cash flows were R$3,940.8 million from operations, R$1,667.6 million used in investing, and R$1,715.1 million used in financing. The current ratio was 1.2x, down from 1.5x, and net working capital was R$1,753.0 million, versus R$2,563.6 million.
Loans and financing were R$3,214.2 million and debentures R$6,837.8 million at year-end, totaling R$10,052.1 million gross. The filing’s capital-management calculation reports net debt of R$6,528.8 million; its separate adjusted-net-debt measure is R$6,412.4 million. Approximately R$140.3 million of loans and financing was U.S.-dollar denominated. Capital expenditure was R$1,904.7 million in 2020, compared with R$2,055.6 million in 2019; management budgeted R$1,902.7 million for 2021.
Material changes versus the prior comparable period
- Revenue rose 17.4%, supported by higher electricity sales to distributors, grid-use revenue and sectorial financial asset and liability income. Sales to final customers fell 9.1%, reflecting weaker prices and pandemic-related demand declines, particularly among industrial and commercial customers.
- Net income increased sharply, with financial results turning positive. A major unusual contributor was a final court decision allowing recovery of PIS/Cofins taxes calculated on ICMS: Copel recognized a R$5,655.8 million tax-credit asset and a R$3,927.8 million liability for amounts potentially refundable to consumers. The filing reports a net R$1,158.4 million effect on the balance sheet and income statement, including R$810.6 million in revenue and R$944.5 million in financial income, partly offset by tax and consumer-refund liabilities.
- Operating cash flow increased by R$995.8 million. Management cited new generation assets operating for a full or larger portion of the year, tariff adjustments, new transmission assets, cost measures and receipts from the COVID-19 sector support account.
- Electricity purchased for resale increased 11.8%; personnel and management costs rose 20.8%, partly reflecting higher performance and profit-sharing provisions and salary increases. The approved 2020 profit-sharing provision was R$416.9 million, versus R$155.5 million for 2019.
Outlook, management commentary, risks and unusual items
- Outlook and investment: Management expected to fund liquidity and investment needs through operating cash generation and external resources, while retaining the ability to reduce expenses or defer investment. The 2021 capital budget was R$1,902.7 million; the company separately identified approximately R$1,902.7 million of planned subsidiary capital expenditure. Management stated that working capital was sufficient for current and near-term requirements, but acknowledged that cash from operations may not cover all planned investment.
- Pandemic and demand: Brazil’s GDP contracted 4.1% in 2020. Captive-market consumption fell 3.1%; industrial and commercial demand were especially affected, while residential consumption grew. Copel estimated distribution over-contracting at approximately 105.5% of market demand and considered it involuntary, subject to regulatory treatment. Future collection, demand and project timing remain uncertain.
- Tax credit and consumer refunds: The PIS/Cofins-on-ICMS recovery materially benefited reported earnings, but the method and timing of consumer refunds remained under ANEEL consideration. The recorded liability was R$3,927.8 million. Verify the final regulatory treatment and actual realization of the tax credit.
- Concessions and hydrology: The Foz do Areia hydroelectric concession expires in 2023; Copel transferred it to a subsidiary as part of a potential privatization/new-concession process. The company had not yet elected to participate in the 2020 hydrological-risk renegotiation; CCEE’s estimated compensation for 15 eligible plants was R$1,366.3 million, subject to ANEEL review and Copel’s decision. The Figueira thermal plant concession had expired in 2019, with an extension amendment still pending.
- Telecom divestment: The November 2020 auction produced a winning bid of R$2.395 billion for Copel Telecom. A sale agreement was signed in January 2021, subject to regulatory approvals and other closing conditions; the transaction was not complete as of the filing.
- Cyber incident: A January/February 2021 cyberattack temporarily disrupted some administrative systems. Copel reported no material 2020 financial impact, no identified access to its ERP or billing environment, and no evidence of personal-data compromise; it said remediation and validation work was undertaken.
- Legal and other exposure: Provisions for probable legal losses totaled R$1,555.7 million. The filing separately estimated R$5,206.8 million of claims against the company for which provisions had not been made, including contingent or less-than-probable matters; outcomes and timing are uncertain. Major operating risks include hydrology, foreign exchange, regulated tariffs, credit collection, cybersecurity, concession renewal, project execution and State of Paraná control.
- Dividends and ownership: The company proposed total distributions of R$2,526.0 million gross, including interest on equity and additional distributions from reserves; amounts and payment timing were subject to the stated approvals and terms. The State of Paraná held 58.6% of common voting shares.
Important facts for investors to verify
- How much of the PIS/Cofins tax credit will ultimately be realized, and how and when the R$3,927.8 million consumer-refund liability will be settled.
- Whether the Copel Telecom sale closes, after CADE and ANATEL approvals, and the final cash proceeds and use of proceeds.
- Whether ANEEL approves the estimated R$1,366.3 million hydrological-risk compensation and whether Copel elects to accept its terms and concession extensions.
- Debt maturities, refinancing needs, covenant compliance and the distinction between reported net debt and adjusted net debt; the filing reports compliance with annual financial covenants except for a wind subsidiary that received a non-acceleration commitment.
- Actual 2021 capital spending, demand and collection trends, regulatory treatment of over-contracting, and the delivery of projects and concession renewals.
- The ultimate outcomes of material lawsuits and contingent claims, and the continuing effectiveness of cyber and financial-reporting controls.