Please ensure Javascript is enabled for purposes of website accessibility

CPFL Energia S.A. (CPL) Q4 2020 Earnings Call Transcript

By Motley Fool Transcribers - Mar 26, 2021 at 6:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

CPL earnings call for the period ending December 31, 2020.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

CPFL Energia S.A. (CPL)
Q4 2020 Earnings Call
Mar 26, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Gustavo Estrella -- Chief Executive Officer

Therefore, we're looking at opportunities and we have a rationale, a value we follow and if we don't, we don't as we didn't in the past, and then we proceed to distribute the dividends during 2021. Here I think this is a mark for the company in two companies of the group. I'm going to talk a bit more about this CPFL's Santa Cruz. We have the lowest index in history of the company, special rates -- this is lower than the limits, tariff-free adjustments positive in 2020 with a very positive perspective for 2021, the impacts of the IGPN and also the investments I've just said of our record for investments in 2020. And this refer -- with the tariffs of our distributors. We also have the entry of operation of the project of the Wind Complex of Gameleira from the second quarter of 2021. This is 2.5 years before the announced official deadline. It's also a victorious process, very well executed not only because it comes before and it's also a reduction of our risk. As for the ESG, I'm going talk a bit more about this further forward, but we have CPFL win some market rates. This is also an important moment for the company, some main rates for Ibovespa and some specific rates in our ESG agenda, the ISE, ICO2 and also the ESG portfolio the Santander bank.

We will also recognize the Credit Suisse in the Global ESG Report as one of the main preferred shares of the analysts and this reflects our agenda in terms of ESG. We're going to highlight this further forward. We launched our Sustainability Plan 2020-2024 and we entered the Lideranca com ImPacto Program with Global Impact, the ADS3 to talk about health and well being.

We also started a pilot project of electrification of the operational fleet. We start with our regional in Indaiatuba BRL223 million for vehicles 100% of fleet electrified, of course, the expectation is that we are able to extend this project 4,500 for the Group and also linked to this theme of ESG where we're also part of the supplier engagement leaderboard of the CDP, this means we understand the commitment linked to ESG, not only our commitments, but also the commitments of the chain. So we also embark our supply chain and linked the themes of the ESG.

Now let's move toward the next slide. Here we talk about sales in the fourth quarter. We can clearly see a signal of recovery in the consumption of energy in our concession areas. We close load with a growth of 2.6%. We highlight the growth of the three clients 11.5% and we can see a large different sales in the consumption segment and our sales in this quarter were impacted by the 8.3% revolution where it says that we now have to invoice our clients of the A group within the next month. So this was a change of the calendar and invoicing. So this is an impact in the sales, and it's important to highlight the impact does not bring impact on the results due to the compensation of the non-invoice. So there is no result in 2020 impacted by this change of the resolution 8 to 3 [Phonetic].

What we do is this adjustment and we can see that this hits 1% aligned with the concession load. We can see the growth consumption class. We see that it's a consumption that's led by residential class with 5.5%, followed by industry here with 0.1% if we adjust the impact of the resolution 863 and the migrations of the plans so the basic network, we can see that the industrial class was also very positive with a growth of almost 5% in relation to 2019. The commercial class also has a relevant impact with the resolution 863 but even so we see that the commercial class has a huge challenge decrease in consumption of over 5% but decrease in consumption if we compare to 2019.

Now let's go to the next slide. 2020, we close this year with a drop in the concession area of 1.7%, when we remember at the beginning of the pandemic in the second quarter, the estimates and the expectations of consumption is were what much worse, I believe that we are closing the year much better than we expected. So a drop of 1.7% in our concession area. We can see here, we also have the impact of the resolution 863, of course, much lower than the second quarter, but it's also percentages that should be removed so that we can analyze this market in a more precise manner. We can see here the sales is drop of 3.1%. We have to remove the 0.8% of the resolution 863, another 0.8% of the effect of the migrations. So we can see here a drop of about 1.5% in the performance of the market, very positive and due to the challenges of the pandemic that we had last year, we have more or less the same design in the fourth quarter. The growth of the market led by the residential areas is showing as certain recovery of the industry and the commercial class still suffering a lot due to the effect of the pandemic.

We made a slide here to show you the growth per class in 2020 adjusting the number due to the effects that I mentioned the resolution 863, the migrations, the generation, the calendar invoicing. Here we can see the numbers demonstrating the real trend of performance of each one of the classes. What we can see here is that the residential class adjusted with all these effects, an average growth of 3.7% in the year, negative growth here and the first quarter already recovering in the second quarter. The industry, we can clearly see huge impact concentrated in the second semester and the third semester we see clearly a recovery closing here in the fourth semester wheather impact of -- high impact -- the commercial class also has a recovery but it maintains negative the whole year closing with almost 5% drop. And the other -- basically the impact of the rural class, that did not suffer a lot during the pandemic, and has a performance always positive during the whole year of 2020.

Next slide please. In relation to delinquency and losses, we can see that we closed the fourth quarter with default of BRL52 million, 0.69% here. There are two important points, the growth in relation to the third quarter of 2020 and the growth in relation to the fourth quarter of 2019 have to be adjusted in this comparison. We had a series of renegotiations during these two prior quarters which makes us have large variation in relation to the fourth quarter. And when we see historical medium 2016-2019, average delinquency is 0.6%. We can see that in the fourth quarter we got closer to this historical medium. So that's the main indicator. As a huge effort here of our team, we can see here in the chart below with the -- we have the resolution where we could cut and we can see the billing in the fourth quarter we reached the highest levels of cut in the history of the company. So we cut 872,000 clients in the fourth quarter. So we were able to control and bring the delinquency to this historical. When we see the losses, it's also a huge challenge due to the pandemic. When you see the calendar, we have a loss aligned with the fourth quarter of 2019. This also is a reflex of a lot of hard work fighting these losses, which in a complicated time, so we have loss but it's practically aligned with what went on in 2019.

Next slide please. Here is the performance of the DI and FI. I think once more this is a mark for the history of the company. We reach here in Santa Cruz and the RGE the lowest levels in our history and the challenge in Santa Cruz is to reduce the level of DIFI which is already very low. We can see here, we went from 5.56 to 4.89 and in the FI of 4.25 to 368 in the RGE case, so the challenge was huge. Historically we had -- especially the DI much higher and the challenge became even larger when we acquired the RGE Sul, which also had higher levels of DI and this made us design a plan of reduction of the DI and this plan started way back in 2017 with a series of actions, increase of investment, complete redesign of our operation so that we were able to focus and reduce this. This is a mark in history with a drop of almost four hours to 10.83 from 2019 to 2020, really relevant. The challenge was huge. We were able to solve this effect also bit lower challenge but 6.25 to 5.27, here the challenge once more is a reduction in the deck that was already lower. We can see here the regulatory FI in 8.15. So, the DI is much lower. So I believe this is a challenge, this is a mark for the company during 2020.

Next slide please. Well, let's talk about generation now. Here we have in relation to the PLD, we have a growth of the PLD, which reflects the increase of prices that we had at the end of last year, a growth of 30%, but in the average of the year due to the effect of the pandemic in the second semester, a drop, an average of 21.7%. The GSF practically aligned with 2019, a drop of 1.9% and 3.7% in the quarter if you do an annual comparison. Here you can see the flow of HPPs, a drop remembering that in the majority they located in the south where we had drought during 2020. So this is an important drop of the flow of our UHF.

In the SHPPs, is similar less critical than the first case but also affected by the sudden -- and South East region partially compensated by the area of [Indecipherable] where we had an increase of flow and this made these effects a bit better. But the flow of 2020 was worse than 2019. In the Wind Generation sector, we have here two movements, two impacts, two main impacts these quandary [Phonetic] movements, one of them is the wind in 2020 a bit worse than it was in 2019, and this is a negative reflex of our generation capacity and we had an increase in the availability of our machines here directly affected by the OEM services and this broad growth in the availability in the average of the year of 94% to 96.7% and we were able to have higher generation than 2019. The next slide, please. So now I'm going to give the floor to my colleague for him to continue the presentation.

Yuehui Pan -- Chief Financial and Investor Relations Officer

Good morning to everyone. This slide, the EBITDA in this semester was BRL1.9 billion, an increase of 10.4%. The distribution segment had good results, again, with an increase of 11%, confirm the finance asset of the concession had high of BRL187 million due to the higher IPCA. The PMSO had a high of BRL42 million due to high and the legal fees. But it is important to mention that the operational expenses, continued dropping. In the pension plan there was an increase of BRL15 million. The PDD was higher BRL13 million, because last year we did some large deals with hospitals and other institutions, the current PDD level corresponds to our historical mean as Gustavo has already shown. The other variations add up to BRL6 million.

In generation, we add here the conventional and the renewable segments, the EBITDA was BRL768 million, high of 8.5%. The main effect was the gain of the GSF in the free market with BRL140 million. I highlight that this amount is still preliminary. We have projects of CPFL -- where the gains have not yet been accounted for. Therefore, we can expect an additional value further results in 2021. Another positive effect was the updating of the tariffs of the contracts, a total of BRL34 million. On the other side, we had some negative impacts in that period, a low of assets BRL44 millions, changes in the depreciation taxes of the assets of Epasa to adequate the end of the contract, BRL25 million, high of the UBP due to a higher IGP-M BRL21 million, the seasonality of the PCH contracts negative BRL14 million among other effects.

The segment of trading services and others had high of 31.3%. Lower volumes in the trading have been compensated by higher prices in the segment of services, good performance of CPFL services and CPFL efficiency.

Here in Slide 12, we show you the performance of the net profit, which was BRL898 million [Phonetic], high of 15.5% in relation to the same period last year. Besides the variation of BRL181 million in the EBITDA, we had in the financial result, worsening of BRL10 million, the depreciation were BRL25 million and the taxes had a negative impact of BRL63 million.

In the financial results, we have to highlight some effects. The first one is the MTM after a gain of over BRL250 million in the first quarter. We returned a part of that result with the improvement of the spreads -- of risk spreads in the market. On the other hand, we had a gain of BRL71 million with -- interests and fines in delays of payments of energy bills due to the increase of the IGPM and then the expenses with the net debt had a reduction of BRL37 million. This is explained by the drop [Indecipherable] and by our liability management plan that reduce the average cost of the net debt. As for taxes, we had a better result when we compare to last year. And this explains the increase.

On the next slide, we're going to show you the results of the year 2020. EBITDA grew 6% or BRL386 million. We highlight here distribution, which grew 6.5% favored by the good performance of the market, the tariffs, highlighting the performance of the residential class and the financial asset of the concession. Still referring to distribution, I would like to highlight two points here that even there have been lower variations, they deserve to be highlighted, the PDD, we had a reduction of 3.6% to BRL8 million. In spite of all the challenges of the pandemic, we were able to keep delinquency under control. PMSO, we had a reduction of BRL34 million in the distribution, and this represents a reduction of 1.3% compared to an inflation of approximately 5% in 2020.

Another highlight is the generation with the high of 6.6% or BRL167 million. This is a result mainly of the gain with the solution of GSF for the free market, BRL114 million. Besides this, we had contract readjustments. These gains were partially compensated by the weaker result of Epasa and large payment of UBP due to the higher IGP-M.

I would also like to highlight the cost reduction obtained especially due to the integration of CPFL renewables [Indecipherable] to the group. There was a reduction of BRL22 million with employees, material and third-party services. Now the net profit or income improved 34.9% or BRL959 million. This result was very much favored by the lower CDI and the cost of the debt, which generated gain of BRL376 million besides a positive effect of MTM with a BRL117 million. The gains with fines and interest rates also added BRL112 million during the year. On the other hand, the updating of the regulatory assets dropped BRL71 million and we did not have an extraordinary financial income generated by reIPO resources last year as compared to what happened in 2019. We also had a positive effect on taxes due to the fiscal credits accounted for in 2020, adding up to BRL323 million.

The next slide, please. We have the indebtedness of the company. The first graphic shows that the net debt is BRL15.7 billion and EBITDA BRL7.2 million, the leverage, which is measured by the net debt is 2.19 times. I'd like to highlight here that we are proposing the payment of dividends, relative to the results of 2020. With this macro scenario that we have nowadays and considering that we are evaluating potential M&A is, our proposal is to pay dividends worth BRL1.7 billion or BRL1.05 per share [Phonetic]. This represents a pay out of 50%. And if these projects -- we're going to be evaluating them and if this doesn't take place, then we will implement a new proposal to complement the payment of dividends. That means -- we are assuring to you, our shareholders, the balance between the growth and the yield. About the debt profile in the chart -- on the bottom part of the slide, we have the cost of the debt, whether real or nominal. The increase is due to the variation of the IPCA during the period, but the real cost is negative. It is helped by the Selic rate, whether it's historical minimum and by the inflation of over 4%. Now and the composition of the graphs that we can see that the largest exposure is indexed to the CDI with 76%.

The cash at the end of the semester was close to BRL4 billion with a coverage rate of 0.71 times, the amortizations short term. The medium-term of the amortizations is 2.53 years. Thank you very much. And now I give the floor back to Mr. Estrella. Thank you.

Gustavo Estrella -- Chief Executive Officer

Thank you very much. Well, continuing our presentation, here we have our capex for the year of 2020. So we can see here the distribution BRL2.3 million, a growth of 13.9% if we compare to 2019. In general lines, the investment for expansion modernization of the system infrastructure and IT, a series of projects that being carrying out last in generation, we've reached BRL283 million basically the two projects that are under construction that we have here today and our Wind Complex of Gameleira, here we have in transmission BRL184 million [Phonetic], the project -- for these consumed BRL134 million of investments. These are investments and especially -- arm of services. Here we have the perspective. We go from, this investment, we increase this investment even more in all the businesses of our group. We're going to reach BRL3.4 billion in the horizon, these BRL15.4 million of investments and the main is the distribution -- BRL13.3 million. This investment represents an increase in relation to last year, and especially led by the distribution. We have a series of new investments do fight default with long-term investments. So these are investments in quarter related to our operational base.

Next slide please. Here in relation to the Gameleira Wind Complex starting now in 2021, as I mentioned, we anticipated this would be January 24, the defined date by [Indecipherable] 2021 with the contracted energy. The initial -- beginning of the PPI at the time of the bidding process and also process contracted in perspective. The capex 5% below, also the time frame, the costs and this execution was very well done in the Gameleira Wind Complex.

Next slide please. Well, lastly, it's very important to mention here our Sustainability Plan for 2020-2024. We have a series of results reach here in 2020, especially a challenging year for us, but three pillars of our plan, we were able to have important advances in all of them, smart solutions, sustainable energy, society shared values, these are very important themes for 2020, almost 10,000 units of transformers and intelligence solutions, 100% of Group A with more than 35,000 smart meters installed and operated over 52% of our total consumption is telemetered. We increased the digital channels over 110 million attendant services. This was reflex of the pandemic last year, an expressive growth in digital bills over 2 million bills and now 3.47 million clients, a growth of 54%.

And shared value, it's a program, CPFL in hospitals. We have accumulated values of BRL72 million in investments. It was BRL51 million last year and 84 hospitals benefited and our expectation has reach BRL150 million and 314 hospitals benefited of CPFL hospital program. This was a huge challenge last year. We advanced this, and even in the communication way, this sustainability plan, we did a first event dedicated to this to the market and we spoke about our plan, we made all our challenges public, 15 goals linked to this sustainability plan. It's already now knowledge of the market expectations of investments and the market currently can follow and monitor the execution of CPFL. So I think this entry is an important mark in the easy portfolio and Santander, their recognition by Credit Suisse, these are important topics and we have to demonstrate to all our investors and stakeholders, community, clients, everyone in general, everything that we've been doing and it is a lot. So all linked to the sustainability issue. So these were the main message that we had today. Once more, I thank you for your participation and we will now come into our question-and-answer part of the event.

Questions and Answers:

Operator

Now let's go as Gustavo said, for the session of questions and answers, reminding you that the questions can be live. [Operator Instructions] So the first question is Carolina Carneiro from Credit Suisse. Thank you Carolina for your participation. And let's go to your question.

Carolina Carneiro -- Credit Suisse -- Analyst

Thank you. Good morning and thank you for the call. I have two questions. The first question is about the location of capital. The numbers here, we see that you have the leverage -- leverage has been dropping compared to four, five years ago, the leverage was about 3.5 times and now after the IPO 2.5 times and now we're talking about 2.2 times leverage, so with an expectation of generating EBITDA cash after the readjustments due to the IGP which accumulated should help a lot. So it's more to understand why the definition now of 50% of payout is given that your leverage would allow an M&A, a large MMA vis-a-vis this expectation of cash flow to be generated in the future. Is there a need of cash flow and is that why you took the decision of having a payout of only 50% given the situation. The second question in relation to the bidding process that we would have. [Indecipherable] has recommended and some players like you recommended it in the past perhaps the economics of this tender would be challenging due to the issues of the problem. So does this make sense, for this bidding process to take place, if there is anything that we know that would make this asset more attractive?

Gustavo Estrella -- Chief Executive Officer

Carol, thank you for your questions. I'm going to start with the capital allocation. I think it's important once more to register that the reduction measure of the payout is very much preventive and I think it shows the idea that we don't know exactly what opportunities will have in the next few months. I think we have a series of opportunities of assets coming onto the market. I think the idea is to be preventive to evaluate all the opportunities that we have on the market and that we will have during the next months so that we can guarantee that it won't be due to the lack of capacity of investment that we're going to lose opportunities. I think that once more, it's much more preventive and I would say even conservative. So what is our plan. The idea is to evaluate these opportunities, evaluate like we always have done. So there is no pressue for growth that will make us do differently. It will be the same as we've always done. So evaluating the opportunities. If they're good, if they generate value to our shareholders, we will follow this new investment if by any chance. We are not able to make this feasible. It's very clear to us that this balance between growth and yield, it is an expectation of the market. I would say even of our controlling shareholders, so the expectation and strategy, the idea here is that after this analysis and these evaluation of these assets, we will sit down, reevaluate what we were able to implement and what we were not able to implement. If we can, we follow with the payment, so it's very clear in our minds. It's very simple, and we are very careful. We evaluate these opportunities during the coming months and we will talk again about dividends further forward. I believe that basically the strategy of the group has not changed, its preventive and it's the opportunities of growth that we see coming in the next months. Your second question, I think we've talked a lot about there. I believe that it is challenging asset. We don't have -- this is not closed yet. It does bring additional risk, which has to be very well understood and the company has to advance in this project. All of this is being evaluated. So we don't have a close and formal position around this, but I would say that it is a challenge due to all the risks that we see in this asset.

Carolina Carneiro -- Credit Suisse -- Analyst

Thank you, Gustavo. A follow-up. I think there are a lot of other people wanting to ask question. Are you looking at other segments because they are -- is the segment of sanitation in your scope, not right now?

Gustavo Estrella -- Chief Executive Officer

It isn't.

Carolina Carneiro -- Credit Suisse -- Analyst

Okay, thank you.

Operator

Thank you Carol for your question. Now let's go to the next question. The second question, I'm going to ask Marcelo Sa from Itau BBA bank. Thank you for your participation. Proceed with your question.

Marcelo Sa -- Itau BBA -- Analyst

Good morning, folks. I have two questions. I think the first is about M&A, following -- the first question, if there is any possibility or if it's being discussed to have a combination of CPFL with State Grid transmission assets? That's the first question. And on the regulatory side, I know that there have been a lot of conversations with [Indecipherable] and the market -- the possibility of tariff deferment taking place this year. I would like to know how these discussions are panning out, what you've heard and about the fact that there's going to be meeting at 2 o'clock in the afternoon to discuss measures that can be implemented due to the pandemic. So do you think there'll be any measure like the suspension of cuts, like we saw in the first wave?

Yuehui Pan -- Chief Financial and Investor Relations Officer

Thank you for the question. About the first question, kind of possibility of the opportunity. And of course I have to tell you that in the past two, three years, we had a lot of progress. And recently in the first quarter we also of course, the country shareholder has some kind of progress there, mainly in the team [Phonetic] and this matter is on the top list and is under discussion. I would say if there's anything that deserves that -- is related to the market, we will let you guys know in the first time. Thank you.

Gustavo Estrella -- Chief Executive Officer

As for the regulatory topic, this subject is on the table. We also are very concerned with the tariffs. I think the numbers of last year, the default -- this topic is very sensitive, I would say the scenario is still very uncertain for 2021. We have here an apparent confirmation of the initial with values lower than last year. We know that last year this emergency helped amount the money that people received helped a lot to fight against the full and this year now, the market, the scenario of the pandemic worse moment how we have to see how the economy reacts so delinquency is yes, a real factor of concern today. As you know, with all the readjustments in the case of CPFL fails of removing Santa Cruz and the old contracts, we have the IGP-M which was high in 2020, continuous high this year. But what we're doing now is to pass over the high IGP-M in our tariffs in this beginning of the year. So we are sensitive and discussing how we mitigate the effect of the tariffs and this is a pre-condition, I would say, very much aligned so that we don't lose any type of economic. All right. We're discussing this is putting on the table deferring the impact, the cash impact, but without economical losses for the company. So it is a sensitive topic, and we are, yes, very concerned and we are discussing with them [Phonetic] about the alternatives. This I think will happen for all companies, not all, only CPFL, the market in general. And I think it's a benefit for everyone, the client that doesn't receive high readjustment right now for the agency and for the companies as well.

Is there anyone want to add anything?

Yuehui Pan -- Chief Financial and Investor Relations Officer

No, I think the differing, well, first of all, good morning to everyone. Good morning, Marcelo. I think you said very well. Marcelo, has the second question about the measures suspend cuts that Anil will decide in the meeting at 2 o'clock, the expectation Marcelo is that, as it has been publicizing and the suspension will be focused in social tariff consumers those, the limit is 30 June [Phonetic] much more limited than the measure of last year. And during the same period, we will be without having to do the compensation due to transgression of the individual limits of -- continue as you're not that we're not going to pay the same thing that happened last year but is due to the eventual flow of this suspension to the low-class consumers. It's an expectation, this meeting is going to happen at 2 o'clock. So we'll have to wait for the formal deliberation and discussion that will take place in the collegiate directors at 2 o'clock. But it's very much focus and the debate is being carried out and the preliminary notes with the consumers, the low class consumers.

Marcelo Sa -- Itau BBA -- Analyst

Perfect. I'd like to follow up [Indecipherable]. I understand this discussion point that you had in the past that it evolved in the company during the last years and that if I understood, this is one of the most relevant points that is in the head of the controllers and this could be a real possibility for some time, but this will be shared when a decision is taken to the market, was that what you meant, Pan? Is that what I understood?

Yuehui Pan -- Chief Financial and Investor Relations Officer

Yes, you are absoloutely right. And there is some, definitely this is always in the minds on the top left. This is a huge strategic topic. And as you said, if there is any progress, do service released to the market, we got let you know.

Gustavo Estrella -- Chief Executive Officer

Okay, thank you.

Operator

Thank you Marcelo. Thank you for your questions. Now we are going to move to the third question. Flavia of Goldman Sachs. Thank you for your participation. Well proceed with your question.

Flavia Sounis -- Goldman Sachs -- Analyst

Hi guys, good morning. My question is more related to opex we saw, sequentially an increase in the costs of the CPMs besides the increase of the legal costs compared. So I would like to better understand what happened sequentially, how recurring this is or not, and also if you could detail a bit better what's included in these legal expenses this high increase of legal expenses which called our attention? Thank you.

Gustavo Estrella -- Chief Executive Officer

Thank you, Flavio. So, responding your question in relation to the PMSO in this quarter, specifically, we had an increase due to some some legal expenses. Of course, when we look at the opex of the year, we see a reduction of opex, and of course, a lot of this is influenced by the pandemic, especially with the actions toward digitization, new payment methods, or the mobile that was implemented during this time of the service -- client services also in our operations, I believe, that part of this PMSO perpetuates into 2021, especially related to these topics. But in the fourth quarter, we did have, in fact, influence of the increase of legal expenses. I think it's important to comment that part of these expenses were labor issues that take place during the year. Obviously that during a pandemic, this was thrown to the end of the year. It's very much spread out. There is no huge event to mention. There was also a reversion last year and Piratininga, which adds to these values, we also had some other arbitration processes. So no relevant value.

And I think that some regulatory signs that also happened in the sector and no expressive value. Of course, we're always paying attention to try to revert the situation in the future. So I think what I bring to you Flavio in relation to the legal expenses that there is no impact of any specific relevant factors very much spread out, and I'd like to reinforce another point of the PMSO when we talk about inflation, because if we get our PMSO reduction compared to the inflation that we saw in Brazil that was high. This brings us not only a saving, but it's -- if we compare this to the inflation, it was higher due to decrease in [Indecipherable].

Thank you very much. I would like to follow up and try to understand a bit better, more specifically thinking about third-party services, employees. I can see considerable growth what can be considered recurrent in the third quarter or is this -- there is a big difference. It's about 20% difference here in our numbers. So if we get the second quarter and the third as a base, we were at a time of -- a more critical time in terms of learning and making some changes out. Looking at this increase of expenses -- the legal expenses, I don't think it's a good indicator.

So what do we have here that can perpetuate to next year we can think about the gains of digitization, new technologies, especially this digital side of services of clients new means of payments. This brought us some interesting gains, for example payment means in terms of tariffs, and when we increase the digital payment means, we reduce the tariff one-third when we compare to the physical channels. So, of course, in this route, we have a certain reduction and this should continue. It's difficult to give you a specific number because we're still in the pandemic. We don't know how this is going to pan out in the future. So if we talk about the third quarter, perhaps it will make sense when we analyze the next months, but it's still difficult to tell you for the rest of the year, it will depend how on the recovery in terms of the pandemic and other issues.

Operator

Thank you. Good morning. Now going to the next question of so Juel of UBS. Thank you for your participation on our event. Please ask your question.

Juel -- UBS -- Analyst

Well, hi, guys. I have two question. I would like to be more -- I would like to talk about the CTR, we understand is it's a said challenge of, I would like to know what do you see the challenges of the ICMS, how you're working on the modeling of this, of the C3E? And can you merge the assets with the ACTS3? The different indexes, the IGPM and if you have the authorization of NL to merge these assets?

And the second question that I have also related to the IGPM, if it makes sense for you to change the IGPM indexes for the ICP to extend the concession, have you analyzed this possibility you could actually alleviate the tariff pressure during this fit in compensation, you would reduce the risk average and long term? So it's these two questions.

Gustavo Estrella -- Chief Executive Officer

As we mentioned, I think it's highly complex asset. I don't know exactly what you're saying. I would say it's an operational challenges. Well, not only the balance sheet or the financial statement. So it's a challenge to turn around the company, and it's of course the challenge with the accounts. So here you have discussions in relation to the pension plan to the payment of the ICMS, which is pending, which is an account, which goes up daily until the tender date. So you have financial questioning, which is also important. So all these challenges together that we insert in the model to see if in fact we can close the accounts about the concession, as you said, here we have a challenge of merging, which is different than we have in the RGE.

First is the difference of contracts. One is a new contract, and we are still in the old contracts of RGE. So you have additional complexity here, and you also have the fiscal credit, which also has to have a price. We didn't have this discussion with RGE, so we have it here. So I would say that the complexity is bigger. When we talk about an eventual merge of the assets with different than what we did with RGE South, about the change of Indexes. I think, this is a discussion, which is very complex and almost impossible to forecast how the IGPM and the IPCA in the future is going to how to you put a price on this. So this is the challenge. And the second point, so is the concession extension. This is a different discussion then the generation case. Our scenario here is of renewing the concession, where in the first cycle, first concession and we work basic scenario with an automatic extension or to of course checking all the quality indicators, the NL. We are going to be able to renew this to a new contract model. It's given. And there we will evaluate the IGPM IPCA automatically.

But if we talk about concession extension in a scenario where we can sit given that we're going to have the right to the second concession, I think it's the same as what we discovered -- we discussed in the case of the GCE.

Juel -- UBS -- Analyst

Thank you very much.

Operator

Thank you. Well, guys, we don't have any more questions. So, we will now close the session of questions-and-answers, and if there is any question please talk to Sonia, Investor Relations. She is always available to clarify anything that has not been clarified, and I'm now going to give the floor back to Gustavo Estrella for his final considerations.

Gustavo Estrella -- Chief Executive Officer

Well, first of all, I'd like to thank you all for your participation. We're now going to end the year of 2020. It was a very challenging year for the company. It was year of a lot of uncertainty, and we had to remodel all our businesses, we had to focus too on the health and the safety of all our collaborators, and I think we had a very positive results. I think we were able to retake an uptake of consumption, an uptake of our results after the second quarter, which was negative for the whole market. And I think we're beginning to have good recovery results from the third quarter, preserving the main projects of the company the tech and investment program. I think these are examples that life has not soft with the pandemic, and we struggle a lot to keep up our short-term operations also maintaining the focus and the vision long term. We are in -- in the infrastructure sector, we need investments long term and I think we were able to do this balancing all the short-term challenges, but knowing that we're going to continue to have a long-term perspective and building this future for CPFL, I think we were able to this. We have here a year, which is going to bring us a lot of challenges. It depends a lot and the how quickly the economy is going to recover and how the vaccination program moves along, and we see that we are much more prepared for these challenges and for the opportunity.

I thank you very much for your partnership during last year. Thank you very much, and see you next time.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Gustavo Estrella -- Chief Executive Officer

Yuehui Pan -- Chief Financial and Investor Relations Officer

Carolina Carneiro -- Credit Suisse -- Analyst

Marcelo Sa -- Itau BBA -- Analyst

Flavia Sounis -- Goldman Sachs -- Analyst

Juel -- UBS -- Analyst

More CPL analysis

All earnings call transcripts

AlphaStreet Logo

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

CPFL Energia S.A. Stock Quote
CPFL Energia S.A.
CPL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.