U.S. Markets closed

Edited Transcript of CPRE3.SA earnings conference call or presentation 13-Nov-19 1:00pm GMT

Q3 2019 CPFL Energias Renovaveis SA Earnings Call

SAO PAULO Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of CPFL Energias Renovaveis SA earnings conference call or presentation Wednesday, November 13, 2019 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Fernando Mano da Silva

CPFL Energias Renováveis S.A. - CEO and Member of Executive Board

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

[Interpreted] Today, we presented our executives, Fernando Mano da Silva, CEO; and Mr. Pan, Chief Financial and Investor Relations Officer; and other officers of the company. This call is being broadcasted simultaneously through the Internet, on the website of CPFL Renováveis at www.cpflrenovaveis.com.br/ir, where you can find the presentation for download. (Operator Instructions) It's important to mention that this teleconference is being recorded.

Before proceeding, let me mention that forward-looking statements under the state safe harbor securities litigation reforms -- projections and operational and financial targets are premises of the company's management, as are -- they are not a guarantee of performance. They involve future events and therefore depend on circumstances that may or may not occur in the future -- investors, we should -- you should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of CPFL Renováveis and could cause results to differ materially from those expressed in such forward-looking statements.

Now we'll turn the conference over to Mr. Fernando Mano. Please, Mr. Mano, proceed.

--------------------------------------------------------------------------------

Fernando Mano da Silva, CPFL Energias Renováveis S.A. - CEO and Member of Executive Board [2]

--------------------------------------------------------------------------------

[Interpreted] Good morning all. I would like to talk about the results of the third quarter of 2019. I would like to start on Page 3, where we show the current position of the company's in figures. Today, we have an installed capacity of 2,133 megawatts, of which 60% of are wind and 43 (sic) [453] are small hydropower plants, 370 of the biomass. And the pilot project in the Campinas project of solar of 1 mega (sic) [megawatt] of installed capacity.

On the right-hand side, you can see the evolution of our installed capacity. We used to have 62 megawatts in -- 652 megawatts in 2011. We are almost with 2,243 in 2024 with the constructions of the projects that we won in the A-3 auction and the project of the small power plants of Cherobim in Panama.

On the left lower-hand side, we can see some highlights of the results for the quarter of 2019, with the highlights with -- to our margin of 64.1% and an EBITDA of BRL 384 million. We have 99 plants. 5 are under construction. And we are present in 58 municipalities. And 4 sources of generation. And it's important to mention that we have a pipeline of 2.9 gigawatts of installed capacity and projects that we are studying and we intend to develop in the future. We have wind, solar and small power plants projects.

Finally, on this page still I would like to show you our leverage situation. We have a net debt-by-EBITDA. You can see that this indicator suffered a drop in these past years. We are in 3.7x, which shows that CPFL Renováveis is no longer a company of projects, but it's a company's with a number -- a reasonable number, of plants and generation in operation. This gives us our business and sustainability to our business.

Going on to next page, I would like to talk about the results of this quarter. The first important point to talk about is the conclusion of the transfers of CPFL Renováveis from State Grid to CPFL Energia or with the payment of BRL 4.1 billion, a value of per share of BRL 16.85. This is part of a process of [energy re-op]. And these are shares of CPFL Renováveis. And today, the company has almost 100% of share of CPFL Energia, and the rest of the part -- the share goes to the minorities.

We've had a generation of 1,939 gigawatts in the quarter. We had a condition of our natural resources below what was noted last year. This is a great factor that influenced the results of the quarter. We had a net revenue of BRL 599 million, almost BRL 600 million, in the quarter; and an EBITDA of BRL 384 million. I will explain further down the details. Our net income was BRL 124 million, 2.3% (sic) [up 2.3%] compared to the third quarter '18. The liquidity situation is very good. We have BRL 1.5 billion in cash, which gives us this financial security. And also our net debt EBITDA indicators of 3.7x, net debt of BRL 4 billion (sic) [BRL 4.3 billion].

Going now to next page, Page 5, we see the comparison of generation compared to the last quarter of this year. We can see that biomass was 7.8 gigawatts -- are above the last quarter. We had a better year in terms of crops of sugarcane, which allowed greater energy generation with the gas. The net energy was lower than last year, especially in the states of Minas Gerais and São Paulo, reminding you that almost 45% of our physical guarantee is in the regulated market, repatriated in the GSF. The rest is on the free energy market.

And in the wind energy, we had 169 gigawatts less than last quarter. 2019 has been difficult in terms of natural resources, wind in this case. This is noted in the market as a whole. And it's important to point out that we work with a projection of 20 years for wind energy, so until 2050. We base our projections, well, when it is normal that we have 1, 2 years of generation energy that's lower, and the next couple of years, it might be higher. So our generation is almost 99% of [350] of what we've been forecasting.

Going on to Page 6. We have our financial results. So going into net revenues. As I said before, a big part of the impact, BRL 61 million, is explained by the less generation of wind. Although we had better availability of our wind farms, but the winds were below the forecasts. And we also must remind you that in 2018 we had the MCSD mechanism, which is a mechanism that allowed last year that the energy was sold in the free market, which allowed the company to sell in the free market at higher prices last year. Now in 2019, this mechanism could not be implemented. Due to the regulation, it could no longer be applied. So part of the results that we have in wind energy of BRL 61 million, BRL 31 million is explained by this mechanism of MCSD which existed last year and no longer exists this year. And it's also explained by the results of the wind.

So that you have a reference, we had less 48% of the winds and more than BRL 20 million in availability, which was under the control of the company and had better results. This small hydropower plants, we had an impact of BRL 35 million explained by the seasonalization of the physical guarantees of the hydroelectric plants. The revenue is very much associate of the profile of the physical guarantee and less of the level of the generation of the plant in itself. And then the highest point in this quarter was higher than last quarter. And biomass, we had a higher generation, which has an impact of BRL 6 million, part of it due to the seasonalization of these contracts.

The EBITDA. In terms of margin, we had less generation of the wind energies, with a total of BRL 66 million. We had a hedge of energy of BRL 10 million. We have to anticipate our purchase of energies to mitigate the deficits. We purchased at higher prices. And we had a positive effect of the seasonalization of contracts in the free market. And we also had the positive effects of GSF for the small hydropower plants of BRL 11 million. Last year, in this quarter, the same quarter, we had a higher PLD, which impacted -- the GSF impact was worse, was more negative than the impact that we had this year.

At -- as to the PMSO, we see a reduction of BRL 23 million compared to last year. It's important to mention here that we had the write-off of some assets of the Ceará project. We had the replacement of some components to improve the availability of the part. And we also replaced some depreciated equipment. So last year, we did not have this effect. Some parts have a grace period for the O&M payment. That is, I build the project today and after 2, 3 years, depending on the contract, we do not pay O&M to the suppliers. And here we do not have this payment in 2018, but we had in 2019, so the BRL 6 million is explained by this grace period of O&Ms.

This integration of CPFL Renováveis and CPFL Energia, which is a project that will bring important gains to the company. And at this first moment, we talk about, well, firing people; and that did not happen last year.

So our prospective is very positive, and we'll bring fiscal benefits and reduction of the cost of debts and synergy in the PMSO. So we had BRL 34 million above the forecast. We had a reduction of indebtedness and an improvement in the cost of debt compared to the -- related to this integration with the CPFL Energia.

So giving suit, I go on to the last page, Page 7. We would like to end with the situation of indebtedness of the company. As I said, our debt in the quarter is -- are at 3.7x. We have a net debt of approximately BRL 4,300 million. On the left bottom, we have the cost of the debt. The gross cost, we had 8.1% in the second quarter 2019, and we now have 7.7%. This is part of the company's strategy of seeking costs that are lower based on this integration with CPFL Energia.

As you'd all know our profile on -- of the debt. As you can see, (inaudible). You can see that's very much related to the [MDS] debt. And also debts in second place related to the CDI to establish in this smaller portion, adjusted by the IPCA and IGPM. Our net debt is BRL 5.2 billion, with the level of maturity, an average level of maturity of 4.7 years. We -- so we have a very stable financial situation and adequate for the next few years.

Now these are the main messages that we would -- we wanted to convey. So in summary, well, I think that a great part is the issue of the winds. So that's why we have these oscillations. And the impact of -- that PMS did, which also impacted our results. And the part under control of the company, which is the availability and efficiency, was much better than last year. And the company keeps on with the efforts to guarantee an availability level that's adequate for our shareholders.

I thank you all. And I would now like to open for the questions.

--------------------------------------------------------------------------------

Operator [3]

--------------------------------------------------------------------------------

[Interpreted] (Operator Instructions) As we do not have any questions, we'll now close our Q&A sessions. I would like to give the floor to Mr. Fernando Mano, to his final considerations. Please proceed.

--------------------------------------------------------------------------------

Fernando Mano da Silva, CPFL Energias Renováveis S.A. - CEO and Member of Executive Board [4]

--------------------------------------------------------------------------------

[Interpreted] Once again, I thank you all for your participation. The company is available through our IR team. Any doubt that you may have, please get in touch, and we'll be available to answer.

Thank you all.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

[Interpreted] The audio conference of CPFL Renováveis is now closed. We thank you for your participation, and have a great day. Thank you for using Chorus Call.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]