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Edited Transcript of CPRE3.SA earnings conference call or presentation 23-Mar-17 12:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 CPFL Energias Renovaveis SA Earnings Call

SAO PAULO Mar 23, 2017 (Thomson StreetEvents) -- Edited Transcript of CPFL Energias Renovaveis SA earnings conference call or presentation Thursday, March 23, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gustavo Sousa

CPFL Energias Renovaveis SA - CEO

* Flavia Carvalho

CPFL Energias Renovaveis SA - CFO, IR Officer

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Presentation

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Operator [1]

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Good morning and thank you for waiting. Welcome to the CPFL Renovaveis conference call to discuss about the fourth quarter 2016 and the earnings for the same year.

Today, we have with us the Executive Mr. Gustavo Sousa, CEO, and CFO and Investor Relations Officer of CPFL Renovaveis, Flavia Carvalho, head of Finance, Investor Relations and Communications and other company officers. This call is being broadcast simultaneously through the Internet and the website of CPFL Renovaveis at www.CPFLRenovaveis.com.br/IR. At that address, you can also find a banner through which the presentation will be available for download. We inform that all participants will only be able to listen to the conference call during the Company's presentation. After the presentation, there will be a Q&A session. (Operator Instructions). It's important to mention that this teleconference is being recorded.

Before proceeding, we would like to clarify that forward-looking statements made during this conference as to forward-looking statements, projections, and operating and financial goals are forward-looking statements, and information currently available to the Company. Forward-looking statements are not guarantees of performance. Therefore, risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand the general economic conditions, industry conditions, and other operating factors could also affect the future results of CPFL Renovaveis and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I'll return the conference to Mr. Gustavo Sousa. Please, Gustavo, go ahead.

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Gustavo Sousa, CPFL Energias Renovaveis SA - CEO [2]

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Thank you very much. Thank you for participating in our conference call for the results and the performance of 2016 and the fourth quarter of the same year.

We start on Slide 3, where we show a quick photograph of the numbers of the Company. We closed the year within installed capacity of over 2 GW distributed in these sources, 60% in the wind BCH and biomass 18%, and 21% in bio. With this perspective, we closed 2016 with an annual -- compounded annual growth rate (technical difficulty) 26%. We have an EBITDA of BRL993 million in 2016, 91 clients, 57 municipalities. In addition to that capacity, the Company counts with a pipeline of almost 3 GW. Of that, on the daily counting with the collaboration of 432 employees.

On Slide 4, we have the portfolio under construction. We have the wind outlets, Pedra Cheirosa (inaudible), which will generate 48 MW. And we also have small part plants in (inaudible) that will add to the Company a capacity of 26 MW. All projects have been implement it and under construction and will be in the schedule previously showed by the Company.

Now we go to Slide 5 to talk about some highlights of the fourth quarter of the year, and now I pass the floor to our head of Finance.

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Flavia Carvalho, CPFL Energias Renovaveis SA - CFO, IR Officer [3]

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Good morning all. I'll start on Slide 5. The first highlight was the growth of generation, that grew by 13.30% in the fourth quarter, and 14.9% compared to the last year. It should be reminded that, over 2016, we added new capacity. We have a new small part plant in (inaudible) and some wind projects we concluded in December which has added 261 MW, 14.7% at the end of quarter and 9.8% in the year. As to add we maintained our cycle of investments during this year where we invested almost BRL1 billion in these projects under construction. We have a liquidity situation which is adequate to the Company's profile of BRL1.5 billion, reminding that, in December 2016, we had an input of BRL300 million as plans for future capital increase from the controlling shareholder.

Throughout 2016 and 2017, we also had the conclusion of the transaction for the acquisition of the controlling block of CPFL Energia by State Grid. And at the beginning of the year, we had the charter call for carrying out the OPA of the title loans, the mandatory ones, also to get out of the new market and to convert to the Category A to Category B.

And to the next slide, Slide 6, we have a photograph of the engines that allowed us to get 2 GW, which gave us leadership not only in Brazil where we were already leader, but in Latin America.

Going on to Slide 7, we have the main indicators, economic and operational. We will be talking about them over the presentation, but we have a net revenue impacted by the increase in capacity. The EBITDA had a drop for nonrecurring events. We also had operating growth in capacity, and energy generated, and we closed the year with 432 employees.

Giving higher this highlight, we had, on the growth, we had addition new capacities. That ended with the growth of the wind capacity, and we also had that wind, especially (inaudible). And in the hydro generation, this mobile plant had an increase of 14.6%, also due to the effect of hydrological conditions, especially in the southeast region, and the entering of new capacity.

And in biomass, we also have a growth of 14.6% a year. One of our biomass plants that had lost operations due to -- talking about the net revenue, when we look at the growth in the year, we also had higher wins. The start of operations of the Rio Grande do Norte coal plant, which was gradual and were already in December 2015, and we also had price readjustments. The small power plants, we had the start of operations of Mata Velha. We had the important impact of the repatriation of the hydrological risk that we had at the end of 2015, so 40% of our portfolio of small power plants that were commercialized in deregulated markets are now protected by the GSF.

In biomass, we had smaller revenues, but it should be reminded that we have been highlighting during the year that we had movable leverage in this year, and we can have different seasonalizations along the year. So we had seasonality that was different from 2014, but we need to see the movable average.

When you look at the previous 12 years, you have it contracted to one year, and this generated (inaudible) we had to purchase energy, it impacted both the revenues and costs. So for 2015, the effects on the results of our test is almost 0, but when we compare 2016 with 2015, we see that we had revenues and costs impacted because of that effect.

Going on to slide (technical difficulty) of cost and generation energy, we had it stable during the year. When we compared the charges of the systems, it was increased, reminding that it increases according to the increase of the portfolio and it's corrected by inflation. And also the PMS saw increases with the increasing portfolio, and here we also have the effect that, after two years in operations of the wind park, you start paying taxes that will have two years of grace period. So we have the cost there in that list.

Going on to slide of general and administrative expenses, we had a growth with personnel expenses, especially due to the increasing the number of employees. And we had a drop in third-party services, reminding you that this year we had no great projects of M&A that -- with that third-party services. And in others, we had a significant increase.

Two points should be highlighted. 2015, we had a positive amount with the reimbursement of the biomass turbine that was given to us by the insurance companies, and we have projects under development; that had an impact of BRL73.6 million in our results.

Going to EBITDA on Slide 12, as we have mentioned before, the update is in line and we had this increase in revenues and a little bit of incremental costs, especially impacted by these nonrecurring events that happened in 2016, especially due to the slowed production of and the write-off of some assets.

Going on to Slide 13, financial results, we had smaller financial revenues and higher financial expenses due to the average cash of the Company's situation, also a decrease of the indexes of the debt on CDI and TJLP. The project, every time the project starts operations, the debt that was capitalized starts getting results, so we see increase in financial expenses.

Going on to Slide 14 of the debt profile, we closed the year with five times of the EBITDA, and net debt. It should be mentioned that, as we deliver projects, this leverage decreases because we take the whole debt of the project before the project starts operations. It's already contributing to the debt but it's not contributing to the results, and (technical difficulty) part of our debt still indexed in TJLP because of the debt with the PMSG. And that profile is still long-term. Without the PMSG, we have 16 years of term, and we close the year with an average cost of 88.3% of the CDI.

These were the main highlights of the fourth quarter of the year, and I will open to questions and answers.

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Questions and Answers

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Operator [1]

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Thanks, ladies and gentlemen, we'll now start the Q&A session. (Operator Instructions).

We now close our Q&A session. I would like to pass the floor to Mr. Gustavo Sousa for his final words.

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Gustavo Sousa, CPFL Energias Renovaveis SA - CEO [2]

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Thank you very much for participating. And any other information that you may need, our IR team is available over the site or over the phone. Thank you very much and have a nice day.

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Operator [3]

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The conference of CPFL Renovaveis is now closed. We thank you for your participation. Have a nice day.

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Editor [4]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.