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Edited Transcript of TIET11.SA earnings conference call or presentation 28-Feb-20 2:00pm GMT

Q4 2019 AES Tiete Energia SA Earnings Call

BARUERI Mar 19, 2020 (Thomson StreetEvents) -- Edited Transcript of AES Tiete Energia SA earnings conference call or presentation Friday, February 28, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Clarissa Della Nina Sadock Accorsi

AES Tietê Energia S.A. - CFO, VP of IR & Member of Executive Board

* Italo Tadeu de Carvalho Freitas Filho

AES Tietê Energia S.A. - CEO, President & Member of Executive Board

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Conference Call Participants

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* Carolina Carneiro

Crédit Suisse AG, Research Division - Sector Head

* Guilherme Ferreira Lima

Santander Investment Securities Inc., Research Division - Research Analyst

* Kaique Vasconcellos

J. Safra Corretora de Valores e Cambio Ltda, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to AES Tietê's audio conference. During this call, we will discuss results related to the fourth quarter 2019 and the full year 2019. The IR team of Tietê Energia also would like to inform that the respective release and slide deck can be accessed at ri.aestiete.com.br. (Operator Instructions) This audio conference is being recorded and is also being broadcast over -- webcast and can be accessed at the company's IR website.

On behalf of AES Tietê Energia, I would like to state that forward-looking statements made during this earnings call relative to the company's business outlook, operating and financial targets for the company are predictions based on current expectations. Such expectations might alter vis-à-vis market conditions, the country's economic performance and international markets.

The presentation, which will be accompanied by slides, can be seen over webcast, as it was mentioned, and will be conducted by the company's CEO, Mr. Italo Freitas; and by CFO and IRO, Clarissa Sadock. At the end, the company's executives will be available for questions you may have. (Operator Instructions)

I'd like to hand the floor over to Mr. Freitas. Please, Mr. Freitas, you may carry on.

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Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [2]

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Thank you. Good morning, everyone. It's a pleasure to be with you for, once again, discuss our earnings for AES Tietê Energia. Here with me today, we have Clarissa Sadock, our CFO and IRO, and other executives from the company and also our IR team.

On Slide #2, we have the main highlights of the company, which provided support for the numbers we'll be discussing throughout this audio conference. In 2019, we had a consolidation of several development projects, and other new projects were brought into our portfolio. Moreover, this was the year when we celebrated 20 years of AES in Brazil.

The growth front -- on the growth and diversification front, we highlight the full operations, start-up of the Ouroeste Solar Complex, which has already contributed 100% to our results. Also noteworthy, the purchase agreement we entered in June last year for the development of another 580 megawatts of wind energy in Bahia, out of which 322 megawatts have already been sold through 2 long-term PPAs, adding complementarity to our portfolio and predictability to our results.

Moving on to portfolio management. The first highlight is the significant advance of the contracting level of our portfolio at very attractive prices, which is a consequence of the work done by our commercial team and also our market intelligence team.

Number two is the result brought in by new sources, which show how complementary our businesses are and how important it is to be complementary, which brings better margins for the period.

Lastly, under the excellence -- operational excellence pillar, it's worth mentioning that the refinancing of approximately 50% of our debt to be able to face the company's new growth structure was put in place. The result of all that, as compiled, leads us to the final highlight, which is the guarantee of good returns to our shareholders. The year was marked by a payout of 116%, equivalent to a yield -- payment yield of 7.4%, a good result, especially considering the current scenario where we have a drop in interest rates in the country.

Moving on to Slide #3 -- actually, moving on to Slide #4, we're going to be talking about the Tucano Wind Complex. We show the advance of the agreement of wind purchases, as I just mentioned. Out of the 582 megawatts with the agreement, 55% have already been purchased through 2 PPAs, long term, with 2 industrial clients, as communicated in the last quarter of last year. It's worth mentioning that the main competitive advantage of AES Tietê is to be able to offer a competitive product, 100% renewable and customized to its customers in a very scalable form. Today, we can state that we are pioneers in transforming those distinguished services into shelf products for the market with the objective of making life easier for our current and future customers.

On Slide #6, we have position of our contracting level and how it has advanced. The hydro scenario, which was quite atypical last year, led to opportunities for the company to move forward on the sales of energy front. For the coming years, we have contracted 1,321 average megawatts for our hydro portfolio between 2021 and 2022 at prices above what we had in our portfolio. Here, again, we show for the first time a snapshot of the year 2024, which already has 37% of energy sold, a good result considering the average duration of contracts in the free market, which is of approximately 4 years.

We understand how important predictability is for the results for our shareholders. And on this chart, you can see in numbers the company's dedication not only to close new contracts and sign new contracts, but also ensure the best prices and, as a consequence, better returns.

I now turn the floor over to Clarissa Sadock, who will be touching upon our financial results. Please, Clarissa?

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Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CFO, VP of IR & Member of Executive Board [3]

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Thank you, Italo. Good morning, everyone. Now moving on to Slide #8. We talk about the company's operating -- net operating margin. The net margin reached BRL 381 million in this quarter, an increase of 8% when compared to the fourth quarter 2018. In the year, margins saw a growth of 3%, closing the period at BRL 1.4 billion. That growth was driven by mainly 3 factors: number one, the growth of BRL 80 million in margins coming from solar operations given the growing contribution from the Guaimbê complex throughout the year and also the start-up -- the total full start-up of the Ouroeste complex at the end of the year. We also saw a growth in our wind margin at BRL 45 million. That good performance results to a higher average speed for the winds in this period.

On top of that, we saw a reduction of BRL 20 million in the hydro margin due to the atypical hydro scenario in the year. Here, we can see the importance of having a complementary portfolio when we have a negative correlation from different sources, and that was key to the growth in our final results, final numbers.

Moving on to Slide #9, we have our EBITDA and our net profit, a snapshot both in the quarter and in the year 2019. The EBITDA in the quarter was BRL 286 million, up 6% from the fourth quarter of '18. And in the year, it came out at 2% above the previous year, reaching the mark of BRL 1.030 billion. The main driver for that growth was the contribution from the nonhydro sources, as I just mentioned. It is also important to remember that for the year 2020, we expect an EBITDA nonhydro even more robust due to the full contribution coming from the -- from both Solar parks. Both parks will contribute with at least BRL 150 million, as announced by our previous guidance.

Profit was 1% higher in the quarter and 4% higher in the year. The main reason for that in the fourth quarter and in the year was, once again, the better variable margin, also a reduction in the amount of taxes paid throughout the end of the quarter and the retroactive tax credits that we have received.

I'd like to reinforce what Italo just said early on today as to return to shareholders. The company in 2019 managed to deliver growth combined with good returns for shareholders. BRL 347 million were paid out in dividend, which was a dividend yield of 7.4%, which is quite attractive in a scenario of low interest rates. The total return to the shareholders reached 69%, including both depreciation of the shares throughout the period and also the payout of dividends.

Now moving on to Slide #10. We're going to be talking about the company's debt. One of the main highlights in the year was the refinancing of half of our debt in the second quarter. We refinanced BRL 2.2 billion with a longer-term, lower-cost and more flexible covenants, and we did all that because we managed to refinance debt at the best possible moment in the year. When compared to the end of 2018, we added 1 year on the average term for our portfolio. Besides, current cost after taxes has dropped more than 1% coming from 6.8%, down to 5.6%.

On the chart on the left, we saw a very -- we see a very comfortable situation in terms of the need of refinancing in the mid- and short term. We have approximately BRL 400 million maturing this year, which will only take place later in the year.

On the right-hand side, we see the evolution of our leverage level. With a strong cash generation from the company, the net debt/EBITDA ratio dropped 0.2 points in the past 12 months. Even considering the company's growth, that deleveraging, which is natural, is one of the ways we have to finance our growth using -- in our growth using projects of renewable generation. Our net debt closed the year at BRL 2.9 billion, and our leverage closed the year at 2.79x.

Moving on to Slide #11, we have our cash generation. We have a very robust hydro cash generation, which reached about BRL 1 billion. That was used to finance needs brought in by the company's growth and also the dividend payout. As you can see on the chart, investments in 2019 reached BRL 288.3 million, mainly to the completion -- used for the completion of the Ouroeste Solar Complex. The net income of BRL 155 million was part of the refinancing I just mentioned before. During 2019, we paid BRL 324 million in dividend, reinforcing our commitment of generating value to our shareholders. Our wind assets and solar assets have provided great support for our cash and closed the year with a consolidated balance of BRL 235 million.

Now on Slide 12, we see our expectations in terms of CapEx for the past -- for the next 5 years. These investments consider only projects which have already been contracted. Between 2020 and 2024, the company intends to invest more than BRL 1 billion, especially to finish the Tucano Wind Complex. The building of that planned complex will start early next year. The development of the 2 first phases, which were then simultaneously, made it possible for the company to benefit from the synergies and to optimize the investment. This year, we have already spent some resources in the project, for example, paying suppliers. The remainder of the amount will be used for the maintenance and modernization of the existing assets.

Now I'll give the floor back over to Italo for his final comments. Thank you.

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Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [4]

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Thank you, Clarissa. 2019 was a very satisfactory year for AES Tietê. As it was mentioned by Clarissa and by myself early on, we delivered new projects, we managed our portfolio very efficiently, always with an eye at providing good returns to our shareholders. So those are the main takeaways we had to put across during this conference call.

Another main highlight we had last year was investments on intelligence and on digitalization of processes, which allows the company to develop products and services to meet what today we consider one of the main needs of the market, which is to focus on the client, to make the client the center of our attention. We also finished the Ouroeste complex, which was mentioned, a very good highlight. And the dividend yield of 7.4% in 2019, which is considered quite interesting for our investors.

As for Tucano, we have 2 new interesting products, which were very welcomed, accepted by the market, a PPA product for large industries and a self-production product for C&I customers. So we closed 260 megawatts of the Tucano park, which is 50%. We still have 260 megawatts remaining, and we're going to be working to tackle that remaining capacity throughout the year, and we hope to close that this year, 2020.

So we close our presentation about the year 2019, and now we remain available for questions and comments that you may have. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Carolina Carneiro from Crédit Suisse.

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Carolina Carneiro, Crédit Suisse AG, Research Division - Sector Head [2]

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I'd like you to please, if you could, update us on discussions about the GSF. We have seen in your results, financial expenses, which were, of course, impacted by current adjustments on the liability. So if you could give us some outlook on what we have going forward for the GSF, where negotiations stand as is.

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Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [3]

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Thank you, Carolina. I'll be talking about that process briefly. We are now working with associations and so on. I think Clarissa will be able to address the financial side of that Impact. As for the CLF, it is today parked at the Economic Affairs Council. We need their approval to have it moved to the Senate Plenary. We are waiting for that to happen, and we expect that to happen in the coming weeks or, at least, to have some indication in the coming weeks that the project will move to the approval of the commission of economic affairs. And of course, that is a very important project for the Brazilian electric sector because it will unlock several complicating bottlenecks that we have today, which keeps us from moving another project as well.

So that's the sequence that we know the project will have to go through, and it is quite simple. It has to go through the Economic Affairs Committee, and then it will go to the plenary. It's going to be voted at the plenary, and then we'll know it -- whether it will go to the regulatory [influence] at ANEEL, and then they'll have a 90-day deadline to conduct all the assessments, the analysis and calculate all the amounts.

And then we have another deadline, which is, I think, 60 days where all the agents, the operators, have 60 days to whether accept it or not. So that's the time line we have ahead of us once it is approved at the Economic Affairs Committee. The Economic Affairs Committee meets usually on Tuesdays, so we are monitoring the calendar very closely. We have confidence on the Senate's common sense, and we are in very close contact with them to actually know if the Senate needs more information, whatever. And now I'll give the floor over to Clarissa for her to talk about the financial side of your question.

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Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CFO, VP of IR & Member of Executive Board [4]

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Thank you, Carolina. As you mentioned in your question, in the fourth quarter, the variation of IGP-M was higher than the CDI variation. So once again, just as a reminder, the company's cash is corrected by the CDI and liabilities are corrected by IGP-M. So throughout the life cycle of that injunction, the variation of the CDI was higher than the variation of IGP-M, so we have a positive balance for the company. But in the fourth quarter, specifically, the variation of IGP-M came out higher than the CDI, and that generated an impact of BRL 18 million in our results when we consider the net variation of both indicators.

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Operator [5]

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The next question comes from Kaique Vasconcellos from Banco Safra.

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Kaique Vasconcellos, J. Safra Corretora de Valores e Cambio Ltda, Research Division - Research Analyst [6]

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I have 2 questions, actually. I'd like to know your view about the electric scenario for 2020, GSF and other issues if you are in line with CCEE's curve. And what can you tell us about the spot price evolution variation? And also a second question about your investment strategy. You mentioned 2 projects, long-term intentions. Can we expect more of that to happen this year? And how do you see opportunities for growth in 2020?

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Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [7]

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Thank you, Kaique. I'll start by your second question, and then I'll tackle your first question, if I may. Here with me, we have our Market Intelligence Officer, [Mark Condes]. He can complement my answer in terms of numbers.

As for your second question, as I said, I think the company invested in developing products. And from that, we had those 2 projects, the PPA and the self-production product for Anglo that I mentioned, and that helped us position ourselves ahead of the free market. When I say free market, I'm including everything, bilateral negotiations, long-term PPAs and so on.

So what we did, what AES Tietê did, positioned us ahead of that market with those 2 products. We see now new clients interested in knowing about those products, those products we have been offering. It is a product that generates a lot of benefits for customers, but it is a product that requires a lot of knowledge, and our intelligence division is helping customers find the best solution for them. Anglo and Unipar, if you look closely, they are distinct, different products, in which we actually helped customers in finding the best solution for their needs. So the company has been the source of several questions, and people want to understand what we're doing.

That, of course, generates a major value for the company because, on top of benefiting customers on the cost side, it also places clients in a place where they have a positive social impact, they have sustainable generation, they have a high level of sustainability and all of that. So for 2020, we have a very promising year on that front, given that interest that we see in the market for those products. And that will place AES Tietê as a major player in the free market, including long-term PPAs to self-production and our -- the energy that we provide from our hydro plant.

It's also noteworthy to say that AES Tietê, because it is a company that owns hydroelectric plants, the company is able to shape the contracts in a more efficient manner, including renewable sources and shaping the contract according to the customer needs. So that's also a very important competitive advantage that the company has. I hope I have answered your question. And I'll give the floor over to Mark Condes , who will address your first question.

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Unidentified Company Representative, [8]

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Thank you for your question. As to the energy scenario for 2020, this year, we were expecting higher prices in the first quarter, unlike last year. So for January, especially, where we have prices around BRL 350 and a favorable hydrology. For February, we already have seen a good recovery of our -- some of our reservoirs, a better hydrology. Prices are already around BRL 150. What kind of implications did that have in the company's strategy? So we have allocated more energy in the first quarter than we did last year, more in line with the market. The GSF expectation is much better than last year given the better hydrology, the better rainfall that we are seeing now in February.

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Operator [9]

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(Operator Instructions) Next question comes from Guilherme Lima from Santander.

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Guilherme Ferreira Lima, Santander Investment Securities Inc., Research Division - Research Analyst [10]

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Do you see any relevant impact coming from the coronavirus situation in terms of long-term energy contracting level? Any kind of impact in your growth strategy, the coronavirus situation?

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Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [11]

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Thank you for your question. We do not see any major impact today. No impact on our numbers of the company as a whole. We have contracts for the coming years, and the wind and solar parks are also in good shape. So we do not anticipate any impact to come from the coronavirus situation on the company.

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Operator [12]

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(Operator Instructions) AES Tietê Energia's audio conference is now over. I'd like to thank you -- if there are no more questions, I'd like to turn the floor back over to Mr. Freitas for his final comments.

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Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [13]

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Well, thank you for your availability for being here for our conference call. Once again, I'd like to emphasize that 2019 was a very good year, albeit challenging, but our team was competent, agile and nimble to close the year at a very successful level across all fronts we operate on, including portfolio management, including new projects. And thus, we have managed to consolidate this message to the market. AES Tietê is a very important player in the free market. And in this new market, which is coming, Tietê is already a very important player.

So again, thank you all. I'd like to thank AES Tietê's team for the great work done in 2019. 2020 is going to be just as good, and I am sure we'll be as successful once again. Thank you. We remain available for questions and comments you may still have. Thank you. Have a nice day.

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Operator [14]

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Thank you. AES Tietê Energia's audio conference is now over. Thank you for participating, and have a nice day, everyone.