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Edited Transcript of TIET11.SA earnings conference call or presentation 25-Feb-21 5:00pm GMT

·19 min read

Q4 2020 AES Tiete Energia SA Earnings Call (In Portuguese With Simultaneous translation Into English) BARUERI Feb 25, 2021 (Thomson StreetEvents) -- Edited Transcript of AES Tiete Energia SA earnings conference call or presentation Thursday, February 25, 2021 at 5:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Clarissa Della Nina Sadock Accorsi AES Tietê Energia S.A. - CEO, VP, Member of Executive Board & IR Officer ================================================================================ Conference Call Participants ================================================================================ * Guilherme Ferreira Lima Santander Investment Securities Inc., Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- [Interpreted] Good afternoon, ladies and gentlemen, and welcome, everyone, to AES Brazil's Audio Conference to discuss the results relative to the Fourth Quarter and Whole Year of 2020 for the company. The AES Brazil's IR team also informs that the respective release and slide deck presentation are available at the following URL, ri.aesbrazil.com.br. (Operator Instructions) Once again, this audio conference is being recorded and also being transmitted via webcast through the company's IR website. On behalf of AES Brazil, I would like to make clear that forward-looking statements made during this audio conference regarding the company's business outlook, financial and operating targets of the company are mere predictions based on current expectations. Such expectations might change due to variables such as market conditions the country's economic performance and that of international markets. The presentation will be conducted by the company's CEO, Ms. Clarissa Sadock. At the end, Ms. Sadock will be available to answer questions you may have. Once again, journalists who wish to post questions can do so by e-mail, by sending them through our press office at the following e-mail address, aes.impreza @aes.com. I'd like to turn the conference over to Ms. Clarissa Sadock. Please, Ms. Sadock, you can continue. -------------------------------------------------------------------------------- Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CEO, VP, Member of Executive Board & IR Officer [2] -------------------------------------------------------------------------------- [Interpreted] Good afternoon, everyone, and thank you for participating in yet another earnings call. I'll start with the main drivers, which have been transforming AES Brazil and which have marked 2020 as a year of great accomplishments to start. I'd like to talk about our growth in 2020. We closed 2 contracts for Wind Parks that totally -- totaled together 346 megawatts. Three important assets located in Rio Grande do Norte state and in Ceará state, which reinforce our footprint and renewable process projects in areas which are well-known for their good wind condition. We have also announced a corporate restructuring with the objective of allowing for a higher leverage for the company and as a consequence, allow us to grow faster. The creation of the new holding will separate operating assets from assets in construction, tripling our capacity to grow along assets that still need to be built, the so-called greenfield assets. Looking at our well-known operational excellence. It's worth mentioning that, once again, our Boa Hora solar plant was appointed as the most efficient in the country. In addition, our wind plant in Alto Sertao II reached an all-time high availability, reaching 98.2%. The third highlight of the year is related to our positioning vis-à-vis ESG practices as it has been said, our objective is to become a benchmark across all ESG categories. In other words, referenced to become an Asia's way to environment social and governance. We took important steps in 2020 in that direction. We are now completing our migration process in Novo Mercado. We have invested in (inaudible) projects to work around diversity in our operational area. The fourth highlight, as I mentioned in our past earnings call in November, we launched our digital platform. It was developed to allow for the selling of energy in the retail market. It allows the migration process to be simpler, offering simple projects and products and allowing small-sized clients and midsized clients to have access to renewable energy at competitive prices. Lastly, it's important to mention the recognition of BRL 947 million in the fourth quarter of 2020. That recognition emerges from the renegotiation of the hydrological risk. I'll be going into that in more detail, but I can anticipate that, that resolution will give us an expectation of extension of our Heidrick concession for an additional 2.5 years. As for our growth strategy on Slide #4, we'll give you more details about 2020. Early in the year, we acquired the Cajuína Wind Complex in Rio Grande do Norte with an installed capacity of at least 1.1 gigawatts. We have already granted the first part of the company at 580 megawatts. On the commercial side, we negotiated 2 contracts with 2 important mining clients. It's a long-term contracts of 20 years. Combined, both contracts add up to 211 megawatts of installed capacity. Investments in Cajuína will start in the second half of this year and we start delivering energy as of 2023. In terms of M&A, we have followed on with our strategy of focusing on wind projects, those projects are complementary, both in terms of energy sources and in terms of geographic location. In December, we concluded the acquisition of the Ventus Wind Complex. It is already operational and 100% hired until 2024. As for the MS and Santos, we have announced the acquisition in December. And we are worked on the preceding conditions to close the deal, which is expected to happen in the first half of this year. Those assets are also operational and 100% hired in the regulated market as a PPA until 2024. Both projects reinforce our commitment to find assets that will bring attractive returns to our investors. Moving on to Slide #5. I'll be talking about the investment plans, which have been contracted. It's important to mention that we only included the CapEx for the projects which have a signed PPA. Out of the EUR 500 million of CapEx for '21, 91% of which, in other words, BRL 453 million refer Tucando and 9% or BRL 47 million refer to Cajuína. In 2022, 74% of the CapEx or BRL 465 million are related to Tucano, whereas 26% or BRL 159 million refer to Cajuína. As we close new contracts, we'll add new CapEx to our plan. Moving on to Slide #6. It's important to provide more details about the new corporate structure of the company. As you can see on the right-hand side of the chart, we are creating a holding company among -- between the shareholders and the listed company. Both AES and minority shareholders will become shareholders of this new holding company. This new holding company will be called AES Brazil and will be listed in the new market in Novo Mercado. Below yes, Brazil, we'll have both the current AES Tietê and other companies that we are calling them on the char SPEs for new projects. Our greenfields will be included in that SPE structure and sister companies to the existing AES Tietê. This separation will generate an ability to grow threefold, while we have been growing in terms of greenfield. On Slide #8, as for ESG, I'd like to reinforce our commitment with corporate governance. We're taking on as we migrate to the Novo Mercado. That was the final step for us to reach the top in terms of the ESG practices. Starting in March. We'll have all shareholders of the company in one single class of shares, all with the same rights. As we had a commitment with best practices before, we are now making a few adjustments because our governance was already in line with the best standards. Our Board will have 4 independent board members in addition, we're creating an audit committee, and we only have independent members at that committee. The benefits of the Novo Mercado are recognized and priced by investors. And that's why it generates an increase in liquidity for those shares at the highest governance level at B3. On the 29th of, well, January, we approved the new structure during a shareholders meeting. We are now going through a recess, riot of recess ,the riot of recess were less until March 2. On top of that, (inaudible) has already published the consent for the restructuring, and we are now finalizing the approval process with other regulating bodies as the SEC and B3. We expect to have the new holding listed as early as March as you can see on the timeline on the right-hand side of the slide. On Slide #9, I stress that our DNA is made up of ESG values and that AES Brazil has clear drivers across all pillars under ESG. We generate energy. We are 100% renewable. We have taken on public commitments in terms of responsibility. Some of them are listen here we invest in social projects and in inclusion projects. More recently, we have positioned ourselves in new levels of corporate governance. That strategic positioning, guided by responsibility and sustainability leads to a country which is increasingly more diverse and more inclusive, always looking for more social participation and which is committed to those values. As a reminder, yesterday, we announced our sustainability report for 2020. It is available at the company's AES website. I'd like to invite you all to follow-up on our ESG development and the company's accomplishments on that front throughout the year 2020. Moving on to Slide #10. And I stress that safety is, and has always been, and will always be, our #1 value in 2020, so that protection of people and work became even more important. AES Brazil proved to be quite prepared for this new scenario, all our associates in the admin front are working remotely. They only go back to their offices when it is safe to do so. I have always encouraged working from home because this was essential for the company to be ready in terms of structure when this new scenario came along. It's also important to mention that mental health is quite a challenge right now. And because of that, we have put together a program to support all our associates and family members, and it is conducted by specialized professionals. As for our operating personnel, before we could even imagine that the world would be hit by a pandemic, we were already managing our assets remotely and working from home. Proof of that is our COG, our operations center. It has been in place since 2017, the COG, our operations center, lead us to be the first company in the electric sector to meet all requirements that would allow us to monitor operations remotely across our plants when solar and hydro. And with that, we continue to invest in technology and digitization to continue to work with excellence and efficiency, even from a far. Moving on to our drivers for our results on Slide #12, I'd like to share with you the evolution of our contracting level. We now are at a level which is quite high for the next 4 years. Because of that, we will not see major variations in the contracting level until at least 2023. It's important to remember that we try to sell something like 85% of our Hydro Energy. Our commercial team is focused today on the sale of long term energy, trying to find opportunities starting in 2024. And this quarter, we have reinforced our portfolio with the negotiation of 180 megawatts average at a price of BRL 151 per megawatt hour for that long term energy. We saw an increasing movement on the part of our clients in terms of anticipating their energy needs for the coming years. That is why our contracting level for 2025, which does not even appear on the chart on the slide, is already at a level of 45%. Moving on to Slide 13 now. I'm going to be talking about the evolution of the GSF [issue]. That's another important driver for the company's results. As it is a long-standing discussion, which is quite important for the whole of the electric sector and for AES Brazil as well, our attention was focused on it. In September 2020, a law was published, defining the hydro business risks and which items should be excluded from the GSF account. After that, (inaudible) will approve the regulation and the detailing of the new act. Once act and regulation were approved last year, the company recognized in the fourth quarter results, the amount of BRL 947 million. That amount was calculated based on our best estimates. We used the preliminary number publicized by CCE in September and added the cost of our own capital at [9.63], which had not been included in the amount. It's important to remember also that the net impact of GSF in the year reached BRL 474 million, net of taxes and of the financial expenses related to IGPM in the year. We can also estimate the concession extension based on the preliminary number published by CCA. By our account, the extension should be of approximately 2.5 years. CCE will publish the final numbers next month and any accounting adjustments will appear in the results for the first quarter. We should be signing the extension for the contract in up to 3 months after the final publication of the numbers by the CCE. It's worth remembering also that in January of this year, the company volunteered along with CCE to pay or repay debt coming from the GSF injunction. We made a payment at the amount of BRL 1.3 billion. We decided to anticipate that payment so that the financial numbers of the company would no longer be impacted by the IGPM variation. Moving on to Slide #14. We highlight results for the fourth quarter, which showed significant growth, especially because of the recognition of the GSF, which I just mentioned, a scenario of low rainfall generated quite a challenge for our hydro results this quarter. Here, it's worth mentioning also that Ventus already contributed for the number for the number of finals because the closing of that business took place in November. As for net margin, we grew 229%, reached BRL 1.3 billion as you see on the left-hand side. EBITDA reached BRL 1.2 billion, an increase of 307%, whereas net income was up 471% in the quarter, reaching BRL 603 million. Cost and expenses reduced by 9% when compared quarter-on-quarter, fourth quarter and the fourth quarter, stressing the company's diligence, which is always paying close attention to cost control. On Slide 15, we can talk about the year's results. And here, I have to highlight the growth of 75% on net margin, totaling BRL 2.4 billion, an increase of 100% in EBITDA, which reached BRL 2.1 billion, and the increase of 183% in net income which reached BRL 848 million in the year. As we mentioned, as we talked about the quarter's result, that robust growth was driven mainly by the net recognition of BRL 474 million relative to the GSF. On top of that gain, it's important to highlight that we also had an increase in our hydro and solar margins throughout the year. In addition to maintaining the same level of operating expenses when compared to the previous year 2019. Moving on to the next slide. The company once again closed the year, delivering growth and delivering robust return to our shareholders in 2020. We announced BRL 331 million in dividend payouts, which leads to an amount of something close to 200% of the average CDI in the year. The amount of dividends proposed for 2020 were calculated adjusting the GSF recognition. In other words, removing the net benefit coming from GSF from that account. The decision was based on the fact that the GSF gain occurred only for the company's results, but the cash effect will only be perceived as we extend the concession after 2029. On the chart, on the next slide, Slide 17, we can see our cash flow throughout the year. It moved from BRL 1.1 billion early in the year to BRL 1.5 billion now at the end of 2020. That balance was made up of a strong operational cash generation of BRL 941 million. With our cash generation, we made investments throughout the year. We paid out dividends and we met all remaining obligations. In addition, we had a fundraising of about BRL 700 million to account for the acquisitions made in the year. Our cash generation, which was quite robust, ensures a quick deleveraging of the company as can be seen on the right-hand side of the slide. Our leverage ratio set at 2.8x last year, the fourth quarter and now sits at 1.5x for the fourth quarter of 2020. Moving on to our final remarks. I'd like to share with you what drove us throughout 2020? And what's going to be driving us moving forward to prove we are on the right track. It is with great satisfaction that i.e. to reinforce the accomplishments of our growth strategy. We have acquired 2 wind companies, which added 300-megawatt hours of installed capacity. And we also acquired the Cajuína Complex. We already have 211 megawatts in contract. Moving on to operation. And we had this big piece of news of the Boa Hora solar plant becoming a reference across the country. Not to mention, all the intelligence acquired as we operate a to certain 2, which allowed us to reach record levels of availability. Looking forward, looking ahead, it is key to be always innovating and going beyond. That's why you have launched the energy plus Energia [Mise], a collaborative platform where retail clients will find all the answers and solutions to help them migrate to the free market and acquire energy, which is 100% renewable. ESG is part of our existence, and we will continue to improve it always. That is the way we have found to create value and returns to our shareholders. With that, I close our presentation and we can now move on to the Q&A session. Thank you very much. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) [Interpreted] Our first question comes from Guilherme Lima from Santander. -------------------------------------------------------------------------------- Guilherme Ferreira Lima, Santander Investment Securities Inc., Research Division - Research Analyst [2] -------------------------------------------------------------------------------- [Interpreted] I have 2 questions. Concerning the results, could you comment a little bit more on the drop of net margin and the solar front? We see a growth in generation, if you could comment on that drop on revenue, please? And a second question about growth for 2021. How would you see the market in terms of M&As? Does it make sense to look at hydro projects that might emerge in the market in the coming months? -------------------------------------------------------------------------------- Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CEO, VP, Member of Executive Board & IR Officer [3] -------------------------------------------------------------------------------- [Interpreted] Guilherme. I'll start addressing your second question. We are focused on greenfield, but we always trying to find solar and wind energy opportunities we already have in our portfolio, a significant percentage of hydro Energy. So right now, our focus in terms of growth through M&A is focused on wind and solar opportunities. As for the solar asset, you asked about, as you know, we have 3 plants. The Guaimbê plant showed a slightly lower availability in the fourth quarter. And hence, it has, of course, offered lower generation, lower than expected. I'm not really sure I have addressed your questions. Anything else you'd like to ask about? -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- [Interpreted] Our next question comes on the webcast. Will our holding please 100% to AES Tietê. What's the productivity? -------------------------------------------------------------------------------- Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CEO, VP, Member of Executive Board & IR Officer [5] -------------------------------------------------------------------------------- I'll rephrase the question. The question was kind of too low. I'll rephrase the question. The question is about our practice to pay out dividends. Does anything change because of this new holding company? Well, nothing changes. The short answer is nothing changes. The new holding will only start existing so that we can have a higher financial capacity to grow. Once we separate growth from existing assets, some greenfield projects, we have a better leverage level when we combine the different parts of the company. But the practices we had before, vis-à-vis the new holding in terms of dividend payout will be exactly the same. Nothing will change. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- (Operator Instructions) [Interpreted] Our next question comes from the webcast as well. The question is, does the company plan on maintaining a lower leverage level? -------------------------------------------------------------------------------- Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CEO, VP, Member of Executive Board & IR Officer [7] -------------------------------------------------------------------------------- [Interpreted] Well, actually, our objective is to increase the company's leverage so that we can fund as efficiently as possible our growth. So today, we are at 1.5x in terms of leverage. That number will be above that in the first quarter because of the GSF payment. So the cash referred to the GSF was paid on January 7. So I have net debt growing by BRL 1.3 billion in the first quarter. And throughout the year, we'll see some variation. I'll reduce the leverage level because of cash generation. And -- but on the other hand, growing that number because of new acquisitions and new investments in greenfield. But the objective is to maintain a leverage level, which is slightly higher than that, so that we can fund our growth. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- (Operator Instructions) [Interpreted] Since there are no more questions, we now conclude the Q&A session. I'd like to turn the conference back over to Mr. Sadock for her final remarks. Please, Ms. Sadock, you may carry on. -------------------------------------------------------------------------------- Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CEO, VP, Member of Executive Board & IR Officer [9] -------------------------------------------------------------------------------- [Interpreted] Thank you. Thank you. Well, I'd like to thank you all actually once again for participating in our earnings call. Any questions you may have, please be sure to get in touch with our IR team. And be well, stay well, stay safe, and I'll see you next time for our new earnings call. Thank you very much. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- [Interpreted] AES Brazil audio conference is now over. Thank you all for participating. Have a nice day, everyone. Thank you. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]