U.S. Markets closed

Edited Transcript of TRPL4.SA earnings conference call or presentation 31-Jul-19 1:00pm GMT

Q2 2019 CTEEP Companhia de Transmissao de Energia Eletrica Paulista Earnings Call

Sao Paolo Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of CTEEP Companhia de Transmissao de Energia Eletrica Paulista earnings conference call or presentation Wednesday, July 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Cesár Augusto Ramírez Rojas

CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Financial & IR Director, Member of Executive Board and Director

* Michelle Loureno Corda

CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Head of IR

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

Conference Call Participants

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

* Andre Sampaio

Santander Investment Securities Inc., Research Division - Research Analyst

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

Presentation

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

Operator [1]

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

Good morning, ladies and gentlemen. Welcome to the conference call of the ISA CTEEP to present the results for the second quarter of 2019. This conference call is being recorded. (Operator Instructions) The audio and the slide deck of this conference call are being simultaneously presented on the Internet at the address www.isacteep.com.br/ir.

At this address, you may also find the slide deck for you to follow the presentation and download. Before proceeding, we would like to say that statements made during this conference call relative to ISA CTEEP business prospects, operational and financial projections and goals are beliefs and assumptions of the company's management and are based on information currently available. They involve risks, uncertainties because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions and other operational factors may affect the future performance of ISA CTEEP and leads to results that will be materially different from those expressed in such forward-looking statements.

Today, with us, we have César Ramírez, CEO; Carlos Ribeiro, Technical Officer; Rafael Noda, Institutional Relations Officer; Weberson Abreu, Project Officer; and Michelle Corda, Investor Relations Manager. We also have with us Ms. Carolina Botero, Corporate Finance VP of Grupo ISA.

So I would like to turn the conference over to Mr. César Ramírez to start the presentation. Please, Mr. Ramirez, the floor is yours.

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

Cesár Augusto Ramírez Rojas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Financial & IR Director, Member of Executive Board and Director [2]

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

Thank you very much. Good morning, everyone. I would like to thank everyone for being here for our conference call. So today, we are going to present the results of ISA CTEEP for the second quarter of 2019. I take the opportunity to introduce myself. I am Vice President of ISA CTEEP and I am a member of the Board of Directors in other companies. Today, I am taking over becoming an Interim Executive Officer of ISA CTEEP.

As a representative of ISA CTEEP and a Board member of ISA CTEEP, I would like to reinforce my gratitude and recognition for everything that Mr. Ricardo did during his management. He provided very good result and created value to our shareholders and provided very high-quality services to society. We have major challenges and bold goals to reach good distribution and a good development for the company. One important landmark is the development of 10 new projects that we won on the past auctions and construction in the state of São Paulo, Bahia, Paraná, Minas Gerais, with investment of BRL 2.9 billion.

Considering the technological transformation of the electrical industry, innovation is a significant vector for our strategy to create sustainable value. In this manner, we are going to continue to modernize ISA CTEEP facilities and to seek more and more opportunities that are based on new technologies.

At the same time, we are paying attention in new markets that might be able to offer possibilities to diversify our businesses. And we are going to try to form partnerships in order to improve the competitiveness and to develop long-term capacities.

These are challenges that we have ahead of us and I am sure that we do have the right structure, management and above all, the right people to reach success in this undertaking.

Now I would like to give the floor to our Investor Relations Manager to give details for the second quarter.

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

Michelle Loureno Corda, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Head of IR [3]

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

Thank you, César. On Slide #3, you can see the details or the highlights of Q2 '19. Net revenue was BRL 392 million (sic) [BRL 692 million], adjusted EBITDA totaled EUR 592 million (sic) [BRL 599 million], with a 72% (sic) [79%] margin over the net -- margin and the profit was BRL 240 million.

ISA CTEEP generated strong cash generation of -- BRL 647 million. The company is still investing in growth, with 10 undertakings that we won in auctions that represent a commitment of EUR 2.9 billion investments in Brazil.

By the end of the second quarter of 2019, we invested BRL 494 million in these projects. We also highlight the license for installation for 4 projects Aimorés, Ivaí, Paraguaçú and Aguapeí. The company has also presented an organic growth through reinforcement and improvements in order to assure the quality of transmission services.

In the first half of 2019, these investments totaled BRL 41 million and the estimates of investments for the year is BRL 150 million. At the regulatory level, we have a tariff [reset] for Contracts 059 for 2020 with a retroactive effect for 2018 (sic) 2018-2019. So the active participation of ISA CTEEP in this contract aims to guarantee good contracts in order to assure competitiveness and to provide benefits to society. The company has been contributing to improve the tariff adjustment process, seeking fair values that are good for investments.

At the end of the second quarter, [ANEEL] did announce the tariff for the subsidiaries, Madeira, Pinheiros, Sul, with the tariff reset in late June.

Also, there was the publication, a resolution, that was disclosed establishing the revenue cycle 2019-2020. So we have 2.8 RAP for 2020 as compared to the 2.3 for 2018-'19. The new RAP cycle are related to the results of the company.

On Slide #4, you can see the evolution of the net revenue. On the second quarter and year-to-date, net revenue has a reduction of 6% as compared to the same period in the previous year. This drop is explained by the smaller revenue coming from RBSE because of the adjustments for the linearization of 5-year starting in the 2018-2019 cycle. The revenue from the use of electric grid increased by 20% in the 2 periods, just corrected by inflation and the beginning of new projects.

Now going to Slide #5, you can see the cost and expenses that increased by 40% in the second quarter of 2019 and 28% year-to-date numbers. This increase is justified by nonrecurring expenses of BRL 28 million in the Q2 of 2019 because of legal fees.

We should also highlight that contingencies had a positive impact of a reduction that took place in 2018 as a result of changes in prognosis and value review. The increase of personnel expenses is a result of the collective bargaining agreement effective as of June 2018.

On Slide #6, you can see the regulatory equity income, a reduction of 55% in the quarter and 37% in the year is explained by the smaller result of IE Madeira as a result of the provision of BRL 35 million for contingencies and the impact of the variable parcel because of environmental issues and the impact of the variable parcel that had been on hold for a while.

In terms of operational cash. On Slide 7, you can see the adjusted EBITDA, excluding nonrecurring effects and includes EBITDA with ratio of each [conjugate.] So BRL 1.2 billion year-to-date numbers. And the reduction of EBITDA as compared is explained by the lower income coming from Ivaí, with a growth of 10% in the quarter, 12% year-to-date numbers.

The financial results presented on Slide #8. I think, BRL 48 million in the quarter and BRL 103 million in the first half of the year. This result is a consequence of expenses with monetary variation because of the debentures of -- that were issued in the second quarter last year and the increase in SWAP operations with new funding through Law 4,131.

On Slide #9, you can see the regulatory net income, a reduction of 30% as a result, especially of the lower RBSE receivables.

On Slide #10, we highlight the strong cash generation in the first half of 2019. On the second quarter this year, the company, again, complemented the amount that the government did not transfer regarding the profits of Law 4,819.

On Slide 11, you can see the consolidated regulatory debt, the company has financial robustness with BRL 3 billion at 7.6% (sic) [7.7%] average cost of debt and availability of BRL 1.3 billion at the end of the second quarter of the year.

And so the net debt over adjusted EBIT is 0.8x and the company is AAA according to Fitch.

On Slide #12, you can see an update of the 10 projects that we have under execution. So the status is in line with challenging aims of the company and there will be at least 2 projects with energy running before the end of the year. So the expectations of investing in the 10 pre-operational projects is about -- amounts to BRL 1 billion.

And in closing, on Slide #13, we highlight the proceeds to shareholders, 79% (sic) [75%] of the net income of the first half of the year through the interest on equity. And so we want to pay out at least 75% of regulatory net income according to the practice of ISA CTEEP.

Now I would like to give the floor to the operator for us to start our Q&A session.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) Next question comes from Andre Sampaio, Santander.

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

Andre Sampaio, Santander Investment Securities Inc., Research Division - Research Analyst [2]

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

Good morning. I would like to make a question on the asset sales process of (inaudible) because I would like to know if there is a real interest in the assets and also to explain towards a slight -- a bit more than what we could expect from you?

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

Unidentified Company Representative, [3]

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

Andre, well, thank you very much for your question, but I would like to reinforce that CTEEP has always maintained the process of quest for opportunity. However, we have faced some difficulties, but we are in the marketplace for a long time. And when we are able to close a deal, we will act in the market as expected.

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

Operator [4]

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

(Operator Instructions) Since there are no more questions, I would like to give the floor to Mr. César for his final considerations.

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

Cesár Augusto Ramírez Rojas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Financial & IR Director, Member of Executive Board and Director [5]

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

Well, thank you very much. Our firm commitment of ISA CTEEP is to share corporate governance with a solid interest in generating value for our shareholders and for society, overall. We would like to remind you that we are at your service to answer any questions and requests that you may have through our communication channels in our Investor Relations page. I thank you once more for being with us today.

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

Operator [6]

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

ISA CTEEP's conference call is closed. We thank you for participating and wish you a very nice day. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]