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Edited Transcript of TRPL4.SA earnings conference call or presentation 23-Feb-21 1:00pm GMT

·21 min read

Q4 2020 CTEEP Companhia de Transmissao de Energia Eletrica Paulista Earnings Call Sao Paolo Feb 23, 2021 (Thomson StreetEvents) -- Edited Transcript of CTEEP Companhia de Transmissao de Energia Eletrica Paulista earnings conference call or presentation Tuesday, February 23, 2021 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Alessandro Gregori Filho CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Financial & IR Officer and Member of Executive Board * Dayron Esteban Urrego Moreno CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Executive Project Director & Member of Executive Board * Rui Chammas CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board * Silvia Diniz Wada CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Strategy & Business Development Officer and Member of Executive Board ================================================================================ Conference Call Participants ================================================================================ * Andre Sampaio Santander Investment Securities Inc., Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen. Welcome to ISA CTEEP Q4 2020 Earnings Release. We'd like to inform you that this event is being recorded. (Operator Instructions) The audio and the slide deck for this conference call are being simultaneously broadcast over the internet at isacteep.com.br/ri. You can also download the presentation on the same web page. Before proceeding, we'd like to clarify that statements made during this conference call related to ISA CTEEP business prospects, projections, operational and financial targets are based on the company's management beliefs and assumptions as well as on information currently available. They involve risks and uncertainties because they refer to future events. Therefore, they 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 may cause actual results to materially differ from those expressed in such forward-looking statements. Today here with us, we have Mr. Rui Chammas, CEO; and Alessandro Gregori Filho, CFO and IRO. And they will be in-charge of the presentation. Other company officers will be available during the Q&A session. With that, I'd like to turn it over to Mr. Chammas, that -- and he will start the presentation. -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [2] -------------------------------------------------------------------------------- Good morning, everyone, and thank you for joining us this morning. I'm Rui Chammas. And today, we will share Q4 2020 results published yesterday. And we will also give an update of the company's major issues. Let's move to Slide #3, please. 2020 was an atypical year. When you tell the history of 2020 to future generations, we will highlight the challenges that the global pandemic posed to us. We are aware of the relevance of the key service we provide, access to electricity. And for that, we have implemented the special plan to ensure the continuity of our business. We have significantly reduced the number of employees at our sites, and we have activated the second operation center to ensure the full load transmission. In our grid and in some sites, we have also employees camping out to avoid commuting and reducing the risk of getting infected. Our digital transformation journey allowed us to act quickly for implementing remote work for all of those that did not require work in person. And despite such a typical year with so many challenges, we achieved record results, supported by our operational excellence and strength of our financial management. In 2020, our net revenue was BRL 3.9 billion. And combined to our cost discipline, our EBITDA margin was 6 percentage points in 2020, achieving 86%. In 2020, our net income was BRL 2 billion. The company has continually invested in retrofitting in order to ensure the quality of our transmission services. In 2020, our investments totaled BRL 231 million, a 74% increase year-over-year. We strive to continuously work with efficiency and profitability. As for greenfield projects and past auctions, the company invested BRL 1.1 billion in 2020, a 69% growth year-over-year. We'd like to highlight the start-up of Itaquerê with a CapEx efficiency of 40% and anticipation of 11 months as well the start-up of Tibagi with a CapEx efficiency of 12% and anticipation of 8 months in 2020. The company also won the second largest lot of a transmission auction promoted by the regulatory agency in 2020 -- in December of 2020, called Riacho Grande. And the regulatory agency investment forecast is BRL 1.1 billion and revenue of BRL 68 million. The strong cash generation also allowed us to improve on our growth strategy and our payout ratio. So in company's yesterday meeting, the company approved the additional payout of BRL 524 million regarding 2020 as well as another BRL 531 million, 2021. For last year, we paid out 83% of our net income. The company is also contributing for providing renewable energy to major consumer centers. Besides our willingness to leave a positive legacy, we created the Jaguar Connection program focusing on fighting climate changes, supporting biodiversity and local growth. So today, the program supports the World Heritage Center called Serra do Amolar in the state of Mato Grosso do Sul with 76,000 hectares of protected area. As for our social pillar, our commitment was to support fighting COVID-19 and its initiatives. So in the -- we are all one campaign. We donated BRL 5 million in 2020. Over the year, I also would like to highlight that we donated BRL 1.5 million to Fiocruz, 160,000 to the Saving Lives match funding program conducted by the National Bank for Social and Economic Development as well as BRL 3.2 million to the Butantan Institute for building the multi-purpose vaccine center. ISA CTEEP support social projects, investing in its own resources and those coming from fiscal incentives. In 2020, we invested BRL 14 million, supported by fiscal incentive in 14 different projects that will be further developed in 2021. Slide #4. The strong cash generation allowed us to enhance our growth strategy. In Q4 2020, our investments increased 33% year-over-year, totaling BRL 385 million. In 2020, investment increased 69%, totaling BRL 1.3 billion. Investments are directed to 3 major areas: retrofitting in order to ensure the robustness and modernization of our system in the state of São Paulo, greenfield projects that come from the actions promoted by the regulator agency and M&A opportunities. Next slide. We'll go in depth in these investments. Slide #5, as for retrofitting, we invested BRL 231 million in 2020. We have the potential to double this level of investment, and they will be gradually delivered. The company has already the approval of the regulatory agency to invest more than BRL 1.5 billion in the coming years. For 2021, it's expected to invest BRL 300 million. The forecast communicated by the 10-year energy expansion plan estimates the need to invest approximately BRL 60 billion in this country, a great potential. And as for greenfield, we have invested BRL 1.1 billion in 2020, and we had the startup of two projects, the Itaquerê, Tibagi, and we also won the second largest lot in December, Riacho Grande, and we expect to start-up 4 more -- 4 to 5 projects in 2021 with investments with more than BRL 1 billion. And the 10-year expansion plan for greenfield projects estimate the need to invest BRL 30 billion in the next 10 years. Now let's move to the next slide. Here, we can see the status of our greenfield growth regarding installation license, land issues and all activities related to the project. Despite the impact of this pandemic, we have met the schedule and budget in 2020. We announced the start-up of Itaquerê, Tibagi in 2020 and Aguapei in January of 2021. So projects are on time as scheduled. Now let's move to Slide #7. In Slide 7, we review the start-up performed. We have delivered 4 projects: Itapura Bauru, Itaquerê, Tibagi and Aguapei with an average CapEx efficiency of 36% and average anticipation of 11 months. This result is due to our competitive advantages in performing our projects. I highlight the unique purchase condition in the market. ISA CTEEP has a relationship not only during the auction, we currently invest in the business and that leads us to a differentiated category with the providers, enabling anticipation in CapEx optimization. Furthermore, the company belongs to the ISA group. It requires equipment in large scales, allowing license and competitive costs. I also highlight the engineering team with technical solutions to guarantee anticipated deliveries. In Slide #8, I highlight PBTEs pursued, the third pathway of growth, M&A. PBTE has transmission lines connecting 2 substations, Bandeirantes and Piratininga II. We have already obtained consent to go on with this acquisition and are now in the conclusion process. Our expectation is to conclude the acquisition in the first quarter of 2021. I now turn over to Alessandro for the financial results analysis. -------------------------------------------------------------------------------- Alessandro Gregori Filho, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Financial & IR Officer and Member of Executive Board [3] -------------------------------------------------------------------------------- Good morning, everyone. Moving on to Slide #9. I highlight the operational and financial results. It was triggered by the RTP in 2020, and the net revenue grew 40% per year, excluding the PA for RTP retroactive, the result for 2020, the net revenue would have advanced almost 9% compared to the 4.5% inflation rate within this period. The result was achieved due to operational excellence. The adjusted EBITDA was BRL 723 million in the quarter and BRL 2.7 billion in the year. It's important to highlight that the IFRS result included a review of the accounting practices to comply with official letter, CVM 04/2020. We have recorded a positive impact of BRL 774 million for 2020. The accounting impact does not affect the company's cash. In the next slide, we're going to better understand our costs and expenses. Slide 10, I introduce ex depreciation cost and expense evolution. PMSO in the year was BRL 550 million, which is 3% lower than what was recorded in 2019, even with an inflation rate of 4.5% in the year. To face the pandemic, expenses related to the growth with PBTE acquisition among others are considered nonrecurring expenses for 2020. Financial discipline tries to neutralize the impact of inflation on the cost and expense structure. Costs and expansion totaled BRL 588 million, which is stable when compared to 2019. And now in Slide 11, I present the highlights of ISA CTEEP debt, which have a solid debt position and a AAA rating at a national level by Fitch. The gross debt of the company totaled BRL 2.3 billion at the end of 2020 with a cash of BRL 2.1 billion and a leverage of 0.9x the net debt and adjusted debt (sic) [EBITDA.] We performed 2 issue of debentures since our last call. A ninth issue in the first quarter of 2020 and a 10th one in the first quarter. The cost at the end of 2020 of the debt was 7.6% per year with an average term of 6.9 years. In Slide 12, we highlight payments to shareholders. As mentioned by Rui in the first slide, the company approved an additional payout of BRL 524 million in dividends regarding the 2020 results. Therefore, we had an 83% payout over regulatory net income for 2020. A payout of additional BRL 531 million was also approved in 2021 with payment due in May. The company constantly evaluates the capital structure, the debt capacity and opportunities to grow to better dedicate the results, trying to maximize value generation. We have -- we are not sharing our payout schedule, but are committed with the payout practice. Now to conclude the presentation, we summarize in Slide 13, the pillars of our strategy, which is aimed at maximizing sustainable value generation to share with our shareholders. And therefore, I would like to highlight our competitiveness. We are committed to modernization updates with retrofitting projects. We're going to continue increasing with greenfield projects, M&A, and we will also evaluate other business opportunities to generate cash, enabling us to continue growing and distributing dividends. This is our objective. And with that, I conclude my presentation and I turn over to the operator for the Q&A. Thank you very much. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from Andre Sampaio, Santander. -------------------------------------------------------------------------------- Andre Sampaio, Santander Investment Securities Inc., Research Division - Research Analyst [2] -------------------------------------------------------------------------------- I have 2 questions. The first one has to do with the opinion issued by Bolsonaro over the weekend. We had already discussed the potential delay of the payments. And I would like to confirm your expectation about this. And the second question is about the progression of the potential sales with Colombia and how -- what impact would be here in Brazil? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [3] -------------------------------------------------------------------------------- Andre, thank you for your questions. The first question about the statement made by the President is not substantial so that we can comment on it. There is nothing defined about this or discussed about delaying RBS right now. We believe that all of the decisions made by the government and the regulations will be based on contracts. This is our expectation. Other than that, I cannot comment anything. It is all speculation. There's nothing solid. We trust that the government will respect and comply the contract, which is a minimal condition for us to survive in this country. We have followed the discussions as you have. There is a discussion about delineation of the participation of the state to another company, which belongs to the Colombian state, (inaudible). Our impression is that this would not change the strategy. And what we have to do here in Brazil since these are separate businesses. But right now, we cannot comment anything about this. We see this movement. With a lot of naturality. This is the willingness of the Brazilian government, and we will continue with the strategy and actions we already have here in Brazil. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- We have a webcast question from Miguel (inaudible). He asks, what is the company's main objective for 2021? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [5] -------------------------------------------------------------------------------- Thank you for your question. I'd like to ask our Financial Director, Alessandro Gregori Filho, to answer this question. Please, Alessandro? -------------------------------------------------------------------------------- Alessandro Gregori Filho, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Financial & IR Officer and Member of Executive Board [6] -------------------------------------------------------------------------------- Miguel, thank you very much for your question. The main objective of the company is to move on with implementation of the long-term strategy. As we have disseminated, the company pursues growth. As possible, we pay out our results as much as possible. This is our long-term strategy. This is our main objective. We will continue implementing this strategy. Thank you. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- The next question via webcast is from Paulo de Tarso Teixeira Baroni. How many new lines will start operating? And what is going to be the incremental revenue? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [8] -------------------------------------------------------------------------------- In our call, we have our Project Director, Dayron Urrego. He was having some difficulty with his connection. Dayron, can you answer this question now about the number of lines, please? -------------------------------------------------------------------------------- Dayron Esteban Urrego Moreno, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Executive Project Director & Member of Executive Board [9] -------------------------------------------------------------------------------- Sure. I'm here. Good morning. Thank you for your question. Right now, we have 10 ongoing projects. This represents 1,700 kilometers of circuit, including our own projects and those that are joint ventures. When everything is ready, it will represent an approximate revenue of BRL 500 million. -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [10] -------------------------------------------------------------------------------- I think it's worthwhile adding that our expectation for this year is to start-up 4 to 5 projects. One of them was partially started up in the first quarter, as I mentioned during my presentation. Thank you, once again, for your question. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- The next question via webcast is from Ronald from (inaudible) Limited. Regarding real estate businesses, are they evolving? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [12] -------------------------------------------------------------------------------- Ronald, thank you for your question. I'd like to ask Silvia Wada, our strategy and development representative to answer your question. Can you answer the question? -------------------------------------------------------------------------------- Silvia Diniz Wada, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Strategy & Business Development Officer and Member of Executive Board [13] -------------------------------------------------------------------------------- Of course. Thank you for the question, Ronald. As we've been discussing in our last meetings, last year, we started a study, we chose 10 blocks. They total over 1 million square meters. We had a specialized consultant evaluating it. This is ongoing and will probably go on during the first quarter of 2021. They involve technical aspects in addition to location studies and also economic feasibility studies. Furthermore, we're now mapping beyond the 10 areas that have already been mentioned and are included in the scope of the consultancy. The main objective will be to identify possible quick wins. Opportunities that can easily be used where we can extract value faster with a potential to generate value in the short term. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- The next question via webcast is from Pedro [SIP Capital.] I'd like to know what the company's position is for M&A operations? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [15] -------------------------------------------------------------------------------- Thank you for your question, Pedro. I'd like once again to ask Silvia to answer about the company's position regarding M&A. -------------------------------------------------------------------------------- Silvia Diniz Wada, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Strategy & Business Development Officer and Member of Executive Board [16] -------------------------------------------------------------------------------- Our strategy is aimed at sustainable goal -- I'm sorry, sustainable growth. We're always monitoring the M&A market, evaluating opportunities to identify assets that will have strategic cash and adequate conditions for our profile. Be it from a point of view of synergies, operational risks. Also with adequate profitability to what we're looking for to take into account the macroeconomic scenario and minimal profitability to our shareholders. We're monitoring on an ongoing basis. We intend to keep on growing. Of course, we also have the options which are coordinated by ANEEL. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- We have another webcast question from [Gabriel Dias.] Taking into account the commitment to pay out at least 75% of what was announced in 2021 in the order of BRL 300 million and the expectation to start-up 4 to 5 projects this year. Can we conclude that the dividends will be equal or superior to those paid out in 2020? Please wait a minute, we're having a technical issue. We will resume shortly. (Operator Instructions) -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [18] -------------------------------------------------------------------------------- Can you hear me? I'm back. I don't know whether I missed anything. Alessandro, could you answer about the dividend? -------------------------------------------------------------------------------- Alessandro Gregori Filho, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Financial & IR Officer and Member of Executive Board [19] -------------------------------------------------------------------------------- I'm going to repeat the question from [Gabriel Dias.] Taking into account the commitment to pay out at least 75% of the regulatory profit in the announcement of investments made in the order of BRL 300 million and the expectation to start-up 4 to 5 projects this year. We can conclude that the dividend to be paid out in 2021 will be equal or greater than those in 2020? Thank you, Gabriel, for your question. As we saw in the presentation, we have BRL 1.7 billion for 2021, a payout of 83%. We have already announced payments of BRL 31 million. With this, we want to continue demonstrating our willingness to maximize payout to our shareholders, taking into account the maintenance of growth alternatives. So we analyze debt. We analyze growth alternatives as well. In 2020, we had a tariff review. It had important impacts on our results. The idea is to maintain a payout of 75%. And depending on the opportunities, we'll increase that. But right now, we cannot guarantee the total amount in absolute terms and whether it will be equal or greater to 2020. -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [20] -------------------------------------------------------------------------------- Thank you very much, Alessandro. Our objective is to guarantee results and growth that is sustainable over time. Therefore, we need to keep on investing to guarantee future results. And at the same time, our objective is to share the dividends with our shareholders according to a known practice. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- The next question via webcast is from [Fernando Uha.] Do you have an anticipated schedule for payouts as you did last year? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [22] -------------------------------------------------------------------------------- Fernando, thank you, for your question. We still do not have such a definition. We're going to evaluate the possibility of announcing it in the next interactions with the market, but we still do not have a schedule for payout this year. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- The next question is from [Matteos Ventura.] Is the company planning to expand its operations to other regions in Brazil? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [24] -------------------------------------------------------------------------------- Thank you, Matteos. In fact, today, ISA CTEEP is present in 17 states in Brazil. We have important operations in São Paulo. But we have operations in all of the southern states, the north, northeast, in addition to our participation in Madeira. We have a connection of the Madeira Complex all the way to São Paulo crossing different states. So in fact, we are present in different states. In the auction of December 2019, we obtained a lot in Minas, another one in São Paulo. We are already present in all of the regions. Our objective is to pursue sustainable growth, preferably in regions where we already have ongoing operations or synergism or competitive advantage. Thank you for your question. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- We have another question from [Matteos Ventura.] Is there any auction anticipated for 2021? -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [26] -------------------------------------------------------------------------------- I'd like to ask Silvia Wada to answer this question. Silvia, please? -------------------------------------------------------------------------------- Silvia Diniz Wada, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - Chief Strategy & Business Development Officer and Member of Executive Board [27] -------------------------------------------------------------------------------- We have 2 auctions anticipated for this year. The next one will probably take place in June. There will be 5 lots in 515 kilometers of line to around 2,000 of power totaling investments of BRL 3 billion, projects in 6 states, including São Paulo. We are preparing ourselves to participate in this auction. This is aligned to our strategy of capital allocation and growth. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- Ladies and gentlemen, since we do not have any further questions, I now turn over to Mr. Rui for his final considerations. -------------------------------------------------------------------------------- Rui Chammas, CTEEP - Companhia de Transmissão de Energia Elétrica Paulista S.A. - CEO, Interim Chief Projects Officer & Member of Executive Board [29] -------------------------------------------------------------------------------- Thank you very much. I'd like to thank everyone for your participation and your interest in the company results and also for a very good Q&A session. I reinforce that our IR team is available to answer any eventual questions you may have so that you can keep on monitoring the company's performance. Thank you very much. Have a wonderful day. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- ISA CTEEP teleconference is now over. We thank you all for your participation and wish you a good day. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]