Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Start Time: 08:03

End Time: 08:41

AES Tietê SA (OTCPK:AESYY)

Q4 2013 Earnings Conference Call

February 26, 2014 8:00 AM ET

Executives

Britaldo Pedrosa Soares – Chief Executive Officer

Gustavo Duarte Pimenta – Chief Financial Officer and Investor Relations Director

Ricardo de Abreu Sampaio Cyrino – Board of Directors-Substitute

Analysts

Maria Carolina Carneiro – Santander CCVM SA

Gabriel Laera – Itaú Corretora de Valores SA

Operator

Good morning, ladies and gentlemen. Welcome to the conference call of AES Tietê SA, operated by Chorus Call. In this conference call, we are going to announce the results of 2013 of the Company. The RI department of AES Tietê also informs that the earnings release is available at the Company's website at the address www.aestiete.com.br/ri.

All participants are in a listen-only mode. Later, we will conduct a Q&A session and instructions to participants will be given. (Operator Instructions) Reminder, this conference is being recorded and is also being transmitted by webcast at www.aestiete.com.br/ir.

On behalf of AES Tietê, I would like to clarify that any forward-looking statements during this conference regarding business perspective, financial targets and projections of the Company are mere forecasts based on current expectations. Such expectations can vary according to market conditions, domestic growth, and international markets. The presentation, which will be followed by slides, can be visualized in the webcast transmission and it will be made by the Chief Executive Officer Britaldo Soares, and by the Gustavo Pimenta, our IR Official. At the end, the executives will be available to answer eventual questions.

Now, I would like to turn the conference over to Mr. Britaldo Soares. Please go ahead sir.

Britaldo Pedrosa Soares

Thank you. Good morning everyone. We have Gustavo Pimenta here; Sheilly Contente of Regulatory Affairs; Francisco Morandi, VP for our market operations; and Ricardo Cyrino in our IR team in order to answer your questions at the end of the conference. So I am going to begin with the highlights of AES Tietê in 2013. The operational part, I would like to highlight the 19% reduction of the forced outage equivalent factor of the plant against 2012. And the improvement in our outage is stemmed from the enhancement of our physical asset management policy, reminding that AES Tietê was certified by the British Standard Institute that testifies our methodology in the asset management. And also the indicator of forced outage was improved thanks to the investments that we have been doing since 2010 with the modernization of our equipment. And we'll be able to talk more about that.

Energy generation was 9% over our physical guarantee, with the generated volume 15% lower than that of 2012 because of the lower dispatch of Agua Vermelha in 2013. And Gustavo later on will present more figures. Regarding our trading strategy, since the third quarter of 2013 until today, we've had evolution of 295 megawatts average because of bilateral agreements to delivery as of 2016 at an average price of a R$125 megawatt hour. Further, I will show you a more detailed slide so that we can have a broader discussion on our strategy for energy.

This figure shows an important advance in our portfolio of clients, and we have reached 57% of the available energy of the Company in 2016 and it is already contracted including the new agreement. Regarding our financial performance, we had an increase in our net revenues by 11% vis-à-vis 2012 because of two key factors. The price, the annual price readjustment in our contract with AES Eletropaulo every June based on IGP-M and also because of an increase in sales by means of bilateral agreements in line with the strategy of energy trade by the Company. And our EBITDA was R$1,526 million and net income of R$881 million, slightly lower than those of 2012. Just to give you the figures of 2012, EBITDA was R$1,542 million and net income R$901 million.

Now, I would like to also highlight the fact that the hydrologic risk that we had in this industry in 2013 had an impact on AES Tietê especially in the first half of the year. But in the second semester, the negative effect that we had at Tietê they were mitigated because of the allocation of the physical guarantee strategy of AES Tietê. Regarding the distribution of dividend, we are paying out R$952 million for the year of 2013. And the complementary dividend proposed by the board, regarding the results of the fourth quarter, is R$226 million is still subject to the approval of the general shareholders meeting. And AES Tietê will have a dividend yield of 12.6% in 2013. AES Tietê for the seventh consecutive year remained in the portfolio of the Corporate Sustainability Index of BM&F Bovespa.

Now, I’d like to give the floor to Gustavo Pimenta to talk about the main points.

Gustavo Duarte Pimenta

Thank you Britaldo and good morning everyone. On slide number three, you have an overview of the system, and I think that you are all following up close. And our level of reservoirs is at 39%, below what we had in the same period last year. We were at 46%. I think that still we have a very high level of dispatch because of 40% of MRT. And in spite of all the dispatch, the pressure is still above current levels. If we look at the southeast, the reservoir levels is about 35% and you know the southeast accounts for 70% of the system generation. And as we talk about prices, so spot price is at the regulation limit of 123 practically, so we are below operational cost at 180 - 800. And towards the end of the year, we hope that spot prices will remain at high levels, however, how high that those prices are will depend on rainfall over the next few months. It can vary a lot, but of course there will be pressure on spot prices because of the reservoir levels today.

Now on slide number four, you can see the quality and the level of unavailability of our power plants and we are trying to be more transparent with this regard and we expect that the reduction of unscheduled downtime, we are expecting a drop of 46% compared to 2012 to 2013 both forced outage and outage due to unplanned maintenance. There will be a significant reduction as a result of the whole asset management program that we have been implementing in terms of generated energy, we will close the year with 109% of the assured energy and the main impact over the past three years in Tietê generated 125 of the assured energy.

The main variation is a result of lower dispatch of Água Vermelha because of the decision of ONS, which is the operator of the system. And this is related to the re-composition of the reservoirs. If you look at the previous slide, there is a re-composition of reservoirs along 2013 because of thermal dispatch and our Água Vermelha power plant is one of the power plants with a smaller dispatch volume to recompose its or to recover its reservoirs.

Now on the next slide going more specifically into financials. The level of investment in 2013 is to R$206, very much in line with the guidance that we had given before, as we said in the previous call. And this investment was basically dedicated to the modernization and maintenance of our power plant, the main one Água Vermelha. R$60 million was for the maintenance of Água Vermelha and the total cost was R$200 million. So along a few years and there are many investments of maintenance made in other power plant such as Barra Bonita, Bariri, Promissão and Ibitinga.

I think the main thing is that most of the investment movement, and I am going to talk a little bit about the next slide. So we are making great investments right now. So 2011, 2012 and 2013, the CapEx is above our historical levels because we have a major maintenance and in the future we will reduce CapEx in some power plants. There is still some maintenance to be made, but it’s likely to go down.

So this is basically what I have on slide number 6 now, is a new guidance to the market in terms of our investment forecast. We had R$186 for 2014, R$157 for 2013 and then we go down to the levels of R$80, R$90 million. Later on we are going to go into the maintenance mode or recurring maintenance rather than major maintenance requiring downtime and outage. So looking at the financial result on slide 7, the first positive impact is a result of the annual adjustment of our contract with Eletropaulo, which is R$194.19 in July 2013 and then the revenue resulting from the energy reference market and the spot market.

In the fourth quarter more specifically, the spot market is higher vis-à-vis 2012 and the volume of sales was not so significant. The spot level and the spot prices where we place the energy was quite positive, and this provided an impact in the net revenue in 2013. There is another significant variation is the growth of 214% and the volume of energy sold through bilateral contracts and those are back to back that we develop and they have a marginal impact on the margin but it’s important for the building of our portfolio.

On the next slide, we were talking about costs. So on the first bar, we segregate operating costs and costs with the purchase of energy, so the lighter color. So the cost of energy purchase, it went from R$378 million to R$613 million with an evolution of R$395 million. If we could divide it, 50% is related to the impact of the lowering at the beginning of the year plus the impact of availability and the cost of MRA and the others related to bilateral contracts.

So it’s about a R$170 million because of the higher energy cost either because of the lowering of assured energy of 25% in the beginning of the year, which was partially set off in the previous slide by the sold in the secondary market in the second quarter and also availability of some power plants because of outage in 2010 there was an MRA cost related to that. So variation is related to that.

We normalize in terms of manageable costs excluding the effects of insurance and gates. So this is non-recurring the gates, because we have biannual maintenance of our dam gates. So exclude these two costs and then you have a vision of manageable cost of Tietê. So we go from R$193 million to R$205 million, so a slight variations, 6.6% variation. In terms of personnel is no and most of the variation is due to material and services sold in 2013. Separate impact of some costs related to the reforestation because of the renewal of some licenses.

So we had about R$5 million costs and this had an impact on this number when we look at the variation from 2012 to 2013. So in Tietê, we think that Tietê today already has a quite good level of efficiency. It's quite positive. But we are starting to look at Tietê and see that there is a possibility of us implementing cost optimization actions. So the guidance for the market is a growth of R$205 million in terms of manageable costs. So the gain in terms of the inflation in a period and basically those assets have already been adapted and we are confident to say basically because of an entire remodeling of our reservoirs and many activities, also the automation program, the CapEx, there is an important part of the investments is power plant automation so that we have capacity for remote maintenance, and this will reduce overhead. And then in the past we used to have more people in the past than we have today.

And there is a redesign of our maintenance processes and the entire asset management process. We optimize the investment of funds so as to optimize the capital invested and all other investments made in power plants in terms of machinery and re-composition and maintenance that we've been doing in Tietê today. So the combination of these efforts plus all the strategic sourcing that we applied in Eletropaulo is very good results, re-negotiation of contracts with vendors. So it makes it possible for us to have this guidance. And if it is possible to improve, we are going to update the market.

On slide number nine, you can see the result of 2013. As Britaldo said, our EBITDA in spite of all the stress because of the first quarter, the fourth quarter was quite positive with a sales volume in the secondary was 4% and our fourth quarter is 30% better than the fourth quarter of 2012 and EBITDA in the year is relatively neutral as compared to 2012 in spite of the challenges that we were faced with because of hydrological. Our EBITDA margin is 65% and because of the implementation in terms of payout. We close with payout of 108% and for the whole year R$304 million of distribution of interest on equity as we had approved before.

With regard to cash generation, on slide number 10, you can see cash generation of R$1,486 basically because of energy cost, especially in the first quarter of 2013. You can see that cash generation in the fourth quarter was stronger than in the fourth quarter of 2012, but there is, we are carrying over the impact of previous quarters. In terms of investment, you can see cash being used to meet investments. So I have R$180 million to make investments and there is the 448 issuance that we did in – and this has an impact.

So the free cash in the period is R$967 million of which we paid out this cash along 2013. We distributed R$907 million with the impact related to the business year. So we closed with a consolidated cash of R$456.7. As to leverage, Tietê is at very comfortable position, 0.4% net debt over EBITDA. And net debt is R$0.7 billion. And the amortization schedule after the first issuance the second ticket matures and so on, and the amortization will be in 2015 and then following amortizations in other years.

Average cost is 110% in contrast with 115% in 2012. So this is better, even though it was higher and it went – effective rate went from 9.8% to 10.8%. You are already familiar with our leverage rate and we are quite confident with it or comfortable with it.

The next slide is an update on the slide that we showed on our last presentation, and it is the evolution in terms of our commercial strategy. So since we talked last time, the Company has been negotiated and sold 295 megawatts of power to be delivered in 2016 at an average price of R$125 megawatt hour totaling 708 average megawatt or 57% of the available energy. When we look at 2106, we already have in this volume, 55% of the energy available. And the scenario that we are having is according to the concept that we already designed in the past in terms of a higher marginal cost and a growing cost of energy.

And this has an impact in our negotiations with our customers and we've been succeeding in terms of pricing the energy at better levels. And we have an expectation of the average price in the available energy from 125 to 135 per megawatt hour. So this is a significant evolution and we have managed to have 295 for 2016 and for 2017 is almost 200 megawatt as compared to the previous quarter. Another important message is that we've been contributing for longer re-contracting, and the price for 2017 is R$125 per megawatt and I think that there is a window for significant re-contracts by Tietê.

On slide number 13, you can see a little bit about strategy for power allocation for 2013. You've seen the impact of our company. We had a certain allocation of energy considering the impossibility of segregating guarantee – so energy guarantee. So it was the allocation that we made basically because of the financial impacts that we have just mentioned. For 2014, it was possible for us to segregate allocation for guarantee and allocation for profile in the energy reference market. So we have Tietê and its counterpart in terms of demand. For the energy reference market, we have a high allocation in the first quarter of this year.

So Tietê will be selling volume of energy in the spot markets, 10% above so as to mitigate the hydrological risk. Whether the final results will be positive or negative will depend on how the year evolves in terms of rainfall and prices. This is an important point and this will probably have an impact in our result in different ways along the year vis-à-vis what we had in 2013.

So this is basically all I wanted to say, and now I turn it back over to Britaldo.

Britaldo Pedrosa Soares

Thank you, Gustavo. I believe Gustavo has provided us with detailed information regarding the main aspect of our performance. I just would like to go back to a few points to highlight the operating aspect and to talk about the unplanned outage reductions that are a consequence of our new asset management program. And also the evolution mentioned by Gustavo, in 2016 we have 60% of contracted energy in 2017 555 megawatt average contracted. Now, considering prices, we are considering the range of R$125 per megawatt hour to R$135 per megawatt hour. And there is an evolution because of the current scenario of this sector. And our commitment aims to have the year of 2014 with steady cost, not considering nominal growth, so that we can have a year with a better contribution.

Now, we’re going to have a Q&A session and we are at your service.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will begin now the Q&A session. (Operator Instructions) Our first question comes from Carolina Carneiro, Santander.

Maria Carolina Carneiro – Santander CCVM SA

Good morning everyone. I have two questions. The first one, going back to your energy balance and your update, I would like to know just to clarify whether this new balance shows the evolution of the 300 mega, if it considers the results of the auction from February. And if you could provide me with more data regarding the contract profile, especially regarding terms and I would like to confirm what kind of demand and terms are you considering now differently from last year? And secondly, I would like you to elaborate on the hydrologic changes. Because last year in the first half of the year there was an impact on GSF and I would like you to elaborate on your expectations regarding the potential effect this year vis-à-vis the new methodology for allocation. Thank you.

Britaldo Pedrosa Soares

Thank you, Carolina. Ricardo Cyrino could you please answer that and Gustavo and I can complement in case if necessary.

Ricardo de Abreu Sampaio Cyrino

Good morning Carolina. Answering your first question, yes. The amount of 295 kilowatt considers the commercialized energy, considering the auction of February. And regarding contract terms, we have contract that go from one to three years, most of them two and three year term. That's why there is an evolution of our portfolio considering 2017 and 2018. Considering your remark about seasonalization and you had a public hearing last year and the result is that the generating companies could the seasonality from their contract obligations and guarantee, and also the seasonality considering the energy reference market.

So we made a different decision from that of last year because we couldn’t separate the guarantee last year. And we have commitments with Eletropaulo now. Last year our profile was that requested by Eletropaulo, but this year we can separate and for guarantee purposes, we comply with the requirement of our counterparty. And to comply with the energy reference market, we made some adjustments and we will be able to obtain some advantages for the spot market.

Maria Carolina Carneiro – Santander CCVM SA

Okay, thank you.

Operator

Thank you, Carolina. Our next question comes from Julian Berridi, Itau BBA [ph].

Unidentified Analyst

Okay. In line with Carol's question, I just would like to understand the evolution of back to back portfolio, if the average price is also considering back to back. And what are the megawatt value?

Unidentified Company Representative

No, no, it does not consider that. It's just for existing energy of Tietê. So when we consider the price of R$115, it is energy of Tietê. 708, it was contracted considering a R$115 current prices, and the additional value was 125. So part of that was included in our portfolio. Considering 125 in our portfolio, we can have an average price of R$115. No, there is no back to back. But information regarding back to back, would that be available?

Unidentified Company Representative

Yes, I don't see a problem with that.

Unidentified Analyst

Okay, good. Thank you.

Operator

Our next question comes from Gabriel Laera, Itau BBA

Gabriel Laera – Itaú Corretora de Valores SA

Good afternoon. Thank you for the opportunity. So in line with the questions that I asked earlier for Eletropaulo, considering the scenario of changes in the rules and also the changes of 0.95, would it be correct to assume that without rationing we could assume that Tietê could buy 16 megawatt average or not or is the calculation more complex than that? Also I'd like to know considering the dispatch of January and February, what is the GSF in your view? Can you tell me about the system, what it's like for the first quarter?

Britaldo Pedrosa Soares

Gabriel, I'm going to turn it over to Ricardo Cyrino to answer your question and we will complement as necessary.

Ricardo de Abreu Sampaio Cyrino

Good morning, Gabriel. With regard to your question about the reduction in GSF along the year, of course the reduction of the energy reference market is associated to two main factors. First, the level of thermal dispatch, and today the thermal dispatch is about 16 megawatts and there may be thermal dispatch that continues along the year. But also, and more importantly, is the level of consumption. Because if we have a high consumption level along the year, if there is no rationing, obviously the national operator will need to call generation companies to generate more even if our dams have low levels.

And then there would not be a reduction of the energy reference market along the year. But this depends very much on the seasonality of demand. But according to our scenario, we think that the thermal dispatch will remain in the same levels as well as consumption and then the energy reference markets may be changed due to these factors. Because according to our calculation within an implicit, hydraulic, a perspective study dated February 14. The indicator is probably below 0.95.

Gabriel Laera – Itaú Corretora de Valores SA

Do you think this might be wrong because we have a wrong denominator and numerator, and there will be a better balance on months, but the scenario considering the information today available is complicated when you run your way with your assumptions? Do you get to a similar scenario or in your understanding it's really that we are counting on the ONS?

Britaldo Pedrosa Soares

Gabriel, before Cyrino answering, I would like to say the following. I think that today there is a scenario in our industry that there is thermal dispatch, the capacity that we mentioned before 2014, 2015 depending on the day of the week and in terms of full capacity. But power plants, hydropower plants are also being dispatched, but it's different as compared to last year. Now we have here a period – a rainfall until now that has been weaker and temperatures were higher. So considering this possible lowering, we need to think about future prospects.

So the comments we have for January and February, most of hydropower plants produced more in January. So even if the physical energy guarantee is greater, there will be a reduction in GSF. So this reduction that you mentioned of 5%, so our estimates are very close to you considering January. And for February it will be slightly lower than that. But this is much more because of more, due to a greater allocation of physical energy. So even with a higher dispatch, we could not cover all the allocation of physical energy.

Gabriel Laera – Itaú Corretora de Valores SA

So you think it's too early to annualize these numbers.

Britaldo Pedrosa Soares

Once again as I said before and Ricardo stressed, this will depend very much on the level of demand and on the need of us having a higher hydroelectric dispatch.

Gabriel Laera – Itaú Corretora de Valores SA

Thank you very much.

Operator

(Operator Instructions) Excuse me, if there are no further questions, I would like to turn the conference to Mr. Britaldo Soares for his closing remarks.

Britaldo Pedrosa Soares

Well I would like to thank you all once again for your participation in this conference call and we are available to any other questions you may have, and you may ask questions to our Investor Relations team, to Gustavo and our energy sales team too. So thank you all very much and have a good afternoon.

Operator

The conference call of AES Tietê has now ended. We thank you all for your participation and have a good day. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: AES Tietê's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts