Copel Geração e Transmissão S.A. (CPLE6) Earnings Call Transcript & Summary

Good morning, and thank you for waiting. Welcome to Companhia Paranaense de Energia - COPEL's conference call about the acquisition of the Vilas wind complex. [Operator Instructions] Before proceeding, we would like to clarify the forward-looking statements that might be made during this call in relation to Copel's business perspectives, operating and financial projections and targets, our beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, they depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors might affect the future performance of Copel and might lead to results that differ materially from those expressed in such forward-looking statements. During this call, we have Mr. Daniel Slaviero, CEO of the company; Mr. Adriano Rudek de Moura, CFO and Investor Relations Officer, Mr. Cassio Santana da Silva, Business Development Officer. The presentation that will be made by Copel's management may be followed at the company's website at copel.com. Now we would like to turn the floor over to Mr. Daniel Slaviero, CEO of the company.

Good afternoon, everybody. And I hope you are very well, enjoying very good health all of you and your families. And it is with great pleasure that we announced -- and we announced yesterday the acquisition of the Vilas wind complex, 186.7 megawatts. And we are not talking about transformation. We are talking about business as usual for a company the size of Copel. But this business represents the materialization of our strategy and confirming what we have been seeing in the last few months, especially during the Copel Day. Our core business is energy, as we said. And we are divesting from assets that are not part of our core business, which is generation transmission and commercialization of energy. And we have always said that our strategy had to do with increasing our portfolio of renewable energy and preferred brownfield, and that have to do with the footprint that we have today. And this wind complex has everything to do with that. In the process of growth and recovery of the company, we are looking for medium-sized assets in which companies such as ours have competitive advantages, as I said before, strictly aligned to our investment policy. And then Cassio will be getting into details about that. Also, it has to do with the diversification of our portfolio with this asset. We have 13% of our matrix already in renewable energy. And in mid-'22, an additional 90 megawatts in [indiscernible] because we want the auction in 2019. And all of that is part of a bigger strategy, a strategy of growth or penetration extension of our energy matrix and also the mitigation of hydrological risks with renewable energies and our gas thermal plant, we have a growing part of our portfolio, which is not related to the GSF. And even with these high prices that Brazil is facing, we do have the necessary -- what is necessary to mitigate this. And as we saw with UEGA, generating constantly, and this has been reflecting in the second quarter as well. And I would like to mention as well our strategy of portfolio energy trading from 8% to 10%. We always leave for sale in A plus 1, and this has been very evident. And this is very beneficial to the company and to shareholders. And just to end my initial words, governance and discipline in capital allocation is very dear to all of us at Copel. So this project has already everything to do with our structure of governance in the company. And this is evidence of how seriously we are thinking and acting about discipline in capital allocation. We are very happy with the results. And at the end, we will give all the clarification that you might need, and we are very confident in our strategy of value creation for Copel.

Thanks to Daniel. Let's have a look at the presentation. And once again, we will see the slide of our investment policy, in which we have a very clear definition of the size, whether it's a brownfield or greenfield, what are the characteristics of our assets in transmission; in hydro; photovoltaic; and lastly, wind, which is what we are going to talk about now. Discipline in capital allocation has to do with compliance with our investment policy. And this is exactly what this project delivers. And this is the first project approved by the Investment and Innovation Committee, as Daniel said, and this has already -- is already complying with this governance. And this project adds the maximum energy possible in a policy that we have developed to the brownfield project, so it already has energy contracted. It is in the Rio Grande do Norte cluster, which is the second biggest after Paraná only, and it is higher than 150 megawatts. And so it satisfies all the characteristics to be a priority in our investment policy. And the Vilas asset has 186.7 megawatts. And it has the potential to increase by 29% the wind energy portfolio of the company. With the maintenance of our operating structure, we add 29% energy, maintaining our structure unchanged. It will be made up of 5 parts. So Vila Maranhão II, Vila Paraíba III and IV and Vila Mato Grosso. And it has a capacity factor of 186.7 when you consider the P50. So it has a very high capacity factor. And what is interesting, it is a project that had 6 different measurements in the parks and certified by weather. And another measurement that is contained in the cluster is Serra do Mel, and this is always good for our park. So we are talking about 7 different measurements in the certification. All of them with at least 4 years of measurement. And the biggest one, which is the Vila Mato Grosso has 7 years of measurements. So this gives us a lot of confidence in the fact that we are acquiring an asset that fully adhere to the plan. Now on the next slide, we talk about the location. And this is a very prime location, as you can see on the slide, you can see on the right. And we are talking about the cluster with Echo Energia, Iberdola, Total and Voltalia, which is the developer of this project. And this is a cluster of 2.4 giga. So this cluster has the potential of being further increased. And because of this prime location, it has a higher generation in peak hour. So it has a generation that's happened. It's very attractive in this sense. And in our acquisition model, we have already math a potential for expansion for hybrid parks, including solar. So in our modeling, we consider the possibility of having solar and battery stations. So that in the future, we can develop this together. Now let's talk about a very important theme for this project. It has long-term contracts, and it has predictability of revenue and results, which is a very big advantage for the project. The contracts in the ACR, the regulated market in force up to 2043, represent approximately 35% of the whole volume of energy for this project. And the contracts in the ACL, we have up to 2030 about 51% weight. And according to our strategy of adding synergies for the other companies of the Copel group, part of the contract are signed with Copel Mercado Livre. And this increases the synergies that we see in the project. And the portfolio management for energy will be carried out by Copel GeT. And you can trade all the difference between the P50 and the P90, which would be around 13% of the energy available for the project. Following the presentation, there is a very important point which are the operating synergies and the environmental assets. As I said, it increases by 29% of our wind energy portfolio, maintaining our operating structure. And this gives Copel the possibility to dilute about BRL 3 million in fixed costs per year. And another big advantage is that Copel GeT already delivers OEM in Rio Grande do Norte approximately 50% of the whole OEM of the stock will be in the delivery of services of Copel GeT. The contract of the wind turbines already are full scope, Nordex Acciona and Siemens Gamesa, and Siemens Gamesa10 years and Nordex Acciona 15 years. So -- and lastly, about the environmental aspect. This is a wind project. So it is directly related to our ESG strategy. So we are giving consistent steps towards the carbon-neutrality plan of the company. And with the future possibility of generating REC, renewable energy certificates. So now I will turn the floor to Moura, and he's talking about -- he will be talking about the financials of the project.

Good afternoon. Thank you, Cassio. Thank you, everybody, for participating in our call. I have only 1 slide, and that I would like to share with you, which is Slide #9. But before that, I would like to say that we are extremely pleased with this acquisition, a very important step in the execution of our strategy of adding value to our businesses with sustainable growth. And I emphasize that this acquisition complies rigorously the technical and financial criteria of analysis implemented recently as a part of the process of increasing discipline and governance in capital allocation and with the drafting of an investment policy and the creation of the committee for investments and innovation. So giving support of this analysis. So this new governance gave us the necessary confidence to go ahead and submit to our Board for approval. We were very realistic in our analysis, and we considered all the [ rates ] involved as well as our capacity to manage this asset. This acquisition is fully aligned with our target of a debt in the capital structure of Copel by means of [ levered ] acquisitions with adequate returns. And we ensure that the project will give us returns much higher than our cost of capital, exceeding 2 digits today in real terms. And we still have other upsides that we will be seeking in order to further improve the returns from these assets. We are talking about BRL 1.059 billion enterprise value. And the closing will be on November 30 after complying with precedent conditions. And one of them is the 100% operation of all the park beside the approvals of CADE and creditors as well. Besides the equity value, the amount that will be paid will be adjusted at the closing in November 30, considering the adjustments of net debt. That includes the BNB long term, with maturity is up to 2040 with very competitive interest rates. As of this date, we will be recognizing the results here in Copel. So I would like to remind you that the return of 2 digits and with the upside of the leverage of the equity of GeT, we -- at the closing of the date, besides the tax compensation of the goodwill, which is quite relevant and the impact on the consolidated leverage of this acquisition as of November 30, it will be 0.2x. Not very relevant vis-à-vis the leverage. So we will continue to have a low leverage but following the target in the right direction of our ambition to get to 2.7x leverage. So I would like to give the floor back to Daniel, and then we will open for questions.

Overall, the structure and the vision are very clear. What is important now is for us to open for questions that you might have. Thank you very much.

[Operator Instructions] Marcelo Sá from Itau.

Congratulations for the acquisition. I have 2 questions. I would like to understand the magnitude of the goodwill. It was not clear for me. And where do we intend to use it? Is it going to be at Copel GeT? This is my first question.

Marcelo, this is Moura. Basically, we are talking about the goodwill of about BRL 40 million at present value, BRL, 3.5 million per year. And the use will be at Copel GeT that will be consolidating those assets.

Okay, very clear. And the other question, you are basically contracted up to 2030, and we are using BRL 165 as the assumption for the free market. Does it make sense, and I would like you to confirm that, and looking ahead after 2030 based on the experience that we're having at Copel generation? What about the energy market now? There was a recent price increase, given the spread that we have in the short run because of hydrological reasons. So what do you see for this market? It could be very useful if you could cut on the price in the free market.

I'm going to split your question into 2. The first part, Cassio, the strategy and our perspective for prices in the first years and also in the long run. And then I will come back. And the General Director of Get can also take the floor. Objectively answering your question. If the amount that you're using makes sense, yes, it does make sense. About the energy prices of the contracts that were signed by Voltalia. And they are protected by confidentiality, but Copel has been more conservative in the modeling than the prices that we see in the market. What I can tell you is that, yes, it does make sense, and we are usually more conservative in our modeling. And when we consider the energy that is no longer in contract in the long run, in our modeling, they followed similar prices, between BRL 160 and BRL 170 in the terminated ones. I would like to remind you that in a viewpoint, this is very reasonable as far as figures are concerned. And our internal assumptions are even more conservative, as Cassio said. And in relation to the overall vision of the market, we -- what we see is a stress peak. Because of the hydro crisis, you see conventional going to BRL 240, BRL 250 incentivized and already exceeded BRL 300 and BRL 310. And if it was not based on computer models, they would even be higher because the computer runs some models and based on certain premises and assumptions. But we expect this to go back to normal in the next few years. We do not believe this will be remaining for the long run. And in the very long term, beyond 10 years, the percentages of these amounts continue to be very adequate and very reasonable. We believe that there will be -- well, as the grid 1 will be finished in March next year, this will be a differential. Just to conclude, if you need to add anything, I would like to say that the prices will be stretched over this year. We are still at the beginning of the dry season. So there will be some consequences for '22 and '23, with higher-than-average prices higher than the last few years, correct. And the strategy of Copel was also mentioned. The balance of energy to sell in A plus 1 and A plus 2, where we obtain higher prices is confirming this year, including with a much higher growth vis-à-vis A-plus 1 and A plus 2, '22 and '23, both for conventional energy and incentivized energy. Today, the price is BRL 240 and BRL 250 for A plus 1 and higher than BRL 300 for incentivized in A plus 1 as well. So Copel has almost all the targets of A plus 1 sold at these prices. And there is an additional energy that we can tap into the opportunity, but always holding and guarantee the exposure of the GSF that we have increasing because of the hydro crisis. And there is one additional detail about the goodwill. Marcelo, just to make it more clear, your question about the goodwill. The information that I gave you is based on the tax effect, the BRL 40 million, BRL 3.5 million per year. And the goodwill is much higher than that. But as far as you are concerned, it seems to me that you are thinking about the tax benefit. Is that correct?

Yes, that's it. And we published a report -- the EBITDA margin after the synergies that you mentioned, do you believe it would be 80% around -- at today's prices as if it comes to an end as margin drops. But if you took the EBITDA with what is contracted today, what would be the order of magnitude of your margin as you see it?

The order of magnitude is very adequate, Marcelo. We have very good machinery in place. We have very good contracts for [ CTA ]. And as they come to an end, one the strengths of our company is the strategy of trading our portfolio. So it will be in the portfolio of 2.4 giga average that we have annually. And we do not expect any losses even in this 13%. This is one of the upsides in terms of improving the profitability of the project is the fact that we will be able to sell in the price ranges that we mentioned, at least in the very short run.