Aeris Industria e Comercio de Equipamentos para Geracao de Energia SA

BOVESPA:AERI3

Earnings Call Transcript

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to Aeris Earnings Conference Call for the fourth quarter of 2023. Here with us today are Alexandre Negrao, CEO; and Jose de Sousa Azevedo, CFO and Investor Relations Officer. This event is being recorded. [Operator Instructions]Before proceeding, let me mention that statements made in this call regarding the business outlook of the company, operational financial projections, and goals are based on the beliefs and assumptions of Aeris management.Forward-looking statements are not a guarantee of performance. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur.Macroeconomic conditions, industry conditions, and other factors could also cause results to differ materially from those expressed in such forward-looking statements.Now, I would like to turn the conference over to Mr. Alexandre Negrao. Mr. Negrao, you may begin your presentation.

[Alexandre Sarnes Negrao, executive]

Thank you, Laise. Good morning, everyone. Thank you for attending our call. Now, starting on Slide 2, talking about the highlights of 2023.The first point is the record in wind power installations not only in Brazil but worldwide. We are waiting for the final report, but it's around 110 giga installed worldwide and 4.9 giga installed in Brazil.Despite the fact that 2024 is proving to be more difficult for Brazil, we can see, based on conversations with our customers, that all the regions are growing, will grow faster during 2024 and '25, especially the Americas, which is our main focus.Now, starting the second point, the reduction of leverage. As we talked in the third quarter, we were in the follow-on process.The capital increase was successful. The capital increase that came to improve the balance sheet data of the company and the capital structure making it ready for new challenges. And the third focus is the focus on operations.The highlight is that we had an increase in EBITDA of 40% when compared to 2022, which shows that our strategy, as we said in the beginning of last year, to renegotiate contracts focused on operations, and manage inventory, and reduce costs is very efficient.Now, moving on to Slide #3. I'll talk about the results on the fourth quarter and 2023. We closed the fourth quarter with a loss of BRL 63 million and 2023, we recorded a loss of BRL 106 million.The net revenue amounted to 700 million in the fourth quarter of '23 closing the year at BRL 2.8 million and investments was 0 in the fourth quarter, and we closed the [Technical Difficulty] almost BRL 66 million, in line with plan.EBITDA with BRL 34 million in the fourth quarter, and we closed the year with BRL 330 million. And the ROIC reached 13.1% for the year. When we move to Slide 4, we see that this was discussed here in which we invoiced the full-year machines with an average power above 0.5 megawatts, which shows the power of the sector to manufacture bigger turbines, and therefore, a bigger place.We don't see this trend going down in coming years. The trend is going to grow even more, not so substantial as it happened from 2018 to 2020, '22, but we'll see a bigger growth in future years.Now on Slide 5, I turn the floor over to our Financial Administrative Officer, Azevedo.

[Jose de Sousa Azevedo, executive]

Thank you. On Slide 5, we have an impact of the improvement of the revenue policy, the fourth quarter of 2022 and the year 2023 adjusted. When we compare the fourth quarter '23 and the third quarter '23, there was an increase of 7.1% in revenue.Despite this growth, the amount is lower than the sales in the 2023 because of the adjusted demand from our customers, 2.7% when compared to 2022. We have to highlight the service unit that had an increase of 99.9% in net operating revenue, which accounts for 5.4% in the net operating revenue of the company in 2023.It's worth highlighting that this trend continues in 2024, and it probably will have more exports in the end of '24, beginning of '25. Moving on to Slide #6, the most important here is the added value, which is the difference between the two lines.As you can see, we had a netted value that was higher in this last quarters, which was a result of the renegotiation of contracts we did in the beginning of the year with our customers.Moving on to Slide 7. In the year, we had a record EBITDA of BRL 329 million, with an increase of 40% of the absolute EBITDA when compared to last year. This result was due to renegotiation with our customers and an improvement in operations.Slide 8. We ended the year with investments amounting to BRL 65.9 million, basically to acquire machines and equipment to increase production capacity in the finishing of place. We reduced the average manufacturing time.For 2024, we will make similar investments because we are preparing the plant to introduce new preoperational lines. On the Slide 9, we had some changes. When we compare the fourth quarter '23 with the third quarter '23, we can see that there was a reduction in raw materials of BRL 62 million and an increase in finished products of BRL 1.8 million of the raw material inventories went back to the desired levels. And we're working for the work-in-progress inventories to reach ideal levels.Slide 10. We had a reduction of advances around BRL 500 million, around 20 days. And that, as the operation improved, we were able to reduce it. On Slide 11, on this chart, we have the average invested capital divided between no average fixed assets and WCR average.For 2023, we can see that the figure didn't invest much because we didn't make much investment to produce plans and the need of working capital increased because of advances to customers, which reaches a ROIC of 13.1%.Talking about OPEC, it improved by 44% when compared to the end of 2022. A part of that results from the maturing of the lines. Currently, 15 production lines are mature, in addition to new assumptions and contracts that affect prices for 2023.On Slide 12, it's worth highlighting that the ROIC services was 22.7%. And throughout 2023, we had 100% of the lines mature.On Slide 13, with the end of the public offering of shares, our cash position was above BRL 1 billion, which is enough to cover the commitments throughout the 2024. Leverage reached 1.9%, which is a result of BRL 94.5 million increase of EBITDA in 2023 and a reduction of BRL 124.7 million in net debt.On Slide 14, according to the material fact disclosed in December and January, we have 13.2 megabytes in long term.In net revenue [Technical Difficulty] net revenue, we have a backlog of five megawatts. And on Slide 15, we have eight lines that extend up to 2028 to install in the second half of 2024. And we have the decommission planned for 2024.Now, this ends the presentation, and let's start the Q&A. Thank you.

[Operator]

Ladies and gentlemen, we'll now start the Q&A session. [Operator Instructions] The first question comes from Mathews from Group of Soma.

[Mathews, analyst]

You mentioned about the change in the accounting policy for revenue recognition.

[Alexandre Sarnes Negrao, executive]

Hallo, Mathews, good morning. First, in giving a simple explanation, what we have done basically to advance revenue recognition by 15 days. So, between the period between the standard plate and send it to customers for acceptance, there was a mismatch of 15 days.So, based on best practices and compared to competitors, we decided to make this accounting change. In terms of cash, nothing changes. The term remains the same as we had before.

[Operator]

Next question comes from Marcelo Arazi from BTG Pactual.

[Marcelo Arazi, analyst]

I would like to understand, how is the dynamic of the transition from the decommissioning of mature lines and the new preoperational lines that you will implement during 2024? What is the impact that there may be on margin and the level of investment that you will need for those changes?

[Alexandre Sarnes Negrao, executive]

Good morning, Marcelo. This transition is simpler than the others because the company is not growing. We even mentioned in the release that we are decommissioning pipelines in the beginning of the year and will commission two lines.So, the negotiation with customer for the commissioning of this line is made as the other contracts were made, remembering that in contracts, we always negotiate the two parts so that we can have a ramp-up that is smoother and smoother impact on cash and to ensure a minimum margin and minimum ROIC during this period.So, there will not be an impact locally or increase or resources inside the plant to implement this new contract that we signed in the end of last year. As for the projections will probably have a reduction in revenue in 2024 that is studying again, the strategy of publishing a guidance for the year. We haven't defined the debt, but the operating margins remained the same for 2024.

[Operator]

Next question from Gabriel.

[Gabriel, analyst]

I'm Gabriel from Insider. I would like to ask about the impact of the coming of Chinese competitors, Brazil competitors, and just Sinoma. What are the strategies to face that?

[Alexandre Sarnes Negrao, executive]

Good morning, Gabriel. Well, obviously, we are keeping track of all the movements of competitors, not only in Brazil but worldwide. And we believe it's good to have new competitors because that shows a belief that a trusted Brazilian market as well as the Americas market because Brazil is competitive to export to those countries mainly.So, the coming of the new competitor shows that we remain confident that our operational efficiency, given our size and our know-how, will allow us to compete on an equal basis with any competitor. So, it's always good to have competition because it means that the market is promising.

[Operator]

Next question is from Philippe [Indiscernible]

[Philippe, analyst]

The company has analyzed new fundraising for debts either in dollar or other types of instruments?

[Alexandre Sarnes Negrao, executive]

Good morning, Philippe. We continue to study how to improve our capital structure. And because we are adjusting it to our production plan during the years, as it was mentioned in 2024, this will lower a bit. So, we are prepared for that. We have more than BRL 1 billion in cash, so, we don't have any liquidity issues this year.But in order to get ready for 2025, '26, '27, and '28. We have a plan to increase the maturity in terms of our debts. This is what we're doing, lengthening the debt profile.

[Operator]

Next question comes from Ramon.

[Ramon, analyst]

Currently, energy prices are above 190 per megawatt hour. What price level do you believe that the new wind projects will begin to be feasible?

[Alexandre Sarnes Negrao, executive]

Good morning, Ramon. Thank you for your question. We believe that this price level of BRL 190 to BRL 200 price per megawatt is sustainable for the industry. But, of course, it depends on our interest rate and the cost of capital that each company is able to leverage on to implement its projects.But something around BRL 190 and BRL 200 is different level. Another point that will probably help the market in the long run that's being discussed in Brazilia is the extension of enthuzst the benefit of the transmission and distribution fees charged. And if that takes place, they will generate an extra increase in demand for the market.

[Operator]

Next question comes from John [indiscernible] Investor.

[John, analyst]

Could you comment on what will happen to Aeris with the possible regulation of offshore companies when it opens?

[Alexandre Sarnes Negrao, executive]

Good morning, John. Yes, we are keeping a close eye on the regulation scenario for offshore companies. And we believe that this will happen in the next 12 months.You've heard a lot both from Petrobras and the government in general, putting a lot of emphasis on wind farms offshore, and we at Aeris are confident that the regulatory aspect for the local content will be similar with onshore, which will position us very well, enabling us to capture a great part of this market when it opens. So, yes, we're keeping a close eye on that.

[Operator]

Next question comes from Alisha [indiscernible].

[Alisha, analyst]

I would like to learn a bit more about the outlook for exports since they were zeroed in 2023.

[Alexandre Sarnes Negrao, executive]

Hello, Alisha. Very good questions. As I said in the introduction, we've seen lately that the international market we will probably grow stronger than the domestic market. When I say that, I don't mean India, China, Europe only, but also Americas, which is our main market. So, yes, we probably will resume exports during 2024, a small volume in 2024, but the greater volume in 2025.

[Operator]

The next question comes from Igor.

[Igor, analyst]

You have announced the buyback of around BRL 40 million of the ventures. I would like to understand if there is room in the balance sheet to continue to repurchase that. What's the financial gain estimated?

[Alexandre Sarnes Negrao, executive]

About the ventures, we have repurchased BRL 44 million. Net gain was around 9%. Looking forward, honestly, the prices reduced a bit. It's not the same as last year, but on a timely manner and depending on what we'll do with our capital structure, that could be an option for the company.

[Operator]

This ends the Q&A session. I would now like to turn the floor over to Mr. Alexandre for his final remarks.

[Alexandre Sarnes Negrao, executive]

Thank you, Laise. Well, I believe that in terms of final message, we've had another challenging year in 2023, but a rewarding year also because we were able to improve our operational efficiency as well as commercial agreements. And at the end of the year, we were able to improve the balance sheet of the company with a capital increase.So, everything we plan to do in 2023, we were able to accomplish. Although 2024 will be a challenging year as we mentioned in other calls and in the release, despite that, we remain very confident in the industry in the long run.I would like to highlight COP 28 in the end of last year in which countries committed to triple the installation of renewable energy and wind energy firms by 2030.So, talking about wind firms, we would jump from the current 100 giga to something around 300 giga by 2030. This reflects of growth, as I said recently, is starting to be seen in neighboring countries, such as the United States, Chile, Argentina, Guatemala, Mexico.We can see that there is a growing demand in slow countries that used to install wind turbines and the U.S. is the main promise that we will jump from current 7 giga installed annually to 20 giga by 2030.So, we continue to accompany or to give a close eye on this market growth, and we are confident that this will remain in promising market despite the difficulties faced in the last two or three years.In addition to that, there is an offshore wind energy that will account for a lower volume, but the added value will be much higher for our blades. And the important point in all this growth of the wind energy industry, that Americas installs currently around 15 giga and it will double. So, we'll reach 30 by 2030.So, doubling the wind energy generated in the Americas, the great thing about this because we are very well positioned to capture this growth. So, this is the best part of this growth in the Americas.So, once again, we remain very optimistic with the industry in the middle and long run. And we will continue to prepare the company and making it healthy to go through a more challenging year that will be 2024 and be able to grow in 2025 and 2026. I would like to wish you a very good year, and thank you for attending the call.

[Operator]

Thank you, Alexandre. The conference call of Aeris has now ended. We thank you all for attending.