CTEEP Companhia de Transmissao de Energia Eletrica Paulista
BOVESPA:TRPL4
Earnings Call Analysis
Q4-2023 Analysis
CTEEP Companhia de Transmissao de Energia Eletrica Paulista
In the spirit of generating sustainable value, ISA CTEEP had a notable year in 2023 with strategic wins in transmission auctions and investment in greenfield projects totaling BRL 5.6 billion, expected to yield BRL 510 million in annual permitted revenue. These efforts display commitment to growth and shareholder returns, with BRL 1.4 billion marked for interest on equity distribution translating to BRL 2.2 per share. A significant net income increase to BRL 1.9 billion underscores the company's robust financial performance.
Operational events, the full recomposition of RBSE, and adjustments for inflation fueled a 24.5% growth in net revenue for Q4 2023, hitting BRL 1.1 billion, and an overall annual increase of 18%. The inclusion of greenfield projects and improvements in the company's portfolio, as well as the rise in expenses due to expansion, did not impair the operating margin, remaining stable year over year. EBITDA growth of nearly 27% to BRL 3.1 billion emphasizes operational efficiency and financial health.
The RTP process, set to be presented in March with a final vision by July, decisively influences the company's regulatory net income. As such, how ANEEL proceeds with this will be critical for ISA CTEEP's revenue projections and investment returns, especially considering the company's significant ongoing projects.
ISA CTEEP is managing its covenants effectively, aiming to conclude one by Q1 2024. With BRL 600 million in liabilities to BNDES, the company has demonstrated the ability to negotiate waivers or prepay if necessary, ensuring that debt covenants will not impede its strategic plans. This exemplifies a prudent approach to financial management that seeks to balance investment with debt obligations.
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[Interpreted] Thank you for holding. Welcome to ISA CTEEP's Fourth Quarter of 2023 Earnings Call. [Operator Instructions]. We'd like to inform you that this conference is being recorded, and it will be made available on the company's Investor Relations website, which can be www.isacteep.com.br/ir. There, you will be able to find all of our materials. You may download this presentation in Portuguese or English. [Operator Instructions]. Statements made during this presentation about the company's business perspectives, their projections, and their potential growth are assumptions based on the administrator's expectations about the future of the company. These expectations depend on changes to the market, on the country's general economic performance on our industry and international markets, and are therefore subject to change. Remarks about the future are not a guarantee of performance. They involve risks, assumptions, and they refer to future events and therefore, depend on circumstances that may or may not come to pass. Investors should understand that the general economic conditions, market conditions and other operational factors may affect the company's future performance and lead to materially different results than those expressed in these forward-looking statements. We have with us today Rui Chammas, the CEO and President ISA CTEEP; and Carisa Portela Cristal, CFO. We also have other directors from the company. I'll now pass it over to Mr. Rui Chammas.
[Interpreted] Good morning, everyone, and thank you for participating in ISA CTEEP's Fourth Quarter 2023 Earnings Call. My name is Rui Chammas. I'm the CEO of ISA CTEEP and the company's Executive Directors are with me today to present the main results published yesterday and bring an update on the main issues of the company. Please move forward to Slide 3. We ended 2023 crowning our strategy of generating sustainable value. The plan established to achieve this objective involves three strategic factors that support the company's decision-making creating positive social and environmental impact, ensuring corporate longevity, and generating sustainable shareholder value. The generation of sustainable value will materialize when we deliver a quality service to society that allows us to balance the company's growth with the distribution of dividends to our shareholders. Among the achievements of 2023, I would like to highlight the following: we won 3 lots in one of the largest transmission auctions ever held, adding BRL 510 million to our potential annual permitted revenue in return for investments of BRL 5.6 billion. Investments consistent with the energization of 2 greenfield projects totaling more than BRL 100 million to the company's annual permitted revenue or RAP. We also invested BRL 1.2 billion in reinforcements and improvements in record volume and a single year for the company. We'd also like to present highlights of our economic and financial results that will be addressed in more detail by our CFO, Carisa Portela Cristal. Our net income increased by BRL 1 billion in 2023, reaching BRL 1.9 billion, which made it possible to announce the distribution of BRL 1.4 billion in interest on own equity, equivalent to BRL 2.2 per share. The last highlight is our preferred share, which became a part of IBOVESPA, in the first portfolio of 2024 and appreciated 15% in 2013. We move on to the next slide, where I will address the company's growth in detail. I'd like to begin by presenting our greenfield projects, which are profitable investments that ensure the longevity of the company. As mentioned in the beginning of the presentation, we won 3 new concessions in the auction organized by ANEEL in June, Serra Dourada, Itatiaia, and Ãgua Vermelha with a total expected investment of BRL 5.6 billion and a potential of BRL 510 million. The 2 largest projects, Serra, Dourada and Itatiaia are located in the states of Minais Gerais and Rio de Janeiro and will serve to distribute the energy generated by these renewable resources. These new projects add to our portfolio, and as a result, we will have more than BRL 10 billion in greenfield investments to be made in 7 projects that when energized will enable more than BRL 970 million to be invested in the company. In the graph to the right, I also bring an update on the evolution of the projects under construction, highlighting the Minuano project, which is in its final stages. Let's move on to Slide 5. We increased our pace of investments in reinforcements and improvements. And in 2023, we invested 1.2 billion in this segment, 65 projects that generate more than 40 million in ARP rights. Our portfolio of projects has 240 projects authorized by ANEEL with investments of about BRL 5 billion that will be executed over the next 5 years. These projects have an ARP to CapEx ratio that varies between 12% and 17%. The ARP of the investments being made in the current cycle from 2023 to 2027 are estimated between BRL 600 million and BRL 850 million and will be received according to the lower graphs, 63% of the value in the 2028 tariff review and the rest as the projects are energized annually with the expected inflows following the chart. I will now give the floor to Carisa Portela Cristal, our CFO, who will explain in detail the financial results of the company in the fourth quarter of 2023. Carisa, go ahead.
[Interpreted] Thank you, Rui. Good morning, everyone. I'd like to begin my presentation on Slide 6. The company's total net revenue grew 24.5% in the fourth quarter of 2023 to BRL 1.1 billion, totaling BRL 3.9 billion in 2023. Growth was led by operational events such as the start-up of greenfield projects and reinforcements and improvements. The full recomposition of RBSE and an adjustment for inflation in this period. If we disregard RBSE, net operating revenue grew 7% in 2023. And when including ISA CTEEP's share and the revenue of subsidiaries, its growth was 26.2% compared to the fourth quarter of 2022. If we look at the results for the year, on the other hand, it shows a growth of 18%. Moving on to Slide 7. Here, we see total costs and expenses, personnel, maintenance, services, and others called PMSO which grew 2.9% in the fourth quarter of 2023, mainly due to the increase in the number of employees and maintenance expenses to cope with the company's growth. I would also like to highlight the signing of a collective agreement and expenses with information technology consultancies. These expenses were partially offset by lower spending on studies and the participation of auctions and by lower actuarial liabilities related to private pension plans. As a result, the company's operating margin measured by PMSO over net revenue, excluding RBSE, remained practically stable both in the quarter and in the year. Consolidated EBITDA grew 30.3% in the fourth quarter and nearly 27% in the year, totaling BRL 827 million and BRL 3.1 billion during the fiscal year. The EBITDA of the controlled -- jointly controlled companies grew 19% in the fourth quarter of '23, totaling BRL 129 million, and 65% in the year to a total of BRL 592 million. In addition to the better operating results I talked about, net income was also driven by the financial result, whose net expenses increased by BRL 26 million in the fourth quarter and BRL 8 million year-to-date. And also, the improvement in the income tax and CSLL item with a reduction in taxable base, which can be explained by 2 factors: a greater share of the equity results of our subsidiaries and a higher distribution of interest in the period. As a result, net income in the fourth quarter grew 147.7% to BRL 901 million. Net income for the year grew 107% to a total of BRL 1.9 billion. On the next slide, I have a snapshot of the company's indebtedness. We finished 2023 with a gross debt of BRL 9.3 billion and a net debt of BRL 7.9 billion. As a result, the company's leverage ratio measured by the net debt-to-EBITDA ratio finished the year at 2.39x. In 2023, with the cooling of inflation measured by the IPCA index, we reduced our debt monetary variation. So our annual financial results remain practically in line with the change of 0.9% compared to 2022. Some events March 2023, namely the 13th issuance of debentures to the amount of BRL 550 million, raising of BRL 105 million from BNDES carried out in the third quarter, the 14th issuance of debentures also in the fourth quarter to the amount of BRL 1.9 billion, and that allowed us to prepay promissory notes in the fourth quarter to the amount of BRL 1.6 billion. As a result of our debt management, the company was able to extend the average maturity from 5.9 years to 7.9 years and also reduced the average nominal cost to 11.06% in the fourth quarter of 2023. Another result was an increase in the representativeness of IPCA-indexed debt, which currently stands at 69.7%. It was 50.9% in the third quarter of 2023. The company continues to evaluate its capital structure and growth opportunities with the aim of maximizing the generation of shareholder value. To conclude my presentation, I show on Slide 9, the performance of our shares, which in 2023 appreciated 15.2%, with an average daily trading volume of BRL 54 million. We finished 2023 as the 78th most traded stock on B3, advancing 17 positions in the year. If we consider the dividends announced in December 2023 of 2.2 per share and a total return on preferred shares, which was 25% in the year. As we mentioned at the beginning of our presentation, we will rejoin the IBOVESPA Index in 2024. This is B3's main index. I'd like to conclude my presentation by highlighting the company's ability to balance investment in growth with a good level of dividend distribution and thus generate value for our shareholders. In December, we announced a distribution of BRL 1.4 billion in interest on equity. This amount is in line with our practice of distributing earnings and will be paid in full by April 2024. We'd like to mention that we maintain our practice of distribution of earnings, which provides for the distribution of at least 75% of the regulatory net income. This concludes my presentation, and I'll give it over to Rui.
[Interpreted] Thank you, Carisa. Before we conclude, I'd like to give you an update on our ESG agenda. Let's move on to Slide 10. We advanced our ESG practices throughout 2023. I'd like to start with the message that safety is a nonnegotiable value for us, and we managed to reduce 80% in total accidents in 2023 for our own employees and third parties. This reaffirms our commitment to life. We will work to sustain this good result. We also evolved at Eco indicators, a reduction of 22% in SF6 losses in 2023, a gas with insulating properties, which also has a high impact on global warming. We also reduced our water consumption by 21% and energy consumption grew by 6%. The advances in our ESG agenda were recognized through the inclusion of our shares in trading indexes composed of shares of companies recognized for their good practices and also by other awards and certificates related to that. In addition to the aforementioned indexes and the FTSE for good in 2023, we joined B3's Corporate Sustainable Sustainability index, ICO2, and the next composed of shares of companies that are part of B3's 100 most traded shares, which transparently report their greenhouse gas emissions. Also in 2023, we won the gold seal for the fourth consecutive year in its greenhouse gas inventory. And we were the first transmission company to conclude a green loan with BNDES. Let's move on to the next slide. So I'd like to conclude my presentation by talking about our long-term strategy. Based on the elements and values of sustainability, environmental, social, and excellent corporate governance, we basically work the pillar of growth by paying our dividends and managing our debt, ensuring an investment rate from Fitch and AAA Brazil. In line with the balance of those 3 dimensions, we want to continue to grow with profitability, discipline in executing our CapEx, innovation, operational excellence and what we offer society and great cash generation so we can grow our value in a sustainable way to all our shareholders as at the same time providing excellent services for society. So now I conclude our presentation, and I'd like to hand over to the operator so that we can begin our Q&A session.
[Interpreted] [Operator Instructions]. The first question is from Paulo Besen, Investor.
[Interpreted] He starts by saying that he is very proud to be a part of the team and congratulating the company on its results. And his question is, I missed the availability index. Can you please comment?
[Interpreted] Good morning, Paulo. This is Gabriela, Director of Operations. Our availability indexes are in the press release. In 2023, we have the transmission lines at 99.07%. And given the climate events that were severe in the second half of the year, and therefore, the transform availability was 98.73% higher than the ANEEL reference figure.
Next question is from Joan Paulo.
[Interpreted] His question is, how is the company handling the climate events that are becoming increasingly more extreme and frequent?
[Interpreted] Good morning, Joan. In this context, ISA CTEEP has been facing the climate events in 2 fronts in mitigation, where we try to constantly reduce our emissions in the decarbonization journey. We showed in the slide that we lowered our emissions by 22% that were coming from the isolation gas in our main substation -- the 6, and we have climate adaptation. We already have events where we have contingency plans, the summer plan, the coastal plan and others, given the severe climate events. In addition, we're using science-based data for 2030, 2040, and 2050, so that we have a vulnerability, diagnostics for our assets, so we can plan long-term measures and mitigation actions. We're also preparing our contributions for any subsidies from ANEEL as this is very important to all agents that work in this area in this industry.
[Interpreted] Next question is from Julia Zaniolo from Santander.
[Interpreted] You have a robust investment pipeline to be accomplished in the upcoming years. Considering that are you planning on being a part of the next transmission auction? And her second question is what's the level of leverage that you believe the company should achieve to face these challenges? And should we see a reduction in the dividend yield?
[Interpreted] Hello, Julia, this is Silvia Wada, the Director of Business and Development strategies. I'll answer the first part, and then I'll hand over to Carisa to talk about the second one. About taking part in the auction, we've internalized all the transmission auctions and the actual decision to be a part of that will be closer to the date of the auction. Specifically for the March auction, we're assessing that always considering and laying the fact that we already have a very robust pipeline, as you will mention, to execute and good management of leverage is a very important aspect in that decision-making process. Carisa, can you comment the second question, please?
[Interpreted] Thank you, Silvia. In fact, we do have a significant investment pipeline considering that we've gained huge volume in the auctions. So we have 10 billion in greenfield to execute and 5 billion of improvements to execute in the next 5 years, a total of 15 billion. Today, leverage is very comfortable. We're at 2.39 in leverage. Even looking forward and considering the investments that we've had, we have -- it's important to mention that the curve grows. And at some point in our presentation, we've shown that. But for 2026 and 7, we can see that in those 2 years and moving forward, we'll have more pressure on leverage, and we may achieve a level of 3.5 to 4 for a certain period, but that doesn't concern us -- given the fact that we're an intensive capital company, and we're going through a period of strong growth. We even had a conversation with our qualifier, and that's not a concern either for investment grade and it would still remain AAA. So looking forward, in terms of dividends, we have the ability of maintaining the balance on all 3 fronts. So -- excuse me, in terms of revenue. So we plan on growing investments, monetizing our shareholders through dividends and always looking for profitability and efficiency in our activities. Therefore, we will maintain our practice in paying at least 75% of the regulatory net profit, net income.
[Interpreted] Next question is from Jean Fagundes from Bradesco BBI.
[Interpreted] So question is, could you comment on the RTP expectations for the 059 contract? When will we have more information on the RTP?
[Interpreted] Thank you, Jean. This is Claudio Moreno, Regulatory Affairs Director. The RTP process for this cycle has been divided into two steps. First one, regulatory, where we have a definition from ANEEL for the beginning of the year. And for a period, we would be achieving that, and we have good expectations in terms of that compensation. And that will be presented in March this year. And the results, I believe, in July, we should have a final vision of that result. In the second part is about maintenance, operations, and costs, that's still under public consultation and being analyzed by ANEEL -- that should be concluded in April or May.
[Interpreted] Next question is from Ben investor.
[Interpreted] So congratulations on the results. And the question is, if Cemig sells its share at Taesa would ISA be interested in increasing its share in Taesa?
[Interpreted] Thank you for the question. In fact, the holder of the shares in Cemig to control Taesa is ease and not easy city. It's our controller that has co-control with CIMIC. So that question should be asked to them. As far as we know, they have an agreement where ISA would have, in the case of sale, the right of first refusal in maintaining the control of Taesa. So that question should be made to them. But anyways, thank you for your interest. Thank you for the answer.
[Interpreted] The Next question is from Bruno Ferreira, investor.
[Interpreted] Question is, could you explain what the time horizon is to compensate investments in efforts and improvements through tariff increase or review.
[Interpreted] Thank you for your question, Bruno. All investments in reinforcements and improvements go through a subsequent process of tariff review. So every 5 years, ANEEL decides the value of the revenues in that incremental period. So all investments are entitled to receive a revenue as soon as they start up until the end of the concession contract. And by the end, there should be a residual amount.
[Interpreted] Next question is from Luis Capuso, Investor.
[Interpreted] Question is geographically speaking, I'd like to know what the city expansion plan is? What are the main regions where the company will focus on in the future?
[Interpreted] Thank you for your question, Luis. In the City Projects Director. And as you know, we have many types of developments. Some are improvements from Contract 059 and concession in Sao Paulo and the developments of improvements 4 auction development -- they have already been defined by ANEEL, and we have won those. So we're focusing at this time in the state of Bahia, Minais Gerais, EspÃrito Santo, and Rio de Janeiro. So we've been executing according to those developments that we want.
[Interpreted] Next question is from Asis De Costa, Investor.
[Interpreted] Question is the covenant of the BNDES loan. Does that affect the leverage target and investments in short and medium term? How would you handle that?
[Interpreted] This is Carisa speaking. Today, we still have 2 covenants in the company. We have the covenant for the fifth debenture emission, 3.5 million of net debt over EBITDA. So that should be concluded in the first quarter of '24. And moving forward, that won't be a hindrance. And we still do have debt with the BNDES. The current amount of liabilities is BRL 600 million, and the covenant is 3x net debt over EBITDA. Every time it was necessary to access the BNDS with a solid business plan, we were able to obtain a waiver with the BNDES. And if that's not possible, given the amount, it wouldn't be hard to make a prepayment and refinance the remaining balance. So that's not a hindrance to our business plan.
[Interpreted] We have a second question from Mr. Asis. So the financial efficiency strategy -- in tax strategy adopted last year, could that be followed this year to maximize the dividends transferred to shareholders. And with that, only one transfer at the end of the year or does the company believe they could adopt a different strategy?
[Interpreted] Well, in the past years, the company has adopted the strategy to maximize the payment of dividends through interest on equity to have more tax savings and transfer more dividends to shareholders. That's what we did in 2023. And for the next years the company does intend on maintaining interest on equity because we know that there's the tax reform. So maximize interest on equity as much as we can for the upcoming years. So the payment will be concentrated or focused on one single payment per year and therefore, better.
[Interpreted] Next question will be asked by Jose Altero, investor.
[Interpreted] He is congratulating the company for its results. NPS for further clarifications on the average cost of debt, which is 11.06%. He asks if the IPCA installment is related to the period or is it based on current values.
[Interpreted] What we currently do is this. When we look at our debt composition, 70% of it after the last capture is backed by the IPCA, and the remaining 40% is linked to the CBI. So when we calculate the average cost of debt, we consider a cost that is not the real cost because it already considers IPCA and the spread, and we also look at the average maturity for the average cost.
[Interpreted] The next question was asked by Gustavo Fernandes Investor.
[Interpreted] Is there any news about the possibility of selling Eletrobras' shares? And what would be the impact of that were to happen?
[Interpreted] Antonio, thank you for your question. I apologize, but that question should be asked to Eletrobras. So they have about a 30% of preferential shares and we manifested at the end of last year. And we heard the repercussions of this in our market. We heard that they have the intention of doing that. And then later on, they had a communication saying that for some limit for the reasons of some limits that they had, they were suspending that operation then. And since then, we've had no further information. No further information from Eletrobras. So if they do express their interest, we will communicate that to you as well.
[Interpreted] [Operator Instructions] As there have been no further questions, this concludes our Q&A. We will now pass it over to Rui Chammas, who will make his closing remarks. Go ahead, Mr. Rui.
[Interpreted] Thank you for your interest in our fourth-quarter earnings results and end-of-the-year results. I was glad to answer the questions that we received with our team of directors, and we're still available through our Investor Relations team if you have any further questions, you can ask them directly. Our entire Board of Directors is also available if you have any specific questions. So we'll be pleased to answer any questions you may have. Have a great day. Thank you from our entire team for your attention, and we'll see you that time.
[Interpreted] This concludes the company's fourth quarter of 2023 earnings call. We'd like to remind you that the Investor Relations department is available to answer any outstanding questions. Thank you to all the participants, and have a great day.