Companhia Paranaense de Energia - COPEL (CPLE3) Earnings Call Transcript
October 7, 2022
Earnings Call Speaker Segments
Good morning, and thank you for waiting. Welcome to Companhia Paranaense de Energia -- Copel's video conference about the acquisition of the Aventura and Santa Rosa & Mundo Novo Wind Complexes. [Operator Instructions] Before proceeding, we clarify that forward-looking statements that might be made during the call in relation to Copel's business outlook as well as operating and financial projections and targets are beliefs and assumptions of Copel'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 depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect Copel's future performance and may lead to results that differ materially from those expressed in such forward-looking statements. Today with us, 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; and Mr. Moacir Carlos Berto, General Director of Copel GeT. Now we would like to give the floor to Mr. Daniel Slaviero, CEO of the company. You may proceed.
Good morning, everybody, and it is a great pleasure for me to announce on behalf of Copel the acquisition of the Aventura, Santa Rosa & Mundo Novo Wind Farm Complexes, increasing the generation capacity by 260 megawatts. This acquisition is fully aligned with our strategic plan, with our investment policy and with the long-term objectives of the company to consolidate as one of the major players in Brazil in a fully integrated company. With this acquisition, we increased by 28% wind generation. And the renewable sources or the pure wind and solar already represents 17% of our generation capacity in Copel GeT, 6.7, now with the acquisition. If we take from 2018 up to now between acquisitions and brownfield and greenfield, we have 255% growth, reaching 1.2 gigawatts basically in wind energy, consolidating the company as the second largest generator in Rio Grande do Norte. As you know, the state has a very -- has an excellent position in terms of wind generation, has a privileged position. So we are executing in this plan with discipline in our capital allocation, and Cassio will be talking about the characteristics and also some synergies and the benefits that we are consolidating. [indiscernible] will talk about the technical aspect and the return that we believe is very attractive for the company and for all our shareholders. Cassio?
I would like to remind you about our investment policy and this policy that you can see here. You have on the screen are our wind investments and our strategy to recompose our EBITDA. In Rio Grande do Norte -- we have over 150 mega in Rio Grande do Norte, so this asset satisfies all these premises and it is totally aligned with our investment policy. And going ahead, we get into more details about our wind farms of Copel. On this slide, we can see 8 complexes in Rio Grande do Norte. The Aventura is #1. It is listed as #1 here. And it is less than 30% distant from the other one. So it gives a very good operating energy. And item #2, which is Santa Rosa & Mundo Novo, 155 megawatts, a little bit more than 100 kilometers from São Bento. So these are assets that give us an operating energy that is very important for Copel, and this is really a major advantage when we analyze these assets. And here, we are talking about 4 wind farms in Aventura with 155 of mega and Santa Rosa & Mundo Novo 155 installed capacity. And this complex as a solar project as well, it is already adapted for hybrid generation, 10 megawatts in a project with solar, and Copel will be developing this when we consider it convenient. And going ahead with the presentation, we see some technical aspects about the installed capacity and assured energy and commercial operation and beginning to contract the energy from these farms. You can see an assured energy of 157.8, the commercial operation of these farms. Aventura will be in July '21 -- was in July '21 and Santa Rosa & Mundo Novo between December '21 and February '22. It's very important to highlight this because the nature of the operation, it was a locked box operation. So the whole period from December 31, 2021, until the closing of the operation, all the cash flow already is Copel's. And this was a project that was A-6 in the auction -- A-6 in 2017. And these are already in commercial operation with a high capacity factor. And we had a recertification which is part of our acquisition process. So we reached 61% in this factor. And with a very in-depth due diligence and we came to the conclusion that it was very well-built, 62 wind turbines and top-of-the-line wind turbines. And going ahead in the presentation, we have already talked about the profile of this energy in the regulated market, 76% of the energy. So in the regulated contracting environment, 14% of the energy sold in the free environment. It has already come to us with this energy already contracted and what I said about 2022. And the contract, this farm already came with very competitive prices, already traded at market prices. So we have a little bit less than 10% to trade in this project. And let's get ahead talking about the operational synergies and environmental aspects of the project. I have already said that we have an additional 260.4 megawatts, optimizing our operational structure. We have full scope contract, Vestas, 15 years. With fixed cost dilution, we are maintaining the same structure of Copel GeT. And a dilution of about BRL 3 million per year and the benefit of Copel GeT O&M, BRL 6.3 million approximately per year. So this gives a very good upside and a very good competitiveness for Copel. And as we are talking about the renewable energy or pure renewal, this helps us to continue in our track of focusing on net zero plan offering to the group, especially to Copel free market, the possibility of trading the I-REC, the certificates. Thank you. Daniel?
Going to the last part of the presentation. Once again, one of the relevant pillars of our strategy is our discipline and governance in capital allocation. This is an acquisition that has a 2-digit IRR and relevant synergies and upsides that include the fiscal benefit or the tax benefit of the goodwill. And also, the base date of the transaction was December 31, '21. We have a long-term debt with BNB with very competitive rates, on average 2% interest rate for both projects, and up to 2043, very long-term debt and the operating synergies that have already been mentioned. And we are sure that these acquisitions bring a lot of value to Copel. Any additional remarks or can we open for the Q&A?
Thank you very much. We will start the Q&A session for investors and analysts. [Operator Instructions]
[Foreign Language] Could you get into detail about the financing plans besides the BNB and the other ones that you mentioned?
As I said, one of the upsides that we are considering the projects is the possibility to have equity financing at the holding company, and this could vary depending on the cash situation at the moment of the closing that will be at the beginning of next year. So it could be from 50% to 100%.
[Operator Instructions].
[Foreign Language] Congratulations for the excellent acquisition, generating value for shareholders and bringing benefit to society. With the new acquisition, the leverage of the company would be how much and the net debt EBITDA as well? What is the projection of the cash flow for '22? What is your projection for your cash flow in 2022 after the deal is closed?
Thank you, [indiscernible], for the question. In relation to the leverage, [indiscernible] will answer the second part. In terms of leverage, we closed the second quarter with 1.3 leverage, still reflecting some extraordinary event in the last 12 months, and that should go back to normal. And it would be around 1.5. And in this project, we have 0.30 or 0.35 to our leverage. So we still have a very comfortable situation even for new opportunities. So this is the information that we can give you considering the data of the second quarter and what the project brings 0.30, 0.35 in the leverage structure of the company. In relation to the cash flow, very long term, which is up to 2052. And if you bring this to present value, it would be about 400, considering the IRR that we are estimating.
[Operator Instructions]
[indiscernible] Which are the next steps for new investments in transmission for the company?
Our investment policy, Ricardo, you saw that Copel participated in the last couple of auctions in June and December last year, and we ranked second in these 2 lots that I mentioned. There was something very positive coming out of that, although we were not the winners, because we learned a lot. And it showed one of the characteristics that is very important of our company, for Jandaira, for Bela Vista, for all the projects that we had [indiscernible]. And it is also valid for this project and for the next that we will have. And Cassio can talk to you about what we are aiming at in the next few auctions. And we also have Moacir from GeT, and he can also share some data with you.
Looking to the future of transmission, according to the investment policy of the company, we look for assets that may have a RAP over BRL 100 million and that may have operating synergies with other assets that we already own. So the next 2 auctions, this is -- it is more clear now the asset that will be available. We have already started our due diligence, our studies. And as soon as we can, we will come to you and inform which will be our priorities. But transmission lines are constantly studied by our team based on all the premises that Daniel mentioned, minimum return and capital allocation discipline and such as we always do at Copel GeT.
Good morning, everybody. The same way that we look at all businesses to grow in generation, the same we do with transmission. So Copel GeT looks to the future growing and increasing the farms and also the complexes of generation and transmission. And as Daniel said, the auction, mainly next year, the offers of lots are very high, and there will be opportunities for transmission companies to participate in these auctions, and Copel is already studying the lot that fits into the investment policy of Copel, and we are very willing to acquire transmission lots in order to increase our transmission infrastructure the same way that we are growing in wind, in transmission as well.
I have one doubt in relation to the strategy that you will be adopting. Regarding the decontracted party -- part, given the expectation of prices, do you intend to contract this part in the free market? And what is the level of the long-term [ EPAs ] that you see in the free environment?
Luiza, at least 10% will be added to the portfolio of sales that we have in our strategy, both GeT and Copel free market, 2.3 gigawatts, and we have a strategy of negotiation, both wind and a little bit of solar. So what do we see for that? It is going to get into this whole of energy that we have available and part will be used as a natural hedge for our exposure in the GSF. We see this as a very interesting alternative in order to mitigate. This is the reason why we are investing in wind and in solar as well. In relation to the strategy and the outlook for prices, we are working with a more long-term view, 5 years on, lower than BRL 190, incentivized. So this is what we consider as adequate. Regarding '23 and '24, we have left the biggest hydro crisis in 91 years and going to the highest rainfall. So there was a downward pressure on prices. But we believe that there will be 2 wet periods and 1 dry period, and we see a perspective of recovery of prices in the very short term. And what is part of our strategy is not to have this on the spot market and looking with our clients, with our partners, with our customers, contracts from 2 to 5 years. As I said before, we were -- we had prices that were a little bit depreciated for '22 and '24.
[Foreign Language] You have an increase in your debt. What is the maximum leverage that is your aim? Will there be an additional profit distribution this year?
Eduardo, you have been following us and you know that Copel since 2020 or 2019, we have had the lowest leverage. It reached 0.9. And we have been talking about that consistently. And we consider this as too low. We don't think this is adequate as a capital structure. So our objective, at the time it was between 3 to 5 years. So we are in the middle of this transition. And we want to go towards 2.5. And this can be done with 2 levers. One is acquisition and the other lever is the dividend policy. And what we see is to have a balance and consolidate these 2 sites, and we have been executing this in a very adequate fashion. So what we see here in this process as was said in the last call, we will always follow our dividend policy. We'd say -- says 2 events. One, based on the reported EBITDA of the first half and the net income reported in the first half with noncash effect and the low leverage makes the company study and discuss this internally at the management level, at the executive level and also the Board of Directors what is more interesting for the company up to the third quarter. These studies will be mature until the end of the third quarter, and they will be submitted to our Board of Directors so that they may make the most adequate decisions, considering this balance and the fact that our leverage is still towards the ideal point, which is 2.5.
Pedro Manfredini from Goldman Sachs.
Daniel, Moura and team. The acquisition, does it have a pipeline? Could you talk about the competitive process? Were other players involved? How did you get to that? And have you studied other M&A situations and you lost because of any reason whatsoever?
Thank you, Manfredini. I will answer part of that, and Cassio will be answering part of that as well. We analyze projects, and this is part of our routine. We do this every day, considering the size of Copel and also our growth strategy. So we always look at the opportunities such as the transmission auctions and others. And currently, we are looking at other opportunities, but this one was the one that really went ahead and it seemed to us to be the best return from the strategic and financial viewpoint, and we ultimately decided to close the deal. Maybe you could talk about the competitive process and how long it took and tell us more details.
EDP Renováveis is one of the most respected global players in renewable projects, as you know. Copel participates in competitions basically in 2 ways. One, by means of projects that have public invitation and others are invitations for M&A. In this case, we received an invitation from the sell side and we immediately started to study it. Of course, we don't know how many players were competing with us. But there are so many phases. You have a nonbinding phase and then you have a binding phase. And we submitted a competitive proposal at the beginning. And it didn't get to the target that the sell side has. So we had to come back and make some changes and we understand that there was a very high competition for this asset. We also participated in other assets. That is to say, we have been studying other assets. And the entry about this project, about the pipeline, no, it doesn't have a very big pipeline, but it does have a solar project for 10 megawatts, as I said at the beginning of the call and in order to have a hybrid project basically. EDP Renováveis published a material fact in [indiscernible] where it is listed. And this is part of the global strategy that they have in terms of the turnover of assets of about EUR 8 billion. It is part of the strategy of EDP so that they may use these funds in order to refinance and start growing in the pipeline.
Bernardo here. Could you talk about hybrid generation? When could it really take off?
Thank you, Bernardo. As I said, we have a project for 10 megawatts, and we are going to concentrate our endeavors in order to have the closing of this operation. And also immediately after we conclude this stage, we are going to seek to make it feasible because as soon as it get -- well, the sooner it gets, the sooner we will tap into the synergies. So we will go back to that as soon as we can.
Do you have any other acquisitions in your radar screen? What is the profile of the asset that you evaluate for acquisition purposes?
Pedro, as we said before, this is part of our daily routine. We -- all the time, we analyze projects that come to us or that we are prospecting. In our line is what is reflected in our investment policy, minimum size for each kind of source, minimum RAP. Where is the location? Is there at least a minimum synergy in terms of location? What I can say is that we continue to follow the same lines. We have constant investments in distribution, as you know, but we also have room to grow in generation and transmission as well. This is what we have as our macro vision, and also in terms of portfolio, we have been repeating this in other opportunities to the market. We reached 17%. Our objective between wind and solar or pure renewables, we want to reach 25%. It was from 3 to 5 years. We are halfway. We are about halfway. And we will continue with this consistent growth. This is our vision. From the viewpoint of Brownfield, we have already concluded one stage, an important stage, which was the recomposition of the EBITDA of the company because of the investments that we had to make in Copel Telecom. And although we have a lot of pressure now, we are looking at Greenfield possibilities because we can tap into the advantage of being an integrated company and the biggest trade in -- so we are very encouraged with this perspective.
The Q&A has come to an end. We would like to turn the floor back to Mr. Slaviero. Mr. Slaviero, you may proceed.
Once again, we would like to thank you for participating in this call, investors and analysts and individuals. And I would like to reiterate our commitment with our strategic vision for the future. On November 22, we will have our Copel Day, and we will be telling you about our future. But the essence of our strategy will continue to be the same, which is to focus on the energy business and expanding our current businesses in TeG and always having discipline in capital allocation. We participated in the transmission auctions and others, and you can see our -- you can see that this has been very good for the company. We continue on this track of growth and with the dividend policy that may bring adequate returns for everybody in the company and all the investors as well.
Copel's video conference has come to an end. Thank you very much for participating, and we wish you all a very good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
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