Transmissora Alianca de Energia Eletrica SA
BOVESPA:TAEE3
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Transmissora Alianca de Energia Eletrica SA
Earnings Call Analysis
Q3-2023 Analysis
Transmissora Alianca de Energia Eletrica SA
As the curtains rose on Taesa's Q3 2023 Earnings Release, the company emphasized its guiding principles, signaling a strong focus on sustainability along with providing encouragement for investor inquiries as the management welcomed questions.
The fabric of Taesa's strategic planning weaves in sustainability as a cornerstone, with the company taking strides in ethics, transparency, integrity, and inclusivity. In particular, the focus shifts towards employee development, diversity, and offering opportunities for underrepresented groups in its workforce.
Deepening their investment in human capital, Taesa has introduced programs geared towards technical training for women electricians and people with disabilities, along with providing comprehensive support for employees over 60. These initiatives underscore the company's belief in equal opportunities as a driving force for transformation.
A significant operational highlight of the quarter was the inauguration of Taesa's new operation system (COS), positioning the company to enhance its operating capacity and ensure its assets' high availability and efficiency, which bodes well for sustainable growth and aligns with ESG best practices.
Taesa showcased resilience through raised net revenues and consistent EBITDA levels despite the 4.5% drop in IGP-M for the RAP cycle. The company's strategic financial maneuvers, including a successful 14th debenture issuance and declaring BRL 205 million in earnings distributions, affirm its financial acumen and shareholder commitment.
Even though EBITDA margins slightly declined to 82.7%, the robust operational cash flow enabled the company to navigate through IGP-M induced RAP cycles effectively. Notably, the seizing of growth opportunities and the induction of new projects like Saíra and Sant'Ana positively influenced consolidated EBITDA and net income.
With a deft hand, Taesa managed to maintain its leverage level at 3.7x, balancing a net debt of BRL 10.4 billion against robust operational cash generation and strategic debt issuances. This financial stability allowed the company to sustain investments, reduce the cost of debt, and consistently pay dividends.
The company disclosed that all preliminary environmental licenses for the Ananaí and Pitiguari projects were obtained and that the momentum in project progression is set to inaugurate a new investment cycle in 2023. Importantly, Taesa announced BRL 204.6 million in dividends and JCP, totaling BRL 1 billion in dividends for the year 2023.
Taesa signaled its forward-thinking strategy, aiming to balance the potential loss of future RAP with participation in bids while engaging regulators to ensure an industry framework that benefits market players. This underscores a proactive approach to long-term growth and regulatory challenges.
Addressing concerns about the new rule on transmission costs for generators, Taesa confirmed it has not been affected and sees this as a marginal impact on its operations. The company's regulatory team continues to closely monitor developments to stay ahead of potential implications.
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Good morning, everyone, and thank you for joining our video conference, Taesa's Q3 2023 Earnings Release Video Conference. [Operator Instructions] We would like to inform that we are recording this video conference, and it will be made available on the company's Investor Relations website, where you will also be able to find the complete earnings release material. It is possible to download the presentation in English using the chat icon. [Operator Instructions] Please note that the questions can be submitted during the entire presentation and will be read out loud live by Cristiano Grangeiro, our Executive Officer, and our specialist, Juliana Castelli, and will be answered by our officers during the Q&A session.
We emphasize that information contained in this presentation and any statements made during the video conference regarding Taesa's business prospects, projections, operation and financial targets are the beliefs and assumptions of the company's management and on information currently available. Forward-looking statements are not guarantees of performance since they involve risks, uncertainties and assumptions as they refer to future events, and therefore, depend on circumstances that may or may not occur. Investors should understand the general economic conditions, market conditions and other operating factors may affect the future performance of Taesa, leading to results that materially differ from those expressed in such forward-looking statements.
Now I'll turn over to Cristiano Grangeiro to start the presentation.
Good morning, everyone. Welcome to Taesa's Q3 Earnings Release of 2023. It is always a pleasure to have you with us to present our results. We'd like to remind you that you may ask questions throughout the presentation using the Q&A button. At the end of the presentation, we will start the Q&A session, where we will answer your questions, whichever questions you may have. We hope you enjoy this video conference.
Before we get into our results on Slide 3, we would like to go through our strategic drivers, which are our guiding principles that connect everything we'll see over the next slides. Our mission is to connect Brazil with safe and reliable energy. Our vision is to be the electricity transmitter of greatest value to society, and our values are based on relevant and fundamental issues. We generally care for people. We act with integrity, building relationships of trust. We strive for excellence in everything we do, and we make Taesa.
On Slide 4, we see the evolution of one of the fronts of the sustainability pillar that is part of our strategic planning. We see here the unfolding -- the results of the mapping of the materiality matrix carried out at the beginning of last year involving all stakeholders. Based on that, we defined 6 key topics to focus on over the coming years, thinking about sustainability and continuity of our business. In addition, we relate our topics to the top priority goals within the 17 sustainable development goals, the SDGs.
You may remember that exactly a year ago, we presented the same slide and highlighted the topic, ethics, transparency and integrity connected with SDG 16, peace, justice and strong institutions. Today, we would like to highlight the key topic, management, people development, diversity and inclusion. We highlight this topic on Slide 5, which is connected to the SDG #8, decent work and economic growth. To achieve the specific goals of this front, we are focusing on 3 key initiatives. The first, increasing the percentage of women and keeping the percentage of ratio diversity within Taesa. The second is what we call humanized retirement project. The third is a technical training. In this case, we have 2 interesting initiatives, one that is a training focused on women electricians and the other is training for people with disabilities.
On Slide 6, we have the results we have achieved with some of these initiatives. As we have communicated to the market, we have been conducting many initiatives on this front of people, management and development, and especially regarding diversity and inclusion. This year, we have joined the UN Global Compact in partnership with the Center for the Brazilian Studies of Labor Relations and Inequalities and the women UN to help promote ethnic racial equality in Brazilian companies. When we joined the program, we started having a target of 30% of our leadership occupied by black people by 2025 and 50% by 2030. And we have made sizable progress.
The other project, it was training for people with disabilities. We have been running this program since 2021. And this year, we entered into a partnership with the integration center for business and schools in Rio, CIEE, where we had over 200 applicants. And instead of a 20-hour course, it ended up being a 64-hour course and covered subjects as digital inclusion in the job market and the energy industry.
Plus to help employees make better informed life decisions, Taesa has developed a program for personal, financial, and health well-being guidance for people over 60 years old. We have a program that includes coaching sessions with an expert, an internal mentoring program, financial support from our pension fund, and a 6-month coverage period for health insurance in the event of dismissal.
Here at Taesa, we believe that the driving force for any transformation is equal opportunities. That's why we've had, for 2 years, a free online course aimed at training women to take on electrician positions, which are responsible for preventive and corrective maintenance of transmission lines, including work on energized power lines. It is a 22-hour course and the classes are taught by specialized employees. The aim is to promote gender equity and encourage female representation in the electricity segment. In 2023, we had almost 300 applicants and selected over 50 of these women to participate in the training. I would also like to highlight that for the third consecutive year, Taesa ranked first in the GPTW Energy ranking in the industry. This gives us great pride and shows our concern for a healthy and safe workplace for all our employees.
Moving on to Slide 7. We have here an important milestone for the company. That was the opening of its new operation system, the COS, in August 2023. The COS is prepared to increase Taesa's operating capacity and sustain its growth in the transmission industry in addition to provide a greater reliability and operational safety for the development of the energy industry in Brazil. The new operation center has state-of-the-art technology and infrastructure that has the capacity to manage and monitor all of Taesa's assets in real time as an energy sufficiency building equipped with systems that ensure reduction in the annual consumption of water and energy in line with the best ESG practices.
It also meets all the regulatory requirements of the ONS grid procedures as well as legal requirements and ABNT standards. We are prepared to keep high energy availability even under extreme contingency conditions. We are following international best practices for mission-critical environments with immersion rooms for operating, training and certification. We have increased operational efficiency by implementing tools that make our operations more agile and efficient. With an integrated operations center, we achieve high availability of telecommunications network, supervision control and cyber security systems. The COS is a historic milestone for Taesa, fully aligned with our strategic planning and paving a way for a promising and sustainable future of our business.
On Slide 8, we will give you further details over the next slides, but we'll go through the topics. So the first is the increase in net revenues and maintenance of our EBITDA level, even with a 4.5% drop in the IGP-M the 2023, 2024 RAP cycle. In addition, we completed the 14th debenture issuance of Taesa, achieving one of the tightest spreads over NTN-B in the year. We have also reduced the cost of that and maintenance of our leverage level at 3.7x. We have also our operational efficiency that we have kept while maintaining high levels of system availability as we'll give you further details in the future. We obtained all preliminary licenses for the Ananaí and Pitiguari projects. We will soon have more information on the licenses for the projects to actually begin. Lastly, we have announced about BRL 205 million in earnings distributions related to the second half of 2023. We will also give you further details on that.
Moving on to Slide 9. We present the key figures of our regulatory results, which directly reflects on the company's cash generation and therefore is relevant to all investors. The company's consolidated net revenue on Q3 totaled BRL 606.5 million, up about 4% versus Q3 2022. And in the 9 months year-to-date, we showed an even better performance, up 10%, totaling BRL 1.8 billion. As we mentioned in the previous slide, we saw a year-over-year growth in revenue, even with the negative effect of the IGP-M, which reduced the RAPs of our category 2 contracts by 4.5% for the new cycle that began in July 2023.
It's worth remembering that just over 60% of our operational RAPs adjusted according to IGP-M. It's also worth remembering that our ATE III suffered the remaining fact of the 50% drop in the RAP that began the previous cycle. This positive revenue performance was mainly due to the start of Saíra first phase under Taesa's management after the concession contract and was signed on March 30 this year, the partial startup of new phases of Sant’Ana, and of course, the IPCA adjusted RAPs of Category 3 contracts of about 3.9%.
Due to the same reasons, our consolidated regulatory EBITDA also grew, but more modestly due to the increase in our costs related to the IPCA at the entry of new projects, in this case, Saíra and Sant’Ana. As a result, our EBITDA margin dropped to 82.7%. In the 9 months to date, year-to-date, our EBITDA exceeded BRL 1.5 billion. Our margin remained stable at about 85%. It's also important to mention that even though the company has been generating operating cash, it has intensified efficiency and cost control to soften the impact of the IGP-M and this RAP cycle.
Regarding operational performance, we remain at very high levels, which shows our excellent resiliency and dedication to our core business, which is to keep our assets available and operating at full capacity. With regards to our variable portion, it's worth separating the technical variable portion of the current year from the provisions and reversals of events from previous years. This year's variable portion was higher than last year's, but within the levels we are aiming for in operational target.
From an accounting standpoint, which takes into account events from previous years, our variable portion, it was very close to 0 due to the reversal of the variable portion of the sabotage event that occurred at Novatrans at the beginning of the year and the reversal of the provision for the injunction that suspended collection of the variable portion [indiscernible] surcharge to refer into the [indiscernible] in the ATE concession due to a severe weather condition and therefore being treated as fortuitous. We talked about this over our last call. Our regulatory income was down 11.6% year-on-year, driven by the financial results, as I'll show on the next slide, totaling BRL 330.2 million in Q3. Our income total year-to-date, about BRL 800 million, up 20%, which is significant.
On Slide 10, we broke down the impact on net income, both for the quarter and for the year-to-date. As we have said, the projects that have been coming into operation have had a very positive result on our earnings, both in consolidated EBITDA and in equity equivalents, but that has been sort of offset to some extent by the deflation of the IGP-M. We refer to Saíra and Sant’Ana in the consolidated statement and Aimorés, Paraguaçu, and Ivaí in the equity method. The positive effect of the project is much clear in slide in the 9-month period with significant increase in net income over BRL 130 million.
Of course, to fund these projects, the company had to leverage itself and the result is an increase in net financial expenses versus the previous year. We see later that we have been very successful in raising that, which has reduced average cost of debt. Efficiency in financing is a constant of our efforts since we are always sticking to lower costs.
On Slide 11, where we refer to corporate or IFRS net income, showing both a quarterly and a year-to-date view. We always emphasize that it is the accounting net income that is not directly reflected in our cash flow. Our net income was down 7.8% quarter-over-quarter and about 38% versus the accumulated period year-to-date 2022 and 2023. As you can see, the undertakings have had positive effects on the main lines of revenue, but we see they are offset by the macroeconomic effects of the deflation of the IGP-M, which mainly impacts monetary correction revenue versus the 9-month period year-to-date.
Moving on to Slide 12, we see Taesa's indebtedness profile. On the left, we see the net debt over the last 12 months as well as the level of leverage was calculated by the net debt over regulatory EBITDA in the proportional consolidation view. Our net debt totaled BRL 10.4 billion, considering all our holdings. What is interesting is that we have managed to maintain our leverage level at 3.7x, even with a total investment of BRL 1.5 billion in projects and BRL 800 million in dividends distributed.
This shows how we have been consistently generating operating cash. The debt amortization profile remains adequate with an average term of 4.7 years and an actual average cost of debt of 4% after taxes, which has been dropping quarter-over-quarter. Our cash position totaled BRL 2 billion in Q3. 68% of our debts are indexed by the IPCA and 32% by the CDI. The company's corporate rating on a national scale, which is monitored by Moody's and Fitch, is AAA.
On Slide 13, we have yet another success that was the 14th debenture issuance of Taesa, BRL 800 million issued for the general public considering a demand of over BRL 1 billion. It fell within the scope of Law 12.431 on infrastructure debentures, which allows for debt exemptions for individual investors and was also certified with the Green Cell, an increasingly important feature for funding. We issued 3 series of 10, 12 and 15 years with very efficient premiums versus the IPCA, the first and the second having the best premiums among those on the market up to that point. In addition, the spread on NTN-B were really good, between 41 bps and 17 bps, also showing the lowest premiums compared to others in the market. With this issuance, the company has confirmed its efficiency, reputation, and competitiveness in the Brazilian capital market.
On Slide 14, we show the progress on recent projects. We have obtained all the previous environmental licenses for Ananaí and Pitiguari. The next step is to obtain the installation license to start construction. With regards to physical progress, the projects are progressing as expected. Looking at the level of investments made by the company, we see the end of an investment cycle in 2022, and a new cycle beginning in 2023 with the 4 new projects undertaken between the 2021 and 2022 bids. CapEx so far this year has totaled about BRL 1.5 billion, including the Saíra indent.
As we come to the end of our presentation, we would like to highlight yesterday's earnings release on Slide 15. The Board of Directors approved the distribution of dividends and JCP totaling BRL 204.6 million based on the financial statements of June 30, 2023. The amount is equivalent to BRL 0.59 per unit with a base date of November 13 and payment on December 15, 2023. With this announcement, we have BRL 1 billion in dividends in 2023, which is equivalent to BRL 2.91 per unit and about 8.5% dividend yield.
Before we start our Q&A session, we would like to invite all of you to participate in Taesa's Investors Day 2023, which will take place on December 1. Scan the QR code below to sign up and receive more information about the event. We look forward to seeing you at our Investors Day. This is what we had to go through today and represent, and now we are going to start our Q&A session. Thank you so much.
Thank you, Cristiano. Now we are going to start our Q&A session that is going to be a live session and we'll have the participation of the officers of the company. [Operator Instructions]
Hello. Good morning, everyone. Thank you so much for being here. We see many people, many participants. We have already received some of the questions. I will start with the first question. This is a broad question. Some have asked different questions. I'll try to sum up. So we always like to say that how to balance some of the things we do. Some people asked about dividends, how the planning is going to happen, how it affects our leverage and our CapEx for the upcoming years.
Like I said in our presentation, I have started a new investment cycle. So I will turn over to our Financial Officer to go through these topics.
Thank you, Cristiano. Good morning, everyone. It's always a pleasure to be here to present to you what we have been doing on a daily basis in Taesa. So we really look forward to sharing with you some of the things and answer the questions you may have. I am going to just say, [ Arlindo Paulo ], right now, had a few questions regarding this leverage issue, dividends and investments. I will try to touch base on all these topics to answer the question completely. If you need then further information, we can get back to that.
First of all, the company, as Cristiano showed, has a dividend payout quite significant of BRL 1 billion in distribution. Just bearing in mind that this represents 2 quarters of the company. We still have 2 ahead to distribute. So what is my take here. When we look into dividend planning, we considered what happened within our budget. We are considering that in our future. And this is expected to happen by the end of the fiscal year and then the last year. So this is worth mentioning that we should stick to the plan.
With regards to the next year, we have been working on our budget for the year. We have been obtaining all the approvals regarding our budget. And of course, we are going to always try to balance, match generation, what we need, expected, and also the payment of dividends. We should also bear in mind that Taesa has always paid due dividends, but that has to make sense considering all the analogies and the strategy of the company.
We have also additional analogies to discuss the level of net cash, eventual possible business opportunities we may have, future expenses. When it comes to dividends, this has been a concern of ours, like I said. But every time we participate in a bit, sometimes we need to -- we have an increase in CapEx, and it's not necessarily in the short term when you are selected in a bid. So today, we have about BRL 3 billion in future expenses, so that we can actually execute our growth plan over the next years.
This will ensure this company's growth we have mentioned. But if we are going to distribute dividends or not, it's an issue. But our leverage rate, 3.7x, that's about that. We could see some fluctuation. But I think that this level of leverage is also related to the company's planning. This is what we intend to do, [indiscernible]. And for us, this has to do with where we want to go with the goals of our company. We don't expect this level of leverage to sizably increase.
And what does that mean? Well, we have just had an issuance of debentures. We have been solidly consistently generating cash. We have paid dividends accordingly. I'm not going to give you further details on the percentage, but I think it's clear that what we have been distributing dividends. And over the next years, we will consider market conditions, new sources of revenue for cash generation. We have also reviewed the minimal level of cash that we need that is expected for us to continue to undertake projects, to continue projects, for new investments, or to pay dividends. [ 3.7 ], that is the rate we have today. This is something we pay attention to, but we also understand and believe that the company can continue growing and paying also dividends like we have just done. But we have to continue growing in our planning.
When we have all the approvals, we will share with you what the company tends to do. But to wrap up, when it comes to paying dividends, I think that we have always paid what was expected. We still have 2 quarters that we need to be considered for the dividend distribution. And this really is in line with all the future expenses we have planned and even other potential distributions.
I have tried to cover all the questions to answer the questions. But if you need any further information, I'm here to answer.
Thank you, Pecc. Good morning, everyone. So our next questions are about growth opportunities. So we have Julia [indiscernible], who is a sell-side analyst, and then we have Victor Cunha from Itau. So Julia says that they have seen many companies that are interesting and recycling capital, selling operational assets. Could you give us your take on that if you see any opportunities? Have you been starting doing something similar on the seller side or, on the contrary, buying operational assets? I think these 2 questions can be answered by Fabio Fernandes, our Business Director. Fabio, could you comment on that?
Thank you, Juliana. Good morning, everyone. Thank you for joining us in our earnings release video conference. Thank you, Julia and Victor, right, for the questions. Well, when we talk about recycling assets, Taesa is always looking into the opportunities on the market, considering operations that may allow us to generate cash for our shareholders. We don't consider recycling assets as one of the alternatives, just like Pecc said. Why? Because the company has great access to capital markets. We have other forms of funding that could support our growth. So at this moment, this is not under our radar, but we will not -- never say no. Maybe in the future, if it makes sense, we'll consider that as an option.
On the other hand, when it comes to acquiring operational assets, this is one of the growth avenues that Taesa has been using just like all the bids. And we will always consider all the growth opportunities. Those opportunities that have to do with our key pillars of sustainability, of financial strength, we will always consider this alternative if the asset makes sense to us, if an acquisition makes sense. I think this is our take when it comes to assets in the M&A like the secondary market.
Thank you, Fabio. And Victor's question was focused on growth opportunities, but more on bids since we have the COFER option for the transmission at the end of the year. So he asks about the continuous current lines that was similar to Saíra, the project. Should we expect Taesa to participate in such projects in the future?
Well, thank you, Victor. Well, regarding this December bid, Taesa is considering what we have in our pipeline. We will not participate in this December. But considering 2024 and so forth, we always speak assessing what's coming, to make sure that we keep competitive and delivering great results for our shareholders. In March, we will have a bid totaling BRL 20 billion already announced by ANEEL, and we will have 15 projects there, and we have already started assessing this opportunity that will happen in March. And if it does make sense for us, maybe we are going to participate in March. It's always worth mentioning that Taesa has 43 concessions with different lines. We have 19 states throughout Brazil plus our Federal District. So that's how our reach is in Brazil. And we really have a broad presence in our domestic territory. This makes us really highly competitive in any bid. This is the way that we intend to continue acting and observing and considering any and all growth opportunities.
Thank you, Fabio. We have here many, many questions regarding some of the answers Fabio gave. There is one question here regarding our operation. I think it's important to mention that because sometimes we focus on our finances, but our core business is transmission. So I think we should also touch base on that. And also system availability, a little bit of historical data. So Marco, if you could explore this a little bit. I think it's a great opportunity for us to share with our investors what we have been up to.
Thank you. I think this answer (sic) [ question ] came from Paolo, right? Yes. In our report, we mentioned the quarter availability versus -- in an analysis usually quarter versus quarter. But if we consider our historical data, we have always had availability above 99.99%. Last year, we had 99.95%, and this quarter, 99.86%. What affected this availability. We had the August 15 blackout that affected all utility agencies. So we were not responsible for that, accountable for that, but it does affect the availability of our lines. 99.9% or above 99.9% is much above the standard of actually 95%. So we are overperforming when we compare to the average of the market.
Thank you, Marco. So the next question is from the investor [ Giuliano Ferrara ]. He says that in the market, people are talking about some of the concessions that are coming to an end and the possible bids in which the company is going to participate over next year and the impact on CapEx. So does the company have a goal or target when it comes to the next bids over coming bids?
Andre, could you please answer that?
Good morning, everyone. Thank you, Juliana, and thank you, Giuliano, Juliana and Giuliano both. It's really important to explain that. We, Taesa, we have been reviewing our strategic planning, renovation or participating in bids as part of our planning. We have been discussing that. It's worth bearing in mind that for Taesa, it will impact us as of 2030. This is not a short-term decision, but we have been considering that in our long-term pipeline. We have highly invested and participated in the bids to try to offset the future loss of our future RAP if we don't renew our concessions.
So in our strategic planning, we have pillars that are strongly related to growth and also our regulatory issues. So those discussions and how we can work together with the regulators of the industry to make sure that the regulation can really benefit the players in the market. So thank you so much, Giuliano, for the question.
I'm just making sure if we are answering all the questions. Some have been addressed, fully answered. Pedro Gaia has a question here. He asked was there an impact for Taesa regarding the new rule of transmissions costs for the generators -- for the producers in the case.
Thank you so much, Pedro. No, we have not been affected. We saw no impact. This is really a marginal impact when you talk about transmission costs for us transmitters. We have been discussing that and really closely follow that, especially our regulatory team, how these things have been playing out. I think that you were also taking a look at the concessions and the distributors and the new fees. Of course, that it will have an impact on the end user. But internally, we have just mapped it in because we have not suffered any impact. But thank you.
Thank you, Andre. I think that we have answered most of the questions here. I don't see any new questions so far. Most are regarding the bids, growth. Some are congratulating our team and the great work that Taesa has been conducting. So considering all the answers that we gave, I'll turn over to Andre for his final remarks.
Well, to wrap this call up. I'd like to really thank everyone for participating on this call. It's really important for us to keep a close relationship regarding what we intend to do in the second half of the year. We talked about Q3 2023. We have announced dividends totaling about BRL 205 million. It's really important for us to keep adding value to our shareholders. And like you saw, Taesa has consistently presented solid financial results. You can continue believing in Taesa. Our outlook is quite promising when it comes to growth. And lastly, I would like to invite you again, like Cristiano did, in our Investor Day that will be had on December 1. So thank you so much. Enjoy your day, and see you next time.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]