In the latest third-quarter earnings call, Electrobras' CEO Ivan de Souza Monteiro and CFO Eduardo Haiama presented the company's financial results and strategic initiatives. The company has streamlined its administrative structure, resulting in decreased expenses and the implementation of a voluntary dismissal plan.
Electrobras acquired the Candiota thermal plant and is restructuring its commercialization department to draw more clients while emphasizing the importance of safety and ESG performance. The energy market overview highlighted the influence of weather on energy prices, and the company's financial health was noted, including revenue growth, cost reductions, and a solid liquidity position.
Electrobras reported a leverage ratio of 2.2x and enough cash to cover debts for the next two years. The company is also addressing the challenges with Amazonas Energia, seeking regulatory flexibility and direct payments for debts.
Key Takeaways
- Electrobras is simplifying its administrative structure to manage business more efficiently.
- The company has decreased personnel, material, and service expenses through a voluntary dismissal plan.
- Investment capacity is increasing, with several significant projects highlighted.
- Electrobras acquired the Candiota thermal plant and is revamping its commercialization department.
- CEO stressed the importance of safety and improving ESG performance.
- CFO discussed the impact of weather on energy prices and the company's financial performance.
- Electrobras' leverage ratio is at 2.2x, expected to decrease naturally, with comfortable liquidity for the next two years.
- The company is actively working on issues with Amazonas Energia and is seeking regulatory changes to facilitate a solution.
Company Outlook
- Electrobras aims to increase investment in key projects.
- The company is set to participate in upcoming transmission and capacity auctions.
Bearish Highlights
- Electrobras reported BRL 392 million in bad debts related to Amazonas Energia.
- Total contingency inventory and compulsory loan provisions have decreased.
Bullish Highlights
- Revenue growth and cost reductions have contributed to the company's positive financial performance.
- The company has a low leverage ratio and strong liquidity, with enough cash to cover debts for two years.
Misses
- Provisions for impairments and bad debts have impacted the financials.
Q&A Highlights
- Electrobras is in discussions with the national agency and ministry for regulatory measures and legal changes concerning Amazonas Energia.
- The company expects regulatory measures to make the concession more flexible by April or May.
- They are seeking court-ordered direct payments to Electrobras for debts.
- Electrobras will participate in transmission auctions in March and September, with restrictions in capacity auctions not affecting their projects.
For further information or questions, Electrobras invites interested parties to contact their Investor Relations Department.
InvestingPro Insights
Electrobras, a prominent player in the Electric Utilities industry, has been making strategic moves to enhance its financial stability and growth prospects. With a market capitalization of 20.11 billion USD, the company has shown a strong commitment to efficiency and profitability. Here are some key insights from InvestingPro that underscore the company's recent performance and outlook:
InvestingPro Data highlights a robust gross profit margin of nearly 61% for the last twelve months as of Q4 2023, indicating the company's effective cost management and solid market positioning. This is complemented by a revenue growth of 9.05% in the same period, showcasing the company's ability to expand its operations and increase its market share.
Furthermore, Electrobras has demonstrated a strong liquidity position, with liquid assets that exceed short-term obligations. This aligns with the CFO's mention of the company's solid liquidity position, capable of covering debts for the next two years. The company's strategic acquisitions, like the Candiota thermal plant, and its focus on safety and ESG performance are likely contributors to its financial health.
InvestingPro Tips also reveal that Electrobras is trading near its 52-week high, with the price at 96.82% of the peak, reflecting investor confidence in the company's direction and potential for profitability, as analysts predict it will be profitable this year. Moreover, the company has been profitable over the last twelve months, reinforcing the positive outlook presented in the earnings call.
For those interested in gaining deeper insights into Electrobras, InvestingPro offers additional tips, including the company's high return over the last decade and the large price uptick over the last six months. To access these valuable tips and more, visit https://www.investing.com/pro/EBR and remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 7 additional InvestingPro Tips available for Electrobras to help investors make informed decisions.
Full transcript - Centrais Elc Braz Pfb B Elbras (EBR) Q4 2023:
Operator: Ladies and gentlemen, thank you for waiting. Welcome to Electrobras third quarter earnings video conference. With us today, we have Mr. Ivan de Souza Monteiro, the President of Electrobras. The fourth quarter, pardon me. We have Eduardo Haiama, the VP of Finance and Investor Relations; Mr. Rodrigo Limp, VP of Regulation and Institutional Relations; Mr. Elio Wolff, VP of Strategy and Business Development; Mr. Italo Freitas, VP of Commercialization; Mr. Antonio Varejao De Godoy, VP of Operations and Security; and VP -- and pardon me, and Marcelo Siqueira Freitas, VP for Legal. This video conference is being recorded and will be made available on the company's IR website both in Portuguese and English. Should you need simultaneous translation, you can click the Globe icon at the bottom of the screen. It reads Interpretation. When you click on it, you can choose Portuguese or English. If you're listening to the video conference in English, you may click on Mute Original Audio to listen-only to the translation. [Operator Instructions] We would like to say that any statements made about the company in this video conference regarding future-looking statements are of only our beliefs and depend on the information that is currently available to the company. Forward-looking statements are no guarantee of performance as they involve risks and uncertainties and depend on circumstances that may or may not come to pass. Investors should understand that macroeconomic conditions as well as other operating factors can have an impact on the company's performance. I'd now like to turn the floor over to Mr. Ivan de Souza Monteiro, the CEO and President of Electrobras, for him to start the presentation.
Ivan de Souza Monteiro: Good morning, everyone. Welcome to our earnings call, the first one in 2023 -- the first one in 2024 about the year of 2023. We're now going to look at some highlights. I'd like to start off speaking about the simplification of the administrative structure. We are spread all over the country and our objective in the administration was to be able to manage the business in all of the possibilities. That applies to hiring new staff, how we deal with the market whenever hiring new assets and services, also whatever businesses each company from the holding carries. But we should follow single-centered guidelines. We can see that on Slide number 6 already. We can see a decrease of PMSO, the personnel material services and other. The expectation is that it will be BRL 7.3 billion, or it amounted to BRL 7.3 billion in the fourth quarter. So PMSO was BRL 7 billion. We have a voluntary dismissal plan. We have it in 2024 as well. We have the number of people who chose to be part of a program and the number of people who have already left the company. Security and safety are the most important aspects of this company and we don't want any asset to pose a risk to anyone. The company should not have any other voluntary dismissal plan. In the course of 2024, we have the collective agreement with the labor union. The administration is focusing on PMSO as a whole. We're following a guidance that we had already given, which is to have BRL 7 billion for 2024 as well. This is the best expectation we have at this moment. And why is it that we're making this effort? We want to increase the company's investment capacity. As you can see on Slide #7, this is happening. We have the Coxilha Negra project among other very important projects like the connection between Manaus and Boa Vista. These are good examples. We can see how resilient the devices are not only for generation and transmission. But we have approved a very important amount for reinforcement and improvement this year. Baguari, Teles Pires and Retiro Baixo are also highlighted I like to mention. In 2024, we should have a similar performance. The company looks at the assets and manages them as a portfolio, focusing on generating return for the company. There is a CapEx growth. It's quite substantial for this year, and it should be at a higher level than when the company was a state-owned company. There was also an approval regarding Furnas. There was no sense in having 2 structures here in Rio de Janeiro. So now we have the corporate and the organizational structures brought together. We have acquired the Candiota thermal plant. It's coal based. And we also have been looking at the gas plants, which the market is really interested on. We are constantly looking at improvements on the performance of our portfolio. We want to be a client-centered company as well. We have had a growth in the client base, but it's still small in comparison to what we expect to have. We want to have thousands of clients, and that's why we have restructured the commercialization department or the trading department of the company. We want to deliver solutions to our clients. And again, we expect to have thousands of clients in the next years. The culture is another challenge. Now, we are on Slide #10. We had a leaders' summit with 520 leaders taking part in this meeting. It was very important to hear what these leaders had to say. They joined the company for the first -- or they joined the meeting for the first time and they spoke about their executive departments as well as the Board of Directors. It's important to understand what we expect of the leaders. And now as a private company, we need to be more efficient and we need to be very responsible for our actions. We need to be liable for them. ESG. I mentioned the coal thermal plant in Candiota and also the gas plants. And Electrobras is still in every reference for ratings. We want to remove from the company's balance sheet non-recurring events. The administration is more and more comfortable around how to make Electrobras a company with much more predictable results than in the past. Thank you all for joining the call. And now, I'd like to give the floor to Eduardo Haiama, our CFO.
Eduardo Haiama: Now Slide 13. In the third quarter, we talked about the energy market prices. We said that the portfolio was not really -- or the numbers were not reflecting the portfolio generation numbers. And we had some peaks of heat and meteorology was better or worse. But we're coming to the end of the rainy season with less rain than average, and the prices have behaved as expected. We have more and more renewable energy. In 2024, before the heat waves, price were at BRL 65. This year there are going to be about BRL 110. And when we look at '25 or '28, it's going to be BRL 150 or BRL 160, maybe BRL 170. And when we look at the bottom chart, we can see what happens within a day. So in the wee hours of morning or the early hours of morning between midnight and 7 a.m., we have basically wind energy and the hydropower plants running as well. They're in blue. In the early morning, then you have less wind energy and more hydropower. And then in the middle of the afternoon, closest to the evening, you have some peaks in demand. And you need not only more power from the hydropower plants, but you also need additional power to give security to the system. The thermal energy is growing. You can see them in dark grey. And the orange line is the price. It goes from BRL 69 to BRL 300. Also with hydropower plants generating more. Hydropower plants are perfect where you have more and more distributed power with less control over the flow. And the hydropower plant will have this balance, delivering more when more is necessary. We understand that this is a structural organization or a structural point that should continue like that. Now, we're on to Slide 14. We have our power balance, our energy balance. Our focus in trading is to have a position that is more and more client oriented. And we have had more -- 220 clients. So we have the release. People asked us about the negotiations. And the fourth quarter was a bit slack because of the previous scenario with the pricing not matching what the market should have. But this year we started expediting it. On this table, you can also see that starting this quarter we are going to use the prices from 2024, but we are going to have a lag of one quarter. So here you can see the average price from our portfolio in the third quarter. This does not reflect the average price considering the new hires that started in this quarter. Now, moving on to Slide 16 let's take a look at our financial performance. We had an increase year-on-year in our revenue, and that was related to the consolidation of some assets. And we also had a reduction in the amount of power that we bought to resell. And that translates into an increase in our EBITDA. So that was a positive impact from the cost reductions that we had this period. Also, it was the effect of the consolidation of some assets that were recognized since 4Q 2022.Lastly, when it comes to our net profit, it is important to highlight that we have the adjusted and the reported net profit. We also recognized the credits into the company, and therefore, we included BRL 2.5 billion in taxes this quarter. This was a noncash impact which will be used in the coming years. On Slide 17, you can see some details about our costs. If you take a look at our recurring and the IFRS numbers, you can see that there is a difference that I would like to highlight. Our recurring cost had been BRL 650 million, but I told you in the past quarters that we didn't have some costs included in there, for example, the provision for profit sharing. And we had an impact of BRL 69 million in additional expenses. On Slide 18, you can see some more details about our provisions, our operating provisions. I would like to highlight 4 of them. In 4Q, you usually reassess all of your assets. And by doing so, we had some impairments, especially in one of those assets, Coxilha Negra, which is a wind farm that we are building in the southern region of Brazil, and we are going to finish that construction this year. And the other case was a smaller plant called Joao Borges. Also, we had to do a mark-to-market operation in some energy projects, especially in the case of Jirau. And we recognized expenses in the amount of BRL 860 million. Additionally, some assets were sold or held for sale, and we need to assess that from time-to-time in terms of adjusting the market price. And lastly, we had an expense of BRL 392 million in terms of provision for bad debts in relation to Amazonas Energia. Now moving on to the next slide. We have the compulsory loan. As we said earlier, we are cleaning up our liabilities. And there was a decrease in our total contingency inventory. Last quarter, we finished with BRL 19 billion in provisions. This quarter that number went down to BRL 17 billion. And in 3Q, we also had BRL 1.88 billion in payments to be made. And this quarter, that number went down to BRL 900 million. So there was a significant drop in our compulsory loan inventory. And lastly on Slide 20, I would like to highlight our focus on financial discipline. We still have a relatively low leverage of 2.2x, and we should remember that, that number includes the debts of Teles Pires as of 30th of September in 2023. So that number was recognized in only one quarter. So as we annualize that leverage, that number would go down naturally. In terms of liquidity, we are in a very comfortable position. We have cash that can last for up to 2 years of debts maturing. And the negotiations for payments and new loans allowed our cost, our average cost to go down. I think that's it on our side in the presentation. So we can start the Q&A session.
Operator: [Operator Instructions] The first question comes from Carolina Carneiro.
Carolina Carneiro: I have 2 questions. Do we have any news about the CDE receivables? Also, some players are mentioning new contracts in 1Q '24. If you could give us more color on the market environment, liquidity and trends, that would be great?
Ivan de Souza Monteiro: Well, about the discussions with the reconciliation chamber, we cannot disclose any details about those discussions since they are confidential. Now, about your second question, I would like to turn it over to our VP. He's going to address your question.
Unidentified Company Representative: Well, the trading environment, as Haiama said in his presentation, obviously, the environment is tougher because of rainfall, and that is also related to the heat waves. So some players that were exposed to lower prices tended to close their positions. And because of that, in 1Q '24 the demand was higher for that type of energy. Consequently, that drove prices up. And we can see that, that happens every year. And we are going to see that demand going up for energy, for power especially as the players start to open their positions once again.
Operator: The next question comes from Mr. Gilmar Lima.
Gilmar Lima: I have 2 questions. First, I would like to understand what the leverage level would be for you to feel comfortable and at which you wouldn't need any follow-on movement after a potential negotiation with the government. And my second question is related to your maintenance CapEx. There has been an increase in your maintenance CapEx for generation and transmission. So I would like to know what should the recurring maintenance CapEx level be?
Ivan de Souza Monteiro: Well, I'll turn it over to Haiama. He is going to address your question about leverage.
Eduardo Haiama: Well, there's no right or wrong here. I can't tell you exactly what the comfortable level would be especially because it depends on how the contract portfolio will evolve. It also depends on what the debt environment is going to be. Right now, it has very high liquidity, but things might change. And it also depends on the need for liquidity and how much and for how long. It depends on the term of those loans. And as Ivan said, we increased the amount of investments in 2023. And in '24, our investment level will still be relatively high. And it will decrease gradually as we modernize our plans and as the constructions finish. So if everything were perfect and running perfectly, I would say that 3.5 to 4 would be a comfortable level. But there are many variables that require caution.We can't tell you that we are going to do this or that, but at the same time we ignore risks. We need to be conservative when it comes to assessing those situations. And about CapEx, I'll turn it over to Elio to address your question.
Elio de Meirelles Wolff: Well, the first point that is important for us is generation CapEx, and that includes Coxilha. So it's not just maintenance CapEx. A critical point that we should consider in this first phase is our concern with health and safety. So we are investing in modernizing our assets in a proactive way, obviously in a way that adds value. But that is a process. We are still assessing exactly how we are going to invest. So I can't tell you exactly what the long-term CapEx level would be. But the fact is that for 2023 the numbers included Coxilha. And we are actively trying to modernize the assets without compromising health and safety, of course. Just as a complement. As a result of the investments and management of our assets, which has performed in a very disciplined way, in 2023, we have an availability of 99.96% in our lines, and the same goes for the transformers. And our generation is 11.1. So that's what is allowing us to provide shareholders with the return that they desire.
Operator: The next question comes from Mr. Antonio Junqueira from Citi.
Antonio Junqueira: We can see that there was a drop in transmission of BRL 200 million quarter-on-quarter. If you could give us more color about that, that would be great. And also, I would like to know what is included in the other costs line item?
Unidentified Company Representative: Antonio, we calculated the difference and I think it was a mistake that we made in the third quarter. In the third quarter, we did not say that in the 3Q '23 revenue there was an amount that should be charged for termination of contracts in the amount of BRL 160 million, which is basically the gap between 3Q and 4Q. And that's for transmission. Is that clear?
Antonio Junqueira: Yes, absolutely crystal clear. So the right number is the one that you posted in 4Q '23, right?
Unidentified Company Representative: That's correct. Although 4Q has a high rainfall. So there's also a difference there. There's about BRL 50 million more in 4Q numbers than in 3Q. I'll send you the information later.
Antonio Junqueira: No worries if you can't find it now. I was talking about the other costs.
Operator: Next question is from Daniel Travitzky from Safra.
Daniel Travitzky: My other questions have already been answered, but I have a question about auctions. We have 2 auctions to come, 1 for transmission at the end of the month, and 1 for capacity at the end of August. How do you see these opportunities? Can you just give us some more color?
Ivan de Souza Monteiro: Elio, please?
Elio de Meirelles Wolff: We've been studying for the March auction. We have participated actively in June and we won it. We participated in 2 of the 3 auctions that were in December. And we already started working for the September auction. Eletrobras has a lot of synergy with all of the transmission lots. So we are waiting on the more important and the better opportunities. As for the capacity auction, we've been working on that matter since last year. At the start of March, the bid was open or the information was made public and hydroelectric plants were included. So we're studying, we're analyzing it. We're preparing these projects so that they are competitive in the capacity auction. We study continuously, actively, so that we can bid competitively and with discipline. We'll continue to have the discipline that we have had in the previous transmission auctions. We'll have that also in the capacity auction.
Daniel Travitzky: How much hydro capacity could be in this auction?
Elio de Meirelles Wolff: We don't have a clear idea of what the government is going to bid for. We have opportunities in the pipeline, but we can't yet say how many megawatts are going to be in this project.
Operator: Marcelo Sa from Itau BBA.
Marcelo Sa: My first question is an update on the [Setasi] sale. Do you have the waivers for you to continue with this process should it take place in the second quarter? And on Amazonas, there's an increase in the provision. There is some discussion there around what's going on in each city. Maybe there should be changes in the law. And that the concession would be possible for an active transference in the short or long-term. Are you involved in these legal and regulatory discussions? The minister said he was going to send 3 documents a couple of weeks ago, and I don't know if they included the Amazonas and additional assets?
Ivan de Souza Monteiro: We can't make any comments around [Setasi]. And as for the Amazonas, Rodrigo is going to be answering your question.
Rodrigo Nascimento: Well, the Amazonas, this is a subject that we keep a close watch on. There is a large debt. Much of it has been provisioned for. And Amazonas had been paying adequately. And as for the information made public ANEEL in October, the national agency for energy and electricity and power, we see that we can act to mitigate the risk. There's some important decisions. We need most of this current debt to be paid by the CCC. We still are exposed when it comes to the average CR. Now these resources should be paid directly to Eletrobras, which would make the concession better when it comes to the sustainability or how long it can be sustained. So we've been working hard so that the distributor doesn't have further problems. We've also been working with the national agency and with the ministry. And a few weeks ago, a report from the workforce was published with alternatives. They all base off of a change of the concessionaire and 3 key agents, the operator and the creditors. Eletrobras is one of the main creditors and we'll have to be involved in that regulatory measures. That should make the concession more flexible. For these flexibility measures, we need legal changes. We don't know yet when they're going to take place, but we know that this is a priority for the ministry and for the national agency. And we expect changes to be seen by April or May, so we believe in the short-term. Also court ordered payments of our debts when it comes to the debts that Amazonas has. Around flexibilization, if that ends in April, the debt to be paid is going to be smaller, or the amount to be paid is smaller.
Marcelo Sa: What are you doing to deal with the situation? Or wouldn't the financial impact be very different?
Rodrigo Nascimento: From what perspective?
Marcelo Sa: From Eletrobras' perspective. Is the effect similar to what you see today in terms of losses?
Rodrigo Nascimento: We have our actions to have court ordered payments. And we also have requests we've made to the national agency so that these payments go direct to Eletrobras. But there is a reduction in flexibilization for cuts in MSOs. And I think this is what makes the short-term solution with Amazonas more relevant. We see that the ministry and the national agency understand it as a priority. We have 4 instruments for the asset. One instrument is, I admit to the debt and I'm going to pay for it. We have started the execution of the debt charging it judicially. But we're generating information in subsidies for the ministry and for the national agency so that we can have a solution ASAP. We've always been very proactive for us to find a solution with the Amazonas' case.
Operator: Giuliano Ajeje from UBS.
Giuliano Ajeje: My question was about Amazonas. It was just answered.
Operator: Ilan Arbetman from Ativa Investments.
Unidentified Company Representative: All right. So I'm going to read his question. Congratulations on your results. Is the company going to join the auction for transmission in March and September?
Unidentified Company Representative: We're studying the projects. And yes, we intend to join both auctions in March and in September as we did in 2023, we took part in both auctions. So we intend to participate, yes.
Operator: Vladimir Pinto from XP (NASDAQ:XP).
Vladimir Pinto: You talked about the capacity auction already. And the ACP, it says that some limitations are present. Are you working to change the situation?
Unidentified Company Representative: The restrictions that we see there, the limitations don't apply to Eletrobras. Our projects are no longer ruled by 12783, but by 14182. So the restrictions we see for that bid, they should not apply to our plants.
Operator: This is the end of the Q&A session. We now give the floor to Mr. Ivan de Souza Monteiro for his closing remarks. Please, Mr. Ivan.
Ivan de Souza Monteiro: Thank you very much for joining our call. And if you have any other questions, please feel free to contact our Investor Relations Department.
Operator: Thank you very much. This concludes Eletrobras conference call for today. Thank you very much for participating. Have a good day.
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