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AES Tiete’s (AESYY) CEO Britaldo Soares on Q1 2015 Results – Earnings Call Transcript

Executives Britaldo Soares – Chief Executive Officer, Vice Chairman of the Board, Member of the Executive Board Francisco Morandi – Chief Financial Officer, Director of Investor Relations, Member of the Board of Directors Andres Gluski – VP, Investor Relations Ricardo Cyrino – Energy Commercialization Director Analysts Sarunas Andriukaitis – Covalis Capital AES Tiete SA ADR ( OTCPK:AESYY ) Q1 2015 Earnings Conference Call May 11, 2015 10:00 AM ET Operator Good morning, ladies and gentlemen. Welcome to the conference call for AES Tiete SA operated by chorus do Brazil. In this conference call, we will be discussing the results for the first quarter of 2015. The IR area of AES Tiete also informs that the release is available at the company website at ri.aestiete.com.br. [Operator Instructions] On behalf of AES Tiete we would like to clarify that any statements that may be made during this conference call regarding the business outlook, projections and the company’s operating and financial targets are only predictions based on current expectations. Such expectations can change as a result of variables such as market conditions, economic performance, and international markets. The presentation can be downloaded on the website and will be made by Mr. Britaldo Soares, CEO; and Mr. Britaldo Soares , VP and IRO. At the end, the officers are available for questions. I would now like to give the floor to Mr. Britaldo Soares. Sir, you have the floor. Britaldo Soares Thank you very much. Good morning everyone. We will now start the presentation for AES Tiete’s first quarter of 2015. I will briefly summarize the main aspects and Britaldo Soares, our IRO and CFO, will provide you the general overview in more detail. Today we also have our VP for Generation, Ricardo Cyrino, and the VP for Operations and Generation, Italo Freitas, our VP for Legal Affairs and Auditing, Pedro Bueno, and our IR team for IRO. Going onto Slide 2, we have the highlights for the first quarter of 2015. The hydrological scenario is adverse, and we have had a negative dispatch and that has marked our market. The inflows was 64% and lower than the long-term target. The reservoirs closed at an average rate of 30.2% of their capacity, compared to 40.5% in the first quarter of 2014. The average reduction of the [ARM] was 20.7% compared to 3.9% in the first quarter of 2014. In consolidated terms, we had a generation of energy equivalent to 61% of the fiscal guarantee, and I would like to remind you that in the first quarter of 2014 this figure was 92% as the result of a very severe hydrological condition and this has been faced by the entire national network. We are still trying to improve our operational processes, and the management of our assets, AES Tiete, has become the first company in the Americas in the electricity sector to obtain the ISO 55000 in order for its asset management program of its hydropower plants, including the generation of its reservoir, and support schemes. Concerning the commercialization of energy we have sold in this quarter 9 megawatts to deliver in 2017 and between 2019 an average price of R$200 per megawatt hour. Our long-term vision for the 2017, 2019 period is between R$190 to R$200 per megawatt hour. As of 2020 the price should probably approach the marginal cost of inflation and would be around R$160 megawatt per hour. Our contraction position in Eletropaulo totaled 83%, 74% and 47% in 2004 and 2018 respectively, and this has given us more flexibility as of 2016. Moving onto Slide 3, we have the main points of our financial and economic results. The net revenue for this quarter totaled R$690 million, a reduction by 9% compared to the first quarter of ’14 due to mainly the lower volume of energy sold in the spot market, compensated by the larger volume of AES Eletropaulo and allied to the [GSE] and the strategy for seasonality. The price of energy bought at spot price impacted significantly the operational cost and expenses in order to cover the [ERM]. In terms of the cost, the manageable PMSO, we achieved a reduction of 16% compared to the first quarter of ’14. This reduction resulted from our efficiency measures, asset management and costs in the last year. Our EBITDA this quarter totaled 392 million, and this absorbed the impact of the reduction of the [ERM] and the effect of the seasonality between the first quarter of 2015 versus the first quarter of 2014. We closed the quarter with net income of R$200 million and we have approved and proposed to the board of directors the payment of R$122.4 million in dividends to be paid on May 25. Britaldo Soares will now take this presentation on and will talk – and give you more details on the AES Tiete performance. Francisco Morandi Thank you, Britaldo. Good morning everyone. We are now moving to Slide 4. You can see the evolution of the reservoirs and the thermal dispatch. You will see that in the first quarter of 2015 was 62% of the average, historical average and including the April it goes to 67% of the historical average. If you compare this performance to the inflow of 2014, which was 54%, you will see a reduction of 2 percentage points. Including the month of April the inflow was 68%. For your reference, the inflows recorded in the quarter for 2014 was 80% of the historical average. When we see the evolution of the reservoirs at the [SIN], we see that in March we attained 30% of the useful volume. The reservoirs today are at 35% capacity. On the right-hand side of the slide, we have the evolution of the reservoirs and the thermal dispatch in the last years. You can see that the thermal dispatch is still high totaling 17.5 gigawatts in the first quarter for 2015, the same volume for the first quarter of 2014, and higher than the last period of last year. If you go on to Slide 5, you can see the main information on the level of reservoirs in AES Tiete and the generated energy. You can see that the volume of reservoirs of our plants closed the quarter with 59% compared to 44% in the first quarter of 2014. The position today is of 74% of reservoirs today. You can see on the chart that there was an improvement in terms of the reservoir levels of the main plants of the company, however, in the south-east market, in the center, west you can see that there was a fall at the reservoir levels in the first quarter of 2015 if we compare with the same period of last year, closing at 33% in the first quarter of 2014 and 19% in the first quarter of ’15. The inflow observed in this region was 58% of the [LMT], and 74% in the fourth quarter of ’14. Compared to inflows observed in this quarter with the same quarter of last year, you can see that there was slight improvement because the inflow of last year’s first quarter was 52%. Now turning to energy generated, you can see the thermal dispatch in the southeast and center, west when compared to generation in the same period of last year. As a reflex we have against 1994 and 1292, which is equivalent to 60% of the secured energy for Tiete. On Slide 6, we have some possible scenarios in term of reservoir levels for 2015, considering several possibilities in terms of the loads, the reduction of the loads. As a result of internal assessments we see that the rationing risk in 2015 is reduced at 8% concerning a reduction in the loads of 0.5% to 1%. The company believes that the price on the spot market will remain at a ceiling of R$388.46 per megawatt hour across and throughout the year and that the thermal dispatch will total 16 gigawatts to 17 gigawatts average. The [GSS] for 2015 is estimated between 0.81 and 0.83. In the next slide, number 7, you will see the reduction in the [ARM] for 2015. The reduction verified in the first quarter of 2015 was 20.7%. This amount was superior to the amount recorded for the first quarter of last year, which was 3.9% as a result both of the increase of the thermal dispatch and of the seasonality strategy in the market. Concerning our hydrological projections for 2015, we’re forecasting the maintenance of a high level of reduction in the [MRE]. As a result, we are reviewing our GSS and a possible impact in EBITDA for the year. The provision for the thermal dispatch should be at 16% to 17% at [Indiscernible], and this will total a stock price of top R$388 throughout 2015. The company also produced that between their exchange of the subsystems and the intermission generations, the load that should previously grow by 0.7% should be reduced by 0.5% to 1%. As a result, the company has reduced its estimate and expects a reduction by 17% to 19% as we have said of [GSS] between 0.83 that will maybe result in an impact, negative impact of 750 million to 840 million in EBITDA in 2015. Unidentified Company Representative On the next slide we see the specific results both for billed energy or invoiced energy and for net revenue. The company’s billed energy grew 1% compared quarter-on-quarter mainly due to the increase of built energy with the contract with AES Eletropaulo, which is partially offset in the spot market and other bilateral contracts. The net revenue in the first quarter in turn totaled R$690 million in the first quarter, 9% down from the same period of last year due to the seasonality strategy and also due to the [GSS]. On the next slide, Slide 9, we are talking about cost. The light blue part in the chart shows mainly the impact of cost on the purchase of energy in the first quarter of 2015 when compared to the first quarter of 2014. As we can see, the growth of cost in the first quarter of this year is related to the higher purchase of energy in the spot market, despite the fact that we had a lower price when compared to the same period of last year. The important piece of news is that if we continue to intensify our efficiency gain initiatives and also be in line with our guidance, which was published in the end of 2014, we have reduced PMSO, the Manageable PMSO by 16% in the first quarter when compared to the first quarter of last year. The process review, also internalization of labor and services and also the reassessment of administrative costs were the main drivers leading to that reduction level. All efforts are in line with our strategic guidelines for disciplined execution and efficiency in the use of resources. For 2015, the company will continue to work so that the Manageable PMSO will grow zero when compared to the year 2014. Moving onto Slide 10, you can see that the EBITDA for the first quarter totaled R$392 million as opposed to R$594 million in the first quarter of last year. And this quarter the company recorded a net income of R$200 million vis-à-vis R$358 million in the first quarter of 2014. The main drivers for that performance in the quarter are the reduction in the period, the seasonality strategy even with gains in manageable cost and increase in the contract price with Eletropaulo. The company’s board of directors approved last Friday a dividend payout of R$122.4 million. That corresponds to 100% of distribution days. On Slide 11, we will be talking about investments. Investments in the first quarter totaled R$30 million, when compared to R$37 million invested in the first quarter 2014. Most of that were allocated to the modernization and maintenance of Agua Vermelha, Bariri, Barra Bonita, and [Indiscernible] plants. Additionally on the same slide, we can see our investment plan for the 2015-2019 cycle with investments at R$487 million, mainly allocated to modernization and maintenance of the company’s power plants. On the next slide, Slide 12, you will see that the generation of cash flow was at R$101 million driven by higher purchase of energy in the spot market, also reflective of the reduction of fiscal guarantee, and [Indiscernible] when compared to 2014. Now free cash in the first quarter of ’15 was negative at R$221 million as opposed to R$164 positive in the first quarter of last year. With that our final cash position in the first quarter is R$280 million. Moving on to the next slide, you will see that the company’s leverage level closed the first quarter at 1.9x, reflecting again the seasonality, and also due to the reduction in the period. Our net debt closed the quarter at R$1.4 billion as opposed to R$0.8 million in the first quarter of 2014 mainly due to the issuance of the second promissory note at R$500 million, which would be partially used to amortize debt throughout the year. The company amortized the last installment of the first debenture issuance, 120 million were paid on March 31 and R$180 million were paid on April 1. One Slide 14, we see the contracting level for the company’s own energy. The company has signed more contracts in the first quarter of 2015 with a volume of approximately 9 megawatt average at an average price of R$200 per megawatt hour, and an average term of three years. After those sales, the contract level reached 83%, in 2016 74%, in 2017, also 74%, and then 47% in 2018, which places the company in a very comfortable position and prepared to face any scenario, which should come after the end of the contract with Eletropaulo, which will happen at the end of this year 2015. As it was anticipated by Britaldo, our price expectation for the period ranging from 2017 through 2019 is very strong R$190 and R$200 per megawatt hour. Starting in 2020, prices will come closer to the marginal cost of system expansion, sitting at around R$160 per megawatt hour. I will give the floor back to Britaldo for his final remarks. Thank you. Britaldo Soares Thank you, Francisco. As you could see, during the presentation our hydrological conditions have stayed below our historical average, so that adverse scenario and high levels of thermal dispatch resulted in a lowering of the fiscal guarantee of the [ERM], which led to a higher purchase of this in the spot market, and that in turn affected the results of the company in the first quarter. We carry on looking for more efficiency in our operations as we see a drop of 60% in manageable cost, which was referenced by Francisco during the presentation. That is one sign of our efforts and also through an improvement of our operating processes such as those including maintenance of our assets, which are now being recognized by the ISO 55,001and relative to our contracting strategy our contract portfolio after 2015 will remain consistent. We should reach a level of 83% in 2016, 74% in 2017 and 47% in 2018. As Francisco also said in the end, our vision is for a price range for 3 year contracts of around R$190 through R$/200 per megawatt power for the 2017-2019 period and looking in the longer term 2020 and on we are looking at a price at around R$160. We will now move to the Q&A session and we will be available for your comments and doubts. Thank you very much. Question-and-Answer Session Operator Ladies and gentlemen we will now start the Q&A session. [Operator Instructions] Our first question comes from Lilian Yang [ph] from UBS. Unidentified Analyst Hi, thank you for the call. I’d like to know if you have any ongoing negotiation on the generators parts containing GSF, which is very high for this year and if you have any forecast for that GSF level for next year as well. Thank you. Britaldo Soares Thank you Lilian this is Britaldo speaking. I’ll ask Ricardo Cyrino to address your question then I’ll add my comments at the end. Please Cyrino you have the floor. Ricardo Cyrino As for the GSF, our proposal consists of restricting the economic impact taken on by generating companies to a certain level. For example 5% and we are also assessing alternatives to mitigate whatever exceeds that level. In our view there is a series of variables, which are out of the control of the generating companies and which will interfere in the dispatch level. For example, from a dispatch for electricity, safety and also the out of merit dispatchers or dispatchers which are not taking place in a centralized way and also variations in consumption that slowed down consumption. In fact generating companies to the extent that we do not have a good reservoir level. So the term of dispatch is maintained and thermoelectric generation absorbs that reduction. Just to give you an idea, the out of merit dispatch for this year is expected to reach something about 7% in terms of lowering that will impact the reduction for generating companies by 7%. So it is essential for us to establish a limiting level for that and that will also help us to allocate costs that occasionally exceed those levels. So that we can share risks and benefits of that scenario. Unidentified Analyst Okay thank you. Can you give an idea of the level of out of merit generation for last year, do you have that number at hand? Ricardo Cyrino I do not have it in here, but I can get it for you, the out of merit generation for last year. Unidentified Analyst Okay. Thank you. Britaldo Soares Liliana this is Britaldo. Cyrino gave you an overview of what we have been discussing. Of course, there is a very positive aspect to emphasize which is the following: When we start to demolish tree of mines and energy and when we talk to the regulatory agency, we see a clear concern on the part of the ministry and the other part of the regulatory agency, to deal with the GSF issue because of the impact it has on generating company. It is a relevant impact and as we said to date it is recognized by everyone and that is no doubt an evolution in the process and of course there are challenges for us to implement a solution. But I can tell you that today as we see it, there is genuine interest on the part of the ministry, on the part of Aneao, they are getting ready to start the public hearing period as you know to deal with this issue. So then what concerns the mechanism itself, we have several ongoing discussions, there are several points which were raised during this discussion, some of them are with more resonance of this plants, resonance and that’s typical of that type of situation when you are discussing how to adjust such a relevant impact. But again clearly what you can see is that both the ministry and the regulatory agency trying to converge in terms of finding a solution to tackle that impact of the GSF on generation. What I can tell you now is that we have high expectations that this will be resolved, hopefully with the special mechanisms still to be fine, okay. Operator The next question comes from Sarunas Andriukaitis from Covalis Capital, and it’s a web question. Sarunas Andriukaitis What is the status for the restructuring of Brasiliana, is there an update concerning the schedule of the process? Britaldo Soares Sarunas, when we have any change, news on the Brasiliana issue we will announce this to the market that everything we have already said in a previous announcements and any new negotiations between shareholders that results an impact AES Tiete, we will duly announce it to the market. Operator The next question comes from [indiscernible]. Unidentified Analyst Good morning everyone, thank you for the call. I have a question about the strategy of the commercialization of the company. This 83% level, is it the ceiling for this year compared to the contracted level and concerning the strategy that the company has, there is low level of contracted energy recorded, is this a trend or should we expect an increase for the following quarters? Britaldo Soares Thank you Rafael, I will give the floor to Ricardo Cyrino and I will make any comments at the end if necessary. Ricardo Cyrino For 2016, in a situation we have today for the reservoirs in April, be closing at 35% and the certainty that we have in terms of hydrology, how the reservoirs will be in the rain period, the idea is to keep at this level of this contracting level for a flexibility in 2016. And as we see the development of the conditions of the system we may change this level but for the time being we are seeking to contract the period after 2016, for contracts beginning in 2017, in order to welcome the contracted levels as of that date. Britaldo Soares Okay Rafael thank you very much. Operator [Operator Instructions] The next question comes from [indiscernible] from UBS. Unidentified Analyst Hi, this is [indiscernible] again. One question about your thermal project. You have said recently that you could be participating in the five options for the gas thermal plants at San Paulo plant. How do you see gas prices behaving and what kind of structure will you need should you decide to do it. Thank you. Andres Gluski Ricardo Cyrino, can you please address question? Ricardo Cyrino Sure. We have our main project is, which called thermal power which was certified by the A Minus 5 auction [ph] but because of the gas concept that we have, we were structuring a contracting of liquefied gas, importantly liquefied gas and then we will be terminals and the float will be paying for that using that cost structure did not fit the filling price, which was defined as 2.81 per kilowatt hour. That’s why we did not participate on the A minus five auction on last April. But we are trying to develop new alternatives, going through new negotiations so that we could have a project which would be closer to that price level and of course we are also waiting for the government agencies to recognize that if we have to bring the gas from a part if we do not have an associated terminal that cost structure needs to be reviewed. Unidentified Analyst Okay just to understand. So, it’s not become moderately priced but the structure price that terminals and everything, right? Ricardo Cyrino Mainly, I’d say that issue arise at the whole scenery when you add other causes in the chain for the gas under that solution we do not have [indiscernible]. Unidentified Analyst Okay. Thank you. Britaldo Soares We want to just to compliment to Ricardo, we need to carry on working, to adapt those costs parameters through that reality so that we can maximize the use of those installations for regasification, so we know it has been working on it. And the idea is that we are able to make that structure feasible in terms of costs and that would of course make other projects feasible in the end. Unidentified Analyst Okay. Thank you. Operator The next question comes from [indiscernible] Unidentified Analyst I would like to talk again about the GSS and I know that the scenario we’re still looking for developments and the negotiations. But in your scenario, is the idea that any change in 2015 will affect the year or would it be as of a new methodology is developed or even if anything concerning last year, since last year we did have a dispatch and a level risk above the model and I’d like to understand a little bit more about and hear from you what could be considered seeing that what has already affected the last [indiscernible] the generators. Andres Gluski Obviously Eduardo that in our discussions and within the definitions and concept we have been discussing and that have been explained by Ricardo Cyrino this leads us to discussing what has already happened of the impact that has been felt by the generators. So there is retroaction. Therefore we are discussing a retroactive aspect of a solution that has to encompass things that have already taken place. No shadow of doubt in terms of that. In terms of practical view this will all depend of the final understanding of would this be in 2015, if this will go back and retract to 2014, because in fact what we are discussing the concepts they are not specific to the years 2014 or 2015 but they address the problem of the reduction of the GSF and the causes of this as Ricardo listed. So, it’s a conceptual discussion and as of that you then develop your line of thoughts. Obviously that in the negotiation of the process, it may be defined that there is a starting day for this but being very pragmatic, yes there is wish to have a very attractive affects but the starting point in practice will depend in my point of view, from a final understanding and of all the process that is taking place to discuss this at the ministry or at the regulator. Unidentified Analyst And Britaldo, do you have an idea when this will be finished? Britaldo Soares I believe that today, we are focusing a lot both on the part of the regulator, both the ministry as well. But it’s very hard to say of a certain period or a time, it may take place in the first semester, yes but it really depends on the solution. It’s a matter that if some more complex and depending on the shrug shared measures there maybe measures necessary that take time. So, it’s very hard to say but I see that the matter is developing at a much better pace today and with much more efforts from the point of view of the ministry and effort done in the past. But even so it’s difficult to say a date because these things mature and they consolidate slowly, and it’s a solution that is complex. Unidentified Analyst Thank you. Operator The next question comes from [indiscernible]. Unidentified Analyst I would like to understand the cost a little better, we see better numbers for cost this quarter did any nonrecurring item worth mentioning took place? Andres Gluski Thank you André I’ll ask Morandi to address your question. Please Morandi. Britaldo Soares Thank you. Basically, Andre we saw reduction in maintenance cost. This happened this quarter and impacted reduction PMSO. Unidentified Analyst So, again we could see those figures at the same level going forward, am I right? Britaldo Soares I think looking PMSO what we followed and we maintained the guidance so to keep those cost in real terms of those levels, yes. Unidentified Analyst Okay. Then there could be better way to look at PMSO lookout going forward. Andres Gluski Thank you for your question. Operator Thus again, we see no more question, I’d like to give the call back to Soares for his final remarks. Britaldo Soares Thank you all for participating in this call we are as always for other queries or comments you may have, the whole team of IRO team they’re always available at your disposal. Once again thank you and have a nice day. Operator AES Tiete’s conference call is now over. Thank you all for participating and have a nice day. Thank you. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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AES Tiete’s (AESAY) CEO Britaldo Soares on Q1 2015 Results — Earnings Call Transcript

Executives Britaldo Soares – CEO Francisco Morandi – VP, CFO & IRO Analysts Lilyanna Yang – UBS AES Tiete SA ( OTCPK:AESAY ) Q1 2015 Earnings Conference Call May 11, 2015 10:00 AM ET Operator Welcome to the conference call for AES Tiete SA operated by Chorus Call Brasil. In this conference call we will be discussing the results for the first quarter of 2015. The IR area of AES Tiete also informs that the release is available at the company website at ir.aistiete.com.ar. [Operator Instructions]. On behalf of AES Tiete we would like clarify that any statements that may be made during this conference call regarding the business outlook, projections and the company’s operating and financial targets are only predictions based on current expectations. Such expectations can change as a result of variable such as market conditions, economic performance and international markets. The presentation can be downloaded on the webcast website and will be made by Britaldo Soares, CEO and Mr. Francisco Morandi, VP & IRO. At the end of the officers are available for questions. I will now like to give the floor to Mr. Britaldo Soares, sir you have the floor. Britaldo Soares Thank you very much. Good morning everyone. We will now start the presentation for AES Tiete first quarter of 2015. I will briefly summarize the main aspects and Francisco Morandi, our IRO and CFO will provide you with general overview in more detail. Today we also have VP for Generation, [indiscernible], the VP for Operations of Generation, Italo Freitas, VP for Legal Affairs, Pedro Bueno and our team for IROs. Going on to slide 2, we have the highlights for the first quarter 2015. The hydrological scenario is adverse and we have had the negative dispatch and that has marked our market. The inflows was 64% and lower than the long term targets. The reservoirs closed at an average rate of 30.2% of their capacity compared to 40.5% in the first quarter of 2014. The average reduction of the ERM was 20.7% compared to 3.9% in the first quarter of 2014. In consolidated terms we had a generation of energy equivalent to 61% of the physical guarantee and I would like to remind you that in the first quarter of 2014 this will give us 92%, as a result of a very severe hydrological condition and this has been faced by the entire national network. We’re still trying to our operational processes and the management of our assets AES Tiete has become the first company in the Americas in the electricity sector to obtain the ISO 55000 in order for it’s asset management program of it’s hydropower plant including the generation of it’s reservoir and support schemes concerning the commercialization of energy we have sold in this quarter 9 megawatts to deliver in 2017 and between 2019 at an average price of R$200 per megawatt hour our long term vision for the 2017, 2019 period is between a R$190 to R$200 per megawatt hour as of 220 the price will probably approach the marginal cost of inflation and will be around 160 megawatt per hour, our contraction position Eletropaulo totaled 83%, 74% and 47% in 2004 and 18% respectively and this has given us more flexibility as of 2016. Moving on to slide 3, we have the main points of our financial and economic results. The net revenue for the quarter totaled R$690 million a reduction by 9% compared to the first quarter of ’14 due to mainly the lower volume of energy sold in the stock market compensated by the larger volume of AES Eletropaulo and allied to the GSE and the strategy for seasonality. The price of energy bought at stock price impacted significantly the operational cost and expenses in order to cover the ERM. In terms of the cost, the manageable PMSO we achieved a reduction of 16% compared to the first quarter of ’14. This reduction results from our efficiency measures, asset management and cost in the last year. Our EBITDA this quarter totaled 392 million and this absorbs the impact of the reduction of the ERM and the effects of the seasonality between the first quarter of 2015 versus the first quarter of 2014. We closed the quarter with net income of R$200 million and we have approved and proposed in the Board of Directors of a 122.4 million in dividends to be paid on May 25. Francisco Morandi will now take this presentation on and we will talk and give you more details on the AES Tiete performance. Francisco Morandi Thank you, Britaldo. Good morning everyone. We are now moving to slide number 4, you can see the evolution of the reservoirs and the thermal dispatch. You see that in the first quarter of 2015 with 62% of the historical average and including April it goes to 67% of the historical average. If you compare this performance to the inflow of 2014 which was 64% you see a reduction of two percentage points including the month of April, the inflow was 68%. For your reference the inflows recorded in the quarter for 2014 was 80% of the historical average. When we see the evolution of the reservoirs at the IN, we see that in March we attended 30% of the useful volume. The reservoirs today are at 35% capacity, on the right hand side of the slide we have the evolution of the reservoirs and a thermal dispatch in the last years. You can see that the thermal dispatch is still high totaling 17.5 gigawatt in the first quarter for 2015, the same volume for the fourth quarter of 2014 and higher than the last period in the last year. If you go on to slide number 5, you can see the main information on the level of reservoirs in AES Tiete and the generated energy. You can see that the volume of reservoirs of our plants closed the quarter with 59% compared to 44% in the first quarter of 2014. The position today is 74% of reservoirs today. You can see on the chart that there was an improvement in terms of the reservoir levels of the main plants of the company however in the Southeast market, in the center west you can see that there was a fall at the reservoir levels in the first quarter of 2015 if we compare with the same period of last year closing at 33% in the first quarter of 2014 and 19% in the first quarter of ’15. The inflow observed in this region was 58% of the LMT and 74% in the fourth quarter of ’14 compared to the inflows observed in this quarter with the same quarter of last year you can see that there was slight improvement because the inflow of last year’s first quarter was 52% concerning energy generated, you can see the thermal dispatch in the Southeast and the Central west when compared the generation in the same period of last year. As a reflex we have again 994 and 1902 which is equivalent to 60% of the secured energy for Tiete. On slide 6, we have some possible scenarios in term of reservoir levels for 2015 considering several possibilities in terms of the reduction of the load. As a result of internal assessment we see that the rationing risk in 2015 is reduced at 8% concerning a reduction in the lows of 0.5% to 1%. The company believes the price on the stock market will remain at a ceiling of R$388.46 per megawatt hour across the throughout the year and at the thermal dispatch will total 16 to 17 gigawatt average. The GSF for 2015 is estimated between 0.81 and 0.83. In the next slide number 7, you see the reduction in the ERM for 2015. The reduction verified in the first quarter of 2015 was 20.7% this amount was the period to the amounts recorded for the first quarter of last year which was 3.9%. As a result both of the increase of the thermal dispatch and of the seasonality strategy in the market, concerning our hydrological projections for 2015 we’re forecasting the maintenance of a high level of reduction in the MRA. As a result we’re reviewing our GSF and a possible impact in EBITDA for the year. The provision for the thermal dispatch should be at 16% to 17% at gigawatt [ph]. And this will total a stock price of top R$388 throughout 2015. The company also previews [indiscernible] that the 20 [ph] exchange of the subsystems and the intermittent generation. The load that should previously grow by 0.7% should be reduced by 0.5% to 1%. As a result the company has reviewed it’s estimates and expects a reduction by 17% to 19% as we have said our GSF between 0.3% 83, that will maybe result in an impact negative impact of 750 million to 840 million in EBITDA in 2015. On the next slide we see the specific results both for billed energy, or invoice energy and for net revenue. The company’s billed energy grew 1% when compared to quarter-on-quarter mainly due to increase on billed energy in the contract with AES Eletropaulo which is partially offset in the spot market in other [indiscernible] contract. The net revenue in the first quarter in turn totally R$690 million in the first quarter 9% down from the same period of last year due to the seasonality strategy and also due to the GSF. On the next slide, slide number 9, we’re talking about costs. The light blue part in the chart shows mainly the impact of cost on the purchase of energy in the first quarter of 2015 when compared to the first quarter of 2014. As we can see growth of cost in the first quarter of this year is related to a higher purchase of energy in the spot market, despite the fact that we had a lower price when compared to the same period of last year. The important piece of news is that if we continue to intensify our efficiency gains initiatives and also in-line with our guidance which was published in the end of 2014 we have reduced PMSO, the manageable PSO by 16% in the first quarter when compared to the first quarter of last year. Process review the also internalization of labor and services and also the reassessment of administrative cost were the main drivers leading to that reduction level, all efforts are in-line with our strategic guidelines for disciplined execution and efficiency in the use of resources. For 2015 the company will continue to work so that the manageable PMSO will grow zero when compared to the year 2014. Moving on to slide number 10, we can see that the EBITDA for the first quarter totaled R$392 million as opposed to 594 million in the first quarter of last year and this quarter the company recorded a net income of R$200 million vis-à-vis R$358 million in the first quarter of 2014. The main drivers for that performance in the quarter are, the reduction in the period, the seasonality strategy even with gains in manageable cost and an increase in the contract price with Eletropaulo. The company’s Board of Directors approved last Friday a dividend payout of R$122.4 million that correspond to a 100% of the distribution base. On slide number 11, we will be talking about investments. Investments in the first quarter totaled $30 million when compared to R$37 million invested in the first quarter of 2014. Most of that were allocated to the modernization and maintenance of [indiscernible] plans. Additional on the same slide we can see our investment plans for the 2015, 2019 cycle with investments at $487 million mainly allocated to modernization and maintenance of the company’s power plant. On the next slide, slide number 12, we see that the generation of cash flow was at R$101 million driven by higher purchase of energy in this spot market also reflect of reduction of fiscal guarantee any difference is not a strategy when compared to 2014. Free cash in the first quarter of 2015 was negative R$221 million as opposed to 164 positive in the first quarter of last year. With that our final cash position in the first quarter is R$280 million. Moving on to the next slide, we see that the company’s leverage level closed the first quarter 1.9 times reflecting again the seasonality. And also due to the reduction in the period, our net debt closed the quarter at R$1.4 billion as opposed to R$0.8 million in the first quarter of 2014. Mainly due to the issuance of the second promissory note at R$500 million which will be partially used to amortize that throughout the year. The company amortized the last installment of the first debenture issuance a 120 million were paid on March 31, and 180 million were paid on April 1st. On slide number 14, we see the contracting level for the company’s own energy, the company has signed new contracts in the first quarter of 2015 with a volume of approximately 9 megawatt average at an average price of R$200 per megawatt hour and an average term of three years. After those sales the contract level reached 83% in 2016, 74% in 2017 also 74% and then 47% in 2018 which places the company in a very comfortable position and prepared to face a new scenario which will come after the out of the contract with Eletropaulo which will happen at the end of this year in 2015. As it was anticipated by Britaldo, our price expectation for the period ranging from 2017 through 2019 is very strong R$190 and R$200 per megawatt per hour. Starting in 2020 prices will come closer to the marginal cost of system expansion sitting at around a R$160 per megawatt hour. I give the floor back to Britaldo for his final remarks. Thank you. Britaldo Soares Thank you, Francisco. As you could see during the presentation our hydrological conditions have stayed below historical average so that the adverse scenario and high levels of thermal dispatch resulted in a lowering of the physical guarantee of the ERM which led to a higher purchase of this in the spot market and that in turn affected the results of the company in the first quarter. We carry on looking for more efficiency in our operations as we see a drop of 60% in manageable cost which was reaffirmed by Francisco during the presentation that’s one sign of our efforts and also to improvement of our operating processes such as those including maintenance of our assets which are now been recognized by the ISO 55001 relative to our contracting strategy, our contract portfolio after 2015 will remain consistent which should reach a level of 83% in 2016, 74% in 2017 and 47% in 2018. As Francisco also said in the end, our vision is for a price range for three year contract of around R$190 to R$200 per megawatt hour for the 2017-2019 period and looking in the longer term 2020 and on we’re looking at a price at around R$160. We will now move to the Q&A session and we will be available for your comments and doubts. Thank you very much. Question-and-Answer Session Operator [Operator Instructions]. Our first question comes from Lilyanna Yang from UBS. Lilyanna Yang I would like to know if you still have any ongoing negotiation on the generators part concerning GSF which is very high for this year and if you have any forecast for that GSF level for next year as well. Thank you. Unidentified Company Representative As for the GSF our proposal consist of restricting the economic impact then on by generating companies to a certain level. For example 5% and we’re also assessing alternatives to mitigate whatever exceeds that level. In our view there is a series of variables which are out of the control of generating companies and which we will interfere in the dispatch level for example. That some of dispatch for electricity safety and also the out of merit [ph] dispatches or dispatches which are not taking place in a centralized way and also variations in consumption, that’s slowdown consumption in fact generating companies to the extent that we don’t have good reservoirs levels. So the tone of dispatch is maintained and thermal electric generation absorbs that reduction due to — I will give you an idea the out of merit dispatch for this year is expected to reach something above 7% in terms of — that will impact the actions for generating companies by 7% so it is essential for us to establish a limiting level for that. And that will also help us to allocate cost that occasionally exceeds those levels, so that we can share risks and benefits of that scenario. Lilyanna Yang Can you give an idea of the level of out of merit generation for last year? Do you’ve that number at hand? Francisco Morandi I don’t have any but I can get it for you, the out of merit generation for last year. Britaldo Soares Cyrino [ph] gave you an overview of what we have been discussing. Of course there is a very positive aspect to emphasize which is the following. When we talk to the ministry of mines and energy when we talk [indiscernible], the regulating agency we see a clear concern on the part of the ministry and on the part of the regulating agency to deal with the GSF issue because of the impact it has in generating company. It is a relevant impact as was said to-date it is recognized by everyone and that is no doubt an evolution in the process. We can of course there are challenges for us to implement a solution but I can tell you that today as we see it there is a genuine interest on the part of the ministry, on the part of our NIO [ph] they are getting ready to start, the public hearing cleared as you know to deal with this issue. So in what concern the mechanism itself we have several ongoing discussions, there are several points which were raised during this discussions some of them are with more resonance of this [Technical Difficulty] resonance and that is typical of that type of situation when you’re discussing how to adjust such a relevant impact. But again clearly what you can see that both the ministry and the regulating agency trying to converge in terms of finding a solution to tackle that impact of a GSF generation. What I can tell you now is that we have high expectations that this will be resolved. Hopefully with special mechanisms as defined, okay? Thank you. Operator The next question comes from [indiscernible] and it’s a web question. Unidentified Analyst What is the status for the restructuring of Brasiliana. Is there an update concerning the schedule of the process? Britaldo Soares When we have any change and use on the Brasiliana issue we will announce this to the market that everything we have already said in a previous announcement and any new negotiations between shareholders that results and impacts AES Tiete we will duly announce it to the markets. Operator The next question comes from [indiscernible]. Unidentified Analyst I have a question about the strategy of the commercialization of the company, this 83% level, is this a ceiling for this year compared to the contracted level and concerning the strategy that the company has this low level of contracted energy recorded, is this a trend or should we expect an increase for the following quarters? Unidentified Company Representative For 2016 in a situation we have today for the reservoirs in April we will be closing 35% and the certainty that we have terms of hydrology how the reservoirs will be in the rain period. The idea is to keep at this level of this contracting level for a flexibility in 2016 and as we see the development of the conditions of the system we may change this level but for the time being we are seeking to contract the period after 2016 for contract beginning in 2017 in order to work on the contracted levels as of that date. Operator [Operator Instructions]. The next question comes from Lilyanna Yang from UBS. Lilyanna Yang One question about your thermal project, you’ve signaled recently that you could be participating in the A5 auctions for the gas Thermo plants at the Sao Paulo plants, how do you see gas prices behaving and what kind of structure will you need should you decide to do it? Unidentified Company Representative We have our main project is so called Thermo Sao Paulo which was certified by the M5 [ph] auction but because of the gas contracts that we have we will structuring a contracting of imported liquefied gas, and then we will be using the terminals and the [Technical Difficulty] of course we will be paying for that using that cost structure did not fit the ceiling price which we defined as 2.81 per kilowatt hour that’s why we did not participate on the A5 auction on our April — last April but we’re trying to develop new opportunities going through new negotiation so that we could have a project which would be closer to that price level and of course we also went for the government agencies to recognize that — if we have to bring the gas from abroad, if we do not have an associated terminal that cost structure needs to be reviewed. Lilyanna Yang Okay, just to understand, so it’s not the commodity price but a structure price that terminals and everything right? Unidentified Company Representative I would say the issue at the whole scenario, when you add all the costs in the chain for the gas under that solution we do not have a satisfying return. Britaldo Soares When you take carry on working to adapt those costs parameters to that [indiscernible] so that we can maximize the rules of those installations for regasification. Cyrino [ph] has been working on it and the idea is that we’re able to make that structure feasible in terms of cost. And would of course make all the projects feasible in the end. Operator The next question comes from [indiscernible]. Unidentified Analyst I would like to talk again about the GSF and I know that the scenario we feel looking for developments in the negotiations but in your scenario. Is the idea that any change in 2015 will affect the year or would it be as of a new methodology is developed or even if anything concerning last year since last year we did had a dispatch and a level of risk above the model and I would like to understand a little bit more about and hear from you what could be considered seeing that what has already affected the losses of the generators. Britaldo Soares Obviously Edwardo, that in our discussions and within the definitions and concept we have been discussing and that have been explained by Ricardo Cyrino [ph] this leads us to discussing what has already happened of the impacts that have been felt by the generators. So there is a retro-action therefore we’re discussing a retroactive aspect of a solution that has to encompass things that have already taken place no shadow of doubt in terms of that, in terms of a practical view this will all depend of the final understanding, of would this be in 2015, if this will go back and retroact to 2014 because in fact what we’re discussing the concept, they are not specific to the years 2014 or 2015 but they address the problem of the reduction, of the GSF and the causes of this as Ricardo listed, so it’s a conceptual discussion and as of that you then develop your line of thoughts. Obviously that in the negotiation as a process it may be designed that there is a starting date for this but being very pragmatic yes there is a risk to have a retroactive effect but the starting point in practice will depend in my point of view from a final understanding and of all the process that is taking place to discuss this at the ministry or at the regulator. Unidentified Analyst And Britaldo, do you’ve an idea when this will be finished? Britaldo Soares I believe that today we are focusing a lot both on the part of the regulator, both the ministry as well but it’s very hard to say a certain period of time it may take place in the first semester yes, but it really depends on the solutions. It’s a matter that is somewhat complex and depending on the structured measures there may be measures necessary that take time so it’s very hard to say but I see that the matter is developing at a much better pace and with much more efforts from the point of view of the ministry and an effort than in the past but even so it’s difficult to say a date because these things mature and they consolidate slowly. And it’s a solution that is complex. So thank you. Operator Next question comes from [indiscernible]. Unidentified Analyst I would like to understand the cost a little better, we see better numbers for cost this quarter, did any non-recurring item worth mentioning took place? Francisco Morandi Basically, Andre [ph] we saw a reduction in maintenance cost. This happened this quarter and impacted reduction PMSO. Unidentified Analyst So again it was — we could see those figures at the same level going forward, am I right? Francisco Morandi I think that looking at PMSO. Looking forward we will maintain the guidance, so yes so keep those costs in real terms at those levels, yes. Unidentified Analyst Okay, that would be a better way to look at PMSO look going forward. Operator There are no more questions I would like to give the floor back to Mr. Soares for his final remarks. Britaldo Soares Thank you all for participating in this call. We’re as always available for other queries or comments you may have. The whole team, our IRO, they are always available and at your disposal. Once again thank you and have a nice day. Operator AES Tiete’s conference call is now over. Thank you all for participating and have a nice day. Thank you. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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