Energisa SA

BOVESPA:ENGI4

Earnings Call Transcript

[Operator]

[Audio Gap] recorded and it'll be made available on the company's IR website, where the presentation is also available.I would like to highlight that for those who need simultaneous translation, we have this tool available on the Globe icon, labelled Interpretation, located at the bottom center of the screen. On selecting it, choose your preferred language, either Portuguese or English. For those listening to the video conference in English, there is an option to mute the original audio in Portuguese by clicking on Mute Original Audio. [Operator Instructions]We emphasize that the information contained in this presentation and any statements that may be made during this video conference regarding the business outlook, projections and operation and financial goals of the company constitute beliefs and assumptions of the company's management as well as information that are currently available.Future considerations are not guarantees of performance. They involve risks, uncertainties and assumptions as they relate 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 operational factors may affect Energisa's future performance and lead to results that materially differ from those expressed in such future considerations.Now, I would like to give the floor to Ricardo Botelho, CEO of the company, first to start our presentation. Ricardo?

[Ricardo Perez Botelho, executive]

Thank you, operator. I'd like to welcome everyone. And thank you for being here, for attending this presentation of the results of the first quarter of 2024. Joining me are our CFO and Investor Relations Director, Mauricio Botelho; the Vice President of Regulation and Institutional Relations, Fernando Maia; the Vice President of Energy Solutions and Leader of (re)energisa, [ Roberta Godoi ]; the CEO of ES Gas, Fabio Bertollo; and also our Investor Relations team.Before I begin, I would like to kindly ask you to pay attention to this slide before you make any investment decisions in the company. Before we start, I'd like to discuss the results of the first quarter of 2024. Before, I'd like to highlight the milestone of the 10th anniversary of the acquisition of Grupo Rede, one of the most successful operations in the Brazilian electrical sector. To celebrate this occasion, we have prepared a special message of this as part of this earnings call so that you can celebrate with us.On April 11, 2014, Energisa assumed indirect majority ownership of Rede Energisa S.A., consequently to control the electric power distributors in Mato Grosso, Mato Grosso do Sul, and all the south-eastern regions, in addition to a power generator and an electric service provider.The turnaround of Grupo Rede was also a turning point for us as we assumed the position of the fifth largest energy distribution group in the country. We went from having 5 to 9 concessions, more than doubling the number of customers. The responsible capital allocation in line with the continuous operational improvement and meeting market growth demand has yielded positive results for us in the last decade.As you can see, on the numbers of this slide, we were able to multiply invested capital by 6.7x and achieved a nominal return rate of 36%. In terms of remuneration base, we grew by more than 100% between the third and the fifth tariff review cycles.And today, our EBITDA of the 4 concessionaries represent more than 60% of the consolidated adjusted EBITDA of the group. The quality indicators also demonstrate our efficient operational management, experience that we acquired during the privatization process of the sector in the 90s.For example, at Energisa Tocantins, we had a noticeable improvement in quality indicators, DEC and FEC, which were almost halved. The history of Grupo Rede is another case of success that highlights the best practice in terms of public service distribution within the efficient, responsible and prudent expansion of the Energisa Group.Now, to begin the presentation of the results of the group for the first quarter of 2024, I'd like to highlight that we had the largest variation in EBITDA between quarters in the recent years and reached BRL 2.2 billion in adjusted recurring EBITDA, which excludes the VNR from electric power distribution segment, nonrecurring effects, and includes the regulatory EBITDA of the transmission segment.Significant part of this result and the profit of BRL 800 million of the period was driven by the energy market that grew by 12%, including non-invoiced amounts, compared to the same period in 2023, marking the highest quarterly growth in the last 21 years.As you can realize, Brazil is currently experiencing the effects of El Nino and some atmospheric blockages in the Midwest region, leading to successive heat waves in our concessions. And in 2023, we experienced milder weather conditions. Those extreme weather events have been a major concern for everybody, requiring immediate action from individuals, business and authorities.And I take the opportunity to express my condolence and my solidarity with the victims of the largest climate catastrophe in Rio Grande do Sul. And we offer support to the energy concessionaries in the state, the concessioners of that state, that they can restore the essential services as soon as possible.We'll address now the market behavior in more detail later in the presentation. The first quarter of 2024 was also marked by 2 significant events. First of them was the conclusion of the company's primary public offering of shares, which brought in BRL 0.5 billion to the cash reserves, contributing to the improvement in leverage and providing flexibility for potential future acquisition movements and investments in the segments of our portfolio.We expanded our transmission portfolio through the acquisition of Lot 12 in the auction held in March of this year. Energisa Maranhao, energy transmitter, is the 13th concession of the Energisa Group and has an annual permitted revenue, RAP, of BRL 112.5 million. The DG segment continued to expand our portfolio. We now have 367 megawatt peak of installed capacity across 94 plants. In ES Gas, we grew our customer base by over 8% and reached 524% of [ revenue ].We're very pleased with the financial and operational performance of the group this quarter. And we are confident that the strategy of growth, quality and diversification will continue to contribute to significant increases in our earnings per share.With that being said, I will now give the floor to Mauricio Botelho, CFO and Investor Relations Director, to continue with the presentation of the results for the first quarter of 2024. Mauricio?

[Maurício Perez Botelho, executive]

Thank you, Ricardo, for the presentation, the initial presentation. I will approach some aspects of the presentation. Before everything, good afternoon, everyone. I thank you for attending this earnings -- this call of the quarterly results of Energisa. Having greater focus to the financial results of the quarter, as Ricardo has already mentioned, we've had an exceptional performance this quarter.Current EBITDA rose by 45.8% and reached nearly BRL 2.3 billion in the quarter. The highlight was the Energy Distribution segment, which contributed with BRL 2.9 billion in gross margin, representing an increase of BRL 650 million compared to the first quarter of 2013.Contributing to this performance also were tariff reviews of 2023 and the good performance of sales of energy in this quarter, as Ricardo already mentioned. I'd like to draw your attention to some nonrecurring or noncash effects that we're considering from this quarter onwards for the purpose of adjusting the result. First is the provision of profit sharing results, the TLR --ELR, BRL 61.3 million impacts in the consolidated MSO to adjusting of recognition on a monthly basis rather than in the last quarter of the year -- of previous years.The second is the provision for over-contracting at Energisa Acre, BRL 8.9 million effect for the quarter in the line of assets and liabilities of the ESE. Due to this, the adjustment of the provisional practice on a monthly basis. Now, we are estimating the impact of that for 2024. There's a few changes in the presentation. And to bring less volatility between quarterly results, especially in the fourth quarter.Another important item was the reversal of contingencies at the Energisa Rondonia. BRL 141.4 million is the positive effect. It was a reversal of the effects that were accounted during the acquisition of Rondonia in the last quarter of '19. This noncash reversal occurred only in the consolidated level. It did not contribute to the individual results of the distributor.Another effect here is the market to market of Energisa Comercializadora. During the quarter, the price curve which marks the portfolio of Energisa Comercializadora, there was some typical volatility. The reference prices for 2024, '25 and '26, for example, rise by 27%, 33%, '25 and '26, despite the average ELD remained at the floor of 61.14 megawatt hour during the same period.As a consequence, we had an impact to the market-to-market of the portfolio of BRL 120 million for the quarter, which was a non-cash effect. What I'd like to highlight here that in April, this negative effect was largely reversed. The new adjustment of future prices due to positive hydrological outlook at the end of the rainy season, bringing the volumes down to 74.9% in the SIN April 28.And the projection of the PLD remains below BRL 80 for 2024. Another effect here that is another noncash effect results from market-to-market of the call options of shares of this subsidiary, [indiscernible]. This effect impacts only the net income, because it is recorded in the financial result. All those effects will be addressed along this presentation.Now, let's talk about PMSO side. The consolidated PMSO should an increase of 19.5% compared to the quarters, discounting the recurring effects that I already mentioned. The TLR, which goes to a recurrent PSMO base of BRL 828 million, representing about 19%, but 11.2% comparing to the same period in 2023.It's worth mentioning that in terms of a narrative basis in this distribution segment that represents 87% of the PMSO -- the MSO. The increase of 5.3% in the quarter when the PLR is excluded, a little above inflation. I can also highlight that the PMSO is linked to ES Gas that started to be part of the portfolio of Energisa from the second quarter of '23 and the segment of distributed for generation. Many plants connected between Q1 '23 and Q1 '24, which naturally brings the operational costs.Going back to the other slide, in terms of net profit, we had a result of BRL 800 million, almost BRL 500 million increase compared to 2023. This result is explained by a superior performance of the distribution sector, and initial expenses were lower comparing '23 to '24. The net profit [Technical Difficulty] for the adjustment was BRL 902 million or 125% superior in the first quarter of '23.Now, talking about investments. Investment volume was lower, 1.5% compared to 2023. Plus, bear in mind that some concessions went tariff review in 2023 due to the slowdown in the growth pace in the distribution sector, and also the projects of transmission and generation segments that were accelerated in 2023.We remain committed to achieve the BRL 6 billion investment that we planned for the 2023 that was already disclosed to the market at a level that's very close to last year.Next slide, we're going to talk about indebtedness. Energisa Group closed the quarter with a net debt adjusted EBITDA leverage indicator, with covenant effects at 2.6x, the lowest level recorded in the last 12 months, as Ricardo already mentioned in his presentation. We had a cash reinforcement following the primary follow-on, which added BRL 0.5 billion to the cash reserves of the Energisa Group.This operation reinforces our financial discipline, enabling us to maintain a strong level of investments, and greater room for potential inorganic investments. This is the summary of the consolidated.Now, we're going to go in the breakdown of the segments. And let me initiate with the electric power distribution segment. This slide, as I already mentioned, we had a great and notable growth of the current EBITDA, which increased 40.5% compared to the previous quarter, reaching BRL 1.97 billion. And the recurring net income grew almost 70% between periods and passed the milestone of BRL 1 billion for the quarter. Besides that, the market growth coupled with the many successful tariff reviews were the essential factors for the improvement in the financial -- distribution segment.This next slide, you'll have the dynamics of the allocation of the market, that advanced by 11.9% for non-invoiced amounts in the first quarter of '24, was the largest variation in 21 years, as shown on this slide. You can see the evolution on this slide. We started using the same metric. Brazil increased by 8.6%, the highest rate in 14 years since [indiscernible]. So I'd like to highlight the difference in the residential segment of Energisa compared to the country, to Brazil as a whole.Segment advanced by 17.6% in Energisa, while in Brazil, it was 12%. So all distribution companies showed growth, highlighting Mato Grosso, the south-eastern region. Mato Grosso do Sul at a record rate, Paraiba at a -- had the highest rate in 11 years. And these distributors account for almost 70% of the increment.This next slide, where you see a chart here, an image here, that shows the effects of intense climatic effects, with a 22% higher need for cooling compared to '23 due to the heat waves and the dynamics of the fuel chain. In '23, we had an opposite climate scenario, as shown in the image.Let's go to the next slide. Let's talk about DEC, FEC. On November '22, ANEEL approved to the continuity of electric power supply in the distribution segment. And also the document 44/2022 established the achievement of a minimum percentage of 80% of sets in the regulatory boundaries of DEC and FEC from 2023 to 2026. To reach the 80% target by '26, some annual goals were established for each concessionary in Brazil considering a greater increase in the minimum percentage of sets within the regulatory limits.As you can see, this slide references of what we've realized in '23. You can notice that we are within the goals according to the targets established by ANEEL for '23. Some of them are already meeting 80% established in the official document.On this next slide, we're going to talk a little about loss in energy. The first quarter, we had a total loss index of 12.74%, representing [ 0.12 AP ] higher than recorded in December '23. This variation is attributed to the effects of the high temperature recorded in the concessions, as we -- as I said before, and also the capture of the effect of the non-invoiced energy.In this slide, we're going to talk a little about the default. It's another highlights. The sector reduced in BRL 7.3 billion in comparison to '23, even with an increase of 16% in revenue between those periods. It goes up to BRL 4.1 billion. A small percentage increase in the indicator was much lower than the decrease in revenue for the quarter.I highlight the government program, Desenrola Brazil, extended into May '24, continues to contribute to improvement of credit of individual people with low income through the settlement of debts. In first quarter of '24, 31,000 clients settled their debts after negotiation, contributing to the reversal of BRL 19.5 billion in the credit loss provision. The positive impact of low-income customers has been a priority since last year. Energisa has declared leadership among public service concessions since this program has enrolled. So now, I finished the distribution segment.Now, let's move on to the gas distribution segment. ES Gas ended the first quarter of '24 with a total of 81,707 consumer units, an increase of 8.4% compared to the previous year. Spanning 543 kilometers of grid network. And the investments continued to be intensive in the concession, I mean, to achieve the planned BRL 100 billion investment for 2024.In terms of volume distributed in the quarter, the total volume was 156.5 million cubic meters, impacted by the reduction of the thermo-electric segment due to the end of some emergency thermal power plants. Eco segment was negatively impacted by some incentives granted during 2022 and 2023 to some other liquid fuels, which were not extended to gas.ES Gas has been working with the whole natural gas chain in Espirito Santo, proposing some measures to promote the use of natural gas through the [ MySkies ] movement that is going to be launched by the state government.Now, moving on to the next slide. We're going to talk about transmission. I'll highlight here that on March 28 Energisa won Lot 12 in the ANEEL transmission auction, with a annual operated revenue of BRL 112.5 million. This lot is located between Maranhao and Piaui. And it involves the construction of a transmission line that will expand into the basic network that was in the area of the important region, calling for the full transmission of renewable energy already contracted in the region, increasing margins for connecting new generation projects and meeting of the growth of the local demand.Another highlight in the segment was the choice of the transmission functions certificate for Tocantins by -- the asset was 5 months ahead of the regulatory deadline of September 2024. The project costs within the expected range and respecting our commitment to resource management and delivery on time. The first quarter of '23, we highlight the increase of regulatory EBITDA, especially due to the readjustment of the RAP in 9% commissioning of some new facilities in Amazonas and the reinforcement of Energisa Para II.After the tariff readjustment, the total RAP for '23-'24 was BRL 891.2 million, including approximately BRL 40 million in optical fiber revenue from companies that came from Germany. It's worth noting that the release certificate for energy observation of Tocantins II, as I have already mentioned, 5 months ahead of the deadline.We continue to work intensively to complete the assets that are always aiming to advance their operation and then improving the return of that. Now let's discuss the results of the Energisa, the recurrent EBITDA of Energisa concerned to some of invites not from generation, trading and value-added services.Excluding the mark-to-market effect on the trading segment increased BRL 70 million compared to 2023, which is a total of BRL 78.4 million. I highlight the distributed generation added BRL 38 million of EBITDA during the period. It was a quarter with BRL 20.3 million. We concluded the full capacity of 363 megawatts in 93 plants. Our subscription for solar energy has been gaining more subscribers. We grow our customer base by over 8.47%, posing with about 1,042 affiliated customers.With that, I close my presentation of order and I request for the Q&A. Operator, please.

[Operator]

[Operator Instructions] Our first question comes [ Ceyana D'Costa ], a journalist.

[Unknown Attendee]

As for the renovation of the concession will be talked about regulatory has had some requirements that back track will be different. So we think that it'd be increased investment scenario or what can we expect on this new regulatory package for processions?

[Ricardo Perez Botelho, executive]

So I'll give the floor to Fernando Maya for him to reply.

[Fernando Maia, executive]

Yes, indeed, we've been following this now talking to this department regarding concessions. So that's the news that we had. We are ending like issuing the creation of a grid that will be sent to the civil house. So we talked to us about these new requirements, so it'd be a little more strict, especially regarding quality that will also require more investments.We understand and you have also to understand growth audit support is that the regulatory mark. They allow this corrugation. I'd been seeking -- looking forward to public interest, that is the way for the concession range. This public interest -- this is through enabling the anticipation that the advance point of this corrugation because it gives certainty to the concessions and gives the customers advantage of having a stricter regulatory security for grinding the quality service, the quality of the services. And in this preparation of the distributors to face those new weather conditions and even those that are due a little later.

[Operator]

[Operator Instructions] Our next question comes from Andre Sampaio, sell-side analyst of the Santander Bank.

[Andre Sampaio, analyst]

I'd like to be super quickly would like to give us an update regarding the regularization of ES Gas, speculation of ES Gas, just for us to understand if it's everything going right.

[Ricardo Perez Botelho, executive]

The regulatory process is according to what was predicted by that, it's on track. We don't see any i.e. we are following the schedule. We accepted our investment plan, no points of attention that you should worry us here.

[Operator]

Our next question comes from Daniel Travitzky, a sell-side analyst of Safra Bank.

[Daniel Travitzky, analyst]

I have 2 questions actually. First is about MP 12 wells. This growth was 100% in the perspective of the company regarding this provision measure, some tariff reduction. The anticipation of CDS, so I'd like to hear from you, how you see that backed by future and timing? And the second question is that I'd like to on subvention line that you highlighted in the release, was a significant amount this quarter. Can you help us understand how this account works? What drives the increase this line? It would help us a lot.

[Ricardo Perez Botelho, executive]

Thank you. Fernando, can you take this one, the first one?

[Fernando Maia, executive]

Regarding NP1212, the provision on that, we have good expectations. Everything that accounts for reinvesting tariffs is good for our customers. So it's good for us as well. I've talked to AMP talks about the education part of that fund CG is like the application of resources in Ligado. It, of course, depends on this on the secretary provide benefit and attenuate the highest investments in the Northern region. And the second part is the anticipation of the resources. CD that needs to be apprised MEP is 120 days. Regardless of the discussion in this going to Congress, it has big effects. All those operations begun within this period to deliver the results -- that's their purpose.

[Ricardo Perez Botelho, executive]

Daniel, regarding the subvention our IT team will send you some details. It is connected to CD.

[Operator]

[Operator Instructions] With no further questions, we conclude the Q&A session. And the CD conference, the results of the first quarter of 2024 also concluded. The Investor Relations Department is available to address any further doubts or inquiries. Thank you very much, to all participants and have you all a great afternoon.