Energisa SA

BOVESPA:ENGI4

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the teleconference [ alternative ] results of the fourth quarter of 2018 of Energisa. [Operator Instructions] We inform that this teleconference will be in Portuguese, and it will be by the management of the company, and the teleconference will be in English with simultaneous interpreting.

This event will be transmitted simultaneously via Internet via webcast. Before we go on, I'd like to clarify that declarations during this presentation that may include projections, operational goals and other information that are in that order are of the -- are confidential. We have to be clear that these are projections which we have basis on financials and studies. And future results depend upon the variations and circumstances that may or not occur. Investors may understand that general

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will initiate the presentation

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Alexandre Nogueira, Vice President of Regulation; Cláudio Brandão, Director of Corporate Finances and the whole team of relationship with investors. I'd like to start with some considerations -- opening considerations.

We are very proud of the achievements of the Energisa group. We have overcome challenges, and we are incessantly looking for excellence and growth. We acquired 2 new distributors through auction realized in August, Ceron and Eletroacre. And after consistent work and very detailed work, we have achieved great results. We have 11 distributors in our portfolio over 5 regions of the country, and we are serving 24% of the national territory, 7.7 million clients.

We are going to use our expertise to realize a turnaround of assets for distribution according to our well-successful history with the group Rede.

And we're going to take energy further with quality to clients of this region. So we keep on growing with the acquisition of a lot in Para in June in Tocantins. And by year-end December last year, we have now 4 concessions with 1.343 kilometers of lines of transmission, capacity of transformation of 4.294 MVA and the revenue of BRL 184 million. We continue focused on the client. As a result of our commitment with quality in the provision of energy, we have been awarded 9 prizes Abradee 2018, and 4 of our distributors are among the best in the country. The index of ANEEL and of the satisfaction of clients, we are in the leadership in the center, southeast and in the north in the category.

And the last Friday, we have seen the ranking of continuity assessing for the 7 concessionaires, looking at the best performance in the services providers. Energisa through southeast Energisa is leading the ranking with 7 distributors among the 10 best in companies of great and mid-size. It makes major difference in the life of our clients. We want to provide more pride, and we want to take -- to become better and better, and that's what we work for.

In 2018, the Great Place to Work service -- survey of services defined the distributor as the best developed in the -- the development and performance in continuity of the services provided.

As in other occasions, we are referencing health and up -- labor health.

Last year, we revised and mapped our way of dealing with risk and labor health, and we improved even further.

In order to advance and bring innovation to the business, we invested in a major project of innovation and contribution. The new efforts will lessen bureaucracy, receivables loss will be improved, losses will be lessened and will deal with failures that will be diminished majorly. The client will count towards new possibilities of the payments of their energy bills and will create more and more channels aiming for improving the experience.

We want anyone at a company that is simpler and simpler, more digital and more efficient. We have [ contended ] results that will start being presented now by our VP. Please, floor is yours.

[Carlos Ferreira, executive]

Good afternoon, ladies and gentlemen. I'll start presenting results, and in the sequence we'll open a session of Q&A.

Before starting, I'd like to point out that this is the first trimester that we consolidate the companies acquired, Ceron and Eletroacre. And for the operational part, the numbers presented are based upon data that these companies can carry within from 2017, '18 and the financial parts carries within pro forma values, therefore, bear there in mind.

Slide 4. Financial results. EBITDA BRL 1,892,000,000 in the trimester, BRL 4,082,000,000 in the year. Accountancy numbers, BRL 675 million in the trimester and BRL 1,179,000 in the year. That has to do with the acquisition of Ceron and Eletroacre, BRL 140 million. That's what it represents. It's a business combination according FAS 3.

Investments have been made in the controller. And as per other operational revenue, we have other results in the exercise. Further details of the accountancy, you can find out on the 17.

EBITDA liquids debt, 2.7, that's double fold and more. And the fourth trimester according to Eletroacre, we had discussions that were well discussed. We discussed the governance of the company. And we currently have the realization of an assembly to be held in the near future.

We have some events that are subsequent after the closing of the trimester. On February 28, [ BNDESPar ] provided the option of sales with the participation of 3.29% in the participation of the [ Rede Energia ]. And we have realized the value of the package BRL [ 14 ] million, now we have 45.9% of the company. BNDESPar, have a contract that has been acquired and has been successful, thanks to the relationship with other companies that have been acquire in 2004. We acquired stocks with yield in the 95.4% in yields.

With the reminiscence of the debts, Eletrobrás includes BRL 182 million and -- BRL 182 billion and BRL 360 million, respectively. We respected that the remaining partnerships, RG, BRL 621 million, after BRL 5 million in Eletroacre. And this contract is managed by [indiscernible].

On the other hand, we recorded the assets. And after what was mentioned in the auction, we have BRL 633 million combining the 3 companies. And dividends, we have an addition of BRL 0.50, 65% of gain.

Let's go to Slide 5. We have the growth rates. It has to do with classification per distributor. 2.57 in growth. Brazil as a whole grew 1%.

Energisa Mato Grosso had 5.6%. 123 VWA with a great number of gigabytes hour with the segment in the industrial and Mato Grosso, plus 29.

The food industry has brought major gain. Energisa Paraiba, 2.7%, 49.6 gigawatts hour plus and Energisa, 39.5% in terms of this growth. Clearly, we have the consumption of the following distributions -- distributors.

Mato Grosso, more than 39 gigabytes hour, Sul-Sudeste with 123 gigabytes hour. 1.1% was the growth of Brazil. Once again, Energisa is growing ahead of that number.

Slide #6, the graph to your left-hand side, we have losses of the group in the electrical area. 13.7%, as you can see here, 0.27 percental points.

According to the new concession contract, Ceron and Eletroacre had their losses flex-wised and to be regained over the period of the next 5 years. And certainly, there will be an object of focus of planning and efforts towards stabilizing.

Among the companies acquired, Eletroacre had total losses lower than regulatory numbers without Ceron and Eletroacre in the accounting. 11.6% was level of energy injected, up almost constant compared to September last year, and below the regulatory. Energisa Mato Grosso with a drop of 0.7 percental point considering December 2017 and 0.38 compared to 2018.

This concession is slightly above the goals of overseas. We are taking measures. And due to the reoccurrence and the changing teams, and we have the department of state that also has had an influence on that.

In Mato Grosso from 2017 to 2018, we have had results. Tocantins is still below the regulatory goal.

Slide 7, defaults concerning PDD and the revenue, 0.5% outside Ceron and Eletroacre. 0.66%, you see here in the graph. To diminish and to lessen defaults, we used algorithms for artificial intelligence considering each and every client, customization of the measures applied that are more and more efficient in terms of debt collection. We have SMS messages. We have blacklisting of number -- names in terms of the market at large among other activities. And all our companies will use the same tools, we'll unify that.

Slide #8, we are going to use the indicators of quality. We see that except for Ceron and the indicator deck, all distributors are with a good level of quality.

We have gone beyond our record -- past record numbers, namely Mato Grosso do Sul, with exceptional performance for Energisa Tocantins, back and nonback. As mentioned initially by Ricardo here, we classified 7 of our distributers, Energisa south and southeast had great results. With relationship to the acquisitions, we regained investments, and we regained strength in terms of the deployments of the plans that had been in the drawer.

Slide #9 highlights, financially speaking, considering this year, we have the lighter figures should be this year, [ less Ceron ], and one month is black.

We have the reduction of 5.2% in the trimester and a gain of 3.8% in the year, in line with the inflation rates of the period.

A good share of that has to do with personnel participation of the results of the group given the improvement of performance of the group, it's only understandable and internationalization of the teams. The reduction of services was impacted by the anticipation. During the drought in Mato Grosso do Sul, we have impacts -- an impacts of that.

We have regulatory adaptations that have affect numbers as well.

In Slide #10. We have the evolution of the EBITDA consolidated pro forma. Without Ceron and Eletroacre, BRL 683 million in the fourth quarter and BRL 2.884 million in the year, a reduction of 15.3% and 21.5% added, respectively.

A slight monetary increases of the adjusted EBITDA, we have a drop of 4 -- 5.8% in the trimester and an increase of 27.7% in the year. I point out the EBITDA of the year that was affected by effects nonrecurrent.

In the end of 2017, we have VNR. We had Mato Grosso, Sergipe and Tocantins. And If we discard those and other effects that are mentioned here, EBITDA would grow -- have grown around 25.6% and respectively.

The trimester, we point out improvement of 94.4% -- BRL 94.4 million, I beg your pardon. And installment [ B ]. The distributors, we have BRL 666 million. In the trimester, again, we have Tocantins influenced by the reversion in the happening of fourth quarter, BRL 200 million for Tocantins and BRL 13 million for Energisa southeast.

The year as a whole, you can see that there is no compromising of the whole.

Slide 11. We have here the consolidation of the result of the group. We see the numbers here, an incremental 66% compared to 2017 pro forma revenue and profits. The results have 72.9% decrease and 0.8% in the year.

However, there are many effects that are nonrecurring. The main of them is the owners of subscription. The debenture of Energisa that has a relation to that. It's noncash flow, a BRL 107 million in the first quarter and BRL 165 million in the fourth quarter. Therefore, there has been adjustments for the effect -- for that effect nonrecurrent, and the net profit pro forma would be 49% superior to prior. That's why we include Ceron and Eletroacre, BRL 10.8 billion total in 2018. And the adjustment had a drop of threefold in December 2017, 2.7x in December 2018, 2.7 will have to do with the recognition of BRL 1,100,000,000 business combination with Acre and Rondônia.

Without that whole scenario, it would be a whole different number. To your left-hand side, we see the cause of the debt, 65% of our debt is indexed to the CDI. And we are benefiting for -- from the rates -- interest rates for Brazil.

Our credit bills have been reassured, that's important. I would like to point out some issuances, BRL 4.7 million. We had some important aspects here, we had the issuance of Ceron debentures, BRL 1.8 million with maturity for the next 3 years -- in 3 years, that had to do with paying a debt for Ceron with another company. We had BRL 250 million, average cost, BRL 4.6 million in CDI and with maturity in 2025 and 2028.

Investment-wise, we wrapped up the year with BRL 1,981 million, including BRL 53.6 million invested during the management of Energisa.

Transmission-wise, we had BRL 173 million in the year. I would like to point out the acquisition of the 2 Energisa Pará I and the other in September and October 2018, 2 projects that are being installed.

We are obtaining a license for 24 months, and we obtained 13 months. In the [indiscernible] front, negotiations with the proprietary is affected and the lines of transmission are majorly concluded. We have less than 5% to deal with.

Energisa Pará II, a lot that was acquired in an auction in June 2018, the contract was executed in September last year. We have topographic work and regularization according to standards are being dealt with. The common entryway has been also dealt with. We have agreements in the [indiscernible] front. 50% of the affected areas are already undergoing clearance for liberation.

We point out the fiscal benefit of REIDI of the project obtained in January 2019. Energisa Tocantins from December 2018, the acquisition. We have studies -- we have the project, base project. The concession contract is to be executed next week on the 25th of March. These 4 lots add up to BRL 184 million with a CapEx of -- estimated in the order of BRL 1.5 billion.

CapEx and guidance-wise, we are estimating investments in the order of 2.8%. 87% of that value is focused on the distribution group. Ceron and Acre will receive, together, BRL 699 million in investment in the year. Ceron will be the second distributor in the ranking of the group but they will have investments.

The distributors acquired with the requested along with ANEEL, because that's the processing of the revision of the tariffs, the extraordinary ones to be realized in December of 2019 in substitution of the process of the tariff annual adjustments as per foreseen in official documents. EBITDA consolidated, we are at 29.2%. As you can see per the graph here, BRL 400 million in growth in this period.

Hereby I end my presentation numbers-wise. I would like to open for Q&A. Operator, the floor is yours.

[Operator]

[Operator Instructions] Mr. Marcelo Sá from UBS Bank would like to ask a question.

[Marcelo Sá, analyst]

I have a few questions starting with the regulatory documentation, ANEEL. For transmission and generation, we had a positive outcome, even above the forecast. I would like to understand what was your perspective if you see room for the distribution to have a different EBITDA cost. We are not clear whether ANEEL is open for that kind of change or orders and whether they consider distributing companies. I would like to know whether you see as possible differences in terms of the orders of distribution.

[Ricardo Perez Botelho, executive]

Alexandre Nogueira has been disconnected. On March 12, Marcelo, we had a discussion aiming to prepare the discussion in the block of generation. It's well seen and with a positive outlook. We are still in the phase of contribution. It is to start on March 22 and is to end in June. We are keeping up, we are analyzing the development of that, and we'll see the differentiation that is to take place between distribution and the other segment. The segments are similar -- never similar. I beg your pardon, nevertheless, not the same, so they'll be dealt with differently. Distribution, we understand that we'll have the element. And the distribution orders will be reopened in the second semester of this year, and around 2020 that should happen. The model investors and analysts that are here with us are to share and confirm whether share here with you.

[Marcelo Sá, analyst]

Another question that I would like to ask is whether you have the assessment of the assets of the bank. We have started and I would like to understand the basis of work of yourselves of the company. And I would like to understand if the report on the assets may be greater than expected.

[Alexandre Ferreira, executive]

I'm Alexandre. I'm here. We see that our planning on the inventory is going well and the preparation of the basis that we had, and we proposed at the moment of our discussion is going according to plan.

[Operator]

[Operator Instructions] Mr. Andre Sampaio, Santander.

[Andre Sampaio, analyst]

I would like to ask a question with regards to Eletrobrás and the participation. How do you see this possibility? And if you have had any sort of studies that are looking to that and funding-wise, how do you see that?

[Alexandre Ferreira, executive]

Andre, I find hard at this point to comment on third parties. The payment on the first moment didn't happen because it didn't happen. It wasn't up to speed in terms of the regulation. They are requiring public information, and we are gathering that. We have some planning for that in other cost-wise, Ceron, Eletroacre.

[Andre Sampaio, analyst]

Is there anything we should watch for and be more careful?

[Alexandre Ferreira, executive]

Ceron and Acre is rather busy or bloated, if you will. It's very diverse, right after the privatization, even before we had [ Sergipe ] as if there weren't an actual knowledge of what was to come. The auction happened right after that. If we look individually to the current state of that, we'll find situations like that, the analysis of our result here. And you can see in the report and I have mentioned that, we are going to focus on the companies that we have elicited here. It's difficult to have a comparison at this point, honestly.

[Andre Sampaio, analyst]

Fifth cycle-wise, you have expectations in terms of discussions that have to do with the regulators or things that you may add in that sense.

[Alexandre Ferreira, executive]

Can you please repeat your question? You're really low. I can barely hear you.

[Andre Sampaio, analyst]

The fifth cycle of revision, the expectations that you have on that? On the fourth cycle, have you discussed anything that concerns that? And what you have in terms of expectations towards that.

[Alexandre Ferreira, executive]

The fifth cycle, we expect the evolution with regards to the previous cycle in the point that with incentive will improve. ANEEL opened for public bidding, and this concept has been clearly stated and designs are being accomplished. We are expecting a clear discussion. We are working based upon the fourth cycle. And certainly, we are aiming for major improvements.

[Operator]

[ Camilla Calocanto ] from Citibank.

[Unknown Analyst]

I would like to understand a little bit more RGE in the sense as to whether it would be of immediate impact or whether we have to consider a longer time frame. And the tariffs concerning RGE, how are they going to occur over the last -- next year's concerning Ceron and Eletroacre?

[Alexandre Ferreira, executive]

RGE designated it's under the intervention of the state management once it's been privatized, so we have to consider that public funding is no longer an option here. What happened in the notice that was open to the public. We have 30 years of maturity. It will have amortization within 25 years in average. In the tariff, we'll have the tariff minus the amount from the auction. Ceron and the tariff amount will be 25% lower than the outstanding balance of the loan and that will be reviewed yearly. RGE, that has been, of course, dealt with according to the period of the concession is going to be dealt with CBA. Well, you see, it's already on CBA. There is an outstanding balance, it updates the loan. And you were saying that the outstanding balance covers all that RGE has needed so far. Whatever Ceron needs will be -- will suffer amortization. The differential here concerning the tariff depends upon what the loan is and what we are charging.

[Operator]

Gustavo Miele, Itau BBA, would like to ask a question.

[Gustavo Miele, analyst]

Operational-wise, one of the variations that drew our attention is the non-builds net profit. Even excluding Eletroacre and Ceron, it affects the future. Does variation has to do with the volume that you have acquired? I understand all that you have brought to the table, including Mato Grosso and so on. BRL 140 million will be recurring in the next trimesters. Can I take that as a consideration?

[Alexandre Ferreira, executive]

No. That shouldn't be used as a proxy or a basis for the forecast of the next semesters -- trimesters, I beg your pardon, or quarters. We depend on the variations of one year to the other and the different variations. We have to take into consideration that already in the last quarter, we had some variations that were affected by the temperature that we had forecast as such and even achieved that level. We have a growth or an increase that has to do with temperature. Mato Grosso, Mato Grosso do Sul, those states have results that are -- come from that.

[Operator]

[Operator Instructions] I'd like to pass the floor to Mr. Ricardo for his last remarks. Mr. Ricardo, please, the floor is yours for your last remarks.

[Ricardo Perez Botelho, executive]

Over the next year, we aim to integrate the companies. This is what we all want. That's why we want a major portfolio of diversification and we want to elevate all companies to the same level of excellence of all the other companies of the group and our clients are taking into consideration. We'll assess opportunities in the segment transmission and generation of energy. CapEx will be considered. We'll leverage a number of internal competencies in order to change and continue to be relevant and grow further because demands are more and more strict. We have confidence that with what we have planned and entrepreneurship, good planning, we'll carry on with the legacy, successful legacy of our founders. We thank our shareholders, clients and service providers and providers in general, and thank you, and a good afternoon.

[Operator]

Thank you. The teleconference of the result of Energisa fourth quarter is over. Please disconnect your lines now.