Light SA

BOVESPA:LIGT3

Earnings Call Transcript

[Operator]

Good morning, everyone, and welcome to Light's First Quarter 2024 Earnings Call. Today's event will be held in Portuguese and simultaneously translated into English. [Operator Instructions] We would like to inform you that this event is being recorded. It's audio will be available on the Investor Relations website as well as the material used in this presentation, which is already available for download. [Operator Instructions]

Before we go any further, I would like to emphasize that any statements made during this presentation regarding the company's business prospects, projections, operational and financial targets are the beliefs and assumptions of the company's management as well as information currently available to the company.

Forward-looking statements are not guarantees of performance and involve risks, uncertainties and assumptions. They refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the company's future results and may lead to results that differ materially from those expressed in such forward-looking statements.

Having made the necessary legal announcements, we will begin our presentation with Mr. Alexandre Nogueira, CEO, who will make the opening remarks, followed by Mr. Rodrigo Tostes, CFO and DRI, who will comment on the company's results. I will now give the floor to Mr. Alexandre Nogueira. Please go ahead, sir.

[Alexandre Ferreira, executive]

Good morning, everyone, and welcome to our first quarter's earnings call. The first quarter of 2024 was a quarter filled with challenges, but also with positive news. At the start of the year, January was marked by unexpected events that had an adverse impact on the company's results. In the very first days of the year, we had to deal with the loss of one of the transmission lines that brings power to Ilha do Governador. The situation, which was critical in itself, was aggravated by adverse weather events.

January came with rains and storms that caused supply disruptions not only to that region, but also to large parts of our concession area. These events demanded Light's full attention so that we could fulfill our commitment to the population and maintain the quality of our energy supply. And Light showed its ability to react. We quickly deployed our teams already reinforced for the summer to make the necessary repairs in the areas most affected by the weather conditions.

In the case of that area, Ilha do Governador, we spared no effort and invested in restoring normal supply to our 78,000 customers as quickly as possible. We built an emergency solution, which included an extra supply line and also the installation of generators to minimize the inconvenience caused to the population. During this year and the next, we will be modernizing the entire supply network on Ilha do Governador, an investment that was already defined before this issue in one of the transmission lines in January.

We were successful in these solutions, but these problems affected the quality of energy supply as measured by ANEEL, specifically in January. This had a negative impact on the company's quality indicators over the accumulated 12 months. In February and March, these indicators returned to Light's historical quality levels.

During the summer period, when consumption rises, Light also intensified its fight against losses and expanded its operations in and around areas of severe operational restriction, always preserving the safety of its teams. The company disconnected more delinquent consumers in these regions, and these actions added to the increase in temperature, which we already mentioned in previous periods, resulted in an increase in the level of nontechnical losses.

As we've said, our focus is on actions aimed at quick returns and cash recovery. Therefore, Light recorded an increase in revenue, which reached 98.4% in the 12 months up until March, up 1.7 percentage points compared to the same period in 2023. The first quarter was also one of intense negotiation with our creditors. We are in search of a solution so that Light can emerge from its court-ordered reorganization process as a more financially healthy company able to pay its debt, and at the same time, make the investments necessary for the quality of its service.

In this process, we have the support of our main shareholders, who committed to a contribution of BRL 1 billion in a clear sign of support for this management and the certainty that Light is a company that will succeed in its financial recovery. This sentiment is also shared by relevant groups of national and international creditors, who in recent weeks have signed agreements with the company to restructure its debt.

With all this, Light is confident that its judicial reorganization plan will be approved at the creditors' meeting scheduled for May 29. Once this crucial stage for the company is over, we will continue to focus on transformational institutional and regulatory actions aimed at the company's economic recovery and the continuity of its concession. I'll now hand over to our CFO, Rodrigo Tostes, who will give more details on the company's figures.

[Rodrigo Tostes Solon Pontes, executive]

Thank you, Alexandre. Good morning, everyone. I'd like to start my presentation on Slide 4, where we will discuss some of the highlights for this quarter. As was mentioned by Alexandre, I think one of the main highlights for the company was the progress made in negotiations with national and international creditors within the scope of our court-ordered recovery. We're confident that we will achieve our goal of reaching a satisfactory solution for both the creditors and the company itself.

In the first quarter of 2024, the structural market in Light's concession area grew by 1.4% year-on-year. Despite the operational challenges that we'll comment on later, the FEC quality indicator remained within the regulatory limit imposed by ANEEL this quarter. The distributor's total collection rate showed a significant improvement of 1 percentage point compared to the same period last year. In the last 12 months ending on March 2024, the index reached 98.4%.

The financial balance and efficiency initiatives ensured the stability of the distribution company's total expenses. In the quarter, adjusted TOTEX, the sum of CapEx plus PMSO expenses, were practically flat when compared to the same quarter last year. We'd like to point out that in the first quarter of 2024, TOTEX was impacted by around BRL 96 million due to emergency maintenance actions on Ilha do Governador as was mentioned by Alexandre.

The most important highlight on this slide is the balance of our consolidated cash position, which ended the quarter at a robust BRL 2.4 billion, an increase of more than BRL 300 million compared to the first quarter of 2023. This is the result of various initiatives by the operational and financial areas, which together are working to preserve the company's cash position. Finally, the company's consolidated operating cash generation measured by EBITDA minus CapEx was BRL 129 million in the quarter.

Moving on to Slide 5. We will briefly discuss the evolution of the distributors' invoiced market, which totaled just over 7,000 gigawatt hours in the quarter, growing by 1.4% year-on-year. The increase could be seen in the residential, industrial and commercial classes, influenced by higher temperatures, especially in January, which was marked by days with temperatures exceeding 60 degrees Celsius in the city of Rio de Janeiro and surrounding areas.

The captive market, however, fell by 3.6% in the quarter due to the acceleration of customer migration in the commercial class as a result of opening the high-voltage market below 500 kilowatt hours in January 2024. Finally, distributed generation in our concession area continued to expand strongly in the quarter, growing by almost 50% compared to the same period last year.

Continuing with Slide 6. Here, we see the main factors that affected the distribution company's adjusted EBITDA. In the first quarter of 2024, it was BRL 127 million. The main factor behind this result was a lower net margin of around BRL 188 million. As was mentioned, the company has identified its fighting against losses, always prioritizing more efficient actions with an emphasis on cash generation and low probability of default and legalization.

So you heard my comments on Slide 6, right? In any case, PMSO expenses also worsened in the year-to-year comparison, and one of the main offenders was the increase in the volume of emergency calls caused by severity and number of events observed, especially in January.

On a positive note, we'd like to highlight the performance of PECLD expenses, which improved BRL 50 million year-on-year due to improved expectations of future losses, following increases in collection according to the methodology in force. Finally, contingencies showed a negative result of around BRL 18 million in the year-on-year comparison, mainly due to the increase in mass civil provisions.

Continuing with Slide 7. I'd like to highlight the results of the distributors' financial balance initiatives. On the left-hand side, we can see that the company managed to preserve the stability of adjusted TOTEX in the quarter. When compared to the first quarter of 2023, adjusted TOTEX varied by only BRL 13 million or around 3%. Looking at the right-hand side of the slide, we can see that the distributors' company cash generation measured by adjusted EBITDA minus CapEx was negative by around BRL 41 million in the quarter. This is due to the increase in losses in the period as was mentioned before.

Finally, on Slide 8, we analyze the EBITDA of our energy generation and commercialization segment. In the quarter, the business generated an EBITDA of BRL 172 million, down 15% on the same period last year. This slowdown is mainly due to the unfavorable hydrological scenario in the period, which contributed due to GSF falling from an average of 101% in the first 3 months of 2023 to 90% in the first quarter of 2024. I'd also like to highlight BRL 49 million in cash received by Light Energia as a result of the earn-out payment provided for in the contract for the sale of Light's stake in the Guanhães and Paracambi SHPPs. As a result, the net profit of the generation and trading business was BRL 95.6 million in the quarter.

That concludes my remarks, and I hand over to the moderator so we can begin the Q&A session. Thank you very much.

[Operator]

[Operator Instructions] The question-and-answer session is now closed. We would like to give the floor to Mr. Alexandre for his closing remarks.

[Alexandre Ferreira, executive]

This concludes the company's earnings call. On behalf of Light, thank you for listening. And once again, the Investor Relations team is always available to answer your questions. Have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]