Energisa S.A. (ENGI3.SA) Earnings Call Transcript & Summary

[Operator Instructions] We come with your comprehension. We highlight that information is obtained in this presentation and eventual statements that might be done during the video conference related to business perspectives, projections and operational goals and financial goals for Energisa, they constitute beliefs and premises of the administration of the company, such as information currently available. Future statements are not proof of performance. They involve risks, uncertainties and premises because they refer to future events. So they depend on circumstances that may or not occur. Investors must comprehend that economical conditions, market conditions and other operational factors may affect the performance of Energisa and conduct to results that differ materially from those expressed in such future statements. Now I would like to give the word to Mauricio Botelho, CFO and Investor Relations, to start the presentation. Mauricio please go ahead.

Thank you, operator. I appreciate -- good morning. I appreciate everyone's presentation for the second quarter of 2025. Participating with me are our Vice President, Directors and Investor Relations team. Please pay attention to the disclaimers on the slide before making any investment decisions in the company. Please go to the next slide. On this slide, I would like to do some of the highlights of the second quarter. Let's start with the efficiencies and the cost management efficiency process. We completed another quarter with a reduction. We had in the quarter a reduction of 2.8%. PMSO of [indiscernible] performance was boosted. The distribution will be adjusted EBITDA, and we had an evolution of 21.6% BRL 1.9 billion in the quarter and the recurring adjusted net income closed the quarter at BRL 440 million and a growth of more than 32%. About the highlights on the segment and electricity distribution, we continue with the good evolution in the cost with the PMSO below inflation. We had a growth of 3.9%. Evolution on sales and the high base that we have comparing last year, the reduction of losses of energy, we reached like the lower numbers in the tariff adjustments, the positive tariff adjustments reduction on the second quarter last year with this contributed to the good evolution of the recurring EBITDA, which totaled BRL 1.7 billion this quarter, a growth of almost 25%. And talking about the transmission, there was a significant improvement in regulatory EBITDA margin, which reached 81% in the quarter, reflecting good performance in cost control after the internalization of third-party services [indiscernible] In gas distribution, we highlight here the [indiscernible] distributors contributed -- helped we had a growth of 57% gross margin, investments that grew in the quarter, they were like 9% compared to the second quarter of 2024. And related to 6 months the [indiscernible] distribution growth [indiscernible] contributed with BRL 22.8 million on equity equivalence. At Energisa, we continue to show reduction in churn and fall indicators in addition, PMSO explore these topics further ahead. Next slide, please. Here we're going to be talking about the EBITDA. Starting from right, left. Cash generation, we closed the quarter at BRL 2.1 billion and talking about the nonrecurring and noncash adjustments, which totaled BRL 233 million in the quarter. [indiscernible] which means a growth of more than BRL 345 million compared to last year. [indiscernible] Mechanics -- the quarter's net income was BRL 490 million and that is nonrecurring and the noncash adjustments, we totaled BRL 441 million, more than a 32% increase when compared to the second quarter of 2024. Highlight in the financial results. We present a net expense of BRL 1 billion with 141% growth compared to the second quarter of 2024, explained mainly by the increase in the balance and the average cost of net debt, which was 14.4% in 2025 versus 11.3% in 2024. In terms of investments, I would like to highlight the growth in the Energisa's investment volume. When we look at the accumulated first half of this year, investments were focused mainly on urban expansion, construction works, branch construction, new user connections in addition to network expansion. In the biogas segment, the increase is due to the proximity of completing the [ rig ] plant construction with forecast for next quarter. The reduction in transmission segment investment levels due in part to the completion of transmission from Energisa Tocantins II, Energisa Amapa, and part of the Energisa Amazonas. Talking about debt management, we maintained the net debt adjusted EBITDA covenant indicator level at 3.2x when comparing the first quarter with the second, we have to check in the last quarter of 2024, we started [indiscernible] so we had an impact in the last quarter of 2024. It was noncash at the moment. If we check this calculation, and we would be having a level of 3x. I'd like to highlight as well the improvement in the debt profile with reduction in average debt costs despite the higher interest rate level comparing the percentage with [indiscernible] , we are being more efficient. In the distribution, we talk about highlighting and I already mentioned. It's worth highlighting the losses performance. We reported this quarter the lowest historical level of total losses and below the regulatory level after 5 quarters. Regarding regulatory limits, I should highlight here that Enel approved changes in the regulatory nontechnical loss calculation methodology resulting in more favorable limits by applying those percentages over measured market instead of adjusting the effects of compensated energy from the distributed generation as new rule became effective from each distributor. So we had Mato Grosso, Mato Grosso do Sul, Sergipe which underwent the adjustment in April or already applying the new methodology. It's worth highlighting the substantial reduction of 2.2 percentage points in the loss of Energisa [indiscernible] over the last 12 months, approaching the regulatory limit. So it's like about 1 point. Operational indicators that in fact, we continue with excellent performance and recording historical records in some distributors. Talking about [indiscernible] which achieved the best levels in both indicators and Paraíba achieved the best results in the historical series for that. Other items, the consolidation collection rate over, we reached 96.98%. That's the best historical performance for the second quarter. And then changing subjects talking about Mato Grosso and Paraíba have already passed their regulatory scrutiny for concession renewal and the process was for -- to the Minister of Energy [indiscernible] and Mato Grosso -- the appreciation by Enel's Board once scheduled by reporting directors. We expect that all processes can be ready by September. Well, talking about sales electricity consumption remains stable comparing the same period 2024. However, considering the non-billed market, there was a positive evolution of 2.1% in the quarter and 1% in the semester compared. One of the factors that we analyzed here was about the temperature, the weather. We had a year with temperatures way different than last year it was like with a lot of heat waves and we had the El Niño as well. 60% of these days, we had like averages -- above the average. In 2024, the percentage was 80%, so way more. In transmission generation portfolio, we have 13 concessions and a wrap of BRL 975 million in RAP and BRL 43 million of fiber optic revenue. In financial terms, we already mentioned the improvement of the margins reaching 81.6%. I'd like to highlight as well some operational advances this quarter. We obtained the bring license release for the [indiscernible] part of Energisa Amazonas project. We currently have RAP of 54% for this succession in the first phase has the maximum deadline established by Enel to be March 2026 when we will be entitled to have 86% of the RAP. The expectation of conclusion of all this will be by March 2030. At Energisa Amazonas, we obtained project Energisa Amazonas 2, we completed the assembly of transmission line towers. We continue pursuing anticipation of entering into operation, projects under construction as we did with concessions already delivered. Now we're going to be talking about Energisa. The distribution energy most representative here. We have some improvements on indicators. Door-to-door sales, we grew 32% in comparison between quarters and reduced churn by 40% from 0.9% to 2.8%, reinforcing customer base loyalty. And default also 40%, reflecting a healthier portfolio. And the free market, second quarter '25 energy billing grew 58.6% in total, justified by efforts in prospecting new clients and strategic trading movements. The segment spread was negative at BRL 13.9 million due to the average POD that varied from 62.85 megawatts hour in 2024 to 187.5 megawatt hour in 2025. In the value-added service segment, the period's net profit was BRL 3.1 million, 63% above recorded in 2024 due to OpEx improvement and financial results. I talk about the gas distribution segment. Energisa like I presented here, an equity equivalents of BRL 22.8 million this quarter and more than BRL 53 million in cumulative in the ESgas considering [indiscernible] which positively impacted the 2024 results. There was a 35% reduction in the quarter and 18% [indiscernible] and operational indicators volume growth driven by industrial and commercial segments that grew 15% and 12%, respectively. And we concluded ESgas for several reasons [indiscernible] distribution margin of 0.4725 cubic meters, representing a 57% growth. Despite increase, ESgas margin continues to be one of the most competitive in Brazil and the lowest in the Southeast region, which will enable more development for this. We conclude here our highlights for this quarter, and we're now available for question and answer. Operator, please go ahead.

[Operator Instructions] Our first question comes from [indiscernible] sell-side analyst from [indiscernible].

I have 3 questions actually. First the talking about [indiscernible] transmission [indiscernible] in this year. To understand if you guys have any intention. Second question is about ESgas -- ESgas concluded here on the [indiscernible] what's your perspective on investments in this next cycle of the ESgas in the next year, following years, and talking about dividends you guys distributed on this quarter talking about conclusions on the transmission lines that you guys have been constructing main manage [indiscernible] on the level [indiscernible] losses and the cash flow and everything and how you guys believe that this will be the politics [indiscernible] there's going to be changing anything.

I am going to be explaining here with and starting with the last question, talking about dividends. So talking about dividends, it's more like keeping the regularity on the distribution. Energisa it has a tradition of paying dividends each semester, the decades working like this. Since we were like at CATAGUASES LEOPOLDINA we were working like this. So the idea is to keep this level [indiscernible] you're right, when we talk about dividends, it is not depress, 2.1% on average. We are talking here being a little bit more conservative on the [indiscernible] and everything in changing politics. We are not changing this. Our politics, they remain the same, pay off limits payout 35% and 33%. So it's going to be adjusted by the end of the year. So on the semester we check the math, the payout is going to be around 44% on the [indiscernible] at the end of the year, we're going to be keeping the same level. We're going to be decreasing to 35% or increasing to 50%. We're going to be checking ahead of course, checking the readjustments with the tariff. Mato Grosso, Mato Grosso do Sul, Sergipe, they were like really positive this year and contrast was highly negative last year because of the [ GPN ] So it helped on the quarter. So it's not like reflected totally on the quarter, but there are like readjustments like from April is like a little bit more by the end of April. So the effect is going to be like a little bit more ahead. And we had the reviews on other companies. We have Paraiba as well by August, now also so when we have a perspective of [indiscernible] improvements on the cash flow generation. In answering right now about the auction. We are not like thinking on this auction. We are like smaller auction. So with our current moments, like the interest rate on the roof makes us reflect a little bit on the needs of expansion in this segment or not right now. We talk about ESgas. I'm going to be providing or giving a word to [indiscernible] that is remote right now if he can answer the question.

So the plan cycle, it starts right now August '25 and it's going to be working July 2030. So it's not respecting calendar and the total investments, they are closing BRL 930 million and almost half of it is going to be about expansion, market expansions and cities that we're already working with another 30% of -- utilization of new cities and sustainable [indiscernible] and about 20% talking about digitalization 30% -- 30% digitalization and support. Yes more importantly our obligations are not like mainly financial, but physical. So like more than 300 kilometers of network helping and connections with more than 90,000 customers and will be like 30,000 with industries and improving more than 50% on industries right now to help providing almost new points like on the new energy, so heavy duty and eliminating tons of [indiscernible] with this.

Our next question comes from Fillipe Andrade sell-side analyst from Itaú BBA.

I would like to talk a little bit more of the generation energies and we talk about potential recycling [indiscernible] in the full way or like part of it.

I am going to be splitting the answer. I'm going to be answering the second question and [indiscernible] going to be answering the first part. Right now, we are not thinking about like recycling capital from GD now. We believe that we have like a lot, so a lot to improve before thinking on doing this.

So can you please repeat the first question?