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

[Audio Gap] under the name interpretation on the lower portion of the screen. Up on choosing it, choose Portuguese or English. If you're attending in English, you can silence the original audio, muting original audio for Q&A. We invite you to click on Q&A and your names will be announced for the questions and state your company and your mic will appear on the screen. Some of these speakers are remotely speaking. Oscillation is enhanced and stability can happen, impacting the time of response, especially during Q&A. We count on your understanding. We point out the information here, hearing and declarations and statements concerning perspectives and businesses, projections and operations and financial goals are based upon premises and forecasts and information currently available. Future considerations are not guarantees of development and performance. We do not know of future developments. I would like to pass on the floor to Mr. Ricardo Botelho, President of the company. Mr. Ricardo Botelho, floor is yours.

Okay. Thank you. It's one more important 3Q of '21 conference, and we have here with us Mr. Mauricio Botelho, our DRI and Financial VP; Mr. Gioreli De Sousa, Distribution VP; Mr. Alexandre Ferreira, Regulation VP; Mr. Newton Santos, Protection Revenue -- Revenue Protection and [ RE ] team. Our presentation, first of all, I invite you to pay attention to Slide #2. This slide must be read with attention before any decision made regarding the company. In Slide 3, we share with you the results of this quarter compared to 2020, where we present a robust growth of EBITDA, 38%, BRL 864 million, minus 6% compared to last semester, but the upward of the 9 months, the net revenue, BRL 75.5 million at BRL 2.46 million. Leverage 2.4 fold, minus 0.9% compared to second -- third quarter of last and this year. We have cash flow generation that Mauricio will point out later on. Our investments in this trimester add to BRL 1.2 million, 84.5% growth with a lower basis of comparison in distribution as a segment. Operational indicators that I will talk about later. 2.4% growth compared to the 0.3% of last year, it was above. And the Group actually was slightly slower, below the regulatory framework. Our objective is to go back to points before the pandemic, a reduction expressive of Rondonia and Mato Grosso compared to the technical aspect, 75.6 point percentage that will be explained later on. Assets wise, we advanced with the building of 7 solar panel energy generation using 3 of them in the first quarter. BRL 89 million invested in the remaining ones. BRL 26 million invested in the latest plant also in May 2019, 17 connected power plants. Transmission, we are getting near the end of the EPA II project and our greatest project energies, transmissions, Tocantins with delivery and operations in 2022. Slide #5. Energy in the third quarter. Operational highlights of the Group, Slide #5 shows the performance of the energy market, 2.4% growth compared to the same period last year, happening under a basis of comparison, less depressed that was growing 0.6% ahead and was way ahead the average Brazil. Therefore, it was above the level pre-pandemic. Third semester 2021, it was mostly positive in the northeast of Brazil, climate, weather, harder. And in the Northeast, especially, the climate, the most miles in the Center East and North lessens the growth in those regions. The results of Energisa, classes, residential, industrial, commercial, were the main vectors of growth. Commercial had the highest growth, 6.8%. Services and retail as well. Industrial, 1.8% was headed by [ textile ], mining, vehicles, and metal work. In Paraiba, South, Southeast, Tocantins and Minas Gerais. Households, 0. -- growth in 7 out of the total of 11. Climate and calendar, concessions in Paraiba and Sergipe, that had activities related to irrigation of sugarcane and the grain chain supply chain in Rondonia. It has to do with the resilience of the market. We have that highlighted in many of our presentations. Slide #6. Losses of energy. A good trimester, total wise, 12.96% total loss, 0.5 and 0.86 percentage points compared to June. June this year and September last year. Acre and Rondonia acquisition was below the regulatory basis. Debt reduction was 0.9 percentage points before an increase of 0.72 percentage point in December 2020. Energisa Minas Gerais, after the rate reviews had technical losses, more adherence to the reality and total losses below the regulatory basis. Among [ OH ] and Energisa Mato Grosso were below the regulatory basis with the best performance since '15 [ 061.5 ] better than 2020 and 0.2 compared to the first quarter of this year. This indicator is very positive and the combat to the losses overcome the adverse events of 2020, and we've regained a good result that we had before the pandemic. Paraiba and Rondonia. We are working on the indicators of losses for the regulatory framework. Indicators of quality of our 11 distributors. Expressive results back and fact, Energisa token change with the best back in history. Third quarter in a row, overcoming the best value in history. September '20 compared to that, minus 55 hours in the back of Tocantins Rondonia as an indicator of losses, has strong losses of back losses in this quarter with a reduction, very expressive of 8 hours compared to the 33 of last year. 29.51 hour, that is our level and the regulatory limit threshold is 27.19 watts. Energisa Acre, below the regulatory threshold. Back in order 3.22 hours comparing quarters fact. All below the regulatory threshold. Tocantins, Southeast Acre with the minimum balance in all. Rondonia compared to the third -- second quarter last year, we had the margin comfortably speaking, in the regulatory line. Acre effected negative, minus 25% in the same period 2020, inferior to the regulatory threshold. The states in these 2 concessions prior to the privatization, we see an improvement in the quality over the last few years. The indicators of losses and qualities have to do with the investments realized over the last few years and the very good execution of the work of our staff. The next Slide, #8, we have the revenue with reduction of 0.27 percentage points impacted by the results of the pandemic of 2019 and measures, annual [ 0.878 ] of 2020, 0.05 percentage points of improvement in 2021. Nova Friburgo 0.24, Borborema 0.8 or continuing 0.15 with the best revenue since 2020, negotiations and debt collection have been improving majorly. The indicator of default. We have an improvement in BRL 30 million compared to this year in terms of whether there would be some payments or not in default. The forecast during the pandemic and the movements around Rondonia helped that scenario. BRL 44 million was the result of that receivable with the higher rates and the slower growth, still left us with some flexible ways of making the payments. On that note, I'll pass on the floor to Mr. Botelho. Mauricio, floor is yours.

Thank you, Ricardo. Good afternoon, all. We are going to talk controllable expenses. Let me just pick at the PowerPoint presentation fixed. Just bear with me for a minute. Next slide, please. The next slide, please, if you will, is Slide #10. We have expenses of PMSO, BRL 694 million. Third trimester, you see a difference due to the exceptional measures during the pandemic in 2019 and 2020, where we adopted cost convention and more lean services and services that were considered and the measures taken in terms of wages. PMSO is still a pre-pandemic level with a minus 1.5% in the third quarter of 2019 and the comparative charts over the last 9 months. A growth or that has been an advantage here to help understand this inflation surger, BRL 17 million in overhead expenses compared to 2020. Higher prices, prices, commodities, volumes and you retake taking out the activities, commodities such as fuels, parts, accessories and electrical material in general. Personnel and outsourced services, you see here that we have results of retaking some of our areas with restarting new services, new point of energy cutting, new points of energy and the new prices of the contracts as well. The inflation pressure and the new activities took on the variations of costs since 2019, maintaining it as at a lowest level since the previous years. EBITDA, third quarter, 42% in growth, BRL 519 million compared to the third quarter of '20. BRL 1.7 billion, that performance is explained by the implementation of the B parcel, BRL 519 million, rates reviewed and new investments, Paraiba plus 7%, Sergipe 6.7%, Borborema with 7% as well concessions, Nova Friburgo 2.6% Northeast, as you can see here, BRL 57.6 million. EBITDA without recurring effects in the repeated in the cash flow, 37.7%, BRL 1.5 billion and the contribution of sale of EBITDA of regulatory, BRL 27 million in the quarter. The accrued of the year EBITDA, BRL 4.4 billion, 58.2% or 1.2% translated into the numbers of 2020. Slide #12. Let's see the comparison of the EBITDA adjusted to the PMSO of the last few months. As you can see here, there is less volatility and other points. EBITDA that we use based upon BRL 515 million, BRL 1.9 billion more compared to the third quarter 2020. PMCO, plus 1.464%. The most important part of the expansion of the EBITDA was by the lowest speed of growth in PMSO, even with the growing -- on growing inflation. Slide #13. We have some highlights on the turnaround of Rondonia and now Acre. Reductions of PMSO ended both of the companies in the third quarter of 2020. And we have a good evolution of the adjustable EBITDA. These 2 companies together, BRL 73 million in comparison to the second quarter of this year. BRL 795 million, even higher when we compare to the same companies in the third quarter of 2020. Slide 14. Rondonia and Acre. EBITDA, regulatory one comparison, Energisa Rondonia is out of an EBITDA that was negative in 2020 to plus 189% that was closed this year, being established closer and closer to the regulatory threshold. Acre, we are going on -- growing closer to the threshold. The concessions in Rondonia and Acre are becoming more and more efficient with visible improvements in the quality of services to customers as brought up by Mr. Ricardo. Slide 15. Net revenue, BRL 664 million, BRL 6.3 million less than the third quarter of 2020. If we exclude the subscription bonus and market was very close to last year, noncash nonrecurrent BRL 198 million in growth quarterly, plus 32%. 75.5% in the accrued, a variation of BRL 1.5 billion. Slide #6. In that meant of BRL 14.6 million, BRL 609 million and a difference compared to the previous year with a lot of resource capitation. BRL 1.9 billion in the quarter -- previous quarter, third quarter. We go on here, as you can see, with a position of cash flow that is rather robust, BRL 6.6 billion, more than enough for the expected expenses for 2022. The average term is 1.1 year for contract, same as June, 8.38% against 7.30% in the previous quarter. Our index figure is the CDI, 20.27 -- to 2027. The net debt based upon the EBITDA down to 2.4 fold in September, 3.3 fold compared to that of September 2020. A coverage, our net debt with EBITDA is 4.25 fold. We are at a very comfortable level with that indicator. Next, we have our investments. In the -- this quarter BRL 1.2 billion in investments, 84.7%, that is a plus compared to BRL 548 million of the third quarter last year. That growth happened basically in electrical and nonelectrical assets. If we consider that only the electrical side, we had plus 1.107%, 552%, 74% to concession areas and partly to the distributors. Generation distributed, we have 23 sites compared to operational projects up to September this year. We have 2 new projects that are going on in October and a few more to start by the end of the year. Installed capacity of 54 megawatt [ people ] and by the end of the year, we must be in the order of 73.5% peak. I would like to point out that for 2021, we are sharing with you the record growth, BRL 3.9 billion, out of which BRL 2.8 million in distribution and BRL 834 million in transmissions. Next slide. Investments, you see here realized in the 6 projects that you've heard about, BRL 287 million. That is what they stand for despite the pandemic as a scenario in 2019 and 2020. We are following our projects like, up to the standard with BRL 1.5 million - BRL 1.5 billion, BRL 280 million in 2020 and BRL 700 million accrued up to this year. BRL 2.7 billion foreseeable to the end of this project. We just signed the contract Energisa 2, we had ANEEL, have a public bidding in June, and investments will start in coming in the next upcoming months. In the next slides, we have the status of these projects. Energisa Goias and Para. They are undergoing operations since 2020. These 2 units have a RAP of BRL 100 million. Energisa Para II and Energisa Tocantins are undergoing construction with a partial RAP of BRL 123 million, which is partial. Energisa Para II 500 kV project, 230 kV anticipated in almost 2 years. Energisa Tocantin is transmissions and transmissions too, are the only 2 that are at 100% construction, and they are not having a partial RAP. The RAP of the company totalized BRL 124 million in '21, '22 and EBITDA of BRL 172 [ million ]. The company is highly focused with anticipations relevant in terms of terms and increasing our [ RA ] team. On that note, I'd like to wrap up my presentation. Energisa Day will be for approaching strategies and growth in the long-term, and I invite you all. Thank you all for the attention for being with me. And on this note, I would like to open the floor for Q&A.

[Operator Instructions] First, Andre Sampaio, sell-side analyst, Santander.

I would like to ask about the company's Sol gas. Why weren't you part of the bidding? And I would like to hear from you what your strategy is for this segment? And if you have intentions to look into new activities and gas petrol? I'd like to know whether you understand there is -- there should be some remedy of CADs for future opportunities?

This is Ricardo. Sol gas wise. We had an initial assessment, so that there might be an incursion in the distribution segment. But that wasn't viable due to the parameters that actually guide our prudent investment decision making, ROI, risk conditions and many other aspects among those. Bidding wise, there was only one proponent. The same one that has the acquisition rights of 49% of the company that's probably made more sense for this acquisition by them than ourselves. They bid initially for 51%. That didn't work, but I know for sure that they are at 49% with regards to the acquisition of Compass, the company, whatever we would say at this point would be a speculation, and that's not what we -- we're here for. Andre floor is yours. Andre, actually, thank you.

Marcelo Sá, sell-side analyst from Itaú.

There was an article on the broadcast website, talking about rates increasing by 20% next year. That was by ANEEL. And we know that there are discussions ongoing for loans from banks and discussions of investments among banks and with banks. By saying that, I'd like to understand how far they have come in those discussions if that is really going, if rates are as a matter of fact, increasing? And what is your forecast for next year with inflation and all that is happening? And if there is room for anything that we -- I'm not foreseeing here. Renewables, that's my second question. Some players of the sector went -- dove into the segment. Renewables at the moment, do you think M&A would be worthy for you because it would be a full platform. How you see it from the perspective I bring to the table.

I'll deal with the first question. The increase of the rates for the next year, some of them may be very high. Operations that are being structured by ANEEL, the ministry is involved and at the DS with the events of late next year. We are just coming out of the pandemic. We are going to find a way to dilute those losses as time comes. Soon will have more details. We've talked about these actions priorly. But they aren't most of them ongoing.