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

Welcome to the video conference about the relevant factor of Energisa. We inform you that this video conference is being recorded and will be made available on the IR website of the company, where the presentation will be as well. [Operator Instructions] The information in this presentation and information disclosed here concerning perspective of business projections and operation and financial goals are projections and beliefs of the administration and the Board that are available now. Future considerations are future developments that are related to future events. Depending on the circumstances that may or not occur. Investors may understand, should understand that conditions of market and other operational factors may affect the development and performance of the company and may differ from those discussed here. Now, I'd like to pass the floor to the company so that we can start the presentation.

Good morning, and thank you for your presence. I'm here in this video conference with our CEO, Mr. Ricardo Botelho; VP, Gioreli De Sousa Filho; Corporate Finances, Mr. Antonio Tovar; and the Responsible Director of Transmission, Gabriel; and our team of Ari, Deborah and Michelle. First of all, I'd like to point out the activities of new businesses has been very intense in this last 75 days. In the beginning of December, we announced the acquisition of a facility structure already undergoing development in the Mato Grosso do Sul. And in the end of January, we announced the acquisition of plants and projections of generation of distribution of Vision. And yesterday, after the closing of the market, we announced the transaction that aims for the acquisition of Gemini, which is the objective of this day. We have the presentation as we have been mentioning. I'm going to Slide #4. We have here a general view of the 3 transmission assets, 2 of them in the North states of Amapá and Pará and 1 asset located in the South East, between Rio de Janeiro and Sao Paulo. Besides those operational assets, Gemini is a company that renders services in O&M, operations and maintenance. And concessions LM and [indiscernible] LTTE have a total of 1,451 million kilometers of lines of transmission, 8 substations, and altogether they reached BRL 363 million. This acquisition is totally aligned with the strategy of the company in terms of bringing operational synergies and aid in diversification of the distribution of energy that is still very present and consolidated of the group. Slide #5, we have the main value drivers that we consider in the assets of the agenda. The assets are part predominantly of Category 3, regulatory category 3, where the RAP is corrected annually and review of tariffs in the 5th, 10th and 15th years. Another leverage that is important is the optimization of costs, operational and administrative. And we are to reach that this acquisition came lot #5 that was well timely. We had the opportunity of build substation Macapá. The acquisition that you'll see here -- with the acquisition, we doubled two-fold the revenue of the company, and we have synergy for our future in the region of Amapá and Pará, where we have 2 other concessions. Another important aspect is the tax benefit of Sudam in the North, LMTE and LXTE. So we'll benefit from those in the coming years. Additional revenue. We have LTTE and LXTE that has started operations recently, and will abide by RAP yearly. RAP stands for annual allowed revenue. We have a concession of 20 years of optical fiber, BRL 4.4 million yearly in terms of revenue that, that brings to the company. I think it's all very interesting considering how much it brings to the company with the arrival of 5G and the demand for the increasing data traffic. Another point yet is that the concessions, both or most of them actually, depend upon a base budget that I'll go into. Slide #6, we show RAP consolidated of energy with a pro forma projection based upon the acquisition. It shows that we'll have an evolution of 2.3-fold, BRL 291 million to BRL 676 million. BRL 363 million come from this last project alone. Obviously, the company is aligned, that it's proven here, for the growth plan for the next years. Slide #7, we have the net debt BRL 1.74 million. You see in the graph that they are long term with a very competitive interest. And we have consolidated the third quarter of 2021 EBITDA. That's, as you see here, and we are going to add, if it goes as we plan, 0.3%. Still remaining at a level very comfortable and consolidated. Slide #8, the chart that shows the transactions, acquisitions of 100% of the shares of GM, FIP Power and FIP Apollo XIV, 22.6 million, BRL 0.35%, the net range of total shares. Total shares, 177 million shares. Slide #9, we have the perspective of the Energisa group. We have a portfolio that will reach 11 assets to 100 million or in that order BRL 676 million of RAP, and that prior number was the length of the lines that will reach. As you can see here on the map, Energisa has been growing relevantly. And we are here strategically positioned in regions that are growing in the country that may result in future opportunities in mergers and acquisitions and biddings for acquisition. This is what I would like to share with you at this point, and we would like to make ourselves open for questions now, please.

[Operator Instructions] The first question comes from Maria Carolina, analyst sell-side, from Credit Suisse.

Two questions. First, concerning the EBITDA margin that these assets are operating currently. And how would be possible improvement on the account of these new assets that you mentioned in possible synergies? And second, if you could comment on the participation minority, 2 of these lines have minority participation on Gemini. And if you consider these additional stakes in the short future?

Maurício Perez speaking. In terms of margins, I think we have to look ahead, not to look at the rear mirror. This transmission projects the goal up to 88% to 90%, and this is our goal. When it comes to the potential acquisition, the statute LTTE and LXTE has this positive that requires an offer. I cannot affirm at this point whether there will be an intention of the FDA of alienating those shares, but we have to abide by that.

Our next question, Andre Sampaio, analyst sell-side from Santander Banking. Andre we are enabling your audio now so that you can start your question. Andre, floor is yours.

All I have 2 questions. The first question is concerning liabilities. We know that we have a problem in Amapá concerning liabilities. And when it comes to liabilities, will that affect the BS of 2020? And if that accounts for Amapá, as you mentioned, and we have some provisions in the balance sheet of 2020, but I would like to know what you see. And the second question is still connected to that. What is the plan for that not to repeat in terms of the operational risk of the asset? And the second part, I would like to hear from you the potential of reinforcement and improvements in Amapá and Taubaté because I see those as the ones that demand the most.

I think Gabriel can answer the second part, so I will start. I believe that the first thing is State of Amapá. We know here that the first thing is to define whether that was not a systemic problem and see the responsibility of that event. We still have legal requirements, LT and [indiscernible], all those parties are involved in the discussion. Obviously, the management of that and discussions are with our legal that is already working on that. And first of all, we have to define whether the company is responsible for that at all or not. Now in the balance sheet of 2020, we still do not have a provision including that. Now, when it comes to reinforcement plans, I'd like to pass the floor on to Gabriel. Gabriel, please?

Thanks. I think there is a multifactor here and it's important to say that there was investment. And besides the 3 main transformers, one extra has been installed. So it's 4 now. Besides that we have an initiative to raise funds in that sense. There are opportunities for improvements and [indiscernible]. We have shares there and are under that basic evaluation. That's it.

A follow-up. I think it's not quite clear to me. So you understand that there is risk that's having additional liabilities after the balance sheet of 2020?

Well, we cannot affirm that. Well, you can ascertain that. There are controversies and there are things that are being looked at and are systematic and we are analyzing the system. We do not have a definition of that at this point. Anything in that sense, in that nature, will have to be recognized and accounted for and included under liabilities, accounting wise, if that is the case.

Our next question, Pedro Manfredini, analyst sell-side, Goldman Sachs. Pedro, we are enabling your mic. Please, Pedro follow on.

The competitive process of these assets, there was major competition for transmission lines, not only greenfield, but M&A. I would like to hear your comments about this process, whether it was smooth or it was more competitive than others. And ROI, we imagine better returns than other processes. Processes in biddings, for instance. The second point, the financial engineering being used in this acquisition. Is there anything additional that we can expect in the leveraging of this equity that you're going to launch? How much you'll be able to optimize if that was considered? I imagine that would boost your interest in that acquisition.

Let's see. Maybe Mr. Tovar can share the answer with me. The process was rather competitive. In the data room, there were other players. We had BTG Bank and Itau Bank that were in the competition. This process took some time. It was very competitive. Now, financing. Tovar, would you like to add a little bit more?