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

Good afternoon, everyone, and welcome to the videoconference of the results of the fourth quarter of 2021 for Energisa. This video conference is being recorded and will be available in the RA website, where we have available this presentation as well. Should you need simultaneous translation, we have this tool available on the little globe icon called Interpretation in the lower portion of the screen. Upon choosing that, choose your language, Portuguese or English. If you choose English, you can silence the original audio if you touch upon Original Audio Muting. Q&A should be sent by the icon Q&A upon the lower portion of the screen as well. Your names will be announced and your question will be made live, then your mic will be enabled. Considering that some speakers are remotely speaking, instability may happen during the presentation impacting responses, especially during Q&A. We count on your comprehension and understanding. The information that you have here and declaration that the statements made during this presentation concerning perspectives, projections and operational projections are based upon forecasts and premises of the company as well as upon available information, which are not an assurance of results because they depend upon future events, circumstances that may or not occur. Investors may understand that general conditions, market and other operational factors may affect the future unfolding of events at Energisa. So take into consideration future considerations. Now the floor is with Mr. Botelho, Director of Financial and -- at this point, Mr. Botelho has the floor.

Thank you. Good afternoon, everyone. It's my pleasure that I start this conference of the disclosure of the results of the fourth quarter. I have Roberta Godoi, EVP; Alexandre Ferreira of Regulation as well; VP [indiscernible] [ Aurelio ], responsible for grades; Mr. Tovar, Financial -- Corporate Finances; and Mr. Fernando Maia; and Rodrigo Santana is a Regulatory Strategist. You will note during the presentation, Page 3, a summary of the main events of 2021 and that affected the early days of 2022. So let's go to Slide #5. That one. What we see here is that the states. Thinking always 2021 has made -- has advanced 2.5-folds compared to previous years. Energisa Paraíba Southeast and Tocantins are highlighted here, especially when it comes to textiles, metal work, minerals and nonmetallic ones. Industrial was the flagship, 4.5-folds, a comparison that is unequal because 2020 was the most intense period of the pandemic. Textiles grew 1.7-fold, motivated for the opening of shopping centers or reopening. Rural was a little shyer, depending upon climate situations, especially over the last quarter, especially in Mato Grosso state. If we have a comparison here without the effect of the pandemic, 2019, we have a fourfold growth. Next slide, #6, please. We have the performance of the fourth quarter, 2.6-fold compared to previous year. I'd say here that there are anomalies compared to other years. The fourth quarter had [ peaks of ] consumption. And what happened in 2020 was [ excessive ], a drought that was of extreme proportions, heat. We had little rates of rainfall, and it impacted most regions of Energisa, especially Central West and North impacted as well, and this quarter the reading calendar that was lessened. And the [ agro ] business. Household consumption dropped a little. The fourth quarter was quite high, and it's directed under the same impact the rural segment, with less use of [indiscernible]. And the commercial segment, we had extreme temperatures in the fourth quarter of 2021. Likewise, it happened in 2020. We had sevenfold here. And if you see minerals, metallic and nonmetallic, we have Tocantins, Minas Gerais and Southeast. The performance was more modest and shyer than 2020, when the demand was quite high accordingly to that moment. Slide #7 now. I would like to open [indiscernible] here, a comparison. This universe shows that since '95 (sic) [ 2005 ], or in another words, 17 years, the potential of growth in this sector in Brazil in average for Energisa rose 2.2% above the average -- the national average. Only in 2 moments over 17 years we had negative numbers, given the factors that we have mentioned here and for the fact that the pandemic took some time to actually be accounted for within the results. So we actually accounted for that a little later than it actually happened. Energy losses. Congratulations to the team of Energisa in this sense. The indicator is in around 18.9%, 0.85 percentage point compared to previous years, the rate evolution. Acre and Rondônia were acquired in the end of 2018. And at a certain point, the indicator was below the regulatory rates. In 2021, it was 0.7% -- negative 0.7%. 2020, by the end of that year, that indicator was 0.60 percentage points above the regulatory rates. Energisa Rondônia, a reduction that is rather expressive, 2.1 -- 2.41 percentage points reaching in 2021 and 2020, 4% above the regulatory framework, our threshold, in other words. The previous point was like [ 1.13% ]. In the evolution of the indicators of losses or liabilities of the group, we see here -- and it's important to emphasize that we have in the strategic plan to make up for the previous years' liabilities. Here, I highlight the indicators of quality. We have expressive in DEC -- ours and DEC regulatory, Tocantins and Rondônia. In both facts, the best results by far. You see the numbers expressed here, 1.23 against 2020, 9.75 in FEC, the second graph. And you see that only one was below the regulatory framework. It's actually an accomplishment of that region. Our 11 concessionaries are below the regulatory points and are in their minimum levels historically speaking. Slide #10 now. We have defaults. We closed or we sealed the years with 12 less. And in the previous years, it was around 20. We have defaults. We have debtors and creditors compared here in the fourth quarter. We have an increment here, BRL 47.4 million, jumping on to BRL 384.4 million in 2021. Next slide. Financial highlights. Next, please. We can see the PMSO here remains stable prepandemic here, with a nominal face value reduction here in the accrued numbers. When compared to '20, we had an increment of 11.2%, 1 percentage point above the inflation. The basis was very low. Energisa worked hard to cut costs, probably the best company in this sector to have cost cutting or at cost cutting. EBITDA, that has to do with the company as a whole, BRL 628 million in comparison to the fourth quarter of 2020, reaching a total of BRL 1.7 billion in the period. Those developments in the -- with the increment of Parcel #3, an increment of BRL 2.2 million, including adjustments and tariffs -- inflationary tariffs, nonrecurring numbers. We have [ BPAA ] related to Rondônia, 55.9%, and some labor-related agreements. EBITDA cash flow-wise had a growth of 37.6% and reached the point of BRL 1.3 billion. The accrued, annual accrued, BRL 6.6 million, or in that order, BRL 2.6 million above the same period in 2020 without about BRL 1.75 million or 55% in growth or in that order. Next slide, please, #13. We are [ not ] going to talk here about the regulatory EBITDA. With the highlights here, latest acquisition of Rondônia. Energisa was -- going quite well here with [ BRL 227 million ] after having had an EBITDA that was negative in 2020. Year-by-year, we are going -- we are growing, reaching the regulatory level. We have talked about a lot this level. It has gone above 44.9%, BRL [indiscernible] million, and it has reached BRL 156 million. If these companies are changing and firm in the trajectory to deal with the performance -- to add to the performance net revenue, BRL 583 million, the point of 203.4%. That means that in the previous years, it was BRL 192 million, 90.9% growth in the accrued. This is BRL 1.46 million more than 2020 in the same period. Considering adjustments, subscriptions and fiscal credits that was accounted for, for the first time in state of Acre, among other effects in the cash flow, it had a growth of BRL 708 million, 67% in growth without the nonrecurring events. Next slide. Let's talk about that indebtment. In the fourth quarter, we had a level of BRL 15.2 [ billion ], an increment of BRL 576 million compared to September 2021. The company had many operations of rolling over deadline extensions with the last quarter with BRL 2.6 million. Following here, as you can see here in this graph, a position of cash flow rather robust, that is expressed in blue here, compared to the BRL 6.6 billion in September 2021 and BRL 6.9 billion in 2020. In this slide, we have the indicator of leveraging EBITDA for effects of covenants. It's been dropping. It's been improving with a reduction of 0.8x comparing this indicator of EBITDA. Our covenant in net indebtment is 4.25, a lot of flexibility to keep on going with our efforts for acquisition and growth. I would like to reinforce here, going into acquisitions that we disclosed in February, the agenda -- regulatory agenda is still undergoing approval with a net debt of BRL 1.7 billion long term, very competitive. And this operation will have a pro forma increment of 0.3x compared to the net debt compared to the EBITDA indicator. Investments, BRL 4.2 billion, very robust, 52% more than 2020 and 32.6% compared to 2019. 2020, on the account of the pandemic, we had some cuts. We had some reductions. This increase happened in energy assets, growing 88.8% annually, and investments, 73.6%, conditions for concessionaries and considering here the ones under construction. Nonregulated ones, we have BRL 326 million, BRL 191 million were leveraged -- invested in a photovoltaic power plant with a capacity around 78 megawatt minutes. Investments, the plan for investment for 2022, it's record BRL 6.8 billion, BRL 3.8 billion dedicated to concessionaries, BRL 1 billion will be for degeneration of distributors, BRL 156 million for other concessionary. Other investments in the order of BRL 154 million, BRL 3.8 million, BRL 2.6 million to concessionaries of Rondônia, Mato Grosso, Mato Grosso do Sul and Acre, these different states. BRL 677 million, 3.3% to Acre and 26.2% to Rondônia state. Distributed generation, EDC, BRL 1 billion encompassing the acquisition of Vision in the end of January. A total of 41 units of solar sources, 46 peak megawatts between 2021 and '23. I think this is important at this point that Energisa has been positioned strategically since the acquisition of Mato Grosso do Sul in 2019 and the [ lawing ] is something that we have brought into the mix so that we can have the legal framework, making sure that it's all in place. And by 2024, we want to add 460 megawatt -- peak megawatts. Distribution, BRL 362 million, 6.5% of the total of that value. That encompasses Tocantins 1, BRL 224 million, and Amazonas that will have BRL 75 million. Next slide, transmission, a segment that has had major relevance in the group. In terms of risk and distribution, I have the enterprises in greenfield. It's very challenging. And since 2021, we are working on projects and invested in a total of BRL 1.7 [ billion ], 57% or BRL 2.9 billion [ foreseen ], BRL 821 million only in the year of 2021 in December. In December of 2021, we had the projects Energisa Pará state #2, 2 months before the forcing date it was ready. So we have the record of 91.39% of RAP of BRL 39 million. This delivery ascertains the use of CapEx and the good management and potentializing the return on investment to our shareholders. All investments are in the program, and we have premises of anticipation of CapEx in all investments. I would like to point out that we are the winners of [ Map 5 ], a substation in Amapa state. Investments, BRL 122 million, 3 points to RAP. This investment is part of the constructions for the servicing of Macapá and will bring more trust. And we'll have the signature of the concession contract by the end of March. Next slide, M&A transmission. In other words, Mergers and Acquisitions. 2 transmitters, one in Amapá and one in the region of Rio de Janeiro, Gemini, and the acquisition of GPT in this total of investments BRL 924 million. Let me see what else here. Just to -- for numbers. Gemini has [ 1.4 thousand ] kilometers, and the other substations in average [ 3.63 thousand ] kilometers. Energisa Paránaita, the total of operational revenue will be BRL 364 million. As I mentioned before, we are undergoing the process of approval, along with CADE and ANEEL, the regulating [ organs ]. This is revenue-wise concerning transmission, 4 projects for -- that are operational, 3 are undergoing construction. And after Gemini, we'll have 11 concessions in our portfolio. Pro forma BRL 175 million, plus the Amazon 1 partially ready and Pará II and GPT acquisition in February 2022. For 2021, RAP of the company was BRL 124 million, BRL 100 million [ Para I ] and RAP, BRL 122 million. And we had some areas that were ready beforehand with -- bringing the RAP to around 130. And now we are -- besides Amazon in that region, we have focused on the projects, having them ready beforehand, and that can be something that will bring back many of our shareholders. If we think altogether, including Gemini, we'll get to 676 RAP pro forma '21 -- 2022 -- 2021 and '22. On that note, I would like to close this presentation and open for a Q&A.

[Operator Instructions] First one [indiscernible] analyst sell side. We'd like to enable your audio so that you can keep going.

The first one concerning the RAP for 2022, we would like to think about the tariff rates and distribution. How is that evolving along with the regulator? And how we can do that without underrating the company?

I'll divide the response in 2 here. Alexandre will help. And about the first part, Mr. Giordano will respond.

Mr. Gioreli, I stand corrected here, not Giordano, Gioreli. Compared to 2021, there was an increase comparing to 2022. There is an effect of tariff levels that changes the revenue. 2020 was rather dry due to droughts. 2020, as Mauricio mentioned, affected our capacity. So all in all, it was those effects that affected, and we are looking for a search for reduction. We have COVID and many other points that are challenging us as per the international scenario. But other than that, it's Alexandre. Alexandre, I think you can go on to the second point.

Concessions-wise, that is a subject that raises questions in the market. This morning, we had a feedback from a meeting that we had with some investors from the ministry that is responsible for the renewal of the concessions. We believe that this is a theme that is evolving. We do not believe in having a burdening in any of our clients and the ODL, which is our next battle, dragon to slay, if you will, will probably help us have this [ indicator ] indicate values without this burden that you speak of.

Our next question is by Daniel, analyst sell side.

We have 2 questions. Distributed generation, qualitative. Do you have a CapEx -- actually, you have a CapEx that is rather high for 2022. That's caught us by surprise. I'd like to think in terms of the future if that keeps on going that very same way for the next years. And the second question, more quantitative. If you could actually share with us the level of CapEx per megawatts installed that you see in the distributed generation. And if you could tell us in terms of ROI in that sense.

Daniel, it's a pleasure to have you here. It's understandable that you will -- you are surprised. It's our role to surprise you. Positively, that is. That must continue in 2023. As we mentioned, we want to add around 460 peak megawatts with update in our prices. Roberto, if you will help, it would help me. Please bear with us. The rate of ROI is certainly above distribution. I wouldn't like to talk numbers here, but it is above ROI in the order of 5 peak watts.

[Operator Instructions] Our next question is by Adelia Sosa.