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

This is the [ VDA ] conference of results presentation of Energisa. In case you need simultaneous interpreting, you have the icon on the right-hand side on the bottom. You have options, English, Portuguese, and you can mute the original audio in case you choose English. [Operator Instructions] Your names will be announced as per your enrollments. And your name will show up at the time of the question. Instabilities may occur that in the time of response during Q&A. We count on your understanding. Information that will be shared here and declarations during this video conference concerning business perspectives, financial and operational perspectives will depend upon information that is currently available. Future information is not assured because they depend upon future events and depend upon circumstances that may occur based upon market conditions and may affect the results and information here foreseeable. And those pieces of information should be taken into account. Mr. Maurício Botelho, Director and RA of the company, Mr. Maurício, please, floor is yours.

Good afternoon everyone. It's a pleasure to be here to share the results of the company, the second quarter 2022. We have Mr. Ricardo Botelho -- VP, Ricardo Botelho; Market Director, [ Mr. Weinberger ]; Admin and Operational Director, [ Mr. Domingo Rodrigo Santan ]; Corporate Finances Director; and our RI team. So let's go into Slide #4. This slide shows the performance of the growth of the company, 2.3% growth compared to previous year. Classes that are residential and commercial, 66% of the consumption. The residential class, that is 39.5%, represent growth of [ 25.5% ] positively impacted 70,000 consumers moved from rural to city. We have had climate that has grown and increased in terms of temperature, and that has caused growth. Now when it comes to commercial classes, 19.1% out of the total. We have had the greatest growth of the Energisa Group, especially Energisa Rondônia that grew 13.2%. Energisa Mato Grosso do Sul, 9.5%, and Acre, they had -- has had a growth of 9%. The industrial class debt is 22.2% of the [ worth ] both off 2%, especially Rondônia state and Tocantins, 32.2%, and Acre also with a positive growth. Rural, 8.9% of the total consumption. It grew influenced by the return of the consumers of the residential class moving from rural to urban and that affects the numbers that we have here. It's been a heavy rainfall season here that has affected us directly. Next slide, please. Please bear with me while I turn on the camera. Make somebody from support would help me here, please. I'm not being able to turn on the video camera here, so I'll keep going without the camera, if you don't mind. Slide #5. We have the evolution of the electricity losses. March '21, we have total losses 12.67%, a reduction of 1.1 percentage point. Since the first quarter of 2021, the best result since the privatization back in Rondônia, with the fourth quarter with the incentive below the regulatory level. Energisa Rondônia, 3.1 percentage points compared to the first quarter of 2021, the first quarter of 2021, and the regulatory thresholds, 32.2%, Acre, 15.95%, 3.96 percentage points above a lower band, the regulatory for [indiscernible] so the lowest since 2018. The losses were around 28%, Rondônia; and 22%, Acre. Tocantins, that dropped 2.2% and is operating with 2.2% below the threshold -- regulatory threshold. We are working on this situation. We have Rondônia nontechnical losses, 13%, much above compared to Mato Grosso that is in the order of 15%. So let's see the quality indicators. Except for the deviation downward of Mato Grosso, and you can see that they have the minimum in historically speaking. Rondônia had a good result. Acre, back in fact. Minas Gerais, best result ever. And Mato Grosso, elevation in DEC and FEC. Due to unfavorable weather conditions compared to the same period last year, it wasn't -- it didn't live up to expectations. We are working the concessions, especially. And we are -- we have strategically planned to take it up to the expected level. PMSO, controlled expenses, 2.6% above. Nevertheless, below inflation that was in the order of 3.5%. We can see that we have costs here. Inflation affected commodities input. This growth is in the order of 25%, 30%. We have especially fuel, lubricants especially, and also the great maintenance. Default indicator in the order of 1.33% compared to revenue of the last 3 months against 1.09% compared to the first trimester of 2021 and the same level of 2020, a 24-point percentage -- 0.24 compared to the same period last year. Compared to last year, we had the FIDC if -- for the receivables. Those FIDC stands for hard to -- bets that are hard to recover, so they are default. So we have foreseeable situations here, BRL 36.1 million due to the FIDC always comparing to the same period last year. And you see that we are in the order of BRL 96.5 million comparing here to the same period of last year. And the main hardship was in the residential area, which is as per expected. We have EBITDA societary increased by 36.8%, BRL 468 million more than 2021 and got in the level of BRL 1.8 billion. We have had increments of some investments impacted these numbers. And of course, all the efforts to make up for the inflation impact. The EBITDA, without the cash flow impact, it has an increment that is higher, 50.6%, reaching BRL 1.5 billion. Here, we see EBITDA recurring from distributors comparing the regulatory level, comparing to Rondônia is operating on the positive side, 19.2% above Acre with a performance with a good direction within the distributors of the group. EBITDA, we have good sectorial performance. We had an overperformance of 44% as an underperformance, and we are up to 63.6%. I point out that this company's Acre and Rondônia are gradually transitioning. And I'm sure that soon, they will be at the level of the best performing companies in the group. Slide #12. Net revenue, a drop in 33.5%. You see the numbers here, 33.5% less than compared to last year. We have derivatives with positive effects in comparison of the quarters. Excluding these events, noncash flow related, we have a recurring revenue of BRL 558 million -- BRL 162 million, so a growth compared to 2021. Now that 17.2%, a growth of the order that you see here. And we have investments, of course, that were foreseeable for 2022 cash flow position. And equivalent, very robust, BRL 7.5 million, very comfortable position for the next 12 months and prepared to face any volatility that may have come. 2.4-fold with an increment of 0.1. When you compare to December, 0.6x when you compare to the first quarter of 2021. This indicator is used in our covenants and the limit is 4.5%. That means that we still have some room for our strategy for growth and performance. Investments. A total invested of BRL 1.4 billion, a growth of almost 48%. Distribution, growth by 78%, BRL 397 million, way above compared to the same period last year. Rio do Peixe Paraíba reinvested BRL 196 million. And we have foreseeable operations starting in September with a capacity that will be totally traded in the free market. Distributed generation, a growth of almost 70% -- actually, in the order of 70.8%. We created here Energisa with our new brands together with Alsol and Energisa Solutions. We have here the idea of controlling the performance of the company and help maintain this separate at the management. 33 units, foreseeable solar energy. We can add here 115-megawatt pico-solar energy. We have precedent conditions that make us very optimistic for future results. Now investments in transmission. Transmission, we are making advances, so BRL 1.8 billion, 68% out of the BRL 3.8 billion foreseeable. We have some remarks here on Gemini. We have precedent conditions. We have the approval by CADE and ANEEL. No considerations. The importance of the distribution segment for Energisa. We have tariff revisions of 5 next year, a growth of more than 5% of EBITDA for distribution. CapEx, BRL 3.8 billion. In the foreseeable that we announced in the first quarter meeting, we have acquisitions foreseeable to add to the platform of business. We have Gemini and GPTE, 2 acquisitions, 83% of the strategic objective and goal that was announced last year. On June 30, we have ANEEL transmission. We have 13 lots, 3 states, BRL 2.2 billion. Energisa continues to review opportunities, and we are going to allocate capital with efficiency -- as much efficiency as possible and very careful. The participation in the value chain, we have our projects moving on very timely, and we have vision that we'll get 36-megawatt pico in the next 3 years. In April this year, we had -- so we've reached 31.1 megawatt pico that we mentioned on Energisa Trade last year. On that note, I wrap up my presentation, and I would like to open for questions.

[Operator Instructions] Our first question by Guilherme Lima, an analyst sell side, Santander.

I have 2 questions. Can you comment on what you have seen, the trend in PDD and default? And what you expect from the remaining of the year and opportunities for growth in the short term? You mentioned the bidding for transmission and anything else that may make sense in this sense? And growth in generation strategy for growth in generation, if you're looking at inorganic growth, renewable energies and if you are thinking of renewable energy?

Let's try to break the question into parts. [ Milton ], if you would deal with the first question.

The rate of default as we reported in March, the [ LCD ], they are within historic highs. We are still with the maturity of the flag of scarcity, [ Heidrick ] and the macroeconomic scenario that it requires a very wise eye to maintain -- to keep up with what's happening. We have at the end of the year that we have the 13 salary that is part of the contracts in Brazil. Economically speaking, revenue, whatever we see as an opportunity, we plan for growth. Now the remaining of the questions. We have 2 more parts. One question to ask, you were talking about the bidding, the transmission. We haven't done the full study. We have some lots we are going through Germany that connects Pará and Paraná States. Concerning the rest of your questions, we do not have a proper question at this point, but we are looking into that generation. We want to expand the renewable matrix and opportunities in greenfield as we are doing here. I think the opportunities are out there. We have the windmill park in [ Sobregino ] with authorization and access. That is awaiting licensing. The other question, I cannot make comments in terms of the acquisition -- merging and acquisition. Regarding that part of your question, I cannot answer at this point.

Our next question is by [ Daniel ].

A follow-up on the question of Guilherme, if you could actually talk about the ramp-up of the distributed generation range. I would like to understand the speed of this ramp-up, when will see the productivity of that in the results of the company and what is actually expected? And I would like to hear about the bidding on fourth of May and what you foresee for that bidding?