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

Please be welcome to the Second Quarter 2022 Earnings Conference Call from Energisa. We inform you that this video conference is being recorded and it will available on the company's IR website, where the presentation will also be available. We highlight that for those that may need simultaneous translation, the tool will be available in the globe icon with an interpretation located at the bottom center of your screen. By selecting it, choose the language you prefer, Portuguese or English. For those that are listening in English, there is the option to mute the original audio, clicking mute original audio. For the Q&A, we suggest that all the questions must be sent via the Q&A icon located at the bottom of your screen as well. After the presentation, your name will then be announced and your question will be made live. In this moment, a request to activate your microphone will show up on our screen. Considering that some of the panelists will be remotely on this call, instability may occur, taking impact on the response time, especially during the Q&A. We count on your comprehension. We highlight that the information contained in this presentation and the eventual statements that may be done during this call related to business perspectives, projections and operational and financial goals of the company, they are beliefs and expectations of the company's administration, also related to the future. The following statements are not proof of performance because they relate substantially in market conditions to happen. And they depend on other factors that may happen or not. The sector performed stronger than the economy, among other factors. Also about the risks presented in the files of the call, they may affect the future of Energisa and these future considerations, it may change. Now I would like to call Maurício Botelho, Financial Director and Investor Relations of the company, to start our presentation. Maurício, please go ahead.

Thank you. Thank you, everybody. Good afternoon to all. It's a pleasure for me to start this earnings conference call from Energisa. Now referring to the second quarter, we have here with us, Ricardo Botelho, CEO of Grupo Energisa; the Vice President of Regulation, [ Daniel Solomon ]; our Vice President, Gioreli De Sousa, Vice President of the Net. Just a second, it looks like my audio is having some issues. Just one second. Yes, I hope it got better. Keep moving on. We have the Vice President of Regulation, Alexandre Ferreira; and the Director of the Production Receipts, we have Rodrigo Santana, he's the regulatory strategy assessor; and remotely, we have the Vice President for [indiscernible] of Energisa; and Revenue Director. And starting our presentation on our second slide, we have an important advice. Please read it before we start any information. And in the next page, we have a summary of the following highlights that I'm going to explain during the presentation. Then please move on to Slide #5. We're going to show about the market on the second quarter that we had an improvement on 1.4% comparing to the same time in the last year. On the commercial classes, the public power on the industry, they help on this growth. They represent about 45% of the total construction of the quarter. We have highlighted the industrial class that had a growth of 4%, with most of this activity improving the energy consumption and especially on the food production, mounted refrigerators that they made a boost on this work. And if you talk about Mato Grosso, Mato Grosso do Sul, Minas Gerais, they presented these high numbers. We also have a positive number on the paper sector in Minas Gerais and the not metallic products on Mato Grosso, Paraíba and Tocantins. Related to commercial class, they were similar, they presented a high number, highlighting Mato Grosso do Sul, Tocantins, Paraíba and Sergipe. Motivated with the malls, industries, food industries and stores. They were the main factors with this take back of activities after the big impact of COVID. Another highlight, it's on the public power that presented a record on growth numbers, about 28% compared to the last year. And with all the distributors presenting a number of 2-digit tax, the take back on residential activities, mainly on education and judiciary, it was determined. And talking about the residential classes and on the farms that together, they represented 47% of constructions, they had a reduction of 0.8% and 10.6%, respectively. Both classes, they were affected by a smaller time calendar to work and with the weather as well, especially on Central West, Southeast and Northeast. Their farming area was affected with the smaller utilization of watering with the range above the average. And with also the reduction of the number of clients that they were remanaged to the residential classes because of ANEEL. And accumulating consumptions of the semester, the growth was about 1.9% that I highlight was about Energisa Rondônia with a growth of 7.3%. And we have to say about losses of energy. This is Slide 6. Where for 5 quarters in a row, we are below the regulatory hedge standards. Energisa ends the quarter with energy losses of 12.71% or 0.49 percentage points if we check out on the 13.20%. And despite the losses that we had on June 2022 comparing to March 2022, what we have accumulated -- we have accumulated -- we have an improvement of 34.8 gigawatts comparing June 2021. Only 2 distributors had an elevation, Sergipe and Mato Grosso comparing to the second quarter of 2021. I must say that -- we had a variation of 0.19 percentage points of electric loss increment happened on Mato Grosso. It was caused mainly because of the increase of temperature at the end of June that increase as well the energy requested without the same effort. We expect this seasonal effect may be compensated in the next months working together with our combat to lost energy -- energy losses. For the distributors from Acre and Rondônia, the results were excellent. We had a reduction on the losses of 1.71 and 1.33 percentage points, respectively, comparing to June 2021. Energisa Acre is already below the regulatory limit. And Energisa Rondônia is also on its reduction trajectory being 0.74 percentage points above the regulatory limit. And please, let's go to Slide #8 about the quality indicators. All these numbers, these factors, they had amazing development. All of them below the regulatory limits of DEC and FEC with the exception of Mato Grosso because it was impacted of weather conditions that were contrary on the last quarters representing despite of this, an improvement on this second quarter comparing to the first quarter of 2022. You must highlight as well that Rondônia presented a historic minimum or the indicators of DEC and FEC being below the limit -- regulatory limits besides Borborema, Acre and Paraíba that had this historical minimum numbers effect. And this continuous improvement of indicators of quality, it was determined that Energisa that they would use to conquer the ABRADEE, the ABRADEE price for the concessions below 500,000 consumers. And for above 500,000 consumers with evolutions in many other concessions of Grupo Energisa as well. And now we'll go to the financial highlights. We're going to talk about the manageable costs. And you can notice that our PMSO had an increase of 4.5% comparing -- on a comparison between quarters. Right below the inflation on this period of 11.9%. And we must look at the improvement of the price of commodities, it affected a lot of materials. And if we -- it will be even bigger on the cost increase. We highlight the fuel numbers and lubricants with higher numbers. And we've talked about the inadequacy, we ended with the number of 1.38% and compare on this last 12 months compared to 0.43% compared to the same time last year, an increase of 0.95 percentage points compared to the same time. And it's important to highlight that on these last 12 months ended on June 2021, it counts the effect -- nonrecurring effect of the reversion because of the emission of FIDC of BRL 95 million. We made a benefit. And on this slide as well, we have -- we present the preliminary amount on the quarter, the provision for [ reds ] that had a number of BRL 116.6 million. It's a reflection of mainly the increase of the PPS off the distributors. We can explain with the increase of the ticket of the -- reduce that internal provision and the reversion as well that happened on the second quarter of 2021, if we must compare with the next year. And on the next slide, we're going to talk about EBITDA. We had an evolution of 22.2% or BRL 307.9 million comparing to the same quarter of last year. We had -- we achieved a number of BRL 1.7 billion in this quarter. If you could check the 6-month period, the evolution was about 28.8%. We had the number of BRL 3.5 million. And about the recurring EBITDA, the growth was 2.8% on the quarter and 23.4% on the semester. The growth of BRL 308 million on EBITDA on this quarter, part of it is explained with the increment of BRL 134 million of B&R between the trimester. And this is BRL 233.8 million on the second quarter comparing to BRL 99.8 million in the second quarter of 2021. And we must highlight as well, of the recurring EBITDA and if you can talk about the last 12 months? If you talk also even the second quarter of 2018, and we got an annual growth number of 30% by year if, we check on this. Can we say about the revenue, the group revenue? On this quarter, it was about BRL 990 million, 31.1% bigger than the BRL 749 million registered on the -- this amount last year -- on this amount last year. If you talk about the nonrecurring, if we adjust about the nonrecurring effects, this quarter, we presented a reduction of 15.7% and a growth of 11.9%, if we compare this on the semester. And about the derivative markets, most of it is influenced by the subscription bonus. We've registered a number of BRL 398.2 million posted comparing to the number of the last quarter of BRL 140 million. If you check on the right side of the slide, with the nonrecurring numbers of VNR and it helped on BRL 104.5 million. If you check on this number as well, BRL 256 million and if you check about transmitter and other effects, it's going to be around BRL 15 million. And when we go to Slide 14 about the investments. It was still -- the total was about BRL 1.6 billion, an improvement of 76.2% compared to the 990 registered in the second quarter of 2021. The distributors, they -- being the main segment doesn't mean -- about the investments of the group, representing 70.3% or BRL 1.2 billion with all the amount invested in the second quarter of 2022. We highlighted well the investments we made on the on park solar [indiscernible] on Paraíba. We have an expectation for this to start in September 2022, with the capacity -- strong capacity of 70 megawatts peak. About 90% of this plan -- 90% of the plant's commercialized on the open market and contracts to 3 to 5 years. If we follow up with the investments on the distributor -- on the Generation segment, we had a number of BRL 129 million on the second quarter, a growth of 184.1% compared to the second quarter last year. And right now, the install capacity is from 96.6 megawatts peak, a total of 33 users connected. If we talk about the evolution, we highlight the investments made in the half evolution. And we keep moving on, on our projects and construction that we invested on the second quarter, totaling BRL 156 million. We highlight the Tocantins, the lodge 4 acquired on an auction on December 2018. The main is on 77%, this could advance and we expect to deliver it on November this year. And when we talk about the greenfield, the total that we expect to get is BRL 3.2 billion, being BRL 1.9 billion, it's already going to be achieved until the second quarter 2021. When we talk about M&A transmission, the enterprise value, the number of the business, they were about BRL 2.6 billion. And also on this slide, we show the half evolution also with the readjustment that was given by ANEEL on July 12. And also the RAP, they also shows the number of the auction that happened in June 2022 and shows the evolution that can achieve BRL 781.5 million on the period of time of 2022, 2023 with an increase of BRL 167.8 million, which the Gemini represents BRL 362.9 million that -- on the acquisition that was concluded on June 10, 2022. On the pro forma, the cycle 2022-2023, we also consider a RAP of BRL 17.7 million on the auction, the auction that happened in the first half of 2022. That is going to be called Energisa Amazonas Transmissora II. I would like as well to highlight that the company, we are aligned -- 100% aligned with these growth plans for the next years on this segment. On the next slide, we're going to talk about DG, distributed generation. It has a growth of more than 150% on the spirit. And we had a growth of 78.5% in the last 6 months and achieved BRL 14 million. And the investments on the segment were about BRL 232 million in the semester. And on the next slide, we're going to talk about subscription bonus. Most of it is concentrated on BNDES, 99%. They subscribed -- or they requested the subscription until the 15th. Talking about the number of actions, it represents 12.4% and the resources are going to be about around BRL 740 million by Friday. With this, the company that closed the quarter was 2.8x. It's going to be -- it's going to have a reduction of 0.23. That's what I have talk right now, and I'm going to end the presentation. And we're going to open for the Q&A. Please, operator.

[Operator Instructions] The first question comes from [ Marcel Sau ], sell side analyst from Itau. [Operator Instructions]

I have some doubts that I would like to help. The first one is around GD. And when we talked in May about the information more complicated, informational connection, mainly on Cemig area. I'd like to know if it was solved. If it's working properly as we expect. And the second question is I would like to understand a little bit more what we have predicting about BNDES, with the sales that we're going to have with the stakeholders. With the debentures, if it's going to be something that may happen this year? If BNDES going to hold this or if it's going to be something that's going to be happening after the elections?

Okay. I'm going to start with the second question, okay? And then -- and then the first question, I'm going to see if I can transfer to one of our friends here. About BNDES, okay, I'm keeping touch with the bank. It's on our plans, strategic plans, bank's strategic plans, to take over our sales. And we don't know when it's going to be happening, at what price. If it's going to be before or after the election, I don't know about this. But at least we have a vision, a strategic vision of the bank of what's going to happen with our numbers. And about the GD, maybe Roberta? Roberta's here.

Yes, I am. Thanks, Marcel, for your question. Like you have seen, we -- on this quarter, we added capacity. We have ended the last quarter with 78.4 megawatts peak. And this one, we ended with 93.2 peak on this time as well that we're talking. And on the day that we are speaking, it's 96.2 peak. We had an increase but we have some challenges as well of connection. Obviously, with the volume, we imagine that the challenges that Cemig especially is facing. But we believe that this may be a question during the second semester. We count on this after or part of distributor with Cemig in a way that it doesn't change the plan that we expect to happen on this year.

And if you may allow me to have another question about Cemig. We had some market loss that we are on the process that you've made a call. And I know that you guys aren't allowed to say, but what you can say about this, please. I understand that we have a lot of regulatory questions that may be addressed to makes sense to do on something. For example, to check about the numbers on the company that invests on this and the quality may be not good and we have an eventual risk of this investment that maybe not acknowledge if we look on the -- if you look ahead. And since it's a bilateral auction and we can if we're going to be working with the other company, if it's possible, if they are negotiating with this other company, how can this be arranged? If it works altogether with the regulatory group, if it makes sense for both parts or if it doesn't.

[indiscernible] is a relevant player on the distribution sector, we always are going to be analyzing all the opportunities that may show up ahead. That's going to be hard to talk with this, talk about these opportunities, specific opportunities if we are or if we are not analyzing this. What about the second part of your question? I think it's about the regulatory question. And then how it negotiates about this, we're going to pass this question to Alexandre.

It's hard to -- like I want to say -- it's hard to tell about these opportunities but the law, it gives this information as well.

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

I have 2 questions as well. The first one, it's about the renewable energy. You guys are developing the company and if you have any unestablished goals on Investor Day, and you hope to add some anymore projects. I'd like to know if -- on what we are right now, if it's a stressed number of CapEx, if it change something, if it changes something about the developments in the short term compared on what you guys had? And my second question is about distribution that meant that -- I have a lot of challenges on the renewal of concessions of distributors that the ministry you're about to open an auction about the subject. I would like to know a little bit more about this if the government and the ministry, if they are talking about which companies and what can we expect? If we can expect something this year or any recommendation that may happen? And what do you guys expect about the process, if it can be worked different since the last time that we've seen.