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

Good afternoon to everybody, and please be welcome to the earnings conference call for third quarter 2022 and public meeting with analysts from Energisa. We inform you that this earnings conference call is being recorded, and it's going to be available at the company's IR website, where the current presentation is available. [Operator Instructions] We highlight that this presentation and any statements that can be done in this conference during the projections and goals -- operational goals of this company, they constitute beliefs and [ promises ] of the company, such as information that are updated each day, future statements are not proof of performance. They go through uncertainties, ensures, and predicates of what may happen. And this may happen or not. Investors may comprehend that the economic situation, market situations, and any other operational factors, may affect the future as well. And about the results that may happen here in such future considerations, this can happen as well. Now I'd like to pass the word to Maurício Botelho, CFO of the company, to start the presentation. Mauricio, please proceed.

Thank you, operator. Good afternoon to all. I appreciate the presence of all of you on this third quarter of [indiscernible]. That will be also with investors to update about Energisa's business. Our participation in this event Ricardo Botelho, CEO of Group Energisa; [indiscernible], Regulations Vice President; Gioreli de Sousa Filho, Network Vice President; Roberta Godoi, [indiscernible] Energisa's Vice President; Gabriel Mussi, Transmission and Generation Director; [indiscernible], Revenue Protection Director; Antonio Tovar, Corporate Finance Director; Rodrigo Santana, Regulations Director and the Investor Relations team. By starting our presentation. First, I kindly ask that you look into Slide #2, important warrant, before taking any investment actions on the company. Going forward, I share with you the agenda of this meeting that to bring the results of the third quarter, and next, we will start the public meeting where we were selling about some aspects of the distribution segments, transmission generation and energy. After the closing remarks, we will open for the Q&A. Starting the presentation of the results this quarter. We had important highlights -- they're going to be excited? First, in the centralized solar generation, we've entered the operation of the Pakola Helen and so located in Barabe with 70 megawatts speed capacity in the transmission segment, we signed on September 30, the concession contract of Energisa Amazon sees acquired on an auction in June this year and with CapEx estimated by NOL of 29.8 militates -- we highlight the BRL 213 million of investments on distributed generation, reaching a mark of 13,114 megawatts peaker potency so and 40 powering connected. -- on distribution, we keep improving our operational indicators and in Asia on one presented the best back fact of the concession history Adding on this quarter's or to highlight the improvement of capital of BRL 738 million by virtue of the exercise and it almost is through by the BNSS, with the subscription bonus taxane 50. This saturation we can check on the next slide. With this movement? -- As they already had a small shareholding obtained 11.4% of total capital of the company being currently the third largest shareholder of ins -- on this quarter, we had added the definition of just EBITDA in a way to be aligned with definitions, most common with the sell-side analysts, what they use. So the definition of adjusted is the commercial end excluded by the accounting record of the VR in the distribution segment, also excluded from societal record in the transmission segment, including the regulatory EBITDA of the transmission segment. That was what was called before adjusted EBITDA and was used by covenant means. We are now calling by Adis Cognis EBITDA in this presentation and in our results release. Going back to analysis comparing between the quarters. The adjusted EBITDA increased 11.1% and reached BRL 1.7 billion in the third quarter this year. Summing up the last 9 months, the adjusted EBITDA increased 15.8% and reached BRL 4.6 billion. It's important to highlight that the negative inflation present distribution in R&D amount of BRL 114.3 million. GAAP positive amount of $20.7 million in the third quarter of 2021. This meaning a variation smaller than BRL 359 million comparing the quarters. Obviously, such effect is reflected on the net come it comes on the period that we explain later on. The 9 months this year, the main point is direct increment of BRL 623 million on the adjusted EBITDA. We were in the distribution segment that contributed TRY 149 million of EBITDA in this period. Another factor that helped underperformance was the discipline on the operational cost of the MSO that will detail now. Please, next slide. As you can see on this quarter, the PMSO was reduced in 1.9% and we issued BRL 671 million and had a growth in 9 months of 1.7% and [indiscernible] BRL 1.98 billion this period. So we managed the participant last quarter on the growth therein. -- that on the quarter was closed within an annual amount of 7.17%. On Slide 9, we present the adjusted net profit that excludes the distribution B&R excludes the social net profit of transmission, and includes the regulatory net proper transitions. Well, as adjusted to the effective market of there, such as the secretion bonus. On the third quarter of 2022, adjusted net profit was BRL 391 million against BRL 570 million registered in the third quarter of 2021. Obviously, the lower difference of the interest rates between the quarters, such as marking to the market of the bonus increasing more than despite the increase of financial expense and the drop in the results. On the next slide, we showed intense rhythm of investments of the group in 2020 being guided by the 5 distributors that will be on the tariff in 2023. EMT, EMS, and ESP in April 2023 and EAC and ERO in December 2020. The remuneration basis of the first close in October and one in Acland Monona will close 6 months before the review, don't happen in June 2003. It's important to highlight as well the relevance of the transmission segments that invested BRL 457 million until September and Energisa that invested BRL 468 million in the same period. Despite the high level of investments, the group increased in 2.8x then the net debt adjusted EBITDA same level shown in June 2022 last quarter. The subscription bonus of Energisa represented an income of $173 million and a reduction of the debt level in 0.3x. And as the subscription bonus starting on September 23, we don't have any more of this option available. We choose to bring volatility to the results. We end here the highlights of the third quarter and the 9 months of this year. We will now start the presentation of performance of the main business fronts. And before we start, complement is we have a reverse portfolio a lot of markets, a lot of wide market business runs and geographic scope, and more component to maintain bats and stability growth. We have today 12 transmission concessions after the corporation of the canal assets. 40 generation power plants distributed with the capacity of 131.4 megawatts peak of performance, 2 solar generation power plants with the capacity of 7 megawatts capacity titin sessions, and 7 serious companies. Our system of order solutions described in almost is sorted in the Brazilian territory, discounting the distributors, is the main transmission and generation businesses as well. I'd like to pass now the speech now to Gioreli, Network Vice President that will be able to tell us a bit more about the performance of the distribution site. Please go ahead.

Good afternoon, Mauricio. Thank you. Good afternoon to all. The place to be able to take us a bit about the performance of the Distribution segment, one of the pillars of rupees. Please go to the next slide. We have a vision in here, as Mauricio mentioned previously. We have today 11 distributors to support 50 million people and 862 cities in all the regions of the country. The geographic diversity and the capillary of the group allow us to keep a rhythm of growth and market even during the pandemic, while the consumptions decreased 1.2% -- and as we compare with the country in the last months, we had a growth of 2%, while the country grew 1.3%. In the last 10 years, we had a growth of 1.7% above the average. And we go to Slide 16. We present the opening of the market on the view of the companies and have the recovery of the industry. We had the growth above average. And when compared to the prepandemic consumption growth of 7.8% -- with the highlights on the Food segment. The business had a growth as well, the biggest -- the highest growth rate in 8 years, 5.2% comparing against September 2021, and the public power represented size increased in the quarter, almost 15%. The retraction of the rural segment can be explained by the resignation of the customer in a class of the other class because of the RAN901 by NL. If you take this aspect, the decrease would be of 2.7%, explaining basically by the rainy weather, it is not to impact caused by distribution and generation. On the chart on your right, worth mention the performance of the North distributors by nicotine and Grondin, who had this boost mainly by the residential. -- and proposes -- on the one registered the higher number 8 years, 6.9%. Minnie had a small decrease by the industry segment of the stock that important price and the concession in share metallo areas in the area. On Slide 17, and we have a view of the loss. And last quarter we improved as well. The total solidity losses in September represented 12.5% of Techenergy, and in the last 2 years, the total loss reduction was up 28 gigawatts hour set. These results are possible due to the high volume of investments allocating the resources and the use of technology. And then naturally, we turned this into investments. It was a lot more service. And when we compare this compared to the regulatory campaigns, we have a number of 0.71 percentage points, the best store performance. And it shows the recovery losses that we have on the companies that we acquired in 2018, and going to the next slide and talk about the next section. And the development and distributors of the group, they keep an excellent performance in the quarter. And we have -- we are presenting numbers below the limits, no concessions. In 2023, we have new challenges in Virtu to higher standards of regulatory with a lot of precision to be prepared to keep providing and service our excellence and the knowledge by the client. And then we have a really good result about this. As we mentioned, a combined investment that we have comparing for the year. Mauricio commented with us before. We have a growth -- really good growth in the last years. Basically, we've invested over BRL 3.5 billion, surpassing more than 64% investment volume in the same period in 2021. And in this period, a period of 5 years, we had a rule for end of 29% and can we can compare this -- when you look at this, it's about 10 percental points as we can check and through our combination factors of a great performance, a great administration a great level and a combination of the accounting results as if the regulatory conditions because the losses must have been minimized and this should reflect on the regulations and relative -- it's awesome. On the next slide, -- we can show a bit more on what happened with Aker. Nesi complete 4 acquisitions -- 4 years after the acquisition of Insecure, and we've invested more than EUR 1 billion in this. There are some great numbers to show that here. And we have more than 200 kilometers of high tension cables and increase the capacity in Urdan, 90.5MBA. By the end of 2022, we will deliver a total of 5-year substations and 4 modernizations of the existing in stations. All of this being okay with the environment regulations. -- concern and focus with our SG go, we plan to do until 2034, a total of 5 companies. And this will benefit 67,000 customers with clean and quality energy, avoiding 160,000 tons of CO per year. And we have some losses. Yes, the decreasing results at 18% of reduction compared to 2019 and we are below the regulatory as well. And when we compare to the FX, the improvements are consistent. Really strong way to work, and with all the reserves, the methodology that we have able locating capital and managing the constructions and being a little bit direct. And we had a reduction of complaints of 65%. And in 4 years, it was really great for us. And I'd like to talk about [indiscernible] and we invested more than BRL 2.5 billion, more than over 1,000 kilometers of high tension cables 36% or a lot of modernization of the companies. And we're more than running the difference. And we're now concluding by the end of by the 13th thermoelectric power plants in Montana. It's going to be relating to the oral by the way, the area is decreasing over 300,000 CO per year. And let talk about this investment as well as a big challenge. And we talk about the numbers and there are challenges about the previous company as well, and we were restating as well in Honda which we made us really happy with this award in quality of our resorts as well and losses -- we are being really consistent on reducing this number. We are almost beyond the level regulatory level. We are almost reaching these numbers and believe that Sun will be able to read this number -- another reason to be proud about this reversion as well or do quality the numbers. And in 4 years, and we decreased more than 55% of the duration. -- the interruption as well, the frequency on the interaction as well, and it reached even before when we expected this as well. In a highlight as well, the reduction of 83% on the complaint as well the dedication as well. We were acknowledged by -- average this year by a great company, a highlight company. We won 9 of 5 categories in these categories as well. We've highlighted the best company to work with on the category below 500,000 employees and Paribas well above 50,000 employees. And that's what I'd like to explain on this brief explanation of the distribution as well. I'd like to give the word back to Gabriel as well.

Thank you, Gioreli. Good afternoon to all of you. And I really have to be part of the core men as well. And talking about the transmission segment, which is expanding and has become rather than guns this year. Going to Slide 26. We highlight the growth of commission until '22. We'll start with 2 concessions, and now we had 12 concessions in the group with the rules almost 10x from BRL 83 million to BRL 781 million and we contributed on the large this year was the acquisition of organic, which added BRL 42 million of revenue to our portfolio and shows the company capacity to find success in the market opportunities, that's mainly about the not so obvious, yes, as executives as well. And we have 3 concessions available that embrace this portfolio as well. Moving to the next slide. And we have 7 concessions are here with 509, and product concessions they want to construction that are going to be detailed before, below here in the status as well and how it behaves as well and almost $80 million of revenue. We have a projection. And about this prediction as well in these 14 months? We have 3 parts that may be working. They're going to be operating in different times, in different periods, but revenues together like between this, whether going to be starting in November, the first one. And until January, we're going to be starting all the 3 points. And the first one, 6 months before what was expected. And the first one has 37% of total projects. The second one, 7.4 and the third, 25.6%, just remind you guys, both enterprise that we won and has some holes that were already available to have a 30% of this revenue table -- and some of these amounts that are already held by energies and fitness time. And some of them that we have to evolve them and we have this until March 2026 on these 18 months, such as the Spark and the new investments as well. And such as Tocancipa and Amazon. They are working well, everything working as planned aligned with the SG. In September this year, we've energized the portal power plants due to Page 1 and 2. We're generating this energy in the group. The project contains 70 megawatts peak of capacity, 100% solar energy and is being connected with the customers on 027, 100% of the customers and it has a reduction of 15,000 tons here. And it has the Iraq global certificate, which gives value to each mega-generation and shows its orange of renewable source as well, yes. And it was an enterprise that we allocated BRL 307 million. And we could anticipate 1 month before starting this, and it's fully operational right now since September. [indiscernible] in it operates, this enterprise with all of our enterprises. It works operating and maintenance with the market as well. Now I'm going to be giving the word to Roberta Godoi and she is going to be speaking with the group.

Good afternoon to all and everybody that's wearing this meeting, completing about our ecosystem. I'm going to be talking about in its Energisa -- it's a brand of Energisa Group that work with affordable energy, solar energy, but working with the -- with the free market and talking about aggregated values, all of this on one platform and a one-stop shop -- and we work as a reference is the distribution on this, and we work with the 4D energy. We want our main goal is to support the customer on its journey to attend the opportunity and demands related to energy. -- every kind of energy available working all of them together, we all technology, all of this available -- with this, of course, delivering our image of being the main character, connecting companies and people and customers trying to build a more sustainable world. On the next slide. I would like to talk about the insertion of energy is on the situation. And we are inserting those numbers as well. On March 2022, when we had an interest exception on the situation and about national results as well. We have some big events and reissued in all the markets that we have businesses here. And this launch, it was available, and it continued until the last quarter when we started with the generated distribution in Matosinhos as well. And now talking about the businesses specifically, please, you can go to the next slide -- about the distribution, we must highlight that the law 14,300 that reassured us and what we should do, and it was the race for the sun -- and this chart shows the effect of the law, but the exponential growth that we've been facing on the solar creation, solar generation. Also about the center generation and not centered generation. And the one is the center, and we had a growth of January until September, 41% in Brazil and a great number of our energies on this period, already counting our power plants that we've connected from these last few days after the end of the third quarter. And we had a growth of 123% of growth, as we see on the slide. This growth, it works aligned with what is predicted we show some urgency to work this. And about the vacancy, this rise, it works to the enterprises, it's going to be in January 6, 2023. About this aspect, I might tell you guys about Energisa, we already have more than the 400-megawatt peak in projects, in requests, admitted requests, we should guarantee this future role -- [indiscernible] remind us well and all the requests as well the enterprises that are already operating. And January 6, 2023, they have this right assured about all the credits. You can please go to the next slide. On the solar signature situation, talking about our flagship, it has its name on the process that that's the way that the mega works. I'm talking with the customers, understanding what's the best way to work, what makes sense to be offered to them for the products as well. And now the solar signature shows up, it's our flagship, and it's how it was peptides for us for solar signature as well. And it's going to be working with companies -- all the companies, micro small and medium companies as well, and it delivers its benefits. It's the clean source energy without any installment fees. They don't have to pay anything to have these benefits. And it gives them a benefit on the electric bills energy use, and you don't have like a physical place available and investment, nothing. They just -- based on this context, we are going to be showing our numbers, and we show what's going to be interesting, important to these moments. We are ending the moments with 59.8% capacity installed. And as we talked and we had 131.4. And this is the growth of 223% that we quoted on the previous slide, and we desire that have that -- we want to have this increase by the end of the year. We hope to achieve -- we hope to achieve 193 peak was, as you can see on the slide. We have 40 power plants installed. Most of them populated, 100% sold most of them, and this Rube40 power plants, and they had -- we had this goal, and we emit less than 91,000 CO2 per year, and it's aligned with our ESG goals that we have. And this is going to be able, what we work, what we aim to be working with this, and it is all connected as well -- we have 22 power plants ready or under construction. And we have -- we have on this 22 power plants, a peak of 92.7 megawatts peak, and they are ready with connections on a sure notice. And it's -- we believe it's good to be showing this right now. And what's our main difference compared to the other companies. And we have like some margin work, both generation, both delivering the credit as well. And we can cover all of this because we own all of our goods. Our companies are, and we had like a high standard, high pattern to give to all of them. And we have a higher -- standard high results, higher products, and we can work with this making our customers to be loyal to us to be with us, and we have around 2,083,000 customers in our basis. This -- and we added like 30% with these numbers as well these customers, already connecting the distributed connection. And we're talking about a free market as well. And our strategy is not only acting, it's not only selling the stop shop work. But the way we think as well is always connecting these 2 talks as well. They must be linked in our strategy to work as an its whole. So we are going to be showing right here that it's connected, it's all together. And we support the low tension, the companies -- most of the companies and the high tension energy. We work with the open market as well and we have both products, all of them available. And what is important to highlight on this slide as well. And to be working with this open wide market, we have now the gate 50 that allow the clients from Group A to be open to migrate to the open market. And with our experience, we are ready to do this movement to this trade and it's going to be able to be work right now by November and January of 2024. And we are ready, we are safe. We are sure that we're going to be working on this area with success as well to work on this market as well in the gate we can't lose this opportunity. We have to make us have a solid company to support all the customers that we have, and the current scenario is challenging because of the low prices because of the recovery of the reservoirs, the expansion of the energy, the structure as well. And on this context, and we signed some relevant contracts with some clients long-term contracts, that's going to be working until the end of 2023, and they give some value to 2023. And we have 40 new contracts between 3 and 5 years, and we have some contracts of 10 years as well. And we've improved our risk policy as well, working to capture some value on this trade as well. making the sales to the customers at the end. And we're going to be working. We had 2,040 operations. And so today, and the company we've commercialized 3,000 gigawatts and to Page 1 and 2, they were the highlights 100% sold until 2027. And this is a lot of questions, many of our diversified customers. And we have 141 active clients, and we are building a satisfactory performance, and we are really optimistic to go to the next steps as well. Please go to the next slide. And on this slide, to compose our [indiscernible]. I'm going to be quickly here with some information about our services that we have with aggregated value as well, and we expanded our portfolio. And this year, especially, as you can see in the report, we had a growth -- a really important growth of more than 80% and because of a lot of projects that we signed and most of them are O&M and its many branches available transmission, hydroelectric, solar, wind as well. And we have some updates on micromets as well. And we won the price. I would like to tell you guys, we want a price of solar and maintenance United Kingdom, a company group, they used our case and we were the winner in 2022, and it brings us great proud of what we did, and we have a really robust portfolio to work with this and keep developing on our growth. And I'm going to be available for Q&A.

We are reaching the end here. But first, I'd like to make some -- have some final remarks here before we start the Q&A. On this slide, I'd like to highlight on the 17 years of nations history. We've learned to evolve with the market, refining our mast to look at each moment of our history, what the best decision should be done and always aiming to anticipate changes. That's what I tried to explain on this slide, showing you some of the main milestones that we have on this 100-year company. As an example, the growth of almost 10x the revenue in the last 10 years. Please, next slide. We don't like to stall and wait for the market leaders. We want a main role in energy transition with solutions to our clients and more with our platform, we are ready to hold for opportunities of growth, netting on sustainable growth following the ESG concepts. I finish here, and as I'm going to be passing to the 2. I ask for the operator to start counting.

[Operator Instructions] Here comes our first question. It comes from Maria Carolina sell-side analyst from Credit Suisse.

I have 2 questions for you guys. First one is about the capital allocation and growth, as you guys are talking about, a lot of projects of generation and a lot of transmission as well. What's your hunger about the transmission segment and the auction that we're going to be having in December? And another segment as well about Goias, if you have another company that Anas working with Eletrobras as well to try to find a solution because of Mason's distributor. And I'd like to know if this company is interesting to Energisa, and if you guys are going to be looking at this in the market. And another point about GD and a lot of companies they felt on their demands on their loads being reduced. And I'd like to know if Energisa, if the total the consumption as well with the Gas if it's relevant and about hinges as well about the projects of GD as well. EBITDA would increase in 2022 about the increase of demand.

Thank you. I'm going to be splitting the answer. I'm going to be starting about the auction about transmission. It's a small auction, but we are analyzing always where we're going to be having any advantage -- competitive advantages, such prior discipline because we are always repeating here more participation on these auctions, and we are evaluating this about Amazonas distribution. We are not interested in Amazon as a distributor as well. Right now, we are not interested in it -- it's a challenge or a relevant change. We are aiming for relevant challenges. But we are always looking for the opportunities, but we are always looking at the return risk. And about GD, I'm going to be asking here Jared Jan, please? Reliant Gilead's been having an exponential growth of GD on the presentation as well. And looking at the group here. We can look about representation about 6% on media required energy. Okay. Carolina, thanks for your question about the demands as well. The race for Sun, it works with the requests for the access request, but the amount of enterprises being connected and also with part of the demands and with the customers as well because each time they have dynamics, they want to know more. They are being interested more with this. And of course, because of the energy is going to be renewable. It's a clean source and the economy, of course, so growth that's going to be happening. Thank you. Thanks for your question.