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

[Foreign Language] [Operator Instructions] [Interpreted] We come with your comprehension. We highlight that the information contained in this presentation and eventual statements that may be done during this video conference related to perspectives of businesses, projections and operational goals and financials of Energisa. They constitute and beliefs and premises of the administration of the company, such as information currently available. Future statements are not proof of development. They involve risks, uncertainties and premises because they refer to future events. So they depend on circumstances that may or not happen. Investors may comprehend that economical conditions, market conditions and other operational factors can affect the future performance of the Energisa and conduct the results that differ materially for those expressed in these future statements. Now I would like to give the word to Ricardo Botelho, President Director of the company, and he is going to start the presentation. Ricardo, please go ahead.

Thank you, operator. Good afternoon, everyone. First, we'd like to appreciate the presence of everyone on this presentation of the second quarter of 2023. In these events, they participate with their respective teams, the current executives. Maurício Perez Botelho, CFO; Fernando Maia, Vice President of Regulation; Gioreli de Sousa Filho, Networks Vice President; Daniele Salomão, Vice President of People and Management; [indiscernible], Vice President of Energisa and the Investor Relations team. First, I kindly ask for those to pay attention to the ones in the slide before taking any actions of investments on the company. By starting the presentation of the results, I would like to highlight some events that marked the results of the group in this quarter. In July 3, 2023, it was completed the acquisition of 100% of the social capital of the company -- gas company of Espirito Santo, ES Gas the tenure of the concession to exploit the services of channel gas and further activities correlated to the state of Espirito Santo by paying BRL 1.138 million, considering the correction by the IPCA since the auction date conform currently on the notice. ES Gas, we are advancing with our diversification strategy and growth in segments of interject infrastructure. We are an energy company that's always growing and transforming in what today offers the market ecosystem of energetic solutions efficient, safe, innovative and sustainable. This search for better condition -- better solutions and challenges which provide for the market. That's part of our strategy, of our businesses. We believe in the convergence of the markets with the electric energy and natural gas. And by acquiring gas distributors, we are totally aligned with the strategy to access new bases in all Brazil. We'd like to develop gas market, natural gas market, contributing to transition to like a clean energy. It would promote more energetic safety to the country in giving them numerous benefits to the development to the economical development to better convenience with the customers and better competitive with the industry with the market. We are going to be expanding marketing in all the services we're going to make, yes. With all the gas, we like the digitalization growth with the experience with the market. And to conclude this challenge ES Gas will count with the new structure and the experienced team of the sector, leaded by Perez Botelho which assumed the presence of ES Gas in August 3, 2023 and will be in charge of develop and implement the new company working with synergy with all the group in the search of extraordinary results. Fabio has more than 25 years of experience by working with solid results in team leadership and implementing natural gas deals in Brazil. The new structure still comes with Espirito Santo to the position of Corporative Businesses Director. He has a large experience in oil and gas and since 2004, he works with a gas distribution section. We have [indiscernible] Technical Director. He is in today. Technical Director, Commercial Director worked for more than 20 years in the company with the Gas Natural Company section. He has a large experience on this energy situation and Mr. Fernando, current Administration Manager of [indiscernible] promoted to Director of ES Gas for this integration period. Energisa will support the ES Gas help its expertise by integrating post acquisition to accelerate its growth and make another good transformation in privatized shares. Going right now to the financial economical highlights with the second quarter, the EBITDA -- adjusted recurring EBITDA, which excludes the compensation of NR distribution Energisa and EBITDA societary of the segment and regulatory had a growth of 9.3% related in the same quarter last year, totaling BRL1.49 billion. In the sequence, audio we bring more details about the financial situation of the group. With our market, they have like some represents a business [indiscernible]. We reached 307 megawatts peak with the generation distributed with 79 park lines operating since August 10. Following the last 6 months, it aggregated 100-megawatt peak capacity to the portfolio. This line of business is gradually like getting bigger without our business with Energisa, we had like a fast growth process. With these highlights, I give the words to Maurício Botelho, our Investor Relations Director, to present the main results on the second quarter of 2023.

[Interpreted] Thank you, Ricardo. Good afternoon, everyone. I appreciate the presence and the showing of another earnings conference call of Energisa. Firstly, I would like to inform that in the results of the needs to represent the financial demonstrations confirm we sold in the fourth quarter of last year. We're going to represent as well the results on the 6 months of 2022 to consider the effects of the representation of the first quarter 2022, showing the better comparison between the times. About the highlights, consolidated each quarter, the EBITDA recurring has a growth of 9.3% and had a total of BRL 1.9 billion. The conventional EBITDA had a growth of 4.6% and reached the mark of BRL 1.77 billion in the quarter. This result was a reflection mainly of the evolution of the transmission of Energisa, that had a relevant growth comparing between the quarters. Besides the impact of the distribution of energy that had a growth of 2.9% and the consumption of energy and growth at the B Parcel recurrent to the revisions of EMC, [indiscernible], that had been concluded in April this year. Related, the P&L so consolidated. The line presented an incremental approximately 13% comparing between the quarters. The people and third-party services were boosted by the acquisition of Gemini at the end of the second quarter 2022 and the ramp-up of the distributed generation by the portfolio by the constructed power plants. In the segment of distribution of energy, the growth on the operational expenses happening according to the adequation of the new distributors that we had. And these levels of service, defined by solution 1,000 by ANL had some benefits on this quarter that helped like working between the -- before the rating process by the maintenance and improving the quality of service. With a little bit more detail about the people section, we had a growth of more than BRL 4 million in salaries and payments justified by the growth of the numeric collaborators in the register we had in 2022, around 10% of the readjustment. Talk about third-party services, mainly in the distribution business, we had a growth of BRL 18 billion in the consulting services, BRL 24 million in expenses of recutting and cleaning the areas, maintenance and prevention with all the seconds between inspection as well. Despite the growth of PMSO in the last quarters, Energisa keeps working with discipline and the management of the operational costs, doing like the reallocations like in right way. Considering the PMSO starting from the last quarter, for example, we had a growth of 18.5%, really below the IPC of 27.7% of the GPM of 50.2% received at the same time. In the next slide, we presented PMSO per segment where we can observe the highest concentration of the distribution according to the mentioned -- I mentioned before -- earlier. Energisa, the cost increase is linked with the expansion of the energy. In this slide, we can show the -- we can just talk about the net income. The consolidated had a reduction of 33.6% related second quarter of 2022 and reach the markup and the net income adjusted, they like makes a discussion of the market options and bond subscriptions and the accountability of VNR distribution such as the adjustment of regulatory results of the segment. They had like a decrease of 14.2% reducing from BRL 200 million to BRL 343 million comparing between the second quarter of 2022 and the second quarter of 2023. This increase can be explained by the result by partly -- by the financial net income that represented financial expenses of BRL 504 million, 24% bigger than the second quarter of 2022, in fact, mainly by the increase of taxes in Brazil that influenced the average cost of the debt and by the increase of the values of the debt according to the new capitation of the group last year. Let's talk about investments right now. We had a growth comparing between the quarters in the segments of distributed generation, which follows a speed growth of 194% more in the second quarter 2023. The transmission segment presented a reduction of 12.8% and as a result of the entrance of the operation of Energisa Toushin, Minnesota at the beginning of this year. In the distribution segment, we had a reduction of 4%, and it was a result of the reduction of the intense rhythm of investments, mainly in [indiscernible] that went through the tariff tax revision in April 2023, in which remuneration base is closed on October 2022. And by the end, second quarter 2022, we work with the construction of the solar complex in the [indiscernible] and then had a reduction of 79% of the other aspects. Well, let's talk about the debt. Despite the high level of investments and the macro scenario -- a challenged scenario of the like, net income like taxes high, the group made a hookup of 2.9% of the debt-to-income EBITDA, just the same level reported in March 2023. The leveling levels of the work like control about 4.25% of the look at that a little bit just the covenants. The income of the companies, we closed the quarter of BRL 8.9 billion, looking for the BRL 7 billion in the March 2023 as well. We hear the highlights of the consolidated financials of the period. And now we're going to be talking about the distribution. In the second quarter of 2023, the energy consumption in the markets of Grupo Energisa, they presented a growth of 2.9% related to the same time last year. And events in all of the non-distributors, we highlighted them North and Northeast that presented a weather -- hotter weather this year. And by the calendar, we had a growth in the consumption at this time. The main highlights, they have been in their residential classes and industrial and as well in the oil and gas, foods and paper products as well. Following out to the total losses of energy. The LIBOR reached 12.29% 2002 to 2003, 0.84 percental points below the regulatory level, keeping the company consistent below the reference in the last 24 months. Besides this, we had a growth of 0.42 points -- percent points related to the total losses registered in the same amount of time last year. It's important to highlight that the 9 distributors of the Grupo Energisa, they presented a reduction in the losses compared the same amount of time in the last year, except for Matros, all the companies were below the regulatory level. It's important to mention that starting the tax reports in April 2023 by this indicator, the energy compensated by the units, micro and mini generation distributed, they start to be considered on the reconstitution of the technical losses adding to the market of the distributors. In this slide, talk about [indiscernible]. We had a year, an excellent performance on the quarter. A lot of distributors reaching the best results, [Foreign Language] Highlighting the Matros. South, Southeast and Agric. Energies keeps like getting good results with their discipline allocating capital with consistent improvements of quality of service, including the satisfaction of the customers. And you can be checking the annual research of 2023 of ABRADEE who classificated as South, Southeast and first, and second places between the company's best like evaluated by the customers in Brazil. The next slide, please. Talk about the defaults. We had like 1.15%, representing improvement 0.23 percental points related same amount of the last year. By financial terms, we had a reduction of BRL 19.5 million between quarters, totaling BRL 97 million in the second quarter 2023. That's the best result since December 2029. The performance in the low-tension classes that's the biggest part of the group. They keep like working with the reduction of this default taxes. Next slide, please. Talk about transmission in the cycle, had a small cycle in '23, '24, July 7 of 2023, establishing a readjustment of 3.9% reaching a rep in the cycle '23, '24, BRL 818 million, including like the revenue of public fiber. And for the more we are focused on delivering the 4 products as planned. In this slide, we can show the deadlines -- the latest deadlines, the contracts with Aneel. But it's like it's customary to anticipate these deadlines and talking about the energies. The EBITDA of Energisa, which considers the some of the individual results of the distributor generation, commercializer and aggregated value services had a growth of 9.1% comparing to the second quarter of 2022, reaching a total of BRL 26 million in the quarter, and the investments reached BRL 41 million, a growth of 185% compared to the second part of 2022 as well. And they generated distribution unit. The results shows the adding of new solar plants, totaling 79 plants with 307 gigawatts peak capacity installed in August 10 which 100-megawatt peak were added in the last 6 months. Highlight as well, the acceleration reflected in the great performance of selling performance. On a single month, it was 39 megawatts peak in [ cinemas ] in advance of 1,500% of the digital channels by the year. In the next slide, as we talked previously about ES Gas as Ricardo told us. Previously, yes, we concluded on July 3, the acquisition of 100% of the total social capital of ES Gas and we'd like to show the results here. It should be highlighted, it will be only available -- it wouldn't impact on the second quarter. We're going to be consolidated only after the third quarter, EBITDA of ES Gas, it totaled BRL 65 million, BRL 16 million above the second quarter 2022. The expenses will be in so close the quarter, 13% on the second quarter 2022, totaling BRL 14 million. The net income with the ES Gas in the second quarter was BRL 42 million. BRL 10 million above the [ Russian ] same amount of time 2022. The objective of ego of Energisa is to improve the supply of natural gas in the Espirito ES since it has like a potential market considerable. We're going to be working boldly to have like a boost on the performance of the state of [ Switzerland ] and bringing a better competitiveness and economical to the gas. Such as the ES Gas will be presenting next month's acceleration plan of investments to be submitted to the regulator. We end here the presentation, and pleased we are able to start Q&A.

[Operator Instructions] Let's go to the first question. It comes from Guilherme Lima, sell-side analyst from Santander.

[Interpreted] I have just 1 question. We've seen recently [ Singapore ] relating the renovation of concession, which defends the destination of Sudan -- yes about the taxes. Could you show your vision about this risk being implemented to the company with the government? How it's going to be working -- what are you guys suggesting? Was it being suggested? What's the idea? Do you extinguish the benefit, and then will be going to be working in the next year as the contract, or we're going to be changing it? Or will we keep on the current contract?

[Interpreted] Really this information was already been released by the -- we got this information, and then we got this like in a very positive way. It's going to be dealing with -- it agrees with the option to extend who have managed energy. Talk about the exceeding financial exceeded. It's the same like thinking beliefs that we have to be discussed and investigated to do with it in the regulation and not in the extension progress -- process. It also agrees with the change in the index and anticipate the concessions that's going to be -- that's positive as well. And related to the fiscal benefits, we think it's like really a balancing situation by the government, saying that the benefits -- it should be a benefit for everyone, for all the coal customers and it shows to be working with their relation with Aneel and the regulation system of Renew, we're already discussing the situation by a long time in a way that talking about the justice, we won a caution situation to work with it. And we are waiting for the decision by merit by first and second decisions. Waiting for like some situation that can be developed, but is being treated as good but the information that was released, it was really positive.

[Operator Instructions] It comes from Travitzky, sell-side analyst from Banco Safra.