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

Good afternoon, everyone, and please be welcome to the earnings conference call of the third quarter of 2023 of Energisa. We inform you that this video conference is being recorded and is going to be available at the company's IR website, where -- it's available in the current presentation. [Operator Instructions] We highlight informations available on this presentation and eventual statements that may be done during the video conference related to prospective business projections and operational goals and financials of Energisa, they are beliefs and premises of the administration of the company, such as information available. Future statements are not proof of performance. They involve risks, uncertainties and premises because they refer to future events and then they depend on circumstances that may or may not occur. Investors must comprehend that economic conditions, market conditions and other factors may affect the performance of the company and conducted results that differ materially from those expressed in these future statements. Now I would like to pass the word to Ricardo Botelho, Director President of the company, to start our presentation. Ricardo, please go ahead.

[Technical Difficulty] I'd like to start the presentation. Thank you, operator. Good afternoon, everyone. I think -- I appreciate your presence here on this presentation and results of the third quarter of 2023. On this event and participate with these respective teams, Maurício Botelho, CFO of the company; Fernando Maia, Vice President of Regulations; Gioreli de Sousa Filho, Vice President of Networks; Daniele Salomão, Vice President of People and Management; [indiscernible], Vice President of Energisa; and for executives in the company and Investor Relations team here. First of all, I kindly ask that you guys pay attention to the warnings on this slide before taking any decision investments on the company. I'm going to start the presentation right now on the results of the group in the third quarter of 2023. I would like to highlight that the first quarter that we consolidate the results of ES Gas, our first acquisition in the segment of natural gas distribution. With the acquisition of ES gas, besides reinforcing the our existing solutions, it reaffirms our role of being the main characters of the energetic transition in Brazil and our goal to diversify the portfolio of actives that bring excellent opportunities to growth and value generation. Of being a cleaner fuel and efficient substitute which advantages other fuels, natural gas, they keep it very relevant in the last few years in Brazil. The prospectives are positive for next year. They're really, like, leveled up with the -- because of the natural gas, by the entrance of new actors in the production and consumption and for the thermoelectric companies that they complement the renewable resources, guaranteeing a bigger security, safety and ] safety. According to EPE, the potential production of natural gas in the country will be grown up to 90% in 2023, and we used to follow up this tendency. We're really growth on these growth and infrastructure. And we had growth of 115% in the last 10 years. About talking about the growth of natural gas in the area sounds extraordinary because of the addressable potential market with multiple specialists in each segment of consumption. And I highlight the industrial segment. And right now they have about like 93% of the consumption of thermoelectrical, and they come with a solid basis of industry, competitive industries and best situated. And the low penetration of appliances in housings is another lever for us. And with this favorable scenery ES Gas investment, is safe investment to the group of Energisa really structured without any passives and actives, with conditions adequate for us to give our first steps in the sector. The company counts with an experienced team, with executives working with the private area. And with a solid basis we should like move all our expertise with turnaround -- successful turnarounds in more than 100 years. On the distribution of energy to impose the evolution and competitivity with the market -- on the market, with the benefits of all the involvements. The investment plan is referring to the first cycle, August 20 to July 25. It was approved with the company [indiscernible] we have we expect to have an award of BRL 193 million. First, the planning was that we had BRL 98 million and they were allocated next 2 years. But our expectations accelerate the implementation of this value to expand the urban network, mostly on and this area, of course, and with the network in the north area in besides working with the technologies. The choice of ES Gas also linked to the favorable conditions that we find in the being available of natural gas and the shore with ball transportation network and treatment stations with the natural gas. Of course, the logistics helps us. The environment makes us really good with the private initiative. Investment in the sector also makes it available to development of resources of natural gas, biogas and biomass, and really relevant to the decarbonization of the Brazilian industry and being aligned with the federal and state regulations. Our ducts can also transport biomass considered by EDP equivalent to natural gas and the recent acquisition of that we're going to be talking further. They reinforce our strategy of being -- to giving this energies and distributions of gas and evolution. And innovation doesn't stop like this. And we also -- we work with other states. And we don't stop right here, like I said. We really believe in the potential of capturing use and all of this with the blue hydrogen, and we understand that it has good possibilities to be a hub to these technologies. With this, I pass the word to Mauricio Botelho, CFO and Director of Investor Relations group to talk about the main results of the third quarter 2023.

Good afternoon. I thank everyone for your presence here in another results, another quarterly results of Energisa. Firstly as well, I would like to inform that continuing the representation of the financial demonstrations conform on the fourth quarter last year. We are representing the results on the last nine months of 2022. According to the next quarter of 2022 comparing that with this and going back to the results of this quarter, I highlight the robust and sustainable growth of the EBITDA adjusted, recurring EBITDA adjusted. They had -- they evolved 25.3% on this quarter and 18.5% on the last 9 months. The segment of distribution of energy was the segment that mostly contributed for the EBITDA consolidated. It was BRL 2.1 billion. The raw margin adjusted without the VNR with the distribution of energy, they had a growth of 12.6%, which is equivalent to BRL 293 million comparing to the third quarter of 2022 that totaled BRL 2.6 billion. Summing up all the 9 months of 2003, I also highlight the Energisa that contributed to BRL 100 million with the consolidated of the group. Please next slide. We're going to be talking about PMSO. We had an increment of approximately 18% comparing the quarters affected basically by the people and third party services. Mostly also because of the dedication of the company to the new patterns of quality with the resolution of 1,000 of . Of course, we have the salary readjustments of the collectives and the new businesses and distributed generation, transmission and distribution of gas. The distribution of energy that represents almost 90% of PMSO consolidated. They had a -- they got down by 8.1% on next quarter before the 11.2% in the next 9 months. Being more specific on the variations of people and service, I highlight that on the people area, we had a growth of more than BRL 21 million with a big inflation that we had on the deals on 2022. And ES Gas contributed with this expenses on BRL 3.6 million. In the third party segment, we had a growth of BRL 18 million, with the consultancy services, BRL 24 million in the expenses of maintenance and preventive. Equipment maintenance as well and expenses with the inspection. All the other effects of the resolution 1000 from Enel. Despite the growth of PMSO in the last few quarters, the Group Energisa keeps working with discipline on the management of the operational costs and improving the patterns of quality, such as what we are going to be seeing further ahead. On the next slide, we talk about the liquid profit consolidated the first time this year. We had a -- we had an increase relate to the last quarter of 2022. It was positive to net income. Compared to the third quarter 2022, the net income total 45%, which means BRL 688 million adjusted net income -- adjusted and recurring, which takes up the effects of consolidation of the VNR distribution regulatory transmissions. They had a growth of 19% or BRL 86 million bigger totaling BRL 538 million on this quarter. And this result reflects of the net income. What had like an expense of lower than BRL 300 million and totaling BRL 650 million on the quarter. This reduction can be explained mostly by the expenses of BRL 343 million, lower than the marketing line, and therefore the market effect of the option of compare of the EPM and the bonds of subscription of the seventh omission and this huge less item last year. Yes, this last inning, it doesn't affect more the results since the last quarter of 2022. And going to the next slide. We're going to be talking about investments. The investments, they decrease 15.1% in the quarter and they got from BRL 1.2 billion on the third quarter of '22 to BRL 1.55 billion in the third quarter of '23. In nine months, the loss of investments was lower was 3.6%, and we closed the period with a BRL 4.63 billion. On the quarter, investments on the segment of distribution of energy, they had a decrease of BRL 360 million when compared to the other quarters, and Energisa had an increment of BRL 49 million when we compare to the third quarter and BRL 385 million more when we compare to the last 9 months. And talking about Energisa almost totally of the investments they were dedicated to the segment of the distributed generation that -- and close with the 9 months of 2023 with BRL 837 million invested with the distributed generation in here. Next slide, please. Well, Europe Energisa. They closed the quarter with the levering indicator, with the debt of EBITDA adjusted in 3.3x above on the indicator of 2023. It was 2.9 and explained mostly with the consolidation of ES Gas that aggregated only 3 months of contribution with the EBITDA. But whether consolidates entirely to the expenses buying the active, which was approximately BRL 1.5 billion. The levering index of the group seems like with controls and below the limits of the current covenants with the most debt is 4.25x above the debt with the covenants. Talking about the cash flow of the company, we closed the quarter with BRL 5.2 billion remembering on the October we had like BRL 1.8 billion with debentures that's not considering by the end of September. And we end here about the consolidated explanation, and we're talking about the main segments of business of Energisa. And we're going to talking about like distribution of energy. Talking about the third quarter. It was relevant to us, we had -- we must highlight the EBITDA without the VNR that had a growth of 16.4% in the quarter and totaled BRL 1.77 billion. The growth of market and process of review -- tax review, that contributed to the improvement of the financial indicators in this quarter. And on the next slide, we're going to talk about market. We reached the biggest rate of growth on the market for the third quarter in the last 4 years. We highlight the regulations because they had a growth of 6.7% in the quarter. And we increased the consumption of the distributors and impulse with the temperatures like above the average of the period, focused especially on the Central West and North. Occasionally, they happen because of the El Nino phenomenon. And just to illustrate on the third quarter this year, there were registered 40 heat waves on the biggest cities on the area of construction, 25 more than what happened on the third quarter 2022. Other metric is the cooling degree days that we have here. That's a double check on how hot the temperature was during the days. In our construction, the need of like cooling was 21% bigger than the third quarter on 2022. Besides the climate effects, the good development -- the good performance of the element -- the food chain was also decisive, on the commercials, the grains and the big like stores, they had like some highlights in here, talking about industry, freezers, grains derivatives with like the record. They pull the results to help us. Talk about paper and metal. I'm not talking about the -- talk about total losses of energy. We follow with consistency below the labor reference in the last 24 months on the. Our loss index total was 12.53%, 0.47 percentile points below the limit. It's good. And comparing to the last quarter, our group increased the losses in 0.24 percentile points because of the growth of the demand of energy spend on the previous line. It wasn't like always totally reflected on the money that we had talking about the period of calendar -- about the companies on the regions, North and Center West and these effects must be corrected in the next month, should be. Important as well, the performance that we had on in Asia on doing that like reduced losses and 1.5 percentile points related to the third quarter 2022 and 0.19 percentile points related to the last quarter and this quarter. That's the historical results for the company. And talking about like quality here about DEC FEC and the big companies. We are below the regulatory limits and some highlights here. We should be having FEC here being then Mato Grosso and Sul. They had like the best like historical marks on the company. And the other slide is about that, about default. The actions I would talk about default on the companies. They're going to be working -- efficiently working to contribute on the improvement of the [indiscernible] of the money with the economical scenery more challenging on this water distribution. Energy Distribution segment, we had reduce of BRL 33 million on the expected losses on credit and about 9 months on [indiscernible] Summing it up, we improved BRL 94 million. About the default tax rate over the last 12 months in September, it was 1% with a similar level on what we showed up before COVID. Talking about the ES Gas right now on the next slide. And so we like the main highlights that we have here in the quarter, in the first quarter that we do this. ES Gas contributed with BRL 47 million of EBITDA and BRL 29 million net income. We are integrating -- the integration process with this company, and we really believe in its growth. Here we show the main loss in this room. We had like increase of core customers, we had increase of 8%. It was like more than 78,000 customers. And the current numbers indicated, we already like the best, surpassed the 80,000 customers. And talking about transmission here, in the third quarter. We're talking about the fifth transformer. Okay. We're talking about reinforcement of the [indiscernible] about concession Amazonas. And it was like concluded with 5 months like earlier than original like deadline that we have here, keeping the historical of Group Energisa always delivering first before. And the evolution of the EBITDA was 32.8% of the EBITDA compared to the quarters. And let's talk about the readjustment -- tax readjustment of [ app ] And we talk about the enter of the concession Energisa continues. One, it was in December 2022. And by reinforcement of the concession and the [indiscernible] in March 2023 and by the new installations that we have in Amazonas that I just talked about it. And after the tax readjustment have happened, the total for the -- for cycle, it's going to be of BRL 818 million, including both the optical fiber. I talk about Energisa Amazonas as well. Despite being also in construction, we have a partial ramp of 34% by the actives already operational. And on this concession, we have a possibility to give it like beforehand it a partial help because of the -- until we finish the conclusion of the impairment. Talk about Energisa right now. The EBITDA of Energisa, it considers the sums of the results of distributor generation, commercializing and aggregated value, they had a growth of 75% compared to the third quarter 2022, reaching a total of BRL 55 million in the quarter. Highlight here to the distributor generation, the aggregated BRL 26 million of the EBITDA in the quarter, 105% above the third quarter 2022. The investment, they reached BRL 271 million which represented a growth of 22% compared to the third quarter of 2022. On the distributed generation unit, the results reflects the 6 new solar farms added up on the quarter, that total 82 power plants operating and 324 megawatts peak of capacity installed. Investments on the quarter for the segment added BRL 265 million, 24% above the registered on the quarter 2022. At the end of the quarter, we had more than 13,000 customers connected, a growth of more than 80% when compared to the evolution adding up the 9 months of 2023 against 2022. Another segment in year, since we published on the [ 5022 ] on September 2022 in Energisa. They prepare to have like a relevant like role on the opening of the market of the conquest of the expressive share of the customers that can migrate to the free market. Of course, this works out. We have like new contracts and a good share of this number with the stores. Comparing to the third quarter of 2022, the growth was 856%. On the last 9 months of 2023, the growth was 765%. On the second to the third quarter of 2023, we had a growth of 75%. Currently, we have a base of 453 with the commercializer and we sold on this year, 2,746 gigawatts hour. In closing about the highlights of Energisa. In the quarter, we showed up the acquisition of Agric, that is a company of organic residual fertilizers. We acquired in August this year. And the representative of the enter of the Energisa Group on the production and commercialization of natural gas -- renewable natural gas, big vector to the transition of energy in the country. Today, the company -- we made a compost of 250 tonnes per day of organic residuals from the -- from our industry for the production of biofertilizers. In the future, the company will be able to produce biogas and biomethane before -- besides the biofertilizer. It is located in Campos Novos, Santa Catarina. a state which has the biggest -- the fourth biggest volume of freezers with meats and industries of the area in the country. It means like -- we have like a route of and a high potential of consumption of biomass and biofertilizers and the inclusion of biogas and the biomethane of the portfolio of energetic solutions that we offer, reinforce our compromise to help the customers to make this energetic translation with fuel that reduce up to 90% of the emissions. We end here our presentation, and we stay available for further eventual questions. Please, operator.

[Operator Instructions] That was the first question is from a sell-side analyst from Itau, Marcelo. Okay. The question from the Marcelo -- the President [indiscernible] you gave some statements about the renovation of concession of distribution. It must be go through the Congress. The political group, they put this point again after the loss of energy by like a long time that we had on Sao Paulo because of the range. How you see this risk?

So we understand that this process would like explaining this. It's been well conducted with the Ministry of Mines and Energy. The legal information -- the legal like information that we have, it's already good to work on this. It's -- we don't need like to change it. We must like -- we shouldn't go ahead with this. And by the timing that he gave us like about this. But of course, the natural Congress, they can try -- they have like authorize to follow it up, check it up to see how it works. But it works like a long-range process. So it shouldn't be like involved with like extraordinary events that happen here. Like whether situations happen like this, we should be working to improve the distribution here in the market, but it's like in work with the states and how they work about this and some mobilization to help with when that catastrophe happens. Talking about like the income, the work of this and talk like extending this to work with this. I also -- I keep defending this. We don't have like any accident like financial information to work with this reach to try to change with this. That's why the current model that we work with this, with the distribution, they already work like with the sourcing. They work each 4 and 5 years. It's works naturally. It's not like we're going to be debating with them about this, but I believe that the process day it follows like keeps moving on naturally, like it's going to be moving on right now.

[Operator Instructions] It comes from a road [indiscernible], sell-side analyst.

I have 1 question here about the gas market. How is going to be the strategy of you guys talking about new opportunities on the gas market in which the idea that we have here. First, you want to consolidate maybe the ES Gas to work with the concession and then thinking about like further investments? Or are you already looking for new opportunities right now?

Would you like to answer this one?