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

Good afternoon, everyone, and please be welcome to the earnings conference call for the fourth quarter 2023 of Energisa. We inform you that this video conference is being recorded and is going to be available on the company's IR website where the current presentation will be available. [Operator Instructions] We reinforce that informations contained on this presentation and the eventual statements that may be done during the video conference related to business perspectives, projections and operational goals and financial goals of Energisa, they constitute on beliefs and premises of the administration of the company, such as informations currently available. Future statements are not proof of performance. They involve risks, uncertainties and premises because they refer to future events and they depend on circumstances that may or not occur. Investors must comprehend that economical conditions, market conditions and other operational factors may affect the future performance of Energisa and conducted results that materially differ with those expressed on such future considerations. Now, I would like to give the word to Ricardo Botelho, President, Director of the company, to start the presentation. Ricardo, Please go ahead.

Thank you, operator. Good afternoon. First, I'd like to appreciate the presence of everyone on this presentation of the fourth quarter of 2023. With me are the CFO and Investor Relations Director, Mauricio Botelho; Vice President of Regulations and Institutional Relations, Fernando Maia; Vice President of Energetic Solutions and leader of Energisa, Roberta Godoi; President, Director of ES Gas, Fabio Bertollo; and the team of Investor Relations. I kindly ask that you guys must pay attention to the information that we have here; warnings about before any decision taken in the company. Before we start with the highlights, I'd like to say that the results of 2023 were reached, thanks of a strong governance culture adapted to dynamic sector that is in such transformation. We show that our business is energy and all its forms available and aware of this, we look at a big way, big perspective to help all the needs, energetic needs of our customers. Consensus with the search -- permanent search to be your loyal partner, ideal partner, bringing safety, trustful and sustainability for you guys. With deep knowledge of the business, our company is going to be reaching 120 years of working in 2025. On this journey, we reach here with a growth of the EBITDA on the last 10 years of 30% per year, and net income of 29% per year, because we know how [indiscernible] market movements and evolve, aligning experience and boldness at the right measure. During our transformation trajectory, energy distribution remains central in our business and give us the expertise to be highly efficient in new markets. In 2023, we invested BRL 4.4 billion on the segment, guaranteeing operational excellence to our customers and going beyond the regulatory obligations. We applied BRL 565 million in transmission, and we confirm our capability of conduct relevant projects and start before like the deadline. 2024, it's not going to be different. We estimate BRL 6 billion of investments on the group companies, focusing on decarbonization and on the offer of a robust ecosystem and of energetic solutions, we have Energisa that closed the year with one of the biggest companies of photovoltaic energy in Brazil, with more than 360 megawatts peak capacity and reinforced the presence upon commercialization. In this year, we also stepped our entrance on the gas market with the acquisition of ES Gas and Agric, diversifying our portfolio. And I'll highlight again our compromise is to improve the quality of life of people and collaborate -- make the country become like a main character, a main role, on energy, fair and sustainable. Besides the highlights already told, we closed the year 2023 with EBITDA -- historic EBITDA of BRL 7.6 billion and a net income of more than [ BRL 729 ] billion in the last quarter, best performance of the year, reflected mainly because of a year with condition, climatic conditions that helped then imposed the growth of the market and the level of sales of energy. We're going to be focusing this further. With this, now, I give the word to Mauricio Botelho, CFO and Director of Investor Relations of the Group to follow with the presentations on the fourth quarter 2023.

Thank you so much. Good afternoon. I thank you guys for being here on this earnings conference call of Energisa. On the first slide here, focusing on the financial results of the quarter of 2023, I highlight the consistent growth of EBITDA adjusted recurrent evolved 26.3% on the quarter and 21% comparing to 2022. The segment of distribution of energy contributed with almost BRL 6.7 billion per year, following transmission that added BRL 594 million in 2023. In terms of net income recurrent, we had a result of BRL 508 million in the quarter, 5.1% beneath the fourth quarter 2022 and by [ December ] of the year, the reduction was about 2.8%, totaling almost BRL 1.7 billion. On the quarter, the reduction of the net income recurrent is explained because of the buy actions and shares of the EPM, the impacts contemplating no share. We gave us a revenue of BRL 76 billion on the quarter 2023 and expense out to '24 BRL 245.5 million on the fourth quarter of 2022. And talking about PMSO, we presented an increment of 13% comparing between quarters, and I would like to highlight that the segment of the energy distribution. And following this line of business, in 2023, we started working with the Resolution 1000 of ANEEL and on this year, we made some adjustments and we reached a great level of PMSO in virtue of these new like demands and we expanded some services available, and we got like shorter, closer deadlines. We'd like to highlight as well the quality of the service always was our -- also was our focus, and now it's more important by the measure that the customer's regulated society become more like demanding to improve the resilience of the network and then the climatic events, we work with -- we're trying to do the excellence -- serving excellence to our customers. We align our experience in technology to optimize the costs and minimize the effect of any penalties for not following everything. In this way, the PMSO on the distribution had a growth of 9.4% and it was around like BRL 80 million on additional costs and a total of BRL 129 million, adding and not adding consolidated. According to the new growth, verified on the quarter and adding up some, when we compare with the life of the PMSO in 2019, pre-pandemic and updated [ up ] with the inflation to December 2023, we had a reduction of 8% when compared to the level of the cost of 2023. On the next slide, we're going to be talking about investments. On the previous few years and what we expect for the year that's following by. The large investments was 7.8% lower than investments in 2022 by [indiscernible], during 2022 and to half of 2023, the Group focus on investments on 5 distributors of energy that were like in a tax review, it was Mato Grosso, Mato Grosso do Sul, Sergipe. Paraiba and Acre & Rondonia. Just these companies presented in 2023, 60% of the EBITDA adjusted total. Adding, I'm talking about distributed generation, we accelerated investments in 2022 because of the regulatory mark that happened in January 2023. And on the sum of the year, we kept investing more than -- 2022 it was BRL 921 million against BRL 843 million. In the transmission segment, we practically kept the level of investments because we have some projects that are still happening. And we had BRL 565 million in 2023. And, as we said in the market in January, we expect to invest BRL 6.8 billion in 2024. I would like to highlight as well, we have a growth expected of BRL 516 million more on the distribution segment, and we're going to be reporting around almost BRL 5 billion. And on the gas segment. ES Gas, we're going to be doubling the investments related to 2023, and we're going to be investing BRL 100 million. Next slide, please. We're going to be talking about the debt. We closed the quarter with the EBITDA adjusted [ liability ] of 3.1x. That's the lower than -- that we got like on the last quarter was 3.3. and show like an improvement of the position of the share position of the group. I will also highlight on this slide our pro forma, vision, if we check the effects, all of the pro forma that has just happened in January this year, where the same like indicator reduces to 2.8x. It shows our discipline to keep the strong level of investments and open like spaces reaches, future -- individual future investments, inorganic investments. We close here with highlights -- with the consolidated highlights and now we're going to be talking about of each like business segments on the next slide. We're going to be talking about like distribution of the fourth quarter, it was relevant. We're to be highlighting the evolution of the EBITDA recurrent adjusted that had a growth of 25.3% comparing the quarters and for the recurring net income that had a growth of 32.6% comparing between quarters and annual basis, the distribution segment had a growth of BRL 704 million on the year. And talking about adjusted recurring EBITDA, we reached BRL 6.1 billion, representing 86% of the EBITDA consolidated growth. The growth of the market and the tax reviews, they were fundamental factors for the improvement of these financial indicators, how are we going to be looking -- seen next year? Look that in 2023, we had like some tax reviews that were good and a good evolution and it was like really representative. In ESE for example, they had a growth plus black, post inflation and everything 22% and Energisa Mato Grosso had a growth of 44% and Mato Grosso do Sul 34%. And all these 3 process were concluded in April last year. And the concessions of Rondonia and Acre they are going to be -- they passed for the tax review in December last year, and they showed a growth of 52% and 42% respectively. I would like to highlight that the group invested more than BRL 10.6 billion in the last cycle of tax revisions. This reflects of the viewed allocation of capital and that's the base of the income, consolidated income of the Energisa Group. That sums BRL 21.6 billion in December 2023. On the slide we're going to be talking about like -- about the factors that help on the -- during the quarter, helped into the last quarter. It was a growth of 13% on the consumption of energy [indiscernible] market captive recurrent and it was because of the weather, because it was hot and less like less rains on north and northeast and on the heat wave on the second semester, especially on the central west area. As a reflection of this, we had a growth of 17.4% and the distributors with the biggest variations for the fourth quarter. Onto the next slide, we're going to be talking more about the weather and the El Nino that happened, and we illustrate the correlation between the market growth and the need of cooling, about the cooling degree days or CDD. This indicator gives us information about the degrees day above the reference being calculated because we said, like start with the difference between the cities most representative and they'll act as a reference like a comfort temperature. We had an increasement of 23% -- 26% for a growth of market that was 13%. And we'll follow into the next topic. Talk about like total loss of energy. We keep working consistently beneath the regulatory level. In the last 24 months our loss index was 12.63%; 0.21 [ decimal ] points beneath the limit. Comparing to the previous quarter, the Group increased the loss in 0.24 percentage points because of the consumption, that is important to highlight that the growth happened because of the losses. Nontechnical variation of 3.3% on the comparing over the last quarter, while the technical losses had a reduction, a duration of 0.6%. We believe that this phenomenon of the growth of the losses is not going to be like reverted with the -- we're working like to fix it up. Going to the next slide, talking about the quality level. We have this series of group initiatives. They had excellent performance presenting indicators beneath the regulatory limits for DEC and FEC in all concessions. Some companies highlighted and reached the better -- the best results and [indiscernible] on DEC and FEC, talk about [indiscernible] alliances substantial improvement of 10.2% on the DEC and 12.5% on FEC for the EAC region. As we said on the beginning of the presentation, the year of 2023 was like more rigid on the quality control presented by the distributors. On the next slide, we're going to be talking about this, about -- talking about the official circular office [ text 44 ] of ANEEL that established that aiming to improve the conformity regulatory of the indicators and continuity distributors, they must reach a percent -- minimum percent of 80% because of the regulatory limits of DEC and FEC in 2026. Some companies that -- who doesn't follow these goals, you're going to be subjected of penalties. To reinforce that, we invested around like 2.5 times more with the regulatory depreciation reinvestments and reinforcements of the structures and maintenance plans. They improved the operational margin for the regulatory levels and quality, and they help us on the recomposition like the restoring position on the weather situations. Energisa is on the top -- on the companies on top like comparing to the other companies with the regulatory limits. And for those that are not following it up, we are safe that with correct allocation and investments, we're going to be reaching within the deadline for each company. Next slide, please. Talking about like the debt. We have a reduction of this level on distributors. On the [indiscernible] program, we reverted BRL 30.8 million, the best performance on the [indiscernible] with a consolidated tax of 1% by the end of 2023, representing a reduction of BRL 77 million comparing to 2022. So by default, it was good. And now we're going to be talking about the natural gas. Here, we -- with the main indicators of the company in the quarter., I'm going to be highlighting the improvement of the EBITDA of the company, around 3.3% when we analyze some of the year for the increase of investments of 50% on the year. And we more than doubled the investment when we compare the quarters. Since we acquired ESgas in July 2023, we have some records. First one, 111% of growth on the level of investments; 33.3 kilometers of network expansion post-acquisition totaling 541 kilometers of network. So June before the privatization, just so you guys understand, we had a growth -- the company had a growth of only 5.4 kilometers of network on the portfolio. Highlight again more than 1,000 [ calls ] of customers in last month. Now we have more than 82,000 clients. Now over the next segment, the transmission. The fourth quarter of 2023, we highlight the increase of the margin of the regulatory EBITDA, basically because of the smaller PMSO in 2023 because we have the incorporation under the Gemini group to the Energisa. Next slide. Now we'll talk about total RAP for the cycle of 2023, 2024; BRL 779 million without considering around BRL 40 million of optical fiber of the companies that came from Gemini group. We keep and co-working intensely with the conclusion of the [ actives ] hat are not 100% operational. We have 4 projects in construction and the physical advancements are demonstrated on the slides. As usual, we always aim to anticipate the entrance on operating like this, improving the portfolio, the return of the portfolio. Now we're talking about Energisa. This chart is responsible for the non-regulated results of the group. The EBITDA initiatives Energisa that consider results of the distributed energy generation and of the servers that aggregate value. We had a growth of 82% comparing the year of 2022, reaching a total of BRL 193 million. Highlight here the distributed generation that aggregated 9 million has an EBITDA on the period and the commercializer that closed the year with BRL 71.6 million historical record for the segment. The investments, they keep like working intense, the capacity intensified by current during 2023 in total of BRL 936 million in the year which represented a growth of 7.6% comparing the quarter of 2022. Talking about distributed generation, we conclude the year with 351 megawatts peak of capacity and 90 power plants. The most updated number is 363 more megawatts peak and 93 power plants. Our sales team keeps offering our products by solar signings and had a growth of more than 30% on our base of clients. And we have more to 12,000 customers. And talk about the commercializer of the group. Besides -- despite being a challenging year, when I talk about the perspective of the price of energy, we managed to have a growth on the number of new contracts in a relevant way. 2024 already started with some changes on this segment, just because of the opening of the market on high tension, and we are ready to have like a main role and relevance to conquer a huge number of customers from the free market. And here I close my highlights for the quarter. And now, I open the place for some Q&A session.

[Operator Instructions] And our first question comes from Marcelo Sa, sell-side analyst from Itau.

Hello, can you guys hear me?

Yes.

So, I have a question. Talk about renewal of the concession distribution process. We're talking about the ministerial -- all the ideas about the [indiscernible] on the last week that it didn't like go out till now in parallel to this and we're talking about the PL of the Deputy [ Basila ] and when this voting is going to be happening. How do you guys think about the conversations with the politics about discretion or if this can like move forward on the Congress or still stays with the government not with you guys.

Now I'm going to be giving this -- pass the word to Fernando Maia.

Hi Marcelo, how are you? We are all following this up. The occurrence that are happening. Even the [ Deputy ] understands that the process is being well conducted by the ministry of the Congress, and we already got the green light from the TCU to start. As we said recently, we talk about like 30 days with the publication, with the releasing of the decree. That's good. The 30 days that they didn't like, the deadline didn't happen yet. So we should be waiting a couple more days. And it already allows us to move way forward with the new form. So it's natural that we want to participate in this and [ influentiate ] about this and talk about like inter-location, like communication between the Congress, the politics and this should be made by the government, but it's not directly with the distributors. But we believe that given the relevance, the importance of this with the economy and everything, the project, the original project with the Basila, it's like the prorogation like we keep working with this, so we keep firmly believing that by the end of all of this discussion, and it's natural, the concessions will be like they're going to be happening in a way that they will be guarantee that for us to be working in the productivity and everything we're discussing, like the improvements of the quality by this kind of service, the energy service.

If I can complement this. Talk about quality, do you think that these goals, they must be followed? Maybe they could be compared, talking with the past, talking about renew, we should be having like such results better than the press, talking about the history, comparing 10 years, and if they did or not, if they can help with the renewal or not. Or we give some goals and then we can adjust this, maybe with the time being?

So, we don't expect any surprises with this, because of the safety of everything. So we expect that it's something that's going to be -- we're going to be something, some like goals to be checked off. And the companies that like have a good performance, the customers that are happy with the services, they're going to be approved like without any kind of problem. The ones that are in a conflictual situation, as we say, they may like happen in 2023 adjustment time because they have like more like strict goals and challenges so that they can adjust with this in the like next 5 years, maybe by penalty of -- have to transfer the control if they don't reach those goals. And it happened in 2015 with no surprises.

[Operator Instructions]

I think we have a question here. The delivery is going to be sending the question.

Okay, good afternoon. Sent a question from Fernando Zorzi. Good afternoon guys. Thanks for the numbers. If you guys could likely explore or talk about the PMSO in the quarter, talking about now the company understands that this level of PMSO is sufficient or no by the regulator on the next divisions talking about like revenue. That was the question.

I'm going to split this because we had 2 questions in the same item. First one, as we explained during the presentation, we have new patterns of PMSO, new [ levels ] and with these new quality levels. If you compare this with the -- we had some highs during the year of 2023 that the year 2023 is not still full, talking about costs of PMSO, to the new patterns. We have a little bit of a this curve happening right now, but most of it already happened on 2023. And talking about, how can I say? Talk about regulatory. Now I'm going to talk -- to give this information to Fernando Maia.

Good afternoon, Fernando. I'll talk about operational costs and, the model and the regulatory, comparing with the -- comparing the companies. The information that we got from the regulatory about these new demands. They followed up an increment of the payments of financial compensations to the consumer, the customers. If those levels weren't reached in Group Energisa in a prudent way, we analyze this and it's way better than -- it would be best for us to increase the levels of PMSO to reach the indicators, than to keep paying compensation and losing this money for customers, for like unhappy customers and customers on the first place. So if the company is a like whole and other companies, they work like this and they elevated their costs to reach those events, it naturally reaches a pattern like comparison pattern that is going to be a knowledge and then tax way on the next cycle of revisions, of reviews. And those that were not proven, they're not going to be -- they are not going to be total covered and they're still going to be paying like those compensations for the consumers -- for the customers.

[Operator Instructions] Let's go for the next question. It's from [ Victor Polin ], investor.

I ask here for Olivia to so that she can like say the question.

Good afternoon. What are the possibilities for the resources on the follow on.

As we explained, on the follow on, the resources, they aim to keep a comfort of like leveling up of the company. We have some like strong investments to be made as we talked about on this presentation, almost like BRL 6 billion on 2024 on the -- into this -- for the first year, they're just going to be for the leveling up, and this gives us margin to work with projects, growth projects in organics as well.

[Operator Instructions] Now we're going to the next question from Arthur Pereira, sell-side analyst from Bank of America.

Hi, guys. My ask is about the early Office 44 2022 from [indiscernible] who talked about DEC and FEC, and we look at some bases like we see that in Mato Grosso and Mato Grosso do Sul and Sergipe, are still beneath like 80% of leveling up. We can still like expect some growth until 2026. Would like to expect any real growth of PMSO on this -- those actives or they are not like rounded up. And on the other ones that are already rounded up, if we can expect any likely cost reductions on the next quarters?

Well, I'm going to be sending for Gioreli.

Good afternoon. Actually, as you said, the trajectory to 2026, so we have an investment plan that you're going to be working. We have the expenses to be reaching those goals, to the time that once what we planned, and what we expect on like the expenses with what we practice. So we don't see any like [ innovationary ] reasons or we just like -- do some checks to be like rounded up without any further variations.