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

[Operator Instructions] We highlight that the information contained in the presentations and eventual statements that may be done during the conference related to business perspectives, projections and goals, operational and financial avenues that they constitute and 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, so they depend on circumstances that may or not occur. Investors must comprehend that economical conditions, market conditions and other operational factors may affect the performance of Energisa, and conduct results that differ materially from those express on those future statements. Now I'd like to pass the word to Ricardo Botelho, President and Director of the company, so that we can start the presentation. Ricardo, Please go ahead.

Thank you operator, good afternoon. First I would to appreciate the presence of everyone on this presentation on the second quarter of 2024. Participate with me, our CFO and Investor Relations Director, Mauricio Botelho; Vice President of Regulation and Institutional Relations, Fernando Maia; Vice President of Network, [indiscernible] Director of ES Gas, Fabio Bertollo and the team of the investor relations. Before we start, I kindly ask that you guys pay attention to the warnings, the disclaimer before taking any actions on the company. Going on, on the second quarter 2024, would like to point the results were really good operationally, with the growth of 13% on the EBITDA adjusting and 16.6% on the net income content to the second quarter from the last year. This indicators [indiscernible] segment on the distribution of energy, the non-recurring effects, and includes the results of the transmission. It was not like, it says no effects. On the distribution, they had like, a relevant impact on this. Our adjusted EBITDA non-recurring, it would be BRL 1.8 billion, 25% more than last year. This great performance of the quarter is explaining big, great parts with the result that we had on the distributors of energy, with the greatest growth rate on the last 23 years, 11.2% of growth and the variation between the quarters. On the gas distribution segment, we highlighted that on this quarter celebrating the contract of buying and selling of 100% of the actions of Infra Gas that detain 51% of the actions of Norgas, share of Norgas. Well, they work with Alagoas, Pernambuco, Rio Grande do Norte, Ceara and Sergipe. This operation reaffirms the interests of the group to improve the acting area of this segment and the conclusion of this transaction is also pending. And closing the highlights, would like to mention the satisfaction of the growth, the recognition that we got from Valor Economico, that's the first one of energy in Brazil, 10 years from the 150 companies, most innovative companies in Brazil by the consulting company, strategy in and our culture, each one of our more than 18,000 employees, they have really we help them to think differently and take action and act about this, of course. And the innovation value of this is the fuel that guides us to perform these transformations. And we wish this really satisfied with financial performance and operation of the group on this quarter, and we are happy this growth will work with quality innovation, diversification, and we'll keep providing growth for our stakeholders. Like this, I would to pass the word to Mauricio Botelho, CFO & Director of Investor Relations, relations to move on with the results on the second quarter of 2024. Mauricio, please go ahead.

Good afternoon, everyone. Thank you for the presence of everyone on this conference call, quarterly conference call of Energisa. I'd like to start, call you guys pay attention to the effects non recurrings on the cash flow that we usually consider better to understand those results, starting with the provision of our special net income, PLR BRL 57.2 million as of impact on the quarter. On the PMSO line, consolidated working because we started getting recognition of PLR in monthly basis, not only on the quarter that we had, such as last year. By this way, PMSO is being affected negatively in comparative basis with the second quarter of the last year. The second item is provision about higher energy of Energisa Acre, a total of BRL 2.6 million on the quarter. The same way that we talked about the assets. We start working monthly in the same situation on this year of 2024. These 2 changes on the presentation, they show a less vulnerability between quarterly results, focusing on the fourth quarter. Moving on. Talking about other effects about the marketing of the market the Energisa as a commercializer e-com, we had a negative BRL 51.8 million noncash flow. And we had another item, a positive one of BRL 42.7 million. That's the marking of the market call EPM. This effect -- that impacts the net income because it shows like on the financial results that we have in here. Besides the results, we had to highlight the negative effect of BRL 317.8 million on the quarter. On nonfactor income, talking about the robust growth of sales of energy in the last quarter. This line has a seasonal behavior and a recurring negative always on the second quarter of every year. And as we can see with the history that we have in here. Always when we start the spirit, and we move from a hot to cold weather with like fall and then winter, we have this negative. This register is to check on the projection on the last 30 days of the energy consumption. So this way, it's difficult the fall of the temperature, particularly the New Year of 2024, the volatility of this provision was really intense. As we check on the beneath the slide shows intensity of this variation in 2024, it was the biggest one that we had with Energisa. Moving on. I'm going to be giving more details of this phenomenon. Next slide, please. As Ricardo told us before, we had a good performance on this quarter with the recurring EBITDA adjustment. We had a growth of 13.2%, and we got a mark of almost BRL 1.7 billion in the quarter with the highlight being the energy distribution, the highlight one with BRL 1.5 billion. Talk about PLR. PMSO, I'm sorry sir. And the recurring one, let's go to the effects of provision on the PLR on that quarter. We got a growth of 12.8% comparing the quarter, so this quarter highlight the PMSO linked with the ES Gas, started only with the third quarter to 2023, and we have the biggest operational costs because of the new assets that we have on distribution and transmission. Talking about an effect. If we just consider this about the PLR and the acquisition of ES Gas, the variation will be of 10.4% talking about the quarters. Talking about the PMSO transmission, we have -- we must make the direction between PMSO [indiscernible] and PMSO regulatory PMSO that we checked the accountability with the results. The amounts that have on this quarter, they showed the PMSO target that we have a consolidation of expenses of materials and implementing improvements on the infrastructure of constructions of LMTE and LXTE. On the regulatory environment, these items are registered as CapEx on the assets. As we checked with the PMSO, it was BRL 42.6 million and an improvement of only BRL 5.5 million in the second quarter of 2024 comparing to 2023. These proxies they show that operational costs that we can control in the main lines of business are evolving like in a moderated way. Giving a highlight right now on the second quarter of PMSO is the distribution that after the adjust of the PLR, we had a growth of 3% comparing orders beneath the inflation of the period. And talk about the adequation and the question of the service costs, third parties and personal anticipating the demands, quality reduction and penalties, we have the results that we expected, as we can see forward. Talking about net income. Adjusted recurring adjustment. We had BRL 377 million in the quarter, almost 70% more than the same quarter last year. This result is explained in the part of the performance of the distribution energy segment besides the financial expenses less than BRL 63 million of '24. And [indiscernible] the net income that we can count on consolidated with BRL 655 million and the controller was BRL 506 million in the quarter. It is announced the payment of BRL 157 million in debt and dividends. It represents [ BRL 1 a unit ], that's a payout of 34.2% of the distributional resumed on the semester, or say, so it means that we are like moving in line with what we expected. Talking about investments. It was 8.1% smaller than 2023 and 6 months investment was 5.1% and total BRL 2.9 billion. We must highlighted on the segment of distribute generation by the year 2023, we set up the execution for [indiscernible] power plants. As we can see like a loss on the investments comparing to 2023, 2024, such as in transmission. As we concluded the construction of some projects on this quarter, the distribution segment followed -- keeps like demanding investments so as to pay the maintenance standards and quality and totaled 86.3% of the investments. We move forward to realize to move like to do BRL 6 billion investments on the year 2024. And now next slide, we're going to be talking about net debt. It was, the EBITDA 2.7x and it looks like, it follows like behavior, reflecting the discipline, the financial discipline that we have and really like away from the covenants that we have in our operations of like loans and financial installments. And talking about the follow-on in January this year, it was like really prudential, really like right on the spot, talk to the risk that was confirmed with the tax rates that we had only on the emerging markets. We only regret that these conditions also reflected negatively on what expected of our assets, despite our good results on the semester. We end here the slides, financial highlights consolidated. We're going to be talking about the businesses and we're going to be started by the distribution of energy on the second quarter. It was relevant order results ended up on this year highlighting the evolution of the recurring adjusted EBITDA 24.6% on the last 6 months of 2024. The net income recurring had a growth of 18% between the quarters and surpassed the mark of BRL 1.4 billion on the semester, more than double that was registered from the first quarter 2023. On the second quarter, the consumption of energy on distributor of the group had a growth of 11.2% by the same -- during the same time of 2023, the biggest rates on the last 23 years with the highlight of the consumption of the companies on the Central West and Southeast areas considering the market non factor, the RFL was of 9.8% on the quarter, impacted by the performance of June as we explained. On this slide, we show the what we directed by consuming the climate effect that we had with a cooling of 21% on the second quarter of 2023, and heat waves were 36% above on the registered on the last year. Yes, we can check on Center West and Southeast. Most of the days on the quarter, the max temperatures were above 30 degrees in the main areas of concessions. Only after the -- only in the end of May, we had a cold weather on the Central South area. And then June month was really atypical and with the reduction of rains on the quarter and the demand on a [indiscernible] instituted a yellow flag in July to summarize the needs of preservation of the reservoirs. And talking about again on [indiscernible] And we highlight here with temperatures that were like lower and because of the fall and the beginning of the winter with impact of the energy levels and reflexes of nonfactor supplies. On the above part of the chart, we can check that such no behavior and recurring on this line always with the recovery on the third quarter as we can check on the other years. On the chart beneath, we can check the impact of the fall on the temperature on the months of May and June that affect the projection of the nonfactor revenue on the second quarter. Please, next slide. Let's about talk about the continuity of supplies of energy by distribution are now through the paper 44/2022 established the minimal percentage of 80% of the electric places to work with the limits. And we must reach them between 2023 to 2026 by reaching this 80% till 20266, establish sannual goals to each concession, considering [ radiative ] raise on the per central rates within the regulatory limits. On the data that we had on the second quarter of 2024, we can check that all distributors, they had an evolution on the first quarter of 2024 and the approximate with the individual goal on the groups related to the targets established by ANEEL 2004, some including already are reaching the 80% established by the paper. Following on the loss, energy losses. We reached 12.94%, representing a variation of 0.21 percentage points related to the loss represented in the first quarter [indiscernible] variation and majority worse because the heat waves registered on the concession of the group since like the middle of 2023. There, we had a lot of seasonality on the indicator where the energy we give it, it wasn't captured entirely by the market. That's a temporary effect with respect -- when we expect a like improvement in the second quarter of 2024 or like -- as for like estimates the best like scenario. On the seasonality taking off, it would be around 12.73% following the -- what we have in the first quarter of 2024. As we check the low energy loss of Energisa, we keep searching for the balance between the prevention losses and recovery of the revenue of 2024, we expect investments on the order of BRL 420 million trying to get this nontechnical losses with more relevance on the company's of Mato Grosso [indiscernible]. Concluding, talk about distribution and talking about delinquency. On the last 12 months was 1.7 -- 07%, representing an improvement of 0.08 percent or points related to the same time last year. Analyzing the consolidated results, the expected losses with credit of liquidity doubtful had an increase of BRL 28.3 million on the second quarter of 2024 comparing to the second quarter 2023. The growth, it has an impact of BRL 21.6 million of the FIDC that we had with the EMR and the growth of the -- and we had a growth of BRL 4.6 billion, 70%. Talking about the segments, changing. We're going to be talking about the gas. We have now 1 year of the acquisition of ES Gas. And I can affirm that we start having a difference on the concession. Besides improving the basic compliance customers, we surpassed the mark of 82,000 customers, we aggregated almost 50% kilometers of network on this time, and we achieved with the regulator an increment of investment for 2024. I must highlight the problem with ES Gas that we launched this Tuesday with -- by the government of [indiscernible] that kind of with the support of Energisa and many other companies on the states that would propose to help with the demand of natural gas in [indiscernible] as an assumption of fuel following the lines of performance with the economy of the place. As we announced yesterday, together with other 4 companies in the end of the market of exploration, production of petroleum onshore that operate on [indiscernible] a memo, understanding the studies and viability and performance of businesses capture using with carbon. ES Gas pretends to utilize your experience on the market network to collect and transportation of carbonic gas originated on the same industry segments that had emissions that are hard to abate. Talking about the results of ES Gas. The distribution of levels. It was 15 million of cubic meters, impacted by relation of the segments on the thermal electricals by the thermal power plants and [indiscernible]. The car segments, it was impacted. Automotive segment was impacted by the incentives with -- the incentives that happened in 2022 and 2023 with the liquid fuels that were not followed up with the GNP natural gas. The industrial one had a reduction of 12%, mainly because of the effects of synergy markets. We expect on the third quarter, we had a recovery with the industry in recurring basis on this space. As we talked Ricardo in the beginning of the presentation, on the last May 10, we celebrated the buying of 100% of Infra Gas. The closing of the operation, we still have check conditions as -- it's customary on the operational of this nature. And the parts are working together to work this out. We're going to be to keep the -- we're going to be keeping the shareholders and the market informed about what happens on this operation. Talk about the transmission. I highlight the signing of the contracts of the Lot 12 that energy is ahead on the auctions on transmission this year. This Lot has a revenue of BRL 112.5 million, it's situated between Maranhao and Piaui and predicts the construction of the transmission line that will proportionate the expansion of the basic network area by the North through Northeast area, and it was going to be available for us to work with the renewable energy on this area. And also like expand the margins of connection to new markets and help the local demand. Another highlight on the time was the emission of the liberation on functions of Energisa [indiscernible] transmitter, transmitter of energy to [ O&S ]. With like 5 months before the deadline and also concluding another step on Energisa [indiscernible] is representing -- receiving of 40.3% of the rep on the project. Talking about the quarters, the portfolio by transmissions. We had 13 sessions. We had a ramp up BRL 962.7 million considering the cycle 24/25 including the assets, nonoperational assets and without considering the amount of 40% million of revenue optical fiber of the company's that came from Germany. We keep working extensively concluding the 4 assets that are not 100%, always seeking -- anticipating the entry on operations and improving the return of our portfolio. And on talking on the first quarter. Talk about wrap and everything. And entering with Energisa to continue [indiscernible] in the new installments of [indiscernible]. I'm talking about -- talk about the Energisa, talk about the energy and the nonregulated services of the group with [indiscernible]. Here we only check -- only the distributed energy, commercializer and great value, and this considers the marking market of the commercializer had a growth of 45% comparing to the year 2023, reaching a total of BRL 54.1 million. We highlight here the distributor generation that aggregated BRL 40.8 million of EBITDA on the time. The unit on the distributed generation area, we must highlight that on this quarter. We reach the[indiscernible] this expansion [indiscernible] it's the adoption of distributed generation in the area reinforces the diversification of matrix, energy matrix and open new opportunities for the sustainable performance. On the second quarter of 2024, we aggregated 6.78 megawatts peak of capacity installed on our portfolio totaling 369 megawatts peak. Our product of solar signature, it proportionate an economy even more like people reaching to it, and we keep expanding our acting area here. And our highlights on this quarter, and we move on to the Q&A, please.

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

First, it's going to be talking about the acquisition of Infra Gas. We've been seeing a lot of information about -- with Sergipe about the directs of preference of [indiscernible] and everything and public agents working with the reduction of [indiscernible] and talk to the minister talking about this as well of the change of 20% to 10%. And how would this impact on the closing? Do you be having any adjustments and what do you expect about this?

So Guilherme, Fernando Maia here. First, let's talk about, they've had a public auction about this to debate about this. I'm remembering you that that is a contract that was like signed by. It was [indiscernible] 394 and it has 50 years. So it's a perfect contract. And they can't like alter this. We believe that the states and with [indiscernible] as well, they should keep this good environment. That's what attracts investments to the stage, the performance developments. That's what the state desires and ours as well. That's a discussion that goes away from the discussion from what it really matters and it impacts on the rates, less than 2%. It was like viable, available and good to go and really far away with the impact that the cost of molecule transportation, the market plus they must have like a structure. So it becomes like track that we already had a reduction of the molecule pricing. But we had a space for reductions even further more than this. And remembering that the rates in there, it's already one of, like, the smallest of the country. I believe that by the end, it's going to be like they're going to be preserving this good environment that the state deserves. And talking about closing, we are still waiting for the -- to see what's going to be happening with the information what the state was going to be choosing so that we can close the operation.

[Operator Instructions] Let's go to our next question. It comes from Bruno Amorim, sell-side analyst from Goldman Sachs.

First, I'd like to talk about the -- if you guys can talk about on the -- talk about the capital allocation on the next few years, talk about the portfolios on the current portfolio that we have on this on energy. And talking of the portfolio, do you have any segment that you would like to think that's more attractive, talk about the gas distribution or not like exclusively this?

Ricardo Botelho, I'm going to be answering your question. Our focus is still what we said on the -- since last year, talk about the discussion with the people on our presentations and follow-up as well. Our capital allocation, it has an existing portfolio of the activities that we have today on our wallet. As we can see, it works with the assets that we have in here that has like an expansion with CapEx. As this demand keeps growing, eventually investments we can make by acquiring places we can estimate this, or be like precise about this. That will happen or not. But we are always like paying attention to the opportunities. And talking about transmission, we have growth that we consider as possible Millions that are talking about allocation, cost, capital and evaluating the profits if they present adequate or we have any opportunities on the market separately. We've adequate returns results, we keep expanding with this with that's the distributed generation. And we already have a targets where we want to hit and everything on this target with the generated distribution. And we have like organic growth expected and some inorganically, some parameters that we already announced in here. Talking about commercialization of energy. It's more like expanding our wallets, more eminence in the market. And talking about gas, it's some activity -- a recent activity that we have in here. But we have the interest in this activity. Such as in gas network distribution, natural gas distribution, public services. And with the government, that's an activity that we believe a lot. That we have like a lot of opportunities of growth, organic growth... And eventually some inorganic growth as well. And we just announced a transaction to the month of May, not concluded still, but we hope it's going to be soon. And that's been our focus to generate value using our expertise on the segment of the natural gas segment that we have a lot of good opportunities of role for capital allocation average. Besides this, we have no interest in any other segments. We keep out -- what we keep like farming in the last 6 months or 12 months and then it's time they work with us.

[Operator Instructions] Let's go to our next question. It comes from Michael [indiscernible] sell-side analyst from Safra.

I have 2 questions. First, I would like to have a follow-up and talk about Guilherme's question about the potential changes on the contracts of Infra Gas. Infra Gas can explore like more on which way the company -- the company would protect itself on this eventual changes of the contract. The second is talking about the impact manufacturing on which way we -- it impacts or impact on the cash flows of the company and how you guys -- what do you guys expect to do on the following quarters with respect to recovery, how do you guys see this?