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

[Audio Gap] on the third quarter 2024 of Energisa. We inform that this video conference is being recorded and is going to be available at the company's IR website, where the current presentation is available. [Operator Instructions] We highlight that information is contained on this presentation and eventual statements that might be done during the video conference related to business perspectives, projections and operational goals and financials of the company, they constitute on beliefs and premises of the administration of the company such as information is currently available. Future statements are not proof of performance. They involve risks, uncertainties and premises because they refer on future events and they depend on circumstances that may or not occur. Investors must comprehend that these economical conditions, market conditions and other factors may affect the performance of Energisa, and conduct results that differ materially from those expressed in such future statements. Now I would like to give the word to Ricardo Botelho, Director and President of the company so that we can start our presentation. Ricardo, please go ahead.

Thank you, operator. Good morning. First I'd like to thank everyone for being here for the presentation of the results for the third quarter of 2024. With me are our CFO and Director of Investor Relations, Mauricio Botelho; Vice President of Regulation and Institutional Relations, Fernando Maia; Vice President of Networks, Gioreli De Sousa; Vice President of People, Management and Sustainability, Daniele Salomão; Vice President of Energy Solutions and Leader of [ Roberto Godoy ]; Chief Executive Officer of businesses, [ Debora Oliver ] that just joined us; Chief Executive Officer of ES Gas, Fábio Bertollo; and the Investor Relations team. We kindly ask you guys to check on the disclaimer information before doing anything. Starting the presentation of the group's results. I'd like to highlight something related to the results on this third quarter. And on this quarter, we completed one year since the acquisition of ES Gas, our first investments in gas distribution and delivered several records which we'll explore more in this presentation. So within the gas business on this last Wednesday, as disclosed in the material fact, we concluded the acquisition of 100% of shares of the Infra Gas, which holds 51% of Norgas, a holding company that owns the corporate interest in natural gas from Sergipe via Alagoas, Rio Grande do Norte, Ceará, and Pernambuco. Regarding the stake held by Norgás in Sergipe, we emphasized the material facts that in the context of exercise of certain preemptive rights providing for the shareholder agreement, the Sergipe interim share purchase and sale agreements to acquire the entire equity interest held by Norgás in Sergás. After checking the informations with the agreement and the State of Sergipe, Norgas will now be with Sergás after verifying everything with the other 4 distributors. With the acquisition of Norgas our goals to contribute to the growth of this market with our century-old experience in asset management, customer relationships and knowledge of the regulated and free environment. We have been operating in the Northeast for 27 years and have always believed in the region for a strong growth potential, and we want to position ourselves as a relevant player of the expansion of the natural gas demand and infrastructure. In the Energy Distribution segment, the market performance continues to show relevant growth. 5.9% compared to the third quarter of 2023, the highest rate in the last 11 years on this quarter. The PMSO of the group excluding the nonrecurring effect of the profit sharing and PLR, we had a growth of 4.2% in the comparison between quarters. That means that in line with the inflation for the period, demonstrating attention and efficiency in cost management. And lastly we'd like to highlight the performance of Energisa and the distributor generation arm which reached 420-megawatt peak on installed capacity. In the third quarter of this year for another consecutive year, we have achieved a Great Place to Work still in some of our companies. Having reached the 19th place in the national ranking and the second place in the state ranking with Energisa [indiscernible] that is we are once again one of the best companies to work for, reinforcing our commitment to the people value. I take this opportunity to thank the more than 17,000 people who contribute daily to the construction of this group. I'll finish here the highlights and pass the word to Maurício Botelho, CFO, Investor Relations Director of the group, to continue with the presentation of the results for the third quarter of 2024.

Good morning, Ricardo, and good morning everyone. Thank you all for being present here at the disclosure of another quarterly result for Energisa Group. I would like to start by drawing attention to the nonrecurring and noncash effects that would usually consider for better understanding the results they are. First, the provision for profit sharing and bonuses. BRL 61.5 million impact on the quarter from the consolidated PMSO due to the recognition of the PL on a monthly basis and not in the last quarter of the year as we have always considered to the previous fiscal year. The PMSO was negatively affected on a comparative basis with the first quarter of 2023. The second item is the provision for overcontracting Energisa's Acre, BRL 2.2 million in effect in the quarter on the regulatory assets and liabilities line of the concession, which is the same way for the PLR, we started provision to the estimated impact of the overcontracting monthly for the year 2024. In this quarter, specifically the EBITDA was positive due to the better outlook for the overcontracting to close for the year 2024. These two changes in the presentation, they are bringing less volatility between quarterly results, especially in the fourth quarter. We have the market-to-market Energisa Comercializadora, BRL 14.1 million noncash effect related to the market of the commercializations in the mark-to-market of the EPM call and on the net profit line as recorded financial results, and we had a record of BRL 98.4 million in the quarter positively due to the marker-to-market subsidiary EPM stock of the EPM, yes. We have made more details about this operations in the interactive spreadsheet section in our website. And the recurring EBITDA fell 13.5% and reached the BRL 1.8 billion in the quarter. The most relevant effect that help explain the results were the tariff adjustments of Mato Grosso, Mato Grosso Do Sul and Sergipe that were negative mainly due to the [ IGPM ] and the case, we had approximately 48% of the EBITDA of the group in the third quarter and all the recurring of Energisa's Acre and Rondônia, they had a grew of approximately 28% due to the first post-acquisition tariff review, which took place by the end of last year. And Paraíba and Tocantins were more than 30% in the same indicator explained by the great performance on the 2 concessions, especially in the housing and with the positive and important highlight in the quarter, the EBITDA was a contingency area reach and judicials and everything and in affected about [ BRL 40 billion ] with EBITDA indicator. And talk about the debt adjusted. We closed the quarter 2.8x, the indicator remains well behaved with the group's financial discipline and distance from the level of the current financial covenants. It was worth highlighting this quarter the excellent work of extending the debt profile, BRL 3.8 billion in debt [indiscernible] operations and BRL 1 billion exchange offer where we offered debenture holders with positions maturing 2025 and '26, the option to exchange for a longer-term security, thus improving the group's amortization schedule. And then on the next slide. We will talk about the PMSO as Ricardo mentioned, it is highlighting the effect of PLR provisional highlights. It presented an increment of 4.2% comparing between quarters below the inflation for the period. [indiscernible] trajectory from the distribution [indiscernible] Energisa, which went from adjustments on the [indiscernible] last year to allow for the adoption of the quality to level set and come less after regulatory penalties and now has resumed a trajectory of moderate evolution. Totaling BRL 746 million in expenses in the third quarter in the PLR. On the next slide, we talk about the net profit. It was about BRL 442 million (sic) [ BRL 542 million ], 2.3% more than in the same quarter 2023 and this result is explained in part in the lesser financial expenses in BRL 152 million in 2024 in virtue of the reductions of cost and the debt of Energisa. And it's shown here on the slide, such as the other effects on EBITDA that we mentioned. Slide next, please. We will talk about investments. The volume of investments in the quarter 4 was 28.2% (sic) [ 18.2% ] bigger than 2023. We highlight in the segment of the energy distribution that aggregated 44% more at the same quarter of the last year and surpassed the BRL 1.5 billion in the quarter and it's almost BRL 4 billion total over the year. On the transmission investments, they had a moderate loss also still reflecting the inclusion of Tocantins and Paraíba 1 and 2 in distributed generation, the conclusion of 37 power plants in 2023, the result in a reduction in investments comparing to 2024, but even so, we have more than BRL 100 million in investments in the quarter. And adding everything to September, investments were BRL 4.7 billion, and we keep like focus on doing the BRL 6 billion of investments that we told people that was expected for 2024. And now we're going to be talking to the climates of the group, mainly the distribution that we started to show you guys since last year. In the third quarter 2024, it was influenced by heat waves and high temperatures as the indicated cooling degree days, CDD growing exponentially in front of the average. So just as we can check on the maps, the third quarter last year, it was also highlighted with an extreme weather. On this way, when we compare the quarters, the need of cooling was less once that in August 2023 was just when we started initiating the heat waves. These dynamics reflects on the graphics of seasonality and on the market shows on the left side, it shows an expressive growth on the second semester of 2023 and keeping on 2024 on this end of the year as we can compare is like high, and we can show that besides the climate question. The good performance of the industry was also decisive for the growth of the market in the quarter. Talking about losses. Grupo Energisa closed the quarter with index of total losses 12.83%, representing a reduction of 0.11 percentage points related to the loss on the second quarter of 2024. The heat waves on the group concessions, they have for full rate variations on the checking indicator of electrical losses and the temporary breaking on the energy on the markets. And if we correct the seasonal effects, the losses index, it falls to 12.53% of the quarter and 12.74% on the last quarter. Next slide, please. I'm going to be talking about like [indiscernible] and talk about the -- we reached 97.6% (sic) [ 97.16% ]. The biggest performance since the last quarter of 2017 and we had the acquisition of [indiscernible] and Rondônia even with a scenario with the indebtment on the Brazilian family. In the quarter highlight that's an indicator, it is talking about like the indebtment of the customers. And on this segment on the energy with the customers, we closed the quarter with BRL 84.7 million. The second quarter like straight with losses, although it's just superior to the third quarter of 2023. In this way, we closed the highlights referring to the quarter. And now we're going to be starting the public meeting. And now we're going to be starting this slide with the public meeting. At Energisa Day last year, we shared with you guys the strategic lines that we have for the Grupo Energisa, showing our history, success history and intentions of investments and challenges of the group, as we showed here on the slide and energy distribution, the renewal, the concessions and investments to make this demands on quality, and they show like a challenge for 2024. We're talking about the energy transmission, we bought new lots on auctions -- via auctions with these actives and they were within our planning without counting the conclusions on the lines that are still like in construction. On Energisa, we predicted the development on the project of distributed energy on organic and inorganic way besides the challenges on the opening of the market. In the natural gas segment, the performance and development of the ES Gas and just like acquired company, impossible operations on the acquisition on sector. And we had beginning of the -- our new biomethane power plant. In 2024, we could like to show once more our disciplined allocation to capital to fulfilling our life compromises in 2023. And talking about like the distribution of energy, we are still like in a public consultation to analyze the contracts that talk about the extension of the concessions, which remains prerogative providing the service in adequate way from 19 companies in Brazil with contracts that are to expire in 2021, 4 are with Grupo Energisa, and we represent around 60% of our EBITDA. And talking about 2023, anticipating this execution Energisa, we mentioned it's a structure in a way to show efficiency and maintenance of the quality of our concessions. The equation didn't impact only our PMSO, as we talked previously, but also elevated volume of CapEx dedicated by reaching the goals and maintenance of the quality of the distributors. We believe that the process will keep being well conducted with communication with the regulatory arms and community having a background safety and the gas, our customer, is the main area of our decisions. Talking about investments. Shortly, we made investments way above on the depreciation, which reflects in our robust profit to BRL 22.4 billion in September. And with this, adjusted EBITDA was mainly superior to the regulatory EBITDA. We should highlight that the regulatory EBITDA of 2023 it's positively be impacted by financials that add BRL 161 million. Taking this effect off, the variation would be of 70% to 25% compared to 2024. I would like to highlight the companies acquired in 2018. Energisa Acre and Rondônia that after an intense process of turnaround, they can already overcome with a good margin, the regulatory EBITDA. This is the result of a good allocation of capital and efficient execution just to continue Mato Grosso do Sul are like slightly below the goal of total groups within the regulatory limit indicator of DEC of 2024. And talking about FEC, there is like a great margin to the limit. We are showing up directing our resources to close the year with all our distributors within the [indiscernible] goal for 2024, totaling the groups within the limit of DEC and FEC. And talking about energy transmission, the year 2024 was another period like highlighted with the prudency of capital allocation and financial discipline on our auctions. On the first auction we had, we had a lot of like lots and relevant board, and we got Lot 12 located in Maranhão and Piauí. The area has 395 kilometers (sic) [ 393.5 kilometers ] of extension and aggregated 112.5 million in breadth, totaling BRL 963 million of consolidated profit of the group and 13 actives in portfolio. The estimated CapEx from [ ANEEL ] is [ BRL 933 million ], and the deadline of the regulated entering the operation is June 2030. We have an average of anticipation of like 15 months in our transmission projects, and we're dedicating like our efforts to give up another for the deadline. In September, on the auction of September, we opted not to participate because the opportunities wouldn't like aggregate for us a good like profit or portfolio. Showing up now to the distributed generation. 2023, we announced that our strategy was to grow on installed basis, including also some [indiscernible]. And for the year 2024, we concluded the acquisition of 26-megawatt peak capacity installed and installed more 58-megawatt peak and we closed the quarter with 414-megawatt peak, adding up 421-megawatt peak till the current date. This capacity is equivalent to the emission avoided of almost 85,000 tons of CO2 for each year. Adding this up, we proved our capillarity for 9 states, aggregating Ceará, Pernambuco, Piauí, Maranhão to the Energisa [indiscernible]. And talking about our new NPS survey, our loyalty rates of the customers improved 40 percentage points compared to the last quarter, reflects of our demand with the customer. Talking about the business, in the gas distribution, as Ricardo talked in the beginning of the presentation, we announced this Wednesday the conclusion of the acquisition of 51% of Norgas, holding that has the participations and natural gas distribution located in some states in the Northeast area. Talking about Sergipe, the value, the amount of -- as we told on November 6, it already excludes Norgas on this situation. And with all the terms that we have in this to make it work with the payments on this participation and installments and one in December and one at the beginning of January. And concluding the Transaction, Grupo Energisa announces as well the arrival of Deborah Oliver as the Business and Gas Director and President, that's going to be in charge of the maintenance of the investments on natural gas segment, biogas, biomethane and biofertilizers. Deborah has recognized trajectory on the segment and will fill up the team from this new business. This conclusion of this acquisition widen up the rest of Energisa group on the natural gas distribution segment with a strategy of diversifying our portfolio and acknowledgment as a company as complete solutions company with energy showing up to the fuels with less emissions. And with the [ sharp ] 24 years, we reached the highlighted some regulatory highlights on this year with gas and with our new like growth avenue. The interest of our public agents and the performance, development of this segment on the projects that we mentioned, and we are focused on making gas, the transition energy fuel, it meets up the strategic goals that we showed up in 2023. We highlight that on the next slide the success example on the public policy that we have with do Espírito Santo that is showing up to implement on the next few years, ES Gas mainly with other 2 entities, public entities and private entities on the state. They participated on the elaboration of the program, ES Mais+Gás initiative from the development secretary, do Espírito Santo, they have between their goals a dynamic hub of natural gas and biomethane and to impose the competitive of the state on the scenery of national and international business, promoting economical development in a sustainable way and simulating the green economy. The program is part of the public policies of the state that aims to offer more safety and profitability to the -- on the supply of energy besides more competitive for the consumers and to promote the decarbonization of the energy metrics of the state. For this, it proposes the elevation of the main consumption of natural gas on the actual 2.3 million to 2.8 million cubic meters 2026 and from 7 million to 15 million cubic meters 2034. Another important events [indiscernible] by ES Mais+Gás is the pioneer production of biomethane in the state of Espirito Santo. The expectation is that this reduction reach daily about 50,000 cubic meters, 2026 and 300,000 cubic meters by 2034. With more than like one year of the Energisa group or at ES Gas, we could like deliver some important highlights for the distributor with some synergies in the beginning of our motors [indiscernible] of Grupo Energisa, showing like success on the distribution of energy. The transaction activities were already observed by our service center. We made the migration of the main systems and we have our marketing expertise and sales to accelerate the expansion of the segment. We just gotten our guys complete our goal step on the evolution of business on gas in Grupo Energisa. We have 4 new states at our portfolio and believe that we have a lot of opportunities of growth in the Northeast area. Energisa decided to keep the maintenance of these companies. And because of this, it's going to be keeping the current executives in charge of those areas. Next slide. Since October this year, Grupo Energisa is even more complete with bio solutions and we have a mission to offer solutions to the decarbonization and energy transitions. We have 3 business lines. The industrializing treatment, biofertilizer, commercialization and production and sales of biomethane, being this last one, our biggest like focus. In AGRIC and with the first project, we already offer treatment of the organic residuals and fertilizers. The production of biomethane is we expect to start on the second semester of 2025 and it's going to be definitive entrance of Energisa sector with a business model that works with collecting and treating the residues. We are at an advanced stage and we have an estimate production of 25,000 cubic meters day. And with AGRIC, we are going to be helping decarbonizing around like 6,000 tons of CO2 here with this 39,000 tons over interacting residues that will be going to like -- and 20 tons of CO2, substituting the GLP for biomethane in Industrial systems. Here we talk about the goals that we have in 2023 and the strategy since 2024 for the year of 2025, when moving on, we should have like a lot of challenges in all segments. Energy distribution, we estimate to conclude on the first semester, the renew of the concessions and with the signing of some additives as we have on our schedule that we showed up on the file. We believe the process will still be well produced with good introduction with the community, having a background, law safety and the customer center decision. In parallel, we keep investing in a prudent way and well directed to guarantee excellence, reduction on losses and indebt with all this allocating capital in a safe way and efficient way. Energy transmission, we have challenges interest rates, the variations of the auctions that we have and we're going to be analyzing and we are going to be analyzing opportunities in really cautious way and M&As, which may bring an upside for our portfolio, always with discipline with Energisa on distributed segments, we stay with the goal to attain 500-megawatt peak, always with customer at the center of our solutions and creating assets for the operation. We had a lot of opportunities, and we're getting ready for the more that they're going to be showing up. By the acquisition of Clarke on the beginning of 2024 was another step on the direction of offering options to our customers that wishes to migrate to the free hiring. On the gas business, 2025, we had a great highlight with ES Gas, that will be the first revision on the concession. We are already working to the local regulatory on the discussion of methodology on their tax review and investments for next cycle. With Norgas, we are in the first stages about like conclusion on acquisition, we already have initiative plans lined up for the first months on the in-charge like partners for the plan of expansion on these distributors. We believe that it's going to be a really successful journey, and we plan to report our experience operating on these assets and demand. And about like through bio solutions, we conclude the construction of AGRIC, and we're going to be paying attention to any other opportunities that may aggregate to our portfolio. And on this challenging environment, just like 120 years, instigates us on thinking how to make differently and not lose like the efforts, the will for all these [indiscernible]. I would like to everyone up and start with the Q&A. Operator, please?

[Operator Instructions] We are going to our first question. It comes from Daniel Travitzky, sell side analyst from Safra.

I would like to ask you guys to comment a little bit more about the dynamics of cost on the distributor looking 2025 and thinking about the signing of the renewal of the concession contracts with the distributors, what we can expect if it's going to be a little bit like higher the contracts and everything or if it's -- kind of really going to be like a little bit higher moving forward just for us to understand how you guys see this and if you guys can give us a little bit of like information about this -- regarding this?

We talked about this during the presentation. After doing the biggest rate adjustment 2023, just looking because of this, talking about the needs of new quality patterns that we already announced like long time ago and a great part, a lot of the adjustments were already done, and we just need to keep like in line with inflation.

[Operator Instructions] Our next question comes from Guilherme Lima, a sell side analyst from Santander.

Just talking about like only about cost, can we talk about the recurring PMSO on the fourth quarter '24. It makes sense for us to imagine any impact on leveling everything to reach the leveling of Mato Grosso do Sul and Tocantins on the regulatory deck with the inflation, everything or you guys believe it's going to be like -- it's already been drawn like on the results? I'm talking about DEC, sorry. And we can talk about like the leveling of the company and the macro dynamics with the expectation of like biggest rates, if it could impact our strategy of growth?

Talking about the PMSO where [indiscernible] to answer. It seems the structure is already done. We keep just following the flow. I'm talking about the fourth quarter, and they're going to be having the effect of the PLR, and we had a provision for the whole quarter and now it's going to be likely ongoing in a further way. That seems already set. We don't have any expectation of grade differences. So it's like a curve that really goes to 2026 and talk about the leveling, you're right, the previous perspective last year, and when we had like a loss on the rates and it looks like it's not going to be showing up, not going to be happening. So it brings a little bit of pressure on the indicator. As we can check, we had a variation of like 0.1x on the second quarter to the third quarter. So it's a tendency to have an increase and talking about the payments on the acquisition of the Norgas. And this affects a little bit like BRL 900 million more or less, which is on our cash.

[Operator Instructions] Our next question comes from [indiscernible]. I'm going to be reading her question, can you guys please comment about the loss dynamic and the PDD on this quarter and combat actions?

I'm going be sending this to Gioreli. And [ Vladimir ] asked something like similar, so Gioreli, can you please answer for us?