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

We Inform that this video conference is being recorded and will be made available on the company's IR website where the respective presentation is also available. I'll [ act ] for those who need simultaneous translation. [Operator Instructions]. Considering that some of the speakers are remote, fluctuations or instabilities may occur during the video conference impacting the response time, especially during the question-and-answer session. We count on your understanding. We emphasize that information contained in this presentation and any statements that may be made during the video conference regarding business perspectives, projections and operation and financial goals of Energisa, they constitute beliefs and assumptions of the company's management as well as information currently available. Future considerations are not proof of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect Energisa's future performance. And lead to results that materially differ from those expressed in such future considerations. Now I would like to pass the floor to Ricardo Botelho, Chief Executive Officer of the company to begin our presentation. Ricardo, please proceed.

Thank you, operator. Good morning. First, I would like to thank everyone for your presence at this presentation of the results of the fourth quarter of 2024 and the year 2024. Joining me are our CFO and Investor Relations Director, Mauricio Botelho, our Vice President and the Investor Relations team. I kindly ask that you pay attention to the disclaimer on this slide before making any investment decisions in the company. Before we start talking about the 2024 results, I would like to celebrate again with you the recent 120-year anniversary of Energisa Group. After 12 decades of history, I can state with absolute certainty and pride that our essence remains the same. Our entrepreneurial and innovative DNA, our commitment to life, ethics, sustainability and development of the [ industries ] where we are present, our focus on customer care and appreciation for our people and the generation of extraordinary results. Our history proves that the century old companies can anticipate market movements and grow by combining experience, boldness and innovation. Energisa stands for all Brazilians, offering quality energy and the best value proposition. We have capillarity comprehensive coverage and a new operating model focused on excellence that continuously evolves. We build relationships of trust with all stakeholders and deliver results for investors who have an interest in the growth of the business. Energisa is a company that has been thinking about the future. Thank you, [indiscernible]. Energisa empowers the country's future, Energisa empowers the future of energy itself. The future energizes us. Moving on to the results for fiscal year 2024. Over the past few years, we have gone through similar and worse moments that we are experiencing now with the equation of high interest rates, [ exchange rate ] facility, inflation, contraction of growth rates that make the country less attractive for investments. In times like these, [ stable ] companies with a good track record, financial responsibility and history consistent with returns are the most reasonable and secure choices for investors. On the screen we present some figures from Energisa that are best of our resilience in terms of prices. We have managed to navigate well with our financial discipline and prudence in our ability to execute turnarounds and capture good opportunities. Since the acquisition [indiscernible] Group in 2004, we have more than BRL 37 billion in reals in group of companies which [ BRL 30 billion ] and which reflected a real growth of 87% in the net regulatory asset base for shareholders that have been with us since our re-IPO in 2016. The rate of return is of 160%, if we consider the return over the last 10 years, it exceeds 500%. These extraordinary results are only possible because we have a solid governance, always centered to opportunities and [ challenges ]. Today, we are experiencing an error an energy transformation as guided is in the [indiscernible] of business with an emphasis on [indiscernible] companies dedicated to offering the best energy solution for our customers. Our business is energy across this entire value chain. I conclude here and pass the floor to Mauricio Botelho, CFO and Investor relations of the group to continue with the presentation of the results for the fourth quarter of 2024 and the year of 2024.

Good morning. Thank you for your presence and disclosure of the quarterly result of Energisa Group. Let's start by presenting some of the highlights on the bridge. And the consolidated figures recurring EBITDA grew 8% for year, totaling BRL 7.6 billion. The fourth quarter was the first the completion of the NORgas acquisition as a result the [indiscernible] counting was BRL 8.4 million an effect related to 2 months of the acquired stakes. In the transmission segment, we energized Energisa Amapa adding BRL 13.6 million in RAP completed another stage in the construction of Energisa Amazonas reaching 50% of the project's RAP. In the Energy Distribution segment, the recurring PMSO in this business line continues to grow in a controlled manner and in line with inflation. Finally I highlight investment of BRL 351.3 million in (re)energisa 2024 boosting the distribution generation car, which reached 441-megawatt peak of stock capacity. This quarter we had some nonrecurring or noncash effects that we usually highlight for a better understanding of their results or items that impact EBITDA we have provision for distributed generation effects on distributors. We started accounting compensated energy from distributed generation customers. Negative effect was BRL 430.2 million refer to net accumulated balance of non-compensated energy. And it was recorded in the line of electricity purchase for resale. PLR provision for comparability purposes with the fourth quarter 2024, we highlight the effect of BRL 148.7 million of PLR related for the first 9 months of 2023 that we recorded in the fourth quarter 2023 and correspond to some [indiscernible]. That's a nonrecurring and noncash effect to compare it. The third item is the overcontracting provision of Energisa Acre, BRL 2.3 million negative on the quarter. And liabilities with the interconnection of Cruzeiro do Sul in the state of Acre, we do not foresee recurrence of overcontracting effect in the group since the distributors are well positioned. Other items impact only the profit, net profit being the constitution of deferred asset of Rondônia, BRL 1.1 million positive effect on profit after the tariff review in 2023, Energisa Rondônia achieved the framework for registering tax credits related to tax losses from previous years. The other item was the credits referring to Selic interest on tax refunds, totaling BRL 458.2 million positive effect being BRL 352.2 million in credits and BRL 106 million in monetary restatement, referring to the application of the Selic rate on tax refunds due to the removal of PIS/COFINS from the iCMS calculation base. And the last item, the mark-to-market -- EPM and participation and monetary and Northeast totaling BRL 293.5 million positive effect due to the calculation of the mark-to-market of the stock purchase of these subsidiaries. On the next slide, the evolution of the recurring adjusted EBITDA in the recent years remained strong, moving from the level of BRL 4.8 billion in 2021 to BRL 7.6 billion in 2024. Growth for the year 2024 was 8.1%. I highlight elements that contributed to this expansion in the last few years. The successful tariff revisions for the distributors, the growth dynamics of the concession areas, the expansions in the transmission segment, including the acquisition of Gemini in 2022, investments in distributed generation and the incorporation of De Gas regarding a negative evolution of recurring EBITDA in the fourth quarter, although distribution market sales advanced 2.3%. We had some negative adjustments due to the inflection at time, which impacted the margin. Additionally, the transmission presented a decrease in EBITDA resulting from the reduction in revenue and increase in APM so [indiscernible] results period. In the gas distribution, we also recorded a negative impact with a reduction in margin due to lower contract demand over the period and increase in PMSO due to our organizational restructuring. Even with these challenges, we managed to sustain EBITDA growth for the year. Next slide. Okay. slide I would like to highlight in the quarter of operation that we carried to improve the group's debt profile. In September last year, we conducted an exchange offer that involved exchange institutional debentures maturing by 2026 for long 5-year bonds in the amount of BRL 1.4 billion. We also issued in December BRL 2.1 billion institutional debentures with an average term of 5.7 years, which were used for the BRL 1.6 billion in commercial as that debt will mature in June 2025. The debt management strategy allowed us to extend the average debt term to 5.7 years, an increase of 1.9 years compared to the fourth quarter of 2023 and 0.7 years more than recorded in September '24, reinforcing the company's financial solidity. The chart on the right chart is the pro forma indicator for net for the effects. Already excluding the extraordinary effect of accounting for the DG credit balance showing stability with the third quarter of 2024. Next slide. Snapshot of the PMSO for energy distribution that consolidated 12% already totaling the 9 months of 2023. When we analyze on this line, 2023 was an adjustment with the new demands for the quality on the segment of distribution. On the left analyze the trajectory of the segment conclusion, we have an evolution with the inflation compared to 2023, the PMSO had an increase of 5.2%. Next slide. a snapshot for the PMSO for [indiscernible] and distribution. Yes. Note that the consolidated performance level is 153%. When we analyze the distributors individually, our performance is much better than the sector average. In the last 10 years, we have seen improvements in controllable cost indicators in terms of cost per customer, market volume and network kilometer as demonstrated in this slide. These results are for the management focus on cost optimization and strategic capital allocation. Next slide, the recurring adjusted net income for 2024 totaled BRL 2 billion, an increase of 22.6% compared to 2023. Without any adjustments, it was like an increment of BRL 3.8 billion growth of 100%. This value is impacted by the nonrecurring items that we mentioned at the beginning of the presentation. The group continues to maintain a payout around 35% due to the prospective level of investments for the next cycles. So totally declared [ BRL 6 ]. And by the end of March, we're going to be paying per unit investments. We closed investments, BRL 2.8 billion invested BRL 5.7 billion on distribution. On this total, 42% by new cost, which shows the market like and with growth. A part of this investment around BRL 500 million had a third-party investments. And on this graph here, we can check on investments that we told everyone last month. On the distribution, we are paying attention for the renewing concessions for another 30 years, considering that 4 of our distributors have their contracts expiring by 2021, Mato Grosso -- Mato Grosso do Sul, Sergipe and Paraiba. The new contract by ANEEL last month, addressing important issues for sectors such as guidelines for modernization and resilience and quality improvement, favor the price economic regime by providing flexibility for [indiscernible] models, safeguard legal security, paved the way for initial segment investments and [indiscernible] severe restriction among other improvements. We believe that the process of renewed concessions will continue to be conducted efficiently and traditionally providing legal security always with our customers at the center of decisions and discussions. On the energy distribution, we emphasize on the evolution of recurring adjusted EBITDA which were 6% in 2024 and robust investments of BRL 5.7 billion, which grew 29.1% compared to 2023. Next slide. Talking about market here. Consumption advanced 5.6% compared to 2023, the highest rate in 12 years, while the Brazil average was 5.3%. All segments advanced above average, especially residential and industrial. At Energisa, residential customers had a consumption increase of 10.5%, the highest rate in the last 18 years, while in the country, the increase was 7.1%. In the digital segment, the Group's annual growth was 9.2%, the highest rate in the last 19 years and almost double the Brazil's rate of 4.8%. Some factors were decided for the consumption increase in 2024, including the high temperatures throughout the year with 73% of the days in 2024 reporting temperatures above average. It is interesting to highlight that Energisa Group's consumption in 2024, considering both captive and free markets correspond to 8% of the country's total consumption. Year 2024 was the hottest on the planet since 1850, a concerning milestone that we cannot ignore. This slide that you are seeing, we can observe a sharp growth in global temperature, a reflection of climate changes caused by global warming. For us as the energy sector is essential work to expand the use of sources with lower carbon intensity such as natural gas, combined with renewable sources such as solar and biomethane. And this transformation process to increasingly clean matrix. We also need to ensure energy security to support the country's development. We're going to be talking about losses or losses since the acquisition of Energisa Arce and Rondonia almost 7 years ago with a reduction of 1.22 percentage points compared to 2018, and that stood at 12.35%. This positive performance is also reflected in Minas Gerais, which operated with losses below the regulatory limit. The result was driven by the loss combat plan, which invested in 2024, BRL 450 million in revenue prevention and recovery actions, including 137,000 inspections and 300,000 regularizations in 2024. The performance test once again the effectiveness of loss fighting strategies applied across all distributors. These results reflect Energisa's commitment to improving the efficiency of its operations with investments in technology and constant improvement. I mentioned that on the day of March 11. ANEEL approved the results of the 924, which adjustments in the calculation of regulatory nontechnical loss against compensated energy from distributed generation, and we agreed with the adjustments proposed by the [indiscernible] tariff of nontechnical losses on compensated energy from talking about delinquency in the fourth quarter of 2024, total it was around 1.3%, showing an increase of 0.3 percentage points compared to the same period of previous years. Expected loss from doubtful accounts increased by BRL 119 million in the fourth quarter of 2024 compared to the fourth quarter of 2023 comparing -- accompanying the increase in the billing, which had a growth of 15% between the periods. To mitigate the impact of billing growth indicator, Energisa Group implemented strategies aimed at reducing delinquency. Among these actions, we highlight the adoption of personalized credit solutions according to customer profiles, increased use of digital tools for collection and payments, prioritization of collection actions to optimize revenue collection and legal monitoring of large customers' debts. This quarter, the 12-month consolidated collection rate of Energisa Group reached 97.14%, the best in the historical rates. Next slide. 2024, Energisa Group [indiscernible] solid investment strategy, prioritizing allocation of resource above the regulatory depreciation. This resulted in the remuneration base that reached BRL 23 billion in December. This continuous investment effort allows us to maintain operational excellence and ensure the robustness of our operations. Regarding quality indicators, the Group's distributors maintained consistent performance in the fourth quarter 2024, exceeding the global regulatory limits in all concessions. Even with increase in severe weather events in the last year, we continue to reduce interruptions and ensure the delivery of quality energy to all of our customers. I would like to talk now about the segment. highlights on the quarter. In December '21, we completed the energization of Balbina substation part of Energisa Amazonas concession. With this, we reached 50% of the RAP of BRL 86.3 million, significantly anticipating the regulatory schedule, which forecasted only 33.67% of operational RAP by December 2024. The other transmission functions of this project continue under construction with expectation of anticipation backed by our history of efficiency and execution. Additionally, on December 23, we fully energized Energisa Amapa, 9 months ahead of the established regulatory deadline with an approximate investment of BRL 155 million and will contribute over of BRL 13.6 million. Next, we talk about our portfolio group asset portfolio, which currently has 13 concessions totaling BRL 921.6 million RAP and BRL 41 million in revenue from fiber optic. The 3 concessions under construction, by the way, are rigorously on schedule. Our growth also to be highlighted. 2020, we started with just 2 concessions, BRL 95.6 million in RAP. And by 2030, all concessions will be operating RAP of these projects will reach BRL 962.7 million. This demonstrates the Group's commitment to sustainable expansion and to delivering solid and consistent results in the coming years with assets that deliver excellent value proposition. Now moving to the financial highlights. Our regulatory EBITDA a reduction of 13.3% compared to the fourth quarter of 2023, reflecting the combination of a drop in operation and increase in financial expenses. The decrease in revenue was impacted by lower revenues transformation charges. There was a higher incidence of variable portions increase in PMSO expenses was driven mainly by expenses of [indiscernible] replacement, although this impact was partially offset by [indiscernible] activities, just like before. The group decided to outsource O&M transmission companies allowing to operate with our own next year, which will generate more efficient results focus on the segment. We now present the results of (re)energisa. 2024, the energy -- we have a recurring adjusted EBITDA of BRL 14.8 million, presenting a growth of 6% compared to the previous years. This reflects the strong sales volume to free customers, which reached 8,368 gigawatts hour, an increase of 96.3% compared to last year. In distributed generation, we continue to expand our portfolio and increase our participation with 440 megawatts peak in addition of 90 megawatts peak in the year. Currently, we have 117 photovoltaic plants, power plants, and we are present in 9 states. This expansion has a right impact in our results reflected on EBITDA of BRL 188 million and net revenue of BRL 308 million by the end of 2024, representing growth of 134% and 43%, respectively. And talking about [ NORgas ], gas distribution. With the acquisition of 51% of [ NORgas ] holding company that natural gas in various states in the Northeast. We began to consolidate results of its business, the gas sector through a holding called EDG, Energisa Distribuidora de Gas. This process also includes the integration of ESgas, distributor located in [indiscernible]. BioSolutions unit focused on development of business related to biogas, biomethane and biofertilizer. In this slide, we present the financial and operational indicators of the gas distribution segment. The total volume reached 199.9 million cubic meters, an increase of 17.9% comparing to the same period of previous year, driven mainly by the thermal power plants during the period. In addition, we expanded our network infrastructure, which went from 556 kilometers in the fourth quarter of '23 to 591 kilometers in the same period of 2024, reinforcing our service capacity and expanding access to natural gas. The number of customers served also grew from 83,300 to 84,800. We also highlight the substation increased investments totaling BRL 46.8 million in the period. This amount represented a growth of 90.2% compared to the fourth quarter of 2023. Next slide. Our expansion strategy, we announced the November 6, the acquisition of NORgas. With this acquisition, we started to consider [indiscernible] results as equity accounting. For representativeness purposes, we present the combined numbers of 100% of NORgas company. EBITDA of BRL 332 million, a profit of BRL 249.5 million investments of BRL 220.5 million were recorded. These results reinforce the positive impact the NORgas integration will have on our operation in the segments and strengthen our position in the sector. With a few months of operating companies, we are stretching our relationships with our partner governments a success of the ESgas and with the NORgas distributors, ensuring great operational efficiency, sustainable growth and obviously, [indiscernible]. We conclude our highlights for this quarter, and we are available for Q&A.

[Operator Instructions] Our first question comes from Louisa, sell-side analyst from [indiscernible].

My dad was referring to the provision of the segments -- distribution segments. As you guys talked about, you start acknowledging on this quarter, the negative effect referring to the [ NAV ] of accumulated energy and the low credits on GD, but you consider all the provision of BRL 430 million of one-off. But I wanted to understand exactly how much was related on this -- on the previous quarters and how much was specific for this quarter? I don't know if you guys have this slide separately because part of these provisions must be a recurring one. If you guys could like explain a little bit better for us how you guys did this accountability? What we you expecting on moving forward would help a lot.

On the division that you were talking about requesting from GD. We don't have this slide divided to demonstrate. It's about the discussions on all the aspects on the best [indiscernible] administration on this slide debt and numbers. It can compose on all the positive and negative effects of this. So we don't have this like divided to demonstrate between periods. But most of it is like previous debt. I would like to complement this.

I'd like to comment on this, Louisa. First of all, the recurring. Actually, this depends when we check on this provision on the study with the operation of debt and how we use, I will check this on the [ literature ] [indiscernible] this balancing since we're starting, we have like a ramp right now that we pay more than we use it and now we're going to be balancing it. It's going to be like 0. But like, right now, March 11, I know [indiscernible] debts on the previous 12 months for tariffs changing [indiscernible] on the [indiscernible] we utilizing this -- on this numbers of the previous years. Touching a little bit and you are going to be like giving this back to you guys and then we have like the opposite way when the company should like give the energy back to customer, it's going to be working, reflecting on the tariff numbers. And on the balance debt we did with the company and we show this. And with this, we don't have like anything further to talk about provisions -- future provisions because this is going to be automatic on the tariff process on the -- moving on with all the readjustments happening right now from '25 and moving forward. I'm talking about the best which was what we related, talking about the best until December 31, is going to be [indiscernible] going to be [indiscernible] provision checked. It may have any some additional slight more or less with this implementation about this yet.

[Operator Instructions] Our next question comes from the [indiscernible].

First, I would like to follow up on the previous question. Can you talk about -- you don't have to do like any future provisions, and it was -- it happened on distribution is going to be like -- it's going to be showing up on the next tariff provisions. Yes, that like we [indiscernible] but I would like to understand, but [ broadly ] speaking, how is going to be working with the future tariff processes, so that we can understand by modeling what we should consider, first question? And the second question is related to -- on the profits, that was like big, and you guys announced the debts -- high debts are basing like 9 months. Looking ahead, what we should expect on the more frequent distributions, any changes on the strategy, you look like a [ pay ] or like allocation of capital like [indiscernible]. How you guys are thinking to move forward with this?

I'm going to be starting with the second question. And then Fernando is going to be completing the question. Payout, we follow the [indiscernible] information, 35% minimum. So we round it up. We drew the 36.8%. Check our history in the previous years, it's like really close to this. [indiscernible] with this politics with [indiscernible] max to the minimum [indiscernible]. We have some investments -- proposed investments to be made with the company. So we are expecting distributions way bigger. But obviously, right now, we're always waiting and expecting you, the shareholders, [indiscernible]. But for now like doing -- working like frequently, it was going to be working like [indiscernible] each 6 months. Like [indiscernible] like every month. Fernando, please can you answer to the second part?