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

Welcome to the earnings conference call for the first quarter of 2025 from Energisa. We Inform that this video conference is being recorded and it's going to be available at the company's IR website where the current presentation is available. [Operator Instructions] We highlight that the information obtained on this presentation and eventual statements that might be done during the video conference related to business perspectives projections and operational and financial goals of Energisa is being constituted on beliefs and premises of the administration of the company such as information 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 might or not occur. Investors might comprehend that economical conditions, market conditions and other factors might affect the performance of Energisa and conduct to results that differ materially from those expressed in such future statements. Now, I would like to give the word to Ricardo Botelho, CEO of the company to start our presentation. Ricardo, please proceed.

Thank you, operator. I appreciate the presence of everyone at this presentation of results for the first quarter of 2025. Joining me are our CFO and Investor Relations Director, Mauricio Botelho, our Vice President and Investor Relations team. I kindly ask that you pay attention to the notice on the slide before making any investment decisions regarding the company. Now the presentation of results for the first quarter of 2025, I'd like to highlight good operational results of the group. Energisa Group, it has a history of being a good asset manager with discipline in capital allocation and efficiency in cost management. For our 2023, we made adjustments to our personnel material services and other costs to adapt to the new quality requirements demanded by the regulator, positive effects on quality indicators as we will see later. First quarter 2025, we achieved a 1.1% reduction in PMSO, while in the electricity distribution segment, we had a growth of 1.2% against an inflation of 5.5% in the period. In the transmission segment, we also delivered a good reduction in the PMSO after internalizing the operation and main operations with a positive impact on the regulatory EBITDA margin, which reached 85% in the quarter. As we continue to expand a number of new connections and filed a business plan proposal with the regulator for a distributor. Second, tariff cycle. The first one [indiscernible] BRL 1 billion investments by 2030 resources that will be allocated to promote inland development of the state of [indiscernible] energy democratization, ensure a safe, reliable and quality operation. Investments more than making up for years of delays in the state's infrastructure development will generate benefits for municipalities, population and the environment as well. At Energisa, we are advancing with investment plans and cost reduction distributors, which we hold minority stakes. We achieved good process in the financial and operational performance of the group's other subsidiaries this quarter, addressing delinquency and churn in the distributed generation business that we'll highlight the next section with more details. Even more challenging macroeconomic macro environment in Brazil this year, we believe in the quality complementary and resilience of our portfolio assets to continue to generating superior value for our shareholders even under these circumstances. Our operational and financial discipline, customer centricity and eye for innovation and growth opportunities is what has driven us for 120 years. With that, I give the word to Maurício Botelho, CFO and Investor Relations Director of the Group to continue the presentation of the results for the first quarter of '25.

Good afternoon. Thank you, everyone, for your presence at the disclosure of another quarterly results from Energisa Group. This quarter, we reported consolidated net income of BRL 1.03 billion, representing a 9.5% decrease compared to the same quarter of '24. Cash generation measured by accounting EBITDA also decreased by 5.2% in total BRL 2.4 billion. In the quarter, we had some extraordinary and/or nonrecurring events such as recognition of the extraordinary tariff adjustments for [indiscernible]. This tariff review is expected to occur in [indiscernible] March of this year. The positive effect on EBITDA was [ BRL 177 million ] and on net income was [ BRL 185 million ]. I would highlight that the impact on net income includes BRL 103 million in financial revenue net of taxes due to monetary updating. In terms of recurring EBITDA in the first quarter of this year, it declined 15.8% compared to the same quarter of 2024. Among the factors that contributed to the margin decrease, I highlighted the negative tariff adjustments that occurred in 2024, mainly in distributors with kind of worst reason in April and we [indiscernible] in the first quarter of 2024, this indicator was negative and reduced tariffs in 2 of the group's largest concessions, Mato Grosso [indiscernible]. This effect will be offset by the positive adjustments in portion this year -- that happened this year. In the transmission segment, the entry operation of Energisa [indiscernible] of projects that Energisa Amazonas and Tocantins negatively impacted to the corporate. From a regulatory perspective, the EBITDA for the segment grew 16.4%. The parent company's net income closed the quarter at BRL 775 million, 14% below the previous year as already mentioned. And the consolidated net income was [ BRL 0.03 billion ] in the quarter down 9.5%. However, when we adjusted net income for noncash and nonrecurring effects such as the extraordinary [indiscernible] items in the quarter, the recurring cost of net income closed at [ BRL 390.7 million ], 48% below the first quarter of '24. As already mentioned by Ricardo, the year 2025 is already materializing as a year of stabilizing control PMSO with growth below inflation both in the electricity distribution segment and in the consolidated view. The decreased investments despite inflation in the period is partly due to the completion of some transmission products at Energisa Tocantins, Energisa [indiscernible] and Energisa Amazonas. The management, we had an increase in the net debt adjusted EBITDA [indiscernible] indicator closing the quarter at 3.2x, [indiscernible] this indicatior of the provisions of [indiscernible] that we began accounting for in the last quarter of '24. Those effect is noncash at the moment. We're going to be returning the level of 3x. It's worth highlighting this quarter an improvement in the debt profile with an average cost below 100% of CDI. In the electricity distribution segments in addition to performance highlights and the operational cost control already mentioned, it is worth noting the performance of [indiscernible] all within regulatory limits with some concessions achieving historical records in this indicator like Energisa Acre and Energisa Sergipe from both the indicators [indiscernible], and also had the best [indiscernible] Tocantins. The market in the quarter grew 1.3% compared to the same period in the year '24. The growth rate was limited due to -- by comparison base of the first quarter '24, which at the time, grew 11.9% compared to the same quarter of '23 and represented the highest growth in 21 years. This increase in the quarter was spread across Industrial segments with emphasis on food production, minerals and rubber motivated by new loads of increased production. In total losses -- we maintained indicators stable in comparison with the fourth quarter of '24 and showed a reduction of 0.39% compared to the first quarter of '24, closing at 12.34%. It is worth highlighting the performance Energisa [indiscernible] with a reduction of 21 percentage points compared to the last quarter. And also with Energisa Tocantins with the standard regulation comparing to the quarter of last year. Here, I would like to make an observation that [indiscernible] recently started considering the impact of distributed generation, the calculation of the regulatory nontechnical losses from the tariff venture of each distributor for Energisa Mato Grosso do Sul and Sergipe already considerably adjusted regulatory limit from April, the date of the last tariff adjustment. The expectation is that regulatory limit will undergo gradual adjustments up to 1% until 2026. Cost discipline combined with adequate delivery of the relator indicators concessions, it's what characterized as an operator of excellence, what showed it. These results reinforce Energisa's commitment to effectively manage its relative businesses, constantly focusing on process optization and adequate regulatory management to ensure financial sustainability and enhance profitability. I would now like to comment on the significant advances achieved by the transmission segment this quarter. February, we requested the preliminary license for Energisa Mariana [indiscernible] for a licensing process with predecessor activity to obtaining the license.The project reports of expansion basic network with the full power plants already contracted in the Northeast region in March. We completed the electromechanical assembly of the Energisa Amazonas substations, an important milstone for a [indiscernible] transmission line. The forecast for the consession to enter its operation is March '26. This quarter, we can already see the benefits of materializing in the operation management services, the improvement of the PMSO reflected at a regulatory EBITDA margin of 85%, significantly increasing in the results recorded in the first quarter of '24, which was 77.8%. We are prominently seeking operational improvements and better asset performance. We will now present the results of Energisa, the group units dedicated to offering an echosystem of innovative solutions that accelerate our customers' energy transition, promoting sustainability and efficiency in their operations. At Energisa, the distributed generation segment continues to be the most relevant results among nonregulated businesses compared to the first quarter of '24. The reduction can be explained by a more challenging sector scenario throughout last year, which led to an increase in churn and delinquency. However, in the comparison between quarters, we can already observe an improvement in these 2 indicators, a reduction of 1.2% in churn and 1.8% in delinquency adopting differentiated strategies that resulted in improved quality and selected sales. In this slide, we present the financial and operational [indiscernible] equity income of BRL 30.5 million in some of the results of the company is invested by [indiscernible]. It showed good evolution in both operations and financial indicators, with EBITDA and profit growth of 12.5% and 27.9% respectively. [indiscernible] we ended the quarter with EBITDA of in BRL 39 million, 18% below the previous quarter, explained mainly by the effects of reduced PGU, it is gas overun price [indiscernible] regular consumer demand that contributed to revenue composition in the first quarter '24. And by the seasonality demand in steel and mining sectors. Investments grew more than 100% when comparing orders following the acceleration plan that started 2024. As we talk with Ricardo in April, we followed the agency a plan -- business plan 2025, 2030 business plan within the scope of the second tariff revision cycle of the concession, which aims to developed gas infrastructure in the state of [indiscernible] on 4 pillars: decarbonization, energy and security, competitiveness and development. And we concluded our highlights for this quarter here and are available for the Q&A. Operator, please go ahead.

[Operator Instructions] [indiscernible] please go ahead.

I would like to listen a little bit by your perspective with the tendencies of the [indiscernible] in the next month. We'd be watching a growth from this and we'd like to know about like the initiatives that you guys are adopting on this to contain this growth. And if you guys can check on the following month of the second quarter, any changes or tendency or optimization of the Energisa like such as it happened in '24.

We're going to be giving [indiscernible] to answer this.

Thank you for question. I think that's an important point for this question analyzing between quarters as it enrolls like the previous quarter so it creates a difference in the basis and a difference with the installments [indiscernible]. As we talked about the reports and the fundings that we got, it shows a growth. So it shows also an improvement of performance with the charges and the offer of credit offer from both. So we are checking the indicators that has been showing a difference between quarters, but it's already stabilizing.

[Operator Instructions] Next question comes from Maria Carolina from Safra. [Operator Instructions]