Light S.A. (LIGT3) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Light's Second Quarter 2024 Results Webinar. This call will be held in Portuguese and simultaneously translated into English. To change your audio, you can select a desired language from the interpretation button at the bottom of the screen. I would like to inform you that this event is being recorded. The audio will be available on the Investor Relations website as well as the material used in this presentation, which is already available for download. [Operator Instructions] Before we continue, I would like to emphasize that any statements made during this presentation regarding the company's business prospects, projections, operational and financial targets are only the beliefs and assumptions of the company's management based on the information that is currently available to them. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions. They refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the company's future results and may lead to results that differ materially from those expressed in these forward-looking statements. With that, we will begin our presentation with Mr. Alexandre Nogueira, CEO, who will make his opening remarks; followed by Mr. Rodrigo Tostes, CFO and Investor Relations Director, who will comment on the company's results. I will now give the floor to Mr. Alexandre. Go ahead, sir.

Since we took this challenge of restructuring Light, we knew that we would have to achieve transformations in the economy side and the strategy. For me, the second quarter of 2024 can be considered an important milestone to build some of these pillars for the construction of a new sustainable and long-lasting company. The first of these pillars is improving the company's capital structure established with the approval of the company's recovery plan. We have advanced a lot. The plan was approved by the General Shareholders Meeting on May 29 and ratified on June 18. It was approved by the vast majority of creditors present. So the plan was approved by the vast majority of creditors present at the meeting, 99.41% and 99.12% of the claims present were in favor of the plan. Among the main options provided for the plan, the creditors will have the option of receiving part of their credits in convertible debentures that's becoming shareholders of the company when the concession is renewed. And they may also receive part of their credit in debentures with amortization schedules of 8 or 13 years. At the end of the process, the company's debt will be reduced directly with a conversion of BRL 2.2 billion credits into shares as well as an increase in private capital of up to BRL 1.5 billion. This will strengthen the company's cash flow, making Light better prepared for the challenges ahead. This shows the creditor's broad support for the future of the company. However, getting to this point has not been an easy process. In the last 8 months before the General Shareholders Meeting, the company spoke with most of these creditors directly or indirectly, understanding their wishes, their proposals and discussing the challenges and specificities of our concession. I can say that this stage of the process was marked by a lot of dialogue and transparency, something that has guided all of my interactions with stakeholders throughout my tenure. I believe that the result achieved was the one that best converged between the company's financial capacity and the wishes of its creditors. This result with the level of approvals at the general meeting leads us to understand that shareholders also agree with this opinion. Although we are at an advanced stage, there are still a number of steps set out in the plan that need to be implemented. And Tostes will talk about them a little more later on. A second pillar in this process is the company's operational distribution. We have started implementing more efficient processes focused on results. It's still a beginning, but we are starting to see the first signs of it. It's a long process, but it needs to be implemented urgently so that operational gains can be visible. And so we can increase the service level for our customers. This operational transformation process requires a good execution. Some of the initiatives that we started in the second half of last year are still presenting positive results. One of them is collection, which has improved. We also concluded the second quarter with a robust cash position. And finally, the loss indicator in the areas where we can work normally remains stable. On the other hand, challenges remain and the level of losses continues to rise, unfortunately, in risk areas as a result of cuts and a more severe treatment of customers who are repeat offenders. The challenges are great, but the company has spared no efforts to solve them. Also in the second quarter, we faced occasional issues related to the quality of supply in Ilha do Governador, especially. Once again, Light acted quickly, mobilizing teams and concentrating its efforts to stop the problem and mitigate its impact on consumers. The entire investment plan planned to solve this issue is being implemented according to schedule and contingency actions are being maintained. This includes generator maintenance until November, which is when we will have the second redundancy installed in Ilha do Governador. We've contracted more teams who were trained over the last months, and they will begin working in the third quarter in order to be even better prepared to service the population and our concession. The third pillar is the renewal of the concessions -- of the distribution concessions. This has been addressed with the publication of the Ministry of Mines and Energy. And they are essential so that we can continue to provide quality services and make the right investments, especially in modernizing our assets. Some of the guidelines set out in the decree address issues that are relevant to utility companies facing challenges in their concession area, like Light. The main one is recognizing a need for differentiated treatment in risk areas for nontechnical losses and for quality criteria as well as defaulting. This was an important milestone, but there's still work to be done. We believe that we will have a more sustainable concession contract so that we can provide optimal services to our consumers and maintain the right investment level. We will give more details about the company's results with our CFO, Rodrigo Tostes, who is here with me and will continue the presentation. At the end, I'll be available for the Q&A session. Please go ahead, Tostes.

Thank you, Alexandre. Good morning, everyone. I'd like to emphasize as an initial message that the company is continuing its journey of transformation focusing on preserving cash and improving the -- our company's financial health -- the distribution company's financial health, which, as we know, is where the short and term short- and medium-term challenges lie. Starting with the results for the quarter on Slide 4. I'd like to highlight the main results for the period. The company ended the quarter with a consolidated cash position of around BRL 2.8 billion, an increase of more than BRL 600 million compared to December 2023, positive for all group companies. Our collection rate continues to improve. It's reached 98.6% in the 12 months ending in June 2024. The syndicator increased by 0.8 percentage points compared to the same period last year, considering now only the results of the distribution company. In the year-to-date, the distributor's adjusted EBITDA was BRL 754.9 million, up 23.9% versus the same period last year. It should be noted that consumption in the company's concession area showed significant growth in the period, boosted by this quarter's results. Light's adjusted market invoiced grew by 8.7% in the second quarter compared to the same quarter last year. Finally, adjusted EBITDA minus CapEx, another important indicator that we use as a proxy for operating cash generation showed an increase of BRL 141.2 million year-to-date when compared to the first 6 months of 2023. Continuing with Slide 5. I'll briefly comment on the evolution of the distribution companies market, which grew 4.8% compared to the previous year. The highlights of this period were the residential and commercial segments, which recorded significant growth, especially in the second quarter, influenced by the significant rise in temperatures. Continuing with Slide 6, we will discuss the main variation in the distribution company's EBITDA in the year-to-date. In the first 6 months of 2024, the distribution company's adjusted EBITDA was BRL 755 million, an increase of more than BRL 140 million compared to last year. The main reasons for this were the expansion of the net margin due to the growth of the invoiced market as we saw in the previous slide and the evolution of PECLD, which was positive due to the improvement in expectation of future losses, a result of revenue protection initiatives and increased collection, as we mentioned before. As a result, the gains in margin and PECLD more than offset the growth in adjusted PMSO expenses in the period. This increase in PMSO can be explained by a couple of points. First, the effect of the shift in timing of the strike, which took place in June this year, but last year was recorded in July. Also the increase in emergency calls, especially during the first quarter of the year, and the effect of lower capitalization between periods and also the growth of third-party service expenses, most of which are related to the transformation processes underway at the company. Moving on to Slide 7, still on distribution. I briefly comment on the evolution of operating cash generation measured by adjusted EBITDA minus CapEx. In the year-to-date, adjusted EBITDA minus CapEx was BRL 371 million, BRL 141 million more than the same period last year, which is a percentage variation of more than 60% year-on-year. It's worth noting that when we look at the adjusted EBITDA minus CapEx for the first 6 months, we see a positive evolution, a consequence of the company's efforts to generate results when keeping -- while keeping investments under control, focusing on quality and maintenance and also aiming to ensure financial balance and cash preservation. Continuing with Slide 8. Here, we see the EBITDA of our energy generation and trading segment. In the first half of the year, the business generated an EBITDA of BRL 342 million, down 17.7% in the same period last year. The main impact on the margin is due to old contracts expiring in the trader's portfolio with energy sales prices higher than the ones currently practiced. Having finished the results for the quarter, I'd like to make a few comments on our court order recovery process. Moving on to Slide 9. I'd like to draw your attention to some key points in the structure of our judicial reorganization plan approved by the vast majority of creditors present at the General Meeting of Creditors ratified by them in June this year. The first is a capital increase of up to BRL 1.5 billion with up to BRL 1 billion anchored by the reference shareholder, which reinforces its commitment to the future of the company while at the same time, contributing to the financial position and need for future investments. With regard to shareholders with claims of up to BRL 30,000, we have undertaken to pay these claims in a single installment in September '17. For other shareholders, this reorganization plan mainly provides for 2 payment methods. The first call the convertible supported creditor provides a minimum conversion of 35% of the credits into shares. For the remaining portion of the credits, they will receive a bond with the yield of IPCA plus 5% or equivalent in dollars and a maturity of 8 years. This will reduce the company's gross debt significantly by BRL 2.2 billion. And the second modality called nonconverting support shareholder -- supporting shareholders, there will be no conversion of credits into shares and shareholders will be paid with bonds remunerated at IPCA plus 3% or equivalent in dollars with a maturity of 13 years. Looking at the right-hand side of the slide, as a result of the measures set out in our reorganization plan, we can see a lengthening of the gross debt amortization schedule, reducing short-term pressure and extending principal payments to -- after 2028. Finally, I'd like to remind you that the impact of the debt readjustment plan will be reflected in the third quarter balance sheet only since we have not yet completed this process abroad in relation to bonds. In the next and final slide, I share a summary time line of our reorganization process, highlighting the following. On August 3, we concluded the process of choosing payment options in Brazil. The process of choosing payment options abroad began in August and will be concluded on September 4. For creditors of up to BRL 30,000, payment will be made by September '17 within 19 days of the plan being ratified by the court. With adjustment of securities in Brazil and abroad -- excuse me, with these steps completed, the adjustment will take place in the following months. Last but not least, as soon as the process of renewing of the concession is completed, we will begin our procedures for the private capital increase and conversion of the remaining credits that will be converted into shares. With that, I conclude my remarks and reaffirm our commitment to transforming Light into a financially healthy company in order to maintain the quality of service it provides to the population of Rio de Janeiro and to honor its commitments to its creditors. I will now give the floor to the moderator, who will begin the Q&A session. Thank you very much.

[Operator Instructions] The first question was asked by [ Conrado Amos ]. He stated that he would like to hear more about DEC, which has been above the regulatory limit for the second quarter in a row. What is Light's expectation until the end of the year? He states that he understands weather events are responsible, but there are 2 quarters in which they have not been met. Is this related to reduced investments?

Conrado, this is Alexandre. Thank you for your question. It is not connected to reduced investments. Level in January was far from the regulatory limit, and that's why we haven't met this requirement for 2 quarters. As I said, we're reinforcing our teams. We are including more than 50 teams right now in August to try to reinforce the company's operations. And we expect that by the end of the year, we will reach the regulatory levels for DEC and VEC. Thank you.

[Operator Instructions] The next question will be asked by [ Rodrigo Violaro ]. He asks about the company's expectations about the announcement date for the concession renewal. Is this urgent in the Ministry of Mines and Energy? He also asks, when will be the date where shareholders' choices will be published? Right now, the website says September.

Okay. Let me answer the first question about the concession renewal and Rodrigo Tostes will answer the second question. So regarding that, there was an event on May 29, where the decree was issued by the Ministry of Mines and Energy, as I mentioned. They set out the guidelines and what Light is doing is keeping track of the process, monitoring it closely, and we expect that it will be concluded very shortly. We're still waiting for ANEEL. Thank you.

[Operator Instructions]

Rodrigo to answer your question about the date. The bond selection process will conclude by September 4. There is a number of legal and operational requirements that must be met. We don't have an exact date yet, but it will be after September 4.

[Operator Instructions] The question-and-answer session is now closed. We would like to give the floor to Mr. Alexandre for his closing remarks.

Thank you, everyone, for listening to our conference call and have a good day.

This conference call is now concluded. On behalf of the company, I'd like to thank everyone for participating and underscore that the Investor Relations team is always available to assist you. Thank you, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]