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

Good morning, and welcome to Light's Fourth Quarter 2024 Results Webinar. Today's event will be held in Portuguese and simultaneously translated into English. To change your audio, select the language you prefer from the interpretation button at the bottom of the screen. We would like to inform you that this event is being recorded. And this recording 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 go any further, I would like to emphasize that any statements made during this presentation, regarding the company's business prospects, projections and operational and financial targets, are simply the company's beliefs and assumptions. This is based on information currently available for the management. Forward-looking statements are not guarantees of performance and 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 such forward-looking statements. As we made the necessary legal announcements, we will begin our presentation with Mr. Alexandre Nogueira, CEO, who will make the opening remarks, followed by Mr. Rodrigo Tostes, CFO and DRI, who will comment on the company's results. I will now give the floor to Mr. Alexandre. Go ahead, sir.

Good morning, everyone, and welcome to Light's results call. 2024 was another challenging year for the company, but we ended this period celebrating major operational and financial advances. In May, Light approved its court-mandated reorganization plan with the support of more than 99% of the creditors present at the meeting. This restructuring is already posting results in the fourth quarter. As our Financial Director, Rodrigo Tostes, will comment on later, debt maturities were lengthened and costs were reduced. This has relieved the short-term pressure on the company's cash and enabled Light to take care of its operations. The focus of the company's new management is preserving cash and operations. Also by focusing on innovation, efficiency and technology, we are speeding up the services provided to our 12 million clients in 31 municipalities in the state of Rio de Janeiro. We are reinforcing our digital channels to improve the customer experience even more. We are also internalizing the field teams dedicated to critical activities. As Light employees, these teams are absorbing the company's values and culture. And this is reflected in the significant 40% increase in their productivity. Most of these new hires are professionals trained by Light itself on its professional training platform. Since we went into this recovery 1.5 years ago, Light has never neglected the quality of services provided to the population. The DEC and FEC indexes, which measure, respectively, the duration and frequency of any power interruptions, have remained below the regulatory limit. And this has been the case in recent years. Likewise, revenue continues to grow. It ended December at 98.7%, an increase of 1.1 percentage points. Light is presenting an unblemished balance sheet, confirming its process of financial and operational recovery. As a result, the company reported a consolidated net income of BRL 1.6 billion in 2024. This financial and operational development is the basis for the company's resumption and providing contracts for renewing its concession contract. The new Light is based on 3 pillars, which in addition to financial and operational aspects also includes the economic aspect. And this is where we need to make progress in 2025. For operational progress to continue and the company's financial health to be preserved, Light needs a concession contract that recognizes the specificities of its area. That's why we still have to evolve in economic and regulatory aspects. Yesterday, Light sent a letter to the Ministry of Energy and ANEEL confirming its interest in the early renewal of the concession. The recent discussions on the draft for the renewal of the distributors' contracts provide guidelines for loss levels in areas in which the company is unable to operate, a fundamental point that has demanded by the company's management in order to address the economic and financial balance of the concession. In addition, the annual recognition of investments is a necessary measure to increase investments, especially in the renovation and modernization of the company's assets as well as reaffirming its commitment to revitalizing the business and the people of Rio, 2025 is also the year in which Light celebrate it's 120th anniversary. Throughout this period, the company has gone through different scenarios, but it has always continued to innovate and evolve. It is more than a century-old company, Light is the energy that drives Rio's development and impact thousands of lives. I will now hand over to our Financial Director, but before, I want to thank all of our shareholders, our Board and everyone who participated in Lights recovery. Rodrigo Tostes will now detail the results, and we will be available for a question-and-answer session after the presentation. Please go ahead, Tostes.

Thank you, Alexandre. Good morning, everyone. I'm going to share here the main advances and figures that marked 2024. We'll start with our highlights, which show the company's progress, and next, we'll cover operational information detailing the initiatives that have boosted our efficiency and performance. Then we will move on to the financial results, and we will talk about our financial -- our judicial recovery. This quarter, as Alexandre said, the company has been evolving in its strategic pillars that will support Light's future. We have to make an important acknowledgment that we're moving in the right direction. We have evolved from auditors opinion in 2023 with an abstention of opinion to an unqualified opinion. So starting with our highlights on Slide 4, I would like to reinforce the message that the company remains focused on efficiency actions, cash preservation and improving the distributors' financial health, which, as we know, is where the main short- and medium-term challenge lies. Starting from the consolidated vision, I would like to say that at the end of the year, we completed the debt restructuring with the delivery of new financial instruments, a milestone that strengthens our capital structure. I'd like to stress the importance of all of our employees, shareholders, Board of Directors and creditors, which were fundamental to make this restructuring successful. As a result, we recorded a net income of BRL 1.6 billion in 2024, reflecting the effects of restructuring the company's debt. Still on the subject of consolidated results, our cash position reached BRL 3.1 billion, reflecting a significant growth of 47% over the previous year. On the distributor side, net debt for Light SESA dropped to BRL 4.5 billion, a reduction of nearly 50% compared to 2023. In 2024, Light SESA achieved an adjusted EBITDA of BRL 1.4 billion, an increase of 3.7% compared to the previous year. This increase was due to the improvement in PECLD as we all see. Finally, I would like to highlight among all operational improvements, the reduction in DEC or the interruption duration indicator, which registered 6.74 hours, the lowest level for a fourth quarter in the company's history. Continuing on Slide 6, I will talk about operational aspects. In 2024, the market grew by 1.3% compared to 2023, driven by positive performance in all customer segments. I would particularly like to highlight the performance of the Commercial segment, which rose 2.1% year-on-year. The Commercial segment is beginning to show signs of recovery within our concession area. This has helped the market return to the same levels of consumption seen before the COVID pandemic. It's important to note that this growth could have been higher if it hadn't been for distributed generation, which captured part of this growth in the concession area, as we can see in the graph on the right-hand side of the slide. Slide 7 discusses quality. Still on the subject of operations, as we said before, the operational pillar is 1 of the 3 fundamental foundations for the success of our restructuring, and it will become even more important from now on. The company has focused its efforts on strategic initiatives that promote greater efficiency, sustainable value generation and a better experience for our customers. In this context, I would like to address the first important topic for the company, which is quality. At the start of 2024, we faced a high volume of emergency demands, which put pressure on our indicator and led DEC down a growth path. But throughout the year, we implemented a series of initiatives focused on improving the productivity for our clients. In 2024, the company once again ended the year delivering DEC and FEC below the regulatory limits with DEC being the best performance in the historical series for the fourth quarter. I would like to congratulate the company's teams for achieving this milestone. On Slide 8, we highlight our average service time, which fell by more than 50% compared to 2022. This progress is the result of structural initiatives that have been optimizing our operational indicators. Among these initiatives are the deployment of motorcycles for the first call, the revision of the callback model, the reduction of unproductive displacement and updating the asset-based census. Continuing with Slide 9. And this is the last on the subject of operations. I reinforce our position that the current level of losses in Light's concession area requires a structural solution in addition to the operational actions underway. The structuring -- excuse me, the structural solution includes guidelines for the treatment and tariffs on areas of severe operational restriction with the aim of promoting the rebalancing of new contracts, especially in the regions most impacted by this. I would also like to talk about the operational actions underway. We're directing our efforts towards ensuring the viability of the operation and its impact on cash in the regions where we operate. The company has been testing the best approaches for each of the regions within our concession area, but we are always taking into account the economic viability of investments in the short and medium term. The strategy has generated significant results, for example, I highlight a case in which after adopting a new network fielding approach, we recorded a significant reduction in losses of 81% and an improvement in the collection rate of 8 percentage points. Continuing with Slide 10. Let's get into the financial part of the presentation. The distributors EBITDA reached BRL 1.4 billion, an increase of 3.7% over the same period last year. This is due to the positive dynamics of PECLD driven by the evolution of the retail collection rate over the period. This performance reflects the improvement of administrative and operational procedures by the company. Then continuing with Slide 11, the distributors' operating cash generation measured by EBITDA minus CapEx was BRL 453 million in 2024, which reiterates the company's commitment to generating cash and maintaining qualities. CapEx rose by almost 20% year-on-year. In addition to maintaining and modernizing the supply system on Governador and Paquetá Islands. So the company has been focusing investments on expanding and maintaining its network with a focus on service quality and operational efficiency. Moving on to Slide 12, the distributors' net income was BRL 1.6 billion in 2024, as said before. This was influenced directly by the incorporation of the effects of restructuring the distributors' debt. Even without the debt fair value adjustment, the performance would have been positive in 2024. Slide 13 discusses the distributors' indebtedness. As you can see on the graph to the left, net debt ended the year at BRL 4.5 billion. This performance is the result of restructuring Light SESA's debt completed in December with new instruments following the recovery plan. As can be seen in the graph, the debt was reduced by BRL 800 million from the reversal of accrued charges, BRL 2.4 billion from credits by the holding company to be converted into capital after the renewal of the concession and BRL 1.4 billion in recognizing the fair value of the debt. As a result, this has relieved pressure on short-term cash and extended maturities, making it a crucial step forward for the distributors' financial balance. The first graph on the right shows the Light SESA's new principal repayment structure. The schedule is balanced, and it reflects a term that is more in line with the company's payment capacity. The new debt has a duration of approximately 8 years. Debt indexation is showed in the pie chart on this slide. Approximately 70% of the debt is now linked to the IPCA plus 4.3%. The remaining 30% follows the CDI and dollar dynamics. The structure optimizes the risk of volatility in financial costs over time. Just for a comparison, the average cost of debt, considering the conditions prior to this, would be close to IPCA plus 12%. Moving on to Slide 14, we analyze the EBITDA of our Energy Generation and Commercialization segments. Year-to-date, this business line generated an EBITDA of BRL 700 million, down 14% on the same period last year. This is mainly attributable to a margin reduction caused by the termination of old contracts in traded portfolio, which were more profitable than the current average due to the higher energy sale prices. So with regard to our sales arm, I'd like to take this opportunity to share a little bit about the transformation we're making at Lightcom. Throughout 2024, the company underwent extensive restructuring, created new business lines and expanded its commercial team, which led to an offer of new products and doubled its client portfolio. We're preparing Lightcom to continue growing in a sustainable manner, and we believe in its potential to consolidate a position as a benchmark in clean and sustainable energy, delivering diversified, efficient and customized solutions in the free energy market. So as we conclude this quarter's results and before we continue to the Q&A section, I'd just like to make a few comments about our next steps. Moving on to Slide 15, the last in my presentation, I'd like to remind you about the next steps regarding this recovery. As you can see on the timeline, the next steps are reverse auction for the prepayment of up to $90 million of Light Energia's bonds due to take place in the next few days, signing the concession agreement, which will be analyzed by ANEEL and be decided on by the Ministry of Energy, private capital increase of between BRL 1 billion and BRL 1.5 billion by current shareholders and the conversion of Light S.A. debentures in the amount of about BRL 2.3 billion. After that, we will consider the judicial reorganization plan to be 100% completed, and we will be prepared for the new challenges that Alexandre mentioned. That concludes my remarks, and I will now hand over to the moderator so that we can begin the Q&A session. Thank you.

[Operator Instructions] The first question will -- came from [ Francisco Bertin ] from Moneda. He asks about the buyback process for Light Energia.

So about this that we're calling a reverse auction in the presentation. We are signing documents now. We want to conclude this documentation after publishing the results, and we hope to launch this in April. So we will launch this very soon.

[Operator Instructions] Next question was asked by [ Paolo Brunelli. ] He asks for more details on the adjustments made to reduce the debt from BRL 7.4 billion to BRL 6 billion, were convertible debentures not considered?

No, it was not that. It is an adjustment to the fair value. So this is in -- this is detailed in our financial statement with the rates. So this is not related to the convertible debentures. That's the 2.3 value that was in our presentation.

The next question comes from [ Lucas Zulegi ] from [ DC. ] He asks, can you give us some color on what changes we can expect from the renewal contract in nontechnical areas and risk areas?

Lucas, as we explained in our speeches, the new contract has guidelines from the Ministry of Mines and Energy. And this is -- and this includes risk areas, which will be treated differently from non-risk areas. So this is a change with regard to the current contract. This is already in the new contract minutes and also in the decree from the Ministry of Mines and Energy. So risk areas will be treated differently from non-risk areas. And for Light, this is a very important event, and we'll give more financial and economic sustainability to the company and will also allow us to invest in modernization and in renewing our network.

[Operator Instructions] This concludes the question-and-answer session. We will now give the floor to Mr. Alexandre for his closing remarks.

This brings the company's results conference call to a close. On behalf of the company, I'd like to stress the Investor Relations team is always available to assist you and answer any technical questions. Thank you for your participation, and have a good day.

This concludes the company's conference call. On behalf of Light, I would like to thank everyone for their participation and emphasize 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.]