Equatorial Energia S/Adr

Good afternoon and thank you for waiting. You're welcome to Equatorial Energia teleconference for the results of the first quarter of 2021. We have here today with us Mr. Augusto Miranda, Chief Executive Officer and Mr. Leonardo Lucas, CFO and Investor Relations Officer. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Equatorial Energia SEA remarks, there will be a Q&A session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. This event is also being broadcast live via webcast. It may be accessed through Equatorial Energia website at www.equatorialenergia.com.br. The presentation will be available. Participants may view the slides in order they wish. The replay will be available shortly after the event is concluded. Webcast participants can post questions on our website. and they will be answered after the conference is finished by the RR team. Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Equatorial Energia S.A. management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry, and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Augusto Miranda. He will start his presentation. Mr. Miranda, you may begin. Thank you very much. Good afternoon, everyone. I thank you for your presence. I'm very pleased to present the company's results for the first quarter 2021. In the beginning of the year, it's important to acknowledge that the challenges of the pandemic were seen again. And even though the situation is more critical, the context is different from previous ones. be it because of the positive perspectives of the vaccination and other results. We're more prepared as a company, have advanced with the digitalization initiatives with consumers, telework, in addition to the safety protocols. Our values have been essential for us to be successful in facing this scenario. We're based on discipline and our results for this quarter reflect this. We have had advances in the creation of value, expansion of energy consumption, despite the adverse scenario of the pandemic. I would like to highlight that we were very active in analyzing business opportunities, not only in the electric sector, but also in the sanitation segment. We also had an auction that was carried out in March 21, and I would like to highlight that. In slide three, I will share the highlights. I will start with the financial and economic highlights. The recurring consolidated ETTA reached 1.1 billion BRLs in the first quarter of 2021. The performance was gradual in our different areas. We can see the impacts of the reduction of the effects of the cash and cash equivalents. And I will get into details later on. I also wanted to highlight that we invested 613 million BRLs in this quarter. The volume was 22% greater than the results we had in 2020, despite the challenges of the pandemic. In the transmission area, we had a 23% decrease. We have a robust consolidated cash position of 6.9 billion BRLs, and we have 28,000 shares in the rebuy program. That allows us to keep the current investments, and at the same time, we are competitive to allocate capital. In terms of leverage, we have remained stable when compared to the previous quarter. We have two point time the debt to the ratio. Regarding the performance of our distributors, I'd like to highlight the growth in the sales of energy. We had a 4% increase. We have had an expansion of 5.4% for Maranhão Piauí, in addition to increases in Equatorial Pará. This is excellent in face of our current situation. We remain having restrictions in different sectors. The operating results will be commented in the next slides. Another important highlight was the improvement of our annual readjustment. We have an average of 8.87%, and this result was obtained because the company worked hard along with the regulation to mitigate the impacts of the activities in this period on the tariffs. We reached 737 million, and we'll talk about this in the end of our presentation. In transmission, We reached 100% of our construction works. We have an expectation that to depend of a conclusion, a segment which is going to be auctioned and is under the responsibility of Equatorial, under the concession contract. Seven lots are already operational. Only lot three is not operating. We are working with another consultant which hasn't delivered the activity yet. And finally, we have another auction by CED expanding their group to RS. Another highlight is our participation in CEDAI auction. We were very competitive. keeping our discipline. We got close and are looking forward to more opportunities in this segment. And now I turn over to my colleague who will talk about the operating performance. Leo, I turn over to you. Well, thank you very much, Augusto. Good afternoon. Good afternoon, everyone. I hope that you're all doing well. We're now going to talk about injected energy evolution in slide number five. The volume of injected energy, which was invoiced, continues evolving, and we had a 3.5% increase and 4% increase, respectively, in the first quarter of 2021. The highlights are the advances in Maranhão MPI. And in general, we have different lots in the concession area that have enabled us to expand consumption partially because of a greater exposure to the residential class, which suffered less impacts within the current context of the pandemic. And also, we had increases in other areas. In Maranhão, we had a 5.9% increase in Maranhão for injected energy. Also, this is the result of the economic resumption and also the impact of residential rates. In Pará, injected had an increase of 3.7%, and that was also favored by the climate conditions in the state. And also, energy had a 3.7% increase. I would like to highlight an increase of distributed energy of 5.4 MPI, not only because of climate conditions, but also because of a gradual reopening of economic activities in the state. In Alagoas, I'd like to highlight that even though we had a decrease of 1%, especially because there was less rain and the temperatures were cooler, we... had an increase in the number of clients, and also the measures to combat, to fight these losses were very successful. And then in the next slide, we can see that residential consumption continues as the main responsible for our results. But we can already see improvements in the industrial area, especially in the state of Maranhão. And then finally, I would like to highlight that we continue growing stronger in terms of the number of consumers considered as being low income. We have clients who were added in the last few months. We are growing. Even though Anael implemented resolution 291, of the five companies in Brazil that have most advanced towards the potential low income portfolio, We own four and PoE is in the leading position. And I now move on to the next slide. Slide number six. Here, you can see the performance regarding the default of, you can see the, percentage rates, which demonstrate an evolution when compared to the first quarter of 2020, despite the additional challenges we had in the beginning of the year because of the changes we had in local administration changes. With these results, the proactive actions promoted by the company to encourage and facilitate the fulfilling of the obligations of our clients, among them highlight the promotion of the energy campaign who encourages clients to be update with their payments. That also generates improvement in the quality of our portfolio. As a result of this initiative, more than 1.4 million clients have joined and that means an increase of 5.3 percentage point. It is worthwhile mentioning that on March 26th, NIL approved Resolution 928 of 2021, and among other things, it prohibits the discontinuation of energy supply to low-income clients until June 30, 2021, as a temporary measure to help with the pandemic effects. In slide seven, we can see the total losses in our distributors. Here we can see the state of POE and Alagoas. They continue advancing consistently in their turnaround processes. And here I have a highlight for the reduction of 0.5 percentage point in the quarter in Alagoas. of the gains in productivity of the teams that are working in this area includes a mobilization of the whole team. And as a result, we have observed a decrease in the last percentage in Alagoas for the sixth quarter and the fourth quarter in POE, which enables us to be above the regulatory threshold And in Maranhão, we had a mild increase because of the more adverse scenario of the pandemic. In Pará, the level of losses had a mild decrease when compared to the previous quarter, indicating a more challenging environment. On one hand, and on the other hand, the actions implemented during the period, such as network typology, among others. And consolidated, because we had a reduction of consolidated losses in the quarter in our distribution. And then finally, I would like to highlight that The return of the field teams to fight these losses only took place in the third quarter of 2020. And because these losses are taken into account for the last 12 months, the actions we had last year also have an impact on our current results. And then I move on to slide number eight. Slide eight, we can see the quality indicators. Maranhão. suffered strong impact, which had an impact on FEC and DEC. Here, I would like to highlight the failure that generated a discontinuation of supply for 4.5 hours in the whole state of Maranhão, affecting over half a million clients of the distributor, corresponding to approximately 20% of the total. We had three interruptions in a single month in another distributor for about nine hours. Another adverse effect was the expressive increase of 174% in remote and rural areas this quarter. This is the result of adverse climate conditions in this region. I'd like to highlight that to face this, we have reviewed maintenance plans in Maranhão and have also made investments related to these actions. All of this is in line with our commitment to provide quality service and POE or quality indicators were impacted by the storm, for example, where we had trees falling on our network, which made it very difficult for us to resume the provision of energy immediately. In Piauí, we have a network that does not have a lot of redundancy and requires investment so that we can improve DEC and FEC. The positive highlight here is on the performance of Pará and Alagoas. In Pará, we can see a decrease of 3.5% in DEC going from 22 hours to 19.5 hours when compared to the previous quarter. And I like to remind that when we got there, Pará had 101 hours of DEC. In Equatorial Alagoas, the indicator presented a reduction of 9.7% going from 19.3 hours to 17.4 hours when compared to the previous quarter. Also, we had a 35% reduction within a year, and that led Alagoas to report the lowest DEC in our group. I'd like to reinforce that the turnaround process of our assets in the recent past continues evolving, and we are surprised with how fast they are improving. This has been possible because our processes have been consolidated. Moving on to FEC in slide number nine, the main highlight here is that we have all four distributors below within the regulatory limit. Another point to be highlighted has to do with Ecuadorian Alagoas, which had a decrease of 2% in the first quarter of 21 when compared to the fourth quarter of 2020, and 24% when compared to the first quarter of 2020. This indicates that investments in the network in Maranhão and Piauí, the FEC increases result from the effects that I have already shared with you. And we now move on to slide 11 with our economic and financial performance. We can see the evolution of our managed expenses consolidated as well. In the pursuit for efficiency, Equatorial has implemented one further step of its development, now with regional resources aiming at improvement of operating results, with a highlight to regional managers and superintendents that were hired in the first quarter. As you can see, Maranhão had an increase of 4.8% when you compare the different periods. And this is below the accrued inflation rate measured by IPCA. In Pará, this increase results from greater expenses with personnel and also the purchase of the eighth hour working at Equatorial Pará. Also, we had more expenses with services resulting from the number of services that were performed also had emergency actions when compared to the same period in 2020. In POD, we can see an impact of emergency services as detailed in the operating session, in addition to a higher volume of expenses because of the intensification of our billing strategy. still in distribution as demonstrated in the previous quarter, it's important to reinforce how fast the turnaround has been in POD and Alagoas. This is shown by the levels of PMSO for the consumers, which are at similar levels to our more mature concessions. I would also like to highlight the transmission segment with a recurring increase in GSL 1, 2, 3, 4, 5, 7, and 8. And until last year, they were included in the corporate contract. And we're now moving on to slide number 12. The adjusted ETDA on the first quarter reached $1.081 billion with an increase And compared to the first quarter of 2020, if we remove the non-cash events and the adjustments that we made, the growth of this quarter would have been of 55.5% or 364 million BRLs, growing from 687 to 1.062 billion. This is a result of the transmission segment, which started operating the new assets and had an increase of 137 million BRLs. And we also had an increase in the ETEDA observed in the four distributors. And I will show you in the next slide. In slide 13, we can see the contribution by the different and we had strong ETEDA increase in all distributors. They contributed with an increment of 330 million BRLs when compared to the same period in 2020. In Maranho, the increase of 47% is explained by the increase in the gross margin, the market increased, and also because of the update of the financial asset resulting from the investments made in this period. So in PARA, the adjusted ETEDA reached $402 million with an increase of 29%. And this is a result above all of the gains we had with tariffs and also the update of the financial asset. In the case of POE, the ETEDA reached $131 billion with an increase of 146%. Capturing an expensive increase of the tariffs is a result of RTE that took place in December, and it is also influenced by the reduction of losses and improvement in the market. In Alagoas, the Entida reached 109 million, and this is a result of the increment in the tariffs, according to the Extraordinary Tariff Review. in addition to a positive effect of the reduction of losses, resulting in an increase of 101%. In terms of transmission, it follows CAPEX, leading to decreases resulting from IFRS. And then in the graph below, we can see the adjusted attitude XVNR and IFRS. We had almost all of the assets operating and then moving on to slide number 14, you can see that we have invested 161 million in this quarter. The highlight has to do with the increase in investment in distribution with an impact of the tariff review process and also due to a carryover effect of investments that were not executed last year resulting from the limitations imposed by the pandemic. For transmission, we had a peak in 2019 and We are now deaccelerating. There was a significant decrease in these values altogether. And since the first quarter of 2017, we have invested $5.1 billion in our transmission projects. And now in the next slide, we show that the net debt is basically stable when compared to the previous quarter, totaling 0.3 billion. And then we take into account the ETIDA values, which reached 2.3 million. This gives us an opportunity to enjoy market opportunities regarding capital relocation. The group has a solid cash position. We close the quarter with 6.9 billion, which is enough to pay over two years of our debt. At the end of the first quarter, this was approximately 5.3 years. This position is very important so that we can continue having a comfortable position with opportunities for the rebuy programs of the company that was approved in December. By March 31st, over 28 million shares had been purchased in the scope of the program, totaling 2.3% of the total shares. In April, we captured over 800 million in equatorial transmission. Investments were made in infrastructure and enabled us to have an annual cost and the resources will be used. And in addition, with the purchase of CED, we have a further challenge For the other quarters, we will have to balance out the assets of this company, and they are being evaluated by our team. To mitigate risks, in April, we hired hedging for exposure in foreign currency until August 2021, generating gains when compared to our business plan. And then in slide number 16, We can see that 100% of the transmission projects have been concluded. Today, 87% of the ramp is already operational, representing a revenue of, that you can see on the slide. All SPVs are 100% concluded. Even though this was done for March 5, 2021, 12 months before the contract deadline, it will be received in the second half of 2021. It's important to highlight our commitment to deliver all of these projects before due time, adding more value to our shareholders. And now I turn over the microphone to Thank you, Leo. So we move on to slide 18, where I share more details about the tariff adjustments in Alagoas before my final considerations. On April 27, we had an annual adjustment of Equatorial Alagoas with an average effect of 8.62%. The results were positive. 7.5%. This was influenced by the IPCA period, which was 6.91, and also the X factor, and also by the other regulatory adjustments, including other revenues. The increment is even higher if we take into account the $5 million resulting from the receipt of the constructions. And here we have a total of 0.5% of readjustment. The readjustment counted on two measures to help us. Among them, we highlight the COVID account reversion, PIS COFINS credit, already contemplated by the company. Cost profiling of RBSC. The deadline was expanded from five to eight years. Also, the deferral of the basic grid. The amount will be received in the next tariff period, updated according to the SELIC. And now the final comments.

in slide 19.

I would like to wrap up by talking about our perspectives for 2021. We were able to conclude our transmission constructions before due time and currently We have active revenue in our projects reaching 87% of the revenues active. We also won C3E's auction. We are confident that this is going to be another important chapter for the success of our history. I would also like to highlight that for the conclusion of the operation, we have to analyze preceding conditions. We also had tariff review in Alagoas. The results were positive. We had a mitigation of the tariff adjustment. The new distributors, POE and Alagoas, are in advanced processes. with a consistent improvement of indicator in addition to the levels of PMSO to the consumer, which is similar to those of our more mature operations. The tariff review will take place in Maranhão in August and also in November. For transmission, all transmission lines will be operating strengthening cash generation in our editor. We have a strong growth agenda. We are participating in tender processes and continue pursuing opportunities to generate value, not only in the energy sector. I now turn over to the operator for the Q&A session. Thank you very much. Thank you very much. We're now going to start the Q&A session. If you have a question, please press star one on your phone. If at any point your question is answered, you may remove yourself from the line by pressing pound key. Questions will be taken in the ordinary receiver. We ask that you pick up your hands up to provide optimum sound quality when you pose a question. We have a question. From Antonio Junqueira, Citibank. Good morning. I'd like to ask you a few things. Do you know when for C and then when or what are the other sanitation auctions you're taking into account? Do you know when this will happen? Number three, finally, I would like you to talk a little bit about the plans to improve losses in Pará. It seems to be an important challenge for the company. Thank you very much. Good afternoon, Junqueira. Thank you for being here with us. Sela is anticipated for June, an offer for June, next June. This is the latest information we have. Regarding sanitation, We're talking about sanitation in Amapá and Constant. So these are the things that we see in the near future, okay? Now regarding losses in Pará, each concession has a different characteristics. We have been working there since 2002. We know what the opportunities are and also what the challenges are. In terms of losses, everything is very well mapped. According to NIL's rank, Pará is the more complex company, the more complex region to work for. But we have refined our work there based on our experience. We have centralized the measurement and the result has been fantastic. Today, 45% of the energy in the capital city is measured by a decentralized measurement system and also fiscal measurement. We have 16 spread throughout the state. We know exactly where the problems are so that we can treat them more specifically. Actually, We're also fighting losses, looking at PSLD. These are important things. Junqueira, I would say that last year we had a very successful program. It was delayed because of the pandemic. And you know that The effect is different depending on the time we do it. As mentioned during our presentation, we only started operating after the third quarter of 2020. It is only natural that in the first and second quarter had an impact. When I disseminate in the market that I had 1% of losses, this is the net amount, the average amount. And when we had to stop without being able to act, we could not do anything. We have restarted this program. It is a daring program. We have two other areas in Pará that have been identified. Actually, there are four. One we have already solved. Another one is ongoing. We have intensified our work. We have four companies trying to solve this so that we can recover the lost time. We're very confident. And you will see that despite the pandemic, when you compare, you can see that we had a mild decrease. It is not what we wanted, but I've already told you why. You can see that the losses are well mapped. And I'm very confident, Junqueira, that we're going to have very successful results in Pará. I don't know whether I have answered your questions appropriately, but if not, I am available to answer. The next question is from Marcelo Safrom, Itaú. Hi, everyone. Thank you for the call. I wanted to take this opportunity to ask you about the CEDAI auction. where you participated. You obtained some lots. And so the first question, to better understand the premium, I would like you to explain what you were evaluating regarding PMTS. Would it be in terms of losses? Would it be CAPEX, OPEX? Where did you think that there was more opportunity in the lots that you obtained at SEDAI? The next question is too about SEDAI. It's about lot three. Why did you think that lot three didn't make any sense? What were the main risks you saw in that lot? Thank you very much. Marcelo? in this auction in Alagoas, what I can tell you is that we are very comfortable with our decisions and our premises. I would rather not advance in this discussion here. Other people won the auction as well. Lot 3, from the very beginning, when we analyzed it, we could see that it would not present results. It wasn't efficient. We liked other ones better. We performed an assessment. There were different premises, number of clients, you have CAPEX to take into account, OPEX. We had a very good consultancy. other people who operate there, and therefore we were able to advance with our proposal with a lot of confidence.

Great.

Moving on with Junqueira's question, you commented about your interest in Amapá, and the idea would be for the Invitation for tender would come out in May with adjustments in tariffs so that the auction had some economic financial balance. But in addition to that, are there any other attractions, for example, Porto Alegre, that could make sense? I would like to know if you are evaluating this or only the participation by means of auctions. I would say the following. Today, we have structured the M&A area. We're not only in reactive mode. When we see that there is some interest We have a committee in the board of directors, which evaluates the feasibility or not. And then we have a committee formed by board members. This committee is very strong. And then if we decide to do it, we offer the proposal to the board and they decide whether we will move on or not. We analyze, we study. And then we have a pathway to follow within the company before we make a decision. Great. Thank you very much. The next question is from Maria Carolina Carneiro from Credit Suisse. Good afternoon, everyone. I have two questions. First, regarding CEEE, shortly after the auction, we were informed that SPA would maintain the rights of the employees. I would like to know whether there is an impact for you. Number two, you mentioned participation in SEDAI, and we really saw that it was more competitive. Was there any special reason for you not to be interested in lot three? Would you reevaluate it if this lot is offered again? Carolina, thank you very much for your question. It is important to get away from the decision made. The legal rights of the employees are being decided under two lawsuits. Right now, they protect the company. We understand that the decision made will be revoked. And you know that there will be a direct impact and we have seen strong actions from the state and the governor in this regard. Also, the option is that benefits are not maintained and everybody is working hard to revert the situation. We're very optimistic taking into account how important this is for the state and even for the success of the two actions that have already been announced. Thank you, ladies and gentlemen. Once again, I'd like to remind you that to ask question, please press star one. We have one question from Renan Orishi from Clube de Investimentos Finiti. Good afternoon. How long will it take for the turnaround of TEE? Are there any different challenges when compared to the prior acquisitions made by Equatorial? Thank you very much. Renan and Leo, feel free to answer. Renan, thank you for your participation. You have seen Equatorial's background in Maranhão, And then Pará, Alagoas, Piauí, all the same. And then we had the transmission process, as Leo mentioned, and all of the lots were delivered before due time. It is a process where Equatorial organizes itself. We always try to align our interests with those of our employees in general. and move on at the desired pace. And if you analyze Maranhão, Piauí, and Alagoas, the results surprise you, but they also surprise us. We have internal committees. We have different ways to monitor. CEE is the same. We're always pursuing opportunities. In Alagoas, we found excellent amounts. Extraordinary people in the organization. Sometimes employees were not motivated but had a lot of potential. We reactivated this potential and I'd like to highlight that in Maniangão we have people from Piauí, people from Alagoas and Pará. It's a mix of people. People who really surprise us every day. We're doing the same thing. We are assembling a team with this vision in mind. We have people in Rio Grande who have this potential. People who can dream with us so we can make a difference. We have different actions that will be carried out before we start and then we have actions for 100 days after. We're very confident the culture of Equatorial along with CE's employees and we've already seen that the company has a very good infrastructure and we expect that when we add our expertise and experience to that of Rio Grande and the current employees, we will be able to accelerate I'm not going to get into the details and say that this will happen at the next amount of time because it varies. We have to respect the local culture. But I would say that we try to adjust and we try to have peaceful agreements with a lot of transparency. I would add, Augusto, thank you very much for the question here now. I would add to what Augusto commented, that we usually have a combination of a local team and then our team, and the fact that we have a corporate structure, the 100-day plan, detailing very well what should be done so that we have no distractions. But it is a region that has a different income profile than what we're used to. And then in terms of business processes, this may be a facilitator. In terms of costs, we go from a higher cost level.

And as Augusto mentioned, situations vary.

We are working in an effective manner very well aligned so that we can move forward at all times. What we see is that the region is less complex under different aspects. Taking into account all of the other concessions, we have a lower average revenue, and that will make it easier for us to progress. This is an expectation. In the preliminary context we had, this was reinforced. This concession has a different characteristic because of the level of complexity and definitely it will be very good for Equatorial's portfolio. Ladies and gentlemen, I'd like to remind you that to ask question, you should dial star one. We now conclude our Q&A session. I now turn over to Mr. Augusto Miranda for his final considerations. Please proceed, Mr. Miranda. To wrap up, I'd like to reinforce our commitment to deliver differentiated values to our shareholders by means of operational and financial excellence, and efficiency in the use of capital. I would also like to highlight our high level of corporate governance and assure you that our international relations team is available to support you. I wish you all a good afternoon. The Equatorial Teleconference is now over. We thank you all for your participation and wish you a good afternoon.