Equatorial Energia S/Adr

Good afternoon, everyone, and thank you for holding. Welcome to Equatorial Energía S.A. first quarter 2023 result conference call. With us here today, we have Mr. Augusto Miranda, the CEO, Leonardo Lucas, CFO, Cristiano Logrado, Executive Director, Tatiana Vasquez, Investor Relations Superintendent, and Tim Freire Amado, CEO of Ecoenergia. This event is being recorded and all participants will be in listen-only mode during the company presentation. Ensuing this, we will go on to the question and answer session when further instructions will be given. Should any participant require assistance during this call, please press star zero to reach the operator. This event is also being broadcast live via webcast and may be accessed through Equatorial Energia website at www.equatorialenergia.com.br, where the presentation is also available. Participants may view the slides in any order they will. The replay will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions on our website. They will be answered by the IR team after the conference is finished. Before proceeding, please bear in mind that forward-looking statements made herein 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 as they relate to future events and therefore depend on circumstances that may or may not occur. investors and analysts should understand that general macroeconomic conditions, industry conditions, and other operating factors could also cause results to differ materially from those expressed in these forward-looking statements. I will now turn the conference over to Mr. Augusto Miranda, who will begin the presentation. Mr. Miranda, you have the floor. Good afternoon to all of you and thank you for your attendance. This afternoon we're going to present the results of the first quarter of 2023 for the Equatorial Energia Group. We began 2023 with structured actions to move forward successfully in the tariff processes of our distributors that happened during the year. for the operational enhancement of the recently acquired companies, and for a continuous improvement in the quality indicators of the company, especially Equatorial Marañón, and for the deleveraging of the Equatorial Group. We made great strides in operational performance in the quarter, and despite the economic scenario, our concessions continue presenting strong growth in the market above the average. In Goyas, we concluded the first 100 days of operation, advancing in the company turnaround with a highlight for the strengthening of our relationship with society, where we began to implement the equatorial culture along with the customers and the public powers. We reinforced and broadened the service channels and held more than 900 million in investment in the quarter, We are moving forward successfully in the integration and turnaround process. Please recall that in this quarter we began to consolidate the results of Equatorial Goyas. We're going to go on to slide number three. We begin with the operational highlights with a consolidated growth of 5% vis-à-vis last year. This growth is on adjusted basis, already considering the pro forma for the first quarter 22 with the data of Ecuadorian Goyas. Observing the quality indicators in the accrued vision of the month, we had an improvement in six of the seven distributors in our portfolio compared to the fourth quarter, 22. We highlight Equatorial Maranho that reduced the wreck by almost nine hours compared to the first quarter of last year. In the renewable generation segment highlight is for the volume of energy generated 15% higher than in the same period last year. Reflecting not only the greater speed of wins, but the coming into operation of the set of the mail to complex, which took place during this first quarter. We reached $2.3 billion in adjusted EBITDA in the quarter, 58% higher than in the first quarter of 2022, reflecting the consolidation of the new assets and the strong performance of the distribution sector, besides the strides in the turnaround of recent acquisitions. This vision does not include VNR and IFRS. We invested 2.5 billion in the period to highlight most of the investments and distribution with a focus on enhancing quality indicators and losses that total 2.3 billion, 1.9 billion in the assets with a cutoff date on the remuneration date of this year. And we ended with a reduction of 0.2 times in the net debt EBITDA this quarter, totaling 3.9 times, and reflecting the results of the operation carried out in distribution and the greater EBITDA in the quarter. I will now go to number five and to Leo, where we will begin a consolidated vision of the economic and financial performance of the group. Thank you very much, Augusto, and a good afternoon to all of you. Very quickly, I'll speak about the economic and financial performance of the group in a consolidated vision. Here, the numbers are adjusted for non-recurring events and for non-cash effects such as DNR in the distributors, IFRS in transmission, and MTM in commercialization. Our gross margin consolidated grew 58% vis-a-vis the first quarter, 22%. This growth is linked mainly to the good performance of the distribution segment that was given thrust to by the growth in the tariff mix and market, along with a reduction of losses. Besides the effect of consolidating the new assets, especially the renewable segment, That began only in the month of March of last year. Equatorial Goyas that added $668 million to the margin in the quarter. The organic growth of our gross margin, not considering these assets, was of 21%. the consolidated PMSO presented a growth of 11% in the comparison between quarters. Once again, not taking into account the consolidation of the new assets, this growth happens mainly because of the intensification of initiatives and distribution to enhance quality and reduce losses. And we can see the result of this in the last four years and also due to the growth of 4.4% in the number of customers without considering Equatorial Goya that has added 3.3 million customers to our base. The reported EBITDA for the quarter reached 2.5 billion BRLs, 55% higher than the same period last year. If we make adjustments for non-recurring efforts and non-cast effects, the EBITDA reached 2.3 billion, 58% higher than in the first quarter, 22, that is to say 830 million BRLs. The growth has a strong influence of the consolidation of Equatorial Goyas in the quarter that added 291 million, besides the growth of renewables and distribution. The last one with a highlight for the performance of Pará that grew 162 million reais. We go on to the next slide. here on slide number six we bring you information on the investments and indebtedness of the company in the quarter we had an expressive amount of investment totaling 2.5 billion driven by the investments focused on the strengthening of the network, improvement of quality, reduction of losses, and the proximity of the tariff events. Above all, because of the beginning of consolidation of Goyas, that totaled $902 million, The total CAPEX carried out in the quarter meant we invested more than $1.9 billion in assets with a cutoff date in the regeneration of this year. Additionally, as you can see, the volume invested captures the beginning of development of the pipeline that will be detailed further ahead. to the right we show you the indebtedness profile of the company we see in the graph that we maintain a net debt of 33 billion even with a strong volumes invested in the quarter leverage measured by covenants, shows a reduction of 0.2 times, ending the quarter at 3.9 times, benefited by the expressive growth in EBITDA. With the issuance of preferred shares in Equatorial Distribucion and the lengthening of the debt profile of Equatorial Goyas, That was carried out in January with the issuance of 7 billion. It was possible to increase the liquidity of the company and improve the cash over debt relationship by 2.2 times. Additionally, continuing with our plan to refund our liability, strengthen the liquidity of Equatorial Goyas, On May 8th, we concluded the issue of $1 billion in incentivated debentures with an average term of seven years. This has reopened the debenture market for high-grade issuers and has enabled the lengthening of our debt-providing financing liquidity. We will now speak about the distribution sector. Let's go on to slide number eight, where we bring you a general vision of the operational performance and the commercial performance of our DISCOs. Here, for comparison purposes, this quarter, the operational data are shown in a first quarter 22 vision, adjusted with the data of Equatorial Goyas. As you can see in the graph, distributed energy grew more than 5% in the first quarter 23, while the energy in check grew 4% between quarters. This result is partially due to the reduction of losses at our concessions, which in a consolidated way had a reduction of 1.2 percentage points. It is important to note that with the success of our initiatives to fight against losses, we ended the quarter with one percentage point, of the consolidated regulatory level. Regarding the commercial performance, we ended the quarter with a consolidated collection of 97.8%. This number reflects the impressive increase of the market and brings a mathematical effect to the increase of ICMS. In the light bill, While we enhanced the process of reading, which contributed to a reduction of the financial cycle, raising the concentration of bills due in the period, in PECLD, the consolidated level continues to be reasonable. The adjusted PMSO with a growth of 69% between quarters is due to the consolidation of Equatorial Goyas, which is highlighted in the graph to ease the comparison. If we don't consider this effect, the adjusted PMSO grew 10.8% due to the intensification of initiatives geared to enhancing the quality and reducing losses and the expansion of the customer base. In the comparison of adjusted EBITDA, we had a strong growth of 61 percent affected by the improvement in gross margin influenced by the higher tariff in the period, the market growth, and reduction of losses. A special highlight for the contributions of Para, 162 million, Maraño, another 85 million, and for the strong growth of Alagoas, 48%, and Rio Grande do Sul, 35%. adding 112 million to EBITDA besides the consolidation of Equatorial Goyas. At the bottom of the slide, I would like to highlight the excellent evolution of quality indicators of our distributing companies. For the third consecutive quarter, they have presented a consistent reduction in DEC and FEC. The main highlight is for the expressive reduction of Barraño of 4.3 hours vis-à-vis the fourth quarter 22, almost nine hours vis-à-vis the previous year, besides Amapá with 3.4 hours of reduction when compared to the fourth quarter 22 and below the regulatory limits In the annual comparison, another important highlight is the evolution of FEC in Alagoas with a reduction of 7.5 hours. In FEC, we would like to highlight that presently five of our seven concessions operate within the regulatory limits. This result is due to the greater robustness of our regional structures, the strengthening of initiatives, and the enhancement of processes implemented through the last quarters in combination with the strong investments carried out. We now go on to slide number nine. Before we go on to the other segments, I would like to present a quick update on our most recent acquisition, Equatorial Gloyals. After the first 100 days, we have attained important strides in the company and we are advancing broadly in terms of generating value for this asset. As part of the actions geared to the company turnaround, We began a strong advance in our relationship with society, where we began to implement the culture of the Equatorial group with the customers and the public powers, advancing in the process of registering clients in the social tariff, and also seeking other improvements. We're seeking to enhance quality. That is something that is so desired by population, so we have renewed our fleet with an additional 200 vehicles for the operation. Now, we are facilitating the interactions with the customers and allowing our collection processes to become ever more efficient, which can be perceived by the high level of collection of this concession this quarter. Now we have a code for payment, and they can inform us on interruptions. Besides the arrival of CLADA, we have also reinforced our digital channels with a site and application, service stores and radio campaigns, TV, social network, and the local press. We're moving forward successfully in the process of integration and company turnaround. Additionally, another fundamental process was the intensification of investments in the first quarter. We invested more than $900 million that have reached $7.5 billion in CAPEX as part of our tariff cycle. With this, we have already concluded two new substations in the concession. We go on to the next slide, number 11, where we show you the performance of the transmission sector jointly. Our portfolio presently has a RAP that is higher than $1.3 billion for the 2020 We reached 300 and some levels, and as you can see in the slide, we had a consolidated EBITDA, higher than 93%, as you can see. We advance to slide number 13. Now, let's look at the operation of renewable energy, EcoEnergy. We bring you the historical performance of Eco for comparison purposes. The volume generated grew 15.5%, favored by the increase of average winds in the comparison between periods in the quarter the total net energy generated higher than the p90 estimated the higher when allied with the coming into operation of the set of the male two complex throughout last year have contributed to an expressive increase in ebita in 33 percent of the adjusted basis totaling 149 million in the period We now go on to slide number 14, where we have more details about the development of our pipeline and solar project. As we presented in our results release, we are at the initial stages of development of the Ribeiro Gonzalez and Barreras I solar parks, located in Piauí and Bahia, respectively. At the beginning of the quarter, we're going to follow up on the evolution of these projects In the graph to the left, we present the schedule of the main development stages of this pipeline. For the time being, we are moving ahead in vegetable suppression of both projects, and in Ribeiro de Gonzalez, we have had an evolution of 62% of this stage, while in Barreras 1, the advance has been 27%. attached to this presentation, you will be able to follow through some images that we have included to show you the size of this project. Now to speak about civil works, we have some contractors that are already acting in our work site since the beginning of the first quarter. We're speaking about a physical advance of approximately 10% in Heberon, 2% in Baredas. We'll progress during the beginning of 2024. As with this, we will have the installation of solar panels that are already in international transit. I also highlight the work that we carried out on the connection with substations especially the one of Barreras, finally and not less important, we are moving forward in the commercialization of the energy of the pipeline. A way of showing this evolution is a positive result of the mark to market of the energy contracts that had a net impact in our result of 96 billion. in this quarter. This result was strongly driven by the sales to the end customers carried out during the first quarter and they are adding more than $122 million of book value following the mark-to-market methodology of the market. We now go on to slide number 16. We ended the first quarter with approximately 86,000 savings invoiced in the water supply. These are customers connected to the network. This figure is very important as it corresponds to a number 11% higher than the total amount foreseen in the EVTE for the end of the first year of operation. Reminding you that in the first quarter of 23, we completed nine months of concession When it comes to sewage, almost 10,000 links have been done and we have begun our invoicing service since the first quarter of operation. Altogether, the coverage index of water and sewage is equivalent to 41 and 7% respectively. I will now return the floor to Mr. Miranda for his closing remarks. Well, thank you, Leo. To close, I would like to reinforce some of our recent achievements and outlooks. First of all, I draw your attention to the significant performance of the company reflecting the evolution of the present day assets and the consolidation of new assets that have ended up with an EBITDA growth of 58%. The main highlight of the period is definitely the consolidation of Equatorial Goyas. We have moved forward with speed in the integration of this company and our portfolio with a focus on the enhancements of indicators, a relationship with society as a whole, and a tariff review. And we invest more than 900 million in the quarter. Still referring to the performance of distribution, I highlight the evolution of our quality indicators in general, resulting from more intense actions on the DEX structure implemented in the last quarter besides the loss reduction that show an evolution in the turnaround processes and also in the more mature assets. Another highlight is the opening of the CP and the review of on May 9th. The first of these four reviews that we will have this year include the reviews of Goyas and other areas. And the cutoff date will be for five of our seven distributors. I also draw your attention to our most recent issuance of 1 billion reais of incentivated debentures in Equatorial Goiás, making it possible to lengthen our debt profile and increasing the liquidity of this concession. Regarding the outlook for 2023, we continue moving forward in quality enhancements and loss reductions of our distributing companies with a special attention to the turnaround evolution in Goiás. Another point is leveraging. We have made strides in all of this process. We're very attentive to opportunities in the management of our debt. I would now like to return the floor to the operator so that we can go on to the question and answer session. Thank you very much. We will now begin the question and answer session. Should you have a question, please press star 1 on your phones. If at any point your question has been answered, press star 2 to withdraw from the queue. Questions will be answered in the order in which they are received. Please hold your handset when posing the question to allow for optimal sound quality. Our first question comes from Andre Sampaio from Santander Bank. You may proceed, sir. Good afternoon. I have two questions. My first question I would like to refer to your strategy for the reduction of losses and the enhancement of quality. Now, is this pressuring your costs? The doubt here is when can we see the opex becoming more normal and after the normalization will it be more difficult to account for the process that's the first question the second question refers to the self this is something that is very positive And of course, the regulatory process is still under review at this point. What can you tell us additionally about this revision? Thank you, Andre. Regarding the PMSO, what we produced last year was something additional for the measurement of quality. And this cycle gained traction more in the second quarter. So this is what you see in our expenses and much more. It's what happened in the first quarter of 2023. And all of this began in the second quarter of 2023. And of course, the coming quarter will have even better results because of this impact. Now, regarding the process in Para, it is moving ahead, we're advancing. We hope that the outcome of the process will take place somewhat further ahead. And it's just about waiting and hoping that we will reach a good outcome in this process. Thank you. Our next question comes from Marcelo Sa from Itaú. Bank, you may proceed, sir. Good morning and thank you for the call. We have two questions. I would like to further explore the renewal of concessions. The proposal that is on the table with the government is to be able to use sectoral resources as of the fourth quarter in social activities and other companies could also carry out investments. What is it that is being discussed? And which is your idea in this case? Will you be participating on your own or will there be a partnership to generate more value? And if the development bank, the BNDES, has manifested itself in any way about this process. Well, thank you for the question. We have participated in the process and we have debated this with the minister and we have discussed this with the CEOs of the companies. It has been a very participative process. And of course, everything will depend on the sources. Several others have participated with us giving us their contribution. Well, good afternoon. When it comes to the concessions, We have held conversations with the ministry and publicly the minister has stated that the postponement will not bear a price. Now, this is one of the components of the discussion. As Augusto has mentioned, this is a broad discussion and we're simply awaiting to see which will be the end result. about transmission, we're referring to approximately 50 billion reais auction, and of course we need to carefully analyze this. There may be opportunities, but we're dealing with this at board level to define if we will be participating or not. Now, if you allow me to understand your expectations about this concession, there will be an open hearing, I believe, and will you participate in that with a well-defined proposal, or are you simply going to be sending in your contributions Well, it is a ministry that is responsible for that part of the process. And perhaps we will come up with a proposal or end up with several options that can be submitted to debate. Once again, we depend on which will be the intention of the ministry. Thank you. Thank you very much. Ladies and gentlemen, we remind you that should you wish to pose a question, please press star one. Please hold while we pull for more questions. As we have no further questions, we will conclude our question and answer session. I will now return the floor to Mr. Augusto Miranda for the closing remarks. Mr. Miranda, you may proceed. Thank you all very much. In closing, I would like to once again reinforce our continuous generation of value based on the consistent delivery of results in the different segments in which we act, always working with a very disciplined financial management. Our team is always at your disposal to give you any support should you have any further doubts. Thank you once again for your attendance in the call. The conference call for Equatorial Energía S.A. ends here. We would like to thank all of you for your participation. Have a good afternoon.