Equatorial Energia S/Adr

Good morning and thank you for standing by. Welcome to the conference call of Equatorial Energia S.A. to announce the results of the second quarter of 2023. Today with us we have Mr. Augusto Miranda, CEO, Leonardo Lucas, CFO, Cristiano Logrado, Regulations Officer, Tatiana Vasquez, Superintendent of Investor Relations, and Tin Freire Amado, CEO of EcoEnergia. This conference call is being recorded and all participants will be connected in listen-only mode during the presentation of Equatorial Energia Essay. Then we are going to start the questions and answers session when further instructions will be provided. Should any of you need any assistance during this conference call, please request the help of an operator by pressing star zero. This conference call is also being simultaneously transmitted on the internet through a webcast and will be accessed at the address www.equatorialenergia.com.br where the slide deck is also available. Slide selection should be controlled by you. A replay of this conference call will be available right after its end. As a reminder, participants of the webcast may ask questions through the website. to Equatorial Energia SA, which will be answered after the end of the conference call. Before continuing, we'd like to say that statements made during this conference call relative to Equatorial Energia business prospects, operational and financial projections and goals, are beliefs and assumptions of the company's management and are based on information currently available to Equatorial Energia S.A. Forward-looking statements are not guarantee of performance and involve risks, uncertainties and assumptions because they refer to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry-specific conditions and other operational factors may affect the future results of Equatorial Energia S.A. and may lead to results that will be materially different from those expressed in such forward-looking statements. Now, I would like to give the floor to Mr. Augusto Miranda, who's going to start the presentation. Mr. Miranda, please, you may start. Good morning, everyone. Thank you very much for your attendance. This morning, we'll be presenting the results of the second quarter of 2023 of the group Equatorial Energia. We started the second quarter with strong performance in a distribution segment, combining the evolution of our operational and loss-fighting indicators. This performance reinforces the continuous turnaround process in addition to the advancement of the renewables segment from the construction of the solar generation pipeline. In addition to the operational improvement of the quarter, it is important to note that we continue on a deleveraging trajectory in the group, demonstrating the results of the capital discipline present in our DNA. It's worth remembering that since the first quarter this year, we have been consolidating the results of Equatorial Goiás, and therefore they are not considered in the economic and financial figures of last year, Q2 2022. Now I will start on slide three. So starting from the operational highlights, I would like to talk about the growth of distributed energy, which in a consolidated way presented a growth of 7% in the annual comparison. This growth is on adjusted basis already considering the pro forma data of the Q2 2022 from Equatorial Goiás. Part of this growth is due to the significant results that we have obtained in the execution of our strategy to fight losses, which registered a consolidated level of 18.6%, a reduction of 1.4 percentage points in the annual comparison. Another factor that has also contributed positively to this market expansion is a quality improvement. Looking at the accumulated numbers for the last 12 months, we present improvement in all the distribution companies of our portfolio if we compare Q1-23 to Q2-22. In the highlight that Equatorial Maranhão, this is another highlight, it reduced its by 12.5 hours compared to the second quarter last year, demonstrating our ability to deliver results in face of the challenges. In the renewable generation segment, the highlight is the volume of energy generated, 6% higher than the same period last year, mainly due to better winds. We have achieved 2.2 billion BRL in adjusted EBITDA in the quarter, 44% higher than in Q2 2022, capturing the consolidation of new assets and the strong performance of the distribution segment, as well as the turnaround advance in recent acquisitions. This already excludes the non-cash effects of VNR, IFRS and MTM, who invested about 2.7 billion BRL in a period. Here, the highlight goes to investments in distribution and renewables, focused on this year's tariff revisions and advancement of EcoEnergia solar pipeline. Despite that, we ended the quarter with a 0.1 times reduction in the net debt over EBITDA ratio in this quarter, totaling 3.8 times in the Covenants view. And this is the second consecutive quarter of reduction since the consolidation of Equatorial Goiás. Now I would like to give the floor to Leo on slide 4 to start with a consolidated view of the economic and financial performance of the group. Leo, please, the floor is yours. Thank you, Augusto. Good morning to everyone attending our conference call. I will talk briefly about the economic and financial performance of the group from a consolidated view. Here, the numbers are adjusted for non-recurring effects and for non-cash effects, such as VNR in distribution companies, IFRS for transmission, and MTM in terms of marketing. Our consolidated gross margin grew 46% as compared to Q2 22. This growth is mainly due to the good performance of the distribution segment, driven by the growth of the tariff and market mix, along with reduction in losses. in addition to the consolidation effect of new assets, especially Equatorial Goiás, which added 561 million BRL to the margin of the quarter. The organic growth of the gross margin excluding new assets was 17%. In the same concept, That is, disregarding the new assets, the adjusted PMSO presented a reduction of about 3% quarter-on-quarter. This reduction reflects our cost discipline, especially in the distribution segment, which grew below the accumulated inflation. The reported EBITDA for this quarter has reached 2.4 billion BRL. 44% higher than the same period in the previous year. Adjusting for non-recurring and non-cash effects, EBITDA reached 2.2 billion BRL, again 44% higher than Q2 2022, which is equivalent to 663 million BRL. This growth is strongly influenced by distribution assets. and in ex-Goyaz vision added 423 million to the quarter, reflecting the advance in terms of our last fighting initiatives. In addition, the consolidation of Equatorial-Goyaz in the quarter added 213 million BRL. Now moving to the next slide. Here on slide six, we are showing information about the company's investments and debt. In the quarter, we had a significant volume of investments totaling 2.7 billion BRL. This amount is driven by the proximity or the closeness of tariff events and for the focus on strengthening the network, improving the quality, reducing losses, in addition to the progress in the execution of eco-energy pipeline, which this quarter reached the amount of 642 million BRL in the development of two solar complexes in the states of Bahia and Piauí. Now you can see the debt profile of the company. So here you can see the group's net debt level at 34 billion BRL, despite the strong volume invested in the quarter. Leverage is measured by covenants, was down by 0.1 times and closing the quarter at 3.8 times, which characterizes the second quarter in a row of reduction and reinforces our gradual capacity to deleverage even with a higher volume of investments. We have a robust cash position of 10.2 billion BRL consolidated, which corresponds to 1.8 times our short-term liabilities. It's worth mentioning that in this quarter, we exceeded cut rates in three tariff revisions in Goiás, Piauí and Amapá, and now only Alagoas left with a cut date in November. As a result, the volume of investments in distribution is likely to go down, And as we go through tariff revisions, we will be able to record the investments made in the last cycle in our regulatory EBITDA, which will provide a positive contribution to the group's deleveraging trajectory. Now, moving to slide number eight, we are going to give you details about the distribution segment. Here on slide number eight, where you can have an overview of the operation and commercial performance of our distribution companies. Here, for comparison purposes between quarters, operational data are shown in an adjusted view of the Q222 with the data from Equatorial Goiás, as you can see in the graph. Injected energy grew 5% between quarters, while distributed energy grew 7%, with a contribution of the generalized reduction of losses in our concessions, which in a consolidated way went down 1.4 percentage points, with a highlight for the states of Rio Grande do Sul and Amapá, which went down by more than 4%. percentage points year to year. It is important to note that with the success of our anti-loss initiatives, we closed the quarter at about 0.6 percentage points above the regulatory level. As to the commercial performance, we ended the quarter with a consolidated revenue of 99.3%, plus, or rather saying, another strong quarter with high levels and close to 100%. So the PECLD, the consolidated level, remains within the levels we consider reasonable, especially for our highly complex business operations. I would like to highlight the excellent performance of our distribution companies, which for the fourth consecutive quarter has been presenting consistent reductions in Saifi and Saidi. Here, the main highlight goes to the significant reduction in Maranhão of 12.5 hours compared to the previous year. Moreover, the state of Amapá, with nine hours of reduction as compared to Q2 2022, below the regulatory limit. It's also worth mentioning Alagoas, which reduced 7.4 hours. Overall, we see a significant result across our portfolio. It's worth noting that in Goiás, historical indicators were reprocessed at the request of the regulator. In Saifi, it's worth mentioning that currently five out of our seven concessions operate within the regulatory limit. This is the result. is a consequence of greater robustness of regional structures and the strengthening of initiatives and process improvements implemented over the last quarters in combination with strong investments. The adjusted PMSO The growth of 45% is a result of the consolidation of Equatorial Goiás, highlighted in the chart to facilitate comparison. Disregarding this effect, adjusted PMSO grew only 1.8%, reinforcing our management capacity and cost discipline and delivering a PMSO expense lower than the accumulated inflation between periods, despite the ex-Goyas customer base that expanded more than 4% between quarters. In the comparison with adjusted EBITDA, we had a strong growth of 56% affected by the improvement in the gross margin influenced by the higher tariff in a period market growth and also by the consistent reduction of losses. Now, moving to the next slide, number 10, here on slide 10, we quickly show the performance of the transmission segment. Altogether, our portfolio currently has an RAP of more than 1.3 billion BRL for the 23-24 cycle. In this quarter, the regulatory EBITDA for the transmission segment grew 14%, reaching 316 million BRL, with the benefit mainly from the last tariff adjustment. As you can see on the slide, our transmission operation recorded a consolidated EBITDA in excess of 93%. It's worth mentioning that since July this year, the 23-24 cycle, Intesa asset has had a 50% reduction in the original RAP, an amount that is already demonstrated in the build-up chart. It's important to note that this reduction only impacts the original RAP and therefore does not affect the reinforcements. Now let's take a look at our renewable energy operation. The volume of energy generated grew 6% this quarter as compared to the year before. This performance is due to better availability of wind assets as demonstrated in the chart showing the average speed of winds. In the quarter, the EBITDA grew 9%, totally 125 million BRL in a period, reflecting better wins. It's important to note that in this quarter, if we compare to last year, we're including the operation of Serra do Mel II complex, which started operating in March 2022. Now we're going to talk about details of the development of our pipeline of solar projects. As you can see, we have advanced in a development of Ribeiro Gonçalves and Barreiras I complexes, located in the states of Piauí and Bahia, respectively. In the chart of the left, you can see the timeline of the main stages of the development of this pipeline. Right now, we are advancing in the line of civil and electrical works in the two complexes, in addition to the transmission lines and connection to the substations in line with the construction schedule approved for the projects. I remind you that the parks are scheduled to start operating during 2024. For the development of the pipeline, we reached in the first half of the year the capex of 798 million BRL. with 705 million of funding from the four Ribeiro Gonçalves Complex already contracted from BNDES. Of the total funding contracted, 510 million refers to subcredit A at NIPCA rate, plus 7.45% per annum. Lastly, I would like to reinforce that we are advancing in the marketing process of energy of the pipeline. In the graph on the right slide, you can see the evolution of the number of customers for future energy in the quarter, a very significant number, which demonstrates our ability to execute the marketing strategy. Today, most of Ribeiro Gonçalves' energy is already commercialized. Another way to demonstrate this evolution is the positive mark-to-market result of energy contracts, which had a net impact in our result of 37 million. And this result was driven by sales to end customers, which took place in the second quarter, which added more than 55 million to the book value following the mark-to-mark methodology of our operations. Now, moving to slide number 15. At CSA, we completed the 12 months of management of Equatorial in the sanitation segment. And in this quarter, we show you a comparison of the expected EVT, where we see the positive results of the operation. We ended Q2 23 with approximately 80,000 invoice savings in water supply. and advances in a water coverage index of 42% and losses of 62%, a figure that exceeds the estimated for the first year of operation in the BNDES modeling and demonstrates evolution compared to the previous quarter. This demonstrates the company's good operational performance at this early stage and reinforces our confidence in the opportunities for the segment. Now I give the floor back to Augustus for his closing remarks. Thank you, Leo. I would like to close by summarizing the main messages of our conference call and reinforcing our recent achievements and prospects. First, I would like to draw your attention to the significant performance of the company, reflecting the evolution of current assets and consolidation of new assets. which led to a growth in the adjusted EBITDA of 44%. In this sense, the main highlights of the period are related to the contribution of Equatorial Goiás and the consolidated results, increasing in gross margin of other distribution companies or group combined with an efficient management of operating expenses. I would like to take this opportunity to highlight the evolution of quality indicators in general in our operations as a result of the intensification of improvement actions in addition to loss reduction, which demonstrates the evolution in turnaround processes and also in more mature assets. Investment total 2.7 billion BRL in Q2 23 with emphasis to distribution companies with a tariff revisions this year in addition to the 642 million BRL meant for the development of eco-energy solar generation project pipeline. These investments are in line with the company's constant focus on value generation. Another highlight was the capital increase realized from the capitalization of declared dividends With the amount of 385 million BRL, one of the initiatives mapped out in the menu of shares for leverage management. In this sense, we recently approved the 18-month treasury share disposal program or share sale program. And then we hold approximately 29 million in treasury shares acquired during the buyback program approved at the end of 2020. With regard to the prospects for 2023, we continue to advance in improving the quality and reducing losses of our distribution company with special attention to the evolution of the turnaround in Goiás. Another point, is the focus for 2023 in leverage. In addition, the strong result of the quarter, as perceived by the EBITDA growth, we see a reduction in the future leverage through the tariff review process in advances in turnaround processes, in addition to remaining attentive to opportunities for debt management using the tools available, such as the sale of operations as recently approved. Now I would like to open for questions and answers. Thank you very much. And now we are going to start our questions and answers session. If you have a question to ask, please press star one on your touch phone. If your question is answered, please press Star 2 to take your question from the list. Questions will be answered as we receive them. And we kindly request you to pick up the headset to ask your question in order to assure optimal audio quality.

Our first question comes from Andre Sampaio from Santander. So just a confirmation as to provisions.

So this is related to 23, but did not impact consolidated numbers. But anything reversed to equalize it? So this is the first question. And the second question is related to the sale of shares in Treasury. To understand why we are launching these movements right now, do you see any opportunity coming up?

And these are my two questions. Thank you very much. So first I'm going to answer now. So this is one of the options that we have considering the tools to talk about this. But this does not oblige us to do it over again so that we can assess better. The first question an elevation of provisions.

What exactly are you asking? I mean an increase of provisions in the first quarter. We see the numbers going up from the first to the second quarter. But if we look at consolidated numbers, this doesn't seem to be true.

Can you understand better? In Goiás, there is a PPA.

There are some impacts of processes that have already been mapped in acquisition in the consolidation process with Equatorial. And this is due to the contingency that we had that had already been set forth in the PPA. This is non-recurring for Goiás. And likewise, with a consolidation of Equatorial, this had been included in PPA.

Well, great. This is very clear. Thank you so much.

Our next question comes from Rafael Nagano from Credit Suisse. Good morning. Thank you. I have two questions. The first one is a follow up on Andre's question about the opportunity of leverage in terms of sale.

And in terms of what was presented

So you had said that you were analyzing closely this process.

So there was this process. And the second process regards echo energy.

considering that Ribeiro Gonçalves is already fully contracted almost. Can you tell us more about average prices and the term of those contracts in terms of time? Rafael, thank you for your question. Obviously, Rafael, the assets that we have in Ceará, but for this special asset, we wouldn't like to talk about it. And about...

Martin is going to talk about it. Thank you, Augusto.

Well, Rafael, as to the consumers that we are trying to find for contract portfolios for Ribeiro Gonçalves, it's basically A4 consumers, even A4 that could migrate as of January 2024.

and average times depending on the type of product between four and five years okay ladies and gentlemen please wait i will wait for mr augusto miranda's connection Our next question comes from Marcelo Sa. Sorry.

Our next question is from Marcelo Sa from Itaú. Hello, how are you? I have two questions. The first one regarding capex, there was a capex peak this year, and the distribution capex would drop, obviously related to deleveraging. And so what do you expect for next year? And about the energy, I would like to talk about the PPA for customers, but could you share with us the price range, and anything else related to PPAs that would make sense.

Thank you so much.

I am going to start speaking on behalf of eco energy. Well, Marcelo, I cannot give you this guidance because this is a price energy of eco. It's our price strategy. It's something that is limited. All I can tell you that prices have surprised it, especially with a guaranteed energy, which is the product that offers a discount to the customer in terms of the tariff. So this price is detached from market prices and we are intensifying actions to leverage this type of product. Okay. Hi, Marcelo. Thank you for your participation. Thank you for the question. We do not offer specific CAPEX guidance. Just as a reminder, we worked in February and we come from the first to the second quarter in Pará with a CAPEX reduction. In the second quarter, we had three bases, Goiás, Piauí and Amapá. there were extraordinary revisions. So we've been expecting an ordinary revision. We are keeping an eye at that. And in November, we are going to have a cut of the basis in Alagoas. Obviously, our strategy aims to address CAPEX needs as much as possible before the cut. And after the cut, S, we want to advance those needs. We are expecting a movement of reduction at the beginning of the cycle. Obviously, we also need to look at the market dynamics. The market is very strong. And CapEx is related to that. and also turnaround companies with issues related to quality improvement, such as the case of Goiás and Rio Grande do Sul and losses to in Rio Grande do Sul, Amapá. So this is the dynamics, but we are not offering a more specific guidance. Well, this is great, Leo. Well, if you have any information about when you expect your leverage to go down towards the end of next year, when it's closer to three times or even less, what can you tell us about that? Well, the dynamics, we expect to have better results in terms of turnaround.

with review and this CAPEX without a more specific guidance. Oh, this is great. Thank you very much. Our next question comes from Daniel Traviesc from Safra Bank. Hello, everyone. Can you hear me? Hi.

So I have a question. A follow up about the issue of leverage and the leverage, and I would like to understand which are the alternatives. After you close some transactions, In terms of operational assets and now you did the sale in treasury. What other alternatives can we see in terms of funding, looking into the future in terms of leverage of the company or alternatively, there's nothing else to be done. How do you see the deleverage process? So, Marcelo and Daniel, thank you very much for the question. So, Daniel, you mentioned a few and that there are many other options. As a reminder, there are some mature assets, and this is an alternative.

Thank you for your question, Daniel.

In addition to the operational dynamics that we have just mentioned, there is a non-operational and inorganic dynamics. We have the operation with dividends and this optionality or this option is now and naturally we receive provocations so that we might sell an operational asset, or bringing some capital into the portfolio, especially in segments that are mature, that are not so capital intensive. So we remain very active, thinking, and considering the many alternatives that we may have in addition to the organic alternative of deleveraging. We are very active. We are paying close attention to all alternatives.

Okay, thank you very much. Ladies and gentlemen, as a reminder, if you want to ask a question, please press star 1. Excuse me.

We now close our questions and answers session. Now I would like to give the floor to Mr. Augusto Miranda for his closing remarks. Mr. Miranda, please. Well, in closing, I would like to reinforce once again our commitment to the agenda of continuous value generation that we seek for our investors. From the delivery of consistent results in the various segments where we operate, always based on disciplined financial management. I would also like to remind you that our investor relations team is available to support you and answer any questions you may have after this webcast. Once again, thank you very much for your interest in our company and for attending our conference call. Have a good afternoon. Thank you. Equatoro Energy Day conference call has now ended. We thank you very much for your participation. Have a good day. Thank you.