Equatorial Energia S/Adr

Good afternoon, everyone, and welcome to the conference call to discuss results for Equatorial relative to Q3 2024. Joining us here today, we have Mr. Augusto Miranda, CEO, Vice President Leonardo Lucas, Regulation Officer Mr. Cristiano Logrado, Financial Strategy and IR Officer Ms. Tatiana Quilava Vasquez, and Mr. Leo Aquino, President of EcoEnergy, who at the end will be available to answer questions you may have. We'd like to say that the simultaneous interpretation tool is available on the platform. Just click on the interpretation button on the bottom part of this Zoom screen and choose the language. This conference has been recorded and will be available at the company's IR website at www.ri.ecotelenergia.com.br, just as the respective slide deck. All participants will be connected in listen-only mode during the company's remarks. After that, we'll start a Q&A session when further instructions will be provided. Before moving on, we'd like to reinforce that forward-looking statements have spaces, beliefs, and assumptions on the part of the company's management and also on information currently available to the company. Such status might involve risks and uncertainties as they refer to future events and therefore depend on circumstances that may or may not materialize. Investors, analysts, and journalists should have in mind that events related to the microenvironment space, to the industry, and other operating factors might lead to the results to be significantly different from those expressed in these forward-looking statements. We'll now start the presentation. Turning the conference over to Mr. Augusto Miranda. Please, Mr. Miranda, you may proceed. Good afternoon, everyone. Thank you for joining us. This quarter was marked by the beginning of the implementation of the new governance model of Equatorial as Sabesp's reference shareholder, with the beginning of the management of executives and directors in the company. On Equatorial's side, we made several progresses on the operating and financial fronts, including optimizing the capital structure of the Sabesp acquisition and improving the company's debt profile. Starting with the general highlights, on October 15th, we approved the capital increase via private subscription in the amount of $2.5 billion with a value of 32.50 BRLs per share. The process was successfully completed with 100% of the subscription in the first round of oversubscription. With the funds from its operation, we made a partial repayment of the commercial notes for the acquisition of SubEspi. Another milestone in the quarter was to take advantage of the market momentum to, when issued, incentivize the ventures in the A4 of the group's distributors. On the total amount of $2.07 billion, we decided to take advantage of the moment of high real interest rates with low spreads and long debts to swap the operations to CDI. We are now in swap costs of between CDI and plus 73%. 70%, and 0.97% a year below the marginal funding costs for CDI-linked debt. Now for the operating and financial highlights of the quarter. We would highlight the evolution of distributed energy, which showed significant consolidated growth in yet another quarter, up 6.7% above Q3-23, which was a quarter marked by high volumes as a result of rising incomes and high temperatures, even with a strong momentum of growth in distribution of volumes, will remain for the fourth consecutive quarter below the regulatory loss limit, maintaining good collection levels and disciplining costs. We achieved and adjusted the beta of 2.9 billion BRLs in the quarter, up 16% when compared to the same quarter of last year due to the performance of the distribution segment. This view already excludes the non-cash effects of IFRS, MTM, and NRV. With regard to Q3 24 results, we'd like to point out that we did not consolidate the equivalence of the best in this quarter. which will be consolidated as of the next quarter. Nevertheless, we presented a positive result in the company's adjusted net profit, up 25.4% when compared to Q3 2023. I now turn the floor over to Leo on slide number five, where we'll start with the consolidated view of the group's economic and financial performance. Over to you, Leo. Thank you, Augusto, and good afternoon, everyone. I'm going to talk briefly about the group's consolidated performance. Here we have the figures which are adjusted for non-recurring and non-cash effects. Our consolidated gross margin grew by 12.6%, where we highlight the distribution segment, which added $494 million to the margin for the quarter as a result of market growth, a reduction in losses, and tariff increases. Even with the market growth and the consolidated loss index remaining below the regulatory level, we remain disciplined in relation to the group's adjusted costs and expenses, which grew by 2.9% in the view X new assets. With these results, we achieved an adjusted EBITDA in the quarter of $2.9 billion, 16.3% higher than in the same period of last year. We'd like to point out that in this quarter, we maintain our net debt EBITDA ratio under the confidence at 3.2 times, which will be explained on the next slide. We ended the quarter with $10.8 billion and cash equivalents and a ratio of cash to short-term debt of two times. Finally, we'd like to highlight the reduction in investments by 20% due to the startup of the solar parks. Now, on slide number six, we take a look at the company's debt and leverage level after the acquisition of the 15% stake in Subasp. In Q3'24, we had an increase of about 4.4 billion when compared to Q2 2024 in the company's net deadline, mainly impacted by the issuance of the commercial note of 5.6 billion for the acquisition of the stake in SubBesp, which we have already prepaid 2.5 billion in 2024, resulting in a remaining balance of 3.5 billion due in 2026 between interest and principal. Due to the effects of the sub-ASP acquisition at 15% and the calculation methodology, we thought it important to open up the behavior of the covenants. As you can see on the right-hand side of the slide, if we were to exclude the impacts of the acquisition of that stake, in other words, debt capital increase at 15% of SABEP's debt profit in the last 12 months, the covenant would be around 3.2 times in line with the indicator for Q3 2024. With the acquisition of SABESP and without the non-recurring event of the constitution of the financial asset in SABESP's results, the indicator would reach 3.4 times. Naturally, this positive non-recurring impact of $800 million had a positive effect on the indicator, and therefore, even after the acquisition, the net debt EBITDA ratio in a pro pharma term for governance was in line with Q2 2024. Let's move on to slide number eight, where we give an overview of the operating and financial performance of the segment. On the left-hand side, we present the consolidated performance of our distribution companies, where we highlight the significant volumes of energy injected and distributed even with a strong comparative basis seen in Q3, 2023 related to the heat waves in the period. In addition, we reduced losses in the quarter And for the fourth consecutive quarter, we remained below the regulatory loss level in the consolidated amounts. Despite the strong injection, we managed to maintain the high level of collection and a PCLD over ROB at 99.6% and 1.36%. respectively. In terms of quality, when we compare to the same period of last year, we were able to see advances in Goyas and PoE and the maintenance of three distributors at the regulatory level. On the right-hand side of the slide, we show the progress of the segment's gross margin, which grew by 15.3%. The highlight here is the addition of 308 million BILs, as a result of market growth, increasing the YRB tariff, reflecting in the tariff review, which happened last year. The adjusted PMASO per consumer in the year-to-date numbers fell by 1.5%, while the adjusted PMASO nominal terms for the quarter grew more than inflation. That reflects the cost discipline the company has adopted, one of the most daring values for Equatorial. And even with the growth in market for several quarters in a row, we have maintained our cost discipline and taken advantage of opportunities to obtain gains in scale. These moves resulted in an increase in distributions adjusted EBITDA of 20.8%, as can be seen on the slide. Now I turn to slide number 10. Here, we'll look at the other segments of the group. In transmission, adjusted regulatory EBITDA fell by 2.6%, but adjusting for the effect of the complementary AVC received in Q3-23, transmission EBITDA would have grown by 2.4%. In the sanitation segment, We had a positive EBITDA of 1.3 million, and we highlight the increase in the number of built sewage savings, which grew 8.7% versus Q3 23, as well as the increase in the water coverage index, which rose to 58.9% in Q3 24, vis-a-vis 42% in Q3 23, an improvement of 16.9 percentage points. In the renewables segment, adjusted EBITDA grew by 11.7% due to the startup of the Bahia Suan and Ribeira Gonçalves solar farms and the surplus generation from the wind farms. In relation to generation in the quarter, there was a constraint of impact of 318 megawatt average, 36.2% of total generation. with the greatest impact on the Serra do Mel wind farm complex due to the restrictions imposed by the national system operator, which were revised in September 24 and which have brought less impact since then. Still on the subject of the constraint off, it's important to note that the ONS changed its methodology for energy cuts on September 17th, and also that new transmission lines went into operation on October 16th to help with the flow of energy. These initiatives have already reduced their level of containment to 16% in Ecoenergia's portfolio during October. Those effects have not been totally perceived. In addition, the delivery of RAP requirements by agents is expected to help reduce the impact of system outages. We have been working actively in collaboration with industry associations to minimize the impact of the constraint on their portfolio. And I'll turn the floor back over to Augusto. Thank you, Leo. Moving on. We had an excellent quarter both from the financial and operating point of view, but we are aware of the importance of our role in continuing to deliver consistent and growing results and more benefits to our stakeholders. We continue with our plan to accelerate investments to meet all the quality indicators and in response to strong market growth. We will maintain our commitment to operating cost discipline, as well as we will actively continue to improve our revenue cycle of the companies we operate. In the field of capital structure, we will continue to look for opportunities to improve our leverage, both through financial performance and also through inorganic actions to help this process, such as asset recycling. With regard to funding, we continue to seek to diversify instruments, deconcentrate maturities, reduce costs, and lengthen terms, taking advantage of the best market windows to refinance debts arising from recent acquisitions, as well as to financing capex and improving the profile of the company's other debts. And lastly, will remain assessing potential opportunities to allocate capital and generate value. Now I'd like to turn the floor back to the operator to start the Q&A session. Thank you. Thank you. We'll start now the Q&A session. If you have a question, please click on the Q&A icon in the bottom part of your Zoom screen and then type in your question. To pose a question by the microphone, click on raise your hand icon. Our first question comes from Bruno Mourinho from Goldman Sachs. Mr. Mourinho, you may carry on. Good afternoon. Congratulations on the results and thank you for answering my question. I have a question about the execution of the CAPEX. for the distribution business. You have a very robust plan around CapEx for the coming years, and we've seen a slightly tight supply chain in the segment of equipment for transmission and distribution. There is a global demand, which is quite strong right now. So the question is, What do you see going forward in terms of availability for equipment of what you'll need in the coming years, price trends? That's the question, thank you. Bruno, thank you for your question. It's only natural that as you've seen, the market has been growing and you have to meet that demand with quality and within planning. And within our planning, we have been talking with suppliers We have suppliers which are well-established and have been serving us for some time now. And what I can tell you is that we've been for some time, as I said, in negotiations with suppliers so that you'll become as preferred clients to meet that CapEx demand we intend to execute. Okay, thank you. Our next question comes from Daniel Travitsky from Safra. Mr. Travitsky, you may carry on. Hello, everyone. Good afternoon. Thank you for taking my question. I'd like to ask you to please share a bit of your view about curtailment going forward after the measures adopted by the ONS, by Enel. How much of that, of those new measures, will address the issue, the problem? And what's your estimate in the long run for that level of curtailment in the eco-energy parks? Thank you, Danielle, for your question. I'll turn it over to Leo, Ecoenergy's president. Leo, over to you. Good afternoon, Danielle. Well, several measures being implemented and we see results materializing already in October. going forward, the expectation is that with new additional lines coming on board, especially increasing exports in the Northeast, we'll see an impact in reduction. We cannot still quantify that reduction, the impact on our portfolio. Another measure that will impact the system, and that's the most important perception we have, is that the mathematical modeling, which were requested by the ONS, they're being discussed right now. And as soon as that discussion is completed, we expect to see a more significant reduction for next year. That's what we can tell you right now. Okay, thank you. Our next question comes from Marcelo Xa from Itaú Bebea. Mr. Xa, you may carry on. Hello, everyone. Good afternoon. I have two questions. Number one, about the concession renewal process, ANEL. put out a new public consultation. There's specific clause saying that concessionaries would have to waive legal litigations to be able to participate in the process. How do you see that? And is there any other relevant modification you expect to see in the new contract, which is not one of the public consultation? That's my first question. And the second one about future growth in sanitation, you have a very big pipeline for next year. You may even have Pará in the first half of the year, and you bought strategic stake at Subaspi as well. I'd like to understand how you see those opportunities in terms of potential joint ventures. or if you're only looking at the assets at the states where you have distribution concessions, or you also plan on looking at assets in other states. Thank you. Thank you, Marcelo. We have been following up on that very closely. If you look at the interactions before the decree was passed, We interacted via ABRADI, the National Association, because it's quite relevant for the whole distribution segment. And I thought the result came out very much in line with what I expected, slightly above, actually. And about the regulation, I'd like to turn it over to Cristiano, our regulation officer. He may have other points to add. Cristiano, please, over to you. Good afternoon, everyone. As for the extension of concessions, I'd say that the new contract is in line with our expectations overall. Some points are still pending, still need some more definitions, but meeting our expectations overall. And in terms of that question about the litigations or judicial conflicts, we're going to question that, of course. That was not anticipated, not contemplated. We're going to be questioning NL about that. We need to better understand and work on it in the next few months after the public consultation period. As for the other contract clauses, there are a couple of questions we need to work along with the national operator, improve some of the deadlines, some of the terms that still need to be reviewed. But overall, I'd say that the legal litigation should not change significantly. As for the second question, Marcelo, about the sanitation front and potential opportunities, I'll turn it over to Leo, our M&A officer. Thank you, Marcelo. It's a priority sector for us, sanitation. We have had two major waves on that front. Now, the second one with SABESP, as you know, it is a sector where we intend to continue to assess new potential opportunities. And of course, we will meet all the requisites contemplated in the investment agreement for the SABESP deal. We haven't had a more detailed discussion negotiation as is, but we remain attentive and at the right moment, those conversations will take place. But the main objective is that we are able to expand in the sector as per the previous agreement. Our next question comes from Vladimir Pinto from XP. Mr. Pinto, you may proceed. Hello, good afternoon. Thank you. We saw during the week, Anil discussing the need to make, to invest in some distribution companies due to noncompliance to some financial indicators. In the case of Equatorial, there's no distributing company that fell into that category, but we know that there are some companies that now going through a turnaround process. And if not by the waivers, they could be undergoing some of those processes. How do you see those things unfolding in the mid-run when the waivers are over? Would they need some kind of investment or raise some funds? And if that's the case, what would you be ready to do if that's the case? Hi Vladimir. Thank you. Over to Leo here now. Hi Vladimir. As you said, none of our companies, as you said, were affected by that requirement to increase capital. And that of course goes to illustrate our well-balanced financial situation. albeit the waivers turn around, but we're keeping a close eye on those processes. We are quite reassured on that front. And there were no questioning coming our way. And we do not expect to see anything happening on that front going forward in the next few months. Thank you. Our next question comes from Guilherme Lima from Santander. Mr. Lima, you may proceed. Good afternoon. My question is a brief one. Do you have any update to give us about the CPMA-2 in terms of regulatory costs or any expectation of seeing that coming back this year or only next year? Hi, Cristiano. Over to you, please. Good afternoon, Guilherme. no major news on that front. It's still under Anel's umbrella. That should have been completed, but maybe it's no longer a priority, but still it should should be over before the tariff reviews of 2025, but no major changes as is that I could share with you right now. Okay, thank you. Our next question in writing from Alexandre Brito. Good afternoon. Congratulations on your results. I'd like the management to comment on the level of leverage vis-a-vis new investments. What does the company see as opportunities going forward? Good afternoon. Well, we've been... doing some major moves to expand. The last acquisition, as you know, was this stake as a reference shareholder at Subaspi, private capital, and same level leverage rates. We've talked about it during the presentation. Before that, we did the Goyas transaction. So we have more assets going through a turnaround process now, which brings us a very robust result as the quarter has expressed, growing margins, growing EBITDA, growing profit. All of that, the result of those turnaround moves we've been pursuing. So our leverage level increases. has been the object of a lot of dedicated work, and we've been seeing an organic, if you will, deleveraging. But given our nature of being always attentive to new opportunities, we have also resorted to some recycling of some assets to speed up that deleveraging trend and expanding the existing space to capture new interesting opportunities that might arise. Our next question comes in writing from Arlindo Souza from Levante Corp. The question is the following. Good afternoon. Can you give us an update on the tariff situation of the CEA vis-a-vis the result of the tariff review which took place last year? Cristiano, over to you, please. Good afternoon. So as for the CEA tariff review, that review was concluded in March or April when Anil conducted the process and maintained the tariff at 0%. In the meantime, we received resources from the Amazon Fund, And more recently, we settled some of the previous accounts. So we expect the new adjustment for 2024 to be normal vis-a-vis those effects. And on December 10th, we expect to see the approval as ANEL has its last board meeting. Our next question comes in writing from Gabriel Francisco from Dries Capital. With the result expanding across distributors, does it make sense to accelerate the amortization of preferred shares of Equatorial to flow more cash to the holding? Thank you, Gabriel. We are always paying close attention to the opportunities to manage liabilities. I think in the highlights presented in this call, Augusto did mention, when he mentioned our debentures issuance for infrastructure, that's something, like I said, we're always paying close attention to. Whenever it makes sense, whenever we see value generation opportunities, we'll try to pursue those opportunities. Thank you for your question. The Q&A session is now over. I'd like to turn the floor back over to the management of the company for their final remarks. Well, thank you all for joining us today at our earnings call. And to wrap this up, I'd like to reinforce once again our commitment to our continued value generation that we're always pursuing for our investors with consistent results delivery across all segments, always with an eye on a disciplined financial performance. Thank you once again for participating and have a nice day, everyone. Thank you. The conference is now over. Thank you all for joining and have a nice day, everyone.