Equatorial Energia S/Adr

and welcome to Equatorial Energia's Q1 2025 earnings call. We're here with the company's CEO, Mr. Augusto Miranda, the vice president, Leonardo Lucas, the regulations director, Mr. Cristiano Logrado, Director of Financial Strategy and Investor Relations, Tatiana Kiroga-Vazquez, and Liu Akinu, Head of Ecoenergia, who will be available to answer any questions at the end. The simultaneous translation tool is available on this platform. In order to hear it, just click on the Interpretation button at the bottom of the screen and choose your preferred language. This conference is being recorded and will be available on the company's investor relations website, ri.equatorialenergia.com.br, as will the presentation shown here. Please be advised that all participants will be in listen-only mode during the company's presentation. And then we will begin the question and answer session when further instructions will be given. Before we continue, we take this opportunity to emphasize that forward-looking statements are based on the company's beliefs and assumptions. And this is based on current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not come to pass. Investors, analysts and journalists should take into account that events related to the macroeconomic scenario, the industry and other factors could cause results to be materially different from those expressed in these forward-looking statements. We will begin the presentation by giving the floor to Mr. Augusto Miranda. Please, Mr. Augusto, go ahead. Good afternoon, and thank you for being here for our earnings call. This quarter, we reached 2.9 billion in adjusted EBITDA, a performance 14.5% higher than on the previous quarter, a result that reflects the consolidation of SABESP's equity, the reduction in the costs that we presented in the period, and the higher few-bit tariff of our distributors. we remain committed to cost discipline, which has led us to reduce our adjusted PMSO in the quarter by almost 4%. We invested around 2.3 billion Reais in the quarter, 34% more than in the first quarter of 2024, with investments focused on the distribution segment. We closed the quarter with a net debt to EBITDA ratio of 3.2 times, which is 0.1 times lower than in Q4-24. And a recent event was the announcement of the sale of the group's transmission assets, a transaction that will help the company's deleveraging trajectory. From an operational perspective, we are below regulatory losses for the sixth quarter in a row on a consolidated basis. Concerning quality, we saw progress in all distributors, both in DEC and FEC, with Equatorial Piauí achieving the regulatory DEC with a reduction of 5.4 hours versus Q124, as well as significant improvements in the group's most recent assets, such as Goyas and Rio Grande do Sul, which saw reductions of 5.8 hours and 3.2 hours, respectively. Still, with regards to Rio Grande do Sul, we would like to point out that the company began the year with the biggest reductions in both indicators, setting a positive path for 2025. These moves reinforce our commitment to the quality of the operation and the turnaround process of our distributors. Finally, we're pleased to announce that in this year's ISE portfolio, Equatorial was ranked 23rd in the index. I'll now hand over to Leo on slide five, and we'll begin with a consolidated view of the group's economic and financial performance. Thank you, Augusto, and good afternoon, everyone. I'm going to talk briefly about the group's economic and financial performance in a consolidated and adjusted view. Our consolidated gross margin grew by 2.9%, mainly due to the distributor's few-b tariff. It was partially offset by the consolidation of SPE7 and Intesa. It's worth noting that in a view where we adjust for the accounting of liabilities from distributed generation in Q124, we would have grown by 4.1% between these quarters. We posted a 3.9% reduction in the company's adjusted PMSO with a reduction in all segments, reflecting one of the strongest qualities of our DNA. With these results, we achieved an adjusted EBITDA for the quarter of 2.9 billion, 14.5% higher than the same period last year. And this was a result of the effects mentioned above and the consolidation of Stabisp's equity. In a view adjusted for the accounting of distributed generation in Q124, adjusted EBITDA would have grown 16.7%. We continue on a path of well-behaved leverage. The net debt to EBITDA ratio fell to 3.2 times due to EBITDA growth. Finally, we highlight the investments made in the quarter, which totaled $2.3 billion, mostly in the distribution segment. We'll now turn to slide seven. where we have an overview of the operational and commercial performance of our distributors, as well as the highlights for the quarter. On the left, we briefly present the consolidated performance of our energy distributors, where we highlight the reduction in losses in the quarter, which, for the sixth consecutive quarter, were below the regulatory loss level in the consolidated figures. This quarter, we had a collection rate of 97.9% and a PECLD to ROB ratio of 1.66%, reflecting an improvement in both indicators compared to Q124. We would like to point out that in this quarter, we had an excellent performance in quality with Equatorial PoE being included in the regulatory DEC, as well as a reduction of 3.1 hours at CEEED compared to the fourth Q of 24. With this result, we now have four of our seven distributors within the regulatory levels. The distributors gross margin grew by 5.1% in the quarter, mainly reflecting the higher few bit tariff in the period. We would like to point out that part of the improvement in Equatorial Goyas' margin is due to the significant reduction of 33 million in offsets for quality indicators, which reflects the improvement in quality between these periods. Adjusting for the accounting of distributed generation in Q124, the margin would have grown by 6.6%. Looking at the adjusted PMSO of the distributors in the quarter, we had a reduction of 1.9%, which reflects our ability to manage operating costs, even in a scenario of significant improvement in quality indicators. These movements resulted in an increase in distribution adjusted EBITDA of 8.9% and 11.3% in the distributed generation adjusted view. Moving on to slide nine. Here, we'll look at the group's other segments. In transmission, we posted a regulatory EBITDA of 247 million, down 13.3%, mainly due to the deconsolidation of SBE7 and the greater impact of PA and PV in the period. Even with these effects, we achieved an EBITDA margin of 93% in the three months. the sanitation segments results are beginning to reflect the progress made with hydro metering. And this quarter we posted an EBITDA of 3.7 million, as well as an average tariff increase of 7.6% between the quarters. In the renewable segment, we posted an EBITDA of 134 million, an increase of 14% reflecting the startup of the solar parks. I will now turn the floor over to August. Continuing with slide 11. Thank you, Leo. We would like to point out that the group's sustainability report for 2024 is now available on the investor relations website. We also came 23rd in the ISE ranking, which comprises a portfolio of 82 companies. This recognition reaffirms our commitment to ethical, transparent, and sustainable action, reflecting our continuous progress on the environmental, social, and governance fronts. Continuing with slide 12. We ended a positive quarter with a solid financial and operational performance. We know, however, that our commitment goes further than that. It is essential to maintain this trajectory of sustainable growth and continually strengthen value generation for our employees, clients, investors, and for society. In 2025, we will have the closing of the transmission asset sales by the end of the year, and we will continue with procedures linked to the periodic tariff review in Marignan. About this, we have already delivered the report for recognizing the company's asset base on April 30th. We will maintain our commitment to operating cost discipline, and we will continue to actively manage the revenue cycle. With quality indicators, we will continue to focus on strengthening the network and improving the operational quality of our assets. And finally, we will continue to evaluate possible future opportunities for capital allocation and value creation. I will now hand it over to the operator who will continue with the question and answer session. Thank you, we will now begin the questions and answer session. If you would like to ask a question, please click on the Q&A button at the bottom of your screen. If you would like to ask your questions here, you may raise your hand. The first question was asked by Luisa Congiotta from Itaú BBA. She says, we saw a solid PMSO cost performance in the distribution segment, especially in the concessions acquired in the last few years, such as Goyas and Rio Grande do Sul, which are posting yearly drops. Given the higher challenge in quality in these two concessions, if we look at the subgroups, what are the company's perspectives for costs in the future? Thank you, Louisa. Well, we've been making an effort, especially in Goiás. This has been made since the business plan. And the biggest issue with that concession was quality. So the business plan already foresaw a different investment level. And so we had to align our PMSO with quality. Looking at the concession, many things are doing well, and we've been able to progress with quality and with PMSO, despite this concession still having a high PMSO for consumers in comparison to other concessions, except for Amapá. In Rio Grande do Sul, events have required a very strong recovery plan. And we can see that as we stop having these events, we were well-trained for these events, but when you start not having the events, of course, quality reaches an inflection. When we compare the fourth quarter to the first, that was the first, the highest FDC and DEC inflection in the group. So that shows that recovery very clearly. And this is the third PMSO in the group, which shows that on the long-term, as these things get organized, we have higher potential. So on one side, Goyas is under the regulatory levels and Rio Grande do Sul is still above the regulatory levels, considering the recovery we have been making with this asset with the support of the local and corporate teams. Thank you for your question. As a reminder, if you'd like to ask a question, please click on the Q&A button at the bottom part of your screen. If you would like to ask any questions through the microphone, click on the raise hand button. Please hold while we collect questions. The next question will be asked by Mr. Andret Sampaio from Santander Bank. Go ahead, sir. Hi, everyone. I have a quick question about growth in sanitation. We've seen a competitive environment on the last few bid tenders. So I'd like to hear the company's expectations for the next steps in sanitation. Or if you are deciding to focus on sub-SP, if you could tell us about that. Hi, Andre, thank you for that question. We've announced that our plan sees in this segment a big opportunity. So we're firm on that. We really have the team looking at these opportunities in sanitation and in other industries. And naturally, if we have a good understanding with SABESTI, That makes sense, but we have a team looking at that and we're paying attention to the opportunities.

Thank you.

The next question will be asked by Mr. Gustavo Faria from Bank of America. Go ahead, sir. Hi, everyone. Thank you for taking my question. And I'm going to ask a question about capital allocation, similar to Andrea. With the proceedings from the... transmission sales, we expect leverage to go down. So what is your target leverage for the next years? And with the proceeds from that transmission sale, is there still room to expand your CapEx with distribution companies beyond the levels that you're currently at? And also, do you expect to advance in other segments that are not in your scope right now, other infrastructure segments? Thank you. Thank you, Gustavo. So the use of the proceeds from the transmission sales is still under discussion. There are many possibilities. such as reducing our debt listed in CDI, any M&A possibilities, share buybacks, or even dividends. We expect to close by the fourth quarter. We were able to deleverage in this quarter before this transaction concluded. And looking at the long-term perspectives, I think we will have two important events, which will be the conclusion of the tariff review and Rio Grande do Sul and Goiás, where we should see some more robust, some stronger movements in deleveraging the group. Considering our targets leverage we are probably at a peak in interest rates. So we are paying attention to that. This transaction, of course, gives us an advantage. So we are trying to target leverage around three or below, depending on the interest rates, of course. but we will need to monitor this because it is during peak times that interesting opportunities appear. So we have a lot of space and that gives us a lot of room to maneuver so that we can do things in the best way possible and look at the scenario responsibly as we always do. Thank you. Thank you. As a reminder, if you'd like to ask a question, please click on the Q&A button at the bottom of your screen and type in your question. If you would like to use the microphone, click on the raise hand button. Please hold.

Again, if you would like to ask a question, please click on the Q&A button.

Or if you would like to use the microphone, please click on the raise hand button.

Please hold. The next question will be asked by Luisa Conjata from Itaú BBA.

Go ahead, ma'am.

You may ask your question, Ms. Luisa. Go ahead, Ms. Luisa.

Good afternoon, everyone. I have a question about the concession renewal process. We saw the process with IDP, Espiritu Santo, and throughout the meetings, there was a proposal to analyze other quality parameters, including purges besides just DEC and FEC. So, Do you believe that for the next renewals, this might be on the table again? Thank you. Luisa, thank you for your question. I'll hand it over to Cristiano. I think they can clarify this. Hi, Luisa. Thank you for that question. So about that, we did have two directors with different proposals, but at the end of the process, it was concluded that it should be restricted to what is on the decree. So our belief is that this broader discussion has basically been overcome and that the next processes will be simple and will retain themselves to the decree. Great, thank you.

The next question will be asked by Giuliano AGG. Go ahead, sir.

Hi, everyone. I have two questions. First, I would like to understand how you're working with losses in a scenario in which we are having subsidies for low income customers. Do you think companies should accelerate this registration of Kaji Uniku to remove these losses, just to understand the scenario? And my second question is related to SC3E. How are you reducing DEC and FEC to fit into the regulatory levels? Do you think you will have enough time to do it? And what would happen if you were not unable to do it in time? Thank you for that question. So if you look at the events since we went to sea, we've had many atypical events. Last year, not only the local community, but we also saw globally that these events had a wide repercussion. So if you look at this sequence of events, we did not have much time to work on the grid, and that's why we If you don't have any changes to the grid, if you have any requests to intervene preventively, then that, it stops you from generating effects that would affect your indicators. So this year, we've been doing well, but after October, it was down to five hours. And since December, it has been going down. And I can say that in May, this reduction trend is also present. So when we can work on the grid because of the tradition and the involvement of the operational area with the corporate area and everything that we've been building up every day with the concessions, then the results come. So this is really a free fall. We've been having very satisfactory results and this is related to our engagement and the ownership spirit at Equatorial. So we're very happy about these results. Yes, and I would add, Augusto mentioned what happened in Rio Grande do Sul. So that just underscores what we said. In comparison to the fourth quarter, this was the company that had the highest growth. And this puts us on a similar trajectory. And although we had this devastating year last year, if you were to simulate the 12 months concluded in April, we're reaching the contract numbers for December. So we're a bit four months late with these events. So looking at this good environment, if the environment continues to be good, if we don't have any major impacts, if we don't see any weather adversities that are too intensive, this is our capacity. So we're very excited about this. Yes, we can make a parallel with PoE. So you can see that in a short span of time, PoE was under regulatory over three hours. So that's our capacity. When we can intervene, then results really do appear. And about losses, that's interesting. We do have to wait and see how that goes. Historically, in our recent history, we've been seeing a strong capacity to reduce losses in a consolidated fashion, even in complex environments with higher complexity. And we're doing it. And regarding low-income customers, Some years ago, there was a ranking that now even published publicly with the companies that had the highest capacity of reaching their maximum potential of client compliance to the clients who were eligible for the social tariff. And at the time, the top five companies that had reached its highest potential, four were ours. So we're very active, although this is asked by consumers, we're very active in doing this. And subsidies can increase the number of outside resources in our concession. I think we've demonstrated our ability to reduce loss and also to register for these subsidies. And that's a strong combination for this new scenario. Excellent. Thank you. This concludes the questions and answers session, and we will now give the floor to our executives for their closing remarks. Thank you. And in closing, I would like to once again reinforce our commitment to the value creation agenda that we seek for our investors based on the delivery of consistent results in the various segments in which we operate, always guided by disciplined financial management. I would also like to remind you that our investor relations team is available to support you with any questions you may have after this call. Once again, thank you for your interest and for taking part in our results call. Have a good afternoon. This concludes this earnings call. Thank you for listening and have a good afternoon.