Light Sa S/Adr

Good afternoon, everybody, and welcome to tonight's webinar for the second quarter 2020 results. My name is Rodrigo Villela, head of investor relations, and I will be the host of this event. The presentation and comments on the results will be made by Light's CEO and Investor Relations Officer, Ana Marta Veloso, and by the Officer, Roberto Barroso. The presentation is already available for download on our website, but it will also be possible to follow it here to do some better work. I would like to remind you that at this moment, all participants are connected in listen mode only. After the end of the presentation by Ana Marta and Barroso, we'll host a Q&A session. Further, I will provide instructions for those who want to ask questions. And this webinar has been recorded and its audio will be available on the IR website. And as usual, here is our disclaimer. Forward-looking statements are based on the beliefs and assumptions of light 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 should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results and could cause results to differ materially from those expressed in such forward-looking statements. So after due legal notice, I would like to give floor to Ana Marta. Ana, would you please?

Thank you, Rodrigo. Good afternoon. I'd like to thank everyone for attending our second part of 2020 results webinar. This was a particularly challenging quarter for our business, mainly due to the impacts of the pandemic on the results of our distribution business. Despite this, we remain strong in operational terms, and we are taking all the precautions that the moment demands. We maintained our operations in the field and cooperate activities even more focused on achieving the results set out in our turnaround plan and on delivering outstanding results in terms of quality of the supply, in which within this context of a pandemic, our energy is even more essential gift. With much grit and determination this quarter, we continue to achieve consistent improvements in our operating results, reduced losses, contingencies, and PMSO. And we have recently obtained significant funding to strengthen our cash position. Our generation and commercialization businesses also continue to show good operational and financial performance. However, before commenting on the good operating results for the quarter, I will detail the effects of the pandemic on the figures of our distribution business. The economic and social distancing effects on the customers within our concession area due to the pandemic were the main factors that resulted in a 16.5% drop in grid load in this quarter compared to the same period last year. The build market in turn declined at 15.6%. And given that ANEL has forbidden distribution companies to cut off delinquent residential customers, we also noticed a decline in collections, which was accompanied by an increase in the provision for bed debt. We estimate that these conditions have negatively affected the EBITDA of Light Cesar in the quarter by approximately R$212 million, of which R$119 million relates to the impact of the market decrease on Parcel B and on non-technical losses, and R$93 million is related to the increase in provision for bed debt. As a result, consolidated EBITDA closed the quarter at 145 million reais, which represented a 240 million decline year over year. With the commitment to the COVID account on July 3, we will receive 1.3 billion reais until the end of the year, of which we already hold 1 billion reais as of today. However, this amount refers only to financial compensation, the cash effect resulting from the contraction of the market and collection. It does not address the economic impacts of the pandemic, which were quite significant, as I mentioned before. We understand that the economic conditions of the market contractions and the deterioration in collection with a consequent increase in the provision format that are extraordinary events and will be addressed by the regulator. The right to maintain an economic balance at all times is crystal clear in the concession contracts of the distribution companies in Brazil. In this sense, we have been closely following the discussions taking place at ANEL and the suggestions should be submitted to the public consultation. By the way, it has already been announced that this issue was included in the meeting agenda of ANEL's board of directors to be held this Tuesday, the 18th. These impacts of the pandemic on light cells EBITDA overshadow our operational improvements in combating losses, reducing legal contingencies, and reducing PMS, which generated an increase of 85 million reais in our results as compared year over year, as I will discuss in greater detail further on. As already disclosed to the market, we have a loss combat plan with initiatives broken down by regionals, which is the result of a detailed diagnosis of the reality of the problem in each region. During the pandemic, we continue to work on our plan and strengthen the teams to combat losses with professionals whose activities has been temporarily suspended, such as those who work in cutting off customers with outstanding payments. We continue to provide training to our own and third party teams and to deepen the policy of increasing the participation of our own employees in the workforce that deals with energy losses with the aim of better control and higher productivity. This strategy has proven to be very successful, as well as the decision to redistribute responsibilities between Dahmer, who now is the officer responsible for planning, and Pimenta, who is focused on the execution of the plan in the field. This rearrangement resulted in our teams being even more productive, flexible, and multidisciplinary. Even during the pandemic, we proceeded with our zero-tolerance policy towards the highest-income customers who steal energy, whether they are commercial or residential, by carrying out inspections, many of them with the support of the police and reported in the media. In addition, we worked tirelessly to bring former energy-stealing customers into formality. On the administrative side, considering non-technical losses, we continue to correct measurement errors and perform actual readings of customers' consumption, thus avoiding bidding on the average and on the minimum. And CAPEX continues in the normal path on exchanging old meters, shielding the network in more hostile regions, as well as investing in fiscal measurement. As a result, even with the given adverse scenario, we experienced that in the second quarter, we reduced losses by 439 gigawatt hour over the previous period. This means a decrease of 4.7 in the volume of losses in this part. If you consider the volume of loss in the semester, we saved 911 gigawatt hour, which is equivalent to the consumption of a city of approximately 300,000 inhabitants during a year. And even with a 16.5 retraction in the grid load, which is the index denominator, the indicator of total losses per grid load decreased by 0.15 percentage points, closing the period at 25.29% compared to 25.44% in the first quarter. Non-technical losses on the low voltage market fell by 0.7 percentage points in this quarter compared to the previous one. Looking now at the indicators for the semester, in the first half of 2020, despite the pandemic, the indicator for total loss on the grid load decreased by 0.75 percentage points when compared to the closing of last year. And if you consider the indicator of possible areas for our business, the reduction in total losses over the grid load was 2.1 percentage point in the first half of 2020, even with the decrease in the denominator on account of the pandemic. This half-year drop in the grid load loss indicator is compared to or even higher than that of other Brazilian DISCOs that operate in complex areas and which have been highly successful in their plans to combat loss. This result shows that we are on the right path towards sustainable loss reduction, one of the main pillars of our turnaround plan. But we still have a great deal of progress to make since we are 6.09 percentage points above the regulatory transfer in the tariff of 19.2% of the grid load, according to the parameters agreed in the tariff adjustment of March, 2020. As of the second half of March, after a resolution by ANEL, we no longer rely on cutoffs as a collection instrument for our residential customers. And with this, we observed an increase in delinquency, also impacted by the economic downturn as a consequence of COVID-19. The collection rate closed the quarter at 95.4%, 1.5 percentage point below the one we achieved in the first quarter. However, when compared to the second quarter of last year, the drop in collection was much higher of about 5.7 percentage points. The deterioration in collection was softened by some innovative and proactive initiatives in the relationship with our customers, including service via WhatsApp, sending of barcodes through text messages, helping the issuance of duplicated invoices, and sending QR code for the payment of outstanding invoice installments. In addition, since the beginning of the year, we have been using motorcycle-based collection agents to reach an even larger audience in a more agile and effective way. Until June, we carried out more than 40,000 settlements, achieving a total value close to 90 million reais. The increase in migration of bill payments to digital means, such as ATMs, internet banking, and an automatic debit continued in the second quarter of 2020, which ensured some resilience in our collection. In June, about 85% of the collection of the distribution business were made through digital channels. However, the increase in delinquency during the pandemic, associated with the expectation of non-collection future bills within this period, resulted in the provision for debt for the last 12 months, disregarding the non-recurring impacts at the end of last year, closing the quarter at 3.3 of the gross revenues, one percentage point above the figure post-March 2020. According to our estimates, the isolated effect of COVID-19 on provision for bed-debt, considering the aging of accounts receivable from March to June, is approximately 93 million reais. If this effect were not taken into account, the provision for bed-debt in the second quarter would have been 130 million, practically in line with that of the first quarter. That was 123 million reais. With the lifting by a nail of the prohibition to cut residential clients in August, we now are strengthening our relationship with those customers with outstanding payments to offer them opportunities for regularization. We believe that at this time, this policy is beneficial for these type of customers and for our business as pursuing the disconnection approach, despite its high efficiency is much more expensive than to negotiate payments installments. As previously mentioned, the pandemic has also accelerated the digitalization of our customer relationship. With the annual determination to close our physical stores in March, we redirected our representatives to our digital service channels, such as our virtual store, to the newly launched interface via WhatsApp, in addition to email-based customer service. The public's receptivity to these new tools was very positive. When we launched the interface via WhatsApp in March, about 15,000 service calls were taken. In April, we registered more than 127,000 calls. In a recent survey of users, more than 75% of respondents stated that they preferred to use WhatsApp even if the physical stores were open. This increase in digitalization is without question an irreversible path in the relationship with our customers. And these positive results will be submitted to ANEL to contribute to a future discussion on the modernization of obligations by distribution. Furthermore, regarding customer relationships, although I now authorized in March the measurement of consumption by historical average, we continue to perform actual readings for the majority of our customers. We only achieved this result thanks to our insourcing plan and to the low rate of absenteeism of our relationship agents. This situation has ensured the integrity of our billing and reduced any possibility of deteriorating the relationship with clients, which could lead to future lawsuits. In fact, the number of customer complaints regarding billing in our service channels was greatly reduced during the pandemic. From more than 33,000 complaints in the second quarter of 2019 to 7,000 complaints in the second quarter, a reduction of 77%. This indicator clearly reflects the improvement in our business process. Since August 3, as determined by ANEL, we have resumed our physical store service, following the protocols necessary to ensure the health and safety of our employees and customers. This quarter, we continue to make progress with another important element of our turnaround plan, which is the reduction of legal contingencies, especially those related to customer relations. This quarter, we recorded total contingencies in the amount of 74 million reais, excluding the voluntary layoff program, a reduction of 14 million reais, or 15.8% compared to the second quarter 2019. This positive progress already captures the improvement of processes throughout our customer relationship fronts, such as physical stores, call center, and ombudsman, in addition to the continuous improvement in our internal process to result an improved service. And since Deborah took over the legal department, we have been carrying out a wide restructuring of the area with the hiring of new professionals and firms, improving the training of our internal lawyers and officers with the objective of continue to deliver good results along with the reduction of legal contingencies. In special civil court, we remained at the downward trend for the fourth consecutive quarter. Year over year, we can see a 78% reduction in the number of new lawsuits and a 62% reduction in the value of the provisions. Following the trend from the previous quarters, there was also a significant reduction in the predecessor indicators to contingencies, such as the number of complaints registered at our physical stores called Center, Ombudsman, and Anell. With regard to manageable expenses, today we have a PMSO close to those included in our tariff, but we need to reduce them even more. Since the middle of last year, we have worked on several fronts in this regard. First one, improved management of materials and contracts with third parties, adjustments to the staff, including the launch of a voluntary layoff program, improvement of the variable remuneration policy linked to objective goals, including the field workforce, greater synergy between the departments, increased productivity and supervision over field teams with the advent of insourcing. As a consequence, the expenses of personal material and third party service of the distribution business, the PMS, was reduced by 23.8 million reais or 9.9% compared to the second quarter of 2019. Over the semester, we observed a decrease of nearly 37 million reais in those expenses when compared to the first semester from last year. Moving on to the financial aspects, we began the quarter with our net debt EBITDA ratio at 3.07 times in line with the previous quarter and well below the 3.75 times covenant limit established in most of our debt agreements. You must keep in mind that for the purpose of our debt covenants, a 12-month horizon is taken into account for EBITDA, also excluding non-cash effects such as provisions, VNR and other operating income and expenses. Our consolidated debt on June 30, 2020 was 6.7 billion reais and we closed the second part with a cash position of 995 million reais. With the proceeds from the first installments of the COVID account and with the 19th issuance of debentures by Light Cesar in the last 15 days, our cash position became more robust, reaching 2.5 billion reais. Considering the above, we have now fulfilled the necessary conditions to face our future debt obligations. Under Barroso's leadership, we carried out a series of successful initiatives to improve our debt profile and cost control since the completion of the follow on offering in mid last year. With the positive interest related to the 19th edition of the Benches of Light CESA held at the end of July, we realized that the local debt market was heating up again, which would allow us to continue with our liability management strategy. Regarding the DAC and FAC indicators in this quarter, we record the best results in our history in terms of quality of the service provided even during the entire quarter with the pandemic. We remain at the same level as at the best and largest distributions companies in the country and within the quality service limits established by the regulator in the concession agreement. In June, the DAC for the past 12 months closed at 6.42 hours, a decrease of 7.8% compared to March, and the FAC ended at 4.27 times. In the generation segment, we achieved an EBITDA of 153 million in the second quarter of 2020, above the 148 million recorded in the same period of the previous year. We were successful at our seasonal strategies and energy trading deals closer throughout the year. These serve to mitigate short term exposures and optimize results based on our projections for GSF and PLD. With actions taken to preserve the health and safety of our employees, we could ensure that our plants continue to operate normally, maintaining their rates of availability in the generation branch. In addition, in May, we began to spill away renovation works at the Ilha dos Pombos hydro plant. On our trading arm, whose client portfolio is focused on wholesale operations, mostly with large companies with a AAA credit profile, we had the necessary strength to face the most adverse scenario brought about by the pandemic. Litecom received some requests for increasing the flexibility from smaller customers and was well succeeded in the negotiations, making payment conditions more flexible in order to ensure that revenues are recognized within this year. And I need to comment on the result of yesterday's approval by the Senate of the bill which renegotiates the hydrological risk, the GSF, in the power sector. According to the legal procedures, this bill will now be submitted to the president's approval and later regulated by ANEL. So within approximately three or four months, we will get to know the proposed terms and the conditions, and then we will evaluate if we will accept them or not. If this decision were to take place today, Light Energia would have to disburse approximately 730 million reais and its power plants could receive a concession extension of up to 24 months. In its turn, light energy would weigh legal disputes and an intangible asset would be formed regarding the extension of the concession period. I now will give the floor to Barroso, who will present our results of the second quarter 2020 in greater detail. Go ahead, Barroso, please.

Thank you, Ana. Good afternoon. Going to the presentation in the slide number two, We can see the reduction in the grid load volumes in the second quarter of 2020, mainly related to the COVID-19. The most reduction are related to the commercial clients, to the industrial market, and other markets, mainly public services and public buildings. The reduction in the billet market also was impacted by the COVID-19. The reduction was 15.6% in this quarter when we compare with the second part of 2019. In financial terms, this reduction in the volumes related to COVID-19, our best estimate is for this impact is around 119 million reais for this quarter. Going to the slide number three, we can see despite of the COVID-19, we were able to reduce energy loss for the second quarter in a row. The reduction in this quarter was 0.15 percentage points. The energy loss, we ended this quarter with 25.19%, 29%. And the regulatory gap is around six percentage points. Going to the losses in the possible areas, non risky areas, we are being able to reduce the losses in the possible areas. quarter after quarter is the fourth reduction in a row. And the reduction was almost 25% when we compare in the total losses in the possible areas in the second quarter of 2019. When you compare the reduction in the total losses over the grid road in the possible areas in percentage points, we were able to reduce 2.6 percentage points one year. In only this quarter, we were able to reduce 0.8 percentage points in the no risky areas. Moving to the slide number four, we also are able to see a reduction in the non-technical losses over the low voltage market. The reduction in this quadrant was around 0.7 percentage points. And the second time we are able to reduce in error. In the graph in our right, we can see the non-technical losses in the risky areas and also in the possible areas. In the risky areas, we saw a slight increase in this quarter, but we saw a very high decrease in the non-technical losses in the non-risky areas in this quarter. It's our best results in the non-technical losses in the possible area disclosed since we started to measure in 2016. Moving to the slide number five, we can see our strategy to combat losses in our concession area. We are focused on the incorporated energy, EN, despite to focus to recover energy stolen. In this quarter, we were able to incorporate the energy in the total amount of 127 gigawatt hours. And we also increase the productivity of our loss program to combat. And we increase, our productivity, and we were able to recover energy, almost 80 gigawatt hours in this quarter. We improved our training, we ensorced our field teams to combat losses, and we had a greater accuracy in target identification. Talk about the collection rate, we saw a decrease of the collection rate in this quarter in the total amount of 1.5 percentage points. Because of that in the aging of the accounts receivable, we increase our bed debt provision from 2.3% to 3.2%. These one percentage points We book it in the second quarter of 2020, mainly related to the COVID-19. We estimate the impact of COVID-19 in our concessionaire, mainly related to the prohibition of ANEL to cut residential clients. We are estimating in 93 million reais in this quarter. Moving to the slide number six, we can see a very good quality results. The duration of the interruptions of energy reduced a lot in this quarter, and we closed the second quarter of 2020 in 6.4 hours, to more than 20% below the target imposed by the regulator. Consider the frequency of the interruptions. We are also very nice in this quarter to more than 20% below the target defined by the regulator. Moving to the slide number seven, talking about the financial results, we saw a reduction 240 million reais in our EBITDA in the second quarter of 2020 when you compare with the same quarter of 2019. It's important to mention that 212 million reais is related to COVID-19. And we are discussing a potential economic equilibrium with the regulator. Also, we have to add around 100 million reais of the reduction in the net revenue is related to VNR. So this both effects the COVID-19 and the VNR overshadowed the 85 million reais improvements related to the turnaround plan, related to reduction of losses reduction of PMS and reduction of the contingencies. Talk about the contingency in slide number eight. We can see a very high reduction in the small lawsuits against clients. We are able to reduce 62% in this quarter. And when we look for the total lawsuits provisions, we were able to reduce 23%. Talking about the number of lawsuits started in this quarter, we are able to reduce almost 80% when you compare with the same quarter of 2019, and more than 50% when we compare with the first quarter of 2020. Moving to the slide number nine, we can see the results in our EBITDA by segment. We were able, despite of the COVID-19, increase the results in the light energy generation business, mainly related to the strategy of the commercialization to protect the company against the GSF. And talk about the distribution company, it was directly impacted by the pandemic in this quarter, as I mentioned in the slide before. Moving to the slide number 10, we saw in the bottom line of the results, the impact of the COVID-19, But we reduce this impact by the taxes as well, the equity income, mainly related to the losses related to RenovEnergia. But it's important to mention that we sold this investment in October of 2019. So now we don't have any negative impact impact of Hanover from October last year on. Moving to the slide number 11, we try to show in a simple way the impacts of the turnaround and compare with the impact of the pandemic in this quarter. Let's talk about the turnaround in the first semester of 2020. we had a reduction in losses, which impact in a positive way for the company, now almost 90 million reais for the first semester of 2020, added by a PMS, personal material and services, expenses of 37 million reais and also 6 million reais in contingency reduction. The total of the turn around plan impacted positively our EBITDA in the first semester of 2020 in the total amount of 132 million reais. This we expect to continue because we are in our overview, we believe we are on the right path in the turnaround plan. In the estimated impacts of the pandemic in our second quarter results, we are estimating 212 million reais separated in provision for bad debts is 93 million reais and 119 million reais related to the reduction of the grid load. But this effect, we are trying to address this equilibrium, economic equilibrium with the regulator. Moving to the last slide, number 12. we can see the cash position of the second quarter of 2020, almost 1 billion reais. But in July, we are able to issue a new debenture of 500 million reais. And also we see from the COVID account, 1 billion reais and 10 million. So the pro forma cash position until now is around 2.5 billion reais. It's sufficient to pay the amortizations maturing by the end of the year, less than 400 million reais, and the amortizations maturing in 2021, around two billion reais. Looking for the financial co-ordinance net debt to be done, we close the second quarter of 2020 in the index of 3.07 times, just 0.01 times higher than the first quarter of 2020. Talk about the cost of the debt, we were able to reduce more than one percentage point in this quarter when we compare the nominal costs with the previous quarter, and more than two percentage points of reduction when we compare with the second quarter of 2019. And the actual costs increase a little bit because the reduction of the inflation in Brazil in the second quarter of 2020 mainly related with the pandemic. But when you compare with the second quarter of 2019, we will also reduce almost one percentage point. And it's important to mention that our debt, two thirds of our debt, almost 67% is related to the CDI, which we do see a lot in the first six months of this year. And it was important to reduce our cost of the debt to get with the inflation and to get with The liability management we started two years ago and we accelerated after the follow on the second half of 2019. Thank you very much. I'd like to pass to Rodrigo to lead the Q&A section. Thank you very much.

Thank you, Barroso. So we'll now start the Q&A session. So those who want to ask a question, use the raise hander feature located at the bottom of the screen. So I will enable the mic. It will also be possible to send written questions through the Q&A button, also located at the bottom of the screen. Once the question is received, we'll answer live here. So just again to clarify, so if anyone has a question for the management of the company, you just have to click on the raise hand button at the bottom of the screen or to use the Q&A button here if you prefer to send us real-time questions. Okay, no questions for today. So I would like to thank everyone for your participation. And now I will turn the floor over to Ana Marta for her final remarks. Please, Ana.

Thank you. Thank you all for attending our webinar of the second quarter results of 2020. And once again, I emphasize that we are making progress with a professional and aligned team with the objective of generating value and improving governance that we announced to the market. We are on the right track for generating sustainable results, building a consistent trajectory to become one of the best energy companies in the country, despite the complexity of our concessionary. Making an analogy with the current times, our results at the distribution business were greatly impacted by the effects of the pandemic this quarter. But for this, there is a kind of vaccine, which is the economic rebalancing we are entitled to in our concession contract. The important thing looking forward is that our turnaround today is a reality and the company has been delivering consistent operating results and represented to the market since our return to the company in May last year. As I said in the last quarter, we will become as one of the most strong companies during this pandemic and be sure that we are prepared to face the challenges and uncertainties that we still have on the horizon. Our IR team will remain available for further qualifications and have you all a nice afternoon and until the next time. See you, bye bye.