Equatorial Energia SA

BOVESPA:EQTL3

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon, everyone, and thank you for waiting. Welcome to Equatorial Energia S.A. First Quarter of 2018 Results Conference Call. With us here today, we have Mr. Eduardo Haiama, Chief Financial and Investor Relations Officer. This event is being recorded. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through Equatorial Energia S.A. website at www.equatorialenergia.com.br where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions on our website. They will be answered by the IR team after the conference is finished.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Equatorial Energia S.A. management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Eduardo Haiama. Mr. Haiama, you may begin your presentation.

[Eduardo Haiama, executive]

Good morning, everyone. First of all, I'd like to thank you all for joining us in our first quarter conference call. As for our agenda for today, I'll start the conference call describing the highlights of this quarter, then I'll comment on our operating and financial results. And finally, we will open the Q&A session.

As for the highlights for the quarter on Slide 3. Adjusted EBITDA reached BRL 324 million, with both discos reducing the energy loss in the quarter. CEMAR adjusted EBITDA grew by 22.5% in the quarter mainly due to the volume growth, cost management and lower provisions. As for CELPA, EBITDA grew by 15% mainly for the same reasons.

Our total billed volumes in Equatorial amounted to 3,500 gigawatt hour, representing a growth of 3.9% at CEMAR and 4.1% at CELPA. Total losses in CEMAR amounted to 16.8%, a drop of 0.4 percentage points compared to that seen in fourth quarter '17. And at CELPA, total losses were 27.2% or a 0.3 percentage points drop. Both discos [ cuatro percentage ] previously booked in manageable costs [ or for the expense ] are now being booked in the revenue deduction, affecting the company's net revenues.

In the transmission segment, we started construction to implement a synchronous condenser in the Rurópolis substation, part of the lot 31 that we won in April [ 2017 ] auction. Finally, in April, we received the Preliminary Environmental License for the lots 8, 9 and 10 -- and 12 that should allow us to move forward with some of our fundraising efforts.

Moving on to Slide 5, CEMAR energy markets. Energy sales grew by 3.9% in CEMAR mainly due to [ the recovery ] in the company's energy losses in the quarter and growth in the number of consumers by 3.1%. And the Residential and Commercial segments growth were mainly -- basically boosted by lower rainfall and higher temperatures in the quarter.

On Slide 6. CELPA's billed energy grew by 4.1% in the quarter, also boosted by favorable weather conditions and the loss reduction in the quarter. Worth noting that the Industrial segment has shown signs of improvement in the quarter and grew 1.8%, considering both captive and free markets.

Moving on to Slide 7. CEMAR total losses in the quarter, 16.8% or a 0.4 percentage points drop. Important to mention that in the recent quarter, the company has been successful in reducing even further losses despite being considered to be one of the most complex concessionaires in Brazil by the regulator. In terms of quality indicators, DEC and FEC, CEMAR continued to be well below regulatory targets. And according to ANEEL's quality ranking, we continue to be among the top.

Moving on to Slide 8. CELPA's energy losses ended the quarter at 27.2% or a 0.3 percentage points drop compared to that of last quarter. Despite being the most complex concessionaire in the country according to ANEEL, CELPA has also been able to reduce its losses gradually over the years and is now closing the gap to the regulatory level of 26.9%. In terms of quality indicators, we continue to show improvements. End of last year, we have already been considered the ninth best company according to ANEEL in terms of quality indicators.

On to Slide 10. Adjusted EBITDA at CEMAR reached BRL 167 million versus BRL 136 million in the quarter of last year. If we were to disregard the financial asset update, CEMAR's EBITDA would have reached BRL 165 million in the quarter. Again, EBITDA growth is a result of the growth in billed volumes, the reduction in losses and also a very tight management cost control. As for net income, adjusted figure amounted to BRL 84 million in the quarter versus BRL 62 million reported in the first quarter of '17.

Moving on to Slide 11. CELPA's adjusted EBITDA amounted to BRL 145 million in the quarter, a 15% increase year-on-year. The reason behind is [ growth ] are basically the same as in CEMAR: billed volume growth, good management cost control, reduction in losses and reduction in bad debt provisions in the quarter. As for net income, it amounted to BRL 30 million in the first quarter '18 compared to BRL 11 million in the first quarter '17.

Moving to Slide 12. We show the consolidated figures for Equatorial. Adjusted for the nonrecurring effects [ or ] impact in CEMAR and CELPA, consolidated EBITDA amounted to BRL 324 million or 23% growth year-on-year, while our net income amounted to BRL 93 million versus BRL 61 million in the first quarter '17. I'd like to report that Intesa's figures, the transmission lines that we bought end of last year and as well as Geramar's, they have been consolidated only through net income. So it affects only net income, not consolidated EBITDA.

On Slide 13, we present the debt amortization schedule and leverage for the company. Considering 100% consolidation for CEMAR and CELPA, Equatorial's net debt to EBITDA remained at a comfortable level of 1.8x net debt to EBITDA, representing a net debt of BRL 3.2 billion. It's also important to mention that we ended the quarter at almost BRL 4.1 billion in cash position, which is more than enough to cover more than 3 years of debt maturity.

On Slide 14, we basically show the CapEx made in the recent quarters. As can be seen, the investment in the transmission segment have started to pick up since the last quarter -- fourth quarter '17 and have reached BRL 124 million in this quarter. This expansion basically related to the conclusion of the environmental studies, securing land rights for the lines and also some field services, such as topography, field probing and aerial survey.

Also, in lot 31 that we won in the April '17 auction, we have already started the construction work to implement a synchronous condenser within one of our substation. It's important to mention that once operational, this condenser will allow us to have partial revenues already from this lot.

Moving on to Slide 16. In April of this year, we announced that lots 8, 9 and 12 license that we won in October [ '17 existing ] auction, we have already obtained the Preliminary Environmental License from IBAMA. And once their conditions are met, we should receive the construction license, which will allow us to start the construction phase of this line. It's also important that with this preliminary license, we should also continue with our fundraising efforts for long-term finance for this line.

Also, regarding Intesa's acquisition, we have announced a binding offer made to acquire the remaining 49% of the company. And once we conclude this acquisition, Equatorial will own 100% of Intesa.

Moving on to Slide 17. Here we show the status of our lines project by project. The main recent highlight, apart from the Preliminary Environmental License that I mentioned, is the evolution of the land rights secured. We have already [ raised about ] 70% in most of the lots. These 2 points, the environmental license and land rights, they are crucial to the beginning of the construction phase.

I believe [ right ] now we can start the Q&A session. Thank you.

[Operator]

[Operator Instructions] Excuse me, this concludes today's question-and-answer session. I would like to invite Mr. Eduardo Haiama to proceed with his closing remarks. Please go ahead, sir.

[Eduardo Haiama, executive]

To sum up, we would like to reinforce our commitment, delivering a [ differentiated appreciation ] to our shareholders for exceptional financial and operating results. We also like to highlight our adherence to the highest level of transparency and corporate governance and reassure that both me and our Investor Relations team are available should you have any further questions. Thank you all, again, for taking part in our first quarter conference call, and have a good day.

[Operator]

That does conclude the Equatorial Energia S.A. conference call for today. Thank you very much for your participation, and have a nice day.