Good morning. Thank you for waiting. Welcome to CPFL Energia first Q19 earnings results conference call. Today we have here with us Mr. Gustavo Estrella, CEO of CPFL Energia, Mr. Pan, CFO of CPFL Energia, as well as other officers of the company. The presentation will be available for download on the website www.cpfl.com.br/ir. Be informed that all participants will be in listen-only mode during the company's presentation. There will be a question-and-answer session when further instructions will be given. If any participant needs assistance during the conference, please press star zero for an operator. It is important to mention that this conference call is being recorded. The call will be held in Portuguese by Mr. Gustavo Estrella, with interpretation in English. We will have the participation of Mr. Pan, who will speak English to our listeners.
Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of CPFL Energia management and on information currently available to the company. Forward-looking statements are not guarantee of performance. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of CPFL Energia and can cause results to differ materially from those expressed in such forward-looking statements. I would like to turn the floor to Mr. Gustavo Estrella. The floor is yours, Mr. Estrella. Good morning, everyone.
I would like to thank you very much for being here with us for this call regarding the results of the first quarter of 2019 of CPFL Energia. Let us start on slide number three, where we have our main highlights in the quarter. The first of them is related to an increase in the load in the concession area. We have a growth of 1.9%. We are going to go into details a little bit further ahead, but this 1.9% is related to two free clients that left our concession area. They have migrated to the basic network. If we adjust the consumption of these two clients in this load, we are going to get to an increase in concession, with concession areas up to 12.5% in the comparison phase, which is around the same amount of growth that we had in consumption in 2018.
Here we have our results. A growth in the EBITDA of 12.1%, BRL 1.531 billion. An increase in our net income of 36%, reaching BRL 570 million. Our leverage is a net debt of BRL 14.9 billion and a leverage of 2.7 times net debt over EBITDA. Our investments in the quarter were of BRL 445 million. Let us remember that our forecasted investment for 2019 is of BRL 2.2 billion a year. In this quarter, we had BRL 445 million. Our tariff adjustment year for CPFL Paulista at the beginning of April, we had an increase that was significant of 9.63% of the Part B, reaching BRL 2,532,000 with an average effect to our consumers of 8.66%. It is important to highlight in here probably two important effects in the tariff adjustment.
The first of them is the transfer of the IGPM, which in the period was 27%, significantly higher than IPCA amount in this period in the last 12 months. Also, X factor that had a positive effect to the company, basically because of the reduction of the indicators that we have decided inside they were better, and that had a positive effect in our X factor. Turning to slide four, we have our highlights in the EBITDA. You can see in the pie chart to the left, the share of the distribution segment, 64% in the business of the group, and 20% of conventional generation, 12% of renewable energy, and 4% in commercialization services and others.
The performance of the different businesses we see here is the distribution segment, with a growth of 23.6%, basically still reflecting the tariff adjustments and also tariff reviews that we had over 2018 associated to the growth in the energy consumption, and this is a significant result and a positive result for the company in the quarter. Followed by conventional generation. Here we had a drop of 6.5%. It's going to detail that. Basically, here we have two non-recurring impacts. The first one is positive. In 2018, there was the impact of agreement, our HPP in Rio Grande. That was an agreement in 2019 that allowed us to have a positive effect in 2018 of BRL 17 million. Another non-recurring impact in 2019 is the increase of investments related to our TTC deposit with BRL 10 million of investment.
Here, basically, we have anticipation of investments considering the high levels of generation that we had in our TTC. We did anticipate investments. Also we had one-time investments. That has affected our cash in BRL 10 million. The renewable generation, there was a drop of 15.7% that two effects as well. Here, the performance of wind, which is still low in the quarter. This is what we had that in the last quarter of 2018. Also there is a seasonalization effect in our SHPPs. This effect will be offset over 2019. A very positive performance in the commercialization services and other segments with a growth of 165%, which would highlight here the commercialization with better margins in 2019 and also with a better performance in services. Now turning to slide five, we have our energy sales.
As I said, there was an increase in the concession area of load of 1.9%, considering the impact of those two free clients that left us and went to direct connection to the basic grid. If it was not like that, we would have a growth of 2.5%. Also, we had increase in sales in the concession area of 3.2%. Net of that effect of these two clients, we would have had a growth of 3.8%. Main highlight here is in the residential area with a growth of 8.4%, followed by the commercial area with 5.1%. Basically here, what explains this high growth is the increase in temperature, especially in January and February of this quarter, that allowed us to have a higher consumption of energy.
In terms of losses, they are stable vis-à-vis the losses of the prior year, 8.84% compared to 9.03% at last quarter of 2018 and 8.82% in the first quarter of 2018. Turning to slide number six, we have our hydrological scenario. We see a clear recovery of the scenario, especially here in the months of April and May. We are reaching a level that is higher in the month of May for the whole Brazilian NIS system. This is a similar situation in the Southeast region. You can here have our expectation of the levels of the reservoirs. As you can see, obviously, with the positive expectation, we have a drop in the spot price. We had a peak in prices in February. We see the curve in a downward trend, we will have lower prices here in May.
To our right, we have the GSF projection. In month of May, this is the first time that we have the GSF up. We were having the secondary energy in the system, and the expectation of GSF now for May up to the end of the year in December, we have an average expectation of around 16% in the average of 2019. Turning to slide number seven, I turn the floor to Pan, and he's going to talk about the results of the first quarter of 2019. Excuse me. I would like to turn the floor to Mr. Pan, and we'll have his presentation in English.
Good morning, everyone. For the first quarter of 2019, I think we have a very good quarter compared to last year. In terms of the net revenue, we have around 12% of increase, and also 10% increase in comparable EBITDA. Because here in the first quarter in 2019, we have BRL 1.5 billion in EBITDA compared to BRL 1.4 billion last year. In terms of net income, we have 36% of increase, which represents BRL 151 million. This EBITDA BRL 574 million compared to last year BRL million in 2019. I would like to explain the breakdown of the main effects. First, in terms of EBITDA, first one is the distribution. We have BRL 187 million of increase. Obviously, we have BRL 213 million because of the margin on power generation we had last year actually. The second that is a very famous case.
We have a one-time payment from the court, so we recognized BRL 34 million of revenue in terms of income statement. In terms of PMSO, we have BRL 8 million net income compared to last year. The ADA explained BRL 42 million. We have BRL 22 million more based on the PPA expansion provision. The second is about the renewable generation. We have BRL 26 million increase compared to last year. That is BRL 28 million because of our PPA CBMOL impact. The lower wind farm generation explained the BRL 25 million. We have the start-up of the Bolívia small hydropower plant. It increased our revenue by BRL 13 million. The third part is the commercial and the studies. In that area, we have BRL 25 million increase. In the commercialization area, we have the trading margin, BRL 23 million more than last year.
The studies, last year, we have BRL 13 million of margin compared to last year. The fourth is the conventional generation, where we have BRL 21 million decrease. That is because the BRL 17 million IEB. That is the change of the cash basis to accrual basis last year. Last year we had BRL 17 million of increase, but we don't have this impact this year. That is the reason why we have the BRL 17 million of decrease compared to last year. In that overall, that is BRL 10 million we have this year. Increasing the fact of the PPA contract, there's this BRL 10 million increase. Then we go to net income. We start financially about contributor R$87 million. That is because of the reduction in the EBITDA is BRL 256 million. We have the revaluation that is mark-to-market is that BRL 33 million profit.
Next slide, please. Then we go to the investment of the company. From the first to the bottom part, we can see that the leverage of the company going down every year, and came out actually at the historical low, 2.7 of the ratio of the net debt over adjusted EBITDA. That is because we have the EBITDA operation 25% this year. That's the reason why we have a decrease of net debt. This is the gross debt part. You can see a 7.6% of the moment. We are going to keep going 9%. We have actually increase in the inflation in this quarter. The breakdown of the gross debt is CDI represents 65%, inflation EBITDA 13%, CDLT 18%, then we have 4% of the trade credit that financing the company's financial debt. Thank you.
Ladies and gentlemen, we will now begin the question-and-answer session. It is important for you that simultaneous interpreting into English. If you have a question, please press star 1. If at any time you'd like to remove yourself from the queue, press star 2. As a reminder, if you want to ask questions, please press star 1. The first question is from Bruno Varella with Solema Capital.
Good morning, Estrella. Good morning, Pan. I have two questions. The first question has to do with an increase in ADA. There was an increase, at least year-over-year, on ADA distribution companies. I would like to better understand the reason. The second question, we saw a very strong leverage this quarter if you consider the full quarter of 2018, 2.7 times EBITDA. I'd like to understand the rationale behind it. What is your vision by year-end?
What do you consider to be an optimal leverage that you would like to work with close to 2 times or even lower than 2 times?
Bruno, first of all, actually, if you look at the numbers, there was a significant increase in ADA. Our indicator in the net revenue is 0.6 and 0.9. We do see some one-off events compared to 2018. We can see a non-recurring effect of an agreement in 2018 with the local authorities, BRL 11 million or ADA. Net of this effect, we continue to see a strong impact in the increase in our ADA. It's a combination of many factors.
Firstly, higher tariff numbers than in last year. Added to that, an economy that doesn't show faster recovery signs. We still have high unemployment rates, low payroll, it all has an impact on our tariff, combined with an increase in consumption. We showed here a result for residential, which also shows a final increase in the electricity bill. If you combine and put it all together, it makes us have an an increase of 88 this quarter. In-house, we already have an action plan, a stronger action plan to fight this upward trend in delinquency. We've increased our number of disconnections amongst many other initiatives, maybe this is the most important one. The idea is to increase at least by 20% our volume of connections so we can fight this increase in delinquency. In April, we already noticed a drop in this volume of 88.
Certainly that's a warning sign, we are focusing very heavily to control and lower these ADA indicators. As for deleverage, actually we do show strong deleverage in the current quarter. Please bear in mind that you asked this question right in the past. You asked us about an atypical variation of our working capital in Q4 2018. We also mentioned that we had made some payments that we had from the beginning of the year, and we anticipated to December. This quarter, we have a lower payment volume, which also contributed to lower our leverage in this quarter, 2.7. It should have been lower at the end of the year, but when compared to 2.7 that we showed now. Basically this is the main reason behind the stronger drop in deleveraging.
Once again, if you have a question, please press star one. The next question is from Juliana Sartori, Claritas. Please go ahead, sir. Hello.
Following up Bruno's question, what is the EBITDA project for the end of the year? In order to meet this net debt over EBITDA, do you plan to increase your payout? First of all, about our net debt over EBITDA ratio. Clearly, we have a downward trend in our leverage until the end of the year. Perhaps the only variable in this case would be the level of regulatory assets by year-end. Our expectation today is that with Paulista tariff adjustment, we'll begin to have a lot of our regulatory assets in the balance is expected to go down, we can confirm a stronger reduction in our leverage that we're showing right now in the current quarter.
For this year, considering earnings already disclosed, our payout is 25%. Therefore, the dividend payout expected to have by year-end, by December, will be on top of 25% payout.
Okay, great. The next question is from In the audio it is Gustavo Henrique Fabrizio of XP Investimentos.
Good morning, Cirila. If you think about our pro forma cash generation around BRL 1.3 billion, net of working capital would be a normal, around BRL 600 million. We could see about BRL 700 million coming from suppliers. If you think about Q4, I can see that the supplier line was going up, and we also had some CVA offsets. How about over the year? Should we expect to see positive working capital from suppliers and CVA coming forward would be another BRL 1 billion approximately cash additionally. How do you see the picture?
First of all, we work on the strategy of advance involving suppliers, and there is some confusion about the working capital numbers. We anticipated payment on top of suppliers, which is higher, and now it's lower. To some extent, it should be adjusted. The volume is about the same that you mentioned, something around BRL 800 million. There is no outlook to have a similar scenario by the end of the year. Clearly, this is assessed on a regular basis by the company, and should there be a rationale of financial gains, we might take the necessary arrangement by year-end, but not now. We can have normal cash generation, as we have normal accounts payable. But like you said, maybe the main difference in our cash generation will be related to the regulatory asset receivables.
If on the one hand, we already are assured about the amounts already included in the tariff adjustment, particularly for leases with some stability, and now we start having these amounts. As of now, there is always uncertainty vis-a-vis new regulatory assets. Maybe a more adverse scenario, an increase in ADA, not to mention GSF hydrological risk. In the recent past, we saw how it had a strong impact on our cash generation. In our current scenario, if we consider GSF hydrology, the spot price, chances are we can have a volume of regulatory assets to be received by year-end lower than what we have today. Today is around BRL 1.2 billion, and chances are we'll be close to half of that by year-end.
Once again, it all depends on what the scenario will be by the end of the year, particularly when it comes to new assets upon realization and what we'll get by year-end. Perfect. Just as a follow-on question, now about EBITDA. You had a significant increase in EBITDA. To some extent, offsetting part of the tariffs in distribution companies. However, when we look at generation, we can see a drop in revenue going to wind operations and also seasonality. Moving forward, what about the generation EBITDA coming back? I believe it's feasible to have something around or above BRL 6 billion this year. I think that about generation. Generation seems to be very stable in terms of the increase. Here we are talking about the same installed capacity with the rates indexed on inflation, and we expect it to grow at least the same amount as the price adjustment.
We do have two non-recurring effects, as I said in the statement, which allowed us to have a drop in the EBITDA. That's not our perspective. These are effects that will no longer happen in the next quarters, and we should go back to our simple EBITDA, considering the characteristics of the business. That's great. Thank you.
To ask a question, please press star one. The next question is from Bruno Varela, Solana Capital.
Thank you very much for this opportunity. I was not very clear about the answer to Juliana's question. Do you have an expectation to increase the payout of the current 25% or not?
I think as for this year. The payment this year as regarding to the results of 2018, and we have deliberated the payment of 25% of the net income of 2018 in 2019. This is a subject that has been also on the market. Our idea is to rebuild our flow, and that's a subject that will be decided in a slow rebuilding process. Today, the way we are at, the payment is 25%, but in a possible slow redefinition in the market, the subject will be discussed, and as soon as we have anything new decided, we'll let you know. Today the decision is 25%.
Thank you very much.
Our next question is from Eduardo Alvarez.
Good morning, everyone. Can you comment on the assets you are looking at a possible M&A? What is the company's focus? If there is any distribution asset or generation asset that is drawing your attention or any of those that are out in the media of CEEE. Thank you.
Hello. About M&A, I think what we have discussed about leverage is important
The company is in a very comfortable position to participate in growth opportunities in the market. Looking at our DNA, I believe that we do have a very clear growth path related to distribution assets. We show that here. If you look at the distribution results of ENE for instance, in 2016, we can see that we have positive results being delivered. Naturally, considering the scale that we have and the expertise that we have in recovering distribution assets, we are a significant player to participate in possible opportunities to growth if they come ahead. We do have some prospective possibilities. You talked about Itaú, this is an asset that makes sense for CPFL, especially because of its geo-localization. There's a chance of this market being out to the market today, but we certainly will look at it if it becomes available.
In addition to that, really, if the market's expectation confirms about other privatizations, if we use our expertise, we will be looking at all the new assets that are out in the market in order to address growth in the distribution sector. Looking at the generation segment, today we are the main renewable player, so we are a natural candidate to additional investments in renewable generation. Basically here the investment would be by means of the auctions that are made every year and also with some possible acquisition movement. Once again, the company also using its expertise and its scale looks at possible growth opportunities in the renewable energy sector. In addition to that, in the transmission segment, we have a strategy to invest in what we call niche transmission. These are investments with less transmission lines and assets close to the ones that CPFL already has.
This way we can have some type of synergy in our operations. Here also, the way that we work in the market is of the auctions, the expectation for auctions in 2019, if the expectations are real, they should happen, and we will analyze that as it comes ahead for the transmission segment. These are the main possible investments for the company in the coming years.
The next question is from Gustavo Henrique Fabrizio, RBS Capital.
Gustavo, if I may, I would like to know more about the offering. You announced the request for ANEEL, if I'm not mistaken. Do you have any position about this? Maybe disclose how you intend to work on this offer, it be primary or secondary offering.
Like we said, we already had the answer from CVM. Now we have some time until October 31st. Right now we are carefully assessing and having the company ready to go to market. That's the time we have. There's a strong discussion at the company about this topic, involving several negotiations at the table. One of them is a possible definition for primary or secondary issue or a combination of both. We haven't come to a decision yet. As we have a decision, then we will disclose it to the market. Just making it clear, we have this term with and the idea is to go to market, considering market conditions, our internal conditions, and as soon as we make a decision, we'll let you know about it. Thank you.
This concludes the question and answer session. We'd like to give the floor back to Mr. Gustavo Estrella for the final remarks.
Once again, we thank you all for being with us. We delivered in the first quarter of 2019 very positive earnings, particularly in the distribution sector. This is a highlight with another significant growth. Another important factor is the maintenance of low interest rates with a positive impact on our P&L. When it comes to macroeconomics, we expect the government to manage to address reforms, particularly the pension reform, we can have more robust upturn in our economy, bring in positive impact to our business and energy consumption. We see that in-house, we've been focusing a lot on an increase in our efficiency, productivity, and quality. Indicators are a good evidence of that. We all know that the next step related both to productivity and quality comes with the implementation of new technology.
We are focusing very heavily on the deployment of smart grid and other technologies so we can have a quantum leap in quality. That's the outlook for the future. Now the focus is on opportunities to invest. As mentioned before, we expect to have auctions this year, generation projects, transmission projects. The company understands that we can be involved in a very competitive manner in these potential projects so we can bring even more value to our shareholders. Basically, this is it. A very positive outlook going forward with the high expectation of upturn in our economy, higher consumption, and a lot of opportunities to invest. Once again, I thank you all for joining us today. Have a great day.
This concludes CPFL's English year conference call. Thank you all for joining us. Have a great day.