Hello?
Hello. Hello. McTonic for CPFL.
Okay. Can you tell me please your first name? First name is Renren, r e n. Last name would be Cruz, c r u z. Okay.
Can you repeat your first name? First name, it's r e n, Ren. Yes. That's good. And what you're calling to his name?
What's his name?
Reconnecting. Good morning, and thank you for waiting. Welcome to CPFL Energia's Q4 of 'eighteen Earnings Conference Call. Today with us are Mr. Gustavo Estrella, CEO of CPFL Energia and Mr.
Pan, CFO and Investor Relations Officer of CPFL Energia and other officers of the company. The presentation will be available for download at CPL Energir's Investor Relations website at www.cpl patel.com.brir. We would like to inform you that all participants will be in listen only mode during the company's presentation. After the company's remarks, there will be a Q and A session when further instructions will be given. I would like to remind you that this call is being recorded.
The conference will be held in Portuguese by Mr. Gustavo Estrella with simultaneous interpretation into English, and we will have the participation of Mr. Pan, who will be addressing OLEDs in English. Before proceeding, we would like to 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's management and on information currently available to the company.
Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they relate to future events and therefore depends on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may also affect the future results of Cielo Energia and may cause results to differ materially from those expressed in such forward looking statements. Now we would like to turn the conference over to Mr. Gustavo Istrella.
Mr. Istrella, you may proceed. Good morning, everyone. I thank you for participating in our conference about the Q4 of 2018 results and the full year of 2018. Let's go to Slide number 3 with some highlights of 2018.
And the first one is the increase in the consumption of energy in the low DNO concession area, 2.7% increase, very much concentrated with the residential and industrial classes. It's important to highlight that this is the 2nd year that we have over 2% increase after negative years. 2015, 2016, the 3% to 4% markets dropped. In 2017, We had this recovery higher than 2%. I would like to highlight the growth of the EBITDA, 15.9% EBITDA and net income, 74.2%, a record net income of the company and as well as a record EBITDA net debt closed at BRL 16.3 billion, leverage reaching 3.05, net debt to EBITDA ratio with a drop vis a vis 2017.
And 2017, the leverage was 3.20, and now we have 3.05. Another important highlight in relation of investment that the Q4 of 2018 investments amounted to BRL 693,000,000 and for the year, over BRL 2,000,000,000 closing at BRL 2,066,000,000. We would like to mention the tariff reviews, especially CPFL Paulista and RGE 2 and RGE that occurred during the year of 2018. By the end of the year, on December 31, we grouped the concession of RGN, Rio de Su. So in January 1, 2019, now we have only one concession in the state of Rio de Janeiro with the assets of RGE and RGE itself combined.
Regarding both and the participation of the company in auctions, In the renewables auction, we won 2 projects. The first one is SHPP Kerubin with 28 Megawatts installed and also the Vaneira Wind Farm with 69.3 Megawatts capacity. And another important landmark is the startup of the Bora Vista SHPP that should be started at the beginning of 2020. And we brought it forward in over 1 year. So we'd start up in December 18.
Another important highlight is the participation in the transmission auctions. We had 2 last year and we won one lot in CEC CapEx BRL102,000,000 and 2 lots in December 2018, the first one on June 2018. And the CapEx was BRL366,000,000, the first one and the second BRL349,000,000 together, the projects of renewable energy, plus the volume of transmission, we were talking about in addition to CapEx for BRL 1,400,000,000. And at the end of November, we also had the auction for CPFL Renovave, controlling 99.94% of the shares. State Grid now holds 99.94% of the shares, if that's been above it.
Now going to Slide number 4, we see that besides the highlights of the EBITDA record, EBITDA, as I said, BRL 5,600,000,000. And we share the distribution, 1st segment of the EBITDA in distribution. Distribution continues to be the main one with 53% share. Conventional generation, 23% and Renewable, 21%. And lastly, the Commercialization Services and Other were 3%.
Here we have a highlight of our results. And afterwards, Ben will be talking about our results more in detail. We see an important evolution in the Distribution segment. Our EBITDA going up by 8.7% in the 4th quarter and 34.5% in the full year of 2018 accumulated comparing to '17. It's important to highlight the growth of the market that directly affects the evolution of EBITDA, but the conclusion of tariff review in our distribution companies as well.
In the conventional generation segment here, which is basically the 13.4% in the quarter and 6.1% in the year has to do with the long term contract that we have because here we don't have any new projects in the renewable energy. We see an effect in the Q4 of 2018 due to the write off of assets of BRL 47,000,000. This is a nonrecurring effect, with the impact only on this quarter. So because of that, we have a drop of 15.8% in the year. We see a drop of 1.1%.
And we'll be talking in detail, but the main reasons for that is the reduction in volume of wind. In Commercialization Services and Others in the market, It's more general, the nature of the commercialization segment, we have here a drop in margin and that leads to the EBITDA drop in the 4th quarter as well as the year, 75% for the quarter 26.9% on the full year. Moving on to Slide 5. We have here a little bit more detail in the increase of energy consumption under concession area in the Q4 of 2018, specifically the total sales in concession, we have an increase of 1.2% and 0.4% in the captive market and 2.8% in the free market. We still have a bit of a reflection of that migration from the captive market to the free market.
Now looking here when we break down per segment, the increase in the residential segment is 2.2%, followed by industries at 0.9%, commercial 0.7% and others basically in the world of 0.6%. In the comparison by region and our concession where our concessions are located, we compare CPFL with Brazil, where we see a growth of 1.2% comparing the Brazilian market by an increase 1%. In the Southeast, CPFL increased 0.6% compared to 1% in the regional region as a whole and in the South region, 2.6 percent for CPFL, 2% for the region. Now on the next slide, It's the same information, but focusing on the year 2018. So we can see sales in the concession area of 2.5 percent even with the effect of the same effect of the Q4 we see here, the increase in the captive market of 0.5% and the increase on the free market of 7%.
So that's basically due to the migration of clients from the captive market to the free market. Some of the highlights is the increase in the residential segment of 2.6% was an effect over the year that was positive in the consumption due to temperature, especially in the RGE region with a growth of 3.7%. In the industrial class, on the average of the year, we have an increase of 2.8%. Percent. And the highlights are Piratinga with a 4% increase, RGE at 3.1% and CPFL Santa Cruz at 7.6%.
So for this year, the main highlight of the consumption segment that we have in our concession areas, As we see, the motor vehicle, metallurgy and chemical segments being the main classes contributing to this growth in 2018. The comparison by region, we see higher growth in all of them when compared to the country's growth and the comparison of the Southeast and with the Southern region. Now on Slide 7, we have the hydrology scenario, and we can see a significant recovery in the reservoir levels throughout the month of March with a more pessimistic expectation in the beginning of the year with a decrease in the level of growth reserves. But an important recovery on the average in the month where we historically have a lot of rainfall. This is an important piece of data.
So this recovery of the reservoir during the month of March. In April, we started April a little bit more pessimistic in terms of rainfall. So it was slightly below average, but still at a good level in the month of April to bring more recovery in the reservoir levels. So we should close at around between 48% to 49% by the end of the month. We see here in the spot price chart, the PLD, which is connected to the expectation of rainfall increase in the month of March after the peak in February where the expectation was of much less rainfall, but we come now to these levels.
In 2017, we see a curve that is different from an impact with the industry agents and a secondary power in the beginning of the year, but with an expectation of higher levels in the second half of twenty nineteen. Moving on to the next slide, I will turn over to Mertepa, and then he will talk a little bit about the details of the company. I would now like to turn over to Mr. Pan, and he will give his presentation in English.
Good morning. My name is Pan, and this is CXO presented the following slides. The first one is about revenue. In Q4 of 2018, our revenue, net revenue is R6.7 million, which is 10% lower than last year. And in terms of the data, at the Q4 of 2018 was BRL1.3 billion, which is around BRL12 1,000,000 last year And in terms of net income, our 4th quarter income in last year is BRL6.3 million, which is BRL173 million higher than last year, that is 35%.
In the front, I explained the variation of the data. First, about the distribution, contributed around BRL58 1,000,000 of increase in terms of the Mexican tariffs. We have BRL186 1,000,000 of increase. The adjustment is R63 $1,000,000 lower than last year. And in terms of PMSO, we see a R38 $1,000,000 of increase.
Among this PMSO, we have legal and administrative expenses increased by RMB40 1,000,000 and in terms of ADA around RMB40 1,000,000. The second part is about the conventional generation. We have run a RMB37 1,000,000 increase compared to last year, the Q4 last year. Another RMB37 1,000,000 with our price adjustment of contracts contribute RMB23 1,000,000 and IFS contingency in 2017, in Edmonton, this confidence contributed RMB13 1,000,000 And the 2 asset compensation agreement with Diesa is RMB11 1,000,000 contribution. And we have kind of the fiscal currency reduction that decreased by $9,000,000 And the 3rd part is the commercial and the service area, we see a RMB62 1,000,000 decrease mainly because of the margin in the commercialization side around BRL14 1,000,000.
And in terms of renewable generation, we see a 56,000,000 decrease that is because of the right half of the asset, which is 47,000,000. And also we have lower revenues in the winter times, of course, partially offset by the lower GFS impact and hedge, that is around BRL10 1,000,000. And in terms of the net income, we see a 33% interest compared to last the Q4 2017. That's mainly because we have a decrease in CDI and from 7% to 6.5%. And that's contributed around BRL25 1,000,000.
As you'll let go to Slide 9, this is the full year numbers. In terms of revenue, 2018 was a 5.2% increase compared to 2017. And EBITDA, our 2018 number is BRL5.6 million, which is historically high and that is around 15% increase compared to 2017, that is BRL773 1,000,000. And net income, 2018 was BRL 2,200,000,000 of net income also historical high, which represents 74% increase, around RMB923 1,000,000 compared to 2017. Okay, in terms of this variation of EBITDA, I'd like to assume as follows.
But first, distribution side, we have a total variation of BRL 770,000,000. That BRL 770,000,000, around BRL641 1,000,000,000 comes from the market and tariff revision we had last year. And in the financial asset side, we have the adjustment of BRL141 1,000,000. And the second part about the conventional generation, we have BRL73 1,000,000 of increase compared to 2017. The price adjustment of the contract contributes RMB44 1,000,000 and the TFF compensation adjustment RMB44 1,000,000 and the ISS contingency in Enercon contributed BRL13 1,000,000 and have the reduction as mentioned previous slides contribute next to BRL45 1,000,000.
In terms of the commercialization and the service sector, we have around BRL56 1,000,000 of purchase that we have BRL74 1,000,000 comes from the commercialization side of the margin loss. In the service sector, we have a margin gain of R8 $1,000,000. And last quarter of renewal, the renovation, we're still next to BRL7 1,000,000 of valuation compared to 2017. The TPU exposure, the subject of services and the compensation management, MTFC and also the wind farms, we have around negative RMB53 1,000,000. And head of energy, negative RMB30 1,000,000.
Dollars and we have a positive of $51,000,000 of interest comes from the higher biomass generation. And in the net income side, we have increased BRL385 1,000,000 comes from the financial results that is the reduction of the interest rate to CVR contributes BRL306 1,000,000. Okay, next slide 10, we have investments of the 4 groups. You can see here in the Q4 of last year, we have around a very low net income over EBITDA ratio that is 3.35 percent. And our adjusted EBITDA in the last 12 months is BRL5.3 billion.
And in terms of the gross debt cost, it's 7.5% nominal. Excluding inflationary accounts with 3.6%. And the breakdown of the grossback, we have 65% in TDI lead and TDI the P and D activity of 24% and we're taking it back to 7% and we have the drop of the floating interest rate financing is 5%.
So I'll come back on Slide 11 of the Boavista CHBP, which is new, as I said, with commercial start up in the end of last year with an installed capacity of 29.9 Megawatts, 100% already operational. Now on Slide 12. We see the 2 projects that we won in the last auction, A-six of 2018. The first one is the Cherubin THPP with an installed capacity of 28 megawatts, a project that we will initiate construction. Same thing for the Ganelera Wind Complex, 69.3 Megawatts of installed capacity with the project to be structured to begin the construction and the financing.
On Slide 13, we see a transmission auction. There were 2 auctions throughout the year, 1 in June 28, where we won Lot 9 in the state of Ceara with a contracted RAP of BRL 7,900,000 and the investment estimated of BRL 102,200,000. In the December auction, we won 2 lots, 1 in Santa Catarina with a wrap of BRL 26,400,000 and an investment estimated in BRL 363,000,000 in the second block, Lot 11 in Rio Grande Egus 2, RAP of BRL 33,900,000 and investments estimated of BRL 348,900,000. On Slide 14, We have our CapEx program for 2019 until 2023. What we have here for the 5 years, CapEx in the total close to BRL 12 million, it's BRL 11.938.
And concentrated in the distribution segment was slightly above BRL 10,000,000,000 with investments close to BRL 2,000,000,000 per year in the Distribution segment. And since last year, we have additional investments in generation or the renewables project, but also in the transmission segment with the 2 auctions that we won last year. And here finally on the last slide, just to give you a highlight of the grouping of RGE and RGE South, as we were saying in the state of Urgrande Busu, we have a new concession, it will be RGE. So one concession with close to 3,000,000 clients, 3,900,000 in 3.81 municipalities. And the capacity for synergies is a lot greater when we have one single concession.
This concludes our presentation. And we would like myself and Pan to make ourselves available for the Q and A session. Thank you. Ladies and gentlemen, we will have the Q and A session now, which will Giuliano Genchi from Claripase Investments. Hello, Sena.
This net income over BRL2 1,000,000 was beyond even the most optimistic analysts. I have two questions in fact, Ms. Trella. Stigweat, when they acquired TPL, it was BRL 25. And at the time, it was about 24 times pi.
2019, it could be close to 12 times pi. Do you believe there is a possibility of a follow on, for instance, below the price that they paid for? And this is my first question. And the second question is the following. Let's suppose you do a follow on, having a primary offering.
How much of the funds of the primary offer would be invested? Do you believe this could happen over 2019? What the gains would be? And what would be the destination of these funds for the other funds? Thank you for your question.
First, regarding the price. We see an important evolution in net income in 2016, we announced the acquisition and it was contributed in 2017. In 20 16, the net income of the company was 102. And now it's almost BRL 2,200,000,000. In fact, it's a major recovery of our results that this affect the price.
So if we have a follow on process of the company, Of course, this is a talk that is just starting based on the perspective and results of the company obtained today and not 2016. In this case, it would be a follow on issue based on the perspectives of the company today and not on 2016. We have a very different scenario today compared to 2016. And if we choose the follow on path, we will be telling the story of CPL today and not 2016. So the scenario is completely different, and we are just talking about that.
And regarding the primary offering and the secondary offer, In the case of a follow on and in the case of a primary offer, we have many different alternatives ahead of us. One of them would be the acquisition of the participation of State Grid. And as you assume, and the expectation of synergies with the The interpreters apologize. However, the sound that we are receiving here in the interpretation booth is totally impossible to translate. We are trying.
We are doing our best. So we have a pipeline of CapEx of 24 bps. Based on the expectation of a recovery of consumption opportunities for additional investments. And we have also the expectation of distribution as well in the sense that could be financed by our possible follow on if we choose this path. Well, let me take this opportunity and ask you another question.
The decision about the follow on, when this could happen? And do you believe it could be done by the end of May, which would be the 18 months? We could make a very fast decision. And this is on the table. This is being discussed today between Citeco and State Grid.
And so we expect to have a very quick decision about this subject. And regarding the deadline, we are almost in April already. So any of the 2 alternatives, They will be done or they will be carried out within this framework. Our next question is from Bruno Varela from Solana Capital. Good morning, Estrella.
I have two questions. The first in Raimo Siliano's question. How much time did you have? In the beginning of April, how long would you estimate for each of the processes, both in the MTUO or re IPO? And what you would have to meet in terms of discussing with the stock exchange in terms of time, a deadline?
And the second question, in this last quarter, in particular, there have been some increases in the working capital accounts, very relevant. And I had considered cash generation of just around 1.5 percent, and it came to 1.4 percent. And if you consider the basic accounts of EBITDA, CapEx, interest and tax rates, you get to those numbers. And it includes CBA and a negative receivables account and providers, you can invert this EUR 1,500,000,000 positive to EUR 1,500,000,000 negative. So clearly, it's clear enough that I would like to understand the dynamics of the receivables from providers in your working capital.
So first, in terms of the deadline, it's a challenge for us to estimate of course, in an MTO process. This is not 100% controlled by the company. So this process may be longer as we receive questions or discussions about the process on the table. So if it's a process without any surprises, it would be something around 2 or 3 months for its conclusion. But this could be much longer depending on how the discussions develop in the market.
As for the follow on, it also depends on a number of factors. So if you have an expectation that there's an open window with a regular term that would be until mid July, for example, for our results, we could try to access that window, but the market is developing and the windows open and close very rapidly. So if we chose the path of the follow on, we would be paying attention to that. Of course, we would not go to market without a definition that is very clear that there is a window that allows us to go to market for that operation. So without being too clear, But there are many factors involved and we and they will be discussed at some point and any of these processes will be addressed with serenity and following all the proper procedures for us to have the best operation possible.
As for the working capital, an important point here, the company raised funds in December. And at the end of the year, we made use of the cash available to anticipate some payments to advance some payments that would usually be done in the beginning of the year we made in the month of December. Just making use of the cash available at the table. We can't see that effect yet for the month of January, the payments that would have been made had been made and was starting with that on the working capital in January. So there's no structural change in the working capital flow.
That was basically us making the most of an opportunity in the payments that had to be made. And following up on the MTO or the re IPO question, At what stage do you think this decision is at State Grid? Is this still at the State Grid international level? Or has it been forwarded to the controlling shareholder in China? Considering how close the final deadline is, This subject is a top priority not only for us but for them as well.
So we're at the last stages to have this decision shortly. Excellent. Thank you. Good morning, Filas. Well, my questions have mostly been answered already because they were included in Bruno to the end of questions.
I would like to ask a question about CapEx. What about the wind farm, the options that you want, are you going to bring forward the CapEx? Are you going to bring it forward to have a more short term return? This was a very recent fact that you say the auctions that we won. We are evaluating this possibility.
And of course, we are looking at this as an alternative. This is still being started. It depends on many factors, the execution of the project and the grid connection. It's a little bit too early for us to say anything about this. And of course, we will be analyzing this over the next few months to check if this is a real possibility or not.
Thank you very much. Our next question will be in English,
I have two questions. The first one is related to the Slide 8. What are the major components of the assets that were written off? Secondly, one is also on the same slide. What is the major reason for the reduction of interest rate?
Could you please repeat your question?
Sure. The first question, what are the major components of the assets that were written off in the renewable generation? And second one, what is the major reason for the reduction of interest rate? Thank you.
If you can't speak Chinese, you can also excuse me repeat in Chinese as you can also understand Chinese Mandarin.
Okay. I can't speak English. So I can use English to ask my repeat my question first and I will repeat my question in Chinese paper. My first question is related to the assets that were written off. What are the major components of assets that were written off?
And the second one, it is related to the reduction of interest rate. What
is the
major reason for the reduction of interest rate? And now I will use Charlie to repeat my question.
The first question actually is about on slide 8. We have mentioned here the write off of assets. Actually, this BRL47 1,000,000 write off of assets is the we have some small projects, hydro power plants project, right, in Innovators. And in the end, we found that this asset is not has little value to continue for the development. And according to the accounting rule, we found this kind of impairment, so there is a write off.
The name of the project is 10,000,000,000,000 this is a fact that we write off. And in terms of the second question about the decrease of interest rate, actually the decrease of interest rate is the interest rate is the interest rate, which is the business rate in Brazil, it differs from 7% from 6.5%. This is from the Central Bank of Brazil. And because most of our financing actually 64% of our financing is related to CDI. So we have this kind of once we have this kind of difference of interest rates, we have this kind of benefit in interest expenses.
I'm not sure you heard it clearly. It's not very clear. I don't explain it in Mandarin.
We would like to conclude the question and answer session. I will turn over to Mr. Gustavo Trella for his final contributions. Once again, thank you all for your presence and participation and the net income of the company's EBITDA. And as important as the results, we also have a significant reduction in our indicators and an improvement in our quality levels.
We've also broken records and with a decrease of 17.8% compared to 2017. So it's record results with excellent quality indicators and an aggressive expansion plan for our CapEx, as we can see, with close to BRL 12,000,000,000 in investments with very good results of growth this year. So we have an asset base that has quality, efficiency generating results and receive possibility to bring future growth. So that's our scenario from a positive perspective and outlook for 2019 and the coming years. So once again, thank you.
Have a great day.