Good morning, ladies and gentlemen. Thank you for waiting. We would like to welcome everyone to CPFL Energy 3Q 'eighteen Earnings Results Conference Call. Today, we have with us the executives Mr. Andre Torres, CEO of CPFL Energia Gustavo Estrella, CFO and IRL as well as other officers of the company.
The presentation will be available for download in the website, www.cpfl.com.brir. It is important to mention that this conference call is being recorded. 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 CBFL Energy and Management and on information currently available to the company. Forward looking statements are not a guarantee of performance.
They involve risks, uncertainties and assumptions because they relate to future events and therefore, depending 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 Cipiapo Energia and could cause results to differ materially from those expressed in such forward looking statements. Now, I will turn the conference over to Mr. Andre Dorf. Mr.
Dorf, you may proceed. Thank you. Good morning, everyone. Welcome to another CPFL Energia earnings conference call to discuss Q3 2018 results. I have with me the main officers of the group.
As usual, we will go over a brief presentation and then we will all be available to answer your questions. Please go to Slide 3, where we find the 3rd Q18 highlights. Increasing rate in the concession area, up 1.2%, highlighting the growth of the residential and industrial classes more in the free market than in the captive market as we're going to see shortly. We also had a growth of 4.4% in net operating revenue of the company. And as a result of that and of cost management, we had EBITDA growing 21.4% for cash generation of the company in the quarter.
Our net debt ended the quarter at BRL 15,500,000,000 and therefore a leverage of the last 12 months of 2.92 times net debt over EBITDA. This is the lowest leverage level for the company in a long while. We also continued our investment program. We invested a little more than BRL 500,000,000 in the quarter, BRL 525 1,000,000 particularly in the Distribution segment. Another highlight is the winning projects of CPFL Renovares, the renewables winning projects in the 28th Land A6 auction, Cherubim, FHBP and the Meleda Wind Farm Complex.
In addition, you're probably following some relevant sector issues. I would highlight here the tariff flags coverage for the distribution segment to deal with the expenses related to parcel A. And here we are dealing with insufficient flags and insufficient coverage, generating a higher need for liquidity and working capital by all distribution companies in Brazil. In addition, we have the GSF team. This is a recurring topic in our discussions and now this topic is being analyzed by the House of Representatives.
It has gone through the Senate House and let's wait to see if there will be novelties by year end In a great expectation, not limited to the electric sector, but of all resilience is the composition of the first level team of the new administration that will take office. Here we highlight the team of the Ministry of Mines and Energy, but it is important to highlight that our high expectations apply to all levels of government, state owned banks, development banks and all of the agencies of the new government. The first news are quite promising and we see good names being considered to occupy these high positions in the government. Moving on to Slide 4 please. Here we have our EBITDA, our cash generation by segment.
Starting with the upper left hand corner chart, we have our EBITDA BRL 1,548,000,000 in the quarter. 46% of the EBITDA came from the Distribution segment, followed by Renewables. This is the most favorable time of the year in terms of wind and renewable sources. So here it accounts for a higher share than we normally saw in prior quarters because of the seasonality and conventional generation 22%, followed by commercialization services and others 4% of the company's EBITDA. So just with the upper right hand corner here, we have the Distribution segment, posting a significant EBITDA growth quarter over quarter.
This sustained mainly from a market increase. Market increase drove most of this positive variation that we see in our distribution EBITDA. In conventional generation, here we also have a positive variation 4.7%. Here we had some recovery of PIF and Costin's credits and CIF4 and recovery of retroactive credits, tax credits, which helped this positive number. Renewable generation grew the same percentage, 4.7%.
Here, that's very much driven by greater wind power generation in 2018. We had more wind power generated in 2018 than in the Q3 of 2017. In Commercialization Services and Others, here we also posted an EBITDA growth, particularly stemming from a reversal of ADA in our commercialization company and because of the new services and contracts of CP at Alsra Visos. This is also a positive result in this new segment of the company. Please go to Slide 5.
Here, we need to give more detail about the distribution segment. We have the highlights for the quarter. Like I said, we had an increase in road of 1% to 2%. We had an increase in sales of 2% in the concession area. As we can see on the upper right hand corner, 2%.
2% increase in sales in the concession area more representative in free clients, free market clients, 5.4% and price categories were forecasted market clients. We had growth at the residential segment, highlights going to RGE and RGE in full, most significant growth in the southern region of the country because of the temperature difference quarter over quarter. Higher temperature in 2018 generated more significant increase in the south region. We see stability in the commercial segment. Here, we don't really see a more substantial recovery at the commercial segment.
However, in the Industrial segment, we see more exciting growth of 2.4%. Highlights going to CPFL Piratinga, RGE and RGE. Here it is worth highlighting some segments that drove this kind of growth. I would highlight chemical, automotive, rubber plastics and food industry. These were the segments that really drove this recovery.
In terms of losses, we continue to work on this to invest in recovering losses. Here, we see an indicator of 8.87%, which is lower than in the Q2 of 2018 and which was lower than the Q3 of 2017. In the pie chart on the bottom left hand corner, we see the market breakdown in the concession area. Industrial continues to account for the largest portion, almost 40%, followed by residential, commercial and other segments. In the middle chart, we illustrate the comparison or the behavior of CPFL Energia comparing with the regions.
Overall, CPFL grew 2% at sales versus 1.3% growth of the Brazilian market. In the Southeast, we grew 1.7% versus 2.2% And in the Southern region, we grew 2.6% versus the whole region growing 1.5%. I'm not going to get into details about the triathlon line, but they show sales performance by consumption segment. Here, I would highlight in the quarter the residential segment and the industrial segment. Residential, because of the difference in temperature in the industrial segment, because of the slow recovery that we are observing, particularly in the segments that I mentioned.
Moving to Slide 6, please. Here we talk a little about generation. The big theme of the quarter regarding generation, not only applying to CPFL, but also the interconnected system in terms of reservoir levels. We started the 3rd quarter with a yellow light in terms of reservoir levels of the regions and of the mix system. But we ended up and they're a little more optimistic.
We moved from the low part of the country. We don't have anymore the worst curve in the history. And recent rainfall has shown a marked recovery in the Southeast and in the NIP system overall. This results in our spot price. On the bottom left hand corner, we can see the volatility of spot prices along the month and along 2018.
We came up to it from the chart that we started 2018 more or less at half the chart at BRL 180 to BRL100 because of that yellow light regarding hydrology. We hit a top mark of 505 and now it was at 142 in the first week of November. On the right, we see the effect of hydrology on GSF, an indicator that we monitor, and that generates financial impact to generation companies. In September, in the quarter, we had 3 worst GFS level ever. And now the trend is that it will ramp up given that we are going to start a favorable hydrological period.
On the next page, we have a little more details on our results, and I turn the floor to Gustavo Estrella, the CFO of the group.
Well, I am on the line number 7 with our results. This quarter, we had robust results. You can see a performance of our EBITDA of 21.4% in the quarter of 22.5% in the 9 months. When we compare the net income 60% up vis a vis 2017 for the quarter and for the 9 months, 100.6% higher. The net income of this non 1st month of year of BRL 1,496,000,000 is already higher than the whole year of 2017, which was $1,200,000,000 As we can see and the main effect, the main effect really comes from the distribution segment with a total variation in our EBITDA of BRL 230,000,000 positive.
And the main factor here is coming from what we call market and tariffs. We have seen that the compression market had a growth of 1.2%, and the main effect here is undoubtedly coming from tariffs. And here especially, we have an effect of tariff reviews of our distributing companies BRL 278 1,000,000 and this is coming from the tariff review of companies that did have that tariff review over 2018. We also had a positive effect. And here, this is basically inflation effect and the adjustment of the financial asset adjusted by the IPCA, and we have a variation of almost BRL 90,000,000.
Some lower variations for private pension funds of BRL 60,000,000. And here, we have a positive effect I'm sorry, this is a negative effect of P and L. So in the quarter of BRL70 1,000,000 negative. Here, we do have some seasonal effects. Basically, we were affected by legal and judicial expenses and for our ADA in this quarter.
Once again, these are seasonal effects. It's important to look at the legal and judicial expenses that are not recurrent in terms of results. And the same applies to ADA. But when we look at the 9 months, both legal and judicial expenses as well as ADA for 2018, they are at lower levels than what we had in 2017. So this is the trend, which is a positive trend when we compare what we have so far to in 2018 to 2017.
In conventional generation, there was a total variation of BRL 15,000,000. As Andre has mentioned, we are recovering retroactive credits. The main one has to do with beef and cofin's credits at EPASA, and that was BRL 11,000,000. And this is our main effect coming from conventional generation. In Renewable, we have a higher impact in the wind farms, wind generation that has a volume of energy produced this year, which was higher than the volume we had in 2017.
Therefore, we have an additional revenue coming from renewable. And also, we had some penalties in 2017, which we did not have in 2018. This also provides us a positive effect in the comparison. And also, as Andre has already mentioned, we did have a negative effect of BRL 14,000,000 coming from the impact of GSF. Another important thing in our results comes from the financial results.
Basically, because of the variation of interest rates, that allowed us to have an increase. Reconnecting, Slide 8. We analyze the performance of our leverage. We go back to a level that since 2012, we were not able to see. We are now at 2.92 in the Q3 of 2018.
Also, it's very important to highlight that now we have a regulatory asset of almost BRL2 1,000,000,000 also affecting our leverage. Without that regulatory asset, we would be at a leverage close to 2.5 times net debt over EBITDA. It's important to stress that these BRL 2,000,000,000 will be integrated to the tariff review over 2019. Therefore, that will go back to cash, accelerating our reduction of leverage over the next year. Our gross debt cost basically is stable vis a vis the prior quarter.
As we have mentioned, mainly all our exposure is of CDI, of our net debt. And here, we show gross debt. But in our net debt, we had 0 exposure to CDI. And now we have 40 5% of our gross debt already prefixed at prefixed interest rates for 2018. We'll go back to having exposure to CDI in 2019.
But this year, we I would say that we have a stability regarding financial expenses up to the end of the year. Now turning to Slide number 9. We analyze our liquidity in the and we have ended the quarter
with Reconnecting
all our maturities in the short term, and here we are following our policy of a previous refinancing of the company in order to avoid any type of exposure to market volatility. On the Slide number 10, we have a highlight of our projects. The main one is Boa Vista SHPP, which should start operating in 2020. This will be anticipated in the next few weeks. We should have the project going into operation 100% was ahead of time when we consider to the schedule that we had in the auction.
We have 2 projects that we were winners in the A-six auction, Cerro Binhuel HPP with 28 megawatts of installed capacity and the Meleta Wind Farm Complex with 69 megawatts of installed capacity. Both of them should have their start up in 2024. And we will now start the development of these 2 projects. Well, this is Andres Dorf again. We have a final slide to share with you.
This is an interesting initiative coming from the company. We have ended the Q3, the first edition of the CPFL in Nava. This was an initiative that we created here in the company in order to extend the interaction of our initiative or our business areas or management areas. And in terms of what's happening about start ups and technologies out of the company, we know that major innovations are happening out of the larger companies. And for us, this is a new learning such as for any other company to be able to bring that in and to create a type of cooperation with startups.
So we launched this project in a partnership with Endeavor, which is a company totally dedicated to foster start ups and scale ups. We intend to accelerate 12 start ups in this first edition. We had 4.96 companies enrolled in the program, and our solutions are listed in the bottom part of the slide. Everything is very hands on, very practical, and it is of great interest for our business and for our company. So at the end of this initial addition, we already have BRL 6,000,000 in contracts with these companies.
And the solution should bring us optimization of processes in the company, also new services to be provided to the market and also solutions that will optimize costs, avoid losses, will deal with data in a different fashion, anything that could allow us more efficiency in our services as well as greater productivity in the company. So I now end the presentation. I'll turn the floor back to the operator to start the Q and A session.
A Our first question comes from Bruno Varela, Solana Capital. Hello, Andrea and Strela. I have three questions. The first is, I'd like to know from your standpoint, can we see a higher EBIT of RGE Sul higher than RGE? And the second question about RGE Sul, was looking at the EBITDA of this quarter.
And in the comparison with the prior year, we have an increment. But I would like to understand why there was a restatement of some account because the saw EBITDA, actually, was 77,000,000 negative and not the 72% positive that we see now. So was there a restatement of any sort? And finally, I'd like to understand the legal and judicial expenses that you mentioned, Strela. I would like to know what is the origin of this?
Does this have anything to do with the CPLP Pension Fund discussion? Where did these expenses come from? And are they to be expected to recur in the next quarter? Thank you. Hello, Bruno.
Thank you for the questions. First, regarding RGE, so the higher EBITDA than RGE, Well, we have the situation in the Q1 of this year. RGE. So was an EBITDA for the first time that was higher than RGE in the year. Our expectation, given the characteristics of the 2nd and Fashion areas, which are relatively similar, But with the potential of investment in the RGE, so area higher than in RGE, our expectation is that perhaps in 1 or 2 years, we'll be able to overcome the EBITDA of RGE, but not for this year.
This year, RGE EBITDA will be higher than the EBITDA of RGE. So I'd like to remind you that in the beginning of 2019, we should have the merge of the 2 companies. So we're going to see the results of 1 single company. But in terms of the business plan, we will continue to manage this, working at the companies separately so that we can know exactly what are the business plans that we drafted in 2016 is being executed as defined by our Board of Directors. You mentioned an EBITDA variation of RGE Sul, a negative EBITDA.
Well, last year was a year of adjustment in RGE Sul because of the adjustments we made of the PPA, the process to restate the balance sheet after an acquisition. The PPA is the power purchase agreement. So we have to make that little comparison that you were making if it's in the individual balance sheet of RGE Sul or the RGE Sul balance sheet for consolidation purposes because they have different basis. I need to know whether we are comparing the same thing here. Well, actually, I was using the restated balance sheet and not the one for consolidation purposes.
Well, then what we see is that indeed there is a difference. It is basically because of the restatements that we had to mirror the PPA effects. This is basically regarding contingencies in the balance sheet of Arginiso. If you want, perhaps we can speak more in detail in person and I can explain to you the variations. But the reason is exactly this, the accounting of PPA reflected in the RGE sold individual balance sheet of 2017.
Okay, perfect. And finally, we talked about legal and judicial expenses. This is basically because of civil clients. Again, when we look at this as relatively, the Q1 is not a good proxy to show a trend of legal provisions because we have perhaps a predetermined seasonality to recognize legal provisions in our balance sheet. So what we normally do is look at the year to date comparison.
Year to date, despite some seasonality that we had different from 2017 year to date, this is kind of softened in the 2 year comparison. Our expectation and our view is that we have a positive trend with a volume of legal and judicial provisions, again, based on several claims at lower levels than what we had in 2017. So considering everything we're doing at the company in terms of follow-up of lawsuits, legal claims and having preventive measures for both civil and labor claims, everything we've done, we start seeing we start bearing the fruits in the balance sheet of the company. Thank you. But one last question regarding leverage.
You mentioned adjusted leverage of 2.5 times the other time. And given the concern of the controlling shareholders regarding the 3 times net debt over EBITDA that the company was having, what would be a level that you would consider comfortable for you to work with looking forward and to go back to paying dividends with a somewhat higher yield? Would it be something like 2 times or 2.5 times? Hello, Bruno. Well, here we don't have a leverage target.
We changed the philosophy of the company. We used to work with a maximum leverage, having a maximum dividend payout. And therefore, our debt cost varied between short and long term debt. And we had to accumulate a lot of cash to deal with a somewhat more short term debt, but all of that has changed. So now because we're generating more cash and we have fewer capital intensive projects and fewer dividend payout in the last 2 years, we have significantly reduced our leverage.
The target is that it will reduce this leverage a little more. We don't have a target index though. But Looking forward, we have to consider paying more dividends to our shareholders. But at the moment, we don't have any final decision regarding how to pay dividends on the future results of the company because we don't have any pressing need on the part of our shareholders. Perfect.
Thank you very much. We are now Very well. We are getting to the end of the 1st 2 years since we started this corporate transition. So we have focused a lot of our efforts on cultural issues and trying to harmonize the culture, but always placing the company in the 1st place, always doing what is best for the company. We have devoted a lot of attention to operating aspects with investments and an organization that will give us more quality and greater control over information and over our operations and also focusing on lower costs for the company.
We have seen some results of these endeavors and we are reporting this to the market. In addition to operating issues, we are dealing with a very agitated sector in terms of consolidation, M and As and privatization. I want to stress that we are keeping our ears and eyes open to all opportunities of growth, about organic growth through options or by acquisitions, but always with a lot of discipline, which is our mark. With this, I end this conference call to discuss our results. I thank all shareholders and partners of the group for their trust and confidence.
And I would like to thank you for joining us in one more conference call. Thank you very much. That does conclude CPL Energia conference call for today. Thank you very much for your participation and have a good day.