Good morning, and thank you for waiting. Welcome to CPFL Energia's second quarter of 2018 earnings conference call. Today with us we have Mr. André Dorf, CEO of CPFL Energia, Gustavo Estrella, CFO and investor relations of CPFL Energia, and other officers of the company. The presentation will be available for download at the investor relations website at cpfl.com.br/ir. We would like to inform that all participants will be in listen-only mode during the company's presentation. Afterwards, there will be a question and answer session when further instructions will be given. Should any participant need assistance during the call, please press star zero to reach the operator. I would like to remind you that this call is being recorded. Before proceeding, we would like to mention that forward-looking statements are being made under the safe harbor of the Private Securities Litigation Reform Act of 1996.
Forward-looking statements are based on the beliefs and assumptions of CPFL Energia management on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions as they refer to future events and therefore they 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 of CPFL Energia and could cause results to differ materially from those expressed in such forward-looking statements. Now we would like to turn the conference over to Mr. André Dorf. Mr. Dorf, you may proceed.
Thank you. Good morning, everybody. Welcome to another CPFL Energia conference call about our results. At this time, about the second quarter of 2018. As usual, we have a brief presentation, and then we will be opening for questions. Slide three, please.
This is where we have the highlights of the quarter. The load measured in our concession area grew by 3.8% in the period. Later on we will be seeing that most of this growth, as we have been seeing over the last few quarters, happened in the free market, growing about 7%. Also, we had growth of 16.5% of our net operating revenue, and we will also see that it comes basically from the distribution segment and 33% EBITDA. Our net debt measured by our covenants closed the quarter at BRL 15.7 billion. Therefore, our leverage was 3.11 times our net debt EBITDA ratio of the last 12 months. We also had an important amount of funding, BRL 3.4 billion in this quarter, all with competitive rates. In the quarter, we invested BRL 422 million in all segments where we operate.
Also in the second quarter, we concluded the RGE tariff review with an average effect perceived by consumers of about 21%. Regarding growth, CPFL Geração won lot number nine of the transmission auction that we had in June. So we won the Maracanaú lot in Ceará with a CapEx projected by ANEEL of about BRL 100 million. And over the quarter, we also mentioned other relevant sectoral issues. It is important for us to say that flagrancy of regulatory assets is a very important theme, and you know that we accumulate regulatory assets, and some of them have to do with GSF and thermal startups and hydro situation, the variation that comes from Itaipu, and they should be covered by tariffs, which has not been happening. So that means that we have been accumulating regulatory assets that are important over these months.
Another thing that is being discussed a lot with the GSF, with a short-term settlement of TCU, part of the solution is also part of the bill of law that is being served by Congress, that has to do with privatization of the electric distributor companies, this has been extensively discussed or was extensively discussed during the quarter. On the next slide number four, we see our EBITDA per segment in the second quarter of 2018. We had an EBITDA of BRL 1,370 million, on the upper chart on the left, you can see the breakdown per segment of business. Our distribution represented almost 60% of the EBITDA, followed by conventional generation and renewables as well, with 24% and 17% respectively. The other businesses still represent a very small part of the total EBITDA.
Looking per business segment and starting on the upper right of the chart, we see the evolution of the EBITDA in the quarter and in the half year To make the evolution of the EBITDA in distribution. As you can see, BRL 778.68 million in the second quarter of 2018, almost 17% increase vis-a-vis the same period last year, very much because of the growth of the market itself and also the control of PMSO and the financial assets of the concession. These are the three main positive impacts on the EBITDA. The distribution segment, conventional generation, a slight reduction very much due to the reduction of the issue of energy of Serra da Mesa or Cimeira, our plant. In the generation, we had a negative growth of almost 15%.
Here there were many impacts that are described in our release, the startup of the Pedro de Souza II in Parnaíba is one of them, then commercialization services and others, other segments where we operate. The highlight here is our services segment in construction and grid maintenance that had a positive contribution to this increase. On the next slide, we talk about the distribution segment. We start by seeing the increase and the low in the sales in the period, they were very much hand in hand, about 4% each. The major growth also in residential and commercial, 5.7% and 3.7% respectively, here mainly because of the high temperatures in April and May.
In the industrial segment, although we had the truckers' strike and also the economic scenario of the country, in spite of all that, we achieved a growth of 3.4% in this period. The highlight in the class, in the industrial class, are the metallurgical industry and vehicles and food industries that had a positive impact on this growth. If we look at the upper right, we see the sales in the concession area, as I said, growing 4%. Very much positively impacted by the customers in the free market, 7.6% increase. On the lower part, starting at the left, we see the market breakdown in the concession area and consumer class. Our biggest one in industrial with almost 40%, followed here by residential and commercial. When we compare our growth in Brazil and in the regions where we operate, which were a positive evolution as well.
For instance, in the first map in the middle chart, at the lower part of the slide, we see that Brazil grew 2% in sales and CPFL grew 4%. In the Southeast region, we had a growth of 3.2%, and we grew 4.1%. In the South of Brazil, the region 4.2% increase and we 3.8%. On the right, we can see the evolution per consumption segment, these figures have already been mentioned when we talked about our highlights on page number six. Now, we talk about delinquency. Unfortunately, this is a very much fashionable thing, so to say. Our ADA evolution as a percentage of the gross revenue is at the same level in this quarter, 0.64% of the gross revenue in provisions, which is very much in line with our historical average.
I would like to mention one point outside the curve, which is in the first quarter of this year, this was very much because of a reversal, a non-recurring reversal in our ADA that we had in our initial, in the first quarter, that was not repeated and will not be repeated from now on. We are in line with our historical averages. On the lower part of the slide, we see the total of past due bills over 90 days past due as a percentage of the gross revenue, very comfortable 1.15% in our collection actions. On the right, on the lower right, in thousands of disconnections per quarter. We see in this chart a reduction in the number of disconnections. However, this is not the strategy of the company.
It's not a change in behavior, but it was caused by the truckers' strike that we had in May. We should go back to the previous figures that we had in the previous quarters. Some news here on page number seven. Here we included a snapshot of our operating indicators during the period and also the comparison with the previous periods in the first chart. On the upper part, we have total losses, technical and commercial losses. Here what we can see is a trajectory or a downward trend in our total losses compared to previous periods, technical as well going down, commercial or non-technical losses also dropping, but a little bit more resilient because of the crisis and because of the economic scenario where we find ourselves.
On the bullet points on the right, we made a list of some initiatives that the company has been putting in place in order to fight for the loyalty. Here we are talking about new technology to combat the theft of energy and the expansion of telemetry client network, improvement, modernization, and shielding of the distribution network, replacement of measuring equipment, modernization of our hubs, and updates of public lighting points, and the expansion of new extensions and update in our customer file. These are some of the measures that we have been adopting to fight losses and theft. On the lower part, we see the evolution of the HAIDI. The lower the better in the sense of the two figures. You see here in the middle an evolution in our distribution companies, a positive evolution.
That is to say, an evolution of our HAIDI and also our HAIFI. Going down, we see a positive evolution in all our districts. Here we made a graph, where we've calculated the weighted average of the HAIDI and the average weight by the number of customers, and we got to 8.74 hours of interruptions. It's equivalent to an availability equivalent in the service of 99.9%. On average, we have an availability of 99.9% availability in our services. These charts on this slide also have the objective of showing that although the company has been reducing CapEx, showing better results in the short term in the last few quarters, this did not happen to the detriment of quality of service or investment. The company continued to invest and continues to invest.
The company continues to improve and to bring on board technology in order to deliver more quality and better indicators to our customers. On the next slide, we talk about generation, our generation segment. On the upper part, we have the reservoir levels, that became a point of concern during the last few months because of the dry weather that we had. On the left, we show the Southeast, the mid reservoir levels, which closed last month, or that is now on August 16th, at 34% of the level compared to a historical level of 54%. It's Southeast, which is very important. We had 31.6% on August 16th in comparison to 54% of our historical level. To the left bottom chart, we have the performance of our spot price with volatility, if you look at it in the last two years.
It's at the tune of BRL 500 and something per megawatt hour. To our right bottom chart, we have the GSF projection, the market is talking about a GSF very recent now of 39%, the GSF is measured depending on the contractor. You can see here these factors 07, 06 in June and July respectively, a trajectory of GSF that is negative or that is a factor that is below one for a long period of time over this year. We did have in July 39% below in generation, that is 39% below of our assured energy. I end my presentation, I'll turn the floor to Mr. Gustavo Estrella, our CFO, he's going to talk about the financial results.
We have here the results of the company in the second quarter. These are positive results. We can see net revenue with a growth of 16.5%, EBITDA growing 33.3%, net income up 265.5%. As André said before, the main highlight here comes from distribution. We see here a total positive variation in the segment of BRL 315 million coming mainly from the markets and tariffs. We have a growth in energy consumption. We said here that there was an increase in temperatures, bringing therefore a greater consumption in residential areas. Also we have the tariff review process that we had at CPFL Paulista and RGE Sul, also with a positive impact in the results from May and June. We also had a positive effect from the concession financial assets of BRL 166 million. The two main effects here.
First, the adjustment of the inflation by the IPCA. The second effect here is the productivity indicators that also brought a positive effect to our results. That's how we get to this BRL 106 million. We also have the results of credit pension funds of positive BRL 6 million. As André has mentioned, a variation of our PMSO of BRL 36 million positive. We had less expenses vis-a-vis 2017, and the main highlight here is coming from legal and judicial expenses, which provided us BRL 26 million. In conventional generation, we have a negative total variation of BRL 9 million. Here we have an agreement regarding GSF and lower exposure that we have to GSF, and that was rather stable. Also because of the inflation here specifically, we will have the effect of the reduction on some assets, assured energy by 5%, which represented BRL -7 million.
In commercialization, a plus BRL 3 million. In renewable generation, we had a total positive variation of BRL 33 million. In this quarter, we had lower wind farms generation because of lower wind speeds with a negative effect of BRL 14 million. That was more than offset by other effects. The first one is a credit recovery of PIS and COFINS, adding up to BRL 18 million. Also, the participation of the CCEE allowing us a positive effect of BRL 13 million in our results, and the start-up of Taguaçura's wind farm complex, also bringing BRL 8 million to the quarter. Now turning to the net income. We do have here the reduction of the interest rate, which allowed us to have a reduction in our financial expenses of BRL 123 million. Now, so a positive effect of mark-to-market with BRL 58 million.
Now turning to slide 10, we have our indebtedness, the main highlight here is the reduction of our leverage. Now we are at 3.11 times net debt EBITDA ratio at the end of this quarter. The main highlight here probably is the robust growth of our adjusted EBITDA for the last 12 months, over BRL 5 billion. Remember that in spite of that lower leverage, we still have here, as André mentioned, some regulatory assets, and that makes us carrying to our debt BRL 1.1 billion of regulatory assets that we have to transfer that to ANEEL just next year. Now, in terms of our debt profile, we have a cost of 7.6%, stable vis-a-vis the prior quarter. We are pegged to the scenario of interest rates going down the hill.
Regarding our indexes, half of our debt today is prefix, so these were debts that initially were indexed in CDI. Now they are prefix, these are our main indicators, we have very low volatility for the year. On slide 11, we have our debt profile and amortization schedule. You can see that for 2018, the company, since the beginning of the year, 100% refinanced, we are working already with refinancing already for the second half of 2019. We are doing that, as André mentioned in the beginning of the presentation. In the second half of the year, we have funded BRL 2.4 million, this was basically to refinance existing debt. We are extending the debt and also we are having lower rates there. Therefore, in order to give the almost BRL 1 billion more, just extending that debt profile in the short term.
On the next slide, I should highlight the conclusion of the tariff review process of RGE, now in June. The main highlight here is the growth of the regulatory EBITDA. We see that there is a leap of 103%. We reached BRL 543 million in the fourth cycle, and this is very relevant, and it starts to affect basically starting now in the 3rd quarter of 2018. Another important highlight is the participation of the company in the transmission auction that happened now at the end of June. We now won the lot number 9 of Maracanaú in the state of Ceará, and we estimate an investment of BRL 102.2 million. This is our third transmission project that we'll have here in the company. We have already concluded two, and this is a new lot that is in the construction process.
Now we turn the floor to the operator to start the Q&A session. Ladies and gentlemen, we will now start the Q&A session. To ask a question, please press star 1. To remove your question from the queue, please press star 2. Once again, ladies and gentlemen, if you have a question, please press star 1. Our first question is from Bruno Varella, Solana Capital.
Hello, Eduardo and Daniela. Good morning. I have two quick questions. The first one is about consumption now in the third quarter. I would like to understand, is it at the same level as the second quarter, growing at 4%? My second question, that leverage of 3.1x, do you believe this is feasible considering a stronger EBITDA after the review and a leverage for the end of the year around 2.5x?
Would it make sense to think along those lines? Third question, the transmission process that you were awarded in Ceará. If we have a discount of 54%, I have a return rate that is very low. I would like to understand what would be a maximized CapEx on your side, and is it possible to tell us more about the IRR that you foresee for the project? Finally, about CESP's privatization, what is your idea? Do you expect to have a complex M&A because of the amount of contingencies? What about after the agreement with the prosecutor's office that the company has made, if that has changed your understanding about the privatization. Good morning, Bruno. This is André, I will start by the last two questions, and then I'll turn to Gustavo to talk about leverage and market growth.
About the project in Ceará, yes, we do have a streamlined CapEx, more than the one estimated by ML. We do not disclose our internal estimation for CapEx. What we can tell you is that we are maintaining our financial discipline and economic discipline of the company. We are not letting go of internal return rate. Very much on the contrary. We have an attractive project considering the CapEx estimated that we have. Yes, we are assessing all possibilities of growth that we have here in our segment, and I'm talking about CESP. For us, that is under the radar. I don't know if today we would have alternatives to grow that would be closer to what we expect to have in our businesses. We are assessing it, but we do have other possibilities that are more encouraging. Gustavo, turning to you.
Bruno, talking about the consumption in the third quarter, the expectation that this recovery will remain in this quarter, it started basically in the second half of last year. We expect it to keep the same pace. When we compare a percentage of growth, considering that we have a consumption base that is already higher, last year, we start having a percentage growth that is a little bit lower. We believe that this will be closer to 3% now to this third quarter. That recovery signs are still there. The second question about leverage. We are clearly at a downward trend for our leverage, and the new factor that we have here is that regulatory asset that could affect our short-term leverage.
Today, we have a volume of assets of BRL 1.1 billion, and we expect to grow, maybe not double, but that is growing a lot by the end of the year. We will not reach 2.5 of leverage, I would say that basically because of this high regulatory asset. When you start transferring that to tariffs over 2019, we will have a drop in leverage that will be even more significant. We are not going to get to 2.5 right now, but without that regulatory asset, we would get there. Thank you very much. Our next question is from Fabiano Rios, Absolute Investimentos.
Thank you very much. My question has already been answered.
We would like to remind you once again that in order to ask a question, you should press star one. Bruno Varella, Soleya Capital. Thank you very much for the additional question. I still have a doubt about losses. Understand that of course the overall economy impacts commercial losses, of course. There is a specific point in RGE Sul. Looking at the technical losses in the last 12 months, we see an increase in the last 12 months of about 40 basis points vis-a-vis the second quarter of 2017, and then you have a drop of non-technical from the third quarter, and then going up again in the second quarter. I would like to know what specifically affects the technical losses in RGE Sul going up consistently in the last two quarters. And what about the environment regarding the non-technical losses?
Do you see anything different in the environment, different from the other concession areas, and mainly in RGE because the technical losses are very low in RGE. Could you please talk about the environment in which RGE Sul operates.
Bruno, good morning. This is Rosemeir Reis. Regarding the non-technical losses of RGE Sul, ever since we acquired the company, we have been doing work in terms of the calculation of losses. We have been improving it or streamlining it because the difference is in calculations in the technical losses, and with the difference, you have the non-technical losses. These calculations, we have been streamlining them every single month ever since we acquired the company, and better understanding and installing the necessary and adequate measurement instruments so that we have the most precise calculation possible. We did the calculation, and we are streamlining it and cleaning it up, so to say. This is the reason why there was an increase in technical losses, because we were streamlining those calculations. This reduces the non-technical losses, of course.
In this quarter, in RGE Sul, you have seasonality, and this is something very particular. In the south, where you have a lot of rice cultivation or plantations, this causes an observed difference that we are monitoring. Other consumption characteristics of the company that we are assessing, and that's been about the seasonality, and what are we doing about it. Having a good calculation of the technical losses. Secondly, we're investing a lot in the grid and the flexibility of the grid itself, and this is translated into a reduction of technical losses. However, this is not seen in the short run. It will take some time until we see results. About the others, we are having a project to install, such as we did in the São Paulo companies. We are going to shield and invest in telemeasuring and everything will be telemeasured.
With that, we are going to monitor the consumption of these customers. With that, we will be able to visualize, and therefore we will be able to make measures in the group A, and which is very important in certain periods of the year. For this reason, we are still getting to know and getting to streamline these calculations, but the plan is already set out for the next few months.
Thank you very much, Rosemeir Reis. Excuse me. Just as a reminder, if you have a question, please press star one. Now the Q&A session. I would like to turn the floor back to Mr. André Dorf for his final remarks.
Well, over this second quarter of 2018, we have completed two years since we started the transition and the stakeholding of the company. You have been able to see that over this period of time, our team was able to focus on operations to improve the officers team also in our operations team, and also we were able to focus on the capital discipline. Everything that we have discussed today and the results of the first half of the year as a whole do show our efforts and also our commitment to the results in the short term, as well as with the sustainability and the results in the long term as well. I now end the presentation and the discussions about the results of the second quarter. Once again, thank you all for being with us, and thank you also for your support. Thank you.
The conference call for CPFL Energia has ended. Thank you very much for your participation, and have a nice day.