Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to Enadiva's Conference call to discuss the Q3 of 2018 results. We would like to inform that during the company's presentation, all participants will only be able to listen to the call. We will then begin the Q and A session when further instructions will be given. We also would like to inform that the conference call in Portuguese will be presented by the company's management and for the English conference, there will be simultaneous translation.
This event is also being broadcast simultaneously on the Internet via webcast, which can be accessed on the company's IR website, www.scsa.com.brri and nzicuplatform together with respect to presentation. This conference call contains forward looking statements that are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ materially from those in the forward looking statements. Such statements speak only as of the date they are made, and the company has under no obligation to update them in light of the new information or future developments. I will now turn the conference over to Mr. Mauricio Botello.
Please, Mr. Mauricio Botello, you may proceed. Thank you. Good afternoon, everyone, and thank you for taking part in our 3rd quarter 2018 conference call. Here with me, I have Ricardo Lotreda, the Chairman of the group Alexandre Nogueira, VP for Regulation Claudio Brondon, Director for Corporate Finance and my Investor Relations team.
I'd like to show you some slides, and then after that, we will have some time for Q and A. So in Slide 3, I'm going to skip the operating highlights because we'll talk about that a little later. So I'll go straight to the financial highlights. Our adjusted EBITDA was BRL 764,100,000, which is an increase of 47.5 percent, and the net income was $259,400,000 which is 93.4 percent above the Q3 of 2017. With regards to indebtedness, the net debt to adjusted EBITDA ratio concluded at 2.9x.
I'd like to point out a few important events that happened after the end of the quarter. The first one is the conclusion of Cerrone's acquisition process on the 30th October. We held a general shareholders meeting after the control was passed to Energiva, which led to an increase in regulatory capital requirements of at least BRL 254,000,000, which may go up to BRL282,000,000 With regard to Eleto Acre, due to approximately 3% minority shareholders, we have the preemptive right of shareholders, And that applies to the prior adjustment of capital to be realized by Eletrobras. So the expectation is that we'll take over control on the 5th December, and we should be subscribing to approximately BRL 238,000,000. I'd just like to point out that Eletrobras' previous capitalizations and the capital increases that are being made by Energiza will lead to a profound and very positive restructuring financial restructuring of these companies.
Additionally, we will be using our experience in ex asset turnaround of to make sure these concessions achieve excellent levels of energy as you through in very few years. The second event was the capital increase that was announced yesterday. We have kept our financial discipline, but have always guided Energizo's business. The board has approved a private equity increase, which could go up to BRL579,000,000. In other words, 5% of the current share base.
The price issuance will be BRL33.50 per unit, which is a small discount on the average of the quotes of the last few days. And their controlling shareholder has stated that they will keep up with this equity increase proportionately within the subscription period, which starts on the 14th November of 2018 and ends on the 13th December 2018. At the same time as this capitalization, we also started to negotiate the covenant indicators by summoning a bondholders' meeting. We are still within the covenant's limitations, and we have made this request in advance because of an assumption of the liabilities of the acquired distribution companies, Seron and Electro Acres, which will increase our debt indicators at the end of the year. As you all know, we have a very successful history in financial and operating transformation of distribution companies, and we know that this increase is temporary and totally manageable.
Then we'll move on to Slide number 4, which is the increase of energy consumption per distribution company and consolidated. Energies grew by 2.45%, whereas the country grew by 0.8%. As you can see in the chart below, the increase in consumption in Brazil was 1.1%, and Energisas was 2.8%. So both in the quarter and over 9 months, we have maintained a 9.7 percent difference. In the Q3, I'd like to point out Energies of Porvoremas increased, however which was 9.7%.
However, the biggest contribution came from Energiza Sudeste, which was 6.5%. Energiza token teams also had a determining factor in terms of the increase in residential consumption, which was 4.5% due to the high temperatures in the region and the increase in the industrial sector, which was 17.2% in the quarter. The consumption at Energia Sergipe also showed a positive reaction due to high temperatures in the region, reporting a 4.5% increase in the residential sector and 8.5% in the business segment. And that was helped due to the reclassification of clients that came from the industrial segment. In terms of Energies, Amatogroso, Amatogroso do Sul, we have had more modest increases, 0.9% and 0.5%, respectively.
And that is mainly due to the residential and commercial sectors because temperatures have been cooler this year when compared to last year. Last year was extraordinarily hot in the region. And we also had a shorter billing smaller billing in the region. The Midwest had a drop of 5.7% in September when compared to September last year. Now if we can move to Slide 5, please.
We're going to talk about electric losses in the group. On the chart, on the left hand side, we see that the total losses were 11.60 percent of the required energy, which is a drop of 0.26 percentage points in relation to June 2018. When we look at total losses, we see that they have remained stable when compared to September last year. I would say that the highlights of this quarter were Mato Grosso do Sul and Tocantins, which reached 12.35% and 12.62%, respectively, which have been the lowest values since the acquisition in 2014. Energies Amato Grosso presented a drop of 0.28 percentage points when compared to June.
Although losses are still above the regulatory limit, we are moving towards adequate levels. Energies at Paraiba presented a slight increase of 24 percentage points when compared to June 2018 due to seasonal factors and adjustments made to electric parameters. And the calculation for technical losses given the fact that new wind power plants have come into the concession, but we should go back to regulatory limits in the next semester in the next quarters. In Slide number 6, I'd like to talk about delinquency, which is calculated by the percentage relationship between the provision for doubtful accounts and billed consumption. It remained tactically constant over the last few quarters with a slight drop of 0.04 percentage points.
If we don't consider the nonrecurring items, the delinquency indicator would be 0.74% for the 3rd quarter, presenting a 0.04 percentage point increase in relation to the same period last year. I'd like to highlight that this is the 7th consecutive quarter that we see a consolidated delinquency rate below 1%, even after the nonrecurring adjustments made. And also, despite the crisis the country is going through, we have been able to keep delinquency under control. And now let's move on to Slide number 7. Many of our concessions continue to break their own historical record when it comes to quality indicators.
All distribution companies in the group have remained below the FEC, the outage frequency rate. With regards to outage duration, the DEC, Mato Grosso presented 22.99 hours falling back below the regulatory limit, which is 23.09 hours and reaching the lowest value since the acquisition of the distribution company, Mato Grosso, by the Energiza Group with a reduction of another 2 hours when we compare 2018 to 2017. Out of the 9 distribution companies in the group, TOK continues slightly above the regulatory duty, but moving towards going back to regulatory limits. I just want to point out that Nel has established that the effects of the systemic blackout that happened in March 2018 should be recorded this September. If it weren't for that, which is an event that is completely outside our control, we would have stayed within the regulatory limits.
We are appealing this decision by ANEL because it has also affected indicators in Paraiba, Boborema and Sergipe. Now Slide number 8. A few financial highlights. In the consolidated PMSO, we see a 14.3% increase. This increase in personnel can be explained partly by labor compensations, especially amount of growth in Sergipe, which have a corresponding entry in the reversal of provisions line of the distribution companies.
And there were also regular salary readjustments. And there was an increase in the teens in the region of Mato Grosso. There are a couple of items that are extraordinary and have had an impact on results. Provision for success fees as well as deposits in court accounting for BRL 20,800,000. So if we don't consider the BRL 17,100,000 success fees plus these BRL 20,800,000 that come from these deposits in courts, then the increase in the PMSO for the quarter would have been 6.4%, just slightly above the inflation rate for the period.
In Slide number 9, there's a chart explaining the progression of the consolidated EBITDA for the Q1. The adjusted EBITDA went up by 47.5%. If we do not consider the late payment surcharges, there was an increase of 49.4%. I'd like to look at some nonrecurring events, which are in the chart on the right. In the first item, we see that the compensation costs have had a drop of 35.8%.
Then we have the effect of the VNR, which as of 2016 was considered as other revenues, which had a positive impact on the EBITDA in this quarter. And lastly, we had the effect of the success fee provision of BRL 17,100,000. So if we do not consider the nonrecurring effects, our EBITDA has grown by 47% this quarter when compared to the Q3 2018. This increase happened mainly due to BRL 319,500,000 improvement in Part B of the distribution companies that have had their tariffs readjusted and revised. And pointing out, Mato Grosso was $142,500,000 EPB was $15,000,000 dollars Sul Soudesky was 29,800,000 tokens teams with 20,400,000 Surgi EP was 19 point 7,000,000 and Mato Grosso do Sul with BRL 40,100,000.
In the next slide, we see the net income, which has increased by 93.4%. And after the nonrecurring events adjustment, we see an increase of 98.8%. In this quarter, we had some financial expense increases due to the interest of the networks to be acquired that were readjusted according to the IGPM, especially in Mato Grosso. So even though we reduced the balance to be included by approximately BRL 96,000,000 since September last year. Next slide is indebtedness.
Our net debt at the end of the Q3 was BRL 8,700,000 while the net debt to adjusted EBITDA ratio dropped from 3x to 2.9x. In the chart on the left hand side below, we see the progression of the cost of debt and the bank debt that was issued by index. Currently, 81% of our debt is invested in CDI, and we are benefiting from the drop in interest rates. In this quarter, there were 2 major debt events. The first one was the issuance of debentures at the distribution companies, adding up to $1,100,000,000 at a cost of 103.7 percent of the CDI with maturity in 2025, and these funds will be used in our investment program for 2018, 2019.
Also Moody, Fitch and S&P have reaffirmed Energizer ratings after the acquisitions of Electroluxury and Tieron. And the last two agencies have raised the ratings in the domestic scale to AAA. Now in the next slide, I'd like to talk about our investments. We concluded the 9 months with BRL 1 0.276 billion with a reduction of 17.4%, mainly due to the conclusion of the tariff review cycle. In terms of transmission, we have made investments of approximately BRL 63,000,000 this year given the conclusion of our environmental studies at Energiza Goya Transmissora and Energiza Para Transmissora.
I'd just like to update you on these projects that were obtained in the auction that took place in April 2017. The constructions of Energiz Aguirreres Transmesora and Para Transmesor 1 started in September October 2018. Goyas obtained its installation license on the 12th September, only 1 year after the concession agreement was signed and only 15 days after the prior license was issued. Energiza Para Transmesora 1 also obtained the license on the 1st October in the process that happened at the same time as the issuing of the prior license. We believe our we had estimated that we would have obtained these licenses within 24 months, but we were able to do it in only 13.
In terms of land and negotiations with landowners that have been affected by transmission lines are coming to an end and the suits of public utility are still ongoing, but constructions have obtained the go ahead. In terms of Energiza Para Transmissora 2, which is the lot that was obtained at the auction in June 2018. The concession agreement was signed in September 2018. We have started doing the topographical studies. And also the construction, the environmental studies have been filed with ANNO and NES with at least a little bit more than 30 days after the concession agreement was signed.
And it also fell within the tax benefit of variety at the start of this year. So these three lots add up to an RAP of about BRL 120,000,000 and a CapEx of roughly BRL 890,000,000. Now moving on to Slide 13. We have a comparison between the regulatory EBITDA and the actual reported EBITDA for the past 12 months without nonrecurring effects. In the consolidated EBITDA, we are above the regulatory EBITDA, which is about 35%, with the highlight of the companies that were acquired by the Rede Group, which are currently at 28% above the regulatory limits, which was 24% in December 20 17.
So I'd like to conclude my presentation. And we are now open for questions. Thank you. We will now start our Q and A session. Mr.
Marcelo Sa from UBS would like to ask a question. Hello. Thanks for the call. I have two questions. I'd like to understand the follow on.
Are you just trying to lower the debt? Or do you want to pay the NBS's debenture? And I want to understand if there is a risk of a new follow on to be announced perhaps next year, assuming that you don't acquire any more companies? So if only the companies you have, do you think you won't need to raise any more funds looking forward? Thank you, Marcelo.
This is just so that we can become better adjusted to our leverage levels. The closest bet, as you said, is the BNDES put option, which will be in January. As for the procedure follow on next year, if nothing is done, I believe there will be one. We are renegotiating the covenants according to the levels. But we believe in 2020, we should go back to 0.
Okay, great. The next question is, I think there was an event that you took part. And I think it was said that you had an expectation, a positive expectation to recognize past investments made by Seron in Electro Acry. I think they had been recorded incorrectly. So could you talk a little bit about that, please, and explain what that is all about?
Yes. Let me just correct something. This was announced during the Q2 conference call. We have positive expectations concerning these assets. Obviously, we are looking into it.
We have many immobilized assets, especially at Seron, about BRL 500,000,000 to be recognized. So we have positive expectations when it comes to that. Okay. And in terms of terms, the appraisal for Eletra Acre, do you have a deadline to announce that, to disclose that? What is the date we can expect?
Well, for Seron, it was 625,000,000 for 100 percent of the company. We will not be disclosing the other one. You're not going to disclose the appraisal, only the total amount? Yes. What about electroactive?
Do you have that figure? Not yet. Ms. Carolina Cardero from Credit Suisse would like to ask a question. My question is about the regulatory levels.
Anel was discussing through a public consultation the regulations for the whole segment through a public consultation. Do you know when Arnel may disclose it, if it's going to be this year or next year, the results of this public consultation, which is the methodology for the new calculations. Do you think we're going to have any news about these changes to the methodology that is used? Do we know that that's not going to have an effect on the distribution companies you've acquired because this will only go into force in 2020. But it's only just so we can keep up what's happening in regulatory terms.
Thank you. Well, Carol, I'm going to turn it over to Alexandre Nogueira. He can answer your question, okay? Just one second. Thank you.
Good afternoon, Carol. Actually, The transmission generation and distribution debate has just started. They're still going through public consultation. And I think according to the regulatory calendar, it should be concluded next year. Okay.
So we won't have any announcements this year, you don't think? Well, we're not expecting to have it this year. The technical teams are looking into the contributions that were made during the year of the public consultation. Okay. Thanks.
May I ask a second question? You've concluded the Seron process, and now we're going to start consolidating the Electro Aque assets. The request for tariff review of these 2 companies will have to be made this year. And could you talk a little bit about how the process with ANO is going to work? What is the deadline for ANO to give you an answer in terms of extraordinary tariff review once you have made the request for both companies?
Well, the process says that the request has to be made at least 1 year in advance. So we believe that between 10th December 20, We should have the tariff events both for Seron and Eletroecre. Our next question is by Mr. Michel Modenci from Bradesco. Good afternoon.
I'd like to understand why the net debt has increased in the period. I'm going to turn it over to Claudio Brendon so he can answer your question, okay? Okay, thanks. Good afternoon. There has been a few relevant events that have affected our debt when compared to September last year, like the minority share in Mato Grosso and the accounting of the derivatives to do with convertible debentures, especially for BNDES, about BRL250 1,000,000 and the rest has to do with investments made by Energies over the past 12 months.
They are the events that account for the biggest figures there and $600,000,000 or reais where Energiza is funding its consumers in terms of what's not reflected in the tariff. And that's a sector cost energy that gets purchased. Mr. Christian from Platinum Investments would like to ask a question. Good afternoon, everyone.
Thank you for the call. I have a question about something that was mentioned before. The something that was mentioned before, the put option of BNDES at Energiza Parana Panema. That's due in January. Have they given you any signs if they're going to realize that foot option?
And these amounts are quite similar that you have raised. Will you be using those funds to pay that pay for that put option by the BNDES? Thank you. No, no. No, we don't think they will be realizing that foot option.
They haven't given us any signals to believe that. What's coming in will help us with our cash flow and our capital structure for the company as a whole. Mr. Marcelo from UBS would like to ask a question. If I may, I'd like to ask another question.
What is your prospect for volume growth next year? Do you have any estimates? Can you compare what you expect for the Northeast and the Midwest? The Midwest didn't do as well when compared to the Northeast. Do you think the Midwest will go back to growing again?
Thank you. Well, about growth, if you look at our history, Energiza has been growing at an average of the past 15 years, 4.8 percent a year, always above Brazil's growth on average. Both for the quarter and the past 9 months, we were 1.7 percentage points above the national average, and I believe that trend will continue. You asked about the Midwest. I think the Midwest will go back to normal.
But there was a huge difference in temperature this quarter when compared to the same quarter last year. Last year was a very hot year. So obviously, that affected the residential and commercial segments. Both the rural segments and the industrial segment, Amato Grosso do Sul and Tolentines are growing considerably well. So yes, we have very good prospects for the next few years based on the growth we're seeing now.
Thank you. I would now like to turn the floor over to Mr. Ricardo for his final remarks. Please, Mr. Ricardo, you may proceed.
Good afternoon. Over the next few months, our objective is to integrate the group's new companies. In addition to the required capital in 2019, we will also realize approximately BRL700 1,000,000 in investment in both concessions. Out of that, BRL435 1,000,000 will be our own capital. These investments will focus on improving the quality of energy supply in the region as well as the services provided to the population in both states.
We have a few priorities, which are fighting losses, expanding the system the distribution system to regions which are not serviced, expanding and modernizing systems, building new substations and lines, qualifying teams and improving our logistics in the region as well as our customer care channels. Our objective is to implement technologies and services that will improve our customer relations and our relationships with our customers, just as we have done at other distribution companies that are part of the group. And during these transformation times, we use our ability to develop and to retain talents. In Seron, which we have already acquired, the responsible team is involved in the transformation, and we already have it as CEO of CERON. We have Andrea Teelbaud.
He has 26 years in the electric sector. And until recently, he was the CEO of distribution companies in Paraiba. During his management, these companies in Paraiba were recognized regionally and nationally and won awards for best distribution companies in Brazil and in the Northeast by Abravi. With Andre, a technical director at Ceron, we have elected Fabrizio Medeiros, who is an electrical engineer. He has 14 years' experience in the sector.
And more recently was a manager fighting losses and operations manager also in Paraiba. For Institutional Relations Director, we have elected Luis Marcelo Rey de Carvalho, who used to be the CEO at Ceram. He's a highly experienced engineer, has 25 years experience in the sector and a great deal of knowledge of the company and the state of Rondonia. He will be supporting our relationship with society, government state government and city government. We should announce the next few directors that will take the positions that Elektra has in the next few months.
We have many challenges, but we will use our experience to deliver high quality energy to these new consumers. We'll have many positive changes, and we are convinced that soon, our customers in Acre and Rondonia will see the difference of having an efficient private operator who is concerned with delivering high quality services with the well-being of their employees and the development of the state. That is our commitment. We will continue to work to make Energiza a genuinely Brazilian company that will become ever stronger, and we'd like to be able to account on the involvement of all our stakeholders, and that includes you, our shareholders, to do that. Have a great afternoon and a great weekend.
Thank you. This concludes Energiza's conference call. You may now disconnect and have a good day.