Welcome to Energisa's conference call to discuss the second quarter of 2018 results. All participants will only be able to listen to the call. We will begin the Q&A session when further instructions will be given. If you need any assistance during the conference, please press star zero for the operator. This conference call will take place in Portuguese, and simultaneous translation will also be provided into English. This event is also being broadcast over the internet via webcast. 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 is under no obligation to update them in light of new information or future developments.
Market conditions and other factors may impact the actual company results. I will now turn over the conference to Mr. Maurício Botelho. You have the floor, Mr. Botelho.
Thank you, operator. Good afternoon. I would like to thank you for taking part in this Q2 results. Ricardo Perez Botelho, CEO of Energisa; VP of Distribution , Alexandre Nogueira; Rogério Ferraz, Finance Director; and Mariana Frollo, Investor Relations Manager. Let's move on to slide three. The first highlight is consolidated consumption, up 2.5% when compared to Q2 of last year, a proven year-to-date 3% growth. Financial highlights include adjusted EBITDA of BRL 653 million and net revenue of BRL 103 million, up 30%. Another highlight above debt, the net debt coverage ratio is now 3 times from 3.2. Total investments amount to BRL 125 million, a 20% drop in the semester because we had the fourth cycle of price adjustments.
One of the highlights is that we were awarded 19 trophies, or rather, we were awarded the 19 lots of the auction. That's the results of lot 26 that was awarded back in April 2017. On to slide four. This is quarter-by-quarter consumption evolution as of 2016. You can see that the market is picking up. It's a growing trend, 2.5% growth. When you take into account the unbid sales, that would be a little less. That would be at 1.9%. Let me point out that in April and May, we had good months, very positive months, 4.8% and 4% respectively. Back in June, we felt the impact of the truck drivers' strike because that impacted the economy overall. There was a 1.3% fall in consumption. We ran some simulations internally to analyze consumers' consumption. The growth would be at 3.9% if not for that negative impact.
We've had substantial growth in some concessions. You can see that in the following slide number five now. [inaudible], 8.5% growth. That's by stronger rural activities by using vans, and also from the industry, led by the food industry in particular. In the South and Southeastern regions, all classes, all industries contributed with the highlight going to the food industry, metalworks, and wood products in particular. In Tocantins, the decisive factor was in the non-metallic minerals industry and a major consumer coming back. In Mato Grosso, we had growth in that quarter despite the strike effect I've already mentioned. We had drops in industrial and residential segments. The driver here was the temperature. A cold spell affected the entire region. As you can see in the chart at the bottom, really, the behavior was similar, up 3% compared to the country that moved by 1.3%.
Slide 6 now. These are losses. On the left, total losses, 11.85% of the injected energy. Small increase, 0.04% when compared to the previous quarter. This minor increase was again influenced by the truck driver strike and slower economic activity, and that variation in PM bill sales. That might be going back to normal trends in the second semester. As I said, Mato Grosso was the most affected state, but we're still working hard to reduce those losses. We hired additional staff a year ago. We are now boosting our inspection activities, so we are committed to achieve the regulatory standard soon. We've had constant reductions. I'd like to point out Mato Grosso do Sul, 1.3 percentage points below the regulatory standard. Moving on to slide 7 now. This is the delinquency rate. This is the percentage between the issued and the billed sales.
These are provisional versions, but without non-recurring items, the indicator would be at 0.61% compared to 0.31% in June 2017. Let me point out that for the sixth quarter in a row, that rate is below 1%, thus non-recurring items, as I said. Slide 8 now. Service quality indicators. All companies are below the DEC limit. Out of the new distributors, distribution companies, only Mato Grosso is a little above that standard, but it's slowly going back to the standard. We had a 2-hour reduction in the past two months. Mato Grosso's draft concession showed some improvements, but the lowest monthly indicators in history. So we're slowly going back to the standard. We have a consistent DEC improvement in Tocantins, that the average showed more than 10-hour reduction when compared to 2017 numbers.
Our concessions have been breaking their own records in Paraíba and Mato Grosso do Sul in both indicators, including Mato Grosso do Sul under Energisa management. Moving on to slide 9. Let me now talk about the Abradee award results. All 9 distribution companies were competing in 11 categories, and these are the highlights. Among companies with more than 500,000 customers, the award was given to Energisa Sergipe. Among those under 500,000 customers, Energisa Borborema, Energisa and Energisa Nova Friburgo were tied. Slide 10. Coming outside about PMSO, 47% increase, most of it as a result to a labor claim, compensation, same as universal service. A BRL 19 million payment was made. It had been provisioned in previous quarters, but there will be a reversal of provisions. We had larger teams hired as well to improve quality of service, and also Energisa Norte Grande usually hire new employees as well, and other third-party services. Operational expenses, including legal fees, was a 4.9% drop in expenses at the quarter. Mind having that variation between 4% and 7%, depending on the index that you use. Slide 11 now. We had the EBITDA for the quarter. The chart shows us that the adjusted EBITDA is at 39%. Let me give you some non-recurring examples on the right that are part of our scope of the day. Ancillary costs have been at a constant level, and then we have the PNR effect as of 2016. It was considered permanent and impacted the EBITDA BRL 106 million, and a minor reversal effect that took place Q2 last year.
We had larger teams hired as well to improve quality of service, and also [Energisa Mato Grosso] usually hire new employees as well, and other third-party services. Operational expenses, including legal fees, was a 4.9% drop in expenses at the quarter. Mind having that variation between 4% and 7%, depending on the index that you use. On to slide 11 now. We had the EBITDA for the quarter. The chart shows us that the adjusted EBITDA is at 39%. Let me give you some non-recurring examples on the right that are part of our scope of the day. Ancillary costs have been at a constant level, and then we have the PNR effect as of 2016. It was considered permanent and impacted the EBITDA BRL 106 million, and a minor reversal effect that took place Q2 last year.
Again, not considering non-recurring items, the quarter EBITDA is up 21% compared to the same quarter last year. Let me point out that the EBITDA growth was negatively impacted by the unbilled sales market. Historically, the unbilled sales in the second semester is always negative, because usually we move away from the first semester where it's hotter, and we have milder temperatures later in the year. We have additional impact of the strike, as I mentioned, and consumption that we had expected in late May. So we have that reversal in June, although it is a temporary effect and the market will pick up activity the following months. I think it's also important to say that when you look at the unbilled line in the past 6 months, it's a relatively small impact there. Slide 12, net income.
When we compare to the initial quarters, it's up by 38%, effects are non-recurring, 31% for gross revenue. In the quarter, we had four financial expenses, especially for the networks that have been incorporated. The effects come from Energisa Mato Grosso. Despite the reduction, we have gained about BRL 180 million since last year. On slide 13, indebtedness. BRL 8.3 billion, late Q2. The net debt EBITDA ratio is now down from 3.2 to 3 times. The cost is improving, the debt cost. On the right, this is by type of index. 70% is indexed to the CDI, so we're benefiting from lower interest rates. Slide 14, investments. In the first semester, we are at BRL 825 million. As we said, a 24% drop Even the end of the price adjustment conclusion in Mato Grosso and Mato Grosso do Sul.
The transmission business investments amounted to BRL 47 million in a year. We are advancing the environmental licenses. Let me update you on these projects. We're still within the timeframe schedule. Energisa Pará. That's the title for both Pará and Goiás. These are the lots that were awarded back in April 2017. As to environmental licenses, inspections have taken place, impact analyses are underway, and we expect to be granted their license soon. On the land front, the negotiations with landowners affected by those transmission lines are also underway. As to Energisa Pará II, the lot awarded last year, we're signing concession contracts now in September. We are currently conducting topographic studies. Everything is going according to plan. On slide 15, we draw a comparison between regulatory EBITDA and reported EBITDA.
In the past 2 months, without those non-recurring items, for the consolidated group, we are above the regulatory EBITDA, 33% above. 29% of these companies are above their regulatory, coming from 24% back in December 2017. This concludes my presentation. Thank you for attending, now we move on to the Q&A session, please. Thank you.
We will now begin the Q&A session. Press star one to ask me a question. If your question will pass through, please press the number key. Ask your questions into the speakerphone to ensure audio quality. Please hold. Mr. Moreno Trajberg here from Bank of America.
I would like to ask a question. Good afternoon, everyone. Good afternoon, Ricardo. I actually have two questions, if I may. The first one has to do with PMSO. Could you give us some color on what happened in Mato Grosso and Sul e Tocantins?
I know that you have hired people, could you give us an indication of what the outlook will be for the following quarters? The second question is about delinquency. There are real companies in these industries, this industry has been suffering a lot. You have control there. Could you give us some more detail of the measures being taken to keep that low delinquency rate? Ricardo is taking another call. I'll try to share. I'll answer. In case of PMSO, we had more staff hired in Mato Grosso, BRL 5.7 million global. The same thing happened in the Sul e Tocantins. We are replacing third-party services. We are hiring our own employees. As I mentioned during the presentation, you have more staff, but at the same time, you have a reversal in labor compensation.
We are working very hard in Mato Grosso do Sul, in particular, almost BRL 19 million in the second semester. That amount had been provisioned. When you look at the accounts, overall expenses came down a little bit. This issue in Mato Grosso do Sul may come back again in the next quarters. We're still addressing the labor compensation issues, something that we have inherited, but we are tackling it. For the QDB, we had some one-off events in Q 2017, the summer cap case and the [Protovast] case. Of course, that impacts the numbers. We're working hard to maintain delinquency rates low. We shut down service if necessary. We analyze several pieces of data, whether you shut down services early on or you postpone it. This is something we're working very hard on a daily basis to keep that indicator as low as it is.
Thank you, [Jeremy]. What I can say, I think Maurício, you've summarized that pretty well, especially fighting delinquency. We've been changing a lot of things as of last year, trying to improve measurements and address those that can actually yield a better cost-benefit ratio. Sometimes people want to go too soon. We have war rooms, we have integrated teams, sales and legal departments. We monitor these activities on a daily. We have gained speed and integration and more accuracy to implement transactions. We're now rolling out an advanced analytics project. We ran a pilot in part of [Parida], and now we're scaling that up, and we're going to roll out to other companies. It's a very interesting project.
We'll be able to assess credit risk of every consumer, and we can customize the actions, and you can apply those actions that can yield better results at the lowest possible cost. The war room is something implemented we did late last year, and we are now installing analytics. It's a set of actions implemented to fight delinquency.
Thank you. Thank you for your answers.
That was great. Maria Carolina Carneiro from Credit Suisse is now asking her question.
Good afternoon. Thank you for taking our question. You mentioned that volumes were impacted by the truck drivers' strike and other specific conditions that hurt the average growth rate when compared to other quarters. We're now starting a new quarter. After the fact, what's your take on the outlook for the next quarter? Again, unbilled energy that hurt your first or this last quarter.
Do you have any outlook for the following quarter? My next question is about the fact that you are trying to reduce the incorporated companies' remainder to reduce the impact on the company. How can you reduce that number annually? Would that impact your future projections? Let me address part of that question. As to the market, we believe that this will be a one-off event. Strike is over, things are going back to normal. Of course, that impacts our billed sales going back to business as usual because the market is again going back to. This is something we can show now. As to incorporation methods, of course, you have that impact of the suggested IGP-M. This is going to end. Still, you have to make those adjustments. I understand. Thank you.
Mr. Tolley, [inaudible ] from Banco Safra is asking his question now.
Good afternoon. Thank you. I have two questions about the company's growth strategy. Selling assets of Distribution Eletrobras. Is it difficult? Will it be done before the elections? Is this asset still character before the voting? On the 31st, you have the A-6 auction. Are you going to be participating once you take on the generation in your capital allocation strategy?
Ricardo Botelho. Oops. Giving that question.
Hi. Thank you. This is Ricardo Botelho. Let me talk about the PLC first. This is PLC 77. That's the bill that is to be voted in the Senate. We all know from the press, not going to be voted before the elections. The PLC may get in the way of that auction for those companies that have the fuel oil companies in the North.
There's a company that has no restraints in the PLC. There's a legal restraint. There's a Protovast injunction that would forbid the sale of that asset. These are two constraints that we receive. We wouldn't be part of that bid before we address these two issues. We keep on considering the possibility of all assets available to us and that individual analysis. As to the A-6, yes, we do have projects in our portfolio. We are considering the possibility of taking part of that auction. One is a wind project, and we have four sites on that. We are extremely concerned about the demand. Demand will be very weak, which can indicate very low prices. Our projects will be impacted or won't be attractive. We're still considering that possibility. We keep paying attention to this issue. All right. Thank you very much.
Mr. André Sampaio from Santander would like to ask a question.
Good afternoon. My question is about the debt spread. Do you believe that spread can improve on a short-term basis? The company has been reducing its debt. The spread level is still high.
Hi, André. Yes, we have been improving this year. We are CDI plus 1.1%. We've had an upgrade to AAA overall for the country. Our results to carry previous credit with higher spread. As these papers mature, we have a better overall rate. That's why you still see that difference. It's going down. The spread is going down. Perfect. Thank you.
Mr. Marcelo Sá from UBS would like to ask a question.
Hi, thank you for taking my question. Let me follow up on [Carl's] question about the unbilled sales. Could you give us further detail on how you book these numbers?
I've talked to several customers, they all see it differently, how to handle unbilled sales. Does that make sense when you look at the adjusted EBITDA with the unbilled sales? I believe it does. That explains part what happened in Q2, based on Q1, you had a better EBITDA because you had a positive effect of unbilled sales. Now it becomes low because you have BRL 63 million of unbilled sales. The Q2 EBITDA would have a positive effect of price decreases. We would expect a higher EBITDA. Here's my question: Does it make sense to adjust EBITDA based on the unbilled sales if I did that analysis? How do you treat that in your accounting practices? My final question, still around the same issue.
We looked at what you reported in the unbilled sales in recent quarters, when you divide unbilled revenues divided by the bottom of the unbilled sales that you report, theoretically, you'd have the implicit average. It's a very volatile number. It's not relatable, it's not consistent throughout the quarters. How do these two things talk to each other, so to speak? Let me try to explain what that is. Unbilled energy contribution in a month of 31 days, you have 31 days of service. Generally, you see that 20 days were billed because of a calendar or for any other reason. You have to estimate those three remaining days. We do have a system that looks at the previous consumption of the previous month, the system estimates the consumption of those three remaining days.
When prices go up or when they go down, you may incur some distortion because it cannot be 100% accurate. It's a system that looks back and makes a projection of those three remaining days in my example. There will be distortions. There are some taxes involved. When you divide the bottom, of course, you are bound to have some distortions. Best thing to do, in my view, is the standard 12 months. Unbilled sales are not relevant. I don't think we should focus on one quarter and take that as the benchmark for the others. I don't think that's the way to go. I'd rather look at the past four quarters, the last 12 months, unbilled sales is part and parcel of the process. It's a revenue that you have.
It is considerable revenue, it's not as relevant when spread out throughout the year, BRL 15 million. That's the essential program. I'd rather look at the bigger picture. Thank you. When you take the past 12 months in, BRL 99 million of OCS for Q2, BRL 78 for previous quarter. It would be less volatile. Thank you.
Thank you so much for your input.
Now, I'd like to turn over to Ricardo Perez Botelho for his final remarks.
This quarter results show that we are consistently delivering our distributors and our distribution company's results. We have been results-focused and providing excellent services, providing special recognition. We were awarded the Outperform Award, indicating that we're leaders in the markets we operate. We were awarded another lot in the previous auctions, we're evolving according to plan, we are committed to becoming one of the best and most respected companies in Brazil.
We keep considering opportunities for growth while maintaining appropriate allocation of capital, generating value for shareholders, and maintaining the sustainability of our business as we have always done in the past 113 years. Thank you so much for attending this conference call. Good afternoon.
This concludes Energisa's conference call. You may now disconnect.