Good afternoon, everyone. Welcome to the Equatorial Energia Conference to discuss results regarding the fourth quarter of 2023. The presentation will be delivered by the CEO of the company, Mr. Augusto Miranda, and by the CFO, Mr. Leonardo Lucas, who at the end will be available to answer any questions you might have.
Always participating in this conference are Mr. Liu Aquino, CEO of Echoenergia; Tatiana Vasques, Investor Relations and Financial Strategy Superintendent; and Mr. Enio Leal, Superintendent for Regulations. We would like to inform you that the simultaneous translation tool is available on the platform. To access, just click on the interpretation button through the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English. This conference is being recorded and will be available on the company's Investor Relations website, www.equatorialenergia.com.br, as well as the presentation delivered here. We would like to inform that the participants attending the conference will be in listen-only mode during the presentation, and we will then open the Q&A session when further instructions will be provided.
Before proceeding, we would like to clarify that any forward-looking statements are based on the beliefs and assumptions of Equatorial Energia Management and current information available to the company. These statements may involve risks and uncertainties as they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors, analysts, and journalists must understand that events related to the macroeconomic environment, industry, and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. We will begin the presentation by giving the floor to Mr. Augusto Miranda. You may proceed, sir.
Good afternoon, everyone. Thank you for attending this event. We will now discuss the results for the fourth quarter of 2023 of Equatorial Energia Group. In the operational environment, the fourth quarter was marked by the effect of strong volumes in distribution, improvement in quality, reduction of losses, and maintenance of excellent levels of collection despite the growth in consumption and, as a consequence, the cost of the electricity bill. However, we had to face some challenges, among them the climatic episodes in Rio Grande do Sul and the strong heat waves that affected the whole of Brazil in the fourth quarter but had a greater impact on the more fragile grid of recently acquired companies, and the constraint effects which impacted the energy flow of Echoenergia wind farms connected to the National Interconnected System.
In the financial environment, Equatorial concluded important operations to ensure reduction in the company's leverage and carried out a number of issuances of debt and prepayments that improved the maturity profile. In the macro scenario, we observe a downward curve in the SELIC interest rate and a significant improvement in liquidity in the market, which should contribute to a reduction in the debt service cost in the coming quarters and offer opportunities to advance in the management of our liabilities at more attractive costs. We will now start on slide three. Starting with operational highlights, I draw your attention to the performance of distributed energy, which, on a consolidated basis, posted a growth of 12.3% in the comparison year- over- year.
It's another quarter of growth in all the regions where we operate, and the market was also driven by problems of cuts and high temperatures for the execution of our strategy to prevent losses. We are consolidated total losses of the group within the coverage that is established by the regulator, with 18.4% reduction, with a reduction of 0.7 percentage points compared to the same period of last year, driven by significant reductions in Amapá and Rio Grande do Sul. We reached BRL 2.8 billion of adjusted EBITDA in the quarter, a performance 26% higher than that in the same quarter last year, with the consolidation of Equatorial, and that excludes the non-cash effects and also VNR, IFRS, and MTM.
We invested around BRL 2.6 billion in the quarter, with the need of maintaining high levels of investments in the recently acquired distribution concessions and also the investments in renewable energy projects, and this includes the construction of two solar plants scheduled to come into operation this year. We ended the quarter with a reduction of 0.3 times reduction in net debt over EBITDA compared to the previous quarter, a total of 3.3 times in covenant view. Since the consolidation of Equatorial Goiás, we have consistently reduced our leverage, either through the increase in EBITDA or through a series of actions carried out throughout the year with the aim of improving net debt. In this regard, it's important to highlight the initiatives to recycle our assets. We had the closing of 100% of the capital of Intesa in March, one of our transmission assets.
It's another initiative to accelerate the leverage in the company. In relation to the quality of operation, all our discos reduced the DEC in relation to the fourth quarter 2022, with the main highlight being Equatorial Maranhão, which once again fell within the DEC regulatory limit, and Equatorial Amapá, which reduced the DEC by 11 hours. Finally, I highlight that Equatorial Energia has been part of B3 Sustainability Index and IDIVERSA portfolio since last year, demonstrating our commitment to ESG best practices. Now, I give the floor to Leo on slide five, where we will start discussing the consolidated view of the group's economic and financial performance.
Thank you, Augusto, and good morning, everyone. I'll quickly discuss the group's economic financial performance in a consolidated view.
Here, the numbers are adjusted for non-recurring effects and also non-cash effects, such as VNR in the discos, IFRS in transmission, and MTM in sales. Our consolidated gross margin grew 39% compared to Q4 2022. The growth is mainly driven by the consolidation of Equatorial Goiás, which added BRL 858 million to the margin in the quarter, in addition to the growth in distribution of BRL 201 million. This is a result of the increase in the distribution segment market. The group's OpEx ex Goiás showed a growth of 7.7% when compared to the fourth quarter of 2022 and is due to the greater mobilization of teams to deliver improvements in quality indicators and the commitment with a cycle of revenue and collection. We are going to discuss the result of OpEx showing the discipline in the allocation of capital.
The adjusted EBITDA reported in the quarter reached BRL 2.8 billion, about 26% higher than the same period of last year. This increase is due to the consolidation of Equatorial Goiás, which totaled BRL 569 million. Disregarding the effect of the consolidation of Equatorial Goiás, the distribution segment would have shown a drop of BRL 76 million, and the main effect being the increase in PDA in relation to the fourth quarter of 2022, as last year there was a reversal of this account in some companies that resulted in a PDA consolidated that is creditor predominantly.
On the right side, we show the companies' debt profile and the investments made in the quarter. Net debt of the company fell by BRL 2 billion compared to Q3 2023, and leverage measured by the net debt over EBITDA ratio for covenants showed a reduction for the fourth consecutive quarter, reaching 3.3 times. This is a result of the growth in EBITDA combined with the inorganic actions carried out throughout the quarter, such as the sale of Treasury shares, issuance of ON shares, and the deconsolidation divestiture of Intesa from the company's balance sheet.
Investments in the quarter showed an increase of 54% when compared with the same period of the previous year and reflects investments in the pipeline of projects of EcoEnergy that reached its peak in November 2024 and the investments made in distribution segment, especially Goiás, considering that this asset was not consolidated in 2022. We are now going to move on to slide number seven, where we'll bring an overview of the operational and commercial of our discos, in addition to the highlights of the quarter. For comparison purposes between quarters, operational data shown in a Q4 22 view adjusted with data from Equatorial Goiás.
On the right side of the slide, we show the evolution of gross margin in the distribution segment, which grew 8.3% in ex-Goiás view, even with the effect of reduction of parcel B in Maranhão and Pará as a result of the last tariff review. We would like to draw your attention to the excellent control of expenses, even improving quality, reducing losses, and maintaining high levels of collection. The OpEx, both for the quarterly view and other periods, grew below inflation. Despite the growth scenario, high level of consumption of energy that pressurizes the bill of our consumers, it was possible to continue reducing losses, the cycle of our distributors, and report a consolidated collection level of 99.1%. This expressive growth in the market pressurizes down the level of collection.
The variation of EBITDA ex Goiás presented a reduction of 4.3% that was driven by a reversal of the OpEx, and the effect was BRL 226 million. That is offset. The EBITDA would have grown 9.5%. Moving on to slide eight, we present an overview of the operational quality of our discos. The major highlight for the quarter is Equatorial Maranhão, which once again came within the DEC regulatory limit and showed a reduction of 10.6 hours last year. I would also like to highlight the reduction of approximately 11 hours in CEA when compared to Q4 2022 as a result of the turnaround that has been implemented in this company since its acquisition. Here, we bring a vision of the quality of our discos separated by regions across the country and now establish the percentage trajectory related to the quality limits.
In relation to FEC, Maranhão, Pará, Piauí, Alagoas already are consistent with the target of 80%, which is also the case of Amapá. As to DEC, our companies, the most mature ones, Pará and Maranhão, are undergoing the process of renewal of the concessions, and naturally are the ones that have moved more ground in reaching the level. Pará has already the final target, and Maranhão surpasses the target already for 2025. For the other companies, the deadlines for reaching the 80% of the groups are higher than the average of the sector because we were fortunate to make important acquisitions in the previous year. Piauí and Alagoas, which are companies who are in the average level of turnaround, have already met the level established by ANEEL. Amapá already reaches 80% of the groups.
Goiás, because it's a recent acquisition, hasn't had the target established for 2023, and the final target is for 2028 of 80%. Rio Grande do Sul was the only company in the group that hasn't met the trajectory that was established by now. Considering the extreme climate event that the company has undergone, only in 2023, more than 16 events happened. For the next years, we have investments to improve the quality so that the grid can be ever more robust and increase redundancy, even with a natural trend of the acceleration of total investments estimated for the distribution sector. Considering the tariff cycle for most of the companies, it's just natural that the companies that have been recently acquired demand more attention and more resources until the benefits of the investments can be collected.
Rio Grande do Sul and Goiás, especially in terms of costs and operational aspects, are the ones that are rooted in the group, and DEC has been treated with the same assertiveness and discipline. We assure that with the investments and with the right management, we are going to continue bringing quality improvements to the company. Now, we can move on to slide 10. Now, let's look at the other segment of the group. In the transmission, we presented a regulatory EBITDA of BRL 291 million, impacted by the 50% reduction in Intesa original RAP and a margin of 92% in the quarter. We have the status that had its close in the past few days. In the renewable segments, we presented an EBITDA of BRL 270 million, an increase of 11.3% when compared to the same period of last year.
We also presented the quarter's generation, which reached 533 GWh and had an impact from the curtailment of 88 GWh in the quarter. It's worth highlighting the effect of MTM in the fourth quarter of 2023 in the commercialization. The company used to mark to market all its portfolio of sales and had a positive result in the margins obtained. As of the fourth quarter of 2023, even though this positive margin remains, after the review of the methodology, how to measure the fair value, and the trading of commercialization, all the portfolio of the company was reevaluated, and the agreements were reclassified as trading or executory with the information generated by EcoEnergy. Those characterized as trading are in the scope for mark to market.
We made an adjustment in the period of BRL 176 million that referred to the positive margin for the commercialization of the pipeline, and because of the methodology, it's no longer mark to market. The sanitation segment still shows the initial stages of the operation. EBITDA was negative by BRL 14 million. The highlight of the quarter is the reduction of losses, which reduced by 6.8 percentage points when compared to the same quarter of the previous year. It's important to highlight that since we took over CSA operations, 24,600 water m have already been installed, and the trend is to speed up these installations this coming year. Now, let's move on to the next slide. I turn the call over to Augusto for his final remarks.
Thank you, Leo. We are happy with the results achieved so far, but we are aware of the importance of our role to continue delivering consistent and growing results for the benefit of all stakeholders. Regarding the outlook for 2024, since we have concessions at different stages, we will continue to make headway, improving the quality and reducing losses of our discos, paying special attention to the evolution of the turnaround in the recently acquired companies. This year, we'll complete Ribeiro Gonçalves and Barreiras One Solar projects, which will bring robustness of our generation portfolio and increase cash generation. We will have completed the extraordinary review in Amapá and the review in Alagoas.
As for capital structure, we see the trend to maintain the reduction in leverage, whether through EBITDA growth from the tariff review processes and advances in the turnaround processes, or through inorganic solutions such as those already implemented throughout 2023, which will allow for greater competitiveness in the assessment of possible future opportunities for capital allocation and value generation. Now, I'll hand the floor over to the operator to open the Q&A session.
We will now open the Q&A session. To ask a question, please click on Q&A that you can see on the bottom of your screen and type your question. To ask questions through the microphone, click raise hand. Our first question comes from Guliano from UBS. Guliano, you may proceed, sir.
Hello, everyone. Good afternoon. I have two questions on my side. Let me start with the first one. I want to understand the result of CELG-D. If you could provide more detail on the non-recurring effects of CELG-D and provide more quantification in relation to the growth of load. What was that? Repressed demand or temperature? Only for us to understand the quantification of CELG-D. Let me take advantage of this opportunity to ask a question about the renewal of the concession for the discos. We know that this story has been extended, but I would like to understand from you how the discussion of concession renewal is and if this delay may cause any impact on the CapEx in the concessions that are about to come due. Thank you.
Juliano, thank you for your question. They are very timely. I'll start answering your question about the concession renewal. That's exactly what you have seen in the media.
The minister said that he's going to issue the decree, and the TCU is going to reinforce the position. Considering the importance of the sector, I believe that we cannot have any adventures in this decision. It's a sector that demands a lot of capital, and everything that should generate uncertainties will have serious consequences to the country. I believe that the Ministry of Mines and Energy has already made their stand a bout CELG, I believe that non-recurring effects to be mentioned. One, related to the PDD. We saw that the level of PDD associated with the parcel is very low. We understand that we needed to make a new reclassification, recalculation in relation to the PDD in Goiás. Another one was related to a contingency. There was a risk of probable loss of a fine that started before we joined the operation.
Basically, these were the main effects among other effects. Leo, can you provide a quantification in terms of growth? If there is repressed demand?
Yes, in Goiás, we have seen some repressed demand. This was very clear when we faced the heat waves. It was very important to understand where were the fragile points so that we can combat those weaknesses in 2024 and also to look at those bottlenecks of repressed demand. These are areas whose growth is very relevant. We are very focused on making balanced investments in order to address quality, but also looking at the bottlenecks for growth.
To complement Leo, I would say that if you look at Goiás, you see that Goiás has a history that it grows above average in terms of Brazil, and this is something that we have seen. There are heavy loads at the edges, and we have made massive investments to meet those localized demands across the four corners of the state. On the other hand, we have also been working together with the federal government to provide for that. Since the loads are heavy, we need solutions, and the solutions cannot be solved in the short term. There are specific areas for us to give proper response to meet those repressed demands.
Excellent.
Juliano, we continue observing a very strong demand in the beginning of this year. The effect of high temperatures is likely to continue along the next few months, and it may make some changes in the base case. We are very fortunate because we saw that the pent-up demand is very high and the repressed demands associated with the expansion of the grid, and you are going to have coverage for the tariff.
Yes, naturally. Naturally. If we have a substation with our overloaded, sometimes you find a solution that you have a heavy load that can be responded, and you have to provide the solution that has to be compatible. You may have a line of 69,000 V or another one which is stronger, or you can even resort to the basic network. If you do that, you have to do the construction works related to that, both of 108 and 69, because those are going to demand investments in parallel. Okay?
Okay, thank you.
Our next question comes from Mr. André Sampaio with Santander. You may proceed, sir. Good afternoon, everyone.
I would like to ask a question in order to understand the information about costs for the quarter. We saw that there was an important relevant about BRL 600 million for the consolidated total loss reduction. I would like to understand what was the reason for this amount.
Yes, Leo? Please.
Andre, do you refer to the PDA?
Yeah, t here is a line which is separated from the provision for contingencies. I'm not sure if this is associated with the PDA or not. That's exactly my doubt. But the amount is BRL 600 million that I can see in your spreadsheet. I would like to know what it refers to.
Andre, in the release, we have BRL 40 million, which are provisions related to FUNASA. In the spreadsheet, we have to check whether or not it's consolidated. But the fourth quarter had an impact of only BRL 40 million.
Okay, okay, perfect. Thank you.
Our next question comes from Daniel Travitzky with Safra. You may proceed, sir.
Hello. Thank you for the opportunity of asking questions. I have two questions on my side. The first is related to the leverage. We saw a reduction in the quarter of this leverage in comparison to the previous quarter. We'd like to understand how this moves forward looking into the future along the year, and if you have any other actions that you could take to speed up the reduction of this leverage. Only for me to understand your strategy for managing this indicator. My second question is in relation to the volumes of the first quarter. We are close to the end of the first quarter of 2024, so I would like to have an idea of how you see the dynamics of volume for the first quarter.
Was it strong, stronger than the fourth quarter of last year? Just for us to understand how this dynamic is going to play out in the future. Thank you.
Daniel, thank you for the question. We will start from volumes. When we look at the whole year, we can see the behavior of prices in a very significant manner, and it continues growing, both in relation to losses. Even in an environment where the market grows, that would increase the increase of losses. But because of the policy we have implemented, we have been implementing reductions. So these are impressive volumes that come very strong in the concession areas. This strong growth that we had last year, and we continue materializing the first quarter, for sure, it's a very important contribution for the management of the leveraging process.
We continue very focused on working on this deleveraging process. Last year, we sold treasury shares. We had the sales of some PN shares and recycled some assets. Except for the treasury bonds that have already expired, there are other actions that we'll put together on what we're going to be focusing in terms of inorganic actions, CapEx allocation, so that we can continue on this journey, opening spaces for allocating capital.
Perfect. Thank you.
Our next question comes from Mr. Gustavo Faria with Bank of America. You may proceed, sir.
Hello, everyone. I have two questions. One is related to pressures on costs and CapEx. We saw an OpEx per unit which was well controlled, but an increase of CapEx on non-electrical items when compared to the previous periods of last year.
I would like to understand why non-electrical CapEx has increased and what we can expect in terms of OpEx for the future, considering the targets for quality levels and other assets that have to be within the regulatory levels. My second question is related to the cost, which was very strong for provisions for loss in inventory levels. I would like to understand what are the provisions for losses in inventories because it was not very clear for us.
Thank you very much for the question. I'll start from the end of your question. In relation to the provisions for inventories, we implemented the adjustments of the policy of the group for losses of inventories for materials that have not been used for more than 180 days and also PPE. It's a movement that we made that started in Goiás.
That's where we started implementing the policy and then migrating to Rio Grande do Sul and less intensively in the other assets. Naturally, this is a provision, and every year this provision is reevaluated. This provision may change for more or less depending on the findings. Costs are well controlled. We have always been focused on this since the beginning of our company. We are always focusing on costs and CapEx so that we can also look at quality. As for CapEx of non-electric items, in additional implementation of companies, and even in Rio Grande do Sul, it is very common to have an integration of part of the systems. That demand more non-electric CapEx. But once you complete those implementations, you're likely to go back to more reasonable levels.
Gustavo, I think we have to look and see very clearly that considering the portfolio of Equatorial, you have mature assets that have been in operation for a long time, but you also have some recent assets such as Rio Grande do Sul and Goiás. When I say recent events, last year was a very difficult year because you come away from an adverse climatic event, and then another one comes along. So you saw that there was another climate event with high wind speeds. As I mentioned beforehand about Goiás, many times you have the network meeting the demands of high loads. We have to use the concessions and wait for the CapEx to bring the results that we expect.
But as we said, we always control when we look at the OpEx and the consumer, you see that the amounts or the values are very good, especially when we compare to the market at large, and you see that the values are at control. OpEx grew less than inflation. That shows how robust we have been controlling our OpEx.
Perfect.
Our next question comes from Mr. Marcelo Sá with Itaú BBA. You may proceed.
Hello. Thank you for the call. I have two questions. Could you talk about the tariff increase in Amapá? It was on the agenda of ANEEL. Today, I don't know if it has already been defined and what you expect. What are the measures you are considering taking? The second question is in relation to the reserve of capacity. The minister said that he wants to include batteries, and this is probably going to be included in the public hearing. When we talk about batteries, I understand that EcoEnergia might be analyzing this and how you're going to get into this market. Thank you.
Thank you for the question. We have been interacting quite a lot with ANEEL and with the ministry to discuss this issue about Amapá. We have this provisional measure, and for some reasons, this has been delayed, and we have been negotiating very closely with ANEEL. As you said, this was part of the agenda for today. This is also ANEEL's agenda. This is being analyzed. I can say that we have been monitoring this very closely because that is very important for that concession, which is still very fragile. We have made investments there, important investments for that concession.
If you look at DAC, that d ropped 11 hours. This is a result of all the efforts that we have been making. The negotiation that we have been making with ANEEL and with the ministry is something that is continuous. We are going to continue making improvements to those quality levels. I understand that dialogue is part of the process, and we made some negotiations with the ministry, with ANEEL, this is part of our everyday business. If you want to add anything.
Good afternoon, Marcelo. As Augusto mentioned, I would just like to add that we are very confident that we are going to comply with all the agreements with ANEEL. We understand that the agreements and the contracts are going to be complied with, and it's just a matter of time to have this approval. We are monitoring the processes.
We understand that this is going to be approved in compliance with the agreements and also of what has been defined from the technical areas of ANEEL. All the indexes have already been defined. All we are waiting for is the formalization and approval by the board. So you asked about the capacity auction. I would say, Marcelo, that we are at a moment that we revisit our strategic planning. It has been a very fruitful process, and this is a topic which is being addressed in our analysis.
Thank you. Our next question comes from Mr. Vitor Cunha with Itaú BBA. He says, "Good afternoon, and thank you very much for the call. Could you provide more details in relation to the non-recurring adjustments for the quarter, especially as to matrix of default rate?" Thank you.
Hello. T hank you very much for the question. This is the concept of the matrix. What do we do every year? Just to explain, we look at the fifth year before this calendar year. When we are closing 2023, we look at 2018. For each month of 2018, each range of delay. There's a range of delays or brackets of delays, and we look up to December 2023. We look at the window of five years. How much you did not collect in each bracket of delay since 2018. Then you come to an average of what was the percentage you did not collect for each bracket of delay of default rate of those months. This would be the next percentage for the values or expected losses that is going to be applied in the accounts receivable for 2023.
We look at Goiás as a highlight, which is a recently acquired company, and we are going to take a while for us to apply those criteria of the group. This is what we did in relation to the study of Goiás until we finish it completely. The installment of Goiás in the installment of Goiás, we saw that there's a level of provision which is lower than the study indicated. It was a level of 0.2%. A very low level. In this segment, we came to the adequate percentage, and we applied that. This was the most important non-recurring item when we made an update of the matrix for the group in relation to 2023.
Our next question comes from Mr. Vladimir Pinto with XP. Good afternoon. In relation to the non-recurring of non-reported finds, could you tell us whether this refers to the quarter or would that refer to the previous periods?
[Foreign language]. In Rio Grande do Sul, we reported BRL 15 million. A period was a part BRL 25 was related to the cyclone and BRL 25 was related to the period before we joined in. So one before we joined in and the other one after we entered, but as a result of cyclone. As to Goiás, they were related to the events that occurred before Equatorial Group. That was before. Back when there was a different controller.
Our next question comes from Arlindo Souza with Levante Corp. Hello everyone. Good afternoon. Considering the deleveraging process of the company, can you provide more color in relation to the vision of Equatorial in new investments and growth, especially in transmission and sanitation? Does the company have any intentions of taking part in the next transmission auction?
Arlindo, in fact, you saw this movement of Equatorial. The segment that you mentioned is a priority segment, but this is not something that we will disclose. We do not disclose any specific opportunities, okay?
The Q&A session has come to an end. We would like to give the floor to the company's officers for their final remarks.
Thank you everyone. In closing, we want to reiterate once again our commitment to our agenda of continued value generation for our investors based on consistent delivery of results in the different segments in which we operate, always based on disciplined financial management.
I would also like to remind you that our investor relations team is available to support you should you have any questions after this call. Once again, thank you for your interest in the company and for being part of our earnings call. Have a good afternoon, everyone.
The conference is closed. We would like to thank you for your participation and have a nice day.