Good afternoon, everyone. Welcome to Equatorial Energia's Earnings Conference Call for the Second Quarter of 2024. Here with us, we have the company CEO, Mr. Augusto Miranda, the Vice President of Finance, IR, and New Businesses, Mr. Leonardo Lucas, Director of Regulation, Mr. Log rado, Director of Financial Strategy and RI, Tatiana Queiroga Vasquez, and Mr. Leo Aquino, President of Echoenergia, who, at the end, will be available to answer any of your questions. Let me tell you that we have simultaneous translation available on this platform. In order to access this, you click on the Interpretation button at the bottom of your screen and choose your preferred language. This conference is being recorded and will be available on the company's investors relations website, ri.equatorialenergia.com.br, as well as the presentation, the slide deck here.
Please be advised that all participants will be only listening to the conference during the presentation, and then we will begin the Q&A session, when further instructions will be provided. Before moving on, we take this opportunity to emphasize that the forward-looking statements are based on beliefs and assumptions of Equatorial Energia's management and the current information available to the company. These statements may involve risks and uncertainties, so, since they relate to future events, and therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should take into account that events related to the macroeconomic environment, the segment, and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. We'll now begin the presentation by handing the floor over to Mr. Miranda. Please, Mr. Miranda, the floor is yours.
Good afternoon, everyone, and thank you for your presence. Now, moving on to slide number three, let me show you the highlights. Well, this quarter was marked by some advancements and achievements. On June the 28th, Equatorial was made the reference investor in the Sabesp privatization process, with 15% acquisition on the company. The value was BRL 5.6 billion. 5.6 were financed with an extension of 8 months. We also bought SPE 7, with BRL 1 billion, and we still have some conditions for the closing of this operation. On June the 18th, we had a capital increase, reaching BRL 516 million, the same amount of dividends for 2023. Yesterday, there was a new capital increase, with maximum approved value of BRL 2.5 billion, BRL 32 per share, around that. We started operating in the solar projects of Echoenergia.
We have 1.8 giga installed capacity. We are pleased to say that Equatorial leads the ranking of institutional investors in all the 8 categories, and also was awarded as the most honorable company in the utility segments. Now, let me talk about the operational and financial highlights of this quarter. We reached an adjusted EBITDA of BRL 2.4 billion in this quarter, 11% increase if compared to the same period last year, due to distribution segment. This has to do with some of the investments we made. Additionally, we consider the Intesa results in 2023, the growth of EBITDA would be 3.1%. We have invested around BRL 2.1 billion in this quarter, 20% less than the second quarter of 2023, due to the finalization of solar projects of Echo.
We started this quarter with a liquid debt per EBITDA of 3.2x , a robust cash flow position of BRL 12.6 billion in the quarter, and cash flow per debt are 2.2x . We also, a highlight is the distributed energy, which presented consolidated growth in another quarter, growing 8% versus the second quarter of 2023. Even with this strong growth in volumes and distribution, for the third consecutive quarter, we are below the regulatory limit of losses. Now, Leo will talk about the consolidated view on the economic performance of our company. Leo, I hand over to you.
Thank you, Augusto, and good afternoon, everyone. Let me briefly talk about the financial economic performance that we consolidated in the group. Here, figures are adjusted by non-recurring and non-cash events.
Our gross consolidated margin grew 11.5%. And let me highlight the distribution sector, which added BRL 367 million in the margin of this quarter, related to the growth in of the market and increasing the fee. Even if the market grow and we maintain the consolidated losses below the regulatory limit, we're still disciplined regarding costs and expenses that we adjust for the group, which presented a reduction of 0.8% against the second quarter of 2023. With these results, we reached an adjusted EBITDA of BRL 2.4 billion, 11.1% above what we reached the last year for the same period. Considering the Intesa earnings and results, the growth would be 13.1%.
Let me also highlight that in this quarter, we reduced the net debt per EBITDA to 3.2x, and we increased the average cost of debt regarding the second quarter of last year. We have availability and short-term cash coverage of 2.2. We also have investments with increase of 24% with the new operation of solar plants. Now, let's move on to slide number seven, where we present to you the performance, the operating and financial performance of the distribution segment. On your left, we can see consolidated operation of our distributing companies with high volumes of injected and distributed power, and a reduction of losses, and for the third consecutive quarter below the threshold, the regulatory threshold, collection and PCLD regarding the non-performing loans. You can see the numbers here.
If you consider the last year, we added a new distributor according to DEC regulatory limits, if you include Maranhão. On your right, we see adjusted growth margin with a growth of 12.4%. The main highlight is the addition of BRL 390 million of Equatorial, the growth margin, due to the growth in the market, and also the increasing the fee. With the adjusted PMSO by consumer in the year-over-year was reduced in 0.4%, and the nominal PMSO all grew below the inflation. This has to do one of the main values of Equatorial. Even if the market is growing throughout the quarters, we are disciplined in terms of costs and taking the opportunity to increase our gains. This reflected in an adjusted EBITDA increase of 17%.
Now, moving on to slide number nine, we discuss other segments in our group. In terms of transmission, we have the Centesa view. In 2023, there was a regulatory EBITDA of BRL 280.2 million, a growth of 2.1%, maintaining the highest EBITDA margin in the transmission segment in Brazil. We would like to highlight that from June the 1st on, there was a rapid readjustment for the cycle of 2024-2025, with a readjustment of 4%, which will have reflections and impacts from the next semester on. After the Intesa fee review, the buyout connected to the selling of the company was BRL 18 million, and Equatorial acknowledged that on June 14.
In the sanitation segment, there was a coverage SSA level, 56%, an increase of 14 percentage points if we consider the same period last year. In economy, regarding an economy of 3.1%, versus the second quarter of 2023, and 1.9% regarding the first quarter of 2024. In terms of renewable energy, the adjusted EBITDA had an impact, a decrease of 6.8% in curtailment. Renewable energy is important to reduce costs of energies for the population. Curtailment was 64. The idea is to decrease carbon in the environment and water consumption in the country. As these plants are cut out of the systems, there are two major impacts.
In the short term, it's necessary to work with thermal plants and use more water, and then we increase the marginal cost of operations, and this reflects on consumers' bills. There is a risk allocation, which goes in an opposite way as we define in our investment. We conclude that the trend is to invest less in the renewable energy, which is against the global trend of decarbonization and energy, a better energy mix and transition. Now, back to Augusto. Thank you.
Thank you. Well, we are happy to say that Equatorial is leading the ranking of utilities in Latin America. This is the first place in the utilities companies rank... in all the eight categories of the survey. Let me thank all the analysts of active research and our stakeholders for believing in us.
Moving on regarding our deliveries and trying to improve our services, we now launched a new RI website. You can access this new website by using this QR code you can see on the slide. We rely on transparency and our commitment towards the continuous delivery of results, and the strength of our team, the strength of our mission allows us to reach these achievements. We are leveraged to look for new goals, look for new challenges, as we'll be able to see on slide number 12. Let me introduce to you a new investment of Equatorial in the sanitation segment, Sabesp. Equatorial was turned into the reference stakeholder of Sabesp, with 15% of the social capital of the company.
We studied this process in depth, and we believe this new regulatory and governance process, having Equatorial as the reference shareholder, will bring major opportunities from the financial standpoint and regarding the implementation of the universalization concept. This combination places us in a privileged place to consolidate us in the sanitation segment in the country. So, in the opposite side, when we acquired Sabesp and EBITDA for the past year, we see that even with a BRL 6.9 billion increase in the net debt regarding the 15% in participation, there was a covenants result of 3.6x below the leverage of the second quarter of 2023. Here, I would like to say that yesterday, the board approved an increase of capital of BRL 2.5 billion, and the price per share of BRL 32.50-BRL 33.50 per share.
This will be used for the funding related to Sabesp acquisition, including the total value of capital; the covenants view would be 4.3x. On the lower part of the slide, we are still waiting for the CADE sentence, and we'll soon publish the call for bid for the new for the election of the new board for this company. Now, talking about perspectives of for 2024, we've had an excellent semesters from the financial and operational standpoints. We know how important our role is to continue delivering, growing, and beneficial results, benefiting all of our stakeholders with energy establishment for our customers in Rio Grande do Sul. After the climatic event that took place there, we are working hard to address the CapEx needed for the recovery of damaged infrastructure after the flooding.
We keep on advancing regarding the turnaround in Goiás, strengthening the network and improving the operations. Along with the state government and other shareholders, we'll start implementing the Sabesp governance model. We hope to bring a lot of value to all of our stakeholders. We'll keep on being careful with operational cost discipline. At the same time, we evaluate other market opportunities. Now, let's move on to our Q&A session.
Thank you very much. Now, we will start our Q&A session. If you'd like to ask a question, please click on the Q&A icon at the bottom of your screen and type in your question. To ask questions via the microphone, please click on raise your hand. Our first question comes from Daniel Travitzky, from Safra. Daniel, you can go ahead, please.
Hello, everyone. Thank you for this opportunity. Well, I have two questions on my side, especially talking about Sabesp. I would like to understand the company's view, the step-by-step in your, Equatorial idea moving forward, talking about the definement of the board, new management, and the schedule regarding Equatorial's... In this group, and also the CapEx in Sabesp, because the company will need to double its annual CapEx to beat the universalization goals. So I just want to understand how-- what do you expect to be the main challenges related to this challenge, and how you plan to deal with these topics?
Thank you. Good afternoon, Daniel. Thank you for your question. Well, in fact, there is this CADE expectation. We are waiting for this. There is this CADE...
We're still waiting for the sentence to be passed, and the AGE will be nominated, and the board, the council will be nominated, and consequently, the board. We will follow the schedule as quick as possible, so we can take hold of the company. Regarding the CapEx, this is a challenging CapEx. We know about that. We know how hard it is. We are aware of this responsibility and this challenging position, and we are firm in the proposition of making this universalization according to the motivation of this acquisition. We are still studying this challenging, assessing this challenging. And Daniel, let me tell you that last year, Equatorial had BRL 11 billion in CapEx. So having executed a CapEx of this magnitude in different segments, we believe that this capacity that Equatorial has shown, this...
With this experience, the technical staff has acquired, we truly believe we will be able to deliver our propositions.
Thank you very much, Augusto.
Next question comes from Pedro Rosset from IS Invest.
Hello, congratulations on the results. I would like to know if you could go into more detail about how the consolidation of Sabesp's results into Equatorial Energia will work, considering your 15 stake participation in the company. Thank you.
Leo, please, can you answer this question?
Thank you, Pedro, for your question. Well, in fact, there won't be a consolidation. We have this 15% participation, we have become the reference stakeholders. We will register equity equivalence of Sabesp in the results, in the earnings of Equatorial. Okay?
Well, next question comes from André Sampaio from Santander. André, you can go ahead, please.
Good afternoon, everyone. I have a quick question here. I would like to listen to your thoughts about fees. We have a lot of buzz regarding the potential of bringing something to tackle this issue related to fees. What is your expectation regarding this position coming from the ministry, from the Congress, and the National Department? And could you also talk about the opportunities related to new auctions on sanitation? Is this under your radar, or with the Sabesp consolidation, you plan on really focusing on Sabesp only?
Good afternoon, Andre. We believe that this fee issue has generated some buzz. Yes, but we understand that this issue has been solved, and I'd like to call Cristiano so he can share more details with you, with us all.
Yes, good afternoon. Well, the ministry, the national ministry made some comments, but he didn't go into detail on how this process would go regarding the fee structure. But he said that maybe there will be a social fee, which is beneficial for larger companies. There will be more grants and more subsidies. He talks about the reallocation, redistribution of some expenses, but this will be Tier A expenses, in my view. So I believe that the ministry, the ministry talked about the Parcel A or Tier A expenses, preserving the economic balance of contracts and agreements. So we're still waiting to know more about this process, if they will have a provisional measure or there will be something that will go through Congress.
But finally, the financial balance of the contract will be maintained, and the distribution of fees according to this agreement will also be maintained. That's our belief.
Thank you.
Yes, Andre, regarding the second part of your question, regarding Sabesp, we have always said that we hope that considering the strength of this combination to exactly consolidate this company in Brazil, this is what we mean to do, and we are focused... Yes, we are focused on organizing this process, organizing Sabesp governance, and with an focused on universalization, which is important to us. But of course, we will keep an eye on other opportunities, other market opportunities that are out there.
Thank you very much, guys.
Next question comes from Henrique Peretti from JP Morgan.
Hello, everyone. Good afternoon, Augusto. I would like to ask you about the-...
Private capital increase. Simple question: Do you believe that after this capital increase, the capital structure of the company will be well-balanced, and no other inorganic movement will be needed after the payment of Sabesp and after the bridge loan that you have hired, that you have agreed upon?
Well, Henrique, as you can see, we've made some movements even before Sabesp. We worked with Intesa Sanpaolo, and other agreements, other movements. Yes, we are increasing the capital, but not so much, and keeping an eye on future opportunities. And Leo will also share some details.
Thank you. Just to highlight that we always maintain a very good discipline when we thought about acquiring Sabesp. We maintain a very robust discipline in trying to streamline our process, optimize our process.
After we complete advanced studies on Sabesp, maybe we will also tackle some transmission segments, finalizing with this takeout check with a low volume, 1/3 of it, to complete the structured takeout with a P/A weighted cost that is highly attractive, I would say. So the return we expect to have with leverage, considering the costs, I believe that considering all of these factors, this scenario is even more attractive. We are in the scenario of deleveraging, but this adjustment will finalize this process and will make us ready to keep on searching for our vocation. Whenever we see a good opportunity, we go for it. It's important to be ready as soon as possible to do that.
Thank you very much.
Next question comes from Antonio Junqueira from Citi.
Hello, everyone. Hope you're doing well. Well, my...
I have a question regarding the private subscription. Do you have any signalization? You have a minimum, right? A bare minimum. What would happen if you don't have minimum membership, and after having this longer period working capital, I think it's 18 months, right, Leo? What triggered this decision right now? Maybe, maybe you could, could you decide on that on the next few, 6, few months or 6 months?
Yes, Leo will answer.
Thank you for your question. As I said, as I mentioned, whenever we go through a transformational acquisition process, we try to assure a funding, to have a funding that provides us with a time, with a window of time to deal with things, to equate issues, which doesn't prevent us from taking this time in our favor to deal with the issues, and by the end of this window, this period of time, take the best of this opportunity. This is the third private capital increase we've had. We've had two other previous experiences, taking opportunity from the movements related to dividends. Considering the size, this is something I would say, I would call a surgical movement, representing or accounting for 1/3 of the operation.
We understand that this moment is the right time for us to solve that, to equate this. We did that and decided to move forward, and we will advance regarding these studies on preferential shares in the transmission segment. This is a segment we are focusing on, putting it in practice, so we can finalize this and keep on in our disallocation movement and considering this new chapter, which is a very promising chapter on sanitation, with this combination of competencies and strengths, which is also very interesting. It's interesting for you to be ready. Everything was pre-discussed, and we understood that this is the right moment to take these steps. Regarding if you have any idea on membership, as when the bond, I mean, when the share is above 32, the possibilities are huge.
But do you have any investors, for example?
Well, based on our experience, as I was mentioning, we've had this accumulated experience with two previous operations, so naturally till the 20th or the 21st, people will have this window of time, and after that, we'll have more visibility, even because of the closing of the process. We are pretty confident, but we still need to wait. We need to wait for this time to pass. We have seen a dynamic with a stronger flow right now. Things change, but right now we see a heightened flow, I would say, which can account for this positivity of this month.
Just one quick final question. I just wanted to confirm, when we will know the names of the nominees for the Sabesp board, or the people who make part of this board?
Well, we still have to wait. We're still deciding, still talking with other stakeholders, but I would say that soon enough you will know about these, these names. We still have to wait for the lawsuit to be solved and for the sentence to be passed, but in due time, soon enough, we will disclose this information to the market.
Okay. Thank you very much.
Next question comes from Mr. Candiota from Itaú BBA. Yeah. Luiza, you can go ahead.
Good afternoon, everyone. Thank you for your questions and for the answers, too. I just wanted to listen to you about the strategy to approach or to discuss this quality issues. What can we expect in terms of CapEx and even OpEx increase for the next few months and years if we consider the case of Goiás, which is still lagging behind when we analyze the subsets and the regulatory goals for the next few years.
Thank you, Luiza. Well, Luiza, if you look at Equatorial's history, you can understand that in less than one year, even in Maranhão, we had the ability of focusing and taking advantage of Equatorial's technical staff. So it's an experience that we have.
If you look at the subsets, doing the negotiation with the regulatory agency, there is a longer period for you to adequate them. We have two concessions, one with a maturity date in 2028 and another maturity date in 2030. In Pará and even in Maranhão, it's above the platform set by ANEEL. And if you consider Amapá, the state of Amapá, for example, we are there with 12 sets. 10 are in conformity already, and in the state of Piauí, we are complying with all the steps. So I would say that we are, we have been complying with the steps set for us. And, well, in, for, in the case of Goiás, Goiás has the largest... It's the largest concession that we have. It's an asset base of BRL 4 billion.
There is a lot of assets there, and we have some DEC and FEC results for this goal that was recently established, and we've been complying with that. In Goiás, we had a mapping. We created a mapping for the inspection of the company there. We have mapped all the issues that they are facing there, and we are—I would say that we are happy with the results we have reached so far. Equatorial has worked with that for the past 20 years, and I believe we will be able to tackle all of these issues and challenges.
That's super clear. Thank you.
Next question comes from Gustavo Faria, from Bank of America.
Hello, everyone. Thank you for this opportunity. I have a question about Echoe nergia, and how you see the strategy of energy commercialization strategy has to do with the business plan, with the asset acquisition. And what can you expect regarding a change in the commercial strategy for Echoenergia in the next few months, considering the forward energy price and also the, the impact that you have seen recently?
I believe Leo can answer this question. So from the acquisition standpoint, what do you think?
Thank you for the question. Well, regarding this comparison, regarding the business plan, what can we say? Right now, what we see is a scenario in energy that has decreased a little in the past few years, but our strategy is slightly different. We capture clients in the retail, which help us a little.
But in fact, there are scenarios with lower prices. I think that's the reality for everyone. And another point, I mean, another observation right now is this discussion on curtailments. This is a new topic. We have been discussing this from an institutional standpoint and from the legal standpoint, too, and there was no estimation for this type of risk related to curtailment. So I'll say these are the two main issues we've been dealing with, but my colleague will talk more about what we have done regarding these issues.
Thank you, Leo.
Well, good afternoon. Let me start on the curtailment and sign off. Many people have talked about curtailment and the regulatory bodies, regulatory agencies. I don't think it will persist through time. It's more of a situational issue.
We need to tackle this from the regulatory standpoint, and also from the operational, the system operating or the system operations standpoint. This is how we see things today. Now, talking about the market, the fact that, the price of energy is detached from the lower level, this also generates opportunities, because we have Ribeiro and Barreiras, plants focused on retail. Now, we have the opportunities of looking for energy in the wholesale market, with better prices, considering this volatility. So we consider this as an opportunities to find complementary solutions.
That's perfect. Just one follow-up on the normalization of curtailments. So in your idea, this normalization will lead to a physical, a better physical balance of energy in the system, or the most of this normalization would come from regulatory solutions?
Well, Leo, if you allow me to answer this.
Yes, yes, please go ahead.
Thank you. Well, both things are expected to happen simultaneously, so there is no single pathway to solve that. We expect new transmission lines to come into the system, and they will help the system. There are some local exceptions that are being developed along with mathematical modeling, along with INS. We expect these things to have a shorter, faster... shorter term and faster result. It's hard for us to estimate how long this will take, or how long they will take to be mature in the system. But also regarding how to work with the ministry and regulatory agencies, it's important for us to make the system advance.
Thank you very much.
Next question comes from Bruno Amorim from Goldman Sachs.
Hello, good afternoon, everyone. Thank you for this Q&A session. I'd like a follow-up regarding the question about the evolution expected for the operational indicators in the next few years, especially in Goiás and CEEE. What do you expect in terms of PMSO evolution in these assets, considering the goals you have set for the operating metrics in the next few months and years? Thank you.
Well, well, in fact, in Rio Grande do Sul, we've had a very hard problem. You all know about the climatic event, the floodings in Rio Grande do Sul some months ago, which had a different characteristic. Well, in 2023, we've had some climatic events, but these events were associated with winds, and winds would have a very aggressive impact on the network, 150 km/ h winds, wind speed.
However, in 2024, I mean, this year, the problem was the flooding. There were many areas of Porto Alegre, many areas in several cities were simply completely flooded, so we had to wait for the waters to go down, so we could work on the system. So it's important to highlight that during that period, we have had a very important social action. It makes us happy. We were able to use our emergency infrastructure to help rescue people and intensify social measures. Now, in Rio Grande do Sul, there is a recovery plan in practice. We believe in Rio Grande do Sul, we can already observe that the market, the regional market, is showing positive signs, signs that are similar to the market last year.
So this recovery makes us feel happy, and we are also intensifying these investments. We are investing there in Rio Grande do Sul regarding these recovery plans. In the state of Goiás, in Goiás, we keep on with BRL 9.4 million in other opportunities with a massive CapEx this year. We reinforce the superintendencies in the regional offices. There were some structures with some weak points, and the OpEx was too overwhelmed until... We had to wait for the CapEx to make sense. Now we see some results from the TMA, FEC and the second results, and now we will intensify these efforts now that we know more about this operation. We have completed 1.5 year of operation, so we will streamline these efforts in a more efficient and wise way.
I would say that we are happy with this asset, and we will truly give the Equatorial face to it, or the Equatorial way to it.
Next question from Filipe Andrade, Itaú BBA.
Good afternoon, everyone. Thank you for allowing me to make a question. I would like to talk about preferentials. You mentioned that you are analyzing an operation of transmitting companies. Maybe you could create a group of SPE with some to work in the preferential in this vehicle. Just to explain, I ask this to understand what is your strategy regarding these transmission assets? You have indicated it was an opportunity to reinforce your capital structure, so could you share more information regarding that?
As Leo mentioned, we do have some alternatives in line with what you said.
Yes, the same model. The same model.
Oh, thank you.
Let me remind you that if you want to ask a question, please, click on the Q&A icon at the bottom of your screen, and you can also use a microphone by clicking on raise your hand. Well, the Q&A session is now closed. We'd like to give the floor to the directors to make the company's final consideration and closing remarks.
Thank you very much. I would like to once again state how committed we are with generating value to our shareholders through consistent delivery of results in several segments. I would like to remind you that our investor relations team, a gold medal in all categories, available to help you and answer to all of your comments and questions after this call.
I would like to thank you for being interested in this company and for participating in this conference.
Well, the conference is now closed. Thank you for your participation, and have a good afternoon.