Good morning, welcome to the earnings call for the earnings for the second quarter, 2023 of Neoenergia. This presentation will be conducted by Mr. Eduardo Capelastegui, the company's CEO, and Leonardo Gadelha, CFO of the company. This conference call is being broadcast simultaneously over the Internet via webcast, and can be accessed at ri.neoenergia.com, where the presentation slides are also available. At this time, all participants are connected in listen-in mode only.
Later, we will start the Q&A session, and further instructions for you to participate will be provided. The conference call is being delivered in Portuguese and simultaneously translated into English. If you need any assistance during the call, please request help from an operator by pressing star O. In addition, this event is being recorded and will be available later on Neoenergia's Investor Relations website.
I'd like to mention that forward-looking statements that may be made during this call regarding Neoenergia's business prospects, as well as projections, operating, and financial targets, are based on the management's expectations and assumptions about the future of the company, as well as information that is currently available to Neoenergia. Future considerations are not an assurance of performance, and they involve risks, uncertainties, and premises as they refer to future events, and therefore, they depend on circumstances that may or may not occur.
Investors should understand that general conditions, sector conditions, and other operating factors may affect future results and earnings of the company and may lead to earnings that might materially differ from those expressed in these future considerations. I'd now like to give the floor to Mr. Eduardo Capelastegui . Over to you, Mr. Capela stegui.
Thank you, operator. Good morning.
I'd like to thank everyone for being joined here today in this conference call to present the earnings of our second quarter and the first semester of 2023. I'm Eduardo Capelastegui, I'm really proud of what we will share with you today. We had another quarter with great results. I have Solange Ribeiro, Vice President, Leonardo Gadelha, CFO, Giancarlo Vassão, who is Executive Director for Operations, Juliano Pansanato, Executive Director of Property Control and Planning, Fulvio Machado, Executive Director of Networks, Renato Rocha, our IR Director.
I'll give you a brief presentation with the major highlights of the quarter, Leonardo will give you further details, we will move on to the Q&A session. As usual, at the end, I'll give you my final remarks. Starting the presentation on slide 4, we have the highlights of the second quarter.
The EBITDA cash reached in the second quarter BRL 2.4 billion. This was a growth of 5% when compared to the quarter two, 2022. This growth is a consequence of good tariff reviews that we had with Coelba and Cosern in April, as well as good operating management of our assets and OpEx control. The result of Termopernambuco is positive. It has a negative contribution in this quarterly growth of 5%, as last year, this plant had a record EBITDA in the dispatch regimen. For OpEx in the quarter, the OpEx was BRL 1 billion, up 4.6% year-over-year. This confirms again that there is steady cost control in Neoenergia.
We had a CapEx of about BRL 2.2 billion in 2Q 2023. This was a result of our ability to execute. This includes organic growth of our five distributors and also in the progress of our transmission projects. In terms of growth, we announced the completion of our Oitis Wind Complex in the states of Bahia and Piauí in Brazil. Oitis is our largest wind complex, with 566.5 MW of installed power, distributed in 103 turbines of 5.5 MW each. I should also highlight that our participation in the last transmission auction that was held by ANEEL on June 30th.
This was the first auction we participated in partnership with our partner, GIC. Although we haven't acquired any lot, we were convinced that our bids were perfectly adjusted to our perception of risk and return on investment. We studied the lots carefully for during four months to know exactly how far we could go in each of them. We believe that the market acknowledged our attitude and discipline in allocating capital by Neoenergia.
Now on slide five, we now can see the status of our growth projects in renewables. As we just said, we completed the construction of 103 turbines in our complex Oitis. We have over 70% of traded energy up to 2027, with average prices above BRL 195 per megawatt hour. That makes us really comfortable in this tight price horizon with good return on investment.
In terms of transmission, we have now put in place the RAP in the amount with millions in 2023. Although we had continued delivering our lots until September 2018, we completed and released 65% of RAP of Lagoa dos Patos lot until September, and the delivery of Guanabara and Itabapoana are expected to be done between the end of this year and the first quarter, 2024. The Morro do Chapéu lot in the December 2020 auction is already 30% completed, and it is expected to be delivered at least the first parts at the end of the year.
The Estreito lot that was acquired in December 2021, we have now environmental licensing that was granted, and that reduces the risk of execution, and it is expected to go alive in the first half of 2024. As for the lots that were achieved in June 2022, we have over 92% of the CapEx that was hired, including hedge, both currency and commodities, and that reduces its risk significantly. Also the price process of licensing is advancing as predicted, as expected.
On slide six. I would like to talk about the status of our asset rotation plan, which is being really successful, doing as expected. As we know, December last year, we signed with Eletrobras, a asset swap, so we no longer have the matched participation war.
We have 100% of the Dardanelos power plant, and the Eletrobras have the Teles Pires and Baguari plants. This was a win-win operation without cash that simplifies our corporate structure and will give us greater value assets for Neoenergia. This swap is expected to be closed at the end of this quarter three, after all the conditions are overcome. In April this year, we announced the signing of a partnership with GIC for our transmission business.
That started with a sale of 50% of eight operating transmission assets, and there was a right of first offer for the acquisition of the lots that are currently under construction. In addition, there was joint participation in new auctions as the last annual auction.
We should remember that 50% of these eight assets, the income or sale, represented an equity value of BRL 1.2 billion, with an implicit multiple that was highly competitive, 12.9x the EV/EBITDA, and a premium of over BRL 500 million on the capital that was invested by Neoenergia. The closing, as well as this cash of BRL 1.2 billion, is expected to take place this September. The impact of both the consolidation of debt and also this cash inflow, will lead to a reduction of our leverage level, consolidated level of 0.2x our net debt EBITDA ratio.
Our thermal power plant. We have made progress in the process of selling it in the last few months. However, the scenario is more challenging in terms of market and macroeconomic conditions.
That has, of course, had an impact on our perception of the value of the asset. The operations of asset rotation must generate value for Neoenergia. Termopernambuco is a low-risk asset and also a great cash generator, we will keep evaluating alternatives as the market scenario improves. Our last front, which is our participation in 10% are in Belo Monte.
We are convinced that we'll keep in our plan of selling it, but in this operation, of course, does not depend on us alone. I'll now give the floor to Leonardo Gadelha, who will provide further details about our earnings, the 2Q 2023. Leonardo, over to you.
Thank you, Eduardo. Good morning, everyone. I'll start with slide eight. As you can see, we had good performance in the three segments.
I'll start analyzing the earnings of the slide. We have the consolidated result. The gross margin in the quarter was negative 8%, and this was explained by the negative variation of VNR because we had less inflation. If we exclude both the effect of VNR and IFRS 15, the cash margin grows 6%, especially because of the effect of Part B of revisions and also tariff reviews, a larger client base, and better results in renewables. That offset a lower margin from Termopernambuco, as Eduardo mentioned. This quarter, we still have good cost discipline, with a growth of 5% in operating expenses year-over-year, or 4.6%.
The new transmission lots and renewable projects were normalized, and this, of course, in line with the inflation of this period. On the next slide nine, we see that our cash EBITDA reached BRL 2.3 billion, up 5%, of course, with the impact of a greater gross margin and greater expense control. This quarter, growth was 6% in terms of EBITDA, and this was BRL 4.9 billion.
Net profit, BRL 7 million-BRL 8 million, was down 32% as a result of greater financial expenses, with an increase in debt of BRL 1.4 billion, and also increasing interest rates year-over-year, and also the impact of VNR among cash effect that affects our profit as we have a lower IPCA rate. CapEx on slide 10.
This quarter, we had a total of BRL 2.2 billion aligned with quarter one. We're really having executing this CapEx at a good pace. Highlights. BRL 1.1 billion in distribution, BRL 883 million in our transmission lines as they advanced, and BRL 138 million in renewables, which refers to the completion of both Oitis and Luzia projects. On slide 12. We are now discussing networks and also injected energy and operating performance of our network segment.
We see variation of energy in the four distributors, as already announced, with a consolidated growth of 2.7%, including distributed generation. This quarter, we are now added both views with and without DG, as these amounts are really significant. On slide 13, we show distributed energy.
That's the evolution of our five distributors as well, as anticipated in our market release document. In quarter two, these distributors had a consolidated growth of 0.7%. The total number of consumers reached 16.2 million. That up 316,000 clients in 12 months and over 1.5 million in five years. This number is the number of concern consumers. It's equivalent to the number of consumers of concern, to give you an idea. On slide 14, total losses.
Again, a good performance quarter, with a really well-controlled rates of loss, in addition to the downward trend after the revision of Cobra in April. We have four of our five distributors are really in the regulatory limit. Default, that's on slide 15.
We can see that at this quarter, we had a good level of collection, from our distributors, and the PECLD was slightly above the threshold that we had in the previous quarters, and this is a consequence of one-off effects of, default of large clients, as well as greater ICMS rate, or tax pressure on the composition of the tariff.
T his quarter, we see that the monthly evolution of PECLD, as we can see on the chart, it starts decreasing and going to the previous level, which is, of course, a result of our collection actions. In April, we reached a peak in May and June, we were close to our regular level. As for DEC and FEC on Slide 16, there's no great highlight.
We see both a good quality, both in DEC and FEC, with a good performance, decreasing, a decreasing trend. In Brasília, we had a slight increase in our FEC, but we are still below the limit of our concession agreement. Although we were expecting, of course, a coverage, but in the concession agreement, we follow this indicator. We are still under the limit, below the limit.
A s for Slide 17, network earnings. In this quarter, we had an evolution of 10% of the cash margin, gross cash margin. Again, a result of reviews and tariff readjustment in 2023 and a greater client base. The network OpEx grew 4% this quarter, aligned with the inflation in this period and also taking in the growth of clients.
EBITDA, cash EBITDA for networks grew 10% in Q3, and reached BRL 2 billion, as we can see on the slide. This was a consequence of a greater margin and also greater control of expenses. The network profit level reached BRL 733 million in Q3. There was, again, a negative impact of a greater volume and a higher cost of debt in ABNR that was lower, a significant variation in the previous quarter, sorry, year-over-year, and the impact of less inflation. On slide 20, we have a summary of the earnings, both renewables and also liberalized. In Q2, the renewable EBITDA was BRL 298 million.
In other words, up 14% as compared to year-over-year, as a result of the EBITDA of all fronts: hydro, wind, and solar power, especially wind, which grew 12%. There's greater wind production and also the inclusion of both the Oitis and Luzia project. As for the liberalized segment, it reached BRL 149 million, down year-over-year.
This variation can be explained because there was less cost last year, because there was an event, non-provision of gas that quarter. As a result, we had a record result last year. This is really aligned with what was presented in the first quarter of this year, with great results for Termopernambuco this quarter. We're expecting to follow this level throughout the year.
Commercialization and seeing the EBITDA was BRL 5 million, compared to BRL 6 million in quarter 2, 2022. I'll now move on to capital structure on slide 22. We see the evolution, both of our new cash and our net debt. The net cash was BRL 38.2 billion, which is a consequence of our CapEx execution rate. Our net debt, EBITDA ratio increased 3.33x , and that was a consequence, in addition to less of a variation of the net debt, also by a lower VNR, with an impact on this indicator.
As we had very low inflation this quarter, this indicator was affected. Our debt structure is still rather comfortable. It's really well distributed for the next few years.
As we can see in the bottom part of the slide, we have an average timeline that is greater than five years, and our debt is significantly diversified, as we see on the right-hand side, in terms of sources, it exerts a, at a very competitive cost. This quarter, we have already disbursed over, we have about BRL 3.5 billion in contracts that have already been signed. We have both the capital markets at the beginning of the year with greater volatility.
We have a really great return of liquidity in the capital market, local capital markets, and also we have funding from many sources: IFC, JICA, ICO more recently, which is a development, a Spanish development bank. All the terms were very competitive.
In this volume, of about BRL 10 billion, almost, it really addresses, meets our needs, funding needs for 2023. Not to mention, as Eduardo has said at the beginning, we're expecting to follow all the... We're getting more cash from the sale, transmission from GIC, which is BRL 1.2 billion, expecting for the end of December. I'll turn it over to the operator, who will now open the Q&A session. Thank you. Ladies and gentlemen, we will now start the Q&A session.
In order to ask a question, please type star one. To remove your question off the list, please type star two. Wait as we collect your questions. Thank you. Our first question comes from Rafael Nagano, Credit Suisse.
Good morning, everyone. How are you? I have one question about capital allocation.
I need to understand what you're thinking about growth when you look at your scenario of project development, power generation, and other segments, your participation in auctions and also distribution. Question two, about the public consultation of renewal of distributors. When you look at the proposals of the technical note, so what are you considering in terms of this?
Thank you. Rafael, thank you so much for your questions. Let's start with our growth strategy. As we said many other times, we want to grow organically. In distribution, we have investment of almost BRL 6 billion a year in organic growth of our concessions. It's almost a new distributor every year. In transmission line, although we haven't achieved any loss this June, we will keep participating. In December, there will be a new auction.
We will not participate in direct current. In 2024, we will also participate. The important thing is to be clear that this, which you have seen in June, in the June auction, we will follow the same criteria. We evaluated all the possibilities of all the lots, and we went as far as we considered reasonable. We will keep following the same criteria. As for market conditions, as long as they are the way they are, right, if things change, our costs, our activity, will change too, as a result of that.
We have five pipelines in renewables, wind and photovoltaic. We also have grants, and we're ready to sign transmission contracts. The problem that we have, you know what the problem is.
A prediction of future prices that is significantly low, and that makes it difficult to make all these projects happen. We are working hard to achieve this, and we have also very interesting line of energy transmission. We have two large projects that will have a high renewable energy demand, so this might be a way. We are evaluating them, still evaluating.
We have projects, but we don't have all the return. Before we have that, we will not be investing BRL 2 million-3 million. It doesn't make much sense. This is our growth strategy for the next 12-24 months. As for the public hearing or consultation for concession renewal, we've been following up on that since the beginning of the year. We have following all the groups with a really good communication channel with the ministry.
What we saw in the public consultation and all the contributions for 2024. In principle, we have two major points. We agree with the point, one of them was surplus. We believe that this means, I mean, there are things that don't work, and we need regulation with incentives, which is really successful in Brazil. We really. Even the government considers surplus, and this is something they transfer to clients every year. Surplus is something that we need to consider.
We made our contributions, our opinions, including the methodology that the ministry proposed. In our opinion, it didn't have a strong technical foundation, technical ground, we made our contributions, too, for that evaluation. In terms of tax incentives, you know how that works, too, we don't agree with that.
Our in our opinion, it's even illegal to do this. Whenever ANEEL tried to, you know, pass on tariffs, for me, this makes no sense. We always get that from the government. They want to encourage investment in the Northeast, there's this situation in the public consultation. It doesn't-... mean much sense. We believe investment can be made in other areas, on other levels. We also consider that this point doesn't make much sense. This is why we've made our opinions really clear.
There are other topics that are a little less important, but we'd like to focus on these points. I've mentioned the surplus and also to preserve incentive, legal incentive. The idea of this is, of course, to encourage investment, right? Not to benefit distributors.
This is a summary of this public consultation.
Thank you. Thank you so much. That was great.
Our next question comes from Andre Sampaio of Santander. Our next question comes from Mario Wobeto, Banco Safra.
Hi, everyone. Good morning. Can you please explain, give us your views on default this quarter, and whether these default effects of large consumers, in your opinion, will this continue this year, do you believe? How do you see the situation from now on?
Thank you. Okay, Mario, thank you for your question. As mentioned before, we have noticed that in the last few months, May, June, there was improved default, an improved default situation. The beginning of the year, there was low growth and high financial costs, and we felt the impact of this.
We realized that the profile, this profile meant, or this improvement had to do with greater trust. The interest rates that started in August and the result of collection also affected it. We have important conditions like the Desenrola program, that's Phase 2, that had a great impact on us. This government program, we have over 350,000 clients that are eligible to this program. We're expecting almost BRL 100,000 in collection from this Desenrola project.
For quarters three and four, we're expecting to become more stable, right? These numbers, the first two quarters that were more volatile, are expected to stabilize. This almost BRL 25 million a month, BRL 250 per quarter, BRL 140, BRL 150, when you have a normal pace.
This is what we believe is the right way, and that's the trend. When you're expecting economic growth and lower interest rates, we expect that this will contribute to a level closer to our historic levels. Thank you.
Ladies and gentlemen, you should be reminded that in order to ask questions, you just press star one. Our next question comes from Andre Sampaio, Santander.
Good morning, everyone. Sorry, I tried to call you, but for some reason, I went down before. I have two questions. Number one, it's about transmission. I noticed that there's a value ratio for the rights of participation in the project. The second question: Can you talk about cash management strategies? You said you want to keep your production strategies, a more conservative view on investment in general.
What do you think about the midterm? What makes more sense to you? I know that what you can imagine to take place in the midterm, what are the most relevant expectations, considering the trends?
Thank you, Andre, for your question or questions. First, as we have already announced, you have this right of selling. There's an interest with this partnership. As for valuation, there's no definite formula for valuation. What is clear, though, is that the methodology and the criteria that were used to value the first eight lots will be replicated for the following lots. We may change the discount rate, of course, but that over time, throughout quarters, of course, the cost of capital changes. We are still selling lots that are in operation, there's no more the risk of construction.
There's a fixed cost for almost 30 years, and the level of risk and discount, of course, they have to be compatible, consistent with this flow. In answer to your question, there's no definite formula because, of course, things in the unexpected may happen. You need a way of criteria for evaluating these cash flows that are replicated, that can be replicated. What we're expecting, Andre, is to get the first non-binding offers before the end of the year for the lots that are in operation.
In the next four, five, six months, we're expecting to be in the situation with new lots that are under construction, that will be go live, right, that will be operating.
For your second question, in the next two, three years, we are expecting to have a high volume of investment. When you look at the investment in distribution, BRL 6 million, and then transmission, 2023, 2024, 2025. Our predictions, our forecast shows that we will have about BRL 9 million or BRL 10 million in investment in the next three years. Of course, recurring in distribution and then what we had in transmission all added together. I don't see an increase in our payout policy.
We have BRL 38 billion in net debt. It's under control, about three. The idea is to keep operating on this level, and to achieve this, we need to consider debt and investment and keep the current sales policy.
All right. Thank you so much.
Thank you.
We have now closed the Q&A session.
I'd now like to give the floor to Mr. Eduardo Capelastegui for his final remarks. Mr. Capelastegui, you can continue.
All right. Okay, thank you. Thank you again, operator. I'd like to give you a final message to stress our commitment to all Neoenergia stakeholders. As you know, in the last five years, Neoenergia's decisions have been prioritized following efficiency criteria as well as value creation and, capture, earnings. Our EBITDA cash, for instance, has grown since the IPO over 87%, well above all expectations at the time.
Although, of course, we have faced many crises, including the pandemic and also the increasing price of commodities, high inflation rates, high interest rates. In spite of that, what we have delivered in these five years is well above what was expected at the IPO.
This result is, of course, the result of excellent operations, but also, we are really paying close attention to our financial health, ensuring the right capital structures. We have access to a wide range of funding sources, both national and international, that can really calm us down when we think about having liquidity. The progress of our projects and the deliveries also support these results. In spite of all the challenges in a large project as the Oitis complex and also major deliveries that were expected in 2023, we are making progress in 2023.
On the front of transmission lots, our asset rotation plan has also yielded positive results. We've been delivering the announced plan, generating value to our shareholders and also contributing to our deleveraging.
As for capital allocation, as I mentioned, I'd like to again insist on that. The recent transmission auction showed that was complete compliance or matching of our perception of risk and profitability in the current market conditions. I'd like to stress that we will pay close attention to market conditions, that we will keep allocating funds for the growth projects or the shareholders that trust Neoenergia. We have the right team that is highly engaged and committed to delivering the right earnings and results.
Finally, I'd like to finish by thanking all Neoenergia employees, who quarter after quarter, have played their role competently, overcoming challenges and delivering results and earnings, and creating value. Thank you. Thank you very much. Have a great day.
The Neoenergia's conference call is now closed. Thank you, everyone, for joining.
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