Energisa S.A. (ENGI11) Earnings Call Transcript

Good morning, everyone, and welcome to Energisa's 3Q '26 Earnings Video Conference. Please note that this video conference is being recorded and will be made available on the company's Investor Relations website, where the corresponding presentation is also available. [Operator Instructions] We would like to emphasize that information contained in this presentation and any statements that may be made during the video conference regarding Energisa's business outlook, projections and operational and financial targets, they constitute the beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect Energisa's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Now I'd like to hand the floor over to Ricardo Botelho, company's CEO, to begin our presentation. Ricardo, please go ahead.

Thank you, operator. Good morning, everyone. First, I'd like to thank everyone for joining this presentation of the results for the third quarter of '26. Joining me today are our CFO and Investor Relations Officer, Mauricio Botelho; our Vice Presidents, and Investor Relations team. And please review the legal disclaimers at the beginning of the presentation before making any investment decision. Starting our highlight session with a consolidated view and the main message of the quarter is that the combination of the strong growth in our core business, and this is our comparable recurring distribution, and the leverage of the results in here, they helped with the quality of the quarters. They collaborated with the second quarter of this year. And now consolidated based on the EBITDA. The recurring adjusted EBITDA, when we adjust in comparison of them, in transaction on actives that were alienated, it reached BRL 2.4 billion in the third quarter '26, a robust 20% increase, maintaining a consistent growth trajectory in the last 12 months comparison with prior years. But just as important as the growth is the composition of this result. All verticals contributed positively to the improvement in results. Energy distribution remains our main earnings vertical with BRL 2.1 billion in EBITDA, up 19% this quarter, reflecting market growth, tariff effects and operational efficiency. Transmission grew 5% on a comparable basis. Distribution grew 21% and (re)energisa more than doubled its EBITDA with 109% increase. Voltz also showed a meaningful progress, although still from a smaller base. Our portfolio of distribution network business, they provide an anchor for results with risk diversification and resilience. Gross margins in the regulated verticals rose 15% in energy and 13% in gas, with growth in virtually all concessions. And the next point is to understand how we sustain this growth with cost discipline and quality and capital allocation, and that's what we are going to be showing now. Our portfolio -- sorry about it. In the third quarter, the consolidated PMSO grew in line with inflation, even in the face of operational expansion. And there are important signs of efficiency within the verticals. In gas distribution, we saw a reduction in the PMSO, reflecting gains that are already beginning to be captured in operations. In electricity distribution, the increase was concentrated mainly in the Midwest region, while a significant portion of the other distributors, they showed cost reductions. And in aggregate, the PMSO grew 4% compared to the previous year. In Energisa, on the other hand, the PMSO growth followed the expansion of the business with accelerating revenue and EBITDA. On the other hand, we maintain cost discipline without limiting the investments that sustain profitable growth. The same logic appears in CapEx. We invested approximately BRL 1.9 billion in the quarter, mostly in energy distribution. But more important than the volume is the composition. 50% went to quality and safety, and 34% to expansion, and 10% to efficiency and loss reduction. This allocation reflects a clear priority we set at the beginning of the year, anticipate network needs, increase its resilience in the face of more severe weather events and at the same time, prepare the infrastructure to capture market growth. Therefore -- so it is not about investing more. It's about investing better, directing capital to quality, expansion and efficiency, expanding remunerating assets and sustaining future growth without losing operational discipline. This discipline is what allows us to deliver superior results for customers and shareholders as well. Discipline is also reflected in how we manage our capital structure. Despite the high investment cycle in electricity distribution, we are keeping operational growth ahead of indebtedness. Consolidated leverage ended up in the quarter at 2.95x net debt to EBITDA, a reduction of 0.5x compared to the fourth quarter of '25. The completion -- investment of 5 transmission assets, one of the drivers of delivery, reinforcing our capital recycling strategy. And the transaction generated proceeds of BRL 1.6 billion in addition to the transfer of BRL 747 million in net debt associated with divested assets. Furthermore, we maintain a comfortable cash position of BRL 11.5 billion, covering maturities for up to 3 years, which reduces our exposure to short-term refinancing volatility. We also continue to capture efficiency in the cost of debt. The average cost reached 98.28% of the CDI. We had an 80% improvement in financial results and consolidated net income reached BRL 792 million, up 85%, while recurring adjusted net income attributable to controlling shareholders reached BRL 571 million, an increase of 151%. And now we're going to be moving to each group of verticals, starting with energy distribution and market performance in the quarter. Mauricio, please go ahead. The floor is yours.

Ricardo, thank you so much. Before we start talking, I'd like to appreciate everyone being here on this quarter from Grupo Energisa. And now we're going to be talking to the energy distribution segment. The highlight is the market acceleration in the third quarter, which grew 8.6%. That's the strongest increase in 14 years. When we compare with the last El Niño in 2023, this acceleration becomes even more evident. In that period, the market grew 6.3% compared to the second quarter of that year. This year, we accelerated 7.4%, even with a lower heat intensity than observed in '23. As shown by the cooling degree days indicator, and this year's CDD was less intense. In the Southeast and in Mato Grosso do Sul as well. So in other words, the market growth this quarter, it goes beyond the weather effect. It's also reflecting a stronger demand in our concession areas. In Mato Grosso, we can see it had a growth of 22%, 13.8% in the commercial area and 11% on the rural area. Those are factors that justify the growth of 19.2% of the recurring EBITDA on the distribution segment, as Ricardo mentioned before. In the cumulative consolidated market, Energisa grew 5.5% that is 3.4 percentage points above Brazil's average growth of 2.1%. This is the best comparative performance in the last 13 years. Higher temperatures in the North and Northeast regions in Mato Grosso, they contributed especially to residential consumption, which grew 14% in the quarter and to the commercial segment, which expanded 11%, while the expansion of the customer base and addition of the new loans reinforce this dynamic here. The third quarter surpassed the growth facing the '23 El Niño and the conditions -- weather conditions this year, they continue to point, according to meteorologists, to strong intensity events in the next quarter. Next slide, please. And talking about how we are capturing the growth of quality and efficiency and operational efficiency. On FEC, all distributors met the indicated target, 5 of the 9 having 100% of their sets operating within regulatory limits. And on that, 4 of the 9 already exceeded their benchmarks and the group achieved best results in the historical series. This is especially relevant because it shows that investments in network quality and resilience are translating into real improvements in customer service. As we expect severe weather events over the coming months, we are reinforcing our state of readiness. And on losses, we also have made progress. The figure ended the quarter at 12.12%, below the regulatory limit of 13.08% and we have an important milestone in Energisa Rondônia, which came in below the regulatory limit for the first time since its privatization. The 8.3 percentage point reduction in total losses in less than 8 years is further evidence of the operational progress of an asset that has undergone a significant turnaround as I say. We also see improvement in the quality of receivables, excluding some specific nonrecurring effects. The provision for expected losses, it stood at 1.29% in the third quarter '26, maintaining the trajectory for the year. And after this evolution on distribution, we're going to be moving on another regulated vertical, the gas distribution, where infrastructure expansion and market development support yet another avenue of growth. Turning to the gas business. The thesis combines expansion of still under-penetrated infrastructure with earnings and growth and deleveraging. Starting with network expansion, we reached 4,100 kilometers, a growth of 6%, while the customer base reached 390,000, an increase of 11%. This expansion happened across all concessions and the residential segment accounted for approximately 97% of these new connections. This infrastructure growth expands the addressable market within our concession areas and begins to translate into a greater scale. In the 9 months, we distributed 1.65 billion cubic meters of gas, a growth of 3%. But the most relevant point in this evolution was the EBITDA adjusted for equity income, they reached BRL 98 million in the quarter, up 21% and BRL 287 million in the 9 months, a growth of 41%. And this growth is occurring alongside an improved balance sheet. The leverage fell from 3x in the third quarter of '25 to 1.8x in the third quarter '26. So we have a vertical that expands its network, adds customers, increases earnings and at the same time, reduce leverage. And from this organic expansion on regulated work, we now move to transmission, where the logic of value creation is different. So predictable revenues, project execution within budgets and disciplined capital recycling. And on a comparable basis, excluding assets divested in prior years, regulatory EBITDA reached BRL 113 million in the third quarter '26, up 5% with a margin of 81% and an increase of 0.5 percentage point in the quarter. The comparable regulatory net income came at BRL 15 million, up 224%. And looking ahead, we maintain a portfolio of 8 assets, 5 operational and 3 under construction with projected annual permitted revenue, the RAP of BRL 735 million in 2030, in addition to approximately BRL 45 million in fiber optic. A good example of our execution capabilities, Energisa Amazonas II, which began operations about 11 months ahead of the contractual deadline and it's going to be adding approximately BRL 22 million in RAP. We have contracted revenues, project advancing and investments being converted into new RAP, while maintaining discipline in capital allocation. And this pursuit of growth with exceptional returns, that's going to be showing up on our next business, but with a different and a more capital-light dynamic. Voltz. In financial solutions, the main competitive advantage lies in monetizing a consumer base that already exists within the group, combining scale, the recurrence of the energy bill and low distribution costs. In the third quarter, Voltz net income reached BRL 21 million compared to BRL 8 million in the prior year, while EBITDA reached BRL 7 million. And over the last 12 months, ROE reached 40%, 12 percentage points above the prior year. The most important indicator on this slide is cash conversion. In the 9 months, we generated BRL 47.5 million in cash, equivalent to approximately 98% of net income. In other words, compounding growth is accompanied by actual cash generation. And there are several levers supporting this progress. The portfolio reached a record level. Insurance increased its share of revenue from 8% to 17% and bill financing showed 79% growth in originations, keeping loss provisions under control with more competitive funding. Then we close our operational overview with (re)energisa. In (re)energisa, the phase change, it's crystal clear. After a significant expansion cycle, the price now has captured value of the installed capacity and converted at scale into results. EBITDA reached BRL 85 million in the third quarter, up 109% and BRL 197 million in the 9 months, a growth of 303%. Since consolidated figure also incorporates mark-to-market effects on the trading, it helps us provide a better understanding of the quality and recurrence in progress. The main driver is the distributed generation. The platform reached 470 megawatts peak across 227 plants in the 9 months, net revenue grew 27% to BRL 324 million. This progress follows the evolution of billed energy whose growth went from 11% to 22% over the year, doubling its pace between periods. EBITDA reached BRL 168 million, up 41%, ahead of revenue growth with churn and delinquency under control. The other fronts have also improved their condition contribution. Integrated energy solutions contributed BRL 22 million to EBITDA, up 23%, while energy and gas trading reversed the negative EBITDA to the prior year and begin contributing positively with BRL 7 million. And we close with 4 key messages: recurring EBITDA growing 20%, a strong diversified resilient energy market, deleveraging even with a high investment cycle, and our other verticals gaining scale, profitability and relevance in the group results. We are multipotent when it comes to creating value. And with this set of results, I conclude our presentation, and we're now opening for questions. Operator, please go ahead.

[Operator Instructions] We are going to our first question, it comes from Lucas Guimarães from Itaú.

So we've seen an excellent quarter for capital allocation for the company. So if you guys could tell us about what you guys expect for the next year because we're closing -- reaching the end of the CapEx cycle for this year and thinking about '28 and '27. And what's your expectation about the concessions market with El Niño finishing near the end of the semester next year.

Lucas, Ricardo here. I'd like to answer here in 2 parts. Mauricio is going to be complementing. So we don't have any guidance for '27 so far because we have a lot of uncertain events that may happen or not on weather events, macroeconomic events and consumption. But what we have in here, and I can talk to you because we are in November, the weather reports, they tell us we're going to be still having a strong El Niño this quarter and the next one as well. So it shows a volume that's going to be having an effect on it, but we cannot be precise on how much it's going to be showing us -- bringing to us. So that's an uncertain event that we can talk to you about. But what I can assure you, we're going to be strong. We're working on volumes, on EBITDA, with what we have on discipline, allocation of capital costs and leveraging control. And talking about -- on the capital, Mauricio will be able to give more information.

So Lucas, as Ricardo said, so it depends on the evolution on the market, especially how it's going to be affecting El Niño. And we mentioned on the call on the previous quarter, we need to have a special attention on Mato Grosso do Sul, Mato Grosso, talking about dynamics of the markets that we have in here, as you can check on Mato Grosso, as the results that we had on the growth in the region. So it maintains looks -- our ways of looking at the service and to keep an eye on it with our goals and objectives. So we had a projection of investments that was shown to the market at the beginning of the year. So we're going to be able to fulfill all of it to that level by this year. And at the beginning of the next year, we're going to be providing our projections for the year of '27. And talking about capital structure, we show -- we provided something below 3.3x. So that's more comfortable. But within the evolution at the market, and if it's to -- shows up in a stronger way, we can still have some improvements on a relative indebtment.

[Operator Instructions] Our next question comes from Ricardo Bello from Safra.