EQTL3.SAEQTL3.SA
LOADING
|||
Operator: Good afternoon, everyone, and welcome to Equatorial Group's earnings conference call for the third quarter 2025. Joining us today are the company's CEO, Mr. Augusto Miranda; Vice President, Mr. Leonardo Lucas; Regulations Director; Mr. Cristiano Logrado; Financial Strategy and Investor Relations Director, Ms. Tatiana Vasques; and Mr. Liu Aquino, President of Echoenergia, all of which will be available at the end of the presentation. Please note that a simultaneous translation too is available on the platform. To access it simply click on the interpretation button and choose your preferred language. This conference is being recorded and will be available at the company's Investor Relations website, ri.equatorialenergia.com.br along with the presentation shown today. [Operator Instructions] Before we begin, please be advised that any forward-looking statements made during this conference are based on the beliefs and assumptions of Equatorial Group's management and on information currently available. Such statements involve risks and uncertainties as they refer to future events that may or may not occur. Investors, analysts and members of the press should be aware that changes in the macroeconomic environment, industry conditions and other factors could cause actual results to differ materially from those expressions of such forward-looking statements. We will give the floor to Mr. Augusto Miranda, who will begin the presentation. You may proceed.
Augusto da Paz Júnior: Well, good afternoon, everyone, and thank you for joining our earnings call. We had a very successful quarter on both the operational and financial fronts. In addition to important recognition that reflects the team's seriousness and commitments to our customers, employees and investors, Equatorial Pará was recognized as the best distributor in economic and financial management in Abradee award. Equatorial with the group appeared for the first time in The Great Place to Work ranking among the best 20 companies in the country. And we were once again elected by extel as the Most Honorable Company in the Utility segment in Latin America, ranking 7 of the 8 categories. On the operational front, we delivered strong results and energy distribution, which grew 2.6% in build and compensated market volume, maintaining a solid loss performance trend in the recent quarter. We achieved a contractual DEC target or CEEE-D which will be detailed later in the presentation. On the financial front, we delivered solid results with EBITDA of BRL 3.4 billion. We invested BRL 3 billion and still close the quarter with BRL 16 billion in cash, which means our short-term debt is 2.1x. Now the cash for the period was strengthened by an intense funding window, which totaled BRL 9.4 billion, extending average debt maturity from 5.5 to 5.8 years. It is important to highlight that part of the funding raised is intended for debt repayment approximately BRL 800 million. And during October and November, we also prepaid 2 additional BRL 2 additional billion. With this financial position, we ended the quarter with a net debt-to-EBITDA covenant of 3.3x. Regarding the group's value creation highlights, we closed the sale of the transmission segment. And as a result, announced one of the uses of the proceeds, the distribution of BRL 1.8 billion in interest on equity, equivalent to BRL 1.45 per share, which will be paid next Monday, November 17. The Federal Court of Accounts approved the renewal of the Equatorial Maranhão concession. We are now in the final stage of the process and pending ratification from the approval of the Ministry of Mines and Energy. I will now give the floor to Leo to speak about our economic and financial performance.
Leonardo da Silva Lucas Tavares de Lima: Thank you, Augusto, and good afternoon, everyone. I will briefly discuss the group's economic and financial performance from a consolidated and adjusted perspective. In this quarter, we delivered margin growth of 4.5%, driven mainly by the solid performance of distribution segment, while EBITDA reflected the impact of consolidating SABESP equity method results. The quarterly outcome was achieved with a strong cost discipline with PMSO increasing only 0.7% quarter-on-quarter. Adjusted net income for the period increased 4.9% year-over-year reaching BRL 830 million. If we look at the group's debt position, the net debt-to-EBITDA ratio came in at 3.3x, impacted by the one-off reversal recorded at SABESP relating to the accounting in the third quarter '24 of the concession financial asset. It is worth noting that this quarter, we were very active in the debt capital markets, focusing on improving the debt profile, which extended the average maturity from 5.5 to 5.8 years in addition to reducing spreads. Finally, we highlight the investments made during the quarter, totaling BRL 3 billion, an increase of approximately BRL 600 million vis-a-vis the same period last year. This growth was driven by investments in Pará to [BRL 129 million] and CEEE-D with BRL 161 million both of which have tariff reviews scheduled in the near term. This quarter, we recorded a 206% increase in maintenance and renovation work. Let's go to Slide #7. On the slide, we present the consolidated performance of our electricity distributor, where we highlight the reduction during the quarter. To the left, very briefly, we present the consolidated performance of our energy distributors where we highlight the reduction of losses during the quarter, making the eighth consecutive quarter in which we consolidated losses below the regulatory benchmark. We highlight the consolidated growth in energy volumes across our concession. In this quarter, we recorded a collection rate of 99.2% and PECLD over ROB of only 1.02%, driven by the renegotiations carried out during the period and the new low-income tarif. In addition to the improvement in CEEEs indicators, which were still affected by distortions linked to the weather events in the second quarter '24. As Augusto highlighted, we achieved the contractual debt target for CEEE-D. And on a consolidated basis, we ended the quarter with all of the group's distributors within the regulatory limit for FEC. 4 of the 7 distributors meet the regulatory DEC limit. If we consider the contractual DEC thresholds, 5 of the 7 distributors would be below the DEC limit. We recorded gross margin growth of 5.7% in the distributors during the quarter, reflecting a higher POB tariff and a larger market volume in the period. If we adjust the distributed generation liability, recorded in the third quarter '24, the margin would have grown almost 8%. If we look at the adjusted PMSO for the distributors in the quarter, we had an increase of 4.6% slightly below inflation and a smaller variation of PMSO per consumer, which is only 1.8%. These dynamics resulted in a 8.1% increase in adjusted EBITDA for the Distribution segment. If we exclude the distributed generation liability in the third quarter '24, the increase would be 11.5%. We now go on to Slide #8. In this slide, we present an overview of the challenges that we've faced in Rio Grande do Sul and their impact on investment and service quality. When we acquired the concession, the historical record of weather events indicated an incidence of 2 to 3 events per year, but we were faced with the beginning of the concession with a significantly more challenging scenario. Due to the severity or high frequency of emergency situations, we have to postpone certain necessary investments for the distributor. We can clearly see on the chart that once we were able to operate in a concession fully, the results appeared quickly. When comparing the third quarter '25 with the third quarter '24, which was the first quarter after the state of calamity in Rio Grande do Sul, we show an impressive 9.1 hour reduction in the 12 months DEC during which we invested BRL 1.3 billion in that concession. In the third quarter '25, we reached the contractual debt target established for year-end. This outcome reinforces some of the pillars we have in the distribution segment. Among them are relentless pursuit and commitment to quality and our operations, besides our dedication to delivering improvements in operational performance and service quality that is truly lasting. We thank all of the teams for their herculean and tireless efforts over the past quarter in the search for these results, and we reaffirm our commitment to continue to improve across multiple fronts, energy with increasing higher quality for our customers every day. Very well. Let's go to Slide 10 to look at the other segments of the group. In the transmission segment, we completed the closing of the asset divestment transaction on October 31, concluding one of the most successful capital allocation cycles in the transmission sector in Brazil. We sold 8 transmission companies with a MOIC of 8.3x and an internal rate of return of more than 37% per year. The deal closed with an equity value BRL 6.4 billion, including the capital reduction carried out a few days before closing. The proceeds for the sale will be used for shareholder remuneration, debt reduction of the holding company and partial redemption of preferred shares at Equatorial D therefore contributing to lower CDI linked-financing costs. Moving to water and sanitation. The segment's results continue to reflect progress in hydrometer installation. This quarter, we reported EBITDA of BRL 2.2 million, up 68% vis-a-vis the same period last year. In the Renewables segment, we reported EBITDA of BRL 226 million, 8.1% lower, reflecting the effect of curtailment this quarter as a subsequent event. We highlight the approval of provisional measure of 1304, which still requires presidential sanction and establish important advances in this sector regarding the impacts of curtailment. I will now hand the call back to the operator for the question-and-answer session.
Operator: [Operator Instructions] Our first question is from Luiza Candiota from Itaú BBA.
Luiza Candiota: I have 2 questions. The first is more specific. If you could give us more color on the nonrecurring effects of this quarter, the amount draw attention, especially in the line item, other expenses and revenues, we have received several questions about this. So which were the main impacts here? The second question refers to the partial exercise of preferred shares. This raised a significant amount. I would like to understand the motivation underlying that decision and how does the company look upon this type of structure in preferred share going forward. If we consider the tax reform that is about to be approved.
Augusto da Paz Júnior: Leo?
Leonardo da Silva Lucas Tavares de Lima: Thank you, Luiza, for the question. Regarding the operational effects, it's important to underscore the following. This line item is connected to the investment dynamic and it has terrible volatility. I think it's also representative of our cash. If we look at the comparison with the second quarter '25. There were revenues in that line item. If compared with the third quarter '24, the expenses were close to 0, showing you that incredible volatility we have in that line item. Regarding the variation in other expenses for the period, this results mainly from nonrecurring events of the third quarter '24 that added up to BRL 130 million, BRL 95 million referring to the reversion of provision of our stock, especially in Goiás, Pará and Rio Grande do Sul. And the receivable of an indemnization that completes the difference. We also had a significant increase, as we mentioned in the presentation of 200% in work for maintenance and renovation this quarter, especially in Pará, Rio Grande do Sul and Goiás. All of the impacts, the deactivation of the residual value of assets with a growth of BRL 32 million in the quarter and the cost for the withdrawal of these obsolete assets. And finally, we had a nonrecurring effect in Pará of approximately BRL 50 million for the elimination of services worked from the past. This explains the variation. It truly is a line item with a great deal of volatility that concentrated on this quarter. Now as an interesting instrument, we have what you mentioned, we made a very interesting use of it. It is an instrument that doesn't allow you to use the market pool, especially at the moment of expansion. In the recent past, we went through several acquisitions, and it became very important during that period. At moment when we foster the sale or recycling of assets, we carry out this movement to disarm to do away with the support that we used in that period of acquisition. It's a tactical movement for that moment. We understand that we're making an appropriate use of this instrument. And it is a very interesting tool that might make more sense in the future in different circumstances.
Operator: Our next question comes from Mr. Daniel Travitzky from Safra.
Daniel Travitzky: You mentioned the sale of the transmission assets that could be used to remunerate shareholders. And yesterday, you announced a new program for share buyback I would like to better understand the company's mindset when it comes to dividends and shareholder remuneration going forward? That is the first question. The second question, if you could comment on the strategy that you're thinking of to participate in sanitation auctions in the coming year. If this continues to be a segment that is a focus for the company? And how do you foresee the opportunities that arise in 2026?
Augusto da Paz Júnior: Thank you, Daniel, for your question. In fact, we carried out a very broad destination of the resources from our sales we kept a part to remunerate shareholders. Our buyback plan was coming to an end. And this is a very interesting instrument to have actively at any moment in time because we need to have shares in treasury to face the long-term incentive but also to have that option as we did in the past to carry out acquisitions or purchases of our shares and sell them or limit the shares we have, depending on the moment. We are going to have a year of a great deal of volatility, and it is at those moments that this option makes ever more tense. For that reason, when we saw that the plan was coming to an end, we start out the approval for a renewal exactly for the purposes that I mentioned for the options that I mentioned. Now regarding the sanitation auctions, penetration continues to be an important avenue of growth, a very broad avenue. We have always been very active looking at this seeking a certain angle to make important moves here. We intend to continue to be active in our search. And if we find attractive opportunities, competitive opportunities, we will move forward.
Operator: Our next question comes from Mr. João Pedro Herrero from Santander.
Joao Pedro Herrero: We saw that in Ministry the -- in September, I'm sorry, the Ministry opened up a consultation now to see the mindset of the company. Do you deem this to be a relevant opportunity? Second question, refers to the tariff in the North and Northeastern regions that the parcel has a higher amount vis-a-vis other regions. In other regions, is there space to implement this tariff and which is the cost benefit of doing this?
Cristiano de Lima Logrado: This is Cristiano. Our view is the following the process of digitization has to be done very cautiously. And I think the minister was assertive at gauging this at 4% a year, and then we will think of a plan to do this. Why does it demand caution? It's not only about changing the meters we can put in smart meters and not change anything else. The possible benefits may be lost. There is a process of learning regarding the benefits that this will bring about. And we have to think about the regulation and the obligation of delivering bills. If we're carrying out remote reading, of course this will have a benefit. In that context, it represents a significant opportunity, but it will depend on additional elements that we have to work with alongside the ministry. Regarding the tariffs in the North and Northeast, most of the population in those states has a strong benefit full exemption in terms of kilowatt per month. So they're exempt from the tariffs basically if you look at the provisional measure 1304 that is about to be sanctioned. There are some elements that will increase the cost. They will increase the pro rata of CEEE-D and broaden the market. So we could accommodate an eventual growth therefore. So there are several elements present, and we cannot -- I analyze this in isolation when it comes to the provisional measure.
Operator: Our next question comes from Mr. Raul Cavendish from XP.
Raul Cavendish: My doubt is that debate on the 1304. We have debated the unfolding of this, especially from the viewpoint of curtailment. Now what is your view on these prices and the technical note on reclassifying consumers according to the white tariff? Now with these changes proposed, which would be your projection?
Augusto da Paz Júnior: Leo will answer this question for Raul. Please, Leo.
Leonardo da Silva Lucas Tavares de Lima: A very good question. The impacts of the 1304 are linked to the structural changes we observed in the system. We have less flexibility in the system. And of course, this demands a price signaling that is compatible with oversupply and over demand. This includes that white tariff we are attempting to show a more adequate price and more adequate incentive for the system so that it can self-regulate. In that sense, I think it is doing well. There is that issue of curtailment which does not fully resolve the curtailment problem in the provisional measure. But the idea is to deconcentrate the risk of curtailment that is very focused on centralized generation. So we think that there have been strides made in this direction. If you could further explore that idea of the white tariff, can this increase the addressable market for service rendering for wholesale retail market provision? Could this be a business segment that will gain relevance over time if that proposal is approved? Yes. Doubtlessly, the market trend is that the energy market will become a more flexible market, and the white tariff is simply a first step. Our expectation is that we will see evolution potentially in terms of prices. And in the model, the pricing model. When we look towards the future, this is the path that we expect.
Operator: [Operator Instructions] The question-and-answer session ends here. We would like to return the floor to the executives for the company's closing remarks.
Augusto da Paz Júnior: Well, thank you very much. Now to conclude, I would like to once again reinforce our commitment with a continuous value creation agenda we pursue for our investors. Through the delivery of consistent results across all segments in which we operate always guided by disciplined, financial management made possible by Equatorial's culture. I would like to congratulate the IR team for the results once again in the extel ranking and remind everybody, they are available to assist you with any questions after this call. Thank you for your interest in the company and for joining us.
Operator: The conference ends here. We would like to thank all of you for your attendance. Have a very good afternoon.