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Edited Transcript of ELPL4.SA earnings conference call or presentation 5-Aug-19 2:00pm GMT

Q2 2019 Eletropaulo Metropolitana Eletricidade de Sao Paulo SA Earnings Call

Sao Paulo Aug 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Eletropaulo Metropolitana Eletricidade de Sao Paulo SA earnings conference call or presentation Monday, August 5, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Max Xavier Lins

Eletropaulo Metropolitana Eletricidade de São Paulo S.A. - President of Executive Board

* Monica Hodor

Eletropaulo Metropolitana Eletricidade de São Paulo S.A. - CFO, VP, IR Officer & Member of Executive Board

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the Enel Distribuição São Paulo teleconference. The goal of this conference is to discuss first half of 2019 results of the company. The IR department also informs that the release and this presentation is available at http://ri.eneldistribuicaosp.com.br. (Operator Instructions) Let me remind you that this teleconference is being recorded and is also being broadcast via webcast through the IR relations or Investor Relations website. On behalf of Enel Distribuição São Paulo, we'd like to state that any forward-looking statements regarding business projections, business and financial goals are based on current expectations. These expectations may change depending on market conditions, economic performance of the country and international markets. This presentation can be followed with slides. At the end of this presentation, the company's executives will be available to answer any questions.

I would like to turn over to Mr. Max Xavier Lins. You have the floor, Mr. Lins.

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Max Xavier Lins, Eletropaulo Metropolitana Eletricidade de São Paulo S.A. - President of Executive Board [2]

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Thank you, good morning. Let me start with the presentation of first semester results for Enel Distribuição São Paulo. Monica Hodor, our CFO, is here with me and other executives of the company. The IR team is available here too. As we can see first half has produced better results year-on-year because of the integration agenda of the Enel Group that enabled us to have better financial and operational performances.

Let me start on Slide 2 the highlights of this first quarter. The first one is our investment plan. We've invested BRL 419 million this semester. They are focused on the maintenance and the updating of our network, especially our underground network. As to the operation, we'd like to point out, the improvements of our frequency of interruption and duration of interruptions indicators when compared to the same period of last year. Our SAIDI and SAIFI indexes have improved 7.9% and 9. -- 9%, respectively as a result of updating our grid. Let me point out that the accrued improvement of our performance is the result of the larger rainfall in the first semester, more specifically in Q1 of this year. Another highlight of this quarter is the 1.5% growth in the total market and 1.3% growth in our captive market when compared to the same period in 2018 and I'm going to talk about that in detail shortly.

As to our financial performance, the reported net income is BRL 200 million, a substantial growth of BRL 361 million when compared to the same period last year, reverting that net loss of the first semester of 2018 that performance is the result of a greater EBITDA of the period. Still on the financial front, I would like to point out the reduction and the average maturity rates of our debt profile. We're always looking for better opportunities in the marketplace to improve our financial strategy, improving the debt profile of the company. With special attention to the 24th debenture issuing happened -- that took place in June.

Finally, the tariff review that was concluded on July 4, we're starting the fifth tariff review cycle of the company. The average effect is plus 7.3% on the tariff with variations for several voltage levels. I'll be also talking about this topic throughout the presentation.

On to Slide 3 now. This is the investment plan execution. Investments amounted to BRL 419 million in first half of the year and they were allocated to maintaining and expanding our grid. To update our underground system and to implement and maintain distribution and transmission lines in the underground grid according to the chart.

On Slide 4, we have the operational highlights. These are the main operational indicators I would like to highlight. The drop of duration and frequency indexes, they are both going down when compared to the first half of 2018. Despite the large amount of rainfall in the first quarter of the year, the highest levels since 1994, 1995, the frequency indexes is 7.53 hours, 7.9% down when compared to year-on-year. The frequency index is 4.42x, amounting to 9% within regulatory limits. These results are directly linked to the improvements or investments that I talked about and the technology and the automation of the network and the updating of the equipment. As to losses, total losses in the first half of this year was 9.53%, in line with what we showed last year, a 0.09 (sic) [0.9] percentage points drop. The company has intensified its actions to fight commercial losses. We have been mapping and reregistering consumers in the social tariff. In the first half about 490,000 customers were benefited in this program and almost 10% growth year-on-year.

On to Slide 5 now. This is the market performance. The top highlight is more consumptions, especially in our captive market. In the first 6 months of the year, the number of units that were built increased by 1.1%, especially in residential and rural segments. Total consumption driven by 1.3% growth and the captive market consumption grew 1.5% year-on-year. That growth is a direct result of higher temperatures in the period, resulting in greater average consumption and more days in the billing cycle. As you can see on the chart, on the right, captive consumption increased by 1.3% in the first half of 2019 and year-on-year. Especially, as a result of the good performance in the first quarter. In the variation between classes, I would like to point out residential and commercial segments that grew 1.6% and 3.1%, respectively. Let me point out that the captive market has been impacted by the migration of the free market customers, and barring that effect the captive market would have presented a 2% growth.

I turn over now to our CFO Ms. Monica Hodor. She'll be talking about the financial performance.

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Monica Hodor, Eletropaulo Metropolitana Eletricidade de São Paulo S.A. - CFO, VP, IR Officer & Member of Executive Board [3]

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Good morning, everyone, and I will start with Slide 6, showing our EBITDA. EBITDA in the first half of 2019 was BRL 913 million. This increase is a consequence of the positive impacts of margin and OpEx, which together added gains of BRL 399 million. In the quarter, the EBITDA totaled BRL 514 million vis-à-vis BRL 179 million during the second quarter of 2018. Regarding margin, the positive variation is mainly due to the higher volume of energy consumed in the period, especially in the first quarter and the July 2018 tariff readjustment, contributing to a better tariff volume and mix in the semester in addition to regulatory effects, mainly CVA adjustments including charging neutrality. This gain was partially offset by higher offsets impacted by the heavy rainfall during the first quarter.

Now regarding our OpEx. The main contributions came from personnel lines, mainly due to the effects of the voluntary resignation program and MSO due to the efficiency gains from the optimization process that started in 2018. It is also important to point out the positive impacts with OPA/Follow-On expenses incurred during the second quarter of 2018 of BRL 60 million and the adoption of CPC 06/IFRS 16, which had a positive effect on the expenses of BRL 18 million. The positive variation with asset write-offs reflects a lower volume of investments we've executed during the quarter. These effects were partially mitigated by PCLD in recent period.

On our next slide, we have our net income for the period. During the first semester of 2019, the company reported a net income of BRL 200 million, a performance of BRL 361 million above BRL 161 million losses reported during the same period of 2018. This result is mainly due to the EBITDA increase as explained on the previous slide. The best financial result is mainly due to the reduction in expenses with debt charges due to the liability management operation carried out during this quarter as well as the issuance of the 24th debenture in June. The positive effect of tax credit update income also contributed due to the recognition during the first quarter of 2019 of tax credit due to the worker assistance program. In relation to the tax profit column, this variation is a result of the increase in taxable income.

Now our next slide. We have the details of our debt. The company ended the period with a gross debt of BRL 5.8 billion. This is 1.6% higher than what was registered during the first semester of 2018, mainly due to the debenture issuance in the period. The increase in the net debt is due to the higher volume of investments made in 2018, which is in line with the company's strategy. Now the gross debt ended the quarter with a longer average maturity of 4.1 years during the first semester of 2019 vis-à-vis 2.3 years in the first semester of 2018 versus a lower spread CDI plus 1.18% vis-à-vis of CDI plus 1.87% in the previous year. The evolution of these indicators is due to the liability management strategy that began still in 2018, ending in the issuance of the 24th debenture in June this year of BRL 1.5 billion, which included prepayments of shorter-term securities or higher cost, which are the 14th debenture and the third series of the 23rd debenture. Note that despite the clear improvement in the debt profile, the company remains alert to market opportunity to continue advancing its financial strategy throughout the year 2019.

I now hand it back to Max to explain about the tariff review process and move on to our final remarks.

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Max Xavier Lins, Eletropaulo Metropolitana Eletricidade de São Paulo S.A. - President of Executive Board [4]

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Thank you, Monica. On Slide 9, we have the summary of the tariff review process. On July 4, the company started its fifth tariff cycle. After the conclusion of that regulatory review process, we have redefined new tariffs according to the regulatory agency. The average effect will be 7.03%. There will be variations for very -- for several voltage levels. 8.46% for high-voltage consumers and 6.48% variation for low-voltage consumers. Let me point out our asset net base, which now amounts to BRL 8.6 billion. This improvement captured by the tariff review reflects the effective allocation of capital, focused on operational efficiency. The company remains focused on moving on with the strategy, allowing us to improve our quality indicators.

On Slide 10, final remarks. I would like to summarize the highlights of this first semester of 2019. Liability and operational efficiency are our highlights. We keep on focused on improving the quality of our service, our efficiency, automation and digitalization of our processes. That results in the improvement of operational indicators as I have shown you. On top of that, as to our financial strategy, we are optimizing our debt profile. In June, we issued our 24th debenture as a result of the company's commitment to look for market opportunities. As a result, we have extended and reduced the average maturity of our debt. Finally, I would like to point out the tariff review process in 2019. We have established the new tariff in effect as of July 4. The company moves on to its fifth tariff review cycle, and we are certain that this review tariff has recognized the affected allocation capital and we have expanded on our asset basis. For the next cycle, the company remains focused on implementing its strategy to improve its quality indicators and, of course, to provide better service to our customers.

Finally, thank you very much for attending this conference call. Let's now move on to the question-and-answer session.

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Operator [5]

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(Operator Instructions) Since there are no question, I would like to turn over to Mr. Max Lins for his final remarks.

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Max Xavier Lins, Eletropaulo Metropolitana Eletricidade de São Paulo S.A. - President of Executive Board [6]

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Once again, thank you very much for attending the Enel Distribuição São Paulo teleconference call. Myself, Monica, the IR team and all the other directors are available to answer any questions you may have in the future. Thank you very much. Have a good day.

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Operator [7]

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This concludes Enel Distribuição São Paulo conference. Have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]