Centrais Electricas Brasileiras S A American Depositary Shares (Each representing one Common Share)

Ladies and gentlemen, thank you for standing by and welcome to Eletrobras' second quarter 2024 earnings conference call. From the Eletrobras team, today with us are Mr. Ivan De Souza Monteiro, CEO of Eletrobras, Mr. Eduardo Reima, VP of Finance and Investor Relations, Mr. Rodrigo Limp, Vice President of Regulation and Institutional Relations, Mr. Elio Wolff, Vice President of Strategy and Business Development, Mr. Italo Freitas, Vice President of Trade, Mr. António Varejón de Godoy, VP of Operations and Security, Mr. Marcelo de Siqueira Freitas, VP of Legal, Mr. Robson Pinheiro de Campos, VP of Engineering and Expansion, Camila Araújo, VP of Governance, Risks, Compliance and Sustainability. Mr. Renato Carrera, VP of Supply and Services. Mr. José Renato Domingues, Vice President of People, Management and Culture. And Mr. Juliano Dantas, VP of Innovation, R&D, Digital and IT. We'd like to inform you that this conference call is being recorded and the replay will be made available on the company's investor relations website, where you can also find this slide deck in Portuguese and English. If you need simultaneous translation, please click the Language Interpretation button at the bottom of your screen. Choose your language of preference, Portuguese or English by using that icon. For those listening to the conference call in English, you can mute the original audio in Portuguese by clicking Mute Original Audio. In the Q&A session, please submit your questions using the Q&A button located at the bottom of your screen. Your name will be called and a request to activate your microphone will pop up on your screen for you to ask your question live. Alternatively, please write no microphone at the end of your question and our operator will read it aloud. Before proceeding, we would like to inform you that any statements that may be made during this conference call related to the company's business prospects, projections, operating and financial targets are based on the beliefs and assumptions made by Electrobras' management, as well as on information currently available to the company. Forward-looking statements do not guarantee performance as they involve risks and uncertainties and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions and other operating factors may influence the results expressed in such forward-looking statements. Now, I would like to turn the conference over to Mr. Ivan de Souza Monteiro, CEO of Electrobras, to begin the presentation. Please, Mr. Monteiro, you may proceed, please. Thank you very much and good morning and welcome to our 2Q24 earnings call. I would like to start with our agenda that was disclosed to the market. It is related to the restructuring of Eletrobras, pursuing efficiency and reduction of PMSO. We disclosed a reduction of 16% year-on-year, and we have a target for this year in the amount of 7 billion for the annual PMSO, but we are going to have about 6.3 billion in our recurring PMSO. Although the strides that we have made, we still have many gains to capture in our internal processes, and we expect to reach a profitability level and an efficiency level similar to our peers, which we still have not achieved at Eletrobras. Part of those savings and reductions through the voluntary termination plan that has been implemented, and it also reflects the fact that our workforce is becoming younger. it is important to highlight that many initiatives will still capture important gains and benefits. For example, having one single service center in the city of Recife. Another important point that we should highlight is our ESG agenda. We had already finished the sales process of the thermal units that we had, and this is very important for our net zero commitment. Another important point is related to a change in our governance with the creation of the sustainability committee. made up by members of our board of directors. We also had significant highlights when it comes to capital allocation, first with the incorporation of furnace, and we also finished a new buyback program. We also sold the gas thermal units and also the public offer of preferred shares owned by CETEP. And that is very important for our strategic plan from 2023 to 2028. And when it comes to the financial highlights, we had a very strong financial gain this quarter. And we implemented a program to improve the management of our financial liabilities, which is in line with the growth of the investment program that we are going to show you, not only in terms of making more modern units, but also in our participations of the transmission auctions, in which we are going to invest 5.6 billion Brazilian reals. This is just the beginning of a significant journey and we are very optimistic about the capture of gains in the future and benefits and we are going to have the chance to address that more later. And now we have a trade team which is yielding great results to Electrobras. And now I would like to turn it over to Eduardo, our VP of Finance. Hello, good morning. Let's go to slide 7 to show you more details about our ESG agenda. Ivan told you about the sale of the thermal units and Candiota, and based on that, now we have a golden seal in the GHG protocol, which is very important in our ESG agenda, and also our commitment with transparency. released a number of reports with details, including our sustainability report, which has a number of important highlights for us, and we provided you with a link so that you can access the report and see more details about it. Now let's go to slide 9 to give you more color about Furnas. Why was it important for us to incorporate Furnas? We had two headquarters in the same city, so by doing that we were able to simplify the corporate structure and management we were able to improve our capital structure and by doing so we can gain efficiency unifying and standardizing processes and also eliminating redundancies and rationalizing resources This was an accounting event in the amount of 1.1 billion with deferred fiscal credits or tax credits. And of course, we aim at compensating the shareholders, considering the tax profits that we captured in this transaction. And also, we aim at optimizing the capital structure. The holding plus furnace will be the biggest financer of the group as a whole. Now, moving on to slide 10, let's take a look at more details about our capital structure. We finished and reopened our buyback program. In the previous program, we had bought almost 2 million reals worth of shares. And by doing this, we will be able to buy back about 10% of the outstanding shares in 18 months. And also, we sold CETAP's preferred shares with 2.2 billion, and we sold 93 million shares owned by us. Now let's talk about the thermal power plants. We are going to let go of about two gigas of install capacities. And these units are located in the cities of Manaus and also Rio de Janeiro. And this should amount to 4.7 billion reals, considering 3.5 billion plus 1.2 billion in earnouts. By doing so, by disposing of the thermal power plants, we are going to transfer the risk of credit to the acquirer. Now on slide 13, you can see the details of the transmitting company's tariff review. And here you can see the progress of our revenue, the annual allowed revenue from the previous cycle to the next cycle. So we started with 17 billion. Then we had adjustments for inflation. And in this period, we had an inflow of about 14 million. We also had the tariff adjustments for our lines and also the lines that had an extension in their contracts. And this drop happened basically because of the effect of extending the contracts of the contracts that we had back in 2013. And we had an additional amount that is being returned now. as a result of that. And at the end of the day, out of the 17.5 billion, we would had a recurring allowed revenue of 16.8 after that review process. And now for this cycle, we are going to reach 15.3 billion. Now let's move on to the operating part of our presentation on slide 15. As Ivan said, Since the beginning of the year, we started operating with a trade team, a full trade team. And we believe that the prices right now are adjusted by risk than it used to be in 2023. And by doing so, we feel comfortable when it comes to hiring people. So when you look at this chart, you can see the free market and the regulated market prices. as we disclosed in the first quarter. And you can see that we advanced more than one gigawatt in the period. And you can see that that is a very significant progress. And we reached over 600 customers. And in the free market, over 500 clients. Now on slide 17, I'd like to give you an overview of the financial figures. we like to show the regulatory numbers because that's where our cash generation comes from. And in this metric, our revenue grew by 9% year-on-year, our EBITDA grew by 10% year-on-year, and our profit grew And we use IFRS here because this is the basis for dividend payment. There was a 31% drop here, but that happened due to a number of adjustments. And we are translating the regulatory numbers to IFRS, and that might generate some distortions. Now, on slide 18, as Ivan said before, We continue seeing a drop in our PMSO with a 17% drop year on year and quarter on quarter we still had an increase We used to be at 1.594 billion, and now it's less than that because of improvements in our processes and other improvements as well. But we also hired almost 2,000 people in that period. So we are breathing fresh air into our team as a whole, bringing more efficiency as well. Now on slide 19, I'd like to show you our allowances. And the highlight here is compulsory loan. And you can see how efficient we've been in our negotiations of better conditions in our liabilities. and thereby reducing uncertainties in our contingencies. And another highlight here is the PDD line. In the past, we had reverted 110 million in Amazonas. We didn't have that period. And when it comes to revenue and also... When it comes to the provisions in Amazonas, we've still had an impact of 480 million this quarter. But since we had also sales, this number is going to go away in the coming quarters. Here we have more details about the compulsory loan. Year on year, you can see that we made a lot of progress. We started with 22 billion. Now we are at 15 billion. And that is partly due to negotiations with discounts, and also with payments that we made through in-court deposits or cash. But more than reducing this amount, it is important to notice that we are also reducing the causes that may lead to deposits of compulsory loan. And here you can see some details about our net debt over EBITDA. It's 2.5 in the regulatory market. And we can see here that we are very comfortable. We are in a very comfortable position with less than two times, 1.9 actually. And after the capital raise that we had in April and June in the amount of 16 billion rios, we are at a very comfortable net position. And cash right now accounts for almost three years of repayment of our growth debt. and that also drives our costs down, our average effective costs down. And now we can move to the Q&A session. Thank you.

We'll now begin our Q&A session. We kindly request to ask all questions all at once, and then the company will answer them. To ask a question, please press the icon Q&A at the bottom of your screen. Your names will be announced and then you can ask your questions live. You'll be asked to unmute your mic. If you don't want to speak into a mic, please write no mic at the bottom of the question and then the operator will be reading those questions out loud. Mr. Guilherme Lima from Santander asks the first question. Good morning, folks. I actually have two questions. We see the credit recognition of 1.2 billion with Furnas. But before that incorporation, we had unregistered tax credit amounting to 5 billion. If you could elaborate on that difference, when are you going to book that difference? As to the hiring of people, you have a very impressive number in the quarter of about one gig. What are you going to use to base your prices? What about the contract durations? What enabled that expressive increase in volume and what is your trade strategy like? Thank you, Guilherme. The first question will be Hayama and then the CEO will be talking about the strategy. Hello, Guilherme. As to the tax credit, we hadn't booked anything at Petrobras because before that incorporation, Eletrobras was a non-operational company. It only accrued losses. There were no effective benefits of future use. After the incorporation, we now have some perspective of using that credit. And you shouldn't look at Eletrobras on itself alone. You should look at both of them and how they should behave throughout time. I think it's important to say that in both companies that still had a lot of things to address as far as contingencies go, some credits in assets that had already been reversed, but they hadn't been used for tax purposes. So, when you use these two lines and you include that into the KV flow to estimate collections, the effective use of credit would be low. But even more than that, from the capital structure and how the group is looking into the long-term strategy, how we are going to fund projects, how we are planning to invest in both companies, I believe that we should be using resources from the holding slash furnace the companies that have more liquidity and market access. And when you look at that, you optimize that with future dividends payments for shareholders and managing the investments portfolio overall. That's why we have lower numbers for tax credit booking, as you would probably expect. Thank you. Good morning, Guilherme. Thank you for your question. Actually, this strategy that is being executed for trading energy is focused on the end customers, looking for those customers that can add more value to the company. Given the fact that we have an increase in our customer portfolio, it's about over 500 new customers, now that we are beginning to work with the trading of energy. That has been driven by the desk, which is identifying the best prices available that would boost company margins. Revenue is a result of that. And there's also the development of new products given the fact that these new end customers have that need. New and innovative products that would actually meet these customers' expectations. So these are the three pillars, desk and user, and making better products in our trading strategy. That's why we have that result, the results we've seen in Q2. This is going to be impacting future orders. Thank you.

Thank you.