Engie Brasil Ene Sa S/Adr

Good morning. We are now starting the conference call to disclose the results of Q2 2022 of Engie Brazil Energia. I'm Rafael Borrosio. I'm the IR manager. And as of now, you are all connected in listen-only mode. Later in the Q&A session, you will be able to send your questions on the chat. This conference call, this video conference is being recorded. On our site, you may find all the files related to this presentation, the earnest release, And there you will find the analysis of the financial statements in the quarter in addition to operating results and the monitoring of new projects. Before proceeding, I would like to clarify that any forward-looking statements that may be made during this conference call relating to the company's business outlook should be regarded as predictions. They depend on the country's economic conditions, on the performance of the electric sector, and are therefore subject to change. Today with me, Mr. Eduardo Satamini, CEO and IRO, and Marcelo Malta, CFO. They will comment on the performance of Engie Brasil Energia in Q2 2022. Journalists may send the questions by email to our PR agency. I now turn the floor over to Mr. Satamini to start his presentation. Good morning to all. Thank you, Rafael. It's a pleasure to be again here with us to disclose the results of ENGIE Brazil Energia. On slide five, as you can see, we have made very brief presentations. We go straight to the point and focus on the main elements so we can have enough time for the Q&A session, which is where we can actually address your needs. All this data is available. on our site. We start with the highlights adjusted EBITDA grew 23.8% quarter on quarter and 15.4% six months and six months And this basically attests to our growth strategy. And this has been very successful in the last few years. The investments that are being made are showing in terms of the volumes of energy and our ability to generate revenue. And the net income as well has increased 20.4% quarter on quarter and 20.3% when we regard six months 2021 and 2022. However, we are suffering with the acceleration of inflation. We have debt, which is linked to inflation, especially IPCA, and this inflates also our revenue. But now, As inflation is rising, we have to bear the financial expense. And then in time, we will also see the price of our contracts readjusted. So there is this mismatch, and this starts to happen when inflation is growing. The drivers of these results are here. 6.9% have to do with the average increase in the sales price. and this is not linked to inflation. Inflation in 12 months was 12%, but most of our volume is being liquidated at spot price, and this has to do with the greater hydrology. We have a hedge, a reserve of energy, which we save because of the asymmetry in risk in the short-term market and our net price of sale was not significantly higher and did not follow, did not track inflation. This was offset by the volume. the volume was 321 megawatt average more, 7.9% increase. This has generated 279 million, which has to do with a combination with a higher price and sales volume. Also, the transmission segment contributed 92 million in the quarter, and we are going to talk a little bit more about the projects that generated this increase. Graal Azul and Novo Estado. And the result of CCEE, which is positive relative to last quarter, And this has to do with a more favorable hydrology in 2022 relative to 2021. As regards the negative impacts on the result, 215 million came from the purchase of energy, which has to do with the transaction involving the Jorge Lacerda power plant. We have committed to buy energy from this TPP, and then we will be able to decarbonize our energy portfolio. We will talk also a little bit more about another sale. We are talking with the first who are interested in Pampa, and we believe we can give you good news very shortly, and this will allow us to decarbonize our assets in terms of financial result. It was impacted by monetary restatement and by interest. Here you see the non-financial highlights. Within our growth strategy, we were successful in getting Block 7 in the auction in January 2022, and this has to do with our substation in Novo Estado. We are going to talk a little bit more about it later, but we received a discount and we also got better deadlines, so our auction was very successful. Our bid was very successful in a very competitive auction. Some prices are extremely aggressive. We can't understand how that is. But with this block, we are very comfortable. It's a small one, and we will be successful in transforming it into a very sustainable and profitable block. We have completed the acquisition of Serra do Asuruá. 880 megawatts, we are paying 260 million for the acquisition, and we should make investments in the region of 6 billion for this wind complex to be installed and be operational at the end of 2023, the beginning of 2024, or rather 2024, I correct myself. So this is an important factor. an important highlight, because this will ensure our growth. We have been growing in the last few years. You will see the level of investment, which has been in the region of 4 billion, and this is what has allowed us to see our EBITDA grow by nearly 120% since 2016.

We have positive and negative highlights.

We had to do yet another impairment relating to the sale of Pampa as a result of the allocation of risk, the discussions, but this is being absorbed by the result, by the bottom line, and this is a non-recurring factor. Also, 300 million will be invested. We have signed an agreement to implement through TAG pipeline with Centrais Eletricas de Sergipe to connect the generation, the thermal generation terminal to the TAG network. This is extremely important because it is essential for all the agents in the gas market to be connected to the transportation network. This will allow the market to operate in an efficient way, and we will therefore be able to optimize the resources of that segment. So we are very happy to announce this agreement. It's an investment that will give additional returns to TAG. We were also awarded the best ESG company in 2022 by Ezami Magazine, And this was together with IBMEC Business School. And the last highlight is that we started the remote operation of the Ita hydropower plant. It's the largest belonging to ENGIE, which is operated through the generation operation center. So 71.6% of our generation is generated through ENGIE. power plants which are remotely operated. Some are not operated through the COG because they're too old, they have analog controls and we are replacing these controls. This is quite substantial investment that has to be made to allow us to operate them remotely. And for some assets, this doesn't make sense, it's not cost effective. We rely on human resources. The power plant operates in commercial hours. But in some assets, the investment required to make them remotely controlled is too high. So it's not cost effective. So we have been making those decisions relative to the cost effectiveness of the investment. Then in terms of ESG, as you can see, we continue to grow in terms of installed capacity of renewables. Very shortly, 100% of our capacity will come from renewable sources. The emission intensity is a proxy, and we will see this decrease once Pampa is sold. Pampa stopped. this quarter to fix the boiler and we had to stop operating it because the spot price was below the variable cost of the power plant. So this shows what's going to happen with our intensity of emissions once Pampa is sold. The company will rely on renewable sources under Scope 3. In terms of water input and consumption, in the case of Pampa, for example, Pampa is one of the major consumers of water. It requires vapor. steam to generate thermal electrical electricity. And we also have been increasing the percentage of women in the workforce. This is something we have been working at. We have some very specific programs for engineering trainees and for operators because we need more women to choose these technical professions, these technical roles. So we are encouraging women and we have programs to attract and retain women so that we can have a better balance of in terms of the workforce. In terms of social responsibility investments, our objective is to use 100% of incentivized resources. We also invest all the funds, but as regards incentivized funds and resources. We aim to have 100% of them employed in good projects through our sustainability committee. And now let's talk about sales. In sales, the main point is that we see Cerrado Asurua inside our portfolio already, and this allows us to have more energy available as of 2025. The portion which is available in 22, 23, 24 tends to cover our hydrology hedging. We need to have uncontracted energy in order to face droughts and unfavorable hydrology conditions because there is an asymmetry. When this happens, we lose energy and we have to repurchase it at very high cost. So we need hedging. to hedge against unfavorable hydrological conditions. So in 2025, 26, we will have more energy available. And the good news is that we have been able to sell energy more recently in substantial amounts at very reasonable prices. We've seen the markets on increasing prices, and this is especially driven by the marginal expansion cost, which has been rising. When we look at cost drives, they are higher in wind energy because of the increased cost of cement, copper, and stainless steel. Local inflation as well is driving costs up, and this has an impact in the futures market. On the right-hand side, you see the risk We try to diversify and operate in different segments. We never go over 15% in any segment, for example, steel. And then we have the food segment. We sell to different industries. And in the other industries as well, we have diversified our clients. And we always look for medium to long-term contracts. And we maintain the resilience of our activity, the consistency of our sales, and the resilience of our results.