Centrais Elétricas Brasileiras S.A. - Eletrobrás Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 2 speakers on the call.

Operator

Let me introduce the Eletrobras team. Mr. Wilson Ferreira, Jr, Electrobras' CEO Ms. Elvira Presta, VP of Finance and Investors Relations Mr. Helio Wolff, VP of Strategy and Business Development Mr.

Operator

Rodrigo Limp, VP of Regulation and Institutional Relations Mr. Renato Costa Santos Carrera, VP of Procurement and Services and Mr. Marcelo de Siquiera Freitas from the Executive Legal Vice Presidency are here with us today. This earnings call is being recorded and it will be made available at the company's IR website, where you can also find the presentation in both languages. If you need simultaneous translation services, this has been made available.

Operator

Just click on the globe icon at the bottom of your screen. When you click on the icon, choose your preferred language. If you're listening to the conference in English, you can mute the audio in Portuguese by clicking on mute original audio. Your names will be stated and then you can ask your questions. A request Just write down no mic, please, and the operator will be reading your questions.

Operator

Before proceeding, we would like to clarify that any statements that may be made during the teleconference regarding the company's business outlook, projections, operation and financial goals are based on beliefs and assumptions of the Electrovirus management as well as information currently available to the company. These future considerations are not a guarantee of performance because they involve risks and uncertainties, and they depend on circumstances that may or may not occur. Investors should understand that general economic conditions and other operational factors can influence the results expressed in these remarks. I'd like to turn the floor over to Mr. Wilson Ferreira, Eletrobras' CEO, you may proceed now, sir.

Operator

Thank you. I would like to welcome all of you. Can you please show the slides? I'd like to welcome analysts, investors, thank you for attending our earnings call for the 2nd quarter. Let me start.

Operator

Please move on to the next slide, please. We'll have a summary of 6 segments. That's how we broke down the company's highlights and overview of the number 1 managerial indicator, which is PMSO Operational performance, generation transmission, financial performance, Elvira will take over at this point in time, and then I'll come back for the Investments and Next Steps segments. Let me start with the highlights for the quarter. Next slide, please.

Operator

Next one, please. Another one? Yes. These are the highlights for Q2. 1st, collections and operations in the financial front have been concluded given the exposure we had to the U.

Operator

S. Dollars, the hedging for the bonuses in yet another operation, that accounts for almost 96% of them covered. And we'll be Completing that in the next quarter, there won't be any FX exposure from now on. On to liability management operations, let me start with the one that have already been approved and implemented at Elektor Norte, BRL1.9 billion. The goal is the same, to lower costs and extend the profile.

Operator

Costs are 2.2% above CDI, and we have been able to extend that debt profile. We'll be detailing that shortly. Gevira will be doing that. We paid BRL1.2 billion in dividends, and the average cost is CDI plus 2.5%. Amongst those operations, I would like to highlight that one on the right, dollars 680,000,000 the first credit note for exports.

Operator

One of the important covenants is the debt contract with the commitment to sustainability. Our number one goal here is the clean energy percentage. We are at 97%. Our commitment is to bring that down. We are at €97,000,000 and the original commitment was €96,000,000 So that's a very important highlight because we are now introducing our 2nd voluntary separation program.

Operator

We had BRL1473 that have applied, BRL513 1,000,000 will be saved. We'll be breaking that down for both the first VSP early last year. And this second VSP, we have already concluded the application phase now in the Q2. We believe it's important to share a couple of events for the second half of the year because they are really important to the company. 1st, liability management operations that are currently underway, and we were able to announce them through a market note.

Operator

We had the 4th debentures issuing of CAD7.1 billion and DKK3.5 billion in furnace and the 4th issuing of the ventures, DKK250 1,000,000 at CGT, Eletrosoo. All these operations aimed at addressing the liability management strategy, always aiming at lowering costs and extending the debt profile. The second important action was the annual readjustment of RAP for 2023, 2024. There is an Aneel resolution that increased our RAP by 30 percent was R17.5 billion dollars For the 2022, 2023 cycle, we've also received authorization to be the trade agent of Electric Energy at CCEE. This will be allowing us to use some of the tax credits we have for the trading activities.

Operator

And we've also received the announcement of our restructuring for the unprecedented to net 0 for any energy company by 2,030. That's going to be a pioneering effort. That's why we have a sales structuring of our process of all our assets related to thermal, both using gas and non gas. We use coal. We have gas, thermal plants and a combination of both.

Operator

So these are the main highlights for the quarter, the Q2 of 2023. On to the next slide, please. We have an overview of our PMSO, people, materials, services and 3rd parties and other. Next slide, please. The first PDV won the 1st voluntary termination or separation program.

Operator

DKK1.2 billion is the expected savings on an annual basis with an 11 month payback. The first thing we can see on the top chart is that we expect expenses reaching 2,494 people, people are leading the company at a slower pace than expected for a couple of reasons. Number 1, we were very careful earlier this year, let me remind you, we had those uncomfortable events as to the crumbling of a couple of towers, and we decided to be extra careful so that we could better manage that situation at that point in time. But we expect to have new people coming in. They are again at a slower pace than expected.

Operator

And for that reason, our curve is the green is the best estimate we can get, not the blue one, that will entail less savings for the year. Our estimate was BRL790 1,000,000. Originally, it would be BRL890 1,000,000 of savings. As of next year, as a result of this activity alone, we'll be bringing costs down by $1,200,000,000 a year. The payback would be about 11 months.

Operator

There was that delay, but we are focused on taking good care of the company, especially its operations. We believe that this $100,000,000 can, of course, be offset by far by the credibility of our operations because now we can be sure that we'll be reaping that result next year as about DKK21.2 billion, as I said. The same assessment of the DSP number 2 that we introduced last year, given the collective bargaining we had, our estimate was of about 1475. We had the expectation was 1574, we had 1475, a little less than expected. As most of it have been terminated by July.

Operator

On August 31, over 500 employees will have left the company. So this program is somewhat quick because some employees could not join our VSP number 1, so that's why the process is now faster. Again, according to our Board, we have been very conservative to maintain the company's operations and, of course, its credibility to maintain that credibility intact despite these adjustments. This VSP has a cost of $513,000,000 savings of $688,000,000 on an annualized date, a better payback than that of 1st about 9 months. That, of course, is consistent with what we said before during the Elekrobras Day, we're reducing our personnel costs That was CNY4.6 billion in 2022 and we expect to reach CNY2.6 billion, reduction of almost 42% by 2026.

Operator

And just to give you more color, these 2 voluntary separation programs, we're firing another 800 people. Our staff started out with 10,500. In Q2, we are at 8,432. We'll be reaching 7,727 by year's end with new professionals coming in the company throughout the country, and we expect to reach in the second half of twenty twenty four, 7,250. So as to this main activity to bring costs down, these 2 voluntary separation programs have already been implemented, and we are bringing costs down gradually.

Operator

Onto the next slide, other activities related to MSO. Our expectation, we had about BRL4.1 billion with costs in MSO in 2022, we expected CAD200 1,000,000 savings for the year. We're actually moving ahead. We're even moving that faster. We had additional savings of BRL100 1,000,000 given the realization of the plan by June, we expected 1.9.

Operator

So we exceeded our projections in BRL100 1,000,000. This is a whole set of activities. Number 1 is OBZ, but let me point out that the number one activity And the number one driver that brings costs down is to centralize our hiring process for all the companies. And then we can better estimate costs to have better services and materials synergies. We can better manage Inventories through that centralized purchasing, which would give us more bargaining power and centralization of contracts for both insurance and facilities, we brought costs down over by over 40%.

Operator

That's the first time we did that. So we're expecting additional results for 2024. And let me remind you that now in the second half, we're now starting the centralization of the 4 Centralized or shared services in Recife. So throughout the second half, we'll be concluding that centralization effort. We'll be able to then expand cost reductions throughout the year of 2024 as a result of this centralization effort I mentioned.

Operator

Our estimates are on the left. We are, of course, working to bring that number by 42%, starting at $41,000,000,000 4.1,000,000 rather, bringing the number down to 2.5 in 2026. So these are the 2 main actions, 2 managerial actions that will mobilize the entire management team, and we have been able to show very positive results up to now. Moving on. So these are the financial highlights of Q2.

Operator

So these are very promising results. Net profit was up by 4%, reaching BRL9.46 million. For the Q2, our EBITDA was reaching CNY 6595 1,000,000,000. Results shows net profit, dollars 1,610,000,000 a 16% increase when compared to last year. At the bottom, you have the adjusted numbers.

Operator

But let me point out the following. In the reported number, We have a very relevant effect, which is the consolidation of Sant Antonio Energia. This operation occurred after the privatization in the Q3. So we have FX bringing in $949,000,000 the additional $449,000,000 of revenue through that consolidation. On top of that, we had a reduction of contractor results in IFFRs for transmission systems.

Operator

Let me remind you that this revenue is booked based on economic indicators. IPCA is the most important one. And the second half of last year with higher inflation rates, we had 3.18%. It's almost half now for the 2nd quarter. So that brings a reduction of $101,000,000 We had another $674,000,000 for CAD 764,000,000 for transmission revenue due to regulatory changes in the period.

Operator

We had a reduction in recurring PMSO, excluding PMSO of Saiza. Despite that negative impact, we had more salary increases of 2.13%. And with CTE73, we did that last year, another 4.18%, another BRL15 1,000,000. We still have as a relevant for the quarter Saiza MSO reduction of 6 rather an increase of $76,000,000 for PMSO in Saiza and $332,000,000 for costs and operational expenses. These two figures have been included to those numbers, and Elvira will be explaining that in further detail.

Operator

The quarter was very positive as compulsory loans. We reduced our remainder of over BRL2 1,000,000,000 and about $1,477,000,000 because of settlements. So it was a very important quarter. On the other hand, privatization took place in June last year. Since then, we incurred privatization costs.

Operator

They amount to $1,500,000,000 by quarter, and they are referring to amortization of CDEs and the other funds, dollars BRL397,000,000 of amortization and an extra and an additional BRL1.2 billion for those obligations I just mentioned. Of course, you have more revenue. It's almost the cost of that transaction. It goes up as we move away from that stake when we compare quarter on quarter. Nonrecurring highlights.

Operator

We provisioned the 2nd voluntary separation program, The second one introduced in July, so it includes BRL513 1,000,000 for coverage up costs of 14.75 applications that will take place throughout time. Over a third has already been completed in August alone. On the other hand, we had an increase of consulting services in the transformation office, so that all these transformation receive the necessary support not only on the technology front, but also in the quality of Consulting Services so that they could be implemented smoothly. These are a one off of DKK54 1,000,000 for the quarter.

Speaker 1

Now we can talk about our operating performance. This entails generation and transmission. We ended this quarter with these numbers. So we went beyond 43,000 megawatts, representing 22% of generation in Brazil. This is 20% of our installed capacity in Brazil, but actually 25% of the generation in this quarter.

Speaker 1

So 38,827 gigawatts hour is what we generated, which is important if we think about our economy. What is also very relevant is that we were able to generate that with 97% of clean energy sources. To your right, we see our PLD in each one of the submarkets. We see increases compared to last Sure. And this happens because of our costs with the voluntary dismissal plan.

Speaker 1

It also includes Itaipu. Below, we see the GSF curve. We see numbers for 2021, 2022 2023. Our GSF is important because we need to hedge for it in our operations. Next, we see information regarding costs and volumes for the trading of energy.

Speaker 1

This analysis is important. We basically have 4 products for sale in the free market. First, we have our quotas. We had a reduction in the volume or in the stakes of our company, This happens because we are reducing our stake. This is something we are doing as we work on fundraising.

Speaker 1

But this 29% production represents only 7% of reduction in revenue from these products. Of course, this is also connected to inflation. This is something that we see for this quarter. So we go from 67.3 Megawatt hour to 78. The second important product is the regulated market.

Speaker 1

So we see not only effects of its growth, but also the consolidation of Saiza. So our energy volume in the regulated market grew 78% because of this consolidation, And we saw 46% of growth in the average tariffs for this market. Usually for Saesa, we had lower tariffs compared to other plants in our Eletrobras group. And we are still talking about a very relevant volume, around 3,800 gigawatts hour, BRL 23.78. Now for the 3rd project or product, which is very promising for the future of our company, is the volume that we're trading in the free market.

Speaker 1

So this includes not only the reduction of stake, which we mentioned before, But the volume that we have for Saiza, we had a 14% reduction in volume and a 14% reduction in revenue from this market. So in this quarter, we had BRL 198 for this. As I was saying, It's around 14% of increase compared to the previous year. The volumes that are not traded here are settled at the CCEE. This is the lowest volume, as you can see in the chart.

Speaker 1

So The total energy that we sold this year, and this represents an increase of 8% Year over year. When we see the total revenue for this company, we see a growth that is actually 23%, not 8%. We go from BRL 5,200,000,000 to BRL 6,400,000,000. So if we look at the product, Electricity sold by Electrobras, that leads us to BRL 211 per megawatt hour. This is relevant.

Speaker 1

This is good performance in this quarter. It takes into account the capitalization process, allows for increase in volume, but also better pricing for the products that Elatrobras is offering both in the free and regulated markets. Now we have something that we'd like to clarify for analysts. It's an important disclaimer. This is how our company works.

Speaker 1

We have our resources for the Q2. And as you may recall, we have a few clients under the 13,182 Act. So it would be possible for some of these clients to be decommissioned. In the 3rd row, we see the volumes of decommissioning. We have a minimum term for the decommissioning period.

Speaker 1

So we go from 160 to 270. This is added to our resources. And now this is going to be made available to the market, And they will be sold according to the prices that this that the company can achieve. You can see the numbers here. We start with 9,571 And we get to 4,424 in 2027.

Speaker 1

So compared to the Q1, We see growing numbers. This means that we're selling more quarter by quarter. We sold 880 8,875 gigawatts hour for 2023. And in this quarter, we sold another 9,571. So the variation or the fluctuation in sales is shown in green.

Speaker 1

Now in blue at the bottom, we see information based not only on volume, which we see at the top, but also on hedging. This is why it is important for us to report on our GSF and our forecasts. We can't just be caught off guard with a higher GSF. This is why we have a very structured process. But in the Q1 for 2023, we had 18% or actually 11% of decommissioning.

Speaker 1

And for this quarter, we have only 6%, so from 11% to 6%. For every quarter, We have these products for sale up until 2027. And the volumes that are not sold in the second quarter are not as high as the ones that we had in the Q1, which shows that we are Getting to effective sales for every year for which products are available. We also have average contract prices of BRL206, we even get to BRL207 by 2027. So this is something we're monitoring weekly with my team so that we see the evolution of sales.

Speaker 1

We want to get the positive results, of course. We're also taking into account delinquency fees or delinquency rates. There's something else that we could have added here. The company ends up having a good perspective On the clients that we have, we already have 162 Customers. These are different industries, different companies.

Speaker 1

So we are working hard on acquiring new clients. We're working on sales contracts for our subsidiaries. We're making products available. We have submarkets for each of the subsidiaries. And we're working with the sales team so that we can better that.

Speaker 1

In the past, people would come to us, clients would come to us, but now we're Going to customers and we're making an energy offering based on our product portfolio. We even want to diversify our product portfolio. So I'm really happy with everything we're doing regarding energy trading. Now we can talk about transmission. 1 of the highlights is the 30% growth in transmission.

Speaker 1

Of course, we can think about inflation. We can think about IPCA at EUR479,000,000. We added more assets, EUR173,000,000. We had Reinforcements and Improvements, EUR 123,000,000. We had minus 76 for other adjustments and we had 3,320 with the new profile for our BSE.

Speaker 1

So for the 2023, 2024 cycle, we're going to see growth revenue of around 30% compared to 2022, 2023. Please remember that Eletrobras has 73,000 kilometers. That leads to a 38% stake in the Brazilian market. In the Eletrobras Day, we talked about a CapEx That has been approved of 174 big scale endeavors, EUR 5,900,000,000 until 2027. So as of 20 27, this leads to 846, but 132 will be realized in 2023.

Speaker 1

Now next, we have the financial performance. Oveira will be talking about this. She'll go into details regarding revenue Thank you, Wilson. Good afternoon. So now we're going to talk about our balance.

Speaker 1

We always talk about this every quarter. So to your left, you see the IFRS information. As I was saying, we had a 59% increase in our EBITDA, 16% increase in our net income. And so you're right, still in the same table, we see our recurring basis. So we see that the EBITDA was basically the same, but the net results were below our results year over year.

Speaker 1

Now let me tell you why this is happening. In previous quarters, we would always, always show the recurring results, but we would exclude our provisions, especially for compulsory loans Because in prior periods, before we started this work, This would increase provisions, therefore, reducing results. If we use the same criteria, the reversals of these Provisions, which are positive, are nonrecurring. This is why our EBITDA is kept at the same level, but we have a reduction in our net income. We have a few highlights to your right.

Speaker 1

Wilson mentioned some of them. We had around 4% Growth in revenue, this has to do with Santo Antonio Energia and its consolidation. This is the last quarter where we still have to explain the effects of Santo Antonio. As of the next quarter, Santo Antonio will have been at the same pace as the previous year. So we will no longer need to explain these effects Because in the Q2 of last year, Santo Antonio had not been consolidated yet.

Speaker 1

This is why we've been explaining these effects. It represented BRL 1,100,000,000. In the next Slide, we're going to talk about IFRS compared to our regulatory perspective. For the PMSO, we had a very positive Quarter with a reduction of EUR 144,000,000. We're also excluding Sant Antonio, which adds EUR 62,000,000.

Speaker 1

This is the fruit of our initiatives not only with the voluntary dismissal program, but also Other items in PMSO. This also has to do with collective bargaining agreements. For costs and operating expenses, Santo Antonio Energia adds revenue, but it also adds costs. So we see this impact of BRL 332,000,000. For construction, we are building transmission lines, so we have expenditures for that.

Speaker 1

For depreciation and repayments, once again, we see the consolidation of Santo Antonio with BRL 204,000,000 And we have the impact of concessions or grants, which were renewed when we went private, So BRL 193,000,000. For financial results, which we'll go into details later, If we have a comparison quarter over quarter, we have a EUR 1,800,000 reduction. This is mainly due to 2 things. First, Santo Antonio. As we consolidated, we have A financial expense related to interests, so BRL 741,000,000.

Speaker 1

The biggest impact here is related to our obligations regarding the privatization of Eletrobras. We have to pay fees over our CTE. We also have our projects related to basins and to renewable sources For the decarbonization of the Amazon, the legal Amazon. And as we mentioned before, we were working with foreign exchange. We swapped to CDI because we don't have revenue in dollar, and we invested our cash in CDI.

Speaker 1

So this brought us a noncash effect at BRL 4.58 1,000,000. Now when it comes to changes in foreign exchange, we had positive results. In the previous period from last year, we didn't have protections. The dollar went up, and we had negative results last year. So since this didn't happen now, When we compare it year over year, we get to these positive results related to foreign exchange rates.

Speaker 1

Now we can talk about our gross revenue. We had a 4% growth as previously said. I've already mentioned Santo Antonio, which is the green column related to generation. But with transmission to your right, it is important to say that with the IFRS, Revenue gets updated. The balance of our assets gets updated according to the IPCA rate, Meaning inflation.

Speaker 1

Since it changed and it used to be over 3 last year, but it's over 1 this year, we had a reduction here, EUR 1,134,000,000. This was mitigated by our Changes in OEM O and M, adding BRL 408,000,000 and also our construction assets Adding BRL 338,000,000. This is why we have minus BRL 388,000,000 here, Not EUR 1,100,000 or EUR 1,100,000,000 actually. Also this year, we're no longer responsible for ProCell, so we don't have the revenue that we had in the previous quarter, around BRL400 million, but we had both costs and revenues related to this And we're no longer responsible for ProCell.

Operator

We'll now see the breakdown of PMSO. On the left, top left, that's IFRS and at the bottom, the recurring view with the adjustments, 2 major adjustments basically. Number 1, the second BSP provision, dollars 500,000,000 that we have already mentioned and the San Antonio consolidation effect in the IFRS view is 1% increase. But when we consider we did not have Santatronic Neo last year and the VSP II provision is a one off event in comparable basis, we had a 7% reduction, as you can see on the bottom chart at 144,000,000 reduction. And on the right, these are the highlights.

Operator

In staff, dollars 134,000,000 an 11% reduction, which is significant, especially when we consider that we do not have ASP the increases of 12% last year and 4% for the year and new people that have been hired. Has to services in Blue, nonrecurring has to do with the Transformation Office effort. And in Others, we had legal cases as a result of the work conducted by the legal department. And there's another important activity, Wilson has mentioned that in the NSO strategy, which is centralizing the insurance hiring. So we have managed to reduce costs by CAD23 1,000,000 These are the highlights for AMS.

Operator

So now on to provisions. On the right, you see a summarized table, some provisions for the same period last year when compared to this year. In 2022, we had $2,200,000,000 in provisions, a reversal of 1,700,000,000 last year, let me remind you that as far as compulsory loans was $342,000,000 this year almost $1,500,000,000 For cases that are not compulsory, last year, we were at CAD475 1,000,000, an increase and this year a reversal of $184,000,000 This is one of the initiatives we mentioned during Eletrobras Day, just like we have been negotiating compulsory contracts, our VP, Marcelo, is already heading that process for other cases to review risks and we have been able to review that risk mitigation, that's why we had that positive impact on to investments. The second half of last or second quarter of last year, we had to account the losses for Sant'Antonio Energia already we have reversed that with the consolidation and the PCRD Amazonas Energia last year. So these were the highlights.

Operator

So in the quarter, we had DKK1.7 billion as positive effect, improving results by reversing our provisions. Let me break that down As far as the compulsory loans are concerned, ever since we started that plan In Q3 of last year, on the right, you can see the table of provision inventory for compulsory was almost RMB26 1,000,000,000 RMB25.8 billion to be exact and we're now at RMB22.1 That reduction amount for $3,700,000 or $1,000,000,000 rather for these quarters. In the current quarter, we had an inclusion of $1,400,000,000 just like I explained in the previous slide. When we take into account other agreements or other settlements that have been negotiated, we're just waiting for the final ratification of those settlements, they haven't been booked in the quarter. We had an additional $1,700,000,000 So we expect a reduction of from RMB22 1,000,000,000 to about RMB20 1,000,000,000.

Operator

So for the year, it will amount to a CAD5.4 billion reduction, almost 20% reduction. In red, let me point that out, the monetary adjustment given our interest rates. As our inventory provisions comes down, we also reduced the monetary impact for the quarter. And the last two highlights on your right. Since our negotiation strategy involves all compulsory processes or cases they have against us, we reduce off balance contingencies, that is CNY1.9 billion off balance and a release of $1,300,000,000 of connected cases, those that were used as guarantees.

Operator

So these are judicial deposits that amount to BRL1.3 billion. Onto the EBITDA variation. In IFRS, we had a 59% increase, but we deal these reverses as non recurring in adjusted basis. Our EBITDA was along the lines of the number we had last year. On to the next slide.

Operator

This is a net profit assessment. So since we removed compulsory events as nonrecurring, That's why our net profit is reduced, therefore. But let me point out a couple of things. The financial results, the column in red, dollars 1,800,000,000 this is impacted, it's on the right. So we have some important events.

Operator

Number 1, the privatization obligations, regional funds, CD amounting to $1,100,000,000 And then we had the hedge issue. I tried to break that down. Let me remind you of what we did. We had 2 bonds. 1 is $500,000,000 maturing in 2025 and another US759 $1,000,000 for 2,030.

Operator

When we signed that operation in late May, FX was $5.54 and swapped that to CDI. So the series is for 2025. It's now 97.4 percent of CDI and for the 2030 with CEI plus 1.7. So these are the relevant information we would like to convey to you. So these are cheap debts when we compare to prices today.

Operator

We wouldn't be able to leverage that loan had discussed. We're moving away from that foreign exchange risk because we're protected by CDI. And that effect of $467,000,000 which is a non cash effect is the result of the differences of these flows because once we concluded the operation, FX came down and our CI was high. And for depreciation and amortization, another column in red, dollars 400,000,000 And the number one reason behind it is due to the new concession contracts we have been depreciating ever since the privatization and again the consolidation of Sant Antonio Energia. Moving on to the end of my presentation, on to the next slide.

Operator

This is the net debt adjusted EBITDA ratio according to our financial discipline. We have been able to maintain our 2x indebtedness level, as you can see on the left. And on the right, you can see detailed information of our debt profile, RMB57 1,000,000,000 consolidated cash was CAD18.6 billion, net debt is about $38,000,000,000 Let me point out what I wrote at the bottom on your right. According to our explanation notes, in late June, We converted CAD4.1 billion through AFAC and intercompany debentures. As of July, we'll be able to see the results of the fiscal savings of that operation.

Operator

We expect we CAD180 1,000,000 savings for the year. Since this year, we only have half of the year, we'll be achieving half of that amount. I have my final slide of investments, and then I'll turn over the presentation to Wilson. So as we show every quarter, we show you the investment curve. In blue, investments by June amounting BRL2.5 billion and in green, the same period of last year, not including San Antonio allocations for the CapEx was BRL1 1,000,000,000.

Operator

So we have this major increase. And on the right, two highlights. We have that Impact of construction in Concilia Nigra investments amounted to DKK279 1,000,000. And also, Here the SP is we resumed Transnorte Energy, a very important project to connect Roraima, the state of Roraima. We had another or an extra $29,000,000 of allocations there.

Operator

So these are the highlights for the quarter. I'll turn it over back to Wilson. Thank you, Vera. Let's move on to the next slide, please. Let me point out a couple of investments we made, and we announced that right after Eletrobras date, BRL17 1,000,000,000 in contracted investments for the period 2023, 2027, dollars 6,700,000,000 in transmission assets.

Operator

We were talking about that these are assets for improvements that have been approved by Aneo, which is have a guaranteed revenue. We also have for improvements set of mills or plants operating in the quota system with an additional BRL4.6 billion there, BRL2.9 billion for Infrastructure and Environment. The first $1,000,000,000 is related to environmental investments, a little over $500,000,000 for the social environment programs that have already been commissioned for San Antonio and 1,900,000,000 for infrastructure. These are optimization efforts of our costs that can be ranked as operational investments, but they're actually necessary investments through automation, robotization of a couple of processes with intelligent networks, AI, dollars 2,400,000,000 for generation assets with New sources of revenue that have been commissioned, Eduardo mentioned, that's the wind process in Cochida Nigra and $700,000,000 in contracted M and As, Telespirit, Baguari, Retirobaggio, Saesa and Baguari Energia, these are assets will incur in cash outflow of BRL0.9 million. That's not all.

Operator

We have The outlook for growth. We have additional firepower. These are alternative sources of growth. Number 1 is the transmission auctions. Several auctions that are scheduled for this year and next year, dollars 35,000,000,000 in total.

Operator

The company was very competitive, the only company that was present for every lot. This is an important growth avenue that is interesting for the company. We do have M and A operations, not only for that, the reversal of cross ownership, we had that goal and that has to go through that reversal just like Neo Energia, but also M and A operations. We are considering renewable sources, transmission assets with the analysis of Elio's team and another BRL10 1,000,000,000 addition of investments to improved transmission system. We had RMB6 1,000,000,000 that have been approved in the previous slide, and we have that potential, given the age of assets, an additional BRL10 1,000,000,000 that would bring in an additional BRL1.2 billion of revenue.

Operator

And Ito will be leading the effort, analyzing the quality of the asset in partnership with Barre Jean. We are, of course, focusing our efforts to submit that for Anil's approval. Every single investment will have to be subjected to that risk return assessment submitted by our committees and our Board and everyone, of course, using the services of a rating company so that we can generate value from that asset because the rate of return has to be above that cost of capital. On to the next steps, this is our final Message to you, we're going through a transformation phase. This is the 3rd quarter I'm reporting.

Operator

My team has been working for almost a quarter together, but we're making a difference already. First one is the reversal of cross ownership strategy. Our goal is to reach 31 SPs. We had 74 earlier this year. We are at 68 now.

Operator

And we're working towards that goal as early as the beginning of next year. A second effort, we are advancing compulsory loans negotiations. We have $400,000,000 in under negotiation, dollars 1,700,000,000 have been commissioned. We had $22,000,000,000 of provisions. Early last year, we were at $26,000,000,000 By this effort alone, we'll be able to bring those number down by $20,000,000,000 We'll be reducing or completing the or eliminating the FX exposure, we do we are speeding up our tax strategy.

Operator

We do have credits above BRL13 billion. So there are several activities that have been shared since Eletrobras Day, almost about $8,000,000,000 in 4 years, can be even more. We had a trading strategy. Once we have that trading company, we better structuring our sales teams. We also have a trading desk.

Operator

We do have all the elements in place so that we can become a very good company in trading effort too. We are boosting the number of customers and people are coming to look for our products. We're also developing new products so that we can become even more competitive in this new market. Of course, our focus is on PMSO Savings. That's the number one asset that can be managed, that can deliver results on a short term basis.

Operator

A CAD 990,000,000 savings for this year alone, 39% has been realized already. 2nd half, this is even more heated, if I can put it that way. And Renato Carrera is leading this next activity. We have a whole set of real estate assets. They cost money, operational and maintenance, tax related costs.

Operator

So we have a team looking at this issue so that we can bring an additional BRL450 1,000,000 by next year. So these are some of the activities that have already beginning to that are already beginning to show some results. Compulsory loans among others, and I remain optimistic about these initiatives and we'll be able to deliver Very good results in the next quarters. I just would like to conclude by Thank For all the awards we have, and I speak on behalf of the Board, the best CEO, the best CFO team, the best IR professionals, Paolo, thank you very much for your effort. So this is yet another incentive to help us keep working harder and harder under Elvira's and myself leadership.

Operator

Let's get started with the Q and A session.

Speaker 1

So now we're going to start the Q and A session. We'll call your name and you'll be able to ask your question live. That's when you see a prompt to turn your microphone on. Our first question is from Andres Sampayo from Santander. Please go ahead, Mr.

Speaker 1

Sampayo. I have two questions. Let's start with Angra. We saw a number of articles this week regarding whether or not the government is moving ahead Could you please comment on your expectations regarding including this in the growth acceleration program? Now let's say this project is not built.

Speaker 1

What would be the impact for Eletrobras? Thank you for your questions, Andre. Let me start answering regarding Angra. Of course, this is a part of our fundraising process. So we're always working on the assumption that since this project is important for Brazil, They will move ahead with it.

Speaker 1

This is what we expect to see. We've seen speculation, But just a while ago, I was seeing the opposite. I was seeing that, yes, this Project will most likely be included in the growth acceleration program. So we have to wait and see, of course. But we need to remember that moving ahead with this project does not really depend on the growth acceleration program.

Speaker 1

Of course, we were waiting for the BNDES, the Brazilian Development Bank, to finish its studies, It's research. And after they're done with their research, then they'll think about the continuity of this project. We are working on the assumption that they are going to move ahead with this project. This is our hypothesis because this is the subject matter of this act. And we don't necessarily think that it needs to be a part of the growth acceleration program for them to move ahead with it.

Speaker 1

Now regarding the option you mentioned, let me hand it over to Limp and to Helio because they may have comments. Let's talk about your option, which is not ours. Thank you, Boesen. Well said. Indeed, the articles that we saw in the last couple of weeks were not even regarding Whether or not Angra Chess will continue or not, they were talking about the growth acceleration program, and these things are not linked.

Speaker 1

So this is a part of this act. It is a part of the PPI, the CNPE, the privatization program, The separation program for electricity and nuclear. So right now, we are doing everything and we are seeing everything be done as intended. For example, they are finishing their research They are working on the CNP. Now In the case of financing, we are The guarantors of this debt around BRL 6,000,000,000, but we are not the main debtor.

Speaker 1

This responsibility goes to Eletronuclear, and it goes up to shareholders depending on the circumstances. In the case of their debt, we are providing the collateral for debt. So it's possible that we'd have to reimburse it. We do not believe that they're not going to move ahead with ANGRA 3. But should that happen, We'd definitely make an assessment of all potential impacts for Eletrobras, but we do believe they are going to move ahead with it.

Speaker 1

All right. Thank you. By the way, let me stress something. We've been working according to the privatization rules. According to these rules, not only do they talk about moving ahead with Angra 3, but they also talk about governance rules For Electronuclear, their CFO, 2 Board members, Members from the auditing committee, members from co UNGRA, which is the committee responsible for overseeing UNGRA 3 works, All of them are aware of it.

Speaker 1

So we're close to them, and this has to do with the management of Electronuclear. Of course, they are taking into account everything that is in their best interest, both for the company and the shareholders. Yes. And here we have Mr. Elio Wolf and Ms.

Speaker 1

Camilla Araujo, who are representing us. And Electrolux really values this topic. We have 2 VPs working on it. Our next question is from Mr. Daniel Almeida from Buchia Investrimentus.

Speaker 1

Mr. Omeda, you'll be able to unmute now. Regarding your next issuances, what would the rate be? Do you expect to reduce your capital cost? This is our goal.

Speaker 1

Not only do we want to make it longer, but also to reduce costs. What happened with Lettronarti is something that teaches us Even though we need to think about the debt scenario that we have right now, somebody else may have a comment like Uvira. And I think it is important to talk about what we're doing. Yes. Unfortunately, Daniel, we can't convey any information about this because we Cannot, legally speaking.

Speaker 1

We issued a material fact, but this is regulated by the Brazilian Securities Committee. This is only the beginning of their proceedings, so we're unable to share any preliminary information. We need to wait for the securities commission to do their work, to do their job, and then we'll be able to talk about it. But this is regarding Elektronarti as reported in June. Thank you.

Speaker 1

Thank you, Daniel. Our next question is from Mr. Daniel Trubisky from Safra. Hello, everyone. Good afternoon.

Speaker 1

Thank you for answering my question. I actually have two questions. First, I have a question regarding energy trading. We saw implicit prices for trading in 2023, and they were very high BRL 179, which is very which is above the spot price. And it's even above the price curves that you showed us.

Speaker 1

How did you get to these results? Could you please talk about the rationale behind your strategy? My second question is related to capital allocation. Wilson, you mentioned transmission auctions to be held soon. Now if we think about direct currents, and we have an auction for that in December, What kind of opportunity do we see there?

Speaker 1

What do you think about the competition? What would be your technology challenges to put this project together? Thank you, Daniel. So let's talk about trading first. When it comes to these implicit numbers, These are the result of a strategy that we actually deployed last year.

Speaker 1

Trading is something that requires planning. It requires a specific view. We have a strategy committee to work on that. They think about the evolution of demand and the potential scenarios that we may see in this system. Additionally, they also think about deliverables from assets with more or less flexibility vis a vis the electricity system.

Speaker 1

All these three factors have an impact on pricing. So if you look at these prices 1 year ago, You have a more favorable scenario, but the economy is not as dynamic, so you sell forward. This is what happened with Eletrobras. So the first answer is to get to these prices, we actually designed this strategy last year, and we sold forward. But as I was saying, we were successful.

Speaker 1

But it's important to highlight that this is not the only strategy to get to higher prices the case of Electrobras, Electrobras is one of the few companies with energy volumes that could be traded not only in the short term, But also in the long term, we retain our rights over these volumes over 30 years. So we are one of the few companies who are able to do that, to offer Different offerings to customers in the long term with different propositions regarding curves or flexibility. So with our volumes, we definitely have more flexibility to customize our supply to specific customers, which we believe is important. Number 3, we changed our strategy compared to last year. We were basically operating based But the open market right now is 10000 to 12000 customers.

Speaker 1

They are what we call the A group, the high voltage group, 32% of volumes. But this market will be expanded as of January of 2024 with over 100,000 customers becoming a part of it. So we are customizing this B2B market With all of its specificities, we have advisory services behind us. We are working with very smart People who are trying to prepare us so that we have the right tools in our trading table in order to create more value and offer offerings that stand out and add value to customers. So for the numbers we have for this year, they are definitely the result of a strategy that we started deploying last year, which was really successful, as I was saying.

Speaker 1

We made a few improvements this year as well, Especially when it comes to our sales team, they've been looking for customers instead of waiting to be approached. Regarding capital allocation, Elio Wolf is going to add something to this, but I'd like to say something about transmissions. We clearly see advantages because we are scattered all over the country. We have a structure in every state in the country, and that's a perk. We were a very large company in the past.

Speaker 1

There was too much. But now, Oftentimes, we're able to purchase equipment at a bigger scale. We also see how important it is to look at our operation structure from up close. So if we have an asset in the Northeast, of course, people from Chesf is going to be on top of it Because this is going to be a better utilization of this asset. It will be easier for us to hire 3rd parties at a better scale for this kind of operation through this kind of approach.

Speaker 1

So if you look at results from the previous auction, we were very competitive. And at the time, the team had been on it for under 3 months. I'm really hopeful that we'll keep on making progress here. I believe we'll be even more competitive in the next auction. Now regarding direct currents.

Speaker 1

We could talk about a technology upgrade And we'll need it in Brazil, and we're ready for it. We have partnerships with the state grid for Belo Monte, with asset tap for the Madura River. We are the operators of the direct current coming from Itaipu. So we need to increase the reliability of our system and to reduce losses, and this is the technology that will be used. Elio may have something to add to it.

Speaker 1

So our team is looking for this kind of partnership so that we're very competitive. I agree. Let me add something. I think the last auction was just the beginning. We're working on it And we're studying, we're doing our research for December.

Speaker 1

In December, they are going to focus on a batch of around EUR 18,000,000,000 to EUR 19,000,000,000. And there was a change recently, you may have seen it, Looking for better competitiveness, the regulator decided to have bids Split into 4 sub batches. We have the converter with the main batch and 4 Sub batches. Well, this bid is going to happen in December. As Wilson said, we've been talking to partnerships and suppliers.

Speaker 1

We'll have an ongoing conversation with them. We also have preliminary research trying to identify roots and the best Pets are also trying to figure out the best structure as far as cabling goes. So we're getting ready for this auction, not only for the big batch split into 4, but the other batches as well, batches 23. So for December, we are proactively preparing ourselves to send our bids. Our next question is from Mr.

Speaker 1

Enrique Pierrette from JPMorgan.

Operator

You can go ahead and ask your question. Mr. Junckera asks the next question. Hello, can you hear me? Go ahead.

Operator

You can answer your question. Thank you for taking my question. Let me talk about ANGRA III. Part of the reason why this discussion comes up and it's a recurring topic. The market is very fearful of this topic, if it is decommissioned, the company would be losing BRL10 1,000,000,000, BRL12 1,000,000,000.

Operator

You hear that kind of comment left and right. I may be completely wrong, but I have the impression that is due to communication problem. So once again, we'd like to take this opportunity to ask your opinion if there is a decommissioning happening, what is your take on those debt? Electro Nuclear would default 2 debts, dollars 6,000,000,000 That seems to be a very radical or extreme result. But could you explain how these costs would be broken down, how they were calculated if it happens?

Operator

Along the same lines, can the company provide any kind of guarantee or would Eletrobras would have to collect or increase its capital? Would the company have to do that too? We know it is mandatory in the case of the construction portion of the project. So I think it would be interesting so that we could all share the same opinion because that volatility is not helpful to anyone. I'm positive you were right and would like to take this opportunity to clarify this issue.

Operator

Despite the importance of this asset, so the basic scenario is that of continuity. But let me remind you of 2 things. The controller of the company is the Brazilian stent, the MBPAR. They have an almost 70% of common stock, Eletrobras has more a bigger stake of the capital. It has less than 40% of the common stock.

Operator

Well, this company, when we operated it, it was a company that ran at a loss. It's no longer the case with Angra 1 and 2. The EBITDA is robust and positive. So it can cover for any adverse effects won't be able to clearly withstand all of those negative effects. And Wimpey and Novara, you can also provide more detail about the financing.

Operator

And according to the law and based on the agreement we signed. I was trying to unmute myself. Well, on to the debt, dollars 6,000,000,000 Eletrobras is the guarantor of that debt. So if they cannot cover, Eletrobras can become sued. But legally speaking, we are entitled to look for compensation from Electro Nuclear, if we are executed.

Operator

As to the demobilization cost, there is no direct guarantee from Electrobras. It's up to Electronuclear. If Electronuclear is not able to cover further cost, that can reach shareholders, but not Electrobras alone. That is also valid for the controller. If you increase the capital, we would have to make an assessment, but that would involve the entire legislation of Eletrobras as a shareholder.

Operator

I wouldn't be able to tell you whether Electrolux would be forced to allocate resources there if it's not related to the construction part. But we have to take a deeper dive to better understand this topic. And there are no exact answers. You cannot quantify the impact in numbers. It's not a We are the guarantors, but we can find compensation.

Operator

All the other costs are Electro Nuclear, but there is a direct guarantee, as you said. But if Electro Nuclear is not able to do that, that can impact shareholders, not only Electrolux, but when you say impacting shareholders, would that mean the equity, so your equity at Elektra Correa would be worth less? If you increase capital to decommission, would you have to follow the 36% rule or that's not the case? Well, we do not have that answer. We have to analyze the scenario because that's not the scenario we're working with.

Operator

But we have to take a deeper analysis. If that's the case, you cannot guarantee anything. You'll not be purchasing equipment, the commissioning costs ex debt, the company is not we're not creditors, no. And that decision of decommissioning is not taken by Eletrobras. That would be the burden of those that make the decision.

Operator

In such a case, this is going to be assessed by the controller. As a controller itself, We'll be answering according to our participation. Electronuclear has a debt net to EBITDA about 3.3 But the entire debt is from Angar III, yes, the rest is net cash. It's a very solid company generating EBITDA. It's a 3x budget.

Operator

It's a company owned by the state, but we're talking about the state defaulting a debt. State that would be a $1,000,000,000,000 worth of debt. It would default the debt. I think the stress is due to lack of information. That's not your base scenario.

Operator

But I think it's worth further explaining it on a step by step basis so that everyone would speak the same language. You're right. You're right. We're working in that direction, Junkyra. The Board will be addressing that issue.

Operator

Mr. Marcelo Sa, Itau BBA, asks the next question. Thank you. Could you please elaborate on the CapEx? You break that down by segment.

Operator

But out of this commission CapEx, what part of it does not generate revenue? It's 1.5 worth of revenue generation, but there was an additional CapEx that is non recurring. But should we consider that RMB1.5 billion For maintenance purposes, there wouldn't be generating revenue necessarily. And could you please elaborate on the capacity auction that is scheduled to be hold in Q1 of next year. And competitors are not looking for a hydro only solution.

Operator

So what's your take on this next auction? Are there any projects willing to take part? What would be the amount available? And what is your estimate as far as capacity hiring is concerned. I'll turn it over to Helio Wolff, and then Lemp can jump in to talk about CapEx and the capacity auction.

Operator

Over to you, Alio. Hello, Marcelo. The first block is related to revenue, and I mean transmission. The 2nd block, the maintenance CapEx, and this should be regarded as recurring CapEx that is nonrevenue generating. It's for $0.75 billion in 3 years.

Operator

So that's the maintenance recurring CapEx that will this is the non revenue generating, right? Yes, exactly. The $3,000,000,000 is a mix. Part of it should generate revenue from improvements and there's a part from modernizing equipment. And I think it's important to speed up that process of MSO, but this is a one off event.

Operator

As far as the environment is, most of it coming from Saesa, these obligations would be dwindling As years go by, these are nonrevenue generating, but there's a progressive phasing out of that process. And there's Caesilia, Caesilia is a new asset and then there's M and As. So In essence, as far as modeling is concerned, 1.5 is non recurring, rather is recurring, non revenue generating. This is the best answer I can give you for your model. And for the auction.

Operator

Well, let me clarify one thing about CapEx. As you're showing, you said that nonrecurring forward generation, there's a little bit of improvements. But in 30 years, would there be any leaps for modernization efforts that would be outside those RMB1.5 billion? Are there any surprises looking ahead? No, there are no relevant surprises further down the road.

Operator

Well, if we detect any opportunities to modernize or maybe repower units that could generate important revenue, of course, we'll take that into consideration. But we don't envision any of those surprises as we speak. On to the auctions, we have projects of renewable sources. We as far as thermal plants, we are divesting or divesting from those operations. It's currently underway.

Operator

There's a teaser in the marketplace about it. So we are divesting in those areas. But of course, we'll be addressing the capacity, depending on how EPE designs it, we'll be looking for opportunities not only to sell energy, but also to come up with new projects to make that opportunity possible for the group to grow even further. But we have no volumes set aside specifically for the auction. We have to learn How the government will be defining that auction?

Operator

The types of modalities, direct participation, whether it's a possibility, hybrid services. So these are possibilities we have to take into consideration so that we can define how we are going to be part of that auction. Yuri Goulart from Trivia Investments is asking the next question. Can you elaborate on your interest in the capacity auction for next year? That's The question we have just answered, I think he read Marcelo's mind.

Operator

Would you like to say anything else, Limp? No, that's it. We have to better learn about the premises and how the rules will be detailed, just like the previous auction, only for thermal plants. That would be completely the opposite of our directions today. Thank you.

Operator

We turn over the floor to Mr. Wilson Ferrera for his final remarks. Well, thank you for attending our Q2 earnings call. I'm very pleased as well as the team is as to the start of the realization of the results after the privatization process. Some benefits are evident.

Operator

We're talking about more revenue from the free market. This is the result of that decommissioning. And we have better benefits to extract once we have the trading company set in place. Last year, the company was reduced through to a series of voluntary termination program. We have had 2 of these programs.

Operator

We are hiring new people. Some people are leaving the company, and we do have to have a mix in place that can provide more productivity and cost reductions and being more productive in the marketplace. We have a very experienced team as far as MSO, Head or Led by Renato Carrera. He has a lot of experience even abroad, but we brought in several people from or to Renato's team to be able to better negotiate materials, 3rd party services, inventory. We have 95 warehouses.

Operator

We have 7 data centers, 4 shared services centers. So we have been working hard to optimize these assets. These are currently underway. And once again, we have advanced significantly our liability management strategies. We'll be able to show those results in the near future.

Operator

We've done that at Electronort. So this is just the beginning of that effort. We still have a lot of homework to do as far as tax and fiscal optimization. That's our focus. This is our priority.

Operator

And absolutely, we not only have to operate efficiently and with safety, but also remaining competitive and focusing our opportunities on transmission, I'd say it's a need for the country. That's exactly where we can contribute substantially and also generating value and being competitive and our reversal across ownership, especially taking opportunity of M and A opportunities in the marketplace. So I'm certain we are heading the right direction. We've been here only for 3 quarters. But for the first time, we have a clear vision of the entire team.

Operator

I'd like to thank the entire team. I failed to mention the non recurring of compulsory loans and we have managed to evolve dramatically after 6, 7 months at an effort led by Paula and Marcelo Siquera, I think there is important road ahead of us, but over 20% of provisions have been brought down in record times. We're gaining traction. Processes are better structured. There is no other company in the energy industry with our size, with our possibility to reduce costs and generate value, reducing financial costs and at the same time creating value to optimize our tax expenses and also have the possibility to grow.

Operator

No other company can do that. It's a unique asset at a time in which our target price is much bigger. The upside is very relevant. It's important to mention that the team is committed to realize those possibilities, and we'll be seeing those results coming in, in the near future. Once again, thank you for attending our earnings call.

Operator

I wish everyone a great day. This concludes Eletrobras earnings call. Thank you for attending. Have a good afternoon.

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Earnings Conference Call
Centrais Elétricas Brasileiras S.A. - Eletrobrás Q2 2023
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