Engie Brasil Energia SA
BOVESPA:EGIE3
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Engie Brasil Energia SA
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Hello. Good morning. We are now beginning the conference call to discuss the results of Engie Brasil Energia for the first quarter 2022. My name is Rafael Bosio. I'm the manager of the company. [Operator Instructions] And as we open the Q&A question, you can address your question, post your questions using the platform on our site, which is www.engie.com.br/investidores. A slide presentation and the company's earnings release, in addition to other documents, as we disclosed to the market, and we provide the detailed information, or more detailed, on our operations, new projects and the analysis of the financial statements of the period.
Before proceeding, I would like to clarify that our statements that may be made in this conference call regarding business outlook of the company should be treated as forecasts depending on the country, the macroeconomic conditions of the performance, and the regulation of the electric [ sector ], besides other variables, therefore they are due to changes. Journalists who wish to ask a question can send their questions to the company's press office.
I turn the call to Malta, the financial director of energy who will be with me during the presentation to begin our activities. Malta, you may proceed. Thank you.
Good morning, everyone. It's an honor to be here once again, in this event to present the results of the first quarter 2022 of our company.
On Slide 5, we can see the highlights related to the first quarter 2022. On the graph to the left, we can see an increase of the EBITDA and the net income of 8.8% and 21.9%, respectively. On the right, we can see some of the important drivers that we have for the results of the first quarter of this year, and one of them is the increase of our average net sales price up 9.9% and together with a small volume of sales of energy in this period, amounted to a revenue of BRL 203 million. We had a lower cost of fuel for this quarter, and this was driven by the sale of thermoelectric complex Jorge Lacerda in 2021. On the other hand, we also had the volume of purchase which was quite significant of Jorge Lacerda, which was contracted at the moment we sold the asset.
We also had a very important contribution of BRL 78 million in the segment of transmission. And this impact is only economic, and this is due to the remuneration of the financial assets of construction, according to a specific accounting practice. But we would like to reinforce that these assets has already started to generate some cash, considering that we have them already with our operation started and the amounts of the RAP of Gralha Azul amounts to 650 million a year. Considering that those assets started operating in the past few months, in order to make it easier for us to understand the impact on our results, considering these transmission results, we are going to start to disclose a reconciliation from the corporate result and the regulatory result that in essence would recognize, for example, as RAP revenue, the assets in the mobilized and cost of operation and et cetera. So we understand that with this, you will be able to understand in a more clear way the impact of our assets related to transmission on our results and cash flow.
We had some important variation in our financial result year on year, considering that we have the important variation of inflation rate in the 2 quarters. So with this, the effect was only 8 million in the financial result, but we would like to reinforce that the impact for each of the quarters was quite significant. And in this quarter, for example, we had the financial expenses of BRL 974 million and financial expenses of BRL 150 million. And these reduced our net income in the 2 quarters. Next one, please. On Slide 6 we have the highlights, and I would like to draw your attention to the completion of implementation of Gralha Azul. In the end of April we had insured 77% of the RAP, and in May we hope that we are already going to reach 95% of the RAP already assured. We would like to say that RAP annual for Gralha Azul is BRL 275 million. The Novo Estado project is according to the implementation schedule. We have already insured for April 50% of the RAP, and the expectation is that by the end of the fourth quarter, we have the RAP completed a hundred percent, which is fixed in the amount of BRL 370 million a year. As we have already announced, we have completed in March the acquisition of the Photovoltaic complexes Paracatu and also Floresta that added about 218 megawatt hours to our portfolio. And we have reaffirmed our AAA rating at the national level.
And we have recently seen the alignment of our growth strategy, and as a result we approved the wind project Serra do Assurua, and the approval was during the Board that was held yesterday. The installed capacity is estimated at 880 megawatts and the investment will amount to BRL 265 million. We would like to mention that this project is a high-quality project. It has a capacity factor which is high, about 50%. It already has the access reports. And most of the lands have already been regulated and regularized. And I could say that they are very, it's very close to its implementation, and we are going deeper into our studies, but we believe in this project; we place our bets on this project, and we are working with a controlling company, so that by the end of their year, we make a decision in relation to the implementation of this project. As I said, our expectations are very positive and very high. And with this project, we are going to increase our project pipeline to about 3 giga: 1.7 giga is wind and 1.4 is solar.
We approved the distribution of complementary dividends for the fiscal year of 2021 in the amount of BRL 549.8 million. We issued our sustainability report; it's already available. I would highly recommend your reading this report, whose content is very rich, and it will help us understand our business. And lastly, Engie group decided that hydrogen projects in Brazil are going to be conducted and developed by Engie Brasil Energia. And we already have a company which is fully dedicated to this business. And we believe that, as of now, considering this focus on project development of hydrogen inside the company, we will discuss our perspectives along the next quarters. We are going to disclose what we have been doing and what we believe to be the development opportunities of projects of this nature.
I'm going to turn the call to Rafael, and then I'll be back to make some additional comments on our financial performance, Rafael, you have the floor.
Thank you, Malta. Now we are going to talk about ESG indicators. We have already disclosed on a quarterly basis our performance in the -- for the year. We also discussed social/environmental KPIs along the 10 years already, but now we have this in a clear way during our presentation. And in the first quarter we report a consistent improvement in our data, and of course they are related to the divestment that was made of the thermoelectrical complex Jorge Lacerda, as mentioned previously in the presentation. So we have, you can see the reduction of the total emissions and other impressive data. And this reflects the number of women in the workforce. And the complex had men, mostly men working and the assets.
So this also this initiative brings more diversity to our workforce and we are going to continue to report information related to ESG. And as we sell Pampa Sul, we are going to provide more information. And the divestment of Pampa Sul is expected to be ended by this year, the completion of this year. Now talking about our commercialization strategy, this is the quarterly update. And if you want to compare with the numbers that were disclosed in the previous quarter, we would like to mention that we continue contracting energy in the short, middle and long terms. We -- so the average is above 80 megawatts for the, for second quarter of 2022. And if we see the attachment of the presentations, you can see the energy balance and you can see that the prices of the new sales have contributed to the increase of the average prices.
This is what we have been mentioning, and the energy prices have been pressed down in the previous period due to the cost of implementation of the projects, the increase in the interest rate, as well as restrictions in the supply chain. And we have seen that there's space, opportunity, to charge the right prices so that we can continue our growth according to the strategic plan of the company. Moving on to talking about the commercial strategy. So this is our share in the market, and there has been a drop in relation to the first quarter 2021. And this was a result basically of the hydroelectric crisis that we went through last year. We had to reduce the sales pace in order to preserve the energy in the portfolio so that we can have an hedge in order to mitigate against the electric energy deficit generation.
And we are going to be summarizing the acceleration of commercialization for the next quarters. Now moving on with our presentation, you had access to the presentation, so I would like to draw your attention to some points and what we have been celebrating, because we have accelerating our implementation. We have 45 of the turbines with the bases already contracted, the construction of the substation has moved more than one third of the physical progress, leading to an overall physical progress of about [ 14.5% ]. And the perspective is that the operation will start by the fourth quarter of this year and with a full commercial operation in the beginning of the first quarter of 2022, increasing our installed capacity. The next capacity which also made headway in a significant manner, I'm talking about Gralha Azul, at the end of the quarter we had the right to receive 77% of the RAP as [ indiscernible ], but in April we had another progress, reaching 87%.
And now in May, we stand at 95% of the receiving of the RAP and we will see -- we'll reach a hundred percent in March next year, considering that there are some regulatory-related restrictions that depend on the transmission line, which still to start operating, that is planned to start in March next year. So we are anticipating the operation, the start of operation, and this will help us flow the transmission of energy. And another project of a transmission line in the state, and there has always been a significant increase reaching, in the beginning of May, on the 1st of May, 50% of the RAP and the project continues advancing, and it is likely to complete by the end of this year. On slide related to the expansion of Jirau, we are updating the expansion of the asset. We do not have a lot of update in addition to the excellent performance of the plant and the independent board of related parties is going to consider a transference to the controller, to Engie Brasil Energia.
And next slide, still talking about expansion, we have the projects that are more at advanced stage of development, and those plants are not under construction yet. They are at a stage of being authorization for construction. And the news that Malta has already mentioned in the beginning of the presentation is the inclusion of Serra do Assurua in the wind complex into our portfolio. And this is going to be implemented in Bahia with installed capacity of 880 megawatt, as Malta commented. It's at a very advanced stage of development now, and it's likely to be in operation in time to use the regulatory benefit and discount of the transmission tariff. Malta, over to you to address the financial performance.
Thank you, Rafael. This slide shows a little bit of the soundness of our performance in the financial aspect. We can see the indicators that would reaffirm our financial discipline and how we allocate our capital very efficiently. On the right, we can see the evolution of our investments and our financial performance from 2016 to 2021. Next, this slide shows the evolution of our revenues. We have [ already ] mentioned in the highlights that the increase of prices and volume of energy added BRL 3 billion to our revenue. We had a reduction of the volume of operations of trading of BRL 95 million, but we also had a reduction in the volume of purchase, so the impact on EBITDA was negligent. And assets in transmission, the revenue is reduced because it's just natural that when we reach to a more advanced step of implementation, we reduce the CapEx. So when we compare the CapEx of both quarters, we had a reduction. And as a result of this, there was also a drop in the construction revenue. You will see that on the EBITDA, as I mentioned before, the impact of this transmission activity was BRL 78 million. Next, please.
This is a little bit of the result of TAG in this quarter, is added to our EBITDA BRL 173 million in the first quarter 2021. The result of equivalence was something about BRL 175 million. So the performance quarter-on-quarter is quite consistent. Next. Here shows the evolution of the EBITDA, we have already mentioned in the beginning of the presentation the main impact, and I'm going to repeat: price and volume of energy. Fuels, we had a drop because of the sale of Jorge Lacerda. On the other hand, it was an increase in the volume of purchase of energy that was driven by the sale of Jorge Lacerda and the effect of the assets of transmission that added BRL 78 million to our EBITDA. Here is a graph with the net income change.
The main effect that impacted this evolution or this change was the impacts that have already been mentioned in our EBITDA. This slide shows basically the information about our indebtedness level, that that over EBITDA is still very comfortable. There was an increase from 2x to 2.2x times as a result of the acquisition of Floresta and Paracatu complexes when we incorporated the debt of these. And we also had the payment of dividends in this quarter. So, these were the main justifications for the increase in this ratio of net debt over EBITDA. We closed the quarter with a debt of BRL 16 billion and a cash of BRL 4.6 billion.
Here, you can see the profile and the composition of our debt, the breakdown of our debt according to the indexing aspect, and our share is [ pretty fixed ] and is going to become mature in 2022. We would like to remind you that we had a debt swap of some swap from CDI at the end of 2020. And this decision was very assertive and correct. And it has added a lot of value to our financial results. So we continue with a significant position of the IPCA in the breakdown of our debt and the nominal cost for the quarter ended at 14.5%.
This slide shows our history of investments, that was very significant for this year. And for this year, we have estimated BRL 3.4 billion, and most of this volume is going to be used in the construction of [ Santo Agostinho ] in 2023. We basically, we have [ Santo Agostinho ] also and we hope that we are going to approve the investment at Assurua and that this volume of investment as of 2023 should grow. And this is the evolution of our payment of dividends. And last year we paid 100% of our adjusted result, equivalent to 6.2% of dividend yield.
And with this, I end the presentation and I will open the Q&A session.
Thank you, Malta. [Operator Instructions] We have 2 questions already coming from [indiscernible], our individual investor. The first question is related to the transfer of Jirau. And his question is, in case of completion, it's a bit difficult or complex to answer this time. So, he asked what would be the potential increment of revenue generation. Is there a trigger to unlock the beginning of this transfer?
Thank you for the question. It's always important to mention that Jirau is an asset which is controlled by our controlling company. So, we do not have a lot of access to information or more precise information about Jirau, considering that this asset may be transferred at some time in the future. Therefore, we try to maintain independence from Engie Brasil Energia and Jirau. So, we do not have access to this information as a result of what I have just mentioned, but as this process gets mature, of course, we are going to be conveying this information and reporting any additional data about this process, should there be any transfer of this asset.
Thank you, Malta. The second question comes from -- considering that the recovery of the reservoirs in the South should we expect an increase of revenue? And he also gives a tip to the answer, it might not be translated into revenue considering the drop in the spot price.
I do not know if I quite understood the question, but I'm going to make some considerations in relation to it. Yes, we have seen this. There has been a rise in the reservoirs levels. And of course this will impact the GSF. And this is what we have seen. We have seen that GSF has been behaving steadily in relation to the previous year, and also the spot price for the quarter has been close to the expected, but as to GSF and the spot price, we tend to be more flexible or not in terms of the reserve we have in our portfolio in order to protect from the GSF. So an increase of revenue or a mitigation of the prices considering the impact of GSF will depend a lot on our prospects in terms of hydrology and also the levels of reports. So our strategy along the year may change in order to be aligned with those prospects of hydrology and energy price. So, trying to answer in an objective manner, it may or may not impact our revenue. But yes, the MRE is very important, because we have to remember that considering this mechanism is replaced by the theoretical optimization tariff, which is a tariff much below on the contracted energy in the short term. And the values are below BRL 15, the megawatt hour. And even if we produce more, the generated revenue is not going to be very significant. And in the long term, we purchase energy in the MRE considering that other plants have a higher generation, because their hydrology situation is better.
Even though we are present in most regions of the country that that happens. Bruno, that if we had not answered your question, please let us know, and we'll provide more clarifications and we can talk more about it.
Next questions comes from Leonardo Athena, analyst. He is asking about CapEx. Malta, out of the total of BRL 3.45 billion, how much would be addressed to Santo Agostinho?
Santo Agostinho, BRL 1.73 billion, including an investment that we made in Floresta and Paracatu. So this is basically it: Santo Agostinho BRL 1.6 billion, Floresta and Paracatu BRL 700 million, Novo Estado BRL 700 million, and the maintenance of assets, BRL 300 million. So, this is the breakdown of this CapEx of BRL 3.45 billion.
Thank you, Malta, now I'm going to ask another question by Leonardo. He's asking about the volume of sales. Why is there a discrepancy from what we have in terms of contracted sales and the volume of sales recorded for the period?
I think he's comparing it to our energy balance. Leonardo would like to remind you the energy balance does not consider the GSF.
And this is discounted from the commercial capacity of the plants and does not consider the flexibility of the agreement, right, Malta?
Yes, exactly. This would be the answer.
Shall we change the focus a little? Let's now talking about long term strategy, Malta. It is an analyst of [indiscernible], he is asking us to give some more details about green hydrogen. We are not talking about projects, right, Malta, but we can talk about the structure of the company with that purpose.
Yes, I think it's important to mention that we already have a team which is very experienced. These are people who have operated in hydrogen projects for quite a while. So there's one officer that has already joined our team and he already has a team already structured and they have been working on the expansion of the team. We have been talking to the market, we have already considered different opportunities,
and in one of the cases, we have already presented an MOU. And for the time being, we cannot provide more details or mention the company involved. But I believe that in the first quarters, we are going to disclose more information in relation to this MOU. So in addition to this, we have also considered other companies to consider or evaluate the opportunities of partnerships. We would like to mention that the German government is about to launch invitation for the purchase of green hydrogen with incentivized resources by the German government. And one of the projects that we are considering and we are discussing also may be related to this expectation of use opportunities of this auction. So this is as much as -- the most that I can disclose to you at the moment.
Thank you, Malta. Another question focused on commercialization.
If, when looking at the future, you tend to focus on the free market and the captive market. The market has seen that we have focused on the free market in order to grow. We were one of the first companies to develop a project of renewables. And 100% of the energy was directed to the free market, considering the low prices and the competitive market of the regulated market. And with expansion of the free market, we can see that the opportunities are going to be offered. So I think this is the market consensus, it's not something that is only limited to us, and our competitors are also going to be focusing on the free market. And the perspectives are very positive when we see this expansion, and we are ready to make sales in this regard, and we already have a platform energy marketplace.
We already have a digital project in order to streamline the contracting process. So we are looking at the migration and capture of smaller clients to include in our portfolio. Would you like to add anything, Malta?
This is basically that [indiscernible]. We would just like to remind you that our latest projects, the ones that we have implemented, they were all made feasible with the energy sold in the free market. For Assurua, we managed to implement it and it's going to operate in the free markets. I think this is the trend and we believe that we will have good opportunities of sales in this market, and this is the path we want to take.
Perfect, Malta. Now going back to debt, Lucas, individual investor, he says we see low indebtedness level and we see some projects underway. Are you planning on new captures?
So it's important to say or to discuss about our indebtedness, because the individuals are usually concerned about this indebtedness level. Yes, as was mentioned, our debt level is very comfortable yet. We have a lot of room to finance new projects. That would include Assurua, where we have the opportunity to finance part of the equity of this project.
So I would say that if we approve Assurua, we are going to have a capture of resources. And even with the implementation of Assurua, we are going to continue with a very comfortable situation in terms of indebtedness level. And we may even keep a high level of dividend distribution.
Okay Malta, thank you. We have a lot of questions here, which is so good. So it's very important to communicate with the market. There is a question related to the review of fiscal guarantee of Eletrobras and if this was a topic that was addressed in the privatization. Would you like to make any comment about it?
Yes. This was something that has already been addressed. And it's important to mention that the generators had an expectation of a much larger reduction of the fiscal guarantee that did not materialize in the end. And the series that was used for the calculation of this fiscal guarantee reduction did not consider the year of 2020. And if this year had been considered in that series, the number of the reduction of fiscal guarantees would be much -- would have been much higher. The generation agent played a very important role so that it would be possible to change such perspective of reduction of fiscal guarantee. But this was not what happened. So, whatever is estimated is going to be maintained according to the terms of privatization of Eletrobras.
Okay, perfect. Let's change ways now. The company is a platform of investment and we have lots of topics to be addressed. So we can talk about the gas transportation segment. The question is, what are the plans for the growth of TAG? What are the plans for the expansion of the gas pipelines, considering the gas market?
What we have reinforced is that the market was very anxious in relation to this, but we have seen evolution in the market. And this is an evolution that is going to play out in the medium term. Would you like to add anything, Malta?
Yes. I would say that this market is still in the process of maturation. We have already noticed some movements that will bring about some levels of optimism. We notice there has been interest in the use of the gas pipeline. And we also look at the expansion opportunities. We'd like to mention that we have already signed an agreement to connect the terminal [indiscernible] to our grid, our network. It is not such a significant project in terms of volume for TAG, but it's an investment of about to BRL 300 million with the revenue of approximately BRL 40 million per year COD, estimated for the beginning of 2024. And we also have an agreement which is being signed with the municipality of Fortaleza, which is [ gas 4 2 ], which is the reinforcement of the Northeast network with a CapEx of BRL 270 million and revenue close to BRL 42 million, and the COD for mid-2023. This all shows that there are opportunities coming up and we have prospects that opportunities will grow along the next years. And this makes us very optimistic, because when the agreements with Petrobras expire, we will have a way to optimize the use of the gas pipeline.
Thank you, Malta. We also have some additional questions. Lucas is asking the status of Serra do Assurua. Is there a technical report?
Yes, we have 880 mega of installed capacity, and this is a project that we are trying to develop in the short term.
Moving on to another segment. And now talking about the question asked about -- by [ Venices. Venices ] is an individual investor. He's asking if we would like to, if you're interested in taking part in the transmission auction, and he's asking what's our level of interest.
Yes. We're interested in this auction and we are probably going to take part, our investments team is evaluating these projects and we know that in the latest auctions we were not very competitive. The prices were much below of what we expected, so that a project of this nature could be feasible. Those auctions that are going to be held in June and also at the end of the year, those auctions have larger lots than the previous auctions. And these would be very selective in terms of players. So we believe that the competition is going to be limited to some large companies whose balance and capacity to finance and deliver the projects. And as a result, we believe that we may be more competitive. We're reinforcing our team of development of projects and transmission so that we can share experience and evaluate how we can be more competitive than we were in the past. So we are doing our homework, so that we can be more competitive than we were in the previous auctions.
Thank you, Malta. We are getting close to the end of the questions. There's another question Venices, he is asking if we would like to increase your share in TAG, or you have any interest in acquiring new companies.
No, not for the time being, we do not consider any possibility in this regard. We have a partner who is a financial investor, and just like us, he's very happy with the performance of this asset. The returns are much beyond of what we had expected at first. So for the time being, we do not see any perspective. We are not considering increasing our share in TAG. I would say that our partner is not interested in the changing his position.
A question by [ Felipe Molina ]. In relation to anticipated renewal of concessions, is there any possibility of this to progress this year?
It's a question which is quite difficult to answer. We have seen that a -- good will on the side of the government to discuss this. And we are monitoring this to determine whether or not that this is going to be done before the elections. But it's a bit complicated now.
Yes, Rafael, this is an election year. We have challenges in terms of approving projects and the challenges are greater in the spirit of the year. It's a project that have very important issues related to the electric sector. As Rafael mentioned, we have seen a major effort from the government to approve this project and we are waiting and we are expecting the project to be approved still this year. We see that this could be an opportunity for the government to raise funds, to address the pressures on energy prices, the complaint from the consumers, and also bring in more proceeds, more resources and address fiscal issues of the country. As I said already, since it's an election year, the challenges are even greater.
Thank you, Malta. We came to the end of the Q&A session and we've addressed all the questions posted up to the moment and the IR department is available, should you have any other further questions you can get in touch through our site? And my contact is also in the presentation. We would like to thank you for your interest in our company. And we would also like to thank you for the questions you posted. Would you like to make some final remarks?
Yes. I would like to thank you for attending this conference. It's also a pleasure discussing our business. The IR team and I are at your disposal should you have any questions or require any additional clarification. I wish you have a wonderful weekend. And with this, we end the results conference of the first quarter 2022 of Engie Energia Brasil. Have a nice weekend, everyone.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]