Eneva SA

BOVESPA:ENEV3

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. Thank you for waiting. Welcome to Eneva's Earnings Call for the First Quarter of 2021. Pedro Zinner, CEO; and the other company directors are here with us today. This is being recorded. [Operator Instructions]

This call is being broadcast over the internet at ri.eneva.com.br. You can also find the company's presentation there. Participants can control the slides. The replay will be available after this meeting is concluded.

[Operator Instructions]

Before moving forward, we would like to state that future estimates and statements based -- are based on the company's beliefs as well as information currently available. Future considerations are no guarantee of future performance. They involve risks, uncertainties and assumptions because they relate to future events that depend on situations that may or may not occur. Investors must understand that general economic conditions, industry conditions, among other operational factors may affect the company's future performance. They may lead to results that will materially differ from these considerations.

Mr. Pedro Zinner has the floor now. You may proceed now, sir.

[Pedro Zinner, executive]

Good afternoon, everyone. Thank you for attending our first quarter earnings call. I hope you're all well, especially because we are facing the challenges of the pandemic.

Please pay attention to disclaimer on Slide 2 before we start this call. Before we move on to Slide 3, I would like to welcome Marcelo Cruise. He joined the company early May. He is now in charge of marketing and new business and energy sales. A major addition to the company. We are very pleased and honored to welcome him.

On to Slide 3 now. Let me talk about the highlights of the quarter. We started out the year with solid performance. Adjusted EBITDA amounted to BRL 446 million, up 2.8% when compared to Q1 2020. The drivers were more variable margin Pecem II and less expenses in operations when compared to Q1 of last year. Better performance results, coupled with reduced financial expenses, led us to BRL 220 million net income, a 30% increase when compared to Q1 of 2020. This was yet another quarter in which we optimized our liabilities and optimizing our capital structure even further. The cash is BRL 2.1 billion, leverage is 3.3x.

We dispersed an additional BRL 160 million for the BNB and BASA projects. Our cash position is strengthened for the Azulao-Jaguatirica and Parnaiba V projects.

Another highlight for the quarter was the announcement of commercialization of Gaviao Belo with a volume of 6.8 billion cubic meters. That's the Pmean. We're now developing the field. We'll be submitting that to the authorities by August.

I would like to point out that we are moving on with our initiatives towards the prevention and the fight to prevent the effects of the pandemic. We are now donating an oxygen production facility to the State of Roraima, up to 30 cubic meters per hour is its capacity.

In 2021, we are defining our major long-term sustainability goals. We have updated our materiality matrix. Based on the priorities, we're now redefining our long-term ESG commitments. In terms of project pipelines, I think you're all aware, we've been invited by Petrobras to be part of the negotiation phase of terms and conditions, to be part of the land projects to produce hydrocarbons. Negotiations are moving forward. And the execution will be dependent upon the success of those negotiations that involve commercial aspects as well as the regulatory agencies' approval.

I'll turn over to Marcelo Habibe, he'll be talking about market conditions as well as our financial performance.

[Marcelo Habibe, executive]

Thank you, Pedro. Good afternoon, everyone. Let me start about the energy outlook. On demand side, energy consumption kept on increasing, following the trend from last year. In this first quarter, energy consumption was 3.7% more when compared to the same period last year, 1.9% when compared to before the pandemic.

Economic activity is picking up, and the environment has been helping, too. On the demand, we are at a critical level. Water dams are 21% below the same period, which puts pressure in the system because we're coming towards the end of the rainy season. In order to balance the system, we had to increase the thermal electric dispatch. As you can see on the charts on the right, the average forecast for Eneva, based on CCEE and Megawatt data indicate a strong position towards the end. The bias is that of an increase, especially in Northern Brazil.

On to Slide 5 now. Net revenue was 1.3% above the number of the same quarter last year. We had an increase in average dispatch, more energy production based on that hydrological situation. But part of it was not met because of the maintenance in Parnaiba II that started out on February 5. It receives a CVU, but we have to reimburse the system that is PLD-based, less generation yearly. That was because of the preventive maintenance of Itaqui that was concluded on April 13.

This major overhaul takes place every 35,000 hours of operation. We revised or we refurbished the generator and the turbines. We have positive inflation index into national commodity, which is the natural gas and coal on top of the exchange rate.

On to the next slide. Financial performance is next. The adjusted EBITDA growth in first quarter of '20 to '21, showed an increase of 2.8%. That increase was driven by fewer upstream operations since there was no seismic campaign, an increase of variable margins for Pecem II, especially because of the mismatch of the CVU and the average coal cost. Gas generation, the variable margin was negatively impacted by an increase in lease contracts for up to -- for the upstream because of the increase in CVU in the first quarter.

This effect is offset in the Parnaiba complex and the consolidated. The EBITDA was negatively impacted by the energy purchases to offset the [ sold ] positions we had in the first quarter.

On to Slide 7. The cash flow amounted to BRL 629 million, higher EBITDA, a positive impact of working capital. Total disbursements reached BRL 423 million for Parnaiba V and Jaguatirica projects. In late March, consolidated cash was BRL 2.1 billion, an increase for the quarter, confirming a solid cash position to support the expansion phase of the company.

Liquidity next. Just like Pedro said, we collected BRL 160 million. BRL 112 million from the Nordeste bank for Parnaiba V and BRL 48 million from the Banco da Amazonia for the Azulao-Jaguatirica project. From the Nordeste Banco, we have reached BRL 535 million, a total contract of BRL 843 million.

At BASA, the position is BRL 898 million up to now. The total contract is BRL 1 billion. When we take into account the disbursements as the projects move on and not including the future cash generation, our position would reach BRL 2.5 billion, a very comfortable position for the allocated CapEx of these 2 projects that amount to BRL 600 million.

The capital structure is next. It remains robust. We keep on improving it continuously to reduce costs and to expand our debt profile. The debt -- net debt and EBITDA is 3.3x. For the year, we have reduced the cost of the debt and we expanded that profile. The debt indices are connected to our revenue so there are no mismatches of indices that would generate an unfavorable condition for the company.

Our debt profile is a long-term amortization, more than 60% will mature after 2025. It's a very comfortable position as -- vis-a-vis the company liquidity. Lino will be talking about our investments in detail. Thank you.

[Lino Cancado, executive]

Good afternoon, everyone. Let me talk about the investments now. 80% of the company CapEx for the first quarter was allocated to Parnaiba V and Azulao-Jaguatirica projects. In Itaqui, we had a scheduled maintenance, just like Habibe mentioned, to maintain the turbines and the generator.

As to the gas plants, BRL 43 million in expenses for Parnaiba I, we replace the parts, fix some parts, and they're back in the company's inventory. BRL 40 million. 77% of those BRL 40 million was allocated to field development, mainly Gaviao Preto. The gas pipe is being built. The remainder was allocated for the exploratory campaign that will ramp up as of the second half of this year.

On to Slide 11. This is an overview of the company's projects under construction. In Azulao, just like we said in previous quarters, we have just received all the equipment as to the cryogenic. Of the 34 cryoboxes, we had received 33, the last one is being delivered now in May.

Tanks, the trailers and all the other pieces of equipment have been delivered. And we're now on to the commissioning phase. In the second quarter of this year, we'll be commissioning the gas treatment and liquefaction. So we'll be loading the first cryogenic trailers for the Jaguatirica mill between May and June of this year. In Jaguatirica, we are now concluding the cryogenic portion. Storage tanks, the iso-tanks have been received and assembled. In progress. We are assembling the piping and piping support. The generation, the thermal power plant per se, we have completed most of the heavy assembly phase, and we're now building the fine piping and the instruments structure. The plant would be operational in the fourth quarter of this year.

And ANEEL, the regulatory agency is analyzing a 120-day grace period submitted in August of last year, and we're expecting their reply now in May.

For Parnaiba V, the generator and the turbine has been -- or have been installed in the steam. The boilers have been assembled in, and we're moving forward in the Cooling Tower assembly. All the equipment has been delivered to the construction site. No critical equipment is pending. It will be operational in the first quarter of next year. That's the goal.

On to Slide 12 and then 13. This is a picture report of these projects. Parnaiba V, on Slide 13, the top picture on the left, that's the condenser being positioned below the steam turbine and the picture below it shows it in the correct position. On the top 2 pictures on your right, that's the pre-assembly or the Low-pressure Hood, that's what we call the Low-pressure Hood on ground. And the picture below, we have the High-pressure-intermediate pressure turbine positioned at the base.

Slide 14, we can see the setup of the boilers. Here you can see when we installing the chimney parts, but the boiler is already 100% assembled, and you can see the parts that go at the very top of the boiler. After we remove this scaffolding from the chimney thermal insulation, we also continued to assemble the rest.

As for Boiler 21, we are also assembling the platforms, the damper. And on Boiler 22, we are hoisting the third section of the chimney. And right now, we are assembling the cover beams and the main platforms around the boilers. So we are at the very end step of setting up the boilers.

Slide 15. From the left to the right-hand side, the first one is the clarified water tank. We already conducted some leaking tests. And next, we have the picture of the Cooling Tower of this plant with 12 cells, and we are now assembling the last cell. Actually, this will be done in the third quarter of 2021.

Slide now 16, let's see as the Azulao. And next, let's move to Slide 17. So from the upper left-hand side moving towards the right-hand side, first, we have an aerial view of this PTP, 100% already concluded, we are just awaiting for the E&P approval for exploring the wells.

Next, on the right, we have the condensate tanks. And then at the bottom, we can see the loading station of the trailers. We are already finishing this part of this construction works. We also have the gas treatment separator vessels.

And finally, on the low right-hand side, water tanks to fight fires. They have already been assembled and commissioned.

Slide #18. Here, we have the self-generation part. So 18-megawatt that will provide energy to other plants. On the left-hand side, you can see just an overview of this generation unit. On the right-hand side, we are already inside this facility. You can see the caterpillar generators and engines. On the lower hand left-hand side, the exchange heater devices. On the right, the fuel, oil and lubricant tanks, so when we don't have gasses.

Now let's move to Slide #19 about Azulao. On the upper left-hand side, we can see the filters for wind power in order to purify gases before they go into the liquefaction parts, and then we have the different modules to continue the process. On the right-hand side, we have the storage tanks and the cryogenic pipeline. On the lower left-hand side, another overview with NGL tanks. So they allowed us to store gases for 3 days of operations. And on the right-hand side, we can see the steel pipeline that allows us to finally load the trailers.

Slide #20, these are pictures of the trailers that will transport the production from Azulao. So 108 trailers were delivered, 90 Manaus, 8 in transit and 10 at our supplier plant in the southern part of Brazil. The last 2 trailers will be delivered at the beginning of the third quarter, totaling 110 trailers as we have in our contract. The pictures show the trailers when we were running the leak test of each one of them.

Now let's move towards Jaguatirica II. This is the first picture, giving us an overview of this plant. So this plant was entirely built, so to speak. Now we have all pieces of equipment already installed. They are being now undergoing the interconnection phase.

On Slide #22. First picture on the left-hand side, we can see the air cooler condenser, the piece of equipment in which we will condense steam coming from this steam turbine. So the cooling tower and the heat exchange is done using the same piece of equipment. That's why it's called air cooler condenser. On the right-hand side, you can see the different buildings. We have the control room, the common area and the entrance.

Slide #23. Here is the electrical building where we have the entire electric connections and also the electrical operations dashboard. Most of the wire have already been connected to the control panel. And on the right-hand side, we have the Jaguatirica substation in May of 2021.

Now Slide 24. We have a close up of the water treatment tank. On the left-hand side, we can see the mineralized storage -- with the mineralized water storage. And on the right-hand side is the unloading station. And in the background, we can see the [ G&L ] storage tanks, natural gas tanks, so that we can operate at maximum efficiency.

So this is the update on our construction works. Now I'd like to turn you over to Zinner for his final remarks.

[Pedro Zinner, executive]

Thank you very much, Lino. I believe that's very important to mention that considering the global pandemic and the economic disruption that we keep focused in the long-term results with maximizing, optimizing our capital allocation. And our long-term plans drives our competencies and allows us to perform new activities.

I am sure we are right in the 5 goals we have established for 2021: expanding our exploration portfolio in different parts of Brazil, concluding [ Parabrias sink ], Azulao-Jaguatirica projects expanding our business models along our gas to power value chain. We are enhancing our marketing and commercialization strategies, and we stay committed towards a more sustainable future.

I'd like also to highlight that we are pursuing our goal, which is to provide a stable, cleaner and more accessible energy to our society, maximizing also value to our shareholders and stakeholders. So now let's move to the Q&A session.

[Operator]

[Operator Instructions] Our first question, webcast, Guillermo, Santander?

[Guillermo Delgadillo, analyst]

Can you please add some color on strategies to develop gas marketing? And which would be the steps to develop on this specific topic.

[Marcelo Cruz Lopes, executive]

This is Marcelo Cruz. First of all, thank you very much for your question. Just as Pedro mentioned at the very beginning, I joined Eneva's team this month. And one of our major growth is to establish monetization strategies. We have been successful in developing new fields and at the same time, monetizing these fields. And now we understand it's time for us to sell both in the regulated market as well as selling to end clients. And we can use different business models for achieving that, such as a small scale.

This is a very important step that needs to be adopted. Many strategies are being developed right now. And the major goal is to provide the best energy solution to our clients. We know we can be very competitive.

I think it's still too early to discuss the next steps. But right now, we are studying some potential solutions, and we hope to be able to share them with you later on.

Marcelo, if you allow me, I believe that going beyond selling gas and energy, we position ourselves as a company that provides solutions. So we have established a client portfolio and now our goal is to understand their needs, logistics, marginal cost, best way also in terms of engineering to better serve this client. And we hope to announce our first client soon. But right now, we are undergoing the planning and discussion phase together with our potential clients.

[Operator]

Next question, Marcelo Sa from Itau.

[Marcelo Sá, analyst]

Can you please elaborate on [ Udaco ] process, do you have any updates or do you have any expectations or any estimates regarding Petrobras' definition or decision rather?

[Unknown Executive]

As Pedro mentioned, we are discussing with Petrobras right now. I'd say that the negotiation process is doing very well. The conversation, the dialogue has been very positive. But as you know, there is an NDA agreement signed by both parties. And that's why we cannot review more than this, but we are very optimistic. We don't have any date set for that. Petrobras is working with a highly competent team, working hard, but I think you already -- know that there is also -- they are also undergoing disbursement right now or divestiture, rather, within Petrobras' portfolio. And that certainly has impact on Petrobras and Petrobras' teams.

But as a message I can share is to say that we are optimistic. As so as the negotiations progress. And once we have a signed agreement, then we will certainly disclose that to the market. Discussing the characteristics of this plan and also to mitigate, I understand the anxiety of our investors.

[Marcelo Sá, analyst]

This week, there was a report issued by Congressman [ LaCilento ]. And the report suggests inclusion as TPPs, but in an inflexible manner. So I'd like to hear more about that. Does that make sense? Or how do you see that?

[Unknown Executive]

Marcelo, thank you very much. We are assessing that report. And obviously, there are pros and cons when it comes to cost, energy, investment. To date, we don't have a position that we can announce. But obviously, this type of planning also has its pros, but let's await a little bit more so that we can also disclose anything about this issue.

[Operator]

Next question. [ Thiago ] from [ Multi Capital ].

[Unknown Analyst]

Can you please elaborate on the responsibility waiver at ANEEL? And what's the impact if you're not successful on your request?

[Unknown Executive]

With regard to the responsibility waiver we started working on that in August of 2020. We already have a technical report. Now we are waiting for the approval by the top management. And as soon as we have that, we will also announce that to the market.

[Operator]

[Operator Instructions]

If there are no further questions, I'd like to turn it over to the company management for their final remarks.

[Pedro Zinner, executive]

Once again, I'd like to thank you all for joining us. And I hope that you join us again in our next quarter earnings call. Thank you very much.

[Operator]

Thank you very much. Eneva's conference call is now -- has come to an end now. Thank you. Have a great afternoon.

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