Eneva SA
BOVESPA:ENEV3
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Eneva SA
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Good morning to all, and thank you for participating in this video conference to discuss the results of Q2 2023 of Eneva. On Slide 4, I would like to talk about the highlights of the quarter. Just as in Q1 2023, this was yet one more quarter where we further delivered on the commitments we shared with you in the beginning of the year at the operational, financial and commercial levels. We had the largest ever EBITDA in the quarter for the company, BRL 1.188 billion, growth by 144% in comparison with Q2 2022. We'll give you some more details about the effects by segment, but the main drivers of this record result were: first, the substantial contribution of our operational assets acquired last year.
Second, the increase in exports of energy, which reflect the success of the company in looking for alternative sources of revenue to the dispatch in the Internet connected national system. This way of selling energy was 837 gigawatt hour in the second quarter of 2023 and contributed BRL 198 million for the EBITDA. Third, the performance of our trading company, which has been playing an increasingly important role in terms of diversifying our sources of revenue and optimizing our assets. It produced BRL 51 million in commercial margin and a positive variation by BRL 38 million. And fourth, the reduction of our SG&A by 6% on a nominal basis quarter-on-quarter. This represents a saving of approximately BRL 50 million in relation to what the market consensus. This attests to the company's financial discipline and our commitment to efficiency in this moment when we are focusing on CapEx and on generating value from the assets acquired in 2022.
Additionally, at the end of May, we began the commercial operation of the solar Futura 1, and we have contracts for the sale of energy on the self-production. And also in terms of revenue, the company has been seeing larger margins in trading or rather, we have also sought an interest to Banco Itaú, who now owns a minority stake in the Parnaíba Complex, and this has reinforced our cash position by BRL 1 billion. Then we were able to optimize our CapEx, and we saved BRL 152 million in the gas liquefaction project in Maranhão.
We also have a hedging for the full of the FX exposure of our CapEx, including Azulão 950. As a result of all these initiatives and the results you obtained, our leverage measured as net debt over EBITDA, which was 4.82x at the end of 2022 has continued to decline and is now 4.26x, a drop by 0.56x in the accumulated for the year to June.
I now turn the floor over to Marcelo Habibe, who is going to give you more details.
Thank you. Good morning to all. On Slide 5, we are going to talk about our progress relating to the initiatives to deleverage the company. On the equity front, in June 2023, we completed an agreement with Itaú, and we sought the minority stake in the Complex Parnaíba plant for BRL 1 billion. The agreement also allows the company to repurchase the preferential shares, which are owned by Itaú, and this should happen in the future. We also started the process to assess potential strategic partners for our platform in renewable assets, which include Futura 1 and the projects we have in our portfolio. We are now in the nonbinding phase of the process.
In terms of working capital, we are analyzing ways to optimize the inventories in our power plants, including spare parts, especially in new plants. In terms of revenue, we had many initiatives in place. We continue to take advantage of the windows that allow us to export energy to Argentina and Uruguay, and this allows us to add variable revenue regardless of the dispatching in the Brazilian system. And the prices are higher than when we dispatch in Brazil. In the quarter, the EBITDA was BRL 198 million coming from these operations. And in 2 weeks, the exports were very, very high. We have contracts for self-production of energy in the Futura 1, optimizing prices and lengthening the contracting terms, thus ensuring new fixed revenue sources.
Still on the revenue front, we have been obtaining larger margins in trading which results in a large -- in a better result in the trading segment. And this attests to the fact that we made the right decision when we decided to strengthen our trading arm after the acquisition of Focus Energia. On the financial front, we concluded the incorporation of Termofortaleza into holding, thus obtaining operational administrative and tax synergies.
In terms of tax, we had 2 important events. We obtained tax benefits, and we are going to have a reduction by BRL 152 million, and we also had the benefit of [ Sudani ] for Parnaíba I and the extension -- for Parnaíba V rather and the extension to Parnaíba I, and this will allow us to have a reduction by 75% in the income tax owed by these 2 plants. In this quarter also, we had the hedging of the currency of all of our projects, which have FX exposure, especially Azulão 950. Then we have continued to optimize costs in our operations and offices. And you can see the results in this quarter. Also, we are renegotiating the insurance policies of CELSE, which will reduce the fixed cost in this plant by a large amount.
Our G&A, we reviewed process and we have resized the teams, optimizing some areas, and we were able to capture synergies from the assets acquired. And our expenses were reduced very much this year. They will be lower than historic levels. This attests to our commitment towards financial discipline and have contributed for the process of deleveraging the company. We will continue to work in many of these initiatives and in others, which -- for which we have not seen concrete results, but we are working hard to see these results very shortly.
Now I turn the floor over to Marcelo Lopes, who is going to talk about our trading arm.
Good morning to all. Moving on to Slide 6. We present a summary of the positive results we obtained by advancing the commercial front of Eneva. The strengthening and restructuring of the trading segment of Eneva and the reallocation of the contracts from Futura 1 to the trading agents, to the trading company, had a positive impact on the fair value of the contracts for trading of energy. The MtM of the commercialization book, and that impact was for BRL 713 million in Q2, a 98% growth relative to the BRL 360 million we reported at the end of the first quarter 2022 when we acquired Focus Energia.
Additionally, it is important to highlight that we have realized BRL 213 million in Q2, and the balance of MtM was transferred to cash, and we have offset this value by adding BRL 565 million.
On the left-hand side of the slide, you see the gap between the fair value of the contracts for trading of energy on a yearly basis. The values you see have already been discounted. This shows that in the next few years, we have a significant result, which has been contracted and is predictable and is a guaranteed cash flow for the company. At the center, you will see an ascending pathway of the MtM balance, which has to do with our proactive commercial attitude and the search for new opportunities which will bring even more results for the company in time. In addition to the optimization of the segment of trading, the development of this competence has also created positive externalities, which are going to be captured for the company. We are going to generate value from our other assets, and we'll be able to diversify the sources of revenue and optimize results.
As examples are the operations of energy exports, which we have been carrying out since last year and also self-production contracts for Futura 1, as we said in the first quarter of this year.
On the right-hand side, you see that the results obtained outside the regulated market that is export of energy and sales to the free market totaled 25% of the total in this semester. This attests to Eneva's ability to capture different opportunities in the market to diversify its revenue sources and maximize the value of its assets.
I'll now turn the floor over to Habibe who's going to talk about our financial performance.
Moving on to Slide 8. We will first talk about the net revenue in the -- in Slide 8. Net revenue was BRL 2.5 billion in Q2 2023, an 87% growth relative to Q2 2022. The main growth drivers were the acquisition of CELSE and Termofortaleza completed in the second quarter of 2022, and they contributed BRL 802 million to the revenue in this quarter. In May 2023, the Futura 1 plant started its commercial operation, and it's now another source of revenue. It contributed BRL 68 million in the period, which is below its potential in a quarter once the operation is completed. In Parnaíba, BRL 109 million in revenue in Q2 2022 is due to a greater volume of energy exported to Argentina and Uruguay in terms of gas generation and increasing the availability and the dispatch of Jaguatirica, had a positive impact in the revenue in Q2 2022.
And then the performance of the trading company increased by 73% in terms of the volume of energy sold relative to Q2 2022.
Now on Slide 9, I can show you the main impact on EBITDA. In the second quarter, the company has reported an EBITDA growth in all its areas of operation with a record result totaling BRL 1.2 billion, a 144% increase vis-a-vis Q2 of '22. CELSE, CGTF and Futura 1 have contributed with BRL 599 million to the results of this period. But Futura 1 has provided still shy contribution due to its level of potential and also because it has just started operating and is stabilizing its operations. Complex of Parnaíba presented an EBITDA growth of BRL 21 million, it reflects of the better results generated by energy exports, but partially offset by 2 nonrecurring impacts of the second quarter of '22, the first one, BRL 44 million related to credit tax recovery of PIS and COFINS of previous years, and that was not repeated in this period. And the second nonrecurring, in fact, relates to the margin in trading operations.
And additionally, the EBITDA of the trading company grew by BRL 11 million vis-a-vis the second quarter of '22. Now that our portfolio is more robust with more margin and better average spread that was negotiated.
Finally, in this quarter, the company presented a 40% reduction in SG&A in the holding vis-a-vis the results of the second quarter of '22. The consolidated S&A has prevented a drop in a nominal base 6%, which is about 9% on a real base, which is a new level of expenses of the company. And if we disconsider the incremental expenses of assets, this reduction would have reached 16% on a nominal basis or 20% on an actual basis vis-a-vis the second quarter of '22, considering the same base of assets that the company had a year ago. This is a permanent reduction that will reduce our expenses by BRL 50 million below the market consensus in the first 6 months of the year.
Now moving to Slide 10, we can see the main impact on the consolidated financial results. The net financial result was negative in BRL 308 million in the second quarter this year vis-a-vis the negative results of BRL 158 million in the second quarter of last year, impacted mainly by the investments made last year. And also the financial expenses of loans of CELSE totaled BRL 153 million. We are working very actively to renegotiate that, that will unlock financial tax and commercial synergies to Eneva for the future. The effect of funding we got in the second quarter of '22 totaled BRL 110 million in the second quarter of '23. We also had a negative impact of BRL 68 million that are considered in the financial expenses of the debt of Azulão, Jaguatirica and Parnaíba V projects that were being capitalized.
We also have an effect of the interest on the lease purchase agreements related to a ship, and that totaled BRL 47 million. This relates to the lease of a ship by CELSE with an impact of BRL 179 million in this quarter and also the closure of Swap operations that were contracted that have led to a positive result of BRL 73 million in the period. Also, there was a positive impact with an increase of BRL 28 million with cash results and also the effect of financial expenses, and that has led to a reduction of IPCA in the period. That was BRL 14 million, below the second quarter of '22.
On Slide 11, we see the main cash flow variations. The operating cash flow totaled BRL 661 million in the quarter, leveraged by the strong operating performance and EBITDA, partially offset by the variation in working capital. That was impacted by increased balance that we had to receive related to the balance we were to suppose from Argentina, Uruguay, but that was fully received in July according to the term established in the contract.
Another insight that has had an impact on the working capital was accounts payable. And we also renewed our premium of the insurance that was fully paid in the quarter to pay for the policy from 12 to 18 months. We also had an impact of the noncash effect of the second quarter related to PIS and COFINS credits and also because of the markup of future contracts at the trading company. The PIS and COFINS credits of CELSE will be fully used or monetized along the second half of this year, while the MtM of the trading company will be turned into cash according to the chart shown [ by Marcelo. ]
The investment cash flow to hold cash disbursements of BRL 680 million in the quarter, mainly related to CapEx disbursements related to our 3 projects. Fausto will give more detail about this CapEx during his presentation. The cash flow of financing activities totaled a cash input of BRL 233 million related to amortization of the principal debt, payment of income of interest rates and also leases totaling BRL 53 million. That is also affected by the sales of minority shares of Parnaíba to Itaú Bank, totaling BRL 1 billion. So in this quarter, Eneva had a cash position at the end of the quarter of BRL 1.7 billion.
Now on Slide 12, I will present more details about our capital structure. The first chart shows the evolution of the net debt totaling BRL 16.6 billion in the second quarter of '23. So that is a reduction vis-a-vis the BRL 17.1 billion that we had at the end of the first quarter of '23. Deleverage indicators show by the net debt over EBITDA, completed quarter with 4.26x, a 0.38x reduction vis-a-vis the 4.64x that we had in the last quarter. This shows a trend of reduction due to the strong operating results presented by the company. The other charts on this slide show the profile of our debt and the quality of that debt with a long maturity term and most of it is indexed to IPCA, which works like a natural hedge to our fixed revenue.
At the end of the second quarter, the average maturity time was 5.3 years. Most of these due dates concentrated on 2027 and the average spread of the IPCA index that was 5.1%; for others, 1.2% above CDI. Now Fausto Caretta will present investments and the status of our construction projects.
Thank you, Habibe, and good morning to all. Slide 14 shows the total amount of investments made by the company in the quarter totaling BRL 683 million and they are destined mainly to the 3 projects under construction and the upstream activities in Parnaíba. At the complex of Azulão in the Amazon, there was a total investment of BRL 235 million in the period, of which BRL 156 million were used to pay to GE for the equipment used in the implementation of the power island of the simple cycle of Azulão I and the combined cycle of Azulão II and BRL 78 million for E&P activities such as drilling, completion of wells and field development.
Moving ahead in upstream, there was an investment of BRL 179 million in the quarter, of which 95% were used in the development, a few -- of gas fields in complex of Parnaíba with highlight for fields, Gavião Belo, Preto and Mateiro. The remaining amounts due on the complex Parnaíba was invested in exploratory activities for -- and the first and second phases of 2 of 14 wells have already been completed. For gas liquefaction plant that we are building in Maranhão, we invested BRL 101 million in the second quarter of '23, and BRL 82 million were paid related to the milestones of the contracts that we have for the liquefaction tank suppliers and construction company. The other amounts were allocated in the earthworks and also the beginning of civil works. In this quarter, it's important to highlight that the first equipment for the liquefaction plant have arrived to the Porto of Itaqui.
Finally, at the power plant of Parnaíba VI, we invested a total of BRL 78 million in the quarter, related to the purchase of equipment and payment of the main EPC company responsible for putting together the panel of the main E-house and also other equipment. Also, the Siemens generator arrived to the Itaqui port and also Siemens manufactured the upper housing of the steam turbine.
Now moving to Slide 16, I will talk about the updates on the small-scale LNG project in Parnaíba. We have already started the civil works of the contract for which 100% of the [ activities ] has been hired, and the physical adherence rate is 92%. First pieces of equipment have arrived to the site, and we started the electrical and mechanical assembly of the liquefaction plant. The next landmarks are the completion of the truck manufacturing that is expected to be completed in August and also the completion of civil works expected for December. In 2024, we expect to get all pieces of equipment by January and to conclude the commissioning of the liquefaction plant by May. With that, we will complete according to the time line and start our commercial operations in the second quarter of 2024.
On Slide 17, you can see the updates for project Azulão 950 megawatts. The physical adherence of this project is 100% and 52.6% of the CapEx has already been hired. We started civil works. We completed drilling of 2 wells and also have been fully completed. And also, we have started the public audience hearing for the gas pipes. For 2023, the main landmarks are signing the contracts for critical equipment. We expect to do that in August and signing EPC contracts in December. The pipeline, the gas pipelines will start being built in July 24, and then plants will be energized in July 2025. And for 2026, we expect the simple cycle to start operating in January. And the combined cycle in October, and we expect the commercial operation to start in the fourth quarter of 2026.
On Slide 18, I'll show you the updates of Parnaíba VI project. It is ahead of its time line, physical adherence of 102.2% and 74.7% of physical progress. We received a generator, completed the assembly of the main e-house and positioning of several ancillary units. The main milestones of this project for 2023 include the delivery of a steam turbine at Parnaíba in September, energizing the transformer in November. And in 2024, we expect to complete the mechanical assembly in February and start running tests in July. The commercial operations are expected to start in the last quarter of 2024, a little before the CCEAR time, which is January 2025.
Now I will turn over to Felippe Valverde.
So thank you. Now let's start our Q&A session. [Operator Instructions].
First question is there is a strong result coming from the exports to Argentina and Uruguay. What are your expectations relating to exports in the second semester of 2023 and 2024. Marcelo, please?
Thank you for your question. The expectation is that we should see windows to export energy in the next few quarters and next year. As we said in Eneva Day in the beginning of this year, even with the Néstor Kirchner gas pipeline coming on stream, in certain periods of the year, especially winter, Argentina still needs to import liquefied gas or diesel or needs to import electricity directly from Brazil. This year, the competition with the [ turbine turnable ] flow has decreased the chances, but the Argentine demand continues to exist. Rainfall in the South make competition a bit more fierce. But especially now when the reservoirs are going down in the country as a whole, we believe that new opportunities by the end of this year will come up, especially in the colder weeks in Argentina.
The second question is, we have seen some interest on the part of the company on fields belonging to Petro, Bahia-Terra or Urucu.
There is no expectation or talks about that with Petrobras. Petrobras has said nothing about these 2 assets. Interesting understanding. And how we could create value for our shareholders? We are always interested. It's our fiduciary duty, we monitor opportunities in the market. But these 2 are not on the table, especially -- particularly on the part of the owner of the assets. If they should come to the table, we will look at them.
The third question. In relation to the auction for reserve capacity, it was indicated that there should be a CPE in the next few weeks. What is your view about the structure of the auction and the volumes to be contracted?
Thank you for the question. We have an expectation. We believe the public consultation, the CPE should be announced. The EPA has been talking about listening to the market relative to finding better way to have an auction that should be neutral in terms of technology. And we believe that the public consultation will be about that. But we do not believe in structural changes in the form of the auction as the auction wants to contract capacity and reliability.
So from a structural standpoint, we believe that thermal power plants are the assets that better met the reliability required by the system. So the public consultation may try to show new angles and may try to propose technology neutrality, but thermal power plants will continue to be more competitive.
We haven't changed what we think about demand, as we said on Eneva Day. The prospects for net load of the system are relatively similar to what we saw in the beginning of the year. And therefore, there hasn't been a major change in terms of our expectation to require more power by the end of '27, '28 for 8 or 9 gigabytes -- gigawatt sorry.
The fourth question is about deleverage. Are you looking for partners for the platform for renewable assets or for assets already existing. What is the expectation relating to new partners for 2023?
The short answer is yes. We said in the beginning that we had started the process to look for partners for our renewables platform, which includes Futura 1, which is operational and then solar projects like Futura 2 and 3, a small project called [indiscernible] and a wind project called Santo Expedito, Rio Grande do Norte. So this is what we are working on. We are looking for a partner within that scope. We are not looking for partners for other existing assets. We have started the process. Interested parties are analyzing the preliminary information. By the end of this month, we are going to receive nonbinding proposals. We are going to select some of them and then invite the best bidders those who adhere to our culture to the way we think, then we're going to invite them to pursue due diligence and negotiation on a more binding phase. This is going to take place in the second semester. And we should give you greater visibility by year-end.
With this, we have finished the Q&A session. Thank you very much for attending this call. And we'll see you next quarter. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]