Eneva S.A. (ENEV3.SA) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for participating in Eneva's earnings conference call for the second quarter of 2025. Let's begin with Slide 4, which shows the main highlights of the period. We ended the first half of 2025, achieving significant milestones and results on several fronts that reflect the progress of our strategy. For the third consecutive quarter, the company achieved an all-time high consolidated EBITDA reaching BRL 1.6 billion, an increase of 56% compared to the second quarter of '24. This significant result reflects the solid operating performance, the results of the assets acquired at the end of last year and advances in our strategy that now produces great results in the sales of the gas sales on the grid, the on-grid and the off-grid sales as well. In our initiative to increase the on-grid Gas segment, we had another quarter of significant results. Firm and flexible natural gas contracts and LNG operations originated by gas trading desk generated an EBITDA of BRL 131 million. Considering the year-to-date results, the result of these operations already exceeds BRL 290 million. This further proves the company's investment plan for the Sergipe hub and adds to the synergies already captured in the financial, tax and operational fronts of the asset. In addition, there's also significant value to be unlocked with the excess capacity of its FSRU and the pipeline of our brownfield thermoelectric projects. The off-grid Gas sales contributed BRL 79 million to the second quarter results. This is the first quarter when we had the 2 liquefaction trains operating 100% of the time. And for the year, the segment has already contributed BRL 134 million to the company's results, bearing in mind that the contracted volume of the asset will only reach its peak at the end of next year. This shows how pioneer and successful the company strategy is that is now developing another source of revenues. And the decision to implement the third train of the liquefaction plant was made and the implementation of the project is undergoing, which will increase the liquefaction capacity by 50%, reaching up to 900,000 cubic meters per day. Dispatch by order of merit was also an important catalyst for our results. The average dispatch at the Parnaíba complex reached 32% compared to 7% in the same period of '24, an increase of more than 380% year-on-year. In addition, we continue to see an acceleration in dispatch with gross generation of our thermal plants in the SIN already exceeding the total generation for the second quarter in the first 40 days of July and August. The demand for more powerful in peak times, the need to store energy at the reservoirs of the SIN system has created opportunities for TPPs of Eneva. So we responded to ANEEL to anticipate the capacity reserve auction to give more flexibility to the system and also creating incremental revenue to the system. Parnaíba IV, Geramar and Viana began supplying in August of this year and which added incremental value of more than BRL 360 million to the company. Also to meet this demand -- this additional demand, we also approved differentiated CVUs for the Porto de Sergipe I and Linhares plants which now will offer flexible generation with instant power supply to the system, in addition to maintaining the contractual advanced dispatch modality with 60 days notice. We have thus added another value creation option for the company and more resources to the country. Continuing the implementation of Azulão 950, we also entered a new financing agreement in the amount of BRL 500 million. With these funds, which should be drawn down shortly, the project now has a total finance volume of BRL 2.5 billion and an average total cost of EPCA plus 4.3%. Also, in addition to Parnaíba, we also obtained the approval for the renewal of the Sudene benefit for SPE Parnaíba II, which consolidates the results of Parnaíba II, III, IV and VI plants, ensuring another decade of reduced tax rates for these assets. Finally, we ended the quarter with a leverage of 2.7x, a reduction of 1.6x compared to the second quarter of '24, maintaining space on the balance sheet for a new growth cycle. Every quarter, we reached new milestones that give us more confidence on the company's strategy. We implemented pioneering challenging projects, develop new commercial models, increased assets, also more competitive gas solutions, maintain our financial discipline, and we reached increasingly solid results. And we also implement new projects that will leverage the growth of the company, responding to structural growth demands in the country. So considering these challenges, we are confident on the positive perspective of the company's plans for the future. Now I'll turn over to Marcelo Habibe, who will present our retail results in detail.

Thank you, Lino. Good morning, everyone. Now moving to Slide 5. You can see the evolution of EBITDA. In the second quarter of 2025, we achieved the highest EBITDA ever, BRL 1.668 billion, representing a 56% increase over the second quarter of 2024 and an annualized growth rate of 43% over the last 5 years since Q2 2020. This growth is the result of strong operating results from a solid base of contracted assets, combined with the implementation of important growth avenues mapped out in our strategic plan. We grew inorganic with the assets acquired at the end of 2024, ensuring robust and resilient results in the short term in addition to providing tax, financial and commercial synergies after the merger of the assets into our holding company at the beginning of this year in anticipation of 2021 LRCAP contracts. We also grew organically. We began the regulated contract for Parnaíba VI thermal power plant, which add fixed revenue for 25 years to the company's contracted base. In addition, we commissioned the liquefaction plant in Parnaíba, adding revenue flow guaranteed by take-or-pay, maximizing the payment of our gas molecule. We are pioneers in the development of the off-grid gas market with the implementation of the first LNG production and distribution operation by road in the Northeast. We have also implemented our on-grid Gas business, which through the assets of Sergipe hub and our gas trading desk has been playing an important role in the company's results. This new front provides steady revenues and allows us to capture extraordinary opportunistic results in the LNG market. In addition to this, we saw the resumption of regulatory dispatches, which helped boost the EBITDA of our R2W assets with the monetization of our natural gas reserves. The company's results are an example of the potential of our business models and their expansion. We have a clear value proposition to address the needs of the markets where we operate. In addition, our asset base combines fixed revenue components, which provide stability and resilience to most of our results with variable revenue components, which will eventually provide extraordinary gains. With that, I will hand over to Marcelo Lopes, who is going to give you more detail about our performance in Gas Marketing segment.

Thank you, Habibe. Good morning, everyone. On Slide 6, I would like to highlight the evolution of our results in the on-grid and off-grid Gas Trading segments. The chart shows the significant results we achieved in the first 2 quarters of this year. EBITDA from gas and LNG sales activities exceeded BRL 200 million in each period, reaching a total of BRL 427 million year-to-date in 2025. As highlighted by Lino, these results reflect the materialization of the growth initiatives of Eneva's business plan, which we have been executing with focus and diligence over the last few years. We have been working to extract the most from our skills and value chains of natural gas and optimize our assets and contracts, thus preparing the company to take advantage of the potential of these markets, which are still in their infancy in our country. In off-grid sales, we have developed a solution to bring natural gas to markets and customers seeking alternatives to more polluting fuels such as fuel oil and diesel, but who do not have access to the gas pipeline network. With the stabilization of the Parnaíba liquefaction plant in February, we achieved almost BRL 80 million in EBITDA in this segment, representing an increase of 42% compared to the first quarter of '25. It is important to note that this figure does not yet reflect the plant's full potential as the contract volume will continue to ramp up until the end of next year. In addition, with the prospect of expanding demand for LNG as a substitute for diesel in heavy road transport, we have already begun implementing another liquefaction train in Parnaíba, which will expand our current capacity by 50%. In terms of the on-grid sales structure from the Sergipe Hub, we had an impressive BRL 131 million in EBITDA in the second quarter. This figure includes both the results of bilateral contracts for the sale of firm and flexible gas as well as those from LNG operations to try to find a balance there carrying out taking advantage of the favorable commodity price context and the dynamics of the national power market. Our trading desk remains active and attentive to opportunities to capture value by structuring new contracts both in the natural gas and LNG and power markets. Now moving to Slide 7. I would like to highlight 2 important value drivers for the second half of 2025. The period began marked by a high thermal dispatch in the SIN, which continued on an upward trajectory since the end of the second quarter of '25. The graph shows that our thermal plants follow this trend, accumulating gross generation of more than 1.3 gigawatt hour in the first 40 days of the third quarter, already exceeding the entire generation for the second quarter of '25. It is worth noting that a large part of this generation comes from the Parnaíba complex plants, where we have positive variable margins for flexible generation. We dispatched by order of merit and in flexibility and took advantage of several opportunities for energy exports. As the second half of the year is typically marked by the dry season with higher energy prices and additional power requirements, the trend is for thermoelectric dispatch to continue throughout this quarter. Another significant value driver was the anticipation of regulated contracts for the 2021 capacity reserved auction. The start of contracts was brought forward to August '25 in the case of Viana in Espirito Santo and October 2025 in the case of Gera Maranhão and Parnaíba IV. Since the end of PPAs was maintained, we guaranteed an incremental revenue flow of BRL 360 million with the events. The events of these contracts was implemented as one of the measures required by ONS to ensure the reliability of the system throughout the second half of 2025 with the appropriate level of power and flexibility. This action reinforces the importance of our business models, which offer firm and dispatchable energy at compatible -- competitive cost for the national power sector. In this context, as previously mentioned by Lino, we also approved new flexible CVUs at differentiated prices for our plants with the advanced dispatch by contract in a move that may translate into incremental value generation for the company, depending, of course, on the market dynamics and needs in the second half of the year. We will remain focused on generating value through these and other drivers that may arise over the next quarter, supported by the robustness and competitiveness of our business models. I now give the floor again to Marcelo Habibe, who will present the financial highlights for the quarter.

Thank you, Marcelo. Now on Slide 9, I will be presenting the main highlights of the EBITDA comparison between the quarters. As I showed before, the EBITDA for the quarter reached a milestone of BRL 1.666 (sic) [1.668 ] billion with the consolidation of an important growth avenue for the company. We had an important contribution from the results of the assets acquired in the fourth quarter of 2024, which added BRL 466 million to our EBITDA. The Sergipe hub also contributed significantly growing BRL 134 million year-over-year, driven by the strong contribution of the gas trading desk. In off-grid sales, the first quarter of full contribution from SSLNG of small scale provided BRL 78 million in the segment's EBITDA. The upstream and Parnaíba complex, the resumption of dispatches generated growth in margins and average dispatches between the periods, adding BRL 70 million to EBITDA. The positive contributions were partially offset by lower results from trading and holding due to lower commercial margins and positive nonrecurring effects booked in the second quarter of 2024. And to a lesser extent, by results from solar power generation and other fuel segments. As highlighted throughout the presentation, this record result is the result of resilience of our business models. We have a significant fixed revenue component, which guarantees stability for around 90% of our results. In addition, our operations are increasingly efficient and diversified and the successful execution of our business plan provides us with new revenue streams and value creation in new existing assets. Now on Slide 10, I will present the main impacts of the financial results between quarters. The net financial results were negative by BRL 252 million in the period, an improvement of BRL 667 million as compared to the same period of '24. The improvement in results can be explained mainly by 2 recurring noncash impacts. The first one are the effects of the exchange rate variations on the lease of Sergipe hub FSRU with a positive impact of BRL 588 million in the variation between quarters and the impact of the mark-to-market swaps on advanced receivables with a positive impact of BRL 118 million in the variation between periods. Now moving to Slide 11, we'll be talking about cash flow. So operating cash flow reached a record level with cash generation of BRL 1.301 billion, driven by the record EBITDA for the period despite an increase in accounts receivable due to LNG transactions still to be settled. Investment cash flow consumed BRL 1.472 billion directed especially to Azulão 950 project for upstream activities and other growth projects in the company's pipeline. The financing cash flow in turn recorded a net cash outflow of BRL 739 million, mainly reflecting amounts paid for amortization and interest on loans and operating leases in quarter. As a result, Eneva ended the quarter with a robust cash position of approximately BRL 3.9 billion, more than enough to support our investments and operations. Now moving to Slide 12. You can see our capital structure with no major developments in comparison to what we presented last year. The company's net debt ended Q2 at BRL 15.3 billion, a leverage measured by net debt over EBITDA of 2.7x. Excluding the onetime impact of noncash expenses related to coal impairment in Q4 2024, the company's leverage would be 2.4x, leaving significant room in our balance sheet for future capital allocations, especially considering the company's current EBITDA level. It's also worth mentioning the quality of our debt, which ended the second quarter at the lowest average cost compared to last year, an average maturity of 5.7 years with maturity concentrated in the long term. These improvements reflect the ongoing liability management. So today, 79% of our debt is linked to the IPCA, ensuring alignment between our financial obligations, the main index of our revenue. Similarly, the balance of our f CDI-pegged debt is compatible with our cash balance, creating a natural hedge between the company's liabilities and rights. Now I'll give it back over to Lino because Andrea is not here, and she'll talk about the investments in capital projects.

Thank you, Habibe. On Slide 14, we highlight the investments made in the quarter, which totaled BRL 1.6 billion. Of this total, approximately 2/3 were allocated to the company's main projects and to upstream. At the Azulão 950 complex in Amazonas, a total of BRL 640 million were also invested in the quarter with BRL 523 million allocated to the construction and assembly services at the thermal power plant, the gas processing plant, substation and transmission lines. We -- during the execution of the project, the payment conditions with suppliers were extensively negotiated, displacing these reimbursements 2 months forward, and this will cause positive impacts on the cash flow of the project when compared to our initial plan when brought to present value. In sustaining activities, investments totaled BRL 669 million in the period, aligned with other periods. And for the development of new projects and new opportunities, we invested BRL 566 million. This is going to be the main driver of growth of the company in the upcoming years, and this is commercially sensitive information. Therefore, we are not going to get into the details of these expenses until they become actual. And of course, we count on your understanding. Finally, in upstream, investments totaled BRL 234 million in the quarter, BRL 124 million were allocated to the development of Gavião Belo and Gavião Mateiro, and also the Pólo Sul unit. We also have BRL 49 million used in the drilling of 3 wells now that we have resumed drilling activities at the Parnaíba Basin. Now moving to Slide 16. I will now present the updates of the Azulão 950 project. With advances in construction and assembly activities, the physical progress of the project has evolved from 56% to 67% in recent months. At the TPP in upstream, we completed the external clusters. They are now ready to produce. And also, we received the preassembled units for the operation of the plant. In the UTG, we have started the assembly of the flare and gas metering stations, and we have completed the bus [ par ] construction. At the site, we also received the floating platform where the water intake pumps will be installed. The project remains on schedule. Azulão I is expected to be commissioned in the second quarter of 2026, as previously planned, while Azulão II is estimated to be completed in the first quarter of 2027. We know that the PPAs are scheduled to begin in August '26 for Azulão I and July 27 for Azulão II in accordance with the liability exclusions approved by ANEEL. At upcoming milestones, I'd like to highlight the energization of the plants and the commissioning of the UTG which are expected to be completed by the end of 2025. I now turn to Felippe Valverde, who will coordinate the question-and-answer session.

Thank you, Lino. Good morning, everyone. We are now going to start our Q&A. [Operator Instructions]. The first question comes from Fillipe Andrade from BBA. Two questions actually. So the CapEx that you announced at the holding for the capacity reserve auction is related to the acquisition of slots for the manufacturing of turbines?

Well, as I have just said to the company, the company believes in the foundations of the Brazilian power market. Those of you who watch the news and see the ONS and even statements from the Ministry of Mines and Energy, there is a pressing need to add capacity to the Brazilian power system, and we believe in that. And to us, this is like a playground for our business model. So we are making investments to prepare ourselves to make the most of future opportunities. But right now, I can't give you any more details, as I had said in my presentation because this is commercially sensitive information. At the right timing, once opportunities materialize, we'll be able to announce the details to you.

Question number 2 from Fillipe. So considering the current market conditions, what is the dispatch level expected for Parnaíba in the second half? Does the company see any chances for flexible dispatch in Porto de Sergipe and LORM in Q3 '25?

Well, as to complex Parnaíba complex, we are seeing a level of CMO and PLD that makes the whole complex to be dispatched by order of merit of cost. Of course, it's never 100% dispatched because there are certain times when they ask us to have some kind of reduction. So at certain times of the day, there is a surplus or excess power offer because of curtailment. But yes, we are going to have quite intense dispatch in the second half of the year, at least until November. Now when we look at the prospects of flexible dispatch, both in Sergipe and Linhares, it's important to say that there has been advanced dispatch for both power plants. So it needs to meet the order of merits during this period, at least in October, this is what we expect. But maybe in November or even December, it might be necessary to have flexible dispatch. But in October, we are not counting on flexible dispatch because of the advanced dispatch due to order of merit. Well, September will depend on how the dynamics of the supply and demand balance with some windows for flexible dispatch.

Thank you, Marcelo. We have the next question from Guilherme Lima of Santander. First question, how do you see the gain of EBITDA per megawatt hour that generated in the end?