Renova Energia S.A. (RNEW11) Earnings Call Transcript & Summary

Good afternoon, and welcome to Renova Energy Group's Earnings Conference for the Second Quarter of 2025. I'm [indiscernible], the company's IR analyst. [Operator Instructions]. Joining us today are Pedro Antonio Aparicio, CFO and DIR; and Sergio Ros Brasil, the company's CEO. Before we begin, we would like to inform you that this event is being recorded and will be made available on the company's website as will the promotion materials. We will begin with the presentation and then hold a question-and-answer session. Is it worth noting that the information contained in this presentation and any statements that may be made during the video conference regarding the Renova's Group business prospects, projections and operational and financial targets are the beliefs and assumptions of the company's management. As well as currently available information. Forward-looking statements are not guarantees of performance. They involve risks and uncertainties that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors may affect Renova's future performance and lead to results that differ materially from those expressed in such forward-looking statements. I would like now to hand the floor over to Pedro to begin the presentation of results.

Good afternoon, everybody. It's a pleasure to be with you. Today, we are going to cover the main indicators, highlights and subsequent events of the quarter, context of the energy market in Brazil, energy production data, generation and curtailment, consolidated financial results to close our agenda. I will now present our highlights and the main events that have taken place to the date. Starting with the operational and financial highlights. The second quarter was marked by the record generation, reaching over 400 gigawatts hour, a figure almost 24% up to the same period last year. This figure reflects net generation of 320 gigawatt hour, up 20% on 2Q '24. These are figures that reflect the latest focus on the performance and efficiency of our assets and reinforce the company's generation capacity. Net revenue was almost BRL 150 million, up 167% on the same period last year. Our adjusted EBITDA, which disregards the effects of curtailment, MTM gains on asset disposal and the reversal of litigation provisions were up BRL 13.2 million. We ended the second quarter with a cash balance of almost BRL 19 million. Below the highlights on the second quarter of 2025. We reversed a contingency provision in the amount of BRL 87 million, positively impacting the company's result. Another important highlight was the capitalization of credits related to capital increase approved on April 28 in the amount of BRL 424 million. This operation significantly reduced the debt cost, improved cash flow and optimized the capital structure. The significant improvement in generation performance mentioned above is the result of the focus on operational excellence and the strategy of recovery availability over the time and the thorough monitoring of wind turbines. In addition to the highlights mentioned above, it's important to comment on some of the events that took place from the end of the quarter until the release of the results. As already communicated to the market on July 10, we signed a CUSTs contract with ONS for access as a consumer of a total of 81 megawatts. Throughout the quarter, we start to work on the company's digital infrastructure, which will support data processing demands. The work is at an advanced stage, and the business unit will play a fundamental role in the company's growth. In order to understand the obligations of our plan, a company was hired to evaluate our pipeline. The result of this work was the evaluation of the pipeline at BRL 1.4 billion for wind projects totaling approximately 6.7 gigawatts of power. In addition to the wind pipeline operational assets, it's worth remember that the company has 4.9 gigawatts of solar, which were not part of this evaluation. These projects together reflect the robustness of the pipeline and an important part of the company's assets. In July, we signed a memorandum of understanding that provides for the development of solar generation for which European Energy will contribute funds, while Renova through its digital infrastructure unit will contribute PPA contracts. This potential operation will provide an increase in its generation capacity and the expansion of this business unit, which will meet the growing demand in highly complex energy sectors such as data centers. On July 14, the company received the amount of BRL 23 million related to the sale of credit rights resulting from a favorable court decision related to projects developed in previous years that have a low probability of collection. The receipt represents good news and significant inflow of funds that will be reflected in financial statements from the third quarter '25. Talking a little more about digital infrastructure. We are at an advanced stage of construction work at one of our substations to receive data processing factor with a capacity of 81 mega. This demand load close to generation will help to stabilize the network and reduce power cuts determined by the ONS. The completion of this project is the first step for this unit with the possibility of further expansion, 700 mega, making it possible to connect new customers without the need for significant additional investments in infrastructure. In June, the PLD reached BRL 234 in the Southeast, down from BRL 327 in March due to the increased rainfall forecast for April and June and then downward revision of the system's consumption project. In Northeast, the price reached BRL 230 lower than in the Southeast and Midwest due to transmission reduction that limit the flow energy generated in the region. In addition, national rainfall was below the long-term average in all of the systems, making it necessary the use of energy that are more expensive. Moving on to Slide 7. As already mentioned, we had a significant improvement in generation performance due to strategies to recover availability, an increase of 62,000 hours of availability and technical performance of wind turbines with dynamic loss below 3%. We have reached some important milestones in the last 12 months, which had a positive impact on the performance and availability with a significant reduction of machine downtime due to YAW problems following the involvement of control software. We innovated by implementing the remote parameterization of North Off set includes the alignment of the machine in the direction of the wind. We also implemented modulation of a generation as a function of temperature, minimizing failures due to heating. We introduced a performance monitoring tool for wind farms using predictive models based on artificial intelligence, making maintenance and performance management much more agile and efficient. The realized wind in the semester converged with the certified wind even so the generation was higher due to the increase in performance. Moving on to the next slide. 2 quarter '25, we reached a record in our gross generation amounting 402 gigawatts, an increase of almost 24% compared to the second quarter '24 due to the increase in availability and improving the performance. However, in 2 quarter '25, our energy production was impacted by 20% curtailment, which totaled almost 82 gigawatt hour compared to 58 gigawatt hour in the second quarter '24. As a result, our net generation was 320 giga, still 20% increase compared to the same period last year. In the first half of the year, gross generation amounted 714 gigawatts, representing an increase of almost 40% compared to last year. In the period, they had a curtailment impact in the order of 242 gigawatt hour, registering a net generation of 472 gigawatt hour, an increase of 10% compared to the second quarter '24. It's important to note that the outages caused by the external unavailability and electric reliability can be reimbursed, which represents 48% of curtailment in the period. Moving on to the financial results. Second quarter '25, energy sales revenue and net wind revenue showed significant growth of 250% and 18.8%, respectively, compared to the second quarter '24, with a net operating revenue of almost BRL 150 million, growth of 167%. The increase in generation revenue in the quarter compared to the same period second quarter '24 was due to the higher generation due to the readjustment in the price of energy contracts in the regulated market and higher sale of energy in the free market at a higher price. Bear in mind that we had an important negative impact on our wind power revenue due to the CUSTs made by the ONS. Net revenue for the semester was BRL 234 million or 137% higher than the same period last year, with the highlight being sales, which grew by [ 193% ]. At the trading company, we had a higher volume of energy sold at a higher price. In June, the PLD reached 234% in the Southeast, driven by low rainfall and the need and the dry period using more expensive energy. In the second quarter, cost of totaled BRL 186 million, represent an increase compared to the same period last year. The main reason for the increase in cost was the greater purchase of energy to honor contracts in the trading segment and curtailment, which had a strong impact on our generation requiring the purchase of energy to honor contracts in the ACL. In the first half of the year, the MtM balance was minus BRL 12.7 million, a smaller impact compared to the balance of minus BRL 24.7 million in the same period last year. Expenses totaled BRL 20 million in the quarter or BRL 6.5 million than the previous year, reflecting the increase in the workforce and the dismissal of some company's executives compared to the same period last year. We reversed the provision for contingencies in the amount of BRL 80 million, so that the expenses in the period totaled a credit of almost BRL 60 million. In the year-to-date, expenses totaled a credit of BRL 46 million compared to BRL 29.9 million expenses alone. As a result, in the second quarter '25, our EBITDA was BRL 47 million compared to BRL 74 million in second quarter '24, a drop of 37%. When we make up the adjusted EBITDA, we remove nonrecurring impacts. Our adjusted EBITDA was BRL 13.2 million. Despite the challenges of the sector and the increase of the curtailment, the improvements in the efficiency and performance of the park and the success of discussions of contingency and provision helped to mitigate the impacts and achieve result close to 0. In the first half of '25, the net loss was BRL 57 million compared to BRL 48 million in the first half '24. In the graph on the right, we can see the company's cash flow fell by BRL 62 million compared to the position on December 31, totaling BRL 87 million. The recurring variations are mainly to the payment of the judicial recovery plan in quarter 1, '25, totaling BRL 45 million and investments of the acquisition of such as wind turbines and substations for wind farms and the maintenance of projects under development in the amount of BRL 18.5 million. We approved the capital increase on April 28 in April, in the amount of [ BRL 424 million. ] This contribution was used entirely for debt capitalization, significantly reducing the debt stock and improving cash flow as well as optimizing the company's capital structure. I would like to thank you, everyone, for your participation. Now we'll open the floor for questions and answers. Thank you.

[Operator Instructions] Our first question in the contracts negotiated in data center, are they in dollar? What is the level negotiated? What are the deadlines? And if they represent parameters and they armored curtailment, what is the index of correction?

Thank you so much for the question. This is a recent initiative of the company. This was an object and a relevant fact, indicating that it was implementing an operation of data center Igaporã, I substation. So these are contracts in the industry in general that the reference is dollar about your first question. And the level of prices, this is based on the contract, it's a secret. Any commercial of the company price-wise, we cannot open this value. These contracts and the deadline, it's an important year for the company and the expectation is not short-term contract in January, they are longer contracts, longer than usual of free market, specifically buy and sell energy on spot. So we have a long-term characteristic. And they represent parameters of armoring curtailment. It's very interesting. Our solution of engineering these pieces of equipment, this infrastructure is directly connected to our substation. The expectation is that this mitigating factor for curtailment. So the company calculated and we see that curtailment in that point specifically is mitigated at the substation level. And the index and the correction, we have dollar contracts and the correction is based on the North American inflation.

Next question. The recent measures of equipment modernization and operational management, can they bring additional benefit in EBITDA recurrently? That's the objective.

As operationally, the park improved compared to the last quarter. This is fruit of several measures taken by our engineering area. So without any doubt, with the improved generation with better performance of equipment, this will be reflected on more energy in the generation and improvement of EBITDA as well.

Next question is about the pipeline. The pipeline evaluated BRL 14 billion can be monetized to accelerate investments in new projects, for example, storage?

First, let's explain the evaluation. The evaluation was done in a context of our judicial recovery plan, estimating that our pipeline on wind was assessed, was evaluated. And this was the value presented by the assessing company. So according to the plans, we have to put to sale 750 mega every year. So concerning the value and the size of the pipeline estimated in the recovery plan, these sales will go directly to pay creditors. Of course, that other than it is a plan, the company has freedom to do whatever they want with their projects. The question is that perfect. And just to remind you that the evaluation was done specifically for wind farms. We have additional 5 giga of solar projects, and it's important about the sun projects. Most of these projects was developed and the objective of make hybrid what we have in wind. So this is going to improve of our projects in general. So this is the generation curve, the curve of wind and the sun wind for projects, you can improve and optimize the investments that we are going to do. Here, there is no project directed related to it. We needed to have a reference of prices of PPA, cost of construction, et cetera. So the evaluation was done exactly to identify the value of the market of this project.