Eneva SA

BOVESPA:ENEV3

Q1-2025 Earnings Call

[Lino Cancado, executive]

Good morning, everyone. Thank you very much for attending Eneva's earnings call to talk about the first quarter of 2025.

Moving to Slide #4. I'm going to start with the main highlights of the period. We started 2025 with another quarter of solid results. For the second quarter in a row, the company's EBITDA reached record levels, reaching the mark of BRL 1.528 billion, an increase of 40% compared to the first quarter of 2024.

This result is a direct consequence of the successful implementation of some of the initiatives of our strategy. We are pioneers in Brazil in the production and distribution of LNG by road -- and in this first quarter, our plant in Parnaiba Complex reached full capacity, thereby significantly contributing for the company's EBITDA.

In expansion of generation capacity Parnaiba VI started commercial operations now part of our fixed revenue base. On the commercial front, we are delivering the first significant result of the gas business, while inorganic and financial growth initiatives, we are reporting the full contribution of the results of the assets purchased in the fourth quarter of 2024. The fixed margin of the regulated contracts in force for these assets added BRL 440 million to our quarterly EBITDA.

We ended the first quarter with net debt of 2.6x reduction of 1.6x compared to the first quarter of '24, thus opening space in our balance sheet to start another growth cycle, considering the competitive advantages of Eneva's portfolio and the opportunities that present in our target markets.

As a subsequent event in the quarter on Tuesday, May 13 MSCI announced the revisions to its indexes and changes in its composition effective as of June 2. We are very pleased to receive the news of our return to this indicator and this is the only addition to the MSCI Brazil Index.

On the on-grid gas segment with Sergipe Hub already connected to transportation network and stabilized connection with the FSRU, we expanded our operations in gas and our customer base in Brazil. Together, they total a contribution of BRL 163 million to the quarter's EBITDA. In the off-grid gas marketing, the second train of Parnaiba LNG production started operating in mid-February.

The segment contributed to the quarter's EBITDA and only -- even though the plant only operated half of the period. We advanced in this business line with the approval of the investment to expand the LNG plant in Parnaiba that will have its capacity expanded to liquefy up to 900,000 cubic meters of natural gas.

The commercial operation of Parnaiba VI began in March, completing the cycle of the last gas turbine in Parnaiba, thereby making the complex more efficient and a fixed revenue stream of more than BRL 100 million for 25 years.

On the financial front, we ended the first quarter with reinforced liquidity, a cash balance above BRL 4.7 billion, positively impacted by the strong operating performance which provided cash generation of BRL 900 million and by funding in the period.

We also completed the merger of the subsidiaries, Linhares, Tevisa and Povoação in the holding in January. This initiative simplifies the group's corporate structure and allows you to capture relevant financial synergies that will reinforce value generation of this transaction.

In addition, approved the buyback program, maximizing value generation for our shareholders with efficient management in the company's capital allocation. In the period, we repurchased 20.6 million shares and the average price of BRL 10.74, which is below average price per share in recent months and even lower if we compare the level over the last 2 weeks in which the company's share traded around BRL 14.

Finally, I would like to highlight that the growth and reaching record levels in terms of results, we do not give up financial discipline compared to the first quarter of 2024, we had a gross margin growth. That is revenues minus cost of around 32% and only 16% increase in our expenses.

Now, I would like to give the floor to Marcelo Habibe who is going to show you more details about the quarter's highlights.

[Marcelo Habibe, executive]

Thank you, Lino. Good morning, everyone. Now moving to Slide #5. I would like to show the evolution of our EBITDA, as Lino highlighted. This quarter, we reached a level of BRL 1.528 billion in EBITDA, a 40% growth compared to Q1 2014, with an annualized growth rate of almost 50% since Q1 '22.

As mentioned before, we had important milestones in the quarter, which demonstrates the evolution of our business and the increased run rate of our EBITDA. We started Parnaiba VI operation, whose contract brings to the company even more long-term fixed revenue indexed to the inflation. At the end of the February, we also completed the operational ramp-up of the Parnaiba liquefaction plant, which is going to go live fully contracted and generating positive results for the company.

In addition, we had the first expressive results of our gas business, which after the completion of connection to Sergipe Hub was able to capture opportunities in both the gas market and network in terms of LNG operations.

Finally, we had the full contribution of the assets purchased last year in our EBITDA. Despite our record performance, the quarter still does not reflect the full potential of our businesses. In addition to the phased ramp-up in SSLNG and Parnaiba VI operations and the costs related to the of these assets, we had several other nonrecurring expenses, which impacted our bottom line by almost BRL 100 million, as highlighted in the slide.

In addition, it's important to remember that in the first quarter, we practically had no dispatch. We will continue our trajectory of implementing our business plan. We have projects with contracted revenues already under implementation such as Azulão 950 projects that we have already made investments decision and started hiring suppliers, such as the construction of the third train third train for the Parnaiba liquefaction plant and projects to capture our future opportunities with the strength of the company's business model and our value proposition to provide competitive and reliable capacity and energy for the system.

Now I'd like to give the floor to Marcelo Lopes, who is going to talk about our performance in gas and energy businesses.

[Marcelo Lopes, executive]

Thank you, Habibe. Now moving to Slide 6. We would like to highlight the first relevant results in the gas and LNG trading segments. So first, on the gas front, in less than 6 months after the launch of our gas business, we have reached an EBITDA of BRL 163 million, which reflects both the result of bilateral contracts for the sale of firm and flexible gas the transportation network of Brazil, which added around EUR 37 million EBITDA to the first quarter as well as the favorable context of commodity prices, which allowed us to capture results and market opportunities, which added BRL 135 million to EBITDA.

These effects were slightly offset by retroactive costs booked in this quarter -- from previous quarters, totaling BRL 10 million. Our business will remain active and attentive to market opportunities to capture new opportunities for value creation, both in the natural gas and LNG markets. In the off-grid gas segment, the first quarter of 2025 mark the startup of our liquefaction plant in a phased manner, stabilizing production in the second half of the quarter.

As a result, the segment reached BRL 55 million. EBITDA still impacted by a quarter with partial results, but reaching monthly EBITDA closer to the recurring ones in February and March. Also in the first quarter, we announced the investment decision on the construction of the third train of our liquefaction plant which will expand the total capacity of the plant in Parnaiba from 600,000 to 900,000 cubic meters per day.

The investment decision is an important milestone in the expansion of off-grid gas trading, a business model that presents one of the best ways to monetize our gas with the possibility of expansion through phased caps, guaranteed sale of volumes and contracts with take-or-pay, attractive margins than the electric industry. In addition, the company is a pioneer in this market, creating alternatives competing mainly with polluting fuel sources. Now I'll give the floor to Habibe, who will go into financial performance.

[Marcelo Habibe, executive]

Thank you, Marcelo. Now Slide #8, representing the main impacts on EBITDA. As highlighted EBITDA for the quarter reached record BRL 1.528 billion. This result reflects materialization of new avenues of growth with the entry to operational asses, consolidation acquisition and expansion of gas sales. We began the full counting of the results of the assets acquired in the fourth quarter, which added BRL 440 million to the company's EBITDA.

Sergipe Hub also made a relevant contribution with growth of BRL 142 million, driven by the strong contribution of the gas business. This result was partially offset by the accounting of retroactive variable costs in the period, mainly linked to the re-accounting of energy delivered by CCEE and gas transportation costs.

In off-grid commercialization, the phase start of commercial operations throughout the quarter contributed with BRL 56 million in EBITDA. The positive dynamics of the period was partially offset by lower results in some of the company's segments. The main ones were Parnaiba Complex and Upstream due to lower thermal dispatch holding due to nonrecurring expenses related to growth projects and consulting integration fees for acquired assets.

And finally, in the Solar segment, impacted by curtailment in price gaps between the Northeast and Southeast submarkets. It's important to emphasize that of this BRL 1.5 billion gross in EBITDA in the first quarter, BRL 1.4 billion came from the company's fixed EBITDA. That is, it does not depend on any exogenous factor.

We generated another BRL 200 million from the commercial margin of gas and energy. And we had BRL 100 million in nonrecurring costs, which should not be repeated. This is the beauty of Eneva's diverse portfolio. Diversification reduces risk. We had assets performing worse as it was the case of solar and even thermal plants with less dispatch, however, other businesses performing better, thus increasing the total result.

This is how we should view Eneva from now on, a guaranteed strong result with risk mitigated by the portfolio and with the possibility of surprising with the differentiated value levers that we have in gas and energy as well.

Now Slide 9. I present the main impacts in the financial result comparing quarters. The net financial result was negative BRL 253 million in the first quarter, representing BRL 454 million better than the negative result of BRL 707 million in the same period '24. The improvement in the results was mainly explained by the exchange variation, positive effect of BRL 412 million and the variation between quarters and the impact of mark-to-market of swaps, mainly from the anticipation of receivables from [indiscernible] , which was concluded in the third quarter of '24.

As part of the liability management process, with an impact of BRL 67 million on the variation between the periods. Slide 10, we're talking about variation -- changes in cash flow for the first quarter. Operating cash flow generated BRL 1.18 billion in the quarter, driven by EBITDA and partially offset by the need of working capital and taxes paid in the period.

Cash flow from investments recorded a total cash outflow of BRL 916 million mainly directed to Azulão 950 project, upstream activities and other growth projects of the company. Financing cash flow recorded a total inflow of BRL 798 million, driven mainly by the fundraising carried out in the period. In addition to the amounts paid in amortization, interest and leasing, we had in this quarter the disbursement of BRL 222 million with a share buyback program. As a result, Eneva generated cash of BRL 900 million, achieving a solid cash position of BRL 4.766 billion.

Now Slide 11, I'll be talking about the profile of our debt. On the left, you see that net debt closed the first quarter in BRL 14.4 billion, BRL 3 billion less the level recorded in the first quarter of '24. As a result of the reduction in net debt and higher EBITDA in the period, we had a 1.6x drops and the net debt EBITDA ratio, which reached 2.6x at the end of the quarter. This is regarding the one-off impact of the core impairment, the company's leverage would be 2.3x.

The other graphs on the slide. We highlight the quality of debt. We've closed the first quarter in 5.9 years, an increase of 0.9 years compared to the same period last year and with lower average cost driven by the reduction in the cost of debt indexed by CDI.

These improvements reflect the ongoing liability management process carried out by the company as well as raising of new debt and disbursements or financial under attractive conditions. It's worth mentioning that currently 79% of our debt is linked to the IPCA, ensuring alignment between our obligations and the main index of our revenues. Similarly, the balance of our debt linked to CDI is comparable with our cash balance also creating a hedge between the company's obligations and rights. With that, I now give the floor to Andrea Monte, who detail Eneva's investments in capital projects.

[Andrea Monte, executive]

Thank you. Good morning, everybody. Slide 13. I highlight the investments made in the quarter, totaling BRL 861 million mainly allocated to the company's main projects and to upstream development, which represented approximately 77 of total investment.

In Azulão 950 complex in Amazonas, a total of BRL 529 million was invested in the quarter with highlights for BRL 350 million allocated to construction and assembly services at [indiscernible] substation, transmission and connection line. BRL 47 million for contractual milestones with equipment suppliers, such as transformers and cooling towers.

BRL 40 million for contracts related to the arrival of the generator and costs related to logistics and commissioning and BRL 28 million are located to cluster and gas pipelines in sustaining activities in the development of projects in holding, investments totaled BRL 199 million in the period.

Lastly, Upstream. Investments totaled BRL 78 million in this Q with highlights for: BRL 58 million allocated to drilling campaign 2025, which includes cost for the arrival of -- the new drill, well drilling and profiling in Maranhão; BRL 24 million allocated to technical engineering teams and BRL 15 million invested in the development of Gavião Mateiro field.

Now going to Slide 15. I present the updates of Azulão 950 project. At the end of the first Q, the physical progress of the project was 56%. I would like to emphasize the completion of the lifting of molders in the boiling drum, the positioning of the slot catcher, the base of the unit and the accelerate transforming.

In addition, we began to cold commissioning of the primary treatment units. And we finished assembling the panels of the protection system, control and supervision of the substation. And we finalized the transmission line. And also, we started transportation of the for structural models of pipelines.

The project pause with -- according to the program and commissioning Azulao I is expected to the second quarter of '26. Azulao II is estimated to be completed in the first quarter of '27.

As the next milestones, I would like to highlight the energization of the plant and commissioning of UTG. We expect to conclude that by the end of '25. Now I give the floor to Felippe Valverde for Q&A.

[Felippe Valverde, executive]

Thank you, Andrea. Good morning, everyone. Now let's start our Q&A session, and questions must be sent in written through our Zoom platform. The first question comes from Guilherme Lima from Santander. We noted that there has been an expansion of the net debt in the quarter of 6.8% despite a solid EBITDA. Could you comment the main lines that justify the cash flow of the operations.

[Marcelo Habibe, executive]

Yes, of course, Andre, thank you for your question. I think that we have two explanations to simplify. So number one, when we look at the strong EBITDA generation, BRL 1.5 billion, but part of this EBITDA has not yet materialized itself in cash and working capital because of the natural flow of received. So they go to receivables and then they turn into cash.

What has effectively turned into cash of $1.5 billion is BRL 1 billion working capital took one part, income tax. The another of the BRL 1 billion, we invested BRL 916 million, we bought back the shares paid BRL 100 million in terms of lease, so the effective cash generation as a result of the EBITDA was practically no or even negative, which would not lead to a reduction in the net debt, at least not specifically on once cash is materializing working capital, yes.

There's a second factor. You need to remember that almost 80% of our debt from debentures and fostering banks is IPCA+ spread, which is about 5.2% today, as you saw in one of the slides. So this debt, we pay spread, but IPCA corrects the balance. So when there is no amortization, that naturally grows just because of its correction by the IPCA.

So the net debt -- the debt grows and the net debt to the company. So it's IPCA without major amortizations in the quarter plus cash generation, that will become more positive in future months considering the working capital.

[Felippe Valverde, executive]

The second part in Guilherme's question is about the purchase, the acquisition of [indiscernible ] Could you comment on the strategy for the projects that were acquired from [indiscernible] Group in [indiscernible] Are you going to anchor FSRU?

[Marcelo Habibe, executive]

Well, the acquisition of the project provided many options to the company and as we are going -- how we are going to use this project in the portfolio of alternatives that we have as part of a strategy that, unfortunately, you cannot disclose. We are not sharing with you. But definitely, this is another option that we will have in the future for Eneva to grow.

[Felippe Valverde, executive]

Thank you very much, Marcelo. So the next two questions that we received come from Daniel from Safra. The first one, could you comment the result of the gas trading desk in Sergipe Hub? What is the space to expand the results of that arm? How can you expand the margins of that segment?

[Marcelo Habibe, executive]

Thank you, Daniel, for your question. So we started the operation in the second half of last year after the hub was connected, and we saw especially after the correction of the program of rising. In the beginning of 2025, we saw many opportunities in the short-term market, which combined to flexible contracts and some other firm contracts.

This helped us have a movement that was quite interesting and interesting amount of operations, which is the justification of most of the businesses of the trading of gas in the network.

We believe that this trend is likely to be perennial to continue. The market is seeking alternatives for liquidity. We are well positioned to be one of the main alternatives of liquidity in the Brazilian market, and the idea is to continue enjoying our position to capture opportunities.

This thing of being able to increase margins are not is very much related to the context, prices, indexes and more long-term contracts that are related to the short-term -- the prices in the short-term market.

So whether we are going to do that, repeat or not, this will depend very much on the scenario. But the trend or the likelihood is for us to keep on increasingly more intense levels to capture more volume, and this is likely to continue.

[Felippe Valverde, executive]

The second part of Daniel's question is about the capacity reserve auction. When do you expect news about the capacity reserve auction.

[Marcelo Habibe, executive]

Well, good question. Well, we hope it's as fast as possible because of the need that the system has to be able to count with dispatchable power in order to deliver energy for 2028. It's already very challenging. So the sooner the better, and it's important that the public hearing is open again so that we have the auction still in 2025. But we haven't heard anything as no one has.

[Lino Cancado, executive]

Daniel, this is Lino just complementing what Marcelo said. The company believes in mean in voltage. So we know that there will be gaps in '26, '27 and '28 and 29 needs to add voltage to the system. So you need to observe what the ONS as and the Ministry of Energy, so we believe that there is a structural needs. This will happen. And when it happens, the company will be very well prepared to make the most of the opportunities that arise.

[Felippe Valverde, executive]

The next two questions come from Joao Pimentel from Citi. Good morning, everyone. We saw a very strong contribution in this quarter coming from the on-grid gas, but almost 83% of these results come from one-off operations in LNG. How can we think about this result in a recurring way going forward?

[Marcelo Habibe, executive]

Thank you so much for the question. We cannot think that this is a recurring result. We said that those are context specific operations, they were one-off and we will always be paying attention for any opportunities that arise so that we can make the most of them. But we cannot give you any guidance in terms of the recurrence of these operations.

[Felippe Valverde, executive]

Second question, part of Joan's question. As to the expansion of capacity to 900,000 cubic meters day, how are the negotiations for this amount evolving? Should we expect any price levels?

[Marcelo Habibe, executive]

Joan, the negotiations for the sale of this additional volume are very much related to the ongoing negotiations for the sale of gas to meet the segment of transportation, there is a commitment to scale our offer to that segment as new players open and adhere to this initiative, converting their fleets from diesel to gas, and the price benchmark that we are practicing is similar to the prices that are practiced in small scale, and they have even better margins than the gas that is sold to the electric industry. So we are likely to expand this operation with this type of feature.

[Felippe Valverde, executive]

Our next question comes from the decision of CMS from last night. So last night, CMS decided to advance the contracts of LR CAP for 2021. Do you see any opportunity with that regard?

[Marcelo Habibe, executive]

The company will have interesting benefits with decision. We have projects that are winning projects like Parnaiba IV of Eneva, Linhares in Gera Maranhão, they are recently acquired assets and all these assets, we had already started with the advance with this offer of the opportunity of advancing it. And this will come through, and this is going to contribute to the company's results in the second quarter.

[Felippe Valverde, executive]

Just in figures, with these three contracts, we have a total of BRL 35 million on fixed revenue month. That's the financial impact. A question about the trading business. How is it going to go in the next quarters? Considering the launching in the submarkets? Was there a change in strategy?

[Marcelo Habibe, executive]

Thank you for the question. One of the main processes of activity that really has is to look towards trends and market conditions. So this detachment between markets, price variations, as mentioned, that's part of the process of taking a stance. We do not believe any much variation regarding results since our positioning between what we buy, what we sell, what kind of market, how, so that we can maximize results looking at those scenarios. Nothing very relevant to emphasize here.

[Felippe Valverde, executive]

One last question, regarding Sergipe Hub, you had in the first quarter '24, about BRL 100 million of cash of use in Sergipe. How have you been talking with insurers to have reimbursement of this value.

[Marcelo Habibe, executive]

Well, we can say that the talks have positive reports that came after the consultation, we're quite positive for the company. And we have to take this forward. There is a discussion that we'll have throughout these coming quarters. However, it's going to be very quite positive for the company.

[Felippe Valverde, executive]

Thank you, Habibe. With this last question, we then close Q&A. Thank you all. Have a good day. We'll see you next quarter.