Eletrobrás - Earnings Call - Q2 2025

Transcript

Speaker 1

Good morning, ladies and gentlemen, and welcome to Eletrobras's earnings call for the second quarter of 2025.

Estão presentes aqui hoje.

We have with us Mr. Ivan de Souza Monteiro, CEO of Eletrobras, and Mr. Eduardo Haiama, VP of Finance and Investor Relations.

Só momento.

Mr. Antonio de Godoy, Vice President of Operations and Security.

Camila Gualdo Araújo.

Ms. Camila Gualdo Araújo, Vice President of Governance, Risk, Compliance, and Sustainability.

Elliot Wolff.

Mr. Elliot Wolff, Vice President of Strategy and Business Development.

Italo Freitas.

Carvalho Freitas Filho, VP of Trade and Energy Solutions.

Juliano Dantas, Vice President.

Juliano Dantas, Vice President of Innovation, R&D, Digital, and IT.

De Siqueira.

Mr. Marcelo de Siqueira Freitas, Vice President of Legal.

Renato Carreira.

Mr. Renato Carreira, Vice President of People and Services.

Só momento.

Mr. Robson Pinheiro de Campos, Vice President of Expansion Engineering.

Só momento.

Mr. Rodrigo Limp, VP of Regulation, Institutional, and Markets.

This event is being recorded.

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sustainable growth of Eletrobras.

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vontade para encaminhar suas perguntas ao final da apresentação.

Before proceeding, we would like to clarify that any statements made during this conference call concerning the company's business outlook, projections, and operational or financial goals.

Constituem...

Are simply the management's beliefs and assumptions.

bem como...

Based on information that is currently available to the company.

a resultados que diferem materialmente daqueles expressos em tais considerações futuras.

Forward-looking statements are not guarantees of performance, as they involve risks and uncertainties and depend on circumstances that may or may not occur.

across all business segments.

Investors should be aware that general economic conditions and other operating factors may affect the actual results.

Agora, gostaríamos de passar a palavra...

And may be different from those expressed. I will now turn the floor over to Mr. Ivan de Souza Monteiro, CEO, who will begin the presentation. Go ahead, sir. Good morning, everyone. Thank you for being here. This is a quarter that consolidates several initiatives that the company adopted since it was privatized. I would like to list four main things. The first is the simplification of the company's shareholder structure, and cost reduction was a major example that came from this initiative. Liability management was also an example, as we have been able to reduce the company's compulsory debts from BRL 20 billion to now under BRL 12 billion. Another highlight is the conclusion of connected works. We have the Ponchilla Negra wind farm concluded in the first quarter and 1,390 Manaus Boa Vista, which is a connection we will deliver later on this year.

We're also continuing investments and making record disbursements of nearly BRL 2 billion, and the consistent improvement in the commercialization area is also a highlight for the quarter. All of these initiatives aim at increasing the predictability of our results, which allowed us to announce the BRL 4 billion dividend payout yesterday. We will continue with this initiative to give more predictability, increase investments, reduce costs, and manage our liabilities. With that, the company aims to improve its process and its trading to become a company directed to serving clients. We are demonstrating, with the support of the board, that we are concluding the turnaround stage and building a budget for 2026, which will help us to overcome this stage completely. I will now hand it over to our CFO, and thank you for being here. Thank you, Ivan. Good morning, everyone.

Looking at today's schedule on slide three, I will be talking about the main highlights for the quarter, and then we will discuss the financial performance of the company this quarter. We'll discuss our energy trading strategy, and finally, our capital allocation strategy. On slide five, you see the main highlights for this quarter, starting with shareholder remuneration, BRL 4 billion in dividends. This was due to the reduction in risk, as Ivan said, that we were able to execute this quarter. This was also connected to our long-term vision for energy. Our second highlight was the contribution from generation to our margins, which went up 21% versus Q1 and 16% versus Q2 2024. This mitigated a drop in transmission revenue. The third point was this $1.2 billion reduction in compulsory loans, which is now below $12 billion Brazilian reais, investments which grew 116% versus the first quarter of 2025.

We're focusing on investments in reinforcements and improvements. We concluded the first post-privatization transmission auction, which is the Coladinhos transmission project. We also concluded financial and economic rebalancing for the Transnorte Energia project. As Ivan mentioned, we concluded the last transmission line this year. In terms of capital allocation, we concluded asset uncrossing with Copel, and we acquired Eletrobras Participation. Continuing with our financial performance on slide seven, we had a reduction in our AEPs, and this was partially offset by our revenue from generation, as I had mentioned before, discussing our margin from generation. On the EBITDA line, which impacts our generation margin, this helps to offset this reduction, but looking at our regulatory EBITDA, we remind you that we have to consider participations as PEs and as other companies. The variation was nearly $800 million in equity income, which led to this reduction in EBITDA year on year.

Slide eight discusses our income. We had a reported loss of $1.3 billion, and this is basically due to the regulatory remeasurement of our transmission contracts. It's the RBSC financial component. Adjusting for this effect and other adjustments to our adjusted IFRS, including Eletrobras, our net income would have reached $1.4 billion, which is around 40% higher than last year. Slide nine, as Ivan said, shows our cost reduction journey that is continuing with our PMSO of $1.4 billion, a reduction from Q1 and Q2 2024. There was also a reduction in the number of employees, but we contracted a significant number during this time. It's a cost reduction with improvements in efficiency for the entire group. Slide 11 discusses our energy trading strategy. First, we have to remind you where our generation resources are present. We are present across Brazil, in the Southeast, for example.

During the second quarter, we had 7 gigawatts in physical guarantees in the Southeast, and adding 6 mega in purchases, we would be at around 800 in quotas. Here we're highlighting our ACR sales. We are doing this because purchases and quotas are not managed by us. The quotas will reduce to zero by 2027. We are receiving a fixed revenue from this. In order to understand our trading strategy and how it's changing, we have to look at all of these assured capacities plus purchases and subtract quotas from that. That shows how much we are really generating per megawatt hour that we have available for trading. Slide 12 shows this effect. Last year, with the energy we have available for trading, we had made BRL 1.1 billion in contribution margins. In the second quarter, this went up to BRL 1.6 billion.

It had been BRL 1 billion in the first quarter. In addition to that, on the right-hand side graph, we are showing how the resources we have are evolving throughout the year. It's important to remind you that nearly 99% of our generating area is made up of hydroelectric power plants, and this energy production has a seasonal pattern. In the first quarter, we were at 12 gigawatts to be traded, generating BRL 1 billion in contribution margin. For the second quarter, it was at 9, and we still generated BRL 1.1, excuse me, BRL 1.6 billion. For the third quarter, because of the seasonal pattern that we have, this is the dry season in Brazil. It will go down and then go up again in the fourth quarter. On slide 13, we see some of our strategy that we had mentioned in the first quarter.

Our vision is that after November and December 2024, there was a high expectation that the rainy season from December to April would be close to historical average, and that would make prices collapse. At the time, we were concerned about conserving the first quarter, as I showed in the previous slide, where we have the most resources available. If the expected rainfall did not come from the second quarter onwards, we would have a much more positive scenario for prices. This is what happened. You can see here our price from January 2, and we drew a line on March 13, which was when we published our results for the fourth quarter of 2024. You can see that prices continued to move. For 2026 and the forecasted prices for 2026 and 2027 are a little bit more volatile, but we believe that this will be more constructive.

Slide 14 shows our energy balance as it currently stands. There's a slight evolution in resources for 2025. We're no longer trading this spend. This gives us a constructive vision for our prices, as I mentioned before. Now, looking at capital allocation on slide 16, here we have our methodology guidelines to declare our first dividends in December and then complement it on March 13 with the fourth quarter results. We got many questions about how this is being analyzed, so we decided to include these guidelines in more detail in this presentation. This is our methodology. First, we're always looking at the long-term horizon. We're looking at a five-year horizon. For these five years, we are assessing how our capital structure will be at the end of the fifth year. We're also analyzing our leverage with this capital structure.

First, we have to consider financial net debts, so bank debts, market debts, and so on. Over that, we add the inventory in compulsory loans. We are reducing these liabilities with payments, and this is all being considered in our cash flow. Finally, we also include our regulatory obligations from the privatization, CDE, and basins. On the EBITDA side, this is just the note that besides EBITDA, a regular EBITDA, we're including our proportional equity income into this calculation. For leverage, how we try to define the optimal leverage range for a company like Eletrobrás in generation, we consider it to be between 3 and 3.5 times. That would be comfortable, of course, depending on price. In transmission, between 3.75 and 4.25 times. We have a weighted average according to the size of our businesses as predicted for the fifth year, and that will give us the optimal target leverage.

After we do that, we compare our net debt and our optimal leverage projected for the fifth year and see if there's enough space to pay for that. That's exactly what we did. Slide 17 shows this calculation. It takes into account everything I'm going to mention in slide 17. I'm referring here to risk. Since 2022, when we had privatization taking place and there was a strong acceleration, especially in the last six months, our risk improved significantly. Compulsory loans started in 2023 at BRL 24 billion, and now we are below BRL 12 billion. The investment in Transnorte Energia was complex, over BRL 3 billion, and it's being concluded this year. We are repositioning the transmission revenue, and we are extending the concession terms. Cost restructuring is ongoing. We had a simplification when we compared to with the Furnas merger, so the corporate structure was streamlined.

We also had an uncertainty for our shareholders about what disbursements we would have. There was a partial completion of the sale of thermal power plants, a completion of the RBSC financial review, and also a release of some credits that were withheld at CCEE due to the GSF auction. That was a release of nearly BRL 400 million. This all brings us to reduced risks, gains that we had over time with these transactions, better short-term outlooks for an energy company. We are reviewing our methodology. Despite having posted BRL 4 billion in dividends for 2024 recently, being able to pay out an additional BRL 4 billion in dividends is very significant. Slide 19 highlights the significant growth we had in investments this quarter, a growth of 116% versus the first quarter, especially in reinforcements and improvements.

Finally, on our ESG agenda, out of the main investments that we have in the company, currently, we're nearly at the end of the Transnorte Energia project. We are interconnecting the last isolated state in Brazil, which is Roraima. This had been stopped for 10 years. It had a CapEx of BRL 3.3 billion, and it will be within term and within the forecasted cost. We repositioned our revenue. Our RAP was increased from BRL 395 million to BRL 561 million, and we expanded our term from 17 to 27 years. This creates 3,500 direct and indirect jobs, and we're interconnecting Roraima. That will reduce thermal generation, and that is nearly BRL 2 billion in costs in CCC and CDE. We are also reducing carbon emissions by doing this. It's a potential reduction of 612,000 tons of CO2. That concludes my presentation. We can continue with the Q&A. Thank you.

We will now begin the questions and answers session for investors and analysts. If you would like to ask a question, please state your name and the company you represent through the Q&A button. Please ask all your questions at once. If you would like to send your question in writing, you can submit it through the Q&A button. Please hold while we pull for questions. The first question will be asked by Fillipe Andrade from Itaú BBA. Go ahead, sir.

Bom dia, pessoal. Obrigado por...

Good morning, everyone. Thank you for taking my question. I'd like to ask you to give us some more details on your trading strategy for the second quarter. In your release, you mentioned this, but I'd like to understand how each subsidiary participated in building the ACL margins for the short-term market. If you can tell us a little bit more about that. I'd also like to know what is the recurring CapEx that you are expecting in improvements for the next quarter. Thank you. Thank you, Felipe. I'm going to let Italo answer your first question, and then Elio will answer your other question. Thank you. About our trading strategy, obviously, we're working in trading energy for each submarket. We have distributed teams in each of the regions, and their focus is on finding clients that will add value to the company.

The sales strategy for final customers and for traders is based on a portfolio analysis that's made by our portfolio department, where they see the highest added value for the company's revenue. We can split this into two parts. My area looks at the market and sees what demands are being created, and we also have the supply area, which is an EPIS area. He's going to tell us about how he forecasts supply of energy with Eletrobrás. Thank you for that question. One of the points we mentioned in the first quarter's call is that in our strategy, looking at the entire year, we had a higher volume of sales in the first quarter. We had strong rainfall patterns in December, in November, and January. Our strategy was to leave less energy contracted for the following quarters.

Of course, resources are a little bit less available because of the seasonal pattern. If this had been lower, we would have been pleased with lower sales levels. In March, we saw a huge rise in the Southeast, with the North and Northeast being left behind by about BRL 260. For March specifically, the biggest volume in sales led to a result that was not as satisfactory for March. Since we consider the strategy for the entire year, our vision for the entire scenario, whether it was for low or high prices, had more uncontracted, having more uncontracted energy would have been favorable for the rest of the year because that would have reduced that gap. We mentioned during the last call that we were already seeing a reduction from June onwards. This is exactly what happened.

In the Northeast, we still see a relevant gap of about 30 to 35 reais, and in some days of the third quarter, but the North is already close to it. Actual sales for the second half of the year are offset by the energy available in the North and Northeast. We are already seeing some results for the second quarter, and the strategy was the same for the rest of the year. With regards to margins, this is seen on a global basis by grouping all of the different companies. Hi, Fillipe. Thank you for your question. First, I would just like to highlight the importance of the investments that we're making. We've been mentioning this in the last few years. We are investing in our own assets, so it's extremely pertinent and appropriate for the group, and it is providing the right level of returns for our shareholders.

More than that, it's creating resilience for our transmission assets. This is an essential investment. As for volume, we have been growing constantly since 2022, when the company was close to BRL 1 billion. We're now at, in 2023, we were at nearly BRL 3 billion. In 2024, it was at BRL 3.3 billion. Investments in reinforcements and improvements, and clearly for 2025, we're seeing some additional growth. We're above BRL 4 billion. I think it's at BRL 4.5 billion or thereabouts to be executed throughout 2025. Our ambition is to truly continue growing. We have to see what the goal will be for 2026 and 2027. Of course, there's a process that we have to go through with our regulators, but we see a lot of potential in investments. We see that this is important and relevant. Our goal is to continue growing.

It's BRL 4.5 billion this year, and for the future, we believe it will continue to be higher. In the first quarter, it was a bit below in execution, but we already recovered significantly in the second quarter and will do even more in the next quarters. Perfect. Thank you. The next question will be asked by Andre Sampaio from Santander. Go ahead, sir.

Bom dia, pessoal. Primeiramente, eu queria só fazer follow-up ainda.

Good morning. First, I'd like to ask a follow-up question on reinforcements and improvements. You mentioned that you still needed an internal effort to accelerate investments. I'd like to understand if this internal process has already been concluded. I'd also like to confirm something. We've seen a difference in IFRS and regulatory.

A geração e transmissão, você tem alguma outra coisa que a gente pode...

I'd just like to confirm if there's anything else that we should pay attention to for our models. Thank you.

Eu queria falar algo com relação a essa questão da sua segunda pergunta. A primeira é relativa ao investimento.

Thank you. There are two points here, and maybe Robson can talk a little bit about this. The Engineering team, of course, is implementing this expansion, but in summary, regarding the approval process and how we identify and pre-execute this, this is very aligned in the company. We have a robust process, first, to identify what assets we think are important for our regulators to consider for our investments. Then in assessing these investments and planning for them, you can't only identify them, right? We have to include it in our budget.

A gente tem uma discussão com o regulador, está muito bem executada a companhia.

The previous stages are very well laid out in the company. Of course, it's a continuous operation. We always try to improve things. When it comes to executing these improvements, I think the numbers speak for themselves. Our second quarter was much stronger than the first. I have to reiterate that question of Coladinhos, we are delivering on time and within budget. It's small, but it's the first transmission line that we are delivering, and it was within budget and within the terms.

Andrea, quase que a gente ajustou o meio de eliminação.

Andrea, this adjustment is basically based on elimination, looking at revenue and costs between companies.

Thank you, everyone.

Nothing noteworthy. All right. Thank you. Thank you, Andrea.

The next question comes from Bruno Amorim.

The next question will be asked by Bruno Amorim from Goldman Sachs. Go ahead, sir.

morning, everyone. Thank you for the opportunity.

Good morning, everyone. Thank you for taking my question. I have two.

Vamos lá com relação a reforço e melhoria.

First, I'd like to ask a follow-up question on reinforcements and improvements. If you can tell us to whatever extent you can about what returns you expect for the investments made in this area. With NTMB and SELIC rates at the current levels, what returns do you expect and what are the odds of having an outperformance with the regulatory? I'd also like to ask you to talk about liquidity in the energy market to the extent that you can. You've shown that prices for 2026 were at very attractive levels. My question is if the decision of not selling more has been made by the company or if there are restrictions on liquidity at these price levels. Thank you. Thank you. Haiama will answer one of the questions, and Limp will answer your question on trading. Thank you, Bruno.

On reinforcements and improvements, as with any regulated investment, it will change over time.

dos compulsory debts, o que também contribui para a melhora do resultado financeiro.

Our vision is that over time, there can always be divergences between the real interest rates, but looking at a 20-year history, where regulations have been robust, this has always been constructive. If there are any differences over time, regulators are concerned with that, and this is adjusted quickly. We have a robust methodology. We are constantly analyzing these parameters. With time, we see that they tend to converge. I don't like to compare pre-fixed and post-fixed rates to see if this is being good. If it's a 30-year investment, it's important to look at the regulations that we have so that we can deliver what is expected. Thank you for your question, Bruno. When it comes to liquidity, there is some liquidity because we're analyzing if the market will be open. This liquidity will happen organically, right?

When it comes to the market, we do see that liquidity will be slightly better. Of course, the company's strategy of allocating energy will depend on what we did and all the studies that the IMBES Area has been doing. In summary, there will be some organic liquidity and the wholesale market. Of course, we see an improvement there for many reasons. I'll let Rodrigo answer this issue about the portfolio, your question about the portfolio. Thank you for your question, Bruno. We talked about liquidity and how the market is doing. For 2026, we see some significant liquidity. It's actually slightly lower than last year. Looking at A1, maybe prices can affect our liquidity, but we have significant liquidity, especially in the Southeast. This is related to the strategy that was discussed before.

We are trading for 2026 and 2027, but we're always keeping a technical analysis to see if there's a risk of a gap here. Liquidity is more concentrated in the Southeast. We're trying to strengthen our sales in the North and Northeast. We've had some operations in the Northeast, and these are sales that contribute to reducing risks and to helping us make use of the increase in energy prices. Thank you. As a reminder, if you'd like to ask a question, please state your name and company name through the Q&A button. If you want to send your question in writing, please submit it through the Q&A button as well. The next question will be asked by Daniel Travitzky from Safra. Go ahead, sir.

Thank you for the opportunity.

Hi, everyone. Thank you for taking my question. I'd like to ask about your vision for the future and the company. You explained many of the risks that were mitigated. You mentioned several of these elements. Looking towards the future, what will be the company's focus? Are we looking at the reduction of other risks, or are we focusing in risk reduction and capital allocation? That's my first question. I'd also like to ask about your recent announcement of dividends. Shall we see this as a change in the dividend payout practice that you'll now do more frequent dividend payouts, or are we continuing with the same previous strategy? Thank you. Thank you. Our vision for the future is to consolidate all of these initiatives, and our dividend strategy follows in the same line.

We are now through the classic turnaround phase, and we're looking at the company in the medium and long terms. M&As will basically be about finding new opportunities for growth. The options for this year and for next year are also opportunities for growth. We will grow for some time, and then we'll reach a more stable investment pace for the company. This capital allocation is allowing us to give more predictable dividends for our shareholders. We expect to consolidate these initiatives, make our results more predictable, and we hope to, through that, make frequent payments. Of course, there's a number of initiatives behind that involving AI and other things. In the beginning, we had a holding with four subsidiaries, including Furnace, and we're now having one single back office for that. One specific part of it is relationship with suppliers.

We're managing the company as one company, and that gives us a better partnership with our suppliers. I'd like to ask Juliano to talk about his vision for the future, specifically on using new technologies. Thank you, Ivan. The company has been modernizing and improving very quickly. We're now among the top 10 most innovative companies in Brazil, and this will be published in the next few days. This is due to how we are modernizing the company's infrastructure, and this includes AI, our monitoring centers, and how we've integrated these technologies in the company from commercialization, engineering, and more businesses. We aim at expanding this process, doing the basics very well, and we also hope to apply these technologies to generate more value for our business. Thank you.

Obrigado, pessoal.

The next question will be asked by Joao Pimentel from Citi. Go ahead, sir.

morning, everyone. Thank you.

Good morning, everyone. Thank you. I have two questions on my side. First, I'd like to understand something in Q1. You mentioned that you had a longer position for the second half of the year so that you could benefit from the higher energy prices, which is what we have been seeing in price curves. Considering that we're facing a challenging scenario in GSF, and the hedge in the energy balance seems to be insufficient to mitigate this impact, I'd just like to understand how much of the gains that you would potentially have, que potencialmente teriam nessa alocação mais longa no segundo semestre, dado que já haviam sido afetados, given that GSF is challenging. That's my first question. The second question is about this decision to sell your portfolio.

Given liquidity restrictions, etc.

Given the restrictions you have on liquidity and so on, is the company's option based on sales for the short-term market? Or do you think you will have space to monetize things with contracts?

only because of the liquidity issue?

I'm asking this not only for liquidity, but

Do risco de submercado, né? Que esse risco de submercado é negócio que...

Due to the market risks.

Ao longo dos vários próximos anos, e foi o que pegou bastante no mercado.

We're going to continue seeing them for the next few months, and I think this affected you significantly in the first quarter. Do you expect to hold back on freighting and have liquidations of PLD in your own market? Thank you for that question. Haiama will answer your questions. Thank you. What we mentioned in that slide that showed the seasonal pattern for GSF throughout the year. Of course, when you have more energy, and this is usually in the first quarter, our position is that if we truly had good rainfall and prices went down, this could be used to mitigate the rest of the year. That's why the concentrated sales in the first quarter. From the second quarter onwards, we did the opposite. It seemed that the risk was asymmetrical to the price being used.

That was the next graph we showed, which was the price curve for the second half of the year, which was around 100 and some to 300 or 360. Now it's at 300. With that being said, when we said that we were sold in the first quarter and bought from the second quarter onwards, we were running many simulations to see how GSF would behave so that this energy would be available for the poorer scenarios, not for any scenario. That energy balance we showed was for the year. It was not the next exposures that we could have later. It was for the year. That also involves a period in which we had been more contracted. This was done purposefully. That being said, given that GSF is lower in the third quarter, you have to expect that although prices are high, financially, it will be spectacular.

It will be very good, but not to the same magnitude as if we have the volumes in the first quarter. The strategy we were using had already been foreseeing all of these scenarios in GSF and price. To answer your question on the freighting strategy, our focus is expanding our client space, whether they are large clients where we have direct connections or smaller clients that can be reached through partnerships. This is our focus. If we cannot do something at the price that would be better, then we move on to liquidation. I'll ask Italo to complement that. Thank you. João, as Ivan said, we had a very detailed study of our clients based on size, market, and so on. We mapped the best tools you could use to access these clients. Like Ivan said, partnerships, speaking to major clients, open markets channels.

Our strategy for this is well-defined. As we see better options of allocating energy, we are using these tools that we've prepared and are currently available to allocate energy to whatever provides the most value for the company.

Obrigado, pessoal.

Thank you.

The Q&A session is closed.

This concludes the question and answer session. We will now hand it over to Mr. Ivan de Souza Monteiro for his closing remarks.