Engie Brasil Energia S.A. (EGIE3) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the ENGIE Brasil Energia 3Q '26 Earnings Results Video Conference. My name is Adriana Wagner, Investor Relations analyst at ENGIE Brasil Energia. I'd like to make a few announce -- it's worth remembering that this video conference is being recorded. We made available on our website, eng.com.br/invest the results presentation and the earnings release besides the complete interim financial statements and other documents filed at CVM yesterday, where analysis of financial statements, operational results, ESG indicators and progress in the implementation of new projects are disclosed in detail among other highlights of the period. Before proceeding, I would like to clarify that all statements that made during the videoconference regarding business, outlook of the company should be treated as forecast depending on the country macroeconomic conditions of the performance and regulation of the electric sector besides other variables. Therefore, they are due to changes. We remind that journalists who wish to ask questions can do so by e-mail, sending them to the company's press office. To present ENGIE Brasil's Energia performance in the third quarter of 2026, we have here Mr. Pierre Leblanc, our Chief Financial Investor Relations Officer; Thais Soares, Chief Sustainability Officer; and Leonardo Leonardo Depine, Investor Relations Manager of the company. It's now my pleasure to turn the call over to Mr. Pierre to start the presentation. You may go ahead.

Thank you very much, Adriana. Good morning, everyone. It's a pleasure and an honor to introduce to you the main ENGIE Brasil highlights of the third quarter of '26. Well, among the main highlights of the period, we completed in July, the transference of the participation of 40% of Jirau Energia, which belongs to [indiscernible] our controller company. Since this date, the results of these investments were recognized and acknowledged as equity equivalents. Also in July, we completed the repatriation of Cana Brava and Ponte de Pedra Public Asset Use, our UBP, already recognized and acknowledging the second semester. In the third quarter, we see the effect of the improvement of these businesses. Besides that, we also had other highlights. Fitch elevated -- Fitch elevated our ratings in changing the BMB Minus to BBB, reaffirming all the other ratings of our company. The Board of Directors approved the incorporation, the merger of Energy, Brazil, Commercial -- ENGIE Brasil Energia Comercializadora, our subsidiary. Later, we also called an extraordinary shareholders' meeting to debate the topic. And I would like to highlight our ESG agenda. We have reached for the 16th time, the award transparency, the Transparency Award, which is an award recognizing and acknowledge the quality and transparency of our information, the financial data we share. And also, it's a reason of a source of great pride to the whole team. In terms of financial data, our adjusted EBITDA reached BRL 1.9 billion in the third quarter of '26, a growth of 4.1% in comparison to the third quarter of '25. The main factor was the good performance of the Generation segment in the accumulated of the 9 months of '26, the adjusted EBITDA totaled BRL 6.4 billion, a 10.3% increase in comparison to the previous year, to the previous 9-month period. This shows the consistency of our strategies in growth supported by the new assets, the new renewable assets, the new long-term contracts and agreements and discipline in terms of asset allocation. In this quarter, we also had the first contribution from Jirau Energia in the amount of BRL 35 million. The adjusted net income was EUR 716 million in this quarter, 2.1% growth in comparison to the third quarter of '25. In the nine first months of the year, we -- by excluding the nonrecurring factor of the recontracted UBP, acknowledge the second quarter of the year, the adjusted net income reached BRL 2.2 billion, a growth of 3.8% in comparison to the same period of '25. Net income was impacted mainly by the financial expenses as adjusted debt and the increased expenses in terms of depreciation and amortization due to the new assets that entered into operation in the past few months. This effect was partially offset by the reduction of concession expenses, expenses -- payable expenses after the UBP balance was renegotiated. In sum, the results of the third quarter for '26 show a solid growth and the resilience of our business model. We continue growing with financial discipline, excellence -- operating excellence as well as a focus on the sustainable growth belief even during challenging scenarios and times. I now turn over to our Sustainability Officer, Thais Soares, our Chief Sustainability Officer, she will present the same -- the main ESG KPIs for the period. Thank you very much.

Thank you. Now moving on to our main ESG KPIs. I would like to highlight some points of this quarter. Starting with the climatic agenda, we have very low emissions intensity, which shows the profile of our generation business. A small increase in this quarter has to do with our chain of providers associated to projects. In terms of safety, the frequency rate was a little above our reference, our benchmark in the level registered for the same period last year. And this indicator was also impacted by the reduction in the number of hours of risk exposure, which compounds the calculation of this indicator. Regardless of that, safety is a key value for NG and keep on reinforcing our prevention activities and discipline to prevent risks for our employees and third parties. In terms of diversity, we move on with the participation with women in leadership positions. 30.9% to 32.1%, a gradual increase that has to do with our commitment to increase the number of women in our chief positions. We also advanced in innovation, investments reached BRL 46.7 million in the nine first months of this year, a little over this -- what we achieved last year. But more than the volume invested, it's important mentioning that we have directed our projects, innovation projects to solve concrete challenges in our business, always associating them to efficiency gains and sustainability. In terms of social responsibility investments, our total investments they total BRL 10.8 million among incentives, resources and own resources. In the first 9 months of the year, we were a bit more cautious in terms of using these assets because we were discussing real rules and ordinates regarding fiscal incentives. But for the -- for the final quarter, we have a portfolio approved, and we will hope to see a marked increase in this indicator. We also followed or kept up with our program, engaged people, the connection community relationship program, reaching over 3,000 people in the first 9 months of this year, which shows the engagement of our stakeholders in the company. In general, these KPIs show how we have advanced in the SG agenda with topics that contribute to sustainability and value generation in the long run.

Thank you, Thais. Now moving on to our operating highlights. The main highlight of this quarter was certainly our photovoltaic plants, which recovered very well and now are among our main assets, among all the technologies we have. Hydro, wind also advanced, almost close to 100%, showing the great discipline and the highlight of solar generation. In terms of energy generation, we have 2 effects in terms of complementary, we see an increase in solar and decrease in wind, which was a little bit affected by curtailment in wind. We will see more about curtailment in the next detail. And also, we also generating a scaling factor usually is the lowest quarter of the year, but it had a marked growth in comparison to the previous quarter of the previous year, growing almost by 10% in this -- this is very important for the HPPs and it's shown in the GSF. Now talking more about curtailment. We have added this bar of the 2025 comparison to 2026 for the third quarter. We see that in solar and wind curtailment was 23% and last year and went to 26% this year. And total generation is around 7% and is still around 7%. ENGIE in this quarter had the same 2026 cut. This is normal due to our asset diversification. In the past semester versus '23 solar was basically as we can see, was 37% to against 36% and wind went to 19% to 22% increased a little bit. On your right, we have updated this curtailment. In August, we had this agreement. We are still waiting for the amount and the reimbursement which is expected to be determined for next year when we will make the accounting records. In ENGIE, we are still discussing this amount. Now moving on to our commercial portfolio, no major changes here. We keep up with our strategy of gradual control. For '27 and '28, we have a very high level of contracted business, 23% to 27%. And on your right, in the chart, we see that year-by-year, we have reduced this unavailable energy. So this -- the uncontracted energy compared to the availability in this period showed a good sales always showing the gradual increase. This year and next year, our exposure to prices is relatively low. Our major exposure continues to be volumes due to GSF per se. And curtailment, solar and wind power generation. Now moving on to the financial performance figures. The first chart is the revenue the net operating revenue. This is for the construction revenue for Jaguara, which is expected to last to 2030. It's accounted for in the [indiscernible]. So all the CapEx go through this revenue. We put it here not to confuse this with increase in revenue due to energy sale. The more organic price and volume is in the second bar, an increase of almost BRL 50 million and also positive variation in trading and transmission also had a similar effect in the accounting effect, almost 10% increase in revenue in this period. Here -- this is a very special slide for Jirau Energia. This the first -- this is the quarter where we show Jirau. We break down the general EBITDA for the third quarter, in line with the quarter -- the third quarter of last year. This is an organic growth. And when you look at the 9-month period, there is a 5% growth more or less year-on-year. 1,642. These are the numbers of Jirau Energia. This recurring level of EUR 443 million was a little over -- related to a little over 600 days and this was before the transference. When we check the the profit, this nonrecurring effect will not affect our equity result. This brings no practical effect to us because dividends and capital reductions made by Jirau by the end of the year, will be always done for ENGIE Brasil Energia will maintain the same transference. In terms of profit, it was a little before if compared to the third quarter of the last year due to income tax results, BRL 23 million, there is an income variation positive last year and this year, there was a regular variation. So this is the positive effect we saw last year was offset this year. And we have BRL 180 million in recurring net income 2.5 months from July on. So our contribution to the EBITDA was BRL 35 million from EUR 34 million the profit without so many adjustments. This is the stake of 40% in Jirau Energia, resulting in the contribution of BRL 35 million. TAG is in line with previous quarters. There is a revision in the Northeast grid, which accounts for 23% of targets income. TAG has been reducing 50% in the revenue. Everything that comes outside of that will be adjusted when the tax adjustment is over. So last year was 166 and this year, 144, contributing with the contributions of Q1 in Q2 resulting in Q3 '26. When you check the EBITDA change, let me highlight the central part, which is the regulatory EBITDA. We grew 7.7% versus the previous year. In the Generation, system has a growth of BRL 90 million, accounting for this growth in the segment. Transmission grew BRL 32 million or 19%. We see here the effect of inflation and the entry of Asa Branca last year, which is reflected in this year; and then Jiray and TAG, which I previously showed to you. So regulatory EBITDA is 7.7% and adjusted EBITDA shows a growth of 4%, around 4%. Now moving on to net income. Coming to the adjusted income that is a positive contribution of adjusted EBITDA in negative impact of the depreciation due to the new businesses. In financial results, we have 2 parts. The first is the financial results of debt. Of course, more debt and more interest contributing negatively. And then we have the UBP positive effect, which was lower due to the prepayment that we made. So it has a positive impact to the result. This will be a standard moving on because we have decreased from EUR 5.3 million to EUR 4.2 billion in this UBP liability. So it will be lighter. We'll be rolling lighter after this impact. And after the regular variation of income tax. Regarding the balance debt, we keep on marginally reducing it 2.3% last year and now 2.1%. These figures are similar to what we had in contributions made by Jirau to our EBITDA in capital reduction and TAG will be -- will enter our results little by little, we will decrease this debt, obviously, depending on the set of CapEx we acquired in the long run. This year, we had an auction in transmission, maybe by the end of the year, there will be an auction in batteries. But the trend is a gradual decrease in debt. So we closed in terms of net debt, EUR 25 billion, similar to the previous quarters. In terms of debt profile and composition, no change, 40% in CDI, 53 IPCA and 6.3 in TJLP. So with this spread through time, low if you compare it to the market, duration is close to where we had around 7 years, no major changes, no major highlights in terms of debt profile and composition. In terms of our dividend policy, we have 55%. This is the same slide we showed in Q2 changes for Three, we follow, we keep on the same pace. Moving on to our expansion. We also see here talk about Jaguara which will start operations in 2030. The projects move on. We had the beginning of operations, everything is doing fine in Jaguara. We are just following this procedure. In terms of transmission projects, under implementations, they move on. We had some news about licenses, installation licenses and permits of them have available permits now. So there is less risk in terms of their operations and construction and we expect to see an accelerated growth in 2016 and throughout 2027 as well. So back to this slide, Asa Brenca and Grauna. So we'll keep on moving on the same pace. We expect them to start operating by end of '27 and '28. In Colibri, well underway. These projects are expected to be faster. We're talking about 4 condensers in the Northeast in this line in the south of Brazil, close to our assets in the complex fuel in the South area. With no major occurrences, no major changes, everything as expected. So that's where we had for the moment in our give the floor over to Adriana.

We will now start our Q&A session. [Opertor Instructions]. The first question is coming from [indiscernible] and has 2 questions first. Can you talk about the TAG tax revision process and the expectation the company has about the conclusion of this process and final review. And the second question is about future projects, considering interest rates and the maintenance of higher interest rates, how the company sees opportunities for growth? Where should we -- or should you allocate capital in this scenario?

Thank you, Daniel. Let me start with the second question. It's easier to answer it. We have to partner this transmission auction, which took place last Friday, 1 week after the elections. So we showed in spite we haven't taken any lot, we showed some positive aspects. We are competitive. We're close to succeeding to acquire 2 lots. So we also showed we have a discipline in terms of capital. So we are competitive to the point, in which we see a good return. So we understand that this more challenging of interest rates must be reflected in the price of assets and we'll be looking into the new battery and transmission auctions. The battery auction is expected to take place in the beginning of December. In case it does, we expect to take part as we have mentioned for a while now by considering the macroeconomic conditions. Regarding TAG, well, this tax revision process has been going on for a while now since the the end of last year, almost a year now. ANP has postponed this for 15 days as requested by NTS, Petrobras, and we're still waiting very -- we are okay with this project, this accounts for 23% of our revenue. But in terms of details, last week, we also had other media information on the media, people talking about lawsuits. So we'll be -- we are not controlling TAG, so we have a participation of 50% as ENGIE in energy, 87%. So TAG is in charge of that, and we will be following the final discussions. So for the moment, TAG will be in charge of that Perfect.

Next question is also in addition to Daniel's question. He asks, -- just a second. Well, I saw the news about organization reimbursement of 3.3 regarding the TAG.

Let me be honest, Daniel. The tag purchase and sales agreement has some clauses. So I don't know how this will be done with Petrobras. I don't have any information on that.

Next question from Mr. Andrade from Itau IBB. He asks will Engie grow in the brownfield scenario through renewables, in renewables and the growth.

Yes. I guess we do have appetite in this direction we have looked for some assets. We believe renewables -- I mean, it's hard to grow in greenfield in renewables, except in batteries. We believe batteries are in our Renewable segment. So we can grow in batteries in the greenfield. But apart from that, we also look at brownfield assets, nothing concrete for the moment, but we do look Perfect.

Second question from Felipe. Could you talk -- could you update us about South Santiago increase in power.

Well, South Santiago discussion is advancing at ANEEL. For the next few weeks, we expect this process to be finalized. If I'm not mistaken, in August, they asked for 120 days to -- for that analysis. So ANEEL Board of Directors must discuss this in the next few weeks, this -- maybe this year in the beginning -- maybe in the beginning of next year. We hope this public hearing public consultation. There will be a deadline, so the Board of Directors can decide whether we accept this proposal or not. But no concrete news up until now, Fillipe.