Engie Brasil Energia S A : Earning results video conference - 1Q23

ENGIE BRASIL ENERGIA S.A.

VIDEO CONFERENCE TRANSCRIPTION

RESULT FOR THE FIRST QUARTER 2023

MAY 5, 2023 - 11:00 (BRASÍLIA TIME)

RAFAEL BÓSIO: Hi and a good morning to all. We are now beginning the video conference for the first quarter of 2023 of ENGIE Brasil Energia. I am Rafael Bósio, the Company's Investor Relations Manager and I would like to make a few announcements before beginning the call.

Currently, those who are connected are in listening mode only. Later, when we open the questions and answers session to participants, you may submit your questions via the Zoom Q&A tool. Please note that this video conference is being recorded.

We have also made available in our website www.engie.com.br/investidoresthe files for the Presentation and Earnings Release as well as the ITR and other documents filed yesterday at the CVM where more detailed analysis of the financial statements, operational results, ESG indicators, advances made with the implementation of new projects, among other notable factors in the period.

Before proceeding further, I would like to clarify that any statements that may be made during this video conference with respect to the business outlook for the Company, should be treated as forecasts contingent on the economic scenario for the country, performance, and electric sector regulations as well as other variables and are therefore subject to change.

We would remind you that journalists wishing to ask questions should do so via e-amil, sending their questions to the Company's Press Relations office.

With me today to discuss ENGIE Brasil Energia's first quarter 2023 performance are Eduardo Sattamini, Chief Executive and Investor Relations Officer; Marcelo Malta, Chief Financial Officer; and also, Eduardo Takamori, appointed yesterday by the Board of Directors to take over the Chief Financial Officer's position as from June 1, 2023.

I would like now to pass the floor to Sattamini, to begin the presentation. Sattamini, please go ahead.

EDUARDO SATTAMINI: Good morning everyone. Once more, it is a pleasure to be here with you and to present ENGIE Brasil Energia's solid results. As we always point out, the resilient results of the Company are the result of a long-term strategy, asset diversification as well as contracting levels.

Let's go to slide 5… we are already here on slide 5 where we show the financial highlights; after, we will look at the qualitative highlights of the Company in this quarter. When we examine the quarter-on-quarter trajectory, we can see an evolution in Ebitda, of 9.1%, and when we compared this with inflation over the accumulated twelve months of IPCA, with 4.65%, it shows that our growth strategy is achieving results.

Factors which are to the right of the slide explaining growth in Ebitda are: transmission RAP, we achieved complete energization at Novo Estado on February 27 and at Gralha Azul, where we were just missing a very small bit prior to completion, on February 19. this adding R$ 100 million of RAP. There was also a further R$ 86 million related to the increase in price as a function of the inflationary spiral, the indexing of our contracts to inflation and a little more from settled energy volumes.

TAG once again surprised with better-than-expected results of R$ 75 million, with some very specific contributions involving the readjustment of tariffs and another very important factor which is the contribution from the substitution of the operator. The previous operator was Transpetro, and now we have the operation conducted by ENGIE itself with a much more adequate cost in relation to the level of the operation.

We also saw a higher net result from CCEE operations, a function of the more favorable hydrological scenario. We had a reduced consumption of fuel, naturally the outcome of the dispatch strategy adopted at the Pampa plant. And we had a reduction, also a function of the volume of energy purchases and associated with the sale of Jorge Lacerda. Conversely, and in the light of greater generation, of royalties and sectorial charges, we had other elements which also weighed on costs.

So, we had an increase in Ebitda of 9.1% due to these elements; and, in net profit, we had a substantial increase principally due to the reduction in inflation in the period. We saw inflation as measured by the IPCA in the quarter equivalent to 2.09% against 3.20% for the first quarter of 2022. And it had a significant effect… It was one of the effects that we identify as improving the financial result, contributing R$ 104 million to our net result, and with this, boosting our net profit by 36.7% in relation to the same quarter in 2022.

Let's now move onto the non-financial highlights on the next slide. Here we see what we have already commented, the total entry into operation of both Gralha Azul and Novo Estado. Yet another important element is that operations have also begun with some of the generator units at the Santo Agostinho Wind Complex. March 23 saw the first generator unit go into operation, while today, we have 11 operational units, 3 of them already in commercial operation and 8 operating on a test basis. Our forecast is for the entire park to be up and running by the end of this year, meeting our goal and forecast.

And Fitch reaffirmed our AAA (bra) rating. This is already the 11th consecutive year that we have been assigned this rating. And this, it should be remembered, always together with our recognition by ANEFAC FIPECAFI's Transparency Trophy, showing that our rating has the value and the transparency necessary to be credible, to be respected and credible for all.

We also signed a Memorandum of Understanding with Invest Paraná in the first quarter for the production of green hydrogen in the state. We have a specific project in the state and Invest Paraná is giving us the support so that this project can be developed, and we can make our debut in hydrogen on an industrial scale in Brazil.

Moving on to the next slide. So, we have the approval for the distribution of complementary dividends for the fiscal year, the fiscal year 2022, in the amount of nearly R$ 1.5 billion, representing R$1.78 per share. The shares will be traded ex- dividend as from May 9 and payout will be decided later in the light of cashflow and the Company's requirements. We allow this freedom while giving the investor some prior notice as to payout - reflecting the way we manage cashflow and our investment obligations.

Another highlight has been the publishing of our Sustainability Report 2022, and I invite you to participate… ladies and gentlemen, to go to our website. We have gone into our journey for the climate in greater depth - and you are going to find it in the Report. We are also going to talk about investments in the communities where our businesses are located and our Integrity Program and Ethics Committee, accompanied by the Board of Directors. So, you are going to have a very rich compendium of information on the sustainability of the Company's businesses - this is a report which I invite you to share with us. There's a link in our presentation.

Speaking of ESG indicators which we are now informing, we are on a trajectory for decarbonizing our assets. During this year, we expect to be 100% renewable with the sale of the Pampa asset.

Obviously, our emissions intensity has been on the decline. In the first quarter, we also had a very low level of intensity since, in the light of the strategy adopted for dispatch from Pampa agreed with the purchaser, we decided not to dispatch in the first quarter. Total emissions fell significantly because of this; water withdrawal and consumption also because the withdrawal of water is predominantly for thermoelectricity generation.

We have increased the number of women in our workforce, we have gradually been introducing and creating opportunities so that gender diversification happens not only at the administrative level where we are already near the 50-50 mark, very close to it - in some areas we even have more women than men -, but we are giving this opportunity in the operational area as well, with various diversity programs in regions where we operate: Bahia, Rio Grande do Norte, upstate Santa Catarina. We also have projects and programs together with Sesi and specific training programs for operators.

And as to investments in social responsibility, we have monitored these investments so that we use 100% of incentivized resources. Clearly, at the start of the year, when we still have only limited visibility as to taxable profits - the base of the resources for these investments - we have a little more… we are a little more parsimonious with these expenditures, but accelerating this more towards the end of the year when we can visualize the total value we are going to have available and we can then spend the resources…. invest these social resources.

Moving on to the next slide, we look at energy commercialization. As always we have a highly contracted portfolio in the short-term. This is part of the resilience of our business.

We have…. You are going to see this later, in another slide later on, we have 65% of our

revenue linked to regulated activities and contracted long-term; meanwhile in energy commercialization in the free contracting environment, we have something around 35% of our total volume, but even these 35% are reasonably well contracted in the short- term. You can see here that the uncontracted values from 23 to 25 are very small, basically showing that this is a GSF structural reserve plus a little energy which we use for operating in the market.

The diversification of the free energy portfolio is also for us, very important to dilute the specific risk on any one industrial segment. And, in this way we are always selling energy, protecting our average price from major fluctuations. We had a quarter which was a good one for sales despite low prices, but without any major impact on the average price of our energy balance, a function of the energy volumes sold in the past.

Let's go on to the next slide. Our energy commercialization strategy is to seek quality at times of low price, for us to have clients increasingly… with growth perspectives in their specific industries. During 2021, we also had a reduction in our total number of customers due to lack of energy although now we are expanding into a more pulverized market and the tendency is to grow still more in numbers of small customers, with small units and with a rather more comfortable margin in the current low-price environment.

Next slide, slide 14, talking a little about our expansion. As we have already commented, the Santo Agostinho Wind Complex, under construction, with 52% of the project executed at the end of March, with the operation in test mode. Here we have 8 generator units authorized at present, but if I am not mistaken, we were up to 11 at the time of the Report and we are now moving forward in the commissioning process so that the complex can be totally operational by the year-end.

With the Gavião Real transmission project, we had licenses issued in the first quarter, and topographic and drilling activities proceeding apace, so we can meet our planned schedule which provides for an anticipation of 24 months at least for this new installation. As for the investment in relation to the CAPEX limit set by ANEEL, we have already finalized the contracts, guaranteeing a reduction of approximately 30% of this CAPEX, enhancing the profitability of this project which is complementary to our Novo Estado Transmission System.

Our other project is the Assuruá project, the Assuruá Wind Project. We have partially issued environmental licenses, and this already permits us to begin earthmoving preliminary to the substation works. We have begun construction without many surprises, without anything very new as well, bearing in mind the phase we are at.

And this will also be the same with, in the next slide, slide 17, the Assú Sol Photovoltaic Plant, where we are also beginning activities. We have a preliminary license, and land use agreements have also already been signed and we are going to begin work now in the third quarter of 2023.