ENGIE BRASIL ENERGIA S.A.

TRANSCRIPTION OF THE VIDEO CONFERENCE

RESULTS FOR THE THIRD QUARTER 2021

NOVEMBER 5, 2021 - 11:00 A.M.

Rafael: Hi and good morning! Let's begin the video conference on ENGIE Brasil Energia's third quarter results 2021. I am Rafael Bósio, the Company's Investor Relations Manager. Please note that currently those people connected by phone are in listening mode but later when we open for the questions and answers session, participants will be able to send questions by telephone as well as by platform chat. Please note that this video conference is being recorded. We have made available in our website both results presentation as well as the release wherein are published a more detailed information of the operations, the progress on the implementation of projects and analysis of the financial statements.

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.

With me today is Marcelo Malta, Chief Financial Officer of the Company, who will also comment on the performance of ENGIE Brasil Energia in the third quarter. We would remind you that journalists wishing to ask questions should do so via e-mail, sending them to the Company's Press Relations office. I will now hand you over to Malta. Malta you may go ahead.

Malta: Thank you, Rafael. Good morning everyone. It is a pleasure to be with you today to talk and comment about our third quarter results. We can now move on to the slides, please.

Rafael: I think listeners can see the first slide. Can we begin with slide 5, right?

Malta: Ok. So in slide 5 we show the highlights for the third quarter, separating out some of the positive drivers and others which are negative. This quarter we had the approval of the law as the basis for the renegotiation of hydrological risks. This relates to the negative impacts experienced in the past and now during this quarter with the sanctioning of this law, we shall be able to compensate these effects of the past.

Just by way of a reminder, last year we also registered the effects relative to the plants which sold energy in the free market but now we are referring to energy sold in the regulated market between 2012 and 2014 with a positive effect on our result in the quarter and the booking of R$ 372 million.

Also important to point out that there is still an amount, probably to be booked in the fourth quarter of this year, with respect to the plants in which we participated via consortium. There is a requirement on the part of ANEEL that by November 16 of this year, we have to deliver all the required documentation duly signed. So some partners have already signed this documentation, others still not, more for questions of internal governance of each one of them. However, we are hopeful that by November 16, we shall have all this documentation registered at ANEEL and we can thus book the effects of these plants as well - also involving important amounts.

Also in this quarter, we recorded a reduction in the volume of PPAs. This had already been foreseen in our portfolio management strategy, and this decline gained a little more momentum due to the high energy prices prevailing in the quarter. On the other hand, as we shall also see later on, that due to this, there was also a reduction in energy sales. In terms of amounts, reduction in PPA volumes represented R$ 153 million.

Moving on to the transmission segment, there was a positive effect of R$ 89 million, this the result largely of restating at the IPCA the financial assets of Novo Estado and Gralha Azul and, in addition, enhanced working capital as implementation of these projects gained momentum.

We also had the impact of inflation with an important knock-on effect on our revenue, remembering that in the case of our contracts, these are indexed in the majority of cases

to the IPCA. We also have a part indexed to IGPM, a considerable amount of our concessions payable indexed to the IGPM, this however ending up having an overall net positive impact on our financial result, something to the tune of R$ 235 million.

As for the negative drivers, there was an increase in the IPCA when compared with third quarter 2020, this index restating a good portion of our debt, which in turn ramped up our financial expenses to something in the region of R$ 210 million. As mentioned before, since we had a reduction in PPAs, we also saw a reduction in the amount of energy sold, this decrease also a reflection of the result of our portfolio management process, in addition to the energy purchases as mentioned.

If the third quarters for consecutive years are compared, then there was a negative impact of R$ 203 million in relation to transactions conducted across the CCEE, more especially, GSF. Here it is important to point out that the R$ 203 million, as I have said, is the variation between quarters. For this third quarter 2020, we had an impact on CCEE transactions of just R$ 80 million. I say 'just' because this quarter registered the peak impacts of the hydrological question we are experiencing in Brazil as well as a PLD touching its ceiling.

If we take the first nine months as a whole in 2021, we reported a negative impact for transactions realized across the CCEE of R$ 94 million. Thus this result in the face of this grave hydrological crisis in Brazil, is indicative of the effectiveness of our portfolio management here for the year to date.

And finally, we had greater fuel consumption in the quarter due to enhanced thermoelectric generation for mitigating the effects of hydrology. This was a source of further consolation when compared to the third quarter 2020 of R$ 68 million. We also have here a small non-recurring impact of R$ 34 million, reflecting the reversal of an asset impairment, largely a reflection of a more positive outlook for the returns from these assets.

The middle column of the slide shows the increase of our EBITDA, of R$ 265 million, representing growth of 18.5%, while for the full 9 months of the year, we reported EBITDA growth of 22.9%.

Looking at net income, in the quarter, we posted growth of 30.4% and for year to date, a reduction in our net income, this due largely to the application of the IGPM on the balance of concessions payable with an important impact on our result.

Remembering that this effect on our result also acts as a cash flow hedge over the period since we have an important part of our revenue which is also indexed to the IGPM. And since some of our agreements fall due during the year and in the light of the difficulty of signing new agreements indexed to the IGPM, we successfully applied to ANEEL to change the indexer of our concessions payable to the IPCA, given the greater effectiveness of this hedge. So as from October, these contracts cease to be indexed to the IGPM and are now restated at the IPCA.

So, on the right hand side of the slide, we have the key values impacting not only EBITDA but also net income as well. Most of them already mentioned when discussing the key drivers in the quarter.

With this, I think we can go onto slide 6 which I think is already shown on your screen. So as a highlight, we show the Gralha Azul Transmission System, already authorized from August this year, to begin commercial operations in the case of the Ponta Grossa - São Mateus do Sul and Ponta Grossa - Ponta Grossa Sul lines. This incorporates a RAP

  • still small in relation to the total RAP - but already signaling the start of operations on at least some of the lines. Forecast for concluding the work continues to be the end of the year. So as from January of next year we shall be generating RAP in full from the Gralha Azul Transmission System.

Another key event was ANEEL's authorization for operating all the wind farms in the Campo Largo 2 Complex, thus in this way, we already have the entire asset up and running. Important to mention here that with the inclusion of this wind complex, we now have an output of about 1.3 gigawatts of installed capacity from our wind assets.

Very well, as another highlight, we concluded the sale of the Jorge Lacerda Thermoelectric Complex to FRAM Capital. This operation closed on October 18 with the fulfillment of all conditions precedent, in so doing reducing by 75% our emissions and with prospects for selling our Pampa Sul coal-fired plant before the end of 2022.

Once this occurs, our portfolio will be made up entirely of energy generated from renewable sources.

Remembering that as a consequence of the sale of Jorge Lacerda, we continue to purchase all the energy generated by the plant this year, while between 2022 and 2024, we shall purchase a further 400 megawatts. This for us was important as part of the process for managing our portfolio.

Next slide please. Very well and as a further highlight, we have acquired a project in the state of Rio Grande do Norte, namely the Assú Photovoltaic Complex, close to our solar asset of the same name of Assú, and with an installed capacity of 750 megawatts. This is indicative of our continuous growth in our renewable energy portfolio. Since we already have the preliminary licenses together with all the leasing contracts of the areas in question signed as well as the process for obtaining the asset's operating grant at an advanced stage, in all probability we shall be ready to implement this project and still enjoy the transmission and distribution cost reduction benefit before its expiry in March of next year.

Also as a highlight, we are one of the 14 most transparent Brazilian companies in sustainability among 70 names evaluated. This accolade is awarded by the Transparency Observatory also showing our commitment to ESG practices and also one of the factors which has kept us in the Corporate Sustainability Index since its inception. We are only one of seven companies in Brazil that are components of this index.

Another aspect worthy of mention is the conclusion to modernization work on one of the units at our Salto Osório hydroelectric plants. This was responsible for adding 7 megawatts to our energy portfolio. We are also modernizing the remaining units at the plant although with these it is more to maintain the asset's operational performance and the work does not imply any addition to installed capacity in assured energy.

I forgot to mention that in this quarter, we were also winners of the Transparency Trophy, organized by ANEFAC - FIPECAFI, again indicative of our commitment to governance and transparency.

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ENGIE Brasil Energia SA published this content on 06 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2021 17:26:02 UTC.