Core Insights - The article emphasizes the importance of in-depth research and insights for informed investment decisions in the Latin American equity market [1] Group 1 - The company has over 5 years of experience in equity analysis specifically focused on Latin America [1] - The research provided aims to assist clients in making informed investment decisions [1]

Financial Data and Key Metrics Changes - The company reported a reduction in financial liabilities, decreasing from BRL 26 billion to BRL 13.6 billion since privatization, representing a 50% reduction [21] - The gross debt stands at BRL 75.6 billion, which represents four years of funding [24] - The company declared BRL 4 billion in dividends for 2024, reflecting a strong financial performance [24][48] Business Line Data and Key Metrics Changes - The operational costs have decreased to BRL 6.784 billion in 2024, with a consistent trend of reduction in PMSO costs [19] - The company has reached 700 free energy customers, indicating growth in its trading area [18] - Investments in generation and transmission have increased significantly, with BRL 6 billion invested in both segments combined [26] Market Data and Key Metrics Changes - The average energy spot price reached BRL 330 per megawatt hour, with significant fluctuations observed due to the hydroelectric nature of the market [34][36] - The company noted a decrease in reservoir levels, impacting energy price volatility, with a current level of 3.7% in demand compared to 5.2% in 2010 [39] Company Strategy and Development Direction - The company is focusing on a transformation agenda that includes prudent financial management and capital allocation, with an emphasis on ESG initiatives [17][30] - The strategy includes optimizing the portfolio and investing in greenfield projects, with several auctions planned for the coming years [114] - The management aims to maintain a balance between shareholder remuneration and future investments, ensuring sustainable growth [101] Management Comments on Operating Environment and Future Outlook - The management highlighted the increasing volatility in the energy market due to intermittent renewable sources and shrinking reservoirs, necessitating a conservative approach [42][46] - The company is preparing for a more volatile environment in the coming years, particularly in the generation segment [45] - Management expressed confidence in the trajectory of costs and the potential for improved pricing in the short term [48] Other Important Information - The company has implemented a new policy for liability management, enhancing governance and professional standards within the executive board [11] - A significant cultural transformation is underway, including the unification of collective bargaining agreements across the company [19] Q&A Session Summary Question: Inquiry about the agreement with the federal government and energy trading liquidity - The company is currently finalizing the wording of the conciliation term and plans to hold an extraordinary assembly for shareholder approval [61] - Market liquidity was good in the last quarter, with a successful auction of 350 megawatts [62] Question: Expectations for future investments and PMSO levels - The company has a significant backlog of investments, with a focus on quality over quantity to mitigate execution risks [74] - A recurrent PMSO level below BRL 6 million is anticipated for 2025, with a downward trend expected [76] Question: Price expectations for 2025 and risk management - The company is closely monitoring market volatility and has implemented a robust risk analysis methodology to protect its portfolio [82] - Efficient portfolio management is crucial to maximize results amid expected price fluctuations [85] Question: Long-term strategy for cost reduction and thermal plant operations - Seasonality in costs is acknowledged, with efforts to mitigate its impact moving forward [89] - The closing of thermal plant operations is anticipated to occur in the second quarter, pending ongoing negotiations [90] Question: Dividend methodology and future projections - The company aims for quarterly remuneration, balancing shareholder returns with future investment needs [94] - A conservative approach to leverage in the generation segment is emphasized, with a focus on maintaining financial stability [98] Question: Transmission revenue recovery and cash availability for negotiations - The company is focused on simplifying its assets and participating in auctions for growth opportunities [114] - Flexibility in cash availability is recognized, but global solutions for compulsory loans are not anticipated [112]

2024 Main Highlights - Eletrobras focused on structuring and centralizing the energy trading area to build a customer-centric company[15, 17] - Consistent reduction in Personnel, Material, Services and Others (PMSO) expenses in a structured and sustainable manner, with an 18% decrease in recurring expenses from R$8322 million in 2022 to R$6784 million in 2024[18] - Reduction of compulsory loan inventory by R$125 billion since 2Q22[22] - Active management of R$32 billion in post-privatization shareholdings, including divestments of R$148 billion and acquisitions of R$57 billion[27] - Approximately R$32 billion was raised in 2024 with an average term of 581 months and an average cost of CDI + 01%[29] - Total investment increased from R$5426 million in 2022 to R$7709 million in 2024[33] ESG Agenda and New Energy Market - Eletrobras is focused on decarbonization with a Net Zero 2030 target, including R&D investments of over R$125 million in a H2V pilot plant[43] - Intermittent renewables in the Brazilian energy matrix have increased from 09% in 2010 to 362% in 2024[46] Financial Performance - IFRS Gross Revenue increased by 3% from R$12211 million in 4Q23 to R$12593 million in 4Q24[67] - Proposed profit allocation includes a dividend of R$4000 million, which is 41% of Net Income after deducting Legal Reserve[55] - Total shareholder remuneration of R$4115 million in 2024, with a payout equivalent to 41% of 2024's Net Income[59]

Core Insights - The ADR of Centrais Elétricas Brasileiras S.A. - Eletrobrás has experienced a significant decline of approximately 32% over the course of the year [1] Company Overview - Eletrobrás is identified as a leading energy company in Brazil, indicating its prominence in the energy sector [1] Market Context - The analysis is part of a broader effort to provide insights on foreign equities, particularly focusing on emerging markets, which suggests a strategic interest in the performance of companies like Eletrobrás within this context [1]

Financial Data and Key Metrics Changes - The company reported a net income of BRL7.5 million, with BRL5.4 million attributed to remeasurement and revisions conducted [22] - Recurring operational expenses were at BRL1.7 million, up 7% from the previous quarter and 1% year-over-year [13] - The company raised over BRL22 billion in funding this year, resulting in a strong cash position to support future capital allocation [15] Business Line Data and Key Metrics Changes - The merger with Furnas positively impacted results, with operational efficiencies being realized for the first time [12] - The company is focusing on reducing its PMSO to below BRL7 million in 2024, below BRL6 million in 2025, and close to BRL5.5 million in 2026 [8][27] Market Data and Key Metrics Changes - The energy market is experiencing price volatility, with expectations of prices reaching BRL170 to BRL178 per kilowatt-hour in the coming years [26] - The company has expanded its client portfolio to over 700 clients, leveraging price fluctuations in the energy market [29] Company Strategy and Development Direction - The company aims to improve operational efficiency and competitiveness through better cost management and technology integration [8][10] - A focus on long-term contracts for equipment purchases is being adopted to manage costs effectively [38] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the targeted PMSO reductions and emphasized the importance of ongoing operational improvements [27][48] - The company is navigating market volatility and is well-positioned to capitalize on opportunities arising from changes in the energy sector [19][50] Other Important Information - The company has received permission to operate the Coxilha Negra wind farm, enhancing its ESG agenda [16] - A Social and Environmental Commission has been established to oversee various sustainability initiatives [17] Q&A Session Summary Question: Cost trends and future expectations - Management confirmed a downward trend in PMSO, with commitments to achieve specific targets for the coming years [27] Question: Energy market pricing and sales strategy - The company is not fully exposed to the volatility in energy prices and is expanding its client base to mitigate risks [29][50] Question: Investment prospects and regulatory processes - Expected investments for 2024 are projected to exceed BRL3 billion, with a favorable regulatory environment encouraging further growth [34][36] Question: Collective Bargaining Agreement implications - Approximately 65% of associates adopted the agreement, with ongoing discussions for those who did not participate [39][41] Question: Equipment costs and market trends - Rising costs are attributed to increased demand and limited production capacity, but the company is leveraging its scale for competitive advantage [37][38]

Leadership Changes - Eletrobras announced the dismissal of Mr. José Renato Domingues as Vice President of People, Management and Culture[5] - Mr. Renato Costa Santos Carreira will temporarily assume the role of Vice President of People, Management and Culture until a new appointment is made[6] - The company will continue to keep the market informed regarding this leadership change[7]

Investment Thesis - Eletrobrás shares are recommended for purchase following the release of 2Q24 results, despite increased costs and reduced profits being viewed as isolated events [2][23] - The company is showing positive signs such as reduced operating expenses and a strategy focused on divesting non-core assets, which is expected to enhance its capital structure [2][19] Financial Performance - Eletrobrás reported a 9.1% annual increase in Regulatory Net Operating Revenue, reaching BRL 9.7 billion ($1.74 billion), driven by revenue recognition from Amazonas Energy and a 10% increase in energy volume, despite an 11.8% drop in prices [4][10] - Total operating costs increased by 32.7% YoY to BRL 5.6 billion ($1 billion), primarily due to higher charges for electricity grid usage and increased costs for purchased energy [6][9] - The company experienced a 25.8% annual reduction in net income to BRL 61.5 million ($110 million) due to higher operating costs and financial expenses [17][19] EBITDA and Margins - Eletrobrás achieved an adjusted EBITDA margin of 50.1%, reflecting a reduction of 9.1% compared to the previous year [9][11] - The EBITDA for 2Q24 was reported at BRL 4.43 billion, a decrease of 32.8% from the previous year [10][18] Debt and Capital Structure - The company ended 2Q24 with a net debt of BRL 45.2 billion, resulting in a leverage ratio of approximately 1.95x, which is considered healthy for its business model [12][14] - Proceeds from the sale of shares in ISA CTEEP, amounting to $403 million, are expected to further improve Eletrobrás' capital structure [14] Capital Expenditure - Eletrobrás announced a CapEx of BRL 2 billion ($357 million) for 2Q24, with BRL 610 million ($109 million) allocated to the transmission segment, representing a 43% YoY increase [15][16] Valuation - Eletrobrás is currently trading at an EV/EBITDA multiple of 6.7x, below its historical average of 8.8x, indicating a potential appreciation of 31% [21]

Financial Data and Key Metrics Changes - The company reported a 16% year-on-year reduction in PMSO, targeting BRL 7 billion for annual PMSO, with a recurring PMSO of BRL 6.3 billion [4][6] - Revenue grew by 9% year-on-year, while EBITDA increased by 10% year-on-year [13] - There was a 31% drop in profit due to adjustments translating regulatory numbers to IFRS, which may generate distortions [13] Business Line Data and Key Metrics Changes - The incorporation of Furnas simplified corporate structure and improved capital structure, resulting in an accounting event of BRL 1.1 billion with deferred fiscal credits [9] - The company plans to dispose of thermal power plants, which will transfer credit risk to the acquirer, amounting to BRL 4.7 billion [10] Market Data and Key Metrics Changes - The annual allowed revenue from the previous cycle was BRL 17 billion, adjusted to BRL 15.3 billion for the current cycle due to tariff adjustments [11] - The company has seen significant progress in the free market, reaching over 600 customers and over 500 clients in the regulated market [12] Company Strategy and Development Direction - The company is focused on restructuring for efficiency and aims to achieve profitability levels similar to peers [4] - The ESG agenda includes the sale of thermal units and the establishment of a Sustainability Committee [5][6] - The investment program includes BRL 5.6 billion for transmission auctions, indicating a commitment to modernizing units and enhancing operational efficiency [7] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about capturing future gains and benefits from the investment program [7] - The company is actively negotiating with the government regarding agreements and is preparing for upcoming capacity auctions [21][23] Other Important Information - The company has made significant progress in reducing compulsory loans from BRL 22 billion to BRL 15 billion year-on-year [15] - The net debt over EBITDA ratio is at 1.9, indicating a comfortable financial position [16] Q&A Session Summary Question: Clarification on tax credit recognition and hiring strategy - Management explained that the tax credit difference is due to Eletrobrás being non-operational before the incorporation of Furnas, which now allows for effective use of credits [17][18] - The trading strategy focuses on end customers, with an increase in the customer portfolio and development of new products [19] Question: Update on government agreements and capacity auctions - Management confirmed ongoing negotiations with the government and participation in consultations for capacity auctions, awaiting final decisions [21][23] Question: Investment plans and cash flow conversion - Management emphasized the importance of maintaining assets for long-term operational efficiency and the need for continuous investment in transmission [26][27] Question: Asset disposal and Amazonas impact - Management confirmed that Amazonas Energia is still provisioned, with risks transferred to the buyer, and clarified that the impact on EBITDA will be neutral in the third quarter [35][37] Question: Union negotiations and cost implications - Management is negotiating with unions and has agreements with some, expecting to finalize discussions soon [40][41] Question: Trade strategy and contract management - The company has established a customer-centric structure to manage contracts effectively, focusing on extending contract terms and reducing churn [43][46]

Power Consumption - The total power consumption in Brazil for the year ended December 31, 2023, was 531,013 GWh, reflecting a 4.2% increase from 509,441 GWh in 2022[687]. - The residential sector's electricity consumption grew by 7.6%, reaching 164,323 GWh in 2023 compared to 152,771 GWh in 2022[689]. Financial Liabilities and Obligations - The company's liabilities related to compulsory loans decreased by R$7.2 billion to R$17.3 billion in 2023, down from R$24.4 billion in 2022[693]. - As of December 31, 2023, the company's obligations under compulsory loan agreements totaled R$896.7 million[693]. - The company reduced its provisions in respect of 3,409 lawsuits related to compulsory loans by R$7.2 billion in 2023[693]. Revenue and Financial Performance - The total value of RAP (Annual Revenue Requirement) for the 2022-2023 cycle was R$18.3 billion, representing an increase of approximately 25% compared to the previous cycle[703]. - The approved RAPs for the 2023/2024 cycle amounted to R$17.57 billion across various subsidiaries[712]. - The company recorded impairments totaling R$1.847 billion for the year ended December 31, 2023, compared to R$2.690 billion in 2022, indicating a decrease in impairments[724]. - The impairment provision for the Coxilha Negra wind farm was R$591.9 million, while the Samuel Hydroelectric Plant recorded an impairment of R$261.9 million in 2023[726][727]. Debt and Financing Activities - The reprofiling of debentures in June 2023 extended the maturity of Eletronorte's issuance by 5 years, with interest rates reduced to CDI + 2.17% per annum[715]. - In September 2023, the company completed its fourth debenture issuance totaling R$7.0 billion, with R$4.0 billion in the first series and R$3.0 billion in the second series[717]. - The subsidiary Furnas issued commercial notes in five series totaling R$3.5 billion, with amounts ranging from R$0.5 billion to R$1.0 billion across the series[718]. - In November 2023, the subsidiary SAESA underwent a debt restructuring, with a capital increase of R$2.04 billion used to prepay part of SAESA's debt, and the company assumed an outstanding debt balance of R$11.5 billion[719]. Market Operations - The company has been trading 20% of its energy on the Free Market since 2023, with plans for all trading to be conducted on the Free Market from 2024 onwards[690]. Financial Risks and Expenses - The company’s financial expenses primarily reflect debt and leasing expenses, which are significant components of its overall financial performance[745]. - The company’s operational provisions include charges for legal proceedings, bad debt expenses, and impairments, reflecting a comprehensive approach to managing financial risks[738]. - The company has entered into derivative contracts to hedge against foreign exchange fluctuations related to U.S. dollar-denominated debts totaling U.S.$1.25 billion[748]. Tax Implications - Operating revenues from electricity generation and transmission are subject to various taxes, including VAT, which has been impacted by a recent Supreme Court ruling on unconstitutional high rates[730].

Financial Data and Key Metrics Changes - The company reported a decrease in total revenue to BRL 17 billion in Q4 2023, down from BRL 19 billion in the previous quarter [58] - The company maintained a relatively low leverage ratio of 2.2x, which includes debts from Teles Pires as of September 30, 2023 [58] - There was a significant drop in compulsory loan inventory, decreasing from BRL 1.88 billion in Q3 to BRL 900 million in Q4 [58] Business Line Data and Key Metrics Changes - The recurring costs were reported at BRL 650 million, with an additional BRL 69 million in expenses due to profit-sharing provisions [6] - The company achieved an availability rate of 99.96% in its lines and transformers, indicating high operational efficiency [10] - The company recognized BRL 860 million in impairments related to the Coxilha Negra wind farm and other assets [65] Market Data and Key Metrics Changes - The trading environment has been affected by rainfall and heat waves, leading to increased demand for energy in Q1 2024 [59] - The average energy prices are expected to rise, with projections of BRL 110 in 2024 and potentially reaching BRL 150 to BRL 170 by 2025-2028 [84] - The company has been actively participating in capacity auctions, preparing projects to be competitive [15][43] Company Strategy and Development Direction - The company aims to increase investment capacity, targeting BRL 7 billion for 2024 [3] - There is a focus on modernizing assets while ensuring health and safety, with a proactive approach to asset management [10][33] - The company is restructuring its commercialization department to enhance client orientation and expand its client base [55] Management's Comments on Operating Environment and Future Outlook - Management emphasized the need for caution regarding leverage levels, suggesting a comfortable range of 3.5 to 4 [32] - The company is closely monitoring the Amazonas situation, which involves significant debt and provisions [39] - Management expressed confidence in the company's ability to generate predictable results moving forward [62] Other Important Information - The company is working on cleaning up its liabilities, with a decrease in total contingency inventory to BRL 19 billion [27] - There is an ongoing voluntary dismissal plan for 2024, focusing on safety and security [82] - The company is actively involved in legal and regulatory discussions to enhance concession flexibility [77] Q&A Session Summary Question: What is the leverage level for comfort and maintenance CapEx? - Management indicated that a leverage level of 3.5 to 4 would be comfortable, but many variables require caution [32] Question: Can you provide more details on the drop in transmission revenue? - The company noted a BRL 200 million drop in transmission revenue quarter-on-quarter, attributed to high rainfall in Q4 [34] Question: What are the company's plans for upcoming auctions? - The company plans to participate in both the March and September auctions, having actively engaged in previous auctions [43][49]