During the course of the second quarter 2019, ENGIE Brasil Energia intensified its drive for growth, at the same time diversifying and making a major debut in the gas business with the acquisition of Transportadora Associada de Gás S.A. (TAG). This investment contributed to the increase in the Company’s financial overheads, which combined with other aspects such as the seasonal weighting of energy generation, the GSF, the decline in the Differences Settlement Price (PLD) and reduced thermal generation, had an impact on the quarter’s results. The Company reported a net operating revenue of R$ 2.18 billion, 1.9% higher than recorded for the same period in 2018. Ebitda (profit before interest, taxes, depreciation and amortization) reached R$ 1.05 billion, 13.7% less than the  second quarter last year. In turn, net income was R$ 385.4 million (R$ 0.4720/share), 34.6% lower on a year-on-year comparative basis.

The Ebitda registered by the Company in the second quarter 2019 was 48.3%, a reduction of 8.8 percentage points in relation to 2Q18. The average price of energy sales agreements, net of exports,  revenue taxes and trading operations was R$ 189.9/MWh in 2Q19, 4.8% higher than reported for 2Q18. In June, EBE concluded the acquisition of a shareholding stake in Transportadora Associada de Gás S.A. (TAG) through the jointly controlled company, Aliança Transportadora de Gás S.A. (Aliança) and began the construction of Campo Largo 2 Wind Complex (BA), two significant investments which are also reflected in the numbers for the period.

“TAG represents an important step in our strategy of diversification into segments of Brazilian energy infrastructure”, comments ENGIE Brasil Energia’s Chief Executive Officer, Eduardo Sattamini. “The financial expenses relating to the closing of this acquisition was one of the factors impacting results for 2Q19.  In the context of the expenses relative to the preparation and closing  of this transaction, the result for 2Q19 was negative. However, from the third quarter, this asset will already be contributing to an increasing level of positive results”, he explains. “Our expectations are to add still more value to the operation thanks to ENGIE’s international knowhow in managing gas pipelines and its management capabilities”.  TAG has been ENGIE’s largest investment anywhere in the world in the last four years.

The factors impacting second quarter results were the hydrological deficit, low PLD, which in turn resulted in a decline in thermal generation, as well as a reduction in results for transactions in the short term market (CCEE) in the light of the Company’s established strategy for allocating hydroelectric generation. The executive observes that the allocation of energy changes every year, rendering any comparison between quarters problematic. He also underscores that non-recurring events positively affected results in 2Q18, comparatively accentuating still further the decline for the second quarter of this year. Sattamini explains that the strategy of funding new investments with debt is designed to improve the Company’s capital structure and maximize the advantages of low interest rates, fruit of an outlook for improvement in the economic scenario and of abundant liquidity in the Brazilian financial market.

Expansion

In 2Q19, ENGIE Brasil Energia began construction work on the Campo Largo 2 Wind Complex in the state of Bahia, also receiving the preliminary licenses for the Gralha Azul project, a network of approximately 1 thousand kilometers of transmission power lines and five new substations in the state of Paraná. A further highlight in the period was the startup in commercial operations in April of the final four wind farms in the Umburanas Wind Complex (BA), which at its total installed capacity, adds 360 MW to the Company’s generator complex. On June 28, the Pampa Sul Thermoelectric Power Plant (345 MW) situated in the state of Rio Grande do Sul, also began commercial operations.

Dividends

Since  the Company has recently announced payout of complementary dividends for fiscal year 2018 next September and given the opportunities for investments identified for 2H19, the Board of Directors has decided to wait until the next ordinary meeting to decide on the distribution of results for 1H19.