Good morning. This is ENGIE Brasil Energia Conference, where we're going to discuss the results for the second quarter of 2020. All participants are connected as only listeners and later on, we will have the open Q&A session when instructions for participation will be given. In case it's necessary to have help from an operator during the teleconference, press star zero. You should remember that this teleconference is being recorded. This presentation, followed by slides, will be simultaneously transmitted via intranet at www.engie.com.br-investors. A slide presentation and the company's earnings release are also available on the website. Before proceeding, I would like to clarify that all statements that may be made during this teleconference regarding business outlook of the company should be treated as forecasts, depending on the country's macroeconomic conditions, on the performance and regulation of the electric sector, among other variables, and therefore are due to changes.
With that, we have Mr. Eduardo Sattamini, Chief Executive and Investment Relations Officer, Mr. Marcelo Malta, Chief Financial Officer, and Mr. Rafael Bósio, Industrial Relations Manager, who will talk about the company's performance in the second quarter of 2020. Right after, we will have the Q&A session. We remind that journalists who wish to ask questions can do so by email, sending them to the company's press office. It is now my pleasure to turn the call over to Mr. Eduardo Sattamini. Please go ahead.
Good morning, everyone.
It's a pleasure to be with you. Talking about the company's management capacity and the capacity to guarantee good results, overcome difficulties. Our business has suffered a significant impact of COVID-19 and resilient economics. With our competence and the capacity of our managers, we have been able to achieve very satisfactory results. Of course, there was an impact of COVID-19 on our operations, and you will see that later on. This impact represents the capacity and the company's resilience. It is also due to the company's growth, especially launched in 2016, with flexible investments. We are now sharing our results with you. We start in slide five on our net operational revenue. We had an increase of 23.4%. This increase is due to some organic factors, such as an increase in our mean price and increase in volume.
We also have some non-recurring components, and that's indicated to the market in analytical terms. We had BRL 18 million. In addition to that, we had a small non-recurring event from payments made by insurers and contract fines. This all has to do with the performance of our management team. We had a 36.1% increase in our EBITDA, and I would like to highlight the contribution of TAG. If we compare it for half of the year, I guess half of the year, you can see the value of BRL 1. 431 billion, which is a significant contribution. This only demonstrates that investment in TAG was good and is providing a lot of value to our company. This will increase over time when our debt is cut in half, and it will further improve in the next quarter.
We also had an important impact of the reduction of inflation on our financial results. This led our net profit to have a significant positive impact. Also, we had a correction or adjustment in our payable accounts. We had lower expenses. With that, we had an increase in our net profit of almost 100%. It was actually 98.7%. There are some important factors to be highlighted there. We have not only TAG, but we also have some contributions for this next half of the year. We had a more generous allocation for the second quarter of 2020 than we had in 2019. Here in slide five, I would like to highlight the reduction of our net debt and the generation of cash in the company. We had lower electric energy production.
Just to give you an idea, our electric power plants produced 60% actually less than the same period in the previous year. We had some compensation by the thermal electric plants, whose activity increased 10%. Overall, our energy production was 50% lower than what we had in the same quarter in 2019. This energy production is related to our hydroelectric power plants and does not represent a loss of revenue. That is because we have an energy relocation system which provides it to other networks in the same system, receiving energy from the system. In other years, we had an inverted situation. We produced more and shared our energy with other power plants. I would also like to highlight that our number of employees has increased.
In this period of COVID-19 and 2020, we had a total amount for the second quarter in 2019 in the economic complex. We have three large projects under construction. You can see that we have also increased the number of employees on under construction plans. We will later talk more about this, about our activities in Bahia. We also have our wind plants actually in Bahia. We have production in Paraná. We have another plant in Potosí that cut off. They were recently purchased and are under construction. Moving on to the next slide. When we talk about the highlights, we wanted to reinforce the issue of the COVID-19. We have shared a lot of information about this. We reported the first quarter about a month ago.
I would like to highlight that we had an impact, a significant impact on our load, which impacted our generation scaling factor. What compensates the system are the power plants. When you have a load and it's intermittent, we use solar energy, wind energy, and thermal energy. At the end of the day, this variation takes place with the hydroelectric power plants. This is something we've been discussing with the government. This is a service that the power plants provide to the system and is not paid for. They are harmed because they have less energy related to them whenever we have a situation like this and we have decrease in the demand. They do not generate and do not get paid for being ready to provide energy to the system.
The loss was not so significant right now because our PLD was okay in May, and we had 110, 115 in June. In average, our PLD was close to 100. It did not impact us so drastically. I'm sorry, it is 75. I gave you the wrong number. We also had a mean reduction of 7.8% in consumption. I would like to remind you that we have some contracts. This consumption only represented 5.5% in those energy of key customers. This allowed us, or actually this led to some impact on our billing. As you can see, it was very low. We were able to renegotiate. We renegotiated some bills with clients, provide some relief to clients who had more difficulties with liquidity. We had a situation where we could meet their needs without affecting the results of the company.
We made relevant investments. We invested in our employees and the communities we are at. We are confident about our operations. We did have to make some changes in our operation team. Some of them were locked down to protect their health, but we were able to keep our operations going without any major problems. On the right side, we reinforced the different measures. We are working with widely adopted home office. We wanted to guarantee the safety of our employees and our subcontracted staff. We had a large volume of renegotiation payments to help some of our clients. We made agreements with those who suffered the impact more harshly. If we look at our energy portfolio, we can see that there was a 10% change in comparison to the market volume. We renegotiated with our clients.
Just to give you an idea, we had some problems with defaults, but they were contained. In April, we renegotiated, readjusted values. At the end of June, we went back to our historical default rates of about 10%. It is never a permanent default. Sometimes clients have cash difficulty. They cannot pay, or they have to have a better balance, but resume payments the next month. Moving on to the next slide with the highlights. In slide seven, we can see the TAG shares. Our participation went from 29.75 to 32. I am sorry, to 29 to 32. This will be seen in the third quarter with the contribution of TAG. We also had suspected business activities in this quarter. Our prices were very close to our portfolio, BRL 190.
Uncontracted commercial capacity decreased around 100 average megawatts in 2021 and 2022, and above 150 average megawatts from 2023-2025. Our business activities is giving a preference to longer contracts. In 2024 and 2025, we have higher volumes. We have approved the distribution of interim dividends in a total amount of BRL 677.7 million. We were not conservative. We have BRL 7 billion of investment in the projects I have already mentioned to you: Campo Largo, Gralha Azul. It is actually a conservative decision that will be reanalyzed later on according to our current situation and the economic situation of the country. This is our decision for payout in 2020. It is a rather conservative plan. In the next slide, we talk about a new project.
Our business department is analyzing a market that is opening up with a totally different dynamic than we had in the past. We launched a project called E-conomiza, which is designed to help companies in the free market with a reduction of tariffs by the company. The representative of this contract, Goodforce ECE, is the legislator. We have adequate flexibility for the clients who have difficulty managing their energy portfolio. This is a project designed to facilitate the lives of our small consumers according to their management structure. This is what we do for them. This is a variation of a project that we had already launched last year. We have a standardization of these contracts to facilitate negotiation, to facilitate the understanding of the contract by our clients.
The next highlight is that the Campo Largo project is in its phase II. It was registered under the Clean Development Mechanism and will contribute to a reduction of approximately 790,000 tons of CO2 emissions. This is a strategic objective of the company. Now moving on to slide 10, we have not had any major changes. We have announced our taxation. The information remained the same as in the previous quarter. In slide 11, we also do not have any relevant changes, only some minor changes in the distributed solar generation. We have a significance of production in the last half of the year because of COVID-19. The clients were a bit more conservative in their activities. In slide 12, there is no major change, except for some minor market share changes when compared to our competitors. We remained with 23% in this market.
In the next slide, the only change we've had is regarding the % because of tax structure. We also obtained some information that was offered here. We shared the information in the past, but this is just to give you an idea of what this asset represents. TAG is the largest pipeline operator in the country. In slide 14, also we had no significant changes except for the cancellation of the auction. We are analyzing projects to effectively participate in the next auction. Distributed solar energy, we mentioned it in slide 15. You can see the results here compared to 2019 in terms of installed capacity. This result has to do with the economic de-acceleration. Nobody's really investing right now. On page 17, we talk about the energy market.
As we mentioned, because of the reduction or the decrease in the economic activity, we also had a decrease in this market as well. We had a significant decrease in April. In May, there was a mild recovery. In June, it was significant, but we are still below the levels we had in 2019. The percentage rate is much lower. You can see in April, it was 16%, 10% in May. Now we are 5% below. In July, we can see that we are recovering satisfactorily. The perspective is that I do not know whether it is a perspective or hope, but the way I see things is that we will effectively resume activities in July. One of the changes we made to this graph on the left is that we are showing you what the effect of the SE was. I am sorry, GSF.
You can see that even though we have excess offer, whenever it does not happen, it regulates or stabilizes market prices. In slide 19, we have our diversified portfolio. This is one of the reasons for our resilience. We have a very balanced position between the free market and the regulated market. In the free market, we have the end consumers and opportunities to have structured products in the areas of trading and the wholesale market. In slide 20, we have something new to share with you. We have a diversified client base. There are no significant changes here. This was also very important to show that our diversification guaranteed a decreased demand, which is more aligned with what is going on with the economy. It did not suffer as much as, for example, the auto parts sector.
The slide on the right, you can see that there is a migration taking place. We need to be prepared, and we have prepared to more and more meet the needs of a larger number of clients. We will need to have a different business structure and approach. In slide 21, as we already mentioned, we have a very profitable position in terms of our portfolio. They are totally higher than 2022. We always have something about 10% of our total energy, which is not contracted, so that we can deal with the fluctuations we have so that we have some energy available. You can see for 2023, we have some energy available, and we have some contracts ranging between 3.7 years. In a five-year average, we will always have to recontact and reorganize our active business activities so that we can protect our portfolio.
This is very important because then you're not subject to a large volume of these contracts in a specific year. Here in the next slide, we have the energy balance as of June 30 so that you can see our results. Now, in slide 24, we talk about our expansion. We have made adjustments to the project. It is a very complex project. It has been in the hands of our controller, and we still do not have any definitions regarding the transfer. From the very beginning of implementation, it was anticipated, but because of some difficulties because of the GSF, tax difficulties, and other problems we had during the construction, the controller was conservative.
Ladies and gentlemen, please wait. Please remain connected. Please wait for the speakers to reconnect. I'm sorry.
Our line was disconnected, so I was talking about this very complex project.
The controller is watchful, and once the risk parameter is gained, we will move on. This is our vision. We want to have a project with a higher level of complexity, and the GSS is working strongly. Actually, the controller has not made any decisions about this. We're waiting. We're waiting for a decision of the controller regarding this project. Now we go on to slide 26. This is where we talk about our wind project under construction in Campo Largo. It is a project where we had a lot of problems over time. In case of Campo Largo 2, we had 82 days of construction interruption, and it will have an impact on our schedule of about 60 days. We're always conservative. We always take into account some delays in construction. Our schedule is very more aggressive than we usually have in our business model.
This delay, even though it happened, will allow us to obtain results as expected. It has not generated any harmful impact on our results yet. In Gralha Azu l, we had one single event in the city of Pinhão, but the construction moved on. We have different workfronts, but we had an agreement with the municipality and an operations protocol with the state, and it was agreed upon with our city authority. In the Novo Estado project, we suffered the impact of COVID in terms of mobilization, but we renegotiated with our subcontractor, and we are in a comfortable position to guarantee operations at the end of 2021 as previously anticipated. Regarding projects under development, the new thing here is the development of the photovoltaic project in Campo Largo. We are already in the licensing process. We will have 400 installed megawatts of solar panels in that region.
The advantage will be that we will have some synergism with the current infrastructure that we have in our wind energy complex. We have some infrastructure facilities that are being used by this new installation. Of course, we have not made a decision about installing these panels, but it is an option for growth of our portfolio. I will now turn over to [Malta]. He will talk about the financial performance of the company.
Good morning. We will move on to slide 31 now. This slide clearly shows a consistent growth over the years. When we compare the last two quarters, we have seen some significant variations in our operational results. As mentioned by Sattamini, we have a growth which is due to non-recurring events.
It results from a transfer based on a litigation which added BRL 30 million to our net operational revenue and BRL 63 million to our financial revenue. BRL 63 million is the update of this amount, and therefore this event has added BRL 163 million to our results. We also had another non-recurring event. It was the inclusion of a tax credit related to [ACDEn] . This added BRL 72 million to our EBITDA. You will see in the next slide that even so, we still had some significant increases in our net profit. You can see the margin of 32 in the first graph. We show the distribution, which is usually consistent among the different quarters. It does not happen when we have a non-recurring event or when we have a PLD and GSF significant impact, but under normal conditions, the results are distributed over the quarters.
On the graph below, we have a variation of our net operational revenue. You can see the value for the second quarter of 2019. It was BRL 277 million in the second quarter of 2020. This variation is due, as I mentioned before, to the recovery of taxes because of the litigation we have. It was in the order of BRL 80 million, and then we had a renegotiation of our sales, and this added BRL 37 million to our revenue, and this sales volume also increased. It is due to the operation of Pampa Sul and was compensated with the recurring consumption reduction, and it has to do with the decrease in economic activity caused by COVID-19. In the second quarter, we also had some changes due to penalties charged. We added BRL 20 million to our operational revenue. The financial asset payment, basically interest rates and exchange rate variation.
We had a decrease of inflation, and there was a negative impact in our operational revenue. We also had a negative impact of BRL 10 million in our revenue, but on the other hand, we had increased costs, and that generated a negative impact of BRL 18 million. The combination of some positive impacts and some negative impacts led to our results. The positive ones were the generation of our plant in Jorge Lacerda . We had some restrictions in this period, partially caused by the activities in the southern region of Brazil. Another event, a predictive event in this half of the year, was that we had a detachment of the north and southeast market that generated a negative impact in the second quarter of last year. This year, it was not so significant. In terms of the net negative events in QCE, we had GSF.
It generated a relevant impact, but there was a significant decrease of PLD, so there was a balance there. We also had a significant impact of MRE. It was motivated by the south and the south, which led to significant changes in hydroelectric generation in this region. We had a negative impact in trading in the operating revenue, but then on the other hand, we had a cost decrease of BRL 19 million. This led to a positive result of BRL 4 million. Then we have recurring revenue. We can see it's identified in cost. And then construction sales. Here in revenue, we had BRL 411 million that has a significant impact, 24%. But then on the other hand, we had an impact on cost of BRL 332 million, and that resulted in an impact of BRL 18 million in our EBITDA.
This business was significantly impacted by the economic downturn in the quarter. To compensate, we had a significant decrease of our costs as well. Our cost was also significantly reduced in BRL 12 million. This led to an impact of BRL 3 million negative in our EBITDA. Moving on to the next slide. Here we show our TAG results. The operating revenue of TAG was BRL 1.414 billion, and the financial result was BRL 246 million. Income taxes, BRL 168 million. As mentioned before, credit on tax incentives were in the order of BRL 246 million, and that was identified now. We have a net income of BRL 552 million with a contribution of BRL 162 million to EBE's EBITDA. If we deduct the taxes and the credit on tax incentives, we have a non-recurring revenue of BRL 72 million, which is our share.
In the next slide and the first graph, we have a distribution according to the different quarters, and you can see the variations of EBITDA in the second quarter of 2019. It was BRL 21.432 billion , so there was an increase of 33% between one quarter and the other. If we take into account the non-recurring events as mentioned before, it was BRL 80 million. The impact of credit was BRL 72 million. Our EBITDA would have grown about 22%. I will talk a little bit about each one of these impacts on EBITDA, the recovery of credit, price, and volume. It is BRL 23 million. Energy purchase for the portfolio. We had an increase of purchases in the second half of 2019, and this was done to supply energy in Pampa Sul because we had a delay in the business operation there.
We also had a decrease in the cost of fuels, and we had a decrease in the consumption of fuel in Lafayette. There was also an impact of BRL 24 million with a lower hydroelectric generation caused by the drought in the southern region. We had BRL 20 million of payment penalties paid by providers. We also had the Miranda assets, which decreased our results by BRL 37 million. Third-party services, provisions, and other revenues were recurring, and basically we had an increase in the operating costs in Pampa Sul . This was an operation that we had in the second quarter of 2019. There was also an increase in costs in the business operations in Pampa. As I mentioned before, we had an excessive impact of BRL 3 million because of the economic downturn. The transmission assets, as I already mentioned before, you can see the result of BRL 18 million in the EBITDA.
Our results for 2019, we had some negative results in 2019. You can see the results for the second quarter of this year where we had BRL 172 million. Of this BRL 188 million here, we have BRL 72 million that result from non-recurring events because of the credit we had. Moving on to slide 35. On the graph below, we can see a significant evolution of our net cost of 98.7% in the EBITDA. As a non-recurring event, we had BRL 80 million plus the BRL 72 million resulting from the litigation, the payment of the litigation. That is in addition to the non-recurring BRL 72 million regarding our tax participation. We have an excessive impact of non-recurring events in the EBITDA. For the financial result, we had an update because of the victory in our litigation, which led to a positive impact.
Now, in terms of income taxes, we had increased social contributions. In terms of the variation regarding taxes, we also have to take into account the depreciation and amortization. That results from the Pampa Sul activity. If we take into account the non-recurring impact from ETDA and the credit we had in tax in the order of BRL 72 million, and also the impact on the financial result related to the amounts we made from our litigation, we would still have an increase in our net profit. It is a positive impact of our exchange rate over our debt, which was of about BRL 76 million. We also have the recurring tax. In the next slide, slide 36, we have consistent financial indicators. We had some increase in ROE. It resulted because of the increase in our net profit.
We also had an increase where we had a larger growth than any invested capital. In the next slide, slide 37, we can see our debt overview between 2019 and 2020. We have a BRL 2.8 million increase. There was a mild decrease in our debt. This is basically due to the increase we had in our cash of BRL 4,799 million. We closed the quarter with a gross debt of BRL 30.873 million and a net debt of BRL 10.772 million. In the next slide, slide 38, you can see the net debt trending with a highlight to our operating activity and the cash flow generated by our operating activity of BRL 1.237 billion. In this quarter, we also had dividends of BRL 322 million.
We had variations of operating capital, and an excessive part of this amount is the financial assets of transmission, which added more than BRL 400 million to our revenue. In addition to that, we had the credit resulting from the BRL 163 million that we received. We are still waiting for the approval of our tax revenues, and we hope that it will take place in the next quarter so that we can compensate this credit. Also, in this quarter, we had the payments of interest over capital with an impact on taxes of about BRL 9 million. We made investments of BRL 104 million in Campo Largo 2. We also have the effect in the evolution of the debt. In the next slide, slide 39, you can see our debt profile and composition.
For the next three years, we have a significant amount of debt maturity, and they have to do with short-term operations. You can see the payments until 2022, and we have the negotiation of BRL 1 billion for the next year. On the other graph, we have a breakdown of our debt. It is pretty balanced and related to IPCA, TJLP, and CDI. On the graph below, we can see a significant reduction in our debt of about 8% in the second quarter of 2019, and it is now 5.8% in the second quarter of 2020. This is a result of the last contract we had in terms of debt management. In the next slide, you can see a significant increase over the years on our CapEX. In 2020, we have BRL 4.437 billion of anticipated investment in Novo Esado.
The estimated amount is BRL 1.7 billion, capital added to BRL 1 billion. In Pampa Sul , we have BRL 200 million. In Gralha Azul , we have BRL 600 million in Campo Largo 2 BRL 300 million. Moving on to slide 41, you can see our dividend policy. We distributed 55% of our results, and at the end of the year, if we can maintain a more definitive position in our cash flow, we will evaluate more accurately what the payout is going to be for 2020. Here we have a competitive advantage graph. With this, I close my presentation on the financial indicators and make myself available to clarify or answer any additional questions.
Thank you. Ladies and gentlemen, we're now going to start our Q&A session. To ask a question, please press star one. To remove your question from the line, dial star two.
Please wait while we take the question. Our first question is from Marcelo Sá , from Itau.
Thank you for the call and congratulations for the results. I have a couple of questions. One of them is regarding sales prices that you mentioned. In the beginning, you said that you were able to keep an average price of BRL 190 free from taxes. I'd like to confirm if this price was really at this level, and I would like to know how you can sell at this level of price. I don't know whether you are taking into account the incentivated energy in the current scenario. That caught my attention. Another thing I wanted to understand regarding the core assets that you have. I want to know if you have an ongoing sales process and if you could give us some more details. Thank you very much.
Hello, Marcelo.
Thank you for your question. The first question or the first answer is actually easy to give. We're talking about average price. We had very large activities of incentivated energy. So you end up selling for a higher price than the conventional you see in the market. With that, you know that this discount is relevant. We were able to keep price levels that were compatible with our portfolio. This is the first answer. The second answer regarding cost, we do not have any sales direct. And we are looking for a solution. As you know, we mentioned in the previous quarter, we have a series of adjustments. Whenever the operation is running more smoothly, we will retrack our sales process. It is a more active and more complex activity. We have analyzed different possibilities.
We have talked to some potential interested parties, but we still have not found a solution, a solution that is satisfactory to us. In the meantime, we continue operating as we can, generating cash in a profitable manner. It is a plant that does not drain any resources.
Okay, great. Thank you very much.
Our next question is from Henrique Peretti from JP Morgan.
Hello, good afternoon. The question is about the effect of the flexibilization. Could you give us an idea of how the load and consumption distribution takes place in July and also for the rest of the year? The second question is about information that you shared today on the strategic guidelines for energy with investments in renewable energy and also investments. Is there any practical implications or not related to it?
Thank you, Henrique.
Your sound was not so clear, but I will try to answer as I understood you. In terms of the flexibilization, we tried to offer our partners and our clients some type of cash flexibilization. Some clients consumed about below the basic rate. Sometimes when it happened, they had the benefit to receive energy. Now it was lower, but we understand that the cash difficulty allowed or led to the need to support them. We tried to provide costs that are compatible with the client's risk, and we tried to help our clients overcome this moment of difficulty. This is what we did in terms of flexibilization. With others, we escalated it for longer periods of the contract and others for shorter periods so that we would not impact the cash. Each client, according to the client's need and capacity, did what they could.
We discussed the possibility to have more flexible contracts, always looking at trying to be flexible. This led to good results, which did not have an impact on the results for the quarter. Regarding our second question, basically, it defines a focus on renewable energy and infrastructure. This is what we do today in Brazil. For us, the impact is really minor, but we needed to provide this information to the market. We are reassessing solutions to clients and our negotiations. For example, we have a significant participation abroad into [the Bahamas]. We have 30%. The idea is for the group to detach from these operations, which are not essential to us, so that we can continue growing and investing in renewable energy and infrastructure for energy. In our case, more specifically, we have invested in transmission and gas transportation in the pipelines.
For us, it's a reinforcement of our strategy, and we have an expectation of expansion.
Thank you. I would like to follow up on the first question. Have you felt any effect of this flexibilization on your cash in June and in the second half of the year or not?
Yes, we have that. It was a decrease of BRL 30 million. This will be recovered in the next three to six months. This is basically what the flexibilization represented in terms of cash. We issued debt notes, and clients will pay us with interest rates that are adequate to the risk of the client.
Thank you very much.
We now close our Q&A session. I now turn over to Mr. Eduardo Sattamini for his final consideration. Please proceed.
I'd like to thank you all for your participation. We've had a difficult year.
The group and the team are working hard. We're working to suffer less impact on our operations so that we can protect our collaborators and the communities where we live in. I expect that at the end of the year, we'll be stronger and better and better prepared to face future crises than we were right now. Thank you all very much, and I see you next quarter.
Thank you. ENGIE Brasil Energia Tele conference is now over. We thank you all for your participation. Have a good afternoon, and thank you for using [BlueTel].