Good morning, everyone. Thank you for waiting and welcome to Compass Gás e Energia S.A.'s second quarter 2024 earnings release conference call. Simultaneous translation will be available during the session by clicking on the interpretation button with the globe icon at the bottom of the screen and selecting the language of your choice, Portuguese or English. If you are listening to the conference call in English, you have the option to mute the original audio in Portuguese by clicking on mute original audio.
The video conference is being recorded and will be available on the company's IR website at www.compass.gaseenergia.com.br, where you can also find the full material for this earnings release conference. The presentation in English is also available for download through the chat icon. During the company's presentation, all participants will be on a listen-only mode. The Q&A session will begin once the presentation is concluded. After the presentation, we will have a Q&A session. Please send in your questions by clicking on the Q&A icon at the bottom of your screen and make sure you state your name. The questions will be read out loud by the operator.
The information contained in this presentation regarding Compass Gás e Energia S.A.'s business prospects, projections, and potential for growth are forecasts based on the management's expectations regarding the future of the company. These expectations are highly dependent on market changes, the overall economic performance of the country, the industry, and international markets, and are therefore subject to change. Forward-looking statements are not a guarantee of performance.
They involve risks, uncertainties, and assumptions as they refer to future events, and therefore depend on circumstances that may or may not materialize. Investors should bear in mind that overall economic circumstances, market conditions, and other operating factors may affect Compass Gás e Energia S.A.'s future performance and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn it over to Mr. Guilherme Machado.
Good morning, everyone, and thank you for joining Compass conference call to discuss the results for the second quarter of 2024 and six months of 2024. I'm Guilherme Machado, Compass CFO, and I'm together with Antonio Simões, Compass CEO. Starting our call, I'll cover the operational and financial highlights of the quarter. It was an important period for Compass, marked by major events and developments in our businesses.
We keep focusing our strategy and connected 43,000 new customers in the quarter, reaching a total of 2.7 million clients connected at Comgás, Sulgás, and Necta network. Therefore, we distributed 13.8 million cubic meters a day of natural gas. We expanded our operations, reaching a total of 25,000 km of natural gas distribution networks. As a result, our EBITDA totaled BRL 1.4 billion, an increase of 44% compared to second quarter of 2023.
Our net income was approximately BRL 600 million, 73% higher than in the same period of 2023, and we ended the quarter with a leverage of 1.6x net debt to EBITDA. Moving on to our operational performance, let's start with the distribution segment, which consists of Comgás and Commit. In the second quarter of 2024, we distributed 13.8 million cubic meters a day of natural gas, 1% lower than the second quarter of 2023.
The results reflect higher temperature, which affected residential volumes and the lower competitiveness of CNG compared to other fuels. Despite the 1% reduction in volumes in the quarter, the industrial segment has been recovering in 2024, especially in the petrochemical and ceramic sector. The reduction in volumes in these markets were partially offset by a better commercial performance, which was positively impacted by food and drink sector.
Year- to- date, we distributed 13.5 million cubic meters a day of natural gas, 1% lower than last year, mainly explained by residential and automotive segments reduction, offset by the higher commercial volumes. Over the last 12 months, we connected approximately 179,000 new clients to our operations. As a result, distribution segment ended the quarter with BRL 1.3 billion in EBITDA, an increase of 25% compared to the 2 Q 2023. In the first half of 2024, EBITDA gained BRL 2.1 billion, 7% higher than 2023. The result reflected no recurring effects, primarily related to reversal of provisions at Compass.
Excluding these non-recurring effects, the segment ended the second quarter 2024 with an EBITDA of BRL 1 billion, an increase of 2% compared to the second quarter of 2023. This quarter, we consolidate our strategy of building a portfolio of companies that complement each other. While Comgás, we face the challenges in the residential segments. Sulgás, for example, helped to maintain additional volumes, despite the challenge scenario resulted from the climate events in Rio Grande do Sul, whose effects were felt in May and soon recovered already in June.
Moving on to marketing service performance. In the second quarter of 2024, Edge kept focus in its targets and delivered consistent results. First, I would like to emphasize that safety is one of our core values. Edge reached a significant milestone with over 4.9 million man-hours worked without any accident. This is a result we are immensely proud and reflect our commitment to safety across all our operations. In this period, we are very happy to announce that São Paulo Regas Terminal is fully operational, which has already delivered nearly 125 million cubic meters of natural gas.
On top of the TRSP terminal volumes, we diversified our supply portfolio with volumes contracted from Bolivia and Pre-salt. We reached 177 million cubic meters of natural gas delivered in the quarter, and 182 million cubic meters in the first half of the year. This quarter, we also had international LNG operations, which resulted in optimization and value creation. As a result, Edge EBITDA came to BRL 160 million in the quarter, and BRL 210 million in the year- to- date. Results were also positively affected by a non-recurring effect in the quarter.
Like- for- like, the market and service segment ended the second quarter 2024 with an EBITDA of BRL 125 million. In addition, I would like to mention a few more developments of Edge [audio distortion] We continue to contribute to the opening of the gas market in Brazil. This quarter, we completed the migration of five more industrial clients to the free market. Totally, six clients migrated so far this year. Additionally, a commercial agreement was signed with SCGás, Edge's first agreement outside the state of São Paulo, reinforcing our strategy of delivering competitiveness and flexibility for all our clients across Brazil.
The first result of these operations will be reflected in the third quarter of 2024. Another recent move of Edge's origination segment was the execution of a biomethane agreement for Ecoparque Itapevi, signed between Edge and Orizon. The long-term agreement will start in the second half of 2026, with an estimated average volume of 25,000 cu m a day of biomethane. Our project's portfolio has reached the potential volume of approximately 400,000 cu m a day of biomethane that will be operational as of 2025. The next slide shows the company consolidated financial performance.
As I mentioned, we posted EBITDA of BRL 1.4 billion in the second quarter 2024, an increase of 44% compared to the second quarter of 2023, mainly reflecting the start of Edge's operations, as well as non-recurring effects of the quarter, which I mentioned earlier. Excluding those effects, the increase was 16%. In the accumulated terms, we achieved an EBITDA of BRL 2.3 billion, increasing 19% from the first six months of 2023. Our net income totaled approximately BRL 600 million in the second quarter of 2024, 72% higher than in the second quarter of 2023, due to the same effects that impacted EBITDA.
Year- to- date, net income was BRL 970 million, and the variation between the periods also reflects the provision reversal of 80% of a tax subsidy case. Additionally, we ended the quarter with BRL 474 million invested in CapEx, a 15% decrease compared to the second quarter of 2023, and BRL 919 million in the year- to- date, a 12% reduction from the same period of 2022.
Going on to indebtedness figures, we ended the period with a net debt of BRL 6.9 billion and a healthy leverage of 1.6x net debt to EBITDA. We further debts mostly indexed to the CDI. We are very excited for solid results in 2024 with safety operations, customer focus and ensuring transparency in our actions. I end my presentation here, and we now move to the Q&A section. Thank you once again for joining us in our conference call.
We will now begin the Q&A session. We kindly ask that you state your name and ask all of your questions at once, and wait for the company's answer. To ask a question, please click on the Q&A icon at the bottom of the screen and send in your question. Our first question is from Regis from Citi.
Hello. Good morning. This is Regis from XP. I have a couple of questions. One about the growth at Edge, and the second one is about the distribution of natural gas. At Edge, where do you think the marginal growth is coming from? Is it from gas originating from pre-salt and Bolivia, or is there room to grow at the TRSP volume? Not in terms of capacity, but will LNG continue to be competitive in the current market dynamics? And if the [upperhill] is a limitation on additional volumes at the regas terminal. My second question is about natural gas and the next integration milestones. What are the upsides or the main events that we should be monitoring over the next quarters?
Hi, Regis. How are you? Before I start, I just want to check if you can hear me okay.
Yes, I can. Great.
Thank you for your questions, and thanks for joining us on the call. About distribution, we continue with the strategy that we had conceived way back when we first established Compass. Which is to continue to focus on our strategic operation region in the center south of Brazil. And we've been making several improvements, and we've been advancing in the controlled distribution companies. We've been doing a lot at Sulgás, at Necta. Distribution companies are at different stages of maturity, so obviously strategies will be customized for each operation and their maturity level.
But we believe that in our portfolio, there's plenty of room to grow, whether it be through data use or by selecting and qualifying the markets where we operate better, extracting more margin and capturing efficiencies, and replicating the model we're familiar with, that we've been operating with for a long time since we joined Comgás, and that is already ongoing. So that's a bit about growth and value capture, organic value capture in our portfolio, and how that's going to pan out over the next few years.
As for the inorganic strategy, that will take place as the distribution companies that are in the region where we operate, and we'll be looking at those with interest to increase our share and to try and have more control over those companies. More specifically, an event that didn't take place this quarter but is relevant, is the signing, which is still pending approval, of the acquisition of the control share at Compagas.
And that's a clear part of that strategy. So we'll continue to pursue optimizations and to capture organic volume in our portfolio, and we'll continue to be interested in increasing our share inorganically in the distribution companies we're focusing on. As for Edge, Antonio is here, so he'll take that question, Regis.
Good morning, Regis. Good morning, everyone. Thank you for joining us. Let me talk about Edge briefly. And let me take a step back to last quarter's conference call. We were talking about the beginning of the operation then, and I think a relevant point was that even before the regas terminal went into operation, we were already operating Edge at other origination points. So the first quarter was the kickoff and the ramp-up quarter. And this first half of the year, based on the volumes, we have proven that the operations are stable.
So this is a key milestone for us in terms of volume at the terminal. But in addition to the terminal, there are plenty of other opportunities that are presenting themselves this half of the year, originating from other sources, such as the pre-salt terminal, and mainly Bolivia. That is a testament to the terminal's capacity to bring more flexibility in terms of creating a portfolio, and that is what will keep us competitive.
You asked about competitiveness, and I think that not only the contract we have to supply LNG to the terminal that has been concluded a while ago and is still competitive, but also this portfolio of alternatives and the ability to bring in those opportunities over the months, even if intermittently and in a timely fashion, they will allow us to have a portfolio that will continue to be competitive. Because in addition to price, there will also be flexibility in it. That is my answer to your question about competitiveness, and that is proven even by the clients that we have been migrating, even though this is still a very incipient market, and we are one of the pioneers when it comes to migration.
As to your question about growth, Edge's growth is happening on many fronts. Molecules from other sources, pre-salt, Bolivia, biomethane, but also an increase on the south side, pre-CDL sales, the migration of other kinds of clients. We have already talked about B2B LNG, so there will be various other businesses in addition to the terminal and the terminal volume, which has plenty of capacity, as you mentioned yourself.
That is great. Very clear. Thank you.
The next question is from Gabriel Barra from Citi.
Hello. Thank you for taking my questions. Hi, Antonio. Hi, Guilherme. Hello to the IR team. Thinking about the opportunities in the industry, both Antonio and Guilherme have already talked about that supply and how important it is to have supply diversification. We have been hearing a lot about a possibility to reverse the gas pipe and to bring in gas from Argentina.
I would like to hear from you how you see that. Do you think that might be an opportunity? Would the company be interested in that, and how would that fit in with your portfolio, especially Edge? My second question is about another of Edge's fronts. You have been focusing a lot on biomethane gas, and a lot has been said about the fuel of the future, and things are looking up for the use of biomethane in Brazil, and you have been investing in that for a while now.
My question is, how would you position yourselves in this chain? Would you be an offtaker, or would you position yourselves more upstream? Would that make sense for you? I would like to hear from you about your positioning in this new context and the possibility of an increase in the use of biomethane in Brazil. About capital allocation, the dividends payout was very relevant, but you are still at a very comfortable leverage level. What would be your ideal leverage, considering investment and opportunities, but whilst keeping a comfortable balance sheet for the company? Thank you.
Thank you, Barra. I will start by talking about your market questions, and then Guilherme can talk about leverage. About Argentina's long and the reversal of the gas pipe, yes, we have been monitoring that quite closely with Edge's team, talking about it. Yes, it could be a potential competitive supply source, and we would like to have a chance to take part in that. If it materializes, we will discuss competitiveness. The operational side will try and take part and bring in part of that volume to our portfolio.
The fact is that Argentina does have a lot of gas, and that is one of the short-term solutions that have been discussed. We are also monitoring the other discussions, the more structural discussions that may take place. Obviously, talking about which will be the winning solution would be speculation, but there are three or four alternatives for this gas from Argentina. Even to export to other markets, it will depend on Brazil's balance. It is an opportunity. We are monitoring it, we will assess it, and the structural side requires a bit more time.
Talks with the government, and also the technical feasibility of each of the options. As for biomethane, specifically to your question, we will look at it on a case-by-case basis. We do have the two models in our portfolio. In one of them, we made the investment in purification with Orizon based on the size of the plant, its characteristics, its location, and there are other off-take contracts that are being done with Orizon as well as other players. We have announced the one with São Martinho.
In terms of the origination format, we will look at it on a case-by-case basis and consider the circumstances of the market, where the plant is located, how big it is, and our other businesses, whether the investment makes sense or does not make sense when the time is right. There is not just one answer to your question. As for the market, yes, we are monitoring a potential fuel of the future and the implications of that ordinance, but the market as well.
We have been talking to clients, we have been assessing their interest for a solution that might bring a component of a longer-term decarbonization. As those plants go online to supply, we do expect the market to be more advanced. We have been having conversations with all of our clients about that. There is an interest. There is a matter of pricing, the size of the contracts, but that is part of the market, which is still incipient. The fuel of the future will only strengthen that vision and our position from our standpoint.
Barra, this is Guilherme. To your question about our capital structure and leverage. Yes, the company did pay out significant dividends at the start of the year and in the quarter, to be more specific, and will continue to be at a very comfortable leverage level. We will continue to monitor what the market is doing, potential possibilities for us to optimize our debt management. The fact is that things are looking better than we had planned at the beginning of the year. We are performing better than we had expected and with a leverage ratio that leaves room for growth.
We will continue to pursue optimizations of that kind. What is important to say about that is that the company's capital allocation will be based on the creation of value that we conceived when Compass was established. We will be very disciplined when it comes to capital allocation. We will allocate it to assets or opportunities that have to do with our strategy and that will have return levels according to the profile of our portfolio and the shareholders. That is our vision. We'll keep an eye out for what's happening in the market and assessing opportunities to use the company's capital structure.
Great. That's very clear. Thank you.
The next question is from Matheus Enfeldt from UBS.
Hi, everyone. Can you hear me okay?
Yes, Matheus.
Good morning, and thank you for taking my questions. I have a couple of specific follow-up questions about Compagas. The company was already looking in that direction, but that was important event after the quarter. If you could mention some of the milestones and what we expect from that process. Also, can we think six months, a year, two, three years after closing, what can the market expect in terms of how the company might contribute with the operation in that period?
Or when you think you might start to make a more significant contribution. My second question is about Comgás' tariff review. How is that going? What are the next steps? I'd like to hear from you how the discussion about this weaker volume has affected the expectations on reviews with the regulatory agency. If the Subida da Serra discussion, considering what was announced by the Board at ANP, if that brings any uncertainties. If you could give me an update on how that process is going. That would be great. Thank you.
Hi, Matheus. How are you doing? This is Guilherme. Thanks for the questions, and thank you for joining us. First, to your question about Compagas. That transaction-- First, disclaimer, we signed it at the beginning of July, and now we need to wait the pending approvals by the authorities so that we can start managing the operation. We're awaiting for that process. As for the rationale and some of the milestones, given what we can say for the time being, as I've mentioned from the standpoint of the portfolio, this is an asset that brings together different attributes that make sense for us.
It makes sense for us to have a bigger share in them. From the point of view of the markets where we can operate or demographic or geographical characteristics, using natural gas seems to be beyond what this market can deliver to us. Compagas is an asset that has a model that's similar to the model we have at Comgás. We're familiar with it. We know how to operate it, a concession that has had its renewal signed, so we have enough time to make investments and get the right level of return on our investments.
We believe that given the expertise we've acquired over the years by operating a highly complex asset such as Comgás, we'll be able to apply some of those best practices, given that we're already doing that at Sulgás, and it's already been bearing fruit over the last couple of years. So there's a great deal of potential in implementing that strategy, and we'll update you on what happens as Compagas starts giving results.
About the tariff review, it's ongoing. There was a milestone that we mentioned in a previous call, which was the publication by the regulatory agency within the deadline, saying that we are complying with the regulatory guidelines as they had been announced. Now there's a different important milestone, which is the publication of the methodology. They will define P zero, and then we'll submit our business plan to be assessed.
There are many variables involved in the discussion of the regulatory plan, which include volume, as you mentioned yourself. It is a technical conversation, and we need to show our prospect to grow in these markets, how they should behave, and then have a conversation with the agency. I think it is going to be very fruitful for the company's next five years.
It is business as usual. We cannot really anticipate any changes after the conclusion of the tariff reviews, nothing out of the ordinary. To the last part of your question, we do not see any impacts on the discussion about the metropolitan reinforcement discussion having been impacted by the tariff review. In fact, that was an object of the previous tariff review, so we are monitoring that process, and we do not see any problems in it.
The next question is from Thiago Duarte from BTG Pactual.
Hello. Thank you. Good morning. Hi, Antonio. Hi, Guilherme. Hi, everyone. If we could talk about Edge, and considering the volumes you have disclosed, which I think will now set the starting point for us to consider the development of that business unit, I would like to ask about a couple of things. First, based on these agreements that you have mentioned in your answer to the other questions, you have had some additional clients that have migrated to the free market, other new sources of origination.
Considering the 177 million cubic meters that Edge has transacted in the quarter, could you tell us what kind of progress we can consider for those volumes? That is my first question. The second question is whether you might be able to talk a bit about the unit economics. The unit EBITDA that each of these sources, TRSP, Bolivia, pre-salt, and biomethane now coming in, whether they are very different from one another, considering the average that this 177 million cubic meters have generated in terms of EBITDA in this first half of the year. Thank you.
Hi, Thiago. Good morning. This is Antonio, and then Guilherme can complement my answer. The first thing to say is, at the beginning of the first question, the regas terminal is ramping up. In the first quarter, it got closer to the average volume set in the agreement with Comgás. The agreement with Comgás is public. It is roughly 3 million cubic meters a day, and we did not reach that in the second quarter, but we will seek to achieve that in the short term. That is one contract. The other sources to other destinations, we are still putting together the portfolio.
We will have some news this quarter in terms of spot volumes, as well as a stake in different tenders put forward by distribution companies. We should have news soon. As for competitiveness, actually, and you are very familiar with this, when you are putting together a portfolio, it makes it easier, it gives you more flexibility to work with more clients, but it does not necessarily mean you will allocate one single source to one client. When you put a portfolio together, as you add more originations and more clients, that gives us a chance to optimize those contracts.
I could not make a specific correlation between one contract and one client and one margin. We could not do that. Unfortunately, we cannot make that kind of projection yet. Let us not forget that Edge's product is not just price, it is price plus flexibility. When clients are taking that product, flexibility matters because contracts in the regulated market are very strict in terms of appointments, penalty. When we offer a more flexible contract, that creates value for clients.
It is not just about comparing prices, because we are making a comparison with the regulated market, which has lots of other components other than price, components that are important to clients. In summary, we are ramping up volumes and we are putting together the portfolio at the origination and at sales to maximize value for Edge and the clients. As you convert clients, that means we are also finding that value for our clients as well as for Edge. We are very confident about this thesis.
Thiago, thank you for joining us. In terms of EBITDA, the main contribution this quarter came from our contract with Comgás, the beginning of the operation, and there have been portfolio optimizations from the point of view of the LNG. We will be registering that throughout the year. As we have been announcing, those operations are recurring within Edge's strategy. It does not make much sense for us to disclose that, because that is our strategy.
That is how we work our commercial agenda. In addition to this contract that we have, we are deploying the strategy more intensely, and you will be seeing that as we show you that we are converting new clients. We will not have to tell you about it anymore. That will be in our portfolio. Optimizations that can take place in our local market and in international market are part of our strategy. We are very confident that we will continue to deliver recurring results that will be incremental in terms of share in Compass' total EBITDA as of the next quarters, because by then, we will have set up Edge's operation in full.
That is great. Very clear. Thank you.
This concludes the Q&A session, and I will now turn it over to Mr. Guilherme Machado for his closing remarks.
Thanks, everyone, for joining us on this call of the second quarter, our second conference call. We are very confident about Compass' strategy as well as its operations, and we will continue to deliver good results in 2024. Thank you, and see you on our next conference call.