Companhia Paranaense de Energia - COPEL ($CPLE3)

Good evenings ladies and gentlemen, and welcome to the video conference Companhia Paranaense de Energia - COPEL to discuss the results of the 2026 reserve capacity auction held today. The video conference is being recorded, and the replay can be accessed on the company's website at ri.copel.com. The presentation is also available for download. [Operator Instructions]. Before proceeding, I would like to note that the forward-looking statements are based on the beliefs and assumptions of Copel's management and on information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore should be treated as forecast dependent on the macroeconomic environment, the country's economic scenario and the performance and regulation of the electricity sector, among other variables, and therefore, are subject to change. This video conference will be presented by Mr. Felipe Gutterres and Mr. Diogo Mac Cord respectively, the CFO and the VP of Strategy, New business and digital transformation at Copel. I would now like to give the floor to the company's CFO, who will start the presentation. Please, Felipe. You may go ahead.

Thank you, everyone, for attending. It is a very relevant day for Copel. It's relevant in terms of our contribution to the national systems. It is relevant in terms of the value generation that is determining and sustainable on this capital allocation fruit of intense work of a multifunctional group has been working for many years to prepare these 2 assets for this, Foz do Areia and Segredo. Thank you for being with us. So I'll give you a little bit more color on the coming slides of our vision about the result of this function. An important point that I would like to highlight here is the effect and the importance of the hydro product for the system. It has the lowest cost for the national system, it has tariff affordability, greater flexibility compared with other sources, unique advantages in frequency control, synchronous compensation and operating reserves. It's a majority of equipment manufactured in Brazil. The content is developed nationally and without a doubt, a renewable clean products that obviously in terms of carbon emission has a role, an important role in the reduction of footprint as there are no emissions. Now on Copel's point of view, the power generation auction consolidate the potential generation of value for Copel, we mobilized our generating park. We have sustainable determining impact of this capital allocation. We also have a pipeline of more than 4 gigawatts for future auctions. And we, with this result, leverage our strategy 2035. With the capacity auction, we go from an installed capacity at Foz do Areia of 1.7 gigawatts to 2.5 gigawatts, actually turning as the eighth largest hydroelectric power plant in Brazil. Segredo goes from 1.3 gigawatts to 2.5 gigawatts, now becoming the ninth largest hydropower plant in Brazil. You can see here on the left, on my left. In Parana, where the 2 plants are located geographically. So just to give you the dimension of these 2 projects and how by doing them we also increased the power and the relevance of Copel in the system. An important point here to bring you some additional details in the modeling process. The installed capacity available for the auction in Foz do Areia 690.5 megawatts and in Segredo 1.18 gigawatts or 1.17 gigawatts, the physical assurance expansion, 20.6 megawatts average for Foz do Areia, 50.6 megawatts for Segredo. The duration of this power generation of 15 years, the beginning of operations, both at Foz do Areia and Segredo August 2030 the contracted gross price, BRL 1,395, so it's a gross price. PIS and COFINS taxes have to be removed from this and the estimated investment, BRL 1.3 billion for Foz do Areia, BRL 3.6 billion for Segredo, BRl 4.9 billion for the 2 assets. TUST, BRL 5.75 to BRL 6.10 Foz do Areia and Segredo BRL 6.73 to BRL 7.19 for this asset. And it's important here to base date for the gross price. September and for the 5 June '25, corrected by the IPCA rate. This is important as well to pay attention for the modeling. So before opening the floor and opening our space for a Q&A, I would like to stress that the company with this auction opens a new chapter in capital allocation. from what it's doing. Here, we're talking about determinating value generation that is sustainable. As I started talking about in the beginning of the call, where we consolidate 2 major analytics feud. One is the determination of the minimum return rate for capital allocation that we have been already discussing since Copel Day, but also the pillars that lead us to believe and build this compound factor of the company's value generation. In this case, they're based on operational efficiency, optimum leverage and the generation of consistent determining returns. So with that, I would like to open our conference for the Q&A.

[Operator Instructions]. First question, Bruno Amorim at Goldman Sachs.

Congratulations on the results of the auction. Can you talk about the disbursement of this CapEx over the coming years. And also, if you can talk about how this investment, this additional investment compared to the current portfolio impacts the outlook for dividends in the coming years.

Thank you, Bruno. 2026, we should have a concentration of about 15% of these investments for Foz do Areia then 40% more or less between '27 and '28 in and the remainder 5% in '29, '30. For Segredo. It's more or less the same reference. It's not 15%, it's 16%, but it's a good number for '26 average dessication of 30% between 2027, '28 and a bigger concentration of 22%, approximately between 2029 and 2030. Our vision about the optimum capital structure and the effect of these investments is that considering the time horizon where they will be executed they fit in our balance sheet in our space, and we should not have any changes to our minimum payout of 75% of dividend policy.

Next question from Francisco Navarrete with Bradesco BBI.

Congratulations. I don't see the Daniel there, but that's quite a score. I think you gave a lot of important operating data. I don't know about the PMSO, but I think it's very low here, right? And it's important as well for the modeling. Could you give us that?

Yes, Nava, sure. Thank you. PMSO close to 3% of the total cost. To give you an idea, the most relevant cost is TUST, but we already gave the reference the guideline for.

Next question, Maria Carolina Carneiro at Safra.

This is just to complement Bruno's question. It seems that obviously, it fits with the strategy of growth with dividends. As you mentioned, this auction itself doesn't affect it here, but to understand the strategy. For example, of growth for other segments, considering you were successful here, it seems that maybe the focus remains now with the capacity -- reserve capacity auction now and maybe we should think less strongly about the transmission auctions or no. Just to understand, if it changes anything in the game of how you're planning to do your capital allocation in new projects. If you already consumed everything that you had in terms of firepower for the coming years in what you had mapped.

Thank you. Of course, we monitor this very closely. There is an important value generation leverage starting in June this year with a tariff review from the distribution company. So that's a lever that is part of this equation of cash generation and space in the balance sheet that adds up for the generations of coming years. Remember that 2027 is a year of full value generation. This year, we only had 6 months. These projects, also starting in 2030, they'll start to generate a lot of cash. So with this view in terms of cash, having a longer-term view, even considering the convergence of 24 months, if we work at a higher range of our leverage is considerable and any other investment. As we've always said, it's more transformational that the company is engaged in this period. And normally, it also comes with cash flow and it reports the optimum capital structure that probably opens room to accommodate those investments.

Next question Mr. Victor Cunha with Itau BBA.

Congratulations on winning the auction. If you can repeat the CapEx curve for Foz do Areia and Segredo please, and talk a little bit about the possibility of anticipating especially Foz do Areia, considering this plant already has a lot of the work already done already in place.

So Victor, thank you for your question. Sure. So it's 15%. in 2026, both for Foz do Areia and Segredo. Segredo has actually 16%, but 15% is a good number for 2026. For Foz do Areia an average of 40% of '27, '28 of 40% in '27, 40% in '28 and the remainder in '29, '30. In Segredo, 30% in '27, '28 and the final complement 22% in '29, 2030. This anticipation is advanced. There is a process to bring it ahead, our base deadline is delivering in August of 2030. I'll ask Diogo to describe the natural process of a call for this anticipation.

The first thing, you remember at Copel Day, we have pieces of the power. So for you to enable this anticipation, the state must need that power, and we believe that this demand will be present in the coming years. So we have a positive outlook in terms of this possibility of anticipation MME gets to this conclusion. And based on that, we have all of the mechanisms to anticipate this defined by CMSE. So I think this is relatively clear and especially for Foz do Areia, as you mentioned, we have the electromechanical assembly. This is a slightly simpler activity, and we would be able to have the possibility of anticipating it to 2029. Segredo is slightly more complex, also considering that it's not such large construction works as a new hydroelectric power plant would be. We already have the reservoir. We know that the type of difficulty in this type of work is environmental and land related. And this is something that has already been overcome in Segredo's case. But obviously, Foz do Areia is simpler. Normally, MME would do this request for anticipation 2 months before. They need to define this need for power. And with the difference plants and thermal power plants compete with hydro power plants. So this is a process where we will define the volume of power they need, the different types of plants compete, and we believe that hydraulic has a great advantage compared to the other technologies for this anticipation.

[Operator Instructions] Next question is from Joao Pimentel at Citi.

Congratulations on the results very positive I just have a question in funding in the material fact to talk about the estimated leverage, but I'd like to understand from you -- can you hear me -- so just wanted to understand what you foresee in cost of debt for this funding, the maturity, just to have more detail of the fund for these 2 projects, please.

So as we said, the idea is that the structure that we seek is 70% debt and 30% equity and the conditions that the company as a AAA company with good access to the market, the local market is able to raise those bonds at a comparable term. With this considering the project. So I think that a good reference would be looking at the company's more recent fundings.

[Operator Instructions]. I will turn the floor to Mr. Felipe Gutterres for his final consideration.

So again, I'd like to thank you all for attending here this evening and reinforce how happy we are with the results of all of the work that the Copel team has done and to also reinforce that we are opening a new chapter in our process, in our capital allocation with a value generation, and I want to repeat this, it is determining and its sustainable value generation completely in line with what we're bringing repeatedly with our view in terms of capital of high returns, capital allocation. Thank you all very much. Have a good night.

Copel's video conference is now concluded. We thank you all for attending. Have a great evening.