CPFL Energia S.A. (CPFE3.SA) Earnings Call Transcript & Summary

We are now going to see the results of the second quarter of 2025. I'm Cyrino, Director Investor Relations. And today, I'm going to be the master of ceremony for our event. We have Gustavo Estrella, our CEO, with us. Ms. Kedi, our CFO; and other executives from the company. The whole presentation will be carried out in Portuguese, and we have simultaneous translation for English, just click on the button on the top part of the platform. And if you want to see the presentation in English, it is also available in the Investor Relations site of CPFL. I also like to inform all the participants that at the end of the event, we will start the session of Q&A. [Operator Instructions] The presentation of the event is being recorded. So now I'm going to give the floor to Gustavo Estrella, who's going to initiate the presentation of the results.

Thank you, Cyrino. Good morning to everyone. This is the highlights. Here is Slide 3. We have some highlights. First of all, the load in the Concession area. We had a decrease in the second quarter of 2.2%, very much because of temperature, we're going to see a bit further on affecting also commercial and residential. We can see that at end of semester, this decreased 0.2% flat in relation to last year, but very much because of the reduction of temperature, which is concentrated in the second semester. We have an excellent news of the PDV, a drop of 37%, if you compare of last year and a drop that was accumulated of 34%. So we're also going to see this. It's the ADA Distribution. It's a much higher number than last year. EBITDA, ends with BRL 3.028 billion and the net profit BRL 1.2 billion, growth of 7%. In relation to last year, the net debt is stable at BRL 27.3 billion with a leverage of 2.7x (sic) [ 2.07x ] net debt over the EBITDA. So I think the good news was the disclosure of our rating international-wise and so we were able to get the class specification. This is [ BBB flat ], it is 2 over the corporate rating was Moody's, and I think it's important for us to access the external market, and that's what we're doing. So it's a very positive rating. Our CapEx has reached BRL 1.4 billion with a growth of 5.1% in the second semester. Annual CapEx of BRL 6.3 billion and end-of-semester CapEx of BRL 2.7 billion (sic) [ BRL 2.7 billion ]. We also had two readjustments, one Paulista and the other one, RGE, both with a positive increase in the Parcel B, 7.53% in Paulista and 4.90% in RGE, very important considering that Paulista had a negative total readjustment of 3%. Renewal of Distribution concessions. We have the processes approved by ANEEL for Piratininga and RGE. We're awaiting the approval of the Energy Ministry, the last process of the CPFL Energy, CPFL Paulista, still in process of approval for ANEEL -- by ANEEL. Well, let's move to the next slide about energy sales. We had a drop of 1.6% in the second quarter, very much concentrated in Residential and Commercial, a drop of 4.8%, 4.2%. We can see the lower part of the slide a drop of temperature concentrated in the state of Sao Paulo, a drop of 2.1 degree Centigrade in comparison to 2024 and 0.9 degree Centigrade in Rio Grande do Sul, also comparing to 2024. So I think this is very concentrated, and we follow with this effect of more or less 2% of the market as a whole, but also concentrated in Residential and Commercial. In the industry, it is stable with a growth of about 2%, and we highlight the Food industry, which is the main segment between -- in our growth with a growth of 5%. In the next slide, the sales of the first semester of 2000 (sic) [ 2024 ] . We can see that the market is flat in relation to 2024. We have some reflex, Residential and Commercial, also due to the temperature less than the second semester, but decreased, compensating the growth of the industrial classes and rural classes as well. Well, now let's talk about delinquency. This is very important. We had a drop already, recurrent drop 2025 compared to '24, a drop of 37% in our delinquency. I think the big action has been our volume of cuts with an expressive growth in relation to 2024 going from -- to 770,000 (sic) [ 717,000 ] . Last year, we had a reflex of the floods down south and difficulty to cuts in that area. So here, we had an expressive increase at reflex of the delinquency with an expressive decrease. We now have 0.84% in the semester, in comparison to the first semester last year. So this is good news, I would say, with tendency to drop in the next semesters, but what is the attention is that we have this level of delinquency with a high volume of cuts, and this will be the trend of the scenario for the next quarter. Now let's go to losses. We have Paulista, RGE, and Santa Cruz with a new methodology of ANEEL. So the loss, considering the impact of distributed Generation, we have Santa Cruz, and we have the challenge in Paulista and RGE. Here also -- we have a journey of dropping or decreases and we still have a challenge in Paulista and RGE in Piratininga. This change of criteria will happen in the next few months. So we should incorporate this new vision, a more correct vision that considers the distributor Generation. Now let's talk about the performance of the Hydro, the PLD with expressive growth with the use of hydrology worse this year than last year. So we have BRL 216, more than last year, again, fruit of the hydrology, the GSF. It goes from 39% (sic) [ 89% ] to 101%. So we have more hydro performances as a correlation with what we live and we have more Generation coming from hydroelectric plants. Now on Slide 9, we have the Wind Farms performance. So we have an increase of 11% in our net Generation Here, we have a very positive effect of a better performance of winds comparing to last year. And this is very much compensated by the curtailment effect. As you can see at the bottom left side of the slide, the containment has an expressive increase in relation to last year. We had an impact -- accumulated impact of 8.6. And this year, the increased volume increases to 20.9%. So the curtailment continues being a point of a lot of concern and the impact comes now on the second semester. And we continue with a sectorial challenge with this curtailment topic, growing and impacting the renewable energy. Now I'm going to give the floor to Kedi.

Thank you, Gustavo, and good morning, everyone. Now let's talk about the financial performance of the second quarter. Our EBITDA for the second quarter reached to BRL 3.0 billion with an increase of 6.7% and in amount of BRL 191 million. So in the next section, we're going to talk about the performance of each of the segments. First, in Distribution. The EBITDA reached to BRL 2.1 billion with a growth of 22% in amount of 376, which was mainly explained by the increase revenue in concession financial assets because of higher IPCA and also a higher asset base. Also, last year, we had a negative impact of the flood in Rio Grande do Sul which is reducing the comparative basis of BRL 97 million in ADA, as explained earlier by Gustavo that we are performing a better job. And this year, we have a better performance of BRL 33 million, because of the ADA and also, we have an increase of BRL 19 million we have in PMSO because of higher inflation. In Generation, in Generation the EBITDA reached to BRL 806 million, with a 5.9% decrease of BRL 50 million in amount. There are several reasons that contribute to this result. First, some one-off effects. The first one was because of the sale of Epasa. There was BRL 153 million in term of asset write-off, which was offset by the proceeds we received from the sale in amount of BRL 60 million. And the second one-off issue is because of early termination in some of the Biomass contract, including [ Pedra ] and also Epasa. The total amount is BRL 67 million and the third reason is a positive impact of BRL 78 million, which was favored by some inflation adjustment. And the first one is -- despite of the impact of curtailment, a better performance of Wind give us a positive contribution in profit of BRL 45 million. Next page is about the performance in Transmission. The IFRS EBITDA reached to BRL 171 million. Some of the main reasons for the variances is there was Epasa adjustment, that is also a one-off effect in the amount of BRL 150 million. And also the PMSO. In PMSO, we have a better performance of BRL 26 million. In regulatory EBITDA, the amount was BRL 211 million, the main reason was the RAP adjustment for the '24/'25 cycle. So in Commercial, Services and Others section, in last quarter, we have a performance with EBITDA of negative BRL 72 million. The main reason was because of lower margin in the trading business, they have performed some early terminations in some of the negative contracts and also a decrease of about BRL 10 million profit margin in the Service segment. Moving to the next slide. We talk about the net income in the quarter. The net income reached to BRL 1.18 billion, with an increase of 7.8% or BRL 85 million. In addition to the better performance of EBITDA, the financial result was BRL 49 million better comparing to the same quarter of last year. One of the most important reason was because of the mark-to-market impact, which gave us a positive contribution to profit of BRL 98 million, which was mainly explained by a reduction in the credit spread curve. And also there was a higher revenue adjustments related to the regulatory assets and the liability in amount of BRL 49 million. This effect was partly offset by an increase of BRL 84 million in expenses of net debt, which was because of higher debt balance and also higher CDI and IPCA. And the tax was BRL 122 million, which was in line with EBITDA. And the next slide is about the performance in the first half of the year. The total EBITDA for the first half year reached to BRL 6.9 billion with an increase of BRL 2.6 billion (sic) [ 2.6% ] , mainly due to the contribution of Distribution segment, including a favorable ADA and a better Parcel B income and also higher Concession Financial Asset revenue. In Generation segment, we had an 8.3% reduction in the impact mainly because of some one-off events as well as the Curtailment which reached BRL 131 million in the first half of '25. So we have a negative impact of BRL 96 million. The regulatory result of the Transmission section was mainly impacted by the RAP decrease for the '24 and '25 cycle, while the other segments had a decrease due to lower profit margin. Moving to the next slide. Our net income for the first half of the year decreased by 1.9%, totaling BRL 2.8 billion. The financial result was mainly impacted by increase in expenses of net debt because of higher CDI and inflation in amount of BRL 309 million, which was offset by increase of mark-to-market of BRL 259 million. Depreciation was higher because of higher asset base and also tax is higher related to a better EBITDA. The next page, we talk about our debt portfolio. We have the debt in Covenants criteria that ended in the year with BRL 27.3 billion in net debt. The adjusted EBITDA was BRL 30.1 billion. So our net debt to EBITDA was 2.07. What was worth mentioning is we received an international rating of Baa2 by the rating agency of Moody's, which was 2 notches above the sovereign rating of Brazil, that is a recognition of our solid financial situation, our sound strategy and also the ability of the operation and which will give us advantage for future international fund raising. And also, we have the funding, we have reached about BRL 2.5 billion of funding in the last quarter with an average term of 8.07 years and with this debenture issuance, we were able to extend the maturity of our debt. As we will see in next slide. Here, we have all that nominal cost which is about 14.3%. That is higher because both CDI and IPCA is getting higher. For our portfolio of the debt, as you can see, it's mainly about 70% of the debt is linked to index of CDI and about 24% indexed to IPCA. The coverage of the -- our short-term amortization is about 0.97x for our short-term amortization and the average tenor of the debenture is about 4.3 years. The next slide is for CapEx performance of last quarter. In the second quarter, we have invested BRL 1.4 billion, which is 5.1% more than the previous year and in line with our CapEx plan. In the breakdown of the segment, in Distribution segment, it reached BRL 1.2 billion, most of the investment goes to customer service expansion project, system improvements and modernization. In Generation, we have invested about BRL 51 million in the maintenance plan of our hydrogen power plants and Wind Farm and in Transmission, the total investment was about BRL 166 million mainly goes to reinforcements and improvements of our lines and substations. In Trading and Services segment, the total investment was about BRL 6 million. In the first half of '25, we have invested about BRL 2.7 billion which reached to 41% of the CapEx plan of the year. Now I'll give the floor back to Gustavo, please.

I believe finance -- to finish, we have the program called CPFL in hospitals. This is over BRL 320 million invested. We have a new project here in the headquarters of Passo Fundo. The investment is BRL 8 million. And the project has the same design of the hospitals so that we can attend in a centralized way all the basic units -- health units of Passo Fundo. It's a format which is a bit different. And the expectation is it's something that we can scale to other cities. But the idea is that we follow through with this project with important reflexes, not only in the hospitals, but also for the communities of our concession area and our business. So I think we have a successful project with a higher volume, almost 50 megawatts, which have already been installed. And the perspective is to continue investing in hospitals long term.

Thank you, Gustavo. Thank you, Kedi, for your presentation. Now we're going to open for questions and answers in the order in which they come. [Operator Instructions] We're going to start here with the first question. It comes from Andre Sampaio from Santander. Let's move forward to your question.

I have 2 questions. First of all, I'd like to know about what was your interpretation of what was decided in the CTF and if there's any expectation in relation to any change from now on? I think the big question that has showed up in the market, if we can -- if we've -- the second question, I'd like to hear about you. If you have any authorization of the process that's going on in ANEEL about Piratininga?

I'm responsible for the legal part. As for the judgment, to have clarity of what was decided, we would have to see what the agreement was. So it is still early for us to conclude anything about the session that occurred last week. So after the decision of ANATEL, a few months ago, we have the proposal according to values in ANEEL, our values. So ANEEL is evaluating. So the idea is to advance with the payment, and this is in a phase of evaluation. And I think in September, we will conclude this evaluation.