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

Good morning, everyone. Welcome to the CPFL Energia Group 3Q '25 Earnings Release. I am Carlos Cyrino, IR Director of the CPFL Group, and I will conduct the dynamics of this event. Together with us today is Gustavo Estrella, our CEO and other executives of the company. During the presentation, you can use the interpretation channel either English or Portuguese according to your preference. [Operator Instructions] I would like to remind you that this session is being recorded. And now I give the floor to Gustavo Estrella to begin with the presentation.

Good morning, everybody. Welcome to our third Q '25 earnings release. So we're calling here from BRL 30 billion Well, I will first go to the third page for our highlights. EBITDA, BRL 3.175 billion, practically stable growth, 0.3%. And in the accumulated BRL 10 million with a growth of 1.9%. Our profit BRL 1.376 billion, 3.3% accumulated BRL 4.178 billion, a slight drop of 0.2% with regards to -- relative to last year. Our net debt, the leverage, 2.19x in keeping with the past quarters. 2.5x the debt -- the net debt over the EBITDA CapEx, important expansion, 19%, reaching BRL 1.7 million the accumulated 4.4%. The initiative for the year is to close our investment more than BRL 6 million. The delinquency an expressive reduction compared to last year. It's the third consecutive semester that we've maintained below the ADA. So it's an expressive drop compared to 24%. In the accumulated, we see a drop of 31% considered the 9 months of the year. Yes, with regards to the transmission expansion, this is an important information. We're very happy to say that last week, we won the Lot 3 in auction. It was the largest lot in this auction with we have a small asset in the state of Paraná and most of it Rio Grande do Sul and a total RAP of BRL 81 million. So this is an important investment for the group. We had been participating very competitively in the last auctions. We were in the second place in the last 2 lots. And now we were -- we won this important lot with a very well-located asset in Rio Grande do Sul next to our existing assets. So the expectation, the expansion of transmission is certainly will be very positive with this lot we acquired. With regards to our rating, after Moody's pitches, has assigned us a global scale above the sovereign rating, a BBB rating. So this is another important indication for CPFL, which allows us to access the foreign market. the bonus market in a very competitive way. And this is our perspective for '26 Extel award once again, was much acknowledged because of its practice the way we relate to investors. So this is an important acknowledgment everything we do. With regards to Investor Relations. Valor 1,000 awards. Once again, we were acknowledged as the best company in the sector. The third year -- the third consecutive year because of our efficiency in our operations. And other awards, for example, the Abradee award, we had several and also a new innovation award to technology CPFL transmission and the Santa Cruz. So it's an important acknowledgment coming from the regulating agencies. Well, now going back -- going to the next slide. Now here we are on Slide 4. As I said, I'm here in [indiscernible] And yesterday, I participated in excellent debates, excellent discussions, not only Brazil, but also CPFL. And here, we have the duty to try to have this agenda. We have a lot of story to tell. There's a lot of things that we have been doing. And one thing we always say is that these themes, ESG sustainability and decarbonization are increasingly incorporated in our business. So this way, we see that we can create a sustainable long-term agenda and with very tangible results. So I think this is the most important aspect here we have a series of projects and initiatives, all of them linked to our business expansion of fleet, transforms hospitals, CPFL in hospitals and which is a series of projects that gives us impacts that have very positive environmental impact. So COP for this discussion, to sign, to enter into agreement to make commitments so that we can all follow with decarbonization journey. So this is a very important week for CPFL and the importance of participating in COP30 in [indiscernible]. Next slide. So here, Slide #5, we have the distribution energy sales. sales practically flat relative to 24%, a drop of 0.3%. And this is an important data here. Here to the left, below here in the slide, we have the residential and commercial class things are very similar. We have a very important effect of temperature. Temperature has been lighter compared to last year. So this reflects in the reduction of energy consumption, specifically in the low voltage classes, 1.6% in the commercial class. Also here, the LGD vet 3.9%. And I think that it's more than compensate the increase of consumption per cap -- so this is a moment we have been observing in the previous quarters. We maintain our consumption in spite of the temperature impacts and the DG impact. so that we have a growth of 3.9% and the drop of 1.9% in commercial. So it's slightly different. Last year, we had a growth of almost 2%. And this year, the expectation is to have the industry some segments that have been increasing the consumption of the industrial class. Food continue being very positive, almost 2% and some other sectors here in this semester. chemicals and vehicles, important drops of 5.5% and percent. Here, average temperature in Sao Paulo and Rio Grande do Sul, interior, the average temperature is interior and brings an impact in the results a reduction of energy consumption. Next slide. So here in Slide #6, it's a very similar vision in the first 9 months of the year, practically flat compared to the 9 months in '24. Same effect occurs in the commercial and residential classes. Temperature and DG compensated per capita consumption. In the segments to the right, Food continues in a recurrent way with growth above 2% in the chemical industry with a negative performance of almost 4%. Temperature continues in both states very below the average of the 24 averages. So here, delinquency, as I had said, we have a positive highlight here. Since the fourth Q last year, we have maintained the delinquency rates below 1%, 0.9%, an important reduction. And I had mentioned we can -- here, we reached 716,000 power cuts this quarter compared to last year. 549,000. So it's a growth of 30%. And there was still an impact in the quarter. So I will continue here because it's trails screen flows. So with regards to the power cuts, we still have the same level as the previous quarter, 30% more than the third Q '24. And I'd like to remind you that in '24, we still had the effect of flood in Rio Grande do Sul.

So Gustavo okay? Yes, we can hear you. So with regards to losses, we continue with important challenges here and the reduction of losses. If you look at the regulatory limits, we're still above the regulatory limits. We continue with a huge challenge but it's more of a positive journey in 1 more quarter where we present a reduction of our total losses from BRL 981 million going to BRL 943 million, and we continue with a very intensive program of inspections almost 280,000 inspections during the 9 months. And still, obviously, we try not only to increase the number of inspections, but assertiveness with regards to our inspections, so we had an important increase. With regards to the fraud report hit rate, 30%, so this is an important data. And we continue with a positive journey not only inspections, but there is an expectation of better monitoring of the grid, and there is an expected grid with regards to the loss levels in the company. Next slide, with regards to our hydro performance, we see an increase in the average PLD 47% hydrology has been more disfavorable since the beginning of this year, and it's reflected here is on the PLD BRL 253, GSF in spite of the drop in the third Q. In the 9 months, it's in keeping with 24. So we had 90% GSF and 88% this year. Next slide. So now wind farms performance. We continue with the curtailment, which is one of the great offenders of the results this year. So we had a net generation with a drop of 14.4% in spite of the performance of where we had better wins than '24, but here in the left bottom part here in this set, the left, you have an increase of curtailment compared to 24%. It goes from 27% to 37% that's impacting not only generation, but the results of the company. And availability continues in a resumption journey now close to 95% still below 24%, but it's the perspective of recovery during the next months. Next slide. So now I would like to give the floor to Cyrino to continue with the results.

So to talk about the numbers here. When we look at the consolidated results, we reached EBIT -- an EBITDA of almost BRL 3.2 million in the third Q a growth of 0.3%, 9 million above the first -- the same Q last year. Going to the distribution, we reached BRL 1.8 million in this quarter, a variation of BRL 180 million firstly explained by the tariff market, 239 mean basically tariffs. Here, we had a mix with the residential being very positive and also because of inflation contracts with the IGP-M, Paulista, Piratininga and also a positive feed of BRL 24 million in we had a better than the first Q last year. So the results are very important here, BRL 7 million positive as a rifle of the impact with the floods last year. And in PMSO, the result here was minus BRL 77 million, but in line with inflation slightly above when we look at only the distribution sector, BRL 33 million, the concession nation asset, you have a correction of the IPCA, which was lower than last year. So this -- that's why we have this BRL 31 million negative and BRL 26 plus million, right, other revenues, right? So this is important here. Going now to generation. The generation segment reached an EBITDA of BRL 1.77 billion a variation of minus BRL 37 million compared to the third Q '24. And when we talk about the effects, we have a negative effect of BRL 62 million because of the contract termination of biomass and EPASA. So here, we have a loss of EBITDA when compared to last year. Also, we have a BRL 38 million in the GSF. As Gustavo mentioned, we had worst GSF than last year. We have an exposure of around 15% this year. So this has this negative effect. Wind generation, BRL 1 million, minus BRL 1 million. We had the curtailment effect of minus BRL 70 million, and the wind mix was plus specifically because of the mix here, right? So there was better wind in Ceará where we have Proinfa with a higher price. And the wind was better than in Rio Grande do Norte and Rio Grande do Sul, so we had a plus BRL 69 million. In the table to the right, we can see the nominal of the curtailment. So this quarter here with an effect of BRL 219 million compared to BRL 149 million in the period of 24%. We had a positive result of BRL 82 million in energy contract readjustment, many of them by the [IGP-M] and also BRL 8 million with regards to the flood impact in last year, which affected generation. Another here, BRL 26 million, minus BRL 26 million. Now looking at the next segment and to talk about transmission, when we look at the IFRS results, EBITDA of BRL 248 million variation of minus BRL 125 million minus BRL 89 million margin effect and also PMSO, minus BRL 35 million. Now going to the regulatory, which is the most important thing to you, we have an EBITDA of BRL 209 million variation, BRL 28 million, basically, BRL 36 million positive coming from the adjustment and BRL 9 million PMSO, negative PMSO, but in keeping with inflation. Next slide to talk about the commercialization services and others, EBITDA, BRL 8 million, variation of minus BRL 50 million, impacted by the commercialization margin, minus BRL 28 million, but the result was very good with CPFL services 1 -- plus BRL 21 million and also BRL 7 million others, which was negative. Now going to profit in the quarter, we have a profit 3.3% higher than the profit in the same quarter in million delta positive. We reached almost BRL 1.4 million in this BRL 1 billion in this quarter. So we had a variation of BRL 4 million, a positive effect of mark-to-market BRL 142 million plus adjustments to the regulatory asset and liabilities, BRL 63 million. Expenses with net debt, minus BRL 184 million and others with minus BRL 17 million. Now going to the results accumulated in the last 9 months, right? With the first -- here, we have BRL 10 billion in the last -- the 9 months variation of BRL 177 million. Distribution, we reached almost BRL 6.9 million. And here, we can see in these 9 months, lower ADA also be gained and concession financial asset generation even having reached BRL 2.7 million in EBITDA, we have a negative effect of BRL 165 million, basically impacted by the curtailment that has been affecting us this year in '25. Transmission BRL 779 million EBITDA in the 9 months, a delta of less -- minus BRL 34 million, but still within the last tariff readjustments that we had last year. commercialization services and others, BRL 37 million, impacted by the lower commercialization margins. But gains with the CPFL services EBITDA that has had positive results. Going to the results that we had a drop of 0.2% the net income only BRL 10 million below. Basically, we have the mark-to-market effect of BRL 401 million, which was positive. So very good rates compared to the current market. and also expenses with net debt of minus BRL 493 million. So these are the main effects here. Now going to the next slide. Once again, I give the floor back to Gustavo to continue with the presentation.

Thank you very much, Cyrino. So now we go to the leverage. As we had said, we closed in BRL 28.7 million. Our total debt with 2.9x net debt over the EBITDA. And in the last 12 months, EBITDA BRL 13.128 billion. So this is a very positive data here, which puts us in the condition of being able to access the bonus market, the foreign market, more is a subsidiary, right? -- and not so much a Brazilian subsidiary. So this gives us very good perspective with regards to accessing this market. And we have the expectation to do this part from next year. In the last fundings on important data here. First, we had the possibility, right, of being able to deal with state REIT with very competitive prices, minus 0.37, and also, we access the market not only with competitive costs but with average terms that were higher. So we're getting to an average turn of these large fundings average term of 9 years. We know it's always a challenge to stretch our average term, right? So we had good access to the market using debentures so that we can stretch -- elongate this average term 9 years. Next slide, so here, we have our average cost continues linked to the CDI. Almost 80% of our stock is linked to CDI followed by inflation. But these costs converge themselves, right? So at a Selic rate, which is stable that we have today, today, the costs are relatively stable too. so we closed to 14.2% nominal cost and the real cost 8.6%. Our cash position is very comfortable, almost BRL 6 billion in cash which is the result of the recent fundings we did. And as part of our strategy always to anticipate due dates to avoid liquidity risks or access to the market. So '25 and '26, 100% funded. And for us, gives us time for us to plan for new fundings and now not only considering '26 anymore, but '27, specifically '28. So CapEx, we closed the year with BRL 1.7 million in the third quarter in the year-to-date, 4.9-accumulated -- BRL 4.4 million, and we continue BRL 1.4 million in distribution but with important volumes in transmission, BRL 557 million in investment in the 9 months, a growth of 21% relative to 24% compared to 24%. So lastly, as I had mentioned, a very important auction for us, which was no doubt the lot that we were most interested in. And we obviously tried to bid it for other lots. But because of the strategic fit of this asset with CPFL Energy and we had a CapEx of BRL 1.69 billion and the expectation of going to operations in February 2030. And with some drivers so that we can maximize return here in these investments. And we have the -- it starting -- we're going to try to anticipate operations here. We're going to work for this. And in this specific case, we have a potential of synergy and cost reductions because of the assets of RGE and also CEL transmission in the same region. So the expectation is very positive here. In terms -- so we can maximize the returns on this investment. So this is important data. And it prepares the company for everything that's going to happen in 2, the more scale and the more expertise and more -- the greater information we have with regard to these auctions and new projects, the more competitive we could be would have without ever foregoing our financial situation. So it's always important to participate in a very competitive way. And also we plan to do this in the next session -- the next -- the following auctions.

Thank you very much, Gustavo, for the presentation. So now we open for questions and answers. [Operator Instructions] The first question comes from Daniel, Safra Bank.

I have question considering the strategy of the company for 26. Just trying to understand, considering your participation in the last auctions and you won this last auction. And for '26, when we have the opportunity of new auctions, battery or transmission and then with regard to the leverage position of the company, how is your mindset with regards to capital allocation and growth strategy for '26? Is it oriented for greater growth activities -- or do you remain with the same vision versus the last years. But I want to understand your mindset, your minds here with regards to this?