CPFL Energia S.A. (CPFE3) Q4 FY2025 Earnings Call Transcript & Summary

[Interpreted] Everyone, we have one more day of results. We're going to talk about the fourth quarter and the year of 2026. I'm Giovanna. And today, I'm going to conduct the dynamic. Today, we have Gustavo Estrella, our CEO; and Mrs. Kedi, our CFO; and other executives of the company.[Operator Instructions] I would like to remind you that we are recording this event. I'm now going to give the floor to Gustavo Estrella to start the presentation of results.

[Interpreted] Thank you, Giovanna. Good morning to everyone. Thank you for being present in our results of call -- in the call of results. I'm already going to go straight to Page 3. Here we have the highlights of the quarter. We have the EBITDA with a growth of 4%, closing in BRL 3.408 million in the year, an EBITDA of BRL 13,452 million with a growth of 2.4%. The profit is BRL 1,500 million. The net income, a small a drop of 0.6% and we closed the net income in BRL 5,743 million with a small decrease of 0.3%. Our net debt, we're going to go into detail, but we closed with BRL 30.5 billion with a leverage of 2.3x the net debt over the EBITDA and the criteria of the financial covenants, our CapEx is important to notice, we closed with BRL 1.7 billion in the quarter, but the main number is the number of the year, we closed with BRL 6.1 million a growth of 5.5% in relation to 2025, it's the all-time record in the CPFL Group. We also have a PDD of 0.87% we're going to see a certain stability and also a decrease of the when you compare '25 to '24, a decrease of 26.2% in ADA. Dividends. We recommend for the assembly dividends of BRL 4.3 million, which is BRL 3.73 per share. It's also the highest dividend of the company ever since IPO in 2019, which is a payout of 90%. Another highlight in the financial arm, all the part of installment back accounts and also financial services. For the first time, we are in a nonregulated and an EBITDA over BRL 100 million in 2025 and good perspectives continuing growing in the next year. We're also announcing our CapEx plan in 2026-2030, the largest plan in the annual BRL 30.1 billion, so BRL 25.3 billion, 100% allocated in the distribution business. the CDP 2025, CPFL was recognized as a AA score, a few companies, not only in Brazil but in the world are classified as AA here with topics linked to climate change and water security in universal 22,000 companies that were evaluated, only 6 Brazilian companies were classified as AA and CPFL is one of them. Also the Platts Global Energy awards, important recognition here for the global energy -- the S&P and also for actions during the disaster in the Rio Grande do Sul calamity. Let's move on to Slide 4. Here, I'm going to start with the highlights of the sale -- of energy sales. with a drop of 2.2%. It's very concentrated in residential and commercial classes. Very much to -- due to temperature, affecting 5.1%, 6.4% respectively, and also the relevant impact in the distribution the reflex that you can see on the screen, 3.4%. We continue capital growth, mitigating these impacts in the final sales of the two classes. But I think the temperature was a relevant fact in the fourth quarter. In the industrial class, we see stability of 0.3%, a small drop in the industrial class. Here, we have the segment of food, which is the main segment in our class with a 5.2% growth compensating the negative effects that are coming from other classes, vehicles and metallurgy with 2.9% minus. Now let's move on to the next slide. Now let's talk about 2025. Here, we have a small drop stability of the market when we compare year-by-year, 0.7%. Here, the effects of similar we can see that in the year, we have colder year than in 2024, so that temperature effect, very, very relevant in both classes. We continue in the distributed energy. Here, the highlight is the industrial class with the performance a bit better compared to the fourth quarter. And here, when we look at the segment, this is the main highlight with a growth of 3.7%. In Slide 6, we show you the classes growth, removing these effects that are nonrecurring and we can see exactly how the growth is when we have our consumption classes, you see the first one, continues growth over 7%. It's very much due to the capital growth that I mentioned. So 3 years with a growth close to 7% and this demands -- it's a higher demand of energy in the residential area. The same thing in the commercial area, a growth of 7.7% industry with a modest growth drop in relation to 2024 and normalized of 1.5%. When we compare the '24 to '25, we have growth in the normalized area, which is much higher than the GDP growth. So now let's go to the next slide. We're on Page 7 now. So here, you can see delinquency. As I said, it is very stable, more or less 0.87%, 0.9% in the last 5 quarters. I think this is good news when we look at the challenge that we've had for the reduction of our PDD during the year of '24, and then we're able to stabilize in these lower of 0.87%. This brings us relevant results. The effect of PDD less than BRL 102 million. So the effect is very important in the ADA, which shows stability in these levels, close to 0.8%, 0.9%. We also have the collection actions. We continue elevated levels. There's a drop in the fourth quarter. But normally, these power cuts control delinquency, not only in 2025 but also in perspective for 2026. Now let's talk about distribution losses. Here, this is more of a challenge. We have a stability of losses when we compare to 2024 but loss above the regulatory limits, and we have found some challenges to control these losses. We can see the only concessionary that has losses lower is CPFL Santa Cruz. So the challenge continues to RGE, Piratininga and also CPFL Paulista. When we look at the indicators -- quality indicators on Page 9. I think here we have good news when we look at our deck which is at low levels, but especially in Sao Paulo, but also in Rio Grande do Sul with all the numbers lower than the regulatory numbers. So once more, the data publicized by ANEEL to 2025, CPFL were the best with Paulista, Piratininga and Santa Cruz. We also see when we do the analysis of the set in each concessionary and all of them, this is above the regulatory targets. In the hydro performance here on Page 10, we can see PLD closing at BRL 265. This is a scenario that we have to 2026. The hydrology is lower than the average, and with the methodology of price that was implemented last year, higher volatility and higher price, and we should continue with short high term prices during the whole year of 2025. GSF closing, 68% in the fourth quarter, a little bit lower than the GSF or a bit above the number in 2024. Okay. Let's move on to wind farms performance. The big highlight here is the impact of the curtailment that we can see that in the year 2025, it reached 30.80%, very much higher than the 19.7% of 2024. So we can see the growth, so from 19% to 30%, we still have not taken into account the impacts of the measure that was approved at the end of last year. We continue waiting for the commitment of the Ministry of Energy and we hope to be able to do this in the first quarter of 2026. Now on Slide 12, I'm going to give the floor to Kedi, and she is going to give us the results of the company. We are waiting for Mrs. Kedi to come online. She was on mute. She will be joining...

Hello, is it okay now?

Yes.

Okay. Thank you, Gustavo, and good morning, everyone. Now let's talk about the natural performance of the last quarter. The total EBITDA of last quarter was BRL 3.4 billion, which is 4% higher than the same quarter of last year. Still, distribution is the biggest section which contribute to this EBITDA and also with the highest increase comparing to last quarter. In the next few pages, we're going to talk about the performance in each segment. So on Page 13 is the performance of distribution section. The EBITDA in this section was BRL 2.3 billion which is 4% higher comparing to last -- same quarter of last year. And the biggest positive contribution is the positive market and tariff adjustment in this part. The performance was BRL 436 million higher comparing to last year, majorly because of IGP-M, higher IGP-M adjustment. And also we have successfully won the arbitration of RGE -- for RGE and this part contribute to a positive BRL 157 million and we have already received the full cash settlement in the last quarter. Some of the negative parts includes a lower concession financial asset, which was because IPCA was lower comparing to last year. And if we go to the next page, we talk about generation. Total EBITDA for generation is BRL 1 billion, which is BRL 94 million lower comparing to last quarter -- same quarter of last year. There are some one-off effects contributing to the negative movement. The major one is in the same quarter last year, we had an asset fair value adjustment which is noncash, and this part accounts for a negative contribution of BRL 117 million. And in wind generation, the performance was BRL 56 million lower comparing to fourth quarter of last year, majorly because of the impact of curtailment was higher, it contributes to a negative of BRL 122 million while the wind performance actually is better offset BRL 66 million additional revenue. And also because comparing to last year, there were some -- we had some contract termination such as EPASA and Biomass assets. And for positive factors, the inflation adjustment for our contract contribute to BRL 77 million higher revenue and also there are some one-off effects such as the [ Padala and old and uncertainty ], which contribute to additional BRL 68 million in terms of profit. Next page, we talk about transmission. The IFRS performance was BRL 87 million. And this part, we had a lower performance comparing to same quarter last year, majorly because of noncash events. The biggest impact is we had a construction margin adjustment which had an effect of BRL 162 million. And also, we had some legal provision for our transmission. But talking about regulation, it was a relatively stable performance our revenue from RAP actually was higher comparing to first quarter of last year, which is BRL 38 million higher. And also that we have some provisions majorly expenditure because of provisions, which cost BRL 66 million reduction in this section. And next page is commercial service and other section. The EBITDA in this section was BRL 45 million lower comparing to first quarter of last year. The biggest effect is, as we have mentioned also in Generation section, was this one-off noncash effect coming from [ Padala and old and uncertainty ] we grew BRL 53 million and also because of lower margin in commercial of BRL 20 million. We had a better performance from services of services and also our section in total and the last, which contribute to a positive BRL 32 million comparing to the performance of last year. Talking about net income, we have reached BRL 1.5 billion in the first quarter, which is quite consistent to the performance of last year. And besides EBITDA, the biggest change in this section is financial expenses. It was BRL 222 million higher comparing to same quarter of last year. The biggest reason is because the balance of that is higher and also higher interest rate. And we had a lower mark-to-market effect comparing to last year. But actually, the night mark-to-market was positive both in last year and this year, but this year was a smaller amount. So the difference is a negative BRL 121 million. And also in positive aspect, the adjustment to regulatory assets and liability was higher than last quarter, which contributed to BRL 89 million additional in terms of profit. If we go to next page. We talk about the performance in the whole year. The EBITDA was BRL 13.4 billion which is 2.4% higher or BRL 380 million higher comparing to last year. And still distribution contribute to the biggest amount of increase, which is 13.8% higher majorly because of higher IGP-M inflation we had in Parcel B and also a higher adjustment in concession financial asset, and also the good result of RGE arbitration. And as mentioned previously by Gustavo, we had a better performance, a significant improvement in ADA. In Generation section, the performance was BRL 286 million lower than last year. The biggest impact is because of the curtailment in this year, the effect was a negative BRL 558 million, well last year, it was BRL 272 million. Transmission segment is a relatively stable segment. And the major change is because of the noncash margin -- construction margin review, as I mentioned. And also in this year, we had RBSE adjustment. And in commercial and other section, the major change is because of a lower margin in trading. Next page. When we look at the net income of last year, net income was BRL 5.7 billion, which is consistent -- quite consistent with the result of last year. And the financial result, we have higher expenses in that which is BRL 708 million higher because of higher balance of debt and higher interest rate. But the mark-to-market effect contributed a positive profit of BRL 281 million, where we also have a higher adjustment from regulation asset and liability adjustment of BRL 248 million. Next page, we talk about our covenants, our leverage and dividends. As you can see by the end of the year because of the high CapEx investment and stable dividend payment. Our debt balance reached to BRL 30.5 billion and our leverage ratio, net debt to EBITDA reached to BRL 2.3 billion. But still, this level is well below the covenant requirement, which is BRL 3.75. And we have been following our plan for balanced growth and dividend payment. So the company has decided to -- we propose a dividend payment of BRL 4.3 million, which we believe is a historical high since the IPO. And this value will represent roughly 90% of the payout and equivalent to BRL 3.73 per share, and it will be approved in the Annual General Meeting on April 29. Next page, we talk about the debt portfolio. As you can see last year, we performed quite successfully a huge amount of financing. In the whole year, we have borrowed BRL 14.8 billion and the average cost for our new debt equivalent to CDI minus 0.34% and the average turn of our new debt is 5.07 years, and this will extend our average tenure of our debt portfolio. And one of the financing activity, I'd like to highlight, which we performed in last quarter is we replaced the BRL 2.2 billion intercompany loan with higher expenses at CDI plus 1.1 with a much cheaper intercompany loan at cost of CDI minus 0.4%. We took BRL 4.4 billion intercompany loan at this very attractive price. Next page, please. The CapEx investment in last quarter was BRL 1.7 billion, which was 9% lower than last quarter. But when we look at the performance of whole year, in 2025, the total CapEx was BRL 6 billion, which was 5.5% higher than last year and was also -- this was also a record high for the company. In different sections, in distribution, it still accounts for most of the CapEx investment, BRL 1.3 billion from this section. And for the whole year, it was BRL 4.9 billion, 9.2% higher. Most of the CapEx expenses went to expansion and modernization of the network. In Generation, the CapEx was BRL 100 million which was 25% lower comparing to the fourth quarter of last year. And for the whole year, BRL 270 million was 34% lower than last year, most of the CapEx went to maintenance of our set. In transmission, the CapEx for fourth quarter was BRL 247 million, while the total CapEx for the whole year was BRL 804 million, which is 6% higher. Most of the CapEx spend for authorization authorized the project from a new, which will give us a stable and favorable return. And in other sections, the total CapEx for the last quarter was BRL 36 million for the whole year was BRL 74 million. Next page, please. When we look at the CapEx plan for the next 5 years, the total CapEx plan was BRL 31 billion for the next 5 years, which is the highest level I think in the history for CPFL. Here, I'd like to emphasize you can see that we're trying to make arrangements. So by the end of regulatory period, which was '26 and '27. So we plan to have higher investments so that the return will be higher. And in different sections, in transmission, the CapEx investment is going to be BRL 4.5 billion, we have -- we're going to have a high CapEx investment because of also the Lot 3 transmission land construction. And in services and other sections, the investment plan was BRL 395 million, while in Generation, the plan was BRL 904 million. Distribution section still accounts for the biggest portion of the CapEx investment. Total amount for the next 5 years is BRL 25 billion and more than half of the amount will go to grid extension and modernization. And that was the performance of financial. Now I give the floor back to Gustavo, please.

[Interpreted] Okay. Thank you, Kedi. Well, just to finalize the last slide of our ESG plan, we are adjusting our plan to be able to focus more. We had 4 pillars. Today, we have 3 pillars, but the changes are not too big. What we believe is stability and long-term vision and obviously, a link with the businesses of the company. So this is adjustment to be able to better follow but to follow the shares and the initiatives that we've been carrying out in the last years with perspectives and goals designed up to 2030. So this is an adjustment that we believe is important to guarantee more focus in our ESG plan.

[Interpreted] [Operator Instructions] We have a first question comes from Guilherme Lima from Santander Bank.

[Interpreted] Well, I have a question in relation -- I would like to have an update about the system, there was no agreement with the regulator. So how do the perspectives work out from then on? [The interpreter cannot understand the full question. It is difficult to hear.]

[Interpreted] Okay. Guilherme in relation to self-dealing, we are ever since October last year. We have this perspective of non-advancement of the proposal that we carried out in relation to ANEEL. And ever since we've been following the legal execution. We don't have any news here. This follows the normal negotiations of the legal execution. It's important to emphasize this is already process that has been judged and we are in the execution process. The expectation is that we have some advanced of this process from April on, given the justice how the legal system works, but there's nothing new in relation to what we said ever since last October, which was a non agreement and the legal execution process that was started from that day.

[Interpreted] Now we have another question from Guilherme Bosso.

[Interpreted] Congratulations for the results. I have 2 questions. I would like to understand better the dividend issue. It's a payout of 90%. And if we do the average of the last 3 years, how much is the average? Do you see this as recurring and how this has to do with the leveraging over the next years?

[Interpreted] Let me thank you for your question. I think what we always say about dividends, and I think what Kedi said is always that search of the balance between dividend growth and leverage. So it's always the tripod that we look at when we take decisions of paying dividends. So I would say to you that it depends on the moment, it depends on the company. It depends on the Generation of cash to define the digital. We know that this is a very a topic which is very close to the heart of our shareholders. And the idea is always to balance this in the best way possible or is preserving a payout for higher limits. So you said an average of 80 this year, 90. So next year, we're going to discuss the investment of business and how we balance it. So I would say it's always this trial of consolidating growth with dividend payout but without a precise number. And this number is always decided with a perspective of the results of the company, and that's what we did this year. And that's how we received this -- we were able to give this higher level of payout.

[Interpreted] Another question was about metering what's the perspective of investment in the next years? And what is the efficiency in terms of costs that you expect in terms of for example, and how are the discussions with ANEEL?

[Interpreted] Sorry, I had a little problem here with my sound. Well, in relation to the smart meters, we have a project, which is already ongoing. This project has been -- we installed last year almost 100,000 smart meters, and we are installing almost 700,000 this year. The cost of the smart meters has dropped a lot, which brought benefits for the project. we have the expectations in relation to the gains, the operational gains, we are implementing all the parallel network only after this implementation, we'll be able to check, verify the operational gains with the cut reductions reading, delivery of bills and losses. All of this is going to be very well calibrated. The expectation is good in terms of reduction and efficiency gain, and we are finishing this installation project. So that we are able to work and measure and return with these benefits. This is probably one of the most -- so we have also the perspective of cost. So when we're able to monitor online. So for recognition, I think these conversations the -- but I think we have a way to advance I think the regulator has understood the importance of this investment. And having this annual recognition, we unlock these investments in speed between last year and this year, it's about 800,000 smart meters installed, an average of 400,000 per year. We're going to take 25 years to install 100% of our smart meters, which is a long time. We want to accelerate these investments and bring all this investment, not only for our operation, but also for the client at the end and also the tariff change. I think this is a very important project for the sector. and it is probably the big in terms of innovation and modernization that we have today. It's a challenge for us as a company, not only CPFL, but whole sector is how we combine this to have a regulation that in fact, incentivizes this type of investment and how we can accelerate even more the investments that are being carried out today. I think this is a challenge and the conversation is on the table, and we show ourselves as being very open to having this discussion.

[Interpreted] Let's move on to the next question. It comes from [ Ricardo Belo ] from [ Safran ].

[Interpreted] I have two questions. First of all, I'd like to know how you see the competitive scenario about transmission and the offerings. And the second question, it has to do with this organic growth, how -- you think -- what are you thinking of eventual opportunities and M&A? How is your rate for new businesses this year?

[Interpreted] This is take Vitor Fagali to answer your questions, I think the first point is we're seeing about this transmission auction and the same, it will be as competitive as the last one. we have had a split of the auction block. So we're waiting and we're waiting for the precise date for the second block. This first block has been scheduled for March. So we don't think that we'll have anything very different from the past. And looking here within our capital discipline some lots here that make some sense to the company. Migrating here for your second question, the company, which is all with monitoring all the opportunities for growth, a lot very much aligned with what Gustavo mentioned is the policy of dividend. So if there's an M&A that makes sense for the company and where we are able to have the return that we expect, for sure, CPFL will do its homework. And if it makes sense, we will advance. The market today is a bit more restrictive. I think we have the interest rates, we have some uncertainties as well. And this decrease is -- I think the curtailment itself is a topic that decreased the appetite renewal energy, but our expectation of the solutions that we have today on the table. We hope that the market will open, but more -- with more demand for investments.

[Interpreted] Well, we don't have any more questions, so we're going to end our session of questions and answers. If there's any question or any doubt, the team of relation investors is here to clarify. Now I'm going to give the floor to Gustavo Estrella the final considerations and further closing remarks.

[Interpreted] Thank you very much for the participation. I think our call one more year with a very robust result here in the company, very stable and talking about this balance of growth with dividends. I think here, we have good news the announced dividend, the CapEx, record CapEx, the auction of the Lot 3 that we're going to start executing the investment now in 2026. So I believe this continues being our strategy, looking for positive opportunities of growth with a solid base of results, also always wanting efficiency and cost reduction. This is our history in the last years. And for sure, it won't be different when we look at the future. What most affects us and is most relevant to our business. I think we're in the -- is the renewal of the concession of the distributors. We are in this process of signing with the Ministry of Mines and Energy. All this process approved by ANEEL and by the TCU. So this is more approval. And this is an important step when we look at the distribution. And we can count these impacts. I think this brings good stability for the Generation sector. And it does not address 100% of the challenges that we continue having in the Generation sector with the intermittency of sources et cetera, and the growth of the matrix, but I think it's an important step for us to look forward not only the commitment, which is going to take care of the past but also the regulation of the solutions of curtailment from now on. These are important topics, important advances, which follow with attention and our contribution to go after the best solution of electric sector. Thank you very much to all of you, and have a wonderful... [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]