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

Good morning, everyone. Thank you for being here for one more presentation of results of CPFL Energy. To date the second quarter of 2026. I'm Tiago Parreira, Director of Corporate Finance of the CPFL Group, and I will be the master of ceremonies today, together with Gustavo Estrella, our CEO and the other executives of the company. Two important points. [Operator Instructions] We are recording this event. I'm now going to give the floor to Gustavo.

Thank you, Tiago. Good morning to everyone. I thank you all for being here in the call on the second quarter. I'm going to follow here to Slide 3 as highlights here. Let's start with the results. The EBITDA of BRL 3.556 billion, a growth of 17.4% in relation to 2005 (sic) [ 2025 ] and BRL 1.435 billion, a growth of 1.2% (sic) [ 21.3% ], BRL 7.4 billion EBITDA and BRL 3.3 billion profit. The CapEx, we continue with expressive volumes of investments, BRL 1.5 billion. We hope to close with BRL 6.4 billion. Our net debt closed in BRL 32.5 billion with a leverage of 2.36x our financial covenants. Now here for some highlights. I think the first highlight is the energy consumption, a growth of 4%. We're going to see this has been led by the growth of the low tension market, residential and especially commercial. We still have the additional effect of the growth of consumption of data centers in our area, which has grown 35% in relation to last year. We also have the readjustment, tariff readjustment with an increase of 8.8%, inflation and all additional investments. So a perspective of more positive results in transmission after this readjustment. The curtailment topic, CTFL has expressed interest in adhering to the MME's commitment agreement, which regulates the compensation mechanism for curtailment. The perspective, I would say, is positive of a process with no more surprises besides what we already have on the table with the criteria defined by the ministry so that we can -- when we know the final numbers, we can do this definitely. Another important of the Global Pact (sic) [ Global Compact ], we were elected to this Board. We're very active. This is one of the topics of the pact (sic) [ Compact ], and I think it is important once more for us to be on the Board. We also have the recognition of the World Finance Corporate Governance Awards. It's the third time that CPFL is recognized as the best corporate governance in Brazil. So now we're going to the next slide. On Slide 4, we have a bit more details about our consumption. As I said, 4% growth in relation to 2024 (sic) [ 2025 ]. Residential has a positive effect of the temperature, but what we call macro and others, increase of consumption per capita. So we still have a positive trend in the growth of the consumption of the residential market. The highlight here is the commercial with 10.7%. So as I said, a big driver here besides the temperature, which also affects but the consumption of the data centers, we can see on the top right, a growth of 35% in data centers with a positive perspective of this continuous growth in our concession area, considering the projects that are still being implemented. So the expectation of continue presenting good results with the consumption of data center in our area. Manufacturing has a flat growth, 0.9%. We have seen the difficulty in the uptake of manufacturing in our area. So the consumption of energy is flat and the demand here, 4.4% in relation to 2025. In the next slide, we're going to talk about the semester. So we had growth here of 1.6%. The second quarter was more positive with the first with a growth of 1.6%. We still have the main growth coming from the low tension market. So the residential one with 1.8% growth and once more, the commercial segment due to the expansion of data centers with a growth of 6.7%. The industry here, we see with a little bit of a negative performance, but it is flat like the second (sic) [ first ] semester when we compare to 2025. Now we're going to talk about distribution delinquency. We continue with a scenario which is more challenging. Delinquency is 1.8% stable in comparison to the first quarter, but a growth in comparison to the second quarter of 2005 (sic) [ 2025 ] was 0.82%. So we still have the challenge -- macroeconomical scenario, which is challenging, indebtedness of the families, and this is a challenge to pay energy bills. And this reflects on the last line in the increase of our delinquency. The main tool we have for this is cutting. We see here -- we see lower power cuts than last year. We had some challenges in the second quarter, especially commercial activities that compete our teams so that they could do these power cuts. We hope to do this from the third and fourth quarter where there is a perspective of an improvement of these indicators. In this scenario that we have today, I think the delinquency topic will be a challenge for 2026, but also for 2027. So it's a huge challenge of maintaining the power cuts and also a huge pressure in the rate of delinquency. Now here in Distribution, talking about losses, the losses are very impacted by the macroeconomical scenario. But in this case, we were able to have stability and a short drop, 0.12 percentage points in relation to 2025, but also a challenging scenario when we talk about inspections and the controls of losses in our area. Another relevant topic is we continue with the inspections that we've done with our clients of Group A. And what we found our volumes, growing volumes, there's a perspective here, not only in CPFL, but I think in all of Brazil, the concession areas where there's this perspective of a volume which is quite relevant, affected not only the segment of distribution, but especially the segment of generation with the topic of curtailment. Now here in Generation, we can see the PLD with a drop of 4.7%. It's due to hydrology recovery at the end of this quarter where it closed with BRL 206 megawatt hour and the GCF (sic) [ GSF ] with 99%, in line with the values that were shown in the third quarter last year. Now what about wind performance? Here, we have 2 challenges. The first challenge is the performance of the winds itself with a lower volume than 2025. This reflects directly on our result but also the curtailment. We can see that here percentage-wise, we have the same volume of curtailment from 2025, more or less 25%. Our availability closed at 92.7% with the maintenance of some wind farms, and we hope to have the availability in the next quarter, especially in 2027. Now let's talk about results. I'm going to give the floor to Tiago for him to explain about the results on this quarter.

Thank you, Gustavo. Well, we're going to start to read the results of the second quarter of 2026. We had here an EBITDA of BRL 3.556 billion in the second quarter of the year. It is a growth of 17% in relation to the same period of the previous year, especially because of the distribution. Here, we also have the distribution as the main growth vector contributing with BRL 2.31 million (sic) [ BRL 2.301 billion ], a growth of 11.4%. Then we have Generation with an EBITDA of BRL 767 million, contributing with BRL 30 million during the period. Transmission added BRL 229 million with BRL 400 million in the [ RFSS ] and Services & Others, we reached BRL 88 million, representing a growth of 60.6% of BRL 33 million in the period. Now let's talk about Distribution. The EBITDA in distribution is BRL 235 million, a growth of 11.4% during this period. The result of the distribution, it grew BRL 235 million, and the impulse was especially the growth of the market, the tariff readjustment. These gains were compensated partially by the PMSO and also impacts in delinquency that Gustavo has already mentioned. I think the main highlight that we have here is tariff, which contributed positively in BRL 290 million. We had a growth of consumption, an improvement of mix of clients, capture of the tariff adjustments, which were carried out in the cycle. We also had a positive contribution of financial assets of the concession. We're having a problem with the sound. I think they are correcting it. We had an impact, especially hardware and software related to digitization of BRL 74 million in the period, but we expect to have a growth of PMSO in line or lower than inflation. And lastly, we had an impact in the PDD of BRL 26 million, which is the result of this difficulty that we have found to fight delinquency. This is not comfortable, and we continue reinforcing receivables to bring this indicator lower. But we know that this is going to be difficult work in '26 and '27. Now let's go to the segment of Generation. Here, we have the segment that contributed with BRL 767 million, a variation of BRL 30 million compared to the same quarter in 2025. Among the positive highlights, we have the readjustments of the contracts in BRL 22 million. We also received BRL 34 million with insurance due to the incidents in Rio Grande do Sul in 2024. This base of comparison that we have is benefited by the absence of the nonrecurrent effect in relation to the sale of EPASA. And last, we have a negative effect in relation to wind performance and the curtailment of BRL 135 million. Now let's talk about the Transmission segment. We had an EBITDA and IFRS of BRL 400 million, influenced by the comparative base in the second quarter, we had BRL 150 million of RSBE (sic) [ RBSE ] adjustment. I think what's important on the regulatory side, we have an EBITDA of BRL 230 million with a variation of BRL 19 million fruit of the update of inflation, recognition of the tariffs, investments in transmission and also BRL 12 million in PMSO. Lastly, here, we have in Services & Others, an increase of EBITDA of BRL 33 million. This is due to the execution of works in transmission and services, also the positive contribution that we have in Alesta. Looking here at the profit, BRL 1.4 billion in the second quarter of 2025. The special -- it grew because of the growth of EBITDA. We also have an increase in financial expenses of BRL 227 million. The main impact is the increase of the debt in BRL 5 million (sic) [ BRL 5 billion ]. So we can carry out the investment in CapEx. And besides this, we have the noncash effect of BRL 177 million mark-to-market noncash and BRL 60 million adjustments to the regulatory assets and liabilities. And lastly, we had an effective reduction of tax with a positive impact of about BRL 80 million. And this made us have a lower value in the quarter and in the semester. Now let's move to the results in division of the 6 months. So the drivers are very much aligned with what happened in the quarter. We have Distribution with an EBITDA of BRL 4.8 million (sic) [ BRL 4.8 billion ], a better performance in the market and better performance in tariffs, generation with an EBITDA positive compared to the positive growth compared to the semester in 2025, but still having the curtailment effects, the main impact here of relevance is in the results and Transmission also, we have a growth here of BRL 52 million in the semester and with an EBITDA of BRL 734 million. And with this better performance in the Transmission, we have in Service an EBITDA of BRL 161 million, an increase of BRL 43 million if we compare to the previous semester. Now let's go here, for the net income, it's very much aligned to the trend, the same trend that we have for the quarter. We have a financial -- negative financial results of BRL 180 million compared to the first semester of 2025, basically due to an effect of a higher debt in the period. We also have noncash mark-to-market. And on the other hand, we also have the positive effects of the adjustments to the regulatory assets and liabilities. We also have an effect of BRL 83 million of adjustments to tax credits. And by the same token as we had deductibility, mainly that's rid of tax credit pass-through to consumers. This effect reaches the amount of BRL 251 million. When we talk about leverage, we have a covenant which reached 2.36x due to this increase of BRL 5 million (sic) [ BRL 5 billion ] when we compare to the second quarter of 2025. The highlight here in July, we had a series of recent fundings with a control shareholder of almost BRL 2 million (sic) [ BRL 2 billion ]. The average cost of all these debts that July has 2.76 years and an average cost of CDI 0.29% per year after the swap options. And on the debt side, we continue with a debt of 70% indexed to the CDI. This debt has decreased the nominal cost quarter-by-quarter with the reductions of the SELIC by the Central Bank. And besides this due to higher inflation, we have a lower interest rate and a lower cost of the debt in real terms. Today, our cash covers 0.71x, the short-term amortization since this is a vision of 30th of June, the loans are not counted here. July, BRL 2 billion. So this coverage ends up by being even higher and an average of debt of 4.57 years. Lastly, giving you a vision of CapEx. We maintained the execution rhythm of the investments of the company. here focus, especially in Distribution and Transmission. We Distribution with 80% of the total of investments in a volume of BRL 1.2 million (sic) [ BRL 1.2 billion ], a growth of 1.7% compared to the same quarter of 2025. In Generation, an investment of BRL 73 million, focused in maintenance of the Generation. And Transmission, 27.1%, BRL 211 million improvement and expansion of the transmission network. And lastly, an investment of BRL 23 million in other business. We have a total in the year an investment of BRL 2.78 million (sic) [ BRL 2.78 billion ] and the majority in Distribution and Transmission. Now I'm going to give the floor again to Gustavo Estrella, and he's going to talk to us about other highlights during the semester.

Thank you, Tiago. Well, I think 2 final messages that we have here from our call. The first about the CPFL Institute. We have 2 projects which were relevant in our concession area and the first involves the Olodum school. It's the first Olodum School in the state of São Paulo. It's a community here in Campinas and also the school, the Black Swan school, it's Cisne Negro in Portuguese classical ballet percussion for 570 kids and the community. And it's very similar from what we've done, social actions, similar to this impacting a lot of people. In our concession area, we see that from '23 to '25, BRL 131 million that we did in the institute with more than 600,000 people being benefited and impacted yearly. So we continue with the strategy, which is very clear with several different fronts, the Café Filosófico, the CPFL Circuit, exchange programs, Brazil, China, young generation and also CPFL of hospitals. So it's a wide program. And I would say, with a lot of ambition of really promoting a social impact in our concession area. And lastly, I want to talk a little bit about the Ribeirão Preto event that took place at the end of last year. This was a huge challenge, I would say, something we've never done before in that area with 30 minutes of storms. We had winds over 160 kilometers per hour, a huge challenge in our concession area. We had over 330,000 clients disconnected. So a huge capacity mobilization of CPFL. This event took place Friday at 5:00 in the morning and almost all the clients were connected again during the weekend. So over 300 teams working 24 hours a week to be able to reestablish the energy the quickest possible, but it reflects the challenge that we have today when we talk about resilience and climate change. So events like these are recurrent. We went through an event similar to this one in the South recently. The expectation of the El Niño is very strong in the second semester. So the company today prepares itself to confront events such as this one, but the topic of the resilience is more relevant so that we can respond like we did in Ribeirão Preto to reestablish the network the fastest possible.

Thank you, Gustavo. Now we're going to open for questions. The first question is from Andre Sampaio.

I would like to ask a quick question. I would like to listen about the expectation of regulatory issues that have been discussed with ANEEL. Could you please talk about the timing, the main discussions that you believe are important?

I'm Jairo de Barros. I'm in the Distribution area. Well, we have some discussions with ANEEL, especially the X Factor. This is open consultation that we're following here. also a subsidy of operational costs. And now we have to wait for the opening of public hearings associated to the decree, which was published yesterday about the free market. And then we are here carrying out our analysis, our evaluations to define the best contribution strategy, which can involve -- if it's going to be a sample by the group of companies or if it's going to be a distributor in Brazil. So we want to close and conclude this discussion in the second semester. So this will be applied to the tariff in the year of 2027. I believe these are the highlights.

Andre, adding to what Jairo just said, one aspect of generation, we have some important topics being discussed in ANEEL, which is the conclusion of the public hearing, which talks about priority of cuts and also the expectation of the opening of the discussion about the revision of [ 1030 ], which is the resolution that regulates the curtailment in ANEEL. So these are the main points that we have, and it's what we hope that we'll have a solution soon.

Could you follow up here. Another topic is the discussion of the renewal of the generators. How is this discussion advanced in the ministry? Have you, in fact, seen in advance of this discussion?