ISA Energía Brasil S.A. (ISAE4) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, everyone, and thank you for waiting. Welcome to our Earnings Call of Q3 of 2025 of ISA Energía Brasil. I highlight that those that need simultaneous translation, we have this tool available on the platform. To access all you need to do is to click on the button interpretation through the Globe Icon in the bottom of the screen and choose your preferred language. Portuguese or English. For those that are listening to the earnings call in English, you can move the audio in Portuguese, clicking on mute original audio. We inform that this earnings call is being recorded and is going to be available on the [ IR ] website of the company, where we -- you will find available the complete material. You can download the presentation also on the chat icon, including in English. During the presentation of the company, all the participants will have their mic unabled. And next, we're going to start the Q&A session. And after the presentation, we will have a Q&A session. And the questions must be sent on the chat. Please identify yourself before sending your question that is going to be read by us out loud, okay? The declarations contained in this presentation representing the projections of ISA Energía Brasil. Our forecast and -- were based on the expectations of the administration with regard to the future of the company. These expectations are highly dependent on market issues, on the economic development of the country, of the sector and of international markets and are subject to changes. Final considerations are not a guarantee of performance. They involve risks, uncertainties and [ premises ] because they refer to future events and circumstances that may or may not occur. Investments need to understand that market conditions and other operational factors may impact the future of ISA Energía Brasil in [indiscernible] to results that differ materially from the forecast that was made. Today, we count on the presence of the executives of the company, Rui Chammas, Director President of ISA Energía Brasil, together with Silvia Diniz Wada, Investor Relations Director. Now I'm going to give the floor to Rui Chammas.

Good morning, and thank you for participating in the ISA Energía Brasil Third Quarter 2025 Results Conference. I'm Rui Chammas, I'm the CEO of the company, and I'm joined today by our Executive Directors to present the results that we published yesterday and provide an update on the main topics of ISA Energía Brasil. Please let's move on to Slide 3. The third quarter of 2025 was marked by significant alignment with sustainable value generation strategy. I begin the presentation by talking about the readjustment of the annual permitted revenue or RAP for the 2025, 2026 cycle. In July, ANEEL Board approved the annual readjustment, which resulted in a 1.3% growth in our potential RAP, highlighting advances of BRL 153 million in RAP of the Paulista Concession and BRL 137 million for the tender contracts, which were sufficient to offset the reduction in the financial component of the RBSE. In August, we obtained the installation license of Barra II, Correntina, Arinos, the transmission line and Correntina substation of Serra Dourada. And with that, we have already started the works of this part which represents 60% of the project, which has a total RAP of BRL 322 million. Serra Dourada is a project of 1 of the auction held in June 2023 and consists of the implementation of approximately 1,100 kilometers of transmission line and 3 new substations, in addition to the expansion of 3 other already in operation with the purpose of being the priority corridor of the flow renewable energy generated in Western Bahia. I also highlight that the increase of our investments, which continue accelerated totaling this quarter in BRL 1.2 billion with growth investments directed in reinforcements and improvements as well as greenfield projects that were won in transmission auctions. Our net revenue and EBITDA decreased 9% and 7%, respectively, due to the stronger comparative base of the third quarter of 2024. When the effect of the RTP of the Paulista Concession were accounted for. Net income for the quarter grew 27%, mainly due to a lower depreciation of the declaration of interest on equity, which impacts the company income tax. Following our shareholder remuneration pillar, in the end of September, we announced a distribution of BRL 445 million in the form of interest on equity, corresponding to 75% of the regulatory net income of the first quarter of the year. This amount resulted in BRL 0.67 per share of both types of shares that the company has. Now let's see the next slide to go deep into the next topic. As I mentioned, the first slide -- on the first slide, ANEEL published the Homologation 3,481, which established our RAP the tariff cycle that goes from July 2025 to June 2026. The graph on the left shows the factors that boosted our potential RAP to BRL 6.4 billion, growing 1.3% in exceeding the reduction in the financial component of the RBSE carried out after the decision by ANEEL board. The main positive effect we're updating of contracts for inflation during the period and the start of operations of new reinforcement and improvement projects also during the period. As a result, today, 56% of our rep comes from Sao Paulo concession, 28 from tender concessions that have already started operating and 16 from products that are under construction and will start operating in the coming years. Here, we bring a little bit more information about the coming year. That increases the growth of the company. As you know, our portfolio includes 5 projects under construction that when energized will enable to receive more than BRL 1 billion in revenue. I emphasized that their execution is proceeding as planning -- as planned and we should energized in the whole or part, the Riacho Grande, Jacarandá and Piraquê projects, which are in a more advanced stage of construction. Investments in this project grew 56%, approximately BRL 768 million in Q3 '25 and was driven by the progress of the construction of Piraquê, Serra Dourada project which received approximately 66% and 16% of the total amount, respectively. We follow the growing investment trend observed in the recent years, estimated in BRL 438 million in reinforcement and improvement, 15% more than the same period of the previous year and a record amount invested in a single project. In the same period, new projects totaling approximately BRL 38 million in investments were authorized. They added up to the investment portfolio of BRL 5.7 billion, considering values from September 2025. I also remind you that these projects are entitled to receive RAP, the revenue from assets allowed and they increase the security and reliability of our network, minimizing risks of equipment failures, reducing maintenance costs and updating the asset base, which is fundamental to guarantee the quality service for the society. In work -- we have renewed contracts as is the case of Paulista concession and that revenue from a large-scale project is received from their respective energization and it's going to be based on the tariff revision next. The next RTP for Polisa concession will take place in 2028, and it will reassess projects energized between February 2023 and 2027. Now I give the floor to our CFO, Silvia Wada, who will explain the financial results of the quarter in detail. Silvia, please.

Well. Thank you Rui. The company net revenue totaled [ BRL 1.072 million ] in Q3 2025, a 9% decrease mainly due to comparison base which reflected the effect of the RTP of the Paulista concession, which generated BRL 86 million in adjustment installment. It's worth highlighting that the increase in operating revenue due to readjustment by IPCA of 2025 and 2026 tariff cycle was 5.32%. The large-scale reinforcement projects energized in the last 12 months and the last energization of the Minuano project in Q4 '24 and Água Vermelha in Q4 '25 was more than enough to offset the reduction of our PSC in the quarter after the decision of ANEEL Board which define the values of the remaining flow of the financial component. As a result of the company's consolidated EBITDA, we had a reduction of 2.5% in the quarter, mainly to the postponing of the collective agreement for the -- Q4 and the reduction of BRL 9 million in revenues with a pension plan. With that, our efficiency indicator measured by PMSO and RSBT evolved 31% in the quarter. In addition to PMSO, the reduction of the net revenue was also compensated by the assets of substation [indiscernible] that belong to the company and went to auction in 2022, generating an additional revenue of BRL 36 million. With that, the consolidated EBITDA of the company was -- with a margin of 82.9%, sorry. So in comparison with Q2 of 2024, the net revenue of the company was benefited by 3 effects: The end of the depreciation of NFSE that was stopped between 2013 and 2017, representing BRL 50 million per quarter by the effect of our RTP of Paulista concession in Q2 of '24 when homologating the energized between 2022 and 2023, generated BRL 87 million in retroactive depreciation of these projects. And by the smaller aliquot of income tax and the reinvestment of JCP [indiscernible] we announced on September 26. These factors compensated offset the main company indebtedness. And although there was the deacceleration of inflation. With that, net profit was BRL 550 million with a growth of 27% compared to Q3 last -- of last year. We closed Q3 of 2025 with a gross EBIT of BRL 40.08 billion (sic) [ BRL 14.1 billion ] and a net debt of BRL 12.9 billion. The increase is due to funds raised throughout 2025, with debentures and issuances and the fourth disbursement of BNDES, partially offset by the settlement of the 70 debenture issuance in April 2025 in the amount of BRL 928.4 million. In September -- as of September 30, 58% of the debt was indexed by IPCA and 37% by CDI, resulting on average of real cost of 7.6%. It's worth mentioning that the amortization profile had 75% of maturities. The net debt and EBITDA ratio ended the period with 3.44x, currently, only the fund, the financing with BNDES totaling BRL 695 million with a ratio of 3x in the relationship of debt EBITDA. The covenant measures are annual based on financial information as of December 31, and we are in advanced stage of negotiations with the bank to obtain a waiver. The observed increase in leverage was already expected that is in line with our long-term planning, reflecting the pace of our investments associating with the close management of the cross physical progress of projects in order to guarantee the delivery of the planned results and seek to exceed them with good risk of opportunity. This is what we call responsible and profitable growth with financial discipline as -- to coexist with the practice of distributing at least 75% of regulatory net profit. As a subsequent event in October, we concluded 20th debenture issuance and raised BRL 2 billion in the 2 series terms of 12 and 15 years and costs of IPCA of 6.66%. This rate represented negative spreads of 0.88% and 0.90% in relation to the government bonds maturing in 2040. Next slide, please. As I just mentioned, we reaffirm our practice of distributing at least 75% of the regulatory net income in the form of dividends. In the end of September, we announced the distribution of interim interest on equity related to the results of the first half of 2025 of BRL 445 million, which corresponds to approximately $0.67 per share with payments to be made in 3 installments. Each payment has its own record dates and payment date. So it's important to pay attention to dividend calendar to plan accordingly. I would like to highlight that today is the [indiscernible] data for the first payment. So this means that if you finish today with shares of ISA ía Brasil, we'll have the right to receive beer dividends on November 28. With that, I conclude my presentation and give the floor to Rui.

Thank you, Silvia. Let's go to next slide. Although the greenhouse gas emissions of a company like ours is very small. And as a manager of the company, we try to diminish the emissions in this sector. We have established a factor a goal to be net zero, which aims for 90% reduction in our emissions by 2050. To achieve this, we have homework to complete and thus optimize our Scope 1 and Scope 2 emissions. In addition, we have an obligation to influence our supply chain so that they will have the best possible practices and together, will bring an exceptional result for society. As the rule defined for net zero companies, the remaining 10% must be offset by the acquisition of high-quality carbon credits. Audit and certified by internationally recognized standards with traceability guaranteed by public records and continuous monitoring systems. Our flagship sustainability program, Jaguar Connection is a powerful tool that already helps generate carbon credits as a way to protect the Jaguar's natural habitat. We are committed to the sustainability agenda, which is fundamental for our success as a company, as a society and for the environment. I am also very pleased to present good results with significant progress in the indicators of the main sources of CO2 emissions. We presented both quarterly and cumulative reductions in all indicators with particular emphasis on reductions of more than 60% in SF6 gas losses, again, that has a major impact on the generation of greenhouse gases. Finally, to conclude the presentation, please move to the next slide. We summarized in Slide 13, the characteristics and capabilities of ISA Energía Brasil, which was corroborated by topics covered during the presentation and which aim to maximize the generation of sustainable value for our shareholders and other stakeholders. This is done with a resilient business and forecast revenues that generate a very relevant growth that is generated with the electrification of the economy and society and generate demand for new grids. Competitive advantages are proven by our track record and by the way, that the company operates their assets. Within the long range, which is the social impact in environmental positive impact are conducted with high technical capacity. All that based with a very strict financial discipline because everything in the company is done respecting 3 pillars: First, the growth is based on profitable projects. The company search and preserves and work to maximize each one of its investments; second, of very disciplined follow-up of the development of the company. The company is currently in the AAA in the market -- in the Brazilian market with a very competitive approach, and this needs to be preserved. This discipline cannot be supported. And finally, the issuance of debentures mentioned by Silvia today that has materialized in -- with the payment of interest on our own capital and that achieved 75% of the regulatory deliveries together with our shareholders. So with all that presented during the presentation, I will want to comment a question that will probably show up, which is the decision of the company to be top and not participating in the auction that will happen tomorrow at B3 for the new transmission lines. This, of course, does not impact our growth focus or decision portfolio. It's just that the company is going to focus on the opportunities that will appear in the future, maybe in auctions of capacity reserves and so forth. So thank you very much for following our earnings calls. And now we're going to open for a Q&A session.

[Operator Instructions] Our first question is from [indiscernible] physical investor.

My name is Angelo, I'm a physical investor. Congratulations on the results. My company [indiscernible] makes sense for the company to participate in the auction that is going to take place tomorrow.

Well, Angelo, thank you for your question. As I have just mentioned in the end of my presentation, we have decided not to participate in the Transmission Auction that is going to take place tomorrow at B3, considering that what we already have in our portfolio, our financial discipline and our commitment to a long-term vision. So we are not going to participate tomorrow. That does not mean that we're not going to need to participate in future auctions that may have in terms of capacity reserves.

Our next question is from Daniel Travitzky, sell-side analyst from Safra.

I have 2 questions. The first is, I would like the company to talk about the auction of the batteries described in [ M3304 ]. And the second, in results, the company recognized recurring revenues not included in the same substation. Can you comment on that?

Well, first of all, I would like to say that ISA Energia agrees with the approach of BP that positions the electric matrix, and we are following and contributing actively in these associations. We are reviewing our positioning and we are also waiting the discussion to analyze opportunities that may appear. I think it's a little early to have a conclusion about that. With regard to [indiscernible] substation from 2022 that was in the auction of 2022. The result is that in 2022, including 2022, we had an important investment in [indiscernible] substation and that was pending, how it's going to be rewarded for the company. So we took a little more than 2 years, and we concluded some adjustments, and it was incorporated in our revenues. The remuneration of these investments and added an adjustment -- readjustment share to complete the revenues of 2022, 2023 and 2024. So with that discussion, we conclude the definition of the revenue that is going to be maintained until 2042 until the end of the concession contract. Thank you.

Our next question is from Gabriel [indiscernible].

This tax efficiency together with the payment of JCP is going to be repeated in the end of the semester or it's [indiscernible]. The company is going to continue announcing profits in December.

Yes. Gabriel. Here is Silvia Wada. Well, the idea is to have more declaration events. We are working to have a higher frequency of events, but we don't have a periodicity reestablished. But with regard to this year, we will have a declaration of JCP related to the second semester. Because the one that we announced in September was related to the first semester.

Our next question is from [indiscernible] Vidal, sell-side analyst at [indiscernible].

So taking into consideration the higher level of profit reserves that will be observed in the company after the implementation of [ PL28725 ]. Does the company study to pay some special dividends, extraordinary dividends before the end of the year?

Well, we are following the discussions about possible changes in the tax legislation. And with regard to this possible dividend taxation. At first, we changed our plans because the company does not have a perspective to distribute profits through dividends because we have a basis of distributions based on the interest on our own capital that is enough to cover our practice of 75% of the regulatory net profit in the coming years. So it wouldn't be interesting to have distribution through dividends.

[Operator Instructions] Our next question is from [indiscernible].

Congratulations on the Q3 earnings results. So the company informs that they we'll have related information about [indiscernible] in November. After there are mediations individually within party. What are the expectations of the company for the meeting of November 4, will the definition be made on this day -- on this meeting -- in this meeting.

Well, I refer our universe where we had a deeper conversation about this topic and the materials available for your consultation. But talking a little bit about the individual sessions. The individual sessions are still taking place. And this -- this one of the November 4 is going to be on the 10th of November. It's going to be a joint meeting. And we expect to evolve these discussions, but I don't think it's going to be a conclusion for this topic yet.

Our next question is from [indiscernible] Periera.

Well, considering the relevant part of the investments and reinforcement improvements will only be recognized in [indiscernible] of 2028. How does the company expect to balance the cap and the regulatory income till then.

Thank you for your questions. Just for us to be on the same page. With regard to reinforcements and improvements around 40% goes into the income and the implementation of the process, the large-scale processes. The 60% about our small size, and we're going to have this recognition in the rate as of the LTP in 2028. So the part is going to come in along the cycle, although most part is going to start coming in 2028. In addition, we have the pipeline of projects that all together, the 5 projects that are under construction are of a RAP of BRL 1 billion, and as they start operating, we are always -- we are already going to start receiving the RAP, and it's going to be a relevant amount around -- around [ BRL 455 million ] in RAP that is going to be collected until the middle of 2026. So this part also helps rebalance and the leverage in this trajectory that we have until 2026. And all this, all this unpairing is something that we already know and it has already been planned when we conduct the auctions and when we do the financial planning for the company.

The next question is from [indiscernible].

What are the main investments in innovations and infrastructure as digitalization and new control technologies that is Energia Brazil is prioritizing in the next cycle of tariff readjustments to compensate the renewable sources like wind and photovoltaic in transmissions.

Thank you for your question. It's extremely updated. Well, the growth of wind and solar energies is something that has been appearing and you start having several opportunities to solve intermittent issues and the power issues in the basic grid. So the company historically has been working in innovation. We are the first company to make investments in digital substations like [indiscernible] and São Paulo, [indiscernible] which is the border of São Paulo and Paraná. And now in the coming days, we are going to open the first triple [indiscernible] system. So in the line between [indiscernible] and Porto Ferreira. So we're going to measure this as an alternative for the company to have a proposed role for the several thematic that you have just mentioned. The company is attentive, and we understand that energy production opens an opportunity and a responsibility for the company, and we will work to take advantage of that as much as possible.

[Operator Instructions] Our next question is from Kelvin [indiscernible].

I have observed that on the personal part that there was the passing of collaborator.

Well, I would like to, first of all, thank you for the careful reading of our release and all its content. The life of security that everybody that work at ISA Energia is a value for the company. By 2040, we say that life that gives energy to the transition. So life is part of our mission. So unfortunately, we had this terrible event, but we are providing all the support to the family by this subcontracted company to develop the line, and we have been working to make our environment as safe as possible in all the projects that are under our responsibility. So you can be sure that the security of each and everyone is a value taken as a premise for ISA Energia Brasil, and thank you for your question.

The Q&A session has finished. Now we're going to give the floor to Rui Chammas for him to make his final considerations.

Well, first, I would like to thank everybody for your interest in our earnings calls. We have several questions here pending. Part of them have already been answered and part of them will be responded by our team of Investor Relations as soon as possible. I apologize those that did not see their questions responded, but we understand that they're going to be answered more efficiently after the call. So I would like to thank you for your interest. I'd like to say that we are still committed in creating value within the long range. We are committed to providing the strategy that was presented to you. And I'm pretty sure that we will continue with our team of Investor Relations. bringing you as much information as possible with as agility as possible so that you can make your best decisions. Thank you once again for your interest. I wish you all a very good rest of the day. Thank you very much.

The earnings call of Q3 of 2025 of ISA Energía Brasil is closed. I remind you -- I would like to remind you that the Investor Relations department is available to respond to further questions. Thank you all participants.