ISA Energía Brasil S.A. (ISAE4) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, everybody, and thank you for waiting. Welcome to the teleconference of earning results of the Q4 2025 of ISA Energy. [Operator Instructions] We'd like to inform that this video conference is being recorded, and it's going to be available on the RI website of the company, okay? There, you will find the complete material of our earnings results. You can also download the presentation in the chat icon including in English, okay? [Operator Instructions] And please identify yourself, okay. The questions will be read by the operator aloud and the declarations in this presentation regarding the business of ISA Energia Brasil are forecasts and based on the expectations of the administration with regard to the future of the company. These expectations are highly dependent on market changes on the economic performance of the country, of the sector and of the international markets and are subject to change. Future considerations are not a guarantee of performance. They involve risks, uncertainties and premises because they refer to future events and on circumstances that may and may not happen. Investors need to understand that general economic conditions can affect the performance of ISA Energia Brasil and impact on the results. Today, we count on the presence of the executives of the company, Rui Chammas, Director President of ISA Energia Brasil together with Silvia Diniz Wada, Executive Director and Investor Relations of the company. Now I'm going to give the floor to Rui Chammas.

Good morning. Thank you for participating in the web conference of earnings of Q3 (sic) [ Q4 ] 2025 of ISA Energia Brasil. I'm Rui Chammas, President and Director of the company. And I'm here with our directors to present the results and bring updates on the main topics of ISA Energia Brasil. Next slide, please. In 2025, ISA Energia Brasil made several achievements and a consistent advancement in the strategy of the company with regard to investments to ensure the compatibility of the company and be sustainable for shareholders. Doing that, we drove the energy transition, connecting energy generated by renewable sources to consumers. In these slides, we're going to go deeper a little bit into that. I start reminding you the main decision that was made by ANEEL about the methodology of calculation of the payment of RBSE that was finished in the end of the year and that closed administrative discussions about that. This decision made the remaining value of BRL 3.8 billion that are three tariff cycles that will finish in the end of 2028. I also remember that the annual revenue RAP for 2026 were enough to compensate the decision of this decision and resulted in a growth of 1.3% in our potential RAP that now achieved BRL 6.4 billion. It's important to mention that 2025 was a record of investments in the company, more than BRL 5 billion with a lot of discipline and 40% in relation -- more in relation to 2024. So this is part of the consistent strategic plan of the company. Out of this total, BRL 1.7 billion were directed to reinforcements and improvements with BRL 3.4 billion directed to projects -- to greenfield projects and there were 3 projects that allowed revenues of BRL 205 million in RAP, all anticipated in relation to the regulatory deadline. In addition, the greenfield projects were renewed and will record with reinforcements and improvements with a highlight for the first project “FACTS of the M-SSSC, a technology, an innovative technology in the country that allows redirecting the flow of energy already existing to new lines. These investments were connected to the integrated national system. Okay. So in 2025, we invested 3 debentures in the amount of close to BRL 4 billion and the inferior costs to NTN-B. Also I would like to highlight the remuneration of shareholders, which were considering a payout of 74% in the net profit. And we announced BRL 1.2 billion to our shareholders, which is equal to BRL 1.85 per share divided in 7 payments in the next -- beginning in November of 2025. Next slide, please. On this slide, I bring more information about the execution of our growth projects, including our greenfield projects. In October, we had a project Riacho Grande that includes the implementation of 44.6 implementation of lines to supply the loads of the municipality of Sao Paulo and the ABC region, in addition to making available the expansion of new loads and the industrial growth in the region. This project is BRL 294 million and was initiated in for the deadline established by ANEEL. In November, we had the Piraque project and the beginning of this project strengthened the integrated national system with renewable energy coming from photovoltaic energy, solar energy, that are connected to the region of Sao Paulo. AAR one has a wrap of 30% of the total amount of the debenture totaling BRL 343 million and it was concluded 22 months in advance in relation to the deadline established by ANEEL. The project Agua Vermelha energized in June received BRL 205 million in RAP during the second semester of 2025. Next slide, please. The investments of greenfield projects in addition to increasing the longevity of the company grew 29%, achieving BRL 1,132 million in Q4 '25, driving the advancement of the construction projects, Piraque Serra Dourada, which received BRL 475 million each. In addition to that, Piraque, our portfolio still counts on 3 projects in execution, and they will enable more than BRL 507 million in revenues. So I would like to highlight that execution is going as planned with an investment to be made in between 2026 and 2028 that will be energized and will be around BRL 6 billion. In the projects of reinforcements and improvements, we invested BRL 567 million in Q3 '25, 38% more than the same period in the previous year. With that, we invested BRL 1.690 billion. So it's a volume that surpasses the total invested between 2018 and 2022. In 2025, we also were authorized to execute new projects that add up to BRL 2.3 billion added to the values already approved. This investment brings our investment portfolio authorized in this category to BRL 6.3 billion in amount of December of 2025. Also, it increases the security and the confidentiality of the network and minimize the risks and failures in the equipment. It diminished maintenance costs and they update the asset bases, which is fundamental to ensure good quality services for the society. It's important to reinforce that the investments and reinforcements and improvements are concentrated in renewed contracts which is the case of Concessao Paulista. So projects that will receive based on the perspective of their investments based on the tariff revision. The next RTP for Concessao Paulista will happen in 2028. And in it, we will reevaluate project -- energized project between 2023 and June 2027. So which is the cutting date for this RTP. Next slide, please. Finally, it's important to mention that the consistent investment over the past years that meant an investment of BRL 5.1 billion in 2025 and a record investment annually for our company, which is a reflect of a direct commitment with a sustainable expansion and asset modernization. In between [ 2026 ] and 2023 we distributed greenfield projects and reinforcement and improvement. These plans reaffirms our commitment with the modernization of the infrastructure and the creation of sustainable value along in the long range. In the coming years, the company will continue with this project, working with new cash flows to facilitate the capture of new opportunities that are aligned with our growth and financial discipline. Now I'm going to give the floor to our CFO, Silvia Wada, that will explain the result -- financial results for Q3 (sic) [ Q4 ].

Well, thank you, Rui. I'm going to present the financial results on Slide 8, where we can observe that considering the RBC, the net revenue of the company grew 3% in Q4 '25 compared to the previous year, totaling BRL 655 million. This advancement is due to the readjustment of RAP and the cycle of IPCA and the green projects energized in this period with a reduction of BRL 52 million observed in the financial component of RBSE. The net revenue of the company, which totaled BRL 1.120 billion in Q3 -- Q4 '25, diminished 3% in relation to Q4 '24. We continue the trajectory of discipline and cost control closing the year with a total PMSO of BRL 771 million. And with an efficiency indicator reaching 32%, the best score that has ever been achieved. In Q4 2025, PMSO diminished 5%, mainly to the last standard of pension plans reevaluated in the annual assets of December 2024 and the advancement of the investments. EBITDA in Q3 -- Q4 2025 grew 8% to BRL 854 million. But in addition to the reduction of PMSO, we also had registered a contingency of BRL 70 million related to judicial suits of the Empresa Paulista de Transmissao or EPT. The net profit of Q3 was BRL 483 million. However, the valuation of Q3 is distorted due to the difference between interest and capital that were evaluated between 2024 and 2025. That were declared in 6 months in 2025 and only once in 2024. In addition to the smaller revenue impacted mainly by the RBC -- Financial RBC and the reduction of the costs already explained. The net profit of the company was impacted mainly by 3 other factors: the depreciation that diminished BRL 83 million, mainly due to the depreciation of RBC between 2013 and 2017 and was conducted for 8 years until June of 2025, the financial result was worse than BRL 389 million, which is mainly due to the biggest gross debt and also the problems of social contribution that was implemented in the law of 2024. That became enforced in 2025 and totaled BRL 65 million to the company. This is related to Pillar 2 of OECD, which established a taxation -- a minimum taxation of 15% on the profits of multinational groups. You can see more information about that on the financial statements that we published. With that, our net profit diminished 22% to BRL 1,626 million in 2025. In the last quarter of 2025, we concluded the 20a addition of debentures, and we had 2 series with time lines of 12 and 15 years. And the cost of the IPCA plus 6.62% (sic) [ 6.66% ] and IPCA of 6.64%. And they represented negative spreads of 88 to 90 bps in relation to the bond public bonds of NTP that were going to mature in 2040. In addition to funding the projects ongoing, our financial management tries to identify cost opportunities and bigger deadlines. In this sense, in December, we rescued -- we anticipated our 12 commission in the amount of BRL 726 million. This was one of the biggest debts of the company with the cost of CDI plus 155% per year. We closed the year with a gross debt of BRL 16 billion, of which 2/3 were indexed to IPCA and 29% to CDI, resulting in an average cost of 7.56%. The net profit of the company grew 38% and closed '25 with a total of BRL 4 billion. The leverage index of the company measured by the EBITDA closed the period in 3.63. This was already forecast according to our long-term planning reflecting the rhythm of the investments associated to a very close management of the cost and advancement of the projects to have a very good management of risk and opportunity. This is what we call responsible and profitable growth with the financial discipline to coexist in practice and distribute at least 75% of the regulatory profit. It's important to mention that the profile of amortization is long with 82% of mature in 2030 and the average mature time of 8.2 years. Currently, only the BNDES, they add up BRL 682 million based on the financial information of December 31. In November of 2022, BNDES formalized the extension of the declaration of anticipated contracts of the company with regard to the indicators of the exercise of 2025. With the event and the initiatives of liability management, we concluded the first submission of debentures totaling BRL 3.9 billion in 3 series of 4, 5 and 9 years and cost of CDI of 0.55%, 0.60% and 0.84%, respectively. The resources would integrally used for the optional acquisition of emissions that are longer and more expensive. So we made this debt over 3 years, and we diminished the average spread in 79 bps. In 2025, we made 2 announcements of JCP that added up to BRL 940 million with payments between November 25 and March 26. In addition, yesterday, we announced the complementary dividends referring to the results of 2025, reaffirming our practice to distribute at least 75% of the net profit -- regulatory net profit in benefits. The dividend announced yesterday totaled BRL 279 million and corresponds to BRL 0.42 per share. These dividends have 2x -- 3 different x dates. So it's important to stay tuned to the schedule. I also highlight that today is the date of the second payment and tomorrow is the so-called datacom for the last payment. So that means that if you finish the day of tomorrow, with shares of ISA Energia Brasil, we will receive its profits in March 31. With that, I close my presentation. I give the floor to Rui.

Here, we wrap up our earnings results presentation. And before we start the Q&A session, I would like to make a summary of what we have been conducting as a company. Over the years and especially over the past year ISA Energia Brasil makes -- manages concessions in Brazil. And the Paulista Concession had a historical amount to receive and has its main payment due in June 2028, knowing that the company designed a strategy that has been implemented with a lot of discipline, rigor and efficiency. So we are doing that both with Concessao Paulista and other concessions. And also with the efficient delivery of projects, to improve our service capacity. And at the same time, they bring additional value to the basis of the Paulista Concession added up with financial discipline and the practice of sharing with shareholders, 75% of the regulatory profit in a consistent way over the past years has been showing the performance of the company, and you have been appreciating the results. I believe that this strategy manifests itself very clearly with the adjustment in the definition of ANEEL of the amounts to be received and the maturity of the investments that bring value over the long range of this company. With the portfolio of concessions. It is a pleasure to have presented this results to you. I hope you have eliminated mainly most of your potential rules. But now we will follow with a Q&A session for you to ask about anything you want to learn about the performance of the company. Thank you.

[Operator Instructions] Starting your first question is from [indiscernible] Costa, investor.

First, we want to congratulate the company for the results of Q4 in the year of 2025. And asks 2 questions. The first is the venture of Jacaranda that had 76% of the venture concluded. And the ANEEL deadline is until March 2026. So is this feasible and how is the advancement of the venture. And the second is the judicial process of [indiscernible] because the company showed that there were several meetings in 2025 and one in February 2026 and in addition to another that is forecast for 2026. So he's asking what are the expectations of ISA Energia for the advancement of an agreement in this case. And is there a final deadline for this process. So these were questions as [ Asis ] asked.

[indiscernible] Director of ISA Energia. I'm going to respond to the first question. The Jacaranda process is in the commissioning step and it should be ready in March as expected. And it's important here to highlight that this venture did not have an anticipated date to be in service. So according -- the way it was planned and using resources, we are using all the time that we have to energize the process, and it's going as expected.

Carlos Lopes, Legal Director of the company speaking. And with regard to these suits, we have been having several hearings and both parts are engaged in the mediation. So we put a request for -- to postpone the deadline in 180 days. And the Secretary of Sao Paulo has already accepted this additional time. So we will have this additional time to be treating this issue.

Continuing our next question comes from Bruno, major investor.

In 2025, due to the presentation exposed, we have the peak of the amount invested by the company. Can we consider that in 2025, we will have also the peak of leverage. So net debt for EBITDA. So if not, when is this forecast to happen? This was a question from Bruno.

Well, in fact, 2025, we estimate it was the peak in terms of total CapEx. We have the higher pipeline, we have BRL 6 billion and around BRL 3 billion in reinforcements and improvements distributed in the coming years, but with relation to the leverage peak it does not coincide with the CapEx peak because it has to do with the net EBITDA debt. So we believe that in 2024, we'll have a higher standard than 2025, close to around 4x that will be reduced as the projects start operating so out of the BRL 6 billion of CapEx, we still have in the RAP operation to start around BRL 800 million. So this is a prevailing component for this leverage.

Our next question comes from Joao Pimentel, Citi.

How do you see the auction of batteries? How are you going to participate? What are the improvements that you believe that will be implemented? Do you think it's an auction more favorable for transmission or for generation? This is Joao's question.

The battery auction that you're referring to. I think it's with regard to capacity reserve that is going to happen, is forecast to happen in the end of the first semester. There are some topics that are not described yet in the technical specification of this auction. So it's hard to talk about something definite about it. But it's going to be a fundamental thing for the integrated national system so that the capacities can play the role of power reserve and this will be an investment made by both generators and transmission. So we just need to wait the final documentation and the bidding so that we can get the answer.

Continuing the next question comes from Ricardo [indiscernible]

Could you talk a little bit more about the impact of the GloBE tax impact. What we saw in this quarter should be bad -- is there a recurring impact? And can you explore how this talks to the JCP.

Well, Ricardo this year was the first year of the 15,079 law to be enforced that was instituted so this is implements the tax changes to regulate the “OECD” pillar 2 rules in Brazil. So companies that have total revenue that are superior to BRL 754 million would be submitted to this taxation. And in the case of ISA Energia Brasil, we were in this group of [indiscernible] that addresses this system. So what are the main aspects of this calculation? First, we put a lot of detail in our material, both in our financial statements and the releases that you can consult but in general, the calculation of both social contribution and income taxes is done with the same day with the deductibility of interest on own capital, but you have an additional line in which you're going to do a side calculation to see how much would be this additional social contribution. And in addition to that, it has a separator that we put here in a special chart, it goes from the net profit accountable with income to achieve what would be a number before the GloBE income, and it's going to include an exclusion several exclusions before it constitutes the basis to apply this additional 15%. And why is this important for us? Because investments in infrastructure are considered exclusions. So for example, with the exercise of 2025, we had this global group. Initially, it was BRL 2,226 million. And we had a total exclusion of BRL 1,450 million. which reduced the profit the exceeding basis to BRL 777 million. And on this basis, we use -- we compare the taxes that were included that is like the income tax of the year calculated conventionally and the deferred was recalculated for the alloc quote of 15%, which is simply the calculation to make it neutral in terms of effective alloc quote. And in our case, the income retained on our capital paid and received between ISA Energia Brasil and the subsidiaries are also contemplated in the taxes included. So with that, we have the 2 elements to calculate the effective alloc quote that in our case, in 2025 was BRL 697 million, and the additional for 15%, BRL 839 million applies to exceeding profit of BRL 777 million, resulting in this additional of BRL 65 million. Will this be recurring for the coming years. Every year, we will need to make this calculation, but it does not mean that it's going to be the same amount because it's going to depend a lot on the calculation of what is taxable and the recurring profit and the amount of exclusives that we're going to have that tends to increase because it's linked to what's immovable and we are linked to this growth. So in general, I think this would be it.

[Operator Instructions] The next question comes from [indiscernible], investor. He has 2 questions.

With the net debt/EBITDA growing is still feasible to remain the level of payout and remuneration, and the projects have an expectation of internal rate that can deal with this indebtedness of the long range.

I'm going to talk about the internal rate of the process. I believe that it's fundamental that the strategy of ISA Energia Brasil can be -- we're going to try to reduce -- so the payment of profit with the regulatory profit. So these 3 elements will always be present. So we are in a long-range plan that allows payout to be paid dividends on our capital, and this is our design. I would like to ask Silvia to make a comment.

In relation to the projects, we have a very good tracking to search for the profitability that was searched in the moment of the auction. Also portfolio aging in our portfolio and our profit is above 2 digits. And according to what was planned, it is tied to this tripod that we mentioned the profitability, the leverage that is necessary to have this profitability, the financial system and distribution of profits according to our payout practice. So this all follows according to what was planned.

Continuing our next question comes from [indiscernible]

According to the solar storms, does ISA Energy forecast an impact on maintenance? Or is it protected for -- does it have a plan for critical structures, how is this approached?

I apologize, we're having problems in the connection. We're losing them. It's going on and off. I apologize I cannot hear him. Okay. Now it's better. We follow focus to maximize the availability of our assets to ensure compatibility with the structure planning. We just disclosed records in investments in reinforcement and improvement and also directed -- directing a part of that for our resilience and infrastructure. So we're not having -- we're not expecting a huge impact on our operations. And what we expect really is that it is public consultation by ANEEL and here in Energia Brasil have contributed frequently in this debate, and we understand. I apologize again because I'm losing him -- that's why it's impossible to translate. So now it's back. So continuing with the resilience of the transmission system.

[Operator Instructions] So the next question comes from Bruno [indiscernible]

He congratulates on the results. And in the financial actuation, within the short and long range. What is the appetite in new transmission actions? Bigger or smaller.

With regard to the appetite for auctions, we continue very careful in terms of appetite to having new commitments we since 2023, when we conquer the biggest loss that we have in the pipeline. And although we have already gone through this CapEx pipeline, we still have a very good volume and we are very much focused on the execution with the BRL 6 million of RAP to go in and it is a very robust pipeline. So always, when we identify opportunities, we look at the disbursement profile considering the slot profile, the time of licensing to see how this will fit because respecting the adequation of profitability and appropriate leverage and profit. When this equation fits the profile of new opportunities, we evaluate good returns. But it's always something very careful to be done considering this equation.

Well, the Q&A session is over, and now we're going to give the floor to Rui Chammas for him to make the final considerations of the company.

I would like to thank everybody for the interest to be here to -- in this call. I would like to thank you for the questions because they allow us to put more light in the work that is being conducted by the company. Our Investor Relations team is available to you any time when you need so that you can make your investment decisions in the safest way possible. And once again, I would like to once again thank you for being here to follow the evolving of our strategy. And I wish you all a great day and we're going to continue working to deliver everything that we want to deliver to you in 2026. Thank you.

The earnings conference of Q4 '25 of ISA Energia Brasil is finished. Reminding you that the Investor Relations is available to answer other questions that you might have. [Statements in English on this transcript were spoken by an interpreter present on the live call.]