Neoenergia S.A. (NEOE3) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Neoenergia's Fourth Quarter of 2025 Earnings Release Call. [Operator Instructions]. I should inform you that this call is being recorded and will be made available on the company's IR website re.neoenergia.com, where the complete earnings release material is available. It's also possible to download the presentation using the link via chat, including in English. [Operator Instructions]. Information contained in this presentation and statements that may be made during the call relating to Neoenergia's business prospects, projections, and operational and financial goals constitute beliefs and assumptions of the company's management as well as information currently available. Future considerations are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand the general economic conditions, market conditions and other operating factors may affect Neoenergia's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Presentation will be led by Mr. Eduardo Capelastegui, CEO of the company; and Leonardo Gadelha, CFO of the company. I will now give the floor to Mr. Eduardo Capelastegui.

Thank you very much, operator. Good morning, everyone. I would like to thank all of you for joining us for our fourth quarter and annual earnings release for 2025. I am Eduardo Capelastegui CEO of Neoenergia. Once again, we're very proud of what we'll be sharing today with you. Here with me are Solange Ribeiro, Regulatory and Sustainability VP; Leonardo Gadelha, CFO; Giancarlo Vassao, COO; Juliano Pensanato, Equity Control and Planning Officer; and Renato Rocha, IR Officer. I will make a brief presentation going through the highlights of the period, and after that, Leonardo will present the results in more detail. We will then move on to the Q&A session, and I will conclude with the closing remarks. I will begin by talking about injected energy, distributed generation. We had a very good performance in the concession areas with a 2.2% growth in the last quarter over the fourth quarter of 2024, and 2.6% in the annual comparison. And operating expenses are very much under control. In the fourth quarter, we reached 7% below the 4Q '24. I should point out the one-off nonrecurring contribution of the sale of the head office of Neoenergia Pernambuco positive impact of BRL 64 million in contribution. Without this effect, our expenses would have remained 1% below the fourth quarter of '24. Over the year, BRL 4.3 billion in expense has only 1% above 24%, which once again firms our discipline of operating expenses. Cash EBITDA ratio reached in the quarter BRL 3.2 billion with a 14% growth over the quarter, which is explained mainly. Well, firstly, by the growth in the distribution market. Secondly, by the excellent tariff review of Neoenergia Pernambuco. And also the tariff reviews in fourth distribution concessions, also explained by the control of operating expenses, as mentioned. And lastly, with the operations -- new operations of 1 billion in RAP in transmission lines over 2025. Over the year, cash EBITDA reached BRL 11.4 million, 8% above '24. I would also point out the excellent performance of this business. Net income amounted to BRL 1.5 billion in the past quarter, 73% higher than that of the 4Q '24, driven by the higher EBITDA. Over the year, we reached net income of BRL 5 billion, a historic record for Neoenergia, 38% above the net income in '24. We reached BRL 10.1 billion, also a record number of Neoenergia. Record achievement and our net remuneration reached BRL 44 million in the distributors and the transmission net base reached somewhere close to BRL 20 million, amounting to net assets in network of BRL 64 billion at the end of '25. We're very proud to say that we ended 2025 with the investment cycles and transmissions as announced in the previous quarters, of '25, which has produced an annual revenue higher than BRL 2 million annually. In terms of asset rotation, '25 was a very good year with excellent added value operations. I would point out the divestment being the Dardanelos and Baixo Igua�u power plant as well as the 50% sale of the transmission line of Itabapoana to our partner, GIC, and also a higher stake in the Corumb� power plant auction now holding 76% of the asset. Therefore, operations have allowed for Neoenergia to allocate resources to assets that have more appeal in terms of returns and to add more value to our shareholders. As mentioned before, we've achieved excellent results with the ABRADEE award in 2025. Neoenergia won 8 out of the 12 awards. Neoenergia Cosern was elected the best -- #1 distributor in Brazil, the best distributor in the Northeast and also receiving honorable mention. In Sao Paulo, Elektro was elected the best distributor in the South , the best distributor and management quality, the best distributor in terms of innovation and operational management. Lastly, Neoenergia Brazilia was #1 in the category of evolving performance, once again, confirming our improvement in the distributor that was acquired in 2025. These awards confirm our position in the operation concessions throughout the country through quality services provided to over 40 million Brazilian. And last but not least, I should also mentioned the robust, the trust in our regulatory framework, once again, confirming the success we had with the anticipation of the -- with the early renewal of concessions with Neoenergia Coelba, Neoenergia Pernambuco, Neoenergia Elektro, Neoenergia Cosern. Neoenergia Pernambuco has been approved, has received the approval already of the deal. And now we should also sign the reminder on Slide #4. I point out once again that in '25, we concluded our investment cycle in transmission in 2017 and ranked 17th. Today, we ranked as the fifth largest operation of transaction assets in Brazil in terms of volume and revenues and the journey that has culminated in delivering over 8,000 kilometers in transmission lines, 16 substations and BRL 25 million in gross assets, reaching a RAP of BRL 2 billion annually. And now I will turn it over to our CFO, Leonardo, who will share more details on the fourth quarter results and also of 2025. Over to you, Leo.

Thank you, Eduardo. Good morning, everyone. I would like to begin looking at the consolidated results of Neoenergia on Slide 6. I will focus on the fourth quarter since Eduardo has already focused on the annual results 25. So the gross margin evolution was 7% over the fourth quarter in '24, reaching BRL 6.66 billion explained mainly by readjustments, tariff reviews in late April of the distributors in the Northeast and Elektro last August and Brazilia last October. We have also maintained our cost discipline. This quarter with a 7% decline, closing at BRL 1.51 billion this quarter by the higher comparison base in the fourth quarter of '24. And as mentioned by Eduardo, the head office that was sold in Pernambuco. EBITDA had a 29% growth in the quarter. As a result, cash EBITDA, 14% growth, reaching BRL 3.248 billion. The result of better margin in distributors and cost performance. Network performance represented 92% of the consolidated EBITDA and generation and clients, 8%. Net income in the quarter amounted to 1.479 billion Therefore, a 73% growth over for 4Q '24. And now looking at CapEx on the next slide. In this quarter, we reached BRL 2.5 billion in total. Therefore, along the same lines of the previous quarters and according to plan, reaching BRL 10.1 billion. As usual, over the past years, CapEx was mainly focused on networks, representing 97%. The highlights of the quarter, BRL 1.7 billion in distribution, expansion and enhancements in the network. It's 120 million in transmission lines, progress in regards to conclusion of the projects that were under construction. And now to operational performance and network follow-up on Slide 9. We have injected energy variations in five distributors has announced had a 2.2% growth in the quarter over 4Q '24. Growth was similar to the previous quarter, considering the lower temperatures, total number of consumers reaching 17 million up by 362,000 customers over the past 12 months. And now on losses, we closed the last quarter of the year with plans here with three out of the five distributors within the regulatory limit. Brazilia and Pernambuco are not within the limit. Still, they are very low in terms of way to go for a regulatory limit and the other regulatory limits defined for both. [indiscernible] they are doing well and very close to the coverage as we can see on the screen. And on Slide 11 that in 2025, our loan and loss provision reached 559 million in line with last year. And evolving in relation to '23 despite the higher income revenues. The bottom chart, we see that collection also indicate sound performance for distributors. On Slide 12, we will look at the KPIs, injected [ factor ] distributors are still with a declining trend within the regulatory limits as well. And now in regards to results in Networks on Slide 13. In 4Q, we see an 11% evolution in gross margin, explained mainly by readjustment and tariff review. Operating expenses as well as in consolidated had a 7% decline resulting from the sound performance and also a larger base compared to the previous year and the Pernambuco Head office sales. EBITDA, therefore, was up by [ 23% ] as well as EBITDA cash with up by 20%, reaching BRL 3 billion. In the fourth quarter, on the right-hand side, we see the breakdown between distribution transmission. Cash EBITDA distribution was up by 19% in the quarter in transmission, up by 51% and through the new projects that payment regulatory EBITDA for transmission assets was BRL 239 million, BRL 142 million from 100% Neoenergia assets, BRL 107 million with the JV with GIC, where we have a prevalence in terms of equity. On Slide 15. We will look at the generation and customer results, consolidating the renewables and liberalized segment in for 4Q '25, the EBITDA in the segment was BRL 322 million. Therefore, over 4Q '24 were explained mainly by the adjustments of Baixo Iguacu in 4Q '24. The annual growth was 5%, still with a negative impact resulting from Termopernambuco partially 2024 under the previous contract that had a higher margin. We also see a breakdown by business lines on the right side, EBITDA and hydropower plant, reaching BRL 119 million in 4Q '25 went 183 billion, a 30% reduction or lower generation and curtailment. In solar, 8 million and term up, 0. There were no dispatches in the quarter. And lastly, in the client business, we had BRL 10 million EBITDA and BRL 8 million growth compared to 4Q '24. And now on to Slide 17, I will cover our capital structure. We closed the fourth quarter with a net debt of BRL 48.7 billion higher than the third quarter as a result of the accelerated CapEx. And despite this ratio, we closed at 3.41x confirming the divestment trajectory as expected. Right now with the conclusion of the transmission works and cash generation growth in net structure is comfortable, well distributed with 5.71 years in average and very competitive cost. We have a credit market that has a high demand with triple weight. And for 2025, we all also taken part of our funding needs for '26. And right now this year, we're still looking at favorable conditions for liability management operations, which will further reduce our debt costs. I will now give the floor back to the operator for our Q&A session. We will now open the Q&A session.

[Operator Instructions]. Our first question is by Andre Sampaio from Santander. You may open your microphone, Andre.

Question is considering investments in transmission, there's still an agreement and sale intention to GIC. Second question, how is the PTO process going? Evolving?

I believe these are questions by Andre, Santander, right? To your first question, partnership with GIC is solid -- remained solid in 2025. We sold our second package. And now with the conclusion, the other lots, we are, of course, we have been talking to them for a few months now, we're considering doing an assessment in order to incorporate the other assets to the holding that we have in partnership with GIC. So nothing has changed here, we have been sticking to our strategy that you are familiar with. We have an excellent relationship with this partner, which we need to reinforced with the remainder transmission assets. Now we will be focusing on that on almost BRL 10 billion in assets. So yes, this is moving forward as expected. As for the public takeover offer, this is part of Iberdrola, the controllers process. And just -- well, to reply to your question. The second filing public filing was -- took place on January 30, should probably be a third filing and also -- this is also evolving as expected. Iberdrola has reported that, yes, in terms of timing and deadline, we would be looking at somewhere between March and April. Following through all the due procedures, requirements and conditions provided everything evolved as it should. We would be looking at late March, early April. Yes, if things go as expected, as planned.

We will now close the Q&A session. We will kindly give the floor to our CEO, Eduardo Capelastegui for his closing remarks.

Once again, thank you, operator. I would like to, of course, reassure you that we are fully committed to our stakeholders and shareholders and Neoenergia we are focusing on three main levers: Efficiency and safety in our operations, firstly; secondly, creating value through capital allocation, equity allocation; and thirdly, sustainable growth in all of our businesses. And you can see we've been attaining this for our cash EBITDA, which has grown almost 16% since. More than doubled. We're firmly confident in Brazil's regulatory framework now with our concessions that are eligible, which brings it structure that did and continue investing in distribution and increasing organic investments in discretion and therefore, providing higher quality to our over 7 million customers growth from manage networks, especially with distribution, we're investing heavily to ensure quality support to our concessions growth ABRADEE Award is a sign of our quality, efficiency in our operations, how we have been managing our distribution business. 2025 was the landmark year in transmission. We concluded an investment cycle with almost 20 billion in asset volume and with over 2 billion in RAP, which has been a major achievement cycle that has extended since 2017 when we -- on our first auction. And of course, capital allocation has also played a key role for us. We're investing in organic growth in our distributors and looking closely at opportunity using other segments and technologies as well as asset rotation opportunities, looking at the best possible returns for shareholders, we also are very clear on the track will follow. We have the right team in place that is engaged to deliver. As usual, I would like to conclude by thanking all of our employees at Neoenergia for fulfilling their roles, surpassing challenges and delivering in 2025 excellent results with important added value creation for all of our shareholders. Thank you very much, and I wish you all a wonderful day.

The fourth quarter 2025 earnings release call by Neoenergia is now adjourned. The IR department will be available to answer any further questions. Thank you very much for joining us today. Have an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]