Transmissora Aliança de Energia Elétrica S.A. (TAEE11) Q3 FY2025 Earnings Call Transcript & Summary

[interpreted] Well, good morning, everyone, and welcome to Taesa's Q3 2025 Earnings Release Call. [Operator Instructions] And at the end of the presentation, we will open the floor for a Q&A session where we will answer your questions. We wish you a great event. On Slide 3, we reinforce our sustainability and innovation initiatives, highlighting several important achievements. Starting with Taesa Ventures, our innovation program launched to accelerate our strategy focus on efficiency, profitability, security, and positive social and environmental impact. This program is open to the market and has already achieved significant results. 15 public challenges launched over 325 responses, and 270 proposals submitted from over 200 different companies. Among these challenges, 7 are directly related to sustainability, addressing topics of safety, climate change, environment, and biodiversity. This shows that beyond our very strong focus on efficiency and value creation, we are fostering innovative solutions aligned with our ESG commitment. Efficiency and sustainability cannot be separated, and together, they generate long-term returns for all our stakeholders. Moving on to cybersecurity, we have been investing in technology, efficiency, and scalability. We are building a modern and robust systems architecture that ensures operational efficiency and cost optimization. We've advanced in simplifying and standardizing processes across the company, focusing on automation and strengthening data governance. Our goal is to ensure that data collected across all teams, implementation, operations, and back office, becomes a tool for agile and strategic decision-making. Of course, without information security, there is no data governance. So cybersecurity is what ensures the continuity of our operations, the reliability of the service we provide, and the protection of the company's revenue. In this context, we recently participated in the cyber guarding exercise, the largest cybersecurity defense rail in the Southern Hemisphere. The event was held in Brasilia by the Superior School of Defense, bringing together 169 organizations, 750 professionals from 20 countries, including armed forces, government agencies, and the private sector. The goal was to train coordinated responses to cyber incidents and ben cooperation between companies and governments. For Taesa, participating reinforces our alignment with industry best practices, validates our digital strategy, and increases our ability to anticipate and mitigate risks, ensuring the resilience of our critical operations. Moving now to sustainable financing 2025, [indiscernible] the largest year in green bond issuance. This year alone, we have issued nearly BRL 1.5 billion in green debentures totaling over BRL 4.9 billion since 2019. This milestone strengthens our credibility in the market and our commitment to positive impact projects. In the social sphere, we continue to carry out concrete initiatives in the communities where we operate. We have recently donated fire prevention and firefighting companies, equipment to the municipality of Manuel, and [indiscernible] PLE near the ATE 2 line, an area affected by wildfires between June and November. The donation supports the local bridge of 11 members who operate across an area of over 1,600 square kilometers. We've also delivered an electrician training in [indiscernible] near our NTE project with 68 participants trained by TS's own structures, which combines social inclusion, professional training, and local development. And through this Theeratha [indiscernible] Institute, we continued with initiatives launched in 2024, including renovations and donations of computers and furniture. In 2025, we expanded support with additional donations of laptops, clothing, toys, and educational talks on sustainability. Today, the institute serves many children with lessons supporting numerous families. These initiatives help us achieve our goals. On Slide 4, we present the key achievement of this quarter. We have the 18th debenture issuance, which was quite efficient, and the approval resolution adjusted RAPs, that was up about 9% in operational RAP for the new cycle. We highlighted both in the previous cycle, and they're now impacting this year's Q3. The start-up of the TSN reinforcement, one of our large-scale reinforcement projects that was under construction, the launch of Taesa Ventures, which was highlighted during our Investor Day held on September 30, and this hybergarden exercise that we've talked about. We also want to go through some important awards that we received, like the ANA Transparent Trop 2025, the Innovation Award by Valor top 8 in the Brazilian electric sector in 2025. Valor 1000 top 10 largest companies in the electric sector 2025. ANE Innovation Award, most innovative transmission company, midsize investments in the North and Northeast regions, OFN 2025 award for AC transmission. And last year, we received second place in the GRE Biodiversity Awards 2025 with the project promotion and strengthening of agro forest systems and the missions and all the Uruguay regions, the missions. Recently, as part of our liability management efforts, we completed the exchange offer for one of our debenture issuances, which carried a higher cost, CDI plus 1.7% over to a market price debt instrument at CDI plus 0.6%, corresponding to Taesa's 19th debenture issuance, and we also have the completion of the first edition of the Lean Six Sigma yellow B in training. Moving to Slide 5, we present the key highlights. What we've always been highlighting in our calls has been reflected in stable leverage, stable financial results, and disciplined cost control, even under macroeconomic pressure and higher investments in the year. Operation and financial management, reflecting stability in leverage, financial results, and cost control. Regulatory net revenues were up 9.8%, driven by the new RAP cycle, and then we have the variable portion that was up 7%. Regulatory EBITDA was up in 2025, driven by the 12.6% increase in EBITDA in Q3. Recurring 9 months OpEx was up 4.2% below inflation. The variable portion was quite solid, 0.28% of RAP, and the cumulative kept a high availability index of 99.93%. We've seen CapEx acceleration totaling BRL 1.3 billion for the year, up about 90% versus the same period of 2024. Like I've said, we had the completion of TSN reinforcement with an authorized RAP of BRL 11.3 million. Regulatory net income for the quarter was up 5.2% and a year-to-date growth of 2.5%. We've also announced and approved earnings distribution of BRL 323.3 million, which is equivalent to 100% of the regulatory net income for Q3. On Slide 6, we present the regulatory net revenue. Quarter-on-quarter, revenue was up 9.8%, totaling BRL 650.5 million. In the 9-month comparison, revenue totaled nearly BRL 1.9 billion, up 7% year-over-year. The main drivers behind this variance between Q3 2025 versus 2024 were the RAP adjustment for the 2025-2026 cycle, effective as of July this year, which is indexed to both IGPM and IPCA. In Category 2 concessions, which account for about 60% of total operational RAP, we had a 7.1% adjustment, while Category 3 concessions, representing the remaining 40% were adjusted by 5.3%. In addition, we had the start-up of the Novarans reinforcement and the Pitiguari project. We add an RAP of BRL 41.6 million and BRL 23.4 million, respectively. It is worth noting that the RAP associated with this reinforcement may be adjusted after the next tariff review in a few years. We also recorded a significant improvement in the variable portion driven by the optimization of outage events and the reversal of prior year VP totaling BRL 4 million. Excluding this reversal, the VPR AP ratio for the quarter stood at just 0.38%. On Slide 7, we show the performance of our regulatory EBITDA. Regulatory EBITDA totaled BRL 548 million, up 12.6% versus the same period last year. Considering that the first half performance was also positive, up 7.2% year-over-year, the nine-month cumulative view for EBITDA was up 90%, totaling nearly BRL 1.6 billion. The cumulative margin of 84.5% higher than the 82.9% margin reported in Q3 2024. Thus, breaking down this nine-month regulatory EBITDA performance, we see that this 9% growth or plus BRL 130 million is explained by an increase of BRL 109 million in transmission revenue and BRL 26.9 million in the variable portion. OpEx was up by BRL 9 million on a reported basis, mainly driven by nonrecurring events that happened last year. When we exclude these nonrecurring events, placing both periods on a comparable basis, recurring OpEx was up 4.2% over the 9-month period, below the inflation rate of 5.2%. It is worth highlighting that the main OpEx lines, personnel, and third-party services together recorded year-to-date recurring growth of only 1.2%, which shows how the company is strongly focused on controlling costs. On Slide 9, we see the company's operational performance. The availability index improved versus last year, remaining very close to 100%. Meanwhile, the variable portion over the RAP in the 9-month period showed a sizable improvement compared to the same period due to some factors, a lower volume of outages, reflecting greater operational stability. In 2024, we experienced higher impact events, Ganauba, Novatrans, and Santana. In addition, as we've mentioned, we recorded a reversal of BRL 4 million in provisions related to prior year events. When excluding this BRL 4 million reversal, the 9-month VP RAP ratio is below 0.5%, which shows a strong operational performance. It is important to highlight some initiatives of the company to support that. Optimization of outages in the maintenance plan, ensuring higher availability, a shift in the philosophy of schedules to perform maintenance without downtime allowances, minimizing these outages and focusing on preventive and corrective actions that prevent any automatic shutdowns from happening, process changes and synergies to improve responses time for both unplanned and scheduled events, optimization of maintenance CapEx with a focus on revolving identified critical issues. And finally, the intelligent combination of data and indicators for on and off decision-making using predictive analysis and real-time monitoring of risks and costs. We see on Slide 10 our regulatory net income, which totaled BRL 323.3 million in Q3 2025, up 5.2% year-on-year. Meanwhile, our nine-month net income totaled BRL 811 million, up 2.5% versus the same period last year. In addition to the drivers already mentioned, we highlight impacts in other lines of the income statement. Equity income declined mainly due to the first debenture issuances of IRS and Paraguacu. Depreciation and amortization increased due to the start-up of the Novatrans reinforcement and asset unitization. Net financial expenses increased by BRL 16.4 million due mainly to the macroeconomic deterioration and higher net debt. It is worth noting that this financial result has been stabilizing compared with the recent quarter as a result of our efficiency-focused financial management. Lastly, we saw a positive performance in income tax and social contribution, mainly due to the tax benefit from the higher GP declaration this year. We also present our IFRS earnings. I always like to remind you that this income is accounting-based and therefore does not represent Taesa's cash generation. The underlying concept is the concession agreement, which accounting rules follow CPC 47. Net income was up 2.4% in the 9-month period, totaling BRL 1.2 billion. In Q3, IFRS net income was BRL 340.6 million, down 16.8% versus Q3 2024. The main drivers when we compare the 9-month period of 2025 versus 2024 were an increase of BRL 153.4 million in infrastructure implementation margin due to higher investments in the Tangara project, the second phase of San Pedro reinforcements. A BRL 56.2 million improvement in income tax and social contribution, driven by the higher distribution we had, according to what we said, and a one-off write-off of deferred tax liability. And a BRL 26.9 million improvement in the variable portion driven by lower outage levels, the high-impact events in Janauba, Varans, and Santana, and the reversals of prior PP provisions. These effects were partially offset by higher net financial expenses totaling BRL 83 million, also discussed in the regulatory results, a BRL 51.7 million decline in equity income resulting from the contraction of IGPM, which negatively impacted money restatement revenue from affiliates, in addition to interest expenses from the IMRS and Paraguacu issuances. And a BRL 39.8 million drop in monetary restatement revenue from subsidiaries, also driven by the lower IGPM, which moved from 2.75% to 0.43%. On Slide 12, we have the progress of our projects under construction. We see great progress since they are all in construction phases, and would like to highlight the following projects. TSN reinforcement, like we said, started operations in September. For Saira, we had the retrofit of the transmission line of Santo Angelo Ita1C2, 1% of the RAP. Ananai, we've seen progress with CapEx acceleration in the quarter. San Pedro reinforcement, we've seen evolution as part of the commissioning. And then we have the ATE reinforcement, with progress well made, one of the three transformers already delivered. Like we've said, we accelerated our investments in the quarter, deploying about BRL 600 million, very close to the BRL 700 million invested in the first 6 months of the year. So, we have BRL 1.3 billion in the 9-month period, approaching our expectation of BRL 1.6 billion to BRL 1.8 billion for the year, covering the 4 greenfield projects and the remaining large-scale. We remain aligned with the expected CapEx for the curve for the upcoming years. As a standard disclaimer, this CapEx curve reflects our best expectations today, but may be revised in the future. On Slide 13, we cover Taesa's current level of debt. We can see the stabilization of our leverage level even amid a deteriorated macro environment and a significant amount of CapEx deployed this year, showing how diligent we've been from an operational and financial standpoint. At the end of Q3 2024, Taesa's proportion of net debt stood at about BRL 12 billion, and its leverage at 4.1x. The average real cost of our debt is 5.6% with an average tenure of 5.2 years. Higher than the 4.7 years we had been presenting, also showing the results of our management. Our indexation mix is 58% linked to IPCA, 39% to CDI, and 2% to IGPM. The company's national scale corporate rating monitored by Moody's and Fitch remains at the highest level of AAA with a stable outlook from both agencies. On Slide 14, to wrap up our presentation, we have the announcement that we made yesterday of an additional distribution of shareholder compensation based on the quarter's regulatory results. The Board of Directors approved a distribution of BRL 323.3 million in interest on equity and interim dividends, with the record date set for November 14. This corresponds to BRL 0.94 per unit, which, added to the other distributions declared based on 2025 results, totals BRL 2.35 per unit or BRL 811 million. The total amount declared so far corresponds to 100% of regulatory net income and 67% of IFRS net income. So this is what we had for you. And now we will start our Q&A session with our Executive Board. We will have an audio conference, not a video conference. Thank you, everyone.

[Interpreted] Well, good morning, everyone. Thank you so much for being here. We have about 350 participants with us today. So I have here Rinaldo Pecchio, our CEO; Catia Pereira, our Chief Investor Relations Officer; Luis Alves, our Chief Technical Officer; Jell Andrade, our Implementation Officer; and Mauricio, our Chief Business Officer. We have received a few questions from you. And now I'm going to turn over to Pech for his initial remarks.

[Interpreted] Thank you so much, Cristiano. Thank you, everyone. It's always good to report our results. We like to talk about our strategy, except this time, we are having an audio conference since we are not all in the same place, but we will have a video conference in Q4. I wanted to highlight a few important achievements we've had when we talk about positive financial indicators like increased revenue, efficient expense control, increased variable portion, increased net income, and BRL 1.3 billion in investment. We see reinforcements coming online. We see operational cash flow and then the distribution of BRL 323 million in dividends, but also the possibility to participate in auctions. We have participated. We have not won. We have not been successful in this last one due to some specific factors, but we participated. The market is always asking us if we are going to, and we have what it takes to participate, but we were not successful. We have also been really successful in the 18th and 19th debenture issuance, and continue to focus on gaining efficiencies. And in this quarter, we've been awarded for different causes. Cristiano has already given all the details, but I wanted to point out this award by ONS that is about our management of operations. So the company can successfully provide its service while prioritizing a high-quality service. This is one of the things I wanted to highlight, and also take this opportunity to thank everyone who made these results possible. And now we are here to answer whatever questions you may have.

[Interpreted] Okay. So I'll start here with the questions. So the first question we have is, Ronald is an independent investor. With the strong cash generation and a historically high payout, how will Taesa balance the maintenance of dividends and the need for future investments?

[Interpreted] Thank you, Cristiano, Ronald. I think that it's important to say that, yes, we are strongly focused on gaining efficiency. And when we say that, we translate that from EBITDA to cash generation. In 2024, when we've changed dividend distribution to be based on regulatory income, is our methodology. And it has to do with our financial planning and how we are going to plan for future growth opportunities. We have participated in the last auction. I think that, in addition to that, we have financial discipline in place, which is really expected of all our shareholders.

[Interpreted] Okay, Catia. We have another question here that is also an individual investor, independent. He asks us if we have thought about the issuance of shares to raise funds.

[Interpreted] Thank you, Roger. Today, no, we have not been discussing the issuance of shares to raise funds? No, this is not something that is in our pipeline.

[Interpreted] Okay. So now we have Maria Carolina Carneiro, a sell-side analyst of Safra. Mauricio, she asks, can you discuss the last transmission auction? What's your take on the competition and return? What about 2026? Is there any chance to participate? And what about the battery? Some transmission companies said it could be an opportunity for the industry.

[Interpreted] Thank you, Cristiano. Thank you, everyone, who's here. Carolina's question was about the auction and the growth outlook we have. Well, this auction of 2025, we had over 20 investors. And we had a global discount of about 48%. Like Pecchio mentioned, we participated. We had a business plan for 5 lots. We were unfortunately not successful, but what is important to say is that our business plan followed what Catia mentioned. Our strategy is to grow following a financially disciplined mindset and generating cash. So whenever we consider opportunities, we really try to balance things out, good return, good execution conditions, and also the possibility to mitigate risks. And we were really positive that this discount on the offers was quite consistent with our financial discipline and the expected return. But when we talk about competition, of course, you will have some investors that are going to be more competitive in some lots with a more aggressive business plan. We have many, many variables in every business plan. It's a quite recent auction. So we were not able to analyze all the components that may have been used by other investors that explain this difference in discount versus what we offered. It is worth mentioning that we consider new growth opportunities for next year; there are probably 2 auctions that will be held, the first in March 2026, and a second auction that is expected to be a bit later on. We've been reading stories that there may be some new lots in 2026 or 2027. So I would say that we are looking into a really promising outlook when we think about our growth.  We've been focusing on our enforcement and improvements, and also the possible auctions. With regard to storage, we had discussed that in our last meeting that when we talk about storage, it is part of the future of the industry. It has to do with the quality of the energy provided if we make progress in that sense. We don't have the rules of the game well defined, but we are trying to follow them closely so that our business plans are compliant with the requirements.

Thank you so much, Mauricio. Now we have another question from Roger talking about the concessions and those that are about to expire in the pipeline. So basically, there will be some loss due to the concessions that are about to expire? And what our take is on that? Are we going to renovate some concessions or new auctions, greenfield? So I'm going to turn it over to  Pecchio.

Well, we've been discussing that over these last meetings we've had with our investors. We expect our concessions to come to an end at specific times. As you can see, whenever we report our information and we make this information public, we always have the deadlines of each concession.  And we've been working together with the ministry and ANEEL to show that it's important for a decision to be made. When we have a concession period that is coming to an end, we need to see that when they expire, if there will be a possibility to renovate them, if we consider important aspects of the operation. When we have a concession agreement that you win, you know that for a period of time, you will receive this revenue. And then at the end of this period, there will be a drop in revenue due to also a capital remuneration. So, you've monetized that. You also have other investments that will compose this revenue in addition to different portions.  So, I don't have anything new to share here. I would only add to that point that we've been working closely together with ANEEL for us to have different possibilities to analyze the options to see what would be best for the company and for this industry. And this should happen over the next months as we've been discussing. So, we follow this regulatory agenda, whatever is already in the pipeline, and we've been following that closely together with the local authorities. We should see some definitions over the next months.  In 2027, we will have to state our interest in continuing the concessions. I'm not saying we are going to wait until 2027, but this will definitely be defined in 2027. I'm quite an optimistic person. I do believe that, from a financial and economic standpoint, they will analyze the quality of the operation. And we, Taesa, we deliver excellence in everything we do. So, I think this will be considered, and we will let the market know based on the information available.

Thank you, Pecchio. There is a question here about dividends. What the Senate approved. So basically, the question is about the impact of taxation on dividends and how the company has been working with that. Thank you so much.

If I could answer that, we do have a challenge today, which is trying to balance out this dividend versus our planning when you consider growth. And at this moment, we don't have the opportunity to do anything different. We already distribute 100% of our net regulatory income. We do that to ensure we continue growing and invest in other projects. So, there's nothing that will change in that sense.

Well, to add to your point, I think we could talk about another question here. You have a dividend policy that is not only about 75%. And how do you consider the leverage level of the company if you consider the growth ahead?

Well, like what we've just presented, our leverage ratio is 4.1x. And we say that we are in a deleverage strategy that will probably take place as of 2026 due to the reinforcements and improvements that we're finalizing. So, we can combine 100% of our net regulatory income and combine that with our delivery strategy.  If you consider 2026 onwards, we should see a drop in this leverage ratio of 4.1. So, I do believe that we can do both. We can continue investing in what is already part of our portfolio. We can participate in other auctions and also continue distributing 100% of our regulatory net income.

Thank you so much. There is a question that is quite important, which is the performance of our variable portion and the availability index. We have talked about that, and Dave asked us how we've addressed this issue. So, I think, Luis, you could answer this one.

Well, when it comes to the variable portion, we have reorganized our internal team when it comes to the logistics of our field teams. In addition, we have also focused on the spare parts that we had and also on the stock management. The first thing that we focus on is preventive and productive maintenance using drones, the revision, in addition to the monitoring. When we talk about sensing and monitoring, this will allow us to continue following the health of our equipment.  We monitor over 80% of all our equipment, which allows us to preventively identify any potential issues so that I can schedule maintenance. And that has definitely helped us gain efficiency and increase the availability index of our assets, and also increased our variable portion.

I think that we have answered most of these questions. And since we have no new questions, I would like to thank everyone for joining our call, and we will wait for you for our Q4 final video conference.