Companhia Paranaense de Energia - COPEL (CPLE3) Earnings Call Transcript

[Interpreted] Good morning, ladies and gentlemen, and welcome to Companhia Paranaense de Energia, COPEL's videoconference to discuss the earnings of the fourth quarter of 2024. This videoconference is being recorded and will be available on the company's website, ri.copel.com. The presentation is also available for download. [Operator Instructions] Before proceeding, I would like to note that the forward-looking statements are based on the beliefs and assumptions of Copel's management and on information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should consider that events related to the macroeconomic environment, industry and other factors could lead results to differ materially from those expressed in such forward-looking statements. This videoconference will be presented by Mr. Daniel Slaviero, CEO of Copel; Mr. Felipe Gutterres, CFO of Copel; as well as Directors of the subsidiaries will be available for the Q&A. I would like to turn the floor to the CEO of Copel who will start the presentation. Please, Daniel, you may proceed.

[Interpreted] Good morning. I thank you all for attending our videoconference, and it is with great pleasure that we present another quarter with sound results. 2024 was the first full year in which Copel operated with its new legal nature, a corporation without a defined controller. Among the many deliveries we had during the year, I would like to highlight one of the most important ones. The formation of a new C level. At the beginning of January, the team received Fernando Mano, who took over the leadership of Copel Geração e Transmissão. Mano, this is your first earnings conference call with us. Welcome to Copel, and I am confident that your experience and knowledge of the industry will be of great value for the company's new moment. Now talking about the highlights of the quarter. I begin with our financial results. In the year-to-date, we had a fourth quarter with an adjusted EBITDA of BRL 1.3 billion and net income of almost BRL 600 million. In the year, we closed with adjusted EBITDA of BRL 5.1 billion and net income of BRL 2.8 million, almost BRL 3 billion. In this quarter, these robust results were partially offset by the performance of wind parks as a result of curtailment, [ ANEEL ] availability and the unavailability of some wind turbines at Brisa and Cutia. This is a temporary event that will be equated in the coming periods, and we have been working quickly and assertively to correct this instalment that is manageable. We remain focused on the excellence of the operation of our assets and the delivery of sustainable results. With that said, the main highlight was Copel Distribuição, which contributed significantly to the company's results with efficiency and EBITDA of almost 46% compared to the regulatory level. I'd like to point the robust dividends proposed for this year. In this General Meeting, in addition to the BRL 1.3 billion already paid, we are proposing to our shareholders an additional BRL 1.3 billion in additional dividend, totaling BRL 2.3 billion of dividends for the year of 2024. So ladies and gentlemen, this means a payout of 86% and dividend yield of approximately 8.4%. This proposal, as I mentioned, will be taken to the General Meeting of April and the first payment is expected for until June of this year. But what's relevant here is that we have proven in practice what we've been saying to the market, that Copel is a company that combines good dividends and is mindful to the good opportunities for capital allocation. Our focus is to generate value to the company based on the activity as an integrated player in energy. Now we present a brief summary of the deliveries that happened since our last conference call in November. First, we guaranteed Copel's 100th anniversary with a renewal for an additional 30 years of our 3 main power generation plants. Aligned with that was the payment of the grant fee bonus of BRL 4.1 billion, and this event was very important among other things, because it helped us reach a better leverage level. Felipe will give you more details of the financial results and indicators. Next, 3 operations that are essential for the execution of our strategic plan since the follow-on: the asset swap with Eletrobras where we consolidated the HPP in Mauá and transmitter in Mata de Santa Genebra; sale of small assets of hydropower generation for BRL 450 million; and finally, the exercise of the preemptive rights and the sale of Baixo Iguaçu. In the next slide, I'll briefly mention the rationale behind these movements, but I point that in addition to all of that, in November of last year, we opened a share buyback program, and we've already executed BRL 120 million in this first phase. Starting with the asset swap with Eletrobras. In addition to executed the 100% of Mauá and Santa Genebra, as I mentioned, the rationale of the separation is to optimize our asset portfolio, simplifying our operating structure and guaranteeing high predictability of cash. On the other hand, Eletrobras will receive 100% of Colíder and BRL 365 million in cash at the closing of the deal. This operation brings immediate benefits to Copel because in addition to the gains in terms of synergy, we can offset approximately BRL 170 million of tax losses accounted in Colíder. This transaction generated a lot of value to Copel. In Baixo Iguaçu, in turn, the objective was to potentiate the company's returns, making the most of an opportunity to recycle assets and minority stakes. As I mentioned, we exercised our preemptive rights. And we saw in this opportunity, a chance to sell our 30% stake, which was sold for BRL 570 million to DK HOLDING INVESTMENTS also known as ENERGO-PRO. The main message here is that we are an agile company, disciplined in capital allocation. I would like to congratulate our partners, Felipe Gutterres, Fernando Mano, Diogo Mac Cord and Yuri Ledra for leading the teams to conclude these deals. This indicates how much our new management and our employees are aligned in the search for alternatives that bring always the best possible results for the company. And to conclude, all of that is behind us because now we have, for the coming months and the year 2025, a very positive year for the company. So first, we'll conclude with excellence our investment program for Copel Distribuição aiming not only at the quality of services provided, but also the integration of investments made during the entire cycle for our next upcoming tariff review. Second, operating excellence, as we talked about in the beginning, but it's all of our businesses, we can extract as much value from our assets. Third, the bid of the capacity reserve. We are very focused also to make the most of this opportunity with the 2 assets that will be for that, [ Foz do Areia ] and [ Segredo ]. And finally, the consistency in the strategy of energy trading, where we've already seen some windows and the volatility has been tapped into by Rodolfo and the trading team. Fourth and finally, we'll be strict in executing and reaching our efficiency targets that we set forth for this year's budget. Now I turn the floor to Felipe, who will detail the results of the fourth quarter.

[Interpreted] Good morning. Thank you, Daniel. I'd like to once again begin by stressing an essential point of our thesis that was extremely important for our results. We are an integrated company with a diverse portfolio with long-term concessions. Once again, we had a challenging quarter at Copel G&T and Copel Com affected by the effect of the curtailment, wind and unavailability of wind asset, modulation and detachment of energy prices in submarkets. At times like this, our business models reinforce their importance because we were able to reduce risks and ensure robust results even in an adverse scenario. This quarter, we delivered adjusted EBITDA of BRL 1.3 billion, BRL 715 million coming from Copel Dis and BRL 613 million from GeT. This result was 12% lower than the BRL 1.4 billion of the fourth quarter of '23 due mainly to the smaller Pmix of sales at GeT; the deviation of generation of BRL 93 million, 49% above the fourth quarter of '23 caused by the wind volume below certification, curtailment of 13.1% in the fourth quarter of '24 compared to 8.3% in the fourth quarter of '23, and the unavailability of the generating park resulting for maintenance and installations; as well as a higher volume of energy coming from MMGD and BRL 180 million; and to conclude, the additional litigation provisions of BRL 63 million, especially due to civil law suits. On the other hand, our business in grid stood out with an increase of 23.6% in EBITDA at Copel Dis, offsetting a lot of the results mentioned before. In the next slides, I'll give you more color about the results of each business unit starting with distribution. Copel Distribuição generated EBITDA of BRL 715 million in fourth quarter of '24, the highest recurring results in the history of our distribution company, 23.6% higher than the same period of last year. This result was mainly driven by the growth of 2.5% in the billed grid market and the readjustment of 2.7% of June of last year and the reduction of 36% in expenses with personnel, a result mainly due to the voluntary severance program from 2024. These effects were partially offset with the highest volume of the offsetting system of MMGD. We closed 2024 with an EBITDA efficiency of almost 46% above the regulatory EBITDA, confirming our continuous trajectory of efficiency in our operations. On the next slide, I'll talk to you about generation and transmission. With an adjusted EBITDA of BRL 613 million, Copel GeT had a Pmix lower than the last year during the fourth quarter. In addition, the performance of wind complexes was negatively affected in BRL 93 million due to the lower performance of wind complexes, a result of a smaller volume of winds below certification, curtailment of 13% compared to 8.3% in the fourth quarter of '23 and unavailability of the generating park occurring as a result of maintenance and installations. In addition, there was the effect of reversion of provision in the fourth quarter of '23 and the amount of BRL 83 million, referring to the decision of the calculation methodology that impacted, as I said, the result of '23 and did not reoccur in '24. Partially offsetting these items, there was a reduction of 30% in personnel costs in the quarter basically as a result of the voluntary severance program. Giving you more details about trading. We closed the quarter with adjusted EBITDA negative and BRL 15 million compared to BRL 9.7 million positive last year, a reflection mostly of the lower trading margin due to the price variation in the sub markets caused especially by the generation from intermittent sources with an impact of approximately BRL 18 million. But I'd like to stress the excellent execution of a strategy for energy trading, which reduced risks during the entire year. And as in the third quarter, we intensified energy sales at a moment with better market prices. We sold 500 megawatts average on the quarter for the '25 to '29 period. And we had already sold 537 megawatts in the third quarter, generating value for the group, which will be captured in the coming years. In addition, I also reinforce that we don't have a lot of exposure in our portfolio to modulation. So it's a limited exposure at lower levels with a one-off impact in the result of the trader and the consolidated context and very little materiality. So zooming into our manageable costs in the next slide. We maintain strict control of costs, but always preserving quality and safety of our activity. The highlights of the quarter are the positive impact in the first quarter after the conclusion of the voluntary severance program. For better comparability among periods, we have 2 PMSO lines, manageable costs and other costs. In variable costs, we adjusted PLR and premium per performance. And in addition, in the line of other cost, we isolated the effect of a study about the repatriation of GSF that happened in the fourth quarter of '23 and adjusted nonrecurring losses for the desaturation of assets in the fourth quarter of '24. With these adjustments, looking at personnel costs, we see a reduction of 26.2% in the quarter, an effect of the reduction of 1,415 employees. I am sorry, I am not listening to him. Is there anything with the sound? And if we isolate the inflation in the period, there will be a reduction of 29.5% and the costs in personnel reinforcing our execution capacity and consistency and delivery. Looking at the other lines of PMSO, we increased by BRL 34 million, 13% of services of third parties, essential to strengthen the prevention and grid maintenance operations for the distribution company, focused especially to guaranteeing levels of quality and safety of our concession areas. These activities also include intensification of tree trimming and maintenance close to our distribution lines. We also had a small growth of BRL 11 million under other costs with an impact of the desaturation of equipment that presented residual values in the company's investment program. I reinforce that this effect represented less than 3% in investment of Copel Dis in the quarter. Moving on to the net income analysis. Speaking on recurring terms, income exceeded BRL 639 million in the quarter, 12% higher than what was posted in the third quarter. Quarter-on-quarter, the result was 7.2% higher as an effect, in addition to what we already mentioned, the tax efficiency captured by the declaration of IOC. We delivered year-to-date results of BRL 2.7 billion, 5% higher than last year in recurring terms, and the reported results reached BRL 2.8 billion, 20.3% higher than the result of '23. Now speaking of investments. We executed historical CapEx strongly led by the distribution company's investment plan responding to 88% of the total for the year focused on the regulatory remuneration base and efficiency and quality of services, the highest investment in the history of Copel Distribuição, that's important to mention. As for the -- most of the investments was in line with our time line. And now we have full focus in the CapEx of 2025 and its unitization. Now about our indebtedness. Due to the grant bonus payment for the renewed plans, we saw an increase in leverage to 2.6% times -- 2.6x of net debt over EBITDA. And as we've been talking about in recent calls, this was already expected. Remember that our limit covenant today is 3.5x net debt over EBITDA. So it's quite comfortable, but with a structure with leverage that is more suitable. Our operating cash generation exceeded once again, the mark of BRL 1.2 billion in the quarter, totaling in the year, BRL 5 billion. Our average amortization period is around 4 years with more BRL 8 billion maturing only after 2029 and a total of BRL 17 billion. I'd also like to point that we have initiated the execution of our share buyback program. We rebought BRL 50 million in December and BRL 70 million in January, as Daniel mentioned. I conclude my presentation here, thanking each of the Copel employees for their strong work, commitment and continued dedication. We are confident that with our long-term strategy and a focus on efficiency, quality and results, we'll continue to advance and deliver more and more value to all of our stakeholders. Thank you once again for your participation, and we can now move on to the questions-and-answer session.

[Interpreted] [Operator Instructions] Our first question, Bruno Amorim, Goldman Sachs.

[Interpreted] Congratulations on the delivery during this year. I have a question about capital allocation. I know you announced publicly that you're running studies to publish at some time what you understand to be the optimum capital structure for the company. So could you talk a little bit about how you think about this irrespective of what this optimum level will be? How do you think about optimizing the structure in the short term versus leaving some space in the balance sheet for future allocation, especially in the context of a relevant increase in EBITDA for the next 2 years in the distribution operation? So more to understand today what your mindset is about the view in terms of capital allocation over the next 2, 3 years. Whether you think there's opportunities in the short term or whether it makes sense to leverage a little bit more, get a little bit closer to optimum and leave some flexibility for the future.

[Interpreted] Bruno, I think it's an excellent point. With all the interactions in the market, this is a question that has been raised a lot, so we'll give you some context. And then I'll ask Felipe, who's leading this work to add to my comments. So today, our covenant is 3.5. That was a reflection of the structure of the company's legal entity as being a state-held company, but now, as a corporation with the AAA and the level of maturity we have, we are operating with covenants above that, between 4 or 4.5. So I think Felipe is leading this study first to find what should be the best covenant limit; and second, we also want to do that, if possible, with the discussion of Mercado and the market was informed today about Eletrobras agreement with the federal government. And we see that as very positive, not only because it strengthens the corporation model with a limit of 10% of capital votes, but also unlocks a lot of value for the biggest company in the energy sector. But going back to our point, I think we're going to seek with this work to reach a capital structure. Over time, it's not going to be all at once because we're in a very restrictive interest environment in the country. And finally, there always will be space for you to make good investment. The company's priority is to make good investments, good capital allocation. So there's nothing in the very short term or on the short term that is not -- the focus on that capacity auction and all the other agendas we're looking at on the tariff cycle, the improvement of assets and the trading strategy that is older and mindful of the volatility opportunities, good allocation is always good and it's always a priority. But if there isn't, we believe that direct dividends, either by share buyback, always is a path not to allow the company to be deleveraged. As you mentioned, starting in '26 with the renewal of the tariff cycle and the improvement in the energy prices and the cost reductions, you saw more than 30% only in the [ peak ] line due to the voluntary severance program's impacts. The company already has very well-established contracted growth. So we don't intend at all to let the company get deleveraged much beyond the current level at around 2.5. And for that, we can always work on this leverage in terms of buyback and dividend. So also considering that the payout of the fiscal year '24 is there at around 86%. So Felipe, I got into other subjects. But if you can, talk a little bit about times and movements in the main lines of the study of the optimum capital structure.

[Interpreted] First is to assure that the company is not going to work in suboptimum ways in our capital structure. So this is the first point. The other point is that our concept being discussed, it's much more in terms of convergence. Once we define the optimum structure rather than always working with a limitation, a limiter, and always working at this optimum point. So just to give you our mind side, there's convergence, but some flexibility slightly below or above as long as it's defined. Times, the movements. We close or conclude the studies and will present them to the market with the results of the first quarter, where our idea is also to present the simplified dividend or enhanced dividend policy. Our current dividend policy is very flexible, but we understand that there are opportunities to simplify this policy and make it more straightforward. Always noting that what we presented at Copel Day, our manifest for capital allocation is to always look at return at the center, but always considering minimum cash to give us flexibility to face our obligations in terms of investments that are already accounted for and for the flexibility for us to also make the most of opportunities. The focus always in the preservation of our AAA rating that we have and obviously, looking at making any capital allocation in opportunities that bring a clear return above our minimum acceptable rate.

[Interpreted] Excellent. Can I ask a second question, a follow-on? Just actually switching gears a little bit, talking about the energy price scenario. The curves moved upwards, some of the [ vortices ] of the energy price curves close to BRL 200. So the question is, how have you been working on this environment? You've been seeing reasonable liquidity to be able to contract at those prices. Whatever you can add would be helpful. It seems that there is an upside for the non-contracted part?

[Interpreted] Excellent Bruno, that's precisely it, and what we've been doing and Felipe is here and he works with Rodolfo with Copel Comercialização but it's -- to make the most of this moment, in the fourth quarter, the volumes of energy traded for 2026 already exceeds the BRL 180. That was one year before the level that few people could foresee. So for this quarter now, we've already been able -- the moment when the price was above BRL 200 and we made some sales, and this will appear in the results of the first quarter on the next conference call. So I think that's an advantage. There's still moderate levels, nothing that expressive, but we're not seeing any serious issues or any critical liquidity issues. The whole markets, after those events with some of the traders, restricted some of the credits, which, in our view, is very good. And it doesn't make any sense to have it and sell and then have that kind of problem. And Copel is a big generator, is very cautious and attentive to all of that. But we are being able to make the most of those opportunities in volatilities to be able to allocate a little bit of our energy that is not contracted and generated value not only to '26, but also as Felipe said, Felipe Gutterres, with a view for '26, '27, '28 and at some point, even a little bit -- a smaller amount, but a little bit for 2029 for those clients who have a longer view. Felipe, any additional detail, any comment?

[Interpreted] It's just important to note as well, in line to the definition of the strategy that we have that has been positive for us is our agility and execution as well as our discipline. Daniel mentioned it well for the average cost at a higher price.

[Interpreted] Next question, Guilherme Lima, Santander.

[Interpreted] I'd just like to confirm. I'm sorry if you already mentioned it and I missed it. But just the timing for concluding the optimum capital structure study and the new dividend policy, if there is a timing for that? And for the capacity auction, if you can talk about the ordinance, the invitation to bid that was published and we saw some points already defining the capacity factor for plants located in the South and Southeast. If you can talk a little bit about what you see in terms of positive points and competitive edge for Copel?

[Interpreted] Guilherme, first the timing, as Felipe mentioned, the idea is to present the optimum structure view and the time that it will take, what time we're thinking about the execution, will be along with the simplification. It's important to mention that our dividend policy is already very good. It already allows us and gives us a lot of flexibility, but we're going to simplify and maybe not have as many steps to bring more benefits to the company in our view, always keeping in mind that our policy privileges, bonus and investment, so the available cash flow. So Guilherme, our idea is to present all of that in May, along with our first quarter earnings conference call. So that's the first part of your question. The second part of your question about the capacity auction. They're already making progress. And [ EL ] this week as well approved for consultation some items and some terms. But what we're seeing is the minister also made comments during the week that almost 7 gigawatts of project, but just to simplify, the ones that will be -- how many will be ready and how many with the guarantees and the deposits to be approved for the auction, but it is going to be big. Some people are saying there's no concrete numbers, but they're talking about more than 10 giga for this auction. Most obviously, considering the amount of products, it will be for focused on thermal power plants, but we believe that the hydro product will have an interesting size that we've been able to estimate. We don't know how big it's going to be, 2.5, 3, what it will be, but we believe it will be a reasonable size because it is, without discussion, the most affordable source and the only renewable source for that auction. So, in benefit of the price and for the consumers, I am convinced that the hydro product will be the cheapest from all of the products that will be auctioned in July '26 -- '27, but we're working here to have 2 plants there, Foz do Areia with 840 mega and Segredo with another 1.2 gigs and firing competing for good allocation. So we have these projects. Each one of these projects has its own features and competitiveness, but we're very confident that the hydro product for the first time will show an additional attribute in terms of power that is completely required by the operation -- for the operation.

[Interpreted] Next question, Maria Carolina Carneiro, Safra.

[Interpreted] If you could talk a little bit, I'd like to hear an overview of what you believe are there in terms of regulatory discussions to try and help address the curtailment. Of course, your portfolio is a lot more hydropower, but this quarter as well as in other quarters, we still saw a lot of stress and negative impact of this phenomenon for the company. So if you can share with us how this topic is progressing in terms of regulation and maybe could reduce this for the companies. And the second point, you had another interesting divestment in case of Baixo Iguaçu. If you could remind us, within your asset portfolio, if you have another asset or another opportunity that you are identifying or you're looking at both to continue in this optimization process of your asset balance sheet or working on the better capital allocation, as you mentioned at the beginning of the call?

[Interpreted] I'll start from the end of your question, which is about Baixo Iguaçu. So if we look, if you remember, at the time of the follow-on, what was said was we want to optimize and simplify our structure, and decarbonization of our matrix. So we started with then Compagas, then the small hydro centrals that we mentioned in the opening remarks, in the sense of focusing on the larger assets. And then we started the granularity. So that was the asset swap with Eletrobras that I also mentioned that was very positive consolidating the Mata de Santa Genebra. We know the asset well, Mauá, all have synergies with our current operations. Within these lines of simplification, there are few assets where we have minority stakes in our plan. We're paying attention to all of that, but they're smaller and less relevant for the size of transaction. As for Baixo Iguaçu, there was a movement, I'd say a window of opportunity that came up, and I think it reinforces what we had said that our company, our minds, are focused on capital allocation of where we can generate the best returns for the company. So we saw that opportunity, and the competitive process that was led by our partner, and we optimized that in the way that we saw as best for the company, showing the quality and the work of the new management, along with our current team, as I mentioned, that was led by Diogo Mac Cord along with our team here, our partners done excellent work. So with that said, Carol, in terms of optimization and simplification, the majority has already happened. So there may be very specific things here and there of swaps and some transmission companies where Copel has 24.5 but less expressive values. And the next stage, I believe, is to make good capital allocations in the medium, long term to be able to add other opportunities, business opportunities that may arise, always within the scope of generation, transmission, distribution and trading of energy. Now about curtailment. This has been talked and discussed. It's a reality that's here to stay. It's a reality that has been hurting a lot of companies. Fortunately, Copel, as Felipe said, since it's an integrated company with a distribution arm, that has been proving significant to the results and even in generation and transmission, a lot of GeT's results come from transmission, which is a very safe segment. And in generation, 18% only comes from wind power. 82% are from hydro power plants and the impact is very limited. But nobody likes to see resources being wasted or not being accounted for. So what we believe and what would be reasonable in the short term is that classification of what is unavailability was electric unavailability and try to mitigate this. That's the very, very short-term solution at least addresses partially the impact. And a broader discussion in terms of restructuring, we do not see that in the short and medium term. I think it's going to be a more complex discussion. You see the Ministry and ANEEL engaged and concerned, and we are monitoring as well and working hard. But in the short term, I think the reclassification of what is unavailability and what is an energy aspect at least mitigates partially. We believe that in the medium- and longer-term views, that tends to be a single digit, not much more than that. The operator on the past year was a little bit more restrictive than what could be, and I believe that they are monitoring and analyzing this. I don't know if you have anything else to add, any elements to share with Carol and everyone?