Earnings Call Transcript - ELPC Q4 2025

Operator, Operator

Good morning, ladies and gentlemen. Welcome to Companhia Paranaense de Energia, COPEL Video Conference Call to discuss the results for the fourth quarter and full year 2025. This video conference is being recorded. The replay will be available on the company's website at ri.copel.com. The presentation is also available for download. Before proceeding, I'd like to stress that 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, should be treated as forecasts dependent on the macroeconomic environment, the country's economic situation, the performance and regulation of the electricity sector in addition to other variables and are therefore subject to change. This video conference is presented by Mr. Daniel Slaviero and Mr. Felipe Gutterres, respectively, CEO and CFO of COPEL as well as general managers and officers of the subsidiaries who will be available for the question-and-answer session. Now I would like to give the floor to the company's CEO, who will begin the presentation. Please, Mr. Slaviero, you may proceed.

Daniel Slaviero, CEO

Good morning to everyone. Thank you for joining our video conference call. We concluded 2025 with another quarter of consistent operating performance and significant value contributions for COPEL. Despite challenging conditions, including a GSF of 67% and a curtailment of 34%, we achieved recurring EBITDA of nearly BRL 1.4 billion, reflecting a 16% increase year-on-year, along with recurring net income of approximately BRL 700 million, up 30% year-on-year. These results highlight the company’s strength and the maturity of our integrated model even in difficult scenarios. It is important to mention that we experienced a nonrecurring event due to curtailment offsets, positively impacting EBITDA by BRL 266 million and financial revenue by BRL 8 million. Regarding investments, we wrapped up the quarter with a CapEx of BRL 768 million, summing up to BRL 3.4 billion for the entire year, excluding asset unbundling with Axia. This investment was focused on network modernization, ongoing quality improvements, infrastructure expansion, and enhancing operational safety. We finished the year with a leverage ratio of 2.7x, which aligns with our optimal capital structure, maintaining financial strength and supporting our growth plans. I also want to emphasize a crucial point mentioned at the start of the call about shareholder remuneration. The total paid out in dividends, interest and capital, along with the Novo Mercado migration premium, reached a record BRL 3.8 billion in 2025, yielding an 'aggregate payout' of 144% and a dividend yield of 14%. This underscores our belief that dividend distributions are an effective means of value creation. However, 2025 was also marked by numerous achievements. We made significant progress across various areas of the company. At our last COPEL Day in November, we unveiled our strategic plan, Vision 2035, and a multiyear investment plan totaling an unprecedented BRL 18 billion over the next five years. We also discussed our target capital structure and the new dividend policy with the highest minimum payout in our sector. Notably, we received esteemed recognition from Standard & Poor's for our commitment to corporate sustainability. I must highlight what I view as the most significant achievement of the year: the migration to Novo Mercado. This advancement not only positions us within the highest governance tier on B3 but also enhances stock liquidity and attracts new investors, both foreign and domestic. We are witnessing the effects of this already. This milestone is more than just a listing change; it reaffirms our strategic commitment to transparency, fairness, and sustainable value creation. All these accomplishments were achievable due to our clear planning, disciplined execution, and increasing alignment among culture, strategy, and results. Looking ahead to short-term opportunities, I want to provide an update on a recurring topic in our market discussions: the DISCO Tariff Review scheduled for June 2026. We are on track with our initiatives, and we submitted the assessment report to ANEEL on February 24. In March, a public consultation will occur, making all relevant data accessible. I can share in advance that we anticipate slightly exceeding BRL 18.5 billion as the new net remuneration base for COPEL, fulfilling our promise made during COPEL Day. This review presents another tangible opportunity for us to capture value and acknowledge the technical and prudent work we have performed in recent years. Another critical area for COPEL is the Reserve Capacity Auction, or LRCAP. We are fully prepared for the auction occurring on March 18 for both Foz do Areia and Segredo. We have received installation licenses, precontracts with EPC contractors, and margins for both projects. It's essential to emphasize the advantages of the water front; it is the most cost-effective source for the system, leading to lower consumer costs and, consequently, lower tariffs. Additionally, it is a renewable source predominantly utilizing locally produced equipment, thus generating jobs and revenue for the country. Hydroelectric plants offer unique operational flexibility, achieving maximum power in seconds when activated by the ONS in anticipation of upcoming changes, as expected by the ONS. The water sources are strategic, providing great efficiency at lower costs. Furthermore, the 2026 LRCAP auction is expected to have significant contracting, with estimates indicating a total determined by the Ministry of Mines & Energy due to previously mentioned factors. We believe that having a substantial offer for hydroelectric products in 2030 and 2031 is in the best interest of the SIN, and we trust that the Ministry of Mines & Energy is attuned to this matter. For COPEL, LRCAP is a value-creation opportunity that will drive our strategy and serve as a lever for our Vision 2035 goals. Before handing over to Felipe for a detailed discussion on quarterly results and earnings, I have a special announcement and want to express my gratitude to the person on my left. This morning, Rogerio Jorge officially became the General Officer of the Generation and Transmission company and joins us for this call. He brings nearly 30 years of experience in the sector and a strong background from various companies. He will face significant challenges ahead as part of our management team. I also want to extend special recognition to our Board member, Moacir Carlos Bertol, who previously held this position from 2019 to the end of 2024. He has returned to our Board and served in an interim capacity for the past six months. Bertol, your experience, knowledge of the electricity sector, work ethic, and dedication to the Brazilian electricity sector over the decades are invaluable to us. We will continue to rely on your contributions on the Board. Thank you. Bertol will join us for the Q&A session, as will Rogerio. Now, I will turn the floor over to Felipe to go over the results of the call. We will all be available for questions afterward. Thank you.

Felipe Gutterres, CFO

Thank you, Daniel. Good morning to all. I will begin by highlighting the performance of consolidated recurring EBITDA of the company, which was BRL 1.4 billion in Q4 '25, up 16% compared to Q4 '24. This performance reflects the company's operational resilience and the balanced contribution of its businesses. COPEL DISCO accounted for approximately 54% of the total, while the GenCo and the TradeCo accounted for the remaining 46%. Performance was particularly robust at the GenCo, which grew 24%, supported by the increased incorporation of the Mata de Santa Genebra transmission company and an increase in the APR of transmission companies, which contributed an additional BRL 103 million. In addition, we had a more favorable result in transactions carried out in the short-term market and a significant reduction in the PMSO. In distribution, we saw a 1.8% increase sustained by the annual tariff adjustment and the stability of the built grid market. In the TradeCo, there was a complete reversal of the loss recorded in Q4 '24 with an increase of BRL 18.8 million in recurring EBITDA, driven by an increase of approximately 70% in the volume of bilateral contracts negotiated in the period. It is important to note that nonrecurring effects, especially curtailment results were isolated, allowing for better comparison between periods. Moving on to the slide of COPEL Generation and Transmission, the GeTCo segment posted recurring EBITDA of BRL 654 million, a significant increase of 24% compared to the fourth quarter of 2024. This performance reflects a combination of greater efficiency and sound operational decisions between the periods analyzed. Availability revenue increased by BRL 102.7 million, a result directly linked to the consolidation of Mata de Santa Genebra and the average 2.2% adjustment in APR for the 2025, '26 cycle. On the expense side, we saw a significant reduction in manageable costs. The 73% decrease in PMSO influenced by the higher write-off of assets at the GenCo in Q4 '24. In addition, the short-term market contributed significantly, adding BRL 35 million to the bottom line as a result of the efficient modulation of hydroelectric generation during a period of a higher spot market. Sales in bilateral contracts also grew generating an additional effect of BRL 8.4 million in the annual comparison. On the other hand, we faced pressures that cannot be ignored. The cost of purchased energy increased by BRL 104.7 million, reflecting a GSF of 67.4% and an average PLD of BRL 265 million megawatt hour in the quarter and the deviation in wind generation, which resulted in a result by BRL 37 million associated with the impact of curtailment, which rose from 15.7% in Q4 '24 to 34.2% in Q4 '25. Despite these effects, the GenCo ended 2025 with BRL 2.9 billion in recurring EBITDA, an increase of 15% year-on-year, demonstrating resilience and consistent operational execution in a more challenging hydrological scenario. Moving to COPEL DISCO. We recorded a recurring EBITDA of BRL 728.4 million in the fourth quarter, up 1.8% over the same period last year. Although more moderate, this result brings important structural advances. The gross distribution margin grew 8.4%, driven by annual tariff adjustment of 1.3%, a significant increase of BRL 668 million in CVA, higher supply revenue with 663 gigawatt hours settled in the MCP and 0.3% growth in the grid market. On the other hand, PMSO recorded 31.5% increase equivalent to an additional BRL 127 million, driven by losses in asset decommissioning and higher maintenance volumes and increased operational demands related to cycle building initiatives. When we look only at personnel costs, if we exclude the effect of programs such as PLR, PPD and ILP, we see an 8.1% decrease in Q4 '25 versus Q4 '24. Energy purchased for resale also increased significantly, up BRL 338.5 million, influenced by the expansion of MMGD and the increase in purchases via auctions in CCEE. In 2025, DISCO delivered BRL 2.6 billion in recurring EBITDA, up 5.4% year-on-year. Moving on to the next slide. COPEL TradeCo, while recurring EBITDA was BRL 3.5 million, reversing the loss of BRL 15.4 million recorded in the same quarter of the previous year. This performance was sustained by a 70% growth in the volume traded in bilateral contracts, reaching 3,824 gigawatt hours and by the mitigation of the impacts of intermittent contracts, which have reduced the result by approximately BRL 18 million in Q4 '24. Analyzing the energy balance, hydro and wind assets together, we see exactly what we have always shared with you. In the long term, we operate with a higher level of uncontracted capacity, which gives us the flexibility to capture market opportunities more efficiently. In the short term, looking exclusively at water sources, hydro, our energy availability for 2026 is approximately 20% to 22%, which puts us in a comfortable position in relation to possible impacts from the GSF. Consolidated PMSO totaled BRL 779 million, a reduction of approximately 2% in the quarter, isolating the effect of inflation and variable compensation, the reduction is around 5%. This movement mainly reflects the 16% reduction in personnel expenses, not considering the programs I mentioned, performance bonus, long-term incentives, etc., and a 20% reduction in the item other costs and expenses, mainly due to net losses on the decommissioning of assets in Q4 '24. These effects were partially offset in particular by a 14% increase or BRL 42.3 million in third-party services resulting from the intensification of maintenance activities in distribution, which is essential to maintaining the quality and reliability of the network. Moving on to recurring net income. We delivered growth of nearly 30% compared to Q4 '24, driven by a 16.1% increase in EBITDA. In addition, we saw a significant reduction in our tax burden, reflecting the efficient use of IOC concentrated in the last quarter of 2025 as an instrument for tax optimization. On the other hand, increased leverage close to the optimal capital structure target, the rise in CDI, the reduction in the average cash balance year-on-year had a negative impact on the financial result line item. Even in a challenging environment, we delivered solid recurring net income, BRL 683 million in the fourth quarter '25, which reinforces the company's ability to continuously create value and maintain its consistent track record of operating and financial efficiency. Consolidated CapEx totaled BRL 768 million in Q4, totaling BRL 3.4 billion in the full year. Of the amount invested in Q4 '25, 84% was allocated to distribution with emphasis on the progress of Parana 3 phase and the smart grid, which surpassed the mark of 2 million smart meters installed. The remaining of the CapEx was basically invested in generation and transmission, of which we focused mainly on modernizing hydroelectric power plants, wind farms and reinforcing and expanding transmission lines, consolidating the reliability and safety of the electricity system. Moving on to the next slide, closing with debt. COPEL ended the year with BRL 20 billion in total debt and BRL 16 billion in net debt. Leverage ended the period at 2.7x, in line with our optimal capital structure. The average nominal cost of debt was equivalent to 87.74% of the CDI, significant improvement over the 98.46% observed at the end of 2024. This evolution is the result of the strategic debt management and the efficiency of the recurring funding process as well as a more favorable market scenario in 2025. We ended the year with an average amortization term of 4.9 years compared to 4.2 years in 2024, maintaining a balanced profile between trends, indexes and market instruments. In a nutshell, we had a quarter marked by operational progress, financial discipline, greater efficiency and recurring growth in virtually all segments. We combined EBITDA expansion, active portfolio management and financial balance, which are fundamental elements for us to continue sustaining robust investments and competitive returns to shareholders. With that, I conclude my presentation, and we now move on to the question-and-answer session. Thank you very much.

Operator, Operator

Our first question is from Ms. Maria Carolina Carneiro with Safra.

Maria Carolina Carneiro, Analyst

I would like you to elaborate more on LRCAP. At the beginning of the presentation, you mentioned two projects that you want to include in the competition. Recently, we discussed the cap price and some details regarding the bidding process. Could you explain your thoughts on the document and the adequacy of the cap price? How might this influence your strategy? We know that Foz do Areia seems to be a project that's more prepared to participate in the auction. Is there any insight on how the cap price will affect your ability to participate? Also, could you start with Segredo? We would appreciate it.

Unknown Executive, Executive

Thank you, Maria. Regarding our strategy and positioning, we are nearing the auction and are being very cautious due to the competitive nature of this process, particularly with the hydro companies for the years 2030 and 2031. The cap price for hydropower seems tight, especially for projects with unique characteristics. We expect several projects will have tight cap prices aligned with our expectations. As for the cap price for other energy sources, I don't have specific insights to share. However, I can say that the hydro product is likely to have the lowest cost, which would benefit consumers with lower tariffs. This is an argument we've presented to the regulatory authority, ANEEL, and we believe it supports our goal of contracting as much as possible for hydro products. You mentioned the parameters and capacities; while they are more advanced, discussions still arise around supply and the size of each product. We advocate for the highest possible offer. The ministry has not made this information public before the auction, but we believe it is justified given the advantages we see. Under normal conditions, we are confident in COPEL's efforts over the past few years in preparing these two projects. As highlighted in the presentation, we have already secured the installation license and possess a thorough understanding of these projects. We view this as a significant opportunity to create value for the company.

Maria Carolina Carneiro, Analyst

I have one last question. Shifting focus to energy balance, we noticed a slight change in average sales projected for the coming years. Other companies in the industry have continued to secure more contracts, although with somewhat reduced liquidity and still appealing prices. Can you provide some insight on how the market is reacting, considering the bullish pressure we observed at the end of last year and the start of this year?

Daniel Slaviero, CEO

Rodolfo, perhaps you can give us the context, and then I will complement Felipe Gutterres as well can add.

Rodolfo Lima, Executive

Perfect. Good morning. Tough contracting in a more accelerated pace is a strategic view more than a liquidity issue. Even with high prices, we still have a lot of liquidity for the next 5 years. So this is much more strategic decision to decelerate given this increase that we see in this humid period rather than a difficulty in executing the strategy. So this doesn't entail lack of liquidity in the 2 products. This was the company's option to hold on to this power for some time longer.

Daniel Slaviero, CEO

Carol and everyone, this aligns with our review. The current prices reflect our circumstances. We still observe a discrepancy between prices generated in the sector and what we're experiencing. Essentially, there's an expectation of structurally higher prices in the upcoming years. We believe the volatility we've witnessed in recent months is a persistent trend. Therefore, our strategy is to retain more energy during the current year, as evidenced by the spot prices in very short terms, particularly in February and January, which has been advantageous for the company. As Rodolfo pointed out, this is part of our strategy to leverage this volatility, and we need to enhance our short-term trading opportunities. We feel confident that this strategy will create additional value for the company. Ultimately, this highlights the advantages of an integrated company model. With a strong and stable segment like DISCO, boasting nearly BRL 800 million in EBITDA from generation and transmission, we are comfortable and well-positioned to capitalize on the opportunities presented by price volatility.

Operator, Operator

Next question from Mr. indiscernible, an investor.

Unknown Attendee, Investor

I'd like to congratulate you on the excellent work. I'd like to know whether COPEL is considering paying dividends in installments with the amount to be distributed over 3 months. For example, as ISA ENERGIA does to help shareholders not pay the income tax of 10% when they receive more than BRL 50,000 from the same company in the same month.

Daniel Slaviero, CEO

Felipe?

Felipe Gutterres, CFO

As part of our policy, we have a minimum policy of paying twice a year, which gives us flexibility to consider payments with different intervals, perhaps more than 2x. So this has not been defined. But yes, we can consider that considering the cash flow of the company and dividend declarations.

Daniel Slaviero, CEO

Well, thank you for your concern. It is a legitimate one, particularly considering the new context of taxes leverage on income over BRL 50,000. Well, it is not in our short-term plans to have quarterly payments. I think that the policy is very robust with at least 2 dividend payouts. If there are extraordinary events, we can reassess that. That would be the frequency. And our company likes to be predictable. I think that this is one of COPEL's characteristics. You see this in our quarterly earnings. And there is little variability between market expectations, what we report and operational data. And I think that this is all about predictability. And this is one of the greatest outputs of our capital structure and our dividend policy. And this is for individual investors like ourselves and for the big investment funds. Everyone wants to have a COPEL that is very consistent, operational, excellent and predictable.

Operator, Operator

Next question from Bruno Amorim with Goldman Sachs.

Bruno Amorim, Analyst

Congratulations on the deliveries over the last few years. I have a follow-up question regarding capital allocation. I think that your position is clear regarding LRCAP, the Capacity Reserve Auction. It would be interesting if you could comment on other priority areas. Would you consider M&As in distribution, in the area of distribution outside Parana state? Anything you're considering? And a follow-up question regarding the discussion of power prices. Perhaps a question to Rodolfo.

Unknown Executive, Executive

I understand that from the structural standpoint, there's still a constructive view for the coming years. On the other hand, we're living a year of weaker hydrology. In parallel with this more positive structural dynamics, there's also a higher price than what would be sustainable given everything else constant because the hydrology is favorable for the price of energy. My provocation is, wouldn't it make sense in such a moment to take more advantage of this moment because it's very hard to predict rainfall in the coming years. I think we should assume a more normal rainfall in the coming years, it's the best we can say.

Bruno Amorim, Analyst

So how are you thinking about the cyclical versus the structural because I tend to agree, it's positive?

Unknown Executive, Executive

Excellent, Bruno. Well, let's talk about capital allocation first, and then Rodolfo can complement talking about power prices and trading strategy because we don't want to put all of the eggs in the same basket, of course. We always try to have attractive average prices. But Bruno, I think that for starters, our planning has shown that we are agnostic with the segments as long as they are in hydroelectric, electricity, generation, transmission, distribution and trading of energy. So in these 4 segments, our view is agnostic. And we are always paying attention to the opportunities. Today, we didn't learn about any opportunities in the distribution market. If that opportunity arises, we will. Of course, we are diligent. We will look into that and consider that. It doesn't mean we will go forward with it. But after the LRCAP auction, after the third wave of structuring measures that started in 2024, 2025 and are ending and all of the transformational changes we implemented for the next cycles in the 2035 view, it became clear that we intend to assess the opportunities and grow in these 4 segments as opportunities arise, and it is our diligent duty to consider them, but always being very disciplined in capital allocation, which is the essence of your question. We have to be very cautious and careful about these opportunities because capital allocation can destroy value. And we have seen consistency in the deliveries by COPEL and our actions in our TSR. And all of us, shareholders and employees of the company are committed to create sustainable value. This is an agenda, this is a topic that will be in our agenda in the coming years. Rodolfo?

Rodolfo Lima, Executive

Speaking about the long-term price outlook, we stand by what we shared at COPEL Day. While there may be some scenarios that differ slightly, we firmly believe in an upward trend. Additionally, regarding our strategy, it is crucial to find a balance between short-term and long-term impacts of hydrology. An important observation for 2025 and 2026 is the separation between short and long-term aspects. Historically, we've seen substantial short-term price volatility that has not greatly affected long-term prices. This indicates that prices are beginning to stabilize and align with our long-term perspective, though we haven't fully arrived there yet. The short-term fluctuations are not severely impacting the long-term outlook. In terms of short-term strategy, early-year contracting is a key focus. Our primary goal is to avoid being short, as volatility can be advantageous, and our approach has proven effective. In the fourth quarter, we adhered strictly to GSF, continuing to perform well despite delays in rainfall, and we still managed to capture price increases. Our contracting process is a dynamic analysis consistently managed by Felipe's team, aiming to balance EBITDA against risk. These short-term price shifts may have minimal influence on the long-term strategy. We strive to determine our optimal contracting levels and pricing. Collaborating with the market is essential. Every month, we come together to evaluate our next actions and the appropriate pace, always working to balance these two dimensions effectively.

Operator, Operator

Next question came in writing by Mr. Thiago Borges, an investor. He says, congrats on the results. I would like to learn more about how you're seeing energy prices for 2026 and how COPEL can benefit from this scenario?

Unknown Executive, Executive

Thiago, I believe Rodolfo touched on that. Prices for 2026 are significantly higher than the historical average. In line with our strategy, the first priority, as Rodolfo mentioned, is to avoid being short. You can see this in the aggregate chart. Specifically, for the hydro product, which accounts for over 85% of our power, we're positioned at a 20% to 22% level to navigate the more challenging moments in the sector. This is a key message; we aim to remain long throughout 2026. There may be a month when we are not long, but overall, for the year, we will be long. This positions us advantageously compared to the rest of the market. Rodolfo highlighted that there are times when prices align with what we consider a long-term structural price. Various elements influence this, including the marginal cost of expansion and other factors driving our long-term price setting. As we approach or surpass that price, we will implement phased sales to achieve average prices. A few years back, we anticipated long-term prices close to BRL 140 to BRL 150. Now, no one expects long-term prices below BRL 200, which reflects current realities, especially for companies like ours with a similar generation profile. This creates an opportunity for us, prompting us to adapt as circumstances evolve. In February, we experienced prices exceeding BRL 250, which we viewed as positive news.

Operator, Operator

The Q&A session is now closed. We would like to turn the floor back to Mr. Daniel Slaviero for his final statements.

Daniel Slaviero, CEO

We are in a very positive phase for COPEL. I think that our consistent deliveries, as we have mentioned here, consistent disciplined deliveries matched with value creation and coupled with a clear strategy and plan communicated to the market. This is one of our main virtues. I would like to end this video conference call by thanking all COPELians who contributed to these extraordinary results. I would like to thank the management, the Vice Presidents, the officers and the whole team for the exceptional work they did. And I would like to reinforce our commitment of excellent deliveries and operation of our assets providing better and better service to our customers. In 2025, we ended with some of the best quality indicators in the recent history of COPEL. And above all, discipline and a very robust analysis in any capital allocation. And we're seeing very, very positive and unique opportunities in COPEL's trajectory. Thank you very much. Have a great day. Have a great day to all.

Operator, Operator

COPEL's video conference call is now coming to an end. Thank you very much, and have a great day.