Equatorial Energia S/Adr

to Equatorial Group's earnings conference call for the third quarter 2025. Joining us today are the company's CEO, Mr. Augusto Miranda, Vice President, Mr. Leonardo Lucas, Regulation Director, Mr. Cristiano Logrado, Financial Strategy and Investor Relations Director, Ms. Tatiana Vazquez, and Mr. Liu Aquino. President of Ecoenergia, all of which will be available at the end of the presentation. Please note that a simultaneous translation tool is available on the platform. To access it, simply click on the interpretation button and choose your preferred language. This conference is being recorded and will be available at the company's investor relations website. or i.equatorialenergia.com.br, along with the presentation shown today. All participants will be in listen-only mode during the presentation. Ensuing that, we will begin the Q&A session when further instructions will be provided. Before we begin, please be advised that any forward-looking statements made during this conference are based on the beliefs and assumptions of equatorial group management and on information currently available. Such statements involve risks and uncertainties as they refer to future events that may or may not occur. Investors, analysts, and members of the press should be aware that changes in the macroeconomic environment, industry conditions, and other factors could cause actual results To differ materially from those expressed in such forward-looking statements, we will give the floor to Mr. Augusto Miranda, who will begin the presentation. You may proceed. Well, good afternoon, everyone, and thank you for joining our earnings call. We had a very successful quarter on both the operational and financial fronts. in addition to important recognition that reflects the team's seriousness and commitments to our customers, employees, and investors. Equatorial Pará was recognized as the best distributor in economic and financial management in Abradi Awards. Equatorial was the group appeared for the first time in the Great Place to Work ranking among the best 20 companies in the country. And we were once again elected by Extel as the most honorable company in the utility segment in Latin America, ranking seven of the eight categories on the operational front. We delivered strong results in energy distribution, which grew 2.6% in build and compensated market value, maintaining a solid loss performance trend in the recent quarters. We achieved the contractual debt target for CEEED, which will be detailed later in the presentation. On the financial front, we delivered solid results with EBITDA of 3.4 billion BRLs. We invested 3 billion and still close the quarter with 16 billion in cash, which means our short-term debt is 2.1 times Now, the cash for the period was strengthened by an intense funding window, which totaled $9.4 billion. It's extending average debt maturity from 5.5 to 5.8 years. It is important to highlight that part of the funding raised is intended for debt prepayment, approximately $800 million. And during October and November, we also prepaid two additional billion With this financial position, we ended the quarter with a net debt to EBITDA covenant of 3.3 times. Regarding the group's value creation highlights, we closed the sale of the transmission segment and as a result, announced one of the uses of the proceeds, the distribution of $1.8 billion in interest on equity equivalent to $1.45 as per share, which will be paid next Monday, November 17. The Federal Court of Accounts approved the renewal of the Equatorial Marañón concession. We are now in the final stage of the process and pending ratification from the approval of the Ministry of Mines and Energy. I will now give the floor to Leo to speak about our economic and financial performance thank you augusto and a good afternoon everyone i will briefly discuss the group's economic and financial performance from a consolidated and adjusted perspective in this quarter we delivered margin growth of 4.5 percent driven mainly by the solid performance of distribution segment, while EBITDA reflected the impact of consolidating SABESPI's equity method results. The quarterly outcome was achieved with a strong cost discipline with PMSO increasing only 0.7% quarter on quarter. Adjusted net income for the period increased 4.9% year over year, reaching $830 million. If we look at the group's debt position, the net debt to EBITDA ratio came in at 3.3x, impacted by the one-off reversal recorded at SABESPI relating to the accounting in the third quarter 24 of the concession financial asset. It is worth noting that this quarter, we were very active in the debt capital markets focusing on improving the debt profile, which extended the average maturity from 5.5 to 5.8 years, in addition to reducing spreads. Finally, we highlight the investments made during the quarter, totaling $3 billion, an increase of approximately $600 million vis-à-vis the same period last year, This growth was driven by investments in Bada at $229 million and CEEED with $161 million, both of which have tariff reviews scheduled in the near term. This quarter, we recorded a 206% increase in maintenance and renovation work. Let's go to slide number seven on the slide. We present the consolidated performance of our electricity distributors where we highlight the reduction during the quarter. To the left, very briefly, we present the consolidated performance of our energy distributors where we highlight the reduction of losses during the quarter. making the eighth consecutive quarter in which we consolidated losses below the regulatory benchmark. We highlight the consolidated growth in energy volumes across our concessions. In this quarter, we recorded a collection rate of 99.2% and a PECLD over ROB of only 1.02%. driven by the renegotiations carried out during the period and the new low-income period, in addition to the improvement in CEEE's indicators, which were still affected by distortions linked to the weather events in the second quarter 24, as Augusto highlighted we achieved the contractual deck target for CEEED. And on a consolidated basis, we ended the quarter with all of the group's distributors within the regulatory limit for effect. Four of the seven distributors meet the regulatory deck limit. If we consider the contractual deck thresholders, five of the seven distributors would be below the deck limit. We recorded gross margin growth of 5.7% in the distributors during the quarter, reflecting a higher field B tariff and a larger market volume in the period. If we adjust the distributed generation liability recorded in the third quarter, 24, the margin would have grown almost 8%. If we look at the adjusted PMSO for the distributors in the quarter, we had an increase of 4.6%, slightly below inflation, and a smaller variation of PMSO per consumer, which is only 1.8%. These dynamics resulted in an 8.1% increase in adjusted EBITDA for the distribution segment. If we exclude the distributed generation liability in the third quarter 24, the increase would be 11.5%. We now go on to slide number eight. In this slide, we present an overview of the challenges that we face in Rio Grande do Sul and their impact on investment and service quality. When we acquired the concession, the historical record of weather events indicated an incidence of two to three events per year, but we were faced with the beginning of the concession with a significantly more challenging scenario. Due to the severity or high frequency of emergency situations, we had to postpone certain necessary investments for the distributor. We can clearly see in the chart that once we were able to operate in the concession fully, the results appeared quickly. When comparing the third quarter 25 with the third quarter 24, which was the first quarter after the state of calamity in Rio Grande do Sul, we show an impressive 9.1 hour reduction in the 12 month check during which we invested 1.3 billion in that concession. In the third quarter 25, we reached the contractual debt target established for year-end. This outcome reinforces some of the pillars we have in the distribution segment, among them our relentless pursuit and commitment to quality in our operations. Besides our dedication to delivering improvements in operational performance and service quality that is truly lasting, we thank all of the teams, for their Herculean and tireless efforts over the past quarter in the search for these results. And we reaffirm our commitment to continue to improve across multiple fronts energy with increasing higher quality for our customers every day. Very well. Let's go to slide 10 to look at the other segments of the group. In the transmission segment, we completed the closing of the asset divestment transaction on October 31st, concluding one of the most successful capital allocation cycles in the transmission sector in Brazil. We sold eight transmission companies with a MOIC of 8.3 times and an internal rate of return of more than 37% per year. The deal closed with an equity value of 6.4 billion BRLs, including the capital reduction carried out a few days before closing. The proceeds for the sale will be used for shareholder remuneration, debt reduction at the holding company, and partial redemption of preferred shares at Equatorial D, therefore contributing to lower CDI-linked financing costs. Moving to water and sanitation, the segment's results continue to reflect progress in hydrometer installation. This quarter, we reported EBITDA of $2.2 million, up 68% vis-a-vis the same period last year. In the renewable segment, we reported EBITDA of $226 million, 8.1% lower, reflecting the effects of curtailment this quarter as a subsequent event we highlight the approval of provisional measure 1304, which still requires presidential sanction and establishes important advances in the sector regarding the impacts of curtailment. I will now hand the call back to the operator for the question and answer session. We will now begin the Q&A session. Should you wish to pose a question, please click on the Q&A icon at the bottom of the screen and type in your question. To ask questions using the microphone, click on raise hand. Our first question is from Luisa Candiota from Itaú BBA. You may proceed. Good afternoon. Thank you for taking the questions. I have two questions. The first is more specific. If you could give us more color on the non-recurring effects of this quarter, the amounts draw attention, especially in the line item, other expenses and revenues. We have received several questions about this. So which were the main impacts here? The second question, refers to the partial exercise of preferred shares. This raised a significant amount. I would like to understand the motivation underlying that decision and how does the company look upon this type of structure in preferred shares going forward if we consider the tax reform that is about to be approved? Leo? Thank you, Louisa, for the question. Regarding the operational effects, it's important to underscore the following. This line item is connected to the investment dynamic, and it has terrible volatility. I think it's also representative of our cash. If we look at a comparison with the second quarter 25, there were revenues in that line item. If compared with the third quarter 24, the expenses were close to zero, showing you that incredible volatility we have in that line item. Regarding the variation in other expenses for the period, its results mainly from non-recurring events of the third quarter 24. that added up to $130 million, $95 million, referring to the reversion of provision of our stock, especially in Goiás, Pará, and Rio Grande do Sul, and the receivable of an indemnization that completes the difference. We also had a significant increase, as we mentioned in the presentation, of 200% in work for maintenance and renovation, this quarter, especially in Pará, Rio Grande do Sul, and Goiás. All of this impacts the deactivation of the residual value of assets with a growth of 32 million in the quarter and the cost for the withdrawal of these obsolete assets. And finally, we had a non-recurring effect in Pará, of approximately 50 million reais for the elimination of services worked from the past. This explains the variation. It truly is a line item with a great deal of volatility that concentrated on this quarter. Now, as an interesting instrument, we have what you mentioned, we made a very interesting use of it. It is an instrument that doesn't allow you to use the market pool, especially at moments of expansion. In the recent past, we went through several acquisitions and it became very important during that period. At moments when we foster the sale or recycling of assets, We carry out this movement to disarm, to do away with the support that we used in that period of acquisition. It's a tactical movement for that moment. We understand that we're making an appropriate use of this instrument, and it is a very interesting tool that might make more sense in the future in different circumstances. That was very clear. Thank you very much. Our next question comes from Mr. Daniel Trubisky from . You may proceed. Hello, everybody. Thank you for taking my questions. You mentioned the sale of the transmission assets that could be used to remunerate shareholders. And yesterday, you announced a new program for share buyback. I would like to better understand the company's mindset when it comes to dividends and shareholder remuneration going forward. That is the first question. The second question, if you could comment on the strategy that you're thinking of to participate in sanitation auctions the coming year, if this continues to be a segment That is a focus for the company. And how do you foresee the opportunities that arise in 2026? Thank you, Danielle, for your question. In fact, we carried out a very broad destination of the resources from our sales. We kept apart to remunerate shareholders our buyback plan was coming to an end. And this is a very interesting instrument to have actively at any moment in time because we need to have shares in treasury to face the long-term incentives, but also to have that option as we did in the past to carry out acquisitions or purchases of our shares and sell them or limit the shares we have depending on the moment, we are going to have a year of a great deal of volatility. And it is at those moments that this option makes ever more sense. For that reason, when we saw that the plan was coming to an end, We sought out the approval for a renewal exactly for the purposes that I mentioned, for the options that I mentioned. Now, regarding the sanitation auctions, sanitation continues to be an important avenue of growth, a very broad avenue. We have always been very active looking at this. seeking a certain angle to make important moves here. We intend to continue to be active in our search. And if we find attractive opportunities, competitive opportunities, we will move forward. Very well. Thank you. Thank you very much. Our next question. from Mr. Juan Pedro Ejedo from Santander. You may proceed, sir. Good afternoon. Thank you for taking my questions. We saw that in ministry, in September, I'm sorry, the ministry opened up a consultation Now, to see the mindset of the company, do you deem this to be a relevant opportunity? A second question refers to the tariff in the north and northeastern regions. The D parcel has a higher amount vis-a-vis other regions. In other regions, is there space to implement this tariff? And which is the cost benefit of doing this? Thank you. This is Cristiano. Good afternoon. Good afternoon, João. Our view is the following. This process of digitization has to be done very cautiously. And I think the minister was assertive at gauging this at 4% a year. And then we will think of a plan to do this. Why does it demand caution? It's not only about changing the meters. We can put in smart meters and not change anything else. The possible benefits may be lost. There is a process of learning regarding the benefits that this will bring about. And we have to think about the regulation and the obligation of delivering bills if we're carrying out remote Of course, this will have a benefit in that context. It represents a significant opportunity, but it will depend on additional elements that we have to work with alongside the ministry regarding the tariffs in the north and northeast. Most of the population in those states has a strong benefit, full exemption in terms of kilowatt per month. So they're exempt from the tariffs, basically. If you look at the provisional measure 1304 that is about to be sanctioned, there are some elements that will increase the cost. They will increase the pro rata of CEEED and broaden the market. So we could accommodate an eventual growth, therefore, So there are several elements present and we cannot analyze this in isolation when it comes to the provisional measure. Thank you. Thank you very much. Our next question comes from Mr. Howell Cavendish from XP. You may proceed, Howell. Good afternoon. Thank you for taking my questions. My doubt is that debate on the 1304, we have debated the unfolding of this, especially from the viewpoint of curtailment. Now, what is your view on these prices and the technical note on reclassifying consumers according to the white tariff now? with these changes proposed, which would be your protection? Leo will answer this question for Raul. Please, Leo. A very good question. The impacts of the 1304 are linked to the structural changes we observe in the system. We have less flexibility in the system. And of course, this demands a price signaling that is compatible with oversupply and over demand. This includes that wide tariff. We are attempting to show a more adequate price, a more adequate incentive for the system so that it can self-regulate. In that sense, I think it is doing well. there is that issue of curtailment, which does not fully resolve the curtailment problem in the provisional measure. But the idea is to deconcentrate the risk of curtailment that is very focused on centralized generation. So we think that there have been strides made in this direction. If you could further explore that idea of the white tariff. Can this increase the addressable market for service rendering for wholesale retail market provision? Could this be a business segment that will gain relevance over time if that proposal is approved? Yes, doubtlessly. The market trend is that the energy market will become a more flexible market and the white tariff is simply a first step. Our expectation is that we will see evolution potentially in terms of prices and in the models, the pricing models. Well, when we look towards the future, this is the path that we expect. Thank you. We would like to remind you that should you wish to pose a question, please click on the Q&A icon at the bottom of your screen and type in your question. If you want to pose questions using the microphone, click on raise hand. Please hold while we poll for questions. The question and answer session ends here. We would like to return the floor to the executives for the company's closing remarks. Well, thank you very much. Now to conclude, I would like to once again reinforce our commitment with a continuous value creation agenda we pursue for our investors through the delivery of consistent results across all segments in which we operate always guided by disciplined financial management made possible by Equatorial's culture. I would like to congratulate the IR team for the results once again in the XTEL ranking and remind everybody they are available to assist you with any questions after this call. Thank you for your interest in the company and for joining us. The conference ends here. We would like to thank all of you for your attendance. Have a very good afternoon.