Companhia Paranaense de Energia (ELPC) 2026-08-05 Earnings Call Transcript

[Interpreted] Good morning, ladies and gentlemen. Welcome to the Comphania Paranaense de Energia Copel video conference call to discuss the results of the second quarter of 2026. This video conference call is being recorded, and the replay will be available on the company's website, ri.copel.com. The presentation is also available for download Before proceeding, I would like to emphasize that any forward-looking statements made during this conference call regarding Copel's business outlook, projections and operational and financial targets are based on beliefs and assumptions of the management and on information currently available. Such forward-looking statements involve risks, uncertainties and assumptions because they refer to future events and therefore may differ materially from actual results.

[Interpreted] Good morning, ladies and gentlemen. Thank you all for joining our conference call. We have delivered another quarter of strong operating results, and this reflects our discipline in executing the company's strategic plan. The main highlight of the period is without a doubt, the completion of the tariff review of Copel Distribution. This effort was led by our Vice President of Regulatory Affairs, Andre Gomes, and received the support and direct involvement of virtually the entire company. It was a flawless process conducted on strictly technical grounds and recognized the efficiency of Copel Distribution's investments during this last tariff cycle. We achieved a remuneration base of close to BRL 20 billion, a significant increase.

[Interpreted] Thank you, Daniel. Good morning, everyone. I'd like to begin by reiterating the point Daniel mentioned regarding the update to our optimal capital structure. The review of these parameters takes place annually as we've widely discussed when we disclosed the optimal structure and was also driven by the success of the LRCAP 2026. The financial modeling of a robust investment plan and the cash flow from the LRCAP, which is expected to begin as planned at the end of 2030, combined with a more challenging economic environment required us to test our capital structure under multiple scenarios and stress tests.

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

[Interpreted] Actually, I have two questions. My first is -- I know you mentioned in the beginning of the call, the slight change flexibilization so that you can have more time to comply with the leverage range that you mentioned. The dividend payout policy derives from that. But perhaps you could comment on what actually triggered that change. We had some noise in the market soon after the announcement. Some investors were concerned that this would mean a reduction in dividend payout or a scenario looking forward. So, could you elaborate on that? Have you changed your thoughts about the dividend payout policy?

[Interpreted] Excellent, Carol. Thank you for the question. It's an excellent opportunity that you're raising this optimal structure point. There was a small repercussion and some doubts regarding the main goal of this. And actually, the factory in -- Filipe is going to give us more detail. Well, it's -- the target is that we will provide guarantees that our plan, our vision and our capital allocation strategy and shareholder remuneration strategy all remain unchanged. First, the generating factor is that annually, we're going to review it.

[Interpreted] I can add. We thank you, Carol, for the question. Well, you see our interpretation is exactly different from possibly the interpretation in the market that created some noise regarding our dividend payout policy or even regarding the expansion of the band. Well, this expansion of the band combines two great moves, a natural deleveraging of the company that came from a tariff review and investing BRL 5 billion for LRCAP with a lot of value creation post 2030 once the investments are made in Foz do Areia and Segro. So, these four years of investments were considered in our calculation when we redefined the convergence term. It's not that we increased from 24 to 48 months.

[Interpreted] Next question from Mr. Guilherme Bosso with Goldman Sachs.

[indiscernible] On the results. I have two questions. First, about capital allocation. I'd like to understand how the company is thinking about possible M&A opportunities. Is there any conversation ongoing with players that come eventually to the market? And in parallel to that, how are you thinking capital allocation in hydropower plants that can be in a bidding process and also about the auction of batteries. My second question is about costs. We saw the MSO really well. Should we continue to see reductions in the coming years? Or do you think that the company is operating at adequate levels for the next few years?

[Interpreted] Thank you, Guilherme, for the question. You have two questions. So, they have several angles. So let me try to be objective and address them. Capital allocation and possible M&As. At this point, we don't have anything tangible either in the pipeline or in any advanced stage of studies. We are having a cut from the company. Well, we have not seen any asset in the market that is worth our deep attention. Of course, Dog and the whole team, they are always paying attention to possible opportunities. But today, in the practical terms, we haven't got anything concrete in our pipeline. That's number one.

[Interpreted] I think that in terms of PMSO, we are obviously following our target of reducing costs. Of course, there are pressures, both in terms of quality and also related to the El Nino phenomenon because that will influence the level of reduction this year. In Copel Day last year, we said that starting this year, we would change the concept. We will be speaking a lot more about efficiency rather than cost reduction. So Guilherme, we are getting to that level of having an optimal level of PMSO. And then we will start having a debate on efficiency. And there, we should have other KPIs, other metrics to measure that.

[indiscernible] Particularly regarding generation and transmission. I think that Felipe put this really well. This chapter of structural cost reductions. This is a chapter closed after three years of intense work on that. This efficiency agenda is a permanent one. So, controlling costs have zero-based budget, always seeking efficiencies, particularly with this wave of artificial intelligence that can generate opportunities. But now we're thinking a lot more on how we can extract value. And Copel will always be a benchmark for efficiency. So how can we reconciliate this, and all of the extraordinary results of our remuneration base. coupled with something that is dear to our heart, providing good quality service to our customers. We are in the concession area.

[Interpreted] Next question from Bruno Amorim.

[indiscernible] I'd like to go back to a prior point you mentioned the base case for rebidding generation assets. In railroads, we saw some renewals. We are seeing some concessions moving to rebidding. In highways, we also had rebidding, as you mentioned. In electricity distribution, we saw a number of renewals. Could you elaborate on this trade-off for generation? In your view, where would generation be in the spectrum of different concession models? And why would it be advantageous to rebid? What would be the pros the cons of rebidding. Is there any risk of investment in the current phase of the concessions?

[Interpreted] Well, clearly, this is an excellent question. And Kopel's opinion is very much aligned with what happens in the other sectors of the economy. Every concession has its own characteristics, a generation concession, if you change the operator the burden of costs will be very different than in distribution. Well, is the characteristics of the concession. That's why in the distribution process, we see this process of renewal of the current operators as being very natural. Historically, when we think about concessions of electric power, given the characteristic of the grant of the concession, when you have competitive processes, this brings more benefit to the federal government, to the granting authority and to the fiscal situation.

[indiscernible] The Q&A session has ended. I would now like to turn the floor to Mr. Slaviero for his final statements.

[indiscernible] Very well. We have delivered another quarter that only reinforces our reputation as a company that has excellent operation of its assets and absolute capital allocation discipline. As we enter this new cycle of good investments, good capital allocations as was the case of LRCAP auction, our ultimate goal is to continue to create value for our shareholders, employees and particularly for our customers and for society as a whole. We are very proud of posting another quarter with predictable earnings, solid growth and like I said, good capital allocation. If we compare with a Swiss watch that always delivers what it promises, we are also delivering on our promises, paying attention to opportunities and pursuing opportunities.

[indiscernible] Copel's earnings conference call has come to an end. Thank you very much for participating, and we wish you all a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]